Weekly Scoreboard*

Indices

• S&P 500 1,022.58 -5.03%
  
• DJIA 9,686.48 -4.51%
  
• NASDAQ 2,091.79 -5.92%
  
• Russell 2000 598.97 -7.15%
  
• Wilshire 5000 10,548.36 -5.29%
  
• Russell 1000 Growth 455.50 -5.07%
  
• Russell 1000 Value 525.57 -5.25%
  
• Morgan Stanley Consumer 632.06 -3.38%
  
• Morgan Stanley Cyclical 765.02 -8.10%
• Morgan Stanley Technology 514.65 -5.13%
  
• Transports 3,932.40 -7.28%
  
• Utilities 356.27 -2.71%
  
• MSCI Emerging Markets 37.72 -3.92%
  
• Lyxor L/S Equity Long Bias Index 954.03 -2.31%
  
• Lyxor L/S Equity Variable Bias Index 848.95 -.63%
  
• Lyxor L/S Equity Short Bias Index 873.84 +3.3%
  

Sentiment/Internals

• NYSE Cumulative A/D Line +79,371 -5.87%
  
• Bloomberg New Highs-Lows Index -355 -143
  
• Bloomberg Crude Oil % Bulls 21.0 -38.24%
  
• CFTC Oil Net Speculative Position +37,120 -6.35%
  
• CFTC Oil Total Open Interest 1,259,675 -.04%
  
• Total Put/Call .89 +1.14%
  
• OEX Put/Call .59 -56.93%
  
• ISE Sentiment 89.0 -33.58%
  
• NYSE Arms 1.72 +45.76%
  
• Volatility(VIX) 30.12 +5.57%
  
• G7 Currency Volatility (VXY) 13.65 +.75%
  
• Smart Money Flow Index 8,418.31 -2.18%
  
• Money Mkt Mutual Fund Assets $2.812 Trillion -.2%
  
• AAII % Bulls 24.68 -28.38%
  
• AAII % Bears 41.99 +29.48%
  

Futures Spot Prices

• CRB Index 254.48 -4.19%
  
• Crude Oil 72.14 -8.90%
  
• Reformulated Gasoline 197.77 -8.38%
  
• Natural Gas 4.69 -4.19%
  
• Heating Oil 191.55 -10.37%
  
• Gold 1,207.70 -3.89%
  
• Bloomberg Base Metals 183.77 -2.19%
  
• Copper 291.60 -6.06%
  
• US No. 1 Heavy Melt Scrap Steel 324.67 USD/Ton -3.56%
  
• China Hot Rolled Domestic Steel Sheet 3,992 Yuan/Ton -4.57%
• S&P GSCI Agriculture 307.99 +2.62%
  

Economy

• ECRI Weekly Leading Economic Index 122.20 -.57%
  
• Citi US Economic Surprise Index -19.90 +4.4 points
  
• Fed Fund Futures imply 71.80% chance of no change, 28.20% chance of 25 basis point cut on 8/10
• US Dollar Index 84.43 -1.04%
  
• Yield Curve 235.0 -10 basis points
  
• 10-Year US Treasury Yield 2.98% -13 basis points
  
• Federal Reserve's Balance Sheet $2.314 Trillion -.6%
  
• U.S. Sovereign Debt Credit Default Swap 36.77 -9.02%
• U.S. Municipal CDS Index 256.60 +2.44%
  
• Western Europe Sovereign Debt Credit Default Swap Index 152.50 +11.45%
  
• 10-Year TIPS Spread 1.77% -18 basis points
  
• TED Spread 37.0 -4 basis points
  
• N. America Investment Grade Credit Default Swap Index 121.55 +4.57%
  
• Euro Financial Sector Credit Default Swap Index 141.94 -3.44%
  
• Emerging Markets Credit Default Swap Index 276.05 +8.09%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 272.0 -40 basis points
  
• M1 Money Supply $1.722 Trillion +1.70%
• Business Loans 599.0 +.39%
  
• 4-Week Moving Average of Jobless Claims 466,500 +.7%
  
• Continuing Claims Unemployment Rate 3.6% +10 basis points
  
• Average 30-Year Mortgage Rate 4.58% -11 basis points
  
• Weekly Mortgage Applications 675.90 +8.81%
  
• ABC Consumer Confidence -41 +2 points
  
• Weekly Retail Sales +3.0% -10 basis points
  
• Nationwide Gas $2.75/gallon -.01/gallon
  
• U.S. Cooling Demand Next 7 Days 17.0% above normal
• Baltic Dry Index 2,280 -8.84%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 50.0 -13.04%
  
• Rail Freight Carloads 227,229 -.33%
  
• Iraqi 2028 Government Bonds 80.75 -2.18%
  

Best Performing Style

• Large-Cap Growth -5.07%

Worst Performing Style

• Small-Cap Value -7.66%

Leading Sectors

• Tobacco +.86%
• Telecom -1.60%
• Drugs -1.87%
• Medical Equipment -2.09%
• Utilities -2.71%

Lagging Sectors

• Gold -8.16%
• Banks -8.58%
• Gaming -10.0%
  
• Coal -11.04%
• Oil Tankers -13.0%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Reversing Slightly Higher into Final Hour on Short-Covering, Bargain-Hunting, Less Eurozone Fear

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 31.22 -4.99%
  
• ISE Sentiment Index 92.0 -4.17%
  
• Total Put/Call .89 -28.80%
  
• NYSE Arms 1.88 +116.76%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 121.55 bps -3.69%
  
• European Financial Sector CDS Index 143.85 bps -3.71%
  
• Western Europe Sovereign Debt CDS Index 152.50 bps unch.
  
