Stocks Slightly Lower into Final Hour on Rising Euirozone Debt Angst, Emerging Markets Inflation Fears, Rising Food/Energy Prices, Profit-Taking

Broad Market Tone:

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

Equity Investor Angst:

• VIX 16.16 +1.83%
  
• ISE Sentiment Index 97.0 +5.43%
  
• Total Put/Call 1.10 +23.60%
  
• NYSE Arms 1.48 +256.63%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 90.99 +2.12%
  
• European Financial Sector CDS Index 115.67 +2.82%
  
• Western Europe Sovereign Debt CDS Index 228.83 +.37%
  
• Emerging Market CDS Index 206.49 -3.21%
  
• 2-Year Swap Spread 24.0 unch.
  
• TED Spread 25.0 +2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% -1 bps
  
• Yield Curve 269.0 -1 bp
  
• China Import Iron Ore Spot $168.50/Metric Tonne +.18%
  
• Citi US Economic Surprise Index -81.30 +3.9 points
  
• 10-Year TIPS Spread 2.35% -4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +48 open in Japan
• DAX Futures: Indicating +27 open in Germany

Portfolio:

• Higher: On gains in my Retail, Biotech and Tech longs
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 moves to session highs despite rising food/energy prices, emerging markets inflation fears, global growth concerns, increasing eurozone debt angst and recent equity gains. On the positive side, Education, Restaurant, REIT, Internet, Paper, Ag, Oil Service and Coal shares are especially strong, rising more than +.75%. Small-Caps are outperforming. (IYR) has traded well throughout the day. Growth stock leaders are also strongly outperforming. Copper is rising +.87%. On the negative side, Alt Energy, Oil Tanker, Defense, Semi, Bank, I-Banking, Insurance, Homebuilding and Airline shares are under pressure, falling more than -.75%. (XLF) has underperformed throughout the day. Cyclicals are also relatively weak. Oil is rising +2.3%, gold is up +1.86%, the UBS-Bloomberg Ag Spot Index is gaining +1.36%, Lumber is falling -1.9% and Rice is up +2.55%. Rice futures are up +14.7% in 5 days. The US price for a gallon of gas is +.02/gallon today to $3.56/gallon. It is up .42/gallon in less than 5 months. The Spain sovereign cds is up +2.78% to 269.71 bps, the Italy sovereign cds is up +6.9% to 195.17 bps, the Belgium sovereign cds is up +3.2% to 150.0 bps, the Portugal sovereign cds is up +4.16% to 771.61 bps and the UK sovereign cds is up +2.09% to 62.86 bps. Moreover, the Eurozone Investment Grade CDS Index is rising +4.8% to 79.59 bps. European contagion fears are rising today on the downgrade of Portugal's debt by Moody's. It surprises me that this was surprising to traders, which is a negative. Stocks remain short-term overbought. However, given the mostly negative news over the holiday weekend, today's healthy consolidation of recent gains is a big positive. I expect US stocks to trade mixed-to-higher from current levels into the close on short-covering, better economic data and technical buying.

Today's Headlines

Bloomberg:

