Stocks Slightly Higher into Final Hour on Less Financial Sector Pessimism, Declining Economic Fear, Short-Covering, Technical Buying

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling 3.66% and is high at 23.16. The ISE Sentiment Index is around average at 162.0 and the total put/call is slightly below average at .75. Finally, the NYSE Arms has been running below average most of the day, hitting .47 at its intraday trough, and is currently .73. The Euro Financial Sector Credit Default Swap Index is falling 5.16% today to 68.67 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 4.96% to 90.75 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is down 1 basis point to 19 basis points. The TED spread is now down 444 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling .85% to 36.50 basis points. The Libor-OIS spread is down 1 basis point to 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.82%, which is down 85 basis points since July 7th. The 3-month T-Bill is yielding .10%, which is up 1 basis point today. The most economically sensitive shares are outperforming substantially today, with the MS Cyclical Index rising 1.6%. REIT, I-Banking, Bank, Steel, Gold, Oil Service, Coal and Oil Tanker shares are especially strong, rising 2%+. Healthcare-related, education and airline stocks are under pressure today. Another meangingful decline in credit default swap indices is a large positive. The Euro Financial Sector CDS Index is dropping to the lowest level since June 18^th of last year. The 2GB U-DIMM DDR2 667 MHz DRAM price has risen 7.27% over the last five days and is at the highest level since Oct. of last year. The US dollar is dropping again today, however I suspect we are nearing another tradable low in the currency over the next few days as shorts cover and some bargain-hunters materialize. The Shanghai Composite fell another 2.3% last night, finishing at session lows, and looks poised for further losses over the coming weeks. Nikkei futures indicate an +80 open in Japan and DAX futures indicate an +7 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing economic fear, short-covering, less financial sector pessimism, lower long-term rates, technical buying and investment manager performance anxiety.

Today's Headlines

Bloomberg:

- Crude oil rose in New York for the first time in four days as the dollar weakened, bolstering the investment appeal of commodities, while China confirmed its August net imports were the second highest on record.

- Goldman Sachs Group Inc.’s(GS) third- quarter earnings per share estimate was raised 28 percent by FBR Capital Markets analysts, who said they expect the New York- based bank to continue achieving high returns on assets.

- U.S. home prices rose 0.3 percent in July from the previous month, less than analysts’ estimates, in a sign that the housing recovery is tenuous. The house price index fell 4.2 percent for the 12 months ended in July, the smallest decline this year, the Federal Housing Finance Agency in Washington said today.

- The Baltic Dry Index, a measure of shipping costs for commodities, fell to the lowest in more than four months after data showed Chinese demand for coal and iron ore to make steel is tumbling. The index tracking transport costs on international trade routes slid 72 points, or 3.1 percent, to 2,246 points, according to the Baltic Exchange. That’s the lowest since May 11. “China’s in what we call ‘off-peak mode’ and not going hell for leather importing iron ore,” Hendrik Leusink, division executive for capesize and panamax vessels at Island View Shipping in Cape Town, said by phone today. Also, “there are so many more ships coming free” for rental while new vessels are being delivered. Chinese iron-ore imports fell 14 percent in August from July and coal imports slid 15 percent, a second consecutive monthly decline, according to customs data today. The drops were due to rising global costs and domestic supplies.

- Total SA Chief Executive Officer Christophe de Margerie said recent gains in oil prices reflect market anticipation of a supply shortfall within five years rather than current demand. “If it was purely offer and demand, prices would be lower than the $60 we are seeing,” de Margerie said today in a Bloomberg Television interview in New York. “The market is anticipating in the long term there won’t be enough oil, some people would say speculating.”

- Yale University, whose endowment strategy became a model for schools across the country, said its investments lost 24.6 percent in the past year because of declines in private equity, energy and real estate.

- Palm Inc.(PALM), maker of the Pre mobile phone, gained as much as 9.7 percent in Nasdaq trading, a jump that some analysts attributed to speculation Nokia Oyj may bid for Palm. Palm, based in Sunnyvale, California, rose $1.10 to $17.05 at 1:26 p.m. on the Nasdaq Stock Market, after climbing to $17.50 earlier.

- American International Group Inc.(AIG), the insurer bailed out by the U.S., extended its rally for a second day, exceeding the company’s highest closing share price this year. The insurer gained $3.71, or 7.7 percent, to $52.11 at 11:39 a.m. in New York Stock Exchange composite trading.

- U.S. securities and commodities regulators urged Congress to tighten rules for derivatives beyond the Treasury Department’s proposal, to close loopholes and prevent traders from exploiting gaps in oversight. All dealers and markets should be subject to the rules, Commodity Futures Trading Commission Chairman Gary Gensler said today at a House Agriculture Committee hearing. Securities and Exchange Commission Chairman Mary Schapiro said the Treasury Department proposal lets traders investing in swap indexes engage in “regulatory arbitrage.”

