Morning Note

July 25, 2011

Equity futures are trading below fair value as the August 2nd deadline looms with no sign of an agreement in sight to raise the US debt ceiling. Moody's has cut Greece's rating to one notch above default, saying the new bailout set a negative precedent for creditors of other debt-burdened countries.

Greece local- and foreign-currency bond ratings downgraded to CA from CAA1; outlook developing at Moody's. Cites EU announced support program and debt exchange proposals implying that private creditors will incur substantial economic losses on their holdings of government debt. Says current uncertainty about the exact market value of the securities creditors will receive in the exchange.

Libor fixings

Overnight Libor: Dollar: 0.123% vs prior 0.122% ; Sterling: 0.564% vs prior 0.564%; Euro: 0.921% vs prior 0.945%

1-month Libor: Dollar: 0.187% vs prior 0.187% ; Sterling: 0.632% vs prior 0.632%; Euro: 1.558% vs prior 1.395%

3-month Libor: Dollar: 0.252% vs prior 0.253% ; Sterling: 0.833% vs prior 0.833%; Euro: 1.558% vs prior 1.556%

Sep WTI crude ($1.07) to $98.80

Natural gas +$0.005 to $4.404

Gold +$19.80 to $1617.55

10-year yield 2.9859%

30-year yield 4.3082%

Asian Markets

Gold rose and Asian markets fell today as the US appeared no closer to reaching an agreement to avoid defaulting on its debt. Energy sector stocks declined on lower oil prices. Chinese airlines rose 3-5% as railway stocks plunged as much as 13% after a fatal high-speed train crash in Wenzhou,China, 23-July. A strong yen added to pressure from the US situation to send Japan down. Kawasaki Heavy (7012.JP) fell 3% in reaction to the high-speed train crash in China. Exporters were also weak in South Korea. At first, Posco (005490.KS) fell on results, but it ended the day edging higher.

China dropped on worries about a slowdown in manufacturing, compounded by the fallout from the weekend train crash. Australia Q2 PPI +0.8% seq vs +0.9% cons, +3.4% y/y vs +3.5% cons. The yen is trading at 78.19 to the US dollar.

European Markets

European equity markets retreated following recent gains as uncertainty surrounding a potential US debt deal and Moody's downgrade of Greece's sovereign debt weighed. Major indices have pared early losses.UK Jun mortgage approvals 31,747 vs prior 30,803 and year-ago 33,846. The pound and the euro are trading at $1.6262 and $1.4367 respectively

No key economic releases scheduled today.

Today's Key Events (Eastern Time)

10:00 Foster Wheeler to hold conference call on senior leadership succession plan: 973.935.8752 pc 84752401

11:00 Far East Energy Shouyang Block Drilling Update: 800.860.2442 / Intl 412.858.4600

—:— American Association for Clinical Chemistry ~ AACC

—:— JP Morgan Group Dinner with Verizon

—:— Society of NeuroInterventional Surgery ~ SNIS 

Company Specific News

Earnings

BEAV (BE Aerospace reports Q2 EPS $0.54 vs Reuters $0.51. Reports Q2: Revenues $608.9M vs Reuters $612.5M)

BHI (Baker Hughes reports Q2 EPS $0.93 ex-items vs Reuters $0.91. Reports Q2: Revenues $4.74B vs Reuters $4.55B

CALM (Cal-Maine Foods reports Q4 EPS $0.30 vs Reuters $0.29. Reports Q4: Revenues $242.4M vs Reuters $224.7M)

ETN (Eaton reports Q2 operating EPS $0.97 ex-items vs. guidance of $0.90-0.96. Reports Q2: Reuters consensus is $0.95. Revenues $4.09B vs Reuters $4.02B)

M&A

DOW (Dow and Saudi Aramco Announce Joint Venture to Drive Downstream Growth through World-Scale Chemicals Project)

