Bear Radar

Style Underperformer:

• Mid-Cap Growth (-1.01%)

Sector Underperformers:

• 1) Computer Hardware -3.41% 2) Disk Drives -2.12% 3) Alt Energy -2.02%

Stocks Falling on Unusual Volume:

• DELL, DRIV, BDC, FSLR, HPQ, HSFT, SODA, URBN, ERIC, IDCC, NDAQ, EPAY, HTHT, CTXS, FCFS, CAR, PERY, JRCC, ULTI, RRGB, FOSL, GOOG, JBHT, BIDU, BOKF, CHS, FLO, ANF, BKS, JWN, TLEO, REGN, DECK and BCSI
  

Stocks With Unusual Put Option Activity:

• 1) IVN 2) AMTD 3) XLU 4) HOGS 5) BYD
  

Stocks With Most Negative News Mentions:

• 1) FSLR 2) AGU 3) BKD 4) ANN 5) DRIV
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value (+.99%)

Sector Outperformers:

• 1) Tobacco +1.79% 2) Banks +1.69% 3) Telecom +1.69%

Stocks Rising on Unusual Volume:

• ATPG, STO, E, TGT, ARO, CISG, GILD, SPLS, ELOS, BCA, NFP, VHC, ACM and JKHY
  

Stocks With Unusual Call Option Activity:

• 1) CHS 2) ODP 3) STJ 4) FTNT 5) DELL
  

Stocks With Most Positive News Mentions:

• 1) GOOG 2) HD 3) DNB 4) HAIN 5) PLUS
  

Charts:

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

Wednesday Watch

Evening Headlines

Bloomberg:

• Stalling EU Economy May Hold ECB Rates. Europe’s unexpectedly sharp economic slowdown has increased the risk of another recession and may prevent the European Central Bank from raising interest rates again this year. The 17-nation euro-area economy may struggle to gather momentum after growing just 0.2 percent in the second quarter, its worst performance since emerging from the last recession in 2009, said economists including Marco Valli at UniCredit Global Research and Stewart Robertson at Aviva Investors. France’s economy stagnated and in Germany, the region’s economic engine, expansion almost stalled. “I’m comfortable believing that this is a temporary slowdown, but the focus will remain on recession risks for the next few months,” said Valli, chief euro-region economist at UniCredit in Milan. “Rate hikes are off the table for now.” Europe’s weakness may persist for the remainder of the year as governments from Ireland to Italy cut spending to rein in ballooning budget deficits and the global economy cools. Europe’s debt crisis, having prompted bailouts of peripheral nations Greece, Ireland and Portugal, is now affecting confidence in the region’s core economies. German GDP rose 0.1 percent in the second quarter; the median forecast of economists was for 0.5 percent growth. “The weak GDP print piles pressure on euro-zone authorities to come up with a structural solution to the debt crisis,” said Martin van Vliet, senior euro-area economist at ING Bank in Amsterdam, who hasn’t discounted the possibility of a recession. “Much depends on whether further contagion from the financial-market turbulence to consumer and business confidence will be avoided.”
  
