Stocks Rising into Final Hour on Triple Witching, Short-Covering, Falling Energy/Food Prices, Technical Buying

Broad Market Tone:

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

Equity Investor Angst:

• VIX 31.40 -1.78%
  
• ISE Sentiment Index 64.0 -23.81%
  
• Total Put/Call 1.0 -.99%
  
• NYSE Arms .86 +114.02%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 125.15 -1.65%
  
• European Financial Sector CDS Index 250.58 +2.87%
  
• Western Europe Sovereign Debt CDS Index 325.0 -1.59%
  
• Emerging Market CDS Index 290.03 -2.73%
  
• 2-Year Swap Spread 32.0 unch.
  
• TED Spread 36.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 190.0 +1 bp
  
• China Import Iron Ore Spot $177.90/Metric Tonne unch.
  
• Citi US Economic Surprise Index -43.10 -.9 point
  
• 10-Year TIPS Spread 1.97% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -54 open in Japan
• DAX Futures: Indicating +29 open in Germany

Portfolio:

• Higher: On gains in my Tech, Medical and Retail 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 bullish, as the S&P 500 builds on recent gains despite rising Eurozone debt angst, US tax hike concerns, some more disappointing economic data, emerging markets inflation fears and global growth worries. On the positive side, Defense, Internet, Computer Service and Retail shares are especially strong, rising more than +1.0%. Oil is falling -1.41% and the UBS-Bloomberg Ag Spot Index is down -1.81%. The Greece sovereign cds is plunging -28.9% to 3,535.66 bps and the Brazil sovereign cds is declining -3.8% to 159.12 bps. On the negative side, Alt Energy, Coal, Oil Tanker, Oil Service, Steel, Networking, Wireless, Bank, Construction and Education shares are under pressure, falling more than -1.0%. Cyclicals and small-caps are underperforming. Lumber is down -2.24%, Gold is rising +1.0% and Copper is falling -.73%. Rice is still very near its multi-year high, rising +36.0% in about 10 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.61/gallon. It is up .47/gallon in about 7 months. The Germany sovereign cds is gaining +.54% to 83.33 bps, the Portugal sovereign cds is rising +.29% to 1,061.0 bps and the Ireland sovereign cds is gaining +.72% to 798.33 bps. The Western Europe Sovereign CDS Index is still near its all-time high. The 3-Month Euro Basis Swap is falling -5.21 bps to -87.12 bps. The TED spread is now at the highest level since July 2010 despite Europe's recent efforts. The China Development Bank Corp CDS is falling today, however it has risen +15.0% over the last 5 days despite most other cds falling. The Shanghai Composite failed to rally again overnight, despite nice gains in most of the rest of Asia, and is now down -11.6% ytd. Given the negative news out of Europe today's stock advance is more impressive. (AMZN) and (AAPL) are on fire of late, which is helping boost the Naz. However, breadth is poor and it is hard to gauge how much triple witching is helping prop up equities. Unless the news out of Europe improves over the next few days, I suspect we will give some of this week's stock gains back next week. I expect US stocks to trade mixed to lower into the close from current levels on profit-taking, rising Eurzone debt angst, global growth worries, emerging markets inflation fears and more shorting.

Today's Headlines

Bloomberg:

• Europe Rules Out Stimulus, Skips Bank Aid. European finance ministers ruled out efforts to prop up the faltering economy and gave no indication of providing aid for lenders to go along with yesterday’s liquidity lifeline from the European Central Bank. Clashing with U.S. Treasury Secretary Timothy Geithner, finance chiefs from the euro region said the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation. “We have slightly different views from time to time with our U.S. colleagues when it comes to fiscal stimulus packages,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing today’s trans-Atlantic finance meeting in Wroclaw, Poland. “We don’t see any room for maneuver in the euro area which could allow us to launch new fiscal stimulus packages. That will not be possible.” Europe’s economy will barely grow in the second half of 2011, a casualty of the debt buildup that 256 billion euros ($353 billion) in aid for Greece, Ireland and Portugal has failed to extinguish.
• Fix on Banks' Dollar Funding Costs Brings Next-Day Cost Rise. The cost for European banks to fund in dollars rose, signaling that investors view policy makers’ offer of unlimited loans in the currency as a short-term fix that doesn’t address the euro region’s underlying problems. “Major central banks have merely treated the symptom rather than the cause,” said Michael Derks, the chief strategist at foreign-exchange broker FxPro in London. The cost of converting euro payments into dollars, measured by the three-month cross-currency basis swap, was 85.4 basis points below the euro interbank offered rate as of 3:20 p.m. in London, from 81.9 basis points yesterday, after the European Central Bank and peers around the world made it easier to fund in the greenback. “Policy makers are fighting the wrong disease,” said Alberto Gallo, a strategist at Royal Bank of Scotland Group Plc in London. “Liquidity is not an issue, but solvency still is.” The Euribor-OIS spread, the difference between three-month Euribor and overnight index swaps, fell to 75.6 basis points, from 76.9 yesterday, still within nine basis points of the highest level since March 2009, reached Sept. 12. Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- rose to 1.535 percent from 1.531 percent yesterday. One-week Euribor gained to 1.111 percent, from 1.089 percent. The three-month London interbank offered rate, or Libor, in dollars rose to 0.351 percent from 0.350 percent, according to the British Bankers’ Association. The European Central Bank said financial institutions increased overnight deposits. Banks parked 98 billion euros with the ECB yesterday, compared with 87 billion euros the day before and 197.8 billion euros on Sept. 12, the Frankfurt-based lender said in data released overnight.
• Spanish Regional Debt Surges to Second-Quarter Record, Bank of Spain Says. Spanish regions’ debt burden surged to a record in the second quarter, adding to pressure on the central government to rein in spending or risk missing the nation’s deficit goal. The 17 semi-autonomous regions’ outstanding debt burden rose to 133.2 billion euros ($183.7 billion), or 12.4 percent of gross domestic product, from 11.6 percent in the first quarter, the Bank of Spain said on its website today. From a year earlier, the debt surged 24 percent and the outstanding amount has more than doubled since 2007. Spain’s regions are key to the nation’s efforts to cut the euro area’s third-largest budget deficit as they manage more than a third of public spending, including health and education. Fitch Ratings downgraded five regions including Andalusia and Catalonia this week, saying debt levels are climbing and the weak economic recovery will undermine revenue. Spain’s regional governments are behind schedule to meet deficit targets, according to data released last week that Moody’s Investors Service called “credit negative.” Slippage by the regions “adds to pressure on the central government to make the needed cuts to meet the general government deficit targets,” Fitch Director Douglas Renwick said on Sept. 13. Risks to Spain’s sovereign rating are “clearly on the downside,” he said.
• Local Government Debt Is China's Subprime. Borrowing by thousands of companies set up by China’s local governments to fund construction is the nation’s equivalent of the U.S. subprime mortgage crisis, said Cheng Siwei, a former deputy head of the country’s top legislative body. “Our version of the U.S. subprime crisis is the lending to local governments, which is causing defaults,” Cheng said at the World Economic Forum in the Chinese city of Dalian today. He served as vice chairman of the standing committee of the National People’s Congress from 1998 to 2003. Local governments in China, barred from directly selling bonds or taking bank loans, set up more than 6,576 companies to raise money for roads, sewage plants and subways. A June report by the national auditor warned of repayment risks and said some authorities had offered illegal guarantees for these companies, known in China as local government financing vehicles.
• Solyndra Collapse Foreseen by Some Workers, a 'Shock' to Others. Alex Brudny, a mechanical engineer at Solyndra LLC until two weeks ago, says he wondered why the Obama administration gave the California company $535 million in loan guarantees. “To a majority of us, it looked like a political stunt,” Brudny, 59, said in a telephone interview. “The product was not as good as we counted on, and things were not really going well, and it was just a matter of time to me.” The collapse of Solyndra, a solar-power manufacturer, has prompted inquiries by Congress, the FBI and watchdogs at the Energy and Treasury departments. For 1,100 workers such as Brudny, it also has meant the loss of a job when the company shut down on Aug. 31.
• U.S. Household Worth Declines by $149B. Household wealth in the U.S. dropped in the second quarter for the first time in a year, hurt by falling share prices and declining home values. Net worth for households and non-profit groups decreased by $149 billion, a 1 percent drop at an annual pace, to $58.5 trillion, the Federal Reserve said today in its flow of funds report from Washington. It rose at a 7.4 percent rate in the previous three months. Housing wealth decreased for a fourth consecutive quarter from April to June. A loss of $947 billion in real estate assets over the past year was compounded by a drop in the Standard & Poor’s 500 Index last quarter, the first decline in a year.
• Payrolls Decreased in 30 U.S. States in August. Payrolls fell in 30 U.S. states in August, led by New York and Georgia, while the jobless rate increased in 26, showing the slump in hiring is broad-based. Employers cut staff by 22,700 workers in New York last month, and by 18,200 in Georgia, figures from the Labor Department showed today in Washington. Nevada continued to lead the nation in unemployment with a rate of 13.4, up from 12.9 percent in July.
• Consumer Confidence in U.S. Rises More Than Estimated on Economic Outlook. Confidence among U.S. consumers rose in September from the lowest level since November 2008 as Americans’ views of current economic conditions improved. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 57.8 this month from 55.7 in August. The median estimate of economists surveyed by Bloomberg News called for a reading of 57. The group’s measure of consumer expectations six months from now dropped to the lowest level since May 1980.
• Crude Oil Futures Decline Most in a Week in New York on European Concern. Crude oil tumbled the most in a week in New York on concern that European leaders meeting today haven’t taken sufficient steps to contain the region’s debt crisis. Futures fell as much as 2.7 percent as the euro halted a two-day advance against the dollar on signs that an agreement to bail out Greece may be hindered by demand from Finland for collateral. Technical resistance at about $90 a barrel also caused prices to retreat after yesterday’s rally. Crude for October delivery fell $1.54, or 1.7 percent, to $87.86 a barrel at 12:28 p.m. on the New York Mercantile Exchange. Futures have fallen 3.9 percent this year and gained 0.7 percent this week.
• Gold Jumps Most in a Week as European Debt Concerns Boost Demand for Haven. Gold rose the most the in a week on renewed concern that Europe’s debt crisis will threaten economies, boosting demand for a haven. European finance ministers ruled out efforts to prop up the faltering economy and gave no indication of providing aid for lenders at a meeting today. Before today, gold jumped 25 percent this year, reaching a record $1,923.70 an ounce on Sept. 6, on mounting signs the global economy will slow. Gold futures for December delivery rose $35.20, or 2 percent, to $1,816.60 on the Comex at 12:18 p.m. in New York. A close at that price would be the biggest gain since Sept. 8. Prices are still heading for a weekly drop of 2.3 percent.
• BRIC Outlier India May Raise Rates Further as Prices Trump Europe Threat. India’s central bank may extend its record interest-rate increases, economists predicted after Governor Duvvuri Subbarao said a “premature” change in the monetary policy stance may fan inflationary expectations.
• Leon Black: Europe Banks to Shrink Dramatically. European banks need to sell 1.5 trillion euros ($2.1 trillion) in assets because of the region’s sovereign-debt crisis, said Leon Black, head of private-equity firm Apollo Global Management LLC. “Banks need to sell a trillion and a half euros of assets off their balance sheets in the next few years,” he said today at an investment forum in Sochi, a resort town in southern Russia. “There are going to be great sales and they have already started.”

