Weekly Scoreboard*

Indices

• S&P 500 1,102.66 +3.55%
  
• DJIA 10,424.62 +3.24%
  
• NASDAQ 2,269.47 +4.15%
  
• Russell 2000 650.65 +6.59%
  
• Wilshire 5000 11,386.87 +3.89%
  
• Russell 1000 Growth 493.52 +4.07%
  
• Russell 1000 Value 564.76 +3.26%
  
• Morgan Stanley Consumer 678.39 +2.94%
  
• Morgan Stanley Cyclical 865.50 +7.05%
• Morgan Stanley Technology 563.43 +3.39%
  
• Transports 4,369.71 +6.09%
  
• Utilities 386.76 +2.41%
  
• MSCI Emerging Markets 40.87 +4.49%
  
• Lyxor L/S Equity Long Bias Index 951.17 -.69%
  
• Lyxor L/S Equity Variable Bias Index 845.26 -.53%
  
• Lyxor L/S Equity Short Bias Index 897.26 +.39%
  

Sentiment/Internals

• NYSE Cumulative A/D Line +89,958 +2.58%
  
• Bloomberg New Highs-Lows Index +11 +140
  
• Bloomberg Crude Oil % Bulls 29.0 +20.8%
  
• CFTC Oil Net Speculative Position +36,145 +4.33%
  
• CFTC Oil Total Open Interest 1,214,183 -4.87%
  
• Total Put/Call .83 -24.55%
  
• OEX Put/Call 2.87 +143.22%
  
• ISE Sentiment 114.0 72.73%
  
• NYSE Arms 1.02 -81.95%
  
• Volatility(VIX) 23.47 -10.59%
  
• G7 Currency Volatility (VXY) 12.15 -3.11%
  
• Smart Money Flow Index 8,716.0 -.06%
  
• Money Mkt Mutual Fund Assets $2.798 Trillion -.60%
  
• AAII % Bulls 32.16 -18.31%
  
• AAII % Bears 45.03 +19.13%
  

Futures Spot Prices

• CRB Index 266.62 +1.68%
  
• Crude Oil 78.98 +3.69%
  
• Reformulated Gasoline 212.22 +3.84%
  
• Natural Gas 4.58 +.84%
  
• Heating Oil 205.05 +2.01%
  
• Gold 1,187.80 -.44%
  
• Bloomberg Base Metals 197.15 +4.09%
  
• Copper 318.50 +8.43%
  
• US No. 1 Heavy Melt Scrap Steel 323.33 USD/Ton unch.
  
• China Hot Rolled Domestic Steel Sheet 4,138 Yuan/Ton +6.40%
• S&P GSCI Agriculture 331.64 -.16%
  

Economy

• ECRI Weekly Leading Economic Index 120.70 unch.
  
• Citi US Economic Surprise Index -37.0 -3.5 points
  
• Fed Fund Futures imply 63.40% chance of no change, 36.60% chance of 25 basis point cut on 8/10
• US Dollar Index 82.46 +.04%
  
• Yield Curve 240.0 +7 basis points
  
• 10-Year US Treasury Yield 2.99% +7 basis points
  
• Federal Reserve's Balance Sheet $2.315 Trillion -.36%
  
• U.S. Sovereign Debt Credit Default Swap 36.31 -4.72%
• U.S. Municipal CDS Index 218.53 -2.65%
  
• Western Europe Sovereign Debt Credit Default Swap Index 127.77 -4.32%
  
• 10-Year TIPS Spread 1.77% +5 basis points
  
• TED Spread 35.0 -3 basis points
  
• N. America Investment Grade Credit Default Swap Index 107.42 -2.88%
  
• Euro Financial Sector Credit Default Swap Index 121.27 -3.68%
  
• Emerging Markets Credit Default Swap Index 231.19 -5.92%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 267.0 -2 basis points
  
• M1 Money Supply $1.705 Trillion -1.25%
• Business Loans 596.30 +.51%
  
• 4-Week Moving Average of Jobless Claims 456,000 +.3%
  
• Continuing Claims Unemployment Rate 3.5% -20 basis points
  
• Average 30-Year Mortgage Rate 4.56% -1 basis point
  
• Weekly Mortgage Applications 753.50 +7.60%
  
• ABC Consumer Confidence -45 -1 point
  
• Weekly Retail Sales +2.90% -20 basis points
  
• Nationwide Gas $2.72/gallon unch.
  
• U.S. Cooling Demand Next 7 Days 25.0% above normal
• Baltic Dry Index 1,801 +5.94%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 42.50 -5.56%
  
• Rail Freight Carloads 227,661 +17.99%
  
• Iraqi 2028 Government Bonds 83.47 -.33%
  

Best Performing Style

• Small-Cap Growth +6.69%

Worst Performing Style

• Large-Cap Value +3.26%

Leading Sectors

• Steel +12.75%
• Coal +11.39%
• Oil Tankers +9.01%
• Papers +8.73%
• Construction +7.46%

Lagging Sectors

• Disk Drives +.75%
• Computer Hardware +.19%
• HMOs -.25%
  
• Medical Equipment -.37%
• Drugs -1.35%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Higher into Final Hour on Falling Sovereign Debt Angst, Less Economic Fear, Short-Covering, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Above Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 23.55 -4.38%
  