- Georgia Governor Sonny Perdue issued a state of emergency for 17 counties after as much as 20 inches of rain in the past week turned creeks into torrents and killed at least seven people. It’s the worst flooding in the Atlanta area since the state began keeping detailed climate records after World War II, said David Stooksbury, Georgia’s climatologist.

Wall Street Journal:

- New Pentagon Priorities Reshape Defense Business. Smaller Contractors Benefit Amid Shift From High-Tech Weapons to More-Basic Arms Meant for Quick Deployment.

- Wind-turbine makers say growth in their industry could dramatically slow unless the federal government requires more electricity come from renewable energy. New federal stimulus grants helped restart a stalled wind-power industry, but Vic Abate, a General Electric Co.(GE) vice president in charge of its wind-turbine business, said orders for wind turbines to be built in 2012 and thereafter have been "extremely light." He is worried that wind-power installation by 2012 could fall back to one-third of last year's construction levels without additional government support, taking the wind industry from "a boom to a bust cycle."

- New York City students who win a lottery to enroll in charter schools outperform those who don't win spots and go on to attend traditional schools, according to new research to be released Tuesday. The study, led by Stanford University economics Prof. Caroline Hoxby, is likely to fire up the movement to push states and school districts to expand charter schools -- one of the centerpieces of President Barack Obama's education strategy.

- The Federal Deposit Insurance Corp. is leaning toward asking banks to prepay future fees as a way to quickly rebuild the agency's deposit insurance fund, people familiar with the matter said. Such a move is within the agency's power and would have banks push forward some of their payments in order to recapitalize the FDIC's fund, which is supported by fees levied on the banking industry. The agency is expected to propose a new policy at a board meeting next week. A final decision on how to recapitalize the fund hasn't been made, the people said.

MarketWatch.com:
- Congress could strengthen a White House proposal to reform the derivatives market through a variety of means, the head of the Securities and Exchange Commission said Tuesday, such as by approving a measure to have over-the-counter derivatives be regulated and disclosed in the same way as their underlying commodities or securities.

- A critical Senate Finance Committee work session on a sweeping health-care reform bill got off to a contentious start on Tuesday, with the panel's chairman seeking to wrap up debate this week but other members saying the bill needs many improvements before they can support it. "I look forward to a constructive floor debate starting as early as next week," said Finance Committee Chairman Max Baucus, D-Mont. "Let us make this a time for progress," said Baucus, who unveiled changes to the bill on Tuesday in a bid to attract new support.

CNBC:

- The worldwide personal-computer market is pulling out of its slump quickly and could defy predictions by growing this year, Intel(INTC) CEO Paul Otellini said Tuesday. Otellini's comments at a conference Tuesday were more bullish than many analysts have been.

- Car dealership chain CarMax said Tuesday its fiscal second quarter profit surged on higher sales and a one-time gain related to its auto financing business.

NY Times:

- The White House’s intervention in the race for New York governor is the latest evidence of how President Obama and his top advisers are taking an increasingly direct role in contests across the country, but their assertiveness has bruised some Democrats who suggest it could undercut Mr. Obama’s appeal with voters tired of partisan politics. The overt involvement of Mr. Obama’s team in New York, where they have tried to ease Gov. David A. Paterson out of the race, has made clear that this is a White House willing to use its clout to help clear the field for favored Democratic candidates and to direct money and other resources in the way it thinks will most benefit the administration and help preserve the Democrats’ majority in Congress.

- It was not exactly a planned strategy, but the recession, particularly in the United States, has been very good for Hyundai, the South Korean automaker.

Vanity Fair:

- 100 to Blame: Miami and Las Vegas.

paidContent.org:

- The Financial Times Lex commentary team is hoping to raise its profile and revenues thanks to a deal with business news broadcaster Bloomberg TV. Lex columnists will appear on the financial channel every weekday to expand on commentary addressed in the day’s column. In a collaboration that taps into the growing premium being placed on commentary, the clips will also be available on the FT.com website, where the newspaper group will run advertising alongside them. The FT said the deal will help its commentators reach Bloomberg’s 200 million global viewers and those visiting Bloomberg.com.

Rassmussen:

- Fifty-nine percent (59%) of U.S. voters believe that the current level of political anger in the country is higher than it was when George W. Bush was president. A new Rasmussen Reports national telephone survey finds that only 22% think the level of political anger is lower now, while 16% rate it as about the same.

