Tuesday Watch

Late-Night Headlines
Bloomberg:

- The U.S. Internal Revenue Service is shifting authority to audit wealthy Americans suspected of offshore tax evasion to an elite division usually assigned to examining corporations as it prepares to receive data on 4,450 UBS AG Swiss bank accounts.

- American International Group Inc.(AIG) Chief Executive Officer Robert Benmosche told employees that New York Attorney General Andrew Cuomo was “unbelievably wrong” for drawing attention to staff who got retention bonuses. Benmosche criticized Cuomo and lawmakers during a town-hall style meeting this month for life insurance workers in Houston. Cuomo subpoenaed AIG in March during a national furor about $165 million in retention bonuses sent after the firm’s bailout and said those who returned the cash wouldn’t have their names published. That month, some employees received death threats and protesters visited the Connecticut homes of two AIG executives. “What he did is so unbelievably wrong,” Benmosche said during the Aug. 11 remarks, according to a record obtained by Bloomberg. “He doesn’t deserve to be in government, and he surely shouldn’t be the attorney general of the state of New York. What he did is criminal. You don’t create lynch mobs to go out to people’s homes and do the things he did.” After being approached by Bloomberg today about the remarks, AIG said that Benmosche “regrets his comments regarding Mr. Cuomo and the tone of those comments” and said that Cuomo resisted pressure to release names. Benmosche has blamed regulators for the company’s near collapse in remarks he’s made to employees since being appointed CEO this month. While comments in an earlier address focused on unnamed officials at the Federal Reserve and Treasury, Benmosche in Houston singled out Cuomo, the chief prosecutor of New York, where some of the world’s largest financial firms are based.

- CVS Caremark Corp.(CVS) and Walgreen Co.(WAG), the two largest U.S. drugstore chains, will offer free seasonal flu shots to unemployed and uninsured people as the U.S. jobless rate is predicted to rise to 10 percent. CVS will offer 100,000 free seasonal flu shots valued at about $3 million to job seekers, the Woonsocket, Rhode Island- based company said today in a statement. Walgreen, based in Deerfield, Illinois, will distribute $1 million in shots to the uninsured through its 7,000 U.S. stores and clinics.

- Former Illinois Governor Rod Blagojevich writes in a new book that White House chief of staff Rahm Emanuel wanted a “placeholder” put in the Chicago congressional seat he vacated so he could reclaim it in 2010. Blagojevich, who is awaiting trial on corruption charges, said he talked by phone with Emanuel Nov. 8, two days after his White House appointment was announced, and the then-U.S. representative asked whether it was possible to name someone to fill his seat who would be willing to step aside later. Emanuel wanted to return to the House after two years in the Obama administration to continue his quest to become speaker of the House one day, according to Blagojevich.

Wall Street Journal:

- Recent town-hall uproars weren't just about health care. They were also eruptions of concern that the government is taking on too much at once. That suggests trouble for the president's Democratic Party, and fears of losses in next year's midterm election are likely to shape the party's fall agenda.

- Bank of America Corp.(BAC) is offering to repay part of its bailout money, and the U.S. is pushing for the bank to pay nearly $500 million to shelve a tentative pact that would have had the government share its losses on certain assets. The moves, described by people familiar with the matter, both relate to an extra measure of federal aid given to help BofA complete its acquisition of Merrill Lynch & Co. Both sets of discussions, if completed, would enable BofA to reduce a layer of federal involvement in its affairs.

- Day after day, economists, politicians and journalists repeat the trope that the current recession is the worst since the Great Depression. Repetition may reinforce belief, but the comparison is greatly overstated and highly misleading. Anyone who knows even a bit about the Great Depression knows that this is false. The facts we face today are very different than the grim reality Americans confronted between 1929 and 1932. True, this recession is not over. But it would have to get improbably worse before it came close to the 42-month duration of the Great Depression, or the 25% unemployment rate in 1932. A more accurate comparison is to the 1973-75 recession. Today's recession is as deep and most likely won't be much longer than the one we experienced some three decades ago. By pointing this out, I do not intend to minimize the damage that the economic crisis has had on individuals and businesses. But as policy makers make decisions in order to alleviate the recession, they are not helped when economists overstate its severity.

