Morning Note

August 18, 2011




US futures are all trading lower following weakness in Asia overnight and a widespread sell-off in Europe. Morgan Stanley reduced there GDP forecast for 2011-12 and said US and Europe are close to a recession, which is getting a lot of media attention. Attention will focus on weekly initial jobless claims, CPI and Existing Home Sales due out later this morning for any sign of an improving macro environment. Gold has just broken above $1800 for the first time.



Sep WTI crude ($2.18) to $85.40

Natural gas (0.02) to $3.92

Gold $19.70 to $1810.95

10-year yield 2.115%
30-year yield 3.496%


Asian Markets

Most Asian markets declined. Hong Kong ended the morning virtually unchanged, though closed lower led by Chinese property stocks. Lenovo (992.HK) initially rose, but then fell on results.Japan fell on a strong yen and weaker-than-expected July exports. Sharp (6753.JP) fell despite a report that Apple would invest in one of its factories. Banks and miners fell in Australia on profit-taking. Dell’s (DELL) outlook from earlier this week continued to send Acer (2353.TT) and other PC makers down in Taiwan. Shipbuilders and tech stocks led South Korea down. LG Display (034220.KS) fell on news that Apple (AAPL) may diversify some parts sourcing away from it. Telecoms rose as their stable dividends made them attractive buys. Evergreen Solar (ESLR), declared bankruptcy. The yen is trading at 76.67 to the US dollar. Japan July trade balance ¥72.5B vs cons ¥70.1B

European Markets

European equity markets fell from the open following a mixed close on Wall Street and lower Asian markets, as disappointing corporate results and the lingering concerns surrounding the outlook for global economic growth and regions debt crisis hit sentiment. Morgan Stanley's lowering of its forecast for global growth also weighed. Swiss franc weaked on talk that the Swiss National Bank was intervening in the forwards market. Major indices trade at session lows. All sectors trade lower led by construction (2.8%), auto (2.7%) and basic resources (2.5%), followed commodity prices down. Defensive sectors dominate the relative performers telecom (0.2%), healthcare (0.3%) and food & beverage (0.7%).


Today's Economic Releases (Eastern Time)

04:30 UK Retail Sales (Jul); consensus n/a
05:00 Eurozone Construction Orders (Jun); actual (1.8%); consensus n/a
08:30 US Initial Jobless Claims (13-Aug); consensus 400K
08:30 US Continuing Claims (06-Aug); consensus 3698K
08:30 US CPI (Jul); consensus +0.2%
08:30 US CPI ex Food & Energy (Jul); consensus +0.2%
09:45 US Bloomberg Consumer Comfort (14-Aug); consensus n/a
10:00 US Existing Home Sales (Jul); consensus 4.88M
10:00 US Leading Indicators (Jul); consensus +0.2%
10:00 US Philadelphia Fed Index (Aug); consensus +2.2
10:30 US EIA Natural Gas Inventories (12-Aug); consensus n/a

Today's Key Events (Eastern Time)

08:00 Cree acquires Ruud Lighting: 800.374.1789
08:30 CONSOL Energy discusses signficant gas announcement to be made @ 7.00 ET
08:35 Fed's Dudley speaks on regional and national outlook
09:30 Target Analyst Meeting
10:00 Wi-lan Inc announces intention to make an All-Cash takeover offer for MOSAID Technologies: 877.407.0778
13:00 Treasury Auction of 5-yr TIPS
—:— Bank of America Merrill Lynch Asian Technology Tour
—:— EnerCom Oil and Gas Conference
—:— National Investment Banking Association Conference


