MAJOR PAPERS:

• In a move to help cut expenses and save on fuel prices, UAL Corporation (NASDAQ: UAUA), parent of United Airlines, will reduce its 460 airplane fleet by 70 jets. Not yet known is how may jobs will be affected, the Wall Street Journal reported.
• In an all stock deal, J.M. Smucker Co. (NYSE: SJM) is expected to buy Folgers coffee from The Proctor & Gamble Company (NYSE: PG) for an estimated $2B, according to the Wall Street Journal. Folgers, the best selling ground coffee in the U.S., has annual sales of about $1.6B.
• The Financial Times reported that Lehman Brothers Holdings Inc (NYSE: LEH) lost $500M-$700M on some of its hedging positions in Q2, which have contributed to a larger than expected loss that could result in the bank raising more capital by selling a stake to an outside investor. Lehman has begun negotiations with potential investors, including asset managers and Asian banks, sources said.

OTHER PAPERS:

• According to sources, the Rocky Mountain News reported that troubled home builder Beazer Homes USA Inc (NYSE: BZH) is pulling out of Colorado. Beazer, which is being investigated for mortgage fraud by several government agencies, has built homes in the suburbs of Denver and in Colorado Springs.

Imagine home prices falling for another ten years. Consumer spending could be eroded. The mortgage crisis could get much, much deeper. The chances for a long economic slowdown would increase exponentially.

Robert Shiller, a Yale University economist and co-developer of Standard and Poor's S&P/Case-Shiller Home Price Indices, told Reuters that declines in home values in the most vulnerable markets could well double the losses recorded thus far. "Based on the futures market for the S&P Case-Shiller Composite Index, we are looking at home prices down another 5 percent in 2008," Shiller said. And that might be on the low end.

That, of course, would be a catastrophe.

If Schiller is right, companies like Countrywide (NYSE: CFC) and home-builder Beazer (NYSE: BZH) could actually fail due to falling home demand and mortgage defaults. Pools of mortgage-based securities held by Wall Street firms could be decimated.

So, Wall Street should keep its fingers crossed. Almost every sign points to things in the housing market getting worse.

Douglas A. McIntyre is an editor at 247wallst.com

Beazer Homes USA Inc. (NYSE: BZH) shares are trading higher today after an audit uncovered several accounting errors. Beazer is going to restate its results going back almost a decade. The changes are expected to boost the company's cumulative bottom line, though it will likely reflect a decrease in net income for 2006. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on BZH.

After hitting a one-year high of $48.60 in December, the stock plunged to hit a low of $8.08 in September. BZH opened this morning at $10.50. So far today the stock has hit a low of $10.13 and a high of $10.75. As of 10:35, BZH is trading at $10.22, up $0.29 (2.9%). The chart for BZH looks neutral but improving, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a November bull-put credit spread below the $7.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just 5 weeks as long as BZH is above $7.50 at November expiration. Beazer would have to fall by more than 26% before we would start to lose money.

The market has turned since my last video update -- with the Fed's recent interest rate cut, now is the time to embrace your inner bull! I discuss buying strategies in this edition of StockWatch: Between the Bells.

Three stocks you should look into:

• First Solar Inc. (NASDAQ: FSLR), a Phoenix manufacturer of silicon-free solar-power modules. FSLR is significantly undervalued, by as much as $40 if you believe Bank of America.
• China Medical Technologies (NASDAQ: CMED), which develops cancer treatments in Beijing. CMED is expanding its operations into the rest of Asia, as well as into Russia and Europe.
• After stalling a bit last month, Google (NASDAQ: GOOG) is pushing higher again, bound for $600.
  

Stay away from home builders like Hovnanian (NYSE: HOV) and Beazer Homes (NYSE: BZH) -- the ongoing mortgage meltdown is not over, and the housing market has yet to bottom out. Until then, also avoid home furnishings retailers, like Ethan Allen (NYSE: ETH).

Lastly, check out Baidu (NASDAQ: BIDU), China's leading search engine -- currently trading at $275 and soon to hit $300. Don't think that Google is considering a Baidu buyout? Think again.

Enjoy the video!

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My new book, Ahead of the Curve, is hot off the presses. Here's an excerpt! You can also visit my AOL Coaches site.

With his popularity at an all time low and the very real prospect of the Democrats taking back control of the White House in 2008, President Bush is throwing a lifeline to subprime mortgage holders who are in danger of losing their homes to foreclosure.

