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MACRO AND HOUSING

Home Prices Continued to Slide in July

Negative annual returns in U.S. home prices continued in July, with data released Tuesday by Standard & Poor's for its S&P/Case-Shiller Home Price Indices, indicating that the rate of decline became larger each month as the year progressed. The 10-City Composite was down 4.5% versus July of 2006, while the 20-City Composite lost 3.9%. Both composite indices have registered negative annual growth rates since the beginning of the year. "The year-over- year decline reported for the 10-City Composite is the lowest since July 1991. The lowest annual decline in this Index, which dates back to January 1987, was -6.3%, which was reported in April 1991," said Robert J. Shiller, Chief Economist at MacroMarkets LLC. Although Detroit logged the best improvement, up 1.3% from June to July, Motown was the biggest loser on an annual basis, with the data showing prices down 9.7% from July 2006 levels. Tampa, Phoenix, Washington and San Diego were also big losers over the past year, while Seattle and Charlotte posted the heartiest gains. Miami was the biggest decliner on a monthly basis, with prices falling 1.7% from June to July. Yet, while the study indicated that Atlanta, Charlotte, Dallas, Portland and Seattle are still registering positive annual returns, all have shown growth deceleration over the year, and S&P/Case-Shiller said both Atlanta and Dallas are getting closer to joining registering a year-over-year decline.
Sources: Press release
Commentary: Think Housing's Bad? You Ain't Seen Nothing YetDon't Worry, All Recessions are LocalExisting Home Sales Fall to Five Year Lows
Stocks/ETFs to watch: XHB, ITB

Consumer Confidence Lowest in Two Years

The index of consumer confidence fell farther than forecast to its lowest point since November 2005, the Conference Board reported Tuesday. "Weaker business conditions combined with a less favorable job market continue to cast a cloud over consumers and heighten their sense of uncertainty and concern," said Lynn Franco, director of the Conference Board's research center. The index dropped to 99.8 from a revised 105.6 in August, beyond a forecast 104.3. The report suggests the housing slump and tightening of credit are reining in consumer spending, which represents over two-thirds of the economy. "The trend in confidence is downshifting," said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. "It puts pressure on the Fed to ease" interest rates beyond last week's half-percentage point cut in the fed-funds rate. In other news, the National Association of Realtors said U.S. existing home sales fell 4.3% in August to a 5.5 million-unit annual rate, the slowest in five years (full story). Inventories of single-family homes and condos rose 0.4% to a record 10-month supply. "It's the supply that's the real shocker," said Josh Stiles, senior bond strategist at IDEAglobal in New York. "That is just going to be a weight on prices and activity."
Sources: Bloomberg, MarketWatch, Reuters
Commentary: Consumer Confidence Number Comes ThroughConsumer Confidence Down Sharply in August
Stocks/ETFs to watch: SPY, QQQQ, DIA, IWM, SHY, IEF, TLT

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Existing Home Sales Fall to Five Year Lows

Existing home sales fell to a five-year low as the disruptions in the credit market led to a large number of postponed and canceled sales. Sales of previously owned homes dropped 4.3% from July to an annual rate of 5.5 million, the National Association of Realtors said Tuesday. The numbers were slightly better than analyst expectations of a 5.49 million sale pace. "The housing market has decidedly taken a second leg down, largely in response to turmoil in the mortgage market," said Michelle Meyer, an economist at Lehman Brothers. "The huge imbalance between demand and supply should put more downward pressure on home prices. We look for sales to fall through the middle of next year." Inventories for single-family homes also reached a record high, hitting nearly a 10 month supply. NAR president Pat Combs applauded government efforts to rectify a mortgage-lending crisis: "Movements to enhance the FHA loan program and to raise the limits for conventional financing could provide additional relief, and it looks like the worse of the mortgage availability problem is behind us." Sales of existing homes make up 85% of the market, while new-homes purchases are responsible for the rest.
Sources: Press release, Wall Street Journal, Reuters, Bloomberg
Commentary: Housing Bust: Economic Models vs. RealityContinuation of Negative Annual Returns in Housing

