BETWEEN THE HEDGES

Wednesday, July 11, 2012

Stocks Slightly Lower into Final Hour on Earnings Worries, US "Fiscal Cliff" Concerns, FOMC Commentary, Rising Global Growth Fears

Posted by Gary .....at 4:14 PM

Broad Market Tone:

Advance/Decline Line: Lower
Sector Performance: Most Sectors Declining
Volume: Below Average
Market Leading Stocks: Underperforming

Equity Investor Angst:

VIX 18.67 -.27%
ISE Sentiment Index 56.0 +5.66%
Total Put/Call .95 -13.64%
NYSE Arms .98 -57.10%

Credit Investor Angst:

North American Investment Grade CDS Index 111.99 +.47%
European Financial Sector CDS Index 279.57 +.59%
Western Europe Sovereign Debt CDS Index 276.75 -1.78%
Emerging Market CDS Index 267.49 -2.42%
2-Year Swap Spread 23.50 -2.25 basis points
TED Spread 36.50 -.5 basis point
3-Month EUR/USD Cross-Currency Basis Swap -54.50 +3.0 basis points

Economic Gauges:

3-Month T-Bill Yield .09% unch.
Yield Curve 125.0 +1 basis point
China Import Iron Ore Spot $134.0/Metric Tonne -1.11%
Citi US Economic Surprise Index -64.50 +.4 point
10-Year TIPS Spread 2.08 unch.

Overseas Futures:

Nikkei Futures: Indicating +9 open in Japan
DAX Futures: Indicating -7 open in Germany

Portfolio:

Slightly Lower: On losses in my tech, biotech and retail sector longs
Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades off session lows, after testing its 50-day moving average, on disappointing FOMC commentary, eurozone debt angst, tech/consumer discretionary weakness, US "fiscal cliff" worries, rising energy prices, earnings concerns and rising global growth fears. On the positive side, Energy, Oil Service and Airlines shares are especially strong, rising more than +1.0%. Energy and financial shares have substantially outperformed throughout the day. Copper is gaining +.8% and the UBS-Bloomberg Ag Spot Index is down -.4%. The Germany sovereign cds is falling -6.0% to 91.16 bps, the Spain sovereign cds is down -2.2% to 558.90 bps, the Italy sovereign cds is down -2.2% to 496.55 bps, the UK sovereign cds is down -3.0% to 67.45 bps, the Saudi sovereign cds is down -6.6% to 115.82 bps and the Brazil sovereign cds is down -3.8% to 148.85 bps. On the negative side, Disk Drive, Networking, Biotech, Homebuilding, Retail and Education shares are under pressure, falling more than -1.25%. Cyclicals are underperforming again. Tech and consumer discretionary shares are heavy. Oil is rising +2.8%, Lumber is -.25% and Gold is up +.6%. The Citi Latin America Economic Surprise Index is falling another -12.5 points today to -33.7, which is the lowest since early-Aug. of last year. Major Asian indices were mixed overnight as a +.5% gain in China was offset by a -.7% loss in India. Major European indices are mixed as a +.8% gain in Spain(still down -5.4% in 5 days) is being offset by a -.5% loss in France. The Bloomberg European Bank/Financial Services Index is rising +.4%. Brazil is flat on the day. The Ireland sovereign cds is rising +.75% to 540.47 bps and the Japan sovereign cds is gaining +1.96% to 97.32 bps. US weekly retail sales have decelerated to a sluggish rate at +2.2%, which is the slowest since the week of April 5th of last year. US Trucking Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to late-Aug. levels. Lumber is -4.0% since its March 1st high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -26.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +140.0% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 25.0 industry-standard worldscale points, which is the lowest since Oct. 2009. The CRB Commodities Index is now technically in a bear market, having declined -21.0% since May 2nd of last year. Spanish and Italian yields are back in the danger zone. Copper, oil and the euro are seeing mild bounces today on global central bank stimulus hopes. The 10Y T-Note continues to trade too well, which remains a red flag. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Key gauges of credit angst remain technically strong. The Citi Eurozone Economic Surprise Index is at -74.60 points, which is near the lowest since mid-Sept. of last year. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. Moreover, the “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that if implemented will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion. The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. I continue to believe the bar for additional QE is likely higher than the Fed is letting on. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff " and election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. Finally, the upcoming earnings season could prove more challenging than usual for big multi-nationals given US dollar strength and the precipitous declines in some key parts of the global economy during the quarter. Stocks that miss earnings estimates are being severely punished despite the obvious headwinds. The average stock, as measured by the Value Line Geometric Index, is underperforming the S&P 500 today. I still believe there is too much uncertainty on the horizon to conclude a durable stock market low is in place. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on eurozone debt angst, earnings worries, disappointing FOMC commentary, rising global growth fears, more shorting, tech/consumer discretionary weakness and US "fiscal cliff" concerns.