- The head of the Securities and Exchange Commission on Monday sent a letter to chief executives at brokerage firms warning them against offering certain compensation arrangements that may leave customers at risk. "Recent press articles have reported that some broker-dealer firms may be engaging in a vigorous recruiting program for broker-dealer registered representatives, including large up-front bonuses and enhanced commissions for sales of investment products," SEC Chairman Mary Schapiro wrote in the letter, noting that chief executives have an obligation to police their policies for conflicts. "Certain forms of potential compensation may carry with them enhanced risks to customers," the letter continued. Schapiro said some compensation structures could lead representatives to believe they need to sell securities at a "sufficiently high level" to justify special arrangements they have received. Those pressures in turn, Ms. Schapiro continued, could "create incentives to engage in conduct that may violate obligations to investors' and lead to the sale of unsuitable investment products.

- Dell Inc.(DELL) will start selling networking gear made by Brocade Communications Systems Inc. under the Dell brand.

- Restaurants trying to get more families to dine out have a new recipe: Get rid of the French toast sticks. Put more broccoli and carrots on the menu. Let the kids eat free. The industry is scrambling to counter a tendency by recession-pinched parents to leave their children at home when they go out to eat. Restaurant visits among groups with kids fell 5% in the 52 weeks ended June 30 compared with a year earlier, according to researcher NPD Group. Restaurants are responding with revamped kids' menus, healthier food and kids-eat-free nights. Such moves are tricky to do well because restaurants must appeal to young palates while addressing parents' health concerns. This summer, P.F. Chang's China Bistro Inc.(PFCB) and The Cheesecake Factory Inc.(CAKE) added their first-ever kids' menus.

- Richard Trumka, the third-generation coal miner likely this month to assume the helm of the nation's largest labor federation, is launching a drive to court younger workers, many of whom don't see unions as relevant.

- The government's pay czar triggered a 60-day clock to rule on pay packages at seven firms receiving significant amounts of federal rescue funds, but he is expected to decide well ahead of that deadline, government officials said. Kenneth Feinberg, the Treasury Department's special master for compensation, has determined that the pay packages proposed by the companies are "substantially complete," a determination that requires him to rule by the end of October.

- Last week, International Atomic Energy Agency (IAEA) Director General Mohamed elBaradei attempted to whitewash Iran's nuclear weapons program by issuing a report ignoring substantial information about weaponization activities and downplaying continued noncooperation. Even the Obama administration apparently now understands that resuming the long-stalled "Permanent-Five plus-one" negotiations (the U.N. Security Council's permanent members plus Germany) with Iran is highly unlikely to halt Tehran's nuclear ambitions.

NY Times:

- Four years after she took over management of the General Motors pension plans, Nancy Everett finds herself in an unexpected controversy. Performance is not her problem. The G.M. pension fund has withstood the unforgiving financial markets of the last year or so better than many other funds, using a conservative strategy that is intended to minimize risk. But the government is looking closely at the pay of all top G.M. employees after bailing out the automaker. And that includes the unit that manages the pension fund, whose name was changed to Promark Global Advisors this year. Ms. Everett, chief executive of Promark, and 14 of her associates are among the 25 highest paid at the automaker. Their compensation has been submitted for review to Kenneth Feinberg, the government’s pay czar.

