Stocks Falling into Final Hour on Rising Eurozone Debt Angst, US "Fical Cliff" Concerns, Rising Global Growth Fears, Earnings Worries

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.64 +3.38%
  
• ISE Sentiment Index 146.0 +.69%
  
• Total Put/Call .78 -1.27%
  
• NYSE Arms 1.28 +45.83%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 106.60 bps +.34%
  
• European Financial Sector CDS Index 258.58 bps +1.89%
  
• Western Europe Sovereign Debt CDS Index 255.64 +.49%
  
• Emerging Market CDS Index 248.34 +1.59%
  
• 2-Year Swap Spread 20.25 +.75 basis point
  
• TED Spread 34.0 -.75 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -42.0 +3.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .10% unch.
  
• Yield Curve 126.0 -1 basis point
  
• China Import Iron Ore Spot $117.0/Metric Tonne +1.56%
  
• Citi US Economic Surprise Index -41.90 +7.1 points
  
• 10-Year TIPS Spread 2.11 +3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -60 open in Japan
• DAX Futures: Indicating -11 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Biotech and Retail sector longs
  
• Disclosed Trades: None
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades near session lows on rising eurozone debt angst, high food prices, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Networking and Semi shares are are especially strong, rising more than +.75%. Oil is falling -2.1%, the UBS-Bloomberg Ag Spot Index is down -.7% and Gold is down -.5%. Major Asian indices were mostly higher overnight, led by a +2.1% gain in South Korea. However, the Shanghai Composite continues to sit out the global equity rally as it fell another -.3%. This index is now down -4.4% ytd and sits at its lowest level since March 2009, which is a big red flag for global investors. On the negative side, Oil Service, I-Banking, Biotech, HMO, Homebuilding and Gaming shares are especially weak, falling more than -1.5%. Homebuilding shares have traded heavy throughout the day. Lumber is falling -.5%. The 10Y Yld is falling -3 bps to 1.48%. The Portugal sovereign cds is gaining +1.7% to 834.28 bps, the Saudi sovereign cds is up +2.6% to 106.0 bps and the UK sovereign cds is up +1.4% to 56.25 bps. Moreover, the European Investment Grade CDS Index is rising +1.2% to 159.80 bps, the Spain 10Y Yld is rising +2.1% to 6.75%, the Italian/German 10Y Yld Spread is rising +3.1% to 479.81 bps. The UBS/Bloomberg Ag Spot Index is up +26.4% in about 2 months. The benchmark China Iron/Ore Spot Index is down -4.8% in 5 days(-35.4% 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 global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +1.6%, which is the slowest since the week of Feb. 2, 2010. US Trucking Traffic continues to soften. Moreover, the Citi US Economic Surprise Index, while showing some improvement recently, is still around early-Sept. levels. Lumber is -5.0% 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 investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -45.0% ytd. Shanghai Copper Inventories have risen +90.0% 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 down -17.3% since May 2nd of last year despite the recent surge in food prices. The 10Y T-Note continues to trade too well. There still appears to be a high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will put its own balance sheet on the line to save the euro even as investors appear to be pricing this outcome into stocks. The Citi Eurozone Economic Surprise Index is at -71.70 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 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, in my opinion. Thus, recent market p/e multiple expansion 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 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 rising eurozone debt angst, profit-taking, high food prices, earnings worries, US "fiscal cliff" concerns and rising global growth fears.

Today's Headlines

Bloomberg:

