Stocks Rising into Final Hour on Less Eurozone Debt Angst, Dovish Fed Commentary, Short-Covering, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Slightly Lower
  
• Sector Performance: Mixed
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 32.14 -.43%
  
• ISE Sentiment Index 54.0 -59.4%
  
• Total Put/Call 1.08 +10.20%
  
• NYSE Arms 1.15 +315.78%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 121.19 -1.41%
  
• European Financial Sector CDS Index 229.67 -4.26%
  
• Western Europe Sovereign Debt CDS Index 304.25 +.36%
  
• Emerging Market CDS Index 281.64 -2.35%
  
• 2-Year Swap Spread 30.0 unch.
  
• TED Spread 32.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .01% +1 bp
  
• Yield Curve 199.0 -7 bps
  
• China Import Iron Ore Spot $178.90/Metric Tonne +.36%
  
• Citi US Economic Surprise Index -59.6 -4.6 points
  
• 10-Year TIPS Spread 2.03% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -20 open in Japan
• DAX Futures: Indicating +19 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 builds on recent gains despite Eurozone debt angst, global growth worries, more poor economic data, financial sector pessimism and rising food/energy prices. On the positive side, Oil Tanker, Homebuilding, Gaming, Education and Road & Rail shares are especially strong, rising over +1.25% on the day. Copper is gaining +1.19% and Lumber is gaining +.63%. The France sovereign cds is falling -3.96% to 158.66 bps, the Portugal sovereign cds is declining -5.77% to 960.90 bps, the UK sovereign cds is falling -5.44% to 79.20 bps and the Germany sovereign cds is falling -1.46% to 83.69 bps. Weekly retail sales rose +4.2% this week versus a +4.4% gain the prior week. On the negative side, Coal, Semi, Bank, I-Bank, Medical, Insurance and Airlines shares are lower on the day. (XLF) has undperformed throughout the day. The 10-Year yield is falling -7 bps to 2.18%. Oil is rising +1.7% and Gold is gaining +2.8%. Rice is hitting a new multi-year high today, rising +32.0% in about 8 weeks. The average US price for a gallon of gas is unch. today at $3.61/gallon. It is up .47/gallon in about 7 months. The Greece sovereign cds is gaining +1.46% to 2,221.32 bps and the US sovereign cds is up +2.59% to 48.57 bps. The 2-Year Euro Swap Spread is rising 3.6 bps to 88.28 bps, which is back near a multi-year high. The Eurozone Financial Sector CDS Index is still near it recent all-time high. The Citi Eurozone Economic Surprise Index has plunged -109.0 points in about 3 weeks to -102.90. The UBS-Bloomberg Ag Spot Index is at a record high, which is also a large negative. The Shanghai Composite did not participate in the Asian equity rally again overnight, falling another -.38%, and is down -8.60% ytd. The ongoing trend higher in key cds remains a large negative. Volume was light again on today's stock advance. Oil Tanker and Hombuilding shares, which have been two of the worst-performing groups this year, led today's advance. As well, the euro continues to sit out the recent stock rally despite equity trader optimism over developments in the region. I continue to believe any sustainable equity advance must be accompanied by a meaningful decline in Eurozone debt angst, which has yet to be seen. As well, I continue to believe QE2 was an overall disaster and that any near-term stock rally on rising QE3 expectations will be short-lived as it would eventually ensure hard-landings in many key emerging markets economies. Food prices, even before any additional QE, are now above levels that sparked riots in some parts of the world and boosted inflation gauges globally earlier in the year. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, technical buying, less eurozone debt angst and more dovish Fed commentary.

Today's Headlines

Bloomberg:

• Italian Bonds Fall a Seventh Day as Demand Drops at 10-Year Sale. Italian bonds fell for a seventh day, the longest losing streak since February, as demand weakened at the first auction of 10-year securities since the European Central Bank began buying the nation’s debt. Italy’s 10-year bond yield increased two basis points to 5.11 percent as of 4:03 p.m. in London. They earlier climbed to 5.16 percent, the highest since Aug. 10.
  
