Monday Watch

Weekend Headlines
Bloomberg:

• Economic Growth Prospects Dim in U.S. After Retail Sales, Trade Reports. Prospects for U.S. economic growth took a hit this week after reports showed the trade deficit swelled and consumers reined in spending. Economists at Morgan Stanley reduced their estimate for third-quarter consumer spending following a report showing retail sales rose less than forecast in July. A record jump in the trade gap for June capped figures that indicated the world’s biggest economy grew at least a percentage point less than the 2.4 percent pace the government estimated last month.
  
• Google(GOOG) Leads Revival in Commercial Paper as Rates Tumble: Credit Markets. Google Inc., owner of the most popular Internet search engine, and Germany’s Merck KGaA are leading a revival in commercial paper as nonfinancial companies grab the biggest share of the $1.1 trillion U.S. market from banks since 2002 amid lower borrowing costs. Industrial borrowers have $151 billion of debt typically due in 270 days or less, up 47 percent this year and 14 percent of the total outstanding, seasonally adjusted Federal Reserve data show.
• Crude Oil Drops to 1-Month Low After Retail Sales Fall Short of Estimates. Crude oil fell, capping its worst week in six, after sales at U.S. retailers rose less than forecast in July, a sign that economic growth is slowing. Oil dropped to a one-month low as a lack of jobs prompted Americans to hold back on spending, according to figures from the Commerce Department. U.S. gasoline inventories increased for a seventh week last week, the government said on Aug. 11. “The economic picture is unsettled,” said Gene McGillian, an analyst and broker at Tradition Energy, a procurement adviser in Stamford, Connecticut. “The fundamentals are weak, with high inventories and weak demand, so the market has a hard time holding above $80.” Oil supplies were 8.1 percent above the five-year average last week, according to the Energy Department. Rigs exploring for and producing oil climbed by 25 to 636, the highest level since January 1991. Demand for gasoline fell 2.5 percent to 9.24 million barrels a day last week, the Energy Department reported. Crude oil ended the week below its 200-week moving average for the first time since the seven days ended July 16, a technical indicator that prices will extend declines.
• Afghanistan Says It Located 1.8 Billion-Barrel Oilfield in Nation's North. Afghanistan discovered an oilfield containing an estimated 1.8 billion barrels of crude in the north of the country, a Mines Ministry official said. If proven, the resource would be more than 10 times the size of the country’s oil reserves, assessed at more than 150 million barrels by the U.S. Geological Survey. “A huge oil resource, which looks like a triangle, with an estimated 1.8 billion barrels of oil, has been discovered by Afghan geologists in cooperation with international geologists between Balkh and Sheberghan provinces,” Jawad Omar, a spokesman for the ministry, said in a phone interview today from the capital, Kabul.
• Ban Says Pakistan Floods are Worst Natural Disaster as 20 Million Uprooted. United Nations Secretary-General Ban Ki-moon said devastation caused by unprecedented flooding in Pakistan was among the worst he had ever seen, as he promised more relief funds for those who have lost homes and farms. “This has been a heart-wrenching day for me,” Ban said yesterday at a press conference with Pakistani President Asif Ali Zardari. “I will never forget the destruction and suffering I have witnessed today. In the past, I have witnessed many natural disasters around the world, but nothing like this.”
• California City With $800,000 Manager Raised Taxes Improperly. The California city whose chief administrator was paid $800,000 a year improperly increased local property taxes to cover pension costs, the state’s controller said. The City Council in Bell, a Los Angeles suburb where poverty affects more than one in four, in 2007 raised property- tax rates higher than allowed by law, state Controller John Chiang said today in a statement. The extra tax cost residents as much as much $3 million above what they owed, he said.
• Watson's(WPI) Morning-After Pill Wins U.S. FDA Approval. Watson Pharmaceuticals Inc. and HRA Pharma won U.S. approval for an emergency contraceptive that women can take up to five days after sex and will compete with Teva Pharmaceutical Industries Ltd.’s Plan B morning-after pill. Watson will start selling the pill, to be called Ella, in the final three months of this year, the Corona, California- based company said today in a statement. The drug will be dispensed as a single dose and requires a prescription.
• Goldman Sachs(GS) Chief Blankfein Reaps $6.1 Million From Exercising Options. Lloyd C. Blankfein, Goldman Sachs Group Inc.’s chairman and chief executive officer, made $6.1 million by exercising options granted to him in 2000 that were due to expire in November. The options allowed Blankfein, 55, to buy 90,681 shares for $82.875 apiece and sell them at prices ranging from $148.97 to $152 each on Aug. 11, according to a filing yesterday with the Securities and Exchange Commission. Gary D. Cohn, Goldman Sachs’s president, made a $4.95 million profit by exercising 73,653 options and David A. Viniar, the chief financial officer, reaped $4.52 million by exercising 67,326 options, separate filings showed.
• Kaine Says Democrats to Spend Record $50 Million on Elections. The Democratic National Committee, facing an “uphill” fight to keep its party in control of Congress, plans to spend a record $50 million on this year’s election campaigns, said Chairman Tim Kaine.
• Petraeus Says U.S.'s July 2011 Troop Pullout From Afghanistan May Change. General David Petraeus said the July 2011 deadline for the withdrawal of troops from Afghanistan is “conditions based” and could change depending on his assessment of progress.
• Goldman Sachs(GS) Undercuts Rivals in General Motors IPO as It Loses Top Role. Wall Street banks led by JPMorgan Chase & Co.(JPM) and Morgan Stanley(MS) stand to make a combined $120 million on General Motors Co.’s initial public offering. If it weren’t for Goldman Sachs Group Inc., they could have made four times as much.

