Bull Radar

Style Outperformer:

• Small-Cap Value (+.29%)

Sector Outperformers:

• 1) Education +1.89% 2) REITs +1.37% 3) Gold & Silver +1.09%

Stocks Rising on Unusual Volume:

• CPTS, GFI, RADS, CLNE, MEDH, WPRT, JNY, BGC, MGM, REXX and CF
  

Stocks With Unusual Call Option Activity:

• 1) MJN 2) GFI 3) TWX 4) LRCX 5) WY
  

Stocks With Most Positive News Mentions:

• 1) BA 2) KLAC 3) LMT 4) MSFT 5) IROQ
  

Charts:

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

Tuesday Watch

Evening Headlines

Bloomberg:

• Euro Falls to 4-Month Low Versus Yen on Concern Debt Crisis to Reach Italy. The euro fell to an almost four- month low versus the yen after the International Monetary Fund head said “nothing should be taken for granted” on Greece, stoking concern its debt crisis will spread to larger economies. The 17-nation currency fell to a record low versus the Swiss franc before the Italian Treasury sells one-year bills today and as much as 5 billion euros ($7 billion) of bonds on July 14 amid surging yields on the nation’s debt. The yen and dollar rose against most of their major counterparts as Asian stocks extended a worldwide slump, spurring demand for refuge assets. Australia’s dollar weakened after an industry report showed business confidence declined to a six-month low.
• Italy Becoming Spain Makes Crisis 'Systemic'. Investors are treating Italy increasingly like Spain as contagion pushes bond yields in two of Europe's biggest economies towards levels that forced Greece, Ireland and Portugal to request external help. The gap between Italy's benchmark 10-year yield and that of Spain narrowed to 35 basis points yesterday, the least since November, even as Spanish debt yielded more than 6% for the first time. The Italian yield jumped 71 basis points in the last five day to a nine-year high of 5.71%, on concern that the euro-region's largest debt load is becoming unsustainable. Greece, Ireland and Portugal asked for bailouts after their 10-year yields breached 7%. "This changes everything," said Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London. "We are dealing with systemic countries now. These kinds of spreads require the immediate attention of the EU." At 28% of euro-region GDP, the Spanish and Italian economies account for almost five times the 6% of Greece, Portugal and Ireland combined.
  
• Portugal Slump to Deepen as Austerity Bites, Central Bank Says. Portugal’s economy will shrink more than forecast this year and contract in 2012 as the austerity measures that were required for an international bailout take hold, the country’s central bank said. Gross domestic product will shrink 2 percent this year and 1.8 percent in 2012 after expanding 1.3 percent in 2010, the Bank of Portugal said in its summer economic bulletin today. In March, before Portugal sought a rescue, the estimates were a 1.4 percent contraction this year and 0.3 percent growth in 2012.
  
