Stocks Slightly Higher into Final Hour on Less Eurozone Debt Angst, Short-Covering, Investor Performance Angst, Tech Sector Strength

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• VIX 14.42 -2.83%
  
• ISE Sentiment Index 103.0 +19.77%
  
• Total Put/Call .71 -13.41%
  
• NYSE Arms .80 -31.42%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 103.0 bps +.09%
  
• European Financial Sector CDS Index 240.19 bps +.36%
  
• Western Europe Sovereign Debt CDS Index 242.70 +.44%
  
• Emerging Market CDS Index 247.67 -.93%
  
• 2-Year Swap Spread 20.5 +.5 basis point
  
• TED Spread 35.25 +1.75 basis points
  
• 3-Month EUR/USD Cross-Currency Basis Swap -35.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .08% -2 basis points
  
• Yield Curve 152.0 +7 basis points
  
• China Import Iron Ore Spot $113.10/Metric Tonne -.18%
  
• Citi US Economic Surprise Index -19.10 -7.0 points
  
• 10-Year TIPS Spread 2.27 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +15 open in Japan
• DAX Futures: Indicating +9 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Medical, Biotech and Tech sector longs
  
• Disclosed Trades: None
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades near session highs despite eurozone debt angst, rising food/energy prices, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Networking, Telecom, Road&Rail and HMO shares are especially strong, rising more than +1.0%. Transport shares have traded well throughout the day. Lumber is gaining +2.0%. The 10Y Yld is rising +6 bps to 1.8%. The Germany sovereign cds is falling -4.3% to 59.25 bps, the France sovereign cds is down -4.3% to 136.60 bps, the Italian sovereign cds is down -3.5% to 425.52 bps and the UK sovereign cds is falling -3.8% to 54.25 bps. Moreover, the Italian/German 10Y Yld Spread is falling -3.6% to 420.69 bps. On the negative side, Coal, Energy, Oil Service, Ag, Steel, Homebuilding and Airline shares are lower on the day. Commodity-related shares have underperformed throughout the day. Copper is falling -.3%, Oil is gaining +.8%, Gold is gaining +.3% and the UBS-Bloomberg Ag Spot Index is rising +1.1%. Major Asian indices were mostly lower overnight, led down by a -1.2% decline in Hong Kong. The Shanghai Comp fell another -1.1% and is approaching a multi-year low. Major European indices are mostly lower, led down by a -.5% decline in the UK. The Bloomberg European Bank/Financial Services Index is rising +.1%. Brazil is flat on the day. The Portugal sovereign cds is rising +.5% to 749.04 bps, the Hungary sovereign cds is rising +.9% to 155.26 bps, the Saudi sovereign cds is jumping +4.3% to 110.0 bps and the Israel sovereign cds is rising another +.9% to 155.26 bps(+10.3% in 5 days). Moreover, the Emerging Markets Sovereign CDS Index is gaining +.4% to 243.55 bps(+5.0% in 5 days). The UBS/Bloomberg Ag Spot Index is up +23.4% since 6/1. The benchmark China Iron/Ore Spot Index is down -37.5% since 9/7/11. Moreover, the China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that the Eurozone has successfully kicked-the-can and global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +1.9%. US Trucking Traffic continues to soften. Lumber is -6.3% since its Sept. 9th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has declined for 5 straight weeks and has been around the same level since May 2010 despite investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -65.0% from its Oct. 14th high and is now down around -55.0% ytd. Shanghai Copper Inventories have risen +114.5% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 22.50 industry-standard worldscale points, which is the lowest since May, 2009. The CRB Commodities Index is now down -18.3% since May 2nd of last year despite the recent surge in food/energy prices. The 10Y T-Note continues to trade too well, despite recent weakness. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will destroy its own balance sheet in an attempt to "save" the euro even as investors have been pricing this outcome into stocks. Focus Magazine reported over the weekend a recent poll by TNS Emnid found that 52% of Germans don’t want European countries to share debt even if the EU takes control over budgets of individual countries, while 31% were in favor of this. The Citi Eurozone Economic Surprise Index is at -69.50 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. The Italian yield curve is flattening too much again, with the spread down -58.0 bps in 8 days to 2.43%. 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. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff" and the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. Little if anything being discussed by global central bankers will actually boost global economic growth in any meaningful way over the intermediate-term, in my opinion. The odds of imminent QE3, which were already lower than perceived in my opinion, are likely plummeting with the recent surge in stock prices, inflation expectations, worrisome food crisis headlines and less pessimistic US economic data. As well, as I have been saying for several weeks, a new massive China stimulus round isn’t as likely as perceived as worries over their real estate bubble and soaring food prices intensify. The quality of the recent stock rally remains poor as breadth, volume, leadership, lack of big volume/gainers and copper/transports divergences all continue to be concerns. Thus, recent market p/e multiple expansion on global central bank stimulus hopes, is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. 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 food/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, profit-taking, more shorting, rising food/energy prices, earnings worries, US "fiscal cliff" concerns and rising global growth fears.