Company Specific News

Earnings
BKE (The Buckle reports Q2 EPS $0.50 vs Reuters $0.51. Reports Q2: Revenues $212.4M)
CACI (CACI International reports Q4 pro forma EPS $1.28 vs Reuters $1.17)
HOTT (Hot Topic reports Q2 EPS ($0.08) ex-items vs Reuters ($0.08))
JASO (JA Solar reports Q2 EPS ($0.22) vs Reuters ($0.01))
JDSU (JDS Uniphase (JDSU) reports Q4 non-GAAP EPS $0.23 vs Reuters $0.23)
PERY (Perry Ellis reports Q2 EPS $0.11 vs Reuters $0.04. Reports Q2:
Revenues $214.4M vs Reuters $203.9M)
PETM (PetSmart reports Q2 EPS $0.54 vs Reuters $0.51)
SHLD (Sears Holdings reports Q2 EPS ($1.13) vs Reuters ($0.64); First Call is ($0.46))
SJM (J.M. Smucker Q1 EPS ex-items $1.12 vs Reuters $1.09, reaffirms FY guidance)
SNPS (Synopsys reports Q3 non-GAAP EPS $0.46 ex-items vs Reuters $0.43)
SSI (Stage Stores reports Q2 EPS $0.29 vs Reuters $0.29)
TECD (Tech Data reports Q2 EPS $1.10 vs Reuters $0.95)

M&A
CNX (CONSOL Energy and Noble Energy (NBL) enter joint venture for CNX's Marcellus Shale acreage; NBL will acquire 50% of CNX's interest for aggregate payments of ~$3.4B)


Newspaper Articles / Headlines

Bloomberg
- Woodside CEO hopes Shell (RDSA.LN) remains largest shareholder. The article notes that Peter Coleman made the remarks in an interview today
takeover speculation has been rife after Shell sold a 10% stake last year, leaving it with 24%.

Business Insider
- Groupon running "seriously low" on cash. The article is a summary, not breaking any news. Business Insider reports that the company had $225M of cash on hand as of 30-Jun, but it owed $392M to merchants. The company's working-capital deficit was $304M at the end of Q2, vs $229M seq. The article notes that Groupon can make it to its IPO as long as it keeps growing fast, but a pre-IPO cash crunch is well within the realm of possibilities for the company.

EE Times
- Texas Instruments not selling OMAP multimedia applications processor line. A spokesperson tells EE Times that despite published rumors saying that Broadcom (BRCM), Advanced Micro Devices (AMD), or Intel (INTC) may want to buy the unit, Teas Instruments is committed to it.

Financial Times
- VTB Bank takeover of Bank of Moscow questioned. The FT, citing people close to the former president of the collapsed bank, reports that the bail-out was politically motivated and part of a carve up of the bank's assets following the ousting of Yury Luzhkov as the city's mayor last year VTB bought the government's 46.5% stake in Bank of Moscow in February, battled for control and then claimed there was a large amount of bad loans on the books. The central bank then gave the bank low-cost funding and VTB injected RUB100B and took its stake up to 75% the bad debts were artifically created by underestimating the amount of collateral.
- Motorola/Google (GOOG) deal could face antitrust scrutiny. The FT, citing antitrust experts, reports that the deal could be delayed until next year and with conditions on how to run the handset business although lawyers have dismissed the risk, the acquisition touches a number of issues already under investigation, such as Europe has already questioned Google's use of Android and will look at the risk of the company "leveraging its dominance in search into mobile search" The US is also looking at Android in the same contest
Europe may try to ensure Android remains an open operating system available to other handset makers.
- Danish regulators ask police to probe Nordea Bank's role in Pandora IPO. The FT reports that Denmark's financial supervisory authority reported the bank to police for failing to disclose its financial interest in Pandora before the IPO last year and after the company lost 70% this month after a profit warning. The bank says the financial interest wasn't spelt out in the research but highlighted in the cover letter and prospectus sent to investors.
- Criminal case against Eurasian Natural Resources shareholders settled. Belgian justice officials tell the FT that without admitting guilt, 45% shareholders Alexander Mashkevich, Patokh Chodiev, and Alijan Ibragimov paid a fine to settle outstanding money-laundering and forgery charges, and the charges were therfore dropped 30-Jun. A person familiar with the company says that now that the legal issues are gone, Mashkevich will be nominated to the board and then named chairman.

FTD
- Air Berlin CEO Joachim Hunold offers to resign 1-Sep; no reason given. The FTD reports that director Hartmut Mehdom will serve as a transitional CEO, and the board could, in theory, reject Hunold's offer.

