Weekly Scoreboard*

Indices

• S&P 500 1,316.14 -2.06%
  
• DJIA 12,479.73 -1.40%
  
• NASDAQ 2,78980 -2.45%
  
• Russell 2000 828.78 -2.79%
  
• Wilshire 5000 13,806.60 -2.19%
  
• Russell 1000 Growth 614.44 -1.81%
  
• Russell 1000 Value 660.0 -2.45%
  
• Morgan Stanley Consumer 768.49 -1.42%
  
• Morgan Stanley Cyclical 1,070.20 -2.85%
• Morgan Stanley Technology 649.46 -3.60%
  
• Transports 5,342.54 -3.72%
  
• Utilities 432.02 -1.08%
  
• MSCI Emerging Markets 46.81 -2.45%
  
• Lyxor L/S Equity Long Bias Index 1,038.34 -1.50%
  
• Lyxor L/S Equity Variable Bias Index 896.52 -.50%
  
• Lyxor L/S Equity Short Bias Index 569.40 +.69%
  

Sentiment/Internals

• NYSE Cumulative A/D Line 128,467 -2.11%
  
• Bloomberg New Highs-Lows Index -33 -70
  
• Bloomberg Crude Oil % Bulls 43.0 +30.30%
  
• CFTC Oil Net Speculative Position 150,895 +9.04%
  
• CFTC Oil Total Open Interest 1,538,256 +1.04%
  
• Total Put/Call 1.08 +5.88%
  
• OEX Put/Call .98 -30.50%
  
• ISE Sentiment 61.0 -29.89%
  
• NYSE Arms 1.23 -38.80%
  
• Volatility(VIX) 19.53 +22.44%
• G7 Currency Volatility (VXY) 11.50 +9.77%
  
• Smart Money Flow Index 10,326.23 -2.18%
  
• Money Mkt Mutual Fund Assets $2.696 Trillion +.40%
  
• AAII % Bulls 39.31 -5.89%
  
• AAII % Bears 29.25 +18.52%

Futures Spot Prices

• CRB Index 346.30 +.80%
  
• Crude Oil 97.24 +.79%
  
• Reformulated Gasoline 312.93 +.99%
  
• Natural Gas 4.55 +7.60%
  
• Heating Oil 311.80 +.66%
  
• Gold 1,590.10 +2.95%
  
• Bloomberg Base Metals 258.04 -1.72%
  
• Copper 441.30 +.06%
  
• US No. 1 Heavy Melt Scrap Steel 416.67 USD/Ton unch.
  
• China Hot Rolled Domestic Steel Sheet 4,790 Yuan/Ton +.59%
  
• UBS-Bloomberg Agriculture 1,715.13 +1.79%
  

Economy

• ECRI Weekly Leading Economic Index Growth Rate 1.7% -10 basis points
  
• S&P 500 EPS Estimates 1 Year Mean 95.87 -.13%
  
• Citi US Economic Surprise Index -99.90 -8.5 points
  
• Fed Fund Futures imply 11.0% chance of no change, 89.0% chance of 25 basis point cut on 8/9
• US Dollar Index 75.13 +.06%
  
• Yield Curve 255.0 -8 basis points
  
• 10-Year US Treasury Yield 2.91% -12 basis points
  
• Federal Reserve's Balance Sheet $2.862 Trillion +.30%
  
• U.S. Sovereign Debt Credit Default Swap 55.80 +11.63%
• Illinois Municipal Debt Credit Default Swap 185.0 +3.75%
  
• Western Europe Sovereign Debt Credit Default Swap Index 291.17 +15.54%
• Emerging Markets Sovereign Debt CDS Index 189.58 +14.81%
• Saudi Sovereign Debt Credit Default Swap 96.38 +1.38%
• Iraqi 2028 Government Bonds 90.99 -.63%
• 10-Year TIPS Spread 2.29% -2 basis points
  
• TED Spread 24.0 +1 basis point
  
• N. America Investment Grade Credit Default Swap Index 97.08 +4.38%
  
• Euro Financial Sector Credit Default Swap Index 157.78 +19.58%
  
• Emerging Markets Credit Default Swap Index 222.32 +6.40%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 195.0 +16 basis points
  
• M1 Money Supply $1.998 Trillion +2.47%
  
• Business Loans 644.80 +.23%
  
• 4-Week Moving Average of Jobless Claims 423,300 -.90%
  
• Continuing Claims Unemployment Rate 3.0% +10 basis points
  
• Average 30-Year Mortgage Rate 4.51% -9 basis points
  
• Weekly Mortgage Applications 481.30 -5.07%
  
• Bloomberg Consumer Comfort -43.90 +1.6 points
  
• Weekly Retail Sales +5.4% +160 basis points
  
• Nationwide Gas $3.67/gallon +.08/gallon
  
• U.S. Cooling Demand Next 7 Days 25.0% above normal
• Baltic Dry Index 1,449 +1.90%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 37.50 unch.
  