• Merkel Allies Harden Opposition to Granting ESM Bank License. German Chancellor Angela Merkel’s coalition rejected granting the permanent euro rescue fund access to European Central Bank liquidity via a banking license, as the Finance Ministry said it saw no need for any such move. The rules of the European Stability Mechanism don’t provide for refinancing through the ECB, the ministry in Berlin said today in an e-mailed response to questions. The ministry isn’t holding talks on the topic nor are secret meetings taking place on such proposals, it said. France and Italy are building support for a previously floated plan to allow the permanent backstop to wield unlimited firepower courtesy of the ECB, Germany’s Sueddeutsche Zeitung newspaper reported today, citing a European Union official it didn’t name. Leading ECB governing council members are among those who now back the idea, the newspaper said. Lawmakers from all three parties in Merkel’s coalition immediately repudiated the suggestion. It is a “dangerous attempt” to bypass the ban on the central bank financing states directly, said Hans Michelbach of the Bavarian Christian Social Union. The Free Democratic Party’s Rainer Bruederle told Die Welt newspaper such a mechanism is a “wealth-destroying weapon,” while Norbert Barthle of Merkel’s Christian Democratic Union said it won’t happen. “Those who try to circumvent their own rules through the back door lose their legitimacy in the eyes of the public,” Michelbach said in an e-mailed statement. “Financing debt by means of the printing press leads to growing inflation dangers.”
• Euro-Area Unemployment Rate Reaches Record 11.2%: Economy. The jobless rate in the euro area reached the highest on record as the festering debt crisis and deepening economic slump prompted companies to cut jobs. Unemployment in the economy of the 17 nations using the euro reached a revised 11.2 percent in May and held at that level in June, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995. In Germany, unemployment climbed for a fourth straight month in July, a separate report showed. “Companies generally are under serious pressure to keep their labor forces as tight as possible to contain their costs in the face of the current limited demand, strong competition and worrying and uncertain growth outlook,” said Howard Archer, chief European economist at IHS Global Insight in London. “There looks to be a very real danger that the euro-zone unemployment rate could reach 12 percent in 2013.”
• Consumer Spending in U.S. Stagnates as Americans Build Up Savings: Economy. Consumer spending in the U.S. stagnated in June as labor-market weakness prompted Americans to use the biggest gain in incomes in three months to build savings. Household purchases, which make up 70 percent of the economy, were unchanged last month after a 0.1 percent decline in May, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg News survey of economists called for a 0.1 percent rise. Incomes climbed 0.5 percent, lifting the saving rate to 4.4 percent, the highest in a year. “There’s been some back-tracking in the labor market so consumers are choosing to save the income rather than spend it,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who correctly projected the stagnation in purchases. “The third quarter will be pretty subdued.”
• European Stocks Drop as Earnings Trail Forecasts. European stocks fell, even as the Stoxx Europe 600 Index completed its second straight monthly rally, after companies including BP Plc and UBS AG (UBSN) posted earnings that missed forecasts and investors awaited the outcome of a two-day Federal Reserve meeting. BP led losses, dropping 4.4 percent, the most in more than ten months. UBS tumbled 5.9 percent. Anheuser-Busch InBev NV retreated 3.2 percent after reporting a decrease in beer sales. Bayer AG (BAYN) advanced after raising its sales and earnings forecasts for the year. The Stoxx 600 declined 1 percent to 261.38 at the close in London.
• Deutsche Bank to Cut 1,900 Jobs as Part of Savings Plan. Deutsche Bank AG (DBK) said it will eliminate 1,900 jobs by the end of the year, including 1,500 at the investment bank and support areas, as part of an effort to save 3 billion euros ($3.68 billion). Germany’s biggest lender, which employed 10,079 at the investment bank at the end of June, said most of the positions slated for removal at the unit will be outside Germany. The Frankfurt-based lender forecast “substantial costs” to achieve the savings without giving an exact figure in a statement to the stock exchange today.
• Coach(COH) Tumbles Most Since 2001 as North American Sales Slow. Coach Inc., the largest U.S. luxury handbag maker, tumbled the most in almost 11 years after reporting fiscal fourth-quarter revenue that trailed analysts’ estimates amid slowing sales growth in North America. Coach fell 14 percent to $50.97 at 9:58 a.m. in New York, after declining as much as 19 percent for the biggest intraday drop since Sept. 17, 2001. Sales at North American stores open at least a year advanced 1.7 percent, compared with a gain of 10 percent a year earlier. Jennifer Davis, an analyst at Lazard Capital Markets, projected an increase of 5 percent.
• Oil Falls on Speculation Fed to Forgo Stimulus. Prices dropped as much as 2 percent as a Bloomberg survey of economists showed the Fed will probably forgo a third round of large-scale asset purchases at a two-day meeting beginning today. Oil for September delivery fell $1.61, or 1.8 percent, to $88.17 a barrel at 12:17 p.m. on the New York Mercantile Exchange. Prices have climbed 3.8 percent this month.
• Best Sales Since 2007 Overshadowed by GM’s(GM) Unsold Pickups. The best year for U.S. auto sales since 2007 hasn’t been enough to boost General Motors Co. (GM)’s shares. One reason is dealership lots such as Dave Gill Chevrolet in Columbus, Ohio, that are overstocked with trucks. GM said it entered July with more than five months’ supply of full-size pickups, the most since April 2009, according to researcher Ward’s Auto. This isn’t entirely accidental: Detroit- based GM wants a stockpile to carry it through the change to a new design next year. That plan may backfire if the segment’s sales remain below those assumed at the start of the year.
• GM's(GM) Turnaround Boosts Bullish Bets to 19-Month High: Options. Options traders increased bullish wagers on General Motors(GM) to a 19-month high. The ratio of outstanding calls to buy GM versus puts to sell rose to 2.79-to-1 on July 26 and reached 2.9 on July 23, the highest level since December 2010, according to Bloomberg. GM is scheduled to report second-quarter results on Aug. 2.
• Facebook(FB) Drops to Record on Growth Concern: San Francisco Mover. Facebook Inc. (FB) dropped as much as 5.6 percent to a record intraday low, the third straight day of declines after the world’s largest social-networking service reported second-quarter results that showed slowing growth.
• Amtrak Shifts Strategy From Begging for Money to Thinking Big. Amtrak, the corporation created by Congress when private industry abandoned U.S. passenger rail, is trying to overcome its chronic lack of money with a new strategy -- thinking far beyond its means. In the past three weeks, Amtrak proposed a renovation of Washington’s Union Station that would cost at least $6.5 billion and published a $151 billion, three-decade plan for bringing 220-miles-per-hour service to its busiest route, between Washington and Boston. It’s working toward a future with bullet trains, though Congress killed President Barack Obama’s high- speed rail funding proposal last year and Republicans in the House of Representatives want to do it again this year. Amtrak, which got a $1.4 billion federal subsidy this year and needs congressional reauthorization to continue operations past September 2013, has decided it’s better to be ambitious than to continually beg for enough money to keep trains rolling. “It’s an aggressive strategy to put themselves in a better negotiating position,” said Joshua Schank, president and chief executive officer of the Eno Center for Transportation, a Washington research group. “Rather than playing defense and asking for a little bit of money so they just don’t die, they’re saying, ‘Here’s what we could accomplish if we really get some money.’”
• India Holds Key Rate, Skirting Global Easing on Inflation. India refrained from joining peers in lowering interest rates, focusing instead on curbing inflation as a power-grid shutdown exposed infrastructure deficiencies that keep prices elevated and limit policy options. The Reserve Bank of India kept the repurchase rate at 8 percent while cutting the amount of deposits banks must hold in government bonds, it said in Mumbai today. Governor Duvvuri Subbarao said after the decision the benchmark gauge of prices, which climbed 7.25 percent in June, has stayed “sticky.”
• Apple(AAPL) Rises as Bernstein Sees Stock Split, Dow Membership Ahead. Apple (AAPL) Inc. climbed the most in two months after Sanford C. Bernstein & Co. said the company is considering a stock split, which could prompt it to be added to the Dow Jones Industrial Average. Apple, the world’s largest company by market value, climbed 2.5 percent to $609.61 at 11:18 a.m. in New York, and earlier touched $611.27 for the biggest gain since May 23. The shares of the Cupertino, California-based company have risen 47 percent this year through yesterday.
• IMF Urges Brazil to Guard Against Bubbles as Interest Rates Fall. Brazil should boost supervision of its banking system to avoid against credit bubbles that could form as a result of fast credit growth and falling interest rates, the International Monetary Fund said. Credit that has doubled as a percent of gross domestic product in the last decade has helped spur economic growth but is also showing signs of straining households, the IMF said in a report today about the health of Brazil’s financial system. In prime housing markets like Sao Paulo and Rio de Janeiro, prices have jumped as much as 30 percent annually in recent years, the Washington-based lender said.
• House, Senate Leaders Agree on Stopgap Spending Bill. House and Senate leaders plan to announce agreement on a $1.047 trillion stopgap spending bill to keep the U.S. government operating for six months after Sept. 30, second-ranking Senate Democrat Dick Durbin said today.
• Postal Service to Miss $5.5 Billion Payment to U.S. Treasury. The U.S. Postal Service affirmed it won’t make a required $5.5 billion payment due tomorrow to the U.S. Treasury for future retirees’ health care, an obligation the agency said must end for it to become financially viable. The service has said for months it couldn’t afford the payment, which was initially due last September, nor a $5.6 billion payment required by Sept. 30 for this year. Postal legislation passed by the U.S. Senate on April 25 would slow the schedule for those obligations. The House hasn’t acted on a different postal measure aimed at changes to help the service cope with declining mail volume.
  

