Monday Watch

Weekend Headlines
Bloomberg:

• Monti of Italy Warns That Currency Crisis Risks Europe’s Future. Disagreements within the 17-nation euro area are undermining the future of the European Union, said Italy’s Prime Minister Mario Monti as the stand-off on European Central Bank support for Italian and Spanish debt hardened. “The tensions that have accompanied the euro zone in the past years are already showing signs of a psychological dissolution of Europe,” he told Germany’s Spiegel magazine in an interview published yesterday. “I can only welcome the ECB’s statement that there is a ‘severe malfunctioning’ in the market for government bonds in the euro region. It’s also true that some countries have to shoulder ‘extraordinarily high’ costs to finance their debts. That’s exactly what I’ve been saying for a long time.” He urged swift action to lower borrowing rates. Investors and politicians are still grappling with the significance of comments on sovereign debt purchases by European Central Bank President Mario Draghi last week. While markets initially tumbled on Aug. 2 after Draghi said Spain and Italy would have to formally request a resumption of the bank’s bond buying, they rallied the following day as investors concluded that ECB action would occur, albeit on an unknown future date.
• Bank License for ESM Illegal, Germany’s Westerwelle Tells Focus. German Foreign Minister Guido Westerwelle said it would be illegal in Germany to grant a banking license to the European Stability Mechanism, the future permanent euro-area bailout fund, Focus magazine reported, citing an interview. Shared liability for public debt in Europe would burden Germany with unlimited risks, a prospect that would violate the country’s constitution, Westerwelle said. Europe needs to boost its competitiveness and the entire euro region needs effective economic policy changes, he said.
• Mario Draghi Cannot Save the Euro. European Central Bank President Mario Draghi has been making pronouncements that many have interpreted as positive for the future of the euro. I think his words mean things are going to get ugly.
• Draghi Echoing Merkel Has Traders Raising Bets Against Euro. When European Central Bank President Mario Draghi vowed July 26 to do “whatever it takes” to defend the euro, he succeeded in stemming a slide that pushed the 17- nation currency down about 6 percent since late March against its major counterparts. Traders in the options market responded by raising bets against the currency of the developed world’s worst-performing economy the most in 11 weeks. Options to protect against further weakness climbed in the past two weeks by the most since May.
• De Guindos Tells ABC No More Cuts as Spain Will Meet Debt Goals. Spain’s Economy Minister Luis de Guindos said the country won’t introduce more spending cuts or tax increases because it’s on target to meet its budget deficit reduction goals, ABC newspaper reported. “There are no new measures because we believe that those we have approved will be sufficient to deliver the pace of deficit reduction we have committed to with Brussels,” De Guindos told the newspaper in an interview. De Guindos also said Spain will wait until the details of the European Central Bank’s bond-buying proposal have been set out before deciding whether to request aid, ABC said. “We have time and we can wait until all the details become clear,” ABC cited him as saying. The economy minister added that Spain will on Aug. 24 approve the decree governing the so-called bad bank to manage troubled financial assets, a condition of the bank bailout, the newspaper added.
• China’s Stocks Swing Between Gains, Losses Amid Economy Concerns. China’s stocks swung between gains and losses as concerns the slowing economy will hurt earnings offset measures by regulators to encourage employees to buy shares in their own companies to bolster the equities market. Jiangxi Copper Co., the nation’s biggest producer of the metal, climbed 1.8 percent, on the prospect of higher commodities demand after a Labor Department report showed American payrolls climbed more than forecast. China Vanke Co. paced declines for property developers after Sinolink Securities Co. estimated the company’s July sales dropped 22 percent from the previous month.
• Speculators Lift Wagers in Longest Streak on Record: Commodities. Speculators increased wagers on commodities for an eighth consecutive week, the longest streak on record, just before a report on U.S. job growth sparked the biggest price rally in a month. Hedge funds raised their net-long positions across 18 U.S. futures and options by 4.9 percent to 1.22 million contracts in the week to July 31, the highest since Sept. 6, U.S. Commodity Futures Trading Commission data show. Bets more than doubled since reaching this year’s low on June 5, capping the longest increase since the data began in June 2006. Gold holdings climbed by the most since November 2008, and cocoa wagers reached a one-year high.
• Romney Says Fed Should Hold Off on Buying More Bonds. Former Massachusetts Governor Mitt Romney said the Federal Reserve should refrain from a third round of large-scale asset purchases. Romney, the presumptive Republican nominee for president, said that while the first round of bond buying by the U.S. central bank may have had a positive effect, a new round of quantitative easing will not help the economy.
• GM(GM) May Write Down Investment in Peugeot, Filing Says. General Motors Co. (GM), which acquired a 7 percent stake in PSA Peugeot Citroen (UG) in March, said it may have to write down its investment as the European auto market heads toward its fifth straight annual sales decline. The amount at which GM is carrying the investment in Paris- based Peugeot exceeded its fair value at June 30, GM said yesterday in a filing with the U.S. Securities and Exchange Commission. The Detroit-based automaker said it plans to hold the investment until the value recovers.
• China Says U.S. Sending ‘Wrong Signal’ on South China Sea. China said U.S. criticism of its attempt to bolster claims to gas- and oil-rich islands in the South China Sea sent “a seriously wrong signal” to nations embroiled in territorial disputes in the region. China’s recent actions “run counter to collaborative diplomatic efforts to resolve differences and risk further escalating tensions,” a State Department spokesman, Patrick Ventrell, said in an Aug. 3 statement. Ventrell’s criticism “completely ignored the facts, deliberately confounded right and wrong” and isn’t conducive to efforts for peace and stability in the region, Qin Gang, a Chinese Foreign Ministry spokesman, said in an Aug. 4 statement. China also summoned Robert Wang, the acting representative of the U.S. embassy in Beijing, to complain about the U.S. statement and request that he report Chinese concerns “to the top U.S. leadership immediately,” according to a separate statement on the ministry’s website.