• China's Stocks Slump on Europe Debt Crisis, Property Curbs. China’s stocks fell, driving down the benchmark index by the most in almost two weeks, on concerns Greece’s debt crisis may spread to bigger economies in Europe and the Chinese government is intensifying property curbs. “Inflation is still a big problem in China now and the government won’t ease tightening until inflationary pressure really recedes,” said Wu. Shanghai will start a trial to cap prices of newly built residential properties in planned urban areas in Pudong New District in the second half of this year, Xinhua reported yesterday, citing the city’s Mayor Han Zheng. Poly Real Estate, China’s second-largest developer by market value, dropped 2.6 percent to 10.95 yuan. China Vanke Co., the nation’s biggest listed property developer, slid 1.8 percent to 8.60 yuan.
• China Money Supply Growth, Lending Rebounds. China’s new loans rose more than estimated in June and money supply growth rebounded even after the central bank raised interest rates and reserve requirements to cool credit growth that’s fueling inflation. New loans were 633.9 billion yuan ($98 billion), compared with the 622.5 billion yuan median estimate in a Bloomberg News survey and 551.6 billion yuan in May. M2, the broadest measure of money supply, rose 15.9 percent, the People’s Bank of China said on its website. Foreign-exchange reserves, the world’s largest, rose to $3.2 trillion at the end of June from $3.04 trillion at the end of March. “Monetary policy is not in a position to loosen yet given elevated inflationary pressures and still stable domestic demand,” Chang Jian, a Hong Kong-based economist at Barclays Capital said before the data. “Credit controls should remain in place and special support needs to be given to smaller companies and vulnerable sectors that have been disproportionately affected by the credit tightening.” Barclays Capital’s Chang estimates the PBOC will raise interest rates again in the third quarter, the sixth increase since it started in mid-October. Economists at Nomura Holdings Inc. also forecast a move in the third quarter along with another 100 basis-point increase in banks’ reserve requirements, taking the total for the biggest banks to 22.5 percent. Nomura last week raised its 2011 inflation forecast to 5.2 percent from 4.9 percent to reflect the recent surge in pork prices while UOB Kay Hian Holdings Ltd. revised its estimate to 5.4 percent from 4.8 percent in a report yesterday.
• Crude Oil Falls for a Third Day on European Debt Concern, U.S. Stockpiles. Oil fell for a third in New York as concern that the European debt crisis will spread stoked speculation that fuel demand may falter. Futures dropped as much as 0.5 percent, extending yesterday’s 1.1 percent decline, as soaring yields on Italian bonds heightened concern Europe’s third-largest economy won’t be able to finance its debt. Crude also dropped before an Energy Department report tomorrow that may show U.S. gasoline supplies increased for the first time in four weeks. “The market is now more concerned about debt problems in core European countries, namely Italy,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said in an e-mailed note today. “Commodity markets are expected to remain under pressure, with a rising U.S. dollar, weaker equities and greater risk-aversion weighing on demand expectations.” Crude for August delivery fell as much as 55 cents to $94.60 a barrel in electronic trading on the New York Mercantile Exchange, and was at $94.67 at 11:42 a.m. Sydney time.
• Gold Tops $1,550 on Concern Europe's Sovereign-Debt Crisis Will Escalate. “Inflation will continue to be a big problem globally and this will keep gold prices supported,” said Chi Duofeng, an analyst at Bohai Futures Co. in Changchun, China. “We remain bullish on gold for at least the rest of the year as the global macro-economic picture isn’t encouraging.”
• Janus Capital(JNS) Leads Fund Manager Declines on Withdrawals, EU Debt Crisis. Janus Capital Group Inc. (JNS), owners of the Janus, Perkins and Intech fund families, led asset-manager declines, after investors continued to exit its funds in June. The Denver-based firm fell 6.8 percent today in New York Stock Exchange composite trading, losing the most among Standard & Poor’s 18-company index for asset managers and custody banks. The index fell 3.9 percent over concern that Europe’s debt crisis may threaten Italy. “It was a terrible month for the industry, but given they are mostly in equities and the relative poor performance of their funds, Janus will look worse than the others,” Jason Weyeneth, an analyst in New York with Sterne, Agee & Leach Inc., said in a telephone interview. Janus’s 20 largest stock and bond mutual funds, representing about 55 percent of assets under management, lost an estimated $954 million to client withdrawals in June, according to data compiled by Bloomberg. Investors pulled a net $18.5 billion in the past seven quarters and more than $2 billion from mutual funds in the three months ended June 30.
• NCR(NCR) Buys Radiant Systems(RADS) for $1.2 Billion. NCR Corp. (NCR) agreed to acquire Radiant Systems Inc. (RADS), a maker of customer-service sales equipment and software, for $1.2 billion. The $28-a-share purchase has been approved by both companies’ boards, according to a statement NCR released today. The price represents a 31 percent premium to Alpharetta, Georgia-based Radiant’s closing price today of $21.45.
• Boeing(BA) May Lose $400 Million More on Tanker, Air Force Says. Boeing Co. (BA) may be required to absorb more than $700 million and the Air Force another $600 million in overruns if projections of cost increases on the KC-46 tanker program materialize, according to newly released U.S. Air Force figures. Boeing’s $700 million cost is a combination of a previously reported $300 million and another $432 million the Air Force disclosed today, putting Boeing’s profit from the tanker contract in jeopardy if the contract exceeds its $4.9 billion ceiling.
• Spanish Spending Vote Looms as Zapatero Seeks to Stave Off Election Risk. Spanish Prime Minister Jose Luis Rodriguez Zapatero will seek lawmaker backing today for a spending plan for next year as his Socialist government prepares a budget that may determine whether he can finish his mandate.

Wall Street Journal:

• Itlay Fears Jolt Markets. Italy, long a bystander to the euro-zone's debt woes, was thrust into the maelstrom Monday, as investors fled the country's bonds and Europe's leaders struggled to keep the crisis from infecting the Continent's third-largest economy. Fears over Italy's solvency and political stability were compounded by market frustration that Europe's leaders haven't yet come up with a solution to Greece's deepening debt problems: The gap between the yields on Italy's 10-year sovereign bonds and safer German Bunds jumped by more than 100 basis points, or a whole percentage point, to a record high of 285.6, compared to a week ago.
• Challenges Auditing Chinese Firms. A series of alleged frauds at Chinese companies listed in the West has spotlighted the role of some of the world's biggest auditors in a fast-growing market where they have expanded quickly and competed aggressively in recent years. Since February, the so-called Big Four accounting firms have resigned or been dismissed from at least seven Chinese companies listed in the U.S., according to SEC filings. In most of those cases, the auditors said they had concerns about the accuracy of information provided by their clients, and in three instances, auditors quit the accounts before completing the auditing of any financial reports. Dozens of mostly smaller Chinese companies listed outside that country have come under fire in recent months from regulators and investors, as a wave of fraud alleged by short sellers has erased billions of dollars in the Chinese firms' market value and triggered lawsuits and U.S. regulatory probes.
• Hedge-Fund Investors Scout Out Web Firms. Spurred by their appetite for technology companies and seeking higher returns, a growing number of hedge-fund managers have started to invest more in private Internet companies. When daily-coupon website LivingSocial Inc. said it raised $400 million in April, the firms putting up cash included hedge-funds Tiger Global Management, Lone Pine Capital and Brookside Capital, people familiar with the matter say. Tiger's name popped up again in late June, when the New York firm grabbed a piece of the $100 million financing round for Square Inc., a mobile-payments start-up led by Twitter co-founder Jack Dorsey. A handful of hedge funds already had a history of such investments, but the activity has increased recently as investors try to cash in on the surging valuations of Facebook Inc., LinkedIn Corp., Zynga Inc., Groupon Inc. and a smattering of smaller companies. The inflows are giving young companies access to big pools of capital and the Rolodexes of some sophisticated investors. But they're also pushing the already frothy valuations of some companies even higher and rattling the clubby venture-capital scene. Hedge funds have typically invested in ventures that they can sell at a moment's notice, while venture-capital firms are known for advising start-ups and taking a longer-term view. "Hedgies investing in start-ups directly is scary," says Jeff Clavier, founder of SoftTech VC, a small but influential seed-stage venture firm based in Palo Alto, Calif. "They are the antichrist of patient, supportive early-stage investing."
• Musharraf, Eyeing Return to Power, Says Less US Aid to Pakistan 'Disastrous'.
• Novellus(NVLS), Microchip(MCHP) Set Negative Tone to Chip Earnings. Novellus Systems Inc. (NVLS) and Microchip Technology Inc. (MCHP) provided weak guidance Monday, warning that customers are feeling more cautious and raising concerns about the semiconductor industry's second half of 2011. The comments come early in the earnings season, with larger companies--such as Intel Corp. (INTC), Texas Instruments Inc. (TXN) and Qualcomm Inc. (QCOM)--expected to post results in the coming weeks. Nonetheless, the comments build on the weakness seen over the past several weeks in the semiconductor industry, which experienced booming growth following the recession. Consumer spending on PCs has remained soft, some large handset makers have been struggling and macroeconomic worries have hurt demand. As a result, analysts have been lowering growth forecasts, particularly for PC sales, and chip stocks have taken a hit. Novellus, which makes tools used in semiconductor manufacturing, on Monday warned for the second quarter in a row that its customers, the companies that actually manufacture processors, are pushing out orders, worried about macroeconomic conditions despite end-market demand "that doesn't seem that bad." "Clearly there is a burgeoning worldwide feeling of caution on economic expansion," Novellus Chairman and Chief Executive Richard Hill said during a conference call. "I see executives' moods on investments deteriorating instead of getting more confident...There are things going on around us tending to make more and more of us pessimistic rather than optimistic, and that's not a good sign." As a result, he forecast third-quarter earnings below analysts' expectations, sending shares down 5.7% to $33.75 after hours. Meanwhile, Microchip--which provides microcontrollers and analog semiconductors that change sound and light into digital signals--cut its view for first-quarter results. It said it saw "broad-based weakness" in the June quarter because of lower automotive production activities, as well as consumer softness amid poorer economic conditions. Gleacher analyst Doug Freedman, who called Microchip "very broad-based," said he expects to hear similar commentary from the rest of the semiconductor industry. Microchip's shares tumbled 7.3% to $34.75 after hours. Other chip companies with automotive and analog exposure also declined, including Texas Instruments, down 1.7% at $31.90, and Analog Devices Inc. (ADI), down 2.7% at $37.52.
• Conrad Wants $2 Trillion. President Obama demanded again yesterday that Republicans raise taxes in return for giving him the debt-limit increase he's also demanding. Nice of him to be so accommodating. He has in mind, oh, something in the neighborhood of $1 trillion. But it turns out he's a piker compared to Senate Democrats, whose budget leader has announced that his tax target is $2 trillion. Mr. Obama said yesterday it's time to "eat our peas," and $2 trillion is a lot of peas.

CNBC:

• International Paper(IP) Makes Hostile Bid for Temple-Inland. International Paper has gone hostile in its $3.3 billion bid to acquire rival packaging producer Temple-Inland and become the king of North America's corrugated packaging business.

Business Insider:

• Cisco(CSCO) to Fire 10,000 People.
• What The U.S. Government Doesn't Want You To Know About Saudi Arabia's Involvement in 9/11.
• Here's What's In That Brand New Report on Banks and Sovereign Debt. Banks in the Eurozone face some huge threats. That's the implication of a new report from the Bank of International Settlements, which devised a chilling analysis of why the economic situation in Europe is quickly going from bad to worse. The study analyzes the impact of sovereign risk on banks, in part based on data taken from the last few years. The bottom line: As goes the country, so goes the banking system.
• Why Are Protesters Attacking The U.S. Embassy In Syria? As Syria's "Arab Spring" drags into a fourth month, there is no end in sight to the bloody uprising that has left more than 1,500 Syrians dead and stranded thousands more in refugee camps along the border. The chaos has now spread to Damascus, the previously quiet capital city, where protesters loyal to the government of President Bashar al-Assad stormed the U.S. Embassy today.
• Traders Freak Out About How Bad Things Have Become On The Street: "Everyone Is Looking Over Their Shoulder".
• Pakistan Arrests Doctor For Running CIA Vaccination Drive to Get Bin Laden's DNA.
  

Zero Hedge:

• Spanish Region "Discovers" Its Budget Deficit Is Double What Was Previously Thought. There was a time when countries would use Goldman's "innovative" currency swaps to hide billions of debt off the books. Those days are gone. Now governments, at both the state and regional level, just outright lie about what their deficit and debt is. Case in point, Spain's Castilla La Mancha region, best known for being the stomping ground for one Don Quixote, where the cities of Toledo and Albacete are located, has just announced that it has "a budget deficit more than twice as large as previously thought, raising new concerns over the true state of regional finances and helping to send Spain's risk premium to new historic highs.
• Full Letter From Greece's G-Pap Blasting His Rescuers and Confirming Beggars Can Be Choosers.
• An Explanation of What is Really Going On Behind the Scenes as Rome Burns.
  

IBD:

• Hibbett's(HIBB) Expansion Strategy Moves to Major Leagues.