TRANSPORT AND AEROSPACE

UAW / GM Reach Tentative Agreement; Strike Halted

The United Auto Workers union announced early Wednesday it has reached a tentative contract agreement with General Motors and has halted the nationwide strike it began Monday. "We feel very confident it will be ratified," said UAW President Ron Gettelfinger at a news conference. "I think overall [GM workers] will be very pleased with the outcome of this negotiation and the job security that's associated with it." Ratification, which will require approval by a majority of GM workers, is expected to begin this weekend. Gettelfinger did not go into detail, but did say the agreement involves a historic healthcare arrangement that will transfer responsibility for retiree healthcare to a UAW voluntary employee beneficiary association, or VEBA. GM is expected to contribute a one-time payment upward of $30 billion to the VEBA, but it should result in an annual savings for the automaker of $3 billion. The VEBA will relieve GM of over $50 billion in healthcare costs currently owed to GM-UAW retirees and their spouses. "The projected competitive improvements in this agreement will allow us to maintain a strong manufacturing presence in the United States along with significant future investments," said GM CEO Rick Wagoner.
Sources: Reuters, Wall Street Journal, Bloomberg
Commentary: Why the GM Strike Makes SenseGM Should Be Able to Weather Short Strike - Ratings AgenciesThe General Motors-UAW Dance
Stocks/ETFs to watch: GM. Competitors: F, DAI, TM. ETFs: PRFG, RPV
Earnings call transcript: General Motors Q2 2007

Toyota's September Sales May Disappoint

Toyota Motor president Katsuaki Watanabe said he does not want to "lower the flag yet" in Japan for full-year sales, despite trailing every month y/y through July. Watanabe is hopeful new models released since June will boost sales. In the U.S., Sept. sales will likely disappoint due to softening demand and a tough y/y comparison. Toyota executive VP Mitsuo Kinoshita warned it will be difficult to top the 25% growth of last September. Toyota's U.S. sales fell in July for the first time in three years, and also declined in August (full story). Still, Toyota expects to achieve full-year sales growth (last targeted at 5%) in the U.S. The company's home market full-year goal is for 1% higher sales to 1.72 million vehicles. Regarding the UAW strike against GM, Kinoshita said, "We need to monitor negotiations by the U.S. Big Three makers, but we are not under pressure to review our contracts immediately." Separately, Sony will purchase Toyota Industries Corp.'s (a Toyota subsidiary) stake in an LCD joint venture and merge it with another Sony/TIC JV -- both JVs manufacture camera and phone displays. Ordinary shares of Toyota lost 0.45% to ¥6,610 on Wednesday. Toyota's ADRs rose 0.6% to $115.30 on Tuesday.
Sources: Reuters I, II, Thomson-Newstex
Commentary: Japan's Trade Surplus Surges on Auto, Steel DemandChrysler Snatches Top Toyota Exec.Merrill Likes Toyota Even With Strong Yen
Stocks/ETFs to watch: TM, SNE. Competitors: OTCPK:NSANY, HMC, GM, F, DCX. ETFs: EWJ, ADRA

TECHNOLOGY

Vonage Loses Patent Case to Sprint; Shares Tank

Vonage Holding Co. was found to have knowingly infringed six of Sprint Nextel's patents by a federal jury on Tuesday, and will have to pay Sprint Nextel $69.5 million plus 5% of future revenues. In a press release, Vonage pledged to "vigorously pursue an appeal of the decision, including the underlying issue of liability and the willfulness aspect." The company also said it is developing technology to avoid any potential infringements. Vonage similarly lost a patent case earlier this year against Verizon and was ordered to pay $66 million plus 5.5% in future revenue. Since its IPO last year, Vonage is down 90%. Vonage shares were halted early Tuesday, closing down 7.7% to $1.81.
Sources: Press Release, Bloomberg, Reuters
Commentary: Vonage 2Q Loss Narrows, Tops Estimates, But Subscriber Growth DropsVonage Requests Lower Court Retrial, Cites Supreme Court Patent Decision
Stocks/ETFs to watch: VG, S. Competitors: VZ, DT. ETFs: WMH, VOX