• ISE Sentiment Index 119.0 +4.39%
  
• Total Put/Call .80 -1.23%
  
• NYSE Arms 1.01 +46.76%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 107.42 bps -1.34%
  
• European Financial Sector CDS Index 123.38 bps +2.52%
  
• Western Europe Sovereign Debt CDS Index 127.67 bps -3.19%
  
• Emerging Market CDS Index 231.53 bps -.90%
  
• 2-Year Swap Spread 24.0 +3 bps
  
• TED Spread 35.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 241.0 +4 bps
  
• China Import Iron Ore Spot $127.0/Metric Tonne +1.76%
  
• Citi US Economic Surprise Index -37.0 -.2 point
  
• 10-Year TIPS Spread 1.76% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +115 open in Japan
• DAX Futures: Indicating +24 open in Germany

Portfolio:

• Higher: On gains in my Medical, Retail, Biotech and Technology long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades near session highs, despite worries over the usefulness of the European bank stress test results. On the positive side, Education, Road&Rail, Gaming, Steel, Alt Energy, Construction, Homebuilding, Paper and Ag stocks are especially strong, rising 1.5%+. Small-cap and cyclical shares are outperforming again and the Transports continue to trade very well, moving convincingly through their 50-day moving average. Copper is rising another +.9%. The European Investment Grade CDS Index is falling another -1.5% to 110.92 bps. The UK sovereign cds is falling another -4.98% to 69.83 bps, which is the lowest level since mid-March. The 10-year yield is rising +5 bps to session highs, which is also a positive. China Import Iron Ore spot continues its recent bounce higher after sharp declines and lumber has traded better over the last 4 days, rising another +1.44% today. On the negative side, Drug, Restaurant, Oil Service and Utility shares are lower on the day. The Hungary sovereign cds is climbing +2.8% to 344.31 bps and the 2-year swap spread is rebounding a bit, which are negatives. As expected, the European bank stress tests did not include key things that investors wanted to see. However, the market's reaction to this lack of clarity is a major psychological positive. More stringent parameters will be applied to these tests over the weekend by analysts, which will likely provide much more clarity early next week. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, diminishing sovereign debt angst and technical buying.

Today's Headlines

Bloomberg:

• Seven EU Banks Fail Stress Tests With $4.5 Billion Shortfall. Seven of 91 European Union banks subject to stress tests failed with a combined capital shortfall of 3.5 billion euros ($4.5 billion), stirring concern the evaluations weren’t strict enough. Hypo Real Estate Holding AG, Agricultural Bank of Greece SA and five Spanish savings banks have insufficient reserves to maintain a Tier 1 capital ratio of at least 6 percent in the event of a recession and sovereign-debt crisis, lenders and regulators said today.The banks are in “close contact” with national authorities over the results and the need for more capital, said the Committee of European Banking Supervisors, which coordinated the tests. Governments are seeking to reassure investors about the health of financial institutions after the debt crisis pummeled the bonds of Greece, Spain and Portugal.“It would have aided credibility if there had been a higher number of fails and a higher amount of capital raised,” said Jon Peace, a London-based analyst at Nomura International Plc. “People will be surprised that it is as small as that.”The evaluations took into account potential losses only on government bonds the banks trade, rather than those they are holding to maturity, according to CEBS. That means the tests ignored the majority of banks’ holdings of sovereign debt, analysts said.
  
• GE(GE) Raises Dividend 20%, Extends Share Buyback to 2013. General Electric Co., emerging from the global recession with a hoard of cash, raised its quarterly dividend by 20 percent and will resume stock buybacks sooner than it had predicted. The shares rose.
  
• Copper Heads for Best Week Since February as Inventories Shrink. Copper rose for a fifth straight day, heading for the biggest weekly gain since February, as shrinking inventories signaled an improved outlook for demand. Stockpiles tracked by the London Metal Exchange have dropped for 22 straight weeks, the longest slide since 2004. Bookings to remove metal from warehouses increased 15 percent this week, the most in two months. Inventories also contracted in China, the world’s biggest user of the metal.
• Commodity Advance May Falter, Barclays Says: Technical Analysis. The recovery in commodities may be faltering as trading patterns are “throwing out bearish signals,” Barclays Capital said.
• Europe Shows Strength as U.K., German Indicators Top Forecasts. The British economy grew at the fastest pace in four years in the second quarter and German business confidence surged to a three-year high this month, indicating Europe’s recovery may be stronger than forecast. U.K. gross domestic product rose 1.1 percent in the three months through June, almost twice as fast as the 0.6 percent gain predicted by economists in a Bloomberg News survey, the Office for National Statistics said in London today. In Munich, the Ifo institute said its business climate index, based on a poll of 7,000 executives, jumped to 106.2 this month, confounding expectations of a decline. The reports suggest two of Europe’s largest economies are being buoyed by slides in the pound and the euro just as factories step up production to meet global demand.
• Obama Law May Cost Children Coverage as UnitedHealth(UNH) Ends Plans.
• New York Fed's Dahlgren to Direct Bank Supervision. Sarah Dahlgren, who manages assets acquired by the Federal Reserve Bank of New York during the financial crisis, will become its top bank supervisor after the regulatory overhaul enacted this week expanded the central bank’s authority.

