Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.10%)

Sector Underperformers:

• 1) Networking -1.81% 2) Steel -1.52% 3) Road & Rail -1.41%

Stocks Falling on Unusual Volume:

• SWC, COHR, AVAV, NIHD, TIBX, VECO, TIE, CBOU, STO, HNT, CLNE, SONO, JVA, ASMI, ADTN, CHKP, ZION, RBCN, HOGS, HAS, CBSH, LQDT, NTGR, CENX, MCRS, CTXS, PCAR, ASML, COF, HST, UCO, MRX, H, RTI and MAR
  

Stocks With Unusual Put Option Activity:

• 1) STEC 2) RSX 3) MAR 4) CIEN 5) COP
  

Stocks With Most Negative News Mentions:

• 1) MTH 2) MMM 3) MTH 4) CLNE 5) NTGR
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (+.29%)

Sector Outperformers:

• 1) Coal +.91% 2) Restaurants +.90% 3) Energy +.90%

Stocks Rising on Unusual Volume:

• COP, JPM, PL, UTEK, REDF, JAZZ, RMD and SUG
  

Stocks With Unusual Call Option Activity:

• 1) VMED 2) CLSN 3) PAL 4) COP 5) SUG
  

Stocks With Most Positive News Mentions:

• 1) GOOG 2) WMT 3) ENOC 4) COP 5) RIMM
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• Italy Braves Yield Surge With $7 Billion Bond Sale as Senate Votes on Cuts. Italy taps bond markets today as the Senate votes on budget cuts to tame a debt burden that is the second largest in Europe and has prompted investors to drive borrowing costs to a 14-year high. The treasury plans to sell as much as 5 billion euros ($7 billion) of four different bonds with maturities ranging from five to 15 years. It’s the first sale of longer-term debt since the country’s 10-year yield reached 6.02 percent on July 12, the highest since 1997. The yield fell from that peak after Italy successfully sold treasury bills the same day. “The auctions will go well, in the sense that they must go well,” said Harvinder Sian, a senior bond strategist at Royal Bank of Scotland Group Plc in London. “There will be a galvanizing of opinion in the domestic sector certainly.” The failure of European Union policy makers to complete a second aid package for Greece and contain the region’s debt crisis fueled concern about the sustainability of Italy’s 1.8 trillion-euro debt, which is larger than that of Greece, Ireland, Spain and Portugal combined.
• Greece Gets World's Lowest Rating From Fitch in Catch-up Downgrade to CCC. Greece’s credit rating was cut three levels to Fitch Ratings’ lowest grade for any country in the world as the company followed rivals and said that a default is a “real possibility.” The move to CCC from B+ “reflects the absence of a new, fully funded and credible” program by the International Monetary Fund and the European Union, the ratings company said yesterday in a statement in London. It also reflects “heightened uncertainty surrounding the role of private creditors in any future funding, as well as Greece’s weakening macroeconomic outlook.” Fitch is the third ratings company to cut Greece to the bottom tier of its rankings, reflecting concerns that a new aid package being negotiated for the nation will inflict losses on investors.
• Default Inevitable as Every Greek $40,000 in Hock: Euro Credit. Greece has about a one in ten chance of sidestepping default, according to credit traders who are betting the country will be crippled by $490 billion of debt - more than $40,000 for every man, woman and child. Investors who bought 10-year Greek debt last year have lost almost half their money, with yields soaring to more than 16% as the budget deficit swelled by 28% since January. A $155 billion bailout hasn't stopped the nation's debt from becoming riskier than Venezuela, credit-default swap prices show, while Greek stocks lost 16% of their value this year and are down about 46% since the beginning of 2010.
• Commodities Rise to Four-Week High as Bernanke Signals More U.S. Stimulus. Commodities rose to a four-week high as Federal Reserve Chairman Ben S. Bernanke indicated he may provide more U.S. economic stimulus, driving down the dollar and boosting demand for raw materials as a hedge against inflation. Gold futures rose to a record $1,588.90 an ounce in New York, and silver closed up 7.1 percent, the most among GSCI components. Corn capped the biggest two-day gain in eight weeks, and soybeans posted the longest rally since August.
• Dial-a-Crowd Confronts Debt-Laden Spanish Banks by Thwarting Foreclosures. Rising unemployment in Spain may lead to 300,000 foreclosures this year and next, according to Adicae, a rights group representing bank customers. Spain has become a battleground between banks hurt by a five-fold increase in residential mortgage arrears since 2007 and debt-laden homeowners who are appealing to the government to reduce the burden on those facing foreclosure. The number of foreclosed homes advertised by Idealista.com, Spain’s largest real-estate website, has risen 10-fold to 30,000 in three years. The properties are valued at about 4.6 billion euros and owned by 40 banks. “If the banks had to assume all the losses resulting from the bad mortgages they granted during the property boom, the whole financial system would collapse,” Jesus Encinar, Idealista.com’s chief executive officer, said in an interview. Spanish banks have about 614 billion euros of outstanding residential mortgages, according to data from the Bank of Spain. At 21 percent, the jobless rate is the highest in Europe, making it harder for borrowers to keep up with their payments. Home prices may fall by an additional 20 percent in the next four years before bottoming out, R.R. de Acuna & Asociados, a Madrid-based real-estate consulting firm, said at a briefing last month. The company estimates there are about 1.5 million unsold homes, which won’t be absorbed for another six years. Jaime Alvarez, professor of finance at Madrid’s Complutense University, said there’s is no way of helping homeowners to reduce their debts without hurting lenders. “The committee is merely cosmetic and won’t recommend any changes that will hurt the banks because they’re Spain’s sacred cows,” said Alvarez, who was also a co-founder of Publica Subasta, Spain’s largest complier of data on public auctions.