• German Euro Bond Critics Roused by U.S. Downgrade: Euro Credit. Chancellor Angela Merkel’s resolve to defend Germany’s top credit rating in the wake of Standard & Poor’s U.S. downgrade is at odds with the likely expense of containing Europe’s debt crisis. Merkel faces a domestic audience both wedded to Germany’s AAA rating and divided over whether Europe’s largest economy should provide financial succor to its currency-union partners in the form of common bonds. Mohit Kumar of Deutsche Bank AG estimates an aggregate credit rating of AA+ for the euro region, a notch lower than Germany is used to, which would make it impossible to maintain a top grade while allowing Euro bonds. “A transfer union where Germany pays for the debt of other countries, but has no access to their tax revenues, would probably be the worst outcome for Germany’s rating,” said Kornelius Purps, a strategist at UniCredit SpA in Munich. The difference between the cost to insure German bunds and U.S. Treasuries rose to a record 34 basis points on Aug. 11, as traders increased bets that Germany will end up responsible for the debts of countries such as Italy and Spain, whose 10-year borrowing costs topped 6 percent this month. The German-American gap widened even after Standard & Poor’s cut the U.S. government’s credit rating one level to AA+ on Aug. 5. “The downgrade by S&P sends a significant sign to market participants” that there’s a “turnaround” in the perception of debt sustainability for major economies, said Peter Walschburger, a professor at Berlin’s Freie Universitaet who specializes in economic psychology.
• Companies are paying the most to borrow relative to benchmark government debt since September 2009 as investors shun all but the safest securities on concern the biggest economies are faltering. The extra yield investors worldwide demand to own corporate rather than government debt is 214 basis points, up from this year's low of 145 on April 11, according to Bank of America Merrill Lynch's Global Broad Market Corporate Index.
• Some Rare Earth Prices Will "Collapse" on Oversupply, Miner Says. Prices for some rare-earth minerals, which have soared in the past year after China restricted exports, will plunge as additional output creates an oversupply, according to a company developing a rare-earth mine in Wyoming. "We're going to see a collapse of some of the prices," said Don Ranta, chief executive officer of Vancouver-based Rare Element Resources Ltd. So-called light rare earths, including lanthanum, which is used in oil refining, and cerium, used in glass polishing, will "come down substantially," he said today in an interview at Bloomberg headquarters in New York. "Those are going to be in oversupply."
• Pakistan Seeks $300 Million to Fund Gas Pipeline. Pakistan plans to borrow $300 million from local banks to build a pipeline that will carry natural gas from Iran, easing its worst energy crisis. Local state-owned companies will provide about $210 million in equity for the $1.3 billion pipeline, said Mobin Saulat, acting managing director of Inter State Gas Systems Ltd., the agency responsible for the project. Pakistan may approach foreign companies including OAO Gazprom, International Petroleum Investment Co. and China National Petroleum Corp. for the rest of the financing, he said. Local funding is crucial for the project because of pressure on Western banks and international agencies to isolate Iran, which the U.S. and European Union say is seeking to build nuclear weapons.
• Los Angeles Mayor Tests 'Third Rail' in Call for Proposition 13 Changes. Los Angeles Mayor Antonio Villaraigosa, the chief of California’s largest city, called for sweeping changes in Proposition 13, the nucleus of the nation’s anti-tax movement. The state’s perennial budget crises could be eased by as much as $8 billion a year by removing Proposition 13’s limits on tax assessments for commercial property, Villaraigosa said in a speech to the Sacramento Press Club today. He also urged new taxes on services such as legal representation that he said might yield as much as $28 billion a year. “We need to have the courage to test the voltage in some of these so-called ‘third rail’ issues, beginning with Proposition 13,” said Villaraigosa, referring to notions deemed so politically sensitive as to be untouchable.
• VIX Swings Prompts Redemptions in Barclays ETN. Investors are using exchange-traded notes to speculate U.S. stock declines will slow, placing record bets that the benchmark gauge for volatility is poised to decrease after soaring the most in four years. Outstanding stock in Barclays Plc (BARC)’s iPath S&P 500 VIX Short-Term Futures ETN (VXX), which rallies when volatility increases, plunged 48 percent last week for the biggest drop in its 30- month history. Credit Suisse Group AG (CSGN)’s VelocityShares Daily Inverse VIX Short Term ETN (XIV), a bet the gauge will fall, rose to a record 49.9 million shares, becoming the second-largest ETN tied to equity swings.
• Singapore July Exports Decline 2.8%. Singapore’s exports fell the most since 2009 in July as sales of electronics slumped, adding to concern the city state may experience a recession as global economic risks grow. Non-oil domestic exports declined 2.8 percent from a year earlier, after a revised 1 percent gain in June, the island’s trade promotion agency said in a statement today. The slide was the largest since the 6.2 percent drop in October 2009. The median of 12 estimates in a Bloomberg News survey was for an increase of 4.6 percent. The weakness in shipments abroad raises the odds of a “technical” recession in Singapore, CIMB Research Pte and Bank of America Merrill Lynch said today. “We could see a real risk of Singapore, being one of the most export-oriented economies on this planet next to Hong Kong, experiencing a technical economic contraction,” said Song Seng- Wun, an economist at CIMB Research in Singapore who has analyzed Asian economies for more than two decades. “It could be a sign of things to come for the other economies around the region.” Electronics shipments by companies such as contract manufacturer Venture Corp. dropped 16.9 percent in July from a year earlier, after declining 17.2 percent the previous month. Singapore’s central bank may maintain a stance of allowing modest appreciation in the local dollar in October because the threat from inflation remains, Song said. The island uses the exchange rate as its main tool to manage monetary policy.
• Too Soon to Bet on India Easing Policy: Credit Suisse. Investors should hold off from bets that India’s central bank will cut interest rates as global inflation is unlikely to fall enough to bring down the country’s wholesale-price index, Credit Suisse Group AG said. “Against market consensus of inflation falling and thus potentially driving rate cuts, we believe it is too early for the ‘monetary easing’ trade,” Neelkanth Mishra and Karthik Visvanathan, analysts at Credit Suisse, wrote in today’s report. Prices are “unlikely to fall much” amid quantitative easing in developed markets unless the rupee rises against the dollar, they wrote. India’s wholesale-price index rose 9.22 percent in July from a year earlier, the commerce ministry said yesterday, after a 9.44 percent jump in June. Emerging-market stocks may not have reached their lows because inflation has yet to slow in the so- called BRIC nations of Brazil, Russia, India and China, Adrian Mowat, JPMorgan Chase & Co.’s emerging-market strategist, said yesterday. India’s inflation is the fastest among the four nations.
• Fed's Bullard Says New 2013 Rate Pledge Not a Signal for More Bond Buying. St. Louis Federal Reserve Bank President James Bullard said the Fed’s pledge to keep rates at a record low through at least mid-2013 shouldn’t be seen as a signal for a new round of central bank bond purchases. “The most likely outcome for the U.S. economy is still that the economy continues to grow at a moderate pace through the second half of the year,” Bullard said today in a telephone interview. “If the economy is substantially weaker than expected, we could take more action, especially if it was coupled with a renewed deflation risk,” he said. Bullard, who doesn’t vote on monetary policy this year, said he would have dissented against the Aug. 9 Federal Open Market Committee statement that for the first time attaches a date to its pledge to keep borrowing costs in a range of zero to 0.25 percent. “I think it is a much tougher call to do more QE this time around than it was last year,” Bullard said. “The inflation picture is different this year than it was last year and the risk of deflation is much more remote than it was last year.” “Moving farther into unchartered territory could be helpful for the economy but might also generate substantial inflation,” he said. “So we have to weigh the risks of going further into unchartered territory.” Bullard said he opposed setting a date to the rate commitment because it limits the Fed’s flexibility to adjust to new economic data. It could also trigger a “political battle” and create an additional risk of deflation by encouraging public expectations that prices will head toward a “Japanese-style outcome,” he said. “Most importantly, I think it puts the committee in a box if the economy improves and an inflation problem begins to develop,” he said. If inflation rises and the Fed is forced to react before 2013, “that will cost us some in terms of credibility.” While seven members of the panel favored the action, Dallas Fed President Richard Fisher, Charles Plosser of Philadelphia and Narayana Kocherlakota of Minneapolis voted against it. Bullard’s views have sometimes foreshadowed shifts in the FOMC.
• China Rail Investment Drops 26% on Crash. China’s rail construction investment slumped 26 percent last month after a deadly high-speed train collision prompted officials to suspend approvals for new projects and impose more safety checks. Rail construction investment in July amounted to 41.2 billion yuan ($6.4 billion), compared with 55.8 billion yuan a year earlier, based on Ministry of Railways data released Aug. 15. The Chinese government ordered trains to lower speeds and reduced Beijing-Shanghai bullet-train services after the July 23 collision, which killed 40 people. It dismissed the railway ministry’s spokesman and ordered trainmaker China CNR Corp to recall 54 high-speed locomotives for safety checks. Total rail construction investment in the first seven months of the year dropped 2.5 percent from a year earlier to 283 billion yuan, according to the ministry data. In the first half, the figure was 242.2 billion.