• Portugal Ratings Cut to Junk by Moody's. Portugal’s long-term government bond ratings were cut to Ba2, or junk, from Baa1 by Moody’s Investors Service. The outlook is negative. The reductions stem partly from “the growing risk that Portugal will require a second round of official financing before it can return to the private market,” Moody’s said today in a statement. There is also “the increasing possibility that private sector creditor participation will be required as a pre-condition,” the ratings company said. Portugal is the second country rated non-investment grade by Moody’s, joining Greece, after winning a 78 billion-euro ($113 billion) international bailout in May as the Iberian nation struggles to repair its finances. Concern that Portugal won’t be able to fully achieve its deficit-reduction target was also a reason for the cut, Moody’s said.
• EU Stress Tests on Banks 'Missing the Point,' Credit Suisse Analysts Say. European regulators’ stress tests on 91 of the region’s banks are in practice assessing government bailout systems rather than the lenders themselves, analysts at Credit Suisse Group AG (CSGN) said. “Although exercises looking at the sensitivity of individual banks are not wholly without value, they are largely missing the point,” analysts led by Daniel Davies wrote in a note to clients today. “Everyone can do arithmetic on balance sheets. The information that the markets need is whether there is a well-organized and well-capitalized structure in place to recapitalize the failures.” Five or six Spanish savings banks may fail the tests and need as much as 12 billion euros ($17.4 billion), the analysts said. That would require the Spanish bailout fund, known as FROB, to borrow additional money in the six months after the results, the analysts said. The fund has about 12 billion euros in cash, and can boost its capacity to about 99 billion euros.
• Orders to U.S. Factories Rose .8% in May. Orders placed with U.S. factories increased in May, indicating manufacturing may rebound from a slowdown in economic growth in the first half of 2011. Bookings for manufacturers’ goods rose 0.8 percent, less than forecast, after a revised 0.9 percent decline in April that was smaller than previously estimated, figures from the Commerce Department showed today in Washington. Demand for durable goods that are meant to last at least three years increased 2.1 percent, while unfilled orders climbed the most since September.
• Crude Oil Advances to Two-Week High on Signs of Growth in U.S. and China. Crude oil climbed to the highest price in more than two weeks on signs of economic growth in the U.S. and China, the world’s two biggest oil consumers. Oil rose as much as 2.2 percent as data showed orders placed with U.S. factories increased in May, indicating manufacturing may rebound from a slowdown. China’s services industries expanded at the second-fastest pace this year as new orders and employment climbed. “As long as we can see the economy growing, we are going to see more strength in oil,” said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York. “If we settle above $96, it could be a strong sign for bulls, and oil may rise to $100 this month.” Crude for August delivery gained $2.03, or 2.1 percent, to $96.97 a barrel at 12:36 p.m. on the New York Mercantile Exchange. Prices reached $97.04, the highest intraday level since June 15.
• Dollar Rises as China Inflation Concern Spurs Safety Demand; Euro Declines. The dollar advanced versus most of its major counterparts on speculation China’s efforts to tame inflation will cool growth and damp demand for riskier assets. The euro dropped for the first time in seven days versus the greenback after Moody’s Investors Service said banks rolling over Greek bonds into new securities may incur impairment charges. “We had this insipient risk recovery last week, and it has all of a sudden stalled,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “Moody’s has been in the news saying that the recent rollover plan constitutes a credit event. We thought Greece was taken off the table last week, and it’s still there, so that’s taken the steam out of the euro.” he dollar appreciated 0.6 percent to $1.4464 per euro at 11:42 a.m. in New York, from $1.4539 yesterday, when it touched $1.4578, the weakest level since June 9. China is likely to raise rates to combat consumer-price increases that may have reached 6.2 percent in June, said the Economic Information Daily, citing market estimates. That followed comments by the People’s Bank of China yesterday that the country still faces “large” inflationary pressure.
• Greece's Only Option Now is to Leave the Euro, Share's Jacomb Writes in FT. The motives for the European Union’s “rescue” of Greece are to preserve the euro and to prevent another banking crisis, but the policy won’t work, said Martin Jacomb, the chairman of Share Plc, a former chairman of Prudential Plc and a former director of the Bank of England. Writing in the Financial Times, Jacomb said the EU’s future depends on enabling its poorest members to become competitive again, and that requires a quite different approach. Greece can’t earn its way out of the mess it’s in, Jacomb said, because its adoption of the euro made it uncompetitive, and that will be the case as long as the euro remains its currency. Regaining competitiveness always involves a temporary reduction in labor costs and living standards, and the only way that can be accomplished with relative harmony is through currency devaluation, he argued. Therefore, dismantling the euro is the least painful course of action for Greece and for the EU, Jacomb concluded.
• Immucor(BLUD) to Be Bought by TPG Capital for $1.97 Billion. Immucor Inc. (BLUD), maker of blood- screening systems for transfusions, agreed to be acquired by TPG Capital for $27 a share in cash in a deal valued at $1.97 billion. The shares rose above the offer price. The per-share offer is 30 percent more than Immucor’s closing price on July 1, the last trading day before the deal was announced, the Norcross, Georgia-based company said in a statement today.
• National Oilwell(NOV) Will Buy Ameron(AMN) for $772 Million to Gain Fiberglass Pipes. National Oilwell Varco Inc. (NOV), the world’s largest provider of oilfield equipment, agreed to buy Ameron International Corp. (AMN) for about $772 million in cash, gaining access to its pipeline-production company. Holders of Ameron will receive $85 for each share they own, Houston-based National Oilwell said today in a statement. The companies’ boards have approved the transaction, which may close as soon as the fourth quarter. The price is a 28 percent premium to Ameron’s closing price on July 1.
• China Discusses Allowing SEC Probes. U.S. and Chinese officials will meet next week to discuss giving American securities regulators the right to investigate companies within China for the first time, said two Chinese officials with direct knowledge of the plans. Representatives from the Securities and Exchange Commission and the Public Company Accounting Oversight Board will meet with counterparts from the China Securities Regulatory Commission in Beijing from July 11 to 12, said the officials, who asked not to be named because the talks are private.

