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

Broad Market Tone:

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

Equity Investor Angst:

• VIX 33.43 -9.65%
  
• ISE Sentiment Index 133.0 +9.02%
  
• Total Put/Call .85 -33.59%
  
• NYSE Arms .54 -62.48%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 123.15 -4.90%
  
• European Financial Sector CDS Index 245.50 -2.46%
  
• Western Europe Sovereign Debt CDS Index 315.17 unch.
  
• Emerging Market CDS Index 279.50 -4.17%
  
• 2-Year Swap Spread 32.0 unch.
  
• TED Spread 32.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.
  
• Yield Curve 184.0 +6 bps
  
• China Import Iron Ore Spot $181.0/Metric Tonne +.06%
  
• Citi US Economic Surprise Index -54.70 +.4 point
  
• 10-Year TIPS Spread 1.98% +4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +107 open in Japan
• DAX Futures: Indicating +36 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is very bullish, as the S&P 500 builds on yesterday's afternoon rebound on less Eurozone debt angst, less financial sector pessimism, short-covering, bargain-hunting and technical buying. On the positive side, Coal, Alt Energy, Oil Service, Steel, Disk Drive, Networking, Bank, Hospital, HMO, Insurance, Construction and Education shares are especially strong, rising more than +3.5%. Small-caps and cyclicals are outperforming. (XLF) has traded very well throughout the day. Gold is down -3.3% and Lumber is rising +1.98%. Weekly retail sales rose +4.9% this week versus a +4.2% gain the prior week. Major European equity indices surged 3-4% today. The Spain sovereign cds is plunging -12.44% to 368.33 bps, the Germany sovereign cds is dropping -5.06% to 78.17 bps, the France sovereign cds is falling -5.8% to 173.0 bps, the Italy sovereign cds is declining -4.23% to 432.67 bps, the Belgium sovereign cds is falling -5.96% to 271.0 bps and the UK sovereign cds is falling -4.43% to 76.14 bps. Moreover, the European Investment Grade CDS Index is dropping -4.0% to 158.74 bps. On the negative side, Restaurant, Telecom and Utility shares are underperforming, rising less than +1.0%. Oil is up +3.1%. Rice is still near a multi-year high, rising +1.0%, and has risen +36.5% in about 9 weeks. The average US price for a gallon of gas is unch. today at $3.66/gallon. It is up .52/gallon in about 7 months. The Greece sovereign cds is rising +2.1% to 2,616.50 bps, which is an all-time high. The Eurozone Financial Sector and Western European Sovereign CDS Indices are still near all-time highs. The 3-Month Euro Basis Swap dropped another -1.27 bps to -100.96 bps, which is another new cycle low. The UBS-Bloomberg Ag Spot Index is still near its recent record high, which is also a large negative. The 10-year yield rose +6 bps today to 2.04%. However, bonds are still too strong given the last 2 days stock advance. While the euro did bounce today, it wasn't that impressive given recent losses and the surge in eurozone stocks. Moreover, while most eurozone cds fell today, other gauges of eurozone debt angst remain very elevated and continue to trend higher, which remains a large concern. Today's equity surge was on lackluster volume, but much-improved breadth. Until the macro backdrop stops deteriorating, any short-covering fueled equity rallies will likely prove unsustainable over the intermediate-term. I expect US stocks to trade mixed-to-higher into the close from current levels on technical buying, short-covering, a bounce in the euro, bargain-hunting and better US economic data.

Today's Headlines

Bloomberg:

• Germany' s Top Court Rejects Constitutional Challenges to Euro Rescue Funds. Germany’s top court cleared the way for Chancellor Angela Merkel’s coalition to participate in the current euro-area rescue plans, while saying it must seek some additional parliamentary approval for payouts under the funds. The Federal Constitutional Court in Karlsruhe threw out three suits targeting Germany’s share of the 110 billion-euros ($155 billion) in loans for Greece from euro-region governments and the International Monetary Fund as well as a separate 750 billion-euro rescue fund approved last year in an effort to prevent Greece’s debt crisis from spreading. The ruling will aid Merkel’s efforts to gain support for participation in a new round of European Financial Stability Facility programs. The court said its ruling today shouldn’t be seen as “blanket” authorization of future rescue packages and the government must seek approval from the parliament’s budget committee for the individual guarantees it assumes in each bailout under the current EFSF. “Parliamentary decisions about taxing and spending are a central element of democratic self-government under the constitution,” Andreas Vosskuhle, president of the court, said in the ruling. “As representatives of the people, the elected members of parliament thus also need to remain in control over elementary budgetary decisions.”
• EU Said to Delay Ban Bondholder Writedown Plan. The European Union is delaying proposals for senior bondholders of failing banks to take losses because the measures may spook investors at a time of market turbulence and they need more work, according to two people familiar with the situation. Michel Barnier, the EU’s financial services commissioner, will unveil draft legislation on the measures in October at the earliest, said one of the people, who declined to be identified because negotiations on the proposals are continuing.
• Saks(SKS), Nordstrom(JWN) Say Luxury Sales Firm. So far so good in the luxury sector, say top executives of Saks Inc. (SKS) and Nordstrom Inc. (JWN), as stock markets lurch up and down amid global economic uncertainty. Saks Chief Executive Officer Stephen Sadove and Nordstrom Chief Financial Officer Michael Koppel say sales at their luxury chains are holding up and that they are sticking to their forecasts.
• The cost of insuring Greek government debt rose 117 basis points to a record 2,771 basis points, according to CMA prices.
• Gold Drops for Second Day as Equity Rebound Trims Haven Investment Demand. Gold dropped the most in two weeks as a rebound in global equities eroded demand for an alternative asset and spurred investors to sell the metal after its rally to an all-time high. Gold for December delivery declined $67.80, or 3.6 percent, to $1,805.80 an ounce at 11:07 a.m. on the Comex in New York, heading for the biggest drop since Aug. 24.
• Crude Gains on Forecast Stockpile Drop as Cyclone Builds in Gulf of Mexico. Crude oil climbed the most in four weeks in New York as a weather system threatened to reduce U.S. production from the Gulf of Mexico, where shut-ins from last week’s storm probably curbed stockpiles. Crude oil for October delivery rose $3.46, or 4 percent, to $89.48 a barrel at 12:42 p.m. on the New York Mercantile Exchange.
• Tropical Storm Maria Joins Katia in Atlantic. Tropical Storm Maria formed in the Atlantic, the 13th named system of the 2011 season, as Hurricane Katia weakened further on its path around Bermuda.
• IMF to Cut Irish Economic Growth. The International Monetary Fund will cut its Irish economic growth estimate for this year and next as the outlook for its main trading partners, the euro region, U.S. and U.K. “worsened substantially.” The Washington-based fund will lower its 2011 gross domestic product forecast for the country to 0.4 percent and 2012 projection to 1.5 percent as part of its world economic outlook this month, it said in a report today. The IMF had been forecasting growth of 0.6 percent and 1.9 percent, respectively.
• U.S. Job Openings Rose in July as Slower Hiring Signals Lack of Confidence. Job openings in the U.S. rose in July for a third month, while a slowdown in hiring showed businesses lacked the confidence to take on new staff. The number of positions waiting to be filled climbed by 59,000 to 3.23 million, according to Labor Department figures issued today in Washington. Hiring decreased by 74,000 to 3.98 million.
• Hedge Funds' Bets on S&P 500 Futures Are Most Bearish Since September 2007. Bearish bets by investors using Standard & Poor’s 500 Index futures increased to the highest level in almost four years amid concern global economic growth is stalling. Hedge funds and other large speculators were net short 107,913 contracts in the week ended Aug. 30, wagering that the S&P 500 will decrease in value, according to data compiled by Bloomberg and the U.S. Commodity Futures Trading Commission. The position is the highest since September 2007, when bearish bets reached a record 127,474 contracts a month before the benchmark equity gauge peaked at an all-time high, Bloomberg data going back to 1997 show.