• Rail Freight Carloads 192,619 -18.72%
  

Best Performing Style

• Large-Cap Growth -1.83%

Worst Performing Style

• Small-Cap Growth -2.98%

Leading Sectors

• Gold & Silver +4.40%
• Education +.92%
  
• Internet +.32%
• Coal +.19%
• Foods +.18%

Lagging Sectors

• Defense -4.71%
• Homebuilding -5.17%
• Semis -5.34%
  
• Networking -6.47%
  
• Airlines -6.50%

Weekly High-Volume Stock Gainers (8)

• RADS, ARJ, CLNE, WDFC, BTH, RMD, MLI and KCI
  

Weekly High-Volume Stock Losers (14)

• OXPS, WWW, CWH, COF, NWS, CYMI, MCHP, ECPG, ADTN, TREX, ITG, XXIA and SWC
  

Weekly Charts
ETFs

• High-Volume Gainers
• High-Volume Losers

Stocks

• High-Volume Gainers
• High-Volume Losers
  

*5-Day Change

Stocks Rising into Final Hour on Less Tech Sector Pessimism, Buyout Speculation, Short-Covering, Euro Bounce

Broad Market Tone:

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

Equity Investor Angst:

• VIX 20.63 -.82%
  
• ISE Sentiment Index 62.0 -18.42%
  
• Total Put/Call 1.10 +3.77%
  
• NYSE Arms 1.15 -6.83%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 97.08 +1.13%
  
• European Financial Sector CDS Index 164.64 +16.0%
  
• Western Europe Sovereign Debt CDS Index 291.17 +2.70%
  
• Emerging Market CDS Index 221.82 +.34%
  
• 2-Year Swap Spread 28.0 +1 bp
  
• TED Spread 24.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 255.0 -3 bps
  
• China Import Iron Ore Spot $174.60/Metric Tonne +.29%
  
• Citi US Economic Surprise Index -99.90 -3.8 points
  
• 10-Year TIPS Spread 2.29% +3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +9 open in Japan
• DAX Futures: Indicating -1 open in Germany

Portfolio:

• Higher: On gains in my Tech sector longs and Emerging Markets shorts
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, covered some of my (EEM) short and added to my (GOOG) long
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 moves to session highs despite soaring eurozone debt angst, rising energy prices, emerging markets inflation fears, global growth worries, more negative US economic data and financial sector pessimism. On the positive side, Education, REIT, Internet, Oil Service, Energy and Coal shares are especially strong, rising more than +1.0%. Tech and Energy shares have traded well throughout the day. "Growth" stocks are substantially outperforming "value" again. Copper is rising +.75% and the UBS-Bloomberg Ag Spot Index is down -.33%. On the negative side, Defense, Telecom, I-Banking, HMO, Insurance, Homebuilding and Airlines shares are especially weak today, falling more than -.5%. (XLF) has traded poorly again throughout the day. The Transports, which had been leading the market, are now trading slightly below their 50-day moving average. Gold is up +.4% and oil is rising +1.6%. Rice is hovering near a multi-year high and has soared +30.0% in less than 2 weeks. The US price for a gallon of gas is +.01/gallon today to $3.67/gallon. It is up .53/gallon in less than 5 months. The Spain sovereign cds is up +7.05% to 346.19 bps, the Italy sovereign cds is jumping +6.26% to 303.0 bps, the France sovereign cds is surging +7.4% to 113.50, the Greece sovereign cds is rising +2.99% to 2,434.68 bps, the Belgium sovereign cds is gaining +7.46% to 201.67 bps, the Portugal sovereign cds is up +4.5% to 1,144.07 bps and the Ireland sovereign cds is up 4.56% to 1,132.15 bps. Moreover, the European Investment Grade CDS Index is rising +6.85% to 102.88 bps. The Western Europe Sovereign CDS Index is near its record high and the European Financial Sector CDS Index is near its recent high. The Ireland sovereign cds is making a new record high today, as well. The Banco Santander SA(STD) cds is jumping +13.9% to 297.58 bps, which is near its record of 298.93 bps. Shanghai copper inventories have risen +36.2% in 5 days. Brazil's Bovespa fell another -.27% today to the lowest since May 2010 and is down -14.1% ytd. Italian equities fell another -1.1%, finishing at session lows, and are down -8.54% ytd. As well Spanish shares fell -1.2%, finishing near session lows. US debt ceiling concerns are masking underlying euro currency weakness. As the debt ceiling controversy subsides the euro will likely come under renewed pressure. US stocks continue to display extraordinary resilience given the magnitude of the still developing headwinds. Moreover, true growth stocks are now experiencing multiple expansion as global growth is likely to further slow. Eurozone debt angst must subside very soon for stocks to build on today's advance next week. One of my longs, (GOOG), which I had unfortunately trimmed a couple of months ago, soared +12.9% today. I added back to this position in anticipation of further gains over the intermediate-term. Their quarter was extremely impressive and the valuation remains very reasonable. I expect US stocks to trade modestly higher into the close from current levels on buyout speculation, less tech sector pessimism, short-covering, bargain-hunting and a bounce in the euro.