Today's Headlines

Posted by Gary .....at 3:12 PM

Bloomberg:

Rajoy Outlines Budget Cuts as Protests Hit Madrid. Spanish Prime Minister Mariano Rajoy rolled back social-welfare protections and raised taxes to clinch emergency aid and pacify investors as anti-austerity protesters marched in the capital. Rajoy announced cuts in unemployment benefits and public wages, signaled reductions in pensions and raised sales taxes as part of a 65 billion-euro ($80 billion) package of deficit cuts, risking a deeper recession. As striking miners clamored for aid to keep their industry alive in a march along Madrid’s main boulevard, Rajoy trimmed union funding by 20 percent. Spain’s desperation for foreign capital to sustain public services and keep its banks afloat has ripped control of policy from the government, leaving officials to implement the diktats of markets and the European Union. Preventing a meltdown in the fourth-biggest euro economy is key for policy makers to limit risks to the 17-nation currency union. “We have very little room to choose,” Rajoy told the national parliament in Madrid. “I pledged to cut taxes and now I’m raising them. But the circumstances have changed and I have to adapt to them.”
Berlusconi Will Probably Run Again in 2013, Party Official Says. Former Italian Prime Minister Silvio Berlusconi will probably lead his People of Liberty party into the next elections due by April 2013, the party’s Secretary General Angelino Alfano said. “We are all asking him to run and I believe in the end, he will decide to lead the party,” Alfano said in an interview in Rome today with Sky TG24 television.
Burberry Slowdown Spurs Luxury Goods Wobble. Burberry Group Plc (BRBY) led luxury-goods stocks lower after reporting sales that missed analysts’ estimates for a second straight quarter, fueling concern that Europe’s debt crisis and slowing growth in China are finally taking a toll on high-end demand. Burberry, the U.K.’s largest luxury company, fell as much as 6.9 percent in London trading, sliding to the lowest price since Jan. 3. Cie. Financiere Richemont SA (CFR), the maker of Cartier jewelry, dropped as much as 2.1 percent, while LVMH Moet Hennessy Louis Vuitton SA (MC) slid as much as 3 percent. “There is a slowdown in the broader global economy and as luxury is cyclical, this slowdown is starting to appear in the luxury-goods quarterly reports,” Luca Solca, global head of European equities at CA Cheuvreux, said today in an interview with Bloomberg Television.
A Few FOMC Members Said More Stimulus Probably Would Be Needed. A few Federal Reserve policy makers said the central bank will probably need to take further action to boost the labor market and meet its inflation target, according to minutes of their June meeting. “A few members expressed the view that further policy stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee’s goal,” according to the record of the Federal Open Market Committee’s June 19-20 gathering released today in Washington. The minutes show two participants said additional bond purchases are appropriate, while two others said they would be warranted in the absence of “satisfactory progress” in cutting unemployment or if downside risks increase. FOMC members also said strains in global markets stemming from Europe’s debt crisis had increased since their April meeting, and that “U.S. fiscal policy would be more contractionary than anticipated.”
Iraq Crude Production Overtakes Iran as OPEC Trims Output. Iraq’s crude production overtook Iran’s last month for the first time in more than two decades as Iran led a decline in OPEC output ahead of a European Union ban on purchases from the nation, according to the producer group. Iraq pumped 2.984 million barrels a day in June, outpacing Iran’s 2.963 million, the Organization of Petroleum Exporting Countries’ Vienna-based secretariat said today in its Monthly Oil Market Report. That’s the first time Iraq’s output has exceeded Iran’s since 1988, when the countries ended their eight-year war, statistics compiled by BP Plc (BP/) show.
Industry Suppliers-Box Makers May Show Slow U.S. Growth. Investors may see more signs of slowing U.S. manufacturing growth when makers of corrugated boxes and distributors of supplies report quarterly earnings this month. W.W. Grainger Inc. (GWW) and Packaging Corp. of America are among companies that offer “good insight into industrial America,” said Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group, based in Bedford Hills, New York. Data from these businesses can be particularly useful in verifying or contradicting the pace of activity measured by the government and third-party groups, he said.

