Tuesday Watch

Evening Headlines
Bloomberg:

• Roesler Opposes Autonomous Government for Crisis Laws, Bild Says. Germany’s vice chancellor Philipp Roesler opposes Mario Monti’s calls on governments to exercise greater autonomy from national parliaments in taking crisis decisions, Bild reported, citing an interview. The control of the government by the parliament is “one of the foundations of our democracy,” Bild quotes Roesler as saying, following comments from Italy’s Prime Minister.
• Citigroup(C) Seen Taking $6 Billion Charge on Smith Barney Venture. Citigroup Inc., the third-biggest U.S. bank, may take a charge of almost $6 billion this quarter as it writes down the value of the Morgan Stanley Smith Barney joint venture, said Jason Goldberg, a Barclays Plc analyst.
• In Egypt, Anti-Semitism Is Back in Fashion. Anti-Semitism, the socialism of fools, is becoming the opiate of the Egyptian masses. And not just the masses. Egypt has never been notably philo-Semitic (just ask Moses), but today it’s entirely acceptable among the educated and creative classes there to demonize Jews and voice the most despicable anti- Semitic conspiracy theories. Careerists know that even fleeting associations with Jews and Israelis could spell professional trouble.
• Richest Family Offices Seeing Fastest Growth as Firms Oust Banks.
• Knight(KCG) Blowup Shows How High-Speed Traders Outrace Rules. The U.S. has the most sophisticated financial markets in the world, yet they can unaccountably spin out of control at a moment’s notice.
• Paulson Advantage Plus Hedge Fund Declines 2% Last Month. John Paulson, the billionaire hedge- fund manager coming off record losses in 2011, posted a 2 percent loss last month in his Advantage Plus Fund, according to a monthly update to investors obtained by Bloomberg News. The fund, which seeks to profit from corporate events such as takeovers and bankruptcies and uses leverage to amplify returns, is down 18 percent this year with the July loss. Paulson’s Gold Fund, which can buy derivatives and other gold- related investments, rose 0.2 percent in July and has declined 23 percent this year.
• Second TSE System Error in Seven Months Halts Derivatives Trade. The Tokyo Stock Exchange Group Inc. said a computer error halted trading of Topix Index futures, Japanese government bond futures and options trading for more than 90 minutes, the second time in seven months a malfunction has forced a shutdown.
• Standard Chartered Faces N.Y. Suspension Over Iran Deals. Standard Chartered Plc (STAN) conducted $250 billion of transactions with Iranian banks over seven years in violation of federal money laundering laws, a New York regulator said in an order warning that the firm’s U.S. unit may be suspended from doing business in the state.
• Hedge Funds Trailed Stocks Last Month With 0.2% Advance. Hedge funds including MKP Capital Management LLC posted gains last month as global stocks rallied after European Central Bank President Mario Draghi pledged to defend the euro. Funds climbed 0.2 percent in July, according to data compiled by Bloomberg. Global macro (BBHFMCRO) funds advanced while long- short equity and multistrategy (BBHFMLTI) managers declined. John Paulson, the billionaire coming off record losses in 2011, posted declines in his Advantage funds. Hedge funds trailed stocks as the MSCI All-Country World Index (MXWD) returned 1.4 percent last month on speculation the ECB would buy bonds to help cut borrowing costs and save the euro. Macro funds, which bet on economic trends, rose 0.2 percent in July and are down 2.4 percent this year, as government intervention and declining trading volumes limit managers’ ability to make large bets.

Wall Street Journal:

• Italian's Job: Premier Talks Tough in Bid to Save Euro. During an all-night European summit in June, Mario Monti, the Italian Prime Minister, gave German Chancellor Angela Merkel an unexpected ultimatum: He would block all deals until she agreed to take action against Italy's and Spain's rising borrowing costs. Ms. Merkel, who has held most of the euro's cards for the past two years, wasn't used to being put on the defensive. "This is not helpful, Mario," Ms. Merkel warned, according to people present.
• Fed Official Calls for Bond Buying. Eric Rosengren, president of the Federal Reserve Bank of Boston, called on the Fed to launch an aggressive, open-ended bond buying program that the central bank would continue until economic growth picks up and unemployment starts falling again. His call came in an interview with The Wall Street Journal, the first since the central bank signaled last week that it was leaning strongly toward taking new measures to support economic growth. Mr. Rosengren isn't currently among the regional Fed bank presidents with a vote on monetary policy.
• Monsanto(MON) Seeding Sales With iPads. One thousand U.S. sales people for agricultural giant Monsanto will trade rugged laptops for lighter iPads, making it easier for them to share product information with potential customers and complete deals in the field—literally—rather than waiting to finish the transaction back at the office, Monsanto CIO Shirley Cunningham said.
• IMF Pushes Europe to Ease Greek Burden. The International Monetary Fund, facing discontent among its members about the huge sums it has lent to the euro zone, is pushing the currency bloc's governments to take steps to lighten the burden of the bailout loans they made to Athens, officials familiar with continuing discussions said. The IMF pressure—which officials said has been clear in private discussions among Greece's official lenders—comes in response to mounting evidence that Greece's deep recession has thrown the country's bailout program woefully off track from targets set earlier this year.
• The Latest Big Bank Bailout. If elected President, Mitt Romney will have some tough decisions to make on financial regulation. But here's an easy one: Do not expand the taxpayer safety net. Mr. Romney can even help protect taxpayers as a candidate by opposing the extension of a subsidy that largely benefits the biggest banks. It may seem amazing that Congress would even consider such a thing three months before the election. But banks have been lobbying to extend a deposit insurance program that was sold as a temporary response to the financial crisis in 2008.

