Stocks Higher into Final Hour on Less Eurozone Debt Angst, Better Economic Data, Window Dressing, Short-Covering

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Most Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 16.49 -4.52%
  
• ISE Sentiment Index 73.0 +2.3%
  
• Total Put/Call .92 -8.91%
  
• NYSE Arms .90 +68.32%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 92.73 -3.67%
  
• European Financial Sector CDS Index 107.0 -11.21%
  
• Western Europe Sovereign Debt CDS Index 228.83 -2.28%
  
• Emerging Market CDS Index 212.39 -2.83%
  
• 2-Year Swap Spread 24.0 unch.
  
• TED Spread 23.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.
  
• Yield Curve 270.0 +5 bps
  
• China Import Iron Ore Spot $166.80/Metric Tonne unch.
  
• Citi US Economic Surprise Index -93.60 +6.6 points
  
• 10-Year TIPS Spread 2.39% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +100 open in Japan
• DAX Futures: Indicating +21 open in Germany

Portfolio:

• Higher: On gains in my Retail, Biotech, Medical and Tech longs
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 moves slightly above its 50-day moving average on diminishing eurozone debt angst, better economic data, window dressing, short-covering, technical buying and lower food prices. On the positive side, Education, Construction, Disk Drive, Semi, Computer, Oil Service, Wireless, Road & Rail, Paper and Alt Energy shares are especially strong, rising more than +1.75%. Cyclicals are outperforming. Tech shares have strongly outperformed throughout the day. The 10-year yield is rising +6 bps to 3.17%. Copper is rising +1.2%, gold is down -.6%, the UBS-Bloomberg Ag Spot Index is down -2.84% and Lumber is jumping +4.2%. The Spain sovereign cds is falling -3.8% to 269.74 bps, the Greece sovereign cds is down -4.79% to 1,960.16 bps, the Russia sovereign cds is down -4.47% to 142.33 bps, the Belgium sovereign cds is down -5.51% to 142.86 bps, the Brazil sovereign cds is down -4.09% to 110.18 bps and the UK sovereign cds is down -4.3% to 60.75 bps. On the negative side, Oil Tanker, HMO and Homebuilding shares are lower on the day. (XLF)/(IYR) have underperformed throughout the day. Rice futures are jumping +4.7% despite the overall weakness in ag commodities. The US price for a gallon of gas is unch. today at $3.54/gallon. It is up .40/gallon in less than 5 months. The Emerging Markets Sovereign CDS Index is up +1.1% to 179.87 bps, the Portugal sovereign cds is up +1.87% to 781.32 bps and the Italy sovereign cds is up +.64% to 178.83 bps. Despite the global equity rally, Brazil's Bovespa was flat again today and is down -10.2% ytd. European contagion fears are temporarily subsiding again. The tone and breadth of the rally are improved today, however the lack of participation by the financial/real estate stocks is a concern. Stocks are now short-term overbought. The upcoming earnings season will provide the next big test as earnings estimates remain high even as global growth has decelerated meaningfully. As well, emerging markets inflation fears are likely to remain. I expect US stocks to trade mixed-to-higher from current levels into the close on short-covering, quarter-end window dressing, better economic data, lower food prices, diminishing eurozone debt angst, less tech sector pessimism and technical buying.

Today's Headlines

Bloomberg:

• Papandreou Wins Vote on Second Greek Austerity Bill in Bid for More EU Aid. Greek Prime Minister George Papandreou’s drive to stave off the euro area’s first sovereign default stayed on track after lawmakers backed a bill to authorize an austerity plan required to keep rescue aid flowing. The premier won the vote by 155 to 136, allowing him to implement a 78 billion-euro ($112 billion) package of tax increases and asset sales that was a condition of receiving further European Union aid. Those steps were approved in a vote yesterday which was marred by street violence as police fired tear gas on crowds. That ballot was carried by 155 votes to 138. Greece’s largest public-sector labor union plans a further rally today in an extension of protests of more than 20,000 people that gripped the city center this week. Parliament has become the focus of repeated riots that underscore the challenge Papandreou faces in executing his plan in an economy suffering recession while appeasing the EU partners funding its debts. “Today’s vote is constructive, and will clear the way for EU help,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London. “However, it just buys time which creates a buffer to allow making a default or restructuring less painful. The market is expecting Greece to default and it will not change its mind.”
• U.S. Credit Swaps Fall in Biggest Weekly Drop of 2011 as Greek Risk Wanes. Credit markets are rallying as concern ebbs that Greece will default on its debt and investors speculate the selloff earlier this month was overdone. “The Greece situation is resolving in a way that’s been in the near term pretty positive for the markets,” New York-based Barclays Capital credit strategist Jeffrey Meli said in a telephone interview. “It’s been quite a rally,” he said. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, fell for a fourth day, declining 2 basis points to a mid-price of 92.8 basis points, the lowest since June 1, as of 10:24 a.m. in New York, according to index administrator Markit Group Ltd. The index has dropped 8.8 basis points this week, the most since the five days ended Nov. 5. One Markit ABX index tied to subprime mortgage bonds that were rated AAA when issued in 2006 has climbed 10 percent this week after dropping more than 18 percent the previous 11 weeks. The index, which rises as investors gain confidence, advanced to 39.5 yesterday from 35.9 on June 24, prices from London-based Markit Group Ltd. show. A similar index tied to junior AAA ranked commercial- mortgage bonds created in 2007, known as the Markit CMBX, has climbed to 67.8 from an almost nine-month low of 63.7 on June 27.
• Business Expands, Consumer Confidence Grows. Businesses in the U.S. unexpectedly expanded at a faster pace in June and consumer confidence reached a 10-week high, signs that economic growth may pick up in the second half of the year. The Institute for Supply Management-Chicago Inc.’s business barometer climbed to 61.1, exceeding the highest forecast in a Bloomberg News survey, from 56.6 in May. Readings greater than 50 signal expansion. The Bloomberg Consumer Comfort Index rose to minus 43.9 from minus 44.9. “The headwinds from the supply-chain disruption might have started to ease,” said Conrad DeQuadros, a senior economist at RDQ Economics LLC in New York. “We’ll see a pickup in economic growth in the second half.” The purchasing group’s gauge of new orders climbed to 61.2 in June from 53.5, while the production index increased to 66.9 from 56. Measures of employment, backlogs and inventories eased this month.
• German Banks, Government Said to Agree on Draft Greek Plan. Germany’s biggest banks and insurers and the government agreed on a draft proposal to roll over Greek debt holdings before a meeting with Finance Minister Wolfgang Schaeuble today, people familiar with the plan said.
• Germany Is Loser From Further Greek Bailout, Scott Writes in FT. Maintaining Europe’s economic and monetary union means wrecking Germany’s economy and public finances, said Derek Scott, the vice chairman of Open Europe, a U.K. policy review group. Writing in the Financial Times, Scott said the system has become “a disaster for Europe and Germany.” Acceptance of the Emu in Germany was based on collusion between manufacturers, bankers and politicians at households’ and taxpayers’ expense, in that, while the probable appreciation of the deutschmark would have made German manufactured goods less competitive, other parts of the economy would have been stimulated, raising growth and living standards, Scott said. The Emu replaced exchange-rate risk by credit risk, and now the credit bubble has burst, taxpayers are bailing out German and other EU banks; yet creditors always pay in the end, it’s just a matter of when and how, he said. The cost to Germany of default by Greece and other peripheral nations now is certainly less than it will be after further lending and then default, Scott concluded.
• Germany's Homburg Expects Eurozone Breakup, Bild Says. Stefan Homburg, a public finance professor at Hanover University, predicts that Greece won’t be able to pay back its debt and the result will be a breakup of the eurozone, Bild-Zeitung reported, citing an interview. The euro rescue package sets wrong incentives and it’s only a matter of time before strong countries drop the common currency, the newspaper cited Homburg as saying. Leaving the eurozone now would cost Germany a low three-digit-billion euro amount, while contributing to further financial aid would be much more expensive, according to Homburg, Bild said.
• Commodity Assets Fall Most Since October 2008, Barclays Says. Commodity assets under management declined $26 billion in May, the first drop since August and the largest since October 2008, according to Barclays Capital. Assets fell to $425 billion, down from a record $451 billion in April, Barclays said. Outflows of $2.6 billion from precious metals and $1.8 billion from agriculture were the most since at least January 2008, while withdrawals of $1.6 billion from energy and $700 million from industrial metals were the most since August.
• Corn Tumbles Most Since November, Wheat Falls as U.S. Reports Acreage Gain. Corn futures tumbled the most since November and wheat plunged to an 11-month low as the government reported U.S. grain acreage and inventories that topped estimates by analysts. Soybeans also fell. U.S. farmers planted 92.282 million acres of corn this year, 1.8 percent more than projected by analysts in a Bloomberg News survey, and the second-highest since 1944, the Department of Agriculture said today. Stockpiles as of June 1 were 3.67 billion bushels, 12 percent higher than forecast. “The USDA again surprised the market,” said Chad Henderson, a market analyst for Prime Agricultural Consultants Inc. in Brookfield, Wisconsin. “Rising acreage will add 200 million bushels to this year’s corn crop. Demand rationing has taken place, and supplies are much more comfortable for 2012.” Corn futures for December delivery, the most-active by open interest, slid by the exchange limit of 30 cents, or 4.6 percent, to $6.205 a bushel at 11:30 a.m. on the Chicago Board of Trade. A close at that price would mark the biggest drop since Nov. 16. Before today, the grain jumped 89 percent in the past year on surging demand from ethanol producers and livestock farmers.
• Oil Drops, Extending Quarterly Loss, as U.S. Demand Falters. Oil dropped, extending its first quarterly loss in a year, amid signs of faltering fuel demand in the U.S., the world’s biggest crude consumer. Futures in New York dropped as much as 0.7 percent, halting the biggest two-day rally in seven weeks. The U.S. Energy Department said yesterday gasoline demand dropped for a second week in the seven days to June 24. U.S. pump prices are up 29 percent from a year earlier. “The situation with very high gasoline prices isn’t sustainable,” Christophe Barret, a London-based oil analyst at Credit Agricole SA, said by phone. Futures are down 11 percent this quarter.