Wall Street Journal:

Spain Bank Sub Bondholders Try to Sell. Investors left holding positions in Spanish subordinated bonds were trying to sell them Wednesday after the Spanish government hinted these type of instruments might be forced to take losses. Late Tuesday it emerged that investors holding any equity or hybrid capital instruments issued by Spanish banks that might need a euro-zone bailout could see their investments completely wiped out. Conservative-type bondholders—like banks, funds and Asian investors—were left trying to exit their positions in weaker Spanish banks, but with few investors interested in buying they were finding it hard to sell, bond traders said. The bond prices didn't collapse on the news, with these bonds having been dumped by investors for some time, as the precedent set by Irish banks in 2010 made investors more aware of the risk associated with subordinated debt. However, "unlike in Ireland, the move to force losses on junior bondholders is a significantly more contentious issue in Spain where retail customers make up a large proportion of the investor base," said Daiwa Capital Markets credit analyst Michael Symonds. Bondholders at Spain's larger banks—Banco Santander SA, SAN.MC +1.86% Banco Bilbao Vizcaya Argentaria SA BBVA.MC +2.48% and CaixaBank SA CABK.MC +0.94% —won't likely be affected by the change as they aren't likely to take part in the bailout. But smaller banks will be impacted, with trading on their bonds over the past months evidence of these concerns. "Expect subordinated peripheral debt to trade lower as there had been some expectations that it would be treated with compassion because of the retail bias," said Investec fixed-income analysts Elisabeth Afseth and Brian Barry in a note.
Fed Official Doubts Euro Fix. Financial markets are pulling the euro zone apart and the chances of finding a solution to the currency union's debt crisis appear distant, a U.S. central banker said Tuesday. James Bullard, president of the Federal Reserve Bank of St. Louis, said in an interview that during a roughly week-long trip to Europe he has reassessed the odds of whether euro-zone policy makers can reach a conclusive settlement to end a crisis that's hurting U.S. and global economic growth.

CNBC.com:

Why Millions of Americans Still Can't Refinance Their Mortgage. Mortgage rates hit new lows and applications to refinance fell for the third straight week. It defies logic, unless of course you operate in today’s tight mortgage market.
Dimon Should Be Included in JPM(JPM) Clawbacks. (video)

Business Insider:

Zero Hedge:

NewsBusters:

Romney Gets Standing Ovation From NAACP, But CNN Calls Reception 'Very Negative'.

The Hill:

Reid Rejects GOP Request to Vote on Obama's Tax Plan. Senate Majority Leader Harry Reid (D-Nev.) on Wednesday rejected a Republican request to vote on President Obama’s income tax plan amid defections within his caucus on tax policy. Sen. Orrin Hatch (Utah), the senior Republican on the Finance Committee, accused Democrats of filibustering the president’s tax plan. “They are filibustering their own bill. So what does that tell us? Here’s what it tells us. It tells us that the president’s tax increase plan is not just an economic disaster; it is a political loser,” Hatch said. Senate Democratic leaders are worried about potential defections within their caucus on taxes. At least seven Democratic senators have declined to rule out supporting a temporary extension of the Bush-era income tax rates. Several Senate Democrats running for reelection and Democratic Senate candidates have balked at Obama’s proposal to extend income tax rates only for families earning below $250,000.