Guardian
- Van de Velde buys 87% of Rigby & Peller for £8M. The purchase of the stake in the British lingerie company was announced yesterday (17-Aug in Europe).

London Times
- Ofgem thinks energy suppliers may have overcharged some customers on bills that straddle two different tariff periods. The Times reports that Ofgem thinks -- on the basis of complaints from Times readers -- that in some cases, the higher charges may have been applied to an inappropriately large portion of the bill.
- The Sage Group has offered up to A$1.4B (£900M) for MYOB. Without citing sources, the Times reports that the offer is 10% higher than others that have been made for the Australian software company, and a deal could be announced this week. MYOB reported operating profit of A$105M last year.

Los Angeles Times
- Strike could be looming for grocery stores in southern California. Sources on both sides of negotiations between the United Food and Commercial Workers and Ralphs (KR), Vons (SWY), and Albertsons (SVU) tell the LA Times that the talks have become frustrating. A second vote on authorizing strikes will be held 19-August.
- YouTube agrees to pay licensing fees to National Music Publishers Assn. The LA Times reports that the deal, whose terms are not revealed, will settle an ongoing legal dispute with more than 3K independent music publishers. YouTube has separate contracts with the four major music publishers.

Manager Magazin
- Lufthansa to sell 51% of Lufthansa Systems to either IBM (IBM) or Tata Group. Informed sources tell Manager that Tata has a better of winning the competiion. In 2010, the IT subsidiary saw revenues rise 2% to €595M, while operating profit plummeted 38% to €10M.

New York Post
- Time running out for global foreclosure settlement. Sources tell the NY Post: If an agreement is to be reached, it will have to be reached in the next few weeks. State AGs continue to disagree on whether to exempt big banks from further litigation as part of a settlement; the article says that New York AG Eric Schneiderman and Massachusetts AG Martha Coakley are "hardliners," while Iowa AG Tom Miller and the Obama administration would prefer to reach a deal even if a few states are excluded. State AGs also disagree on numerous other issues, meaning that each state negotiating its own settlement is looking more and more likely.
- Wal-Mart seeing more out-of-stock merchandise than ever before. Sources tell the NY Post that Wal-Mart has told suppliers its out-of-stock levels are running at 7% vs a typical less-than-5% of merchandise. The problem has not been helped by Wal-Mart's efforts to cut inventory.

Wall Street Journal
- WSJ is cautious on Abercrombie & Fitch. A "Heard on the Street" column says the company needs to generate interest among consumers overseas, given its declining stature in the US.
- UAW seeks strike authorization vote by Ford workers. The WSJ reports that President of the UAW Bob Kin instructed union locals to get authorization vote for a strike so that if negotiations fail before contract ends on 14-Sep, a strike could be held straight away. Ford is the most vulnerable to a strike as it is the only one of the Big Three without a no-strike agreement
A UAW spokeswoman called the move routine
- WSJ discusses speedy FDA approval of targeted therapies. The WSJ reports that Roche's (ROG.VX) vemurafenib was approved earlier today before an accelerated deadline of October as the agency feels "If there is a group that a drug works really well in, there is some urgency getting it to them," said Robert Temple, a senior FDA official. The Dr added that it is easier for regulators to judge experimental therapies which show a strong benefit in select pateients and clinical trials don't need to be so large. The agency is expected to approve Pfizer's (PFE) lung-cancer therapy crizotinib soon also.
- Exxon Mobil fights US government for big oil find. The WSJ reports that: The find in the Gulf of Mexico, called Julia field, contains around 1B barrels of oil, according to the company and has filed a suit to preserve the leases The Interior Department says Exxon's leases have expired and the company has not met the requirements for an extension The court battle will be played out against a backdrop of the government making an issue of unused leases and the tax lost by them as well as the wake of the BP oil spill
Statoil (STL.NO) which owns 50% of the field has filed its own suit.
- WSJ is negative on Carlsberg. A "Heard on the Street" column says that the company's problems in Russia outweigh its successes in Poland and elsewhere.
- Fed looks at European bank's US arms. The WSJ, citing people familiar with the matter, reports that the Fed has been having extensive meetings with the lenders to assess their exposure to financial pressures the Fed is asking for information on whether they have access to US dollar funding ona day-to-day basis recent data shows foreign banks US cash reserves fell to $758B as at 3-Aug down 16% from three weeks earlier.
- Eastman Kodak kicked off patent sale this week. According to the article, Lazard has started marketing the patent portfolio this week, citing a person familiar with the situation, and the auction will be held in two stages. According to a source close to a company that has interest in buying the patents, the interested company is a "large, strategic buyer in the wireless industry" seeking the patents for defensive protection.