Business Week:
- Lost amid the talk about Goldman Sachs(GS) being a vampire squid and making money from the subprime mortgage bust is the fact that the firm lost $6 billion trading, of all things, its own stock. Yes, Goldman, which likes to be known as the smartest shop on Wall Street, bought high and sold low, plain and simple. How it happened might even show you how to make money at Goldman’s expense a few years from now. The heart of Goldman’s mistake was excessive self-confidence. In 2006 through early 2008, the firm spent nearly $18 billion buying 100 million shares of its own stock, paying $183 a share on average. Then the financial panic hit in September and Goldman had to replace the money. The firm sold 94 million shares in offerings in the fall and spring to raise $12 billion at $123 a share. It also sold preferred stock and warrants to the government and Warren Buffett at similarly low prices, but even without counting those special deals, the bottom line is clear: Goldman lost more than $6 billion because it was wrong to think it had enough capital to get through the trouble it knew was coming.

Washington Post:

- With weeks to go until a U.S. deadline for opening talks, a spokesman for Iranian President Mahmoud Ahmadinejad said Monday that he plans to travel to New York to give a speech during the annual meeting of the United Nations General Assembly on Sept. 23. The announcement came as international pressure continued to build for sanctions unless Iran is willing to negotiate over its nuclear program. The visit will roughly coincide with a Sept. 15 deadline set by the White House for Iran to respond to an offer to open talks on the nuclear issue.

Politico:

- After two of the deadliest months of the war in Afghanistan, the commander of U.S. forces there said Monday that “success is achievable” but will require a change in strategy. “The situation in Afghanistan is serious, but success is achievable and demands a revised implementation strategy, commitment and resolve, and increased unity of effort,” said Gen. Stanley McChrystal, commander of nearly 60,000 U.S. troops in Afghanistan.

- Buffalo News: Rangel should resign. The Buffalo News has had enough of Charlie Rangel, following the disclosure that the House Ways and Means Chairman massively underreported his assets. It'll be interesting to see if other papers follow suit. If the Times eventually draws the same conclusion [which they aren't likely to do prior to the conclusion of the interminable Ethics Committee probe], look out.

Reuters:

- Two prominent Republican congressmen on Monday said trustees for the government's stake in American International Group lacked accountability and requested an audit of the arrangements by the U.S. bailout inspector general. After AIG was bailed out last year with about $180 billion in U.S. taxpayer support, a three-member trust was created to manage and eventually dispose of the government's effective 80 percent stake in the insurance giant. Rep. Darrell Issa, the top Republican on the House of Representatives Oversight and Government Reform Committee, and Rep. Spencer Bachus, the ranking Republican on the House Financial Services Committee, sent the audit request to Neil Barofsky, inspector general for the $700 billion Troubled Asset Relief Program. They said the lack of transparency and accountability in the AIG trust was relevant if Treasury moves forward with a similar trust agreement for its interest in Citigroup (C), another financial institution with extraordinary government support. "It is not clear how the American people can hold the AIG trustees accountable for their actions," wrote Issa and Bachus. "While the trustees have the discretion to exercise full control over AIG, since the American taxpayers own nearly 80 percent of its shares, the trustees cannot be fired if their decisions conflict with the preferences of government officials. This raises a troubling and urgent question: Who can the American taxpayers hold accountable if the trustees make a decision that is not in their best interest?"

- U.S. gold and soybean markets fell on Monday following a weekend report that China's state companies may default on commodity derivative contracts with banks providing over-the-counter hedging services. Traders in other commodities markets in the United States were cautious, underscoring China's predominance as a buyer in global markets from metals to grain to oil after it played a key role in rallying prices to record highs last year.

- Chile said on Monday that copper prices could average $2.13 per lb between 2010 and 2019, based on estimates from a panel of experts used to help draft next year's national budget bill. The 12 experts, which include academics and think tank analysts, based their projections on prices at the London Metal Exchange MCU3.

Financial Times:

- Google(GOOG) has forged a distribution alliance with Sony’s PC division and is in talks with other computer makers as it looks to promote its well-regarded but little-used Chrome browser.