Wall Street Journal:

• Seven European Banks Fail Stress Tests.
  
• Greek, Spanish Bank CDS Among Biggest Movers After Stress Tests. Credit default swaps on Greek and Spanish financial institutions were among the biggest movers after the Committee of European Banking Supervisors released euro-area bank stress-test results at noon EDT. The cost to insure debt from the National Bank of Greece using CDS fell 11% from Thursday's levels to 758 basis points, equivalent to $758,000 per year to cover $10 million of debt for five years. CDS on Greece's third-largest bank, EFG Eurobank Ergasias, fell 13% to 755 basis points. And CDS on Banco Popolare Societa Cooperativa and Banco de Sabadell fell 8% and 7% to 277 and 272 basis points, respectively. The cost to insure Greek debt against non-payment or default using CDS fell 1.55% from Thursday's levels to 749.3 basis points, according to Markit data, equivalent to $749,300 a year to cover $10 million. CDS on Portugal were 8.22% cheaper, Italy's were 4.82% cheaper, and Ireland's fell 2.48%%. By contrast, Spain's were roughly flat and CDS on Germany rose 2.45% after one of its banks failed the test. The iTraxx Europe Senior Financials index--a key barometer of financial institutions' health in the region--was trading around 132 basis points before the results, 1.5% better than Thursday's close, but after the results it deteriorated marginally to 133.8 basis points. Based on current CDS prices and assumed recovery levels, the probability of a Greek default is 48.41%, Portugal's is 20.88%, Ireland's is 18.86%, Italy's is 13.23%, Spain's is 16.13%, Germany's is 3.51%, Hungary's is 26.08%, France's is 6.08% and the U.K.'s is 5.67%.
• Nigeria Aims to Export 2.05 Million Barrels/Day Crude In September - Traders. Crude export programs from Nigeria's state oil company show it plans to ship at least 2.05 million barrels of oil a day in September, traders who have tracked details of the provisional plans said Friday. Nigeria is one of Africa's largest energy exporters and as a member of the Organisation for Petroleum Exporting Countries, its current quota stands at 1.673 million barrels a day.
• Cellphone Memory Revenue Expected to Jump 50% in 2010 - iSuppli. Global cellphone memory revenue is expected to make a sharp jump this year from 2009 as smartphones continue to use increasing densities of memory, an industry researcher said. Revenue is expected to climb 50% to $10.2 billion in 2010 for cellphone memory.
• Sanofi-Aventis Approaches Genzyme(GENZ) for Deal. France's Sanofi-Aventis SA has made an informal acquisition approach to biotechnology drug maker Genzyme Corp, people familiar with the matter said. The two sides have begun sounding out each other's interest in a deal before entering into talks, but the talks remain at early stages and a completed transaction is far away, these people said. Genzyme shares surged Friday afternoon, climbing $8.83, or 16%, to $63 on the Nasdaq Stock Market. Should Genzyme view Sanofi's offer as opportunistic, it's likely to spurn any transaction, said people familiar with the company. Genzyme is likely to push for a price that it views reflects the potential for a company turnaround, these people added.

CNBC:

• Republicans Urge Hearing for New Consumer Watchdog. The three Republican senators who backed the financial regulatory overhaul urged President Barack Obama not to appoint a new consumer protection watchdog while Congress is in recess.

NY Post:

• Koch Eyeing Pactiv(PTV). It's not the time to throw merger rumors about listed Pactiv Corp. in the trash. Koch Industries is now in deep discussions to buy Pactiv, the maker of Hefty bags -- with final bids likely due in early to mid-August, sources close to the situation said.
• Bloomy Blitz Aims to Halt Hedge Clippers. Mayor Bloomberg blasted Albany leaders yesterday for trying "to kill the golden goose here" by pushing a tax that would drive hedge funds out of the state -- as he quietly called key Wall Street figures to plead with them to stay. "When people say, 'Oh, the rich, they've got more money. We can tax more of them' -- they're going to move," Bloomberg told reporters. "You can't just keep going to taxing more. It doesn't work." Bloomberg was reacting to The Post's disclosure yesterday that Connecticut Gov. Jodi Rell is brazenly trying to poach hedge-fund managers by inviting them to an "intimate" dinner to discuss moving to the lower-taxed Nutmeg State.

Business Insider:

• 17 Reasons to Be Bullish.

TheStreet.com:

• Humbled Hedge Funds Bow to Investor Wishes. The mood has changed. Scrambling to attract investors, many funds are lowering fees and offering easier terms. "The top 10% of funds can still get whatever they want, but most of the rest are willing to negotiate concessions," says Jon Sundt, president of Altegris, a hedge fund adviser. Investors are demanding detailed lists of portfolio holdings, a big change from when many hedge funds provided only vague descriptions of their holdings in reports that came out monthly or quarterly.
• Morgan Stanley(MS) Looks Like FinReg Winner: Analysts.

Boston Globe:

• Ringing Up Sales. Phones are retailers’ latest route to back-to-school shoppers’ wallets. Merchants looking to boost sales during the critical back-to-school season are courting students where they spend most of their time — on their phones.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 27% 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 -17 (see trends).