Red Hat Earnings Rise 59%

Shares of Red Hat climbed 4.6% to $19.76 AH Tuesday after the provider of Linux open source operating systems reported a 59% jump in fiscal second-quarter earnings and sales that came in above expectations. Red Hat said it earned $19.1M ($0.09/share) up from $11M ($0.05/share) in the same period a year earlier as revenue rose to $127.3M from $99.7M. Subscription revenue climbed 29% to $109.2M. Excluding items, earnings were $36.9M ($0.17/share) compared to $24.5M ($0.12/share) a year ago. Analysts, on average, had expected earnings of $0.17/share on revenue of $125.1M. Bookings as of the second quarter were 27%, according Red Hat, which noted that the pipeline for contracts for its JBoss middleware line is the highest since its acquisition in 2006. Looking ahead, the Company said it expects to earn $0.18/share, excluding items, on revenue of between $131M and $133M in the fiscal third-quarter, in line with analysts' estimates for earnings of $0.18/share and revenue of $132M. "We are increasingly moving our sales and distribution strategy from... a product-based approach to a much more integrated consulting approach, where we are involved with line of business executives as well as their technical teams, that allow us to be involved much earlier in the selling process and the system design and development process... The size of the orders... and the recurring nature of that relationship with the customer is much more positive, I believe, for both JBoss and Red Hat long term," CEO Matthew Szulik said during the company's earnings conference call (full transcript).
Sources: Press release, TheStreet.com, MarketWatch
Commentary: Red Hat Struggles Through Transition To Multi-Product CompanyMicrosoft Closes Third Linux Deal: Is Red Hat Next?
Stocks/ETFs to watch: RHT. Competitors: NOVL, MSFT, JAVA

Judge Orders Apple to Turn Over Options Docs

California Superior Court Judge Jack Komar said in a hearing Monday that he will order Apple Inc. to hand over board-meeting minutes and records relating to stock options to an investor, the Boston Retirement Board, the Mercury News reported Tuesday. The documents cover the past ten years. The judge denied the investor's request for access to documentation covering Apple's internal investigation of options backdating. He has also barred the investor from revealing the contents of the permitted documents to any third parties. The judge is issuing the ruling Friday, and Apple will have a week to comply. Apple has not commented on the order.
Sources: MercuryNews.com, Reuters
Commentary: Steve Jobs Steers Clear of SEC Options Backdating ProbeWSJ: Steve Jobs May Have Helped Pixar Director With Suspect Options GrantSEC Charges Apple's Ex-Counsel and Ex-CFO with Options Backdating; Ex-CFO Fires Back at Jobs
Stocks/ETFs to watch: AAPL. Competitors: MSFT, VZ, S, MOT, RIMM. ETFs: IAH, QLD, VGT

Qualcomm Boosts Guidance; Investors Apathetic

Mobile phone chip maker Qualcomm increased its fiscal fourth-quarter guidance based on strong sales and a lower than expected tax rate. The company now predicts earnings will come in between $0.52-0.53/share for the quarter ending September 30th. Previously, Qualcomm had forecasted $0.49/share, while analysts were looking for $0.50/share. Despite the upbeat news, Qualcomm's stock did not receive a boost. Cody Acree, a Stifel Nicolaus & Co. analyst, noted that though the announcement shows "handset market is firm and solid… It's not dramatically better than what we already expected to be />a healthy market." Acree also said that while the tax benefits do help the bottom line, "it's not typically what gets investors excited. That's more accounting than it is fundamental business momentum." Qualcomm shares traded down 0.2% to $41.55 Tuesday.
Sources: Press Release, Bloomberg, TheStreet.com
Commentary: Qualcomm Loses AgainQualcomm Wins Stay on Handset Import Ban
Stocks/ETFs to watch: QCOM. Competitors: BRCM, NOK. ETFs: BDH, WMH
Earnings call transcript: QUALCOMM F3Q07 (Qtr End 6/30/07)

MEDIA

Focus Media Shares Surge on Completion of Auditor’s Investigation

Chinese company Focus Media announced Tuesday its internal audit committee was unable to find any evidence of undisclosed rebate payments to a third-party advertising agency through a related party. The investigation was initiated by the U.S. counsel to an unidentified short seller of Focus's shares. The council alleged that a third party advertising company had received payments from Everease, a related party of Focus, without providing any services. The auditors verified that Everease is a related party to Focus through the information compiled during the investigation. Focus also filed its annual report for 2006, which it had said it would do after the completion of the internal inquiry. Shares of the company jumped 19.1% to $57.79 on the news Tuesday.
Sources: Reuters, Forbes
Commentary: 11 Advertising Stocks That You Might Be Tempted to BuyFocus Media: Benefiting From the Chinese Economic Boom
Stocks/ETFs to watch: FMCN. Competitors: IPG, OMC. ETFs: GXC
Earnings call transcript: Focus Media Q1 2007

