Tuesday Watch

Evening Headlines

Bloomberg:

• Berlusconi Competes With Banks Wooing Italians to Record Debt: Euro Credit. Italian retail investors are spoiled for choice as the country’s banks prepare to refinance a third of their debt at a time when the government is offering yields at euro-era records on its securities. The country’s lenders, including UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), have more than 100 billion euros ($145 billion) of bonds to repay by the end of 2012. The government, which has paid more for its money than financial firms for the past four months, will sell quadruple that amount in the same period. “The maturities of the Italian public debt create a sort of competition with the issues of the banking sector,” Paola Sabbione, an analyst at Deutsche Bank AG, wrote in a report “Families, thus the banks’ clients, are important holders of Italian public debt.” The yield on Italian 10-year bonds reached a decade-high 6.3 percent on Aug. 5, slamming the shares of the banks, the biggest holders of government bonds. The plunge in UniCredit and Intesa shares, both down more than 30 percent since the start of July, threaten to deter Italian savers, who traditionally buy the bulk of their debt. “This isn’t a good news for banks,” said Vanni Lucchelli a partner of Compagnia Fiduciaria Lombarda SpA, a Milan-based trustee company. “An increase in the capital gains tax to 20 percent excluding government bonds may force banks to offer customers higher rates to give them a compelling net yield compared with treasury bills and bonds.” UniCredit, Italy’s biggest bank, needs to roll over about 32 billion euros in 2012, while Intesa Sanpaolo, the second largest lender, has about 22 billion-euros of bonds expiring next year.
  
• Euro Is Near Three-Week High Before Sarkozy, Merkel Meet About Debt Crisis. The euro traded 0.2 percent from a three-week high on prospects a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel will result in action to contain the region’s debt crisis. The dollar was 0.7 percent from its lowest in two weeks against the yen before a report that economists said will show U.S. housing starts dropped last month. The Australian dollar declined for the first time in four sessions after minutes today of the Reserve Bank’s meeting on Aug. 2 showed policy makers kept interest rates unchanged on concern that turmoil in financial markets could slow global economic growth. “The euro is supported by the expectation that something will be decided at tonight’s meeting between France and Germany’s leaders on the pan-European bond issue,” said Imre Speizer, an Auckland-based strategist at Westpac Banking Corp., Australia’s second-largest lender.
• Texas College Fund Expands Hedges Against Euro-Debt Crisis. Texas’s public university endowment, the second-largest U.S. college fund, is expanding derivative use to hedge against a euro-region debt default or a collapse in the dollar, while raising limits on commodity investments. About $70 million a year is used for hedges to protect endowments including the Permanent University Fund from market risks, Bruce Zimmerman, president of University of Texas Investment Management Co., said today. The $20.3 billion permanent fund has about 5 percent of its assets gold, he said. Bullion provides a store of value should the dollar decline. Overseers of the fund approved changes today to let endowment managers at UTIMCO, as Zimmerman’s company is known, spend as much as 0.75 percent of assets on hedging risks, up from 0.25 percent. Only Harvard University has a bigger endowment, valued at $27.6 billion. “We are in a very uncertain investment environment,” he said at the University of Texas System Board of Regents meeting today. “The lack of clarity of the direction is as opaque as many of us have ever seen.” The fund may lose a fifth of its value from a euro-region default or a crisis in the dollar, according to a study from the management company. That prompted calls from board members for more aggressive hedging.
• Soros, Mindich Cut SPDR Gold Holdings in Quarter as Paulson Maintains Bet. George Soros, Eric Mindich and Scout Capital Management LLC cut their holdings in SPDR Gold Trust as prices rallied to a record during the second quarter, while Steven A. Cohen’s SAC Capital Advisors LP bought options on the exchange-traded fund, government records show. Soros Fund Management LLC held 42,800 shares of SPDR Gold Trust as of June 30, compared with 49,400 at the end of the first quarter, a filing yesterday with the U.S. Securities and Exchange Commission showed. Mindich’s Eton Park Capital Management LP reduced its stake to 813,000 shares from 2.328 million, a separate filing showed. SAC Capital purchased call options linked to the SPDR Gold Trust valued at $627.7 million. Gold prices have surged 45 percent in the past year, touching a record $1,817.60 an ounce in New York last week, as Europe’s debt crisis and the prospect of a global economic slowdown boosted demand for the metal as a haven. Some investors may have sold the metal amid the financial turmoil, according to James Dailey of TEAM Financial Management LLC. “Funds were confused about the behavior of the market, and they probably thought it would be better to sit on cash rather than lose money,” Dailey, who manages $185 million at TEAM Financial, said in a telephone interview from Harrisburg, Pennsylvania.
• Japanese banks' credit ratings and share prices may decline as global regulators consider measures that seek to avoid the use of public funds to rescue failing lenders, Mitsubishi UFJ Morgan Stanley Securities Co. said. "The prices of some of Japan's major bank stocks could fall by over 20% once expectations of capital injections and other forms of government support disappear," Junsuke Senoguchi, a senior anlalyst at MUFJ Morgan Stanley, wrote. The absence of a public backstop would lower banks' credit ratings and drive funding costs higher, eroding profitability, he said.
• China Home Sales Skirt Policies With Fake Divorces. Frank He said he faked a divorce from his wife of 10 years to skirt China’s ban on third mortgages and obtain a bank loan for a third property, a 12 million yuan ($1.9 million) suburban villa.“My wife and I love each other, but as long as we can get the mortgage from the bank for the deal, we’ll take it,” said He, a 40-year-old manager at a chemical company. The forged document, which cost the Shanghai couple 20,000 yuan, helped them get a loan amounting to 60 percent of the purchase price, he said. Chinese homebuyers and developers are finding loopholes as they come under pressure from government policies to curb gains in residential prices, such as limits on the number of properties owned. Builders are refraining from cutting prices, offering free parking lots and attics instead, as they face higher borrowing costs after Standard & Poor’s downgraded their outlook in June. Their actions may hamper the government’s efforts to prevent a bubble in the housing market.
• China Slowing 'Significantly': Conference Board. Growth in China, the world’s second- biggest economy, is slowing “significantly,” according to The Conference Board, a New York-based research organization. “The economy is significantly moderating right now and also over the next couple of months,” Bart van Ark, the organization’s chief economist, told Bloomberg Television from New York today.