Reuters:

• Ford(F) Profit Tops Street View; Shares Climb. Ford Motor Co (F) posted a stronger-than-expected quarterly profit of $2.6 billion and said it was on track for higher earnings and lower debt in 2011, sending its shares up 4 percent. The No. 2 U.S. automaker lowered the top end of its range for U.S. auto industry sales for 2010, citing in part the slow recovery in the U.S. economy. But it said the recovery was sustainable.

Kyodo News:

• North Korea Says Fresh U.S. Sanctions Will Have No Effect. A senior North Korean delegation official said here Friday that fresh sanctions imposed by the United States against North Korea over its nuclear weapons program will have little effect.
  

Referans:

• Kardemir Karabuk Demir Celik Sanayi & Ticaret AS, a Turkish steelmaker, cut prices for some of its steel products by $45 per ton because global demand continues to decline.

Bear Radar

Style Underperformer:

• Large-Cap Growth (+.66%)

Sector Underperformers:

• 1) Drugs -1.16% 2) Oil Service -.82% 3) Restaurants -.61%

Stocks Falling on Unusual Volume:

• BXS, TCBI, TEVA, CAKE, WPI, SLB, WOOF, AMZN, QLGC, TEVA, ACTG, ERIC, IBKR, SNDK, MCRL, BIIB, IPXL BEC, SNY and WL
  

Stocks With Unusual Put Option Activity:

• 1) RRC 2) TEVA 3) CTXS 4) KGC 5) ATHN
  

Stocks With Most Negative News Mentions:

• 1) RIG 2) DLM 3) DELL 4) BEC 5) AIG
  

Bull Radar

Style Outperformer:

• Small-Cap Growth (+.96%)

Sector Outperformers:

• 1) Education +8.46% 2) Telecom +1.38% 3) Road & Rail +1.07%

Stocks Rising on Unusual Volume:

• CECO, DV, ASBC, KB, TIE, CYT, AGU, FCX, NXTM, APL, MNTA, LNCE, EDMC, RVBD, MLNX, ATHN, INFA, ALGN, CPHD, ETFC, ARMH, SIVB, ISLN, NTCT, IDSA, EFII, COCO, STRA, SWKS, PZJ, APA, CKH, CMG, EMV, TFX and KWK
  

Stocks With Unusual Call Option Activity:

• 1) KWK 2) CECO 3) ARMH 4) AMZN 5) CMG
  

Stocks With Most Positive News Mentions:

• 1) MCD 2) MSFT 3) HON 4) T 5) AAPL
  

Friday Watch

Evening Headlines
Bloomberg:

• Success for Bank Stress Tests Hinges on Data, Not Failure Count. The success of the European Union’s bank stress tests hinges on how much detail regulators provide about the basis for their conclusions, not on the number of lenders that fail, investors said. “The more transparency, the more important that the results will be,” said Peter Braendle, who helps manage $51 billion at Swisscanto Asset Management in Zurich. “If the methodology is a black box and we just get some results, that will not be very helpful.” Regulators are scrutinizing banks to assess if they have enough capital, defined as a Tier 1 capital ratio of at least 6 percent, to withstand a recession and sovereign debt crisis, according to a document from the Committee of European Banking Supervisors. Lenders that fail the trials will be made to raise additional capital. The results will be published by CEBS and national regulators from 6 p.m. Brussels time today. The assessors haven’t so far provided full details of their criteria, raising concern among investors they will not be stringent enough. “It’s pretty clear that a lot of banks will pass this test,” said Lutz Roehmeyer, who helps manage about $15 billion at Landesbank Berlin Investment, including bank shares. “It will be more important to see what raw data will be published. With that you can create your own, more stringent scenarios.” Analysts’ estimates for the amount of capital European banks will need to raise range from 30 billion euros ($38.7 billion), according to Nomura Holdings Inc., to as much as 85 billion euros at Barclays Capital. Investors have criticized the tests, saying they may not be rigorous enough. In particular, they are questioning to what extent regulators are examining banks’ sovereign-debt holdings, including how government bonds in the trading and banking books will be valued in the event of a sovereign debt crisis. The tests won’t include the possibility of sovereign defaults, Dutch Finance Minister Jan Kees de Jager said last week, indicating that there will be no assumed losses on government bonds held in lenders’ banking books. “Banks hold the majority of their sovereign bonds in the banking book, and as a EU country’s default is not part of the stress test’s scenarios, impairments are not necessary,” said Konrad Becker, a financial analyst at Merck Finck & Co. in Munich.
• Goldman Sachs(GS) Said to Name Counterparties on AIG Hedges for U.S. Panels. Goldman Sachs Group Inc. told U.S. investigators which counterparties the company used to hedge the risk that American International Group Inc. would fail, according to three people with knowledge of the matter. The list was sought by panels reviewing the beneficiaries of New York-based AIG’s $182.3 billion government bailout, said the people, who declined to be identified because the information is private. Goldman Sachs, which received $12.9 billion after the 2008 rescue tied to contracts with AIG, has said it didn’t need the insurer to be bailed out because it was hedged against a failure.
• ETFs Imperil Commodity Investors When Contango Conspires With Pre-Rolling.
• Rutgers' Chinese Solar Panels Show Clean-Energy Economic Shift. At Rutgers University in New Jersey, 7,600 panels convert sunlight into electricity, saving some $200,000 in energy costs this year in the biggest solar-power experiment at a U.S. college. Yingli Green Energy Holding Co., China’s second-largest solar-panel maker, supplied the $10 million project. Yingli is one of several Chinese manufacturers that have slashed costs to reduce global prices for solar modules by about 50 percent in two years. The drive made them more affordable for buyers from Rutgers to Wal-Mart Stores Inc., the biggest U.S. retailer. “It’s all about economics,” said Chief Executive Officer Al Bucknam of SunDurance Energy, the South Plainfield, New Jersey installer that picked Yingli over Western competitors on price and helped sell the deal to Rutgers as a money-saver. China is slashing prices and moving to dominate solar energy in the way Japanese manufacturers ruled consumer electronics decades ago.
• Grassley Calls for Probe of General Motors' Plan to Acquire AmeriCredit. U.S. Senator Chuck Grassley asked the Special Inspector General for TARP to look into the details of General Motors Co.’s plan to buy a subprime auto lender and the Treasury Department’s involvement in the acquisition. GM and Fort Worth, Texas-based AmeriCredit Corp. announced the deal today that is intended to help the automaker reach more customers with damaged credit ratings or who want to lease a new car or truck. The purchase will be made with cash GM has on hand, Chief Financial Officer Chris Liddell said. “If GM has $3.5 billion in cash to buy a financial institution, it seems like it should have paid back taxpayers first,” Grassley, a Republican from Iowa, said in a statement on his website. “After GM’s experience with GMAC, which left GM seeking a taxpayer bailout, you have to think the company and, in turn, the taxpayers would be better off if GM focused on making cars that people want to buy and stayed clear of repeating its effort to make high-risk car loans.” GM’s former lending arm, now known as Ally Financial Inc., lost $17 billion on subprime mortgages. GM sold 51 percent of Detroit-based GMAC to private-equity firm Cerberus Capital Management LP in November 2006 as the nation’s biggest automaker ran low on cash. Since then, GM has had to rely on outside lenders, including Ally, which is 56 percent owned by the U.S. Detroit-based GM filed for bankruptcy court protection last year and is now 61 percent owned by the U.S.
• Sumitomo, Usiminas May Expand Iron Ore Capacity in Brazil, Furihata Says. Sumitomo Corp., Japan’s third- largest trading company, said its venture with Brazil’s Usinas Siderurgicas de Minas Gerais SA may expand iron ore production by two thirds amid rising demand in Asia. The venture with Usiminas may be able to boost estimated annual iron ore output to 50 million metric tons, Sumitomo’s Managing Executive Officer Toru Furihata said in an interview at its Tokyo headquarters. That’s an increase on its plan to produce 30 million tons by 2015 from 7 million ton by expanding capacity at its mine in the state of Minas Gerais.
• Euro May Slide to 2001 Low Versus Yen on 'Triple Top': Technical Analysis. The euro may decline to an eight- year low against the yen as charts show it has formed a so- called triple top, according to Tokai Tokyo Securities Co., citing trading patterns.
• China's Auto Prices May Decline Steadily, NDRC Says. China's vehicle prices may decline steadily in the second half of 2010 because of increasing inventories and pressure by wholesalers to meet sales targets, the country's planning ministry said. Automakers may join dealers in offering discounts in the fourth quarter, Cheng Xiaodong, an official with the National Development and Reform Commission, said today in a statement. China's car prices fell 1.18 percent in the first half from a year earlier, according to the agency. "The high prices we saw last year are long gone," said Yu Bing, an analyst at PingAn Securities Co. in Shanghai, who expects a 5 percent price drop for vehicles that cost about 100,000 yuan ($14,750). "Car prices are no doubt coming down." The Chinese government has been subsidizing rural residents' automobile purchases since last year. The country gave out 7.92 billion yuan to rural residents to help them buy motorcycles and automobiles in the first half, according to the planning agency. The government also handed out 2.44 billion yuan to subsidize trade-ins of old vehicles during the period, the agency said.
• Chinese Banks Need to Raise More Capital to Meet Lending Growth, S&P Says. Chinese banks will need to raise more funds to cope with tighter capital requirements and loan growth in the world’s third-largest economy, a Standard & Poor’s analyst said. “With tighter capital requirements, their capital buffer is not enough,” Liao said. “That’s why you see AgBank and Everbright pushing so hard to raise capital despite the weak market.” The benchmark Shanghai Composite Index declined 22 percent this year. China’s banks face rising credit risks and non-performing loan ratios are likely to increase as the nation’s economy slows and lending for government projects comes due for repayment, S&P said in a report yesterday. It’s “highly likely” that some loans to local government financing vehicles will turn bad over the next few years, S&P said in the report. Loans to these entities account for about 18 percent to 20 percent of total lending, the rating company said. China’s loan growth will slow in the second half of 2010, S&P’s Liao said today, with full-year loan growth coming in at about 20 percent. The industry’s non-performing loan ratio will rise from an estimated 3 percent to 4 percent currently, though it will remain below 10 percent by the end of 2012, S&P projects.
• Indian Rupee's Outlook is Turning 'Outright Bearish,' Morgan Stanley. Morgan Stanley is “poised to turn outright bearish” on India’s rupee on signs the economy is slowing and as a technical chart signaled the currency may be poised to weaken.

