Bear Radar

Style Underperformer:

• Small-Cap Value (-2.97%)

Sector Underperformers:

• 1) Banks (-5.17%) 2) Coal (-3.92%) 3) Internet (-3.66%)

Stocks Falling on Unusual Volume:

• BAC, BCS, FITB, STI, JST, PLCM, MAT, GOOG, GILD, NVDA and VMI
  

Stocks With Unusual Put Option Activity:

• 1) LM 2) TLAB 3) MAT 4) HK 5) CX
  

Stocks With Most Negative News Mentions:

• 1) BP 2) C 3) BAC 4) GS 5) MT
  

Bull Radar

Style Outperformer:

• Large-Cap Value (-1.62%)

Sector Outperformers:

• Agriculture (+.04%), Education (-.59%) and I-Banks (-.65%)

Stocks Rising on Unusual Volume:

• WCRX, JBHT, PVD, GS, MOS and SCHW
  

Stocks With Unusual Call Option Activity:

• 1) MAT 2) COH 3) WU 4) WHR 5) SO
  

Stocks With Most Positive News Mentions:

• 1) GE 2) GOOG 3) BA 4) IR 5) AAPL

Friday Watch

Evening Headlines
Bloomberg:

• Ethics Office Probes Wall Street Giving Ahead of House Vote on Bank Bill. A congressional ethics office is investigating campaign donations made by the financial industry to some U.S. House members as they were preparing to vote on the Wall Street regulation overhaul in December. The Office of Congressional Ethics is looking into contributions to eight House members, including six members of the House Financial Services Committee. For seven of the lawmakers, fundraisers were held days before the House passed the financial plan on Dec. 11, according to invitations posted online by the Sunlight Foundation, a Washington-based watchdog group. “The OCE inquiry is simply that, an inquiry,” said lobbyist Julie Domenick, who held a Dec. 10 fundraiser for Representative Joseph Crowley, a New York Democrat, and said she received a letter from the ethics office. “It doesn’t mean that anyone has done anything wrong.”
• Whalen Calls Goldman(GS) Fine 'Lunch Money', Sees New CEO: Video. Christopher Whalen, managing director of Institutional Risk Analytics, talks about Goldman Sachs Group Inc.'s agreement to pay $550 million to settle U.S. regulatory claims it misled investors in collateralized debt obligations linked to subprime mortgages.
• Goldman Sachs Credit Default Swaps Drop on Report of Settlement With SEC. Credit-default swaps protecting against losses on Goldman Sachs Group Inc. bonds fell after a report the bank reached a settlement with the U.S. Securities and Exchange Commission. Five-year contracts on New York-based Goldman declined about 21 basis points to a mid-price of 150 basis points, according to data provider CMA. The contracts had been trading at 177 basis points before CNBC reported the bank had reached a settlement over fraud allegations, according to broker Phoenix Partners Group.
• Bank Bonds Beat Industrials as Wall Street Bill Advances: Credit Markets. Bank bonds are outperforming debt from industrial companies by the most since March as investors wager the biggest overhaul of Wall Street regulations since the Great Depression won’t cripple profits at financial firms. U.S. bank bonds returned 1.35 percent this month, the second-best performing class of investment-grade debt after tobacco companies, compared with a gain of 0.5 percent for industrial companies, according to Bank of America Merrill Lynch index data. Investors are seeking out bank debt as investment-grade yields fall to the lowest in six years and regulations are deemed less onerous than anticipated, said Thornburg Investment Management’s Lon Erickson.
• Top 100 Political Donors From 1989-2010. (table) The following is a comparison of the top political donors from the 1989-2010 election cycle to political party as compiled by the Center for Responsive Politics. The last column is the difference in a firm’s average percentage of donations to Democrats from the 1989 to 2010 cycles compared to its 2010 cycle only donation. For example, Goldman Sachs(GS) has increased its percentage of donations from 64 percent to democrats to 75 percent in the latest cycle only.
• Corn, Soybeans Surge as Hot, Dry Weather in U.S. Midwest May Damage Crops. Corn futures surged to six-month high, and soybeans rose to the highest price since early May on mounting concern that hot, dry weather in the next six weeks may damage crops in the U.S., the world’s biggest producer and exporter. “The market is adding a weather-risk premium,” said Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana. “The crops will need rains fairly quickly” to prevent significant yield damage, Gerlach said. Corn futures for December delivery rose 9 cents, or 2.3 percent, to $4.0525 a bushel on the Chicago Board of Trade. Earlier, the price reached $4.10, the highest level for a most- active contract since Jan. 12. The grain has soared 18 percent since June 29, the day before the government said U.S. farmers planted less this year than they had planned. Soybean futures for November delivery jumped 26 cents, or 2.7 percent, to $9.88 a bushel. Earlier, the price reached $9.8975, the highest level since May 5. The oilseed has gained 9.5 percent this month after the government said U.S. reserves as of June 1 fell to a six-year low. Shrinking inventories may raise costs for companies including hog processor Smithfield Foods Inc.(SFD) and poultry producer Pilgrim’s Pride Corp.(PPD) and ethanol maker Archer Daniels Midland Co.(ADM) Shares of fertilizer companies Potash Corporation of Saskatchewan Inc.(POT) and Agrium Inc.(AGU) and seed manufacturers Monsanto Co.(MON) and DuPont Co.(DD) rose as higher corn and soybeans may encourage farmers to plant more next year. The National Weather Service said today that August will be warmer than usual in most of the Midwest, increasing the risk to crops, said Marty Foreman, a senior economist at Doane Advisory Services Co. in St. Louis. “If the heat lingers into August, that will change the supply situation very quickly,” Foreman said. “We are on a fence between having a shortage and having an adequate supply.”