Business Insider:

• Papa John's CEO Says Obamacare Will Add $0.11-$0.14 Cost Per Pizza.
• UH-OH: Orders Of Heavy Duty Truck Have Collapsed. (graphs)

Zero Hedge:

• (JPM) Refuses To Comply With Broad PFG Subpoena.
• Europe's Beggars: Bluffing Their Way To Unity And Propserity Via Hijacking And Extortion.
• Get A Citi(C) Rewards Card, Buy Women.

Read more here: http://blogs.sacbee.com/capitolalertlatest/2012/08/fiscal-analyst-hundreds-of-millions-at-risk-from-facebook-slide.html#storylink=cpy

CNN:

• Fiscal cliff: What's really in it. If lawmakers cannot agree on how to address the pending "fiscal cliff," $7 trillion worth of tax increases and spending cuts will begin to go into effect in January. The smart money says Congress won't come close to an agreement before the November election, and that lawmakers may not even be able to reach one until early next year. At that point, of course, they'd need to undo at least some of the tax increases and spending cuts that went into effect.

Rasmussen Reports:

• Generic Congressional Ballot: Republicans 42%, Democrats 39%.

Reuters:

• CF Industries(CF) profit misses Wall St view as demand slips. Fertilizer producer CF Industries Holdings Inc posted a lower-than-expected second-quarter profit on Monday due to falling demand after an aggressive spring planting season. Low natural gas prices helped boost profit, as did share repurchases, but farmers bought less nitrogen and phosphate from CF after buying so much in February and March. CF said it expected the sales decline to be temporary and forecast "robust" application of ammonia fertilizer this fall and "high" plantings of corn in 2013.
• Morgan Stanley(MS) ups exposure to Euro peripherals, shorts France. Morgan Stanley's net exposure to five troubled euro zone nations spiked 73 percent in the second quarter, according to the investment bank's quarterly regulatory filing. Morgan Stanley increased its holdings of stocks, bonds and derivatives backed by banks, governments and other counterparties in Greece, Ireland, Italy, Portugal and Spain, while also reducing hedges against the risk that those exposures might turn into losses. At June 30, the bank had $5.41 billion worth of assets related to those five countries, a 35 percent increase from three months earlier, according to a 10-Q filing with the U.S. Securities and Exchange Commission. After factoring in reduced hedges, the bank had $4.18 billion in net exposure to those nations, up 73 percent from its $2.41 billion in exposure at March 31. Morgan Stanley also significantly reduced its exposure to France, flipping to a net short position against the country's sovereign bonds. The bank held $2.74 billion in exposure to French stocks, bonds and derivative counterparties as of June 30, less than half of what it had at March 31. After credit default swap hedging, Morgan Stanley had $1.35 billion in exposure to France, down 67 percent from three months ago. The driver of that change was a $1.95 billion net short position against French sovereign bonds Morgan Stanley held at June 30, compared with a $542 million long exposure on March 31.

Telegraph:

• Germany and Italy near blows over euro. German politicians from across the spectrum have reacted furiously to warnings by Italy’s Mario Monti that Bundestag control over EU debt policies threatens to bring about the “disintegration” of the European project. “We must make it clear to Mr Monti that we Germans will not shut down our democracy to pay Italian debts,” said Alexander Dobrindt, secretary-general of Bavaria’s Social Christians (CSU). Bundestag president Norbert Lammert said parliament’s integrity cannot be subordinated to the ups and downs of the markets. Free Democrat (FDP) leaders said Italy’s unelected prime minister is playing with political fire by trying to circumvent democratic legitimacy. The dispute comes as relations between Germany and Italy touch the lowest ebb since the Second World War, with Il Libero publishing a front-page picture of Chancellor Angela Merkel under the headline “Fourth Reich”. “The tone of the debate has turned dangerous. We must be careful that Europe does not rip itself apart,” said German foreign minister, Guido Westerwelle.

WantChinaTimes:

• Chinese Banks Jointly Sue 20 Shanghai Steel Traders. Banks in Shanghai are pressing steel traders, who have barely been able to keep above water, to repay their enormous and ever mounting loans.

China Daily:

• China's corporate debt ratio has reached a "dangerous" level, citing Li Yang, vice president of the Chinese Academy of Social Sciences, as saying at a forum. China had the highest debt-to-GDP ratio in the world in 2011 at 107%, exceeding the 90% watershed set by the OECD, Li said. Further stimulus could add to an already heavy debt burden at companies, Li said.

Xinhua:

• Mazda China Jan-July Car Retail Sales Fall .5% Y/Y. Co.'s China car retail sales in the first 7 months of the year falls to 118,300 units.

Economic Information Daily:

• China Government-Owned Firms Told to Stop 'Blind' Investment. China central-government owned companies have been asked to stop investment aimed at expanding scope, citing an official at the State-Owned Assets Supervision and Administration Commission.

Caixin Online:

• China won't see a new "lending wave" as commercial banks extend loans in a "more reasonable" manner, Agricultural Bank of China Chairman Jiang Chaoliang said in an interview.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 149.50 -7.5 basis points.
• Asia Pacific Sovereign CDS Index 125.50 -5.25 basis points.
  