Wall Street Journal:

• Bank Group Courts IMF, BRICs on EUR20B Greek Debt Proposal. The bank industry group negotiating Greece's debt refinancing is asking the International Monetary Fund and major emerging markets to back a private-sector led plan for Athens to buy back EUR20 billion ($27.6 billion) of its debt.
• Greece May Tap Bank Fund For Cash As EU-IMF Loan Delayed - Source. Greece may tap an emergency fund for banks to keep it going as its creditors pushed back the decision on whether to continue its financing to October, a senior government official said Thursday.
• Hong Kong Dollar Doubters Rush In. Hedge fund manager Bill Ackman created a stir this week with a call to go long on the Hong Kong dollar, a currency that has been linked in a in a very tight range near 7.8 to the U.S. dollar since 1983.
• ECRI Leading Index Still Falling, Now With More Falling-Ness. (graph) The Economic Cycle Research Institute’s weekly index of leading economic indicators continues to trot in the wrong direction, down. The ECRI’s index ticked lower last week, the institute said today, and the four-week rolling average fell to -7.1%, the worst rate of decline in nearly a year.
  

CNBC.com:

• How Goldman Sachs(GS) Lost One of Its Crown Jewels.

Business Insider:

• The Next Solyndra? Conservatives Pounce on New Obama Scandal Involving Phil Falcone. Hedge fund titan Phil Falcone is one of the biggest funders of LightSquared, a telecom company that wants to implement a nationwide satellite phone network.
• 10 Key Dates That Are Crucial for the Future of Europe.
• Another Report About Greece Violating its Bailout Agreement.
  

Zero Hedge:

• Europe's Response to Geithner's Advice: "I'd Like To Hear How The United States Will Reduce Its Deficits ... And Its Debts".

NY Post:

• Dems' 'Primary' Message to Obama. Two days after his party’s humiliating loss in the special election to fill disgraced ex-Rep. Anthony Weiner’s House seat, President Obama faced angry complaints from some in his own party that a primary challenge might be the best way to catch his attention in case he missed the political warning signs that seem to be flashing red. “It’s a common refrain, and it’s certainly common in my district among Democrats [because] they want the guy back that they voted for,” liberal Rep. Peter DeFazio of Oregon said, referring to the perceived political shift by the president.

Dow Jones:

• German Cabinet Delays Discussing Stability Mechanism. Eurozone fund now unlikely to be in place by end of year.

Washington Times:

• Obama Agrees to Sell Arms to Taiwan. President Obama has decided to sell a new arms package to Taiwan that will likely include weapons and equipment to upgrade the island’s F-16 jets, according to administration and congressional officials. Congress will be briefed Friday on the arms package, worth an estimated $4.2 billion, said officials who spoke on the condition of anonymity. A formal announcement is expected soon. China, which opposes U.S. arms sales, is expected to react harshly to the upgrade package. China's military cut off exchanges with the Pentagon in 2008 and last year after two arms packages were announced.

Economist:

• Gauging the Gloom. (graph) An uptick in press mentions of recession bodes ill for the world economy.