Wall Street Journal:

• Moody's Warns on China Debt. Moody's Investors Service said China's main government auditor may have understated banks' loans to local governments by half a trillion dollars, escalating the ratings firm's warnings that the scale of such loans could pose a threat to China's banking system.‬ In the absence of a clear plan to reduce local-government debt, Moody's views the credit outlook for Chinese banking system as potentially turning to negative, the ratings firm said Tuesday.‬
• Strauss-Kahn Sex Case Appears Headed to Dismissal. After airing doubts last week about the credibility of the woman who accused former International Monetary Fund chief Dominique Strauss-Kahn of sexual assault, prosecutors now are no longer certain there was a crime after examining lies by Mr. Strauss-Kahn's accuser, according to law enforcement officials.
• Moody's Warns Banks of Greek Bond Impairment Charges. Banks rolling over some of their Greek debt into new instruments may have to take impairment charges, Moody's Investors Service said Tuesday, in another setback for efforts to involve private bondholders in a new international bailout. Rival rating firm Standard & Poor's Corp. on Monday rocked plans to involve the private sector in giving Greece more time to work out its fiscal problems by saying a proposal being promoted by French banks would likely put the country in "selective default."
• Rare-Earth Prices Decline Within China. Prices within China for some rare-earth metals posted their first monthly drop this year, ahead of a decision by Beijing on its global export quota for the metals. Domestic prices of some of the elements were down at the start of this month as much as 7.2% from a month earlier, Australian miner Lynas Corp. said. The decline suggested that a rush to acquire the metals—a group of 17 elements used in applications such as high-performance magnets and LED phosphors, and in products including iPads and Prius cars—may have eased in recent weeks.
• BofA's(BAC) Mortgage-Bond Pact Draws Challenge. A group of bond investors said it plans to challenge in court last week's proposed $8.5 billion settlement by Bank of America Corp. with holders of mortgage-backed securities.
• New Financing Values Twitter As High As $7 Billion. Twitter Inc., the fast-growing Internet messaging service, is privately raising hundreds of millions of dollars in a new financing round that values the company at as high as $7 billion, said a person familiar with the matter. The move comes seven months after Twitter, which lets people broadcast and read messages called tweets, raised $200 million in a financing round led by Kleiner Perkins Caufield & Byers that valued the company at $3.7 billion.
  

CNBC.com

• Retailers Should See Strong Back-to-School Season.

Business Insider:

• Almost Half The Kids in Fukushima Have Thyroid Radiation Exposure.
• Casey Anthony Found Not Guilty of Killing Her Daughter.
• That World's Longest Bridge in China Was Such a Rush Job, It Already Has Safety Problems. These types of incidents are piling up. Also recently Chinese officials had egg on their face after a big high-speed rail project could not go as fast as planned. These shoddy investments have financial implications, since revenues from these projects (or expected economic benefit from them) are crucial to the health of those heavily indebted Chinese municipalities that suddenly everyone is talking about.
• As Its CDS Spreads Widen, Suddenly Everyone is Talking About China's Government Debt. (graph)
  

Zero Hedge:

• Summary June Hedge Fund Performance.

LA Times:

• Goldman Sachs(GS) Flexes Its Lobbying Muscle. The investment bank has bolstered its Washington presence significantly, turning a low-key lobbying operation into a sophisticated, high-powered enterprise led by a well-connected former congressional staffer, Michael Paese. Facing the wrath of the public and the government after the global financial crisis that hit three years ago, Wall Street titan Goldman Sachs Group Inc. has opened a new front for its aggressive business tactics — the nation's capital. Increased federal oversight and the threat to its lucrative investment bank business from investigations and pending regulations have led Goldman to bolster its Washington presence significantly, turning a low-key lobbying operation into a sophisticated, high-powered enterprise.
  

Washington Post:

• Global Race on to Match U.S. Drone Capabilities. At the most recent Zhuhai air show, the premier event for China’s aviation industry, crowds swarmed around a model of an armed, jet-propelled drone and marveled at the accompanying display of its purported martial prowess. In a video and map, the thin, sleek drone locates what appears to be a U.S. aircraft carrier group near an island with a striking resemblance to Taiwan and sends targeting information back to shore, triggering a devastating barrage of cruise missiles toward the formation of ships. Little is known about the actual abilities of the WJ-600 drone or the more than two dozen other Chinese models that were on display at Zhuhai in November. But the speed at which they have been developed highlights how U.S. military successes with drones have changed strategic thinking worldwide and spurred a global rush for unmanned aircraft.
• Mobile Payments to Triple to $670 Billion by 2015; Digital Goods Will Represent 40% of Transactions. Juniper Research is releasing a new study today that reports that the transaction value of mobile payments for digital and physical goods, money transfers and NFC (Near Field Communications) transactions will reach $670 billion by 2015, up from $240 billion this year. The top 3 regions for mobile payments (East Asia and China, Western Europe and North America) will represent 75% of the global mobile payment gross transaction value by 2015. Digital goods payments will account for nearly 40% of the market in 2015.

cnet News:

• iPhone 5 Order: 15 Million for Sept. Launch, Report Says.

Reuters:

• Netflix(NFLX) Expands Online Service to Latin America. Netflix Inc is expanding its online video service to 43 countries in Latin America and the Caribbean, sending its shares up more than 6 percent.
• Hedge Fund Giants Are Coming Up Small This Year.
• Euro Zone Growth Slows, Orders Dry Up - PMIs. European services growth slowed in June in the face of sluggish new orders and rising interest rates, giving firms less optimism about the year ahead, business surveys showed on Tuesday.