• China Cities Sell Land With Bonds Seen Toxic. Workers toil by night lights with hoes, carving out the signs for Olympic rings in front of an unfinished 30,000-seat stadium, bulb-shaped gymnasium and swimming complex in a little-known Chinese city. Loudi, home to 4 million people in Chairman Mao Zedong’s home province of Hunan, is paying for the project with 1.2 billion yuan ($185 million) in bonds, guaranteed by land valued at $1.5 million an acre. That’s about the same as prices in Winnetka, a Chicago suburb that is one of the richest U.S. towns, where the average household earns more than $250,000 a year. In Loudi, people take home $2,323 annually and there are no Olympics here on any calendar. “The debt isn’t a problem as Loudi is not a developed place,” Yang Haibo, an official at the city’s financing vehicle, says as he sits with colleagues in a smoke-filled meeting room under a No Smoking sign. “It’s an emerging city.”
• Debt ratings for Indian companies are being cut at the fastest pace since 2009 as a record increase in rupee interest rates and a slowing economy add to the risk of defaults. ICRA Ltd., the local unit of Moody's Investor Service, reduced rankings for 34 firms and raised ratings for 24 last quarter. There were only seven upgrades for every ten downgrades, the worst ratio since 2009. Yields on top-rated two-year notes jumped 225 basis points, or 2.25 percentage point, in the past year to 9.48 percent. A similar rate in the U.S. fell 44 basis points to .69%. "The rise in interest cost is hurting capital-intensive businesses the most and all those who can defer projects are deferring," said D.R. Dogra, CEO at Mumbai-based ratings provider Credit Analysis & Research Ltd.
• Wall Street Generated Losses on Proprietary Trading Since 2006, GAO Says. The six largest U.S. banks had a net loss of about $221 million from standalone proprietary trading from June 2006 through the end of 2010, according to the Government Accountability Office. The business of betting money for banks’ own accounts produced positive net revenue in 13 of the 18 quarters examined, totaling $15.6 billion, and generated losses of $15.8 billion in the other five quarters, the Washington-based GAO said today in a report.
• Singapore's Economy Shrank Last Quarter. Singapore’s economy shrank for the first time in three quarters as manufacturing slumped, adding to evidence the slowdowns in Europe and the U.S. are curbing growth in Asia. The island’s currency weakened from a record. Gross domestic product fell an annualized 7.8 percent in the second quarter from the previous three months.
• Beef Contaminated by Radiation Intensifies Food-Safety Concerns in Japan. Beef contaminated by radiation from Fukushima prefecture has been eaten by consumers in Japan, intensifying food-safety concerns and stoking criticism against a government testing program that checks only selected products. About 437 kilograms of beef from a farm in Minami-Soma city, 30 kilometers from the stricken Fukushima Dai-Ichi nuclear station, was consumed in eight prefectures, according to the Tokyo metropolitan government, which detected the first case of tainted beef from the farm earlier this month. Four months after a record earthquake and tsunami crippled the power plant in Fukushima, site of the worst nuclear disaster since Chernobyl, local government offices are struggling to check every farm product due to a shortage of testing equipment, staff and budget. Prolonged exposure to radiation in the air, ground and food can cause leukemia and other cancers, according to the London-based World Nuclear Association.
• China Bank Stocks Seen Extending Slump. Chinese banks, the cheapest among major emerging markets’ lenders, may drop lower as overseas banks and funds trim stakes to meet capital rules and curb risks amid concerns that the nation’s record credit boom will unravel. The three biggest Chinese banks posted their worst quarterly stock performance in 2 ½ years on concern that local governments may default on loans. The lenders’ credit outlook may sour in the absence of a government plan to deal with the issue, Moody’s Investors Service said this month, while regulators globally are demanding banks increase buffers. “You will certainly see share sales by some of these cornerstone investors,” said Sandy Mehta, chief executive officer for Hong Kong-based Value Investment Principals Ltd. “The U.S. and European financial companies obviously need capital for themselves. And there are more distressed opportunities in financial sectors” elsewhere, he said.
• Pickens Water-to-Riches Dream Unravels as 11 Texas Cities Scoop Up Rights.
  