• Wheat Futures Surge Most in 19 Months as Russian Drought Damages Output. Wheat jumped the most in 19 months on speculation that a prolonged dry spell will widen crop damage in Russia, the world’s fourth-largest exporter. Russia’s grain harvest will drop by at least 20 percent from last year, to 77 million metric tons, the country’s Grain Producers’ Union said today. Wheat futures have surged 24 percent this month. Wheat futures for September delivery advanced 37.25 cents, or 6.7 percent, to $5.9625 a bushel on the Chicago Board of Trade. The increase was the biggest since Nov. 24, 2008. The price touched $5.985 earlier, the highest since Nov. 23, and gained 11 percent in the past three sessions.
• Nuclear Weapons Laboratories Say 'Fiscal Realities' Weigh on U.S. Arsenal. Directors of the three U.S. nuclear weapons laboratories said today they are worried the nation’s fiscal troubles and a lack of political consensus may threaten their ability to maintain the stockpile of warheads. “How we design, manufacture, field and evaluate the nuclear arsenal becomes increasingly important as we reduce the size of our stockpile,” said Arizona Senator John McCain, the top Republican on the panel.
• Senior Swindles Increase, Often Perpetrated by Elderly Scammers.
• Williams Sees China as Next 'Fallen Angel' After Japan, Nasdaq. Larry Williams, a trader who correctly forecast the 1982-1987 bull market, said the bear run in Chinese equities may last until at least 2012, based on a benchmark index’s exponential growth followed by steep declines. The quadrupling in the Shanghai Composite Index between 2006 and 2007 reminds Williams of the Nikkei 225 Stock Average in the 1980s and the Nasdaq Composite Index in the late 1990s. Both the Nikkei 225 and Nasdaq created fallen-angel patterns -- they rose exponentially, then failed to extend their record highs, setting off accelerated declines from which they have since been unable to recover, Williams said. “We saw the exponential rise in Japan, we saw it in Nasdaq, and now we’re seeing it in the Shanghai index,” Williams, 67, said in a telephone interview from his home at St. Croix, Virgin Islands. “When markets topped out and broke hard, they just don’t come back for a long time.” Drawing parallels to Japan and Nasdaq, Williams said China’s current bear market may last until 2012 or beyond. The Shanghai index is down 25 percent this year for the fourth-worst performance among the 93 major equity benchmarks tracked by Bloomberg globally. Since reaching a record high of 6,092.06 on Oct. 16, 2007, the benchmark has tumbled as much as 72 percent. After rebounding last year, the benchmark hasn’t recouped a quarter of the loss. Williams started trading securities in 1962 and created the Williams %R market-timing tool. In his best-selling book, “How to Prosper in the Coming Good Years,” published in 1982, he forecast a booming stock market by the end of the decade, bolstered by tax cuts, low inflation and growing high technology industries. The Standard & Poor’s 500 Index rose every year through 1989, and almost tripled during the period.
• Fixing Spain's Savings Banks Means Paying Workers to Play Golf, Not Work. Caixa Catalunya, a lender with 62 billion euros in assets granted 1.25 billion euros of government funds to support its merger with two other cajas, is offering staff over 60 the chance to take 95 percent of their salary until the age of 64, said Carlos Domingo, a savings bank union official in Spain’s Catalonia region. They’ll also get 20,500 euros in a lump sum plus pension contributions as part of a deal that will form a template for negotiations at other cajas, he said. “It’s a clear contradiction with the government’s austerity message,” said Carles Campuzano, spokesman for labor policy at Convergencia i Unio, a pro-business Catalan party, referring to the prospect of the mass early retirements. “It’s also goes against the official message that people should actually work longer before retiring.”
• BP(BP) Says It Has Stopped Flow of Oil to Gulf. BP Plc is evaluating data from a pressure test it began yesterday that will determine whether its leaking Gulf of Mexico oil well can remain sealed. By shutting off valves in a cap bolted to the top of the Macondo well this week, BP stopped the flow of oil for the first time in almost three months. “It felt very good not to see any oil going into the Gulf of Mexico,” BP Senior Vice President Kent Wells told reporters on a conference call yesterday. “We’re very encouraged.”