Handelsblatt:

• Forty percent of German investors see the Greek debt crisis spreading to Spain and Italy, citing a survey of almost 1,000 respondents conducted by the Frankfurt-based Sentix Institute.

Shanghai Daily:

• Slow Home Sales. BUYING sentiment for existing properties in Shanghai fell for the first time in four months in June as an uncertain market outlook kept more home seekers on sidelines, industry data showed yesterday. A total of 13,100 units, or 1.16 million square meters, of existing properties were sold across the city in June, a month-on-month decrease of 7.3 percent and 9.8 percent, Century 21 China Real Estate, operator of the city's largest estate chain in terms of outlet numbers, said in a report released yesterday. It was the first monthly loss registered since March, as more potential buyers, in fear of further tightening measures from the government in the second half, chose to take a wait-and-see attitude, said Huang Hetao, a Century 21 analyst.

Bear Radar

Style Underperformer:

• Mid-Cap Value (-.60%)

Sector Underperformers:

• 1) Oil Tankers -2.20% 2) Alt Energy -1.74% 3) Homebuilders -1.70%

Stocks Falling on Unusual Volume:

• GIB, ALLT, VECO, NTCT, AEIS, RYAAY, AIXG, IDCC, JOE and OMG
  

Stocks With Unusual Put Option Activity:

• 1) VMW 2) INFY 3) JOE 4) DO 5) SVM
  

Stocks With Most Negative News Mentions:

• 1) DMND 2) GIS 3) BBBB 4) NTCT 5) COG
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth (+.10%)

Sector Outperformers:

• 1) Gold & Silver +1.98% 2) Oil Service +.97% 3) Ag +.84%

Stocks Rising on Unusual Volume:

• TGA, CWEI, SLW, AUY, BAS, BTI, PM, AAPL, CEVA, CCIX, BT, HDB, KLIC, BLUD, TRCR, ATHN, JVA, NFLX, GOOG, OYOG, CHKP, REDF, JAZZ, EZPW, BIDU, STNR, CHTR, OPEN, BJRI, APOL, SNDK, HRBN, AMN, SUG, AZZ, ZAGG, UCO, ACTV, CHTR and KRA
  

Stocks With Unusual Call Option Activity:

• 1) NGD 2) TDC 3) TYC 4) BG 5) DELL
  

Stocks With Most Positive News Mentions:

• 1) AAPL 2) NKE 3) GOOG 4) BA 5) DRI
  

Charts:

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

Tuesday Watch

Weekend Headlines
Bloomberg:

• Euro Falls Versus Yen After S&P Says Greece May Be In 'Selective Default'. The euro weakened versus the yen after Standard & Poor’s said a debt-rollover plan for Greece may prompt a “selective default” rating for the country. “Sentiment was undermined with those S&P comments,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “Markets are reluctant to aggressively sell the euro, though. We need to see what the other rating agencies are going to suggest.” The shared currency fell as much as 0.3 percent to 117.03 yen, before trading little changed at 117.45 yen as of 4:20 p.m. in New York.
• Sovereign, Corporate Credit-Default Swap Indexes Rise in Europe. The cost of insuring against default on European sovereign and corporate debt rose, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 3 basis points to 221 at 12 p.m. in London. An increase signals deteriorating perceptions of credit quality. Swaps on Greece climbed 14 basis points to 1,875, according to CMA. Contracts on Spain jumped 6 basis points to 263, Portugal increased 5 to 755 and Ireland rose 4.5 to 732.5, while Italy was 4 higher at 182 and Belgium was up 3 at 146. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings rose from a four week low, increasing 3 basis points to 387, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 1 basis point to 104.25 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 4.5 basis points to 155 and the subordinated index climbed 7.5 to 279.5.
• China Bank Outlook May Be Souring on Local Government Loans, Moody's Says. Chinese banks’ loans to local governments may be 3.5 trillion yuan ($540 billion) more than estimated and the outlook for the industry is potentially turning negative, Moody’s Investors Service said. An assessment of new data from agencies including China’s national audit office indicates “that the banks’ exposure to local government borrowers is greater than we anticipated,” Yvonne Zhang, a vice president at Moody’s, said in the report. The credit outlook for lenders is souring in the “apparent absence of a clear master plan to deal with this issue.” The report may stoke concerns that as much as 30 percent of the local government financing vehicles’ loans may sour and become the biggest contributor to banks’ bad debts. China’s audit office last week reported that local governments had 10.7 trillion yuan in liabilities at the end of last year with 79 percent being bank loans. China’s first assessment of such debt showed that 8 billion yuan is overdue, and companies are too often relying on government land sales to meet repayments, Auditor General Liu Jiayi said on June 27. Non-performing loans may reach as much as 12 percent of total credit, higher than its “base case” estimate of 5 percent to 8 percent, Moody’s estimates. Fitch Ratings lowered its outlook on China’s AA- long-term, local-currency rating to negative from stable on April 12 because of the risk the government would have to bail out banks. As much as 30 percent of loans to local government entities may go bad, accounting for the biggest source of banks’ non- performing assets, Standard & Poor’s said that month.
• Greece's First Bailout Faces Scrutiny From Germany's Constitutional Court. Days after Greece passed a 78 billion-euro ($113 billion) austerity plan clearing the way for a second international rescue, Germany’s top judges are set to discuss the legality of the first bailout. Germany’s highest constitutional court will hear oral arguments tomorrow in three cases challenging the country’s role in the Greek bailout and the euro-area rescue fund last year. The cases were filed by academics and a lawmaker who have unsuccessfully turned to the court before to try to block Germany’s participation in European Union treaties. “The court has always been very critical on the European integration in its language -- only to be rather conciliatory when it comes to the practical results,” said Axel Kaemmerer, a professor at Bucerius Law School in Hamburg. “The judges may lift their fingers to admonish the government about red lines that cannot be crossed, but in the end it won’t rain on its parade.”
• China Still Faces Inflationary Pressure, Central Bank Says. China still faces “large” inflationary pressure and the central bank will maintain a “prudent” monetary policy, the People’s Bank of China said today. “We must pay close attention to the latest international and domestic economic and financial trends and influences, and implement a prudent monetary policy,” the central bank said in a statement after a meeting of its monetary policy committee. Surging vegetable and pork prices, and higher wages and raw-material costs may have pushed consumer-price gains to an almost three year high in June. Inflation likely accelerated to 6.4 percent last month, a figure likely to prompt the fifth increase in interest rates since October, according to UBS AG China economist Wang Tao. China International Capital Corp. economists estimate prices may have jumped 6.2 percent in June compared with 5.5 percent in May that was the fastest in 34 months. In an article published today, central bank Governor Zhou Xiaochuan indicated that tackling inflation remains the government’s priority. He reiterated government pledges to improve the nation’s exchange-rate mechanism.
• BlackRock's(BLK) Miller is Avoiding Buying Aussie Dollar as China Growth Cools. Australia’s dollar isn’t attractive after the currency climbed more against the greenback than any major counterpart in the past year, BlackRock Inc. said. The so-called Aussie has surged as the Reserve Bank of Australia raised interest rates to the highest in the developed world to curb price pressures amid demand from China for the country’s commodities. Chinese reports this month showed manufacturing growth slowed to the lowest level since February 2009 and services industries expanded at the slowest pace in four months in the Asian nation, Australia’s largest trading partner. Retail sales in Australia dropped in May, a report today showed. “You need to have a very strong bullish view of the global economy to want to stay in Aussie longs,” Stephen Miller, a managing director in Sydney at BlackRock, which oversees $3.7 trillion globally, said in a July 1 interview. “My view isn’t optimistic enough for me to want to get involved in the Aussie dollar.”
• Funds Slash Bullish Commodity Bets to One-Year Low on Slow Growth Outlook. Funds reduced bullish bets on commodity prices to the lowest level in almost a year on speculation that slowing global growth will curb demand for metals, energy and grains. Speculators cut their net-long positions in 18 U.S. commodities by 15 percent to 958,309 futures and options contracts in the week ended June 28, government data compiled by Bloomberg show. That’s the lowest since the week ended July 13 last year. Declines were led by a 67 percent drop in holdings of soybean meal. Investors trimmed bets on silver by 26 percent, the most since May 2010. The Standard & Poor’s GSCI Index of 24 raw materials slumped 7.8 percent last quarter, the biggest such loss since 2008. China’s non-manufacturing industries expanded at the slowest pace in four months in June, adding to concerns that efforts to tame inflation are curbing growth in the world’s second-biggest economy and largest consumer of commodities. “You have slower imports and economic growth from China and other regions of the world, and then you have the threat of rising interest rates,” said Luis Rangel, a vice president at ICAP Futures LLC in Jersey City, New Jersey, who cited the end of the second round of quantitative easing, or QE2. “Those are the underlying factors that are slowing the commodity trend.”
• Rice May Rally 56% as Pro-Thaksin Party Sweeps to Power in Thai Elections. Rice prices in Thailand, the biggest exporter, may rally 56 percent by yearend as the party that won parliamentary elections implements a policy to buy the crop from farmers above current rates, according to a survey. The export price may climb to $810 per metric ton by Dec. 31, according to a median forecast of six millers, exporters and traders today and yesterday, who commented after Pheu Thai won a majority in yesterday’s contest. Costlier rice from Thailand, which accounts for about 30 percent of worldwide shipments, may increase global food costs while making supplies from rival Vietnam more competitive. A Bloomberg survey last month, conducted during the campaign, suggested a gain to $750 per ton if Pheu Thai were to win. “It isn’t only Thai prices that will go up, the rest of the world will have to follow,” Mamadou Ciss, chief executive officer of Hermes Investments Pte, said from Geneva. The price may jump $100 within two months and peak at $700, said Ciss, who correctly predicted in 2006 that prices would double. Thai export prices are a benchmark for the industry. “Export prices will probably rise 10 percent in a month,” Wichai Srinawakul, vice president of the Thai Rice Mills Association, said from Nakhon Ratchasima province. “When its price-pledging scheme is implemented, it will boost the price further, probably to $830 per ton by the end of this year.”
• St. Joe(JOE), Chairman Bruce Berkowitz Are Subject of Formal Probe by U.S. SEC. The U.S. Securities and Exchange Commission has started a formal investigation of St. Joe Co., Northern Florida’s largest landowner, and Chairman Bruce Berkowitz, its biggest shareholder, the company said. The probe “covers a variety of matters” including securities-law anti-fraud provisions for corporate officers and board members, internal controls and financial reports, the Watersound, Florida-based company said in a filing with the SEC made after the close of regular U.S. trading yesterday. “The order designates officers of the SEC to take the testimony of the company and third parties with respect to any or all of these matters,” according to the filing. St. Joe said it’s cooperating with the agency.
• Komatsu Japan Sales Gain on Rebuilding as China Demand Falls. Komatsu Ltd. (6301), the world’s second- largest construction machinery maker, said Japan’s bid to rebuild the nation from its worst postwar disaster is spurring demand at home amid slumping sales in China, its biggest market. Japanese orders increased more than 30 percent in April- June from a year earlier, Chief Executive Officer Kunio Noji said in an interview at the company’s Tokyo headquarters. Sales in China, which declined about 40 percent in the past two months, may not revive until the Lunar New Year in January, the beginning of the nation’s peak demand season, he said.
• Could Italy Be Next European Domino to Fall?: Simon Johnson. In recent days, Greece’s parliament adopted new austerity measures and Europe’s finance ministers approved another round of Greek loans. So the European debt crisis is under control, right? Probably not. One obvious reason is Standard & Poor’s July 4 threat to declare a default if banks roll over Greek government bonds coming due over the next year. That could force everyone back to the drawing board. Less obvious, but no less worrisome, is Italy. With a precarious fiscal picture, it could be the next to come under pressure. And this time, U.S. banks are in the line of fire, with about $35 billion in loans to Italy and potentially more exposure to risk through derivatives markets.