NY Times:

• A Small City's Depleted Pension Fund Rattles Rhode Island. The small city of Central Falls, R.I., appears to be headed for a rare municipal bankruptcy filing, and state officials are rushing to keep its woes from overwhelming the struggling state.

Forbes:

• Oil Drilling vs. President Obama's Climate Crusade. What hampers the oil industry slows the U.S. economy. Energy exploration and production should be a top priority right now. Instead, this engine of economic recovery faces both direct and stealthy threats from the Obama administration's anti-drilling regulators.

Rasmussen Reports:

• Generic Congressional Ballot: Republicans 44%, Democrats 38%.

Reuters:

• Alcoa(AA) Q2 Profit Jumps on Metal, Alumina Prices. Alcoa Inc, America's biggest aluminum producer, posted a big jump in second-quarter profit on Monday, matching Wall Street estimates, partly due to soaring prices for the metal and alumina, its raw material. But some analysts said a recent softening of aluminum prices might affect the company's third-quarter results and Alcoa's stock slipped 7 cents to $15.84 in after-hours trade on the New York Stock Exchange.

Financial Times:

• European Banks Tell EU to Commit to Greek Debt Buyback, FT Says. European banks have demanded that the European Union commit itself to a buyback of Greek debt and for the euro area and IMF to take urgent action "to avoid market developments spinning out of control and risk contagion accelerating." The FT cited a proposal by the Institute of International Finance, representing the banks, in a paper presented to euro area finance ministers today.
• Banks Act to Woo Hedge Funds. Banks are offering easier credit terms to hedge funds in an increasingly fierce competition for their business, according to new Federal Reserve survey data. The Fed’s poll of 20 of the largest securities dealers, launched last year in an attempt to fill in information black holes that stoked the crisis, also found a rebound in their clients’ leverage.

Telegraph:

• German 'Nein' Leaves Italy and Spain in Turmoil. Chancellor Angela Merkel called for more "frugality" in Italy, sticking to her script that Rome can solve its woes with an austerity budget. Her finance minister Wolfgang Schäuble said any boost to the EU's €500bn (£440bn) bail-out machinery was "out of the question". Mr Schäuble denied reports that Berlin was ready to empower the fund to purchase Spanish and Italian bonds pre-emptively on the open market, a move seen by experts as vital to halt dangerous contagion to the larger economies. The market's verdict on EU foot-dragging was instant and brutal. EU leaders seem unable to keep pace with the fast-moving events. Eurogroup finance ministers focused yesterday on details of "burden-sharing" for banks that lent to Greece, no longer the most urgent matter. A summit of top EU officials ended with no hint of how the crisis could be contained. "We've painted ourselves into a corner. At this point, either someone – Germany, the European Central Bank – has to fundamentally shift position, or everything blows up," an EU official told Reuters. Berlin has resisted any move to buy or guarantee the bonds of distressed debtors, viewing it as a slippery slope towards a fiscal union and a breach of Germany's Basic Law. The ECB in turn has refused to buy Spanish and Italian bonds, saying it is the task of EU governments.

Guardian:

• Greece Set to Default On Massive Debt Burden, European Leaders Concede. European leaders bowed to the inevitable and conceded that Greece is likely to default on its massive debt burden, which would be a first among the 17 countries using the euro. They also abruptly shifted tack in the eurozone debt crisis by raising the possibility of using the eurozone's bailout fund to buy back Greek debt on the markets, meaning sizeable losses for Greece's private investors and reduced debt levels for Athens. Following 12 hours of fraught negotiations in Brussels haunted by the risks of contagion in the eurozone spreading to Italy, now being targeted by the financial markets for the first time in the 18-month crisis, the 17 governments of the eurozone pointedly failed to rule out a sovereign debt default by Greece.

Passauer Neue Presse:

• Wolfgang Gerke, president of the Bavarian Center of Finance in Munich, said any potential plan by the ECB to double the European Union rescue fund to $2.1 billion would be "irresponsible," citing an interview with Gerke. Such "slogans" create scares and unsettle the financial markets, Gerke said.

HKET:

• Chinese inflation is being driven by property price increases, which will be key to controlling consumer prices, Yi Xianrong, a researcher at the Chinese Academy of Social Sciences, wrote in a commentary. Moves to create a more market-based economy are "pivotal" in cooling overpriced real estate, Yi wrote.

The Australian:

• Labor Support Collapses to 27% in Latest Newspoll. LABOR'S support has slumped to a record low, with the Coalition sitting at all-time highs as Tony Abbott extends his lead as preferred prime minister over Julia Gillard. In the two-week lead-up to Sunday's announcement of the carbon tax details, Labor's primary vote fell three percentage points to a record low of 27 per cent, while the Coalition's support rose three points to 49 per cent for its highest primary vote since the Howard government in October 2001.

Securities Times:

• Land sales in the city of Beijing declined 52% in the first half from a year earlier to $4.7 billion, citing SouFun Holdings Ltd., operator of China's biggest real-estate website. Shanghai's land sales in the first half declined 27% from a year earlier to 49.4 billion yuan. Combined land sales in 130 Chinese cities dropped 5.5% in the first half from a year earlier to 752.4 billion yuan.

South China Morning Post:

• Auditors Face Uphill Battle With Chinese Companies. Auditors face an increasingly difficult task trying to verify the financial records of some mainland companies.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -2.0% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 121.50 +6.5 basis points.
  