• Emerging Market CDS Index 275.63 bps +.03%
  
• 2-Year Swap Spread 37.0 +1 bp
  
• TED Spread 37.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .16% -1 bp
  
• Yield Curve 236.0 +4 bps
  
• China Import Iron Ore Spot $134.40/Metric Tonne -.30%
  
• Citi US Economic Surprise Index -19.90 +23.7 points
  
• 10-Year TIPS Spread 1.77% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +2 open in Japan
• DAX Futures: Indicating -6 open in Germany

Portfolio:

• Slightly Lower: On losses in my Technology and Retail long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher on a bounce in the euro, the market's oversold state, stabilizing 10-year T-note and falling sovereign debt angst. On the positive side, Biotech and Medical stocks are relatively strong, rising .5%+. Copper is rising +1.95% and the 10-year yield is rising +3 bps, despite this morning's poor economic data, which is a positive. The Spain sovereign cds is falling another -8.44% to 240.27 bps, the European Investment Grade CDS Index is falling -3.2% to 122.08 bps and the US Municipal CDS Index is pulling back -3.0%. On the negative side, Airline, Road & Rail, Education, REIT, Hospital, Gaming and Bank shares are under meaningful pressure, falling 1.25%+. The Transports are substantially underperforming today, falling -1.6%. Despite improvements in some gauges of European credit angst, three-month euro Libor is rising another basis point today to another multi-month high of 72.7 bps. The major indices are performing much better than the average stock today. I am somewhat surprised the market wasn't able to put in a better showing today, given the set-up. However, volume is very light ahead of the holiday weekend so I am not reading too much into it. I expect to see a better showing by stocks early next week if no new significant negative catalysts arise over the 3-day weekend. I expect US stocks to trade modestly higher into the close from current levels on falling sovereign debt angst, short-covering, bargain-hunting, a stable 10-year T-Note and the bounce in the euro.

Today's Headlines

Bloomberg:

• Payrolls in U.S. Fell 125,000 in June as Private Hiring Trailed Estimates. Private employers added fewer workers to payrolls in June than forecast, reinforcing concerns the recovery will weaken as Americans curtail spending. Employment at companies rose 83,000, less than the 110,000 gain forecast by economists in a Bloomberg News survey. Including government, payrolls fell for the first time this year because of a drop in federal census workers. The jobless rate dropped to 9.5 percent from 9.7 percent as the labor force shrank, the Labor Department reported today in Washington. Declines in the average workweek and hourly earnings make it more likely consumers will pull back, hurting sales at retailers including Best Buy Co. Overall payrolls declined by 125,000 last month as the government cut 225,000 temporary workers conducting the 2010 census. Economists projected a decline of 130,000 payrolls, according to the median forecast in the Bloomberg survey. Average hourly earnings fell 2 cents to $22.53 in June, today’s report showed. The average work week for all workers declined to 34.1 hours in June from 34.2 hours the prior month. In another sign manufacturing may be slowing, orders placed with factories declined 1.4 percent in May, more than economists forecast, according to a Commerce Department report today. The decrease in bookings was the biggest since March 2009 and followed a revised 1 percent gain in April. The drop in census workers left 339,000 temporary employees still working on the population count, indicating more cuts to come that will keep distorting the employment figures for months. The number of unemployed in June was 14.6 million. Of those, the largest number, or 3.46 million, were between the ages of 25 and 34. The jobless aged 45 to 54 numbered 2.72 million, followed by 35 to 44 year-olds at 2.62 million. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 16.5 percent from 16.6 percent.
• Mobius Says Derivatives, Stimulus to Spark New Crisis. A new financial crisis will develop from the failure to effectively regulate derivatives and the extra global liquidity from stimulus spending, Templeton Asset Management Ltd.’s Mark Mobius said. “Political pressure from investment banks and all the people that make money in derivatives” will prevent adequate regulation, said Mobius, who oversees $25 billion as executive chairman of Templeton in Singapore. “Definitely we’re going to have another crisis coming down,” he said in a phone interview from Istanbul on July 13. Derivatives contributed to almost $1.5 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg. The Bank for International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic product. A “very bad” crisis may emerge within five to seven years as stimulus money adds to financial volatility, Mobius said. Governments have pledged about $2 trillion in stimulus spending. “Banks have lobbied hard against any changes that would make them unable to take the kind of risks they took some time ago,” said Venkatraman Anantha-Nageswaran, global chief investment officer at Bank Julius Baer & Co. in Singapore. “Regulators are not winning the battle yet and I’m not sure if they are making a strong case yet for such changes.”
• Weber Told Banks They May Need to Raise Capital, FT Reports. Bundesbank President Axel Weber told German banks at a meeting on June 30 that they should prepare emergency capital-raising plans in case they fail stress tests, the Financial Times reported, citing an unidentified executive present at the meeting. Weber told the chief executive officers of 16 German banks they may need to recapitalize either with the help of their owners or the German bank rescue fund, the FT quoted the executive as saying. This could lead to the forced recapitalizations of some banks, the banker said, according to the FT. The FT also reported that bankers and analysts expect up to 20 of Europe’s banks to be forced into cash calls as a result of this month’s stress tests, raising up to 30 billion euros ($37.4 billion) of fresh equity.
• Commodity Funds Change Strategy to Fight Index Money, Man Says. Commodity hedge funds are trading more frequently and making bets for later in the future to avoid “getting whipped” by index funds, according to Edwin Garcia, a manager at Man Group Plc, the largest publicly traded hedge-fund company. Assets under management at index-tracking funds rose 71 percent to $111 billion by the end of May from December 2008, according to Barclays Capital. That “influx of the index money” contributed to price swings in nearby futures, prompting hedge funds to trade more later-dated contracts, Garcia said. Commodity hedge funds lost 4.9 percent in the first five months on average, after declining about 3 percent in 2009, according to Chicago-based Hedge Fund Research Inc. The S&P GSCI Total Return Index tracking the net amount investors received dropped 12 percent from January through May. Hedge funds are also using more options, Garcia said. On the London Metal Exchange, the world’s largest marketplace of copper and aluminum, trading in options contracts for the six major industrial metals soared 64 percent in May from the same month last year, according to figures on the exchange’s website.
• Crude Oil Falls, Heads for Weekly Loss After U.S. Jobs Report. Crude oil fell below $73 a barrel in New York, heading for its first weekly decline in four weeks, after a U.S. report showed the world’s biggest economy lost jobs for the first time this year. Oil for August delivery dropped as much as $1.25, or 1.7 percent, to $71.70 a barrel in electronic trading on the New York Mercantile Exchange and was at $72.36 at 1:53 p.m. London time. Crude fell 7.5 percent in the last four days, touching a three-week low of $72.05 yesterday, amid concern the economic recovery in the U.S. and China will slow and curb demand in the world’s two largest energy consumers. China yesterday reported slowing manufacturing expansions.
• Leveraged-Loan Boom Loses Steam as Economic Woes Depress Market. Leveraged-loan investors are demanding the highest premiums in 2010 after buying almost three times more of the debt than a year ago, signaling a slowing market amid a weakening global economic recovery. Borrowing costs in the loan market have risen to the highest since Dec. 17 relative to benchmark rates since the 2010 low on April 15, according to Standard & Poor’s Leveraged Commentary and Data (S&P LCD). Monthly leveraged loan issuance dropped to $16.4 billion last month from $24.3 billion in May and $26.2 billion in April, which was the most in a month since November 2007, according to S&P LCD. “The institutional market is going to be in a state of disrepair when there are sell-offs, with investors looking for price discovery, which puts everything on hold as the buy-side asks for more money,” said Jeff Titus, a managing director for loan sales and trading in Atlanta for SunTrust Banks Inc. Junk-bond sales plummeted during the same period. Speculative-grade borrowers sold an average $7.25 billion of debt in May and June, a 72 percent decline from the average monthly issuance through April, according to data compiled by Bloomberg.
• BP's(BP) Gulf Well Ahead of Schedule to Intercept Leak. BP Plc’s first relief well aimed at plugging its Gulf of Mexico gusher is seven to eight days ahead of schedule to intercept and eventually stop the biggest oil leak in U.S. history. The target date for intercepting the leaking well and pumping in mud and cement to permanently seal it is still mid- August, U.S. National Incident Commander Thad Allen said today on a conference call with reporters.
• General Motors Gives $6.6 Million in Stock to Top Executives. General Motors Co., the largest U.S. automaker, gave stock valued at $6.66 million to 14 top managers, including $1.33 million worth to Chairman and Chief Executive Officer Ed Whitacre. The 123,347 shares were valued at $53.98 each, a price determined by a third party, the company said today in filings with the U.S. Securities and Exchange Commission. GM gives executives salary stock units and restricted shares to augment their compensation, which is constrained by government rules because the automaker is 61 percent owned by the U.S. Treasury Department.
• US Consumer Bankruptcies Rise 14% in First Half. U.S. consumer bankruptcy filings rose 14 percent to 770,117 in the first six months of 2010 from the same period a year earlier, the American Bankruptcy Institute reported. “Years of rising consumer debt and low savings rates” are pushing totals near the record set in 2005, when proposed changes in bankruptcy law triggered a surge in filings, ABI Executive Director Samuel J. Gerdano said in a statement. By the end of the year, more than 1.6 million bankruptcies will have been filed, Gerdano said.