Wall Street Journal:

• Bank of America(BAC) Has BlackRock(BLK) Stake On Its Mind. Bank of America Corp. has concluded that its 34% share of BlackRock Inc. isn't a core asset and is weighing a possible reduction of its holdings in the influential New York asset manager, said people familiar with the situation.
• 'Super Angels' Alight. Much of the venture-capital industry is undergoing a shakeout. But a growing breed of start-up investors dubbed "super angels" is rapidly raising new money—and ratcheting up competition with established venture capitalists in the process.
• Another Threat to Economy: Boomers Cutting Back. America's baby boomers—those born between 1946 and 1964—face a problem that could weigh on the economy for years to come: The longer it takes for the economy to recover, the less money they'll have to spend in retirement.
• White House Under Fire for Unspent Infrastructure Cash. The Obama administration has paid out less than a third of the nearly $230 billion allocated to big infrastructure projects in the economic-stimulus program. Now Republicans are zeroing in on the unspent stimulus money in fresh attacks on the administration's economic policy.
• The End of American Optimism by Mortimer Zuckerman. Our brief national encounter with optimism is now well and truly over. We have had the greatest fiscal and monetary stimulus in modern times. We have had a whole series of programs to pay people to buy cars, purchase homes, pay off their mortgages, weatherize their homes, and install solar paneling on their roofs. Yet the recovery remains feeble and the aftershocks of the post-bubble credit collapse are ongoing.
• The Fed Can't Solve Our Economic Woes.
  

CNBC:

• Japan's Growth Slows Down Sharply Amid Yen Worries. Japan's economic growth slowed markedly in April-June and analysts predict further slowdown, adding to policymakers' difficulties as they grapple with deflation and a rise in the yen that threatens an export-reliant recovery. Slowing growth in Japan's key export destinations such as the United States and China clouds the outlook, while policymakers step up efforts to talk down the yen after it surged to a 15-year high against the dollar this month of 84.72 per dollar. "I think the Bank of Japan and the government need to take decisive action against currency moves. Solo currency intervention is possible if the yen approaches 80 to the dollar. If that is accompanied by monetary easing by the Bank of Japan, it may have a certain effect," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. The quarterly expansion of 0.1 percent in gross domestic product (GDP) translates into an annualised growth of 0.4 percent, well below the median market forecast of 2.3 percent annualised growth and much less than the 2.4 percent annualised growth in the United States in the same quarter.
• The Real Reason for Ousting HP's(HPQ) Chief.
  