The plan would allow homeowners who are 90 days behind in their mortgages to refinance their debt through loans insured by the Federal Housing Administration, a move that will help about 80,000 households. Homeowners also would be able to avoid taxes on forgiven debt under a temporary change Bush is proposing. The President also will call for Congress to raise FHA loan limits to $417,000 in some expensive markets. Interestingly, Bush is rejecting calls to let Fannie Mae and Freddie Mac increase the total value of the mortgages they hold in their portfolio.

Before people talk about the return of compassionate conservatism, it's important to remember that many subprime mortgage holders are speculators or people who bought second or third homes. Nonetheless, the administration had to do something to help people who were hoodwinked by sleazy brokers into mortgages that they couldn't afford.

In a televised address, Bush like Fed Chairman Ben Bernanke stressed that it isn't government's role to bail out speculators. He also argued that the economy "remains strong enough to weather any turbulance."

Regardless, investors took these reports as a positive sign, sending shares of financial stocks including Goldman Sachs Group Inc. (NYSE: GS), Countrywide Financial Corp. (NYSE: CFC) and Bear Stearns Cos. (NYSE: BSC) higher. Homebuilders, including Hovnanian Enterprises Inc. (NYSE: HOV), Toll Brothers Inc. (NYSE: TOL) and Beazer Homes USA Inc. (NYSE: BZH) all gave back their gains from earlier today after the speech.

Something has to be done to help the real victims of this crisis, though I'm not sure whether these moves will be enough to address the subprime problem. The government needs to be sure that it's helping the people who deserve to be helped.

CNBC's Jim Cramer is bearish on most of the housing sector, even predicting the demise of a few major players including DR Horton (NYSE: DHI) and Beazer Homes (NYSE: BZH),. But he believes Toll Brothers Inc. (NYSE: TOL) will be one of the least damaged companies in the industry. Cramer notes that Toll Brothers is okay because the company only really builds luxury homes – Toll's customers are not high risk loan candidates, and they are not terribly damaged by the mortgage issues surrounding the market right now. If you are inclined to agree, then it could be a good time to get into a bullish hedged trade on Toll.

After hitting a one year high of $35.64 in February, the stock has been beaten down with the rest of the housing sector this year, hitting a one year low of $18.85 earlier this month. This morning, TOL opened at $21.89. So far today the stock has hit a low of $21.26 and a high of $21.96. As of 10:45, TOL is trading at $21.29,down $0.71 (-3.2%). The chart for TOL looks bearish but improving slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

If you agree with Cramer, then for a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $17.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in just 2 months as long as TOL is above $17.50 at October expiration. Toll would have to fall by more than 17% before we would start to lose money.

TOL hasn't been below $17.50 at all in the past year and has shown support around $21 recently. This trade could be risky if investors don't consider the positive aspects of TOL before panic-selling the stock, but this position could gain protection if the Fed decides to take action to help the credit problem.

Brent Archer is an options analyst and writer at Investors Observer.

On today's STOP TRADING! on CNBC, Jim Cramer maintained that you have to sell financial into strength. He said that even Citigroup (NYSE: C) could get pulled down by the malaise even though at most it has 5% of its business tied to such issues. It isn't that he hates all financials, it's that he sees the panic selling in anything tied to mortgages at all. Names like Beazer Homes USA Inc. (NYSE: BZH) has big impairments, and it even has an investigation. Thornburg (NYSE: TMA) is another one he'd still sell because even if it isn't tied into the malaise it could still fall. On MasterCard (NYSE: MA), Cramer said that down $18 feels like an over-reaction.

With the past ten days' worth of continued financial stock selling, you could say that Cramer may be calling the bottom. But it is very hard to fight the tape and it will be hard calling any exact bottom on almost any of these financial stocks. I saw today on CNBC where Charlie Gasparino even noted that Bear Stearns (NYSE: BSC) is getting to a level that it could in theory be thought of as a buyout candidate, but right now until the dust settles it is unlikely that any such offer would be made by anyone. The lawsuits haven't even really started and the waves of downward earnings estimates haven't come from Wall Street itself. Until that happens, this tape is just too hard to fight regardless of fairly recent and longer-term opinions.

After the bell, Beazer Homes (NYSE: BZH) announced it's now being formally investigated by the SEC. According to the company, the SEC is investigating whether any "person or entity related to Beazer Homes has violated federal securities laws." Interestingly, the company is already involved in several lawsuits due to its practices in the mortgage-origination business. In addition, the company fired its chief accounting officer last month because he tried to destroy company documents. Add all these factors up and it seems pretty fishy.