Bear Radar

Style Underperformer:

• Large-Cap Value -.30%

Sector Underperformers:

• 1) Steel -1.10% 2) Oil Tankers -1.01% 3) Oil Service -.54%

Stocks Falling on Unusual Volume:

• IOC, RIO, MTDR, WIFI, BCOV, SPLS, CTRN, LKQ, SINA, AGCO, GEF, DE and RGR
  

Stocks With Unusual Put Option Activity:

• 1) NLY 2) SPLS 3) GT 4) NTES 5) OIH
  

Stocks With Most Negative News Mentions:

• 1) CTRN 2) SWHC 3) CVX 4) SPLS 5) AEM
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.33%

Sector Outperformers:

• 1) Networking +.79% 2) HMOs +.63% 3) Medical Equipment +.61%

Stocks Rising on Unusual Volume:

• ARRY, COO, HK, JDSU, AKAM, ANF, TROX, STZ and ARO
  

Stocks With Unusual Call Option Activity:

• 1) HUN 2) ARO 3) SUN 4) FRX 5) ANF
  

Stocks With Most Positive News Mentions:

• 1) ADBE 2) NFLX 3) JDSU 4) TGT 5) FOSL
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Rajoy Risks Riling ECB in Bid to Avoid Union Ire: Euro Credit. Spanish Prime Minister Mariano Rajoy risks irking the European policy makers he needs on his side after he extended unemployment benefits to avoid stoking social unrest. Rajoy said yesterday his government will continue to make payments to the long-term unemployed, extending for six months a benefit adopted by his Socialist predecessor three years ago that was due to expire today. Rajoy, who reiterated he may consider seeking European help to tame 10-year bond yields hovering near 7%, didn't say how he'd pay for the measure he described as "just."
• China’s Stocks Decline on Slowdown Concerns; Brokers Retreat. China’s stocks fell, dragging down the benchmark index for the third time in four days, on concern the nation’s economic slowdown will curb demand for commodities. Jiangxi Copper Co. and Aluminum Corp. of China Ltd. led losses for metal stocks after Vale SA, the world’s biggest iron- ore producer, said China’s “golden years” are gone as growth decelerates. Citic Securities Co. and Haitong Securities Co., the nation’s biggest-listed brokerages, slid at least 1 percent on speculation stock commissions will be cut, hurting profit growth. China International Marine Containers (Group) Co.’s B shares jumped after it said it will list them in Hong Kong. “There’s no stimulus from the government recently and without strong policies, the economy will have a hard time rebounding on its own,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “The market weakness will persist.” The Shanghai Composite Index (SHCOMP) slid 0.8 percent to 2,126.24 at 10:07 a.m. local time. The CSI 300 Index (SHSZ300) fell 1 percent to 2,334.66.
• Israel Plans for Iran Strike as Citizens Say Government Serious. Dozens of Israelis crowded in front of a storefront at a Jerusalem shopping mall yesterday to pick up new gas masks, part of civil defense preparations in case the military strikes Iran and the Islamic Republic or its allies retaliate. “Our leaders seem to have gotten very hawkish in their speeches and this time it seems they mean what they say,” said Yoram Lands, 68, a professor of business administration, who was picking up new masks for himself and his wife at a distribution center in the mall.
• Junk-Bond Rally 'Defying Laws of Gravity,' Bank of America(BAC) Says. High-yield bond prices are approaching the highest ever as investors pour more money into credit funds, according to strategists at Bank of America Corp.(BAC), the second-biggest underwriter of the debt this year. Flows into fixed-income funds of $170 billion this year are "reaching bubble levels,' Oleg Melentyev, a straegist at the bank, wrote today. "The price maximum has been tested multiple times in very different macro environments over the past quarter century and has never been breached," Melentyev wrote. "There is little reason to believe why this time would be any different." The high-yield index is "defying the laws of gravity" by rising even as most companies report "lukewarm" second-quarter earnings for most companies, Melentyev said.
  