Wall Street Journal:

• President Weighs Asking Panel for Stimulus Measures. President Barack Obama is considering recommending that lawmakers on a deficit committee back new measures to stimulate the lagging economy, people familiar with White House discussions said Tuesday. The plan Mr. Obama is considering also would recommend the congressional committee come up with a package that reduces the federal budget deficit by much more that its mandate of $1.5 trillion over the next decade, a senior administration official said, through changes in the tax code and social safety-net programs. "There's no reason to stop at $1.5 trillion," the official said.
• Syria Threatens Dissidents Around Globe, U.S. Says. Syria is taking its war against President Bashar al-Assad's political opponents global, using diplomats in Washington, London and elsewhere to track and intimidate expatriates who speak out against the Damascus regime, according to Syrian dissidents and U.S. officials. Syrian embassy staffers are tracking and photographing antiregime protesters and sending reports back home, Syrian activists and U.S. officials say. Syrian diplomats, including the ambassador to the U.S., have fanned out to Arab diaspora communities to brand dissidents "traitors" and warn them against conspiring with "Zionists."
• Buyers Wary of Building Bubble. Some of the nation's largest pension funds are starting to back away from trophy properties in the most expensive real-estate markets over concerns a new bubble is inflating. After property prices crashed during the financial crisis, pension funds—among the biggest investors in commercial real estate—turned their investment strategies away from risky speculative projects and toward properties considered "core," well-leased buildings that are seen as low risk due to their stable income, in cities such as New York, Washington and San Francisco.
• Verizon(VZ) Steps Up Labor Fight. In the latest escalation of an increasingly bitter labor battle, Verizon Communications Inc. has been telling union members it will suspend basic health-insurance and medical benefits on Aug. 31 for all workers still on strike at that time. Verizon issued the threat in letters sent to 45,000 workers, who walked off the job to protest proposed cuts to their benefits that the telecommunications company says are necessary to stem a sales decline in its traditional wireline business.
• Maverick Capital Does An About-Face on Goldman Sachs(GS). Maverick Capital, the Dallas hedge fund run by Lee Ainslie, high-tailed it out of a relatively new position in Goldman Sachs Group during the second quarter. The fund sold its entire 817,742 shares of Goldman between April and June, according to a quarterly securities filing. Maverick had acquired the stake during the first three months of the year.
• Warren Buffett's Tax Dodge. The billionaire volunteers the middle class for a tax increase. Since the media are treating Mr. Buffett as a tax oracle, let's take a closer look at some of the billionaire's intellectual tax dodges.
• Nevergreen Solar. In 2008, Reuters published one of those stories predicting that green power would be cost-competitive with fossil fuels in five years. Headline: "As Energy Costs Soar, U.S. Looks to Solar." Among the prophets was Richard Feldt, then the CEO of Evergreen Solar, who said that "it's not far away" and called for more subsidies. On Monday, Evergreen filed for Chapter 11 bankruptcy.

CNBC:

• Putin Sets Sights on Eurasian Economic Union. Twenty years after the Soviet Union collapsed, Vladimir Putin, the Russian prime minister, may not, as is sometimes alleged, be trying to recreate it. But he is pursuing a different project – to build a “quasi-European Union” out of former Soviet states.

Business Insider:

• A Business School Professor Says MBA Programs Helped Wreck The Economy. Business schools educate armies of bankers, investors and corporate finance executives. How come they don’t feel responsible for the financial havoc that has ensued?