Wall Street Journal:

• Democrats to Take Aim at Gun Laws Amid ATF Probe. The brewing scandal over a federal gun-running probe in Arizona is opening the way for Democrats to raise the issue of more gun-control laws. A report by the Democratic staff of the House Oversight and Government Reform Committee, released Thursday, criticized what it described as low penalties for gun-trafficking violations and lax paperwork requirements. The report cites recent congressional testimony by agents of the Bureau of Alcohol, Tobacco, Firearms and Explosives to make the case that weak gun laws are fueling smuggling to Mexico and drug-related violence.
• Pension Rulings May Boost Cutback Efforts. In a pair of rulings that may bolster efforts to roll back public pensions nationwide, judges in Minnesota and Colorado have thrown out lawsuits challenging recent cuts to certain retiree benefits.
• Smaller Businesses Seeking Loans Still Come Up Empty. Small businesses expected 2011 to be the moment a years-long credit freeze would finally begin to thaw. But borrowing has only gotten worse. Loans outstanding to small businesses totaled $609 billion at the end of March, an 8.6% drop from a year earlier, according to the most recent data from the Federal Deposit Insurance Corporation, which analyzes loans of less than $1 million. Another lending analysis, by the Federal Reserve Bank of Kansas City, shows that big banks' outstanding loans to small businesses dropped 14% between March 2010 and March 2011, while loans by smaller lenders fell 3%.
  

Business Insider:

• Obama Rejects Invitation to Meet With Senate Republicans on Debt Ceiling.
  