• Asia Pacific Sovereign CDS Index 125.0 +8.5 basis points.
  
• S&P 500 futures -.68%.
  
• NASDAQ 100 futures -.65%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WWW)/.46
• (FAST)/.30
• (TXI)/-.28
• (XCO)/.18

Economic Releases
7:30 am EST

• NFIB Small Business Optimism for June is estimated to rise to 91.2 versus a reading of 90.9 in May.
  

8:30 am EST

• The Trade Balance for May is estimated to widen to -$44.1B versus -$43.7B in April.

2:00 pm EST

• FOMC Minutes from June 21-22 Meeting.

Upcoming Splits

• (OKS) 2-for-1
• (TGI) 2-for-1
  

Other Potential Market Movers

• The JOLTs Job Openings report for May, IBD/TIPP Economic Optimism Index for July, 3-Yr Treasury Note Auction, weekly retail sales reports, ThinkEquity Internet/Gaming Symposium, SEMICON West 2011, (RIMM) Shareholder Meeting and the (LRCX) Analyst/Investor Meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.

Stocks Falling into Final Hour on Soaring Eurozone Debt Angst, Emerging Markets Inflation Fears, US Debt Ceiling Concerns, Global Growth Worries

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 18.91 +18.56%
  
• ISE Sentiment Index 77.0 -11.49%
  
• Total Put/Call 1.17 +14.71%
  
• NYSE Arms 3.66 +82.57%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.25 +3.48%
  
• European Financial Sector CDS Index 144.67 +9.64%
  
• Western Europe Sovereign Debt CDS Index 279.17 +10.78%
  
• Emerging Market CDS Index 219.51 +5.05%
  
• 2-Year Swap Spread 28.0 +3 bps
  
• TED Spread 23.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .01% -1 bp
  
• Yield Curve 255.0 -7 bps
  
• China Import Iron Ore Spot $171.30/Metric Tonne +.06%
  
• Citi US Economic Surprise Index -87.80 +3.6 points
  
• 10-Year TIPS Spread 2.29% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -185 open in Japan
• DAX Futures: Indicating -3 open in Germany

Portfolio:

• Slightly Lower: On losses in my Retail, Biotech, Medical and Technology sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and added to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows on soaring eurozone debt angst, emerging markets inflation fears, US debt ceiling worries, financial sector pessimism and global growth concerns. On the positive side, Semi and Restaurant shares are holding up relatively well, falling less than -1.0%. Oil is falling -1.3% and the UBS-Bloomberg Ag Spot Index is down -.84%. On the negative side, Education, Gaming, Homebuilding, Construction, HMO, Hospital, I-Banking, Bank, Networking, Disk Drive, Steel, Oil Service, Energy, Oil Tanker, Alt Energy and Coal shares are especially weak, falling more than -3.0%. Gold is up +.67% and copper is falling -1.09%. Cyclicals and small-caps are underperforming. (XLF) has traded poorly throughout the day. The US price for a gallon of gas is +.03/gallon today to $3.63/gallon. It is up .49/gallon in less than 5 months. The Spain sovereign cds is up +4.78% to 329.17 bps, the Ireland sovereign cds is gaining +11.72% to 1,005.41 bps, the Russia sovereign cds is jumping +7.8% to 155.50 bps, the Italy sovereign cds is soaring +22.61% to 296.0 bps, the UK sovereign cds is rising +9.96% to 74.90 bps, the Belgium sovereign cds is up +14.18% to 197.0 bps, the Greece sovereign cds is surging +7.3% to 2,336.99 bps and the Portugal sovereign cds is up +10.91% to 1,134.48 bps. Moreover, the European Investment Grade CDS Index is up +8.9% to 95.53 bps. The Eurozone Financial Sector CDS Index is breaking out. The Western Europe Sovereign CDS Index is hitting another record high. The Spain and Belgium sovereign cds are breaking out. The Italy, Portugal, Greece and Ireland sovereign cds are hitting new record highs. Italy's cds has risen +60.5% in 5 days. European contagion fears continue to intensify and are beginning to spin out of control again. Brazil's Bovespa is the worst trading index in the world right now, falling another -2.25% today, and is now down -13.2% ytd. Moreover, Italian(-3.96%), French(-2.71%) and Spanish(-2.69%) stocks took another drubbing today and finished at session lows. Italy's FTSE MIB Index is now down -9.3% ytd. Investor complacency regarding the deteriorating situation in Europe was high last week and this is catching up with the major averages today as the indices remain somewhat overbought. As well, I continue to believe the slowing growth and rising inflation in emerging markets is a larger problem than perceived. China Pork Spot Prices rose another +3.36% in the latest weekly report. They are now up +70.63% over the last year. The situation in Europe needs to stabilize, commodity prices need to fall further, the US debt ceiling issue needs resolution and forward earnings guidance must be ok for stocks to build meaningfully on their recent rally. I expect US stocks to trade mixed-to-lower into the close from current levels on soaring eurozone debt angst, emerging markets inflation fears, US debt ceiling concerns, profit-taking, more shorting and global growth worries.