Zero Hedge:

• All In A SecTres Day's Work: Total US Debt Hits All Time Record $14,615,567,348,203.71, $28 Billion Higher Overnight.
• Record Number of People Say They Are Paying More For Groceries Now Than Ever Before.
• Putting The Cart On Top Of The Horse. Or Why Heaping Fiscal "Stimulus" Upon "Stimulus" Is Suicide For America.
  

Forbes:

• Statoil Reveals Elephant-Sized Oil Discovery. Statoil has suggested the Aldous and Avaldsnes oil discoveries in the North Sea may collectively contain 500 million and 1.2 billion barrels of recoverable oil. The discovery may represent one of the ten largest oil finds ever on the Norwegian Continental Shelf (NCS). Statoil has a 40% stake both in license PL 265, where Aldous was discovered, and in PL 501, where the Avaldsnes discovery was made. The discovery is located about 140 km west of Stavanger, Norway, in a water depth of 112 meters. “Aldous/Avaldsnes is a giant oil discovery, and according to our estimates the combined discovery may make the top 10 list of NCS oil discoveries. Norway has not seen a similar oil discovery since the mid-eighties,” said Tim Dodson, Statoil’s executive vice president for Exploration. This is the third “high-impact discovery” – defined as a total of more than 250 million barrels of oil equivalent, or 100 million net barrels of oil equivalent - for Statoil as an operator in 2011. In April, the 250 million barrel Skrugard oil discovery was made in the Barents Sea, and the 150-300 million barrel Peregrino South oil field was discovered offshore Brazil.
• China's Not-So-Veiled Threats to Exploit U.S. Debt. The troubling part of Gang’s proposal was not so much the desire to prevent U.S. arms sales to Taiwan, which is hardly surprising, but rather how he suggested China extort the U.S. government. Here is a long excerpt from Gang’s editorial:
  

The Detroit News:

• Treasury Hikes Estimate of Auto Bailout Losses to $14.3 Billion. The Treasury Department has raised the government's estimate of taxpayer losses due to the auto bailout by more than $400 million to $14.33 billion. Earlier this summer, the Treasury had pared its loss estimate to $13.91 billion on its $85 billion bailout of General Motors Co., Chrysler Group LLC and auto finance companies. Overall, the Treasury Department hiked its estimates that it will lose $36.7 billion on its $700 billion Troubled Asset Relief Program, including the value of some AIG shares. That's up from an earlier estimate of $29.6 billion.
  

McClatchy:

• April 5th, 2009 - Warren Buffett, Champion of Bailout, Is Also Leading Beneficiary. Billionaire investor Warren Buffett has been lauded for his plainspoken denunciation of the greed and foolishness behind the economic crisis. He's pushed the massive federal bailout of imploding banks as the essential response to an "economic Pearl Harbor." When Buffett speaks, people in high places listen. He's so highly regarded that in a fall debate, both presidential candidates said they'd consider him for Treasury secretary. A Sacramento Bee examination of regulatory records has found that his extensive holdings in financial firms have made Buffett, the world's second-wealthiest person behind Microsoft Chairman Bill Gates, one of the top beneficiaries of the banking bailout. Just 28 companies received more than 90 percent of the funds so far disbursed to financial firms by the $700 billion Troubled Asset Relief Program. Buffett's company, Berkshire Hathaway, hasn't received any of that federal aid, but Berkshire, based in Omaha, Neb., owns stock valued at more than $13 billion in the top recipients of TARP funds, including Goldman Sachs Group, US Bancorp, American Express and Bank of America, which analysts all thought were in deep trouble before TARP was approved in October. That total, The Bee found, ranks Berkshire fifth among all investors in TARP-assisted companies. Berkshire's TARP holdings constitute 30 percent of its publicly disclosed stock portfolio, and that proportion reflects at least twice as much dependence on bailed-out banks as any other large investor.

The Blaze:

• Ohio Business Owner Terrorized & Shot For Being Non-Union. We’ve all heard the stories of shakedowns and bullying that occurs to many non-unionized workers and private business owners. However, the thuggery might have gone beyond the pale recently when one Ohio business owner was repeatedly harassed, then shot and almost killed, for allegedly being non-union.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 19% 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 -23 (see trends).

Real Clear Politics:

• Perry's Red-Hot Bernanke Slam: A Much Needed Defense of the Dollar by Larry Kudlow. No, Ben Bernanke is not a traitor. This is a policy dispute; it’s not a matter of patriotism. However, and this is an important however, the rest of Perry’s statement suggests that his analysis of Fed policy is right on target. In other words, wrong words, right analysis.

Reuters:

• Dell(DELL) Slashes 2012 Sales Forecast, Bodes Ill for HP(HPQ). Dell Inc slashed its 2012 revenue forecast as an already weak outlook for technology spending this year worsened, sending its shares more than 7 percent lower.

Telegraph:

• Angela Merkel and Nicolas Sarkozy Fail to Calm Markets Despite Eurozone Concord. Traders reacted with exasperation as Angela Merkel and Nicolas Sarkozy repeated their "absolute will to defend the euro" and "shore up investor confidence" yet refused to back the shattered currency with eurobonds or a bigger bail-out fund. The failure to address the two measures left many traders ruing what they see as a lack of political leadership. Edward Meir from MF Global in New York said: "It doesn't look like the two biggest items were seriously discussed -- the potential for a eurobond and the size of the stabilization/bailout fund.