Reuters:

Adtran(ADTN) sees weak third quarter revenue; shares plunge. Network gear maker Adtran Inc said it expects the slowing economy to hurt third-quarter revenue, sending its shares down to a two-year low. The company, which reported lower-than-expected second-quarter revenue on Tuesday, said it expects third-quarter revenue to be flat to slightly up on a sequential basis. "During the quarter it has become apparent that customer sentiment in the current environment from an economic and regulatory perspective has deteriorated," a company executive said on a post-earnings call on Wednesday.
Huge demand for 10-year notes at record low yields.
EU watchdog warns banks still face major challenges. The European Banking Authority said there remained significant challenges ahead for Europe's banks having just cleared the first hurdle to bolster their capital buffers. The EBA said that 27 banks had hiked their combined capital by 94.4 billion euros ($115.7 billion) to meet the expectations of the watchdog and fill a 76 billion euro shortfall to help make them strong enough to withstand the euro zone debt crisis. Europe's banking watchdog had given banks until the end of June to hold core Tier 1 capital of 9 percent of risk weighted assets as part of efforts to restore confidence in the sector. EBA Chairman Andrea Enria said the recapitalisation had been a "necessary and important step" but cautioned that banks had a long way to go to recover from the financial crisis and comply with new global regulations.
France, Germany raid Swiss banks, clients on tax. German tax authorities have launched raids into Credit Suisse clients and French officials searched the homes of UBS employees, part of crackdowns on foreigners suspected of evading taxes through the two largest Swiss banks. Switzerland's strict banking secrecy rules, which have helped build a $2 trillion offshore financial sector, have infuriated cash-strapped governments elsewhere as they try to stop tax evasion by wealthy citizens. Roughly 5,000 German clients of Credit Suisse are being probed on suspicion of tax evasion and some had their homes searched, a source at the bank said on Wednesday, as European tax officials broaden their investigation to clients from banks.
Spain tourism body, carmakers warn over VAT hike. The tourism sector would lose around 2 billion euros ($2.45 billion), an industry body said, while car manufacturers estimated they would sell between 20,000 and 25,000 fewer vehicles in the next five months. A sharp rise in Spain's sales tax rates will cost billions of euros in lost earnings and thousands of jobs, representatives of key industries said on Wednesday, complicating the country's efforts to pull itself clear of recession. Prime Minister Mariano Rajoy announced the value added tax hikes on Wednesday as part of a scaled-up austerity programme imposed under pressure from European partners and designed to slash 65 billion euros from the public deficit by 2014. General VAT was raised to 21 percent from 18 percent and the reduced rate for the leisure industry to 10 per cent from 8 percent.
Brazil retail sales fall unexpectedly in May.

Telegraph:

Merkel breaks German law on ESM rescue. You can see why Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble are back-pedalling so frantically over the EU summit deal. While Mrs Merkel seemingly agreed to let the European Stability Mechanism (bail-out fund) rescue banks directly – starting with Spain – she did not have the authority from the Bundestag to do so. Indeed, she violated a categorical prohibition by the budget committee or Haushaltsausschuss.
Spain's Day of Pain: In Pictures.

yle Uutiset:

Finnish Prime Minister Katainen Says Euro Crisis "Very Dangerous". Prime Minister Jyrki Katainen says the current euro crisis is just as serious as that in 2010 when the Greek economy came close to collapse. In an interview given to the newspaper Helsingin Sanomat Wednesday, the premier noted the current strained relationship between southern and northern euro states was unprecedented.

Les Echos:

European bank recapitalizations have cost the equivalent of 4% to 5% of gdp and guarantees are about 10% of gdp, European Union Competition Commissioner Joaquin Almunia said.

Cinco Dias:

Spain is considering increasing the reduced rate of value-added tax, which applies to restaurants, hotels and bars, to 10% from 8%.

O Estado de Sao Paulo:

The Brazilian government plans to reduce economic growth forecast for this year to 2.7% to 3% from 4.5%. The new estimate is likely to be officially announced July 20th.

The Times of India:

US Breaks Ranks, Pushes Global Cap-and-Trade Scheme. In what could make the trade battle over EU's carbon tax on aviation more complicated for India, the US has suggested that countries adopt a global carbon tax system under the International Civil Aviation Organization (ICAO) and adopt a worldwide cap-and-trade regime. It had earlier decided along with the BASIC group — China, Brazil, South Africa and India — Russia and 20 other countries to oppose the EU move with counter-measures. The US has asked for a meeting of 16 countries on the issue in Washington at the end of July where India too is invited. The US has softened its opposition to the EU tax directive, stepping away from countries like India and China on the issue. A global carbon tax regime on aviation would mean escalation of flying costs across the world and not just for travelers to the EU.