Today's Headlines

Bloomberg:

• Euro Chiefs Clash Over Greece as Concern on Italy Mounts. European finance chiefs clashed over how to dig Greece out of its financial hole just as markets battered the bonds of Spain and Italy, opening a new front in the debt crisis. Finance ministers weighed how to get private bondholders to maintain their exposure to Greek debt in a way that doesn’t prompt credit-rating companies to declare a formal default. Forcing bondholders to chip in would be “fatal,” Austrian Finance Minister Maria Fekter told reporters before a crisis meeting in Brussels today. “We will now in the eurogroup discuss the proposals on the table and their impact with respect to a Greek insolvency or classification as an insolvency.” Bonds of debt-strapped countries plunged, the euro sank and stocks dropped amid concern that European governments are powerless to prevent the financial distress spreading from Greece. Italian assets were upended by doubts whether Prime Minister Silvio Berlusconi, plumbing record-low approval ratings with two years left in office, will muster the political strength to push through 40 billion euros in planned deficit- cutting measures.
  
• Italy Is Two Percentage Points From Bailout as Yields Rise, Evolution Says. Italian bond yields are less than 2 percentage points away from disaster as its 10-year notes tumble, according to Gary Jenkins, head of fixed-income at Evolution Securities Ltd. Yields on Italy’s benchmark 10-year bonds closed above 5 percent for the first time since November 2008 on July 6 and were at 5.55 percent, a nine-year high, at 1:45 p.m. in London today. Italy is being dragged into the crisis because it has more than 1.6 trillion euros ($2.6 trillion) of bonds outstanding, the world’s third-largest pile of debt after the U.S. and Japan. “It is worth remembering how quickly bond yields can get out of control by looking at what happened to Greek, Irish and Portuguese 10-year yields,” said Jenkins, who predicted Greece’s bailout last year and who was formerly head of fundamental credit strategy at Deutsche Bank AG and global credit-research chief at Barclays Capital. “What would keep me awake at night if I was a European finance minister is that we are only about 2 percent away from a potential disaster scenario.” Greek, Irish and Portuguese 10-year bonds spent an average 43 days trading at more than 5.5 percent before rising above 6 percent “on a consistent basis,” said London-based Jenkins. They then spent an average of 24 days above 6 percent before breaching 6.5 percent, and 15 days above 6.5 percent before passing the 7 percent level and asking for a bailout, he said. The cost of insuring Italian government debt using credit- default swaps jumped to a record, helping also send the Markit iTraxx SovX Western Europe Index to an all-time high. Contracts on Italy surged 32 basis points to 283, according to CMA prices. The Markit iTraxx SovX WE climbed 33 basis points to a record 289. “The markets are focusing on Italy and Spain and combined they are too big to save,” said David Owen, an economist at Jefferies International Ltd. in London. “Note that they are all linked together by their banking systems -- the French banks are all over Spain and Italy.” The spread between yields on Italian and German 10-year debt rose 39 basis points today to 283, a euro-era high.
• Sovereign Credit-Default Swap Costs Surge to Record in Europe. The cost of insuring against default on European sovereign debt rose to a record, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments climbed 19 basis points to a record 275 at 8:30 a.m. in London. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 14 basis points to 438, the highest since Jan. 11, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.75 basis points to 116.75, the highest since Nov. 30. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 9.5 basis points to 181 and the subordinated index climbed 13 to 318.
• Credit-Ratings Firms May Have to Show EU Data. Credit-ratings companies may be forced to disclose the internal analyses they use when they decide to cut a European Union government’s rating, the region’s financial services commissioner said. Nations may win the right to check the data used by the companies in advance of downgrades of their sovereign ratings, Michel Barnier said in the text of a speech in Paris speech today. The measures may be included in legislation to rein in the ratings firms, he said.
• Gold Gains to Two-Week High as Debt, Growth Concerns Spur Investor Demand. Gold climbed for a fifth day in New York, rising to a two-week high, as concerns over Europe’s debt crisis and slowing economic growth spurred demand for the metal as a protection of wealth. Gold for August delivery gained as much as $16, or 1 percent, to $1,557.60 an ounce, the highest price since June 22, and was at $1,556.30 by 10:30 a.m. on the Comex in New York. Immediate-delivery gold was up 0.8 percent at $1,556.15 in London. Gold is up 9.5 percent in 2011 after climbing the past 10 years, the longest run of gains in at least nine decades in London.
• Crude Oil Falls for Second Day in New York on Italian Debt, Chinese Demand. Oil declined for a second day in New York on speculation that a slump in Chinese imports and rising unemployment in the U.S. may indicate fuel demand will falter in the world’s biggest crude-consuming nations. Futures slipped as much as 2 percent after government reports in China showed net oil imports shrank 10 percent in June to the lowest in eight months, according to Bloomberg calculations, while inflation surged to a three-year high. Crude for August delivery on the New York Mercantile Exchange fell as much as $1.88 to $94.32 a barrel, the lowest since July 5, and was at $94.62 at 1:56 p.m. London time. The contract dropped $2.47 to $96.20 on July 8. The price has risen 26 percent in the past year.
• Copper Falls Most in Five Weeks on Concern European Debt Woes Will Spread. Copper futures for September delivery declined 6.95 cents, or 1.6 percent, to $4.3425 at 10:56 a.m. on the Comex in New York.
• Brazil Economists Boost 2011 Inflation Forecast for First Time in 10 Weeks. Economists covering the Brazilian economy raised their 2011 inflation forecast for the first time in 10 weeks after prices rose faster than expected in June. Consumer prices will rise 6.31 percent this year, according to the median forecast in a July 8 central bank survey of about 100 economists published today. The figure was up from 6.15 percent the previous week. Economists also raised their prediction for 2012 inflation. Prices, as measured by the IPCA index, will rise 5.20 percent next year, the survey found, compared with a forecast of 5.10 percent the previous week. The June inflation number increased doubts that the central bank will hit its targets, said Pedro Tuesta, a Washington-based economist for Latin America at 4Cast Inc. “The market has started to talk about how the central bank isn’t going to make it,” Tuesta said in a telephone interview. “More and more people are thinking that inflation inertia, especially on service prices, will push 2012 inflation up.” Policy makers raised interest rates for a fourth consecutive meeting last month, boosting the benchmark lending rate a quarter-point to 12.25 percent. Economists expect the bank to raise the rate to 12.75 percent by the end of this year, from a week earlier forecast of 12.50 percent, the survey found.
• Cisco(CSCO) May Eliminate About 5,000 Jobs in August, Gleacher Analyst Reports.
• Bulgaria Default Swaps to Rise on Euro Debt, Unicredit Says. The cost of insuring Bulgarian bonds against non-payment is likely to increase because of the Balkan country’s economic ties with Greece, according to UniCredit SpA. Investors should buy Bulgarian credit-default swaps at 220 basis points, or 2.20 percentage points, on expectations the five-year contracts will climb to 270 points, the bank said in a report dated yesterday.