Today's Headlines

Bloomberg:

• The cost of insuring against default on European financial-company debt stayed higher after eight banks failed the region's stress tests. The Markit iTraxx Financial Index of cds on the senior debt of 25 banks and insurers was 9.5 basis points higher on the day at 189 basis points as of 5:30 pm in London, unchanged after the test results were released. A gauge of subordinated bond risk rose 16 basis points to 329.5, like the senior index at the highest since January, according to JPMorgan Chase. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 15 basis points to a record 297. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 13 basis points to 460, the highest since December 6. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.75 basis points to a more than one-year high of 122.75 basis points.
• SocGen, UBS Recommend Buying Protection Against Breakup of Euro. Societe Generale SA recommended buying insurance against a euro “meltdown,” and UBS AG said the Danish krone may offer protection as Europe’s debt crisis threatens to deteriorate. “It is not too late to get hedges,” SocGen strategists David Deddouche and Olivier Korber wrote in an investor report dated yesterday. “We simply cannot rule out entirely a further dramatic collapse” of the euro against the dollar, and a rebound in the 17-nation currency to above $1.40 “provides a fresh opportunity to hedge against such an event through tail options,” they said. UBS currency strategist Chris Walker said “a significant escalation in the euro-zone debt crisis, to the extent the existence of the euro is itself threatened, could lead to the abandonment” of Denmark’s currency peg to the euro. Though this would cause short-term volatility, longer term the krone would likely appreciate against other Scandinavian currencies and the euro, he wrote.
• New York Area Manufacturing Unexpectedly Shrinks for Second Straight Month. Manufacturing in the New York region unexpectedly contracted for a second straight month in July as orders shrank at a faster pace, a sign the industry may be at risk of stalling. The Federal Reserve Bank of New York’s general economic index rose to minus 3.8, less than the most pessimistic forecast in a Bloomberg News survey, from minus 7.8 the prior month. The median forecast called for an index of 5. The measure of New York-area manufacturing last contracted for two straight months in the period ended in June 2009, when the recession ended. Estimates in the Bloomberg survey of 48 economists ranged from zero to 15. The Empire State gauge of new orders dropped to minus 5.5 last month, the lowest since November, from minus 3.6 in June. A gauge of unfilled orders slumped to minus 12.2, the weakest reading this year. A measure of shipments rose to 2.2 from minus 8. The employment measure dropped to 1.1 from 10.2. An index of prices paid fell to 43.3 from 56.1, while prices received declined to 5.6 from 11.2.
• U.S. Consumer Confidence Unexpectedly Declines to 2-Year Low. Confidence among U.S. consumers unexpectedly fell in July to the lowest level in more than two years, adding to concern that weak employment gains and falling home prices may keep households from spending. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.8, the weakest reading since March 2009, from 71.5 the prior month. The gauge was projected to rise to 72.2, according to the median forecast of 62 economists surveyed by Bloomberg News. The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, decreased to 76.3, the lowest level since November 2009, from 82 the prior month. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 55.8, the weakest since March 2009, from 64.8 the prior week. Consumers in today’s confidence report said they expect an inflation rate of 3.4 percent over the next 12 months, the lowest since February, compared with 3.8 percent in the prior survey. Americans expected a 2.8 percent rate of inflation over the next five years, the figures tracked by Federal Reserve policy makers, compared with 3.0 percent the prior month. It was the lowest price-expectation this year.
• Income Expectations Point to Slowdown in U.S. Consumer Spending. Consumers are turning more pessimistic about their income prospects, an indication that household spending will grow at a slower pace compared with a year earlier. The share of Americans foreseeing a drop in wages over the next six months topped the proportion projecting an increase by 2.6 percentage points in June, data from the Conference Board, a New York research group, showed. That is the lowest reading since October 2010, according to Lynn Franco, director of the group’s consumer research center. The correlation between the three-month averages of income expectations and real spending is 0.88, according to Bloomberg News calculations.
• Inflation Measure Rises as Manufacturing Stalls. A measure of consumer prices climbed more than forecast in June and manufacturing stalled, highlighting the dilemma faced by Federal Reserve policy makers as they seek to boost growth without stoking inflation. Consumer prices excluding food and energy climbed 0.3 percent for a second month, the biggest back-to-back gain in three years, the Labor Department said today in Washington. Factory production was unchanged last month, data from the Fed showed.
• Gold Futures Head for Longest Rally Since 2009 on U.S., Europe Debt Woes. Gold futures rose, heading for the longest rally since November 2009, on mounting concern that debt woes in the U.S. and Europe will escalate, boosting the appeal of the precious metal as a haven. Gold futures for August delivery rose 20 cents to $1,589.50 at 11:49 a.m. the Comex in New York.
• Soybeans Head for Longest Rally Since 2007 on Weather Woes; Corn Climbs. Soybean futures for November delivery rose 11.5 cents, or 0.8 percent, to $13.955 a bushel at 10:27 a.m.. on the Chicago Board of Trade. The oilseed headed for the 10th straight gain, the longest rally since September 2007. Before today, the price climbed 44 percent in the past 12 months. Corn futures for December delivery jumped 14.75 cents, or 2.2 percent, to $6.9325 a bushel. Earlier, the price reached $6.96, the highest for a most-active contract since June 14. Before today, the grain surged 71 percent in the past year.
• Citigroup(C) Profit Beats Estimates. Citigroup Inc. (C), the third-biggest U.S. bank, said profit rose 24 percent, beating analysts’ estimates on higher investment-banking fees and fewer losses tied to troubled assets.
• Obama Singles Out Drug Companies for Savings. Drug companies may be targets for Medicare spending cuts as U.S. lawmakers push to reach an agreement on a deficit plan ahead of an Aug. 2 deadline, President Barack Obama said. “The drug companies, for example, are still doing very well through the Medicare program,” Obama said today at a news conference. “Although we have made drugs more available at a cheaper price to seniors who are in Medicare through the Affordable Care Act, there’s more work to potentially be done there,” he said in referring to the 2010 health-care overhaul.
• BofA(BAC) Drops Below $10, First Time in 2 Years. Bank of America Corp. (BAC), the biggest U.S. lender by assets, fell below $10 a share in New York trading today as concern mounted about the company’s ability to restore profit. The lender’s shares dropped 9 cents, or 0.9 percent, to $9.98 as of 1:53 p.m. in New York Stock Exchange composite trading.