IBD:

• Modular Storage Gains as Demands Grow for Video and Graphics. These are some of the lessons Seattle-based Isilon Systems (ISLN) has learned well over the last couple of years.

NY Times:

• Workers Let Go by China's Banks Putting Up Fight. A few days after the Agricultural Bank went public, dozens of former bank employees stealthily gathered outside the headquarters of the country’s central bank. There, after distributing small Chinese flags, they quickly pulled on red and blue T-shirts that read, “Protect the Rights of Downsized Bank Workers.” By the time they unfurled their protest banners, the game was over. Within minutes, a flock of police officers had swept everyone into five waiting public buses. By 8 a.m., when the People’s Bank of China opened its doors for business, the only sign of the rally was a strand of police tape. During the past two years, these unlikely agitators — conservatively attired but fiercely determined — have staged similar public protests in Beijing and provincial cities. They have stormed branch offices to mount sit-ins. A few of the more foolhardy have met at Tiananmen Square to distribute fliers before plainclothes police officers snatched them away. Strategizing via online message boards and text messages, they speak in code and frequently change cellphone numbers. Their acts of defiance are never mentioned in state-run news media.

Business Insider:

• Happy Birthday, Social Security: Now Here's 22 Scary Facts About America's Pension Crisis.
• Not Only Did Harvard Dump Its Israel ETF, It Opened a New Position in a Turkish ETF. Bear in mind that the infamous flotilla incident happened in Q2. Just saying.
• Latest Harvard Filing Shows Total Divestment of Israeli Stocks. For years, activists professors and students at Harvard have urged the university to divest itself of any investments in Israel, in protest of the nation's policies towards the Palestinians. So has the university finally given in? Globes Online reports:
• Ireland Goes To Market With New Bond Sale This Week, As Spreads Hit New High.
• Sorry, Microsoft(MSFT), Intel(INTC), And GE(GE) - It's Startups That Create Most of the Jobs. It's time for big companies to get over themselves.
  

Zero Hedge:

• The Dodd-Frank Wall Street Reform and Consumer Protection Act: The Triumph of Crony Capitalism. (part 3)
• More Details on the Structured Notes Bubble.
  

MercuryNews.com:

• Apple(AAPL) Manager Arrested in Kickback Scheme. A mid-level Apple manager was arrested and accused of accepting more than $1 million in kickbacks from half a dozen Asian suppliers of iPhone and iPod accessories, according to a federal indictment unsealed Friday and a separate civil suit. Paul Shin Devine, a global supply manager, and Andrew Ang, of Singapore, were named in a 23-count federal grand jury indictment for wire fraud, money laundering and kickbacks.

GuruFocus.com:

• Hedge Fund Duquesne Capital Buys Wells Fargo(WFC), Apple Inc.(AAPL), Akamai Technologies(AKAM), PPL Corp.(PPL), Sells Nike(NKE), Northeast Utilities(NU).

The New York Review of Books:

• Good-Bye to Dubai.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 26% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).
• 14% Say Job Market Better Than Year, Ago, 46% Says Worse.
  

Politico:

• Mosque Flap Swirls Around Obama. The White House on Saturday struggled to tamp down the controversy over President Barack Obama’s statements about a mosque near ground zero — insisting Obama wasn’t backing off remarks Friday night when he offered support for a project that has infuriated some families whose loved ones died in the Sept. 11 attacks. Obama’s comments placed him in the middle of the controversy over a Muslim group’s plans for a mosque near the site of the 2001 attack — and in turn, transformed an emotion-laden local dispute in New York into a nationwide debate overnight. Republicans pounced, amid early signs that the issue would seep into some state and congressional contests. “It is divisive and disrespectful to build a mosque next to the site where 3,000 innocent people were murdered at the hands of Islamic extremism,” said Florida GOP Senate candidate Marco Rubio. His opponent, Gov. Charlie Crist, a Republican-turned-independent, came out in support of Obama’s comments. And Democrats — at least those who were willing to comment — could barely contain their frustration over Obama’s remarks, saying he had potentially placed every one of their candidates in the middle of the debate by giving GOP candidates a chance to ask them point-blank: Do you agree with Obama on the mosque? That could be particularly damaging to moderate Democrats in conservative-leaning districts, already 2010’s most vulnerable contenders. “I would prefer the president be a little more of a politician and a little less of a college professor,” former Rep. Martin Frost (D-Texas), who once ran the House Democratic campaign arm, wrote in POLITICO’s Arena.
• S.C. Dems Likely Stuck With Greene. Democrats have been gloating over the unorthodox Republican candidates around the country this year but one of their own broke back into the headlines Friday — Alvin Greene of South Carolina, indicted on a felony pornography charge. And there doesn’t seem to be anything Democrats can do about it.

