Friday Watch

Evening Headlines
Bloomberg:

• Monti's Bond Frustrations Mount as Yields Stay High: Euro Credit. Italian Prime Minister Mario Monti's frustrations with the bond market are surfacing as spending cuts destroy growth without the reward of cheaper borrowing costs. Italian gdp contracted at an annual 2.5% in the second quarter as Monti sought to appease lenders by trimming the budget and increasing taxes. Even though Monti will bring the deficit within European Union limits this year, Italy still pays 441 basis points more than Germany to borrow for 10 years, within 78 basis points of the gap when Monti took office on Nov. 16. "The longer Rajoy holds out the more you're going to see bleeding in Italy," said Mujtaba Rahman, an analyst at Eurasia Group in London. "And that's why I think you'll see more pressure from Monti" and others, he said.
• Most China Stocks Fall as Export Growth Grinds to a Halt. Most Chinese stocks fell after exports and imports grew less than estimated, boosting concern the nation’s economic slowdown is deepening. Jiangxi Copper (600362) Co. led declines for material stocks on demand concerns after government data showed China’s exports rose 1 percent in July, compared with economists estimate for 8 percent growth. TCL Corp. (000100), the No. 1 publicly traded consumer- electronics maker, dropped for the first time in six days after reporting a decline in first-half net income. Kweichow Moutai Co. slid 4.9 percent after the biggest baijiu liquor maker reported slower profit growth. “The export figures show that it’s hard to improve China’s economy in the short term,” said Cao Xuefeng, an analyst at Huaxi Securities Co. in Chengdu. “There are definitely expectations for more reserve-ratio requirement cuts and other measures to boost the economy, but I doubt they will be effective. There are limited tools the government can use.”
• China Increases Fuel Prices for First Time in Five Months. China, the world’s second-biggest oil consumer, increased gasoline and diesel prices for the first time since March after global crude costs climbed.
• Knight(KCG) Says Company May Suffer More Losses From Trade Error. Knight Capital Group Inc. (KCG), the market maker that was driven to the verge of bankruptcy after a trading error, said last week’s mishap may cause more losses. Should its customers and trading partners lose confidence, Knight’s reputation and business may suffer, The Jersey City, New Jersey-based firm said in a government filing. Lawsuits and regulatory probes may also cost money, it said.
• Chu Told Obama Loans Were Sound Before Solyndra Bankruptcy. U.S. Energy Secretary Steven Chu told President Barack Obama in mid-2011 that loans in the department’s clean-energy program were sound, two months before the bankruptcy of recipient Solyndra LLC. A draft prepared by Energy Department officials for Chu to brief Obama on June 27, 2011, also pushed to continue the program, slated to expire three months later, according to documents released today by the Republican-led House Committee on Oversight and Government Reform. The e-mails show Chu seeking to defend the program amid objections by officials in the White House, Treasury Department and Office of Management and Budget. Chu told aides in an e-mail that the document for the briefing was “missing important information” and needed to explain: “Why did the loans take so long, and why was there so much interagency angst?” Treasury and OMB officials worried that companies aided by the program were getting excessive subsidies in the loan terms, which allowed “Unjust enrichment,” Chu wrote.
• SEC List Shows 155 Money Funds That Got Approval for Help. Money-market fund companies obtained permission to support 155 of their funds during the financial turmoil of 2007 and 2008, and six more funds got the same go- ahead since the crisis, according to a list provided to Congress by the U.S. Securities and Exchange Commission. Bank of New York Mellon Corp. (BK), Morgan Stanley and Charles Schwab Corp. (SCHW) are among companies that lined up the ability to bail out funds to guard against credit defaults or market illiquidity, according to the SEC’s list, a copy of which was obtained by Bloomberg News. Northern Trust Corp. (NTRS), American International Group Inc. (AIG) and Pioneer Investments bought troubled securities out of their funds in 2010 and 2011 after the SEC passed new rules to make funds more stable.
• China Readies Verdict After Bo Xilai's Wife Admits to Murder. China prepared to deliver a verdict in the case of Gu Kailai, the wife of ousted Chinese Politburo member Bo Xilai, after she failed to contest charges she poisoned a British businessman in his hotel room. The verdict in the case of Gu, who is accused along with an orderly from her home of murdering Neil Heywood, will be announced at a later date, after the trial was adjourned yesterday, Tang Yigan, vice president of the Hefei Intermediate People’s Court, told reporters in the eastern Chinese city where the case is being heard. “The accused Gu Kailai and Zhang Xiaojun did not dispute the facts of the crime and the intentional homicide charge,” Tang said. “During the process of the hearing, Gu Kailai was in good physical condition, and was emotionally stable.”
• RIM(RIMM) Said to Draw Interest From IBM Over Enterprise-Services Unit. Research In Motion Ltd.'s enterprise- services unit has attracted the interest of International Business Machines Corp. (IBM), according to two people familiar with the situation. IBM made an informal approach about possibly acquiring the division, which operates a network of secure servers used to support its BlackBerry devices, said one of the people, who asked not to be named because the matter is private.
• Housewives With Frying Pans Protest Japan Tax Hike as Debt Soars. Noda’s plan would lift the sales tax to 8 percent in 2014 and 10 percent in 2015. The increase would cost a family of four an extra 119,369 yen per year on average, according to the Daiichi Life Research Institute. “We’ll have no money to put into our saving accounts,” said protester Makabe. The effect of families cutting back will be catastrophic for the economy, said Shinichi Kobuki, who organized the march attended by Makabe. “We’re still in the deflationary slump, our salaries are getting lower, and small businesses are going bankrupt,” he said. “The consequence of the bigger tax burden would be worse than just individual lives getting bitter.”
• Japan Growth May Slow to Half Previous Pace as Exports Wane. Japan’s economy probably grew last quarter at half the pace of the previous three months, a slowdown analysts predict is deepening as Europe’s debt crisis and the yen’s gains erode exports. Gross domestic product expanded an annualized 2.3 percent in the three months through June, compared with 4.7 percent in the first quarter, according to the median estimate of 24 economists surveyed by Bloomberg News. The Cabinet Office will release the report on Aug. 13. The slump may deepen this quarter, with exporters from Sony Corp. (6758) to Canon Inc. (7751) in the past month cutting profit projections because of waning overseas growth. As Prime Minister Yoshihiko Noda prepares to push a sales-tax increase through the Diet today, pressure may rise on policy makers to consider a supplementary budget and monetary stimulus to shore up demand.