EAD.FP (Eurocopter and Hindustan Aeronautics limited sign cooperation agreements to fortify their 50 year Long relationship. The long-time partners are in the process of signing agreements to further strengthen their industrial cooperation and links. With the launch of its India subsidiary – Eurocopter India Private Limited – Eurocopter demonstrated its commitment to the Indian market and industry, in which one of the key priorities would be the extension of industrial cooperation, further building on the 50-year relationship with HAL)

IRE (Ireland sells €1.12B stake in Bank of Ireland to group of investors. Per Reuters, investors will initially purchase €241M of the state's shareholding and will purchase the remainder of up to €882M after regulatory approvals. Ireland says it will maintain a minimum shareholding in the order of 15% in Bank of Ireland.)

VR (Validus Holdings commences exchange offer to acquire Transatlatic stock. Under the terms of the Exchange Offer, Transatlantic stockholders would receive 1.5564 Validus voting common shares and $8.00 in cash for each share of Transatlantic common stock they own. The terms and conditions of the Exchange Offer are set forth in the offering documents that Validus is filing today with the SEC.)

Offerings

PIMR (Pimco REIT files amended S-11; adds Morgan Stanley as a lead underwriter. On 5-Apr, Pimco REIT filed a $600M IPO through Credit Suisse, Goldman, and JPMorgan Proposed symbol for the NYSE is PIMR)

Management Changes / Announcements

YRCW (YRC Worldwide names James Welch CEO. YRC Worldwide announced that James Welch, a former President and CEO of Yellow Transportation, has been named as the company's new CEO, effective immediately.)

Newspaper Articles / Headlines

Barron's

- The Trader: last week the market rallied 1.6%, close to a 2011 high, Europe approved €109B bailout for Greece and Washington debated the debt ceiling, while companies reported strong Q2 earnings

- International Trader (Europe): Positive on Tesco (TSCO.LN)

- International Trader (Asia): Highlights Hankook Tire

- Current Yield: Treasuries loose safe-harbor appeal

- The Striking Price: Positive on Wynn Resorts (WYNN); recommends call and put buying to cash in

- Commodities Corner: Predicts that natural-gas prices are unlikely to rise

- Up and Down Wall Street: Greece's temporary solution and word from Washington about likely breakthrough in our debt-ceiling causes temporary relief in the markets

- StreetWise: Global markets rallies about 2% last week after Greece's bailout, causing the EU and IMF to take more responsibilty for Greece's debt

- D.C. Current: A study that Federal Reserve board Chairman Bernanke's crisis management has kept interest rates so low for so long that it has deprived savers of hundreds of billions of dollars in interest income.

- Technology Trader: Positive on Apple (AAPL)

- Plugged In: Microsoft (MSFT) and Intel's (INTC) positive earnings did not do much for its shares

- ETF Focus: Cumberland Advisors increases its financial stock holdings and cuts its energy holdings

- Fund of Information: Macro hedge funds usually follow big global trends to create a profit, but the lack of trends makes this strategy more dangerous

- Electronic Investor: Trefis, which tracks technology, media, telecom, consumer, retail, automotive, financial services and energy companies, and plans to expand to other industries such as pharmaceuticals, biotechnology and industrials is now available on E*Trade

- Speaking of Dividends: Gannett (GCI), Kinder Morgan Energy Partners (KMP), Oneok (OKE), Oneok Partners (OKS),Kinder Morgan Inc. (KMI) and Tessco Technologies (TESS) all increased their dividends last week

- Follow- up: Cautious on Greenhill & Co. (GHL), discusses Nalco Holdings (NLC) decision to be acquired by Ecolab (ECL)

- Barron's profile highlights Christopher Gust, Wolverine co-founder. Barron's notes that Wolverine has broadened its fund in order to trade event-driven strategies, closed-end funds and long-short equity bets. According to Barron's, one of Wolverine's biggest positions is Vale Capital II 6.75% Notes Series VALE-2012 which are hybrid-debt securities convertible into ADRs of Vale (VALE). The article notes that Archer Daniels Midland (ADM) has also been a profitable trade for Wolverine and highlights that at one point Wolverine was both short and long this ADM mandatory convertible security, which expired in June 2011. Barron's points out that Wolverine also trades around 700 names in the closed-end fund space and owns the Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund (ETW). The article notes that Wolverine added Advance Auto Parts (AAP) to the equity, market-neutral portion of the fund, and that according to Gust, AAP trades at a 26% discount to its peers on forward price/earnings of 13 times and a 33% discount on forward enterprise value-to-Ebitda of six times.