Wall Street Journal:

• Temple Spree Leaves 7 Dead. Suspect Is Killed, Several Others Are Wounded in Act Called Domestic Terrorism. A mass shooting at a Sikh temple south of Milwaukee left seven people dead Sunday, including the suspected gunman, in what police called an act of domestic terrorism. Three others were injured, including a police officer.
• Regulators Probe 'Captives'. New York Regulator Wants to Know If Dealings Are Masking Financial Health. New York's top financial-industry regulator is investigating whether life insurers are potentially masking their financial health through dealings with related companies, according to people familiar with the probe.
• 'Macro' Funds Show Micro Returns. Global financial markets continue to be whipsawed by policy makers and economic news, leaving even fund managers who focus on profiting from sweeping macroeconomic trends in a difficult spot. The bad news for investors of all stripes: Few in the markets expect the cloudy outlook to become clearer anytime soon.
• In China, Some Imports Get a Local Run for the Money. Gone are the days when big multinationals in China could easily dominate every consumer segment from toothpaste to laundry detergent.
• Small Banks Are Blunt in Dislike of New Rules. It was supposed to be a routine conference call where bankers could ask U.S. regulators about a proposed rule on capital levels. But then a man who identified himself as fourth-generation banker from central Minnesota started to complain about the possibility of having to set aside much more money when making nontraditional mortgage loans. As about 1,500 other bankers listened, the banker pressed officials at the Office of the Comptroller of the Currency to justify the proposed changes, saying he had made such loans for 40 years with almost no defaults.
• U.S. Awaits Biggest IPO Week Since Facebook(FB).
• Analysts Expect Euro Rally to Be Brief.
• Arthur Laffer: The Real 'Stimulus' Record. In country after country, increased government spending acted more like a depressant than a stimulant. Policy makers in Washington and other capitals around the world are debating whether to implement another round of stimulus spending to combat high unemployment and sputtering growth rates. But before they leap, they should take a good hard look at how that worked the first time around. It worked miserably, as indicated by the table nearby, which shows increases in government spending from 2007 to 2009 and subsequent changes in GDP growth rates. Of the 34 Organization for Economic Cooperation and Development nations, those with the largest spending spurts from 2007 to 2009 saw the least growth in GDP rates before and after the stimulus.

Business Insider:

• Why Bronte Capital Is Shorting A Luxury Company And Terrified About China.
• The Dark Reality Behind India's Promising Growth.
• The Latest Look At The High-Frequency Economic Data.
• Yep, Stock Analysts Are Smoking Happy Weed Again... (graph)
  

Zero Hedge:

• "Did Somebody Repeal The Laws Of Mathematics?"
• Key Events In The Coming Week And Month.
• Knight To See Another Day Following 60%+ Convertible Dilution.
• On This Day In 2016. For a presidential election taking place when the US debt/GDP has for the first time in 70 years crossed above 100%, in which over 50 million Americans collect food stamps and disability, in which M2 just crossed $10 trillion, in which total US debt is about to pass $16 trillion, and when total nonfarm employees in America (133,235,000) are the same as they were in April of 2005, it is quite surprising that economics has not taken on a more decisive role in the electoral debate. But while both candidates may, for their own particular reasons, not want to bring up the slow motion trainwreck that is the US economy now, in 4 years whoever is running for president will not be so lucky, because as the US debt clock shows, assuming current rates of progression, things are about to get far, far worse.
• The German Press Responds To Draghi: "Vengeance Will Be Bitter".