Dau Tu:

• Vietnam's year-on-year inflation may be 20-21% at the end of 2011, citing Le Xuan Nghia, vice-chairman of the National Financial Supervisory Commission.

21st Century Business Herald:

• China will slow the pace of expansion of central government state-owned enterprises over the five years to 2015, compared with the previous five year period, citing Shao Ning, deputy director at the State-owned Assets Supervision and Administration Commission.

Shanghai Securities News:

• China's housing ministry is studying measures to "eliminate" speculation in the nation's property market so it can return to a "normal and rational" order, citing an unidentified person. Home purchase restrictions are currently one of the most effective ways to curb the property market. The central government may ask the local governments to limit home purchases in their jurisdictions if they are reluctant to do so while home prices keep rising, Wang Juelin, a researcher at the Ministry of Housing and Urban-Rural Development, was quoted as saying.

China Daily:

• The U.S. shouldn't launch a third round of quantitative easing as it might cause asset bubbles and stock inflation expectations, Bank of China Ltd. Chairman Xiao Gang wrote today in a commentary in the China Daily. The U.S. should tighten monetary policy to raise confidence in the value of the dollar, Xiao wrote.
• Risks from lending to China's local government financing vehicles are "controllable" if local authorities and banks take effective measures, citing Liu Mingkang, chairman of the China Banking Regulatory Commission, as saying. The nation's financial institutions must strictly control local debt risk and stop loans to vehicles or projects that don't meet requirements, citing Liu in an interview. China's property loan risks are also "controllable," he said. Banks have been told not to roll over loans to developers, citing Liu.
• The U.S. Vice President Joe Biden said he aimed to deepen his relationship with China's top leaders, including Vice President Xi Jinping, during his trip to China, citing an interview with the U.S. elected official.
  

National Business Daily:

• At least 30 more Chinese cities may be required to restrict local home purchases based on five criteria prepared by the housing ministry, citing Zhang Dawei, a researcher at Centaline Property Agency Ltd.

Evening Recommendations
Morgan Stanely:

• Reiterated Underweight on (JCP), lowered target to $25.
  

Night Trading

• Asian equity indices are -.50% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 145.50 +5.5 basis points.
  
• Asia Pacific Sovereign CDS Index 140.75 +1.75 basis points.
• FTSE-100 futures -.34%.
  
• S&P 500 futures +.07%.
  
• NASDAQ 100 futures -.16%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CHS)/.24
• (TGT)/.97
• (BJ)/.77
• (ANF)/.29
• (EV)/.50
• (LTD)/.46
• (JDSU)/.22
• (IRF)/.51
• (CACI)/1.17
• (SNPS)/.43
• (PETM)/.51
• (NTAP)/.55
• (FLO)/.26
• (SPLS)/.19
• (DE)/1.67

Economic Releases
8:30 am EST

• The Producer Price Index for July is estimated to rise +.1% versus a -.4% decline in June.
• The PPI Ex Food & Energy for July is estimated to rise +.2% versus a +.3% gain in June.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -500,000 barrels versus a -5,225,000 barrel decline the prior week. Distillate supplies are estimated to rise by +550,000 barrels versus a -737,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,175,000 barrels versus a -1,588,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.3% versus a +.7% gain the prior week.
  

Upcoming Splits

• (EDU) 4-for-1
  

Other Potential Market Movers

• The Fed's Fisher speaking and the weekly MBA mortgage applications report could also impact trading today.
  

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

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Global Growth Worries, Financial Sector Pessimism, More Shorting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 33.60 +5.43%
  
• ISE Sentiment Index 90.0 +7.14%
  
• Total Put/Call 1.04 -7.14%
  
• NYSE Arms 1.74 +354.72%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 110.26 -1.17%
  
• European Financial Sector CDS Index 194.23 -2.23%
  
• Western Europe Sovereign Debt CDS Index 291.17 -1.02%
  
• Emerging Market CDS Index 263.85 +2.01%
  
• 2-Year Swap Spread 25.0 unch.
  