Wall Street Journal:

• Judgement Day for EU Banks Nears. After weeks of anticipation, European bank stress-test results are due out late Friday after the region's stock markets close, a closely watched bid to quell concern about the stability of European banks after a spring of fiscal and financial problems. Most banks are expected to pass the tests—which may or may not be a good sign, depending on whether the exercise is deemed to be tough enough. Industry and government officials in Greece, Spain and Germany have hinted this week that major banks in their countries will come through the tests without trouble. That optimism, especially given challenges facing a number of banks in each of the three countries, has raised questions about the rigor of the tests. Thus far only one bank, Hypo Real Estate in Germany, is known to have failed the tests, but since it has already been taken over by the government, its capital levels aren't an issue. The tests will cover 91 banks in 20 European Union countries. Critics say they fear that the European tests won't improve sufficiently on the Oct. 2009 stress tests. At that time, European regulators offered vague assurances that the region's banks were sufficiently capitalized. The fiscal and banking crisis that emerged just a few months later seemed to undercut that view. Under the EU test scenario, the EU economy shrinks by about 2% this year and 1.25% in 2011, compared with current expectations of modestly positive growth in both years. Financial markets sent mixed signals ahead of Friday's results. European Bank shares shot higher Thursday, with the Stoxx 600 banking sector index gaining more than 3% as investors bet on a repeat of the U.S. stress- test scenario. At the same time, the cost of borrowing euros in the interbank lending market reached its highest level in 11 months with three-month Euribor at 0.884%. Such borrowing costs rise when banks are nervous about lending to one another.
• Diversity and the Myth of White Privilege by Senator James Webb(D-VA). America still owes a debt to its black citizens, but government programs to help all 'people of color' are unfair. They should end. The NAACP believes the tea party is racist. The tea party believes the NAACP is racist. And Pat Buchanan got into trouble recently by pointing out that if Elena Kagan is confirmed to the Supreme Court, there will not be a single Protestant Justice, although Protestants make up half the U.S. population and dominated the court for generations. Forty years ago, as the United States experienced the civil rights movement, the supposed monolith of White Anglo-Saxon Protestant dominance served as the whipping post for almost every debate about power and status in America. After a full generation of such debate, WASP elites have fallen by the wayside and a plethora of government-enforced diversity policies have marginalized many white workers. The time has come to cease the false arguments and allow every American the benefit of a fair chance at the future.
• Motorola's(MOT) Suit Poses Challenge for Huawei's Success. Motorola Inc.'s lawsuit against Huawei Technologies Co. alleging a plot to steal the U.S. company's trade secrets could complicate years of largely successful efforts by the Chinese telecommunications-equipment giant to demonstrate itself as an innovator in the industry.
• The U.N. Threat to Internet Freedom. The FCC's move to treat broadband providers like phone company monopolies could spur international efforts to regulate the Web.
• Wal-Mart(WMT) Radio Tags to Track Clothing. Wal-Mart Stores Inc. plans to roll out sophisticated electronic ID tags to track individual pairs of jeans and underwear, the first step in a system that advocates say better controls inventory but some critics say raises privacy concerns. Starting next month, the retailer will place removable "smart tags" on individual garments that can be read by a hand-held scanner.
• Senate Passes $60 Billion Bill to Fund War.
• U.S. to Scrutinize For-Profit Career Colleges. The U.S. Department of Education on Friday will propose a measure to penalize for-profit career colleges for graduating students with high debt-to-income ratios. The proposal, which will undergo a 45-day comment period that is expected to include opposition from industry lobbyists, is an effort to ensure schools are training students for gainful employment in a recognized occupation. It comes at a time when for-profits are under new scrutiny as they capture a growing share of federal student-aid dollars.
• Gene Shows Promise for Alzheimer's. Scientists have found a way to dramatically reduce the erosion of memory and learning ability in mice with a version of Alzheimer's disease, potentially offering a new approach for tackling the illness in humans.
• Liberal Tax Revolt. Some Democrats decide they prefer lower rates. Obama isn't one of them. There's nothing like the prospect of an electoral rout to concentrate the incumbent mind, and so all of a sudden rank-and-file Democrats in Congress are saying maybe they shouldn't let the 2003 tax rates expire after all. Now if they can only persuade their Speaker of the House, the Treasury Secretary and President Obama.