Wall Street Journal:

• Raters Put U.S. on Notice. Moody's, S&P Sound Alarms on Debt; President Obama Walks Out of Talks. Credit rating agencies moved closer to an unprecedented downgrade of the U.S. government's debt amid deteriorating talks in Washington, with President Barack Obama abruptly walking out of a key meeting Wednesday with Republicans seeking a deal to raise the federal borrowing limit. Moody's Investors Service said it was reviewing the government's top Aaa bond rating for a possible downgrade, citing the "rising possibility" that the government's $14.29 trillion borrowing limit won't be raised soon enough to prevent the U.S. from running out of money to pay its bills.
• Triple Blasts Hit Mumbai, Killing 21. Attacks, Worst Since City's 2008 Siege, Cast Doubt on India Security Gains and Pakistan Détente; 'Coordinated' Terrorist Bid. The city was placed on high alert after the blasts, which officials believed were "a coordinated attack by terrorists," Home Minister P. Chidambaram said at a news conference. He didn't say whether he believed the perpetrators were homegrown or foreign-based. The attacks underscored India's significant domestic security vulnerabilities, despite efforts in recent years to bolster intelligence-gathering and coordination between local and national-security officials. The attacks could also complicate nascent efforts at establishing peace between India and neighboring rival Pakistan.
• Financial Oversight Panel to Delay Guidance. Federal regulators will not complete guidance detailing how the U.S. will determine which large firms could pose a risk to the financial system in time for a Monday meeting, according to people familiar with the matter. The Financial Stability Oversight Council, a new federal body created by the Dodd-Frank financial-overhaul law, had planned to issue the guidance Monday but it likely will be several weeks before it is complete, these people said.
• In Shift, Municipalities Turn to Banks for Loans. Time was running out for the Orange County School Board. A $105 million debt deal was about to expire, triggering painful penalties for the approximately 175,000-student district in the Orlando, Fla.-region. Along came Wells Fargo & Co. with a deal that avoided the penalties: Wells bought the $105 million debt from investors and negotiated new terms with the district.
• Bank Liabilities Facing Scrutiny. As big banks prepare to report their second-quarter results, federal regulators are scrutinizing what these institutions are telling shareholders about possible payouts to clean up mortgage-related messes, according to people familiar with the matter. Officials at the Securities and Exchange Commission are looking closely at banks' estimates of possible liability in the wake of a surprise June 29 announcement that Bank of America Corp. would take mortgage-related charges of $20.6 billion during the second quarter, the people added. The total cost was greater than some investors and analysts had expected.

Fox Business:

• Morgan Stanley(MS) Could Be Next Wall Street Giant to Cut Staff. Morgan Stanley & Co. could be the next Wall Street firm to announce a major round of layoffs, joining its arch rival Goldman Sachs in slashing possibly thousands of jobs, the FOX Business Network has learned. The firm is “running layoff scenarios into several thousand folks,” said one person with direct knowledge of the matter. This possible new round of job cuts would go well beyond the pruning of low-producing brokers (also known as financial advisers) the firm has already announced.
  

CNBC:

• Pigs at Front Line in China Inflation Battle. In the past year, pork prices in China have rocketed 57 percent, and are again helping to drive Chinese inflation, which hit a three-year high in June. For economists bringing the price of China’s pork under control represents one of the keys to bringing Chinese inflation under control.
• Yum(YUM) Posts Profit Beat, Raises 2011 Estimate.
  

Business Insider:

• Hezbollah Hooks Up With Mexican Drug Cartels.
• The Truth Behind Fannie and Freddie: Why The Government Didn't Make a Profit From The Bailout.
• A Guide to the Political Impasse That Could Tear Belgium Apart.
• Turkey Thwarts Potentially Devastating Al-Qaeda Attack on U.S. Embassy. Turkish authorities in three different cities arrested 15 individuals today who it accused of planning attacks in multiple locations, including one on the U.S. embassy in Ankara.

Zero Hedge:

• Quantitative Easing Rounds 1 and 2 Hurt the Economy ... Bernanke Proposes Round 3.
• Chart of the Day: Evolution of U.S. Federal Public Debt Held by the Public(in % of GDP).
  

CNNMoney:

• PC Sales Continue Slump Amid iPad Takeover. Shipments of personal computers in the United States tumbled in the second quarter as manufacturers, retailers and consumers shift their focus to tablets. U.S. PC shipments fell 5.6%, compared to the same three-month period a year ago, according Gartner. Worldwide PC shipments grew just 2.3%, well below the tech consultancy's modest 6.7% growth forecast. "Given the hype around media tablets such as the iPad, retailers were very conservative in placing orders for PCs," said Mikako Kitagawa, principal analyst at Gartner. "Instead, they wanted to secure space for media tablets."

NY Times:

• Utility Shelves Ambitious Plan to Limit Carbon. A major American utility is shelving the nation’s most prominent effort to capture carbon dioxide from an existing coal-burning power plant, dealing a severe blow to efforts to rein in emissions responsible for global warming.
• Borders Faces Liquidation After Takeover Bid's Rejection.
  

Salon.com:

• US More Unpopular in the Arab World Than Under Bush. I've written numerous times over the last year about rapidly worsening perceptions of the U.S. in the Muslim world, including a Pew poll from April finding that Egyptians view the U.S. more unfavorably now than they did during the Bush presidency. A new poll released today of six Arab nations -- Egypt, Lebanon, Jordan, Saudi Arabia, the United Arab Emirates and Morocco -- contains even worse news on this front:

Lloyd's List:

• Hedge Funds Jump On The Ship Finance Bandwagon.

Rasmussen Reports:

• 25% Say U.S. Heading In Right Direction. Sixty-eight percent (68%) of voters say the country is heading down the wrong track, showing no change from last week.

USA Today:

• Some Netflix(NFLX) Customers Threaten to Quit Over Price Increases.
• Who Exactly Has The Tax Target on Them? Individuals earning $200,000, couples earning $250,000 and, to a lesser extent, all taxpayers could lose money in the deal as their tax rates rise or they move into higher tax brackets. How much would be raised and from whom?