- Tight credit conditions are likely to weaken the UK’s economic recovery, according to a report published on Tuesday. A survey from the Engineering Employers’ Federation showed a rise in the cost of borrowing and a fall in the number of companies reporting lower borrowing costs in the third quarter. The report also noted only a small reduction in the number of UK manufacturers reporting more difficult access to credit, in spite of interest rates falling to record low levels and efforts to free up liquidity in the banking system. The survey showed 47 per cent of companies reported an increase in the cost of finance in the past two months. This compared with 44 per cent in the second quarter and 37 per cent in the first quarter. Furthermore, only 7 per cent of companies saw a fall in the cost of borrowing, down from 10 per cent in the second quarter. Some 56 per cent of manufacturers also reported higher costs for new lines of borrowing, up from 51 per cent in the second quarter. A third of companies saw a reduction in the availability of new lines of borrowing, with 36 per cent of small companies and 17 per cent of larger companies reporting a fall in the availability of new lending lines.

Nikkei English News:

- Toshiba Corp.’s semiconductor business is likely to return to profit in September because of increased demand for consumer electronics. The company’s chip business may have an operating profit of a few billion yen in the July-September quarter. Elpida Memory Inc. may also return to profit in September the report said.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded (LMT) to Buy, target raised to $90.

- Reiterated Buy on (INTC), target raised to $25.

- Upgraded (ALXN) to Buy, target $55.

CSFB:

- Raised (RIMM) to Outperform, target $95.

- Raised (MOT) to Outperform, target $9.50.

- Reiterated Outperform on (PALM), target $18.

- Cut (NOK) to Underperform.

Night Trading
Asian Indices are -.50% to +.75% on average.

Asia Ex-Japan Inv Grade CDS Index 139.0 +4.5 basis points.
S&P 500 futures +.08%.
NASDAQ 100 futures +.11%.

Morning Preview

BNO Breaking Global News of Note

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Yahoo Most Popular Biz Stories

MarketWatch News Viewer

Asian Financial News

European Financial News

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TradeTheNews Morning Report

Briefing.com In Play

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Who’s Speaking?
Upgrades/Downgrades

Politico Headlines
Rasmussen Reports Polling

Earnings of Note
Company/EPS Estimate
- (ADCT)/.14

- (DCI)/.30

- (TTWO)/-.68

- (PAY)/.18

Economic Releases

10:00 am EST

- ISM Manufacturing for August is estimated to rise to 50.5 versus 48.9 in July.

- ISM Prices Paid for August is estimated to rise to 57.8 versus 55.0 in July.

- Construction Spending for July is estimated unch. versus a .3% rise in June.

- Pending Home Sales for July are estimated to rise 1.6% versus a 3.6% gain in June.

Afternoon:

- Total Vehicle Sales for August are estimated at 13.3M versus 11.3M in July.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, ABC consumer confidence reading and Morgan Stanley Global Industrials Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and mining 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.

Stocks Finish Lower, Weighed Down by Commodity, Homebuilding, Airline and Education Shares

Evening Review
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Stocks Lower into Final Hour on China Bubble Worries, Profit-Taking, More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is about average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising 5.82% and is very high at 26.18. The ISE Sentiment Index is below average at 114.0 and the total put/call is slightly above average at .87. Finally, the NYSE Arms has been running high most of the day, hitting 2.81 at its intraday peak, and is currently 1.76. The Euro Financial Sector Credit Default Swap Index is rising 2.42% today to 83.64 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 rising 3.76% to 119.28 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 2.89% to 22 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 down .53% to 35.06 basis points. The Libor-OIS spread is falling another 1.76% to 17 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 6 basis points to 1.65%, which is down 101 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is unch. today. Considering worries that financials are the most technically overbought group, declines in recent speculative financial leaders and China’s plunge last night, the (XLF) is holding up very well. A number of banks are actually higher on the day. As well, the high Arms reading and mediocre volume indicate the bears continue to lack real conviction. Cylicals and small-caps are under the most pressure today, but tomorrow’s economic data could boost the most economically sensitive shares. On the negative side, Chinese shares likely have further downside and the S&P 500 is continuing its recent trend of mostly ignoring good news. Nikkei futures indicate a -47 open in Japan and DAX futures indicate an +6 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, diminishing financial sector pessimism, lower energy prices and lower long-term rates.

