Stocks Slightly Lower into Final Hour on Euro Weakness, Rising Global Growth Fears, Rising Food Prices, US Fiscal Cliff Concerns

Broad Market Tone:

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

Equity Investor Angst:

• VIX 15.34 +.13%
  
• ISE Sentiment Index 154.0 +31.52%
  
• Total Put/Call .86 +7.50%
  
• NYSE Arms .66 -3.79%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 102.99 bps +.17%
  
• European Financial Sector CDS Index 242.98 bps -1.26%
  
• Western Europe Sovereign Debt CDS Index 241.96 -1.86%
  
• Emerging Market CDS Index 247.39 +.87%
  
• 2-Year Swap Spread 20.75 +1.25 basis point
  
• TED Spread 32.50 -.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -34.50 +2.5 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .11% unch.
  
• Yield Curve 142.0 +5 basis points
  
• China Import Iron Ore Spot $114.80/Metric Tonne -.09%
  
• Citi US Economic Surprise Index -21.30 +12.2 points
  
• 10-Year TIPS Spread 2.29 +10 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -17 open in Japan
• DAX Futures: Indicating -11 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Retail and Tech sector longs
  
• Disclosed Trades: None
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 hugs the flatline despite eurozone debt angst, high food/energy prices, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Coal, Networking, I-Banking and Homebuilding shares are especially strong, rising more than +1.0%. Tech shares have traded well throughout the day. The 10Y Yld is gaining +4 bps to 1.69%. Major Asian indices were mostly higher overnight, led by a +2.0% gain in South Korea. The Bloomberg European Bank/Financial Services Index is gaining +.6%. The Germany sovereign cds is falling -2.4% to 64.78 bps, the France sovereign cds is falling -2.1% to 143.96 bps, the Spain sovereign cds is down -3.1% to 501.49 bps and the Italy sovereign cds is down -3.8% to 440.15 bps. On the negative side, Computer Service, Medical, Drug, REIT, Restaurant, Gaming, Airline and Road & Rail shares are lower on the day. The Transports continue to trade poorly as they sit out the recent broad market rally. The UBS-Bloomberg Ag Spot Index is gaining +.61% and Gold is up +.3%. Major European indices are mostly lower today, led down by a -.6% decline in Spain. The Russia sovereign cds is jumping +3.3% to 167.70 bps and the Brazil sovereign cds is gaining +1.6% to 126.50 bps. Moreover, the Emerging Markets Sovereign CDS Index is gaining +2.1% to 236.96 bps. The record -27.9% plunge in India Capital Goods Output is another big red flag for a key emerging markets economy. The UBS/Bloomberg Ag Spot Index is up +25.6% in about 9 weeks. The benchmark China Iron/Ore Spot Index is down -36.6% since 9/7/11. Moreover, the China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +2.0%. US Trucking Traffic continues to soften. Lumber is -12.0% since its Sept. 9th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has declined for 4 straight weeks and has been around the same level since May 2010 despite investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -60.0% from its Oct. 14th high and is now down around -50.0% ytd. Shanghai Copper Inventories have risen +74.0% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 22.50 industry-standard worldscale points, which is the lowest since May, 2009. The CRB Commodities Index is now down -17.3% since May 2nd of last year despite the recent surge in food/energy prices. The 10Y T-Note continues to trade too well, despite recent weakness. The AAII % Bulls jumped to 36.5 this week, while the % Bears fell to 27.3. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will destroy its own balance sheet to save the euro even as investors have been pricing this outcome into stocks. The Citi Eurozone Economic Surprise Index is at -67.90 points, which is near the lowest since mid-Sept. of last year. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff" and the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. Little if anything being discussed by global central bankers will actually boost global economic growth in any meaningful way over the intermediate-term, in my opinion. The odds of imminent QE3, which were already lower than perceived in my opinion, are likely plummeting with the recent surge in stock prices, inflation expectations, worrisome food crisis headlines and less pessimistic US economic data. Thus, recent market p/e multiple expansion on global central bank stimulus hopes, is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower food/energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on eurozone debt angst, profit-taking, more shorting, technical selling, high food/energy prices, earnings worries, US "fiscal cliff" concerns and rising global growth fears.

Today's Headlines

Bloomberg:

• Goldman Sachs(GS) Cut Italian Debt Position 92% in Second Quarter. Goldman Sachs Group Inc., the fifth- biggest U.S. bank by assets, cut its holdings of Italian sovereign debt by 92 percent in the second quarter after boosting them in the first three months of the year. “Market exposure” to Italian government bonds fell to $191 million at the end of June from $2.51 billion at the end of March, the New York-based firm said in a quarterly regulatory filing today. Goldman Sachs also increased its credit-derivative positions on Italy in the quarter, pushing its total market exposure to Italian government and non-government securities to negative $977 million from positive $2.4 billion in March. Goldman Sachs discloses the firm’s credit and market stance for Italy, Greece, Ireland, Portugal and Spain each quarter because those five countries are viewed by investors as Europe’s riskiest. The filing today showed that the firm’s total market exposure to the five countries also swung to a negative $977 million as of June from a positive $2.68 billion three months earlier as the bank reduced its position in bonds and stocks and purchased more credit derivatives.
• Monti’s Cabinet Held Discussions on Possible Bond-Buying. Prime Minister Mario Monti’s Cabinet held discussions on a possible request for the euro-region’s bailout funds to buy Italian bonds and doesn’t expect the country to be subject to additional conditions in return for aid, a government minister said. “We still have some time to discuss it; we will see what the conditions will be,” Education Minister Francesco Profumo said in an interview today in Rome, when asked whether Italy would make a request in September. “We have a profound understanding and I believe we have the instruments to take decisions.”
• Pimco Says Capital Flows Signaling New Storms Threatening Europe. Capital has begun flowing out of the countries sharing the euro signaling “another storm” may be about to break, according to Thomas Kressin of Pacific Investment Management Co., which manages the world’s biggest bond fund. The euro lost 5 percent of its value since the beginning of May, on a trade weighted basis, and about 8 percent against the dollar, according to Kressin, head of European foreign exchange at Pimco in Munich. That contrasts with earlier crisis periods when the euro held steady as capital flowed from peripheral nations into the core, Kressin said in a posting on the company’s Web site. Investors are losing confidence in the single currency and seeking havens for their cash outside the euro area as Europe’s debt crisis drags on in its third year. “Now there are growing signs that the crisis of confidence in the euro zone has assumed a new dimension,” Kressin wrote. “Whereas initially investors fled to the safety of the euro zone’s core, now they are taking their capital out of the euro zone altogether.”
• India Industrial Production Slides in Sign Economy is Faltering. Indian industrial production slid in June for the third time in four months, with output of capital goods plunging the most on record, adding to signs of faltering growth in Asia’s third-largest economy. Production at factories, utilities and mines declined 1.8 percent from a year earlier, after a revised 2.5 percent rise in May, the Central Statistical Office said in New Delhi today. The median of 27 estimates in a Bloomberg News survey was for a 0.4 percent climb. Capital goods output, an indication of investment in plants and machinery, slid 27.9 percent. Indian manufacturing has been subdued in recent months as inflation above 7 percent saps domestic demand and Europe’s debt crisis crimps exports. Price pressures from a drop in the rupee and the impact of a weak monsoon on crops forced the central bank to leave interest rates unchanged in July, breaking with a wave of cuts in borrowing costs from China to Brazil to Europe. “The negative trend coming in between a looming drought- like situation is very, very worrying,” said Brinda Jagirdar, an economist at State Bank of India in Mumbai. “Our problems are compounding. We need quick and decisive policy actions to revive growth, otherwise we’ll see a severe collapse.”
• Downgrade Risk Rises as Drought Threatens Deficit: India Credit. The weakest monsoon since 2009 is set to prevent Prime Minister Manmohan Singh from reducing the biggest budget deficit among the largest emerging markets, increasing the risk of a downgrade of India’s debt rating. All the seven economists in a Bloomberg News survey predict the government will overshoot its deficit target of 5.1 percent of gross domestic product in the year to March 2013. Daiwa Asset Management Co. expects the 10-year government bond yield to rise as high as 8.40 percent by the end of this quarter, 28 basis points more than today. Comparable yields are 1.69 percent in the U.S., 3.33 percent in China and 9.64 percent in Brazil.
• Housing Faces Downside Risk as Delinquencies Up. "Significant downside risks" as rising serious delinquencies may mean future foreclosures imminent, says Bloomberg Government economist Nela Richardson. Total 90-day+ delinquencies 3.19% in 2Q after 3.06% in 1Q. Other risks: expected flow from servicers' settlement has yet to materialize; short sales also likely to pick up substantially, putting pressure on prices, says Richardson. 2Q foreclosures, delinquencies data "casts doubts on premature declaration of all-clear in the housing market," said Bloomberg economist Joseph Brusuelas. Earlier MBA reported the mortgage delinquency rate ended 2Q at 7.58%, up +18 bps.
• Wells Fargo’s(WFC) Home-Loan Hegemony Spurs Stability Risk: Mortgage. Wells Fargo & Co.’s grip on the U.S. mortgage market has tripped alarms among regulators and lawmakers concerned that the bank’s control over one of every three new loans could hurt consumers and undermine markets. Wells Fargo and its two largest rivals, JPMorgan Chase & Co. and U.S. Bancorp, made half of all U.S. home loans in the first half, according to Inside Mortgage Finance, an industry publication. Wells Fargo alone controlled 33.1 percent. In mortgage servicing, which involves billing and collections, four firms have 50 percent of the business, and Wells Fargo is No. 1 in that field, too, with 18.5 percent.
• Jobless Claims Unexpectedly Fall. Jobless claims unexpectedly dropped by 6,000 to 361,000 in the week ended Aug. 4, Labor Department figures showed today in Washington. The median forecast of 43 economists surveyed by Bloomberg News called for an increase to 370,000.
• U.S. Consumer Comfort Drops to Two-Month Low on Economy Concern. Consumer confidence in the U.S. fell this week to the lowest level in two months as Americans became more discouraged about the economy. The Bloomberg Consumer Comfort Index dropped to minus 41.9 in the period ended Aug. 5 from minus 39.7. The gauge hasn’t climbed since the end of June. Americans’ view of the economy fell to the lowest level since February. Greater discontent about the economy was accompanied by dimmer views of personal finances and the buying climate, a sign consumer spending will be slow to pick up. A recent increase in gasoline prices and scant improvement in the labor market are also restraining confidence among lower-income households. “The American public is downright sour on their own economic prospects and those of the nation as a whole due to the growing labor slack in the economy,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. The share of respondents in the Bloomberg survey who rated the economy as “poor” climbed this week to a seventh-month high.
• Banks Face Derivatives Margin Losses. Losses on so-called variation margin and conversion of creditor claims into equity are among options proposed by a group of regulators last week to protect taxpayers from future financial catastrophes when other buffers are depleted. Clearinghouses act as central counterparties in derivatives contracts to spread the risk of default.
• U.S. Banks' Dodd-Frank Costs May Widen to $34 Billion, S&P Says. JPMorgan(JPM) and Bank of America(BAC) are among 8 US lenders that collectively may have annual pretax profits cut by $34 billion amid new US rules that include limits on trades, S&P said. The firms' pretax earnings may drop by a range of $22 billion to $34 billion becuase of the 2010 Dodd-Frank regulatory overhaul, Matthew Albrecht, a credit analyst at S&P, said today. He previously predicted $19.5 billion to $26 billion.
  