SEC accused of destroying thousands of investigation documents. The failure of authorities to put Wall Street executives in jail for actions related to the financial crisis has taken on an explosive turn with the accusation that the SEC destroyed documents related to at least 9,000 preliminary investigations into banks and hedge funds, erasing valuable information that would have assisted other inquiries. The allegations were made in a letter to Senator Charles Grassley - which was released yesterday - from the attorney of SEC whistleblower Darcy Flynn. The eliminated data included information about Goldman Sachs (GS), Deutsche Bank (DB), Lehman Brothers (LEHMQ.PK), Citigroup (C), Bernard Madoff, and SAC Capital Advisors.DOJ probes S&P for inproper ratings. The Justice Department is reportedly investigating whether S&P (MHP) improperly rated dozens of mortgage securities in the lead-up to the financial crisis. In the probe, which began before S&P downgraded the U.S., the DOJ has been asking about instances in which S&P analysts wanted to give lower ratings on mortgage bonds but may have been overruled by business managers. The SEC is also investigating S&P for any wrongdoing, and possibly Moody's (MCO) and Fitch (FMLCF.PK) as well.
Sears' losses significantly worse than expected. Sears' (SHLD) Q2 losses widened by far more than forecast as weak sales and large discounts harmed margins. Adjusted EPS came in at a loss of $1.13 vs. $0.19 a year earlier and Street predictions of $0.64. Revenue slipped 1% to $10.33B but was above estimates. The company is attempting to effect a turnaround by cutting costs, closing underperforming stores, and launching exclusive lines such as the Kardashian Kollection.
Core inflation estimated at +0.2%. Inflation figures are due out this morning, with economists predicting that core CPI rose 0.2%, the smallest gain in three months. Headline CPI is forecast at +0.2% vs. an unexpected fall of 0.2% in June. Figures that meet estimates or come in lower would strengthen the Fed's projections that inflation will stabilize, and give the central bank more room for further monetary easing. However, earlier this week, reports showed that July PPI rose more than expected while the cost of imported goods also increased.
Exxon and government battle over massive oil discovery. Exxon (XOM) has sued the government to retain leases to one of its biggest oil discoveries ever, the Julia field in the Gulf of Mexico, which contains an estimated 1B barrels of recoverable oil. The Interior Department says Exxon's leases have expired and the company didn't fulfill the requirements for an extension. If Exxon loses the case, the leases could revert to the government, although giving the permits to another company could cause further delays in the collection of tax royalties.
U.S. regulators step up oversight of EU banks. The NY Fed is reportedly demanding more information from big European banks about whether their U.S. units have the ability to fund themselves. Regulators are worried that the eurozone debt crisis could harm the banks' ability to finance loans and meet other obligations in the U.S. Morgan Stanley estimates that leading European banks still need to raise roughly €80B ($115B) by the end of the year to meet their total funding requirements.
NetApp plunges on weak revenue. Shares in NetApp (NTAP) plummeted 12.5% in post-market trading after the data-storage systems company said it saw a "fairly dramatic slowdown" in the final three weeks of July and gave FQ2 revenue guidance below analyst expectations. FQ1 sales grew 26% to $1.46B but were also below Street predictions, while EPS dropped as expected to $0.34 from $0.40. Although NetApp has enjoyed generally strong corporate demand, the firm has been hit by a slump in the federal and financial-services markets. The company also announced the retirement of CFO Steve Gomo.
China Mobile meets Jobs over introducing iPhone. China Mobile (CHL) has met Steve Jobs several times about introducing an iPhone based on the carrier's own network standard, which Apple (AAPL) doesn't support. China Mobile already has 7.44M iPhone customers on its network even though users can't surf the Web at 3G speeds because of the reduced compatibility. The disclosure came after China Mobile announced H1 earnings that beat forecasts, with net profit rising 6.3% to 61.28B yuan (US$9.59B) and operating revenue climbing 8.8% to 250.08B yuan. The carrier also declared an H1 dividend of HK$1.58 ($0.20).
Coke to plough $4B into China. Coca-Cola (KO) intends to invest $4B in China over the next three years, adding to the $3B it has spent since 2009, as it looks to build on "double-digit" growth in its third-largest market. However, there won't be acquisitions, "because we're seeing so much potential for organic growth," said CEO Muhtar Kent. Instead, the company will put the money into new factories, expanding existing plants, marketing, and product development. Coca-Cola's new spending is greater than that of PepsiCo (PEP), which last year embarked on a three-year $2.5B program.
Fosters again snubs SABMiller. Foster's (FBRWY.PK) has rejected for a second time SABMiller's (SBMRY.PK) A$9.51B ($9.97B) takeover offer as being too low after the U.K. brewer yesterday took its bid directly to shareholders. The A$4.90 a share proposal is below Foster's close today of A$5, and analysts reckon SABMiller might have to increase its bid to up to A$5.20 to win over investors. Foster's rejection came on the same day Japan's Asahi Group said it will buy New Zealand's Independent Liquor for ¥97.6B ($1.27B).
Ex-NOTW Hollywood reporter arrested. News Corp.'s (NWS) problems in the U.S. may have become exacerbated following the arrest of former News of the World showbusiness reporter James Desborough over phone-hacking. Desborough worked in Los Angeles from April 2009 covering the U.S. celebrity scene.
Court OKs Lehman CLO deal. In an indication of the recovery of the market for esoteric financial instruments, a bankruptcy court yesterday authorized an agreement to securitise loans from a $5.3B Lehman Brothers (LEHMQ.PK) portfolio. WCAS Fraser Sullivan will take over the management of the assets and will earn money for creditors by selling collateralized loan obligations, with the management firm expecting to securitise at least $1B of loans within the next year. In each sale, the Lehman estate will retain the equity tranche, the riskiest element of a CLO.