Today's Headlines

Bloomberg:

- Business activity in the U.S. rose more than forecast in August, adding to signs the economy is improving. The Institute for Supply Management-Chicago Inc. said today its business barometer increased to 50, the highest level since September, from 43.4 in July. A reading of 50 is the dividing line between contraction and expansion. Increasing demand from overseas and a record reduction in inventories mean a pickup in factory orders and production may last for much of the rest of the year. The Chicago report’s orders gauge climbed to 52.5, the highest level in a year, from 48 in July and the production index rose to 52.9 from 43.3. The employment index increased to 38.7 from 35.3. Smaller inventories will contribute to a rebound in output as orders rise to restock shelves. Inventories dropped at a record $159.2 billion annual rate in the second quarter, the Commerce Department said last week. They dropped at a $113.9 billion in the first three months of the year.

- Walt Disney Co.(DIS) agreed to buy Marvel Entertainment Inc.(MVL) for about $4 billion in cash and stock, adding comic-book characters Iron Man and Spider-Man to Disney’s lineup of princesses and live-action stars. Marvel investors will receive $30 a share in cash plus 0.745 Disney shares, the companies said today in a statement.

- Baker Hughes Inc.(BHI), the world’s third-largest oilfield-services provider, agreed to buy BJ Services Co.(BJS) for $5.5 billion in a bet on U.S. natural-gas shale formations. The price represents a 16 percent premium to BJ Services’ stock price on Aug. 28 and will leave BJ stockholders owning about 27.5 percent of Baker Hughes’s outstanding shares, Houston-based Baker Hughes said in a statement today. BJ Services shareholders will receive 0.40035 share of Baker Hughes’s stock and a cash payment of $2.69 a share.

- New York Federal Reserve Bank President William Dudley said the Fed has the tools to prevent inflation from accelerating and doesn’t need to begin trimming its balance sheet. “It’s a little bit premature to be so confident that you want to pull all these things back right now, because the economy still isn’t growing very fast and we do have a very high unemployment rate,” Dudley said today in an interview on CNBC. Dudley’s comments are in contrast to those of two Fed district bank presidents, Jeffrey Lacker and James Bullard, who said the central bank may not need to buy the full $1.25 trillion in mortgage-backed securities that has been authorized by year-end.

- The credit-default swaps market is concentrated in the hands of a small group of dealers, which is stoking concern about “systemic risk to financial market stability,” according to the European Central Bank. The 10 most active counterparties account for between 62 percent and 72 percent of the default-swap exposure of lenders surveyed by the ECB, the Frankfurt-based central bank said in a report on its Web site after the market closed Aug. 28. The credit default-swaps market has also become more concentrated because of the failure of dealers and counterparties such as Lehman Brothers Holdings Inc. and Bear Stearns Cos LLC, the ECB said in the report, titled “Credit Default Swaps and Counterparty Risk.” The “interconnected nature” of the default-swaps market and its “structural opacity” may also increase risk, the ECB said in the report. “In practice, the transfer of risk through CDS trades has proven to be limited, as the major players in the CDS market trade among themselves and increasingly guarantee risks for financial reference entities,” according to the ECB.
- Crude oil prices fell the most in a month as Chinese equities led a global slump on concern a slowdown in lending may derail an economic recovery in the world’s second-largest energy consuming country. “The Chinese markets have helped support commodities. Price rises have been based on expectations of increased economic growth and demand in China.” Crude oil for October delivery fell $3.18, or 4.4 percent, to $69.56 a barrel at 11:16 a.m. on the New York Mercantile Exchange. Futures dropped as much as $3.40, or 4.7 percent, the most since July 29. The United Arab Emirates’ Abu Dhabi National Oil Co. eased cuts on crude oil supply for the first time in seven months, a sign OPEC members may be overshooting their output targets.