• FTSE-100 futures unch.
  
• S&P 500 futures +.09%.
  
• NASDAQ 100 futures +.27%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MMC)/.58
• (EMR)/1.00
• (MGM)/-.15
• (THC)/.05
• (CVS)/.79
• (FOSL)/.78
• (NUAN)/.40
• (CREE)/.23
• (DIS)/.93
• (PCLN)/7.36
• (ESRX)/.82
• (CVC)/.19
• (BID)/1.52
  

Economic Releases
10:00 am EST

• JOLTs Job Openings for June are estimated to rise to 3717 versus 3642 in May.

3:00 pm EST

• Consumer Credit for June is estimated to fall to $10.250B versus $17.117B in May.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Italian GDP, Germany Factory Orders reports, 3Y T-Note auction, US Loan Officer Survey, RBA rate decision, weekly retail sales reports, Jefferies Industrial/Aerospace/Defense Conference and the CSFB Industrials Conference could also impact trading today.
  

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

Stocks Rising into Final Hour on Less Eurozone Debt Angst, Tech Sector Strength, Short-Covering, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Around Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 15.95 +1.98%
  
• ISE Sentiment Index 119.0 -.83%
  
• Total Put/Call .79 -5.95%
  
• NYSE Arms .90 +50.34%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 102.79 bps -.76%
  
• European Financial Sector CDS Index 243.48 bps -.79%
  
• Western Europe Sovereign Debt CDS Index 242.74 -3.44%
  
• Emerging Market CDS Index 245.02 -.98%
  
• 2-Year Swap Spread 19.50 -1.0 basis point
  
• TED Spread 36.25 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -38.5 +1.0 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .08% unch.
  
• Yield Curve 132.0 -1 basis point
  
• China Import Iron Ore Spot $116.60/Metric Tonne -.09%
  
• Citi US Economic Surprise Index -34.70 +1.5 points
  
• 10-Year TIPS Spread 2.17 +1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating +17 open in Japan
• DAX Futures: Indicating -10 open in Germany
  

Portfolio:

• Higher: On gains in my Retail, Medical, Tech and Biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• Monti Calls for More Crisis-Fighting Urgency in ECB Standoff. Italy’s Prime Minister Mario Monti warned of a potential breakup of Europe without greater urgency in efforts to lower government borrowing costs, as a standoff over European Central Bank help for Italy and Spain hardened.
• Merkel's Bavarian Allies Turn Critics on Anti-Crisis Measures. Chancellor Angela Merkel's Bavarian allies moved to the front line of German criticism of crisis-fighting efforts, berating Italy, Greece and the European Central Bank's plans to resolve the turmoil in the euro region. Separate members of the Christian Social Union, sister party to Merkel's Christian Democratic Union, called yesterday and today for Greece to be "cut free" from the euro, accused Italian Prime Minister Mario Monti of seeking to access German taxpayers' money branded ECB President Mario Draghi's bond-buying proposal a "violation" of the central bank's rules.
  
• Hollande Pushes Monti to Request Aid for Italy, Repubblica Says. French President Francois Hollande is pushing Italian Prime Minister Mario Monti to request aid from Europe’s bailout fund to help ease speculation among investors, Italian newspaper la Repubblica reported, without citing anyone. Hollande’s strategy, which also includes pressing Spain toward a request for aid, is designed to help protect France from market speculation, Repubblica said. Monti doesn’t like the idea of requesting aid and may speak today with European Central Bank President Mario Draghi, the newspaper reported.
• Europe’s Paralysis Fuels Erosion of Democracy in East. The European Union’s failure to resolve the euro crisis is hammering Greece, Italy and Spain. It’s also unraveling the weaker democracies of Eastern Europe. The most recent example is Romania, where a bare-knuckle struggle for power is under way, leading to a still unresolved referendum to impeach President Traian Basescu. Basescu is a political bruiser, but the rival who is trying to remove him, Prime Minister Victor Ponta, has trampled the separation of powers and inflicted real damage on the country’s fragile institutions, for example, firing the ombudsman and seizing powers from the courts and parliament.
• Standard Chartered Faces N.Y. Suspension Over Iran Deals. Standard Chartered Plc (STAN) conducted $250 billion worth of transactions with Iranian entities over more than seven years in violation of federal money laundering laws, a New York regulator said in an order warning that its U.S. unit may be suspended from doing business in the state. Standard Chartered earned hundreds of millions of dollars in fees for handling transactions on behalf of Iranian institutions that are subject to U.S. economic sanctions, the Department of Financial Services, run by Benjamin Lawsky, said today. The London-based bank, which generates almost 90 percent of its profit and revenue in Asia, Africa and the Middle East, was ordered by the agency to hire an independent, on-site monitor to oversee its operations in the state. According to the order, when the head of the bank’s U.S. operations warned his superiors in London in 2006 that Standard Chartered’s actions could expose it to “catastrophic reputational damage,” he received a reply referring to the U.S. unit’s employees with an obscenity. “Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?” a bank superior in London said, according to the New York regulator’s order.
• Bank Loans at Post-Recession Peak. Banks in the U.S. are lending the most since the recession ended in June 2009, supporting an economy weighed down by 8.3 percent unemployment. Borrowing by consumers and businesses rose in the week ending July 25 to $7.1 trillion, within 2.9 percent of its October 2008 peak, according to Federal Reserve data. New lending for autos jumped to $134.3 billion in the first four months of the year, up 56 percent from the same period in 2009, according to credit bureau Equifax Inc. (EFX).
• Oil Tanker Losses Persist as Owners Contend With Vessel Surplus. Losses for oil-tanker owners hauling Middle East crude to Asia narrowed, amid an oversupply of vessels for loading in the Persian Gulf and few cargoes. Daily losses for very large crude carriers on the benchmark Saudi Arabia-to-Japan voyage shrank to $5,780, figures from the Baltic Exchange in London showed today. VLCCs were losing $6,356 a day on Aug. 3, exchange data showed. The ships were earning $41,093 daily at this year’s high in April. The VLCC fleet will expand 6.9 percent this year, above 4.7 percent demand growth, according to Clarkson Plc (CKN), the world’s largest shipbroker.
• China to Let Workers Choose for Wages to Be Paid in Stock. China plans to let workers choose for as much as 30 percent of their wages to be paid in the shares of their publicly-traded employers as regulators broaden measures to boost investor confidence in the stock market. The stock used to pay employees must be acquired from the secondary market, according to draft rules posted on the China Securities Regulatory Commission’s website yesterday. Employees who receive shares as salaries or bonuses would have to hold them for at least 36 months.
• Mursi Orders Army to Take Control of Sinai After 16 Killed. Egypt deployed helicopter gunships and an anti-terror team in north Sinai as President Mohamed Mursi ordered the military to take “complete control” of the region after unidentified militants killed 16 Egyptian soldiers. Mursi, drawn from the ranks of the Muslim Brotherhood, described yesterday’s attack on the troops as they broke their Ramadan fast as a “cowardly” act and vowed the assailants would “pay a high price, as would those who cooperate with them,” the state-run Middle East News Agency reported.