Wall Street Journal:

• Moody's Raises 'Red Flags' at 61 Chinese Firms. Credit-ratings firm Moody's Investors Service warned of "red flags" at 61 rated Chinese companies as it sought to provide transparency on its approach to ratings amid rising investor concern about corporate governance at such entities. The flags are meant to "highlight issues meriting scrutiny to identify possible governance or accounting risks for non-financial corporate issuers in emerging markets" and relate to issues such as weak corporate governance, riskier or more opaque business models, fast-growing-business strategies, poorer quality of earnings or cash flow, and concerns over auditors and quality of financial statements, the report, issued Monday, said. Four Hong Kong-listed companies were highlighted as having a particularly large amount of red flags: West China Cement Ltd. had 12, Winsway Coking Coal Holdings Ltd. had 11, China Lumena New Materials Corp. had 10, and Hidili Industry International Development Ltd. had nine. Moody's wrote that Winsway, Lumena and Hidili, as companies that mine coal or other minerals, "tend to attract scrutiny because it is often hard to value these assets and reserves in terms of size, value, or ownership rights."
• China will keep "strong" curbs on property prices, citing China Vanke Co. Chairman Wang Shi.
• Some Spanish Banks May Fail Stress Tests - Finance Minister. Some Spanish savings banks may show a capital shortfall in the European Union stress tests due to be released Friday, finance minister Elena Salgado said. Salgado had earlier said that she expected no Spanish bank to fail the tests.
• Tough Era for 'Macro' Funds. Today's markets seem like they are tailor-made for money managers investing based on big-picture, "macro" themes such as the European debt crisis and economic woes in the U.S. Instead, many are struggling. Macro-focused managers have been tripped up by whiplash-inducing swings in stocks, currencies and commodities, often brought about by the latest twists and turns of impossible-to-time political developments. Stubbornly low U.S. Treasury yields have been a trap for managers worried about inflation and the deteriorating U.S. fiscal outlook. Making matters worse is a tendency of markets around the world to move in lock step.
• Saudis Offer Extra Crude But Find Lackluster Response - Source. Top oil exporter Saudi Arabia has offered extra crude to its customers for August but refiners, particularly from Asia, have largely declined, a person familiar with the matter said Monday. "The response received from buyers wasn't very encouraging, so it is early to say if Saudi will up its production more this month," the person told Dow Jones Newswires. Saudi Arabia in June produced an extra 467,000 barrels a day to lift its crude oil production to almost 9.5 million barrels a day, according to a Dow Jones survey. The kingdom pledged to boost output to as high as 10 million barrels a day in response to mounting demand in the second half.
  

MarketWatch:

• Europe Stocks Tumble on Debt Fears as Italy Sinks. European stock markets fell sharply Monday, led lower by banking and insurance shares as fears that the euro-zone debt crisis is spreading to Italy spooked investors. The Stoxx Europe 600 index XX:SXXP -1.41% dropped 1.4% to end at 269.90, with banks and insurers among the worst performers. BNP Paribas SA FR:BNP -6.75% dropped 6.8% in Paris, Commerzbank AG DE:CBK -7.72% fell 8.6% in Frankfurt, and Dexia SA BE:DEXB -8.04% slumped 8% in Brussels.
• China's US-Listed Stocks Are Junk.
  

Business Insider:

• The Nastiest Divorce Battle In History and the Hedge Fund It's Tearing Apart. New details have emerged about the nasty divorce battle that threatens to destroy Ikos, a multi-billion hedge fund.
• The 19 Most-Liked Companies in America.
• Anonymous Hackers Announce An Imminent Attack on the Intelligence Community.
• There Is No Single Cure For The Many Outbreaks of European Debt Disease.
• 10 Things You Need to Know About Italy.
• The Mind-Boggling Expenses That Make Fannie Mae The Least Profitable Corporation in America.
  