• European Banks Need Bigger Writedowns on Greek Bonds, Standards Board Says. Some European banks haven’t sufficiently written down the value of Greek government bonds and other “distressed sovereign debt” they own, the organization that sets accounting rules in the region said. Banks and other financial institutions are valuing the bond holdings in a way that, in some cases, reflects internal models instead of market prices, the International Accounting Standards Board said in a letter published on its website today. “It is hard to imagine that there are buyers willing to buy these bonds at the prices indicated,” the IASB said in the letter, dated Aug. 4 and sent to the European Securities and Markets Authority. “This is a matter of great concern to us.” “Although the level of trading activity in Greek government bonds has decreased, transactions are still taking place,” meaning market prices can be assessed, Hoogervorst said. “A company cannot ignore relevant market data.”
• U.S. Consumer Confidence Plunges to Two-Year Low. Confidence among U.S. consumers plunged to the lowest level in more than two years as Americans’ outlooks for employment and incomes soured. The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July, figures from the New York-based research group showed today. It was the biggest point drop since October 2008. A separate report showed home prices declined for a ninth month. Economists predicted the Conference Board’s gauge would fall to 52 in August, according to the median forecast in the Bloomberg survey. The index averaged 98 during the economic expansion that ended in December 2007. The share of consumers who said jobs are currently hard to get increased to 49.1 percent, the highest since November 2009, from 44.8 percent in July. Confidence dropped in all nine U.S. regions. The Conference Board’s data showed a measure of present conditions declined to 33.3, the second-lowest this year, from 35.7 in July. The measure of expectations for the next six months slid to 51.9, the weakest since April 2009, from 74.9. The percent of respondents expecting more jobs to become available in the next six months fell to 11.4, the lowest since March 2009, from 16.9 the previous month. The proportion expecting their incomes to rise over the next six months declined to 14.3 from 15.9. The percent expecting a drop rose to 18.7, the highest since November 2009. Fewer respondents in the Conference Board’s survey indicated they were planning to buy a house, while more intended to purchase cars or major appliances in the next six months.
• China Money Rate Jumps Most in Seven Days on Cash Crunch Concern. China’s benchmark money-market rate jumped the most in seven days and the cost of one-year swaps climbed to a record on concern the central bank’s expansion of reserve requirements will worsen a cash crunch. The seven-day repurchase rate, which measures interbank funding availability, has surged 89 basis points this week after Standard Chartered Plc and Bank of America Merrill Lynch said the central bank issued a notice on Aug. 26 including margin deposits in the requirements. Guotai Junan Securities Co, the nation’s biggest brokerage by revenue, yesterday said banks will face “cash depletion” following the “bigger-than-expected” tightening measure. “The new policy will have a big impact on China’s liquidity situation in September,” said Shi Lei, head of fixed- income research in Beijing at Ping An Securities Co., a unit of the nation’s second-biggest insurance company. “The cash shortage will probably worsen in the second half of next month, when banks are desperate for cash to meet month-end capital requirements.” The seven-day repurchase rate climbed 55 basis points to 4.96 percent as of the 4:30 p.m. close in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. The one-year swap contract, the fixed cost needed to receive the floating seven-day repo rate, rose six basis points to 4.43 percent in Shanghai, according to data compiled by Bloomberg. It touched 4.52 percent today, the highest level since Bloomberg started compiling the data in 2006.