Wall Street Journal:

• Tepco Resumes Cooling Plan at Fukushima Plant. The operator of the crippled Fukushima Daiichi nuclear-power plant said on Sunday that it has resumed the use of contaminated water to cool the reactor cores, a week after its first attempt was suspended due to leaks. If successful, the use of recycled water to cool the reactors will solve one of the major complications as workers struggle to bring the complex under control. Until now, they have been using fresh water from an outside source to cool the reactors, creating even more irradiated water, which then requires storage or disposal.
• Hedge Funds Fall Again In June, Led by Stock, Macro Strategies. Returns at most hedge funds fell again in June, bringing average losses for the first half to around 2%, with systematic macro funds and stock-focused funds turning in the worst performance. Hedge Fund Research Inc.'s HFRX Global Hedge Fund Index ended the month down 1.59%, for a 2.12% year-to-date fall, marking a second losing month after May's 1.39% decline. The fall came as investors fretted over the health of the U.S. and Chinese economies and amid the latest round of the euro-zone's debt crisis, making for choppy stock markets and declines in most commodities. Though stocks rallied strongly last week as a potential default by Greece was averted, the HFRX Equity Hedge Index comprising funds that take long and short bets on stocks dropped 2.36% in the month, for an 8.32% six-month loss. That sharp decline in the year will likely concern investors who typically expect these kinds of hedge funds to outperform stock indexes. While the monthly decline was on par with losses in broader stock indexes such as the S&P 500, down 1.8% in June, U.S. stock market indexes are up by around 5% to 7% for the year. The MSCI All-Country World Index of shares in 45 countries fell 1.5% in June, and is up around 3% this year. It was also a volatile month for systematic trading funds, which aim to latch onto trends in the direction of interest rates, currencies and commodities, as well as stocks. The HFRX Systematic Diversified Index lost 3.49% in June and is off 6.4% this year. Oil slid about 8% in June, gold fell and commodity indexes generally posted losses, while the euro defied bears by rising against the dollar.
• Sharp to Further Localize Solar Panel Production Overseas. The president of the Japanese electronics maker Sharp Corp. (6753.TO) said Monday it will localize more of its solar panel production outside the country, as the strong yen makes exports too expensive while fast-growing Chinese makers create a global inventory glut.
• Subprime Mortgage Index Soars as N.Y. Fed Halts Auction. A bellwether index of subprime mortgage bonds posted its sharpest weekly gain since September 2009 after the Federal Reserve Bank of New York suspended auctions from its Maiden Lane II portfolio of mortgage securities acquired in the American International Group Inc. bailout. A slice of the ABX derivatives index that tracks highly rated subprime mortgages rose 2.38 cents on the dollar to 52.73 cents, the highest since May 27 and up 14% from a week ago, according to data provider Markit.
• Credit Swaps on Spain, Italy Are Leading Contagion Indicators - Markit. Default swaps on Spain and Italy have become a key barometer of the European debt crisis and potential contagion stemming from the region, according to a summary of swaps-market activity released in London on Monday by data provider Markit. Italy occupied the top spot in a ranking of liquidity--or depth of trading--in the sovereign credit default swaps market over the most recent quarter, with a net $23.7 billion (EUR16.3 billion) of CDS outstanding.
• Cisco(CSCO) Poised to Help China Keep an Eye on Its Citizens. Western companies including Cisco Systems Inc. are poised to help build an ambitious new surveillance project in China—a citywide network of as many as 500,000 cameras that officials say will prevent crime but that human-rights advocates warn could target political dissent.
• Inside the Disappointing Recovery. Two years ago, officials said, the worst recession since the Great Depression ended. The stumbling recovery has also proven to be the worst since the economic disaster of the 1930s.
• Commodities Beckon Banks. About 600 miles from Wall Street, Goldman Sachs Group Inc.(GS) employees are busy doing deals. But instead of a sleek office tower, they work in a rundown warehouse deep in an industrial section of Detroit. And rather than trading in stocks or bonds, they move metal—lots of metal. Goldman's warehouse on the banks of the Detroit River is one of more than 100 storage facilities controlled by the giant securities firm around the world. The warehouses are part of Wall Street's effort to forge a new frontier in the commodities markets: warehousing metal.
• America's Troubling Investment Gap by David Malpass and Stephen Moore. For the first time in decades, America is on net losing, not attracting, growth capital.