Wall Street Journal:

• Former ECB Chief Economist Warns Against Trying to Blackmail Germany With History. Germany’s guilt over the Second World War doesn’t oblige it to write blank checks to euro-zone countries that fail to reform their economies, said former European Central Bank executive board member Otmar Issing. Mr. Issing served as a member of the ECB’s Executive Board from 1998 to 2006.
• J.P. Morgan(JPM) Details Struggle From 'Whale' Fallout. J.P. Morgan Chase & Co. on Thursday outlined just how the ill-placed trading hedges from its London chief investment office continue to be felt in share buybacks, capital ratios and trading losses. The nation's largest bank by assets also said its potential legal costs jumped nearly 30% from the first quarter.
  

MarketWatch:

• Las Vegas Strip June gambling revenue falls 4.5%. The Nevada Gaming Control Board said Thursday that gambling revenue statewide in June declined just over 6% to $832.5 million. On the Las Vegas Strip, which accounts for more than half the total, revenue fell 4.5% to $483.7 million.

CNBC.com:

• Clouds Gather Over Spain's Rajoy as EU Bailout Nears. Spanish Prime Minister Mariano Rajoy faces a cloudy return from his short summer break as his expected request for European aid in September will spur protests on the street and deepen cracks emerging in his conservative People's Party.
• Monti Takes Off Gloves in Euro Zone Fight. Italian Prime Minister Mario Monti has taken the gloves off in his fight to save Italy from disaster in the euro zone debt crisis, daring to stand up to European paymaster Germany in a way unthinkable a few months back.
• Economists Slash Outlook for Battered Euro Zone Nations. The fortunes of the euro zone's most vulnerable economies have darkened markedly since June, according to a Reuters poll of economists that showed Spain will apply for an EU bailout within months. Forecasters polled this week slashed their 2013 economic outlook for Greece, Portugal and Spain, and said they will all fail to achieve budget deficit targets agreed with the European Commission.

Business Insider:

• France is Preparing a Plan to Evacuate Its Citizens from Israel.
• Everything You Need To Know About The Fiscal Cliff In Just 3 Huge Slides.
• Incredible Footage Shows Syrians Holding Funeral In The Middle Of Heavy Shelling.
• The Chinese Super-Rich Slam On The Brakes. (graphs)
• Retired Hezbollah General Says Iran Is Building A Nuke To 'Finish Off' The Israeli 'Enterprise'.
• Here's The Chart That Might Get Obama Fired...(graph)
• The Saudis Warn Israel They Will Shoot Down Any Jets Using Its Airspace For A Strike On Iran.

Zero Hedge:

• The Transports are Diverging. (graph)
• Why The Fate Of The Global Equity Rally May Rest In The Hands Of Soybeans.
• Wholesale Inventories Drop MoM First Time in 9 Months. (graph)
• Peak Complacency Is Back. (graphs)
  

NY Post:

• SEC drops probe into Goldman Sachs' role in selling subprime mortgage securities. The Securities and Exchange Commission has dropped an investigation into Goldman Sachs Group Inc's role in selling $1.3 billion worth of subprime mortgage securities, the investment bank said in a regulatory filing on Thursday. In February Goldman received a so-called Wells notice from SEC staff related to disclosures in the deal's offering documents. Such notices typically indicate the agency plans to take some kind of enforcement action, and give firms a chance to respond. On Monday, the SEC notified Goldman that the investigation had been closed and that it did not intend to recommend any enforcement action against the bank related to the offering, Goldman said in its quarterly 10-Q filing with the SEC.
• Fund funds’ funk. Fed-up investors yanked $8B+ in June. Investors are sick and tired of paying fees for little in return, and in no place is that more evident than in the fund-of-funds industry. In June, investors pulled $8.7 billion from such firms, according to Trim Tabs Investment Research, which said that $50.4 billion came out of funds of funds over the prior 12 months, leading to a $32.1 billion drop in overall hedge-fund assets in that time. “Investors are saying, ‘Why should I pay a second layer of fees while you guys are not going to give me extra performance?’” said Leon Mirochnik, an analyst with Trim Tabs. Funds of funds have gained 0.9 percent since January, compared with a 2.4 percent gain for hedge funds and an 8.3 percent gain for the S&P 500, according to Trim Tabs.
  

Washington Post:

• GE(GE) recalls 1.3 million dishwashers because of fire hazard.

Reuters:

• Russia's Medvedev hints of Chinese threat to Far East. Prime Minister Dmitry Medvedev on Thursday issued a veiled warning about China's rising influence in Russia's resource-rich Far East, saying it was essential to defend the area against "excessive expansion by bordering states". Speaking days after Russia's first deputy defense minister said two new nuclear submarines would be sent to the Pacific Fleet, Medvedev also said it was "important not to allow negative manifestations ... including the formation of enclaves made up of foreign citizens." His comments, some of the strongest on the subject yet, underlined the Kremlin's suspicions that a steady influx of Chinese migrants may ultimately pose a threat to Russian hegemony in the remote and sparsely populated territories of Siberia and the Far East.
• Potential grows for food crisis as prices surge: U.N. The world could face a food crisis of the kind seen in 2007/08 if countries restrict exports on concerns about a drought-fuelled grain price rally, the U.N.'s food agency warned on Thursday, after reporting a surge in global food prices in July. A mix of high oil prices, growing use of biofuels, bad weather, soaring grain futures markets and restrictive export policies pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti. Concern about extreme hot and dry weather in the U.S. Midwest sent corn and soybean prices to record highs last month, driving overall food prices higher again and reversing the Food and Agriculture Organisation's forecast for declines this year. "There is potential for a situation to develop like we had back in 2007/08," the FAO's senior economist and grain analyst Abdolreza Abbassian told Reuters. "There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn't happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible." The FAO Food Price Index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 213 points in July, up 6 percent from 201 points in June, the FAO said in its monthly index update.
• US Postal Service Loses $5.2 Billion, Warns of Low Cash. The U.S. Postal Service's net loss widened to $5.2 billion during the three months that ended in June, and the cash-strapped agency warned on Thursday that without help from the U.S. Congress it will face low cash and be unable to borrow money this fall. The Postal Service, which relies on the sale of stamps and other products rather than taxpayer funding, has been struggling for years as Americans increasingly communicate online and as payments to its retiree health benefits program and other obligations drain its cash. The mail agency suffered its first-ever default last week on a legally required $5.5 billion payment for future retiree health benefits. The agency's inspector general said the Postal Service could face a $100 million cash shortfall in mid-October.
• Moody's: Q2 public finance downgrades highest in 10 years.

Telegraph:

• It starts: first Asian bank mulls British exit from the EU. So we have a new term: BRIXIT. Japan's biggest bank Nomura has issued an 11-page study evaluating the likelihood that the UK will leave the European Union entirely or partly. Events could accelerate as soon as this autumn if eurozone woes force the Government to commit to a firm date for a BRIXIT referendum.
• Shock trade figures deal a blow to UK recovery hopes. Britain's trade deficit widened sharply to a record high in June as exports collapsed amid the eurozone crisis, dealing a blow to hopes that trade will drive a recovery. The trade in goods deficit jumped to £10.1bn in June from £8.4bn in May after an 8.4pc fall in exports far outpaced a 1.2pc fall in imports, the Office for National Statistics said.

Der Standard:

• China Would Risk Crisis in Consumption Boost. "Every country that has grown through debt-financed consumption has ended in crisis," former World Bank chief economist Justin Lin says in an interview.

El Pais:

• The Spanish Treasury's cash balance fell 19% in July from the previous month to 23.2 billion euros. The government's cash holdings parked at the Bank of Spain tumbled from 40.4 billion euros in May, citing the Bank of Spain and the Treasury.
  