- China’s economy isn’t “sustainable” and the benchmark Shanghai Composite Index may fall another 25 percent, former Morgan Stanley Asian economist Andy Xie said in an interview. “The market is in deep bubble territory,” Xie, who correctly predicted in April 2007 that China’s equities would tumble, told Bloomberg Television. The Shanghai index plunged 6.7 percent to 2,667.75 today, the most since June 2008 and entering a bear market, on concern a slowdown in lending growth may derail a recovery in the world’s third-largest economy. Xie said the index “should be 2000 or less.” The Shanghai gauge slumped 22 percent this month, the worst performer among 89 benchmark indexes tracked by Bloomberg, as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity. “The local market bears are convinced that tightening is already underway,” said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Only “a very strong set of macro numbers in August” or “stronger statements from central authorities” would change this trend, Wang said.

- The number of jobs advertised on the Internet climbed in August to the highest level of the year, signaling an improvement in employment. There were 3.46 million help-wanted ads posted online this month, the most since December, according to figures from the Conference Board, a New York-based private research group. Demand for health-care workers posted the largest gain, the report showed. “The August increase is good news showing what we hope will be a continued improvement in job demand this fall,” Gad Levanon, a senior Conference Board economist, said in a statement. The gain this month was led by the South, with Texas and Florida showing increases in demand for workers. The number of jobs advertised online in California increased by 26,700, the most of any state. Texas was next with a gain of 21,900. Ads for health-care professionals showed the biggest advance, rising by 52,700 this month. There was an 18,900 rise in management openings and an 8,800 gain in computer and mathematical sciences.

Wall Street Journal:

- William O'Brien's father was a seat holder and trader on the New York Stock Exchange in the 1970s. Now, the younger Mr. O'Brien has become one of the Big Board's top rivals. The 39-year-old Mr. O'Brien is chief executive of Direct Edge, a trading system that has commandeered 12% of U.S.-listed stock trading, a six-fold increase in just two years. The Big Board is leading an attack against Direct Edge, and has found a sympathetic ear in Congress and the Securities and Exchange Commission. Direct Edge, of Jersey City, N.J., is at the heart of the world of high-frequency trading, in which computerized models dash in and out of stocks by the millisecond, hoping to capture fleeting distortions between the prices of securities. What has gotten the NYSE so upset is Direct Edge's advocacy of "flash trading" -- a particular variety of high-frequency trading that briefly previews some orders to a few dozen market participants and trading platforms in hopes of finding a match. New York Sen. Charles Schumer last month said use of such orders "creates a two-tiered system where a privileged group of insiders receives preferential treatment," and he urged the SEC to ban them. In response, SEC Chairman Mary Schapiro has vowed to curb any "inequity" in such orders as part of a review of high-speed trading practices and "dark pools" operated by Wall Street firms and other traders.

- Germany's auto makers are worried about slumping sales when the government's "cash for clunkers" program expires this fall after running through its allocation of €5 billion, or $7.15 billion. Even so, they don't agree with the dire forecasts in a study issued by German management consultancy Roland Berger. In the study, published Friday, Roland Berger said car sales in Germany may fall more than 20% next year, and that as many as 90,000 jobs may be lost across the industry by the end of 2011.

- The biggest spur to deal-making among banks isn't private-equity cash or foreign investors. It is the federal government. To encourage banks to pick through the wreckage of their collapsed competitors, the Federal Deposit Insurance Corp. has agreed to assume most of the risk on $80 billion in loans and other assets. The agency expects it will eventually have to cover $14 billion in future losses on deals cut so far. The initiative amounts to a subsidy for dozens of hand-picked banks.

- The commander of U.S. and NATO troops in Afghanistan said Monday in an assessment of the war that a new strategy was needed to fight the Taliban, while NATO officials disclosed he is expected to separately request more troops. Increasing U.S. forces is a hot-button issue that could ignite furious debate in Washington on the U.S. military's future in an increasingly unpopular war. Some Democratic senators have increased calls for a timeline to draw down troops.