Wall Street Journal:

• India Ministry Wants Ban on Iron Ore Exports. India's steel ministry is seeking a complete ban on exports of iron ore to preserve the raw material for its expanding domestic steel industry, Steel Minister Virbhadra Singh said Friday. "The current export tax is insufficient. If possible, the government should completely ban iron ore exports or at least impose a uniform 20% tax on its exports," Mr. Singh told Dow Jones Newswires. The steel ministry recently wrote to the finance ministry proposing a rise in the export tax on iron ore, Singh said.
• Alleged Russian Agent Claimed Clinton Administration Official Was His Firm's Adviser. The alleged Russian secret agent who posed as a Canadian entrepreneur named Donald Heathfield claimed a former Clinton administration national-security official was an adviser to his company.

Bloomberg Businessweek:

• Energy Hedge Funds Close After Investor Withdrawals. Energy hedge funds in Europe are collapsing after investor withdrawals forced managers to scale back bets amid sliding prices for oil, coal and electricity. At least six funds managing more than $158 million shut in the first half, including four in May and June, according to data compiled by Bloomberg. London-based Rampart Capital LLP succumbed after failing to reach “critical mass” within nine months of opening, according to Chief Investment Officer Marcello Romano. The average loss from January through May for global energy funds was 19 percent, according to a June 10 report from JPMorgan Chase & Co., compared with a 0.9 percent gain for Hedge Fund Research Inc.’s main index of more than 2,000 members. “The industry is limping,” said Fredrik Adolfson, a 43- year-old manager for Stockholm-based Adapto Energy Fund, which started on Jan. 18 and returned about 3 percent through June 30. “Risk capital has dropped off radically.” Liquidations around the world rose to about 240 in the first quarter, compared with 165 in the previous three months, Chicago-based Hedge Fund Research reported June 8. “I certainly can’t think of a period when so many funds in the sector called it a day,” Fraser McKenzie, head of research at 47 Degrees North Capital Management Ltd., said in an interview. McKenzie’s company, based in Pfaeffikon, Switzerland, is a fund of funds with investments in energy. About 30 funds are actively trading European energy markets after the latest round of closures, according to investment- adviser Energy Alpha Strategies Ltd. in London. The Reuters/Jeffries CRB index of 19 commodities climbed 23 percent last year. Hedge funds investing mainly in European energy lost 2 percent, according to a Bloomberg survey of 13 funds, down from a profit of 4.3 percent in 2008.
• ECB's Paramo Says Stress Tests Don't Need to Consider Default. European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said European banking stress tests do not need to consider a euro area member default. While the stress tests should look at sovereign risk, a default scenario is “absurd,” Gonzalez-Paramo told reporters in La Coruna, Spain, today.