Bear Radar

Posted by Gary .....at 1:46 PM

Style Underperformer:

Small-Cap Growth -.82%

Sector Underperformers:

1) Disk Drives -2.55% 2) Homebuilders -1.84% 3) Biotech -1.79%

Stocks Falling on Unusual Volume:

ADTN, MLNX, MIPS, ALLT, PKT, YOKU, SIMO, GG, CNSL, NIHD, EVEP, PSEC, TUDO, WMGI, QCOR, CONN, PCYC, TRLG, ISIS, HCII, LMNX, CIEN, AMRN, ALNY, ASML, SONC, SOHU, WWD, LTM, POST, SMBL, WM and GES

Stocks With Unusual Put Option Activity:

1) FOSL 2) HYG 3) TSCO 4) CIEN 5) MBI

Stocks With Most Negative News Mentions:

1) SPLS 2) CMI 3) SHAW 4) CB 5) CMG

Charts:

Bull Radar

Posted by Gary .....at 11:17 AM

Style Outperformer:

Large-Cap Value +.29%

Sector Outperformers:

1) Airlines +2.19% 2) Oil Service +1.09% 3) Energy +.94%

Stocks Rising on Unusual Volume:

ERF, NFLX, ANF, PAY and RKT

Stocks With Unusual Call Option Activity:

1) NIHD 2) URI 3) PAY 4) CVH 5) TIBX

Stocks With Most Positive News Mentions:

1) PAY 2) NOC 3) ALGT 4) THRX 5) GIS

Charts:

Wednesday Watch

Posted by Gary .....at 12:35 AM

Evening Headlines
Bloomberg:

Spanish Subsidies on the Line as Miners’ March Reaches Madrid. Secundino Menendez Fernandez, a coalminer with a sunburned face, may represent the biggest threat to Prime Minister Mariano Rajoy’s plan to balance Spain’s books. Menendez, who usually spends his days 700 meters below ground, arrives today in Madrid with about 160 fellow miners after trudging 285 miles (460 kilometers) under the blazing summer sun from the northern region of Asturias. They are protesting Rajoy’s cuts to subsidies that equated to more than 290,000 euros ($356,000) per miner last year. Union leaders aim to draw more than 100,000 protesters to a rally in the capital. The demonstration will test Rajoy’s attempt to maintain order as he pushes through the most severe budget cuts since the country returned to democracy 35 years ago. The run-up to the demonstration has been marked by violent clashes between armored police and masked pickets who blocked highways and railroads in northern Spain and shot fireworks and golf balls from improvised launchers made from metal pipes. “The miners will start to matter to investors if the protests turn violent and they block the ability of government to continue implementing reforms,” Antonio Barroso, a political analyst at Eurasia Group in London, said in a July 9 telephone interview. “The government can’t afford a huge protest that shuts down the country.”
Spanish Banks to Take Stress Tests as Part of Rescue, Bild Says. The 14 biggest Spanish banks have to undergo a stress test as a condition for the aid from the European Financial Stability Fund, Bild reported citing a memorandum of understanding without clarifying the nature of the document. Bank restructuring plans will be set up by November on the basis of the results of the test, enabling the banks to live without aid in the medium term, the newspaper said. Banks that receive money from the rescue fund will face pay caps for their board members, the newspaper added.
German Court Says Parliament’s Approval to ‘Be Respected’. Germany’s top court said a decision on whether to suspend legislation for the euro bloc’s permanent bailout fund and fiscal treaty could take months rather than weeks due to the complexity of the ruling. The Federal Constitutional Court in Karlsruhe heard arguments yesterday on whether to put German approval of the European Stability Mechanism and fiscal pact on hold until it rules on their legality. Both houses of parliament approved the new laws on June 29 with a two-thirds majority. German President Joachim Gauck withheld his signature due to legal challenges that were discussed at the hearing. “The legislature fundamentally holds broad leeway for discretion, which the constitutional court must respect,” court President Andreas Vosskuhle said, adding that the principle counts particularly with a two-thirds mandate. Still, “arriving at a decision is not easy in many respects.” He signaled the court may take a more deliberative approach to its initial decision, potentially further delaying the ESM from coming into force.
Portugal Lurches Into Austerity Trap With Creditors: Euro Credit. Portugal's international creditors may soon have to ease terms of the country's bailout to prevent the plan from derailing as the government faces setbacks in attaining its deficit goals. Prime Minister Pedro Passos Coelho's struggle to meet deficit pledges were further hampered last week when about $2.5 billion of planned cuts to pensions and civil servants' holiday pay were ruled unconstitutional. With Portugal's 10-year bond yield above 10%, returning to the markets next year may be untenable, requiring more international aid despite the premier's insistence he won't seek concessions.
CFTC Faces Scrutiny After $200 Million Peregrine Fund Shortfall. The top U.S. futures regulator is facing renewed scrutiny after suing Peregrine Financial Group Inc. for a customer funds shortfall nine months after MF Global Holdings Ltd. collapsed. The Commodity Futures Trading Commission filed a complaint against Peregrine in federal court in Chicago today after an industry self-regulator cited a $200 million shortfall in customer segregated funds. The National Futures Association said the brokerage’s chairman may have falsified bank records after only $5 million was found in an account that was reported to have $225 million on or about June 29. Peregrine is under investigation over the allegedly missing funds after Russell Wasendorf Jr., the firm’s chairman and chief executive officer, unsuccessfully attempted suicide. Republicans who scolded the CFTC over its handling of MF Global cited similarities to the New York brokerage’s failure. “I would have expected regulators to be particularly attentive to situations like the one at PFG in the wake of the MF Global collapse, so I’m disappointed this wasn’t discovered earlier,” Representative Randy Neugebauer, a Texas Republican who is leading an investigation of MF Global’s $1.6-billion customer-fund shortfall, said in an e-mail.
Passport to Wind Down Materials Hedge Fund After 31% Loss. Passport Capital LLC, the $3.4 billion hedge fund founded by John Burbank, plans to wind down its materials fund after a 31 percent loss this year, according to a letter to investors obtained by Bloomberg News. The Passport Materials Fund fell 17 percent in the second quarter, the fund’s portfolio managers, James Cunningham and Sebastien Boifort, said in a letter to investors dated yesterday. The fund has taken longer than expected to exit private investments, the three largest of which are Ferrous Resources Ltd., Satimola Ltd. and Canadian Sinosun Energy Inc., the managers said. The fund lost 45 percent over one year, an annualized 13 percent over three years and 9.8 percent over five years.
China Wants Sea Spat Off Asean Agenda as Clinton Urges Talks. China warned nations to avoid mentioning territorial disputes with the Philippines and Vietnam at a security meeting this week, rebuffing U.S. Secretary of State Hillary Clinton’s call for talks on the issue.
Senate Democrats to Unite Behind Obama Tax-Hike Plan, Baucus Says. The top Senate tax writer predicted Democrats in the chamber will back President Barack Obama’s latest push to extend only part of the Bush-era tax cuts, calling talk of Democratic dissension “background noise.”

Wall Street Journal:

Claw Is Out for 'Whale' Officials. J.P. Morgan Chase & Co. plans to reclaim millions of dollars in stock from executives at the center of the trading blunder that shocked Wall Street and tarnished the reputation of Chief Executive James Dimon. The nation's biggest bank is expected to claw back compensation from individuals including Ina Drew, who ran the company's Chief Investment Office, or CIO, according to people familiar with the bank's plans. Ms. Drew was a top lieutenant of Mr. Dimon's before she resigned this spring following the disclosure of the trading losses.
Paulson Ex-Lieutenant Caught in Fund's Slide. John Paulson has lost a lot of money for investors recently—one of his largest hedge funds lost more than half of its value last year and continued its decline this year. One surprising victim of the fund manager's recent bad run: Paolo Pellegrini, a former lieutenant who helped make Mr. Paulson a multibillionaire. Mr. Pellegrini was one of the architects of Mr. Paulson's wager against subprime mortgages that netted $15 billion in 2007 for his hedge-fund firm, Paulson & Co. Mr. Pellegrini subsequently left to launch his own hedge fund, before pulling the plug nearly two years ago to focus on investing his own money.
House Set to Vote on Health-Law Repeal. The House is expected to vote Wednesday to repeal President Barack Obama's health-care law, as Republicans continue their furious response to the Supreme Court decision to uphold the law. The House has voted 30 times previously to undo all or part of the health law, and the Senate is all but certain to ignore the House action. But GOP leaders want to reaffirm their opposition to it in advance of November's elections.
Air Jordan and the 1%. There was a lot more income inequality on the Chicago Bulls roster after Michael Jordan's years with the team, but everyone was better off.