- The International Atomic Energy Agency has produced another alarming report on Iran's nuclear programs, though it hasn't released it publicly, only to governments that would also rather not disclose more details of Iran's progress toward becoming a nuclear theocracy. Meanwhile, Iran intends to introduce a resolution, backed by more than 100 members of the so-called Non-Aligned Movement, that would ban military attacks on nuclear facilities. No actual mention of Israel, of course. The mullahs understand that the only real challenge to their nuclear ambitions is likely to come from Israel. They've long concluded that the U.N. is no threat, as IAEA chief Mohamed ElBaradei has in practice become an apologist for Iran's program. They can also see that the West lacks the will to do anything, as the Obama Administration continues to plead for Tehran to negotiate even as Iran holds show trials of opposition leaders and journalists for saying the recent re-election of Mahmoud Ahmadinejad was fraudulent. The irony is that the weaker the West and U.N. appear, the more probable an Israeli attack becomes.

- Sorting Fact From Fiction on Health Care. Current congressional proposals would significantly change your relationship with your doctor.

CNBC:

- These are fun days at Ford(F). After staring bankruptcy in the eye and surviving a horrific slump in sales, the auto maker is rolling. Sure, it's not yet back in the black, but it has the big "MO". It's adding production, cutting losses, and is in the sweet spot of new product cadence with models like the Edge and Taurus bringing back buyers. So after two years in the #3 spot in the U.S., is it possible Ford could catch Toyota to become #2?

- Fewer Americans are afraid that they will be unable to pay for healthcare services and fewer expect to postpone medical treatments due to costs, according to a Thomson Reuters survey published Monday. Researchers found a steady increase in people's confidence about their ability to pay for healthcare services — it rose 12 percent between March and July this year.

- Wal-Mart Stores(WMT) said Monday it will launch an online marketplace with nearly 1 million items available through a number of retailers.

NY Times:

- Microsoft’s(MSFT) No. 1 rival is a household name, Google(GOOG). But a strong candidate for No. 2 is a company that is scarcely known outside the technology industry: VMware(VMW).

- A Chinese magazine’s weekend report that state-owned companies had the right to renege on commodity derivative contracts caused concern among foreign banks on Monday, though it was met with some disbelief. Caijing, a leading financial magazine in China, quoted an unidentified industry source as saying that the Assets Supervision and Administration Commission, or Sasac, the regulator in charge of state-owned enterprises, had sent a letter to six foreign financial institutions saying that the Chinese companies could break their agreement on the commodities hedging contracts, which have been causing them huge losses.

Forbes:

- Transcript: Hedge Fund Roundtable, Part One. Three hedge-fund heads discuss funds’ performance over the last year and debate potential tax code changes.

Washington Post:

- President Obama ordered federal officials to disclose their contacts with lobbyists trying to influence how the government doles out money to jump-start the economy. Yet few such communications have been reported even though lobbyists say they are busier than ever with the multibillion-dollar stimulus. Since the $787 billion American Recovery and Reinvestment Act passed in February, federal agencies have reported 197 contacts with lobbyists about stimulus grants. In August, the entire government reported only eight such lobbying contacts. The Pentagon, which controls about $7.4 billion in stimulus spending, reported just one lobbying contact so far this year. The Homeland Security Department, with at least $3 billion to spend, reported none. Yet the paucity of reporting masks activities by lobbyists and clients eager to obtain stimulus money for their projects. Lobbyists have separately reported work related to stimulus projects, and in many cases have operated in new ways to skirt restrictions on their efforts to influence stimulus spending.

- Morale has sagged at the CIA following the release of additional portions of an inspector general's review of the agency's interrogation program and the announcement that the Justice Department would investigate possible abuses by interrogators, according to former intelligence officials, especially those associated with the program. A. B. "Buzzy" Krongard, the third-ranking CIA official at the time of the use of harsh interrogation practices, said that although vigorous oversight is crucial, the public airing of once-classified internal assessments and the prospect of further investigation are damaging the agency. "Morale at the agency is down to minus 50," he said.

marketfolly:

- This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings. Next up is David Stemerman's hedge fund Conatus Capital.