Wall Street Journal:

• Army Veteran Identified as Suspect in Sikh Temple Shooting.
• The Numbers Inside a Hot-Button Issue. Amid the Debate About Whether and How to Reform the Tax Code, a Look at How the Picture Has Changed.
  

CNBC.com:

• Is Spain Stumbling Towards a Full Bailout?
• Why Private Investors Are Staying Away From Mortgages.

Business Insider:

• Facebook's(FB) Stock Crash Has Created A Bunch Of New Problems For The Company...
• Crazy Details About The Bank That's Been Accused Of Transferring $250 Billion To Iran.
• Sean Penn Goes Campaigning With His Friend Hugo Chavez.

Zero Hedge:

• Why Europe Matters...
• Europe's Question Of Today: “If They Will Fund And How?”; The Question Of Tomorrow “Can They Afford It?”.
• Quarto Reich: Italy Goes "There" Again.
• Real GDP vs. Railcar Loads of Waste/Scrap. (graph)
• With Earnings Season Nearly Over 60% Of Companies Have Missed On The Top Line, Revenues Down 1% From Last Year.

Washington Post:

• Obama associate got $100,000 fee from affiliate of firm doing business with Iran. David Plouffe, a senior White House adviser who was President Obama’s 2008 campaign manager, accepted a $100,000 speaking fee in 2010 from an affiliate of a company doing business with Iran’s government.

Reuters:

• Spyker sues GM(GM) for over $3 bln on Saab bankruptcy. Dutch sportscar maker Spyker NV is suing General Motors Co for more than $3 billion on behalf of its subsidiary Saab, accusing the U.S. automaker of deliberately bankrupting the Swedish group by blocking a deal with a Chinese investor.
• Egypt vows crackdown on "infidels" after border massacre.

Telegraph:

• Debt Crisis: Live.
  

Der Spiegel:

• How the ECB Plans to Use Its Bazooka. The European Central Bank has come up with a new plan to buy the bonds of debt-ridden countries in a bid to fight the euro crisis. Under the new approach, the ECB would only intervene if governments commit to reforms. But experts criticize the plan as dangerous and undemocratic. The latest idea to rescue the monetary union threatens to turn into yet another flop. What Draghi presented last week was not a carefully prepared strategy, but a hastily negotiated compromise that satisfied no one. The plan doesn't go far enough for Southern European countries, while Jens Weidmann, president of the German central bank, the Bundesbank, voted against it, fearing for the ECB's independence. The plan does have its advantages, but because Draghi did such a poor job of selling it, the drawbacks are now its salient feature. The approach is poorly compatible with the central bank statutes, increases liability risks in the euro zone and places the monetary watchdog in a dangerous dual role. The ECB would become something of a secondary government in Europe while at the same time becoming more dependent on politicians. In the future, there can be no question of the ECB being a fiercely independent institution modeled after the Bundesbank, as it was originally intended to be. If Draghi prevails, the central bank will become a kind of adjunct to the European finance ministers, which could ultimately lead to higher inflation. "The ECB has a clear mandate to guarantee price stability," warns Jürgen Stark, a former member of the ECB Executive Board. "Every additional responsibility compromises this core function." With the Draghi plan, the Frankfurt monetary watchdogs are making a giant bet. For their plan to work, it is imperative that the Mediterranean countries recover economically in the coming years. If the desired turnaround does not materialize, the purchasing program will quickly reach dizzying proportions. The combined debt of Spain and Italy alone amounts to almost €3 trillion. It seems safe to predict that the ECB will hardly be a paragon of decisiveness in the coming weeks and months. According to one member of the ECB Governing Council who did not want to be identified, that will cause "plenty of frustration in the coming weeks."