• TED Spread 28.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .01% +1 bp
  
• Yield Curve 203.0 -7 bps
  
• China Import Iron Ore Spot $176.0/Metric Tonne +.17%
  
• Citi US Economic Surprise Index -74.10 +5.0 points
  
• 10-Year TIPS Spread 2.16% -5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -40 open in Japan
• DAX Futures: Indicating -41 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 pulls back after recent gains on rising Eurozone debt angst, financial sector pessimism, global growth worries, emerging markets inflation fears and technical selling. On the positive side, Drug, Retail, Education and Airlines shares are especially strong, rising more than +.5% on the day. Oil is falling -1.08%. Weekly retail sales rose +4.8% versus a +4.8% gain the prior week. On the negative side, Coal, Alt Energy, Oil Tanker, Oil Service, Steel, Internet, Networking, Bank, Construction and Road & Rail shares are under meaningful pressure, falling more than -2.0%. Cyclicals and small-caps are relatively weak. The Transports have underperformed throughout the day again. (XLF) is also trading poorly. The 10-year yield is falling -8 bps to 2.23%. Gold is rising +1.23%, Lumber is falling -1.27%, Copper is falling -.93% and the UBS-Bloomberg Ag Spot Index is up +.96%. 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 $3.59/gallon. It is up .45/gallon in about 7 months. The Spain sovereign cds is jumping +7.22% to 354.16 bps, the Portugal sovereign cds is climbing +2.43% to 856.12 bps, the Ireland sovereign cds is rising +2.48% to 755.26 bps, the China sovereign cds is rising +5.3% to 107.25 bps and the Eurozone Investment Grade CDS Index is rising +1.51% to 122.92 bps. Singapore stocks fell -1.45% last night and are down -11.2% ytd. As well, Israeli stocks remain under severe pressure, falling another -1.3%, and are down -20.6% ytd. Today's broad equity market performance is worse than the major averages would suggest, with many economically-sensitive stocks taking another beating. The market's adverse reaction to today's news from Europe, which had been telegraphed for days, is a bad sign. European leaders are doubling down on the poor slash-and-tax polices that are already taking their toll on the region's economic growth, which will lead to further budget shortfalls as tax revenue disappoints. The Citi Eurozone Economic Surprise Index plunged -17.1 points today to -33.3, which is a technical breakdown and the lowest level since March 4th, 2010. I expect US stocks to trade mixed-to-lower into the close from current levels on financial sector pessimism, rising eurozone debt angst, more shorting, global growth worries, emerging markets inflation fears and technical selling.

Today's Headlines

Bloomberg:

• Merkel, Sarkozy Propose Closer Regional Cooperation, Shunning Euro Bonds. German Chancellor Angela Merkel and French President Nicolas Sarkozy said they’ll press for closer euro-area economic integration with tougher deficit rules and stricter supervision as they strive to stamp out the debt crisis. Merkel and Sarkozy rejected euro bonds and expanding the 440 billion-euro rescue fund and said they would propose a Europe-wide financial transaction tax, which was rejected in 2010. They set out joint proposals to strengthen the euro including plans for all euro-area states to demonstrate a “verifiable commitment” to anchoring debt limits in national law and a “euro council” to be headed by European Union President Herman van Rompuy. “It’s very obvious that in order for this to work we need a stronger convergence in finance and economic policy within the euro zone and Germany and France are at the vanguard of that effort,” Merkel said. The leaders met as investors clamored for indications that they would do more to stamp out the euro area debt crisis as their economies sputter. Joint euro region bond sales may be “imaginable one day,” though can only be the final step in the process of European integration, Sarkozy said. “I don’t think Europe has used its last resource yet and I don’t think we can resolve the problem with a single big-bang policy,” Merkel said.
• Stocks Fall as Europe Floats Financial Tax. U.S. stocks fell for the first time in four days and the euro slid from a three-week high against the dollar after French President Nicolas Sarkozy said his nation and Germany will propose a financial transaction tax. Oil and copper fell. The Standard & Poor’s 500 Index declined 1.9 percent to 1,181.99 as of 1:07 p.m. in New York. NYSE Euronext and Nasdaq OMX Group Inc., two of the biggest exchange operators in Europe, dropped at least 5.8 percent. Caterpillar Inc., Deere & Co and 3M Co. each lost at least 2 percent, pacing declines in companies most-tied to the economy, after Europe’s economic growth trailed estimates. "Europe will continue to be an overhang until they come up with realistic policies," Peter Jankovskis, who helps manage about $2.6 billion at Oakbrook Investments in Lisle, Illinois, said in a telephone interview. "We’ve already got disappointing economic numbers out of Europe earlier today. Then, you have a program which is not really doing anything to address that."
  