- Barron's interviews Mohamed El-Erian, Pimco CEO. El-Erian discusses his opinions and investment strategies in the midst of the many global crises with Barron's. El-Arian also discloses Pimco Global Multi-Asset's top 10 holdings, which include: PIMCO Stocks PLUS Fund (PSPAX), Vanguard Emerging Mkts ETF (VWO), PIMCO EqS Pathfinder Fund (PATHX), iShares MSCI EAFE Index ETF (EFA), PIMCO Global Adv Strat Bond (PAFCX), PIMCO Emerg Mkts and Infrastructure Bond Fund (PEMIX), PIMCO Emerging Local Bond (PELAX), PIMCO Total Return Fund (PTTAX), PIMCO Unconstrained Bond (PUBAX).

- Barron's positive on Weatherford International. Barron's argues that if Weatherford International (WFT) is able to put accounting problems and a bribery probe to rest, the stock could climb 50% by the end of 2013. Barron's notes that the company's shares fell 15% this year to $19, compared to rival Halliburton (HAL) which is up 40%, causing Weatherford to trade at 12.8 times estimated earnings for 2012, the lowest multiple of its peers and a bargain for investors. The article notes that according to Andrew Lees, lead manager of Invesco Energy Fund (IENAX), Weatherford is worth $20-$30 per share on a net-asset-value basis. Barron's also points out that Wall Street expects the company, with a market value of $14B, to earn $0.83 a share this year, and $1.51 next, which might be an understatement.

- Barron's feature positive on International Business Machines. Barron's argues that IBM's shares do not reflect the company's steady earnings growth and predicts that the stock could top $205 over the next year or two. The article highlights the company's "Roadmap," which is IBM's plan to deliver double earnings of "at least" $20 a share in 2015. Barron's notes that IBM: is ahead of schedule on its roadmap due to its push into the developing world, which is two thirds of its new customers and points out that IBM predicts emerging markets will deliver 30% of revenue by 2015, up from around 20% last year. has over $100B in sales, and is boosting sales growth to 3% to 5% a year. increased its earnings forecast for 2011 to $13.25 per share, up from its $13 January forecast. IBM is providing steady earnings growth with no surprises and points out that Daniel Falx, who follows the company for T. Rowe Price, calls the firm's $20 earnings target for 2015 "conservative."

- Barron's feature positive on Marathon Petroleum, HollyFrontier and Western Refining. Barron's argues that rising oil production in the U.S.and Canada is keeping U.S. crude prices sharply below those in the world market and independent oil refiners such as Marathon Petroleum (MPC), HollyFrontier (HFC) and Western Refining (WNR) are benefiting from abundant oil supplies in the middle of the country. The article points out that Marathon gets about a third of its crude at WTI-linked prices and that smaller HollyFrontier, Western Refining and Delek (DK) get all their oil at WTI-based levels. Barron’s points out that WTI is now at $99 a barrel, a $19 discount to Brent, the European benchmark, notes that the profit from refining a barrel of oil in the Midwest is now around $30 per barrel, triple the level of a year ago. The article argues that if the refinery business continues to be strong, companies such as Marathon could boost their dividends significantly or implement large share buybacks. Barron's notes that Evan Calio, an energy analyst at Morgan Stanley, thinks that Marathon Petroleum, trading around $40, could reach the mid-50s because the company has top-tier refining assets and is benefiting disproportionately from the mid-continent advantage. Barron's also notes that Edward Westlake of Credit Suisse, has a $95 price target, above last week's stock price of $73.