MarketWatch:

China, Brazil lead Q2 slowing in emerging markets. Emerging market economies continued to show signs of weakening in the second quarter, with China and Brazil leading the slowdown, according to a new survey. The HSBC Emerging Markets Index, which is based on surveys of 21 Purchasing Managers Indexes conducted across 16 markets, eased to 53.0 in the second quarter from 53.6 in the first quarter.

Business Insider:

Zero Hedge:

CNBC:

Italy Is More Worrying Than Spain: Pro. (video) Chief Economist, Bank of Singapore says Italy has the potential for a Greek style of political instability. He adds that Prime Minister Mario Monti's political career could be on a thin edge.
Rate Scandal Stirs Scramble for Damages. As unemployment climbed and tax revenue fell, the city of Baltimore laid off employees and cut services in the midst of the financial crisis. Its leaders now say the city’s troubles were aggravated by bankers’ manipulation of a key interest rate linked to hundreds of millions of dollars the city had borrowed.
China's Slowing Economy Claiming Firms' CEOs, Profits. China's slowing economy is hammering corporate profits and costing some CEOs their jobs as investors show little patience for companies that fall behind, even for a brand founded by a former Olympic star gymnast and revered sports hero.
Big Bank Earnings Will Have Us Cringing: Bove.

NY Post:

Dalio Hits Midyear Off -2.7%. Ray Dalio’s Bridgewater Associates, the world’s largest hedge-fund firm, with $120 billion in assets, has hit a rough patch. After leaving its rivals in the dust for the past two years with mouth-watering double-digit returns, Bridgewater is now trailing them. Its flagship fund, Pure Alpha, fell 2.7 percent in 2012’s first half. Dalio is a widely watched guru of the financial markets. But his devotion to the dollar helped drive Pure Alpha into the red, a source close to the fund told The Post.

MoneyNews:

CBO: In Recession, Top 1% Had Lower Income, Higher Tax Rate. Before-tax income for the top 1 percent of U.S. households fell by 36.3 percent from 2007 to 2009 while their federal tax rate increased to 28.9 percent from 28.3 percent, said a report by the Congressional Budget Office.

Rasmussen Reports:

Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows Mitt Romney attracting 47% of the vote, while President Obama earns support from 44%. Five percent (5%) prefer some other candidate, and four percent (4%) are undecided.

Reuters:

Hedge fund withdrawals jump to highest since '09: data. Hedge fund outflows surged to their highest level in almost three years this month, data from hedge fund administrator GlobeOp shows, in a sign investors may be losing faith in the sector after mixed performance amid choppy markets. Net outflows from hedge funds, as measured by the GlobeOp Capital Movement Index, which tracks monthly net subscriptions to and redemptions from funds managing around $187 billion in assets, were 1.17 percent of that total during the month to July 1. The withdrawals compare with net inflows in each of the previous five months and were the highest level of net outflows since October 2009, when clients pulled out 3.76 percent. The withdrawals may be an early indicator that investors, who have continued to pile into the $2 trillion hedge fund industry in recent years on hopes it can help them survive choppy markets, are reconsidering their options. Hedge funds lost an average 5.3 percent last year, according to Hedge Fund Research (HFR), after the crisis in the euro zone and worries of a global recession rattled investors and punished all but the most bearish of strategies. After achieving its best first-quarter performance since 2006 this year, the hedge fund industry lost some ground in April and May, and the average fund is now up 1.7 percent in the first six months of 2012.
FBI warned U.S. Labor Department data might be leaked-report.
Hhgregg sees bleak year ahead on weak TV demand. Hhgregg forecast a wider-than-expected loss for the first quarter and cut its full-year outlook, as it grapples with higher costs and shrinking demand for electronics. Shares of the appliance and electronics chain fell 22 percent after the bell. They closed at $11.54 on Tuesday on the New York Stock Exchange.
Blackstone(BX) shedding U.S. office building assets-source.
BofA(BAC) cutting commercial banking jobs--sources. Bank of America Corp has been cutting jobs in its commercial banking unit in recent weeks even as it tries to boost the group's business, people familiar with the situation said, reflecting the bank's broader struggles to grow in a tepid economy.
Voxx International(VOXX) loss wider than expected, shares fall. Audio equipment maker Voxx International Corp reported a bigger-than-expected quarterly loss, hurt by a patent litigation settlement charge and expenses related to the company's acquisition of Germany's Hirschmann. Shares of the company were down 18 percent at $8.02 after the bell. They closed at $9.77 on Tuesday on the Nasdaq.