• Corporate, Sovereign Bond Risk Rises in Europe as Growth Slows. The cost of insuring sovereign and corporate debt rose in Europe after reports showed the region’s economic growth slowed more than forecast in the second quarter as Germany’s recovery almost ground to a halt. The Markit iTraxx Crossover Index of credit-default swaps linked to 40 companies with mostly high-yield credit ratings increased 22 basis points to 619.5, according to JPMorgan Chase & Co. at 1 p.m. in London. Contracts on the Markit iTraxx SovX Western Europe Index tied to the debt of 15 governments rose 7 basis points 282, snapping three days of declines. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 5 basis points to 147 basis points. Credit-default swaps on Spain increased 10 basis points to 356, according to CMA. The cost of insuring Italian government bonds climbed 2 basis points to 343. France was little changed at 148 and Ireland was 22 higher at 758.
• European Economy Slows More Than Forecast as Debt Crisis Saps German Might. European economic growth slowed more than economists forecast in the second quarter as Germany’s recovery almost ground to a halt amid the worsening sovereign- debt crisis. Gross domestic product in the 17-nation euro area rose 0.2 percent from the first quarter, when it increased 0.8 percent, the European Union’s statistics office in Luxembourg said in a statement today. That’s the worst performance since the euro region emerged from a recession in late 2009. Economists had forecast the economy to expand 0.3 percent, according to the median of 34 estimates in a Bloomberg News survey. Europe’s economy may struggle to gather strength as governments from Italy to Spain step up budget cuts to fight the debt crisis. In Germany, Europe’s largest economy, growth almost stalled in the second quarter. “Growth may virtually stagnate in the second half and there’s a threat of a renewed recession,” said Martin van Vliet, senior economist at ING Groep NV in Amsterdam. “It’s up to Merkel and Sarkozy to prevent further contagion to the economy; the longer the turbulences persist, the higher the risk of a recession.” Euro-area exports dropped a seasonally adjusted 4.7 percent in June from the previous month, when they rose 1.5 percent, the statistics office said in a separate report today. Imports slumped 4.1 percent and the trade deficit widened to 1.6 billion euros ($2.3 billion) from 800 million euros. German GDP rose 0.1 percent in the second quarter after increasing 1.3 percent in the previous three months. That’s the worst performance since a contraction in the first quarter of 2009. The French economy unexpectedly stalled in the April-June period, while Italy’s GDP increased 0.3 percent. “With Germany’s economy faltering, the euro region didn’t have any significant growth impulses,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf, Germany. “The second half will only show a modest expansion overall.” Adding to signs of slowdown, European manufacturing growth eased in July and economic confidence slumped to the lowest in almost a year. German investors were the most pessimistic in 2 1/2 years last month and executive confidence also weakened. Industrial output unexpectedly dropped in June.
• Roesler Tells Radio Germany Won't Bend in Rejecting Euro Bonds. German Economy Minister Philipp Roesler said his government won’t bend in its opposition to common euro bonds to help solve Europe’s debt crisis, the Free Democrat said in a Deutschlandfunk Radio interview. Germany backs creating a “stability union” that focuses on the sustainability of euro-region finances, Roesler said. That includes all states adopting “debt brakes” in their constitutions, automatic sanctions for infringements and boosting the economic competitiveness of the states, he said. “You’ll see that we unequivocally back this stability union. That’s the position of the German government and -- as made clear in statements -- we view euro bonds as the wrong way,” Roesler said.
• Fannie Mae and Freddie Mac Would Survive in New Form Under Obama Proposal. The Obama Administration is working on a proposal to maintain a large government role in mortgage finance, effectively preserving most of the functions of Fannie Mae and Freddie Mac, according to a person with direct knowledge of the effort.
• Gold Gains for a Second Day as Slowing Economies Stoke Investment Demand. Gold futures gained for the second straight day as the sagging European economy spurred demand for the precious metal as an investment haven. Gold futures for December delivery rose $29.30, or 1.7 percent, to $1,787.30 an ounce at 10:45 a.m. on the Comex in New York. Yesterday, the price climbed 0.9 percent. Before today, the metal jumped 45 percent in the past year, reaching a record $1,817.60 on Aug. 11.
• Oil Drops in New York as Slowing German Economy Signals Demand May Falter. Crude oil fell after Germany’s economy almost stalled in the second quarter, bolstering concern that fuel consumption will diminish. “The disappointing German GDP number is responsible for the bulk of the sell-off we’ve seen today,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Germany was expected to carry the entire euro-zone and now its economy appears to be faltering.” Crude oil for September delivery declined $1.15, or 1.3 percent, to $86.73 a barrel at 12:51 p.m. on the New York Mercantile Exchange. Yesterday, the contract climbed 2.9 percent to $87.88, the highest settlement since Aug. 3. Prices have risen 15 percent in the past year.
• Commodities May Be Poised to Decline 9.7%: Technical Analysis. The S&P GSCI Total Return Index of commodities may fall 9.7% after dropping below its 55-week moving average last week, Commerzbank AG said.
• King Says 'Severe' Market Stress Could Threaten U.K.'s Economic Recovery. Bank of England Governor Mervyn King said that turmoil in the euro region and in world stock markets poses a risk to the U.K. and could push inflation too far below the 2 percent target. “Recent developments in world stock markets and in the euro area are of particular concern,” King said in a letter to Chancellor of the Exchequer George Osborne after inflation kept above the central bank’s 3 percent ceiling in data released today. There is a risk of “severe stress and dislocation in financial markets and, were this risk to crystallize, it would have a significant impact on the U.K. economy.” Inflation accelerated more than economists forecast in July to 4.4 percent, led by the cost of clothes and footwear, housing maintenance and rent. While King predicted that inflation will reach 5 percent in coming months, he said that it might be below 2 percent without the impact of temporary factors such as energy costs and will probably slow through 2012.
• Import Prices in U.S. Rise .3%, Led by Gains in Costs of Fuel, Clothing. Prices of goods imported into the U.S. rose in July, led by gains in costs of fuel, industrial supplies and clothing. The 0.3 percent gain in the import-price index followed a revised 0.6 percent drop in June, Labor Department figures showed today in Washington. Economists projected a 0.1 percent decrease for July, according to the median estimate in a Bloomberg News survey. Prices excluding petroleum rose 0.2 percent. Compared with a year earlier, import prices rose 14 percent, today’s report showed. That was the largest 12-month increase since the 18.1 percent gain in the period from August 2007 to August 2008. The cost of imported petroleum rose 0.6 percent from the prior month and was up 49 percent from a year earlier. Excluding all fuels, import prices increased 0.2 percent from the prior month and were up 5.5 percent from July 2010. Imported food was 0.5 percent more expensive last month. Costs of imported automobiles, parts and engines fell 0.3 percent, the first decline since December 2010. They were up 3.9 percent over the past 12 months. Consumer goods excluding vehicles showed a 0.4 percent advance after increasing 0.2 percent in June.
• Asia Inflation Risk May Climb With Yingluck Plan to Boost Thai Rice Prices. Yingluck Shinawatra became Thailand’s first female prime minister by pledging to lift rural incomes through higher rice prices. The rest of Asia may now have to pay for her campaign promise. Yingluck has said the government will buy unmilled grain from farmers at 15,000 baht ($502) a ton at harvest in November, above current market rates of 9,900 baht. With Thailand the world’s biggest exporter, that may raise rice prices across a region that accounts for 87 percent of global consumption. The leader presented her economic policies to Cabinet yesterday and is scheduled to announce them publicly by Aug. 24. “High rice prices will translate into higher inflation pressures in Asia, at a time when most inflation readings are flirting near the higher end of central-bank target or forecast ranges,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. “Once the global backdrop stabilizes, inflation could come back strongly.”
• Wal-Mart(WMT), Home Depot(HD) Raise Forecasts. Wal-Mart Stores Inc. (WMT) and Home Depot Inc. (HD) raised their full-year forecasts after second-quarter profits beat analysts’ estimates, helped by U.S. consumers shopping for discount items and tools to repair their homes. Profit in the year ending in January will rise to $4.41 to $4.51 a share, up from a previous projection of $4.35 to $4.50, Bentonville, Arkansas-based Wal-Mart, the world’s largest retailer, said today in a statement. Home Depot boosted its annual earnings-per-share forecast by 4.5 percent.
• HTC Asks ITC to Block iPad, iPhone Imports. HTC Corp. (2498), Asia’s second-biggest maker of smartphones, filed a trade complaint at the U.S. International Trade Commission that seeks to block imports of Apple Inc.’s iPhone, iPad and Mac computers. The complaint filed today in Washington claims Apple is infringing three patents related to wireless technology and follows a case lodged last year at the ITC that made similar claims.