Zero Hedge:

• Does the US Government Want to Prevent You From Leaving? Recently, the State Department quietly proposed a new ‘biographical questionnaire’ in lieu of the traditional passport application. The new form requires you to provide things like: - names, birth places, and birth dates of your extended family members - your mother’s place of employment at the time of your birth - whether or not your mother received pre-natal or post natal care - the address of your mother’s physician and dates of appointments - the address of every place you have ever lived in your entire life - the name and address of every school you have ever attended. Most people would find it impossible to provide such information, yet the form requires that the responses ‘are true and correct’ under penalty of imprisonment. Naturally, the privacy statement on the application also acknowledges that the responses can be shared with other departments in the government, including Homeland Security. If this proposal passes, then US citizens will have a nearly insurmountable hurdle to obtain a passport and be able to leave the country at will. Even if it doesn’t pass, it’s a clear demonstration of what the people who run the country are thinking.
• Congressman Brad Miller Blasts Legality of Bank of America's(BAC) $8.5 Billion RMBS Settlement.
  

Reuters:

• Why Won't Obama Cut Spending? President Barack Obama could have done two things that might have saved his Mother of All Budget Deals. First, he could have embraced market-centered, consumer -focused reforms to Medicare. That was about as likely as him accepting an Obamacare rollback. Second, he could have agreed — as House Speaker John Boehner and Republicans suggested — to sharply reduce tax rates in return for fewer special tax deductions/breaks/loopholes/subsidies. Recall that is what his own debt commission recommended.
• Traders Bet on Future Dollar Funding Stress. Investors trading the FRA/OIS spread SMKR29A were betting a key funding spread would widen 10 basis points by September, a move analysts said was a measure of expectations for future stress in the short-term funding markets. The FRA/OIS spread is a bet on the future Libor/OIS spread, which is the difference between the dollar London interbank offered rate and the rate on an overnight indexed swap, a common interest rate swap. The current Libor-OIS spread widened on Monday as well, reaching 15 basis points.
• Fed Could Do More to Deflate Bubbles - Fed Paper. U.S. policymakers could and should do more to identify and deflate asset bubbles before they pop and harm the economy, research from the San Francisco Federal Reserve suggested on Monday.

Telegraph:

• News Corp(NWSA) Forces Government to Refer BSkyB Deal to Competition Commisison.
• Tim Harford: The Euro Will End in Tears. (video) Tim Harford, author of Adapt: why success always starts with failure, tells Robert Miller why he thinks the single currency in its present form is doomed.

Financial Times Deutschland:

• Olli Rehn, the European Union's economic and monetary affairs commissioner, is "extremely concerned" about the region's debt crisis reaching Italy, citing an interview with an EU official. The official said concern about Italy is bigger than fears over Portugal, adding that a common solution to the problem must be found for all countries.

Handelsblatt:

• The European Central Bank is seeking advice from a private-sector bank on what to do in the event of a sovereign default in the euro area. The ECB has written to "more than five" financial institutions in recent days, requesting that they apply to act as advisers.

Shanghai Daily:

• Chinese Bankcard Holders Go Slow on Spending. CHINESE bankcard holders trimmed their non-essential spending in June due to rising cost of food, especially pork, an industry index showed yesterday. The bankcard consumer confidence index dipped to 86.06 points in June, down 0.24 points from a year ago. It also slipped 0.05 points from May as the second straight monthly drop, China UnionPay Co said yesterday. The index tracks expenses of card users, including 200,000 individuals, in affluent cities who frequently use the cards to pay for 90 percent of their expenses. "Bankcard holders are cutting non-essential spending as rising food prices push them to shop less, aside from basic necessities," the Shanghai-based firm said in a statement. Its data from shops showed that contribution from restaurants, jewelers and entertainment facilities dropped to 12.68 percent, down 0.84 percentage points.
  

China Forex Magazine:

• The yuan may appreciate to as high as 6 yuan to the U.S. dollar and consumer prices may exceed 5% this year if global commodity prices continue to rise, citing Chen Bingcai, a researcher at the Chinese Academy of Governance's policy consultation department.

Bear Radar

Style Underperformer:

• Mid-Cap Growth (-2.41%)

Sector Underperformers:

• 1) Coal -3.70% 2) Homebuilders -3.21% 3) Construction -3.20%

Stocks Falling on Unusual Volume:

• TI, IOC, DB, BCS, E, PHG, TEF, TOT, CKP, NWSA, RRD, CCIX, SHLM, RAIL, VMED, TLEO, LHCG, BWLD, QSII, SYNT, BOOM, NEWP, VPHM, AMLN, AIXG, OZRK, LPSN, HAS, IXC, SWC, RPV, WAB, TTI, GRR, VE, IGT, EMF, EWI, VGK, LL, FDO, AINV, FST, WAB and KKR
  

Stocks With Unusual Put Option Activity:

• 1) SWC 2) LPS 3) INFY 4) AMAT 5) XLV
  

Stocks With Most Negative News Mentions:

• 1) ACN 2) TNK 3) HGG 4) TMK 5) STD
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (-1.71%)

Sector Outperformers:

• 1) Semis -.31% 2) Restaurants -.51% 3) Food -.92%

Stocks Rising on Unusual Volume:

• JVA, CBOU, RBCN, LRCX and ARJ
  

Stocks With Unusual Call Option Activity:

• 1) IGT 2) NXPI 3) MAT 4) DHR 5) SO
  

Stocks With Most Positive News Mentions:

• 1) AAPL 2) GOOG 3) AMZN 4) WFM 5) GLD
  

Charts:

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