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Farrell: Now, Now, Children

Rahm Emanuel is the pit bull Chief of Staff at the White House. Joe Biden is Joe Biden and Laura Tyson is on the President's Economic Advisory Board.

Joe said the other day that Stimulus II can't be ruled out. But Joe says a lot of things. Tyson said the other night that another stimulus packagewas needed. But the pit bull says don't blame us for the unemployment rate. Our Stimulus package is just rolling out and you have to give it time to work.

Well, the Administration can't say "give it time to work" and have some others say "we need another one before this one has had time to do its thing." Talk about creating a box needlessly.

And don't you find it curious that the meat of the Stimulus package, the shovel-ready job-creation part of the deal, is due to hit just about in time for the midterm elections? Funds paid out on the quarter just ended increased $45 billion, to bring the total to around $60 billion. They are scheduled to increase about $40 billion a quarter, so, by the end of Q3 2010, over $250 billion will have been disbursed, in time for the election. Could our fearless leaders have been thinking so politically?

Another TALF deal should close today, and it looks like a total of $10 billion or so of asset-backed paper will be placed, with an almost-$4-billion Bank of America - sponsored deal leading the way. This program was designed to be much bigger, but it looks to me like its very existence has calmed the markets to the point where it isn't needed. Not a lot of asset-backed paper is being done, but probably a bit more of non-TALF paper gets placed. We don't need to go crazy extending credit and winding back up in the same mess we are struggling to get out of. Credit should be available, but on business-like terms.

The Big Three auto companies ("little three," really?) finished June with the lowest inventories in 25 years. Our preferred stock in this group—Buy-rated Ford —has announced a production increase for this quarter. This could be viewed as an example of the inventory draw-down that will be somewhat reversed soon and will contribute to a recovery. Other good news comes from overseas: China, India, the UK and the Euro zone in general saw rising Purchasing Managers indices last period. India expects growth of almost 8% this year, and China has predicted a 9% annual rate of GDP growth for the fourth quarter.

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AP

Not so good news comes from Reuters: reported delinquencies on credit cards rose to a record level of 6.6% from 5.52% in Q4 of last year. With unemployment still rising, this should come as no surprise. Also, office vacancies, says Bloomberg, rose to a four-year high of 15.9%, and the mortgage insurer PMI says home prices could decline through 2011—but what do they know?

Soleil's excellent telecom analyst, Mike Nelson, launched coverage late Tuesday on some regional local exchange companies. The one that especially caught my attention was Buy-rated CenturyTel (closed at $30.23, 52-week range of roughly $40-$20). Based in Louisiana, the company offers local and long distance, internet access, and broadband services. A recent merger with Embarq will probably yield $400 million or more in cost savings. The company has a strong balance sheet, solid free-cash-flow generation, and a modest 51% dividend payout ratio, and still sports a 9.3% yield. With the company's almost-16% free-cash-flow yield, Mike thinks the dividend is secure and has a $40 price target. Call for the report.

The stock market took a bit of a hit on Tuesday and the S&P closed at 881, which is a touch below its 200-day moving average at about 885. The market might try to rally back above that, but I see the 200-day as being resistance now and we are still comfortable with our call for a 1/3 to 1/2 correction of the rally from the March lows, or to the lower 800's. We also think oil will continue down and may well test the lower $50's area over the next few months. If you rely on me for short-term market moves (as I have said before), you are likely to have an ugly experience, but that's how I see it.

On a very happy note, my dear friend John Johnson's prayers have been answered. His son, Lt. Taylor "Coop" Johnson, West Point grad and a member of the Army's 14th Combat Engineers Battalion, has returned from his 15-month tour of duty in Iraq. Welcome home, Coop.

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