Chicago Tribune:

• Germany's Weber Says Eurozone's Debt Issues to Worsen and Need Crisis Management. As the Eurozone debt crisis threatens banks and potentially the global economy, former German central banker Axel Weber said he “fears” financial conditions will have to deteriorate more in Europe before leaders take “drastic action.” Meanwhile, he said, “Europe needs to improve the probability of successful crisis management.” Speaking at the Chicago Council of Global Affairs, Weber said policy makers need the political cover of an emergency to take action. “Things have to get worse before they get better,” he said. “If you act swiftly in the middle of a crisis people” appreciate the need for urgent action. He described recent Greece bailout measures as “an attempt to kick the can down the road,” but added “If Europeans don’t react the markets will get worse. Pressure from the bond market is already there. Investors want to hear a convincing story why they should buy new bonds.” “The debt problems of countries like Greece have become a problem for all the other countries” in the Eurozone, he said. Even France has been impacted, and along with Germany it is critical to the core of the union. Weber said resolution of the financial crisis is complicated because in the Eurozone there is “no common view of the origins of the crisis or solution.” Ultimately, Weber thinks there must be shared fiscal practices so that some countries don’t spend excessively and rely on more frugal companies to provide aid later. He envisions a two tiered system with the current Eurozone “a training ground” for countries that wish to get into a fiscal union with standards for stability. But, he said, that “is not around the corner” and will take years to get there. Meanwhile, the bailout has had a sharp impact on Germany, already. Weber said a couple of years ago Germany’s debt to GDP was a sound 64 percent. But two years into the bailouts of countries on the periphery of Europe, debt has jumped to 84 percent of GDP. Weber said in the past it would have taken 1.5 years for debt to mount so dramatically. “The numbers are moving up fast,” he said. If Germany were to guarantee the debt for the European Union, Germany’s debt would be 320 percent of GDP. “Germany would no longer be a triple A country,” said Weber. While hedge fund manager George Soros and others have suggested that issuing Eurobonds would be a solution, Weber said that “would do more harm than good.”

Reuters:

• Exclusive: United Tech(UTX) Seeks Financing for Deal: Sources. United Technologies Corp is lining up financing in the double-digit billions of dollars to support a major acquisition in the United States, according to people with direct knowledge of the matter. The U.S. industrial conglomerate is tapping the credit market for funds that could top $20 billion, said one of the sources.

Frankfurter Allgemeine Zeitung:

• Germany's credit risk on its contribution to the expanded European Financial Stability Facility could swell to as much as 400 billion euros if interest obligations are considered in extreme cases. That figure is about twice as much as German officials have indicated, citing calculations from Deutsche Bank AG.

Handelsblatt:

• International Monetary Fund Managing Director Christine Lagarde called for concerted action by policy makers to cut debt and keep the global economy on track, she said. Dithering by politicians in dealing with debt in developed countries has contributed to a vicious circle that is holding back consumer demand, investment and job creation, Lagarde wrote.

Sina:

• Twitter Launches Chinese Service.

Beijing Business Today:

• Beijing new home prices fell 6.6% in the first eight months from a year earlier, citing the city's housing association. Transaction volume dropped 17.2% y/y to 32,000 units.

Bear Radar

Style Underperformer:

• Small-Cap Value (-.31%)

Sector Underperformers:

• 1) Coal -2.11% 2) Networking -1.81% 3) Banks -1.21%

Stocks Falling on Unusual Volume:

• FSLR, VECO, DGII, RIMM, DB, NFLX, MKTX, ZOLL, SSYS, RRGB, OPEN, LUFK, ADBE, PETD, HRBN, MATW, ITRI, PRSP, CIEN, TRMB, UEIC, ARMH, ODC, AIR, TRH and GPC
  

Stocks With Unusual Put Option Activity:

• 1) CEDC 2) EP 3) CBG 4) TXT 5) RIMM
  

Stocks With Most Negative News Mentions:

• 1) ADBE 2) NFLX 3) RIMM 4) WMT 5) COST
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.10%)

Sector Outperformers:

• 1) Utilities +.89% 2) Retail +.79% 3) Gold & Silver +.70%

Stocks Rising on Unusual Volume:

• NDN, TXT, TYC, UBS, TGA, RPXC, DMND, WMGI, PWRD, ZINC, WCRX, VPHM, AWH, JOE and SGA
  

Stocks With Unusual Call Option Activity:

• 1) TYC 2) CLX 3) TSN 4) SVNT 5) MSI
  

Stocks With Most Positive News Mentions:

• 1) WMGI 2) REV 3) MYL 4) LLY 5) KMB
  

Charts:

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

Friday Watch

Evening Headlines

Bloomberg:

• Trichet Urges Euro Officials to Get 'Ahead of Curve' in Crisis. European Central Bank President Jean-Claude Trichet pressed euro-area governments to take decisive action to halt the debt crisis, after the ECB bought them more time by extending an emergency lifeline to lenders. Trichet said finance ministers meeting in Wroclaw, Poland today need to show the same “unity of purpose” as central banks did yesterday in providing extra dollars to European banks bruised by the crisis that has seeped from Europe’s edges to its core. “We are not back to ‘business as usual’ as some thought some months ago,” Trichet said late yesterday in Wroclaw. “We call all authorities to implement swiftly all decisions and to be constantly ahead of the curve.” Eighteen months of crisis-fighting and 256 billion euros ($355 billion) in aid for Greece, Ireland and Portugal have failed to stabilize markets. The turmoil has spread to Italy and Spain, sending tremors through Europe’s banking system and leading to speculation that a currency meant to be permanent might break up.
• Germany Overtakes Spain in Debt Wagers Amid Crisis: Euro Credit. Bets on German credit quality overtook those on Spain for the first time in a year as the mounting cost of bailing out the region's most indebted nations infects Europe's largest economy. The net amount of German debt covered by credit default swaps surged 20% this year to $18.2 billion, making it the third most-referenced European sovereign after France and Italy, according to the Depository Trust & Clearing Corp. Germany has provided the biggest share of the rescue packages for Greece, Ireland and Portugal, and Chancellor Angela Merkel is struggling to maintain taxpayer support after a string of election defeats. Attempts to end the two-year-old crisis failed to stop the rot spreading to Italy and Spain, which now risk missing deficit-reduction targets.
• German Taxpayers Want Equity in Bank Bailouts: Karl Heinz Daeke. When will politicians finally accept that their ideology of cheap money has failed? A low-interest-rate policy after the dot-com frenzy encouraged the housing bubble. The government-sponsored housing boom led to a banking meltdown. And the fight against the banking crisis resulted in the sovereign-debt mess. Now, because it is forced to invest in toxic debt, the European Central Bank is set to lose its independence.
• Correlation Bets Climbing to Record as Europe Overwhelms Earnings: Options. U.S. options traders see almost no chance that earnings, dividends or buybacks will influence stock prices through the end of 2011, instead placing record bets that equities move in lockstep in reaction to Europe’s debt crisis. The Chicago Board Options Exchange S&P 500 Implied Correlation Index jumped 34 percent since the end of July to 79.31 yesterday, and reached 81.52 on Sept. 14, the highest level ever. The gauge uses options to measure expectations for how much Standard & Poor’s 500 Index shares will move together. Traders are speculating correlation among equities, already the highest since the crash of 1987, will increase as the threat of a banking crisis in Europe drowns out news about individual companies.
• China Resource Grab Costs to Rise as Yields Hit '08 High. The highest funding costs since 2008 may make it more expensive for China’s state banks to lend to commodity producing nations, as the world’s fastest-growing major economy tries to secure natural resources to fuel growth. Five-year borrowing costs for the so-called policy banks surged 70 basis points to 4.6 percent this year and touched a three-year high of 4.68 percent on Aug. 4, Chinabond prices show. Top-rated Indian lenders pay 9.45 percent on their five- year debt, compared with 8.94 percent at the end of 2010, data compiled by Bloomberg show. The government relies on China Development Bank Corp. and Export-Import Bank of China to lend to resource-rich nations such as Brazil, Kazakhstan and Venezuela in exchange for commodity and energy supplies. Borrowing costs surged after the central bank raised interest rates to control inflation and lenders increased provisions against loans for local governments. The value of banks’ dollar loans are falling as the yuan strengthened 3.3 percent against the currency in 2011. “Foreign exchange and rising funding costs are working against them and yields are probably decreasing on loans, especially if they are U.S. dollar,” said Mike Werner, an analyst at Sanford C. Bernstein & Co. in Hong Kong. While the profits of policy banks will “be hurt in the current environment,” their lending supports government policies and is “still beneficial to the overall economy,” he said.
• Commodities May Dip to Lowest Since November: Technical Analysis. Commodities may drop to the lowest level since November after failing to breach key resistance levels, according to technical analysis by Commerzbank AG. The S&P GSCI Total Return Index of 24 commodities has failed at the downtrend and 200-day moving average resistance at 5,090 and 5,150, London-based Karen Jones, head of fixed-income, commodity and currency technical analysis, wrote in a Sept. 14 report. A resistance level indicates a price at which sell orders may accumulate when a security is rising. “We favor failure here and will maintain a negative bias,” Jones wrote. “Failure here should initiate a slide back to the August 19th low of 4,723 and then the August low at 4,530.” Further losses could then take the index back to the 50 percent retracement of the 2010 and 2011 advance at 4,446, the report said. A fall below that level may spur a decline to the 4,268 November low and the 2009 and 2011 support line at 4,293, it said.
• Euro Needs Restructuring, Coordinated Polices, FX's Taylor Says. John Taylor, founder and chief executive officer of FX Concepts LLC, said the euro has to be reorganized amid a failure to continuously coordinate policy. The European Central Bank said it worked with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank to extend three-month loans to euro-area banks in an effort to ensure they have enough cash for the rest of the year, as policy makers seek to contain the European sovereign- debt crisis. “It certainly doesn’t get at really any of the major problems at all,” Taylor said today in a panel discussion at the Bloomberg Markets 50 Summit in New York, tied to the magazine’s ranking of the 50 most influential leaders in global markets, finance, business and government. “Continuous coordinated action” is needed, he said.
• UBS Placed on Review for Downgrade by Moody's Over Risk Control. UBS AG, which said it sustained a $2 billion loss from unauthorized trading at its investment bank, had its credit ratings put under review for possible downgrade by Moody’s Investors Service. The examination “will center on ongoing weaknesses in the group’s risk management and controls that have become evident again” with the disclosure, Moody’s analysts led by Robert Thomas said yesterday in a statement. The loss “would be manageable for the group given its sound liquidity and capital position.”
• Borrowing by the financing vehicles of local Chinese governments is the nation's version of the subprime crisis that hit the U.S., Cheng Siwei, a former vice chairman of the National People's Congress, said at the World Economic Forum in Dalian today. "Our version of the U.S. subprime crisis is the lending to local governments, which is causing defaults," Cheng said.
• BofA(BAC) Said to Keep Bankruptcy as Option for Countrywide Unit. Bank of America Corp., the lender burdened by its Countrywide Financial Corp. takeover, would consider putting the unit into bankruptcy if litigation losses threaten to cripple the parent, said four people with knowledge of the firm's strategy.
• Muddy Waters' Block Says Chinese Consumer Theme Is 'Overblown'. Carson Block, the short seller who runs research firm Muddy Waters LLC, said U.S. investors are too eager to put their money into China where consumer demand is overstated. “The idea of the Chinese consumer has always been somewhat overblown,” Block said yesterday on a panel at a Bloomberg Link Conference in New York. “Part of the reason for that is that you have luxury-goods manufacturers such as Louis Vuitton that report outstanding sales in China.” Analysts at Capital Economics, a London-based research group, estimate that private consumption in China may have fallen to 34 percent of gross domestic product last year, the lowest level since the country began opening its economy to market mechanisms more than three decades ago. Just 10 years ago, the share was 46 percent, Capital Economics calculates. “We see the tall, shiny buildings in Shanghai or Beijing and we meet with the Chinese who have graduated from Harvard, who have somewhat been inculcated with western values, and we mistakenly extrapolate this to the large portion of the economy,” Block said.