AP:

• WikiLeaks Says It Won't Be Threatened by Pentagon. WikiLeaks will publish its remaining 15,000 Afghan war documents within a month, despite warnings from the U.S. government, the organization's founder said Saturday. The Pentagon has said that secret information will be even more damaging to security and risk more lives than WikiLeaks' initial release of some 76,000 war documents. "This organization will not be threatened by the Pentagon or any other group," Julian Assange told reporters in Stockholm.

Financial Times:

• US Banks Get Securities Buy-Back Window. The Dodd-Frank financial reform bill has opened a 90-day window for banks to buy back $118bn (€92bn) in high-cost securities, a move that would enable them to replace the instruments with cheaper capital but is likely to cause tensions with regulators and investors. Wall Street executives and lawyers say several banks are considering redeeming “trust preferred securities” (Trups) – a hybrid of debt and equity – by taking advantage of a clause triggered by the new rules.

Telegraph:

• Prison Doctor Who Played Key Role in Release of the Lockerbie Bomber Had No Specialist Cancer Knowledge. Dr Peter Kay, who had until recently only been identified by the Scottish Government as an unnamed "primary care physician" of Abdelbaset Ali Mohmed al-Megrahi's, provided a crucial medical report which led to the conclusion that the prisoner was likely to have three months, or less, to live. The life expectancy of Megrahi was crucial because, under Scottish rules, prisoners can be freed on compassionate grounds only if they are considered to have this amount of time or less to live. This Friday will be the anniversary of Megrahi's release prompting celebrations across Libya in which he will be feted as a national hero. The fact that Megrahi has lived so long in Libya has incensed many of the relatives of those who died in the bombing in December 1988 when Pan Am Flight 103 exploded in mid air over Lockerbie, Scotland, killing 243 passengers, 16 crew and 11 people on the ground.
• US and China to Clash Over Yuan Fall. China is on a collision course with Washington after steering its currency sharply lower to protect its export industries, despite a near record trade surplus of $29bn (£19bn) in July. The yuan dropped at the fastest pace in almost two years last week and is now 1.8pc lower against a basket of currencies than in June, when Beijing announced the end to its fixed peg against the dollar. Western economists had seen yuan liberalisation as a sign that China is abandoning its mercantilist policy in a step-by-step move towards a floating currency, which was expected to rise. They misjudged China's motives badly.

Economic Daily News:

• Asustek Computer Inc. reduced its forecast for 2010 shipments of notebook computers to between 16 million and 17 million, from the 18 million earlier expected, citing President Jerry Shen.
• Taiwan Semiconductor Manufacturing Co. may cut the prices of chips made by 40-nanometer technology.
  

Economic Observer:

• China has started a more expansive round of checks into the financing arms of local governments. China's Ministry of Finance, the National Development and Reform Commission, the People's Bank of China and China Banking Regulatory Commission have ordered their local offices to continue a "clean up" of the financing vehicles. A joint report will be submitted by the end of October.

Shanghai Securities News:

• The China Banking Regulatory Commission is currently coordinating with the Ministry of Housing and Urban-Rural Development on compiling a list of property developers that are hoarding apartments, citing a personal familiar with the situation. The list would help banks to gain a better grasp of risks when making loans.

Weekend Recommendations
Barron's:

• Made positive comments on (CSTR), (GOOG), (KO), (DIS), (MCK) and (JCI).