• Gold Rises on Expectations Fed Will Ease. Gold rose in New York on speculation that the Federal Reserve will ease monetary policy further to stimulate the economy, boosting the appeal of the precious metal as an alternative asset. “We need to do more,” Chicago Fed President Charles Evans said today in a CNBC interview. The Standard & Poor’s 500 Index fell after a report showed confidence among U.S. consumers plunged in August to the lowest in almost two years. Gold has rallied 12 percent this month, touching a record $1,917.90 an ounce on Aug. 23. Gold futures for December delivery gained $38.20, or 2.1 percent, to $1,829.80 at 11:09 a.m. on the Comex in New York. Gold futures for December delivery gained $38.20, or 2.1 percent, to $1,829.80 at 11:09 a.m. on the Comex in New York.
• Euro Weakens as Trichet Spurs Bets Rate Rises Over; Franc Gains. The euro weakened against most major counterparts on speculation the European Central Bank has finished raising interest rates as the region’s sovereign-debt crisis curbs economic growth. The euro dropped 0.6 percent to $1.4431 at 12:02 p.m. in New York.
• European Economic Confidence Falls Most Since December 2008. European confidence in the economic outlook plunged the most since December 2008 this month as a persistent debt crisis roiled markets and clouded growth prospects across the 17-nation euro region. An index of executive and consumer sentiment in the single- currency region fell to 98.3 from a revised 103 in July, the European Commission in Brussels said today. That’s the lowest since May 2010. Economists had forecast a decline to 100.2, according to the median of 29 estimates in a Bloomberg News survey. In Europe, a gauge of sentiment among manufacturers dropped to minus 2.9 from 0.9 in the previous month, today’s report showed. An indicator of services confidence fell to 3.7 from 7.9, while a measure of consumer confidence declined to minus 16.5 from minus 11.2.
• Icahn Says He'd Buy Clorox(CLX) for $78 a Share.
• Fed's Evans Favors 'Aggressive' Policy Easing After Weak First-Half Growth. Federal Reserve Bank of Chicago President Charles Evans urged easier monetary policy and said he favors setting unemployment and inflation markers that would trigger a pullback from near-zero interest rates. “I would favor more accommodation,” Evans, a voting member of the Fed’s policy-making committee, said today in a CNBC television interview. “I am in favor of some of the most aggressive policy actions of anyone on the committee.” “I am somewhat nervous about the economic recovery and where we stand at this point,” Evans said. “The first half of this year got revised down and we had very weak growth. We had been hoping to achieve something much more like a launch or escape velocity for growth.” Evans said he “would have wanted to do more” easing earlier this month, when the Fed decided to commit to keeping its target rate near zero through mid-2013. The commitment is conditioned on “low rates of resource utilization and a subdued outlook for inflation,” which Evans said may be too vague. “One thing I think we really ought to do is clarify what our policy intentions are going forward,” he said. “It is conditional. I think we need to explain what we mean by that conditionality.”