Wall Street Journal:

• Europe Can't Swap Its Banking Problem. It's the pattern investors have grown used to since the rolling financial crisis began in 2008. The market zeroes in on a point of weakness, policy makers finally apply a band aid, financial apocalypse is averted and the bears retreat before moving on to the next target. This time the trouble was European banks' access to dollar funding. Most importantly, the duration of available market funding was getting shorter. So the world's leading central banks agreed to extend existing swap lines with the Federal Reserve to allow the banks to access three-month dollar funding, rather than just the seven-day funding available before. The positive spin: It neutralizes a key investor concern over liquidity. And the move includes a feel-good factor, because central banks are finally seen to be acting in concert after a series of recent unilateral moves by, say, the Swiss to curb their rising currency or the European Central Bank to stem the rise in Italian bond yields. If this really is the start of greater international cooperation, as some seemed to hope, it is an important development. But investors risk reading too much into it. After all, the overall structure of the deal is not new. And it is fairly painless for the Fed. A central bank that does a swap for dollars with the Fed takes the currency risk as well of the credit risk of lending to its own banks. Thursday's move buys time and soothes funding markets. But European bank credit-default swaps remain way above their 2009 highs. That's a reminder that the real challenge facing the financial system—a solution to the sovereign-debt crisis—remains as elusive as ever.
• Google(GOOG) Says Display Ad Spending Rises Sharply. Google Inc. (GOOG) said Thursday that spending by the biggest advertisers on its display network more than doubled in the past year, a development that comes as the search giant's rivals seek to counter its expansion in the display ad market.
• Goldman Sachs(GS) Shutting Global Alpha Hedge Fund. Global macro has been an awful strategy for hedge funds for much of this year — even for the Vampire Squid. Goldman Sachs is shutting down its Global Alpha fund by the end of October, due to redemptions and general misery, the Wall Street Journal is reporting. It had about $1 billion left under management, down from $12 billion at its peak.
• Global Standards Sought on Derivatives Rules. Treasury Secretary Timothy Geithner in a letter Wednesday assured Congress that the Obama administration and federal regulators are working with their international counterparts to see they adopt similar rules requiring market participants to back their over-the-counter derivatives trades with cash. "Just as we have global minimum standards for bank capital—expressed through international agreement—we need global minimum standards for margin on uncleared over-the-counter derivatives," Mr. Geithner said.
• Foreign Buyers Go Direct. There are increasing signs that foreign buyers are going directly to the Treasury to do their bidding instead of relying on middle-men dealers, a change that is clouding the market's ability to gauge foreign participation in the U.S. debt-auction process. The portion of Treasury auctions awarded to so-called indirect bidders—those who have dealers submit bids on their behalf—is usually considered a reflection of foreign interest. Foreign central banks and monetary authorities traditionally go this route.
• Countrywide Whistle-Blower Had Alleged Subprime Fraud. A whistle-blower at Countrywide Financial, who the Department of Labor says was improperly terminated by Bank of America Corp.(BAC), had investigated widespread fraud in the home lender's subprime operations, including a probe that led to the closing of the majority of Countrywide branches in Boston.
• Road Gets Bumpy for GM(GM) in China. As the world's biggest car maker powers ahead in the world's biggest car market, it's hitting bumps in the road.
• Bank Probe in Stanford Case. Prosecutors Are Investigating Whether Societe Generale Ignored Suspicious Transactions.
• Why the Jobs Plan Falls Short. Instead of temporary tax breaks and more spending, we need permanent tax incentives, development of our energy resources, and entitlement reform.