Reuters:

• UAW Sees Its Future: Organize Southern US Plants. The time for the United Auto Workers to win the hearts and minds of nonunion workers in southeastern U.S. plants is now in one top union executive's opinion. "If not now, when? We are going to fix it or we continue to do what we're doing. You keep kicking the can down the road or we're going to fix it," said Gary Casteel, director of the UAW region that includes Tennessee, South Carolina, Alabama and Georgia where most of the nonunion auto plants are located. Casteel echoes the belief of his boss, UAW President Bob King, who has staked his reputation and the union's future growth on winning votes to represent workers at those plants. A failure would likely result in a marginalized organization.
• No Link Seen Between Cell Phones, Brain Tumor. People who have used a cell phone for more than a decade do not appear to be at increased risk of a type of non-cancerous brain tumor, a large study suggests. Looking at data on more than 2.8 million Danish adults, researchers found that those who'd used a cell phone for 11 to 15 years were no more likely than newer users or non-users to develop an acoustic neuroma.
• US Board Changes Swaps Accounting for Local Govts. The board that sets accounting standards for state and local governments on Wednesday changed some financial reporting requirements for swaps and other hedging instruments the governments use. The Governmental Accounting Standards Board said that "deferred outflows" and "deferred inflows" of resources should be reported separately from assets and liabilities on financial statements. A deferred outflow would, for example, be an interest rate swap agreement with a negative value, GASB said. A deferred inflow could be a payment from a public-private partnership. The board then used the separation to tackle how states and local governments would account for the replacement for a swap counterparty or a counterparty's credit support. They can continue to list the value changes of the derivative as a deferred outflow or inflow, rather than as changes in investment income, if they are likely to still collect payments from the swaps, the replacement counterparty meets certain GASB-defined criteria, or when the termination of the swap is the fault of the counterparty. GASB said the changes were "intended to improve financial reporting by providing citizens and other users of state and local government financial reports with information about how past transactions will continue to impact a government's financial statements in the future."
• Marriott(MAR) Earnings Match Estimates, Stock Declines. Marriott International Inc reported higher quarterly earnings that matched analyst estimates and gave a tepid forecast for the year. Shares of the hotel operator dropped more than 4 percent after-hours.

Financial Times:

• High-Frequency Traders Slowed by Headwinds.

Guardian:

• BSkyB 'Bloodbath' Hits Hedge Funds. Hedge funds have suffered one of their worst setbacks in years, losing tens of millions of pounds by betting that Rupert Murdoch's News Corporation was on the verge of taking full control of BSkyB. Short-term speculators expected to make a killing by investing in a company viewed as a prime bid target, but instead have seen shares in the satellite television company plunge. One trader said: "It's a bloodbath out there. The hedgies have dumped their holdings and some of them will be nursing big losses."

The Standard:

• Hong Kong Home Prices to Plateau as Buyers Hit Pocket Limit. Cheung Kong (0001) executive director Justin Chiu Kwok-hung said: "Price levels are now challenging buyers' affordability, so there is very limited room for large hikes," adding that home prices have already climbed 10-15 percent in the first half of the year. Any substantial hikes in home prices are unlikely in the second half, as they have reached the affordability limit of local buyers, a top developer forecast.

South China Morning Post:

• Broker Sees 20% Fall in Hong Kong Home Prices. Real estate risks include a stock market shock and lagging interest by mainland buyers, analyst warns. Property bulls beware: the city's real estate sector could be vulnerable to a slowdown or even a significant fall, according to broker CLSA Asia- Pacific Markets.

21st Century Business Herald:

• The slowing trend for Chinese exports may continue in the second half as overseas demand is unlikely to improve, citing Huo Jianguo, head of the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.

Economic Information Daily:

• China's monetary policy should remain prudent in the second half of this year to maintain stable economic growth and keep prices stable, citing central bank adviser Xia Bin.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.0% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 122.00 +.5 basis point.
  
• Asia Pacific Sovereign CDS Index 122.50 -2.5 basis points.
  
• S&P 500 futures -.42%.
  
• NASDAQ 100 futures -.36%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FCS)/.40
• (JPM)/1.21
• (VMI)/1.45
• (JBHT)/.53
• (PGR)/.39
• (CBST)/.41
• (GOOG)/7.85
• (CBSH)/.72
  

Economic Releases
8:30 am EST

• The Producer Price Index for June is estimated to fall -.2% versus a +.2% gain in May.
• The PPI Ex Food & Energy for June is estimated to rise +.2% versus a +.2% gain in May.
• Advance Retail Sales for June are estimated to fall -.1% versus a -.2% decline in May.
• Retail Sales Less Autos for June are estimated unch. versus a +.3% gain in May.
• Retail Sales Ex Autos & Gas for June are estimated to rise +.4% versus a +.3% gain in May.
• Initial Jobless Claims for last week are estimated to fall to 415K versus 418K the prior week.
• Continuing Claims are estimated to fall to 3680K versus 3681K prior.
  

10:00 am EST

• Business Inventories for May are estimated to rise +.8% versus a +.8% gain in April.