Research

Bernstein: upgraded EIX, TYC; downgraded HON
Cantor Fitzgerald: upgraded RWT
Citi: downgraded VIT
CRT Capital: upgraded BZH
First Analysis: upgraded ALB
Goldman Sachs: upgraded TEN, BWA, BYI, WMS; downgraded TRW, GT
Handelsbank: downgraded RCL
Keybanc: upgraded AKR
Longbow: downgraded ALB
Merriman: upgraded SIX
Oppenheimer: upgraded BJRI, DPZ, MCD, PNRA; downgraded BAGL, SBUX, SONC, TXRH
RBC Capital: upgraded UDR, RUSHA, TDG; downgraded BEAV
RW Baird: upgraded ANF; downgraded HCP
Stifel Nicolaus: upgraded BPO, CLI, FSP; downgraded OFC, PLD
ThinkEquity: upgraded SINA
William Blair: downgraded NTAP
Wunderlich: downgraded IVR


Options

Vols will tick up today and as we mentioned late last week, the road to vol compression will continue to be more bumpy than the back in May 2010 as the macro issues are much more severe this time around. Skew remains elevated in the SPY and IWM with 2nd month 25/50 delta put skew are at their 89th and 95th percentile on a 1yr basis, respectively. This steep downside skew makes put spreads an attractive option for protection. 

Several bearish data points out
causing the weakness.

--> Hawkish comments out of Fed governors Plosser and Fisher yesterday getting
a lot of press this morning.