Business Insider:

• James Carville: Obama Needs to Panic, Fire Economic Team, And Indict Bank Execs. Former Clinton advisor James Carville has some blunt advice for President Barack Obama if he wants to maintain a chance at reelection — PANIC!
  
• New York Times: iPhone 5 Announcement is "Weeks Away".
• Google(GOOG) Is Secretly Spending Hundreds of Millions of Dollars Turning YouTube Into a Cable Alternative.
  

Zero Hedge:

• Goldman Sachs(GS) Emerges In The Solyndra Scandal.
• Treasury Inspector General Opens Probe Into Obama's Solargate.
  

IBD:

• J2 Global(JCOM): Not Just The Fax, Ma'am.

NY Times:

• China Consolidates Grip on Rare Earths. In the name of fighting pollution, China has sent the price of compact fluorescent light bulbs soaring in the United States. By closing or nationalizing dozens of the producers of rare earth metals — which are used in energy-efficient bulbs and many other green-energy products — China is temporarily shutting down most of the industry and crimping the global supply of the vital resources.

CNN:

• Mortgage Rates Hit Record Low: 30-Year Fixed Nears 4%. The average rate for a 30-year, fixed-rate loan fell to 4.09% this week, its lowest level in 60 years, according to mortgage giant Freddie Mac. Last week, the 30-year fixed averaged 4.12%. The average rate for a 15-year fixed mortgage -- a popular option among those who wish to refinance -- sunk to 3.30%, down from 3.33% last week, Freddie reported.

Real Clear Politics:

• Slow Employment Growth? Look to Obamacare. No one seems to be talking about the $2,000 per worker tax on employers, to begin in 2014. Enacted as part of the 2010 Patient Protection and Affordable Care Act, it will be levied on firms with 50 or more employees who do not offer the right kind of health insurance to their workers. Millions of Americans are looking for work, and the number in poverty, 46.2 million, is the highest since the Census Bureau began compiling poverty data 52 years ago. This tax might be one reason for the slow employment growth we observe two years after the end of the recession, in June 2009. Although the tax will not take effect until 2014, businesses are adjusting now. They are not stupid, they plan ahead.

Gallup:

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

Reuters:

• Rapid Rise in Asians' Costs of Funds Could Slow Loan Market Activity. It has been more than a year that the loan market has been plagued by higher costs of funds, mostly experienced by Asian and European banks. Today, these two groups of banks are still troubled by the issue and the problem has worsened. Basis Point surveyed over 20 Asian banks in Asia and the US, and more than half of the respondents saw costs jump by about 100bp since three months ago. An Asia-based Taiwanese bank said its costs are at over 150bp now, compared to less than 100bp just two months ago. "This situation was not seen in May," said a Taiwanese banker based in the US "But the costs gradually moved in late June and July, then soared in August and are still climbing this month." Many bankers agreed that the issue worsened when Europe announced further debt concerns in July. And some blamed the drastic hike on tightened credit back home. "Our costs are through the roof now as the central government is limiting lending capacity," said a US-based Chinese banker. "We have since stopped accepting new businesses."
  
• RIM(RIMM) Results, Outlook Stun Investors Even After Warning. Research In Motion reported a steep drop in quarterly profit on limp sales of its smartphones and tablets, and offered investors little hope of a turnaround anytime soon, sending its shares tumbling. RIM shipped just 10.6 million smartphones in the second quarter, as carriers struggled to sell year-old devices with limited processing power compared to newer rival products. "I was stunned that the device number was below their guidance," said Peter Misek from Jefferies & Co. Perhaps more ominously, RIM shipped only 200,000 PlayBook tablet computers, which went on sale globally in June after weathering some scathing reviews at a North American launch in April. Analysts had expected RIM to ship almost 12 million phones and 600,000 tablets. RIM's own outlook was for BlackBerry shipments of between 11 million and 12.5 million. Highlighting a widening gap, Apple sold more 20 million iPhones and more than 9 million iPads last quarter after virtually creating the tablet market last year. RIM's Nasdaq-listed shares fell as much as 18 percent to $24.20 in after-hours trade following the results.
• US Equity Funds Take in Cash, Whipsawed by ETF - Lipper.
• Cooper Industries(CBE) Cuts Q3 Profit Outlook, Shares Fall. Electrical products maker Cooper Industries cut its third-quarter earnings outlook, as it faces weakness in its residential and commercial markets, along with softness in its electronics business. The company sees third-quarter earnings of 94-98 cents a share, down from its prior estimates of 98 cents to $1.03 a share. Analysts, on average, were expecting earnings of $1.02 a share, according to Thomson reuters I/B/E/S. Cooper said material inflation and production shortfalls from restructuring activities would also hurt its third quarter. Shares of the Dublin-based company were down 6.5 percent in trading after the bell.