Wall Street Journal:

• A Wild Ride to Profits. High-Frequency Traders Score Big on Stock Volatility; 'Feeding off the Volume'.
• Murky Science Clouded Japan Nuclear Response. After a third explosion rocked Japan's Fukushima Daiichi nuclear complex on March 15, the weather took a worrisome turn. A wind that had been blowing steadily out to sea shifted to the northwest, carrying plumes of radiation up a river known locally as the "corridor of wind." That evening, a late-winter snow began falling on this mountain village. Residents awakened the next day to a blanket of white over their homes, roads, cow pastures and pine forests. They stepped outside and began shoveling.
• Rick Perry Touting a Downhome Resume. Rick Perry became an Eagle Scout and Air Force pilot after growing up as the son of a cotton farmer "from a little place called Paint Creek, Texas," whose house had no indoor plumbing. As Texas's longest-serving governor, he says he cut taxes and red tape and helped boost job growth.
• Soros Fund Cuts Stakes in Citi(C), Wells Fargo(WFC), Monsanto(MON). Billionaire investor George Soros‘s hedge fund reported lower stakes in big banks Citigroup and Wells Fargo, and slashed its ownership in Monsanto, a former top holding, according to a regulatory filing late Monday.
• Urban Outfitters(URBN) 2Q Net Drops 21% On Increased Markdowns.
  
• Lesson From Europe (Take 2). No, social democracy doesn't 'work.' 'The real lesson from Europe," wrote Paul Krugman in January 2010, "is actually the opposite of what conservatives claim: Europe is an economic success, and that success shows that social democracy works." Here are some postcards from the social democracy that works.
• Ruby Red Tape. A case study in the costs of regulation, from Opal to Oregon. The abstraction known as "regulation" is often invoked as a reason businesses aren't growing or hiring fast enough, and with good reason. Anyone wondering what that means in practice should consult the epic saga of the Ruby pipeline.

CNBC:

• Asia Funds Lose $77 Billion in Stocks Plunge, Led by Korea. Asian equity mutual funds suffered a $77 billion hit in the first 11 days of August with those betting on South Korea and the Greater China region leading the declines amid a global selloff on concerns over U.S. growth and a European debt crisis.

Business Insider:

• 13F Watch: David Einhorn Buys More Microsoft(MSFT) and Apple(AAPL).
• GUTS: Bruce Berkowitz Loads Up The Boat On Financials. While other fund managers are mostly running away from financials, struggling fund manager Bruce Berkowitz of the Fairholme Funds is going the other way. His new 13-F is out, and he's loading up the boat on financials, particularly the real dogs.

IBD:

• Rue21(RUE) Leads Teen Pack With Value, Hip Look.

NY Times:

• Debt in Europe Fules a Bond Debate. The Germans want to bury it. The French say it is a nonstarter. But the idea that the only way to contain the sovereign debt crisis is for Europe to issue bonds backed by all the nations of the euro zone will not go away. Markets perceive “a great reluctance on the part of the E.C.B. to engage in large-scale purchases of financially troubled governments’ bonds,” Mr. Mayer of Deutsche Bank, and Daniel Gros, director of the Center for European Policy Studies in Brussels, wrote in a note. They reject euro bonds, saying they would “turn into a poison pill” for European monetary union. “Political resistance against E.M.U. would rise in the stronger countries, eventually leading to a probable breakup of E.M.U.,” they wrote.
• Hedge Funds Disclose Second-Quarter Positions.

Forbes:

• Can ObamaCare Survive an Unconstitutional Mandate?

LA Times:

• California Advocacy Groups Urge Boycott of Amazon(AMZN). Think Before You Click asks consumers to cancel their Amazon.com accounts until the company stops refusing to collect state taxes. California could collect about $1 billion a year on Internet sales.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 20% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).

USA Today:

• PACs Gave Nearly $65M to Deficit 'Supercommittee' Members. The "supercommittee" of Congress tasked with finding at least $1.2 trillion to reduce the deficit has received millions of dollars from a wide range of special interests in the past decade, according to a new independent analysis. Political action committees have given nearly $65 million to the six Republicans and six Democrats on the Joint Special Committee on Deficit Reduction from 2001-2010, according to the analysis by MapLight.org, which tracks money in politics. Lawyers and law firms were the top donors by industry, contributing more than $31.5 million to the "supercommittee" members, the analysis shows. That amount is more than the $11.2 million donated by people in the securities and investment industry, the analysis shows. Democratic/liberal interests, health professionals and the real estate industry round out the top five industry donors.

Reuters:

• Allstate(ALL) Sues Goldman(GS) Over Mortgage Debt Losses.

Telegraph:

• Germany's Angela Merkel Faces Eurobond Mutiny. German Chancellor Angela Merkel's coalition partners are threatening a withdrawal from government if she agrees to eurobonds or any form of fiscal union to prop up southern Europe. The simmering revolt in the Bundestag makes it almost impossible for Mrs Merkel to offer real concessions at Tuesday's emergency summit with French president Nicolas Sarkozy. "We are categorical that the FDP-group will not vote for eurobonds. Everybody must understand that there is no working majority for this," said Frank Schäffler, the finance spokesman for the Free Democrats (FDP). Oliver Luksic, the FDP's Saarland chief, told Bild Zeitung the survival of Germany's coalition was now rests on the handling of this issue. "Eurobonds are a sweet poison that leads to more debt, rather than less. Should the government endorse a common European bond and with it take the final step towards a long-term debt union, the FDP should seriously ask whether the coalition has any future." Alexander Dobrindt, general-secretary of Bavaria's Social Christians (CSU) and a key Merkel ally, said his party has issued a "crystal clear 'No' to eurobonds". Chancellor Merkel also faces mutinous grumbling among her own Christian Democrats (CDU), though the party's policy elite is willing to consider partial eurobonds up to the Maastricht limit of 60pc of GDP but only under stringent conditions. It is clear the German public is in no mood for any such formula. A YouGov poll shows 59pc of Germans oppose all further bail-outs. The majority want to see Greece expelled from the euro and 44pc want Germany to withdraw from EMU. "Given the rising euroscepticism in the population, it is too politically dangerous to toy with the explosive subject of eurobonds," said Hamburger Abendblatt. Otmar Issing, the European Central Bank's former chief economist, told German TV a move to eurobonds would impoverish Germany and subvert the Bundestag. "That would be catastrophic. I cannot understand how any German politician agree to this," he said. Germany's constitutional court has yet to rule on the legality of EMU's bail-out machinery and is likely to pay close attention to his warnings that the drift of EU policy is to concentrate budgetary powers in the hands of EU officials outside democratic control. Professor Wilhelm Hankel from Frankfurt University said a eurobond is camouflage for fiscal union. "That is forbidden under EU law and the German constitution. Everybody in parliament realises we are very near to the Rubicon and that if they say yes to eurobonds they cannot stop the march to a transfer union." Mrs Merkel's spokesman played down hopes of a breakthrough at Tuesday's meeting, denying reports that eurobonds are on the agenda. The meeting will focus on tougher rules for delinquents. Marcel Alexandrivich from Jefferies said the moment of danger will come when the ECB is seen to hit its limits. "The ECB can act as a buyer-of-last resort for a while but if it has to purchase bonds at €20bn to €30bn a week there will come a point it will say enough is enough, we can't take this on our books any longer." It is unclear where that point lies. The ECB intends to hand the baton to the EFSF once its new powers are ratified by all parliaments, but EFSF's remaining firepower will be less €300bn. Carl Weinberg from High Frequency Economics said this constraint will force the ECB to desist sooner rather than later. "If so, yields on Italian and Spanish bonds will jump in a heartbeat," he told Bloomberg.