• Moore Capital Sold JPMorgan(JPM), Wells Fargo(WFC) Last Quarter. The hedge fund sold 6.47 million shares of New York-based JPMorgan, 6.83 million shares of Wells Fargo in San Francisco, and 5.15 million shares of Minneapolis-based U.S.Bancorp, according to a filing today with the U.S. Securities and Exchange Commission. The stakes had a combined value of $639.4 million at the end of the first quarter.
• Paulson, Soros Add Gold as Price Declines Most Since 2008. Billionaire investors George Soros and John Paulson increased their stakes in the biggest exchange- traded fund backed by gold as prices posted the largest quarterly drop since 2008.
• Facebook(FB) Director Thiel Gets More Flexibility to Sell. Facebook Inc. director Peter Thiel, who sold more than 16 million shares in the company’s initial public offering, has given himself added flexibility to sell more of his holdings, a regulatory filing shows.
• Obama Delays U.S. Fuel-Economy Rule Past Self-Imposed Deadline. U.S. auto and environmental regulators are delaying, past a self-imposed deadline of tomorrow, the release of a final rule requiring automakers to raise the average fuel-economy of their fleets to 54.5 miles per gallon by 2025. President Barack Obama’s administration didn’t say when it will issue the rule, which would take effect for model-year 2017 passenger vehicles sold in the U.S.
• Japan Minister Visits War Shrine Fraying Ties With South Korea. A Japanese cabinet minister visited a controversial war shrine in Tokyo in a move that may worsen ties with China and South Korea that have frayed over maritime territorial disputes.
• Australia Recalls 23,000 Chinese-Made Cars Over Asbestos. Australia’s consumer protection agency said asbestos was found inside vehicles made by China’s Great Wall Motor Co. (2333) and Chery Automobile Co., prompting a safety investigation and the recall of about 23,000 units.
• China Nickel Pig Iron Makers Cut Output by Half as Prices Slump. Nickel pig iron producers in China, the biggest user, have suspended almost 50% of capacity as prices fell below costs. The utilization rate is about 51% now, based on surveys of about 90 producers, which account for more than 80% of the nation's capacity, said Celia Wang, a senior market analyst at Shanghai Tsingshan Mining Investment Co., a unit of Tsingshan Holding Group, China's largest privately held stainless-steel producer.
• Korean Banks’ Household Bad-Loan Ratio Rises to Near 6-Year High. South Korean banks’ ratio of soured household debt to total lending in the category rose to almost a six-year high in June as the country’s slowing economy weighed on property values.

Wall Street Journal:

• Twitter Founders Launch Medium, a New Collaborative Publishing Platform. The launch is particularly notable given the Obvious team’s storied history of providing the world with new publishing platforms, first Blogger and then Twitter.
• Europe Contracts, Concerns Widen. The euro zone's $13 trillion economy is shrinking, data published Tuesday showed, a development that threatens to worsen a global slowdown and intensify the debate about Europe's attempts to restore confidence in the currency union. Economic activity in the 17-country currency bloc fell at an annualized rate of 0.7% in the second quarter after stagnating in the first three months of 2012, according to the European Union's statistics arm. German growth slowed to an annualized 1.1% rate—not enough to lift the troubled region, whose southern members, including Italy and Spain, are caught in increasingly severe recessions.
• Ryan Has Crossover Appeal at Home. The southeastern Wisconsin district that is home to Rep. Paul Ryan should be risky terrain for the conservative Republican. It is packed with blue-collar families and union workers in a state that until recently was reliably Democratic. But Mr. Ryan, Mitt Romney's recently minted running mate, has coasted to re-election by huge margins since he first was elected in 1998.
• Investors Shift Money Out of China. New Figures Show Capital Leaving Amid Concerns Over Nation's Growth Prospects; Real-Estate Buyers Also Look Abroad. Investors and companies are increasingly pulling money out of China and its currency in a vote of concern over its growth prospects, a development that could hinder Beijing's efforts to spark a turnaround. New data published by China's central bank Tuesday showed China's banks were net sellers of 3.8 billion yuan ($597 million) in foreign exchange in July, suggesting that China's exporters aren't converting their dollar earnings into yuan and some investors are taking funds out of the country.
• Obama's Iowa Hostage. He blocks drought relief in order to pass a $1 trillion farm bill. President Obama is in Iowa this week to play farm politics, blaming Republicans for a legislative stalemate that is delaying drought relief in the parched Midwest. The all-powerful Paul Ryan, the President declared, is "standing in the way." That's a good one. The truth is that Mr. Obama has taken drought relief as a hostage in order to pass another trillion-dollar farm and food-stamp blowout.