NY Times:

• U.S. Expands Its Drone War Into Somalia. The clandestine American military campaign to combat Al Qaeda’s franchise in Yemen is expanding to fight the Islamist militancy in Somalia, as new evidence indicates that insurgents in the two countries are forging closer ties and possibly plotting attacks against the United States, American officials say.
• Big Banks Easing Terms on Loans Deemed as Risks. As millions of Americans struggle in foreclosure with little hope of relief, big banks are going to borrowers who are not even in default and cutting their debt or easing the mortgage terms, sometimes with no questions asked. Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.
• Taking Lead, Iraqis Hope U.S. Special Operations Commandos Stay. Americans say the Iraqi special operations force, which was deliberately balanced with the country’s main sects and ethnicities, is more capable than the Iraqi Army and may be critical in preventing a resilient insurgency from exploding into a sectarian civil war. Even as few Iraqi politicians are willing to admit publicly that they need American help, Iraqi soldiers say that American troops must stay longer to continue training and advising. “The Americans need to stay because we don’t have control over our borders,” said Maj. Gen. Fadhel al-Barwari, commander of the Iraq Special Operations Force.
• World Bank Is Opening Its Treasure Chest of Data.
• Hedge Funds Seeking Gains in Greek Crisis. As Greece’s fiscal turmoil has rattled global equity, bond and currency markets, hedge funds have scrambled to figure out how to make the big score. Last week, financial markets rebounded sharply on news that the Greek Parliament had approved a tough austerity package, a move that staved off a default and was a condition for further international assistance. Over the weekend, European ministers agreed to finance Greece through the summer but deferred crucial decisions on a second bailout.

NY Post:

• 'FarmVille' Bet Brings Pincus Billions. Zynga CEO Mark Pincus once lamented he was not on Silicon Valley's A-list -- and he just may be right. After Zynga moved yesterday to go public, it is clear he is definitely on the B-list, as in Billionaires List. The social gaming company will trade shares publicly within months, and when it does, Pincus could be worth about $3.6 billion.
  

Business Insider:

• Data Confirms: Banks Hoard Cash & Securities, While Loans Contract. (graph)
• French Writer Tristane Banon to File Sexual Assault Charges Against Dominique Strauss-Kahn.
• Gary Shilling: Commodities "Show Every Sign" of Being a Bursting Bubble.
  

Zero Hedge:

• Inventory Glut of Ultra Luxury Homes Hits Greenwich, Over 4 Years of Supply.
• As ECB Finds Rating Agencies Have Suddenly Found Religion, It Prepares to Flip Flop on Accepting Greek Bond Collateral.
  

LA Times:

• More Employers Are Offering On-Site Medical Clinics. The cost-cutting strategy has been embraced by dozens of companies — typically large employers that are self-insured and pay their own medical claims.

Pittsburgh Post-Gazette:

• Kings and Queens of Shale: Who's Benefiting from Marcellus Shale Drilling? The effects of Marcellus Shale drilling on local communities aren't always easy to pin down, but some business owners say they don't need spreadsheets or financial statements to gauge the impact. They are the kings and queens of Marcellus Shale: the people who have benefited most either through property deals, business opportunities, or just plain hard work.
  