Citigroup:

• Reiterated Buy on (DE), boosted estimates, raised target to $75.

Night Trading

• Asian indices are -.75% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 122.50 +.5 basis point.
• Asia Pacific Sovereign CDS Index 117.75 +4.25 basis points.
• S&P 500 futures +.10%.
• NASDAQ 100 futures +.18%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (URBN)/.39
• (A)/.47
• (SYY)/.58
• (LOW)/.58

Economic Releases
8:30 am EST

• Empire Manufacturing for August is estimated to rise to 8.3 versus a reading of 5.08 in July.

9:00 am EST

• Net Long-Term TIC Flows for June are estimated to rise to $45.7 Billion versus $35.4 Billion in May.

10:00 am EST

• The NAHB Housing Market Index for August is estimated to rise to 15.0 versus a reading of 14.0 in July.

Upcoming Splits

• (JOSB) 3-for-2
  

Other Potential Market Movers

• None of note
  

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

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on more shorting, rising financial sector pessimism, increasing economic fear, greater sovereign debt angst, china concerns and technical selling. My intermediate-term trading indicators are giving mixed signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,079.25 -3.78%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,079.25 -3.78%
  
• DJIA 10,303.15 -3.29%
  
• NASDAQ 2,173.48 -5.02%
  
• Russell 2000 609.49 -6.33%
  
• Wilshire 5000 11,093.23 -4.06%
  
• Russell 1000 Growth 479.69 -4.14%
  
• Russell 1000 Value 554.90 -3.61%
  
• Morgan Stanley Consumer 669.89 -2.48%
  
• Morgan Stanley Cyclical 826.47 -5.55%
• Morgan Stanley Technology 529.64 -5.85%
  
• Transports 4,201.81 -5.73%
  
• Utilities 387.70 -1.53%
  
• MSCI Emerging Markets 40.69 -3.20%
  
• Lyxor L/S Equity Long Bias Index 971.02 +.08%
  
• Lyxor L/S Equity Variable Bias Index 851.27 -.18%
  
• Lyxor L/S Equity Short Bias Index 847.06 -.75%
  

Sentiment/Internals

• NYSE Cumulative A/D Line +92,422 -3.14%
  
• Bloomberg New Highs-Lows Index -281 -384
  
• Bloomberg Crude Oil % Bulls 17.0 -34.62%
  
• CFTC Oil Net Speculative Position +60,336 +8.37%
  
• CFTC Oil Total Open Interest 1,274,605 +3.24%
  
• Total Put/Call .98 +5.38%
  
• OEX Put/Call .79 -27.52%
  
• ISE Sentiment 68.0 -30.61%
  
• NYSE Arms 1.19 -26.54%
  
• Volatility(VIX) 26.24 +20.70%
  
• G7 Currency Volatility (VXY) 12.32 +4.38%
  
• Smart Money Flow Index 9,028.17 +.50%
  
• Money Mkt Mutual Fund Assets $2.822 Trillion +.1%
  
• AAII % Bulls 39.76 +30.83%
  
• AAII % Bears 30.12 -21.23%
  

Futures Spot Prices

• CRB Index 268.79 -2.15%
  
• Crude Oil 75.39 -6.52%
  
• Reformulated Gasoline 193.96 -7.92%
  
• Natural Gas 4.33 -3.46%
  
• Heating Oil 199.56 -6.92%
  
• Gold 1,216.60 +.79%
  
• Bloomberg Base Metals 207.21 -3.07%
  
• Copper 327.25 -3.21%
  
• US No. 1 Heavy Melt Scrap Steel 296.67 USD/Ton -11.13%
  
• China Hot Rolled Domestic Steel Sheet 4,252 Yuan/Ton +.28%
• S&P GSCI Agriculture 376.23 +3.13%
  

Economy

• ECRI Weekly Leading Economic Index 122.40 +.58%
  
• Citi US Economic Surprise Index -57.40 -24.5 points
  
• Fed Fund Futures imply 66.0% chance of no change, 34.0% chance of 25 basis point cut on 9/21
• US Dollar Index 82.92 +3.15%
  