--> Morgan Stanely economists lower their 2011 and 2012 global growth forecasts.

--> The WSJ is reporting that the Fed is looking closely at European banks' US
arms, making sure dollar funding is adequate. The article highlights that
foreign banks' US cash reserves fell 16% in the 3 weeks preceding Aug 3rd.

--> Sweden's financial regulator made comments that it wouldn't take much for
interbank lending to freeze.


? U.S.A.�
1. Two FED policy makers said the central bank�s commitment to keep its benchmark rate near zero for two years may create a misperception it�s aimed at boosting stocks.
2. U.S. Senator Charles Grassley asked the SEC to answer allegations that the agency destroyed files from initial investigations of firms including GS,  SAC Capital and Bernard Madoff.
3. DOJ investigating whether S&P executives overruled when analysts wanted to give lower ratings on mortgage bonds: NYT
? EUROPE�
1. U.S. regulators are stepping up scrutiny of local operations for Europe�s largest banks on concern that the region�s sovereign debt crisis  may lead to funding problems, WSJ.
2. The ECB needs to back up last week�s record purchases of government debt with further buying to prevent speculators from driving borrowing costs for Spain and Italy back up again.
3. Swedish banks  must do more to prepare for a deterioration in Europe�s debt crisis  that could freeze interbank markets  and cut off funding. It won�t take much for the interbank market to collapse.
? GLOBAL GROWTH�
1. Morgan Stanley cut its forecast for global growth this year, citing an �insufficient� policy response to Europe�s sovereign debt crisis, weakened confidence and the prospect of fiscal tightening.
2. Container lines  may miss their peak-season targets on Asia-U.S. routes as orders for backpacks, sneakers and flatscreen TVs fall below expectations and ships sail below-capacity. Christmas shipping may be the same.
? INVESTMENT BANKING-- Chinese securities firms are making inroads in international investment banking markets, driving up hiring costs and spurring tighter competition for deals.
? GREECE-- Austria will join Finland in asking Greece for collateral in exchange for new emergency loans.
? VENEZUELA� Venezuelan President Chavez ordered the central bank to repatriate $11B of gold reserves held in developed nations� institutions such as the Bank of England as the metal rises to record levels.
? ARGENTINA-- Argentine reserves are falling to their lowest levels in a year, fueling speculation the government may have to tap international debt markets in 2012.
? EGYPT-- Gunmen Open Fire on Israeli Bus Near Egypt, Wounding Five
? SYRIA-- Syrian security forces killed at least 25 protesters yesterday.
? BAHRAIN-- The defaced walls of the Bahraini village of Burhama reflect the mounting tension between Muslims from the Shiite community and the Sunni- led royal family. Every day, the village�s Shiites spray anti-monarchy graffiti on the facades of its buildings.
? LIBYA-- Libyan Rebels Push South From Misrata to Cut Tripoli Highway