PressTV:

• Indonesia to continue purchasing Iranian crude: Envoy. “Indonesia needs cooperation and trade transactions with Iran, the particularly oil purchase, and will continue this cooperation,” IRNA quoted Dian Wirengjurit as saying on Monday. He hailed Iran's advances in the fields of science and technology and voiced Indonesia’s willingness to use Iran's experiences in those areas.
  

Bear Radar

Style Underperformer:

• Large-Cap Growth +.46%

Sector Underperformers:

• 1) Road & Rail -.61% 2) Utilities -.30% 3) REITs -.11%

Stocks Falling on Unusual Volume:

• HCA, HNP, TSN, AES, DVA, AIN, KMB, ACTV, LVLT, PBR, TESO, RAIL, MTGE, ASML, HAYN, AGNC, BEAV, VOLC, AMRN, WCRX, ANDE, VRSK, MGAM and IPG
  

Stocks With Unusual Put Option Activity:

• 1) HSP 2) RL 3) CIE 4) PHM 5) KCG
  

Stocks With Most Negative News Mentions:

• 1) BEAV 2) NLY 3) TSN 4) IPG 5) AES
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.88%

Sector Outperformers:

• 1) Gold & Silver +3.17% 2) Education +2.90% 3) Networking +2.19%

Stocks Rising on Unusual Volume:

• MXWL, TEF, BSFT, NIHD, CTSH, GTIV, SRZ, CYOU, SOHU, FMCN, SINA, BBY and COH
  

Stocks With Unusual Call Option Activity:

• 1) HCA 2) BBY 3) KCG 4) AEP 5) VRNG
  

Stocks With Most Positive News Mentions:

• 1) WMT 2) BZH 3) CVX 4) P 5) MDR
  

Charts:

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

Monday Watch

Weekend Headlines
Bloomberg:

• Monti of Italy Warns That Currency Crisis Risks Europe’s Future. Disagreements within the 17-nation euro area are undermining the future of the European Union, said Italy’s Prime Minister Mario Monti as the stand-off on European Central Bank support for Italian and Spanish debt hardened. “The tensions that have accompanied the euro zone in the past years are already showing signs of a psychological dissolution of Europe,” he told Germany’s Spiegel magazine in an interview published yesterday. “I can only welcome the ECB’s statement that there is a ‘severe malfunctioning’ in the market for government bonds in the euro region. It’s also true that some countries have to shoulder ‘extraordinarily high’ costs to finance their debts. That’s exactly what I’ve been saying for a long time.” He urged swift action to lower borrowing rates. Investors and politicians are still grappling with the significance of comments on sovereign debt purchases by European Central Bank President Mario Draghi last week. While markets initially tumbled on Aug. 2 after Draghi said Spain and Italy would have to formally request a resumption of the bank’s bond buying, they rallied the following day as investors concluded that ECB action would occur, albeit on an unknown future date.
• Bank License for ESM Illegal, Germany’s Westerwelle Tells Focus. German Foreign Minister Guido Westerwelle said it would be illegal in Germany to grant a banking license to the European Stability Mechanism, the future permanent euro-area bailout fund, Focus magazine reported, citing an interview. Shared liability for public debt in Europe would burden Germany with unlimited risks, a prospect that would violate the country’s constitution, Westerwelle said. Europe needs to boost its competitiveness and the entire euro region needs effective economic policy changes, he said.
• Mario Draghi Cannot Save the Euro. European Central Bank President Mario Draghi has been making pronouncements that many have interpreted as positive for the future of the euro. I think his words mean things are going to get ugly.
• Draghi Echoing Merkel Has Traders Raising Bets Against Euro. When European Central Bank President Mario Draghi vowed July 26 to do “whatever it takes” to defend the euro, he succeeded in stemming a slide that pushed the 17- nation currency down about 6 percent since late March against its major counterparts. Traders in the options market responded by raising bets against the currency of the developed world’s worst-performing economy the most in 11 weeks. Options to protect against further weakness climbed in the past two weeks by the most since May.
• De Guindos Tells ABC No More Cuts as Spain Will Meet Debt Goals. Spain’s Economy Minister Luis de Guindos said the country won’t introduce more spending cuts or tax increases because it’s on target to meet its budget deficit reduction goals, ABC newspaper reported. “There are no new measures because we believe that those we have approved will be sufficient to deliver the pace of deficit reduction we have committed to with Brussels,” De Guindos told the newspaper in an interview. De Guindos also said Spain will wait until the details of the European Central Bank’s bond-buying proposal have been set out before deciding whether to request aid, ABC said. “We have time and we can wait until all the details become clear,” ABC cited him as saying. The economy minister added that Spain will on Aug. 24 approve the decree governing the so-called bad bank to manage troubled financial assets, a condition of the bank bailout, the newspaper added.
• China’s Stocks Swing Between Gains, Losses Amid Economy Concerns. China’s stocks swung between gains and losses as concerns the slowing economy will hurt earnings offset measures by regulators to encourage employees to buy shares in their own companies to bolster the equities market. Jiangxi Copper Co., the nation’s biggest producer of the metal, climbed 1.8 percent, on the prospect of higher commodities demand after a Labor Department report showed American payrolls climbed more than forecast. China Vanke Co. paced declines for property developers after Sinolink Securities Co. estimated the company’s July sales dropped 22 percent from the previous month.
• Speculators Lift Wagers in Longest Streak on Record: Commodities. Speculators increased wagers on commodities for an eighth consecutive week, the longest streak on record, just before a report on U.S. job growth sparked the biggest price rally in a month. Hedge funds raised their net-long positions across 18 U.S. futures and options by 4.9 percent to 1.22 million contracts in the week to July 31, the highest since Sept. 6, U.S. Commodity Futures Trading Commission data show. Bets more than doubled since reaching this year’s low on June 5, capping the longest increase since the data began in June 2006. Gold holdings climbed by the most since November 2008, and cocoa wagers reached a one-year high.
• Romney Says Fed Should Hold Off on Buying More Bonds. Former Massachusetts Governor Mitt Romney said the Federal Reserve should refrain from a third round of large-scale asset purchases. Romney, the presumptive Republican nominee for president, said that while the first round of bond buying by the U.S. central bank may have had a positive effect, a new round of quantitative easing will not help the economy.
• GM(GM) May Write Down Investment in Peugeot, Filing Says. General Motors Co. (GM), which acquired a 7 percent stake in PSA Peugeot Citroen (UG) in March, said it may have to write down its investment as the European auto market heads toward its fifth straight annual sales decline. The amount at which GM is carrying the investment in Paris- based Peugeot exceeded its fair value at June 30, GM said yesterday in a filing with the U.S. Securities and Exchange Commission. The Detroit-based automaker said it plans to hold the investment until the value recovers.
• China Says U.S. Sending ‘Wrong Signal’ on South China Sea. China said U.S. criticism of its attempt to bolster claims to gas- and oil-rich islands in the South China Sea sent “a seriously wrong signal” to nations embroiled in territorial disputes in the region. China’s recent actions “run counter to collaborative diplomatic efforts to resolve differences and risk further escalating tensions,” a State Department spokesman, Patrick Ventrell, said in an Aug. 3 statement. Ventrell’s criticism “completely ignored the facts, deliberately confounded right and wrong” and isn’t conducive to efforts for peace and stability in the region, Qin Gang, a Chinese Foreign Ministry spokesman, said in an Aug. 4 statement. China also summoned Robert Wang, the acting representative of the U.S. embassy in Beijing, to complain about the U.S. statement and request that he report Chinese concerns “to the top U.S. leadership immediately,” according to a separate statement on the ministry’s website.