MarketWatch:

• Microsoft(MSFT) is Doomed in the Mobile Market.

New York Times:

• 21 Die in Gun Battle Near U.S. Border With Mexico. Nearly two dozen people were killed in a Mexican border area on Thursday during a fierce gun battle between suspected members of rival drug gangs, Mexican authorities said. The bloodshed took place only 12 miles from the United States border, in Sonora, a state famed for its beaches but whose interior has increasingly been consumed by drug violence. Prosecutors said the battle was a showdown between rival drug and migrant-trafficking gangs, who sprayed gunfire at each other in a sparsely populated area near a dirt road between the hamlets of Tubutama and Saric, The Associated Press reported. The shooting culminated in the deaths of 21 people, with Mexican authorities taking another nine people into custody, including six with bullet wounds.
• E.U. Plan to Deal With Debt Crisis Run Into Hiccups. The huge financial safety net for the euro zone patched together nearly two months ago was trumpeted as a triumph of solidarity. But as often happens in the European Union, commitments made in Brussels can get complicated once the leaders get back home.

Zerohedge:

• David Viniar Walks A Thin Line Between Truth and Perjury at Today's FCIC Hearing. Today, during the FCIC's second day of hearings, Goldman CFO David Viniar was forced to provide additional data about the firm's AIG CDS trades. Luckily the firm kept a record of all entry and exit points, and thus will be able to confirm just what the P&L of the associated trades is (and if not, we are happy to teach Goldman's risk department how to use the Bloomberg CDSD function in conjunction with RMGR run scraping to build a real time CDS portfolio tracker)... Which is ironic, because when asked by Brooksley Born why the firm has not yet provided a break down of its derivative revenue Mr. Viniar by all accounts perjured himself. As Bloomberg reported: “We don’t have a separate derivatives business,” Viniar told the panel. “It’s integrated into the rest of our business.” Uh... what?
• Baltic Dry Approaching Sea Level, Just Above 1 Year Lows. (graph)
• ECRI Weekly Leading Indicator Ever Close to the -10% Threshold, Drops to -7.7%. (graph)
• Bank of China Shares Halted on $9 Billion Rights Offering Announcement, As Bank Urgently Needs to Replenish Capital. Those China CDS are looking ever more attractive.

Boston Globe:

• Bill for Three Resort-Style Casinos Passes in State Senate. The Massachusetts Senate passed a bill tonight by a 25-15 margin to license three resort-style casinos, bringing the Commonwealth once settled by Puritans closer than ever to Vegas-style gambling.

The Deal:

• The Shape of Things to Come. The financial reform bill pushed through by Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., likely will become law in a couple of weeks. Some experts still question whether the new law will increase costs enough to rein in banks' thirst for risk and excessive leverage. Some of these experts, many of them former regulators, say the bill fails to address the root causes of the crisis -- a business model based on rapid growth, extreme leverage and accounting practices that allowed some major institutions to hide virtual insolvency. William Black, associate professor of economics and law at the University of Missouri-Kansas City, an expert in financial fraud and a former senior deputy chief counsel at the Office of Thrift Supervision, says Congress is still ignoring the root cause of the crisis: accounting laxities, which he argues have been the origin of nearly every financial problem since the S&L debacle of the '80s.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).
• 29% Say Stimulus Plan Helped the Economy, 43% Say It Hurt. The new survey found that just 29% believe last year’s economic stimulus plan has helped the economy while 43% believe it hurt. Not surprisingly, there is little appetite for another round. By a 69% to 15% margin, voters believe tax cuts is a better way to create jobs rather than more government spending. Ultimately, though, voters are looking to the private sector to create jobs. Sixty-five percent (65%) say that decisions made business owners seeking to grow their business will do more to create jobs than decisions made by government officials. Just 23% expect the government officials to have a bigger impact.

Politico:

• Orrin Hatch Will Vote No on Elena Kagan. Sen. Orrin Hatch (R-Utah), who had been considered a possible GOP vote in favor of Supreme Court nominee Elena Kagan, announced Friday that he will oppose her confirmation to the high court. Just hours earlier, Hatch said he was “anguishing” over whether to support Kagan, but in a statement e-mailed to reporters Friday morning the Judiciary Committee veteran said he feared her personal ideological and political preferences would drive her rulings – not the law.

Reuters:

• German Criticism Hits Bank Stress Tests: Sources. German banks, backed by the Bundesbank, are balking at an across-the-board approach that assigns the same risk weighting to all government bonds, the sources said, whether they are German, Greek or Spanish. Rising criticism in Germany over assumed potential "haircuts" for European bank holdings of sovereign debt is complicating planned EU stress tests, regulatory and financial sources told Reuters. This is a politically touchy subject and national central banks do not necessarily agree with how Europe's Committee of European Banking Supervisors (CEBS) and the European Central Bank are conducting the tests, the sources said. "German banks are resisting calls for including all sovereign debt exposure in European stress tests for banks," one executive said, adding he saw no reason to test holdings of Germany's liquid and top-rated sovereign debt. Potential sovereign debt markdowns are supposed to be included in European Union tests for more than 100 European banks, in an effort to end a crisis of confidence that has dragged down the global economy.But the renewed criticism may complicate the process ahead of an end-of-July deadline to publish the results, with regulators facing an arduous choice between diplomacy and being robust enough to convince markets. If they take a global haircut as a scenario, German and French banks will be disadvantaged because they have more or less the same German and French bonds in their portfolio. But if the regulators assign haircuts on bonds for individual countries, markets will see it as the probability of default EU regulators see for each country.The decision is crucial for the success of the stress tests, whose assumptions need to be realistic enough to put investors' minds at ease, without admitting too bluntly that regulators seriously think a European country could default. No German bank is in acute danger from a probe into the health of Europe's lenders, banking and regulatory sources said on Thursday, and there is enough cash available to fill any gaps if the situation worsens. There is less data about Germany's landesbanks and Spain's cajas and the fear is that many of Europe's biggest problems lie with these smaller players. Sources familiar with the matter told Reuters this week that the first three to be tested in Germany -- Deutsche Bank, Commerzbank and landesbank BayernLB -- passed the initial tests.
• U.S. Video Game Sales Down 5% in May - NPD.
  