Wall Street Journal:

• Law Remakes U.S. Financial Landscape. Senate Passes Overhaul That Will Touch Most Americans; Bankers Gird for Fight Over Fine Print. Congress approved a rewrite of rules touching every corner of finance, from ATM cards to Wall Street traders, in the biggest expansion of government power over banking and markets since the Depression. The Senate passed the bill 60-39 Thursday, following House passage last month. Earlier in the day, three northeastern Republicans joined with Democrats to block a filibuster, allowing the bill to squeak through. Now, the legislation hands off to 10 regulatory agencies the discretion to write hundreds of new rules governing finance. Rather than the bill itself, it will be this process—accompanied by a lobbying blitz from banks—that will determine the precise contours of this new landscape, how strict the new regulations will be and whether they succeed in their purpose. The decisions will be made by officials from new agencies, obscure agencies and, in some cases, agencies like the Federal Reserve that faced criticism in the run-up to the crisis. Republicans said the bill could jeopardize the recovery by constraining credit and crimping the banking industry, and chided the expansion of government power it envisions. The bill "is a 2,300-page legislative monster…that expands the scope and the powers of ineffective bureaucracies," said Sen. Richard Shelby (R., Ala.). The measure is the latest sweeping law to emerge from the 111th Congress. But the financial revamp, the 2009 stimulus act and this year's health-care overhaul—by any measure significant legislative achievements—haven't translated into support for the White House. Mr. Obama's approval ratings have sunk to some of their lowest levels in some polls amid a gloomy economic picture and rising doubts that his economic policies are working.
  
• Fed Gets More Power, Responsibility. After fending off most challenges to its independence and winning new powers to oversee big financial firms, the Federal Reserve has emerged from a bruising debate on the overhaul of U.S. financial rules as perhaps the pre-eminent regulator in the sector. But that could only bring it added blame if things go wrong again. Just a few months ago, amid populist anger at the Fed for failing to prevent the financial crisis of 2008 and bailing out Wall Street, Congress was talking of stripping the central bank of its supervisory oversight of banks or forcing it to submit to congressional audit of its interest-rate decisions.
• About That Financial Reform 'Victory'. Dodd-Frank may backfire on Democrats.
  
• Is a Big Tax Break for Plaintiffs' Lawyers on the Way? Will a recent Ninth Circuit ruling mean that plaintiffs’ attorneys get a huge tax break? The U.S. Chamber of Commerce’s Legal Newsline reported on Wednesday that the U.S. Department of Treasury may be about to grant plaintiffs’ attorneys long-sought tax write-offs for the costs associated with fronting contingency-fee lawsuits. Legal Newsline cited a speech at the American Association for Justice, the trade association for the trial bar, in Vancouver where one of the group’s leaders told members he’s expecting a Treasury ruling on the write-offs soon. So are the rumors true? For now, Treasury isn’t commenting.
• Several China Blogs Go Offline. Chinese Internet users reported a spate of blog shutdowns in what some bloggers say appears to be the latest government effort to tighten reins on expression and exert greater control over the country's fast-growing and increasingly complicated Internet. On Thursday evening, the sites of several prominent bloggers, including Pu Zhiqiang, an outspoken attorney, were inaccessible. A blogger named Yao Yuan listed dozens of other blogs of outspoken writers, lawyers and others hosted by Sohu.com Inc. that he said were inaccessible on Thursday, the Associated Press reported. The blogger referred to the closures as an Internet "mass murder."
• BP Oil Spill Undermines SunPower, Vestas as Energy Bill Trips. SunPower Corp. and Vestas Wind Systems A/S, the biggest solar-panel supplier in the U.S. and the world’s largest wind turbine maker, are losing more than Big Oil from BP Plc’s spill in the Gulf of Mexico. Their shares have fallen as much as 22 percent since the leak began April 20, compared with a 12 percent decline in the 52-member Bloomberg World Oil & Gas Index that includes BP. A bill in U.S. Congress to expand alternative energy in the biggest oil-consuming nation was set aside by legislators until they can review offshore-drilling safety. Investors in turn sold wind and solar stocks as support waned for the bill and as Europe considered cuts to clean-energy subsidies, said John Hardy, an analyst at Gleacher & Co. in Greenwich, Connecticut. “There’s a lot of rhetoric out there on the possibility that the spill could help renewable energy,” Hardy said in an interview. “I see it delaying clean-energy legislation until the Senate’s ready to deal with offshore drilling.”

Bloomberg Businessweek:

• How I Stopped Worrying and Learned to Short the Euro. Meet Andrew Law and his fraternity of global currency traders. Are they shameless speculators, an essential oil in the gears of capitalism—or both? In March, as his country teetered on the brink of insolvency, Greek Prime Minister George Papandreou blamed "unprincipled speculators" for exacerbating the crisis. Currency traders around the world were roiling markets, he said, and threatened to trigger a new global financial meltdown. He was talking about people like Andrew Law, chief investment officer of the $9 billion Caxton Associates, one of the best-performing hedge fund firms in the world.