Les Echos:

• France is likely to cut its growth forecasts after the economy stagnated in the second quarter versus the first, citing a person close to President Sarkozy. The government currently forecasts the economy will growth 2% this year and 2.25% in 2012.
  

Sydney Morning Herald:

• Has Paulson Lost His Touch? Billionaire's Fund Down 30%. Billionaire investor John Paulson, whose flagship funds are down some 30 per cent for the year to date, has cut back on one of his biggest holdings but largely kept the other major holdings unchanged. Weeks after telling investors in July that he had been overly aggressive with some of his calls, Mr Paulson showed the world that he began scaling back and diversifying within the financial sector during the second quarter. At the end of June Mr Paulson owned 60.4 million shares in Bank of America, down from 124 million at the end of the first quarter.

China Securities Journal:

• China's inflation may rise to about 6.2% in the third quarter from 5.7% in the second quarter, citing the State Information Center.

Shanghai Securities News:

• China's banking regulator may require the nation's systemically important banks to have a minimum capital adequacy ratio of 11.5% by the end of 2013, citing draft rules from the China Banking Regulatory Commission. Non-systemically important banks' capital adequacy ratio may be set at 10.5%.

People's Daily:

• China's Xinjiang province started a crackdown on terrorism in the region on Aug. 11, citing the provincial security department. The campaign will last until Oct. 15, the report said.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 140.0 -7.0 basis points.
  
• Asia Pacific Sovereign CDS Index 139.0 -9.0 basis points.
• FTSE-100 futures +.23%.
  
• S&P 500 futures -.38%.
  
• NASDAQ 100 futures -.39%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (HD)/.82
• (WMT)/1.08
• (ADI).73
• (TJX)/.89
• (SKS)/-.08
• (DKS)/.50
• (JKHY)/.40
• (DELL)/.49

Economic Releases
8:30 am EST

• The Import Price Index for July is estimated to fall -.1% versus a -.5% gain in June.
• Housing Starts for July are estimated to fall to 600K versus 629K in June.
• Building Permits for July are estimated to fall to 605K versus 624K in June.
  

9:15 am EST

• Industrial Production for July is estimated to rise +.5% versus a +.2% gain in June.
• Capacity Utilization for July is estimated rise to 77.0% versus 76.7% in June.
  

Upcoming Splits

• (HMSY) 3-for-1
• (OZRK) 2-for-1
• (EDU) 4-for-1
  

Other Potential Market Movers

• The weekly retail sales report and the Wedbush PAC Grow Life Sciences Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.

Stocks Surging into Final Hour on Diminishing Eurozone Debt Angst, Less Financial Sector Pessimism, Buyout Speculation, Short-Covering

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Every Sector Rising
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 32.11 -11.69%
  
• ISE Sentiment Index 89.0 -7.29%
  
• Total Put/Call 1.17 +7.34%
  
• NYSE Arms .41 -64.52%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 111.56 -2.61%
  
• European Financial Sector CDS Index 198.30 -5.11%
  
• Western Europe Sovereign Debt CDS Index 294.17 -.34%
  
• Emerging Market CDS Index 258.95 -5.66%
  
• 2-Year Swap Spread 25.0 -1 bp
  
• TED Spread 29.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% -1 bp
  
• Yield Curve 210.0 +5 bps
  
• China Import Iron Ore Spot $175.70/Metric Tonne -.11%
  
• Citi US Economic Surprise Index -79.10 -.2 point
  
• 10-Year TIPS Spread 2.21% -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +59 open in Japan
• DAX Futures: Indicating +36 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Medical, Retail and Tech sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short and then added them back
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 builds on last week's reversal higher on less Eurozone debt angst, buyout speculation, short-covering, less financial sector pessimism and bargain-hunting. On the positive side, Airline, REIT, Homebuilding, Hospital, Bank, Wireless, Oil Service, Energy, Alt Energy, Coal and Utilities shares are especially strong, rising more than +3.0% on the day. Small-caps are outperforming. (XLF)/(IYR) have traded well throughout the day. Copper is rising +.52% and Lumber is gaining +3.28%. The France sovereign cds is down -4.2% to 146.83 bps, the Italy sovereign cds is down -3.76% to 344.450 bps, the Germany sovereign cds is dropping -3.67% to 76.58 bps, the UK sovereign cds is dropping -4.62% to 76.48 bps and the Spain sovereign cds is down -6.84% to 330.35 bps. Moreover, the European Investment Grade CDS Index is down -6.01% to 121.22 bps. On the negative side, Steel, Internet, Medical Equipment, Retail, Restaurant, Education and Road & Rail shares are underperforming, rising less than 1.0%. The Transports have underperformed throughout the day. The 10-year yield is only +3 bps higher to 2.29%, despite today's equity rally. Oil is jumping +3.0%, Gold is rising +1.08% and the UBS-Bloomberg Ag Spot Index is up +.7%. Rice is still near a multi-year high, soaring +28.0% in about 7 weeks. The US price for a gallon of gas is falling -.01/gallon today to $3.60/gallon. It is up .46/gallon in about 7 months. The TED spread is rising to the highest level since August 2010 today, despite the euro bounce and equity rally. European equities meaningfully underperformed the rest of the world today. However, the large drop in a number of key Eurozone cds remains a big positive. It is still hard to gauge how much of the recent equity rally is mainly related to short-covering. This year's worst-performers are leading today and volume is subdued. Some key German and French officials continue to throw cold water on the idea of a meaningful increase in the EFSF or the idea of eurobonds, yet the market seems to be anticipating these. I expect US stocks to trade mixed-to-higher into the close from current levels on less financial sector pessimism, diminishing eurozone debt angst, buyout speculation, short-covering and bargain-hunting.