• China Wants to Buy a Big Piece of Facebook. China wants to buy a huge chunk of Facebook, a source at a fund that buys stock from former Facebook employees tells us. Seperately, a second source tells us there is a rumor going around Facebook that Citibank is at this very moment trying to acquire as much as $1.2 billion worth of Facebook stock on behalf of two sovereign wealth funds – China's and another from the Middle East. Another source from an investment bank that is very influential in Silicon Valley says he's also heard a rumor about Citibank's interest on behalf of China.
• U.S. Launches Drone Strikes in Sixth Muslim Country.
• Basically, Deutsche Bank Just Wrote The Eulogy for the Euro. It leads in with this quote, from former Bundesbank Chief Economist Otmar Issing: “There is no example in history of a lasting monetary union that was not linked to one State.
• Marc Faber on the Massive Proliferation of Fraud in China. (video)
• This is the Most Bullish Thing We've Seen in Awhile. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity rebounded solidly in June after a brief slowdown last month, and producers remained generally optimistic about future activity.
  

Zero Hedge:

• Paulson Dumping Bank of America(BAC).
• Radiation Detected in Fukushima Children Urine Samples as Fort Calhoun Orders 10 Mile Evacuation Radius.
  

Boy Genius Report:

• Open Letter to BlackBerry Bosses: Senior RIM(RIMM) Exec Tells All As Company Crumbles Around Him.

Politico:

• Obama Debt Ceiling Taunts Draw Fire From Republicans. Senate Minority Leader Mitch McConnell (R-Ky.) called on Obama to drop what he’s doing and come to the Capitol for a meeting. National Republican Senatorial Committee Chairman John Cornyn (R-Texas) said the president should put his money where his mouth is by canceling a Thursday night fundraiser in Philadelphia to focus on the debt. Rep. Raul Labrador (R-Idaho), a freshman lawmaker, sent Obama a letter asking him to put forward a specific deficit-reduction plan. “House Republicans acted, and now we await your spending reduction plan—perhaps not with open arms, but we do have open minds,” Labrador wrote. And Republicans haven’t even started talking about Obama’s weekly golf outings or his vacation plans this summer. But Democrats who thought Obama was churlish in his Wednesday White House press conference know that criticism is coming. “The president might as well cancel every golf game, Martha’s Vineyard vacation and fundraiser from here until doomsday because he’s living in a glass White House and Republicans are already throwing rocks,” said a senior congressional Democratic source who described watching Obama’s press conference in bewilderment.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-nine percent (39%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).

Reuters:

• U.S. Caught China Buying More Debt Than Disclosed. The rules of Treasury auctions may not sound like the stuff of high-stakes diplomacy. But a little-noticed 2009 change in how Washington sells its debt sheds new light on America's delicate balancing act with its biggest creditor, China.

Bear Radar

Style Underperformer:

• Mid-Cap Value (+.71%)

Sector Underperformers:

• 1) Oil Tankers -.71% 2) Agriculture -.03% 3) Airlines +.10%

Stocks Falling on Unusual Volume:

• VMED, EBIX, ARIA, ZAGG and CF
  

Stocks With Unusual Put Option Activity:

• 1) DNDN 2) FXC 3) TLT 4) USU 5) ZAGG
  

Stocks With Most Negative News Mentions:

• 1) BELFA 2) XOM 3) HRL 4) CF 5) CTSHS
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (+1.31%)

Sector Outperformers:

• 1) Semis +2.31% 2) Road & Rail +2.31% 3) Computer Hardware +2.21%

Stocks Rising on Unusual Volume:

• TOT, HES, FCX, TEF, TI, PHG, SLAB, FSLR, CALM, RITT, ANEN, LSTZA, EBAY, SPRD, VELT, SCHN, CCIX, MELI, SAFM, SIAL, SUPX, USAP, VRA, SREV, SMSC, BIDU, CYOU, SKT, PUW, WOR, EWN, PHG, KUB, OFG, MEDH, NTAP, HPQ and F
  

Stocks With Unusual Call Option Activity:

• 1) DHR 2) TLAB 3) DTV 4) SYMC 5) LUV
  

Stocks With Most Positive News Mentions:

• 1) HES 2) LMT 3) T 4) BYI 5) CTXS
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Thursday Watch

Evening Headlines

Bloomberg:

• Papandreou Seeks to Turn Budget Enforcer. Greek Prime Minister George Papandreou may struggle to persuade investors he can implement a $112 billion austerity plan as it reaches a final vote in Parliament in the teeth of violent street protests. Having clinched victory on a bill setting out his strategy for budget cuts, Papandreou must today win a second ballot to execute measures ranging from tax increases to asset sales. That may be easier than inflicting the plan on an economy mired in recession whose population is already enduring an income squeeze to curb the nation’s record budget deficit. A general strike and protests of more than 20,000 people have paralyzed central Athens for the past two days in a standoff focused on Parliament as lawmakers deliberate on Papandreou’s proposals. While approval today would pave the way for Greece to secure a fifth tranche of money from the European Union to prevent a default, the yield on the country’s two-year bond is still above 27 percent. “There is a real risk that, given the political problems, given the process, that at some stage it’s the Greeks who give up on the program,” Andrew Balls, Pacific Investment Management Co.’s head of European portfolio management, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “The EU partners are spectators when it comes to the Greek political dynamics.”
• German Banks Near Greek Plan. German financial companies pushed toward an agreement to roll over their Greek debt holdings as Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann predicted banks would contribute to help avert a “meltdown.” Representatives of German banks and insurers hammered out a draft proposal to present at a meeting today with Finance Minister Wolfgang Schaeuble and top industry executives, including Ackermann. The German firms, which are using a French proposal as a blueprint for discussions, are likely to commit to contributing to the Greek rescue, while calling for a Europe- wide solution, said people familiar with the plan.
• Dealmaking Hits Bump as Market Slump Prompts Lowest Takeovers in 8 Months. Concerns about a declining global stock market and slowing economic growth are taking a toll on dealmaking, with takeovers in June tumbling to the lowest level in eight months. The total value of takeovers announced so far this month fell 22 percent from May to about $178 billion, leaving second- quarter volume little changed from the previous three months, according to data compiled by Bloomberg.
• Visa(V), MasterCard(MA) Surge as Fed Lifts Caps. Visa Inc. (V) and MasterCard Inc. (MA), the world’s biggest consumer-payment networks, surged more than 10 percent after the Federal Reserve relaxed restrictions on debit- card transaction fees. Visa advanced $11.29, or 15 percent, to $86.57 at 4 p.m. in New York Stock Exchange composite trading, the most since March 2008. MasterCard rose 11 percent to $309.70, the biggest gain since February 2009. The Fed voted today to cap debit-card swipe fees, also called interchange, at 21 cents a transaction, lifting the limit from an earlier proposal of 12 cents. The caps are mandated by the Dodd-Frank Act. San Francisco-based Visa and MasterCard, based in Purchase, New York, set interchange fees that are paid by merchants and pass the money to card issuers including Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC).
• Institutional Investors Pull Most From Prime Money Funds Since March 2010. Institutions pulled out of U.S. prime money-market funds at the fastest pace in 15 months, shifting to funds that invest only in U.S. government-backed securities out of concern the European debt crisis would worsen. Institutional funds eligible to buy corporate debt lost $39 billion to net withdrawals in the week ended June 28 and $75 billion in the past two weeks, falling to $1.04 trillion, according to data from research firm iMoneyNet in Westborough, Massachusetts. Institutional money funds that buy only U.S. government-backed securities gathered $27 billion in net deposits, rising to $599 billion. “No doubt there was some shifting over European concerns,” said Peter Crane, president of Crane Data LLC, also in Westborough. Investors pulled $15 billion from institutional prime funds on June 24, his data showed.
• South Korea Raises Inflation Forecast to 4% While Cutting Growth Estimate. South Korea’s inflation will exceed President Lee Myung Bak’s target this year and growth will be slower than previously forecast after global demand weakened and energy costs climbed, Finance Ministry forecasts showed today. Consumer prices are expected to rise 4 percent, the ministry said in a statement, exceeding its initial 3 percent projection. The government also lowered its estimate of economic growth to 4.5 percent from the 5 percent it projected last December.
• Why China's Heading for a Hard Landing, Part 4: A. Gary Shilling.
• Samsung Sues Apple(AAPL) Over iPhone, iPad, iPod.
• RBA's McKibbin Sees Greece in Fiscal 'Train Wreck'. Greece is one of several nations that will need to cut spending and boost taxes, slowing global growth even as low interest rates raise the risk of inflation, Australian central bank board member Warwick McKibbin said. The fiscal outlook “is what I call the slow motion train wreck -- the first carriage to break is going to be the Greek economy, but we have a series of economies facing very serious fiscal adjustment,” McKibbin, a professor at Australian National University whose board term ends July 30, said in a speech in Melbourne.
• Rice Supplies Tightening in China May Increase Imports, Bolster Inflation. Rice supply in China, the world’s biggest grower and consumer, may decline after drought and floods damaged crops, potentially boosting inflation and increasing imports. The harvest of the early indica crop may drop in some areas, said eight of 12 officials, traders and farmers surveyed by Bloomberg News in Hunan and Jiangxi provinces, the top producers of the variety which represents 17 percent of annual output. The crop may increase or be about the same as last year, said four of those surveyed from June 21 to June 25. Output of this type already dropped last year to the lowest level since 2003, according to statistics bureau. Lower production may bolster rice futures in China that jumped 29 percent in the past year and increase imports that doubled in the first five months. Surging food costs because of drought and floods helped lift inflation to 5.5 percent last month, the fastest pace in almost three years. The rate may quicken to more than 6 percent in June, adding pressure on the central bank to increase interest rates, some economists said.
• China's inflation rate may jump to 6.5% this month, exceeding a near three-year high and spurring the central bank to raise interest rates for the first time since April, according to Shenyin & Wanguo Securities Co. Consumer prices may accelerate in June because of the rising cost for pork, Li Huiyong and Meng Xiangjuan, analysts at the brokerage, wrote today. The People's Bank of China may increase borrowing costs around the time of the release of the economic data, scheduled for July 15, they wrote. "Higher pork prices will boost the possibility of seeing higher-than-expected inflation for the third quarter and full year," said the analysts at Shenyin & Wanguo, ranked China's most influential research provider by New Fortune magazine last year. "Investors should pay attention." The nation's pork prices surged 40% in May from year-ago levels and may have jumped 55% this month, Bank of America-Merrill Lynch said in a report to clients yesterday.
• Iran Again Arming Iraqi Groups Attacking U.S. Troops, Gates Says. Iran is furnishing new, more deadly weapons to Shiite militia groups targeting U.S. troops in Iraq as part of a pattern of renewed attempts to exert influence in the region, Defense Secretary Robert Gates said. About 40 percent of the deaths of American soldiers since the official end of U.S. combat operations almost 10 months ago have occurred in the past few weeks as a result of the attacks, Gates said yesterday in a Bloomberg News interview at the Pentagon that also touched on Iran’s nuclear program.