- Sixty-six percent (66%) of voters nationwide say they’re at least somewhat angry about the current policies of the federal government. That figure includes 36% who are Very Angry. The latest Rasmussen Reports national telephone survey finds that only 30% are not angry about the government's policies, including 10% who are Not at All Angry. Adding to the voter frustration is the fact that 60% believe neither Republican nor Democratic political leaders have an understanding of what is needed today. Among those who are Very Angry about government policies, 80% say that neither political party’s leaders have the answers.

Politico:

- Just when President Barack Obama has got Congress focused on health care again, Afghanistan keeps pulling him back in. With a $629.6 billion defense bill heading for the Senate floor, Washington woke up to headlines Monday warning of “mission failure” if more U.S. troops aren’t committed to battle the Taliban.

- President Barack Obama urged world leaders at the United Nations on Tuesday to act swiftly to address climate change, but did not offer a plan, or timetable, to get stalled cap-and-trade climate legislation through the U.S. Senate.

AP:

- Counterterrorism officials have issued security bulletins to police around the nation about terrorist interest in attacking stadiums, entertainment complexes and hotels — the latest in a flurry of such internal warnings as investigators chase a possible bomb plot in Denver and New York. In the two bulletins — sent to police departments Monday and obtained by The Associated Press — officials said they know of no specific plots against such sites, but urged law enforcement and private companies to be vigilant. These two bulletins followed on the heels of a similar warning about the vulnerabilities of mass transit systems. The bulletin on stadiums notes that an al-Qaida training manual specifically lists "blasting and destroying the places of amusement, immorality, and sin... and attacking vital economic centers" as desired targets of the organization. "While DHS and FBI have no information regarding the timing, location or target of any planned attack, we believe it is prudent to remind transit authorities to remain vigilant," Homeland Security spokesman Sean Smith said Monday night. Separately, law enforcement officials said a Colorado man may have been planning with others to detonate backpack bombs on New York City trains in a terrorism plot similar to past attacks on London's and Madrid's mass-transit systems. The investigation and the earlier warning about mass transit system have already prompted officials around the nation to step up patrols. Two law enforcement officials speaking on condition of anonymity because they were not authorized to discuss details of the investigation told The Associated Press late Monday that more than a half-dozen individuals were being scrutinized in the alleged plot.

Reuters:
- Room rates at luxury hotels will remain weak through 2010, but group bookings have started to perk up, a sign that economic conditions are turning around, the president of the Ritz Carlton hotel chain said on Monday. Business from conferences, media organizations and sports teams are stacking up, and they're booking rooms at rates slightly higher than today's current prices, said Simon Cooper, who is also chief operating officer of the Ritz Carlton, one of Marriott International's (MAR) luxury brands.

- India's gold imports in 2009 may fall to their lowest level since trade was liberalised 12 years ago as high prices have put off buyers in the world's biggest market for the metal, a top importer said on Tuesday. Total imports may fall to 500 to 550 tonnes, Shilpa Kumar, senior general manager of the global markets group at ICICI Bank, one of India's top three gold importers, told Reuters in an interview. In the first half of the year, Indian demand was 55 percent lower than a year ago, but the gap will be narrowed to 23-30 percent for the full year as higher wages for government employees and an official scheme for rural employment has cushioned the impact of failed monsoons, she said.

- U.S. Treasury Secretary Timothy Geithner on Tuesday said that the U.S. economy appeared to be picking up steam and G20. leaders gathering in Pittsburgh this week would strive to ensure the recovery was balanced. "We are at the very beginnings of this recovery ... We need to make sure that we keep at this, so we have in place a recovery that is going to be self-sustaining, led by private demand, (and) a financial system that can actually provide the credit that is needed," he told a press briefing.

- Carnival Corp & Plc (CCL) lifted its 2009 earnings forecast on Tuesday and said ticket prices for its cruises were stabilizing, boosting shares of the world's largest cruise operator as much as 9 percent.

Les Echos:

- Germany still faces “enormous” systemic risks, especially among its state-owned banks or ‘landesbanken’, finance minister Peer Steinbrueck said in an interview. Restructuring of the banks must be speeded up.

Handelsblatt:

- BMW AG’s Spartanburg South Carolina factory will reach full technical capacity at the middle of next year, citing management board member Frank-Peter Arndt.

heraldscotland:

- US calls a truce in row over Megrahi release. America has vowed to draw a line under the release of the man convicted of the Lockerbie bombing and work to repair shattered transatlantic relations.

Justice Secretary Kenny MacAskill’s decision to free Abdelbaset Ali Mohmed al Megrahi sparked fury among American leaders, but a US State Department official has said the Obama administration recognizes Scotland’s right to decide its own affairs. Fears had been raised over a possible US boycott of Scottish produce, but State Department spokesman Ian Kelly promised that there would be no knee-jerk reaction against the country.