Today's Headlines

Bloomberg:

• Company, Sovereign Bond Risk Falls in Europe as Markets Steady. The cost of protecting European sovereign and corporate bonds from default fell after global markets stabilized as Japan said its economy contracted less than economists forecast. The Markit iTraxx Crossover Index of credit-default swaps on 40 companies with mostly high-yield credit ratings dropped 35.5 basis points to 593.5, according to JPMorgan Chase & Co. at 3:30 p.m. in London. The Markit iTraxx SovX Western Europe Index of swaps linked to the debt of 15 governments dropped 7 basis points to 276, the lowest since July 29. “The market is back onto risk-on mode, but it’s more a reaction to the degree of negativity that hit markets last week rather than any reversal in trend,” said Simon Ballard, senior credit strategist at RBC Capital Markets in London. “Risk is improving and spreads are back in, but we haven’t seen any fundamental change.” Credit-default swaps on Spain dropped 4 basis points to 349, according to CMA. The cost of insuring Italian government bonds declined 10 basis points to 344. France was down 2 at 150 and Ireland was 6 lower at 741. Greece rose 9 to 1,758 and Portugal increased 6 to 841. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 10.5 basis points to 140 basis points. The Markit iTraxx Financial Index dropped 16 to 213.
• New York Manufacturing Shrinks in August. Manufacturing in the New York region unexpectedly contracted in August for a third straight month as orders dropped and managers became less optimistic about the future, signaling the industry that has led the economic recovery is at risk of stumbling. The Federal Reserve Bank of New York’s so-called Empire State Index fell to minus 7.7 from minus 3.8 in July, a report showed today. The median forecast in a Bloomberg News survey called for an index of zero, the dividing line between expansion and contraction. The bank’s six-month outlook gauge dropped to the third-weakest level on record. The Empire State gauge of new orders fell to minus 7.8 from minus 5.5 last month. A gauge of unfilled orders dropped to minus 15.2 from minus 12.2. A measure of shipments advanced to 3 from 2.2. The employment measure rose to 3.3 from 1.1. An index of prices paid dropped to 28.3 from 43.3 while prices received decreased to 2.2 from 5.6. Factory executives in the New York Fed’s district were also less optimistic about the future. The gauge measuring the outlook six months from now plunged to 8.7, the lowest reading since February 2009, during the depths of the recession, from 32.2. It was the third-lowest reading since records began in 2001.
• Oil Rises in New York on Equity Gains, Smaller-Than-Projected Japan Drop. Crude oil rose after announcements of company takeovers sent equities higher and Japan’s economy contracted less than economists estimated in the second quarter. Crude oil for September delivery increased $1.69, or 2 percent, to $87.07 a barrel at 11:57 a.m. on the New York Mercantile Exchange. Futures are up 15 percent in the past year.
• Gold Futures Rise in New York, Halts Slide, as Weaker Dollar Boosts Demand. Gold futures in New York gained for the first time in three sessions as a weaker dollar revived demand for the metal as an alternative investment. The Dollar Index of six currencies fell, heading for the biggest one-day drop since July 21. Gold climbed to a record $1,817.60 an ounce on Aug. 11 and advanced 23 percent this year before today. Gold futures for December delivery rose $6.40, or 0.4 percent, to $1,749 at 12 p.m. on the Comex in New York.
• Drought Crimps Farmland Values, Spending. A drought that devastated crops in the southern Great Plains during the second quarter slowed the growth of land values, eroded agricultural income and led to fewer purchases of farm equipment, the Federal Reserve said. While the pace of gains in cropland slowed from the first quarter, properties in a seven-state region that includes Nebraska and Oklahoma were 20 percent more expensive than a year earlier, the Federal Reserve Bank of Kansas City said today in a report on its website. Ranchland was up 11 percent from a year earlier, and farm-credit conditions remained positive even as farmers cut back spending, the bank said.
• Futures Show European Dividends to Drop by Most Ever Amid Crisis. Dividend futures for Europe’s biggest companies expiring in two years dropped to the lowest level compared with next year’s contracts amid concern the debt crisis and slowing growth will force reductions in payouts. Euro Stoxx 50 Index dividend futures expiring in 2013 are 14 percent lower than those for 2012, data compiled by Bloomberg show. The difference between the contracts was the highest ever on Aug. 10 at 17 percent. Companies in the gauge cut dividends 29 percent from their high in 2008 through 2010 during the worst global recession since World War II.
• Evergreen Solar(ESLR) Files for Bankruptcy Owing $485.6 Million. Evergreen Solar Inc., a Marlboro, Massachusetts-based maker of solar panels, filed for bankruptcy protection from creditors owed $485.6 million.
• Google(GOOG) to Buy Motorola Mobility(MMI) for $12.5 Billion. Google Inc. (GOOG), maker of the Android mobile-phone software, agreed to buy smartphone maker Motorola Mobility Holdings Inc. for $12.5 billion in its biggest deal, gaining mobile patents and expanding in the hardware business. Motorola shareholders will get $40 a share in cash, the companies said in a statement today. That’s 63 percent more than Motorola Mobility’s closing price on the New York Stock Exchange on Aug. 12.
• London House Prices Plunge Most in a Year as Market Rout Hits Confidence. London home sellers lowered asking prices by the most in a year in August as demand in Britain’s most expensive property market was hit by turmoil in financial markets, Rightmove Plc said. Asking prices in the capital dropped 3.4 percent from the previous month, when they decreased 1.4 percent, the U.K.’s biggest property website said in an e-mailed report today. Nationally, values fell 2.1 percent, a second consecutive monthly decline and the largest since December.

Wall Street Journal:

• GOP Blasts Obama Bus Tour. The Republican National Committee and state GOP chairmen in the first two states Mr. Obama is visiting complained Monday that trip amounts to a taxpayer-funded campaign swing to talk about an issue central to his reelection prospects: job creation.
• Japanese Rating Firm Warns of Sovereign Downgrade. One of Japan's two major credit-ratings firms could cut its top-notch rating on the nation within months unless it sees a commitment from the government to belt-tightening in the budget for next fiscal year. Kenji Sekiguchi, primary analyst for Japan sovereign ratings at Rating and Investment Information, said in a recent interview that there is "somewhere between 50% to 100% probability" that the company will downgrade its assessment of Japanese government debt from its current triple-A status. He said the firm, known as R&I, could take action as soon as the outline of the budget become clear.
• Moody's Lowers Economic Growth Outlook. Moody’s Analytics said its near-term outlook for the U.S. economy has fallen significantly in the past month wake of the debate over the U.S. debt ceiling and the downgrade of the nation’s credit ratings by Standard & Poor’s . Moody’s Analytics, a sister company to credit-ratings company Moody’s Investors Service, now expects real gross domestic product to increase at an annualized rate of about 2% in the second half of this year and just over 3% next year, compared with its estimate a month ago for growth of 3.5% for the second half of this year and through 2012.
• Syrian Forces Attack Two Cities, Shoot Fleeing Residents. Syrian troops besieged residential areas of two key cities Monday, firing on residents as they fled for safety and killing at least two people during a relentless military assault to root out dissent against President Bashar al-Assad's autocratic regime, witnesses said.
• Judge Strikes Down U.S. Drilling Policy. A federal judge has struck down an Obama administration policy concerning drilling on public lands, raising the possibility that more permits will be issued for oil and gas companies.

CNBC.com:

• Hedge Funds Lag S&P 500 in First Half of 2011.
• $50 Billion Goes to Money Market Funds. One of the most volatile weeks in market history sparked a bigger flight to safety than the collapse of Lehman Brothers as global investors parked a record $50 billion in money market funds this week, yanking money out of bonds and shares.
• If Warren Buffett Wants a Bigger Tax Bill, Why Doesn't He Just Send His Money to Washington?
• Mortgage Refinancing Spikes as Fed Keeps Rates Low.
  