Financial Times:

Spain pressed to inflict losses on savers. European authorities are pressing Spain to inflict billions of euros of losses on small savers by wiping out certain types of bank debt before its financial institutions are recapitalised using eurozone rescue funds. The bailout conditions for Spain’s banks would force any lender taking aid fully to write off their preferred shares and subordinated bonds, according to a draft memorandum of understanding seen by the Financial Times.

Telegraph:

Spain vows to 'deep clean' financial sector after rescue deal. Under the deal to bailout Spain's stricken banks, the Government must come up with a roadmap of structural reforms by the end of July.
Germans in court battle to block eurozone bailouts. The German Constitutional Court may take up to three months to rule on an injunction by private citizens and Left-wing lawmakers aimed at blocking the eurozone bailout machinery, leaving markets hanging in suspense as the eurozone debt crisis eats at confidence.

ORF TV:

Peter Bofinger, an economic adviser to German Chancellor Angela Merkel, told Austrian broadcaster ORF it would be an "economic catastrophe" if Germany's highest court rejects the euro area's permanent bailout fund. "It would be an economic catastrophe that would probably exceed the consequences of the Lehman shock," if the Federal Constitutional Court rejects the European Stability Mechanism, Bofinger said in an interview broadcast today, referring to the collapse of Lehman Brothers Holdings Inc.. in 2008. "If such a resolution mechanism isn't legally possible, this would de facto mean the end of the euro area."

Oriental Morning Post:

China National Building Material Co. may cut the size of its planned IPO in Shanghai to about 10b yuan, from 15b yuan previously, citing a person close to the company.

Shanghai Securities News:

China May Slow State-Owned Company Investment Approval. The State-Owned Assets Supervision and Administration Commission may slow the pace of approving investment by central-government-owned companies for projects that are costly, risky or involve non-core businesses.

Evening Recommendations

None of note

Night Trading

Asian equity indices are -.50% to +.25% on average.
Asia Ex-Japan Investment Grade CDS Index 168.50 -5.0 basis points.
Asia Pacific Sovereign CDS Index 139.25 -.5 basis point.
FTSE-100 futures -.65%.
S&P 500 futures +.04%.
NASDAQ 100 futures +.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

(MAR)/.42
(ADTN)/.36
(TXI)/-.30

Economic Releases
8:30 am EST

The Trade Deficit for May is estimated at -$48.6B versus -$50.1B in April.

10:00 am EST

Wholesale Inventories for May are estimated to rise +.3% versus a +.6% gain in April.

10:30 am EST

Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,375,000 barrels versus a -4,270,000 barrel decline the prior week. Distillate inventories are expected to rise by +625,000 barrels versus a -1,051,000 barrel decline the prior week. Gasoline inventories are estimated to rise by +500,000 barrels versus a +151,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.2% versus a -.6% decline the prior week.

2:00 pm EST

Minutes of FOMC Meeting

Upcoming Splits

None of note

Other Potential Market Movers

The weekly MBA mortgage applications report, Germany CPI, China Money Supply, Germany 30Y Bond auction, USDA crop report, 10Y T-Note auction, BOJ rate decision, UBS Energy Conference and the (CVX) Q2 Update could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Tuesday, July 10, 2012

Stocks Falling into Final Hour on Earnings Worries, Rising Global Growth Fears, US Fiscal Cliff Concerns, Euro Weakness

Posted by Gary .....at 3:52 PM