Bear Radar

Style Underperformer:

• Large-Cap Growth -.21%

Sector Underperformers:

• 1) Airlines -1.20% 2) Gaming -1.01% 3) Road & Rail -.97%

Stocks Falling on Unusual Volume:

• MNST, V, AXP, TMK, ALJ, TEG, SGNT, PRXL, PRSC, EZCH, AFFY, DIOD, PHMD, LAMR, LGND, LMCA, SODA, OPNT, IOSP, NUAN, AAP, DF, BGG, MUSA, THS, OMG and SEM
  

Stocks With Unusual Put Option Activity:

• 1) WIN 2) CIE 3) VWO 4) DDS 5) NBR
  

Stocks With Most Negative News Mentions:

• 1) SEM 2) MCEP 3) THS 4) JPM 5) BAC
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.55%

Sector Outperformers:

• 1) Homebuilders +2.57% 2) Oil Service +1.44% 3) Gold & Silver +1.29%

Stocks Rising on Unusual Volume:

• IL, MDRX, DK, CNQ, FLT, DDS, GOL, RDEN, PANL, TNGO, SGEN, ARUN, AMRN, CAVM, RBN, MM, FTK, EAT, CXW, YELP, AEP and CJES
  

Stocks With Unusual Call Option Activity:

• 1) DDS 2) SIRI 3) WMB 4) ETFC 5) WIN
  

Stocks With Most Positive News Mentions:

• 1) AEP 2) KBH 3) ROSE 4) MON 5) AXP
  

Charts:

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

Thursday Watch

Evening Headlines
Bloomberg:

• Blink! U.S. Debt Just Grew by $11 Trillion. Republicans and Democrats spent last summer battling how best to save $2.1 trillion over the next decade. They are spending this summer battling how best to not save $2.1 trillion over the next decade. In the course of that year, the U.S. government’s fiscal gap -- the true measure of the nation’s indebtedness -- rose by $11 trillion. The fiscal gap is the present value difference between projected future spending and revenue. It captures all government liabilities, whether they are official obligations to service Treasury bonds or unofficial commitments, such as paying for food stamps or buying drones.
• Most Chinese Stocks Drop After Economic Data; PetroChina Falls. Most Chinese stocks fell as investors awaited the release of industrial production data for more signals on the outlook for the economy. PetroChina Co. dropped after the Shanghai Securities News said the oil producer may post a “big” first-half refining loss. Energy and material companies led declines after a government report today showed producer prices posted a steeper decline than economists’ had forecast even as inflation cooled for a fourth month.
• Global Food Reserves Falling as Drought Wilts Crops: Commodities. Stockpiles of the biggest crops will decline for a third year as drought parches fields across three continents, raising food-import costs already forecast by the United Nations to reach a near-record $1.24 trillion. Combined inventories of corn, wheat, soybeans and rice will drop 1.8 percent to a four-year low before harvests in 2013, the U.S. Department of Agriculture estimates. Crops in the U.S., the biggest exporter, are in the worst condition since 1988, heat waves are battering European crops and India’s monsoon rainfall already is 20 percent below normal. The International Grains Council began July by forecasting record harvests. It ended with a prediction for a 2 percent drop in output.
• Standard Chartered CEO Says ‘No Grounds’ to Revoke License. Standard Chartered Plc (STAN) Chief Executive Officer Peter Sands hit back at a New York regulator’s claims the bank broke U.S. sanctions, and said he saw “no grounds” for revoking the lender’s license. Standard Chartered has tumbled about 16 percent in London trading this week after New York regulator Benjamin Lawsky threatened to strip the London-based bank of its license to operate in the state, alleging it processed $250 billion of deals with Iranian banks subject to sanctions.
• Rubber Market Poised for Third Surplus in 2013, RCMA Forecasts. Global natural-rubber supply will exceed demand for a third straight year in 2013 and the price of the commodity used to make tires and gloves is set to extend declines, according to RCMA Commodities Asia Group. Production will exceed usage by 299,000 metric tons in 2013, compared with a surplus of 321,000 tons estimated for this year and 4,000 tons in 2011, the Singapore-based trading company said in a presentation e-mailed to Bloomberg. Global stockpiles may gain 26 percent to 1.57 million tons this year, it showed. Rubber fell to the lowest level since 2009 yesterday amid lower consumption in China, the largest user, and Europe. Demand in China may drop 5 percent this year as slumping truck sales cut heavy-duty tire sales, Hangzhou Zhongce Rubber Co., the country’s biggest maker, said last month. Lower prices will hurt growers in Thailand, Indonesia and Malaysia, the three largest producers, while aiding tiremakers such as Bridgestone Corp.
• North Korea Able to Test Nukes in Two Weeks, Study Says. North Korea is technically capable of conducting a nuclear test in as little as two weeks, according to a study published by the Bulletin of the Atomic Scientists.
• Singapore Trims Growth Forecast on Global Slowdown Risks. Singapore cut the upper end of its economic growth forecast for 2012 as a global slowdown from Europe to China weighs on the island’s expansion. The Southeast Asian country’s gross domestic product will probably rise 1.5 percent to 2.5 percent this year, Prime Minister Lee Hsien Loong said in a televised message yesterday on the eve of the city state’s National Day. The government previously predicted growth of 1 percent to 3 percent. The economy grew 1.7 percent in the first half, he said. “Europe and the U.S. face serious economic problems,” Lee said. “Asia is doing better than other regions, but China and India are slowing down.”
• Japan Machinery Orders Rebounded Less Than Forecast in June. Japan’s machinery orders rebounded less than forecast in June, underscoring concerns the world’s third-largest economy’s recovery will slow in the second half of this year. Bookings, an indicator of capital spending, rose 5.6 percent, after slumping 14.8 percent in May, the biggest drop in more than a decade, the Cabinet Office said today in Tokyo. The median estimate of 25 economists surveyed by Bloomberg News was for a 12 percent increase.
• Busson Talking Tie-Ups Shows Decline of Hedge-Fund Middlemen.
• Monster Beverage(MNST) Shares Fall After Profit Trails Estimates. Monster Beverage Corp. fell in late trading after second-quarter profit and sales trailed analysts’ estimates as costs increased. The shares tumbled 10 percent to $61 at 5:32 p.m. in New York.