U.S.A.�
1. Two FED policy makers said the central bank�s commitment to keep its benchmark rate near zero for two years may create a misperception it�s aimed at boosting stocks.
2. U.S. Senator Charles Grassley asked the SEC to answer allegations that the agency destroyed files from initial investigations of firms including GS,  SAC Capital and Bernard Madoff.
3. DOJ investigating whether S&P executives overruled when analysts wanted to give lower ratings on mortgage bonds: NYT
? EUROPE�
1. U.S. regulators are stepping up scrutiny of local operations for Europe�s largest banks on concern that the region�s sovereign debt crisis  may lead to funding problems, WSJ.
2. The ECB needs to back up last week�s record purchases of government debt with further buying to prevent speculators from driving borrowing costs for Spain and Italy back up again.
3. Swedish banks  must do more to prepare for a deterioration in Europe�s debt crisis  that could freeze interbank markets  and cut off funding. It won�t take much for the interbank market to collapse.
? GLOBAL GROWTH�
1. Morgan Stanley cut its forecast for global growth this year, citing an �insufficient� policy response to Europe�s sovereign debt crisis, weakened confidence and the prospect of fiscal tightening.
2. Container lines  may miss their peak-season targets on Asia-U.S. routes as orders for backpacks, sneakers and flatscreen TVs fall below expectations and ships sail below-capacity. Christmas shipping may be the same.
? INVESTMENT BANKING-- Chinese securities firms are making inroads in international investment banking markets, driving up hiring costs and spurring tighter competition for deals.
? GREECE-- Austria will join Finland in asking Greece for collateral in exchange for new emergency loans.
? VENEZUELA� Venezuelan President Chavez ordered the central bank to repatriate $11B of gold reserves held in developed nations� institutions such as the Bank of England as the metal rises to record levels.
? ARGENTINA-- Argentine reserves are falling to their lowest levels in a year, fueling speculation the government may have to tap international debt markets in 2012.
? EGYPT-- Gunmen Open Fire on Israeli Bus Near Egypt, Wounding Five
? SYRIA-- Syrian security forces killed at least 25 protesters yesterday.
? BAHRAIN-- The defaced walls of the Bahraini village of Burhama reflect the mounting tension between Muslims from the Shiite community and the Sunni- led royal family. Every day, the village�s Shiites spray anti-monarchy graffiti on the facades of its buildings.
? LIBYA-- Libyan Rebels Push South From Misrata to Cut Tripoli Highway

By Therese Poletti
   A DOW JONES COLUMN

  When Hewlett-Packard Co. (HPQ) Chief Executive Leo Apotheker said earlier
this year that the company wouldn't launch its tablet until it was
"perfect," some attendees thought he would later regret those words.

  On Thursday, when H-P reports its fiscal third quarter, investors may learn
how imperfect the TouchPad really is, at least when it comes to sales. Just
last week, H-P cut prices by $100 on the TouchPad, which had been priced on
par with Apple Inc.'s (AAPL) iPad.

  "It's not doing any better than all the other competitive tablets are doing
against Apple," said Ken Dulaney, a Gartner Inc. analyst. "People just want
an iPad."

  The TouchPad was just launched July 1, so this view might seem harsh. After
all, the much-anticipated tablet has been on the market for only a month and
a half. So H-P's fiscal third quarter, which ended in July, will include
only the first month of sales.

  But the TouchPad is "definitely tracking below their expectations," wrote
Brian Marshall, a Gleacher & Co. analyst, in an email Tuesday. "I think they
have goals of 3 to 5 million units this year and are not on pace to hit that
mark at this point, in my view."

  Marshall described the price cuts on the device as a tool to "stimulate
demand," but it remains unclear if the action worked. Late Tuesday,
AllThingsD reported that Best Buy Co. (BBY) is sitting on a pile of unsold
TouchPads, and that the electronics retailer has sold less than 10% of its
inventory of 270,000 units.

  An H-P spokeswoman declined to comment on the report. The company said in a
statement that it "continually evaluates pricing" for its products and
lowered prices on the TouchPad as a permanent extension of is back-to-school
promotion.

  Apple's iPad, investors might remember, sold 2 million units in less than 60
days on the market after its April 2010 launch. Just last quarter, the
company said it sold another 9.25 million iPads.

  "Apple is real tough to beat in this area," said Dulaney, in the
understatement of the week. Apple controls more than 90% of the so-called
tablet market, which is still really an iPad market.

  H-P's TouchPad uses its own webOS operating system, developed by Palm.
Previously headed by a former top Apple hardware engineer, Jon Rubinstein,
Palm was purchased by H-P in 2010 for $1.2 billion and hopes were high that
H-P could revive Palm's sagging fortunes.

  While Apotheker and his team have supposedly left the Palm business alone to
develop new smartphones and tablets, as well as finesse and improve the
webOS software, some recent products have not been well received, especially
the TouchPad. The Wall Street Journal's Walt Mossberg said the TouchPad "is
simply no match for the iPad. It suffers from poor battery life, a paucity
of apps and other deficits."

  Rob Enderle, an analyst with the Enderle Group, agreed, added that the
TouchPad is "buggy" and has hardware that is a step behind Apple. There is
"no compelling reason to buy it over an iPad," he wrote in an email.