Financial Times:

• China Acts to Ease Uighur Tension. China has installed a grassroots network of officials throughout Xinjiang, its predominantly Muslim north-west frontier region, to address social risks and spot early signs of unrest a year after bloody ethnic riots erupted in the provincial capital. Hundreds of cadres have been transferred from southern Xinjiang, the region’s poorest area, into socially unstable neighbourhoods of Urumqi, the capital, and tasked with helping Uighur families find jobs. They are also expected to assist other low-income groups in accessing government money, according to local officials.

Der Spiegel:

• Germans Anticipate a Collapse of Merkel's Government. Pundits think that Chancellor Angela Merkel's government is in trouble. A new survey has found that German citizens agree. Almost two-thirds think that the governing coalition in Berlin will not survive much longer. Commentators and pundits in Germany were unanimous: Wednesday's laborious election of Christian Wulff as the country's new president was anything but helpful for Chancellor Angela Merkel's already ailing coalition. A survey conducted by Infratest dimap seems to indicate that voters agree. According to the poll, commissioned by public television station ARD, fully 68 percent of Germans believe that the election was a "disgrace" for Merkel and 77 percent feel that she no longer has complete control over her own governing coalition. Sixty-two percent believe that Merkel's government, which pairs her conservatives with the business-friendly Free Democrats (FDP), will not survive much longer.

DigiTimes:

• Intel(INTC) to Launch New CPUs in 3Q10. Intel plans to launch several new desktop processors in the third quarter of 2010 to replace some previous models, and will also reduce some CPU prices to boost demand, according to sources from motherboard makers.

Bear Radar

Style Underperformer:

• Small-Cap Value (-1.15%)

Sector Underperformers:

• Airlines (-3.58%), Road & Rail (-2.35%) and Hospitals (-2.31%)

Stocks Falling on Unusual Volume:

• VZ, LNCR, HITK, AMED, AFAM, UAUA, USPH, PAYX, LHCG, NRTS, LAMR, AUXL, ALGT, OVTI, VHI, CAL, SNN and EQY
  

Stocks With Unusual Put Option Activity:

• 1) MOT 2) JNPR 3) CX 4) CBS 5) TIE
  

Stocks With Most Negative News Mentions:

• 1) TM 2) LNCR 3) NWSA 4) KND 5) TSN
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.04%)

Sector Outperformers:

• Gold (+1.28%), Biotech (+1.14%) and Medical Equipment (+.93%)

Stocks Rising on Unusual Volume:

• AGN, GENZ, MEND, BIIB, SHPGY, LOGI, RRGB and THO
  

Stocks With Unusual Call Option Activity:

• 1) GENZ 2) SKX 3) RSH 4) LNCR 5) BAX
  

Stocks With Most Positive News Mentions:

• 1) GOOG 2) AES 3) IBM 4) WMT 5) AAPL

Friday Watch

Evening Headlines
Bloomberg:

• Euro Swap Spreads Narrow Fourth Day as Bank Funding Stress Concern Eases. Two-year euro swap spreads narrowed for a fourth day as signs funding pressures are easing at Europe’s financial institutions diminished the need for hedges against a deterioration in credit quality. The spread, which indicates the extra risk of trading with banks for two years instead of buying government securities, touched the lowest level in more than five weeks as the European Central Bank awarded temporary loans to ease the expiration of 12-month emergency funds. European banks yesterday asked for 131.9 billion ($164.7 billion) in three-month loans, less than economists expected. The euro rallied to the highest in a month against the dollar. “There’s a growing perception that the ECB may be moving toward shorter maturities and the state of the European banking system may not be as dire as we thought,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The euro is becoming a bit detached from the risk jitters.” Two-year euro swap spreads were 1.7 basis points lower at 74.93 at 3:35 p.m. in New York after falling as low as 72.17 basis points, the lowest level since May 21.
• U.S. Corporate Credit Risk Benchmark Holds Near Three-Week High. An indicator of corporate credit risk in the U.S. held near a three-week high as data on manufacturing, jobless claims, and home sales fanned concern the economic recovery is faltering. Indexes that gauge the risk of corporate bonds in the U.S. and Europe were little changed as stocks fell after the number of contracts to purchase previously owned houses plunged in May by more than twice as much as forecast. Credit-default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 0.1 basis point to a mid-price of 122.8 basis points, the highest since June 11, after climbing as much as 3.7 basis points earlier, according to Markit Group Ltd. Swaps on Masco climbed 24.5 basis points to 284.5, the highest level in almost a year, according to CMA DataVision prices. Toll Brothers increased 17.4 basis points to 223.4 and M.D.C. gained 10.3 basis points to 191.3 at 4:30 p.m. in New York, CMA data show. Ryland Group Inc. climbed 22.3 basis points to 269.3, CMA said. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings added 1.6 basis point to 131.1, Markit prices show. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings increased 8 basis points to 584.7, according to Markit.
• Buffett's Berkshire(BRK/A) May Be Spared Collateral Posting Under Financial Bill. Warren Buffett’s Berkshire Hathaway Inc. , which lobbied Congress to exclude its derivatives contracts from new collateral requirements, may get its way as the financial regulatory overhaul nears approval. The new rules won’t alter previously written derivative contracts, Democratic Senators Chris Dodd of Connecticut and Arkansas’s Blanche Lincoln told Democratic Representatives Barney Frank of Massachusetts and Minnesota’s Collin Peterson in a letter. “It is a positive thing for Berkshire Hathaway,” said Michael Yoshikami, chief investment strategist at YCMNet Advisors. “It’s in writing from a lawmaker. It may not be over, but it’s virtually a promise.” Dodd’s letter was reported earlier today by Dow Jones Newswires. Berkshire estimated in April that it may need to post $6 billion to $10 billion in collateral if the new rules were applied to existing derivatives. Yesterday, Jay Gelb, an analyst with Barclays Plc said Omaha, Nebraska-based Berkshire may need $6 billion to $8 billion in collateral.
• Gillard Reaches Deal With Miners on Australian Tax. Australian Prime Minister Julia Gillard reached an agreement with mining companies on a new resources tax, ending a dispute that cost her predecessor Kevin Rudd his job and paving the way for an election this year. The mineral resources tax will be 30 percent, applying to iron ore and coal, while the levy on oil and gas projects will be 40 percent, the government said. The government said the tax will only apply to the profits of iron ore, coal, onshore petroleum and gas, representing three-quarters of the value of exports, unlike the Rudd proposal that also included most minerals extracted in Australia. The levy’s threshold, effectively the point where the tax kicks in, will now be based on the 10-year government bond rate, currently around 5 percent, plus 7 percent. Previously it was to apply to any profits above the 10-year government bond rate.
• Pimco's Crescenzi Sees 'Worst Kind' of Treasury Gains as Optimism Waning. The shrinking difference between short- and long-term Treasury yields has been “the worst kind” because it is driven by a pessimistic economic outlook, according to Pacific Investment Management Co., which runs the world’s largest bond fund. “The flattening of the yield curve has been the worst kind,” Anthony Crescenzi, a money manager at Newport Beach, California-based Pimco, wrote to clients yesterday. It occurred during “a decline in market interest rates on both ends of the yield curve. Investors have become less optimistic about the outlook for both the U.S. and global economy.” The spread, known as the yield curve, narrowed to 2.27 percentage points yesterday, the least since October. Nations will no longer be able to borrow to spur economic growth, Crescenzi wrote. “The last balance sheet has been tapped, forcing fiscal austerity upon all levels of government worldwide and affecting economic activity,” his report said. “Investors are increasingly of the belief that the inflation rate could continue to move lower.”
• BP's(BP) Gulf Spill to Drive Down Rig Rates, Create Oversupply. BP Plc’s oil spill in the Gulf of Mexico will drive down rental prices for deep-sea drilling vessels by about 20 percent, analysts say, creating an oversupply of rigs as demand slows. The Deepwater Horizon drilling rig that blew up and sank in April prompted President Barack Obama to ban deep-water drilling for six months. That halted 33 rigs in the Gulf of Mexico and led Statoil ASA, Anadarko Petroleum Corp. and Cobalt International Energy Inc. to declare force majeure, or suspend terms, on their rig hire contracts. Falling prices could pressure companies into making more deals. Rental rates for deep-water rigs may drop about a fifth to $350,000 a day in the next six months, according to the average estimate from Citigroup Inc., ODS-Petrodata Inc. and Sanford Bernstein & Co. “Some rigs are having force majeure declared on them, some could well be moved out, some could well sit,” said Gavin Strachan, an Aberdeen-based consultant at ODS-Petrodata, an energy analytics agency. “There’s potential oversupply.” At the same time, a total of 64 rigs are under construction worldwide, the biggest expansion since the early 1980s, according to Bernstein. The global deep-water rig utilization rate may drop by as much as 10 percentage points to 70 percent, driving down hiring rates, according to Standard Chartered Plc estimates. A U.S. court ruled Obama’s six-month moratorium on drilling in waters deeper than 500 feet (152 meters) was illegal. U.S. Interior Secretary Kenneth Salazar has appealed the ruling. Australia, Trinidad and Tobago, Tanzania and Norway are moving ahead with licensing plans to allow new deep-water exploration. The U.S., which will import about 14 percent of the world’s oil this year, may need to shorten the deep-water drilling ban to maintain supplies and preserve jobs in the industry. Oil output from the region may fall by as much as 300,000 barrels a day in the next five years, the International Energy Agency has forecast.
• U.S. House Approves Restrictions on Deals Between Drugmakers. The U.S. House approved a measure restricting the ability of drugmakers to enter agreements that the Federal Trade Commission has said keep generic medicines off the market.
• Macau Casino Revenue in June Declines on World Cup. Macau’s casino revenue declined 20 percent in June from the previous month as the World Cup kept some gamblers away from card games and slot machines in the world’s biggest betting hub.
• Hong Kong Stocks Fall, Erase Gain, on U.S., China Economies; Foxconn Drops. Hong Kong stocks fell, dragging the benchmark index to its first weekly drop in six, after Goldman Sachs Group Inc. cut its China economic growth forecast and worse-than-estimated U.S. economic reports fueled concern the global recovery may falter. The Hang Seng Index dropped 1.3 percent to 19,869.57 as of 12 p.m. local time, widening its losses in this holiday- shortened week to 4 percent.