Wall Street Journal:

• Reports of Our (Low) Debt Have Been Greatly Exaggerated. We knew law school came with a heavy debt load, but in some cases it’s heavier than many supposed. U.S. News & World Report, whose law schools rankings are widely followed by prospective law students, said it is reviewing its data on law student debt load, after several institutions misreported their figures to the magazine.
• Knight(KCG) Held $7 Billion of Stocks Due to Glitch. Knight Capital Group Inc. was holding about $7 billion of stocks at one point on Wednesday last week—a far bigger figure than previously known—as a result of errant trades that forced it to seek emergency funding, according to people familiar with the matter. Knight's traders worked frantically Aug. 1 to sell shares while trying to minimize losses due to a software problem, ultimately paring the total position to about $4.6 billion by the end of the trading day, the people said.
• The Afridi Dossier. The doctor who helped the CIA find bin Laden is still in jail in Pakistan. Perhaps somewhere at CIA headquarters at Langley is a medal of honor for Shakil Afridi, the Pakistani doctor whose bogus hepatitis vaccination scheme helped the agency locate Osama bin Laden in Abbottabad. As things now stand, however, it may be a long while before Dr. Afridi sees that medal.
• Currency-Focused Hedge Funds Rebound in July -Survey. Currency-focused hedge funds showed a monthly investment gain of 0.98% in July, reversing a loss from the previous month, as bets that the euro would decline against a handful of more-attractive currencies paid off, according to a survey released Wednesday. The euro slid 2.8% during the month.
• Hedge Funds Elliott, Baupost, York Capital Lag Broad Market. Several of the hedge-fund industry's biggest names have been underperforming the broad market, underlining the difficulties investment managers--even experienced ones--faced in the second quarter as they grappled with recurring concerns over Europe and sputtering global economic health.
• Bet on Platinum's Fall Is Anti-Euro Wager. Some hedge funds have found a new venue to wager on a worsening outlook for Europe: the platinum market. In recent months, a number of money managers have ratcheted up their bets on a decline in platinum prices to the highest level ever in the futures market. The rationale is simple: Platinum's main use is to scrub pollutants from the tailpipe emissions of diesel-fueled cars, and Europe is by far the world's largest market for those cars.

MarketWatch:

• Dillard's(DDS) net up 76% on sales growth, margin. Dillard's Inc.'s fiscal second-quarter profit rose 76% as the department-store operator saw same-store sales growth and a wider profit margin. Shares jumped 4.3% to $73.33 in after-hours trading.
• Housing regulator warns about ‘eminent domain’ use. The regulator for government-seized mortgage giants Fannie Mae and Freddie Mac on Wednesday warned against the use of so-called eminent domain to restructure home loans.
• Why China's Growth is Worse Than You Think. (video)
  

Business Insider:

• That Brutal Anti-Romney Ad Is Blowing Up In The Obama Campaign's Face.

Zero Hedge:

• Market has Now Fully Priced In Another 1 Trillion LTRO. (graph)
• QE Forever And Ever?
• Confused Why So Many Foreign Banks Are Suddenly Being Charged By The US? Here's Why.
• Rosenberg On The Pending Trade Shock And Q4's 0% GDP Growth. (graphs)
  

CNBC:

• Treasury's Secretive $2.4 Trillion Mutual Fund Guarantee. Details about a secretive government program to bail out money-market mutual funds are finally coming to light. Acting without any explicit Congressional authority, the U.S. Treasury guaranteed in excess of $2.4 trillion of money market funds after the giant Reserve Primary Fund "broke the buck" following the bankruptcy of Lehman Brothers.
• As Glitches Mount, Cyber Safety Net for Businesses Shrinks. It is shaping up to be the year of the glitch. Days after the massive software failure which nearly put Knight Capital Group out of business, exchanges in Tokyo and Spain were forced to suspend some trading due to glitches, while a software bug caused Southwest Airlines to charge online customers several times over for the same flight.

IBD:

• Spirit Airlines'(SAVE) Ultralow Fares Drive Heady Gains.