Wall Street Journal:

• Vote Calms Markets - For Now. Financial markets breathed a sigh of relief Wednesday after the Greek Parliament approved a five-year austerity plan demanded by international creditors, but investors remain wary that the fix fails to resolve problems facing Greece—and Europe—in the long run. The measures, which were demanded by international creditors as a condition of a new bailout, eased fears of an imminent default, but market reaction was muted by gains over the past two days, partly on expectations the budget-cutting package would pass.
• Obama's Real Revenue Problem. Tax receipts are low because of the mediocre economic recovery.
• ObamaCare Doesn't Add Up. A new CBO report finds that the costs of Medicare and Medicaid will drive federal spending to all-time highs in coming decades. Remember the much ballyhooed ObamaCare promise to "bend the health care cost curve down"? Well, a new Congressional Budget Office report on the long-term trend in the federal budget finds that the costs of Medicare and Medicaid will drive federal spending and debt to all-time highs in coming decades. In one scenario, federal health-care spending doubles over the next 25 years, to 11% of GDP in 2035 from 5.6% this year. In another scenario, the debt eclipses 100% of GDP by 2021 and 190% of GDP by 2035. That's higher than where Greece is right now, and we see what the bond vigilantes are doing there.
• IMF Said to Raise Flags Over Two Afghan Banks. The International Monetary Fund has expressed concerns to Afghanistan that the government isn't thoroughly investigating widespread alleged graft at Kabul Bank, the country's largest lender, according to people familiar with the matter. The IMF also said the Afghan government hasn't conducted a proper forensic audit into a second, possibly unhealthy Afghan bank, these people say.