Wall Street Journal:

• Fannie, Freddie Won't Cut Loan Balances. The federal regulator for Fannie Mae and Freddie Mac FMCC -1.68% will not permit the taxpayer-supported mortgage giants to participate in an Obama administration program that reduces mortgage balances for certain troubled homeowners, the agency said on Tuesday. The Treasury Department, which had put heavy political pressure on the Federal Housing Finance Agency to permit the companies to participate in a limited program of debt forgiveness, immediately responded by questioning the regulator's assumptions and asking the agency to reconsider.
• Syrian Army Continues Aleppo Offensive. Fighting in Syria's largest city of Aleppo stretched into its 11th day on Tuesday amid growing international condemnation of the Syrian government's crackdown on a tenacious rebellion that has lasted 17 months. Meanwhile, the U.N. refugee agency said it has been unable to reach all of what it says are 200,000 people fleeing the fighting in Aleppo. The agency's spokeswoman, Melissa Fleming, told reporters that thousands of frightened residents are seeking shelter in schools, mosques and makeshift facilities.

CNBC.com:

• Twitter Rolls Out Stock Search Feature.
• Why Fewer Americans Are Starting New Businesses. America may be going out of business when it comes to starting new businesses, according to a recent report. The study—from the non-profit New America Foundation—argues the U.S. is seriously in danger of losing its entrepreneurial spirit because the number of small business created has been declining.
• Why Hedge Funds Are Going Mainstream.

Business Insider:

• The Paragraph In Deutsche Bank's(DB) Layoff Statement That Should Scare All Of Wall Street.

Zero Hedge:

• Europe's Second Scariest Chart.
• What Do PIIGS Bonds Know That Stocks Are Oblivious To?
• This Is What 670 Million People Without Power Look Like: Pictures From A Blacked Out India.

NY Post:

• High-fliers losing million$ when trading in jets. Moguls and wealthy celebrities are seeing the value of their private jets tumble as the regular pool of used jet buyers has dried up, sources tell The Post. In fact, the value of the trade-in jets has fallen by as much as 50 percent, the sources said.

Gallup:

• Economic Confidence Down Last Week, Back to January Levels. (graph)
  

Rasmussen Reports:

• Employment Index Slips to 2012 Low.

Reuters:

• DBRS Will Cut Italy Ratings by Aug. 22. Rating agency DBRS is likely to cut Italy's sovereign rating by one or more notches by August 22, a senior official at the agency said on Monday, citing a deep economic recession and rising political uncertainty as the main risk factors.
• Corn On Track for Biggest Monthly Gain in 5 Years.