Wall Street Journal:

• Temple Spree Leaves 7 Dead. Suspect Is Killed, Several Others Are Wounded in Act Called Domestic Terrorism. A mass shooting at a Sikh temple south of Milwaukee left seven people dead Sunday, including the suspected gunman, in what police called an act of domestic terrorism. Three others were injured, including a police officer.
• Regulators Probe 'Captives'. New York Regulator Wants to Know If Dealings Are Masking Financial Health. New York's top financial-industry regulator is investigating whether life insurers are potentially masking their financial health through dealings with related companies, according to people familiar with the probe.
• 'Macro' Funds Show Micro Returns. Global financial markets continue to be whipsawed by policy makers and economic news, leaving even fund managers who focus on profiting from sweeping macroeconomic trends in a difficult spot. The bad news for investors of all stripes: Few in the markets expect the cloudy outlook to become clearer anytime soon.
• In China, Some Imports Get a Local Run for the Money. Gone are the days when big multinationals in China could easily dominate every consumer segment from toothpaste to laundry detergent.
• Small Banks Are Blunt in Dislike of New Rules. It was supposed to be a routine conference call where bankers could ask U.S. regulators about a proposed rule on capital levels. But then a man who identified himself as fourth-generation banker from central Minnesota started to complain about the possibility of having to set aside much more money when making nontraditional mortgage loans. As about 1,500 other bankers listened, the banker pressed officials at the Office of the Comptroller of the Currency to justify the proposed changes, saying he had made such loans for 40 years with almost no defaults.
• U.S. Awaits Biggest IPO Week Since Facebook(FB).
• Analysts Expect Euro Rally to Be Brief.
• Arthur Laffer: The Real 'Stimulus' Record. In country after country, increased government spending acted more like a depressant than a stimulant. Policy makers in Washington and other capitals around the world are debating whether to implement another round of stimulus spending to combat high unemployment and sputtering growth rates. But before they leap, they should take a good hard look at how that worked the first time around. It worked miserably, as indicated by the table nearby, which shows increases in government spending from 2007 to 2009 and subsequent changes in GDP growth rates. Of the 34 Organization for Economic Cooperation and Development nations, those with the largest spending spurts from 2007 to 2009 saw the least growth in GDP rates before and after the stimulus.