MarketWatch:

• FDA Panel Votes Down Avastin Breast Cancer Use. A Food and Drug Administration advisory panel voted decisively on Wednesday to withdraw approval for Avastin to treat breast cancer over concerns about side effects and a lack of effectiveness.

CNBC:

• Solar Industry Facing Supply Bubble: Analyst. The world is facing a massive over-supply of solar panel capacity, and one analyst says that’s likely to lead to big declines in solar panel prices and the stocks of solar companies this year. Gordon Johnson, Managing Director and senior equity research analyst at Axiom Capital says global solar capacity will jump from roughly 40 gigawatts in 2010 to about 61 gigawatts by the end of 2011. According to him, even by the most bullish of estimates, demand is only going to be 20 gigawatts this year. As a result, he’s predicting big declines in earnings for the sector and recommends selling solar stocks.
• US Enters Next Round of Public Pensions Fight.
• Bad Old Habits Plague Economic Forecasting. Three years after the Great Recession ought to have challenged even the most basic assumptions made by economists, they have instead settled back into the costly habits of old.

Business Insider:

• Check Out The Hedge Funds That Just Made A Fortune On One New Rule From The Fed. On news that the Fed is proposing swipe fees higher than those originally expected, at $0.21 per swipe, credit card company stock has spiked. The original cap was set at $0.12. Visa shares surged and MasterCard took a big jump too.
• A Huge Number of Americans Believe The Economy Has Now Entered "Permanent Decline". 39% of Americans believe the US economy has now entered "permanent decline" according to a new poll from CBS and NYT.

Zero Hedge:

• It's Official: China Is The "Mystery" Daily Buyer of Billions of Euros.

IBD:

• Dollar Tree(DLTR) Uses Variety to Stay Ahead of Rivals.

AppleInsider:

• Direct Revenue From Mobile 'App Stores' Expected to Top $14B in 2012.

Rasmussen Reports:

• 24% Says U.S. Heading in Right Direction. Sixty-eight percent (68%) of voters say the country is heading down the wrong track, up three points from last week and the highest level of pessimism since mid-April.

Reuters:

• Obama Call for Stimulus May Complicate Debt Talks.
• US 2010 Oil Refining Capacity Highest in 29 Years - EIA.
  

Financial Times:

• Pakistan Shuts US Out of Drone Base. Pakistan has called a stop to US drone flights from a base that has launched strikes against Taliban and al-Qaeda militants on its border with Afghanistan. In the latest sign of US-Pakistan tensions, Chaudhary Ahmed Mukhtar, defence minister, said on Wednesday that Islamabad had ended US operations at the Shamsi airbase in Baluchistan.

Xinhua:

• China should raise taxes on imported luxury goods because imposing taxes on wealthy people is beneficial for "social fairness", Liu Shangxi, a deputy director of the Ministry of Finance's research institute for fiscal science said. Domestic companies' competitiveness will be harmed if China expands consumption demand for imported products, Liu said.

Global Times:

• Second-Child Policy to Stay in Place. The latest proposal advocating for a loosening on the Chinese mainland's second-child policy has been rejected by local authorities, who say that allowing married adults – who are not themselves only children – to have more than one child is not in the best interests of Shanghai, nor its aging population. The Shanghai Municipal Population and Family Planning Commission said on Wednesday that allowing married adults, who both have at least one sibling, to have more than one child of their own, would put added strains on the system, which is already struggling to solve the problem of the city's rapidly increasing aging population. "More children would mean fewer resources for seniors, and that would not bode well for the city's aging population," Wu Xiangbing, a press officer for the commission, told the Global Times on Wednesday, declining to disclose the number of married only-children adults, who have had two children since the option was allowed in 2004.

Evening Recommendations
Citigroup:

• Upgraded (EBAY) to Buy, target $38.
  
• Reiterated Buy on (PCLN), target $650.
  