Wall Street Journal:

• BP(BP) Feels Shareholder Heat After String of Setbacks. BP PLC shareholders are demanding the oil company come up with a new growth strategy after a miserable week in which rival Exxon Mobil Corp. replaced it in a landmark Russian Arctic deal and its Moscow office was raided by court officials. The latest setbacks come against a background of mounting investor frustration at the slow pace of BP's recovery from last year's Gulf of Mexico disaster.
• BNY Mellon: Funded Status of US Pensions Fell in August. The average funded status of the typical U.S. corporate pension plan declined in August, hitting the lowest level in nearly a year, BNY Mellon Asset Management said Wednesday.
• Eleven Killed, 66 Injured in Delhi Terror Attack. A bomb exploded outside New Delhi's High Court, killing 11 people and injuring more than 60 in an act of suspected terrorism in the heart of India's capital that further heightened concerns about the nation's security vulnerabilities. The high-intensity blast occurred Wednesday at 10:14 a.m. near the courthouse reception area. Officials said they believed the bomb was placed in a briefcase.
• Suicide Blast Kills 23 People in Pakistan. A pair of suicide bombers attacked a top army officer in Pakistan's southwestern city of Quetta on Wednesday, missing him but killing his wife. At least 22 others died, including several guards, a senior officer and two children, officials said. Police said they were investigating whether the strike was in revenge for the recent arrests in Quetta of three top al-Qaida suspects, an operation that was assisted by the CIA.
  

CNBC.com:

• Major US Banks Forced Into New Round of Stress Tests.
• US Economy is Basically 'Still In Recession': Chicago Fed's Evans.
• Suggish US Recovery Weakens in Some Areas: Fed. The sluggish recovery failed to gain any speed in recent weeks and softened in some areas of the nation, the Federal Reserve said on Wednesday. "Economic activity continued to expand at a modest pace, though some Districts noted mixed or weakening activity,'' the Fed said in its Beige Book collection of anecdotal reports of economic conditions in the 12 Fed districts.
• Teen Joblessness Was Worst Ever in US This Summer.
• Regulation Will Force BofA(BAC) to Fire 30,000 People: Bove. (video)
  

Business Insider

• Chinese Shipping Giant COSCO Is Freaking Out The Dry Bulk Industry Again.
• A Closer Look at Obama's Connection With The Solyndra Boondoggle.
• Greece: Now Here's What's Next. The good news it that a German high court ruled that bailouts are legal. But other than that, things are looking bad. Here's the latest on the collateral situation and EU gossip:

Zero Hedge:

• UN Security Council Finds Iran is Violating The Nuclear Weapons Program Ban.
• The PIIGS Fleecing of Europe Continues Even as Italy Promises to Implement Another "Austerity" Package Imminently.
• Explaining The German Constitutional Court Ruling.
  

Washington Post:

• SEC Still Destroying Records Illegally, Whistleblower Says. A year after it was warned that it might be violating federal law, the Securities and Exchange Commission is still breaking the law by destroying records of closed enforcement cases, a lawyer in the agency’s enforcement division has alleged. In addition, the purging of files has involved a wider range of investigative documents than previously reported, according to a signed statement by the enforcement lawyer.
  

Forbes:

• Obama's Phony War on Hedge Funds - Attack on Real Estate.

CNN Money:

• Big Hedge Funds Getting Slaughtered. Lyxor Asset Management, an arm of French bank Societe General, feeds $11.7 billion from investors into 100 hedge funds through its managed accounts platform, according to Stefan Keller, head of research and external relations at Lyxor. According to documents obtained by CNNMoney, 15 of these funds generated double digit percentage losses as of September 2. Five funds were down more than 20%.

Reuters:

• Greece Must Make Up Slippage to Get More Aid - Sources. Greece will have to compensate for slippage on its budget deficit target this year in the 2012 budget and in other areas of reform agreed with international lenders to get the next aid tranche, euro zone sources said. German Finance Minister Wolfgang Schaeuble said on Tuesday Greece would not receive the next, 8 billion euro (7 billion pound) tranche of aid due in September if inspectors from the IMF, ECB and European Commission did not give Athens a positive review on reforms set out in the emergency loan programme.
• Italy Senate Approves Austerity Package.
• Italy Police Use Tear Gas on Austerity Protesters.
• Copper Ends Sharply Higher as Supply Threats Mount.
• Oil-Funded Study: More Drilling Would Add 1 Million Jobs.
• Walter Energy(WLT) Shares Up On Report of Possible Bid. Shares of Walter Energy Inc (WLT.N) jumped 28 percent Wednesday morning after a report that Anglo American was weighing a bid for the metallurgical coal miner.