Wall Street Journal:

• Euro Zone Considers Bank Shares As Collateral For Greek Aid - Report. The euro zone is considering providing donor members including Finland with collateral in the form of Greek banking shares to secure the next aid package for Athens, Germany's Handelsblatt reported.

CNBC.com:

• Risk of Double Dip in Europe Increases: S&P. High unemployment and the recent decline in stock markets pose a risk to spending, rating agency Standard & Poor's wrote on Tuesday in a report headlined 'Slowing Growth in Europe Increases the Risk of a Double Dip.'

Business Insider:

• FOMC Minutes Show Deep Divisions In The Fed.
• Actually Chinese Inflation Hasn't Slowed And It's About To Get Worse. Economists have been virtually universal in their prediction that Chinese inflation would peak this summer — so much so that I’ve felt like a pretty lonely skeptic.

Zero Hedge:

• Lagarde Now Angers France, Which Blames The Collapse In Financial Markets On The Seasons.
• Israel Sends Two More Warships to Egyptian Border to Preempt Expected Militant Attack.
  

Insider Monkey:

• Hedge Fund Performance August 2011. Here is how individual hedge funds performed in August (You can see each fund’s entire 13F portfolio by clicking on each fund’s link):

Reuters:

• Libya Sees Oil Output at Pre-War Levels in 15 Months. The newly-appointed chairman of Libya's National Oil Corporation (NOC) said on Tuesday oil production can restart within weeks and will reach full pre-war output within fifteen months. "Starting up production will be within weeks, not months. After we start it will take less than 15 months (to reach full output)," Nouri Berouin, chairman of the NOC, told Reuters. The OPEC member was producing 1.6 million barrels per day before an uprising began in February against leader Muammar Gaddafi.
• BofA(BAC) Sued Over $1.75 Billion Mortgage Trust. Bank of America Corp was sued by the trustee of a $1.75 billion mortgage pool, which seeks to force the largest U.S. bank to buy back all of the loans in the trust because of alleged misrepresentations.
• Fed Should Not Undo Rate Commitment: Kocherlakota. A top Federal Reserve official who dissented from the U.S. central bank's move this month to ease monetary policy further signaled he would drop his opposition. But Minneapolis Fed President Narayana Kocherlakota stopped well short of saying he would support any further easing, and his remarks show he remains firmly on the hawkish wing of the Fed's policy-setting panel. "I see no reason to revisit the decisions of August 2011," Kocherlakota said in remarks prepared for delivery to the National Association of State Treasurers in Bismarck, North Dakota. "I believe that undoing this commitment in the near term would undercut the ability of the Committee to offer similar conditional commitments in the future, and this ability has certainly proved very useful in the past three years," Kocherlakota said. "So, I plan to abide by the August 2011 commitment in thinking about my own future decisions." Kocherlakota, whose turn to vote on the Fed's policy-setting Federal Open Market Committee runs through the end of this year, stopped short of promising not to dissent on future Fed decisions, however, saying that "the case for any additional easing would have to be made on its own merits." He expects the Fed's preferred gauge of inflation, core PCE (personal consumption expenditure), to rise to 2.1 percent next year versus an expectation of about 1.3 percent last November. Based on Kocherlakota's remarks, such a decision would be a hard sell for him, unless inflation dropped sharply. Both inflation and inflation expectations are higher, and unemployment is lower and expected to drop further, than last November when the Fed embarked on its most recent round of monetary stimulus, Kocherlakota said. Meanwhile, the U.S. unemployment rate, which was then at 9.8 percent, has dropped to 9.1 percent, and he expects it to fall to below 8.5 percent by the end of next year. While it was still "disturbingly high," he said, the Fed would have been unable to push it lower without boosting inflation above its 2 percent target, which in turn could unmoor inflation expectations and undercut the Fed's ability to keep inflation in check.

Financial Times:

• EFG Eurobank Ergasias SA and Piraeus Bank SA have used the Bank of Greece's Emergency Liquidity Assistance program, citing people familiar with the matter. Eurobank borrowed 3 billion euros, one day after Piraeus Bank secured 2 billion euros in emergency funds.
  

Globe and Mail:

• BYD to Cut Sales Staff by 70%. BYD Co Ltd , a Chinese car maker backed by U.S. billionaire Warren Buffett, plans to cut its sales force by about 70 per cent, a Chinese website said on Tuesday, after the company reported a nearly 90-per-cent drop in first-half earnings.

People's Daily:

• US Fed Chair May Face Tough Sell on Quantitative Easing.

Bear Radar

Style Underperformer:

• Large-Cap Value (-.41%)

Sector Underperformers:

• 1) Coal -1.38% 2) Banks -1.10% 3) I-Banks -.80%

Stocks Falling on Unusual Volume:

• CWEI, TOT, GSK, PANL, SMTC, UEIC, CISG, SHPGY, FOSL, VRTU, BOBE, NEOG, VLCCF, AZPN, LABL, SIVB, RRD and IAI
  

Stocks With Unusual Put Option Activity:

• 1) ERTS 2) AMTD 3) ACN 4) CF 5) EWJ
  

Stocks With Most Negative News Mentions:

• 1) AEO 2) EMR 3) SCHW 4) AIG 5) INTC
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth (+.09%)

Sector Outperformers:

• 1) Oil Tankers +2.89% 2) Homebuilders +2.29% 3) Gold & Silver +1.19%

Stocks Rising on Unusual Volume:

• RIC, DLLR, OVTI, JVA, JDSU, CBOU, TZOO, BKS, FDO, CLGX, LPS and DG
  

Stocks With Unusual Call Option Activity:

• 1) KBH 2) CEDC 3) DNR 4) USG 5) CBOU
  

Stocks With Most Positive News Mentions:

• 1) TOL 2) JNY 3) ALKS 4) MIPS 5) ESV
  

Charts:

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

Tuesday Watch

Evening Headlines

Bloomberg:

• Companies Stop Selling Bonds as Costs Jump by 40%: Euro Credit. Company bond sales have ground to a halt in Europe, with August poised to end without a single offering as the sovereign debt crisis drives borrowing costs up by 40 percent. “When spreads are moving so quickly, it’s very difficult to see clearly how to price new issues,” said Olivier Casanova, the head of financing and treasury at PSA Peugeot Citroen in Paris, which last sold bonds in euros on June 15. “Conditions are very volatile.” The extra yield investors demand to own corporate bonds rather than government securities has surged to a two-year high of 186 basis points from 134 at the end of July, Bank of America Merrill Lynch indexes show. Yield premiums are climbing as speculation Greece may default forces the European Central Bank to buy Spanish and Italian bonds, and as second-quarter euro- area growth slowed to the worst since the region emerged from recession in 2009. Gauges of European company creditworthiness are headed for their worst month ever. The Markit iTraxx Crossover Index of credit-default swaps on 40 companies with mostly high-yield credit ratings is up 274 basis points so far in August, climbing to 714 basis points. That compares with a jump of 207 in October 2008 after the collapse of Lehman Brothers Holdings Inc.
• On Company Taxes, U.S. Should Follow World Down: Ramesh Ponnuru. Nations don’t compete with one another the way companies do. Pepsi’s gain is almost always Coca-Cola’s loss, but the same doesn’t always, or even often, hold true for national economies. Governments do compete in some respects: They want to attract capital investment to their countries, for example, to provide more jobs, higher wages and better products and services to their people. That competition offers a reason for optimism that the U.S. Congress will eventually reform our inefficient, investment-destroying corporate taxes.
• Chinese stocks trading in Hong Kong may slump as much as 19% by year-end in a "worst-case" scenario as an order to widen the base of required reserves threatens non-bank lenders, BNP Paribas SA said. Tightening measures have driven the lending rate in the "shadow banking system" from the 13%-17% annual range between 2003 and 2010 to around 26% in the first half of this year, Dorris Chen and Kathryn Ding, analysts at BNP paribas, wrote in a report, citing the rate in the central bank monitored alternative lending market. "The People's Bank of China's new rules broadening the base of required reserve is an incremental threat to liquidity given that acceptance bills and letters of credit are important sources of funding for many alternative lenders and private small and medium enterprises," they wrote.
  

Wall Street Journal:

• German Debate on Bailout Fund Is Test for Merkel. German Chancellor Angela Merkel faces growing resistance within her ruling coalition over expanding the powers of the euro zone's bailout fund, forcing a domestic political debate she will have to win to preserve confidence in her leadership. At issue is securing German parliamentary approval for a deal Ms. Merkel brokered with other European leaders in July to keep the debt crisis from spinning out of control. Part of the agreement involves vesting the bailout fund with powers that were previously the prerogative of national parliaments. Conservative opponents of the deal worry it will open the door to relinquishing more sovereignty to the European Union. Winning a majority of votes from within Ms. Merkel's center-right coalition was seen as relatively smooth sailing after reaching the hard-fought deal, which also included a second bailout for Greece. But in recent days, more dissenters have emerged from the coalition, now putting a sure victory in doubt. The shift reflects the pressure many rank-and-file conservative German politicians face as they try to justify the recent string of bailouts for Greece and other countries to an increasingly skeptical electorate.
  
• Irene's Floods Prove Deadly as Water Continues to Rise. Hurricane Irene never packed the catastrophic winds of more famous tropical storms, but by the time its remnants finally blew into Canada Monday, it had proved to be a slow killer, leaving behind a vast swath of shattered communities and dozens of fatalities.
• Tally of Damages Put at $12 Billion, but That Number Could Yet Rise. The economic damage wrought by Hurricane Irene—everything from washed-out roads to lost hotel bookings—could hit $12 billion or more.
• NLRB Gets New Chairman, Mark Pearce. The National Labor Relations Board has a new chairman: Mark Pearce, a Democrat. But business groups and Republicans are expecting more of the same from the agency they say favors unions over employers.
• Pimco's Gross Has 'Lost Sleep' Over Bad Bets. In recent weeks, Pacific Investment Management Co. founder Bill Gross says he has "lost sleep" over an ill-timed bet on Treasurys. During an Aug. 16 interview at Pimco's Newport Beach, Calif., headquarters, Mr. Gross, manager of Pimco's Total Return Fund, the world's biggest bond fund, acknowledged that his decision to sell all of the fund's Treasury holdings in February, and then use derivatives to place wagers against government-related bonds in March, was a "mistake."
• Europeans Appear Set to Pause Rate Rises. European Central Bank President Jean-Claude Trichet signaled the ECB may reconsider its longstanding warnings about inflation, potentially setting the stage for a lengthy pause in its rate-increase cycle. In testimony to the European Parliament, Mr. Trichet also played down the risks of a renewed recession in the euro bloc, saying he expects growth in the common-currency area to continue at a "modest pace." While euro-zone inflation is likely to remain above the bank's 2% target in the months ahead, "risks to the medium-term outlook for price developments are under study in the context of the ECB staff projections that will be released [in] early September," Mr. Trichet said. Mr. Trichet avoided code words the ECB often employs to signal that it is worried about inflation or that interest-rate rises are on the horizon.
• Czech Premier Takes new Dig at Euro Zone. The Czech Republic's euro-skeptic leadership is taking some new swipes at the neighboring single-currency zone, which is struggling to quell internal dissension about how to deal with its weaker members' debt woes. On Monday, Czech Prime Minister Petr Necas told a group of Czech diplomats: "We agreed to join a [monetary] union, not a transfer union or debt union." He went on to say that an independent currency was critical to the country's economic health.