  It isn't clear whether H-P will disclose the unit sales to date during its
conference call, but after the company's price cut, expectations were
lowered. Some analysts hope that sales from tablets can help offset
forecasts of a quarter-to-quarter decline in PC sales.

  Of course, H-P's mobile business will not be atop investors's mind at the
moment, given its relatively small size compared with the rest of the
company. Keith Bachman, a BMO Capital Markets analyst, estimates H-P will
sell about 1.5 million tablets in fiscal 2012, adding $675 million in
revenue--a drop in the bucket for a company he estimates will earn $132
billion in total fiscal 2012 revenue.

  But the weak debut is causing some concern about how the acquisition has
been handled, and how Apotheker and his team are allocating resources. In
his stock downgrade Wednesday, Bachman brought up the oft-floated idea of
H-P spinning off the PC business, but noted it would be tough to get that
done.

  Kevin Hunt, an analyst with Auriga USA, has a hold rating on H-P, calling
its shares a "classic value trap."

  "The tablet launch appears to be a failure at this point," he wrote in a
note. "The degree of R&D and marketing spend that is being burned there is
also a valid question going forward."

U.S. INITIAL JOBLESS CLAIMS ROSE 9,000 TO 408,000 LAST WEEK'

Winners PMI +10.3%,  CNX +10.2%, EDZ +8.7%, TZA +8.1%, ERY +7.6%, FAZ +7.2%, FAZ +7.2%, BGZ +7.1%, SQQQ +7.1%, VXX +6.7%, QIHU +6.3%, EEV +5.8%, TWM +5.4%, DUG +5.2%, SCO +5%

Losers GENT -20.4%,  NTAP -13.9%,  MGM -10%,  JASO -9.9%,  EDC -8.6%,  CBOU -8.1%,  TNA -8%, URTY -7.9%,  TQQQ -7.2%,  IVR -7.1%,  UPRO -7%,  BGU -7%,  DRN -6.5%  CREE -6%  MPEL -5%  APKT -5.5%  AVB -5%  EMC -5%  LULU-5%  BAC -4.5%  C -4%  RIG -3%

Options Insight: Create “Dual Yield” with Dividends & Overwriting

Recent downgrades to growth expectations across the market have

intensified the search for yield across the market. Stock dividends have

long been a source of yield for equity investors, but increasingly we find

that clients are looking to sell covered calls to further increase yield. The

surge in implied volatility over the past two weeks has increased the

attractiveness of covered call selling opportunities for investors that expect

a range-bound equity market. We identify 8 stocks which we believe are

strong candidates for extracting the “Dual Yield” from Dividends and

Covered calls. We recommend this strategy in BMY, RTN, and T.

Key Theme: Trading Semi Mid-Quarter Updates with Options

Ahead of ALTR (6-Sept), TXN (8-Sept), and NVLS mid-quarter updates, we

rank option buying and selling opportunities in light of the fact that the

supply chain tends be more volatile than the company around updates.

Trade: Buy AMAT Put Spreads for Earnings and Mid-Qtr Updates. Our

analyst is Cautious on Semicap equipment stocks and sees the potential for

estimates to move 50% lower for the group. AMAT shares hold risk on midquarter

updates (TXN in particular) and earnings 24-Aug.

Trade: Buy PFE Sept Calls ahead of Aug 28 Eliquis Phase III data. Our

analyst views Eliquis as a potentially landscape-altering drug and sees the

potential for shares to move as much as 5% higher on Phase III data. We

estimate that options are pricing in only a 2% move.

Trade: Sell GPS Strangles given earnings are pre-announced. GPS has

already preannounced earnings and our analyst does not expect

management to provide a material update on guidance. Options are pricing

in a +/-8% move, vs +/-4% 8Q median move, and elevated versus AEO, who

reports earnings 24-Aug, but has not preannounced.

Trade Update: Closing 1 trade (RL) at a loss.

http://seaofopportunity.blogspot.com/ 


 *Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow! 


 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.