CNBC:

• Fed's Lacker Says US Recovery Looks Sustainable. The U.S. economy is experiencing a moderate recovery that is unlikely to be derailed by weak housing and persistent unemployment, Richmond Federal Reserve Bank President Jeffrey Lacker said on Thursday.
• Senate Close to Restoring Jobless Benefits. More than 2 million workers who have been laid off for long stretches could get their unemployment benefits restored as early as next week. Senate Majority Leader Harry Reid said the Senate will take up a measure Tuesday to restore the extended benefits, right after a new Democratic senator from West Virginia is sworn in. The House already has passed a bill to extend the benefits through November, at a cost of about $34 billion.
• Google(GOOG) Earnings Fall Short of Expectations. Google shares dropped sharply in extended trading Thursday after the company reported a profit that failed to match what Wall Street hoped was coming, after a spike in expenses offset a 24 percent revenue jump. Google, which is expanding into new products and markets in hopes of maintaining the growth momentum Wall Street also looks for, spent heavily on research and development and hired aggressively. In an encouraging sign for the overall economy, marketers paid more for the online ads that generate virtually all of Google's income. People also clicked on the ads more frequently.
• AMD(AMD) Profit, Revenue Easily Beat Wall Street Expectations. Advanced Micro Devices posted better-than-expected second-quarter results as corporate spending on tech hardware strengthened, sending its shares up almost 7 percent in after hours trading.

MarketWatch:

• Red Light Flashes for Bank Lending Loophole. Struggle to control lending in China forces ever-tough bank-trust rules. Despite regulatory directives aimed at preventing banks from removing loans off their balance sheets to dodge credit restrictions, China's banks did not slow down their pace in packaging loans as wealth management products. Banks and trusts cooperated on wealth management products, effectively allowing them to shirk their responsibilities toward credit limits imposed nationwide under the central government's macroeconomic controls.

ABC News:

• An Obama Administration Job for Senator Specter? Sources tell ABC News that Sen. Arlen Specter, D-Penn., has informed the White House that he would like to consider remaining in public service after his senate term ends at the end of this session, and White House officials are keeping an open mind about possible job openings for him. Specter, who was defeated in his March primary by Rep. Joe Sestak, D-Penn., is a close friend of Vice President Joe Biden and someone praised for his leadership in pushing for greater funding for the National Institutes of Health. Sources said the job discussions are far from anything other than preliminary, and were not part of any "deal" when Specter switched parties and began supporting President Obama's agenda in earnest.

LA Times:

• Goldman Sachs(GS) to Settle SEC Fraud Case for $55o Million. Goldman agreed to pay $550 million to resolve allegations that the company misled investors who bought subprime mortgage-related securities created by Goldman. Although Goldman neither admitted nor denied wrongdoing, it made a rare concession that its marketing materials for the securities had been "incomplete," which it acknowledged was a "mistake." The penalty equals 4% of Goldman's $13.4-billion profit last year. Moreover, investors concluded the settlement was worth much more to Goldman than it would pay. The deal sent the investment bank's stock price up nearly 10% in a surge that began on rumors late in Wall Street's regular trading session Thursday and continued in the after-hours market after the settlement was announced. The combined increase added more than $6 billion to the firm's total stock market value. In a statement, Goldman called the settlement "the right outcome for our firm, our shareholders and our clients." Of the $550 million the firm will pay, $250 million will go to harmed investors and $300 million will go to the Treasury.

The Daily Beast:

• Wall Street Outsmarts Congress. On Wall Street, it’s fairly simple: What’s still OK will be done in the U.S. And what isn’t, as one Wall Street partner told me, can just be pushed to overseas divisions. “It’s not going to affect us at all,” the partner shrugged, referring to Dodd-Frank. “We’ll move some stuff out, have some partial investments.” But don’t take this guy’s word for it. The Wall Street shell game can be viewed another way—through those literal markets that always stay ahead of the regulators. Financial shares soared as the final deal clarified, partly because it removed uncertainty, which traders hate more than anything, but mostly because they realized that these rules allow them to continue pretty much business as usual. Wall Street is happy today. Historically, that’s not a bad thing—a robust financial industry generally produced wealth for all—but in these times, it sure seems to be.

Google Public Policy Blog:

• Our Op-Ed: Regulating What is "Best" in Search? Google’s Marissa Mayer wrote in the Financial Times today about the impact for consumers of governments potentially regulating search results. Because the article is behind the FT’s paywall, we thought we’d share the complete text here (also, check out search analyst Danny Sullivan’s take on this issue).

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).

Politico:

• Democrats Skim Spill for Big Oil Cash. Democratic leaders and environmentalists hope to seize on public outrage over the oil spill in the Gulf as a way to roll back billions of dollars in tax breaks and financial incentives long enjoyed by the oil industry. Democrats contend that many of the decades-old tax breaks are outdated and allow oil companies to perform highly profitable drilling on public lands and in federal waters at taxpayers’ expense. Republicans and the oil industry say that taking away the tax breaks will raise energy costs and drive production overseas.
• Small Biz Owners Uneasy with Obama. The White House’s attempts to tamp down the growing narrative of President Barack Obama as an enemy of the business community are not resonating with an important audience — business owners themselves. A number of small-business owners attending the U.S. Chamber of Commerce’s jobs summit Wednesday said the administration is responsible for policies that have made them uneasy about hiring or investing in their businesses. And several of the owners interviewed by POLITICO said they believe the White House has demonized their work.