Rassmussen:

- Thirty-five percent (35%) of Americans favor the climate change bill, while 40% are opposed to it. However, the antis feel more strongly: Twenty-six percent (26%) Strongly Oppose the bill versus 10% who Strongly Favor it.

Politico:

- After an August recess marked by raucous town halls, troubling polling data and widespread anecdotal evidence of a volatile electorate, the small universe of political analysts who closely follow House races is predicting moderate to heavy Democratic losses in 2010. Some of the most prominent and respected handicappers can now envision an election in which Democrats suffer double-digit losses in the House — not enough to provide the 40 seats necessary to return the GOP to power but enough to put them within striking distance. Top political analyst Charlie Cook, in a special August 20 update to subscribers, wrote that “the situation this summer has slipped completely out of control for President Obama and congressional Democrats.”

Reuters:
- The U.S. economy does not need a second fiscal stimulus package, instead the government should cut spending over the next two years, according to a survey of business economists released on Monday. Most economists in the National Association for Business Economics (NABE) semi-annual poll were concerned about the outlook for the U.S. government budget. Also, they doubted health-care reforms proposed by the Obama administration would lower costs while increasing access and maintaining quality.
- U.S. credit card defaults declined in July after five straight months of record highs, suggesting the ability of cardholders to pay bills could be stabilizing, Fitch Ratings said on Monday. Fitch's prime credit card chargeoff index, which measures the portion of credit card securitized loans that companies do not expect to be repaid, fell to 10.55 percent in July from 10.79 percent in June. In addition, Fitch's delinquency index, an indicator of future defaults, fell to 4.26 percent from 4.31 percent.

- Details of the Federal Reserve Bank of Dallas' Texas monthly manufacturing index released on Monday.

- Hedge fund firm Citadel Investment Group LLC reversed course Monday, canceling plans to cut its stake in hard-hit online brokerage E*Trade Financial Corp (ETFC) by about 10 percent. News that E*Trade's largest stock and bond holder would not sell 120 million shares into the market over the next three months sent E*Trade stock surging as much as 18 percent.

Financial Times:
- US lawmakers are considering a more drastic consolidation of bank regulators than that outlined by the Obama administration as Congress prepares to overhaul the financial system’s watchdogs. Both Democratic and Republican members of the Senate banking committee want a more ambitious reform, according to several people familiar with the committee, in a sign of the continuing flux of the regulatory revamp laid out by the Treasury in June. The administration’s proposals included merging one regulator, the Office of Thrift Supervision, into the Office of the Comptroller of the Currency, while preserving the separate duties of the Federal Deposit Insurance Corporation and Federal Reserve.

Bull Radar

Style Underperformer:
Small-Cap Value (-1.84%)

Sector Underperformers:
Coal (-3.96%), Oil Tankers (-3.53%) and Homebuilders (-2.96%)

Stocks Falling on Unusual Volume:
AIG, GDP, CCJ, PBR, TLK, AGO, ARL, MTN, BHI, CBE, IRE and KCI

Stocks With Unusual Put Option Activity:
1) SLM 2) BJS 3) CENX 4) BHI 5) NRG

Bull Radar

Style Outperformer:
Large-Cap Value (-.82%)

Sector Outperformers:
I-Banks (+.49%), Software (-.29%) and Banks (-.50%)

Stocks Rising on Unusual Volume:
MVL, NTT, PTNR, MAIL, EXPO, DWA, WIRE, OGXI, PTNR, APSG, FSYS, CME, MVL, BJS, BT, AZN and HGT

Stocks With Unusual Call Option Activity:
1) BHI 2) BJS 3) TSRA 4) SQNM 5) ETFC