Securities Times:

• China won't change the direction of its monetary policy as curbing inflation gains remain the nation's top priority, citing China Construction Bank Corp. Chairman Guo Shuqing. Risks have increased for banks as underground lending and illegal loans pick up after monetary policy tightened liquidity, Guo said. Overseas demand is also weakening, he said.

Evening Recommendations
Barclays Capital:

• Rated (LNKD) Overweight, target $93.
• Rated (IACI) Overweight, target $55.
• Rated (WBMD) Underweight, target $36.
• Rated (SFLY) Overweight, target $73.
• Rated (OPEN) Underweight, target $60.
• Rated (RLOC) Underweight, target $16.
• Rated (DMD) Overweight, target $11.
  

Night Trading

• Asian equity indices are +.50% to +2.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 164.0 -11.0 basis points.
  
• Asia Pacific Sovereign CDS Index 151.25 -7.0 basis points.
• FTSE-100 futures +1.17%.
  
• S&P 500 futures +.09%.
  
• NASDAQ 100 futures +.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MLHR)/.32

Economic Releases
9:00 am EST

• Net Long-term TIC Flows for July are estimated at $30.0B versus $3.7B in June.
  

9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for September is estimated to rise to 57.0 versus 55.7 in August.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The (AGP) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by financial and technology 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 Surging into Final Hour on Falling Eurozone Debt Angst, Short-Covering, Less Financial Sector Pessimism, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 32.23 -6.85%
  
• ISE Sentiment Index 108.0 +16.13%
  
• Total Put/Call 1.0 -2.91%
  
• NYSE Arms .42 -14.60%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 127.26 -2.25%
  
• European Financial Sector CDS Index 246.92 -7.16%
  
• Western Europe Sovereign Debt CDS Index 328.50 -3.90%
  
• Emerging Market CDS Index 298.83 -3.05%
  
• 2-Year Swap Spread 32.0 -2 bps
  
• TED Spread 35.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 189.0 +6 bps
  
• China Import Iron Ore Spot $177.90/Metric Tonne -.61%
  
• Citi US Economic Surprise Index -42.20 -2.8 points
  
• 10-Year TIPS Spread 1.97% +4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +82 open in Japan
• DAX Futures: Indicating +71 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 builds on recent gains US tax hike concerns, some more disappointing economic data, emerging markets inflation fears and global growth worries. On the positive side, Coal, Oil Tanker, I-Bank, HMO, Education, Energy, Computer and Software shares are especially strong, rising more than +2.25%. Cyclical shares are outperforming. (XLF) has outperformed throughout the day. Moreover, tech stocks have been relatively strong again today. Gold is falling -1.7%, Copper is surging +1.71% and the UBS-Bloomberg Ag Spot Index is down -1.21%. The France sovereign cds is declining -6.64% to 169.33 bps, the UK sovereign cds is falling -5.08% to 79.33 bps, the Italy sovereign cds is falling -4.84% to 451.67 bps, the Portugal sovereign cds is declining -6.7% to 1,057.90 bps, the Ireland sovereign cds is falling -5.07% to 790.0 bps and the Belgium sovereign cds is falling -6.51% to 259.0 bps. The European Investment Grade CDS Index is dropping -5.04% to 167.72 bps. The FRA/OIS Spread is dropping -6.4 bps to 43.0 bps. The 3-Month Euro Basis Swap is soaring +16.49 bps to -81.91 bps, which is also a large positive. On the negative side, Alt Energy and Airline shares are lower to flat on the day. Oil is rising +.79% and Lumber is down -.87%. Rice is still very near its multi-year high, rising +36.0% in about 10 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.62/gallon. It is up .48/gallon in about 7 months. The China sovereign cds is rising +1.58% to 133.17 bps, which is a multi-year high. The China Development Bank Corp. cds is continuing its recent parabolic move higher, soaring +18.2 bps to 302.7 bps, which is the highest since March 2009. The Greece sovereign cds is still near an all-time high. The Western Europe Sovereign CDS Index is also still near its all-time high. The Shanghai Composite fell another -.23% overnight, despite gains in most of the rest of Asia, and is now down -11.7% ytd. While it is a little too soon to tell, Europe may have pulled off another successful "can kicking", which could lead to more short-covering/bargain-hunting over the coming weeks. However, the intermediate-term situation is still very problematic as Europe's "solutions" of jacking up taxes and slashing spending will only further dampen economic activity and worsen budget deficits over the longer-term. As well, the technical action in some Asian indices and their higher trending cds are becoming concerns. I expect US stocks to trade modestly higher into the close from current levels on declining eurozone debt angst, short-covering, bargain-hunting, technical buying and falling food prices.