USA Today:

• Now Might be Time to Check Bank Into Tech Stocks.

Reuters:

• TSMC Says to Spend $9.4 Billion on New Taiwan Plant. Taiwan Semiconductor Manufacturing Co (2330.TW)(TSM.N), the world's largest contract chipmaker, said it will invest more than T$300 billion ($9.4 billion) in a new plant in Taiwan and add 8,000 jobs at the facility over the next few years.
• Morgan Stanley(MS) Broker Chief Sees No Dodd-Frank Hit. Morgan Stanley Smith Barney President Charles Johnston played down the financial regulatory reform law that cleared Congress on Thursday, predicting the historic set of new rules will have little impact on the world's largest brokerage.
• US Republican Threatens to Subpoena Government Over Oil Spill.
  

China Securities Journal:

• A Chinese property tax would be well-timed, citing Fang Xinghai, director general of Shanghai's financial services offices.

21st Century Business Herald:

• China central bank adviser Li Daokui said the government must keep its macroeconomic polices stable in the second half of this year. Li said he doesn't support changes in monetary policy. China's trade surplus won't continue to grow in the second half, Li said. The nation should also remain alert on inflation in the second half, Li said. China in the long term should maintain a tight monetary policy and loose fiscal policy, Li said.

Evening Recommendations
Citigroup:

• Reiterated Buy on (GS), target $200.
• Reiterated Buy on (PPG), target $81.
  
• Reiterated Buy on (MAR), boosted estimates, target $43.
  

Night Trading

• Asian equity indices are -1.5% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 126.0 +1.0 basis point.
• Asia Pacific Sovereign CDS Index 121.0 +.5 basis point.
  
• S&P 500 futures -.27%.
  
• NASDAQ 100 futures -.18%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BAC)/.23
• (SCHW)/.15
• (GCI)/.57
• (GPC)/.71
• (MAT)/.15
• (GE)/.27
• (COL)/.88
• (C)/.05
  

Economic Releases
8:30 am EST

• The Consumer Price Index for June is estimated to fall -.1% versus a -.2% decline in May.
• The CPI Ex Food & Energy for June is estimated to rise +.1% versus a +.1% gain in May.
  

9:00 am EST

• Net Long-Term TIC Flows for May are estimated to fall to $40.0B versus $83.0B in April.
  

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for July is estimated to fall to 74.0 versus 76.0 in June.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• None of note
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and automaker shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Rebounding into Final Hour on Short-Covering, Less Financial/Energy Sector Pessimism, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 25.68 +3.17%
  
• ISE Sentiment Index 94.0 -2.08%
  
• Total Put/Call .87 -7.45%
  
• NYSE Arms 1.82 +45.90%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 110.30 bps +1.66%
  
• European Financial Sector CDS Index 123.21 bps +3.44%
  
• Western Europe Sovereign Debt CDS Index 130.66 bps unch.
  
• Emerging Market CDS Index 242.16 bps +.82%
  
• 2-Year Swap Spread 27.0 -3 bps
  
• TED Spread 37.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .15% +1 bp
  
• Yield Curve 238.0 -6 bps
  
• China Import Iron Ore Spot $117.80/Metric Tonne +.17%
  
• Citi US Economic Surprise Index -28.50 -3.5 points
  
• 10-Year TIPS Spread 1.80% -5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -100 open in Japan
• DAX Futures: Indicating +10 open in Germany

Portfolio:

• Slightly Lower: On losses in my Medical and Technology long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just modestly lower despite poor economic data and the market's overbought technical state. On the positive side, Ag, Wireless, I-Banking and Drug stocks are especially strong, rising .50%+. shares are outperforming. The Japan sovereign cds is falling -3.05% to 83.52 bps. The S&P GSCI Ag Spot Index is surging another 3.3%. On the negative side, Gaming, Steel, Airline, Construction and Gold shares are under pressure, falling more than -.75%. Small-cap shares are underperforming. The 10-year yield is falling too much again, declining -6 basis points to session lows. The Spain sovereign cds is rising +3.15% to 224.53 bps. News from (BP), (GS) and (AAPL) is lifting the entire market and could remove a significant level of uncertainty from these shares. The Shanghai Composite came under renewed pressure last night and Shanghai copper inventories are jumping +26.92% today. If earnings come in ok after the close today and tomorrow morning, I would expect stocks to build on today's rebound tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, declining energy sector pessimism, diminishing financial sector pessimism and less hostile political rhetoric.