- Barron's argues that social-media companies that have gone public, filed plans for an IPO or are expected to do so, such as; Groupon (GRPN), Zynga, LivingSocial, Twitter, LinkedIn (LNKD), Pandora Media (P) and Zillow (Z) are overvalued. The article notes that Facebook is the most likely to support its hypothetical $100B value through its market position, growth and profit margins and notes that the other social-media companies have negligible profits at this point. The article compares the social-media companies to Google (GOOG) and notes that the social-networking companies are between 20% and 100% overvalued based on Google's median price-to-sales ratio, which as a public company is 11 and currently 7.0. Barron's highlights Lou Kerner, an internet analyst at Wedbush Securities, who covers Facebook argues that it can support its $100B value. In the article Kerner argues that based on forecasts of a steadily increasing share of global ad revenue and significant increases in other revenue sources, Facebook should approach $4B in revenue this year and $6.6B in 2012. The article also points out that, according to Kerner, Facebook's cash-flow margin is estimated to be near 50%, which would give the company $3.3B in cash flow next year and with a multiple of 30 times cash flow, you get to $100B.

Daily Mail

- Siemens was awarded Thameslink contract despite axles' not having been tested. The Daily Mail also reports that before the decision on the deal was made, Bombardier (BBD.B.CN) told the UK government that it would let 1K temporary workers go even if it won the Thameslink order.

Diario Economico

- China Power International (2380.HK) negotiating to buy 10% stake in EDP Energias de Portugal

Financial Times

- Deutsche Bank leadership succession issue nearing resolution. The FT says no decisions have been made yet, but this week is likely to be when one is reached. The article repeats the previously reported idea that Anshu Jain will be named co-CEO, most likely with Jürgen Fitschen. Also as previously reported, Josef Ackermann may become chairman; Welt am Sonntag reported yesterday (24-Jul in Europe) that supervisory board chairman Clemens Börsig is willing to vacate the position early for Ackermann.

- Russia, China continue to argue over price, preventing gas agreement from being signed. A Gazprom (GAZP.RU) executive tells the FT that the sides aren't close right now, though price is the only issue remaining to be worked out for the 30-year deal.

- Major banks not all signing on for new Greek rescue package. The FT reports that Royal Bank of Scotland (RBS.LN), Erste Bank (EBS.AV), Millennium BCP (BCP.PL), and Banco BPI (BPI.PL) are among those who are still thinking about whether to roll over their Greek debt for 30-year bonds. 30 banks including BNP Paribas (BNP.FP), Deutsche Bank (DBK.GR), and Allianz (ALV.GR) have committed.

- UK newsagents want new review of newspaper distribution by Office of Fair Trading. The FT reports that the National Federation of Retail Newsagents will dial up its efforts 25-Jul; an executive with the Newspaper Publishers’ Association says that circumstances haven't really changed since 2009, when the OFT declined to refer the sector to the Competition Commission. The OFT says another review is possible.

- Petroleo Brasileiro (Petrobras) announces five-year, $224.7B investment plan. The FT reports that the program, announced 22-Jul, will see 95% of the investment carried out in Brazil.

- Tesco heading toward providing free WiFi in all its stores. CIO Mike McNamara tells the FT that if a trial program in four doors goes well, free WiFi will probably be unrolled in all Tescos. The article does not give a timeframe.

- Energy select committee calls on big utilities in UK to give up "Del Boy" sales tactics. The FT reports that today (25-Jul in Europe), the MPs will release a report praising Scottish and Southern Energy (SSE.LN) for abandoning the use of door-to-door sales agents.

- Clinton Cards landlords worry that company will restructure its portfolio. The article only discusses landlords' fears and gives no indication of any inside information suggesting that a restructuring is definitely in the cards. Without addressing the property issue, Clinton Cards confirms to the FT that it now expects to refinance its £55M revolving credit facility in September rather than this month.