Susquehanna:

• Rated (QCOM) Positive, target $70.

Night Trading

• Asian equity indices are +.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 114.0 -2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 122.0 -2.0 basis points.
  
• S&P 500 futures +.21%.
  
• NASDAQ 100 futures +.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SCHN)/1.20
• (STZ)/.37
• (AZZ)/.63
• (DRI)/1.00
• (APOL)/1.30
• (MKC)/.54
• (WOR)/.55
  

Economic Releases
8:30 am EST

• Initial Jobless Claims for last week are estimated to fall to 420K versus 429K the prior week.
• Continuing Claims are estimated to fall to 3690K versus 3697K prior.
  

9:45 am EST

• The Chicago Purchasing Manager Index for June is estimated to fall to 54.0 versus a reading of 56.6 in May.
  

Upcoming Splits

• (MMS) 2-for-1
• (AMX) 2-for-1
  

Other Potential Market Movers

• The Greece vote on austerity implementation, Fed's Bullard speaking, NAPM-Milwaukee report, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index and the (NTAP) analyst day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Rising into Final Hour on Less Financial Sector Pessimism, Falling Eurozone Debt Angst, Short-Covering, Window Dressing

Broad Market Tone:

• Advance/Decline Line: Slightly Lower
  
• Sector Performance: Most Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 17.64 -7.98%
  
• ISE Sentiment Index 109.0 unch.
  
• Total Put/Call .96 +5.49%
  
• NYSE Arms .47 -28.75%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 98.49 -2.26%
  
• European Financial Sector CDS Index 119.0 -6.54%
  
• Western Europe Sovereign Debt CDS Index 234.16 -2.23%
  
• Emerging Market CDS Index 218.81 -2.64%
  
• 2-Year Swap Spread 24.0 +1 bp
  
• TED Spread 23.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .01% -1 bp
  
• Yield Curve 265.0 +10 bps
  
• China Import Iron Ore Spot $166.80/Metric Tonne -.95%
  
• Citi US Economic Surprise Index -100.20 -.8 point
  
• 10-Year TIPS Spread 2.38% +9 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +48 open in Japan
• DAX Futures: Indicating +19 open in Germany

Portfolio:

• Higher: On gains in my Retail, Biotech, Medical and Tech longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 builds on recent gains despite global growth concerns, emerging market inflation fears, rising food/energy prices and US debt ceiling worries. On the positive side, Ag, Steel, Bank, I-Banking, Oil Service, Energy and Oil Tanker shares are especially strong, rising more than +1.5%. (XLF) has traded well throughout the day. The 10-year yield is rising +9 bps to 3.12%. Copper is rising +2.87% and Lumber is jumping +4.06%. The Italy sovereign cds is falling -5.59% to 183.17 bps, the Belgium sovereign cds is falling -3.26% to 159.0 bps and the UK sovereign cds is falling -4.43% to 63.55 bps. Moreover, the European Investment Grade CDS Index is falling -4.08% to 82.88. On the negative side, Airline, Gaming, Education, Homebuilding, Hospital, Medical, Semi, and Disk Drive shares are lower on the day. Small-caps are underperforming. (XHB) has been heavy throughout the day. Oil is rising +2.2%, gold is gaining +.7% and the UBS-Bloomberg Ag Spot Index is rising +.2%. The US price for a gallon of gas is -.01/gallon today to $3.54/gallon. It is up .40/gallon in less than 5 months. The Greece sovereign cds is rising +.91% to 2,055.05 bps. The Shanghai Composite fell -1.11% overnight and is now down -2.8% ytd. As well, despite the jump in commodities and global equity rally, Brazil's Bovespa was flat today and is down -10.0% ytd. Breadth and volume remain lackluster on the US exchanges. The S&P 500 will likely test its 50-day moving average over the coming days. The euro currency has bounced up to a technical level of resistance. I will closely monitor the situation in Europe for signs that the contagion is subsiding in a meaningful way. I expect US stocks to trade mixed-to-higher from current levels into the close on short-covering, quarter-end window dressing, less eurozone debt angst, less financial sector pessimism and technical buying.