NY Times:

• With Rate Twist, Banks Increase Mortgage Profit. Interest rates on mortgages and refinancing are at record lows, giving borrowers plenty to celebrate. But the bigger winners are the banks making the loans. Banks are making unusually large gains on mortgages because they are taking profits far higher than the historical norm, analysts say. That 3.55 percent rate for a 30-year mortgage could be closer to 3.05 percent if banks were satisfied with the profit margins of just a few years ago. The lower rate would save a borrower about $30,000 in interest payments over the life of a $300,000 mortgage. “The banks may say, ‘We are offering you record low interest rates, so you should be as happy as a clam,’ ” said Guy D. Cecala, publisher of Inside Mortgage Finance, a home loan publication. “But borrowers could be getting them cheaper.”
• U.S. and Gulf Allies Pursue a Missile Shield Against Iranian Attack. The United States and its Arab allies are knitting together a regional missile defense system across the Persian Gulf to protect cities, oil refineries, pipelines and military bases from an Iranian attack, according to government officials and public documents. It is an enterprise that is meant to send a pointed message to Tehran, and that becomes more urgent as tensions with Iran rise. But it will require partner nations in the gulf to put aside rivalries, share information and coordinate their individual arsenals of interceptor missiles to create a defensive shield encompassing all the regional allies.

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

Washington Post:

• E-Mails Show President Obama's Involvement in Clean-Energy Loans. President Obama’s staff arranged for him to be personally briefed last summer on a loan program to help clean-energy companies, two months before the program was thrust into headlines by the collapse of its flagship, the solar company Solyndra, records show. About the same time, then-White House Chief of Staff William Daley resolved a dispute among administration officials over another project in the program, clearing the way for a $1.4 billion loan, according to documents and sources familiar with the situation. The documents, a series of e-mails among Energy Department staff members involved in managing the program, provide new details about the level of White House involvement in the controversial initiative. White House officials have said in the past that final decisions about which companies would receive the loan guarantees were made by career staff members at the Energy Department, not political appointees.

Rasmussen Reports:

• 27% Say U.S. Heading in Right Direction.

Reuters:

• Mobile app sparks Obama camp voter drive, privacy fears. President Barack Obama's re-election campaign has taken its digital infrastructure to the streets, arming its ground troops with mobile software that maps Democratic voters and canvassing strategies - and raising the blood pressure of privacy activists who worry about possible misuse.
• U.S. IRS allowed bogus taxpayer IDs -watchdog report. The U.S. Internal Revenue Service has recently issued thousands of tax identification numbers to ineligible people and, in some cases, IRS managers condoned the practice, the tax collection agency's watchdog said on Wednesday. The accusation by the Treasury Inspector General for Tax Administration, or TIGTA, comes at a time of intense national debate about illegal immigrants, many of whom apply for and get taxpayer ID numbers instead of Social Security numbers. After the report was released, a handful of Republican lawmakers slammed the IRS over its management of the Individual Taxpayer Identification Number (ITIN) program. "The appalling management of the ITIN program is a clear example of failed leadership and the buck must stop with you," Republican Congressman Sam Johnson said in a letter to IRS commissioner Doug Shulman on Wednesday.
• Syrian troops push back rebels in Aleppo offensive. Syrian troops and rebels fought over the country's biggest city Aleppo as President Bashar al-Assad's key foreign backer Iran gathered ministers from like-minded states for talks on Thursday about how to end the conflict. Assad's troops assaulted rebel strongholds in Aleppo on Wednesday in one of their biggest ground attacks since rebels seized chunks of Syria's biggest city three weeks ago. Late in the day, each side gave conflicting accounts of how they stood.

Telegraph:

• Olympic triumph masks an altogether grimmer reality. Amid the euphoria of Britain’s Olympic triumphs, it was a wearily familiar story today from the Bank of England, which has brought us back to reality with a bump.

Globe and Mail:

• China’s hot savings products raise concern about U.S.-style problems. The explosive growth of wealth management products in China is sounding alarms for observers who see a parallel between the opaque investments and the subprime mortgages that sunk the U.S. economy. The products consist of packages of high-risk business loans that are sliced into pieces small enough to appeal to average consumers. They are sold through banks and carry attractive rates of interest – although poor disclosure means that most buyers have little idea what assets underpin their investment.

Macrobusiness.com:

• Australia's Sub-Prime Lending. Let’s hope the issues highlighted in the above articles are not just the tip of the iceberg. It is not only the obvious fraud that is the problem, but that lending risk is granular. If misrepresentation of income was commonplace, then how many more bad loans are out there that we don’t yet know about? Like in the US, sub-prime lending was not a problem whilst home prices were increasing. But once prices began falling, delinquencies, foreclosures and recriminations exploded.

China Securities Journal:

• China may set new property market controls as soon as this month. New measures include raising the transaction tax on the sale of existing homes, expanding a property tax trial and stopping the pre-sale of homes.

Financial News:

• The growth of lending by China's banks may continue to slow in the second half of this year, according to a front-page commentary. China faces larger downward economic pressure in 2H.

Shanghai Securities News:

• China's home purchase restrictions are part of a long-term policy to control the property market and the government is unlikely to scrap policies within the next two years, Wang Juelin, a researcher at the Ministry of Housing and Urban-Rural Development, said in an interview.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 148.50 -1.0 basis point.
• Asia Pacific Sovereign CDS Index 127.25 -.25 basis point.
  