Telegraph:

• Greece 'on the brink' as cash reserves dry up. Near-bankrupt Greece is fast running out of cash while it waits for its next installment of aid from international lenders, a deputy finance minister has said, sounding the alarm on the country's precarious financial position.
• UK Household incomes hit seven-year low. Household incomes fell to their lowest level in seven years in the first three months of the year, as families were hit by high inflation and smaller pay rises.

Handelsblatt:

• The ECB should aim to lower the euro exchange rate by means of interest rate cuts, to lift euro-area competitiveness and encourage investments, Oxford University economist Clemens Fuest writes in a commentary. Fuest is a member of the German Finance Ministry's group of academic advisers.
  

Les Echos:

• Belgian Foreign Minister Didier Reynders said European authorities need to intervene in the formation of the Greek government's budgets. "Greece must accept shares sovereignty," Reynders said in an interview. "A European authority should not only oversee but also take part in decisions on the budget."
  

El Pais:

• Spain will miss the deadline included in the memorandum of understanding of its banking sector bailout to present a biannual budget guideline for 2013 and 2014, citing European officials.
  

Yonhap News Agency:

• N. Korea says will build up nuclear arsenal against U.S. North Korea vowed on Tuesday to further build up its nuclear capabilities, accusing the United States of attempting to topple its communist regime.
  

Business Standard:

• Singapore GIC's Cash Rises to More Than Crisis Levels. Government of Singapore Investment Corp, managing more than $100 billion, boosted cash to levels exceeding the 2008 global financial crisis as it pared stocks and bonds, reducing its holdings in Europe. Cash allocation almost quadrupled to 11 per cent of its portfolio in the year ended March from three per cent a year earlier, GIC, as the sovereign wealth fund is known, said in its annual report. Stocks fell to 45 per cent from 49 per cent, as it pared equities in developed markets, while bonds dropped to 17 per cent from 22 per cent. GIC is reducing its investments as the MSCI World Index posted its biggest slump since the 2008 global financial crisis and market volatility reached the highest level in more than two years. Trading options have become limited for government funds seeking to preserve capital, as policy makers across the world prepare for a deeper impact from Europe's debt woes. “There are not many safe havens, so cash is king,” said Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co, which oversees about $1.5 billion. “It’s logical for everyone to cut investments and take a wait- and-see approach. The economic downturn will last for a while before we can see certainty and a swing-back in investment sentiment.” GIC’s holdings in Europe fell to 26 per cent from 28 per cent, with those in the UK unchanged at nine per cent, it said. Within Europe, GIC's assets in Portugal, Ireland, Italy, Greece and Spain made up 1.4 per cent of its portfolio, mainly held in real estate and stocks in Italy and Spain, it said.

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.73%

Sector Underperformers:

• 1) HMOs -2.74% 2) Disk Drives -2.32% 3) Homebuilders -2.02%

Stocks Falling on Unusual Volume:

• COH, HUM, SPN, TGE, UBS, PBR, BP, ACTG, PMCS, TSU, LOGM, LPLA, ADVS, USMO, MGAM, TWGP, TXRH, SHPG, MSTR, ALLT, AMRN, SYKE, CSTR, XRAY, YNDX, TWIN, HSII, VRTX, SBUX, BGC, TRI, TROX, ECL, AGN, ADM, MCY, SHAW, RATE, LPX, SPN, CRK and MAS
  

Stocks With Unusual Put Option Activity:

• 1) SHAW 2) COH 3) GNW 4) CBS 5) OSG
  

Stocks With Most Negative News Mentions:

• 1) PRSS 2) PMCS 3) ADVS 4) DNDN 5) COH
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.34%

Sector Outperformers:

• 1) Networking +1.58% 2) Semis +1.43% 3) Steel +.88%

Stocks Rising on Unusual Volume:

• CRUS, RTEC, MPWR, IPGP, KLIC, LQDT, CVLT, AUXL, SWKS, TFM, AH, WTI, CIE, BSFT, X, GT, CMI, IPXL, VLO, TRW and ABC
  

Stocks With Unusual Call Option Activity:

• 1) PAAS 2) COH 3) AMRN 4) EA 5) NUAN
  

Stocks With Most Positive News Mentions:

• 1) EXPE 2) HOLX 3) PFE 4) STX 5) LMT
  

Charts:

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

Tuesday Watch

Evening Headlines
Bloomberg:

• Europe Local Authorities Have 1.5 Trillion-Euro Debt,Figaro Says. Local governments in 12 European countries will have 1.5 trillion euros ($1.83 trillion) in debt by the end of the year, Le Figaro reported, citing an estimate by Standard & Poor’s. Local authorities financing needs will rise 27 percent this year to 268 billion euros, including 71 billion euros in Spain’s autonomous regions, the newspaper said, citing S&P. Local authorities in Italy need to borrow 6.5 billion euros and in the U.K. 25 billion euros, Figaro said.
• Spain to Urge More Regional Budget Cuts as Deficit Deepens. Budget Minister Cristobal Montoro will urge Spain’s regions today to deepen budget cuts as support to prevent their defaulting has worsened the central government’s finances. Representatives of Spain’s 17 semi-autonomous regional governments are scheduled to convene in Madrid at 4:30 p.m. for a budget checkup. Montoro yesterday said the central government’s budget deficit widened in the first half to about 4 percent from 3.41 percent in January through May. Prime Minister Mariano Rajoy has asked the regions to implement most of Spain’s planned budget-deficit reduction this year after they overshot last year’s target by more than 100 percent. That left Spain’s budget gap, the euro area’s third-largest, almost unchanged from 2010 at 8.9 percent. This year’s target, which includes all levels of government, is 6.3 percent.
• IMF Predicts Euro Crisis Resolution Will Be Prolonged. The International Monetary Fund said today that the euro-area debt crisis has exacerbated global financial instability and an orderly adjustment process is likely to be prolonged and costly. The Washington-based IMF’s assessment came today in a pilot report intended to make external monitoring more effective. The IMF announced changes to its surveillance of members’ economies to better account for the effects of their domestic and financial policies on other countries. “Unsustainably large intra-euro area imbalances were part of the global boom-bust cycle, and the failure to resolve the euro-area crisis is causing heightened stresses that are spilling over to other countries,” the IMF said.
• Used Lamborghinis Linger on Hong Kong Lots Amid China Slowdown. Waiting lists for ultra-luxury cars in Hong Kong are getting shorter and used-car lots are cutting prices on Lamborghinis, Ferraris and Bentleys in the latest sign of China’s slowdown. Dealers of such second-hand cars say job cuts and the worsening global economic outlook are creating uncertainty among the finance-industry and expatriate professionals who make up the bulk of their buyers. Morgan Stanley (MS), Citigroup Inc. (C) and Deutsche Bank AG are among firms with Asian headquarters in Hong Kong that are cutting jobs worldwide. “The more expensive the car, the more dry the business,” said Tommy Siu at the Causeway Bay showroom of Vin’s Motors Co., the used-car dealership he founded two decades ago. Sales of ultra-luxury cars have halved in the past two or three months, he said. “A lot of bankers don’t want to spend too much money for a car now. At this moment, they don’t know if they’ll have a big bonus.”
• Chinese Deals Meet Growing Scrutiny as Suntech(STP) Sparks Questions. Suntech Power Holdings Co. (STP)’s admission that it may have failed to verify the existence of German bonds it accepted as loan collateral adds to growing concerns about Chinese business practices that are sparking a wave of lawsuits and regulatory probes. It’s the third time in a week that internal controls at Chinese companies have been found lacking. The U.S. Securities and Exchange Commission froze assets of traders it accused of insider trading ahead of Cnooc Ltd. (883)’s $15.1 billion deal to acquire Nexen Inc. (NXY) And fund manager Peter Siris and his Guerrilla Capital Management agreed yesterday to pay more than $1.1 million to settle SEC allegations of “wide-ranging misconduct” related to a Chinese reverse-merger firm.
• Most Chinese Stocks Decline on Growth Concern; B Shares Tumble. Most Chinese stocks declined amid concern the slowing economy will hurt earnings growth. Foreign- currency denominated B shares tumbled for a fifth day. Kama Co. led declines by B shares on concern companies trading close to their face value may be delisted. The Shanghai Composite Index (SHCOMP) added 0.2 percent to 2,112.78 as of 10:20 a.m. local time, with more than three stocks falling for each one that rose. The gauge has fallen 14 percent from this year’s high on March 2. “If 2,100 gives way, which looks likely, it warns that the 1,665 low seen in late 2008 will not only be tested but should be broken,” Thomas Schroeder, a Bangkok-based managing director at Chart Partners, wrote in an e-mailed response to questions. “I have targets at 1,700 and then near the 1,500 region upon a breach of the 2008 low.” The Shanghai B-Share Stock Price Index plunged 3.4 percent to 198.51, poised for the lowest close since Sept. 30, 2009.
• Korea Output Unexpectedly Falls as Europe Caps Demand. South Korea’s industrial production fell for the first time in three months in June as Europe’s debt crisis and China’s slowing economy curtailed export demand. Output fell 0.4 percent last month from May when it climbed a revised 1.3 percent, Statistics Korea said today. The median estimate of 12 economists in a Bloomberg News survey was for a 0.1 percent gain. Production rose 1.6 percent from a year earlier.
• Taiwan Economy Unexpectedly Shrinks as Europe Hurts Exports. Taiwan’s economy unexpectedly contracted in the second quarter amid a faltering global recovery, prompting the government to cut its growth forecast. Gross domestic product fell 0.16 percent in the three months through June from a year earlier after expanding 0.39 percent in the previous quarter, according to preliminary data released by the statistics bureau in Taipei today. The median estimate in a Bloomberg News survey of 13 economists was for growth of 0.5 percent. The economy last contracted in 2009.
• Central Banks’ Unorthodox Actions Are Cutting Lending. The unintended consequences of financial policy intervention are providing fresh evidence for chaos theory’s idea that the flap of a butterfly’s wings can spark a tornado on the other side of the world. Five years into the age of deleveraging, financial markets have become addicted to central bank intervention, from the U.S. Federal Reserve to the European Central Bank and beyond, aimed at stimulating growth. Markets anticipate further action, with the Fed, ECB and Bank of England committees meeting on monetary policy this week. But no flap of a central banker’s wings goes quite as expected. Take China’s heroic 2008-2009 stimulus program, which helped fight back a global recession. It also led to huge overinvestment and bad debt, and the policy is now viewed by many economists as an error. Similarly, the ECB’s long-term multibillion-euro refinancing operation, announced in December 2011, saved Europe’s banking system from a funding crisis. But it created a dangerous web of links between an overleveraged banking sector and already indebted sovereigns. Official lending rates are close to zero, and their manipulation, the traditional mainstay of monetary policy, is effectively impotent. The new go-to tool for central bankers, quantitative easing, is suffering from declining marginal returns.
• Bank of America(BAC), Barclays(BCS), Credit Suisse(CS) Sued Over Libor. Bank of America Corp., Barclays Plc and Credit Suisse Group AG were among the banks sued by an investor over alleged manipulation of the Libor benchmark interest rate. The investor, 33-35 Green Pond Road Associates LLC, bought an interest rate swap with a floating rate tied to the U.S.- dollar Libor, it said in a complaint filed today in federal court in Manhattan. Green Pond Road seeks to represent a class of investors that bought U.S. dollar Libor-based derivatives beginning on Aug. 1, 2007.
• U.S. Drought May Limit China Rate-Cut Space: Chart of the Day. China's central bank may have less room to cut interest rates as inflation is imported from the U.S. in the form of soybeans and corn to feed the nation's pigs. "Pork-induced inflation may rear its ugly head again if global agricultural commodities prices, especially soybean and corn, continue to be drive up by the worst drought in the U.S. in more than five decades," said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc. "That may limit China's space for monetary easing." Corn futures prices jumped about 61% as of yesterday from mid-June, while soybean futures costs climbed about 24% in the U.S. China's inflation may rebound starting in the fourth quarter, with the central bank likely to raise interest rates next year, according to Zhang, who previously worked for the IMF. The boost to the inflation rate from higher global grain prices could reach 1 percentage point, Societe Generale SA economists including Yao Wei in Hong Kong wrote in a July 26 report. Almost 90% of the variation in China's domestic pork prices can be explained by global prices of corn, with a lag of about three months, and soybeans, with a half-year lag, the economists said.
• Grain Cargoes Seen Slowing Most in 19 Years on Drought: Freight. The worst U.S. drought in more than a half century and dry weather from Europe to Australia will mean the biggest contraction in grain cargoes for 19 years and unprofitable rates for owners of Supramax commodity carriers. Global trade in grains will drop 4.9% in the 2012-13 marketing year, according to the U.S. Dept. of Agriculture. Forward freight agreements, handled by brokers and used to bet on future costs, anticipate a fourth-quarter rate of $9,117 a day, 17% less than now, Baltic Exchange data show.
• Gun-Control Views Unchanged After Shooting, Says Pew Poll. The July 26-29 survey found that 47 percent of Americans say controlling guns is the priority, while 46 percent say it’s more important to protect the right to own guns. That is little changed from an April poll, when 45 percent placed the most importance on gun control and 49 percent on gun rights.
• Apple(AAPL) Said to Prepare IPhone Redesign for Sept. 12 Introduction. Apple Inc. (AAPL) is preparing to introduce the next version of the iPhone on Sept. 12 in what will be a design overhaul of its top-selling product, according to two people with knowledge of the company’s plans.
• Rubber Demand in China Set to Contract 5% as Truck Sales Tumble. Natural-rubber demand in China, the world's largest user, may drop this year as slumping truck sales and slowing economic growth cut sales of heavy-duty tires, according to the country's biggest maker.
  