Today's Headlines

Bloomberg:

• CFTC Wants Budget Boost, Is Ready to Write Swap Rules. The Commodity Futures Trading Commission is requesting a bigger budget as it organizes staff to write new rules governing the $615 trillion over-the-counter derivatives market, Chairman Gary Gensler said. Congressional legislation, which may be voted on today by the Senate, would give the CFTC new authority over swaps markets that have been explicitly unregulated since 2000. The commission has identified 30 areas where rules will need to be written, Gensler said, according to prepared remarks he is expected to deliver today at a Security Industry and Financial Markets Association conference in New York. The $261 million CFTC budget proposed by President Barack Obama for 2011 is an increase from $168.8 million this year and represents “a substantial boost in funding,” Gensler said. Based on how the legislation has taken shape, however, the commission is requesting $25 million more, he said. This comes on top of an additional $45 million Gensler asked for earlier this year to deal with the legislation’s demands. “We need significant new resources,” Gensler said. “The next year of rule writing will test the very talented staff of the CFTC.” The commission will rely on the bill language as well as input from other regulators and the public in its creation of new rules, Gensler said.
• Back-to-School Sales May Rise 16%, Fueling Recovery. Back-to-school spending may rise as much as 16 percent in the U.S. this year, reversing year-ago declines and putting more muscle behind the economic rebound. Families with students plan to spend about $55.1 billion in the period, compared with $47.5 billion a year earlier, the National Retail Federation said, citing consumers surveyed by BIGResearch. “I’m pretty confident the sales will be good,” Fifth Third Asset Management fund manager Dan Popowics said in a telephone interview. “The profitability will be a bit under pressure given the urgency companies have of achieving those sales. It will be promotional.” His firm has $18 billion in assets under management, including Target Corp. shares. Sales at stores that sell family clothing, shoes, electronics and books will jump 5.4 percent in the July to September period from a year ago, when they declined 2.8 percent, the International Council of Shopping Centers said today. That would be the best showing since 2005. Clothing will have the biggest gain with 6.5 percent, the group said. This year, the average family with students in kindergarten through 12th grade may spend $606.40, up from $548.72 last year, for a total of $21.4 billion, the Washington-based NRF said. College spending probably will amount to about $33.8 billion.
• Commodity Shipping Has Longest Drop in 15 Years on Oversupplies. Commodity shipping costs measured by the Baltic Dry Index extended their longest losing streak to almost 15 years as reduced demand for iron ore carriers worsened a surplus of vessels with fleets expanding. Fleet capacity of vessels able to carry commodities shipped in bulk, such as iron ore and coal, will grow 16 percent this year, according to Clarkson Plc, the world’s biggest shipbroker. Imports of iron ore by China, the world’s biggest user of the commodity, will decline this year for the first time since 1998, Mysteel Research Institute forecasts. “We’re faced with oversupply,” Nigel Prentis, director of research and consultancy at HSBC Shipping Services Ltd., said by phone today. The fleet of capesize vessels, three times the size of the Statue of Liberty, expands by about one every two days, he said. The index fell 9 points, or 0.5 percent, to 1,700 points, according to the Baltic Exchange in London. That’s the 35th consecutive drop, the longest streak since November 1995.
• U.S. Jobless Claims Fall as Fewer Factories Shut Down. Fewer Americans than projected filed applications for unemployment benefits last week, reflecting a smaller number of factory closings for this time of year. Initial jobless claims dropped by 29,000 to 429,000 in the week ended July 10, the fewest since August 2008, Labor Department figures showed today in Washington. The government anticipates an increase in temporary factory layoffs in early July that did not occur this year, leading to the decrease in applications, a Labor Department spokesman said. “The key story here is the extreme uncertainty over the near-term path of claims as a result of the annual retooling shutdowns, which throw the seasonal adjustments into chaos,” Ian Shepherdson, chief U.S. economist at High Frequency Economics LLC in Valhalla, New York, said before the report. The four-week moving average, a less volatile measure than the weekly figures, fell to 455,250 last week from 467,000, today’s report showed. The number of people continuing to receive jobless benefits jumped by 247,000 in the week ended July 3 to 4.68 million. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3.7 percent in the week ended July 3, from 3.5 percent in the prior week. Twenty-three states and territories reported a decline in claims, while 30 reported an increase.
• U.S. Economy: Manufacturing Contracts, Wholesale Prices Decline. Manufacturing in the U.S. contracted in June by the most in a year and wholesale prices declined more than anticipated, underscoring the Federal Reserve’s reduced forecasts for economic growth and inflation. Factory output fell 0.4 percent in June, a Fed report showed today. Producer prices slid 0.5 percent after a 0.3 percent decline the month before, the Labor Department said. Other reports showed factories pulled back in the New York and Philadelphia regions in July.
• Guber, Lacob Said to Buy NBA's Warriors for $450 Million. Peter Guber and Joe Lacob bought the Golden State Warriors for $450 million, a record price for a National Basketball Association team, according to a person familiar with the transaction.
• Dutch City's Marijuana Curbs Are Justified, Aide Says. A Dutch city’s ban on sales of marijuana and hashish to foreign customers in so-called coffee shops is a lawful and necessary measure to cut crime from drug- tourism, an adviser to the European Union’s highest court said. The city of Maastricht’s ban on shops selling cannabis- derived products to non-residents is necessary to maintain public order, Yves Bot, an advocate general at the European Court of Justice, said in a non-binding opinion today. “As drug tourism represents a genuine and sufficiently serious threat to public order in Maastricht, the exclusion of non-residents from coffee shops” is a “necessary” means to protect residents, said Bot.
• Hamptons Home Sales More Than Double in First Half. Home sales in the Hamptons, the beachside resort towns favored by celebrities and Wall Street financiers, more than doubled in the first half of 2010 from a year earlier, according to property broker Corcoran Group. Sales in 15 New York villages and hamlets that make up the Hamptons rose to 923 homes from 433, Corcoran said in a report today. The dollar volume of all transactions more than doubled to $1.5 billion, while the median price of homes sold climbed 34 percent to $935,000. “We’ve returned to a fairly healthy normal market,” Rick Hoffman, a Corcoran senior vice president who oversees sales on Long Island’s East End, said in a telephone interview.