Wall Street Journal:

• Obama Presses Congress as House Sets Vote. "Time is running out," Mr. Obama said in a news conference from the White House. He said he wants lawmakers to take the next day to figure out the best possible plan to raise the debt ceiling and present it to him.
• EU Parliament Economic Leader Slams Germany Amid Stress Test Woes. The head of the European Parliament's economics committee criticized Germany's banking regulator in an interview Friday, and raised concerns that the European Banking Authority and its leader, Andrea Enria, will be sidelined due to national self-interests.

MarketWatch:

• Google(GOOG) Still Cheap Despite Gains, Street Says.

CNBC.com:

• One Democrat's Advice: Raising Taxes Doesn't Add Revenue.
• Clorox(CLX) is 'Very Undervalued': Carl Icahn.
  

Business Insider:

• Yields Continue to Move Higher in Europe. When I said the chart of the Spanish 10 year yield was the most important chart in the world I was wrong. It turns out that the problems in Europe could be even worse than I thought. The markets are not even stopping at Spain. They appear to be going for Spain AND Italy.
• Andrew Ross Sorkin is the New Anchor of CNBC's 'Squawk Box'.
  

Zero Hedge:

• More Deutsche Bank(DB) Pain as Dexia Files $1 Billion Lawsuit Against Bank for Selling it Toxic Mortgages.
• Stress Test 2 Results Are Out: 8 Banks Fail - 5 Spanish, 2 Greek, 1 Austrian. The farce continues: Moody's predicted 26 failures, Eurostat gives us 8.

New York Times:

• European Banks Urged to Bolster Reserves Following Stress Tests. About two dozen European banks were put under official pressure Friday to bolster their reserves, after a much-anticipated test of whether they would be able to survive such economic shocks as a further deterioration in the sovereign debt crisis.

Insider Monkey:

• Eric Sprott Lost 8.6% in June. Canadian energy hedge funds were slammed in June. The reason is simple- they aren’t really hedged. Eric Sprott’s flagship fund lost 8.6% in June. Other well-known Canadian energy funds didn’t perform any better. Rohit Seghal’s Dynamic Power Hedge lost 5.1% in June and 16.5% during the first six months of 2011. One of the worst performers among Canadian energy funds was Front Street Capital. Front Street’s energy fund lost more than 17% in June. Salida Capital’s energy fund was also among top losers, falling 9.3% in June. Btw, Salida Capital paid $1.7 Million in 2009 to have lunch with Warren Buffett.

Forbes:

• Why Europe is Really Freaked Out Over a Greek Default.

Rasmussen Reports:

• 67% Oppose Upcoming 'Ban' on Traditional Light Bulbs. Just 20% of adults think the sale of traditional light bulbs should be banned.
• Obama Earns Positive Ratings From 38% on Economy. 38% rate the president’s handling of economic issues as good or excellent, but 43% give him a poor rating in this area.

Reuters:

• Exclusive: Germany, Italy Resist Second IEA Oil Release. Germany and Italy are expected to oppose any second release of emergency oil reserves by the International Energy Agency, which needs the backing of all 28 of its members if it is to pour more oil on a volatile crude market. The IEA is expected to confer with its member countries by July 23 to decide whether to draw further on emergency oil stocks after its June 23 announcement of a 60 million-barrel release.
• Libya's Agoco Ready to Pump Oil - Petroleum Economist. Libya's rebel-held oil firm Arabian Gulf Oil Company (Agoco) has completed repairs at the Sarir and Misla oilfields and is ready to start pumping oil, trade publication Petroleum Economist reported on Friday, citing a senior industry source.
• Valeant(VRX) Seeks to Become Major Skincare Player. Valeant Pharmaceuticals International Inc is signaling its intent to become a major skincare company with a string of mid-sized acquisitions in the sector.

Financial Times:

• Eurozone CDO - It's Triple-A Time. With the market now falling over itself to target the next peripheral in line for the Greek-treatment — even jumping over Spain to get to Italy — here’s a timely investment recommendation from Porter. Just go for the top tranches of the eurozone CDO, already. In fact, he says, the market is starting to get that going bearish on the senior tranche of the eurozone CDO may be the way to go. It’s easier said than done, of course, but he’s recommending investors start buying German 10-year CDS as a way into the trade.

Telegraph:

• US Risks AAA Rating Even With Debt Deal. America risks eviction from the club of the most creditworthy nations even if Congress agrees to raise the debt ceiling, rating agency Standard & Poor's (S&P) has warned.

Handelsblatt:

• S&P uses a strict definition for sovereign debt defaults that leaves little room for flexibility, senior S&P executive Torsten Hinriches said in an interview. Asked if the company could envisage a debt-restructuring model that would not count as a default, Hinrichs said S&P's default criteria of "timely and complete" interest payments and bond redemptions "answer this." Adopting a more flexible definition would be "difficult," said Hinrichs, the head of S&P in the German-speaking countries, and in northern and eastern Europe.