- Saint-Gobain (SGO.FP) likely buyer of Wolseley's Build Center. People familiar with the situation tell the FT that Wolseley will probably announce 25-Jul that it is in exclusive negotiations with Saint-Gobain. The sale is expected to be for about £200M.

- Fiat and Chrysler take further steps towards a full merger. The Financial Times reports that Fiat (F.IM) and Chrysler will become closer to a full merger this week after the carmakers report combined financial results for the first time and outline a new joint management structure. The article notes that Fiat’s second-quarter results, due out on Tuesday, will include one month’s figures from Chrysler. The Financial Times also notes that Sergio Marchionne, CEO of the two companies, is expected to outline plans for a unified 25-member executive team, which is likely to be a seperate announcement after the financial results are disclosed this week.

Investor Business Daily

- The following changes were noted in the latest IBD 50 List: Added: ALXN, WLT, AAPL, ISRG, ARMH, CHKP, GOOG. Deleted: RVBD, APKT, HUM, TZOO, EW, SHOO, MNTA

La Tribune

- Growing concern around Arnaud Lagardere's governance. The article which revives the debate about Arnaud Lagardere's credibility at the head of the company follows an internet posting where Lagardere is shown declaring his love to his new 20 year old girl friend. The newspaper notes that employees and managers have been complaining about Arnaud Lagardere's lack of involvement in company affairs, saying that he has been postponing or cancelling important meetings for the past six months.

London Telegraph / Sunday Telegraph

- Carlyle Group looks to sell up to £200M of equity in RAC. The Sunday Telegraph reports Carlyle has begun talks with investors including GIC, the Singaporean sovereign wealth fund, about selling up to £200M of equity in RAC. The article notes that Carlyle beat BC Partners and Clayton, Dublier & Rice in an auction that increased RAC's price beyond expectations. The article also points out that Carlyle was able to force Aviva to keep RAC's pension fund on its own books, but it had to increase its equity cheque to £525M, which is supplemented with £520M of debt and an overdraft and capital expenditure facility of £100M. The Sunday Telegraph notes that Carlyle hopes to sell part of its stake in RAC to reduce its exposure to a single asset.

London Times / Sunday Times

- General Motors halted sale of Opel, Vauxhall in 2009 to prevent buyers from selling factories to Russian state-owned carmaker. Citing WikiLeaks cables, the Times reports that Magna's (MG.CN) Russian partners kept amending the memorandum of understanding on the sale, imposing what the US embassy in Berlin described as "totally unacceptable demands."

- British Sky Broadcasting directors expected to support Murdoch this week. The Sunday Times reports that directors of BSkyB are expected to support Chairman James Murdoch this week and approve the first return of cash to shareholders in over five years. The article notes that Sky directors said that there would be discussions of “corporate governance” at a meeting on Thursday and that Murdoch was unlikely to be pushed out. According to The Sunday Times, sources say that, although expected to be less than the £2.4B analysts predicted, the board is likely to approve a return of cash to shareholders.

- Bidding proccess for All3Media slows as bidders wait for annual results. The Sunday Telegraph reports that it is unlikely a buyer for the company will emerge before late fall becasue it is understood that the bidders would like to see the company's full year numbers before progressing further in the auction process. The article notes that audited results are not expected until late September at the earliest. The article also notes, as previously disclosed, that potential buyers include: Apollo Management, Providence Equity Partners and Sony Entertainment (SNE).

New York Post

- American Apparel to expand distribution in upscale European department stores. Sources tell the NY Post that Selfridge's and Galaries Lafayette will send American Apparel items to more of their respective locations, and APP is working on a similar deal with Bloomingdale's (M). Financial details are not revealed. A source says CEO Dov Charney is asking APP investors for $2-4M more this week.

The Sunday Age

- Rupert Murdoch wants Lachlan Murdoch to buy News Limited. Biographer Michael Wolff tells the Sunday Age that Lachlan doesn't want to buy the Australian business and sell his 9% of Ten Network (TEN.AU). Wolff says that Lachlan was unimpressed when Rupert called people to see if they would buy Lachlan's Ten Network shares. The article talks to people who estimate News Corp's Australian assets are worth A$1.5-3.0B.