CNBC:

• Hedge Funds Burned by August Market Heat. Many of the world’s largest hedge funds have been left nursing billions of dollars in losses following the industry’s most brutal month since the collapse of Lehman Brothers. Falling equity markets worldwide have caught hedge fund managers off-guard, leading to significant losses as portfolios declined in value and managers sold holdings, crystallizing losses. According to provisional estimates from consultancy Hedge Fund Research, the average hedge fund has lost 4.1 percent during August – making the month the industry’s fourth worst ever.

Business Insider:

• The Rising Mismatch In Chinese Credit Markets. There is a mismatch in the credit market in China that is becoming increasingly pronounced. On the one hand, many privately owned Chinese companies; especially manufacturing and industrial companies are in dire need for capital to cover their short term financing needs and to ramp up further expansions. On the other hand, the domestic Chinese capital markets, dominated by large state owned banks, have been rather unresponsive to such demands.
• Money Game Tip of the Day: Commodities Offer Very Poor Real Returns. (graph)
  

Zero Hedge:

• PIMCO On The Fiscal Folly Of The Keynesian Revolution, And "Just Saying No" To Keynes.

IBD:

• Hansen Natural(HANS) Gets a Buzz With Monster Drinks.

Courier-Journal.com:

• UAW Says It Wants Raises For New Workers at GM(GM), Ford(F), Chrysler.

PIMCO:

• European Austerity Is Not Enough.

Rasmussen Reports:

• Generic Congressional Ballot: Republicans 45%, Democrats 36%.

Financial Times:

• IASB Criticises Greek Debt Writedowns. Some European financial institutions should have taken bigger losses on their Greek government bond holdings in recent results announcements, according to the body that sets their accounting rules. In a private letter sent to the European Securities and Markets Authority, the European Union’s market regulator, the International Accounting Standards Board criticised the inconsistent way in which banks and insurers have been writing down the value of their Greek sovereign debt. “This is a matter of great concern to us,” Hans Hoogervorst, IASB chairman, said in the letter, which was seen by the Financial Times.

ZDF TV:

• Euro-area governments will need to transfer additional sovereign functions to the European Union if they want to establish a European economic government, citing an interview with Luxembourg Prime Minister Jean-Claude Juncker. Regional leaders won't be able to sidestep the issue of joint euro-area bonds indefinitely, he said.

Financial Times Deutschland:

• Andrea Enria, chairman of the European Banking Authority, demanded that the European Financial Stability Facility be allowed to give funds directly to banks to shield them from financial difficulties, citing a letter to be sent to the council of European finance and economy ministers. Currently, the 725 billion-euro fund may give money only to governments, which can then pass it on to lenders. The majority of the 27 EBA members approve of the plan, while Germany is opposed, citing a person close to the German government.

Xinhua:

• The eastern Chinese province of Jiangxi plans to halt production in three major rare earth mines in Ganzhou city for 2011, citing the local government.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.50% to +1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 153.0 -5.0 basis points.
  