Bear Radar

Style Underperformer:

• Large-Cap Value (-.41%)

Sector Underperformers:

• 1) Defense -1.81% 2) Airlines -1.40% 3) Banks -.81%

Stocks Falling on Unusual Volume:

• INTX, GEL, FLIR, C, JPM, MRK, BHP, SGEN, OSIS, ECYT, ENSG, QLIK, MDSO, RYAAY, INFA, TIBX, MSTR, ASMI, GTIV, CRDN, AAWW, HITK, BODY, MANT, PENN, GHL, RAH, AKO/A and ERY
  

Stocks With Unusual Put Option Activity:

• 1) SPLS 2) ANN 3) SWN 4) DB 5) MBI
  

Stocks With Most Negative News Mentions:

• 1) OZRK 2) CY 3) PENN 4) DMND 5) MANT
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth (+.89%)

Sector Outperformers:

• 1) Internet +2.99% 2) Oil Service +2.38% 3) Coal +2.31%

Stocks Rising on Unusual Volume:

• UDRL, GOOG, HK, RRC, SFY, PDC, REDF, HES, CLX, VMI, CHK, AVX, COG, FST, GDP, EOG, RRC, XCO, CRK, SM, PXD, SWN, CLX, SD, BAS, PXP, ROSE, BAS, VCLK, ROSE and XOP
  

Stocks With Unusual Call Option Activity:

• 1) CLX 2) HK 3) VRX 4) SWN 5) FST
  

Stocks With Most Positive News Mentions:

• 1) ANGO 2) GOOG 3) LMT 4) NNN 5) VRX
  

Charts:

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

Friday Watch

Evening Headlines

Bloomberg:

• European Bank Stress Tests Compromised by Greek Non-Default, German Mutiny. European regulators’ attempts to bolster confidence in the region’s banking industry today are being undermined by their unwillingness to test for a Greek default and a mutiny by Germany’s Landesbank Hessen-Thueringen. The European Banking Authority will release the results of the stress tests for 91 banks as part of an effort to reassure investors the region’s banks have sufficient capital. Helaba, as the landesbank is known, refused to allow the EBA to publish its results in full, saying the EBA’s data “would lead to a halving of the core capital without legal grounds.” German regulator Bafin has also attacked the London-based EBA. Bafin Chairman Jochen Sanio said last month the watchdog lacks “legitimacy.” “The EBA has no teeth,” Bob Penn, financial-services partner at Allen & Overy LLP, said in a telephone interview in London. It can’t “make requirements from any individual bank because the framework was set up to allow national regulators to keep supervisory powers,” he said. “This isn’t Helaba poking a stick in the eye of the EBA, it’s Bafin.”
• About 10 Banks May Fail European Capital Stress Tests, FT Says. Results of European bank stress tests to be released later today may show that about 10 failed because they had less than the required five percent core tier 1 capital, the Financial Times reported, without saying where it got the information. The publication of the test results on 91 banks could lead to a series of distressed debt deals as the disclosure of previously unpublished information on banks’ credit exposures could prompt bids for credit portfolios from specialist buyers, the FT said, citing unnamed investment bankers and restructuring consultants.
• Europe Group Says Basel OTC Rules Have 'No Logic," FT Reports. The European Association of Corporate Treasurers said in a briefing note for European Union officials that new Basel rules on bank capital, that assign higher than expected capital costs to over-the-counter derivative transactions carried out by banks, have “no logic” unless the intention is “punitive behaviour towards OTC derivatives,” the Financial Times reported, citing the note. This is “a flaw that is irrational in substance,” the EACT said, according to the newspaper.
• Sovereign Default Concern Spurs Texas Fund to Weigh Added Hedges. Concern that Texas's public university endowment may lose a fifth of its value from a major euro-zone default or a crisis in the dollar prompted calls for more aggressive hedging today. Managers who oversee the $20.3 billion fund should beef up protection against market declines, said Gene Powell, the chairman of the University of Texas Board of Regents. "We need to do this and do it very soon," Powell said during a meeting of the fund manager's board in Austin. "None of us saw 2008 and this could be worse than 2008."
• CFTC Will Postpone Dodd-Frank Regulations for $601 Trillion Swaps Market. The U.S. Commodity Futures Trading Commission finalized a plan delaying until as late as the end of the year new regulations for the $601 trillion swaps market. The CFTC published an order today that would provide “temporary relief” from Dodd-Frank Act rules that had been slated to take effect on July 16, a year after the law’s enactment. The delay will give the CFTC time to write more than 40 rules aimed at reducing risk and boosting transparency after largely unregulated trades helped fuel the 2008 credit crisis.
• PIMCO is staying cautious on Asia's bond market as the debt crisis in developed nations clouds prospects for China, India and Indonesia. "In the next six to twelve months, it's going to be quite bumpy on the global front," Chia-Liang Lian, Pimco's Singapore-based emerging-markets portfolio manager, said in an interview in Hong Kong. "We'll continue to maintain a very defensive posture in regard to our credit selection in Asian credit space."
• JPMorgan's(JPM) Dimon Says Mortgage Clash Swells as 'Everybody Is Going to Sue'. JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon said clashes over faulty mortgages may drag on as investors and regulators demand compensation for soured loans issued at the peak of the housing market. “There have been so many flaws in mortgages that it’s been an unmitigated disaster,” Dimon said during a conference call today. “We just really need to clean it up for the sake of everybody. And everybody is going to sue everybody else, and it’s going to go on for a long time.”
• Americans Lose Faith in Stock Pickers. Money continues to pour out of mutual funds that buy U.S. stocks. Investors are showing increasing disenchantment with money managers who pick U.S. stocks. Mutual funds that invest in domestic equities have lost an estimated $8 billion to redemptions this year through June 29, putting them on track for an unprecedented five straight years of withdrawals, according to data from the Investment Company Institute. Over the 10 years through May 31, investors withdrew $51 billion more from domestic equity funds than they deposited.
• Citrix Systems(CTXS) Acquires Cloud.com to Challenge Rivals VMware(VMW), Amazon(AMZN).
• BHP Billiton(BHP) to Acquire Petrohawk(HK) for $12.1B. BHP Billiton Ltd. (BHP), the world’s largest mining company, agreed to acquire Petrohawk Energy Corp. (HK) for about $12.1 billion in cash in its biggest acquisition. Melbourne-based BHP will pay $38.75 a share using cash and loans, the companies said in a statement today. That’s 61 percent more than Houston-based Petrohawk’s average price over the past 20 trading days and compares with the 25 percent average premium in 17 deals worth at least $5 billion for oil and gas producers in the past five years, Bloomberg data show.
• Ralcorp(RAH) to Spin Off Post Foods After Failing to Find Buyer for Cereal Unit. Separately, Ralcorp said third-quarter profit excluding some items may be as much as $1.18 per share, trailing the $1.38 average of 11 analysts’ estimates compiled by Bloomberg. The company also cut its full-year profit projection to $5.20 to $5.35 a share from a May forecast of as much as $5.55, because of surging raw-ingredient costs. Ralcorp fell $4.62, or 5.3 percent, to $82 at 5:55 p.m. in trading after the regular close of the New York Stock Exchange.