DigiTimes:

- HTC (High Tech Computer) is evaluating the possibility of adding Broadcom(BRCM) to its supplier list of 3.5G chipset solutions to fulfill its goal of introducing more entry-level and mid-range smartphones, according to market sources. The evaluation is also part of HTC's continuing strategy to reduce the risk of relying on a single supply source, said the sources, noting that HTC is dealing mainly with Qualcomm(QCOM) for the supply of 3.5G chipset solutions at present.

Xinhua:

- China’s steel production capacity may rise by at least 50 million metric tons to 710 million tons next year, citing Wu Xichun, a consultant and former chairman of the China Iron and Steel Association. A total of $50 billion has been invested in steel projects in China, citing Wu. The industry will have a “difficult period” from the fourth quarter into next year because of worsening domestic overcapacity and weak global demand, the report said. China’s steel consumption increased by 17% in the first eight months of this year from a year ago, Wu was cited as saying. That pace will be hard to maintain during the rest of the year, the report said.

21^st Century Business Herald:

- Chinese local governments are putting their solvency at risk by guaranteeing bank loans to investment projects, citing Liu Shiyu, a vice governor at the central bank. Local-government liabilities tripled to $770 billion as of May 31 from the start of 2008.

Bear Radar

Style Underperformer:
Small-Cap Growth (+.31%)

Sector Underperformers:
Education (-3.75%), Airlines (-1.64%) and Biotech (-1.21%)

Stocks Falling on Unusual Volume:
EPD, USMO, NVTL, EBS, AMLN, LOW, CAG, DDRX, AIPC, AMSC, APOL, COCO and ARJ

Stocks With Unusual Put Option Activity:
1) XL 2) LPX 3) ITW 4) STI 5) INFY

Bull Radar

Style Outperformer:
Small-Cap Value (+1.02%)

Sector Outperformers:
Oil Service (+2.06%), I-Banks (+1.84%) and REITs (+1.81%)

Stocks Rising on Unusual Volume:
KWK, VIP, BEXP, MBT, FCX, STO, WFC, F, MXWL, NKTR, PALM, AMMD, APSG, CQB, RAIL, FFBC, PALM, RINO, CHNG, LNCR, WPRT, STEC, MNKD, AIXG, MXWL, TNDM, HOMB, TRAK, FSYS, GYMB, ATPG, BCSI, KMX, FDS, CUK, PHI, IHG, KNM, WGO, FPO and WTW

Stocks With Unusual Call Option Activity:
1) JDSU 2) MBI 3) CEPH 4) TLAB 5) CCL

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Tuesday Watch

Late-Night Headlines
Bloomberg:

- Financial markets have grown too dependent on mathematicians who use models to anticipate price moves and need to start injecting “common sense” into the equation, said Paul Wilmott, a London-based author and quantitative finance instructor. Wilmott has warned that so-called quants who use mathematics to forecast how markets will behave can overlook errors in the models, leading to flawed predictions. In a New York Times column July 28, Wilmott also said so-called high- frequency trading, where hedge funds and other firms use advanced computers to buy and sell thousands of shares a second, threatens to destabilize the market. “There is too much mathematics in this business,” Wilmott, author of “Paul Wilmott on Quantitative Finance,” said in a Bloomberg Radio interview. “I just want people to stop and think for once. People just rush into these things without any thought for what the consequences might be.”

- Saudi Aramco, the state-run oil monopoly, sees little chance of pumping crude from idle fields next year because a recovery in world demand has yet to begin, its chief executive officer said. Saudi Arabia has idled about 4 million barrels a day, or about one third of its crude-oil production capacity, according to the oil ministry. The Dhahran-based company, the biggest exporter of unrefined crude oil, is spending $90 billion to develop new reserves and refineries over five years to 2012. “We’re prepared for the long-haul,” Saudi Aramco CEO Khalid al-Falih said in an interview yesterday in Jeddah, on the Red Sea coast of Saudi Arabia. “We have the excess capacity in case it’s needed but we also have the ability to sustain ourselves with production levels similar to what we see today at prices similar to what we have seen so far.” “I don’t expect a major shift in demand unless we see an acceleration of the economic recovery, which is not yet apparent,” said al-Falih, who took over as Aramco president and CEO from Abdallah Jum’ah in January. As stockpiles grow, traders are paying more than ever in the options market to protect against a possible plunge in crude prices. Gasoil inventories near Europe’s refining hub of Rotterdam reached a record 3.03 million tons on Sept. 10, according to PJK International BV of Oosterhout, the Netherlands. The gap between prices of options betting on a decline and those that would profit from a rise in New York oil widened to a record 10 percentage points, according to five years of data compiled by Banc of America Securities-Merrill Lynch. This year, Aramco’s output capacity reached 12 million barrels a day after it opened the 1.2 million barrel-a-day Khurais field, the 100,000 barrel-a-day Nuayyim field, and expanded Shaybah by 50 percent to 750,000 barrels a day. Saudi Arabia produces another 500,000 from the Neutral Zone it shares with Kuwait.