Wall Street Journal:

• The Trouble Beyond the 'Fiscal Cliff'. Just wait 'til next year! That is the refrain that will be uttered in September by disappointed baseball fans around the country. And even though the Washington Nationals now hold the best record in the big leagues, it will surely be heard in that city, too, no matter how many more home runs rookie outfielder Bryce Harper hits. The problem is Washington's other game of hardball: the budget.
• Greek Unemployment a Record 23.1%. Greece's unemployment rate rose to a record 23.1% in May, complicating Athens's efforts to carry out deep cuts demanded by its creditors that may involve laying off thousands of public employees. The youngest workers were hardest hit, with more than one in two Greeks, or 54.9%, between 15 and 24 years old looking for work, national statistics agency Elstat said. The jobless rate climbed from 22.6% overall and 51.5% for youths in April. A year earlier, the national average stood at 16.8% overall and 41.7% for 15- to 24-year-olds.
• Sands China Deals Scrutinized. U.S. Investigators and Board Inquiry Examine Real-Estate Payment, Team Sponsorship, Ferry Deal.
• Afghans Fear U.S. Pullout Will Unplug Key Projects. Here in the cradle of the Taliban movement, Faizulhaq Mushkani sold his land for $600,000 last year to buy equipment to open a packaging factory in a booming industrial park. The industrial park—powered by military-run electrical generators—is a pillar of the U.S. strategy against the Afghan insurgency. The arrival of reliable electricity in late 2010 revitalized Kandahar. More than 100 new factories have sprouted.

MarketWatch:

• China local governments feel capital pinch. Provinces, cities seek investors to restart stalled projects. As the government targets stabilizing economic growth, investment is again seen as a major driver. However, local governments are feeling more liquidity pressure now than during the financial crisis.

Business Insider:

• Morgan Stanley's(MS) Brilliant Presentation On The Fiscal Cliff, And What Happens If We Fly Off Of It.
• Just 14% Think Today’s Children Will Be Better Off Than Their Parents.
• Corporations Are Almost Unbelievably Optimistic About The Prospect For Fatter Profit Margins. (graph)
• Forget North Dakota — There's A New Shale Oil Boom State In Town.