Business Insider:

• Why Bronte Capital Is Shorting A Luxury Company And Terrified About China.
• The Dark Reality Behind India's Promising Growth.
• The Latest Look At The High-Frequency Economic Data.
• Yep, Stock Analysts Are Smoking Happy Weed Again... (graph)
  

Zero Hedge:

• "Did Somebody Repeal The Laws Of Mathematics?"
• Key Events In The Coming Week And Month.
• Knight To See Another Day Following 60%+ Convertible Dilution.
• On This Day In 2016. For a presidential election taking place when the US debt/GDP has for the first time in 70 years crossed above 100%, in which over 50 million Americans collect food stamps and disability, in which M2 just crossed $10 trillion, in which total US debt is about to pass $16 trillion, and when total nonfarm employees in America (133,235,000) are the same as they were in April of 2005, it is quite surprising that economics has not taken on a more decisive role in the electoral debate. But while both candidates may, for their own particular reasons, not want to bring up the slow motion trainwreck that is the US economy now, in 4 years whoever is running for president will not be so lucky, because as the US debt clock shows, assuming current rates of progression, things are about to get far, far worse.
• The German Press Responds To Draghi: "Vengeance Will Be Bitter".

CNBC:

• Are Australia’s Iron Ore Ports Expanding for Nothing? Australia’s big iron-ore ports are currently ramping up expansion plans as the country continues to face surging demand for its natural resources. But as the Chinese economy continues to slow and commodity prices fall, fueling concerns about an imminent end to Australia’s resource boom, some analysts question whether the miners should be spending the money.
• What Some Investors Are Doing to Anticipate a Tax Increase.
• Greece’s New Pledges Will Take Epic Battle to Implement. Greece's latest fiscal and reform pledges may be enough to convince international lenders weary after years of broken promises to keep Athens hooked to a 130 billion euro ($161 billion) lifeline, but the battle to implement it will be epic.

Wall Street All-Stars:

• Indicator Update: Assess the Market Evidence.

IBD:

• Chico's FAS(CHS) In Fashion With Women Shoppers.

NY Times:

• Street Stops in New York Fall as Unease Over Tactic Grows. The number of times police officers stopped, questioned and frisked people on the streets of New York City has dropped significantly, by more than 34 percent, in recent months, and a key contributing factor appears to be that police commanders have grown wary of pushing for such stops at daily roll calls, police supervisors said.
• Record Spending by Obama's Camp Shrinks Coffers. President Obama has spent more campaign cash more quickly than any incumbent in recent history, betting that heavy early investments in personnel, field offices and a high-tech campaign infrastructure will propel him to victory in November. Since the beginning of last year, Mr. Obama and the Democrats have burned through millions of dollars to find and register voters. They have spent almost $50 million subsidizing Democratic state parties to hire workers, pay for cellphones and update voter lists. They have spent tens of millions of dollars on polling, online advertising and software development to turn Mr. Obama’s fallow volunteers corps into a grass-roots army. The price tag: about $400 million from the beginning of last year to June 30 this year, according to a New York Times analysis of Federal Election Commission records, including $86 million on advertising.
• As Libor Fault-Finding Grows, It Is Now Every Bank for Itself. Major banks, which often band together when facing government scrutiny, are now turning on one another as an international investigation into the manipulation of interest rates gains momentum.
• Fearing an Impasse in Congress, Industry Cuts Spending. A rising number of manufacturers are canceling new investments and putting off new hires because they fear paralysis in Washington will force hundreds of billions in tax increases and budget cuts in January, undermining economic growth in the coming months.

NY Post:

• Vanishing Pensions. Less Than 30% of Firms Offer. In 1988, about two-thirds of companies offered pensions, according to government records. But by 2010, that number was down to less than one-third.

Philly.c0m:

• Pennsylvania Environmental Chief Locks Horns With Activists. Michael Krancer, Gov. Corbett's chief environmental regulator, seems to delight in doing battle with critics of the state's oversight of the Marcellus Shale gas boom.

Bespoke Investment Group:

• Strong Market, Weak Breadth. (graph) While the S&P 500's price has been in a steady uptrend, cumulative breadth for the index has actually been pretty weak. As shown in the lower chart, with each successive higher high in the index, breadth has actually been making a lower high.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows Mitt Romney attracting 47% of the vote, while President Obama earns support from 45%. Five percent (5%) prefer some other candidate, and four percent (4%) are undecided.

Reuters:

• Italy Doesn't Need German Cash, Monti Tells Germans. Italy needs moral support from Germany but not its cash, Prime Minister Mario Monti said in an interview published on Sunday as German conservatives renewed calls for Greece to leave the euro zone. The Italian leader also told weekly magazine Der Spiegel that he was concerned about growing anti-euro, anti-German and anti-European Union sentiment in the parliament in Rome. The German government has resisted calls from Italy and struggling countries to introduce common euro zone bonds or take other action to help alleviate the bloc's sovereign debt crisis, saying it would remove pressure to enact painful reforms. On Sunday, a senior member of Chancellor Angela Merkel's conservative alliance, Bavaria's finance minister Markus Soeder, said Greece would leave the euro zone by the end of 2012.
• Special Report - China's answer to subprime bets: the "Golden Elephant". "They haven't even built a proper road here," said Li Chun, a car repairman, who said he lives in the project. "The local government is holding onto the flats and only wants to sell them when prices go up." The Chinese investment vehicle known as "Golden Elephant No. 38" promises buyers a 7.2 percent return per year. That's more than double the rate offered on savings accounts nationally. Absent from the product's prospectus is any indication of the asset underpinning Golden Elephant: a near-empty housing project in the rural town of Taihe, at the end of a dirt path amid rice fields in one of China's poorest provinces. Golden Elephant No. 38 is one of thousands of "wealth-management products", instruments aimed at monied investors, which have shown phenomenal growth over the last five years. Sales of them soared 43 percent in the first half of 2012 to 12.14 trillion yuan ($1.90 trillion), according to a report by CN Benefit, a Chinese wealth-management consultancy. They are usually created in China's "shadow banking" system - non-banking institutions that are not subject to the same regulations as banks - which has grown to account for around a fifth of all new financing in China. Like the subprime-debt lending spree in the United States that helped spark the 2008 financial crisis, the products are often opaque, and usually dependent on high-risk underlying assets, such as the Taihe housing project.
• Islamists kill 15 Egyptians, Israel strikes attackers. Islamist gunmen killed at least 15 Egyptian police on Sunday and seized two military vehicles to attack a crossing point into Israel, the deadliest incident in Egypt's tense Sinai border region in decades. Israeli aircraft destroyed one of the armored vehicles and four of the gunmen were killed, Egyptian security sources said. Israel's Defense Minister Ehud Barak called for "determined Egyptian action" to "prevent terror in Sinai".