Wall Street Journal:

• Why Is The Gulf Cleanup So Slow? There are obvious actions to speed things up, but the government oddly resists taking them. As the oil spill continues and the cleanup lags, we must begin to ask difficult and uncomfortable questions. There does not seem to be much that anyone can do to stop the spill except dig a relief well, not due until August. But the cleanup is a different story. The press and Internet are full of straightforward suggestions for easy ways of improving the cleanup, but the federal government is resisting these remedies.
• Florida Sees New Threat to Its Beaches. Deepwater Drilling Project in Cuban Waters Set to Launch Next Year Could Kick Off a Spate of Exploration in the Region. Florida has long fought to prevent oil drilling anywhere near its white sandy beaches. But as the state continues to deal with oil from the Gulf of Mexico spill washing up on its shores, it faces a new threat: deepwater drilling in nearby Cuban waters. Maria Ritter, a spokeswoman for Spanish oil company Repsol YPF SA, said it plans to drill off Cuba, about 60 miles south of Key West, Fla., early next year. If successful, this would likely kick off a spate of exploration.The U.S. Geological Survey has said there could be a substantial amount of untapped oil off the Cuban coast, whetting the appetite of several global oil companies that have signed exploration leases. U.S. companies won't participate because of a longstanding trade embargo against Cuba.
• The 'Opposite Twins' Clash Over the Future of Europe. Europe's "opposite twins," as Mr. Sarkozy sometimes calls his country and Germany, are on different sides of crucial issues in Europe's debate over its economic future, from how best to encourage growth to how to tackle rising public debts.
• The Obama Tax Trap. How some Republicans are preparing to walk right into it.
• Total Chief: Don't Bar Deep Water Oil. Drilling in deepwater oil fields remains essential in spite of the moratorium in the U.S. Gulf of Mexico following the BP PLC oil spill, said Total SA Chief Executive Christophe de Margerie. Global demand for transportation fuels leaves no choice but to drill in such deepwater fields, he said. Exploration continues in other deep-sea fields around the world, such as the North Sea, off the west coast of Africa and offshore Brazil. "This remains a job that not only is normal but is necessary," he said in an interview with The Wall Street Journal at his Paris office.

Bloomberg Businessweek:

• Hedge Fund Stars Start Grooming Successors.
• Andy Grove: How America Can Create Jobs. The former Intel chief says "job-centric" leadership and incentives are needed to expand U.S. domestic employment again.

MarketWatch:

• Stocks, Like Most of Us, Like Job Growth. Correlation between stocks and jobs at strongest since 1960s. Here's a possible way to reconcile Americans with the stock market: Over the past 10 years, U.S. stocks have increasingly closely tracked the Labor Department's report on weekly jobless claims, rising when claims fall and falling when claims rise. Over at Wells Capital Management, chief investment strategist Jim Paulsen cranked up the firm's database, and the resulting chart does show a striking inverse correlation between jobless claims and stocks.

IBD:

• It Strives to Offer Mortgage Services From A to Z. Altisource Portfolio Solutions (ASPS) chief William Shepro isn't one to let grass grow under his feet.

Business Insider:

• Long-Term IS Budget Outlook: Anyone Still Laughing at Greece? (graph) The updated Long-Term Budget Outlook from the Congressional Budget Office (CBO) is out. What a surprise, the previously optimistic forecasts by the US administration do not appear to come to fruition.
• Google(GOOG) Buys Huge Flight Search Engine ITA For $700 Million.
  

Zero Hedge:

• CEBM Warns China Exports and Imports to Decelerate in Q3 and Onward. (full report)"As the government has unofficially adopted normalization strategy away from the stimulus we are likely to see property, infrastructure, and manufacturing investments lose steam in the second half. The deceleration of FAI may put downward pressure on China’s imports."
• Some Insights on David Viniar's Grilling by Brooksley Born on the Firm's Double Profit From AIG(AIG).
  

CNNMoney:

• Google's(GOOG) Three Pillars of Expansion. At a Google press event this week, the company unveiled ambitious plans for expansion. People often think of Google (GOOG) as a search company. While certainly the biggest search company in the world, it's what Google does with its search technology that makes it the cash-belching behemoth it is.
• House passes unemployment benefits extension. After a failed attempt earlier this week, the House voted to extend the deadline to file for federal jobless benefits Thursday. But the bill will be stuck in limbo as Congress takes a weeklong summer break. The bill would extend the deadline to file for extended unemployment benefits through November, and would retroactively pay out claims to those who saw their benefits expire in May. The legislation, which garnered a 270-153 vote, now moves on to the Senate. That chamber, however, closed up shop Wednesday evening for the summer recess after failing to pass its own version of the bill, which would raise the deficit by $33.3 billion. House Democrats have struggled to get support from Republicans, who oppose the extension because it adds to the nation's $1.4 trillion deficit.

Forbes:

• Fictitious Financial Reform by Brian S. Wesbury and Bob Stein. The upcoming overhaul won't address key problems that caused the crisis.

Huffington Post:

• Is the Financial Crisis Inquiry Commission Wimping Out on JPMorgan(JPM)? by Charles Gasparino. You would think if you were investigating the root causes of the financial crisis and were ordered to prepare the definitive account of the collapse of Lehman (and the rest of Wall Street), investigating the circumstances behind JP Morgan's collateral call would be high on your list, right? Well not if you're Phil Angelides, the chairman of the Financial Crisis Inquiry Commission, the Congress-mandated body led by the former treasurer of California. The commission has no plans to seek testimony from senior officials at JP Morgan, including its CEO Jamie Dimon, about the now infamous collateral call that sent Lehman into oblivion, and nearly the rest of Wall Street as the markets crumbled during those dark days in the Fall of 2008. People at just about every other firm I know of say JP Morgan was being heavy handed; it didn't need to turn the screws when it did, and only did so because Lehman wasn't just a creditor who owed the bank money, but also a competitor, which vied for business with JP Morgan in the markets. (JP Morgan made a similar collateral call at that time on Merrill, also leading to that firm's forced sale to Bank of America.) It's one of the many downsides of the dissolution of the Glass-Steagall law, which once separated investment banking from commercial banking. Once the financial supermarkets were created, firms like Citigroup and JP Morgan could squeeze competitors like Bear Stearns and Lehman by refusing to lend them money.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-five percent (45%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

Politico:

• We're Looking More Like France. President Barack Obama’s Democrats have set out to alter fundamentally the nature of the U.S. political system. The changes they’ve wrought will not be easily undone. Obama has sought to remake America into a social democracy — like Germany or France — with a larger public sector, expanded entitlements, stronger labor unions and a changed political structure. He’s doing quite well so far. Entitlement expansion. Obamacare has passed and is lurking in our federal and states’ budget futures. When the program is fully operational in 2014, federal spending for health care is expected to rise sharply. Many businesses could drop their coverage and force workers into the public “exchanges” created by the legislation. Millions more could be eligible for federal subsidies. This adds up to millions more advocates for even more generous benefits and higher federal spending. Democratic politicians should be only too happy to oblige. There’s another way we resemble nations of the European Union: high unemployment. Obama’s allies are selling the nonsense that 10 percent unemployment is the best we can do in this economy. It’s the best he can do if he follows European statist policies. Free-market principles, dominant since the Reagan years, kept U.S. unemployment at about half that in Europe for three decades.
• Obama speech fans immigration fight. Republicans greeted President Barack Obama’s call to arms on immigration reform Thursday with a demand of their own: that Obama visit the troubled U.S.-Mexico border and see for himself why it must be secured. It was a strong reaction to the president’s first policy speech on an issue that so far has defied a legislative solution. The conflict showed how unified the GOP has become in opposing any plan it views as amnesty — and how tough it will be for Obama to revive a key administration goal after months of neglect. The speech seemed as much about keeping immigration reform alive — and assuaging immigrant rights groups — as an imminent, presidential push for reform.
  

USA Today:

• Goldman(GS) Execs Grilled for Taking AIG(AIG) Bailout Money. A Goldman Sachs executive told an inquiry panel Thursday that the firm had no regrets about collecting billions of dollars in taxpayer money for correctly predicting the demise of the U.S. housing market. David Viniar, Goldman's chief financial officer, said Uncle Sam had an obligation to honor American International Group's full debts. The firm was entitled to be paid $12.9 billion out of the $182 billion bailout that went to crippled insurance giant AIG — the largest federal rescue. "The government stepped into AIG's shoes" and therefore had to honor its contract with Goldman, Viniar told the congressionally appointed panel investigating the financial meltdown. The government "paid 100 cents on the dollar for something that was going for 48 cents at the time," said Bill Thomas, the panel's vice chairman and a former California Republican who was chairman of the House Ways and Means Committee. The panel probed Goldman's actions during a second day of hearings examining the firm's relationship with AIG, and how their derivatives trading helped push the country into financial crisis. A previously disclosed 2007 e-mail has Viniar indicating that the firm made more than $50 million in one day on bets that the housing market would founder.

AP:

• Ex-Justice Department Lawyer Says Whites' Rights Ignored. Witnesses described an ugly scene: Two members of the New Black Panther Party threatening white voters the day Barack Obama was elected president, flinging insults like "white devil" and "you're about to be ruled by the black man, cracker." The fallout from the case has become even uglier. Most charges against the men were dropped for lack of evidence, the U.S. Justice Department says. Now a former Justice Department lawyer is accusing his ex-superiors of ignoring white voters' rights and creating a systematic "one-way" approach in which only minorities are protected.The claims by J. Christian Adams are the latest installment of a long-running dispute over Justice Department enforcement of the nation's civil rights laws.

Reuters:

• NYC office construction my drop to one-fifth of '09. Construction of new offices in New York City is on pace to fall to one-fifth of last year's level, as developers focus on renovating instead of erecting new towers, a trade report said on Thursday.

Telegraph:

• What does the new EU regulation mean for bankers' pay: a Q&A. As European regulators draw up new regulations on bonuses, here's a guide to what they may mean.

Sydney Morning Herald:

• Small Australian Miners Unhappy With New Tax Regime. The federal government's new resources tax regime was hammered out with the big three miners at the expense of others, a lobby for smaller mining companies argues. Association of Mining and Exploration Companies chief Simon Bennison said his group was left out of the negotiations. Small miners would be disadvantaged by the new arrangements announced on Friday, Mr Bennison said. "The government feels the only way it can negotiate through these sorts of situations is with three companies," he told ABC Radio, referring to BHP Billiton, Rio Tinto and Xstrata. "That's an absolute nonsense. "That's not the way to do business. It typifies the way this government responds to small businesses in this country."

Yonhap News:

• U.N. Discussions on Ship Sinking Stalled: Sources. U.N. Security Council discussions on North Korea's sinking of a South Korean warship are stalled as China still balks at naming the communist neighbor the culprit and refuses even to call the case an attack, sources said Thursday. U.N. diplomats have been negotiating language in a document the Council plans to adopt on the March 26 sinking of the warship Cheonan, which left 46 sailors dead, after South Korea referred the case to the U.N. early last month for a rebuke of Pyongyang.

China Daily:

• The increase in minimum wages in Chinese provinces and cities must be followed by other measures to boost personal incomes as a share of gross domestic product to sustain growth in consumption. Personal incomes as a proportion of GDP have declined during most of the past 30 years and an increase in the minimum wage alone is unlikely to narrow the disparity, the editorial said.

Shanghai Daily:

• Foxconn Technology Group will move a "major part" of its production to Hebei province in northern China from the southern city of Shenzhen by the end of this year, citing company spokesman Tong Wenxin.

Evening Recommendations
Citigroup:

• Reiterated Buy on (STZ), target $21.
• Reiterated Buy on (GOOG), target $630.
  

Night Trading

• Asian equity indices are -1.0% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 141.0 -1.50 basis points.
• Asia Pacific Sovereign CDS Index 140.75 +2.5 basis points.
  
• S&P 500 futures +.20%.
  
• NASDAQ 100 futures +.27%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
8:30 am EST

• The Unemployment Rate for June is estimated to rise to 9.8% versus 9.7% in May.
• The Change in Private Payrolls for June is estimated to rise to 110K versus 41K in May.
• The Change in Non-farm Payrolls for June is estimated to fall to -130K versus 431K in May.
• Average Hourly Earnings for June are estimated to rise +.1% versus a +.3% gain in May.
  

10:00 am EST

• Factory Orders for May are estimated to fall -.5% versus a +1.2% gain in April.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• None of note
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and real estate shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.