Business Insider:

• Here's Everything Google(GOOG) Just Bought From Motorola for $12.5 Billion.

Zero Hedge:

• Citi On The Two Latest European Deus Ex Machinas: The Improbable Swiss Franc Peg Rumor and The Impossible Eurobond Initiative.
• Panic in DC as Starbucks'(SBUX) Schultz Calls for CEO Boycott of Campaign Donations, Urges Americans to Go On Strike Against Their Politicians. Bloomberg quotes from the CEO's e-mail to business leaders:"I am asking that all of us forego political contributions until the Congress and the President return to Washington and deliver a fiscally disciplined long-term debt and deficit plan to the American people."

NY Post:

• SEC Accountant Who Bungled Madoff Ponzi Probe Gets Bonus!?! He blew it big-time on Bernie Madoff -- and still got a bonus. A government accountant whose ineptitude and inexperience allowed Bernie Madoff's Ponzi scheme to rage unchecked actually landed a cash bonus from his bosses at the SEC -- for his work on none other than the Madoff case.
  

TheStreet.com:

• Biggest Quant Fund Doubles Down on Apple(AAPL). Renaissance Technologies, the biggest quantitative hedge fund in the world, made more than 500 new purchases in the second quarter. But none was as important as fund managers' decision to double its stake in Apple(AAPL). Apple became the fund's largest holding as of June 30, according to the latest 13F filing with regulators. RenTec, as Renaissance Technologies is known, picked up 763,000 shares of Apple, more than doubling its position to 1.3 million shares with a market value of $445 million. RenTec also bought 357,000 shares of Google(GOOG), boosting its stake to 554,000 shares total.

Real Clear Politics:

• At 39% Approval, Obama's Reminded the Worst Could Lie Ahead.

Reuters:

• Some US Hedge Funds Trim Gold, Financials.

USA Today:

• Chevrolet Volt Prospects Are Starting to Lose Interest. Sure, buyers start losing interest in any new model after the initial hoopla dies down and ad dollars dry up, but there's trouble on the horizon for the Chevrolet Volt, the electric wonder car. Interest in buying the $39,995 plug-in car is starting to taper off, not only among "early adopters" but among lots of other buyers as well, reports CNW Research, which tracks such things.

Financial Times:

• A Grinding Credit Crunch in the Periphery. Some more on bank funding stresses, which are one of the main reasons for the recent sell-off in European bank stocks NOT the activities of nefarious short-sellers. It’s from Morgan Stanley’s Huw van Steenis, who says eurozone banks aren’t just struggling to raise long term funding…they are increasingly falling back on the ECB right now.

Telegraph:

• Debt Crisis: Live. Rolling coverage of the rollercoaster in financial markets as the eurozone and US come under increasing pressure to deal with high levels of debt and stave off another recession.

Der Spiegel:

• Europe Pressures Merkel to Accept Euro Bonds. Euro bonds present a serious domestic political risk for Merkel.

Financial Times Deutschland:

• German Chancellor Angela Merkel's coalition is divided on whether to support the introduction of joint euro-member bond sales. Merkel's pro-market Free Democratic Party ally and the Christian Social Union aren't willing to discuss conditions for eurobonds, citing FDP party chief Philipp Roesler and CSU Chairman Horst Seehofer.

Handelsblatt:

• Clemens Fuest, a professor at the University of Oxford and a former adviser to German Finance Minister Wolfgang Schaeuble, said euro bonds are not a solution to the single currency's area's debt crisis, in a commentary. In the case that up to 60% of a country's debt could be commonly backed by euro member states, countries with higher debt like Italy would still be required to pay higher risk premiums on the remainder, Fuest wrote.

DigiTimes:

• Apple(AAPL) Hikes 2H11 iPhone Orders to Over 56 Million Units. Apple has upward adjusted the total order volume for iPhones, consisting of iPhone 3GS, iPhone 4, iPhone 4 CDMA and iPhone 5, for the second half of 2011 by 12-13%, from 50 million units originally estimated at the end of the second quarter of 2011 to more than 56 million units. iPhone 5 will account for 25.5-26 million units, according to Taiwan-based supply chain makers.

Capital Week:

• U.S. debt may still be the "best" investment in terms of risk and return, compared with other "not ideal" investments out there because of global volatility and the euro crisis, citing Guo Shuqing, chairman of China Construction Bank Corp.

Bear Radar

Style Underperformer:

• Large-Cap Growth (+.78%)

Sector Underperformers:

• 1) Internet -.31% 2) Education -.11% 3) Restaurants +.29%

Stocks Falling on Unusual Volume:

• BIDU, SYY, CHS, IDCC, CBOU, APEI, CYBX, GOOG, EDMC, GILD, LSTR, ZOLL, JBHT, EL
  

Stocks With Unusual Put Option Activity:

• 1) AEP 2) SVM 3) DHR 4) EP 5) HANS
  

Stocks With Most Negative News Mentions:

• 1) RGLD 2) JNPR 3) CYT 4) TSS 5) CSGS
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (+1.79%)

Sector Outperformers:

• 1) Airlines +3.59% 2) Coal +3.49% 3) Wireless +3.18%

Stocks Rising on Unusual Volume:

• CATY, DB, NTLS, DTLK, IPXL, ZAGG, RIMM, DNDN, RAH, DDS, IGN, MMI, HCA, SGEN and NOV
  

Stocks With Unusual Call Option Activity:

• 1) MMI 2) MAKO 3) FST 4) OMX 5) AMJ
  

Stocks With Most Positive News Mentions:

• 1) AAPL 2) TWC 3) NTAP 4) AMZN 5) IBI
  

Charts:

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

Monday Watch

Weekend Headlines
Bloomberg:

• Schaeuble Opposes 'Unlimited Support' for States, Spiegel Says. German Finance Minister Wolfgang Schaeuble said he is against unlimited aid for indebted countries in the euro zone, Der Spiegel reported, citing an interview. “There is no collectivization of debt or unlimited support,” he told the German magazine. “There are certain support mechanisms that we develop under strict conditions,” it cited him as saying. Schaeuble also rejected euro bonds, saying that as long as members of the euro zone have their own financial policies and as long we need to use different interest rates, there are incentives and possibilities of sanctions to ensure fiscal solidity, Spiegel said. When asked if help would be suspended if some members do not meet conditions, Schaeuble said “there is no rescue at any cost,” Spiegel reported. He said the government will be prepared for any eventuality even the most unlikely, the magazine said.
• Thousands Protest Against Chinese Chemical Plant. Authorities in a northeastern Chinese port city ordered a petrochemical plant be shut down after more than 12,000 people demonstrated Sunday over pollution concerns, state media said. Officials also pledged to relocate the Fujia chemical plant from Dalian city, the Xinhua News Agency said. Earlier Sunday, scuffles broke out between riot police and more than 12,000 protesters who were demanding that the plant, which produces the chemical paraxylene, be moved after a tropical storm raised fears of a toxic spill, Xinhua said. No injuries were reported in the confrontations. Calls to relocate the plant grew after waves from Tropical Storm Muifa broke a dike guarding it last week and raised fears that flood waters could release toxic chemicals.
• Margin Calls Push Leverage Down Most in Year as S&P 500 Tumbles. Investor credit at Wall Street brokerages is falling by the most in a year as the Standard & Poor’s 500 Index suffers its biggest losses since the bull market began. Borrowed money in accounts at 61 New York Stock Exchange firms has fallen 4.6 percent, the biggest drop since June 2010, according to a July 22 statement from New York-based NYSE Euronext. The decline at NYSE firms followed a 36 percent increase to $320.7 billion in eight months, the biggest expansion since 2007. Leverage slipped to the lowest level of 2011 last week, according to Morgan Stanley’s prime brokerage. Lenders have been calling in loans since April, when the benchmark gauge for American equities began a plunge that has wiped out more than $2 trillion in value.
• Funds Slash Commodity Bets by Most in 18 Months. Funds reduced bets on rising commodity prices by the most in any week since February 2010 on mounting concern that a weakening global economy will slow demand for raw materials. In the week ended Aug. 9, speculators cut their net-long positions in 18 commodities by 19 percent to 989,110 futures and options contracts, government data compiled by Bloomberg show. Copper holdings plunged 61 percent, the most since June 2010, and bullish gold bets fell to a five-week low.
• Rice Set to Climb as Thailand Imposes Curbs. The smallest increase in rice stockpiles in five years means global grain inventories will extend a decline that already drove food costs to a record. Combined global stores of wheat, corn and rice will drop 2.5 percent to a four-year low as farmers fail to keep pace with demand, the U.S. Department of Agriculture estimates. Rice prices will rise more than 20 percent by December as inventories expand 1.1 percent, compared with a 29 percent gain in the past four years, a Bloomberg survey of 13 millers and traders showed. While wheat and corn prices as much as doubled last year, rice retreated as the United Nations’ global food-inflation index jumped 25 percent. Rice advanced 15 percent since May, potentially worsening the lives of the 1.1 billion the World Bank says live on less than $1 a day. Wheat fell 20 percent since the middle of February on prospects for a bigger crop.
• Mushrooms Join Radiation Threats to Japan Food. Mushrooms joined the threats to Japan’s food chain from radiation spewed by Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear plant, as the country expands efforts to limit the effects of the disaster. Japan is under pressure to enhance food inspections as it has no centralized system for detecting radiation contamination.
• Money Managers Dumping Debt Drive Record Spreads: China Credit. International money managers are cutting their holdings of Chinese dollar bonds, driving risk premiums to the highest in more that a year on concern slowing global growth will reduce exports. The extra yield investors demand to hold dollar-denominated bonds in China over U.S. Treasuries rose to 579 basis points, the highest since July 2010 and the most compensation for dollar debt in Asia, according to JPMorgan Chase & Co. indexes. That compares with spreads of 406 basis points on similar securities in India and 282 in Indonesia, the data show.
• Citigroup(C), Goldman(GS) Boosted French Bank Ties Before Rout. Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS) increased gross exposures to French banks in the year’s first half before the European nation’s financial stocks plunged amid perceived dependence on short-term funding. Citigroup, the third-biggest U.S. lender, boosted gross “cross-border outstandings” with French banks 40 percent to $15.7 billion from Jan. 1 through June 30, according to the company’s quarterly report. Goldman Sachs increased claims by 31 percent to $38.5 billion in the first half, its report shows. The filings don’t disclose collateral the banks received or hedges, which curb potential losses on existing bets. “There is a great cloud of uncertainty that’s hanging over the U.S. banks about the full extent of the exposures they have to French and other European banks,” said Andrew Karolyi, a finance professor at Cornell University in Ithaca, New York. “The market is clearly not reacting well to what they’re seeing.”
• Japan Economy Contracted Less Than Expected. Japan Economy Contracted Less Than Estimated. Japan’s economy contracted less than economists estimated in the second quarter as companies increased spending, signaling that the nation is rebounding from a slump after a record earthquake and tsunami. Gross domestic product shrank at an annualized 1.3 percent rate in the three months ended June 30, marking three consecutive quarters of declines, the Cabinet office said today in Tokyo. The median forecast of 25 economists surveyed by Bloomberg News was for a 2.5 percent drop.
• Traders Slash Bets Against Dollar by Record Amount as U.S. Treasuries Soar. Foreign-exchange traders slashed their bets against the dollar by the most on record as demand for U.S. Treasuries soared amid concern the global economic recovery is faltering. Aggregate bets the greenback will weaken against the euro, the yen, the Australian, Canadian and New Zealand dollars, the pound, the Swiss franc and the Mexican peso plunged by 154,105 contracts to 153,216 in the week ended Aug. 9, the biggest drop ever in Commodity Futures Trading Commission data compiled by Bloomberg beginning in November 2003. The data show that for the first time since January traders are betting the currency will appreciate versus the 17-nation euro on speculation Europe’s sovereign-debt crisis is spreading.
• Hong Kong Apartment Sellers Cut Asking Prices as Surge Ends. Derek Ma and his family in May sold two of their eight properties in Hong Kong, doubling their money in four years. They’re struggling to sell the other six. “We have been trying to offload more, but many sellers are now cutting prices,” said Ma, 36, whose portfolio includes units mainly in the upscale Mid-levels and Island South districts. “There’s definitely a softening in prices.”
• Hong Kong to Enter Recession: Forecaster. Hong Kong’s export-led economy, a barometer of global growth, is sinking into a recession that is likely to last for a year, said Daiwa Capital Markets economist Kevin Lai. Of nine economists in a Bloomberg News survey, Lai came closest to predicting a 0.5 percent contraction in the city’s economy in the second quarter. Only two of the analysts expected gross domestic product to decline from the previous three months.

Wall Street Journal:

• News Corp.(NWS/A) Probes Advance in U.S. Investigators haven't found hard evidence so far in probing whether News Corp.'s U.K.-based journalists might have hacked the phones of 9/11 victims, but U.S. authorities have expanded their query to see whether they can establish a broader pattern of more recent misconduct at the company's U.S. operations, say people familiar with the matter. British police investigating the sweeping phone-hacking scandal at the company's now-closed News of the World tabloid have told the Federal Bureau of Investigation there are no names or telephone numbers of Sept. 11 victims among the evidence they have gathered to date, according to people familiar with the case.
• Weaker Exports, Markets Weigh on Hong Kong's GDP. Economy Suffers in Quarter as Global Demand for Exports Wanes and Financial Markets See Sharp Downturn. Softening demand for exports and weakness in the financial sector threaten a deeper slowdown for Hong Kong after a surprise contraction in the territory's economy in the second quarter. Waning global demand and supply-chain disruptions following the March earthquake and tsunami in Japan led to a 11.1% drop in exports from the first quarter, a dramatic reversal from a 14.4% rise in the previous quarter. That caused Hong Kong's gross domestic product for the three months ended June 30 to contract 0.5% from the first quarter on a seasonally adjusted basis.
• Microsoft(MSFT) Faces the Post-PC World. Microsoft Corp. is confronting the biggest challenge to its Windows franchise so far: a world where mobile phones and tablets are handling more of the computing chores once only done on personal computers.
• GOP Gains Focus as Pawlenty Says Goodbye. The departure Sunday of former Minnesota Gov. Tim Pawlenty brought clarity to the campaign for the Republican presidential nomination, leaving social conservatives Michele Bachmann and Rick Perry as the main challengers to front-runner Mitt Romney. A pivotal campaign weekend for Republicans also made plain that the pathway to the nomination remains treacherous. Mrs. Bachmann's convincing victory in the Ames, Iowa, straw poll on Saturday ended Mr. Pawlenty's quest to be the "anti-Romney" just as another, Mr. Perry, threw his hat into the ring for that title.
• Suit Alleges Favoritism by BNY Mellon. Bank of New York Mellon Corp., facing increasing allegations it improperly charged public pension funds for currency trades, favored other clients with red-carpet treatment and better pricing, a state attorney general alleges.

CNBC:

• Global Commercial Property Prices Surge. Commercial real estate values have been spurred by a “lack of caution” on the back of an “astonishing” rebound in lending to the sector, according to one of the largest global fund managers.
• Sales of Gold Up on eBay Amid Stock Market Turmoil.
• Time Warner to Buy Insight for $3 Billion.
  

Business Insider:

• George Soros Used to Make His 28-Yr Old Ex-Girlfriend Sit at the Kids Table.
  
• How Socio-Economics Makes China a Bigger Credit Risk Than The US.
• White House Press Secretary Claims "Unemployment Benefits Could Create Up to 1 Million Jobs".
  

Zero Hedge:

• Italy Is The New Greece, As Strikes Shift From Syntagma Square To Rome.
• At 50x Leverage and 2% Tier 1 Capital, Is Socgen Truly a Paragon of Balance Sheet Invincibility?
  

IBD:

• Global Obesity Drives Growth For Herbalife(HLF).

NY Times:

• Al-Qaeda Trying to Harness Toxin for Bombs, U.S. Officials Fear. American counterterrorism officials are increasingly concerned that the most dangerous regional arm of Al Qaeda is trying to produce the lethal poison ricin, to be packed around small explosives for attacks against the United States. For more than a year, according to classified intelligence reports, Al Qaeda’s affiliate in Yemen has been making efforts to acquire large quantities of castor beans, which are required to produce ricin, a white, powdery toxin that is so deadly that just a speck can kill if it is inhaled or reaches the bloodstream.
• Starved Budgets Inspire New Look at Web Gambling.
• Tribal Rifts Threaten to Undermine Libya Uprising. Saddled with infighting and undermined by the occasionally ruthless and undisciplined behavior of its fighters, the six-month-old rebel uprising against Col. Muammar el-Qaddafi is showing signs of sliding from a struggle to overthrow an autocrat into a murkier contest between factions and tribes. The increase in discord and factionalism is undermining the effort to overthrow Colonel Qaddafi, and it comes immediately after recognition of the rebel government by the Western powers, including the United States, potentially giving the rebels access to billions of dollars in frozen Libyan assets, and the chance to purchase more modern weaponry.
• Setbacks May Push Europe Into a New Downturn. Economists may still be debating whether Europe is headed for a sharp slowdown or even a recession, but Steve Knott, who installs home heating systems in Barrow-in-Furness, a port town in northwest England once known for its iron mills, is convinced he already knows the answer.

CNN:

• Booming Business of Fear: Sales of Safes Soar. Amid the market turmoil, sales of security safes and vaults have spiked. While some shoppers sought to protect whatever valuables they had left, others needed a place to stash their newly-acquired safe haven assets such as gold and cash.

LA Times:

• Gallup: Obama Job Rating Sinks Below 40% for First Time. President Obama's summer woes have dragged his approval rating to an all-time low, sinking below 40% for the first time in Gallup's daily tracking poll. New data posted Sunday shows that 39% of Americans approve of Obama's job performance, while 54% disapprove. Both are the worst numbers of his presidency.

NYDailyNews.com:

• NYC Snubs Finest: Victims' kin, pols invited but 'no room' for first responders at 9/11 anniversary. The cops, firefighters and rescue workers who toiled at Ground Zero will not be invited to take part in the 10th anniversary ceremony, a city official told the Daily News Friday. First responders will instead be asked back to the site at another day for a separate commemorative ceremony, city officials said. Space and security logistics were at the heart of the decision, those involved said. Family of the nearly 3,000 killed receive first priority at an event with maximum security. President Obama's appearance will make the day even more of a security concern. For many first responders, though, the news was a bitter pill.

Washington Examiner:

• Why 11th Circuit Struck Down Obamacare's Mandate. It’s important to reflect on how far we’ve come. When the legal challenges against the health care law were first launched, liberals dismissed them as “frivolous.” Now, a Clinton-appointed federal appeals judge has struck down the individual mandate, agreeing that: “The federal government’s assertion of power, under the Commerce Clause, to issue an economic mandate for Americans to purchase insurance from a private company for the entire duration of their lives is unprecedented, lacks cognizable limits, and imperils our federalist structure.”

AP:

• 11 People Slain in Acapulco, Mexico. Nearly a dozen people were shot to death over the weekend in the Pacific coast resort of Acapulco, police said Sunday.

Financial Times:

• Germany and France Rule Out Eurobonds. Germany and France are ruling out common eurozone bonds to solve the bloc’s current debt crisis, in spite of renewed pressure ahead of a meeting of chancellor Angela Merkel and president Nicholas Sarkozy on Tuesday. Wolfgang Schäuble, German finance minister, made clear in an interview with Der Spiegel, that Berlin remains opposed to such a policy. “I rule out eurobonds for as long as member states conduct their own financial policies and we need different rates of interest in order that there are possible incentives and sanctions to enforce fiscal solidity,” he said. Senior French officials also played down speculation that any firm announcement on jointly issued bonds would be issued after meetings when Ms Merkel comes to Paris on Tuesday. “Eurobonds would require a much more determined integration of budgetary policy,” one said. “We do not have that today. It could be a long-term project, but you cannot have eurobonds and at the same time national economic and budgetary policies.”

Telegraph:

• Pakistan 'gave China access to bin Laden raid helicopter'. Pakistan reportedly gave China access to the American "stealth" helicopter that crashed during the raid which led to the death of Osama bin Laden. The CIA had explicitly requested that technology from the helicopter not be shared but Chinese military officials were said to have been allowed to take photographs of it and to obtain samples of its special "skin" that allowed it to evade radar. If confirmed the disclosure will further shake relations between the United States and Pakistan which hit their lowest point in decades following the raid on May 2.
• ECB is Euroland's Last Hope as Bail-Out Machinery Fails to Resolve Crisis. The leaders of Germany and France have three bad choices as they decide whether to save EMU this week, or pretend to do so.