- Vicis Capital LLC, the $2.9 billion hedge fund started by former Lehman Brothers Holdings Inc. trader John Succo in 2004, barred clients from withdrawing money from its main fund after losses this year. The firm received “higher-than-anticipated” requests for a Sept. 30 distribution from its Vicis Capital Fund, according to a letter sent to clients today and obtained by Bloomberg News. The New York-based hedge fund will resume withdrawals if clients approve a plan to separate hard-to-sell assets into another pool, the letter said. Vicis clients sought to withdraw $550 million at the end of September, after $2.7 billion was returned to them since October, according to a person familiar with the firm. The $2.5 billion Vicis Capital Fund, a volatility hedge fund that makes bets on converging or diverging prices of options and securities, has lost about 12 percent this year through August.

- Refined copper imports by China, the world’s largest consumer of the metal, dropped to 219,731 metric tons in August, customs office data showed. Imports were 292,226 tons in July.

- The link between Canada’s dollar and the Standard & Poor’s 500 Index is breaking down as concern increases that a stronger currency will undermine economic growth, according to CIBC World Markets Inc. The 30-day correlation between the U.S. stock index and the Canadian currency decreased to 0.66 from 0.77 a month ago. A reading of 1 would indicate they move in lockstep. The S&P 500 gained 3.4 percent in August and reached a high for the year last week, while the Canadian dollar fell 1.5 percent versus the U.S. currency in August and increased 1.4 percent in September. “The two have parted ways,” said Krishen Rangasamy, an economist in Toronto at CIBC, in an interview. “The Canadian dollar has remained more or less where it was, while the S&P 500 has taken off.” A breakdown in the correlation between the stock index and many of the U.S. dollar’s most-traded counterparts was “inevitable” because continued appreciation of currencies such as the Canadian currency would choke off economic growth, wrote Rangasamy and CIBC’s chief economist, Avery Shenfeld, in a report today.

- American International Group Inc.’s U.S. rescue package, revised three times in the past year, would be eased again under a proposal being pushed by the leader of the House Oversight and Government Reform Committee. Representative Edolphus Towns may start talks with Treasury Department and Federal Reserve officials about the plan from Maurice “Hank” Greenberg, the former AIG chief executive officer, said a committee aide. Greenberg visited Towns, the New York Democrat who leads the committee, on Sept. 17, according to the staffer, who declined to be identified because the meeting was private. AIG surged 21 percent in New York trading.

Wall Street Journal:

- Facebook Inc. plans to announce a deal with online measurement company Nielsen Co., in a step to address advertisers' frustration with measuring how their ads perform on the social network. Under the partnership, terms of which aren't expected to be disclosed, Facebook advertisers who are also Nielsen customers will be able to measure the impact of the ads they buy on Facebook through polls that Facebook will show its users who have seen the ads.

- Sen. Max Baucus said he would revamp his health-overhaul proposal to ease the financial burden for middle-income Americans and pare back a key tax increase, responding to critics on Capitol Hill who called the measure too harsh. The Senate Finance Committee chairman was seeking to shore up support ahead of meetings by the panel this week to consider amendments to his bill.

- The health bill drafted by Senate Finance Committee Chairman Max Baucus (D., Mont.) would fine families up to $3,800 annually if they don't buy health insurance. In an interview with ABC's "This Week" that aired Sunday, President Barack Obama said he rejected the notion that the fee represents a tax increase.

- While Fed policy was undoubtedly important, it was not the primary cause of the Great Depression or the economy's relapse in 1937. The Smoot-Hawley tariff of June 1930 was the catalyst that got the whole process going. It was the largest single increase in taxes on trade during peacetime and precipitated massive retaliation by foreign governments on U.S. products. Huge federal and state tax increases in 1932 followed the initial decline in the economy thus doubling down on the impact of Smoot-Hawley. There were additional large tax increases in 1936 and 1937 that were the proximate cause of the economy's relapse in 1937.

- Big Wall Street firms such as Deutsche Bank AG and Credit Suisse Group that attracted new hedge-fund clients during the financial crisis are hiring and making selective bets where they expect business to pick up in 2010. They are looking at Asia-based hedge funds and U.S. and European start-ups planning to launch with roughly $100 million to $250 million in assets.