Wall Street Journal:

• Stephen Moore: The Man Who Saved Capitalism. Milton Friedman, who would have turned 100 on Tuesday, helped to make free markets popular again in the 20th century. His ideas are even more important today.

Barron's:

• Seagate Technology(STX) Off 7%: FYQ4 Misses, Q1 View Weak. Disk drive and storage products maker Seagate Technology (STX) this afternoon reported fiscal Q4 revenue and profit per share that missed analysts’ expectations and was in keeping with a warning provided back on July 5th.

Business Insider:

• Cities In California Are Declaring Bankruptcy To Avoid Governor Brown's Tax Increases.
• Glenn Beck's 'Restoring' Love Rally Proves The Tea Party Isn't Dead.
• Don't Believe In The Central Banking Theater Of The Absurd.
• Eight Countries Where It's Scary To Be A Christian.
• 3 Million Of America's Most Vulnerable Homeowners Are On The Brink Of Foreclosure.

Zero Hedge:

• Treasury Admits It Underestimated Debt Needs, Predicts Ceiling Breach In 2012; $600 Billion More Debt In Second Half.
• Mapping The Real Chinese Economy From The Bottom-Up.
• The Reality Of The Rest Of Draghi's 'Believe-Me' Speech.

CNBC:

• Talk of German Exit Dragging Euro to $1.16: Chartist.