Bild:

• Horst Seehofer, Bavaria's prime minister and Christian Social Union chairman, said Greece's exit from the euro is "possible," though he would prefer it to remain in the single currency by boosting efforts to cut debt, citing an interview. Seehofer, whose CSU is one of three parties in Chancellor Angela Merkel's coalition, said he has "considerable doubt" that Greece and Italy have earnest intentions to cut spending.

Hannoversche Allgemeine Zeitung:

• Germany's Free Democrats, the junior partner in Chancellor Angela Merkel's government, reject joint bond sales by euro members, Economy Minister Philipp Roesler, the party's chairman, said.

Expansion:

• Spain's biggest business lobby group called on the government to raise taxes on the rich to help the country rein in its budget deficit.

Bear Radar

Style Underperformer:

• Large-Cap Value (+2.39%)

Sector Underperformers:

• 1) Gold & Silver -.22% 2) Telecom +.79% 3) Restaurants +88%

Stocks Falling on Unusual Volume:

• LQDT, URBN, CVV, RGLD, DRI and VIP
  

Stocks With Unusual Put Option Activity:

• 1) CREE 2) WLT 3) PAY 4) HFC 5) YHOO
  

Stocks With Most Negative News Mentions:

• 1) X 2) GLD 3) OMX 4) GLBC 5) SONC
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth (+2.68%)

Sector Outperformers:

• 1) Banks +3.98% 2) Disk Drives +3.89% 3) Hospitals +3.37%

Stocks Rising on Unusual Volume:

• VRSN, AVAV, NVDA, LNCR, XTXI, SODA, HRBN, WLT, BTH, SXI, PCX, VSH, PBY, AOL, LNCR, EMN, CNX and AP
  

Stocks With Unusual Call Option Activity:

• 1) SVU 2) NRG 3) HANS 4) STEC 5) YHOO
  

Stocks With Most Positive News Mentions:

• 1) STEC 2) URBN 3) TXN 4) NVDA 5) COF
  

Charts:

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

Wednesday Watch

Evening Headlines

Bloomberg:

• Berlusconi Cabinet Will Call for Confidence Vote on Revised Austerity Plan. Italy’s Senate may approve Prime Minister Silvio Berlusconi’s revised 45.5 billion-euro ($63.7 billion) austerity package in a confidence vote after bond yields surged amid concern the government may weaken the plan. Senators will meet at 9:30 a.m. in Rome to discuss and cast votes on the amended package, which will raise the value-added tax rate by one percentage point to 21 percent, introduce a 3 percent levy on incomes over 300,000 euros a year and increase the retirement age of women in the private sector from 2014. The vote may pave the way for final approval later this week by the Chamber of Deputies. The measures were approved at a Cabinet meeting in Rome yesterday after Italians took to the streets in a general strike to protest the plan, and following weeks of bickering that stoked concern among investors and European leaders that Italy may struggle to tame Europe’s second-biggest debt burden. The confidence vote was forced by the “seriousness of the global financial crisis,” Berlusconi’s office said in a statement. This government only knows how to lie,” said Pier Luigi Bersani, leader of the main opposition Democratic Party, in an e-mailed statement. “The idea is always the same: offload the weight of the budget cuts on the masses and shield the rest.”
• U.S. Company Risk Measure Jumps as Europe Evokes '08 Comparison. A benchmark gauge of U.S. corporate credit risk climbed on concern that Europe's fiscal imbalances will hurt U.S. debt markets, as bankers cite parallels to the 2008 financial crisis. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 5.4 basis points from Sept. 2 to a mid-price of 126.4 as of 4:52 p.m. in New York, according to index administrator Markit Group Ltd. The measure is at the highest closing price since reaching a more than one-year high of 126.8 on Aug. 22. The index has increased from 95.8 basis points on Aug. 1 as investor concerns have mounted about the faltering U.S. economic recovery and upheaval in Europe's government bond markets. "It's a very gloomy market environment right now," said Rizwan Hussain, a credit strategist at Morgan Stanley in New York. "An '08 type of comparison clearly does not bode well.'' Credit-default swaps on Charlotte, North Carolina-based Bank of America Corp. climbed 26.1 basis points from Sept. 2 to 352.9 basis points, according to data provider CMA, as the largest U.S. lender's bid to resolve mortgage liabilities with an $8.5 billion settlement faces drawn-out litigation and may require a bigger payout as investors and regulators scrutinize the deal.
• The cost of protecting debt issued by India's state-run banks against default has climbed to a two-year high, spurred by concern that the lenders may have to set aside more money to cover bad loans. Five-year credit-default swaps on State Bank of India, the nation's biggest lender, rose 102 basis points this quarter to 290 basis points, the highest level since April 2009.
• Erdogan Promises New Sanctions in Escalating Turkey-Israel Feud. Tossing out an ambassador, suspending defense ties and boosting Turkey’s naval presence in the eastern Mediterranean won’t be Prime Minister Recep Tayyip Erdogan’s last word in his most recent showdown with Israel. Erdogan said his government will announce new steps to punish Israel -- not long ago its strongest regional ally -- unless Prime Minister Benjamin Netanyahu apologizes for the killing of nine Turks last year in an Israeli commando raid at sea. Among the moves may be a visit by Erdogan to the Gaza Strip, ruled by the Islamic group Hamas.
• Romney Calls for Corporate Tax Cut, China Sanctions in Plan. Republican presidential candidate Mitt Romney proposed a reduction of U.S. corporate taxes, fewer federal regulations, new trade agreements, and sanctions against China for currency manipulation in a plan he said would boost the U.S. economy and create jobs. The former Massachusetts governor, speaking today at a trucking company in North Las Vegas, Nevada, also called for the elimination of taxes on interest, dividends and capital gains for individuals making $200,000 or less per year. Seeking to highlight the business experience he has said sets him apart from other 2012 Republican presidential contenders, Romney released his 59-point proposal two days before President Barack Obama is scheduled to present his own job-revival ideas in a speech to Congress. "The right course for America is to believe in growth," Romney said. "The right answer for America is not to grow government."
• Citigroup(C) CEO Pandit's 'Globality' Goal Imperiled. Vikram Pandit, who oversaw Citigroup Inc. (C)’s recovery with the help of a $45 billion government bailout, faces a profit squeeze as he adds staff and branches outside the U.S. amid a global economic slump.
• 'Helicopter Ben' May Deter Lending With Lower Rates Policies, Gross Says. Federal Reserve Chairman Ben S. Bernanke risks causing a decline in longer-term lending by holding down benchmark interest rates, Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said in an opinion piece on the Financial Times website. If the Fed seeks to drive down longer-maturity yields, as some are anticipating, then the central bank may “destroy leverage and credit creation in the process,” Gross wrote in the piece, which was titled ‘Helicopter Ben’ Risks Destroying Credit Creation.’
• Dodd-Frank Forces Early Call in SEC Probe of Fannie Mae's Mudd. Last March the U.S. Securities and Exchange Commission told Daniel Mudd, former head of Fannie Mae, that he could face claims for his role in the firm’s collapse. He may be the first chief executive officer to benefit from a rule that regulators sue or drop such cases within six months.

Wall Street Journal:

• European Bailout Tensions Threaten German Coalition. Merkel Fights to Quell Rebellion as Mock Vote Shows 25 Lawmakers Oppose Legislation on Bigger Bailout Fund. German Chancellor Angela Merkel is fighting to quell a rebellion within her ruling coalition that could potentially destabilize her government, after 25 lawmakers from her center-right camp indicated they might not support legislation to strengthen Europe's bailout fund. Mock votes among lawmakers in Ms. Merkel's coalition late Monday showed she will have to fight to keep her governing majority together in a crucial ballot on Sept. 29, when Germany's parliament will vote on proposals to make the main euro-zone bailout fund bigger and more flexible. The measures in question are a key plank of a deal struck July 21 by European leaders to restore investor confidence in euro-zone government debt. But a larger-than-expected number of backbenchers from Ms. Merkel's Christian Democrats, as well as from her junior coalition partners the Free Democrats, refused to support the measures in Monday's mock votes. The lack of support is a public signal of dissent within the ranks of the party. Germany's parliament is widely expected to pass the measures despite the unrest in government ranks, because opposition parties have said they will back the legislation. But reliance on opposition votes would be a severe embarrassment for the chancellor, raising questions about the survival of her government. The unrest within the coalition reflects many lawmakers' belief that ever-expanding bailouts of poorer euro nations pose a growing risk to German taxpayers.
• Groupon Reevaluating IPO Plans Due to Market Volatility.
• Exclusive: Carol Bartz Out at Yahoo(YHOO); CFO Time Morse Named Interim CEO.
• S&P Met With Bond Firms. Some Investors Got the Impression U.S. Downgrade Was More Likely Than Not. Standard & Poor's Corp. officials held private meetings with large bond investors weeks before the firm's historic U.S. debt downgrade, leaving some believing the chance of a credit-rating cut was higher than they previously thought. Though S&P had put the U.S. on "credit watch" in mid-July, some investors were skeptical that S&P would actually strip the U.S. of its triple-A rating, maintained since 1941. S&P said in a news release on July 14 that "there is at least a one-in-two likelihood that we could lower" the U.S. ratings within 90 days.
• SEC Looks Into Effect of ETFs on Market. U.S. securities regulators are looking into whether turbocharged exchange-traded funds amplified August's topsy-turvy swings in the stock market. Securities and Exchange Commission officials have had discussions with firms that trade ETFs, asking questions about whether they added to the market's volatility, according to people familiar with the talks. ETFs, which typically track market indexes, trade on exchanges like stocks. Exchange-traded funds have surged in popularity and now generate 35% to 40% of exchange trading volume, according to Morningstar Inc. Such funds sometimes are used by high-frequency traders, who buy and sell stocks and other assets at a rapid clip.
• Probe Into Goldman(GS) Widens. Prosecutors in New York are pressing ahead with their inquiry into the way Goldman Sachs Group Inc. marketed certain mortgage-linked instruments before the financial crisis, issuing subpoenas to Morgan Stanley(MS) and other investors in the deals, people familiar with the matter said. Some of the subpoenas were received in recent weeks, the people said. The Manhattan district attorney's office began its probe into Goldman following the release in April of a U.S. Senate subcommittee report into the causes of the crisis. Goldman was featured prominently in that report.
• The Other Climate Theory.
  

Business Insider:

• Obama Jobs Plan to Cost $300 Billion.
• White House to Propose Short Term Plan to Avert Post Office Bankruptcy. President Barack Obama will propose a plan to allow the U.S. Postal Service to push off a scheduled $5.5 billion health care payment until the new year, The New York Times reports.

Zero Hedge:

• European Scramble to ECB Safety at Highest in Over a Year as ECB Deposits Surge to €167 Billion. (graph)
• "The European Financial System Is Finished" In Quotes.
  

IBD:

• McDonald's(MCD) Benefits From New Menu Items.

NY Times:

• U.S. Takes Hard Line in Suits Over Bad Mortgages.
• In Euro Zone, Banking Fear Feeds on Itself. As Europe struggles to contain its government debt crisis, the greatest fear is that one of the Continent’s major banks may fail, setting off a financial panic like the one sparked by Lehman’s bankruptcy in September 2008. European policy makers, determined to avoid such a catastrophe, are prepared to use hundreds of billions of euros of bailout money to prevent any major bank from failing. But questions continue to mount about the ability of Europe’s banks to ride out the crisis, as some are having a harder time securing loans needed for daily operations. American financial institutions, seeking to inoculate themselves from the growing risks, are increasingly wary of making new short-term loans in some cases and are pulling back from doing business with their European counterparts — moves that could exacerbate the funding problems of European banks.

Forbes:

• Sallie Krawcheck Out At Bank Of America(BAC) Merrill Lynch.
• 4 Worrisome Jobs Charts.
• Pentagon Chief: Threat of Another 9/11 is Real. Defense Secretary Leon Panetta says that after a decade of war with al-Qaida the potential for another devastating terrorist assault "remains real."