- The Pentagon has told its top commander in Afghanistan to delay submitting his request for additional troops, defense officials say, amid signs that the Obama administration is rethinking its strategy for combating a resurgent Taliban. Gen. Stanley McChrystal, the U.S. commander in Afghanistan, recently completed a classified report asking for significant numbers of new American troops. Military officials familiar with the matter says the report lays out several options, including one that seeks roughly 40,000 reinforcements, which would push the U.S. military presence in Afghanistan to more than 100,000 for the first time. But the commander has been told to delay submitting the troop request to the Pentagon at the direction of Defense Secretary Robert M. Gates and other top civilian officials, according to defense officials.

- Political intimidation has always been part of the current Congress's health-care strategy: "If you're not at the table, you're on the menu" is tattooed on every lobbyist and industry rep in Washington. But Max Baucus's latest bullying tactics are hard to believe by even these standards, as the Senate Finance Chairman has sicced federal regulators on the insurer Humana Inc. for daring to criticize one part of his health bill.

MarketWatch.com:
- Bank of America(BAC) said late Monday that it will pay $425 million to end a big government asset guarantee that was set up earlier this year to help the giant lender close its acquisition of Merrill Lynch.

CNBC.com:
- Lincoln Educational Services Corp.(LINC) said Monday it expects its third-quarter earnings and revenue to exceed an earlier forecast, and announced a shareholder's offering of 4 million shares.

NY Times:

- Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government. Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks. The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.

Business Week:
- Shrinking Money Supply Dampens Inflation Fears.

CNNMoney.com:

- Technology stocks have outperformed the broader market during the past six months -- and with good reason.

The Business Insider:

- As we wrote this morning, President Obama is looking at a newspaper bailout because he is concerned that blogs will take over the world, which would be a threat to democracy. Now, Scott Reeves at Minyanville, argues that a bailout would have the reverse effect as it would kill the independence of the press by killing its watchdog role. Who wants to read a newspaper that has to kow-tow to the government in order to preserve its tax-free status?

Politico:

- The telephone town hall, a forum that members of Congress insist offers them an opportunity to reach out to more constituents than through traditionaltown halls, is coming under increasing scrutiny from critics who insist that the events are largely rigged and designed to shield skittish lawmakers from facing hostile questioning. While the tele-town hall isn’t exactly a new communications tool, it’s hard not to notice the sudden proliferation of these events at a time when members have struggled to control raucous crowds and deal with the presence of unfriendly, camera-wielding attendees who are eager to post unflattering videos on the Internet.

Dallas Morning News:

- Polozola tells me this year has been one of the best ever for the hedge fund industry, with many funds up 30 percent to 40 percent. In fact, if the gains hold for the remainder of the year, many fund managers will earn performance bonuses, which they didn't last year. Hedge funds typically take 20 percent of the profits as a bonus, but they won't get this until the fund recoups last year's losses. "Most of my client funds are now creeping toward break-even" from last year's losses, Polozola said. Some of the hedge fund trading strategies are so complex they will make your head hurt, but Polozola says most of the funds are doing well by simply buying beaten down stocks like Citigroup, Bank of America and other stocks in the Dow Jones industrial average. Also, they are beginning to dabble again in collateralized mortgage obligations (CMOs) – the product that almost brought down Western Civilization. Polozola says the funds are picking up this stuff for pennies on the dollar. But guess what else the hedgies are up to? You've heard that banks aren't lending much these days. Well, several Dallas hedge funds are stepping up and loaning money to businesses, churches and other hedge funds. The interest rates are just slightly above what the banks charge. "Anybody and everybody who needs to borrow and can't get the money from banks are turning to hedge funds," Polozola said.

Reuters:

- Bank of America failed to meet a Monday deadline to hand lawmakers further details about its acquisition of Merrill Lynch and faces the possibility of new charges from U.S. securities regulators. The standoff with the House oversight committee heightened the chances lawmakers may subpoena the bank and raised the stakes for a Tuesday meeting between a senior bank executive and the committee chairman. Separately, the Securities and Exchange Commission said it could pursue additional charges against Bank of America after a federal judge last week rejected a $33-million settlement between the bank and the regulator.

- Hassan Nemazee, a fund-raiser for Barack Obama, Hillary Clinton and other Democrats, has been indicted for defrauding Bank of America (BAC), HSBC (HBC)

and Citigroup Inc (C) out of more than $290 million in loan proceeds, U.S. prosecutors said on Monday. The announcement follows last month's indictment of

Nemazee, head of a private equity firm and an Iranian American Political Action Committee board member, on one count of defrauding Citigroup's Citibank. The new indictment adds allegations that he defrauded two other banks, Bank of America and HSBC Bank USA, in a similar fashion by falsifying documents and signatures to purportedly show he had hundreds of millions worth of collateral.