• Yield Curve 214.0 -17 basis points
  
• 10-Year US Treasury Yield 2.67% -15 basis points
  
• Federal Reserve's Balance Sheet $2.310 Trillion +.05%
  
• U.S. Sovereign Debt Credit Default Swap 48.14 +23.97%
• U.S. Municipal CDS Index 222.93 +6.95%
  
• Western Europe Sovereign Debt Credit Default Swap Index 136.77 +13.86%
  
• 10-Year TIPS Spread 1.65% -13 basis points
  
• TED Spread 22.0 -5 basis points
  
• N. America Investment Grade Credit Default Swap Index 107.98 +3.97%
  
• Euro Financial Sector Credit Default Swap Index 114.73 +13.08%
  
• Emerging Markets Credit Default Swap Index 228.49 +8.16%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 275.0 +23 basis points
  
• M1 Money Supply $1.737 Trillion +.60%
• Business Loans 604.80 +1.66%
  
• 4-Week Moving Average of Jobless Claims 473,500 +3.1%
  
• Continuing Claims Unemployment Rate 3.5% -10 basis points
  
• Average 30-Year Mortgage Rate 4.44% -5 basis points
  
• Weekly Mortgage Applications 734.30 +.56%
  
• ABC Consumer Confidence -47 +3 points
  
• Weekly Retail Sales +3.0% +10 basis points
  
• Nationwide Gas $2.77/gallon -.01
  
• U.S. Cooling Demand Next 7 Days 25.0% above normal
• Baltic Dry Index 2,437 +23.20%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 40.0 -5.88%
  
• Rail Freight Carloads 231,208 -.72%
  
• Iraqi 2028 Government Bonds 85.65 +.86%
  

Best Performing Style

• Large-Cap Value -3.61%

Worst Performing Style

• Small-Cap Growth -6.35%

Leading Sectors

• Telecom +.44%
• Food -.70%
• Gold -.80%
• Drugs -1.17%
• Airlines -1.53%

Lagging Sectors

• Coal -7.08%
• Alternative Energy -7.66%
• Disk Drives -8.37%
  
• Semis -8.59%
• Education -9.61%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Lower into Final Hour on Eurozone Debt Worries, Rising Economic Fears, China Concerns, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 25.86 +.51%
  
• ISE Sentiment Index 67.0 -44.63%
  
• Total Put/Call .97 -2.02%
  
• NYSE Arms 1.01 -17.09%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 107.98 bps -2.39%
  
• European Financial Sector CDS Index 115.66 bps -1.0%
  
• Western Europe Sovereign Debt CDS Index 136.0 bps -.72%
  
• Emerging Market CDS Index 225.81 bps -.29%
  
• 2-Year Swap Spread 20.0 +1 bp
  
• TED Spread 22.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .14% unch.
  
• Yield Curve 215.0 -4 bps
  
• China Import Iron Ore Spot $148.30/Metric Tonne unch.
  
• Citi US Economic Surprise Index -57.40 -1.3 points
  
• 10-Year TIPS Spread 1.65% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -28 open in Japan
• DAX Futures: Indicating +13 open in Germany

Portfolio:

• Slightly Higher: On gains in my Tech and Ag long positions
  
• Disclosed Trades: None
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 is trading lower, below its 50-day moving average, despite a bounce in Asian equities and positive economic data from Germany. On the positive side, Airline, Gaming, Computer and Paper stocks are especially strong, rising .75%+. The S&P GSCI Ag Spot Index is rising another +.5%. The Libor-OIS and TED spreads continue to trend lower. Tech shares are trading somewhat better today. On the negative side, Education, Alt Energy, Gold, Wireless and I-Banking shares are especially weak, falling .75%+. Small-caps have underperformed throughout the day. Some key stocks are trading poorly. The UK sovereign cds is up +8.6% today and has risen +22.8% over the last five days to 71.59 bps. Moreover, the Greece sovereign cds is rising +3.0% today to 841.80 bps. The 10-year yield is falling -7 bps, back near Wed.'s lows, to 2.68%. Copper is also falling -1.0% today and the euro continues to trade poorly despite its recent sell-off and Germany's positive economic data. With volume so light, it is hard to read too much into today's action, but the averages still feel a bit heavy and trading is very sloppy. I will wait to see the market's reaction to Monday's economic data before further shifting market exposure. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, rising economic fear, sovereign debt concerns, technical selling and China worries.

