Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Eurozone Debt Angst, US "Fiscal Cliff" Worries, High Food/Energy Prices

Broad Market Tone:

• Advance/Decline Line: About Even
  
• Sector Performance: Mixed
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 15.86 +4.48%
  
• ISE Sentiment Index 101.0 -9.82%
  
• Total Put/Call .88 +4.76%
  
• NYSE Arms 1.06 +38.38%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 100.14 bps -.85%
  
• European Financial Sector CDS Index 252.71 bps +1.06%
  
• Western Europe Sovereign Debt CDS Index 232.88 -.47%
  
• Emerging Market CDS Index 245.99 -1.72%
  
• 2-Year Swap Spread 18.0 -.25 basis point
  
• TED Spread 33.25 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -31.5 +2.0 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 138.0 -3 basis points
  
• China Import Iron Ore Spot $99.40/Metric Tonne n/a
  
• Citi US Economic Surprise Index -3.40 +5.9 points
  
• 10-Year TIPS Spread 2.31 +1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating +19 open in Japan
• DAX Futures: Indicating -15 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Retail/Tech sector longs and Emerging Markets shorts
  
• Disclosed Trades: None
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower on eurozone debt angst, high food/energy prices, US "fiscal cliff" worries and rising global growth fears. On the positive side, Networking, Hospital and HMO shares are especially strong, rising more than +.75%. Oil is falling -.3%, Gold is falling -.3%, Lumber is gaining +.2% and the UBS-Bloomberg Ag Spot Index is falling -.3%. Major European indices are higher today, led by a +1.2% gain in Spain. The Bloomberg European Bank/Financial Services Index is rising +.8%. On the negative side, Coal, Alt Energy, Oil Tanker, Steel, Paper, I-Banking, Education, Homebuilding and Construction shares are especially weak, falling more than -1.0%. Transport shares have traded heavy throughout the day again. Copper is falling -.4%. The 10Y Yld is falling -4 bps to 1.65%. Major Asian indices were lower overnight, led down by a -1.74% decline in China, despite more rhetoric about “supporting growth” from Premier Wen over the weekend. The Shanghai Comp is now down -6.5% ytd, -18.2% over the last 12 months and at the lowest level since March 2009, which remains a large red flag for the global economy. I continue to believe that China’s large overcapacity, partly as a result of the last stimulus program, will preclude another major stimulus as it would exacerbate an already growing bad loan problem. Brazilian shares are -.5% on the day. The Germany sovereign cds is gaining +.1% to 64.25 bps(+15.8% in 5 days), the Portugal sovereign cds is rising +.98% to 689.52 bps and the Israeli sovereign cds is gaining +.7% to 164.51 bps. Moreover, the Asia Pacific Sovereign CDS Index is jumping +3.0% to 125.17 bps and the US Muni CDS Index is gaining +1.1% to 170.94 bps(+9.3% in 5 days). The UBS/Bloomberg Ag Spot Index is up +25.0% since 6/1. The benchmark China Iron/Ore Spot Index is down -45.0% since 9/7/11. Moreover, the China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that the Eurozone has successfully kicked-the-can and global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +1.9%. US Trucking Traffic continues to soften. Moreover, the weekly MBA Home Purchase Applications Index has declined in 5 out of the last 6 weeks and has been around the same level since May 2010 despite investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -65.0% from its Oct. 14th high and is now down around -60.0% ytd. Shanghai Copper Inventories have risen +151.0% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 22.50 industry-standard worldscale points, which is the lowest since May, 2009. The 10Y T-Note continues to trade too well. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in an attempt to "save" the euro even as investors have been pricing this outcome into stocks. Focus Magazine reported over the weekend that a poll by TNS Emnid found that 80% of Germans have little-too-no confidence in the ECB’s policy to tackle the debt crisis, while only 10% fully trust the ECB. The Citi Eurozone Economic Surprise Index is at -49.0 points. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. I continue to believe that China's problems are much larger than commonly perceived and cannot be solved with another massive stimulus package given their real estate bubble, soaring food prices and massive overcapacity in certain key parts of the economy. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff" and the election outcome uncertainty will likely become more and more of a focus for US investors as the year progresses. Little if anything being discussed by global central bankers will actually boost global economic growth in any meaningful way over the intermediate-term, in my opinion. I continue to believe QE3 would be a major mistake given the recent surge in stock prices, rising inflation expectations, rising gas prices, worrisome food crisis headlines and less pessimistic US economic data. The quality of the stock rally off the June lows remains poor as breadth, volume, leadership, lack of big volume/gainers and copper/transports divergences all continue to be concerns. Thus, recent market p/e multiple expansion on global central bank stimulus/action hopes, is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. The explosion higher in the Israel sovereign cds(+30 bps in about 2 weeks to 164.0 bps) is another big red flag. The Mid-east appears to be unraveling again at an alarming rate. For this year's equity advance to regain traction, I would expect to see further European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower food/energy prices, a US "fiscal cliff" solution, a calming in Mid-east tensions and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on eurozone debt angst, profit-taking, more shorting, high food/energy prices, US "fiscal cliff" concerns, growing Mid-east unrest, technical selling, a shift into bonds from stocks and rising global growth fears.