Fox News:

• Soros, Paulson Reduce Bank Stakes. Hedge fund managers reported significantly reduced--and in some instances eliminated--stakes in big banks, including J.P. Morgan Chase & Co. (JPM) and Goldman Sachs Group Inc. (GS), as well as food companies such as Kraft Foods Inc. (KFT) in the second quarter.

MarketWatch:

• Battle of wills erupts in China property market. Local governments parry Beijing’s moves, inviting counter-offensive. China’s real estate market has become a battlefield for central and local government warring over policy measures. Over the past six months local governments have introduced various policies to stimulate real estate markets, which they see as a source of much-needed funds. This is in contrast to efforts by the central government, which in 2010 implemented controls to cool the market, something many fear was a dangerous bubble in the making.
• NY Times names BBC's Thompson as CEO.
• When will the euro collapse? It’s already dead. Commentary: It’s just the shell of a real currency. It no longer meets most of the criteria of a working form of money. There is an important point in that for investors. It is right now — while the currency no longer lives but still staggers on like a zombie — that the euro is wreaking most havoc on the countries of Europe. Once it is finally taken apart, markets in those nations can start to recover — potentially very rapidly.

Business Insider:

• Greenlight's David Einhorn Dumps Stake In Research In Motion(RIMM) And Dell(DELL).'
• Take It From A Marine Who Was There — We're Losing Hearts And Minds In Afghanistan.
• French President François Hollande Is Facing A Post-Election Reality Check.
• The Number Of Desperately Poor People In Japan Is Growing At An Alarming Rate.

Zero Hedge:

• Complete Q2 Hedge Fund Holdings Summary.
• Fisker Lights Fire Under CEO Post, Hires Former Chevy Volt Head.

NY Times:

• Spanish Construction Rivals Battle on New York Turf. For two ambitious Spanish construction conglomerates, underground Manhattan has emerged as the battleground in a furious legal dispute over which company will bear the brunt of losses plentiful enough to raise questions about the management of one of New York’s biggest public works projects ever — and the capacity of one of Spain’s most indebted public companies to stomach them.

CNN:

• Greece seeks two-year austerity extension. Greece is seeking a two-year extension of its latest austerity programme aimed at improving the country's debt sustainability and prospects for a return to growth, according to a document obtained by the Financial Times. Antonis Samaras, the centre-right prime minister, is expected to outline the proposal during talks next week with Angela Merkel, German chancellor, in Berlin and French President François Hollande in Paris.
• Europe is not fixed. Not by a long shot. Investors seemed relieved by the latest GDP figures out of Europe Tuesday. But why?

Defining Ideas:

• The Obamacare Quagmire. The law will hurt the very people it's supposed to help.

Gallup:

• Election 2012: Romney 47%, Obama 45%. (graph)

Reuters:

• Special ops group attacks Obama over bin Laden bragging, leaks. A group of former U.S. intelligence and Special Forces operatives is set to launch a media campaign, including TV ads, that scolds President Barack Obama for taking credit for the killing of Osama bin Laden and argues that high-level leaks are endangering American lives. Leaders of the group, the Special Operations OPSEC Education Fund Inc, say it is nonpartisan and unconnected to any political party or presidential campaign. It is registered as a so-called social welfare group, which means its primary purpose is to further the common good and its political activities should be secondary. In the past, military exploits have been turned against presidential candidates by outside groups, most famously the Swift Boat ads in 2004 that questioned Democratic nominee John Kerry's Vietnam War service. The OPSEC group says it is not political and aims to save American lives. Its first public salvo is a 22-minute film that includes criticism of Obama and his administration. The film, to be released on Wednesday, was seen in advance by Reuters. "Mr. President, you did not kill Osama bin Laden, America did. The work that the American military has done killed Osama bin Laden. You did not," Ben Smith, identified as a Navy SEAL, says in the film. "As a citizen, it is my civic duty to tell the president to stop leaking information to the enemy," Smith continues. "It will get Americans killed."