• Asia Pacific Sovereign CDS Index 150.50 -2.5 basis points.
• FTSE-100 futures +2.90%.
  
• S&P 500 futures +.04%.
  
• NASDAQ 100 futures +.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DG)/.48
• (DSW)/.63
• (BKS)/-.96
• (PVH)/.95

Economic Releases
9:00 am EST

• The S&P/CS 20 City MoM% SA for June is estimated unch. versus a -.05% decline in May.

10:00 am EST

• Consumer Confidence for August is estimated to fall to 52.0 versus a reading of 59.5 in July.

2:00 pm EST

• Minutes of FOMC Meeting.

Upcoming Splits

• (HFC) 2-for-1
• (VRUS) 2-for-1
• (RGCO) 2-for-1
  

Other Potential Market Movers

• The Fed's Kocherlakota speaking, Fed's Lockhart speaking, the weekly retail sales reports and the Morgan Stanley Aerospace/Defense Unplugged Conference could also impact trading today.
  

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

Stocks Surging into Final Hour on European Equity Rally, Diminished Hurricane Concerns, Short-Covering, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Very Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 32.39 -9.0%
  
• ISE Sentiment Index 133.0 +44.5%
  
• Total Put/Call .92 -22.03%
  
• NYSE Arms .36 -32.56%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 122.92 -2.58%
  
• European Financial Sector CDS Index 240.05 +2.1%
  
• Western Europe Sovereign Debt CDS Index 303.0 unch.
  
• Emerging Market CDS Index 288.32 -3.77%
  
• 2-Year Swap Spread 30.0 unch.
  
• TED Spread 32.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 206.0 +6 bps
  
• China Import Iron Ore Spot $178.30/Metric Tonne unch.
  
• Citi US Economic Surprise Index -55.0 +12.8 points
  
• 10-Year TIPS Spread 2.03% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +90 open in Japan
• DAX Futures: Indicating +29 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 rallies meaningfully despite Eurozone debt angst, global growth worries and rising food/energy prices. On the positive side, Airline, Gaming, Homebuilding, Construction, Insurance, Hospital, I-Banking, Bank, Alt Energy, Oil Tanker, Steel, Disk Drive and Networking shares are especially strong, rising over +3.75% on the day. Small-caps and cyclicals are substantially outperforming again. (XLF) has traded very well throughout the day. Gold is falling -2.3%. The 10-year yield is rising +8 bps to 2.27%. The Greece sovereign cds is down -2.7% to 2,189.28 bps and the Germany sovereign cds is falling -1.46% to 83.69 bps. Key European equity indices surged another +2.0% today. On the negative side, Road & Rail, Restaurant, Retail, Telecom and Utility shares are underperforming, rising less than +2.0%. Oil is rising +2.4%, Copper is falling -.25%, Lumber is down -.58% and the UBS-Bloomberg Ag Spot Index is up +.51%. Rice is right near a multi-year high, rising +31.0% in about 8 weeks. The US price for a gallon of gas is +.02/gallon today to $3.61/gallon. It is up .47/gallon in about 7 months. The France sovereign cds is rising +.2% to 165.28 bps, the Russia sovereign cds is gaining +.44% to 206.47 bps and the Belgium sovereign cds is rising +.91% to 243.72 bps. The Eurozone Financial Sector CDS Index is still very near it recent all-time high. The Citi Eurozone Economic Surprise Index has plunged -108.4 points in about 3 weeks to -102.30. The UBS-Bloomberg Ag Spot Index is at a new record high, which is a large negative. The Shanghai Composite did not participate in the Asian equity rally overnight, falling -1.37%, and is down -8.25% ytd. The ongoing trend higher in key cds remains a large negative. Volume was very light on today's stock advance as this year's worst-performers posted the sharpest gains. As well, the euro was unable to rise meaningfully despite equity trader optimism over the questionable prospects for a TARP-style European bank bailout. While stocks could easily head higher in the short-term, I continue to believe any sustainable equity advance must be accompanied by a meaningful decline in Eurozone debt angst, which has yet to be seen. I expect US stocks to trade modestly higher into the close from current levels on short-covering, diminished hurricane concerns, bargain-hunting, technical buying and financial sector strength.