NY Times:

• Doctor Shortage Likely to Worsen With ObamaCare. The Association of American Medical Colleges estimates that in 2015 the country will have 62,900 fewer doctors than needed. And that number will more than double by 2025, as the expansion of insurance coverage and the aging of baby boomers drive up demand for care.
• Some at Fed Are Urging Pre-Emptive Stimulus. Central bankers generally set policy based on their judgment about the most likely path for the nation’s economy. But Mr. Greenspan argued that the Fed sometimes should do more than its forecast suggested, buttressing the economy against large, potential risks. He described such moves as “taking out insurance.” On the eve of the Fed’s policy-making committee meeting on Tuesday and Wednesday, members who favor additional action argued that the likely path of the economy was itself sufficient reason for action. The committee predicted in June that without new measures unemployment would fall slightly, if at all, in the second half of the year. But officials, including the Fed’s vice chairwoman, Janet L. Yellen, have sought to reinforce the case for action by arguing that the Fed also should seek to offset the looming risk that a European meltdown will set off a global financial crisis, or that a failure to dismantle the potential year-end fiscal cliff of government spending cuts and tax increases will tip the economy back into recession.
• Tiger Management Helps Next-Generation Funds.

Washington Post:

• Congressional Leaders Near Budget Deal to Keep Government Running. House and Senate leaders are nearing a temporary spending deal that would keep the federal government running for the first half of the next fiscal year, which will begin in October, aides in both parties said Monday, an effort to avoid the specter of a messy government shutdown fight on the eve of the November election.
• As ‘fiscal cliff’ looms, debate over pre-Election Day layoff notices heats up. The deep federal spending cuts scheduled to take effect at the start of next year may trigger dismissal notices for tens of thousands of employees of government contractors, companies and analysts say, and the warnings may start going out at a particularly sensitive time: Days before the presidential election.

CME Group:

• Hedge Funds Remain Anxious Over AIFMD.

AP:

• Dems move to formally back gay marriage. The Democratic Party is moving to include support for gay marriage in the official party platform for the first time, a Democratic official said Monday, marking a key milestone for advocates of same-sex unions. The party's platform drafting committee voted to include language backing gay marriage during a weekend meeting in Minneapolis, the official said. Democratic delegates will formally approve the platform during the party convention in Charlotte, N.C., in early September.

Reuters:

• Dendreon(DNDN) to close New Jersey plant, cut 600 jobs. Money-losing biotech Dendreon Corp said it would close one of its three manufacturing plants and cut more than 600 full-time and contractor jobs over the next 12 months, with the aim of reducing annual costs by about $150 million a year. Dendreon had about 1,475 employees as of February 23, 2012, according to a regulatory filing.

RTTNews.com:

• Humana(HUM) Shares Down 9% As Q2 Results Miss Estimates, Weak Outlook. Shares of Humana, Inc. dropped nearly 9 percent in extended trade on Monday after the health insurer reported results for the second quarter that missed analysts' expectations. The company also provided earnings guidance for the third quarter, well below Street view, and lowered its earnings guidance for the full-year 2012, while maintaining annual revenue forecast.

Telegraph:

• Temptations of a Peseta default in Spain. Defying charges of heresy, Spanish economist Lorenzo Bernaldo de Quiros has penned a piece in El Mundo that more or less calls for Spanish withdrawal from the euro – unless Mario Draghi conjurs up real magic at the ECB. My rough summary/translation:

Today Online:

• Singapore's GIC Says Outlook Remains Challenging. The Government of Singapore Investment Corporation (GIC) said yesterday that the investment outlook remained challenging, with the global economy struggling to return to sustainable growth, as it reported an unchanged annualised 20-year real rate of return of 3.9 per cent for the fiscal year ended March 31. "The developed economies will continue to be weighed down by an extended period of debt-deleveraging. In Europe, the debt crisis has spread beyond the periphery to the larger Spanish and Italian economies," GIC Group Chief Investment Officer Ng Kok Song said in its latest annual report released yesterday. "In the United States, the fragile economic recovery could be aborted by automatic spending cuts and tax increases if political gridlock continues beyond the 2012 elections with no compromise on a long-term plan for reducing the public deficit. Growth in the emerging economies, particularly China, is also slowing," he added.

China Daily:

• China's economic growth is still "appropriate," citing a commentary by Zhu Jianhong.

Shanghai Securities News:

• The Ministry of Industry and Information Technology is considering giving a 17% value-added tax rebate to domestic steelmakers that supply steel for export products, citing a person close to the ministry.

China Business News:

• The China Banking Regulatory Commission's Shanghai branch plans to conduct stress tests again for banks in the city in 2H, citing people familiar with the matter. Stress tests will involve property lending and liquidity risks. The regulator will also examine the classification of bank loans.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 159.0 -4.5 basis points.
  
• Asia Pacific Sovereign CDS Index 130.0 -6.5 basis points.
  
• FTSE-100 futures -.03%.
  
• S&P 500 futures +.27%.
  
• NASDAQ 100 futures +.34%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (VLO)/1.43
• (X)/.49
• (GT)/.45
• (MLM)/1.00
• (REV)/.32
• (PFE)/.54
• (AET)/1.25
• (ADM)/.58
• (TRW)/1.55
• (DISCA)/.69
• (COH)/.85
• (CMI)/2.28
• (CBG)/.26
• (WBMD)/-.12
• (ALL)/.52
• (BMC)/.74
• (CECO)/.00
• (JLL)/1.24
• (EA)/-.42
• (AMG)/1.64

Economic Releases
8:30 am EST

• Personal Income for June is estimated to rise +.4% versus a +.2% gain in May.
• Personal Spending for June is estimated to rise +.1% versus unch. in May.
• The PCE Core for June is estimated to rise +.2% versus a +.1% gain in May.
• The 2Q Employment Cost Index is estimated to rise +.5% versus a +.4% gain in 1Q.
  