Wall Street Journal:

• Europe Moves to Heal Crisis. The leaders of France and Germany said Tuesday they would propose electing a permanent head of the euro zone to shore up governance of the monetary union, but stopped short of more fundamental steps toward refashioning the area into a federal entity with its own debt agency. "We want to state our absolute will to defend the euro," said French President Nicolas Sarkozy after a meeting in Paris with German Chancellor Angela Merkel.

Business Insider:

• The Americas Are the Next OPEC. Foreign Policy magazine is out with one of its "big trends" issues and ordinarily we avoid these things like the plague. However.
  

Zero Hedge:

• 2pm Financial Sector CDS Update.
• Another Chinese Fraud? Alfred Little Believes Sinotech Energy(CTE) is Worth Between $.00 and $.63.
• Morgan Stanley's Credit Team Joins the Bearish Call, Looks to Reduce Risk in Counter-Trend Rallies.
  

NY Post:

• Goldman(GS), JPMorgan(JPM) Lose $20M in Spat. Goldman Sachs and JPMorgan have killed their Motorola golden goose, The Post has learned. Motorola Mobility is putting them in the penalty box by not including them as advisers in its $12.5 billion sale to Google because, sources close to the matter said, the two Wall Street giants fought during an earlier Motorola deal.
• More Wall Street Job Cuts Ahead. Wall Street firms, having already trimmed payrolls by as much as 15 percent since 2008, are sharpening the layoff ax again, The Post has learned. The second round of job cuts could start as soon as September, sources said, and could trim head counts by 5 percent to 10 percent. This could amount to the loss of thousands of jobs in one of the city’s best-paid sectors.
  

Gallup:

• Obama Job Approval: Approve 39%, Disapprove 53%. (graph)

Financial Times:

• Fitch Maintains US's Triple A Rating. The US still deserves a triple A credit rating with a stable outlook, Fitch Ratings said on Tuesday, highlighting the different tacks that leading agencies have taken on US creditworthiness.
• France and Germany Plan Joint Taxation. France and Germany are to adopt a common corporate tax system by 2013, in an effort to signal greater co-ordination of economic policy after confidence in the euro was buffeted by the sovereign debt crisis.

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.

Passauer Neue Presse:

• European leaders have no more than "a few weeks left" to solve the region's debt crisis which could bring about a widespread collapse of banks, citing Anton Boerner, president of Germany's BGA lobby of exporters and wholesalers.

Caixin:

• China's consumer price increases may be above 5% till the first quarter next year, citing Zhang Ping, a deputy director at the Chinese Academy of Social Science's economics institute.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.91%)

Sector Underperformers:

• 1) Oil Service -2.71% 2) Steel -2.50% 3) Road & Rail -2.41%

Stocks Falling on Unusual Volume:

• DDS, YOKU, SINA, HNR, DB, URBN, SODA, IDCC, HTHT, NDAQ, ERIC, CPLA, CAR, PERY, BIDU, GOOG, DTLK, EPAY, FCFS, GIVN, CTXS, FOSL, PCLN, JBHT, JRCC, FEZ, EWK, DKS, SHI, KCE, IAI, CHS, ALB, IDCC, WAT and URBN
  

Stocks With Unusual Put Option Activity:

• 1) EWT 2) NYX 3) SPLS 4) TYC 5) SVU
  

Stocks With Most Negative News Mentions:

• 1) ALB 2) PRI 3) AMAT 4) ABX 5) ANN
  

Charts:

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