CNBC:

• Are Australia’s Iron Ore Ports Expanding for Nothing? Australia’s big iron-ore ports are currently ramping up expansion plans as the country continues to face surging demand for its natural resources. But as the Chinese economy continues to slow and commodity prices fall, fueling concerns about an imminent end to Australia’s resource boom, some analysts question whether the miners should be spending the money.
• What Some Investors Are Doing to Anticipate a Tax Increase.
• Greece’s New Pledges Will Take Epic Battle to Implement. Greece's latest fiscal and reform pledges may be enough to convince international lenders weary after years of broken promises to keep Athens hooked to a 130 billion euro ($161 billion) lifeline, but the battle to implement it will be epic.

Wall Street All-Stars:

• Indicator Update: Assess the Market Evidence.

IBD:

• Chico's FAS(CHS) In Fashion With Women Shoppers.

NY Times:

• Street Stops in New York Fall as Unease Over Tactic Grows. The number of times police officers stopped, questioned and frisked people on the streets of New York City has dropped significantly, by more than 34 percent, in recent months, and a key contributing factor appears to be that police commanders have grown wary of pushing for such stops at daily roll calls, police supervisors said.
• Record Spending by Obama's Camp Shrinks Coffers. President Obama has spent more campaign cash more quickly than any incumbent in recent history, betting that heavy early investments in personnel, field offices and a high-tech campaign infrastructure will propel him to victory in November. Since the beginning of last year, Mr. Obama and the Democrats have burned through millions of dollars to find and register voters. They have spent almost $50 million subsidizing Democratic state parties to hire workers, pay for cellphones and update voter lists. They have spent tens of millions of dollars on polling, online advertising and software development to turn Mr. Obama’s fallow volunteers corps into a grass-roots army. The price tag: about $400 million from the beginning of last year to June 30 this year, according to a New York Times analysis of Federal Election Commission records, including $86 million on advertising.
• As Libor Fault-Finding Grows, It Is Now Every Bank for Itself. Major banks, which often band together when facing government scrutiny, are now turning on one another as an international investigation into the manipulation of interest rates gains momentum.
• Fearing an Impasse in Congress, Industry Cuts Spending. A rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington will force hundreds of billions in tax increases and budget cuts in January, undermining economic growth in the coming months.

NY Post:

• Vanishing Pensions. Less Than 30% of Firms Offer. In 1988, about two-thirds of companies offered pensions, according to government records. But by 2010, that number was down to less than one-third.

Philly.c0m:

• Pennsylvania Environmental Chief Locks Horns With Activists. Michael Krancer, Gov. Corbett's chief environmental regulator, seems to delight in doing battle with critics of the state's oversight of the Marcellus Shale gas boom.

Bespoke Investment Group:

• Strong Market, Weak Breadth. (graph) While the S&P 500's price has been in a steady uptrend, cumulative breadth for the index has actually been pretty weak. As shown in the lower chart, with each successive higher high in the index, breadth has actually been making a lower high.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows Mitt Romney attracting 47% of the vote, while President Obama earns support from 45%. Five percent (5%) prefer some other candidate, and four percent (4%) are undecided.

Reuters:

• Italy Doesn't Need German Cash, Monti Tells Germans. Italy needs moral support from Germany but not its cash, Prime Minister Mario Monti said in an interview published on Sunday as German conservatives renewed calls for Greece to leave the euro zone. The Italian leader also told weekly magazine Der Spiegel that he was concerned about growing anti-euro, anti-German and anti-European Union sentiment in the parliament in Rome. The German government has resisted calls from Italy and struggling countries to introduce common euro zone bonds or take other action to help alleviate the bloc's sovereign debt crisis, saying it would remove pressure to enact painful reforms. On Sunday, a senior member of Chancellor Angela Merkel's conservative alliance, Bavaria's finance minister Markus Soeder, said Greece would leave the euro zone by the end of 2012.
• Special Report - China's answer to subprime bets: the "Golden Elephant". "They haven't even built a proper road here," said Li Chun, a car repairman, who said he lives in the project. "The local government is holding onto the flats and only wants to sell them when prices go up." The Chinese investment vehicle known as "Golden Elephant No. 38" promises buyers a 7.2 percent return per year. That's more than double the rate offered on savings accounts nationally. Absent from the product's prospectus is any indication of the asset underpinning Golden Elephant: a near-empty housing project in the rural town of Taihe, at the end of a dirt path amid rice fields in one of China's poorest provinces. Golden Elephant No. 38 is one of thousands of "wealth-management products", instruments aimed at monied investors, which have shown phenomenal growth over the last five years. Sales of them soared 43 percent in the first half of 2012 to 12.14 trillion yuan ($1.90 trillion), according to a report by CN Benefit, a Chinese wealth-management consultancy. They are usually created in China's "shadow banking" system - non-banking institutions that are not subject to the same regulations as banks - which has grown to account for around a fifth of all new financing in China. Like the subprime-debt lending spree in the United States that helped spark the 2008 financial crisis, the products are often opaque, and usually dependent on high-risk underlying assets, such as the Taihe housing project.
• Islamists kill 15 Egyptians, Israel strikes attackers. Islamist gunmen killed at least 15 Egyptian police on Sunday and seized two military vehicles to attack a crossing point into Israel, the deadliest incident in Egypt's tense Sinai border region in decades. Israeli aircraft destroyed one of the armored vehicles and four of the gunmen were killed, Egyptian security sources said. Israel's Defense Minister Ehud Barak called for "determined Egyptian action" to "prevent terror in Sinai".