9:00 am EST

• The S&P/CaseShiller Home Price Composite(YoY) for May is estimated to fall -1.4% versus a -1.9% decline in April.

9:45 am EST

• Chicago Purchasing Manager for July is estimated to fall to 52.5 versus 52.9 in June.

10:00 am EST

• Consumer Confidence for July is estimated to fall to 61.5 versus 62.0 in June.
  

Upcoming Splits

• (AZZ) 2-for-1
  

Other Potential Market Movers

• The Eurozone unemployment data, China PMI Manufacturing Data, weekly retail sales reports, NAPM-Milwaukee for July, Keefe/Bruyette/Woods Community Bank Conference and the (PII) investor meeting could also impact trading today.
  

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

Stocks Falling Slightly into Final Hour on Eurozone Debt Angst, Rising Global Growth Worries, Soaring Food Prices, US "Fiscal Cliff" Concerns

Broad Market Tone:

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

Equity Investor Angst:

• VIX 17.90 +7.19%
  
• ISE Sentiment Index 153.0 +15.91%
  
• Total Put/Call .79 -10.23%
  
• NYSE Arms 1.11 +304.58%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 106.35 bps +1.19%
  
• European Financial Sector CDS Index 253.70 bps -5.3%
  
• Western Europe Sovereign Debt CDS Index 255.11 -2.50%
  
• Emerging Market CDS Index 245.84 +.28%
  
• 2-Year Swap Spread 19.50 -1.75 basis points
  
• TED Spread 34.75 +.25 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -45.50 -6.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .10% unch.
  
• Yield Curve 127.0 -4 basis points
  
• China Import Iron Ore Spot $115.20/Metric Tonne -.86%
  
• Citi US Economic Surprise Index -49.0 +2.0 points
  
• 10-Year TIPS Spread 2.08 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -10 open in Japan
• DAX Futures: Indicating -15 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my index hedges and emerging markets shorts.
  
• Disclosed Trades: None
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades near session lows on eurozone debt angst, soaring food prices, profit-taking, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Coal and Construction shares are are especially strong, rising more than +1.0%. Oil is falling -.5%. Major Asian indices were mostly higher overnight, led by a +1.8% gain in India. However, the Shanghai Composite continues to sit out the global equity rally as it fell another -.9%. This index is now down -4.1% ytd and sits at its lowest level since March 2009, which is a big red flag for global investors. Major European indices are surging today, led by a +2.7% gain in Italian shares. The European Bank/Financial Services Index is jumping +3.0% today. Brazilian equities are rising +.6% today. The Germany sovereign cds is falling -3.8% to 70.37 bps, the France sovereign cds is falling -2.5% to 159.31 bps, the Italian sovereign cds is falling -2.4% to 484.25 bps, the Spain sovereign cds is falling -3.8% to 529.25 bps and the Brazil sovereign cds is falling -2.8% to 133.21 bps. Moreover, the Spain 10Y Yld is falling -1.9% to 6.61%. On the negative side, Alt Energy, Oil Tanker, Steel, Software, Semi, Disk Drive, Bank, Biotech, Homebuilder and Education shares are especially weak, falling more than -1.0%. Tech shares have traded heavy throughout the day. The 10Y Yld is falling -5 bps to 1.5%. The UBS/Bloomberg Ag Spot Index is jumping another +1.9% today and is up +27.5% in about 2 months. The benchmark China Iron/Ore Spot Index is falling another -.9% today and is down -6.8% in 5 days(-36.4% since 9/7/12). There were more hawkish comments from Chinese officials over the weekend regarding their real estate bubble and the China Iron & Steel Association reported inventory at 76 key steelmakers now totals 12.5m tons versus 11.8m tons in early July. Moreover, the China Hot Rolled Steel Sheet Spot Index(graph) continues to weaken. Despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that global central bank stimuli will boost economic growth in the near future. The Italian/German 10Y Yld Spread is rising +2.1% to 465.24 bps and the Italian 10Y Yld is gaining +1.2% to 6.03%. US weekly retail sales have decelerated to a sluggish rate at +1.7%, which is the slowest since the week of Feb. 2, 2010. US Trucking Traffic continues to soften. Moreover, the Citi US Economic Surprise Index, while showing some improvement recently, is still around early-Sept. 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 investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -45.0% ytd. Shanghai Copper Inventories have risen +90.0% 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 down -17.3% since May 2nd of last year despite the recent surge in food prices. The 10Y T-Note continues to trade too well. There still appears to be a high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will put its own balance sheet on the line to save the euro even as investors appear to be pricing this outcome into stocks. The Citi Eurozone Economic Surprise Index is at -66.50 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 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, in my opinion. Thus, recent market p/e multiple expansion is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. In further evidence that the Fed’s ZIRP is pushing institutional investors too far out on the risk spectrum, subprime auto lending is soaring. Moreover, auto stocks trade very poorly given this fact and the current economic “recovery”, which is a red flag for the health of the industry longer-term. 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, tech sector weakness, profit-taking, soaring food prices, earnings worries, US "fiscal cliff" concerns and rising global growth fears.