Wall Street Journal:

• Plan B Emerges on Debt. A backup plan to cut the federal deficit and keep the U.S. government from default gained momentum Thursday even as President Barack Obama and congressional leaders paused their negotiations to determine if they can reach a deal. Ratcheting higher the pressure on Washington to strike a deal, Standard & Poor's for the first time said there was a 50% chance it would downgrade its rating of long-term U.S. debt within three months because the chances of default were "increasing" and the political debate about deficit reduction and the debt ceiling had "only become more entangled."
• Italy Urges Unity on Debt Crisis. Italy, caught in the cross-hairs of financial markets, is renewing its push for common European bonds as the answer to a growing loss of confidence in European governments' ability to contain a crisis that is engulfing 40% of the euro zone's economy. In an interview on Thursday, Italian Economy Minister Giulio Tremonti said the stalemate over how to provide more aid to debt-laden Greece underscored deeper discord that has hampered the euro-zone for months. "The historical function and trend of the European Union, by design, has always been convergence. What's emerging now is segmentation, egoism, localism," he said. Italy, Europe's third-largest economy, has suddenly been drawn into the Continent's debt crisis as escalating worries over Greece's solvency have spilled over to Italy, whose debt load is 120% of gross domestic product. Although Italy successfully sold €5 billion in long-term public debt on Thursday, yields on 10-year bonds have continued to rise to 5.63%. Their spread over equivalent German debt widened to 2.9 percentage points from 2.07 points a week ago. "After the spirit of May came the autumnal spirit of Deauville and that season hasn't ended," Mr. Tremonti said, adding that eurobonds could be the solution for newfound unity. "I am for eurobonds.…Eurobonds are in the spirit of May." Mr. Tremonti has long been a proponent of eurobonds, a debt instrument that would be jointly backed by all members that share the euro. Mr. Tremonti believes these bonds should gradually replace large chunks of national debts in the euro zone. Mr. Tremonti said eurobonds need not necessarily exclude private-sector involvement. He added that euro-zone countries would only bridge their differences "when everybody realizes the crisis, which already affects 40% of the euro zone, is a common problem."
• As Its Deposits Soar, J.P. Morgan Parks Cash at Central Banks. As deposits piled up at J.P. Morgan Chase & Co. (JPM) in the second quarter, the bank took them and parked the money in deposits at central banks around the world. The giant bank parked $170 billion in deposits at central banks at the end of June, it reported Thursday. The amount was four times the amount a year earlier, and is considerably more than all the deposits held by SunTrust Banks Inc. (STI), which, with about $120 billion in deposits, is the seventh-largest U.S. bank by that measure.
• Fiat Preps Chrysler Merger. Chrysler Group LLC and Fiat SpA, auto makers that bounced back from severe financial crises a few years ago, are preparing to rejoin the auto industry's top ranks through a merger that would have the financial and production heft to compete globally. Sergio Marchionne, chief executive officer of Chrysler and Fiat, has begun selecting a single executive team to oversee the companies' business operations, said people familiar with the matter.
• In Interview, Murdoch Defends News Corp.(NWSA)
  