This is Money

- BC Partners bids £1.1B for Terra Firma's Odeon Cinemas. According to This is Money, BC Partners has bid for Terra Firma's Odeon cinemas, valuing it at £1.1B. The article reports that the bid has been rejected, but it is understood that BC Partners may come back with a higher offer. This is Money notes that it is believed BC Partners is bidding only for Odeon's operating business and not the attached property arm, valued at £200M, which owns the freehold of many cinema sites. The article points out that Hands previously indicated that he thought the Odeon & UCI Cinema Group was worth about £1.2B.

Wall Street Journal

- The WSJ summarizes where things stood as of last night: Unable to come to an agreement on how much to raise the debt ceiling and how much to cut spending, the two parties are moving toward setting up their own separate plans to solve the crisis. The plans are far from finalized, and details have largely not been provided. Rep John Boehner is thinking of a two-step ceiling increase, which would allow the Republicans to keep the debt-ceiling issue in the news as the 2012 elections approach. Democrats say a six-month solution would hardly calm financial markets, so they want one that will work through 2012. The WSJ notes that everyone's behavior over the weekend, if maintained, suggests that a bipartisan agreement may not be forthcoming. and the 2-Aug deadline might not be met. But the article also says that both Boehner and Sen Harry Reid are likely to come forward with plans that can be seen as compromising, partially in an attempt to score political points.

A plan by Sen Mitch McConnell is also in the mix, and while the White House seems willing to accept it if it has to, House Republicans are giving it the thumbs down.

- Last week's Obama-Boehner talks included possible cap on federal revenues. People familiar with the situation tell the WSJ that the $36.2T ceiling over the next ten years, if adopted, would enforce a limit on future tax increases. Negotiations didn't produce an agreement, but the article notes that the idea may come up again as talks continue.

- At July 26th meeting, Ameritrade (AMTD) directors to look at buying E*TRADE. People familiar with the situation tell the WSJ that discussing the possibility does not mean an offer will be forthcoming, and one source says the board has already considered bidding for E*TRADE over the past 12 months. The article says analysts think Charles Schwab (SCHW), who declined to comment, might also be an interested bidder.

- Teva Pharmaceutical puts shoe on other foot. The article is a summary, breaking no news. The WSJ points out that due to its brand-name business, Teva is now the defendant rather than the plaintiff in lawsuits challenging patents for a drug -- in Teva's case, Copaxone -- and now the plaintiff rather than the defendant in suits alleging patent infringment. The article notes that Teva is actually arguing precisely the same position for Copaxone that it is challenging in a separate lawsuit it is defending itself in, hoping to get permission to sell a generic version of Lovenox (SAN.FP).

- WSJ says Carl Icahn's ideas for Motorola Mobility aren't crazy. A "Heard on the Street" column says Mobilitty should be able to get some money for its patents, although a daunting gauntlet of tax issues and management opposition are likely to postpone a payoff.

- WSJ is positive on Apple. A "Heard on the Street" column says that the company has grown faster than expectations for a couple of years now, and it's attractively cheap at its current trading multiple.

- WSJ reins in pessimism on Caterpillar. A "Heard on the Street" column says that the 22-Jul selloff was overdone, given that CAT missed earnings expectations by less than 2%, and more than half of its revenue this year will come from sectors for which companies are likely to maintain spending.

- WSJ is cautious on PepsiCo. A "Heard on the Street" column notes that Pepsi's strategy against Coke (KO) seems to need to involve heavy advertising, which may bring Pepsi greater market share, but won't expand its margins.

- WSJ recommends against BP breaking itself up -- for now. A "Heard on the Street" column says that splitting the company would create value in principle, but points out that the refinery and exploration-and-production units actually enjoy some synergies.