Upcoming Splits

• (TGI) 2-for-1
• (SNHY) 3-for-2
  

Other Potential Market Movers

• The Fed's Bernanke speaking, 30-yr Treasury Bond Auction, weekly EIA natural gas inventory, Fed's weekly balance sheet report and the (FUL) analyst/investor day report could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology 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 Rising Slightly Into Final Hour on Euro Bounce, Dovish Fed Commentary, Overseas Equity Strength, Short-Covering

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 18.93 -4.13%
  
• ISE Sentiment Index 109.0 -19.26%
  
• Total Put/Call .92 -13.21%
  
• NYSE Arms .64 -55.02%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 94.74 -2.09%
  
• European Financial Sector CDS Index 137.33 -3.06%
  
• Western Europe Sovereign Debt CDS Index 286.50 -.69%
  
• Emerging Market CDS Index 219.86 -.20%
  
• 2-Year Swap Spread 28.0 +1 bp
  
• TED Spread 24.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% -2 bps
  
• Yield Curve 253.0 -1 bp
  
• China Import Iron Ore Spot $174.10/Metric Tonne +.58%
  
• Citi US Economic Surprise Index -98.0 +1.1 points
  
• 10-Year TIPS Spread 2.29% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -15 open in Japan
• DAX Futures: Indicating -9 open in Germany

Portfolio:

• Higher: On gains in my Retail, Biotech and Medical sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just slightly higher despite strong gains in overseas equities, a bounce in the euro and dovish comments from Bernanke. On the positive side, Coal, Disk Drive, HMO, Education, Oil Service, Ag and Steel shares are especially strong, rising more than +1.0%. Cyclical and small-cap shares are outperforming. The Japan sovereign cds is falling -3.62% to 90.50 bps, the Belgium sovereign cds is down -4.6% to 185.54 bps and the US Muni CDS Index is down -3.49% to 131.69 bps. On the negative side, Defense, Utility, Semi, Telecom, Wireless, REIT and Airline shares are lower on the day. Tech shares continue to underperform. The 10-year yield is unch. at 2.88% despite more qe talk, a global equity rally and debt ceiling concerns. Gold is up +.71%, oil is rising +1.0% and the UBS-Bloomberg Ag Spot Index is gaining +1.8%. Rice is jumping another +3.1%. Rice is hitting a new multi-year high and has soared +27.4% in less than 2 weeks. Moreover, the UBS-Bloomberg Ag Spot Index is breaking out of its recent downtrend and is poised to test its 52-week high, which is also a large negative. The US price for a gallon of gas is +.01/gallon today to $3.65/gallon. It is up .51/gallon in less than 5 months. The Portugal sovereign cds is rising +.32% to 1,073.70 bps, the Ireland sovereign cds is rising +6.5% to 1,059.40 bps and the UK sovereign cds is rising +.23% to 74.33 bps. The Western Europe Sovereign CDS Index is hovering near its record high and the Ireland sovereign cds is making another new record today. Data over the last 24 hours, Bernanke's dovish commentary and the surge in oil/food prices have raised the odds of hard-landings in some key emerging market economies. The US government's weak dollar policies continue to be a massive mistake for the long-term health of the broad economy, in my opinion. Despite today's weak close, stocks remain very resilient in the face of still-developing negative headwinds. I will closely monitor tomorrow's opening reaction to earnings forecasts before further shifting market exposure. I expect US stocks to trade modestly lower into the close from current levels on eurozone debt angst, emerging markets inflation fears, rising food/energy prices, tech sector pessimism, US debt ceiling concerns, profit-taking, more shorting and global growth worries.

Today's Headlines

Bloomberg:

• Greece's Sovereign Rating Cut Three Levels to CCC by Fitch. Greece’s credit rating was cut three levels by Fitch Ratings, which cited the lack of a credible support program for the debt-laden nation, uncertainties on the role of private investors in funding and the growth outlook. The downgrade to CCC from B+ “reflects the absence of a new, fully-funded and credible” program by the International Monetary Fund and the European Union, the ratings company said today in a statement in London. It also reflects “heightened uncertainty surrounding the role of private creditors in any future funding, as well as Greece’s weakening macroeconomic outlook.” Fitch is the third agency to cut Greece to the bottom tier of its rankings, reflecting concerns that a new aid package being negotiated for the country will entail investor losses. Greece was cut to Caa1 by Moody’s Investors Service on June 1 and CCC by Standard & Poor’s on June 13.
• Italian Debt Risk Puts France's BNP Paribas, Credit Agricole on Fronline. French banks, including BNP Paribas SA and Credit Agricole SA (ACA), have the most at risk from the euro- region’s debt crisis infecting Europe’s largest borrower, Italy. At the end of 2010, French banks carried $392.6 billion in Italian government and private debt, according to data from Basel, Switzerland-based Bank for International Settlements. That’s the most for financial institutions from any foreign country and more than double held by German lenders. “They’re on the frontline,” said Julian Chillingworth, who helps manage about 16 billion pounds ($25 billion) at Rathbone Brothers Plc in London. “French banks like BNP Paribas have taken substantial positions in Italy when the market opened up to foreign players and now they face the downside.”
• Irish Yields Jump on Credit-Rating Downgrade; Bunds Decline After Auction. Irish 10-year bonds slumped for a sixth day, sending yields to a euro-era record, after the nation became the third in the currency union to have its credit rating cut below investment grade. German 10-year bunds fell as the nation auctioned fewer bonds than its maximum target. Two-year Irish note yields surged to a record, and Greek and Portuguese 10-year bonds fell, after Moody’s Investors Service yesterday cut Ireland to Ba1 from Baa3, saying the nation is likely to need more rescue financing. Italy’s 10-year bonds were little changed, reversing an earlier advance, as the nation prepares to sell more than 3 billion euros ($4.2 billion) of debt tomorrow. Ireland’s downgrade “puts the focus back on the euro crisis as a whole,” said Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank in Munich. “Politicians in Italy and Spain are trying to reassure investors that they are working hard to get their public finances in order. There is no quick fix.” Irish 10-year yields increased 58 basis points to 13.93 percent as of 4:31 p.m. in London, after touching 14 percent, a euro-era record. The 5 percent security due October 2020 fell 1.99, or 19.9 euros per 1,000-euro ($1,417) face amount, to 55.015. Two-year Irish note yields climbed 243 basis points to a record 20.17 percent. The yield difference, or spread, between Irish 10-year bonds and similar maturity benchmark German bunds widened to a record 11.23 percentage points.
• Greece Has Little Margin for Error: IMF. Greece has little margin for error in implementing the budget cuts and asset sales attached to its 110 billion-euro ($156 billion) bailout, the International Monetary Fund’s staff said. In an appraisal of Greece’s policies under the joint rescue plan with the European Union, the IMF warned that exceptional liquidity support from the European Central Bank is “critical.” European policy makers need to decide how to provide additional funding for Greece, the staff said. “For the program to succeed, it is essential that the authorities implement their fiscal and privatization agenda in a timely and determined manner,” the IMF staff wrote. “The debt dynamics show little scope for deviation.” European finance chiefs haven’t yet agreed on how to reduce Greece’s debt burden, floating ideas this week from bond buybacks to a temporary default as they sought to shift a strategy that has failed to contain the debt crisis.
  
• Fed Ready With More Stimulus If Needed: Bernanke. Federal Reserve Chairman Ben S. Bernanke told Congress the central bank is prepared to take additional action, including buying more government bonds, if the economy appears to be in danger of stalling. “The possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support,” Bernanke said in prepared testimony before the House Financial Services Committee in Washington today. “The Federal Reserve remains prepared to respond should economic developments indicate that an adjustment of monetary policy would be appropriate.” The comments are Bernanke’s first since a government report on July 8 showed the economy added 18,000 jobs in June, less than the most pessimistic forecast in a Bloomberg News survey of economists. He also said that “the economy could evolve in a way that would warrant a move toward less- accommodative policy.”
• U.S. Import Prices Fall for First Time in a Year. The 0.5 percent fall in the import-price index followed a revised 0.1 percent gain in May, Labor Department figures showed today in Washington. Compared with a year earlier, import prices rose 13.9 percent, the biggest 12-month advance since August 2008, today’s report showed. The cost of imported petroleum fell 1.6 percent from the prior month, the largest one-month drop since June 2010. Even with the decrease, the cost was still up 50 percent from a year earlier. Excluding all fuels, import prices decreased 0.1 percent from the prior month and were up 4.8 percent from June 2010. The 12-month gain was the biggest since October 2008. Rising costs for automobiles limited the overall decline in prices. Costs of imported automobiles, parts and engines climbed 0.3 percent, and were up 2.9 percent over the past 12 months. It was the biggest yearly gain since August 2008.
• Gold Advances to Record on Debt Crisis. Gold climbed to a record in New York on concern that Europe’s debt crisis will spread. Silver prices surged the most since March 2009. Ireland joined Portugal and Greece yesterday as the third euro-area nation to have its credit rating cut to below investment grade. The dollar fell against a six-currency basket on signs that the Federal Reserve will continue to use monetary stimulus to revive the U.S. economy. Investors have boosted holdings of exchange-traded products backed by precious metals to more than $125 billion. “We’re in a very difficult financial period in the world,” Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages more than $50 billion, said on July 11. “The faith in paper currency is rapidly ebbing.” Gold futures for August delivery climbed $24.30, or 1.6 percent, to $1,586.60 an ounce at 10:53 a.m. on the Comex in New York, after touching a record $1,587.20. The previous all-time high of $1,577.40 was set on May 2. Prices extended gains today after Fed Chairman Ben S. Bernanke told Congress that the central bank is “prepared to respond” by taking additional stimulus action if the economy appears to be stalling. The metal has doubled since Dec. 1, 2008, as the U.S. central bank kept interest rates at a record low and governments spent trillions of dollars to spur global growth.
  