FINANCIAL

Nasdaq-Dubai Raise OMX Bid

Nasdaq Stock Market Inc. and Borse Dubai were again forced to raise their bid for Scandinavian exchange company OMX AB to 265 kronor a share, or a total of about 32 billion kronor ($4.89 billion). The two also announced they now jointly control 47.6% of OMX, which runs seven Nordic and Baltic exchanges. Nasdaq and Dubai signed a complex takeover agreement on September 20, under which Dubai would buy OMX and pass it on to Nasdaq in exchange for a 19.99% stake in Nasdaq OMX as well as Nasdaq's 28% stake in the LSE (full story). Dubai would also gain access to Nasdaq-OMX trading technology as well as branding rights. Hours after the nasdaq-Dubai deal was announced, Qatar bought a 9.98% stake in OMX and urged OMX's shareholders to reject the Nasdaq-Dubai offer. Quatar is challenging Dubai to become the Gulf's financial center. Shares of OMX climbed to a multi-year high of 283 kronor a share.
Sources: Press Release, Wall Street Journal, Bloomberg, Reuters
Commentary: Dubai, Nasdaq Strike OMX DealSchumer on Nasdaq Sale: Not So FastAn Exchange ETF Would Have Been a Top Performer Over Recent Years
Stocks/ETFs to watch: NDAQ. Competitors: NYX
Earnings call transcript: The Nasdaq Stock Market Q2 2007

RBS Consortium Doubles Stake in ABN Amro

The consortium led by the Royal Bank of Scotland that is competing with Barclays to buy ABN Amro has doubled its stake in the Dutch bank through derivatives trades, the Financial Times reported Wednesday. The consortium, which also includes Belgo-Dutch group Fortis and Spanish bank Santander, submitted a U.S. regulatory filing stating it holds swaps and options over more than 76 million ABN shares, representing more than 4% of ABN's share capital. That is in addition to the consortium's existing 4% stake in ABN. According to the FT, the disclosure demonstrates how the consortium has taken advantage of market upheaval to build a large position in ABN at a steep discount to its €71 billion ($100 billion) bid, which is worth over €38 per share. The paper writes that the derivatives benefit the consortium whenever the share price rises above €34. "In total," the FT reports, "the share trading is thought to have in effect reduced the purchase price of ABN by €600-700m, or about 1% of the total consideration." The consortium's offer, which is well ahead of Barclays' €31 per share bid, will close at the end of next week.
Sources: Financial Times, Reuters
Commentary: ABN Amro Board Calls RBS Bid Superior, But Won't Back ItABN Amro Board Disappoints InvestorsRBS Consortium Adds to ABN Amro Stake
Stocks/ETFs to watch: ABN, RBSPY.PK, BCS, FORSY. Competitors: HBC, DB, UBS. ETFs: RKH, EWN, KBE
Earnings call transcript: ABN Amro Q2 2007

CMGI Plans Reverse Split, Buyback; Posts Wider Q4 Loss

Shares of CMGI Inc. skidded 12.5% to $1.40 AH Tuesday on news its fiscal fourth-quarter loss more than doubled, and that the company plans to do a one-for-10 reverse stock split. The provider of supply chain management products and services posted a loss of $6.2M ($0.01/share), compared to a loss of $2.5M ($0.01/share) a year earlier, as revenue fell to $252.6M from $261.9M. Earnings excluding certain items were $7.2M down from $7.6M last year, while the operating loss came in at $2.4M compared with operating income of $1.7M the prior year. According to Reuters Estimates, analysts had expected earnings of $0.02/share and revenue of $256.6M. The Company blamed the increased loss on higher restructuring and compensation costs, noting that SG&A expense, including restructuring and amortization of stock compensation, was $33M compared to $26.3M last year. "There is a lot of work required for us to achieve our long term financial goals, " said CEO Joseph Lawler. "Fiscal 2008 is an important transformational year for CMGI." Looking to fiscal 2008, CMGI expects revenue of $1.10B to $1.15B, and operating income that is approximately 2.0% to 2.5% of revenue, before any restructuring costs, which it estimated at $5M-$8M. CMGI also authorized the repurchase of up to $50M of its shares over the next 18 months. The reverse split will take effect November 1.
Sources: Press release, Reuters
Commentary: W.R. Hambrecht: CMGI Had 'Gotten Ahead of Itself' Leading Up To Earnings
Stocks/ETFs to watch: CMGI. Competitors: DRIV, SRT, MFE