- WSJ previews UAW contract talks. The article does not contain anything surprising. People familiar with the companies thinking tell the WSJ that the carmakers want lower labor costs, and they hope they will get the UAW to accept lower salaries in exchange for more jobs. Ford (F) will probably see trickier negotiations than will General Motors (GM) or Chrysler (F.IM).

- Google changes search engine's information display to appease rivals. According to the WSJ, Google (GOOG) has made changes to the way its search engine displays information about local businesses by removing parts of customer reviews that were taken from other Web firms for its Google "Places" service. The article notes that the move follows the disclosure of a U.S. antitrust investigation of Google's business practice.

The article notes that some rivals welcomed the changes, however, they continued to support the antitrust investigation into Google and argue that Google still gives higher placement to Google Places over actual links to the company's websites in its search results. The WSJ notes that Google has denied anticompetitive practices and states that it creates services to benefit users. According to the article, copyright lawyers have said Google's use of reviews from other sites could possibly be protected under the "fair-use doctrine", which Google explains is the reason it can excerpt news articles in its Google News service.

Research

Barclays Capital: upgraded TXT

BB&T: upgraded BWS

Canaccord Genuity: downgraded PAAS

Citi: downgraded CX

Goldman Sachs: upgraded WNS, DUK; downgraded CSC, SO, KR, SWY, PEP

Jefferies: upgraded MSI, ASBC

RBC Capital: upgraded COL

Roth Capital: downgraded HOLI

SunTrust: downgraded PRSP

UBS: upgraded INTU

WHAT TO WATCH: Stocks declined, Treasuries fell and gold rallied to a record as Obama and Congress failed to reach a deal on raising the U.S. debt ceiling. Greece�s credit rating was cut three steps to Ca by Moody�s, which said the EU�s rescue will cause �substantial� losses for investors. Turkey�s central bank suspended daily purchases of dollars and cut the cost of long-term deposits in foreign exchange. The Bank of Israel will probably keep its benchmark interest rate unchanged for a second month, 10:30 a.m.


Focus Items
US Weekly Kickstart: Rising profits despite faltering economy: Both EPS and
margins will reach new high in 2Q 1
Americas: Retail: Supermarkets: Cyclical tailwinds moderating and inflation
rising; KR/SWY to Sell 2
Whole Foods Market, Inc. (WFM): 3Q to demonstrate sustained momentum,
Reiterate CL-Buy 3
United States: Utilities: Still cautious utilities before 2Q; upgrading DUK,
downgrading SO 4
Americas: Technology: IT Services-Consulting & Outsourcing: Earnings preview;
Downgrade CSC to Sell on high DoD exposure; Upgrade WNS to Neutral 5
Americas: Specialty Finance: Diversified: Rating agency 2Q preview - what to
look for in results; Buy MHP 6
General Electric Co. (GE): Outlook remains favorable, reiterate Buy 7
PepsiCo, Inc. (PEP): Downgrading to Neutral as our thesis no longer intact


July 25 (Bloomberg) -- U.S. debt downgrade would lead to
rising interest rates, higher inflation, decline in value of
financial assets including housing, says Rochdale�s Dick Bove.
U.S. cost of funds will rise, driving up the deficit, leading to cuts in entitlement programs, higher taxes
Housing costs will rise, driving prices down further, re- igniting default problems if Fannie, Freddie, Ginnie can�t raise monies at reasonable rates
Municipalities will face rising borrowing costs
Inflation will rise as value of dollar falls
Holders of treasury debt (China, Japan) will see decline in asset values, lowering desire to hold, increasing desire to sell


Up up and away � indicators point to continued rally
The S&P 500 held support at 1295-1300 and is set up to test resistance at 1350-
1370. The indicators are positioning the equity markets to make new recovery
highs. Similar to September 2010, the 30-day TRIN has generated an oversold
buy signal, suggesting higher stock prices ahead. Also the VIX index remains in a
downtrend, which we view as constructive for the market. A break of 1370 on the
S&P 500 points to a test of resistance at 1400-1440. Our target remains 1400. @ ML
http://seaofopportunity.blogspot.com/




Moody's Investors Service slashed the Greek government's debt ratings three notches further into junk territory, citing the likelihood that private creditors will suffer "substantial" losses on their holdings of government debt.