• Orange-Juice Breakfast Heads for Record Cost. U.S. consumers are poised to pay the most ever for their breakfast orange juice as inventories dwindle. Retail orange-juice prices have climbed to the highest level since reaching a record in March 2009. Stockpiles of the frozen beverage slid 40 percent in the 12 months through May, the most recent government data show. "Retail prices will be hitting records by winter time," Tintle, who correctly predicted an orange-juice rally in December, said by telephone from Tampa, Florida. "We'll still have a rally into next year and production will be down."
• Crude Oil Advances in New York After Inventories Fall More Than Expected. Crude oil climbed after a U.S. Energy Department report showed a bigger-than-expected decline in inventories and as equities rallied. Crude oil for August delivery rose $1.15, or 1.2 percent, to $98.58 a barrel at 12:06 p.m. on the New York Mercantile Exchange. Crude oil imports tumbled 8.7 percent to 9 million barrels a day last week, according to the department. Supplies of gasoline fell 840,000 barrels to 211.7 million last week, the report showed. A 500,000-barrel gain was projected, according to the median of 15 analyst responses in a Bloomberg News survey. Output dropped 6.6 percent to 8.9 million barrels a day, the least since the week ended May 6.
• Weidmann Says Governments Need Plan to Stop Contagion, Zeit Says. European Central Bank Governing Council member Jens Weidmann said euro-region governments need to develop a plan to stop contagion in case of a Greek default, Germany’s Zeit newspaper reported, citing an interview. “Politicians must have a plan to rein in the threats of contagion in case of a failure of the Greek program,” Weidmann told the newspaper, according to an e-mailed pre-release today. “Member states need instruments to absorb potential negative consequences on domestic financial systems.” Lawmakers need to show their determination and unity to solve the region’s fiscal crisis, said Weidmann, who is also head of Germany’s Bundesbank.
• Mumbai Rocked by Bombs; At Least 10 Killed. Three bomb blasts hit Mumbai in the biggest attack on India’s financial capital since the November 2008 terrorist raid, killing at least 10 people. The blasts occurred in the Dadar, Zaveri Bazar and Opera House neighborhoods, Home Minister P. Chidambaram said in a briefing in New Delhi today. The explosions injured more than 54 people, he said. Mumbai police chief said 15 people had died.
• Joy Global(JOYG) Said to Be in Talks to Acquire International Mining Machinery. Joy Global Inc. (JOYG) is in talks to buy International Mining Machinery Holdings Ltd. (1683), the Chinese maker of coal-mining equipment, according to two people with knowledge of the matter.
• Never-More-Similar Estimates Backfire for U.S. Equity Analysts. Wall Street analysts are more united on earnings forecasts than ever before, and using their predictions to buy stocks flopped during the first half of 2011, according to Bank of America Corp. (BAC) There is an “unprecedented level of complacency” among analysts given that the difference between the highest and lowest estimates has shrunk to the smallest level since at least 1986, according to Savita Subramanian, a New York-based quantitative strategist at Bank of America. Investing in companies that had their average profit projections increased the most returned 1 percent between Dec. 31 and June 30, the third-worst strategy out of 36 tracked by Bank of America, Subramanian said. “Consensus estimates haven’t been adding value,” Subramanian wrote in a note dated July 11. They may be “not as predictive given what we regard as a marked level of complacency built into consensus earnings expectations.” The Standard & Poor’s 500 Index rose 5 percent in the first six months of this year as corporate earnings beat analysts’ estimates for the ninth straight quarter. Profits of S&P 500 companies grew 13 percent during the second quarter, the slowest pace since the July-through-September period in 2009, according to estimates compiled by Bloomberg.

Wall Street Journal:

• China's Rising Need for More Rate Increases. Time for a rethink? Within China, speculation has been rife that the government is set to announce a targeted loosening of monetary policy. Most China economists think the central bank is done raising interest rates. The key factor to watch still is inflation. The consensus among economists is that it has peaked and gradually will decline for the rest of the year. If that is the case, there may not be a need for another interest-rate increase. But forecasters have a poor record predicting Chinese inflation; nearly all of them underestimated its current severity. Volatile factors like pork shortages and weather conditions make it inherently unpredictable. China should raise rates further to tame inflation and avoid further distortions from negative real interest rates. The chances have risen that it actually might take more of the medicine it needs.
  
• McConnell Plan Gets Support From Reid. The top Senate Democrat commended his Republican counterpart for proposing a plan to ensure the country's debt ceiling is increased in case Congress fails to reach agreement on a major deficit-reduction package before an Aug. 2 deadline.
• Euro-Zone Summit May Be Delayed. Tentative plans for the euro zone's top leaders to meet Friday to break the deadlock on a new Greek bailout remained in doubt late Wednesday, with some officials suggesting the summit could be pushed into next week.
• Census: Number of Children in U.S. Hits Low. Children now make up less of America's population than ever before, even with a boost from immigrant families. And when this generation grows up, it will become a shrinking work force that will have to support the nation's expanding elderly population—even as the government strains to cut spending for health care, pensions and much else. The latest 2010 Census data show that children of immigrants make up one in four people under 18, and are now the fastest-growing segment of the nation's youth, an indication that both legal and illegal immigrants as well as minority births are lifting the nation's population. Currently, the share of children in the U.S. is 24%, falling below the previous low of 26% in 1990. The share is projected to slip further, to 23% by 2050, even as the percentage of people 65 and older is expected to jump from 13% today to roughly 20% by 2050 due to the aging of baby boomers and beyond.
• News Corp.(NWS/A) Drops Bid for BSkyB. News Corp. dropped its bid to take full control of British Sky Broadcasting Group PLC, a sharp retreat for the media giant as it acknowledged that getting the deal through would be difficult in the current climate, amid a scandal over reporting tactics at one of its U.K. tabloid newspapers.
  