Boston Herald:

• Feds, Massachusetts Bank New Solar Firm Despite Evergreen Solar(ESLR) Debacle. Months after Evergreen Solar closed its Bay State plant and moved manufacturing to China — taking with it roughly $45 million in Massachusetts taxpayer subsidies — federal and state officials are preparing to gamble on the promise of another pioneer of photovoltaic technology, to the tune of $123.4 million. Like Evergreen, Lexington-based 1366 Technologies produces a key component of solar panels — wafers made from a purified form of silicon. Despite the embarrassing failure of the state’s investment in Evergreen, Gov. Deval Patrick is not backing off his support of emerging solar companies, including 1366.

naturenews:

• Sea Holds Treasure Trove of Rare-Earth Elements. Survey reveals wealth of important metals in ocean floor mud.

Engadget:

• AT&T(T) to Offer Standard Insurance for iPhone Owners Starting July 17th.

Politico:

• Bill Clinton Calls for Corporate Tax Cut. President Bill Clinton says the nation’s corporate tax rate is “uncompetitive,” and called for a lower rate as part of a “mega-deal” to raise the debt ceiling. “When I was president, we raised the corporate income-tax rates on corporations that made over $10 million [a year],” the former president told the Aspen Ideas Festival on Saturday evening. “It made sense when I did it. It doesn’t make sense anymore – we’ve got an uncompetitive rate. We tax at 35 percent of income, although we only take about 23 percent. So, we SHOULD cut the rate to 25 percent, or whatever’s competitive, and eliminate a lot of the deductions so that we still get a FAIR amount, and there’s not so much variance in what the corporations pay.
  

Reuters:

• The China Banking Regulatory Commission ordered banks to investigate deals linked to discounted commercial bills after finding that lenders in central Henan province were keeping some loans off their books, citing two people familiar with the situation.

Financial Times:

• EU Sees Greek Economy Shrinking 3.75% This Year. Greece's economy is likely to stay in recession this year, shrinking by 3.75%, contrary to the earlier expectations that it would return to growth in the second half, according to a quarterly report by the European Commission and the European Central Bank.
• One in 10 European Insurers Fails Test. One in 10 European insurance companies failed to cope with a series of damaging financial market and economic shocks under stress tests carried out in recent weeks. However, European regulators said the industry’s finances were robust overall and that a shock applied to sovereign bond yields in Europe would cause problems for just 5 per cent of companies. They did not test for a default by Greece or any other peripheral country.

Boersen-Zeitung:

• Greece's efforts to reduce its debt may not be enough to avert a default, Swiss Reinsurance Co. Chairman Walter Kielholz said in an interview. "The measures are necessary but they are probably not sufficient," Kielholz was quoted as saying. "Certain market participants are currently still assuming a partial default, which is reflected in the prices for Greek government bonds."

Shanghai Daily:

• New Home Sales Decline .4% in City. NEW home sales stood above 200,000 square meters in Shanghai for the second week with buying sentiment for top-end houses remaining strong. Sales of new residential properties, excluding those built under the city's affordable housing programs, dipped 0.4 percent to 230,400 square meters last week, Shanghai Deovolente Realty Co said yesterday. The average price for new homes, meanwhile, climbed 5.9 percent to 22,500 yuan (US$3,477) per square meter last week. "It was the first time since February that the weekly transaction volume of new homes stayed above 200,000 square meters for two consecutive weeks," said Lu Qilin, a researcher at Deovolente Realty

China Business News:

• China's State Council will hold a meeting this month to discuss economic policies for the second half of this year.

Financial News:

• China should control fiscal spending to help curb inflation, Zhang Yuanjun, a deputy head of the central bank's Harbin branch, wrote in a commentary. The country should stop construction projects that have high costs and low investment returns, Zhang wrote.

China News Service:

• Beijing's average existing home prices rose 23% to 24,100 yuan per square meter in the first half of the year from a year earlier, citing property agent B.A. Consulting. Sales of existing homes in the city fell 34.5% in the first half from the same period a year earlier to 67,962 units, with June sales dropping to the lowest level in almost 29 months.

Hexun.com:

• China central bank adviser Li Daokui said the country should consider raising interest rates, especially the deposit rate, to curb inflation, according to a Faren magazine report. High-speed railways may lead to rising real estate prices in second- and third-tier cities, he said.

Weekend Recommendations
Barron's:

• Made negative comments on (UA) and (S).
  

Night Trading

• Asian indices are -.25% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 107.5 -1.5 basis points.
• Asia Pacific Sovereign CDS Index 114.75 -4.0 basis points.
  
• S&P 500 futures -.16%.
• NASDAQ 100 futures +.22%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
10:00 am

• Factory Orders for May are estimated to rise +1.0% versus a -1.2% decline in April.
  

Upcoming Splits

• (TMK) 3-for-2
• (PLCM) 2-for1
• (CPL) 3-for-1
  

Other Potential Market Movers

• The 3-Month/6-Month T-Bill Auctions could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and commodity shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Tuesday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on Mideast unrest, US debt ceiling worries, more shorting, global growth concerns, profit-taking and emerging market inflation fears. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.