Bloomberg Businessweek:

• Falcone's Harbinger Said to Lose 10% in June in Illiquid Fund. Harbinger Capital Partners LLC, the hedge-fund firm run by billionaire Philip A. Falcone, lost about 10 percent last month in a pool of hard-to-sell assets that it’s divesting for clients, according to two investors. The so-called side pocket, with about $2 billion in assets, has slumped 14 percent this year, said the people, who asked not to be named because the information is private.
• The Rush to Hedge Against Black Swan Events. Wall Street is seeing a boom in funds that offer protection from market calamities known as "long-tail risks." Wall Street's hottest new product is fear. Pimco, Deutsche Bank (DB), and Citigroup (C) are among firms offering clients protection against "long-tail" risks—extreme market moves that Wall Street's financial models fail to anticipate. In what Morgan Stanley strategists say is an indication that more investors are seeking insurance against financial turbulence, they estimate there was as much as a fivefold increase last quarter in trading of credit derivatives that speculate on market volatility.
• SEC Watchdog Expands Probe to Include Goldman Sachs Settlement. The U.S. Securities and Exchange Commission’s internal watchdog said he will expand his probe into whether politics drove an agency lawsuit against Goldman Sachs Group Inc. to include the timing behind a $550 million settlement with the company.

CNBC:

• Amazon.com(AMZN) Shares Plunge After Earnings Disappoint. Amazon.com shares plunged after the company posted earnings that missed analyst expectations and revenue that barely beat forecasts. The online retailer reported second quarter earnings of 45 cents a share. Amazon earned 32 cents a share during the same period a year earlier. Sales for the most recent quarter rose to $6.57 billion, up from $4.65 billion last year. The company was seen earning 54 cents a share on revenue of $6.54 billion, according to a consensus eestimate from Thomson Reuters.
• Microsoft(MSFT) Earnings and Revenue Rise, Top Forecasts. Microsoft reported a profit and sales that improved over last year and both topped what Wall Street was looking for, helped by strong sales of Windows 7.
• Gulf Storm Threatens US Efforts to Plug Oil Spill.
• American Express(AXP) Posts Earnings Above Expectations. American Express posted a sharp earnings spike that beat Wall Street expectations, as its customers resumed spending and fell less behind on paying their bills.

MarketWatch:

• Beijing Should Avoid Price Intervention. The Chinese government is still relying on price controls far too often, and this could lead to stagflation, according to a Century Weekly editorial.
• LG Display Not Fulfilling All Apple(AAPL) iPad Orders. The chief executive of LG Display Co. (LPL, 034220.SE) said the company isn't currently fulfilling strong panel orders from Apple Inc. (AAPL) for its new tablet computer, the iPad, which is seen to have slowed the global sales of the device. But the South Korean flat-panel maker said it may be able to fill the orders by the second quarter of next year.

DailyFinance:

• Here's what a gallon of gas goes for in the 34 cities around the world that AIRINC surveyed:

IBD:

• The Virtual Leader Moves Computing Into The Clouds. VMware (VMW) is getting real based on the virtual reality of virtualization software.

NY Times:

• In Asia, a Gulf's Worth of Oil Awaits Transport. This field, known as the Tengiz, is still running at only about half speed. Blame geopolitics, not geology. The problem with the Tengiz field, whose lead operator is the American company Chevron, is not a matter of extracting the oil. More than 100 working wells have already been successfully drilled into the scrub brush desert of western Kazakhstan, near the Caspian Sea. The challenge is getting the oil to the market. The Tengiz field, one of the world’s largest known petroleum reservoirs, is tied to a 935-mile pipeline to the Black Sea that the Russian government has declined for years to expand.
• Top Banks Paid $1.6 Billion in Excessive Bonuses, U.S. Finds. With the financial system on the verge of collapse in late 2008, a group of troubled banks doled out more than $2 billion in bonuses and other payments to their highest earners. Now, the federal authority on banker pay says that nearly 80 percent of that sum was unmerited. The group includes Wall Street giants like Goldman Sachs, JPMorgan Chase and the American International Group as well as small lenders like Boston Private Financial Holdings. Mr. Feinberg’s report points to companies that he says paid eye-popping amounts or used haphazard criteria for awarding bonuses, the people with knowledge of his findings said, and he has singled out Citigroup as the biggest offender. Even so, Mr. Feinberg has very limited power to reclaim any money. He can use his status as President Obama’s point man on pay to jawbone the companies into reimbursing the government, but he has no legal authority to claw back excessive payouts.

Zero Hedge:

• Charles Rangel Charged With Numerous Ethics Violations, Among Them Offshore Drilling Tax-Related Kickbacks.

CNNMoney:

• Oracle(ORCL) Plans to Double Acquisition Budget. Bringing on Sun Microsystems, MySQL and StorageTek may look like small potatoes when they're done.

Forbes:

• How Will The Expiring Bush Tax Cuts Affect You? Find out which expiring tax cuts might cost you money if Congress doesn't extend them.

Institutional Investor:

• The Institutionalization of the Hedge Fund Industry. The perception has long been that those who invest in hedge funds are high net-worth individuals – the very wealthy. That was largely true when hedge funds first began many years ago, but it is no longer the case. Today, investors in hedge funds are more likely to be institutions such as university endowments, charitable foundations, public and private sector pension funds and sovereign wealth funds.

Rasmussen Reports:

• 20% Favor Mosque Near Ground Zero, 54% Oppose. Just 20% of U.S. voters favor the building of an Islamic mosque near the Ground Zero site of the World Trade Center in New York City, according to a new Rasmussen Reports national telephone survey. Fifty-four percent (54%) oppose the planned building of a mosque near where Muslim terrorists brought down the skyscrapers by crashing commercial airliners into them on September 11, 2001. Three thousand people died in the incident and related attacks that day.