CNBC.com:

• The FBI Has a Whopping 97 Fund Managers on Wiretap. There's a long list of hedge fund managers—and their co-conspirators—brought down by an FBI wiretap. Raj Rajaratnam is obviously the most famous of the wiretapped investors, brought down because he was heard getting illegal tips on the phone. Now a whopping 97 others might share the same fate, because according to an article in the Financial Times, if you had a working relationship with expert network firm Primary Global Research, chances are, the FBI has a tape with your voice on it, in storage.
• Is This The Beginning of the End for Euro? "The continued failure of European policymakers to agree on a new package to support Greece and the growing signs that larger economies like Spain and Italy are being dragged further into the crisis could mark the beginning of the end for the single currency union in its current form," Jonathan Loynes, the chief European economist at Capital Economics, wrote in a research note.
• US Pessimism Deepens on Rising Economic Concerns. Americans are deeply pessimistic about the future as economic concerns rise and White House talks on raising the U.S. debt limit sputter, according to a Reuters/Ipsos poll released Wednesday. The number of Americans who believe the country is on the wrong track rose to 63 percent this month, up from 60 percent in June.
• US Budget Deficit on Track to Top $1 Trillion. The federal budget deficit is on pace to break the $1 trillion mark for the third straight year, ratcheting up the pressure on the White House and Congress to reach a deal to rein in spending. The deficit totaled $971 billion for the first nine months of the budget year, the U.S. Treasury Department said Wednesday. Three years ago, that would have been a record high for the full year. With three months to go, this year's deficit will likely top last year's $1.29 trillion gap, according to an estimate by the Congressional Budget Office.

Business Insider:

• 14 Cities That Are Being Eaten Alive By Public Sector Workers.
• Check Out Leaked Directives From The Chinese Propaganda Department.
  

Zero Hedge:

• Fed's Fisher Tells The Truth. Some brutal truth from the Dallas Fed's Fisher: FISHER SAYS THERE IS `PRICE' FOR `TINKERING' MORE WITH POLICY (about $1MM per FOMC Member) FISHER SAYS THINGS WILL BE WORSE IF FED JUST PRINTS MORE MONEY (there is no money printing... the Chairsatan said so) FED'S FISHER SAYS `MONETARY POLICY HAS EXHAUSTED ITSELF (but the Chairsatan just said the Fed is prepared to confirm its madness by doing for the third time what failed twice already)

Reuters:

• US States' Sales Tax Growth Slows in June - Report. U.S. state sales tax revenues grew slowly in June, with an average gain of only 2.1 percent, according to a report released on Wednesday, suggesting a weakening trend that could threaten states' recoveries. Only 58 percent of states met or exceeded their forecast sales tax collections in June, compared with 82 percent in May, according to the economic newsletter The Liscio Report, which surveys states about their tax levels. The 2.1 percent average year-on-year growth in June was down from growth of 4.9 percent in May, the Liscio Report showed.
• White House Opposes Balanced Budget Amendment.
• Cash Flows to Debt Funds, Exits Domestic Equity - ICI.
• Adtran(ADTN) Shares Fall on Q3 Revenue Outlook. Shares of Adtran Inc fell as much as 7 percent after the network communications gear maker forecast lower-than-expected revenue for the third quarter.
• 'Too Many Cooks' in Euro Debt Crisis: OECD Head. Finding a solution to the euro zone crisis is such a complex task that investors, as well as many citizens of the European Union, have grown disgruntled with attempts to sort out the debt.

Telegraph:

• UK Debt Set to Pass 100% of GDP, Says Watchdog. (video)

Financial Times Deutschland:

• Greece may buy back debt at an average price of about 50% of bonds' nominal value, citing a concept discussed by euro-zone governments.
• Greek Prime Minister George Papandreou said the country needs a decision soon on a second aid program, citing an interview.
  

Handelsblatt:

• PIMCO CEO El-Erian said a restructuring of Greek debt is "very likely" and will probably happen within the next six months, citing an interview. The biggest risk for Greece is a run on the country's banks, he said. He also said that a restructuring of Portuguese and Irish debt is "avoidable," while Spain and Italy are "vulnerable" in case of a "psychological escalation" of the region's fiscal crisis.

Sueddeutsche Zeitung:

• Dutch Finance Minister Jan Kees de Jager said European lawmakers no longer exclude a temporary default by Greece, citing an interview. "New is that some of the options can no longer exclude a temporary default. Obviously, we still prefer a voluntary contribution" by the private sector "but since that's not possible we're thinking differently."

Market News International:

• China's tightening will continue into the second half of this year, citing a person familiar with discussions at the top levels of the planning body.

Bear Radar

Style Underperformer:

• Large-Cap Value (+.79%)

Sector Underperformers:

• 1) REITs -.33% 2) Networking -.31% 3) Semis +.19%

Stocks Falling on Unusual Volume:

• PTNR, CNSL, HES, FCE/A, URI, ADTN, ROCK, MCHP, EBIX, ASCMA, COHR, ALTR, HCSG, AAWW, RBCN, ITG, PVD, ESL, CWH and TUC
  

Stocks With Unusual Put Option Activity:

• 1) ERTS 2) EWA 3) ALTR 4) CY 5) EP
  

Stocks With Most Negative News Mentions:

• 1) FXE 2) DLTR 3) CRS 4) BF/A 5) AMCC
  

Charts:

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