Financial Times:

• ECB Right to Link Bond Buying to Govt Action, Rubin Writes. Buying bonds without insisting that European governments make policy changes would do nothing to resolve the crisis and risks creating bigger debt, growth and banking hurdles, former US Treasury Secretary Robert Rubin wrote. Bond purchases without policy conditions would threaten the loss of ECB credibility, which could raise worries over long-term inflation, spurring a capital markets crisis, he said.

The Guardian:

• Julian Assange will be granted asylum, says official. Ecuador's president Rafael Correa has agreed to give the WikiLeaks founder asylum, according to an official in Quito.

AFR:

• Crack Down on High Frequency Trading: Fund Managers. Leading fund managers are calling for greater regulation of high frequency trading which they warn is resulting in market manipulation and insider trading at the expense of retail shareholders. Perpetual Investments said yesterday it would join Schroders Australia and Antares Capital in questioning major stockbrokers about the way high-speed trades were conducted and the risk systems in place. Matt Williams, head of Australian equities at Perpetual, welcomed an investigation by the corporate regulator this week of the impact on the market of HFT but said it did not go far enough. “Whilst the impact on volatility and avoiding a flash crash/Knight Capital scenario is important, to us the bigger issues are around market integrity,” Mr Williams told The Australian Financial Review. “In my view HFT is at best front running of real client orders, and at worst market manipulation. I urge ASIC to look at these issues.”

Financial News:

• No new policies will be needed if China can practically check and hold local governments accountable for property controls, according to a commentary written by Xu Shaofeng.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.25% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 148.0 -3.5 basis points.
• Asia Pacific Sovereign CDS Index 125.5 -.25 basis point.
  
• FTSE-100 futures -.31%.
  
• S&P 500 futures -.26%.
  
• NASDAQ 100 futures -.19%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SPLS)/.22
• (ANF)/.17
• (DE)/2.32
• (TGT)/1.00
• (PETM)/.66
• (CSCO)/.45
• (A)/.83
• (NTAP)/.38
• (LTD)/.48
• (AMAT)/.22
• (SINA)/-.01
• (NTES)/1.10
  

Economic Releases
8:30 am EST

• The Consumer Price Index for July is estimated to rise +.2% versus unch. in June.
• The CPI Ex Food & Energy for July is estimated to rise +.2% versus a +.2% gain in June.
• Empire Manufacturing for August is estimated to fall to 7.0 versus 7.39 in July.
  

9:00 am EST

• Net Long-term TIC Flows for June are estimated to fall to $40.0B versus $55.0B in May.
  

9:15 am EST

• Industrial Production for July is estimated to rise +.5% versus a +.4% gain in June.
• Capacity Utilization for July is estimated to rise to 79.2% versus 78.9% in June.

10:00 am EST

• The NAHB Housing Market Index for August is estimated at 35.0 versus 35.0 in July.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,500,000 barrels versus a -3,729,000 barrel decline the prior week. Distillate inventories are estimated to fall by -275,000 barrels versus a -724,000 barrel decline the prior week. Gasoline supplies are expected to fall by -2,000,000 barrels versus a -1,801,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -.6% versus a +.4% gain the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Kocherlakota speaking, BoE's Minutes and the weekly MBA mortgage applications report could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by technology and commodity 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.

Stocks Lower into Final Hour on Rising Global Growth Fears, Diminishing Global Central Bank Stimulus Hopes, High Food/Energy Prices, Profit-Taking

Broad Market Tone:

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

Equity Investor Angst:

• VIX 14.94 +9.05%
  
• ISE Sentiment Index 87.0 -13.86%
  
• Total Put/Call .82 +9.33%
  
• NYSE Arms 1.20 +11.58%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 102.90 bps +.19%
  
• European Financial Sector CDS Index 239.34 bps -3.34%
  
• Western Europe Sovereign Debt CDS Index 241.65 -2.41%
  
• Emerging Market CDS Index 250.01 +.24%
  
• 2-Year Swap Spread 20.0 unch.
  