CNN:

• Dear Mr. President... We asked 10 small businesspeople the one thing they'd ask President Obama to do to make it easier for them to hire. Below are edited excerpts of their conversations.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).

USA Today:

• More Restaurants are Targeting Customers Who Use Food Stamps. The number of businesses approved to accept food stamps grew by a third from 2005 to 2010, U.S. Department of Agriculture records show, as vendors from convenience and dollar discount stores to gas stations and pharmacies increasingly joined the growing entitlement program. Now, restaurants, which typically have not participated in the program, are lobbying for a piece of the action. Louisville-based Yum! Brands(YUM), whose restaurants include Taco Bell, KFC, Long John Silver's and Pizza Hut, is trying to get restaurants more involved, federal lobbying records show.

Reuters:

• No Plans for Extra Euro Zone Bank Capital Support - Sources. Euro zone governments have no plans to inject any further capital into banks over and above the money earmarked for the financial sector in the emergency loan programmes to Greece, Ireland and Portugal, sources said. Euro zone officials discussed the issue of banking sector recapitalisation on Monday and Tuesday as part of the preparations for the informal meeting of European Union finance ministers in Poland on September 16. The issue has returned to the table after the IMF called for additional capital to boost the European banking sector, estimating the extra need at 200 billion euros (175 billion pounds) in a draft version of an unpublished report leaked to the press.

Telegraph:

• German Austerity Drive Risks Euro-Slump. German finance minister Wolfgang Schäuble has vowed to halt rescue payments to Greece unless the country complies totally with the EU-IMF demands, brushing aside warnings that a Greek collapse would set off a disastrous chain reaction and a global banking crisis. “The next tranche can be paid only when the conditions have been met. There is no room for manouvre here,” he told the Bundestag. Yields on 10-year Greek debt spiked to a fresh record of 19.8pc on fears of a disorderly default. The tough words reflect sentiment in Berlin that Greece should be left to its fate or even be ejected from the monetary union, even though the chief reason Greece has failed to meet its deficit target is the crushing effect of recession. The economy will have shrunk by 12pc by the end of this year, playing havoc with debt dynamics. Mr Schäuble rebuffed calls from the International Monetary Fund for a softening of Europe’s austerity drive. “Piling on more debt now will stunt rather than stimulate growth in the long run. Highly indebted Western democracies need to cut expenditures, increase revenues and remove structural hindrances in their economies, however politically painful,” he wrote.
  

Economic Information Daily:

• The southwestern Chinese city of Chongqing may widen its property-tax trial to target more luxury home owners, citing an official. The existing property-tax trial, already implemented for seven months, has had a limited effect on the city's property market.

Evening Recommendations
Citigroup:

• Upgraded (DHI) to Buy, target $13.

Canaccord Genuity:

• Rated (DKS) Buy, target $43.
• Rated (FINL) Buy, target $24.

Night Trading

• Asian equity indices are +.50% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 160.50 -14.5 basis points.
  
• Asia Pacific Sovereign CDS Index 146.50 -8.25 basis points.
• FTSE-100 futures +1.39%.
  
• S&P 500 futures +.54%.
  
• NASDAQ 100 futures +.54%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (NAV)/1.26
• (MW)/1.04
• (CASY)/1.06
• (HOV)/-.50

Economic Releases
2:00 pm EST

• The Fed's Beige Book.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The German court bailout legality ruling, Fed's Williams speaking, Fed's Evans speaking, JOLTs Job Openings report, weekly MBA mortgage applications report, weekly retail sales reports, BofA Merrill Real Estate Conference, Kaufman Bros. Investor Conference, Stifel Nicolaus Healthcare Conference, CSFB Auto/Transports Conference, Robert W. Baird Healthcare Conference, Barclays Back-to-School Conference, Dahlman Rose Transports Conference, Scotia Capital Financials Summit, William Blair Life Sciences Conference, Goldman Sachs Retailing Conference, Jefferies Shipping Conference, Keefe Bruyette Woods Insurance Conference, (SCOR) Investor Day and the (POOL) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by technology 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 day.