Wall Street Journal:

• Copper, Nickel Stolen from JPMorgan(JPM) U.K. Warehouses. Thieves swiped hundreds of tons of nickel and copper from a Liverpool warehouse in May, the latest in a rash of commodities heists spurred by high prices. The material was stolen May 31 from a shed in Liverpool's docklands area that was owned by warehousing company Henry Bath & Son, a unit of J.P. Morgan Chase & Co. According to police in Merseyside County, which includes Liverpool, the metal sheets were worth "several million pounds."
• Senate VIP Loans Mount. Countrywide Dealt With More Lawmakers and Staffers Than Previously Known. U.S. senators or Senate employees received 30 loans—far more than had previously been known—under a controversial lending program at Countrywide Financial Corp. that provided cut-rate terms to favored borrowers. The information is contained in a letter sent to the Senate Select Committee on Ethics by Rep. Darrell Issa (R., Calif.), who has been spearheading the House Oversight and Government Reform Committee's investigation into Countrywide's so-called VIP mortgage program. Sens. Christopher Dodd (D., Conn.) and Kent Conrad (D., N.D.), have previously been identified among the high-profile individuals who received such loans. Both senators have denied wrongdoing. Until the Issa letter, no other senators or their staff members had been linked to the VIP loan program.
• Greek Union, Employers Groups Clinch 3-Year Wage Pact. Greece's private sector umbrella union GSEE and the country's major employers' groups reached a three-year wage pact Thursday that freezes wages and pegs future increases to euro zone inflation. According to a statement by GSEE, Greek workers will get no salary increase this year, and will only see rises of roughly 1.5% in 2011 and 1.7% in 2012.
• BP(BP) Fixes Leak on Cap, Prepares for Test.
  

CNBC:

• Millions of Americans Will Lose Access to Banks: Bove. Financial regulation reforms, now in the last stages before becoming law, will mean that millions of people will lose access to banking services, Dick Bove, banking analyst at Rochdale Securities, told CNBC Thursday.
• One Retail Sector Defies Sluggish Economy. As murky as the consumer picture is now, there is one spot on retail landscape that is still shining bright: online sales. Shop.org and Forrester Research surveyed retailers about their gross online sales, and found that second-quarter Web sales were up about 15.1 percent from the same period a year ago, and nearly half of those who responded said their growth was more than 10 percent.

NY Times:

• Fund-Raising Before House Financial Reform Vote Draws Scrutiny. Lawmakers take contributions every day from corporate executives and lobbyists hoping for their votes. The question of whether that represents business as usual in Washington or an ethics breach is at the heart of a far-reaching Congressional ethics investigation that is stirring concerns throughout Washington and Wall Street. The Office of Congressional Ethics has sent corporate donors and fund-raising hosts more than three dozen requests for documents involving eight members who solicited and took large contributions from financial institutions even as they were debating the landmark regulatory bill, according to lawyers involved in the inquiry. The requests are focusing on a series of fund-raisers last December, in the days immediately before the House’s initial adoption of the sweeping overhaul, which could win final approval this week. Some of the fund-raising events took place the same days as crucial votes. For example, on Dec. 10, one of the lawmakers under investigation, Representative Joseph Crowley, a New York Democrat who sits on the Ways and Means Committee, left the Capitol during the House debate to attend a fund-raising event for him hosted by a lobbyist at her nearby Capitol Hill town house that featured financial firms, along with other donors. After collecting thousands of dollars in checks, Mr. Crowley returned to the floor of the House just in time to vote against a series of amendments that would have imposed tougher restrictions on Wall Street.

Business Insider:

• Now The Amount Hedge Funds Are Using Algos Is Increasing and Sales Desks are Doomed. There's a new research report by TABB that says hedge fund trading activity in US equities is growing in contrast to trades carried out by proprietary trading desks. The TABB report, US equity trading 2010: low-touch trends, showed two interesting things. From Hedge Fund Review:

Zero Hedge:

• China Has Been Covertly Funding a Housing Bubble Five Times Larger Than that of the US: 65 Million Vacant Home Uncovered.
• ICI Reports Largest Equity Fund Outflow in Two Months, Coinciding With Short-Covering Market Surge.
  