Today's Headlines

Bloomberg:

• Spanish Bonds Fall on Economy Concern; Bunds Yield Record Low. Spanish bonds fell and the extra yield investors demand for holding Greek debt instead of German bunds rose to the most since May on concern flagging growth in nations on Europe’s periphery will crimp the region’s recovery. The yield on the Spanish 10-year bond climbed six basis points to 4.27 percent as of 4:20 p.m. in London. The extra yield, or spread, investors demand to hold Greek 10-year securities instead of equivalent-maturity German debt, Europe’s benchmark, rose 13 basis points to 810 basis points. That’s the most since May 7, before the European Union announced a 750 billion-euro financial backstop for the region’s most indebted nations. The yield on the bund fell three basis points to 2.39 percent, after earlier sliding to 2.37 percent, the lowest since Bloomberg began compiling this data in 1989. “The divergence suggests this is a two-speed economy, and that raises questions about sustainability of German economic growth going forward,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. The drag from “austerity measures will kick in at some point. Rates in the core bond market should remain subdued.”
• Corn, Soybean Futures Rise as Heat May Cut Yields in U.S. Corn and soybeans rose on speculation that a heat wave in the U.S. will cut yields of crops projected to be the biggest ever. Corn futures for December delivery rose 6.75 cents, or 1.6 percent, to $4.285 a bushel at 10:32 a.m. on the Chicago Board of Trade, heading for a third straight weekly gain. Before today, the commodity advanced 23 percent since June 29, the day before the government said farmers planted less this year than they had planned. Soybean futures for November delivery climbed 12.75 cents, or 1.2 percent, to $10.4125 a bushel in Chicago. The most-active contract was up 0.8 percent for the week, after rising 5.2 percent the prior two weeks.
• Washington Post Shorts at 19-Year Highs as Bears Take on Buffett. Bets against shares of Washington Post Co. have increased to the highest level since at least 1991, as the federal government considers rules that could reduce revenue at its Kaplan education unit. Short interest in Post Co. rose to 386,917 shares as of July 30, up nearly three-fold this year, according to New York Stock Exchange data compiled by Bloomberg. It’s the highest level since September 1991, the earliest data in Bloomberg’s database.
• Blackstone(BX) to Buy Dynegy for More Than $540 Million. agreed to acquire Blackstone Group LPDynegy Inc., the Texas power producer that lost 94 percent of its market value in the past three years, for more than $540 million.
• Heebner Fund Exits Investment Banks, Mining Companies. Kenneth Heebner’s Capital Growth Management LP sold stakes in Goldman Sachs Group Inc. and Morgan Stanley and exited its biggest mining holdings during the second quarter, according to a regulatory filing. The firm, based in Boston, sold miners Freeport-McMoran Copper & Gold Inc., Teck Resources Ltd. and Cliff Natural Resources Inc. during the quarter, according to a document filed with the U.S. Securities and Exchange Commission today. The firm’s biggest new purchase was 5.2 million shares of SanDisk Corp., the largest maker of flash-memory cards for digital cameras and phone.
• Hoenig Says Fed Zero-Rate Policy Fans Recovery Doubts. The Federal Reserve’s commitment to keep its target interest rate near zero may backfire by fanning doubts the recovery can be sustained, Kansas City Fed President Thomas Hoenig said. “If in an attempt to add further fuel to the recovery, a zero interest rate is continued, it is as likely to be a negative as a positive in that it brings its own unintended consequences and uncertainty,” Hoenig said today in a speech in Lincoln, Nebraska. Keeping the rate after a year of expansion “gives legitimacy to questions about the sustainability of growth.”
• Iran's Bushehr Nuclear Plant to Start Up Aug. 21. Iran’s first nuclear power plant will start operating Aug. 21, with electricity generation to begin “several months later,” said Rosatom Corp., the Russian state nuclear holding company building the facility. “On the 21st, nuclear fuel will be delivered to the reactor storage facility and from that moment on the plant can be certified as a nuclear power installation,” Rosatom spokesman Sergei Novikov said by phone in Moscow.
• PayPal Said to Talk With Google(GOOG) About Handling Android Payments.
  