Zero Hedge:

• Forget The Fiscal Cliff, Here Comes The Corporate Bond Maturity Wall. (graph)
• Want More Tax Revenue? Increase Jobs Not Rates.
• Confused Why Goldman Will Face No Criminal Charges? Here's Why.
• Labor Department Admits Data Leak, Says Claims Data Was Released 15 Hours Early Due To "Glitch".
• Obama's Master Plan: Bailout Everyone. (video)
  

CNBC:

• China Exports Post Far Weaker-Than-Expected Rise. China's exports grew 1.0 percent in July from a year earlier, the Customs Administration said on Friday, far weaker than market expectations for an 8.6 percent increase and June's rise of 11.3 percent. The annual growth of 4.7 percent in imports last month also missed expectations for a 7.2 percent increase in a Reuters poll and were below the 6.3 percent annual rise in June. That left the country with a trade surplus of $25.1 billion in July, compared with a forecast of $34.3 billion and June's $31.7 billion.

IBD:

• Google(GOOG) Seeking More Ad Impressions With Fast Fiber.
  

NY Times:

• S.E.C. and Justice Dept. End Mortgage Investigations Into Goldman(GS). Federal authorities ended two separate investigations into the actions of Goldman Sachs during the financial crisis, handing a quiet victory to the bank after years of public scrutiny. In a statement late Thursday, the Justice Department said it there was “not a viable basis to bring a criminal prosecution” against Goldman or its employees after a Congressional committee asked prosecutors to examine if the bank was involved with any illegal acts related to several mortgage deals. The Senate’s Permanent Subcommittee on Investigations had examined toxic mortgage securities that Goldman sold to investors, who later sustained steep losses during the crisis. The subcommittee also suggested prosecutors investigate whether the chief executive of the bank, Lloyd Blankfein, had misled lawmakers during public testimony.
• Consumer Protection Bureau Proposes to Tighten Rules on Mortgage Servicers. The newly established Consumer Financial Protection Bureau proposed tighter rules on Thursday for mortgage service companies, which collect mortgage payments from homeowners on the lender’s behalf.

The Detroit News:

• Congress Members Seek More Documents on Delphi Retiree Benefits. A bipartisan group of U.S. senators and representatives wrote Thursday to a pair of House and Senate committees seeking additional documents about the decision to slash Delphi salaried retiree benefits during the bailout of General Motors Co.
  

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

CNN:

• Chinese investment in battery maker A123(AONE) sparks controversy. U.S. battery maker A123 Systems said Wednesday it is receiving up to $450 million from a Chinese firm, the latest controversial foreign investment in an American company in the electric car space. If completed, the deal would give China's Wanxiang Group Corporation an 80% percent stake in a company that many held up as America's answer to Asian dominance of the battery market. The deal is also drawing fire from some lawmakers. A123 has contracts with the Pentagon, and some are leery of such a large foreign presence in a sensitive company. A123 had a high-flying debut on the U.S. stock market in 2009, but has since struggled as the recession and relatively lower oil prices slowed demand for electric vehicles. The company's stock, once valued at over $20 a share, has collapsed to around 50 cents.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows Mitt Romney attracting support from 47% of voters nationwide, while President Obama earns the vote from 43%. Four percent (4%) prefer some other candidate, and five percent (5%) are undecided.

Reuters:

• Exclusive: U.S. banks told to make plans for preventing collapse. U.S. regulators directed five of the country's biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help. The two-year-old program, which has been largely secret until now, is in addition to the "living wills" the banks crafted to help regulators dismantle them if they actually do fail. It shows how hard regulators are working to ensure that banks have plans for worst-case scenarios and can act rationally in times of distress. Officials like Lehman Brothers former Chief Executive Dick Fuld have been criticized for having been too hesitant to take bold steps to solve their banks' problems during the financial crisis. According to documents obtained by Reuters, the Federal Reserve and the U.S. Office of the Comptroller of the Currency first directed five banks - which also include Citigroup Inc,, Morgan Stanley and JPMorgan Chase & Co - to come up with these "recovery plans" in May 2010. They told banks to consider drastic efforts to prevent failure in times of distress, including selling off businesses, finding other funding sources if regular borrowing markets shut them out, and reducing risk. The plans must be feasible to execute within three to six months, and banks were to "make no assumption of extraordinary support from the public sector," according to the documents.
• Monster Beverage(MNST) says state AG investigating flagship drink, ads. Monster Beverage Corp on Thursday said a state attorney general has begun investigating the ingredients and advertising of its flagship, namesake energy drink. Monster said the probe is at an early stage, and that it did not know whether it would lead to any action or materially hurt its financial results or operations. Shares of the Corona, California-based company, one of the largest makers of energy drinks in the United States, dropped 4.8 percent in after-hours trading, extending a decline that followed Wednesday's release of weaker-than-expected second-quarter results.
• China's downturn-proof booze makers hit government wall. The stellar first-half results that these companies are expected to report this month may mark the high point if Beijing cracks down on lavish baijiu-drenched banquets.
• Foreign banks push CFTC to extend deadline for new swaps rules. The U.S. derivatives regulator should extend the October deadline for foreign banks to register as swaps dealers and face a host of tough new rules, a foreign bank and an association that represents the banks said in letters posted Thursday.
• Pegasystems(PEGA) 2nd-qtr misses on delayed orders from Europe, shares fall. Enterprise software maker Pegasystems Inc's quarterly results fell short of analysts' expectations as customers in Europe delayed orders, sending its shares down nearly 10 percent after the bell.
• Nordstrom(JWN) raises forecasts, speeds up Rack buildout. Upscale department store chain Nordstrom Inc on Thursday raised its profit and sales outlook for the year, helped by sales at its popular lower-priced Rack chain which it plans expand dramatically in the next four years. Nordstrom now expects same-store sales to rise 6 percent to 7 percent for the fiscal year ending in January, up from an earlier forecast for a rise of 4-6 percent.
• Scotts Miracle-Gro(SMG) 3rd-qtr misses Street estimates. Lawn and garden products maker Scotts Miracle-Gro Co posted quarterly results that missed analysts' estimates, hurt by weakness in its soil and fertilizers business and a fall in margins. The company said consumer engagement began to decline in May and June, and it expected growth to be slow looking ahead to fiscal 2013.

Financial Times:

• UN urges US to cut ethanol production. The UN has called for an immediate suspension of government-mandated US ethanol production, adding to pressure on Barack Obama to address the food-versus-fuel debate in the run-up to presidential elections.

Telegraph:

• There’s no future in returning to Brown’s Britain. Unless David Cameron acts fast, we could be heading for an era of Japanese-style paralysis.

Talouselaemae:

• Finland to Propose Covered Bonds, Katainen Says. Finland will continue to push its proposal to help euro-area nations obtain funding by selling covered bonds, Prime Minister Jyrki Katainen said. A proposal put forth by Finland in the June summit of European leaders, was "rejected too quickly without careful assessment," Katainen said.

China Securities Journal:

• China will be more cautious about adjusting monetary policy as inflation may pick up again, according to a commentary on the front-page of the China Securities Journal written today by a reporter named Ni Mingya.
• Some Chinese rare-earth processors in the provinces of Jiangxi, Guangdong and Inner Mongolia suspended production to wait for rare-earth prices to stabilize, citing company officials.
  

Shanghai Securities News:

• China may expand a property tax trial to additional cities this year, citing a person close to the housing ministry. The government may also tighten lending to real estate developers.

Evening Recommendations
Raymond James:

• Rated (SRCL) Outperform, target $99.

Night Trading

• Asian equity indices are -.75% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 146.50 -2.0 basis points.
• Asia Pacific Sovereign CDS Index 125.0 -2.25 basis points.
  
• FTSE-100 futures -.25%.
  
• S&P 500 futures -.40%.
  
• NASDAQ 100 futures -.27%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (HAR)/.66
• (JCP)/-.07

Economic Releases
8:30 am EST

• The Import Price Index for July is estimated to rise +.2% versus a -2.7% decline in June.

2:00 pm EST

• The monthly budget deficit for July is estimated at -$93.0B versus -$129.4B in June.
  

Upcoming Splits

• (KO) 2-for-1
• (BF/B) 3-for-2
  

Other Potential Market Movers

• The Eurozone inflation data, China trade data, France Industrial Production report and the USDA Crop Report could also impact trading today.
  

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