Stocks Lower into Final Hour on Rising Eurozone Debt Angst, Global Growth Worries, Emerging Markets Inflation Fears, Financial Sector Pessimism

Broad Market Tone:

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

Equity Investor Angst:

• VIX 37.39 +10.29%
  
• ISE Sentiment Index 122.0 +32.61%
  
• Total Put/Call 1.28 -11.11%
  
• NYSE Arms 1.52 -57.87%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 129.50 +4.10%
  
• European Financial Sector CDS Index 261.26 +1.04%
  
• Western Europe Sovereign Debt CDS Index 315.17 +2.16%
  
• Emerging Market CDS Index 281.08 +4.6%
  
• 2-Year Swap Spread 32.0 +1 bp
  
• TED Spread 32.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.
  
• Yield Curve 178.0 -1 bp
  
• China Import Iron Ore Spot $180.90/Metric Tonne +.22%
  
• Citi US Economic Surprise Index -55.10 +2.6 points
  
• 10-Year TIPS Spread 1.94% -9 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +75 open in Japan
• DAX Futures: Indicating +39 open in Germany

Portfolio:

• Slightly Higher: On gains in my Retail/Biotech sector longs, Index hedges and Emerging Markets shorts
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 trades back near the low-end of its recent range on rising Eurozone debt angst, more financial sector pessimism, more shorting, emerging markets inflation fears and global growth worries. On the positive side, Biotech shares are higher on the day. Oil is down -.8%, Gold is down -.3%, Lumber is rising +2.25% and the UBS-Bloomberg Ag Spot Index is down -1.57%. On the negative side, Coal, Alt Energy, Oil Service, Steel, Networking, Bank, I-Bank, Insurance, Homebuilding and Airline shares are under significant pressure, falling more than -2.5%. (XLF) has traded very poorly throughout the day. The Transports are also heavy. Copper is down -1.7%. Rice is still near a multi-year high and has risen +35.5% in about 9 weeks. The average US price for a gallon of gas is +.01/gallon today to $3.66/gallon. It is up .52/gallon in about 7 months. The Russia sovereign cds is gaining +2.77% to 206.67 bps, the Brazil sovereign cds is jumping +6.8% to 163.41 bps, the Greece sovereign cds is gaining +2.39% to 2,559.42 bps, the Portugal sovereign cds is gaining +1.68% to 1,053 bps and the Belgium sovereign cds is rising +5.23% to 288.17 bps. The US Muni CDS Index is jumping +4.65% to 181.89 bps. Moreover, the European Investment Grade CDS Index is rising +1.99% to 165.31 bps. The Italy and Belgium sovereign cds are making new record highs again today. The Greece, Germany, Spain and France sovereign cds are still near their recent all-time highs. The Eurozone Financial Sector and Western European Sovereign CDS Indices are also making new all-time highs today. The 3-Month Euro Basis Swap dropped another -3.06 bps to -99.69 bps, which is another new cycle low. The Citi Eurozone Economic Surprise Index has plunged -109.2 points in about 4 weeks to -103.10. The UBS-Bloomberg Ag Spot Index is still near its recent record high, which is also a large negative. The China Blended Corporate Spread Index is jumping +24.0 bps to a new multi-year high at 637.0 bps. The Nikkei took out its recent lows overnight, falling -2.21%, and is now down -16.0% ytd. Germany's DAX also continues to trade very poorly as it fell another -1.0% today and is now down -24.9% ytd, near a 2-year low. Italian shares also made new cycle lows today, falling another -1.99%, and are down -30.3% ytd. As well, the euro currency remains very heavy. Gauges of eurozone debt angst remain very elevated and continue to trend higher, which is a large concern. Today's equity rebound off the morning lows was on light volume and poor breadth. Given the amount and nature of the negative news over the holiday weekend, today's rebound was impressive, nonetheless. Growth stock leaders traded well throughout the day. I still believe a full test of the recent lows is an increasing possibility over the coming weeks unless the rapidly deteriorating situation in Europe improves materially. I expect US stocks to trade mixed-to-higher into the close from current levels on technical buying, short-covering, falling food/energy prices, bargain-hunting and better US economic data.