• TED Spread 33.5 -.75 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -35.0 +1.75 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .10% +1 basis point
  
• Yield Curve 145.0 +6 basis points
  
• China Import Iron Ore Spot $113.30/Metric Tonne +.35%
  
• Citi US Economic Surprise Index -12.10 +7.6 points
  
• 10-Year TIPS Spread 2.27 +2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +15 open in Japan
• DAX Futures: Indicating -18 open in Germany
  

Portfolio:

• Higher: On gains in my Medical, Retail, Biotech and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Euro-Area Economic Output Contracted on Spain: Economy. The euro-area economy shrank in the second quarter after the worsening debt crisis and tougher budget cuts forced at least six nations into recessions. Gross domestic product in the 17-nation currency bloc fell 0.2 percent from the first quarter, when it stagnated, the European Union’s statistics office in Luxembourg said today. That’s in line with the median estimate of 35 economists in a Bloomberg survey. The contraction was softened by stronger-than- forecast growth in Germany, the region’s largest economy. Europe’s slump is deepening as governments struggle to restore investor confidence and companies eliminate jobs. While Germany’s economy helped to support the euro region in the first half, surveys are weakening, with a gauge of investor confidence dropping in August. The Bank of Japan (8301) today cited the euro turmoil among risks to its economy. “The ongoing recession in large parts of the periphery will continue to hold back euro-zone growth,” said Martin Van Vliet, an economist at ING Bank in Amsterdam. “Any recovery will likely remain sluggish and fragile. There are a lot of things that could go wrong on the crisis resolution that could derail the envisaged recovery.” Italy’s economy contracted for a fourth straight quarter, shrinking 0.7 percent. In Spain, which received external aid earlier this year, GDP dropped 0.4 percent from the first quarter, when it fell 0.3 percent. Portugal’s economy contracted 1.2 percent in that period and Cyprus also remained in a recession.
• China Reluctance on Reserve Cut Signals Inflation Concern. China’s slower-than-forecast cuts in banks’ reserve requirements show authorities are reluctant to shake their concern inflation will quicken, three months after Premier Wen Jiabao shifted priorities to boosting growth. China has left the reserve ratio for the biggest banks at 20 percent since mid-May while lowering interest rates in June and July, bucking forecasts from HSBC Holdings Plc and Societe Generale SA that the government would build on three ratio reductions since Nov. 30. Industrial-production and loan data for July that missed estimates last week fueled further speculation the People’s Bank of China would cut the ratio as soon as Aug. 10. “The central bank is still concerned about a rebound in inflation, and it is reluctant to loosen too much on the liquidity side,” said Xu Gao, an economist with Everbright Securities Co. in Beijing who previously worked for the World Bank. “The key problem now is that banks have money but the money can’t be channeled to the real economy.”
• China ‘Golden Years’ Are Gone as Growth Slows, Vale Says. China’s “golden years” are gone as economic growth at the world’s second-biggest economy slows, said an official at Vale SA (VALE5), the top iron-ore producer. Vale, which shipped about 44 percent of its iron ore and pellets to Chinese steelmakers in the second quarter, expects the country to start to recover by the end of the year, said Roberto Castello Branco, the Rio de Janeiro-based company’s director of investor relations. Vale sees some “early signals” of recovery, which are still “very weak,” he said. “We are not going to see the spectacular growth rates of 10, 12 percent per year,” Castello Branco said at the Bloomberg Brazil Economic Summit conference in Rio today. “The golden years are gone.” Iron-ore prices dropped to the lowest since Dec. 2009 yesterday on slower growth in China, the biggest user of the steelmaking ingredient, and a weaker outlook for the global economy. Vale said on July 25 that second-quarter profit plummeted 59 percent, missing analysts’ estimates for the fourth time in the past five quarters, after prices for minerals and metals declined. Vale is “very negative” about the prospects for growth in Europe, Castello Branco said.
• Retail Sales in U.S. Rose More Than Forecast in July: Economy. The 0.8 percent advance, the biggest since February and first gain in four months, followed a 0.7 percent decrease in June, Commerce Department figures showed today in Washington. Economists projected a 0.3 percent rise, according to the median forecast in a Bloomberg survey.
• U.S. Technology Calls Jump to Two-Year High on Spending: Options. Traders are boosting bullish wagers on U.S. technology stocks to the highest level in more than two years amid speculation that executives will increase spending on equipment and software even as the recovery slows. The ratio of outstanding calls to buy the Tech Select Sector SPDR Fund versus puts to sell jumped to 1.24 on Aug. 8, according to Bloomberg. That was the highest since June 2010.
  