• California Bill Requiring Gay History in Schools Signed Into Law. Gov. Jerry Brown has signed a bill making California the first state in the nation to add lessons about gays and lesbians to social studies classes in public schools. Mr. Brown, a Democrat, signed the landmark bill requiring public schools to include the contributions of people who are gay, lesbian, bisexual and transgender in social studies curriculum. The Democratic-majority Legislature had passed the bill last week on a largely party-line vote. The new law, SB48, requires the California Board of Education and local school districts to adopt textbooks and other teaching materials that cover the contributions and roles of sexual minorities, as soon as the 2013-2014 school year. The legislation leaves it to local school boards to decide how to implement the requirement. It does not specify a grade level for the instruction to begin. Randy Thomasson, president of SaveCalifornia.com, a conservative family group, said under the new law parents will have no choice but to take their children out of public school and homeschool them to avoid what he said was "immoral indoctrination." The new law applies only to public schools, not private schools or families who homeschool.
• Flir(FLIR) Forecasts Weak 2Q Results on Government Demand Decline. Flir Systems Inc. (FLIR) predicted profit would fall in the second quarter as continued weak government demand weighed on revenue. Shares in the night-vision goggle maker fell 8.1% to $29.50 in after-hours trading.
• Blockbuster Looks To Woo Netflix(NFLX) Customers With DVD Promo. Blockbuster LLC on Thursday unveiled a DVD-rental promotion aimed at swiping customers from Internet-based rival Netflix Inc. (NFLX), taking aim at the online video service two days after Netflix raised its prices.
• Key Credit Gauge Loses Clout. Low Demand for Overnight Loans Means Libor Status as Measure of Banks' Health Is Waning. A crucial barometer of global banking health is losing its clout as a macroeconomic indicator, but the move is benefiting some consumers and others whose low interest-rate loans still are pegged to it.
• Time to Short the Euro? On Friday, long-awaited results of Europe's bank "stress tests" could push the euro lower. With Europe's debt woes mounting, some savvy currency investors are shorting the euro against the dollar -- a bold bet considering the greenback's own shaky status.
• The Obama Downgrade. The real reason the U.S. could lose its AAA rating. Americans should understand that the debt ceiling is merely the trigger. The gun is the spending boom of the last three years and the prospect that Washington lacks the political will to reduce it in the years to come. On spending, it is important to recall how extraordinary the blowout of the last three years has been. We've seen nothing like it since World War II. Nothing close.

Business Insider:

• Pentagon Admits 24,000 Files Were Hacked, Declares Cyberspace A Theater Of War. Unveiling the military's first-ever cybersecurity strategy, Deputy Secretary of Defense William Lynn admitted today that a "foreign intelligence service" stole 24,000 Defense Department files from Pentagon computer systems this March. The hack — one of the largest the Pentagon has ever suffered — was data-related, Lynn said. "A great deal of it concerns our most sensitive systems, including aircraft avionics, surveillance technologies, satellite communications systems, and network security protocols."
• Tensions Escalate In Asia and Could Possibly Lead To War. It's China vs. Vietnam and the Philippines.

IBD:

• Goldcorp(GG) Shines as Gold Prices Hit New Highs.

Forbes:

• The Next Crisis Will Arise in the BRIC Countries. A steep rise in credit; rapid increases in house prices to levels way beyond available income; use of overvalued property as further collateral to demand additional funding from the banking system, resulting in even higher levels of debt; an increase in the amount of credit needed for the marginal growth of gross domestic product; a constrained installed capacity that yields to inflationary tensions; a labor force with double digit wage rises; limitless liquidity flowing into sectors with low productivity, such as real estate; a relaxation of the rules for granting loans; a rapid increase in corporate debt as a consequence of accelerated investment, mergers, and acquisitions, all fanned by the intoxicating feeling that demand will just keep going up; a central bank incapable of containing such a self-complacent liquidity binge, with interest rates far below those recommended by the Taylor rule; a political class living off an apparent bonanza, refusing to carry out the reforms needed to avoid disaster when the cycle eventually changes, ignoring calls for serious cutbacks in spending, or rises in taxes that could counteract the exuberance. Spain in 2006? The U.S.? Britain? Iceland, Greece, Ireland? No. I am talking about emerging countries, in particular Brazil, Russia, India and China, the four known collectively as the BRICs.

LA Times:

• Plastic Bag Bans Upheld by California Supreme Court. The justices unanimously rule that local governments may impose such prohibitions without always needing an environmental impact report.
• California May Join Probe of Wall Street's Role in Mortgage Meltdown. New York's and Delaware's investigation could lead to criminal charges against financial executives. 'California was disproportionately harmed by the mortgage crisis, and our homeowners badly need relief,' the state's attorney general says.

BankThink:

• Bank of America's(BAC) Alarmingly Modest Goal for Basel III Capital. During the credit crisis, Bank of America Corp. symbolized everything that was wrong with banking: a too-big-to-fail global bank with questionable acquisitions (Countrywide and Merrill Lynch), poor lending standards, and poor liquidity and capital management – one that received capital injections from the government time and again. Regulators and legislators must have had B of A in the back of their minds while crafting a new regulatory framework for banks in the form of Basel III and Dodd-Frank. Astonishingly, it appears that B of A does not understand the role it played in the crisis.

Rasmussen Reports:

• 55% Oppose Tax Hike In Debt Ceiling Deal. Just 34% think a tax hike should be included in any legislation to raise the debt ceiling.
• Consumer Confidence Hits Two-Year Low, 52% Believe Their Own Finances Getting Worse.
  