The credit-rating agency cut Greece's foreign- and local-currency bond ratings to Ca from Caa1, assigning them a developing outlook due to uncertainty over the exact market value of the securities that creditors will receive in a debt exchange.


Moody's said the program announced by the European Union indicated that the likelihood of a distressed exchange and a default on Greek government bonds was �virtually 100%."


http://online.wsj.com/article/SB10001424053111903999904576467201581028880.html?mod=djemalertNEWS


It is now becoming a real possibility that the United States debt may be downgraded. If the debt is downgraded, the following entities are expected to pay more for money: The United States will pay more for funds and this will increase the deficit increasing the need to cut entitlement programs and increase taxes. Any recipient of funds from the United States will receive less. Government agencies will lose access to the money markets at reasonable rates. This means that Fannie Mae, Freddie Mac, and Ginnie Mae among many government agencies tied to housing will have difficulty raising new monies at reasonable rates. This will increase the costs of owning a house. It will drive housing prices down further, re-igniting the housing default problem. Municipalities who have tied a number of the debt issuances to base Treasury rates will see their cost of borrowing rise. This will increase their financial problems and could drive local taxes higher across the country as state and municipal governments seek new monies to pay for the higher interest rates. The Federal Reserve itself will be powerless to impact the cost of money in the United States. The value of the dollar will fall/is falling. This increases the cost of goods purchased from overseas. This drives inflation higher.


? DODD-FRANK BILL-- Dodd-Frank Reducing Bank Revenues by $9B Spawns New Fees. BAC, JPM & WFC are among the 10 largest  U.S. banks that may lose more than $9B in annual revenue from two parts of the Dodd-Frank regulatory overhaul.
? EL-ERIAN-- The U.S. government may lose its AAA credit rating even if lawmakers reach a plan to avoid a default, said Mohamed A. El-Erian.
? GS-- Succeeding Blankfein at Goldman May Be Hurdle Too High for Cohn
? IRE�Bank of Ireland to Avoid State Control With Sale of Stake
? MERGER & DEAL NEWS�
1. U.K., India in $1.6B Trade Accords After BP-Reliance Deal
2. TD Ameritrade directors to meet Tuesday to discuss pursuit of ETFC, WSJ
3. Dunkin� Brands Seeks Premium to Starbucks in IPO on Expansion
4. Dow, Saudi Aramco Approve $20B Joint Petrochemical Plant
? COMMODITIES�
1. Funds boosted bets on rising commodity prices by the most in almost a year on speculation that the global economic recovery will prove resilient.
2. Gold Advances to Record
3. Oil Declines
4. Wheat Slumps
5. Sugar Rises
6. Coffee Advances
7. North Dakota Soggy Wheat Fields Dimming Prospects for Harvest
8. Food Prices to Stay High, IFAD Says
9. Food Costs Rising as Coke, Chipotle Pass on Commodity Increases
? BP-- could unlock $100B for BP investors by following ConocoPhillips and splitting up Europe�s second-biggest oil producer.
? NFLX� DreamWorks Animation said to be talks to offer Netflix exclusive streaming rights to its films, replacing HBO pact
? SAMSUNG�
1. maker of the Galaxy mobile phone, may have surpassed NOK & AAPL in smartphone sales for the first time on demand for devices that run on Android software.
2. Samsung Denies Report It Hired Former Acer Chief Lanci
? RIMM -- plans to cut about 2,000 jobs, or about a tenth of its workforce, as sales slow amid market share losses to AAPL�s iPhone.
? AAPL-- Fake Apple Stores Ordered by Chinese City to Close After Probe
? FUTURES�1330.90, DOWN 9.10.
? NEW HIGHS: 190.
? NEW LOWS: 26.
? OVERBOUGHT: 144.
? OVERSOLD: 112.






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 No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.