• Apple’s(AAPL) IPad Shipments, Market Share Surge: IHS. Apple Inc. shipments of iPad tablets surged 44 percent to 17 million in the second quarter, giving the company its biggest share of the market in more than a year as devices from competitors lost ground. Apple’s market share climbed to 69.6 percent in the quarter from 58.1 percent in the previous three-month period, according to a report today from IHS. Cupertino, California-based Apple’s share of the tablet market hasn’t been that high since the first quarter of 2011, when it was 70 percent, IHS said.
• BP Said to Seek $7.9 Billion Selling Gulf of Mexico Fields.
• Knight(KCG) Trading Loss Said to Be Linked to Dormant Software. Knight Capital Group Inc.'s $440 million trading loss stemmed from an old set of computer software that was inadvertently reactivated when a new program was installed, according to two people briefed on the matter.
• U.S. Government Finances Deteriorating, S&P’s Swann Tells MNI. The U.S. government’s finances have deteriorated “gradually” since Standard & Poor’s stripped the country of its top grade, Nikola Swann, an analyst for the credit-rating company, said in an interview with newswire MNI. America has had an AA+ rating with a negative outlook since Aug. 5, 2011, when S&P downgraded the country for the first time, citing the government’s failure to agree on a plan to reduce deficits. The grade may be cut again by 2014, the New York-based unit of McGraw-Hill Cos. said in a June 8 report. “The U.S. fiscal profile has continued to gradually deteriorate since last summer, at a rate in-between our base- case scenario and our downside scenario of August 2011, keeping the U.S. at the high end of our indebtedness range,” Swann said in an interview published today by MNI.

Wall Street Journal:

• Standard Chartered to Pay $340 Million to Settle New York Case.
  

CNBC.com:

• Gold Drops Below $1,600 Per Ounce. Gold prices fell nearly 1 percent on Tuesday, with a breach of support near $1,605 an ounce triggering technical selling, after forecast-beating U.S. retail sales data dampened speculation of another round of monetary easing and lifted the dollar.
• How Bad Is Greece? Worse Than You Think, Ross Says. Though other parts of the continent are improving, Greece actually is worse up close than it appears from the outside, investor Wilbur Ross told CBNC.
• US Small Business Sentiment Slips Again in July: NFIB. U.S. small business sentiment fell for a third straight month in July as owners worried about sales revenue against the backdrop of weak domestic demand, an independent survey showed on Tuesday. The National Federation of Independent Business said its optimism index eased to 91.2 last month from 91.4 in June.
• Home Depot(HD) Earnings Beat Forecasts, Ups Guidance. Home Depot raised its fiscal-year earnings outlook on Tuesday as tight cost controls helped the world's largest home improvement chain offset sales weakness and beat Wall Street's profit estimates in the latest quarter.

Business Insider:

• THE PAUL RYAN BUMP: Mitt Romney Takes His Biggest Gallup Lead In Two Months. Romney leads 47 percent to 45 percent. Back on June 14, Romney held the same 2-point lead. In all, it's a 7-point swing from July 1, when Obama looked to be opening up a huge 5-point lead on Romney.
• Credit Suisse Picks The 7 Best Stocks For The Robot Economy.
• Joe Biden Said Republicans Want To Put Americans 'Back In Chains,' And The Romney Campaign Is Flipping Out. Vice President Joe Biden caused a flare-up on the campaign today, when he told voters at a Virginia campaign event that a Mitt Romney presidency would put Americans "back in chains." The Romney campaign freaked out about the comment, sending out this statement from Press Secretary Andrea Saul: “After weeks of slanderous and baseless accusations leveled against Governor Romney, the Obama Campaign has reached a new low. The comments made by the Vice President of the United States are not acceptable in our political discourse and demonstrate yet again that the Obama Campaign will say and do anything to win this election. President Obama should tell the American people whether he agrees with Joe Biden’s comments.”
• 36 Weird Economic Indicators That You've Never Heard Of.
• There's An Israeli Media Blitz Over A Possible Strike On Iran.
• Chinese Companies Are Pulling Out Of The Once Desirable US Stock Markets.
• BANK OF AMERICA(BAC): The Market Is Engaged In 'Wishful Thinking' And Things Are Going To Collapse Again In Europe.

Zero Hedge:

• Mystery Of July Retail Sales "Beat" Solved: It Is All In The "Seasonal Adjustment".
• Mark Grant And Rick Santelli On Europe: "It's A Ponzi Scheme To Be Honest With You".
• The Economic 'Recovery' In Historical Context.
• The Shape Of The Debt Reset.