Financial Times:

• Key repo contracts market falls 14%. The market for a key funding instrument for banks has shrunk in Europe, highlighting how reliant financial instiutions in the region have become on European Central Bank support. The market for European repurchase, or repo, transactions contracted by an estimated 14.2 per cent year-on-year in the six months to June 30, based on constant samples over the period.
• Wall St eyes protection against euro exit. Wall Street banks are increasingly telling counterparties and borrowers to restructure contracts or find another bank as they prepare for the potential exit of a country from the eurozone. Using hedges, such as credit default swaps, US banks have reduced their net exposure to troubled eurozone countries. But they are also engaged in more work behind the scenes to ensure that if a country leaves the eurozone they will not have to receive payments in a devalued drachma or peseta.

International News:

• 'Qaeda' Suicide Bombing Kills 45 in South Yemen. A suicide bombing in south Yemen blamed on al-Qaeda killed 45 people, local officials said on Sunday, as residents voiced fears that a lack of security personnel on the ground will allow the jihadists to return.

Expatica.com:

• German Regional Minister Sees Greek Euro Exit By Year's End. Greece should exit the eurozone by year's end and not receive any more aid, a German regional finance minister has said in a Sunday newspaper interview, further stirring debate on the issue.Markus Soeder, finance minister in southern Bavaria state and a member of the Christian Social Union (CSU), the region's sister party to Chancellor Angela Merkel's CDU, said the euro itself was "right and important"."But when a country like Greece on a continuing basis cannot pay back debts, it must leave the eurozone," he told Sunday's mass-circulation Bild am Sonntag newspaper in an interview."The way I foresee it, Greece should quit by the end of the year. Any new aid, any easing of the conditions would be the wrong path," he said.Last month German Economy Minister Philipp Roesler said the "horror" of a potential exit by debt-mired Greece had worn off and Transport Minister Peter Ramsauer has also not ruled it out.Soeder's remarks prompted criticism from deputy head of Merkel's Christian Democratic Union parliamentary group Michael Meister who said such a debate was damaging and did not help solve the problems.

Die Welt:

• The European Central Bank's governing council this week approved a request by the Greek central bank to raise the limit of collateral it may accept in exchange for emergency loans, citing central bank officials. The increase in the Emergency Liquidity Assistance will allow the Greek government to meet its financial commitments this month be selling so-called T-Bills to banks. The banks can deposit the bills at the Greek central bank in exchange for fresh money, it said.
  

La Stampa:

• Austerity alone isn't enough to guarantee the survival of the euro, Italian Labor Minister Elsa Fornero said in an interview.
  

Il Messaggero:

• Italy, Spain to Seek Aid, Deutsche Bank Mayer Says. Thomas Mayer, an economic adviser to Deutsche Bank AG, said a request for aid from Italy and Spain to the EFSF is "inevitable" and it may happen "in the next few weeks". "The future of the euro is in the hands of Italy," he said. It all depends on Italy's ability to implement Monti's reforms, Mayer said.

China Business News:

• China's big 5 banks face a 244.7B yuan capital shortfall by the end of 2012, citing a report from a bankers' forum.

Xinhua:

• China has no arrangement for cutting the stamp tax for share trading in the near-term, citing the China Securities Regulatory Commission.

China Securities Journal:

• Some yuan depreciation will ease pressure on the Chinese central bank's monetary policy controls, according to a commentary on the front=page today. Yuan depreciation will increase import costs and damp deflation expectations, according to the commentary.

Century Weekly:

• China's "traditional" economic growth model powered by exports and investment can't be sustained, Wang Yu, deputy director general of research bureau at People's Bank of China, writes.

Weekend Recommendations

Barron's:

• Made positive comments on (ATVI), (CHS) and (DOV).
• Made negative comments on (LULU).
  

Night Trading

• Asian indices are +.50% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 157.0 -7.0 basis points.
• Asia Pacific Sovereign CDS Index 130.75 unch.
• FTSE-100 futures -.05%.
  
• S&P 500 futures +.02%.
• NASDAQ 100 futures +.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (HCA)/.78
• (CTSH)/.80
• (TSN)/.54
• (BXP)/1.24
• (CF)/8.71
• (VNO)/.94
• (MDR)/.22
• (WRC)/.64

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking could also impact trading today.
  

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