Guardian:

• Financial Burden of Debt Crisis Could Lead Countries to Opt Out of the Euro. If Italy and Spain are in the firing line and could eventually need bailing out, as bond markets have been signalling, then Germany's taxpayers won't be the only ones on the hook – France will have to pay its share of the price too. Nothing in the latest rescue deal, to increase the powers of the European financial stability facility (EFSF) and arrange a bond-swap for Greece, provided an answer to the wider sovereign debt crisis. Leaders hoped it would buy them enough time to go on holiday; in the event, the peace deal with the markets lasted little more than days. Clearly, something more radical is needed – and it's not banning the short-selling of bank shares. George Osborne's blithe insistence in the Commons on Thursday that our European neighbours should examine the idea of issuing "eurobonds": joint debts, guaranteed by all the governments in the single currency, glossed over deep issues of democracy. The eurobond may be what you get if you take the founding principles of the eurozone to their logical conclusion; but it involves a wholesale surrender of economic sovereignty. That sounds anodyne in theory, but in fact, as the Greeks have already discovered, it means your creditors – in this case eurozone partners – combing through every penny of your public spending plans, raising objections to how much you're paying teachers, how many civil servants you're prepared to sack, and which treasured national assets you put up for sale at knockdown prices. That might be the consequence of living beyond your means during the boom years, but it's still an affront to national democracy.

Der Spiegel:

• Interview with George Soros. 'You Need This Dirty Word, Euro Bonds'. In a SPIEGEL interview, billionaire investor George Soros criticizes Germany's lack of leadership in the euro zone, arguing that Berlin must dictate to Europe the solution to the currency crisis. He also argues in favor of the creation of euro bonds as a way out of the turbulence.

Wirtschaftswoche:

• Morgan Stanley's(MS) co-chief economist, Joachim Fels, reckons there's a 50% chance of the global economy going into a recession, citing an interview. America's expansive monetary policy is causing inflation to soar worldwide, it cited the economist as saying.

Welt am Sonntag:

• German solar power companies employ fewer workers than industry bodies report, citing research by Berlin's HTW University of Applied Sciences. There are currently about 80,000 jobs in the German photovoltaic industry, some 40% less than the 133,000 positions reported by industry associations, citing the university's calculations.
• The ECB is buying Italian and Spanish bonds with a maximum maturity of 10 years to minimize risk, citing people in the financial industry. The longer the duration of the bonds the longer those bonds are a risk in the balance sheet of the central bank and the bigger the danger of writedowns, Welt said. The ECB declined to comment.
• German banks may struggle with the same problems as their French counterparts, citing Barry Eichengreen, who teaches economics and political sciences at the University of California, Berkeley. In Germany, as in France, banks lack sufficient capital, citing the economist. "If growth in Germany gets weaker, those problems could become visible very quickly," Eichengreen said.
  

Tagesspiegel:

• Rainer Bruederle, floor leader of Chancellor Angela Merkel's Free Democratic Party coalition partner, said his party's backing for an expanded European Union rescue facility at the end of September will depend on clear debt-limit rules in the euro zone. Euro-bonds would be "dangerous" because they wouldn't motivate individual countries to manage their economies responsibly, the newspaper quoted Bruederle as saying in an interview.

FAS:

• Germany's lower house of parliament needs more than "a few days" to debate any measures regarding a euro-zone rescue fund, citing Bundestag President Norbert Lammert. The Bundestag should be fully consulted on resolutions concerning a bailout, as well as on the budget, and it will be almost impossible to approve a decision in the three days through Sept. 23, Lammert said of the government's current timetable.
• Lars Fed, a member of German Chancellor Angela Merkel's council of economic advisers, said France's AAA credit rating is at risk of a downgrade in the medium term, according to an interview. France's debt ratio to its gross domestic product is too high, Feld said. The European Union rescue fund would have to be restructured if France's rating was cut, probably resulting in higher costs for Germany, the German economic adviser said in the interview.
  

FAZ:

• Munich Re has almost halved its holdings in stocks in recent weeks because of the debt crisis, citing an interview with CFO Joerg Schneider.

Handelsblatt:

• The automobile industry faces a "significant slowdown" next year because of economic conditions, citing a study by the CAR-Center Automotive Research unit at the University of Duisburg-Essen.
• German Economy Minister Philipp Roesler said he's firmly opposed to the introduction of euro bonds, citing an interview. Countries that use the euro should take individual responsibility, Roesler said. The introduction of euro bonds would also mean higher interest rates in Germany, citing the minister.
• European Union Energy Commissioner Guenther Oettinger said an Italian default would probably break the euro zone because the country would stop contributing to the rescue fund, citing an interview. Oettinger is against increasing the 440 billion-euro European Financial Stability Facility fund.
  

The Economic Times:

• George Soros Suggests Greece, Portugal Quit Euro-Zone. George Soros, the US speculator turned billionaire philanthropist, has suggested both Greece and Portugal quit the European Union and the euro-zone because of their massive debts. "One has so mishandled the Greek problem that the best way forward at present might be an orderly exit" with Greece leaving both the EU and the euro common currency, he said in an interview published Sunday by the German magazine Spiegel. He suggested the same might go for Portugal.
  "The EU and the euro would survive it," he added.

Shanghai Securities News:

• Chinese equity mutual funds cut their average stock holdings to 75.85% in their portfolio last week from 79.96% the previous week, citing Shenyin & Wanguo Securities Co.

Haaretz:

• Tens of thousands take to Israel's streets as social protests move out of Tel Aviv. Mass demonstrations take place in Haifa, Be’er Sheva and Afula with smaller protests taking place elsewhere throughout Israel.

Weekend Recommendations
Barron's:

• Made positive comments on (BAC).

Night Trading

• Asian indices are +.50% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 147.0 -4.0 basis points.
• Asia Pacific Sovereign CDS Index 148.0 +3.25 basis points.
• FTSE-100 futures +.75%.
  
• S&P 500 futures +.71%.
• NASDAQ 100 futures +.72%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SYY)/.57
• (LOW)/.66
• (EL)/.25

Economic Releases
8:30 am EST

• Empire Manufacturing for August is estimated at 0.0 versus -3.76 in July.

9:00 am EST

• Net Long-term TIC Flows for June are estimated to rise to $32.6B versus $23.6B in May.

10:00 am EST

• The NAHB Housing Market Index for August is estimated at 15.0 versus a reading of 15.0 in July.

Upcoming Splits

• (HMSY) 3-for-1
• (OZRK) 2-for-1
• (EDU) 4-for-1
  

Other Potential Market Movers

• The Fed's Lockhart speaking and the 3 & 6 Month T-Bill Auctions could also impact trading today.
  

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