Financial Times:

• Key repo contracts market falls 14%. The market for a key funding instrument for banks has shrunk in Europe, highlighting how reliant financial instiutions in the region have become on European Central Bank support. The market for European repurchase, or repo, transactions contracted by an estimated 14.2 per cent year-on-year in the six months to June 30, based on constant samples over the period.
• Wall St eyes protection against euro exit. Wall Street banks are increasingly telling counterparties and borrowers to restructure contracts or find another bank as they prepare for the potential exit of a country from the eurozone. Using hedges, such as credit default swaps, US banks have reduced their net exposure to troubled eurozone countries. But they are also engaged in more work behind the scenes to ensure that if a country leaves the eurozone they will not have to receive payments in a devalued drachma or peseta.

International News:

• 'Qaeda' Suicide Bombing Kills 45 in South Yemen. A suicide bombing in south Yemen blamed on al-Qaeda killed 45 people, local officials said on Sunday, as residents voiced fears that a lack of security personnel on the ground will allow the jihadists to return.

Expatica.com:

• German Regional Minister Sees Greek Euro Exit By Year's End. Greece should exit the eurozone by year's end and not receive any more aid, a German regional finance minister has said in a Sunday newspaper interview, further stirring debate on the issue.Markus Soeder, finance minister in southern Bavaria state and a member of the Christian Social Union (CSU), the region's sister party to Chancellor Angela Merkel's CDU, said the euro itself was "right and important"."But when a country like Greece on a continuing basis cannot pay back debts, it must leave the eurozone," he told Sunday's mass-circulation Bild am Sonntag newspaper in an interview."The way I foresee it, Greece should quit by the end of the year. Any new aid, any easing of the conditions would be the wrong path," he said.Last month German Economy Minister Philipp Roesler said the "horror" of a potential exit by debt-mired Greece had worn off and Transport Minister Peter Ramsauer has also not ruled it out.Soeder's remarks prompted criticism from deputy head of Merkel's Christian Democratic Union parliamentary group Michael Meister who said such a debate was damaging and did not help solve the problems.

Die Welt:

• The European Central Bank's governing council this week approved a request by the Greek central bank to raise the limit of collateral it may accept in exchange for emergency loans, citing central bank officials. The increase in the Emergency Liquidity Assistance will allow the Greek government to meet its financial commitments this month be selling so-called T-Bills to banks. The banks can deposit the bills at the Greek central bank in exchange for fresh money, it said.
  

La Stampa:

• Austerity alone isn't enough to guarantee the survival of the euro, Italian Labor Minister Elsa Fornero said in an interview.
  

Il Messaggero:

• Italy, Spain to Seek Aid, Deutsche Bank Mayer Says. Thomas Mayer, an economic adviser to Deutsche Bank AG, said a request for aid from Italy and Spain to the EFSF is "inevitable" and it may happen "in the next few weeks". "The future of the euro is in the hands of Italy," he said. It all depends on Italy's ability to implement Monti's reforms, Mayer said.

China Business News:

• China's big 5 banks face a 244.7B yuan capital shortfall by the end of 2012, citing a report from a bankers' forum.

Xinhua:

• China has no arrangement for cutting the stamp tax for share trading in the near-term, citing the China Securities Regulatory Commission.

China Securities Journal:

• Some yuan depreciation will ease pressure on the Chinese central bank's monetary policy controls, according to a commentary on the front=page today. Yuan depreciation will increase import costs and damp deflation expectations, according to the commentary.

Century Weekly:

• China's "traditional" economic growth model powered by exports and investment can't be sustained, Wang Yu, deputy director general of research bureau at People's Bank of China, writes.

Weekend Recommendations

Barron's:

• Made positive comments on (ATVI), (CHS) and (DOV).
• Made negative comments on (LULU).
  

Night Trading

• Asian indices are +.50% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 157.0 -7.0 basis points.
• Asia Pacific Sovereign CDS Index 130.75 unch.
• FTSE-100 futures -.05%.
  
• S&P 500 futures +.02%.
• NASDAQ 100 futures +.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (HCA)/.78
• (CTSH)/.80
• (TSN)/.54
• (BXP)/1.24
• (CF)/8.71
• (VNO)/.94
• (MDR)/.22
• (WRC)/.64

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted technology and financial shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the week.