Politico:

• Rangel Trial Looms After Secret Talks Break Down. Thursday’s unexpected announcement that the House ethics committee would begin a trial on ethics charges leveled against Rep. Charlie Rangel (D-N.Y.) came after a secret, months-long effort to settle the case fell apart, according to several sources close to the situation. The negotiations were designed to avoid the extraordinary spectacle of a trial by his peers for Rangel, but they broke down when the parties in the discussions – Republicans and Democrats on the ethics committee, and Rangel himself – couldn’t reach an agreement. Due the sensitive nature of the discussions, no one involved in the talks wanted to openly discuss them, but the conditions for a settlement included a public apology by Rangel for his ethical transgressions in exchange for lesser sanctions against the Harlem Democrat and an end to the case. Republican aides said that Rangel faces the possibility of a formal reprimand by the House or possibly even a censure motion, although Democrats said it was premature to discuss what punishment will be recommended by the ethics committee. One source close to Rangel suggested a compromise still may be reached next week, before the opening steps in the trial get underway.
• Climate Bill Blame Game Begins. Eighteen months ago, Barack Obama took office pledging to deal with a “planet in peril.” His party held big majorities in Congress, and the House answered by passing a tough cap-and-trade bill. A massive climate conference in Copenhagen, with Obama at the center of the action, focused the world on the need to address global warming. Then came the nation’s worst-ever environmental disaster, an oil spill in the Gulf that put momentum behind environmentalists and scarred the image of big, polluting industries. Add in a summer of record-high temperatures, and it would seem the stars had been aligned like never before for climate legislation. But by Thursday, the White House’s biggest energy and environmental initiative sat in tatters, relegated to an unknown election-year abyss after Senate Majority Leader Harry Reid said he didn’t yet have 60 votes and would instead move to the lowest hanging energy fruit. The blame game has already begun.
• Hispanic GOP Group Backs Arizona Law. A group of Arizona Republicans on Wednesday became the nation’s first Latino organization to back the state’s immigration law, setting the stage for a heated, and potentially emotional, showdown within the Hispanic community. The Arizona Latino Republican Association filed in federal court a motion to intervene with the Department of Justice’s lawsuit against SB 1070, which is being heard in a Phoenix courtroom. The department is arguing that only the federal government has the authority to enact immigration laws.

USA Today:

• More Homeowners Get Help Outside of Federal Program. "They're just now aware of what's out there. They don't know about these alternative modifications," says Duran at ClearPoint Credit Counseling Solutions. "They can't sleep, they're very worried. You can hear the tiredness in their voices. It feels so good to me that we're able to get some kind of modification." Despite the attention given to the federal government's $50 billion Home Affordable Modification Program (HAMP), a program to lower monthly mortgage payments for five years, the majority of financially distressed homeowners are getting alternative modifications through their lenders without any government involvement. In 2010, servicers completed more than 800,000 alternative modifications with borrowers, according to Hope Now, a consortium of counseling agencies, servicers and investors. Since its start in spring 2009, HAMP has produced only 389,198 permanent modifications through June.

Reuters:

• Hon Hai's 2011 Laptop Shipments Seen Up Over 70%. Hon Hai (2317.TW), Taiwan's biggest electronics parts maker which also assembles PCs for top brands, could see laptop shipments rising over 70 percent next year thanks to bigger orders from HP, two analysts said.Hon Hai Precision Industry Co's laptop PC shipments to Hewlett-Packard Co (HPQ.N) would more than double next year, the analysts said on Friday."Their total (laptop) shipments could reach about 10-12 million units this year. Next year, they should be up more than 70 percent to 20 million, mainly thanks to orders from HP," said one analyst at a local brokerage, who declined to be identified.
• SanDisk(SNDK) CEO to Retire at End of 2010, Shares Fall. SanDisk Corp (SNDK) said its co-founder and Chief Executive, Eli Harari, would retire at the end of this year, and a disappointing outlook helped send the shares of the flash memory supplier tumbling 8 percent.
• US House Sets China Currency Hearing for September. Democratic leaders in the U.S. House of Representative said on Thursday they will wait until at least September before taking any action on legislation to force China to revalue its currency.

Evening Recommendations
Citigroup:

• Reiterated Buy on (AMZN), target $165.
• Reiterated Buy on (AXP), target $55.
  
• Reiterated Buy on (DO), target $74.
  

Night Trading

• Asian equity indices are +.50% to +1.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 121.0 -5.5 basis points.
• Asia Pacific Sovereign CDS Index 119.0 -2.5 basis points.
  
• S&P 500 futures +.24%.
  
• NASDAQ 100 futures +.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (VZ)/.56
• (TROW)/.61
• (SNA)/.75
• (SLB)/.68
• (R)/.49
• (MHP)/.61
• (MCD)/1.12
• (KMB)/1.13
• (JCI)/.55
• (IR)/.72
• (IDXX)/.61
• (HON)/.57
• (F)/.40
• (ASH)/1.13
  

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The EU bank stress test results and the (FLEX) annual general meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by technology and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.