Institutional Investor:

• Big Asset Managers Fight Rising High-Frequency Trading Cancel Orders. Large asset managers such as mutual funds and some hedge funds are meeting with legislators and lobbyists in the U.S. to discuss ways to clamp down on the high rate of cancel-and-replace orders originating from high frequency trading firms. “The rhetoric has picked up,” says the head of one bulge-bracket prime broker, who says that banks are also reevaluating their pro-HFT stance.
• Renaissance Funds Lead the Way in First Half. Super-secretive Medallion, the computer-driven, rapid trading fund closed to outsiders for years, was up 17 percent for the first half. Renaissance Institutional Equities Fund International L.P. (RIEF), its newer fund that had been struggling, climbed about 2.4 percent in June and was up about 3.5 percent for the first half of the year.

World Net Daily:

• Top Democrat Fundraiser Sentenced to 12 Years. Backer of Hillary, Obama, Kerry heads to prison for bank fraud. Hassan Nemazee, a multimillionaire Iranian-American investment banker and top Democratic Party fundraiser, was sentenced today to 12 years in federal prison for bank fraud. Nemazee, 60, served as the national finance chairman of Hillary Clinton's 2008 presidential campaign before raising more than $500,000 for Barack Obama's campaign.

Lloyd's List:

• Secondhand Dry Bulk Values Could Plunge by Up to 25%. SECONDHAND dry bulk values are forecast to crash by 20%-25% in the next three months as plunging freight rates sees deals fail, and owners withdraw ships from the market. Bulk carriers are losing more than a million dollars in value each week, brokers reported, as the Baltic Dry Index continued its 34-day freefall today, closing at 1,700 points, down 60% since late May.

Politico:

• Pollution Fight Cools Climate Talks. Closed-door meetings between a select group of environmentalists and a handful of electric utility executives may determine the fate of climate change legislation in the Senate.

Real Clear Politics:

• Financial Reform's Empty Promises by Senator Tom Coburn.

Reuters:

• 30-Year Mortgage Rate Holds Record Low - Freddie Mac. U.S. 30-year fixed mortgage rates held at record lows last week, while shorter-term borrowing costs hovered at or near all-time lows, home funding company Freddie Mac said on Thursday. The 30-year mortgage rate stayed at 4.57 percent for the week ended July 15, matching the prior's week's all-time low in Freddie Mac records dating back to 1971.
• Gulf Projects Hit By Drilling Moratorium. President Barack Obama's administration issued a new six-month moratorium on deepwater oil drilling in the Gulf of Mexico, replacing an earlier ban that had been struck down by U.S. courts as being too broad.Here are examples of 2010 drilling operations by major Gulf producers that have been delayed by the ban:
• U.S. Card Losses Improve Despite Recovery Fears. Fewer Americans fell behind on credit card payments in June, with delinquencies at their lowest this year at major U.S. card lenders.

Les Echos:

• European banks may receive some of the aid to be distributed by a new fund charged with containing the region's debt crisis, the fund's head said. While the fund will provide aid only to national governments, "a country can decide to request aid for different reasons, and it is possible that part of the funds will be used to recapitalize the banking sector," Klaus Regling, who on July 1 became chief executive officer of the European Financial Stability Facility, said. Greece, which has already received 110 billion euros in aid from the EU and IMF, has allocated about 10% of that to banks, Regling said. "That example could be followed elsewhere."

DigiTimes:

• Apple(AAPL) Readies 11.6-Inch MacBook Air and New iPod Touch. Apple is ready to launch a new generation MacBook Air featuring an 11.6-inch display and Intel Core i-series ultra-low voltage processor in the second half of 2010, as well as a new iPod touch in August or September.

China Daily:

• A survey of southern China's Guangdong found that 40% of the province's soil is polluted with heavy metals, citing Wang Hongfu, a researcher with the Guangdong Institute of Eco-environment and Soil Sciences. Soil pollution in Guangdong has "severely worsened" since 2008, Wang said.

China Business News:

• It would not be "unusual," if China's economic growth in the second half slowed to less than 9%, citing Li Daokui, an advisor to the central bank. Slowing growth in China will be a normal deceleration because a series of economic stimulus policies, which went into effect in 2008, is going to an end.

Caijing:

• China's macro policy won't change in the second half of the year, Xia Bin, an adviser to the People's Bank of China, said. China won't implement a second stimulus package this year, Xia said

Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.16%)

Sector Underperformers:

• Steel (-2.46%), Airlines (-1.90%) and Oil Service (-1.76%)

Stocks Falling on Unusual Volume:

• DNDN, TCB, GSIC, WBSN and AIXG
  

Stocks With Unusual Put Option Activity:

• 1) ARNA 2) SWC 3) CIT 4) CHL 5) ELX
  

Stocks With Most Negative News Mentions:

• 1) JPM 2) TASR 3) COF 4) DFS 5) LPS