• FTSE-100 futures +.42%.
  
• S&P 500 futures +.28%.
  
• NASDAQ 100 futures +.47%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WEN)/.05
• (ATK)/1.42
• (AAP)/1.39
• (EAT)/.58
• (KSS)/.96
• (DV)/.44
• (JWN)/.74
• (NVDA)/.22
• (SMG)/1.98

Economic Releases
8:30 am EST

• The Trade Deficit for June is estimated at -$47.5B versus -$48.7B in May.
• Initial Jobless Claims are estimated to rise to 370K versus 365K the prior week.
• Continuing Claims are estimated to rise to 3275K versus 3272K prior.

10:00 am EST

• Wholesale Inventories for June are estimated to rise +.3% versus a +.3% gain in May
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The China Fixed Asset Investment/Industrial Production reports, 2Q Mortgage Delinquencies report, 2Q MBA Mortgage Foreclosures, BOJ rate decision, Greece Industrial Production/Jobs reports, 30Y T-Note auction, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.
  

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

Stocks Slightly Higher into Final Hour on Global Central Bank Stimulus Hopes, Short-Covering, Investor Performance Angst

Broad Market Tone:

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

Equity Investor Angst:

• VIX 15.64 -2.19%
  
• ISE Sentiment Index 141.0 +8.46%
  
• Total Put/Call .78 -3.7%
  
• NYSE Arms .73 -8.29%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 102.96 bps -.28%
  
• European Financial Sector CDS Index 246.09 bps +.32%
  
• Western Europe Sovereign Debt CDS Index 246.52 +.95%
  
• Emerging Market CDS Index 245.50 +1.02%
  
• 2-Year Swap Spread 19.5 +.25 basis point
  
• TED Spread 33.0 -1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -37.0 +.75 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .11% +1 basis point
  
• Yield Curve 137.0 unch.
  
• China Import Iron Ore Spot $114.90/Metric Tonne -1.12%
  
• Citi US Economic Surprise Index -33.50 +.3 point
  
• 10-Year TIPS Spread 2.19 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +3 open in Japan
• DAX Futures: Indicating -15 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Biotech and Tech sector longs
  
• Disclosed Trades: Took profits in a consumer discretionary long, added to a tech sector long
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 hugs the flatline despite rising eurozone debt angst, high food/energy prices, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Steel, Hospital, Homebuilding, Education and Airline shares are especially strong, rising more than +1.0%. Lumber is gaining +1.1%. The 10Y Yld is gaining +2 bps to 1.64%. Major Asian indices were mostly higher overnight, led by a +.8% gain in Japan. The Bloomberg European Bank/Financial Services Index is gaining +.97%. Brazilian shares are gaining +2.0%. The Italian 10y Yld is falling -1.2% to 5.9%. On the negative side, Coal, Internet, Disk Drive, Networking, Biotech, REIT, Restaurant and Road & Rail shares are relatively weak, falling more than -1.0%. The Transports continue to trade poorly as they sit out the recent broad market rally. Copper is falling -.77% and the UBS-Bloomberg Ag Spot Index is gaining +.5%. Major European indices are lower today, led down by a -.84% decline in Spain. The Spain sovereign cds is gaining +2.0% to 516.85 bps, the Italy sovereign cds is rising +1.3% to 457.33 bps, the Russia sovereign cds is jumping +3.9% to 162.46 bps and the Israel sovereign cds is surging +3.8% to 140.77 bps. Moreover, the Emerging Markets Sovereign CDS Index is gaining +2.1% to 232.04 bps. The UBS/Bloomberg Ag Spot Index is up +25.0% in about 9 weeks. The benchmark China Iron/Ore Spot Index is down -36.5% since 9/7/11. Moreover, the China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +2.0%. US Trucking Traffic continues to soften. Moreover, the Citi US Economic Surprise Index, while showing some improvement recently, is still back to Sept. 2011 levels. Lumber is -12.3% since its Sept. 9th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has declined for 4 straight weeks and has been around the same level since May 2010 despite investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -60.0% from its Oct. 14th high and is now down around -50.0% ytd. Shanghai Copper Inventories have risen +74.0% ytd. Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 22.50 industry-standard worldscale points, which is the lowest since May, 2009. The CRB Commodities Index is now down -17.3% since May 2nd of last year despite the recent surge in food/energy prices. The 10Y T-Note continues to trade too well. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will destroy its own balance sheet to save the euro even as investors have been pricing this outcome into stocks. The Citi Eurozone Economic Surprise Index is at -68.0 points, which is near the lowest since mid-Sept. of last year. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed. The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff" and the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses. Little if anything being discussed by global central bankers will actually boost global economic growth in any meaningful way over the intermediate-term, in my opinion. Thus, recent market p/e multiple expansion on global central bank stimulus hopes, is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower food/energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising eurozone debt angst, profit-taking, more shorting, technical selling, high food/energy prices, earnings worries, US "fiscal cliff" concerns and rising global growth fears.