Wall Street Journal:

• Rosenberg: Odds of Double Dip Higher Than 50/50.
• Stabbing-Spree Suspect Agrees to Return to Michigan. The suspect in a three-state stabbing spree that left five people dead and 13 others wounded agreed Friday to return to Michigan to face charges in one of the attacks. Elias Abuelazam, 33, was arrested Wednesday night in Atlanta before a flight to Israel, his native country, and charged with attempted murder in a July 27 knife strike in Flint that put the victim in a hospital for a week.

CNBC:

• Would Cutting Corporate Taxes Jumpstart US Economy?
• Stolen Innocence: Theft of Children's Identity Rising.
  

NY Times:

• China to Build State-Run Search Engine. In an apparent bid to extend its control over the Internet and cash in on the rapid growth of mobile devices, China plans to create its own government-controlled search engine. The new venture would be fresh competition for Baidu.com(BIDU), a private company that runs China’s dominant search engine. Baidu has seen its market share grow since Google retreated from the mainland earlier this year.

Business Insider:

• 10 Monster Bubbles Currently in the Making.

Zero Hedge:

• One Possible Explanation for the Plunging Euro: Pension Accounting Change to Impact European Deficit Calculations.

LA Times:

• News Corp.(NWS) Plans National Newspaper for Tablet Computers and Cellphones. It's the latest bid by a major media company to build readership using new devices such as the iPad. The new publication would offer short, snappy stories and operate under the auspices of the New York Post.

Politico:

• Greene Indicted on Porn Charge. South Carolina Democratic Senate nominee Alvin Greene was indicted Friday on felony charges of showing pornography to a college student. Greene, an unemployed 32-year-old military veteran, had refused to discuss the charges, which surfaced after he was the surprise winner of the state’s June Democratic primary over better-known Charleston City Councilman Vic Rawl.

USA Today:

• More Receiving Top Secret Clearance From FBI For Terrorism Cases. More state and local law enforcement officers are getting top-secret clearances from the FBI to access sensitive federal information in terrorism cases than at anytime since the Sept. 11 attacks, a USA TODAY review of bureau records shows. Clearances granted to members of the FBI's network of regional terrorism task forces jumped to 878 in 2009, up from 125 in 2007, signaling intensified attention to domestic terror threats.

Reuters:

• Hedge Funds Short Banks After Stress Tests, Results. Hedge funds have started shorting bank stocks again on concerns last month's stress tests were too weak and failed to reveal underlying problems, although many are cautious of taking big bets in such choppy markets. A wave of what some commentators have seen as good news, including a bumper earnings season, an easing of capital reforms and relatively few failures of the high-profile stress tests, have lifted banks' shares, creating an opportunity for short-sellers betting prices will fall. "Some funds have started to put on shorts again after the strong rally," said Ken Kinsey-Quick, who runs funds of hedge funds at Thames River Capital. "(Managers believe that) until they (the banks) come clean they'll be hugely volatile and remain sick for years to come. They're still sitting with a lot of loans that are not performing." Hedge fund Noster Capital has begun shorting five European banks -- Barclays (BARC.L), UBS (UBSN.VX), Intesa SanPaolo (ISP.MI), UBI (UBI.MI) and BBVA (BBVA.MC). Manager Pedro de Noronha criticized the tests for ignoring sovereign debt that banks hold to maturity.
• US Economic Growth Gauge Rises to 9-Week High - ECRI.
  

Cinco Dias:

• Spain may implement additional austerity measures if it fails to meet its budget deficit targets, citing Deputy Finance Minister Jose Manuel Campa.

China National Radio:

• Chinese Vice Premier Li Keqiang said in Beijing today that measures to tackle property speculation will be kept in place. The supply of affordable housing should be sped up, he said.