The office of the U.S. Attorney in Manhattan and the FBI said he used the proceeds of his scheme to make donations to election campaigns of federal, state and local candidates, donations to political action committees and charities.

Financial Times:

- A growing rift between the US and Europe is overshadowing Tuesday’s United Nations climate change summit in New York, further damping hopes for a breakthrough at the Copenhagen talks in December. Connie Hedegaard, the Danish environment minister, lowered expectations, saying: “Things are looking difficult and too slow, that is the fact.” The downgrading of expectations comes as relations between the US and Europe, which started the year of talks as allies, near breakdown. “So far, we thought the basic problem was the Chinese and the Indians. But now I think the problem appears to lie most clearly with the US,” a European Commission official said. Talks were “not going well”. European officials say the Obama administration lacks focus because its top talent is wrapped up in the all-consuming debate over healthcare.

- Billions of dollars’ worth of the complex securities at the heart of the financial crisis are being liquidated, enabling banks, insurance companies and other investors to clear toxic assets from their books. Market participants say the unwinding is occurring in the market for collateralized debt obligations (CDOs), complex securities backed by the payments on mortgages, corporate loans and other debt. “There has been a significant increase in the amount of CDO liquidations,” said Vishwanath Tirupattur, analyst at Morgan Stanley. “The rally across asset classes has given investors an incentive to liquidate.” The recent rally has been particularly marked for CDOs backed by corporate bonds and loans. Of the more than $500bn of CDOs backed by asset-backed securities sold in the boom years, $350bn have already experienced an “event of default”.

- Patients who fail to pop pills on time could soon benefit from having a chip on their shoulder, under a ground-breaking electronic system being developed by Novartis, the Swiss pharmaceuticals group. The company is testing technology that inserts a tiny microchip into each pill swallowed and sends a reminder to patients by text message if they fail to follow their doctors’ prescriptions.

- Few could argue with Barack Obama last week when the US president said Wall Street owed a debt of gratitude to taxpayers. Some of America’s largest banks would not have survived without the trillions of dollars the government used to shore up the financial sector. Less remarked upon, however, is the personal windfall executives of the bailed-out institutions received as a result of Washington’s largesse. Whether these men received a cash bonus or not in 2008 almost certainly obscures the important larger point: the bail-outs of their banks through the Tarp, through the Federal Deposit Insurance Corporation guarantees of their debt financings and through government-backed securitization programs such as the term asset-backed loan facility, or Talf, provided an essential boost to long-term investor confidence – and their stock prices – at a crucial juncture. This is how each of these men benefited personally from the government bail-outs. The smorgasbord of government programs and initiatives have helped ensure the survival of these institutions by restoring investor confidence, in turn boosting their stock prices and the value of the chief executives’ stock holdings. For instance, Mr Blankfein’s 3.4m shares of Goldman, worth about $168m at one point last year, were worth closer to $623m (€425m, £385m) at Friday’s closing prices. Mr Mack’s 4m Morgan Stanley shares, which were worth as little as $27m, have rebounded to $125m. Mr Dimon’s 11.2m shares of JPMorgan are valued at about $503m these days, up considerably from their recent low of $168m. And Mr Lewis’s 4.7m Bank of America shares, at one point valued at around $15m, are now worth about $83m. These calculations do not reflect the additional increased value of the executives’ stock options and unvested stock awards, which have moved up smartly – at least on paper (they are not tradable) – as a result of the rise in the banks’ stock prices. This is not a trivial matter, although it is barely mentioned. Those who find the observation petty or unfair would do well to ask Dick Fuld, Lehman Brothers’ one-time chief executive, if he would be willing to trade places with any of his former Wall Street brethren. Unlike Mr Blankfein and Mr Mack, he could not win Fed approval to convert Lehman into a bank holding company. We all know there was no government bailout for Lehman. After Lehman filed for bankruptcy a year ago, Mr Fuld’s 10m shares of Lehman plus options – once worth as much as $1bn – were rendered worthless, which seems like the correct price for the stock of a bank that was way overleveraged and took too many foolish risks. “I don’t expect you to feel sorry for me,” Mr Fuld testified in front of Congress last October. And we don’t. But a year later, we still have no good answer as to why the other chief executives were permitted to benefit from the government’s largesse while Mr Fuld could not.