As you probably expected, Beazer's stock was hit in after-hours trading -- currently trading at $17.70 per share vs. opening at $19.65 Monday. Stocks always slide when the announcement of an investigation by the SEC hits the wires because investors become nervous about the company's management's integrity.

Although the very successful hedge fund Moore Capital is involved in the stock, I think investors would be wise to avoid this stock until the clouds clear. While many value investors make tremendous returns betting on stocks under investigation or very out of favor, I think that game is way too risky for most retail investors.

There were several events during the last week that are almost certainly clues to what is likely to happen in certain industries and the economy in general as Wall Street looks forward to the July through September period. The week was dominated by the launch of Apple's (NASDAQ: AAPL) iPhone and the extended glow for AT&T (NYSE: T), but in the broader picture, the news means very little.

Looking at other news:

Oil closed over $70 for the first time since late last summer. While the news may be good for Exxon (NYSE: XOM) and other big exploration and refinery companies, it will hurt industries from air freight to automotive.

Dell (NASDAQ: DELL) hit a 52-week high, a sign that Wall Street believes the PC industry may have a good second half, especially with Hewlett-Packard (NYSE: HPQ) also trading near its high point.

An unusually broad number of stocks representing several important industries hit 52-week lows. While it would be expected that home builders like Beazer (NYSE: BZH) would struggle in a poor housing market, Blackstone (NYSE: BX), Circuit City (NYSE: CC), and one of the nation's largest banks, Wachovia (NYSE: WB) also touched bottoms.

Beazer Homes USA Inc (NYSE: BZH): House of Cards?

Home builder Beazer said in a regulatory filing yesterday that it terminated its Chief Accounting Officer for violating the company's ethics policy. Beazer said it fired Michael T. Rand after an internal probe of the company's mortgage origination business. The Atlanta-based company said the action was taken by its board and management after saying Rand violated the company's ethics policy by attempts to destroy documents.

The country's sixth largest home builder is currently under investigation by the FBI and is the subject of several lawsuits. Earlier this year, media reports noted that the company was under federal investigation for alleged mortgage fraud, a charge Beazer has vehemently denied. In May, it announced the SEC was conducting an informal inquiry to determine if the company, or its employees, had violated any securities laws.

Rand's firing is bad news for the Atlanta company, particularly because of the FBI investigation. JP Morgan analyst Michael Rehaut said that Rand's termination "raises red flags regarding the content of the documents in question." It is unclear whether the allegations against Rand will become part of the investigation.

Rand is the second senior official to be fired at Beazer this year. The company dismissed Kenneth Gary, its general counsel, in February for "a pattern of personal conduct" that included violations of company policies. Former CFO James O'Leary resigned from Beazer in March. Shares of the company, whose competitors include D.R. Horton Inc (NYSE: DHI) and Pulte Homes, Inc (NYSE: PHM), fell nearly 8% on yesterday's announcement; shares have fallen more than 40% this year.

Who's responsible for the company's troubles? Rand, the others, or is the company looking for scapegoats?

The Volatility Index for S&P 500 Options (VIX) is down 0.52 to 14.44.

Louisiana Pacific (NYSE: LPX) call volume Heavy, volatility Higher on renewed Chatter. LPX is recently up .28 to $20.77. LPX has been frequently mentioned as possibly returning cash to shareholders or as a candidate for private equity LBO bid. LPX had 2006 total revenue of $2.2 billion. LPX has a market cap of $2.1 billion with long term debt of $644 million. LPX call option volume of 6,927 contracts compares to put volume of 164 contracts. LPX April option implied volatility of 32 is above its 26-week average of 29 according to Track Data, suggesting larger price fluctuations.

Houston Wire & Cable (NASDAQ: HWCC) volatility Flat; call volume heavy on secondary offering. HWCC offers specialty wire & cable. HWCC is recently up .78 to $27.46. HWCC announced a secondary offering of 5.5 million shares to 6.5 million shares. The price of the offering was set at $25. HWCC has a market cap of $569 million with long term debt of $12 million. HWCC reported 2006 total revenue of $323 million. HWCC call option volume of 2,275 contracts compares to put volume of 23 contracts. HWCC May option implied volatility of 47 is near its 26-week average according to Track Data, suggesting non-directional price risks.

Option volume leaders today are: Beazer Homes (NYSE: BZH), Apple Inc. (NASDAQ: AAPL), Amgen (NASDAQ: AMGN) and United Therapeutics (NASDAQ: UTHR).

The Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

Beazer Homes USA Inc (NYSE: BZH), following in the footsteps of other home builders, has been reporting awful results. However, to add more fuel to the fire, a report by the Charlotte Observer wrote the FBI and the U.S. attorney's office in Charlotte, N.C., along with the Internal Revenue Service and the U.S. Department of Housing and Urban Development, launched an investigation of Beazer Homes last week. OUCH!

Everyone is going after this homebuilder. This is as bad as the political backlash following the tech bubble imploding which led to Sarbox.

Look for other district attorneys around the country to start going after other homebuilders and their relationships with mortgage brokers and lenders. Do you think homebuilders reduced lending standards in order to get rid of excess inventory? Why not when you can dump the loan in the secondary market.

The housing industry is getting uglier and uglier, as we have been blogging about for a long time. No need to bottom fish yet. Wait for the political backlash to crescendo before looking at this group again.

MAJOR PAPERS:

• Online ad firm DoubleClick is exploring a sale, and is in talks with Microsoft Corporation (NASDAQ: MSFT), among others, reported the Wall Street Journal (subscription required).
• The Financial Times (subscription required) reported that BP plc ADS's (NYSE: BP) Russia venture, TNK-BP, abandoned its bid for a stake in Rosneft less than ten minutes into bidding, leaving Rosneft able to buy its own shares back at a 10% discount.
• According to the Financial Times, Tyco International Ltd (NYSE: TYC) bondholders are worried the company may try to avoid paying them in full when the company completes its break-up later in the year.
• The Financial Times reported that Cadbury Schweppes ADS (NYSE: CSG) CEO Todd Stitzer said a merger with Hershey (HSY) would make "commercial, strategic and financial sense" for Cadbury, which is preparing to split into two divisions.

OTHER PAPERS:

• The U.K. Times reported that British Airways ADS (NYSE: BAB) is considering making a GBP1B bid for bmi, a competing British airline.

WEBSITES:

• BusinessWeek Online reported that Beazer Homes USA Inc (NYSE: BZH) is being investigated for potential mortgage fraud by the FBI.
• CNet.com reported that Yahoo! Inc (NASDAQ: YHOO) will offer unlimited email storage beginning in May, according to an announcement by the company.

MAJOR PAPERS:

• The Wall Street Journal (subscription required) speculated that Carl Icahn's bid for WCI Communities Inc (NYSE: WCI) may be the start of home-builder buyouts. Other possible LBO targets, according to some Wall Street firms, include Toll Brothers Inc (NYSE: TOL), Ryland Group Inc (NYSE: RYL), Beazer Homes USA Inc (NYSE: BZH) and KB Home (NYSE: KBH).
• The Wall Street Journal also reported that Goldman Sachs Group Inc (NYSE: GS) is looking to push deeper into the subprime lending business at a time when the subprime mortgage market is suffering a "meltdown."
• The Financial Times (subscription required) reported that Cerberus Capital Management, one of the leaders in the bid to buy DaimlerChrysler AG's (NYSE: DCX) Chrysler unit, has signed Wolfgang Bernhard to an advisory contract. Bernhard helped restructure Chrysler five years ago.

OTHER PAPERS:

• The U.K. Times reported that a CVC-led private equity group is planning to bid above GBP9.5B for Sainsbury's plc ADR (OTC: JSAIY).
• The U.K. Times also reported that Cadbury Schweppes ADS (NYSE: CSG) is considering spinning off and selling its profitable drinks business, which includes Dr. Pepper and 7-Up, as a way to defend against a takeover bid for the entire group.

Is there anything growing in the real estate business? There is: it's earnings warnings from home builders. The latest came from Lennar Corp. (LEN), which says its third quarter will range from $1.25 to $1.35 per share. That compares to the Street's estimate of $1.81.

As with other builders, Lennar is cutting back on production and will offer more discounts to sell existing homes.

So, how can all this happen even though interest rates are still fairly low and the economy is at full employment? Simply put, speculators have been mauled. They were betting on continued momentum to make quick profits on their transactions. The big problem: it has resulted in a substantial inventory of unsold homes.

This week, some of the other companies that have cut forecasts include KB Home (KBH) and Beazer Homes (BZH).

I interviewed Matthew Presser, who operates the hedge fund MLP Capital. According to him: "Two of my main picks are to the short side, which are KB Homes and Countrywide Financial (CFC). The overwhelming amount of data revealing the deteriorating fundamentals in the housing sector after a ten plus year bull run is my rationale. While estimates have come down and that is reflected in KB's stock price, I believe estimates will come down further over the next year making what looks 'cheap' now even cheaper."

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.