Reuters:

• Google(GOOG) Smashes Street Expectations, Shares Surge. Google Inc's results soundly trounced Wall Street's most bullish expectations, sending its shares up 12 percent and easing concerns that its battle with Facebook and Twitter is costing too much and hindering growth. The Internet giant's flagship search advertising business, combined with new efforts like display and mobile advertising, boosted the company's revenue by 36 percent in its first three months under the helm of new Chief Executive Larry Page. The media-averse Page, who provoked grumbles by saying only a few words on the last quarterly earnings call, ticked off a string of fresh statistics on Thursday that underscored the company's progress on various fronts, including the strong start for its 2-week old social networking service. Page told analysts the company had signed up more than 10 million people for Google+: the company's biggest foray into the hot social networking arena and the vanguard of its battle with Facebook and Twitter for websurfers' time and attention. "Google should be viewed as a growth company again this quarter," said Stifel Nicolaus analyst Jordan Rohan. "The combination of mobile search, Android, ad exchange, YouTube, and the core search businesses, they're all doing well. Google is no longer a one-trick pony."

Financial Times:

• Merkel Warned on Greek Bail-Out Standoff. Pressure mounted on Angela Merkel, the German chancellor, to make a quick decision on how to get private bondholders to pay part of a new €115bn Greek bail-out, with senior Italian officials and the IMF warning that continued uncertainty risked undermining the eurozone. The calls came as fears that a stalemate could last through the summer forced Rome to pay some of its highest rates on record in order to borrow €3bn ($4.3bn) from the bond market.

City A.M.:

• Europe's Debt Crisis is Getting Worse. The numbers are big. As of this May, Eurozone banks had made loans to Eurozone governments of €1.156 trillion and held securities issued by them of €1.442.7 trillion, while their capital and reserves totalled €2.118.8 trillion, says International Monetary Research. The problem is that the system as a whole would be in deep trouble if the losses on Eurozone government bonds end up higher than €500bn. And of course such losses would hit different institutions in very different ways: many would not be able to survive even a much smaller overall loss. This is going to be a long weekend. Let’s hope it is a false alarm.

Passauer Neue Presse:

• Hans-Werner Sinn, head of the Munich-based Ifo economic institute, said that Greece faces a decade-long "illness" if it stays in the euro area and tries to increase its competitiveness by lowering wages and prices, citing an interview with Sinn. A return to its old currency, the drachma, would be an easier route for Greece, Sinn said.

Folha de S. Paulo:

• Venezuelan President Hugo Chavez accepted an offer from Brazilian President Dilma Rousseff to receive treatment for cancer in Sao Paulo. Chavez may be treated at the Sirio Libanes hospital.

Sydney Morning Herald:

• Abbott Eyes Mandate to Dump Carbon Tax. TONY ABBOTT says he will call a double dissolution election if he wins power and Labor and the Greens combine in the Senate to stop him from repealing the carbon tax. The Opposition Leader, who is sitting on a massive election-winning lead in the polls, issued the edict in front of a community forum in Brisbane last night. He said if the government was ''walloped'' at the next election over the carbon tax, it would be unthinkable that a humiliated Labor would not allow an Abbott government to rescind it.

Chosun Ilbo:

• The U.S. has proposed capping each nation's foreign exchange reserves during the Group of 20 finance ministers' meeting in Paris earlier this month, citing a South Korean official.

South China Morning Post:

• Hong Kong Mass-Market Home Prices Forecast to Decline. Prices of mass-market housing in Hong Kong will decline 5 to 10 per cent from their May peak, pushed down by government measures to cool the market, according to property consultant DTZ.

21st Century Business Herald:

• Beijing's new home prices fell 7% in June as compared with May, citing data from the Beijing Municipal Commission of Housing and Urban-Rural Development. The Chinese capital's restrictions on home purchases will be kept for "a long period," citing Yang Bin, director of the Beijing housing commission.
• China's 17 major banks saw total outstanding lending rise by about 7 to 9% to the end of June from the beginning of the year, to more than $340 billion, citing data.
  

International Oil Daily:

• The administration of U.S. President Barack Obama is considering a second sale of oil from its strategic petroleum reserve, citing several people in the market. The amount would be similar to the first 60 million-barrel release led by the IEA, including 30 million barrels sold by the U.S., Oil Daily said.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 120.50 -1.5 basis points.
  
• Asia Pacific Sovereign CDS Index 124.25 +1.75 basis points.
  
• S&P 500 futures +.01%.
  
• NASDAQ 100 futures +.46%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MAT)/.16
• (C)/.96
• (GPC)/.89
• (FHN)/.11
• (WBS)/.35
  

Economic Releases
8:30 am EST

• The Consumer Price Index for June is estimated to fall -.1% versus a +.2% gain in May.
• The CPI Ex Food & Energy for June is estimated to rise +.2% versus a +.3% gain in May.
• Empire Manufacturing for July is estimated to rise to 5.0 versus a reading of -7.79 in June.
  

9:15 am EST

• Industrial Production for June is estimated to rise +.3% versus a +.1% gain in May.
• Capacity Utilization for June is estimated to rise to 76.9% versus 76.7% in May.

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for July is estimated to rise to 72.0 versus a reading of 71.5 in June.

Upcoming Splits

• (SNHY) 3-for-2
  

Other Potential Market Movers

• The EU bank stress test results could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.