- The rebound of the dollar at the height of last year’s financial crisis was one of the few silver linings for policymakers. Increased risk aversion prompted investors to return to the safety of liquid US Treasuries, averting a collapse of America’s currency. This year the greenback has weakened again as risk-seeking US investors have bought higher-yielding foreign assets. This dollar weakness should be benign, and the currency is likely to strengthen if investor bullishness eases. But a collapse of the dollar would have grave consequences for the world economy. Already officials at the Bank of Canada and the Reserve Bank of New Zealand are warning about developments in the currency markets. This month G20 policymakers should discuss exchange rates when they meet in Pittsburgh. For most of this decade, the world economy has been able to accommodate sliding currencies as global growth has boomed. But in the credit crunch world, a super-weak dollar risks exporting deflation across the globe. In the rich G7 economies, official interest rates are very low, central banks are printing money and finance ministries are running big fiscal deficits. This leaves policymakers with little scope to deal with a sudden appreciation of their currencies against the dollar. In the worst-case scenario, a rout of the greenback could tip some G7 countries into liquidity traps where extremely loose monetary and fiscal policies are unable to prise their economies out of deflation. It is only a short step from debt and depression to governments resorting to protectionism. To avoid this ruinous path, the G7 should be prepared to act in the currency markets should the dollar plunge unexpectedly. Over the last three decades there have been five bouts of co-ordinated intervention in the major currencies. Four of these five episodes were ultimately successful in changing the trend of the currency markets.

- Hedge funds are losing their clout in financial markets, according to new research. After a year of painful investor redemptions, sharply reduced leverage available from banks and economic uncertainty, hedge funds now exert a far smaller pressure on prices than they once did. They currently account for just 12 per cent of average volume in the $33,500bn US fixed income market, compared with nearly a third in 2007, according to research by US consultancy Greenwich Associates. A 40 per cent decline in hedge funds’ trading volume since last year alone has resulted in a “dramatic reduction in hedge funds’ overall presence in the US market,” says Greenwich, which based its findings on a poll of more than 1000 institutional investors. US equity markets, too, have seen hedge funds pull back. “Hedge funds still have a long way to go before they are able to recover funding and exert the necessary influence on markets, and this is relevant across different market sectors,” said research analysts at UBS in a note to clients on Monday. Whereas leverage of about five times was not uncommon for the average fixed income strategy in 2007, hedge funds are now investing with a maximum of two times leverage, or more often, none at all, according to prime brokers. Greenwich data shows that the hedge fund pullback has been particularly acute in the US government bond market. Whereas hedge funds accounted for 29 per cent of total trading volume in the market in 2007, they now make up only about 5 per cent.

- Remember the summer of 2007, and the onset of the Credit Crunch, when all the equity quantitative strategies fell over? Well, it appears to be happening again.

TimesOnline:

- Regulators around the world will be handed new powers to limit the share of profits that banks can spend on bonuses under a compromise deal to be tabled in Pittsburgh this week at the G20 meeting of leaders of the largest economies.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded (M) to Buy, target $30.

- Reiterated Buy on (LNCR), Added to Top Picks Live list, target $45.

BMO Capital Markets:

- Rated (ARUN) Outperform, target $12.

- Rated (NVTL) Outperform, target $8.

Night Trading
Asian Indices are -.25% to +.75% on average.

Asia Ex-Japan Inv Grade CDS Index 114.0 -2.50 basis points.
S&P 500 futures +.17%.
NASDAQ 100 futures +.27%.

Morning Preview

BNO Breaking Global News of Note

Google Top Stories

Bloomberg Breaking News

Yahoo Most Popular Biz Stories

MarketWatch News Viewer

Asian Financial News

European Financial News

Latin American Financial News

MarketWatch Pre-market Commentary

U.S. Equity Preview

TradeTheNews Morning Report

Briefing.com In Play

SeekingAlpha Market Currents

Briefing.com Bond Ticker

US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Stock Quote/Chart
WSJ Intl Markets Performance
Commodity Futures
IBD New America
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades

Politico Headlines
Rasmussen Reports Polling

Earnings of Note
Company/EPS Estimate
- (PRGS)/.39

- (FDS)/.74

- (CCL)/1.18

- (KMX)/.18

- (CAG)/.34

- (AIR)/.25

- (FUL)/.36

Economic Releases

10:00 am EST

- The House Price Index for July is estimated to rise .5% versus a .5% gain in June.

Upcoming Splits
- (UTHR) 2-for-1

Other Potential Market Movers
- The Richmond Fed Manufacturing Index, weekly retail sales reports, TAF results, 2-year Treasury note auction, ABC consumer confidence reading, API energy inventory report, CIBC Institutional Investor Conference, Bank of America Smid Cap Conference, (LOW) analyst meeting, (BRCD) analyst meeting, (BEXP) analyst conference, (UFI) Investor Meeting, RBC Financial Institutions Conference, UBS Global Life Sciences Conference and the Bank of America Power/Gas Leaders Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.