Yahoo:

• BofA Merrill Lynch Fund Manager Survey Finds Resurgence in Investor Sentiment. Investor sentiment has risen sharply from the lows of July and fund managers have increased allocations to equities, real estate and commodities, according to the BofA Merrill Lynch Survey of Fund Managers for August. A net 15 percent of the 173 panelists participating in the global survey believe that world economy will get stronger in the coming 12 months. This represents a monthly swing of 28 percentage points, the largest leap in confidence since April to May 2009, when the world emerged from the credit crunch. In July, a net 13 percent said the economy would weaken. BofA Merrill Lynch’s Growth Expectations Composite has risen to 49 from 37 in July. Fears about the outlook for corporate profits have reduced since July. A net 21 percent of the panel expects profits to deteriorate in the coming year, down from a net 38 percent a month ago. The fresh optimism comes amid growing expectations of intervention by the European Central Bank (ECB). The proportion of the panel ruling out more quantitative easing by the ECB has halved to 9 percent, while 38 percent expect the ECB to act during the third quarter (up from 29 percent in July). China’s economy is also providing optimism with a net 14 percent of the regional panel saying China’s economy will improve – the most positive reading since November 2010. “August’s surge in confidence seems to be more a triumph of policy projection and potential than positive economic data. As indicated by the survey, the risk is now that inaction by policy makers would lead to a negative reaction in global markets,” said Gary Baker, head of European Equities strategy at BofA Merrill Lynch Global Research.

Reuters:

• German GDP growth slows, contraction looms. German growth slowed in the second quarter and a key sentiment indicator dropped for the fourth successive month, threatening contraction for Europe's largest economy if the euro zone crisis runs unresolved for much longer. German gross domestic product (GDP) grew by 0.3 percent in the second quarter, data showed on Tuesday, a touch better than expected and helped by exports to countries outside of Europe as well as a pick-up in consumption. But growth slowed from 0.5 percent in the first three months and the forward-looking ZEW sentiment index undercut even the lowest estimate in a Reuters poll, falling to -25.5 from -19.6. "Growth turned out to be pretty solid. But this could be the last positive piece of news out of Germany for some time," said Joerg Kraemer at Commerzbank. "The German economy could contract in the summer. It is fundamentally in good structural shape, but can't decouple from the recession in the euro zone, plus the global economy has also shifted down a gear," he said. If the slowdown were to accelerate, it could affect the willingness of average Germans to contribute to euro zone bailouts, but for now Germany's labour market is holding up well, wages have risen and inflation is relatively low.
• Dick's Sporting(DKS) Sees FY Profit Largely Below Estimates. Dick's Sporting Goods Inc, the largest publicly traded U.S. sports goods retailer, reported a better-than-expected quarterly profit on higher sales, but forecast full-year earnings largely below Wall Street expectations. The company raised its 2012 forecast for the second time in three months and now expects per-share earnings of $2.47 to $2.51 during the year, up from its earlier range of $2.45 to $2.48. Analysts were expecting earnings of $2.51 per share, according to Thomson Reuters I/B/E/S.

Telegraph:

• Mariano Rajoy remains tight-lipped on Spanish bail-out. Spanish prime minister Mariano Rajoy has remained tight-lipped on whether he will make a formal request for a bail-out, as Olli Rehn indicated the ECB and EU were ready to shore up the eurozone.

Bild:

• Oettinger Sees Greek Exit Deal Possible in September. European Union Energy Commissioner Guenther Oettinger said a potential exit from the eurozone by Greece is likely to come as soon as September, citing an interview. A decision is likely to come then as Greece's troika of international creditors - the IMF, the European Commission and the European Central Bank - publishes a report on Greece, Oettinger said.

Kathimerini:

• The proportion of non-performing loans in Greece's banking system has reached 20%, with repayment arrears amounting to 48 billion euros.
  

Shanghai Daily:

• Shanghai's Exports Plunge. SHANGHAI'S exports posted the biggest fall in nearly three years in July, hurt by the worsening European economic crisis, data from Shanghai Customs showed yesterday. The total value of the city's imports and exports in the first seven months rose 1.2 percent on an annual basis to US$462.7 billion, compared with a 2.4 percent climb in the first half, Shanghai Customs said. In July, exports fell 8.6 percent from a year earlier to US$43.8 billion, the biggest drop since November 2009, while imports added 2.7 percent to USS$26.9 billion.