HEALTHCARE/BIOTECH

Amgen Announces Layoffs

Amgen, the world's biggest biotech company, is planning to lay off more than 1,000 employees at two locations, the company announced Tuesday. Approximately 450 workers will be cut at its West Greenwich, RI, plant and another 675 at its Thousand Oaks, CA, headquarters. In mid-August, Amgen CEO Kevin Sharer said the company will cut staff by 12-14%, or about 2,220-2,600 workers. He said the company will slash capex by about $1.9 billion, cut back on R&D, and shut down some production operations. Amgen has suffered a fall-off in sales of its top drug, the anemia medication Aranesp, on safety concerns and new limits on Medicare cancer-treatment reimbursements. Shares closed off 0.7% Tuesday to $54.88; they are down 19.7% YTD.
Sources: MarketWatch, Dow Jones, LA Daily News, WPRI.com
Commentary: Amgen Cuts Workforce, Lowers GuidanceAmgen Shares Sink on Proposed Medicare CutsAmgen: Patience Could Be a Virtue
Stocks/ETFs to watch: AMGN. Competitors: BAX, JNJ, NVS. ETFs: BBH, PKW, RXL
Earnings call transcript: Amgen Q2 2007

INTERNATIONAL

Japan Trade Surplus Surges on Auto, Steel Demand

Japan's August trade surplus surprised to the upside, nearly quadrupling year-over-year to ¥743.2 billion ($6.5B) -- more than triple economists' estimates. Exports increased 14.5%, compared to 11.8% in July and better than economists' forecast of 10.9%. Imports rose 5.7%, a 33% month-over-month decline. The strong exports are credited to solid demand for autos and steel in Europe and China, easing some concerns of a slowdown in the U.S. Auto exports to China surged 88%. Overall, exports rose 23.8% to China, 16.4% to Asia as a whole, 15.6% to the EU and 4.6% to the U.S., year-over-year. Imports from the U.S. fell 4.6%, but increased 10.8% from the EU, 8.5% from China and 6.6% from the Asian region. While analysts agree export growth was high, they remain worried about slower global growth induced by U.S. subprime market woes. The Nikkei 225 traded Wednesday within a narrow range, ending 34 points (0.2%) higher. Sony was among the best performing exporters, +1.7% to ¥5,430. Auto stocks traded lower on concerns of U.S. weakness, despite the robust China sales. Nintendo shares gained 1.1% to ¥59,800 after the company Tuesday soared past Canon Inc. to become Japan's second most-valuable company, behind Toyota.
Sources: Ministry of Finance Trade Statistics, Bloomberg
Commentary: Japan's Revised Q2 GDP Disappoints; BOJ Hike UnlikelyJapan: Don't Waste Your Time and MoneyJapan: Nomura's September Individual Investor Survey
Stocks/ETFs to watch: TM, HMC, OTCPK:NSANY, SNE, MC, CAJ, OTCPK:NTDOY. ETFs: EWJ, FXY

MUST-READS ON SEEKING ALPHA TODAY

U.S. Market: Bernanke Meets Bush: The Perfect Storm
Housing: Think Housing's Bad? You Ain't Seen Nothing Yet
Long Idea: Nuclear Reactor: Huge Implications For NRG Energy
Short Idea: Standard Pacific Corp: America's Worst Homebuilder
Internet: Does Microsoft Need Facebook?
Networking: Alcatel-Lucent Still Struggling With Merger
Hardware: Citigroup Raises Mac Sales Forecast
Software: Will Halo 3 Help Drive Xbox Sales?
Gadgets: Something's Not Right About Motorola
Media: Cramer Prefers Sirius to XM
Healthcare: Jefferies' Strongly Worded Call Should Boost Accuray
Biotech: Cyclacel Pharma CEO Speaks About His Company
Transport: LKQ Corporation: Making the Most of Accidents
Gold: Gold Has More to Run, Whatever The Benchmark
Energy: Tidewater: Setting Itself Up for the Future
Financial: Upping Fannie's and Freddie's Antes Could Be Mistake
Asia: The Key to Successful Branding in China
ETFs: Q3 Earnings Preview by Sector SPDR
Hedge Funds: Citadel Boosts Stake in Zale Corp.
Sound Money: Make Your MBA More Affordable
Jim Cramer: Latest stock picks
Transcripts: Red Hat F2Q08Mobile TeleSystems Q2 2007Avanex F4Q07OmniVision F1Q08Freddie Mac Q2 2007Ciena F3Q07Joy Global F3Q07ADC Telecommunications F3Q07National Semiconductor F1Q08DaimlerChrysler Q2 2007Zale F4Q07TiVo F2Q08Novellus Q3 2007 Mid-QuarterTarget Corporation September Mid-Month Sales Release Transcript

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