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

Broad Market Tone:

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

Equity Investor Angst:

• VIX 15.47 -3.07%
  
• ISE Sentiment Index 120.0 +29.03%
  
• Total Put/Call .84 -8.7%
  
• NYSE Arms .91 -45.55%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 101.11 bps -.65%
  
• European Financial Sector CDS Index 249.56 bps +2.02%
  
• Western Europe Sovereign Debt CDS Index 233.98 +2.03%
  
• Emerging Market CDS Index 250.30 +.47%
  
• 2-Year Swap Spread 18.25 +.5 basis point
  
• TED Spread 33.25 +.25 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -33.5 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .09% -1 basis point
  
• Yield Curve 141.0 +1 basis point
  
• China Import Iron Ore Spot $99.40/Metric Tonne -.20%
  
• Citi US Economic Surprise Index -9.30 +4.4 points
  
• 10-Year TIPS Spread 2.30 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +25 open in Japan
• DAX Futures: Indicating -15 open in Germany
  

Portfolio:

• Higher: On gains in my Retail/Medical/Biotech/Tech sector longs and Emerging Markets shorts
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• ECB Said to Await German ESM Ruling Before Settling Plan. European Central Bank President Mario Draghi may wait until Germany’s Constitutional Court rules on the legality of Europe’s permanent bailout fund before unveiling full details of his plan to buy government bonds, two central bank officials said. With the court set to rule on Sept. 12, investors looking for Draghi to announce a definitive purchase program at his Sept. 6 press conference might be disappointed, according to the officials, who spoke on condition of anonymity because the deliberations are not public. The program is still being worked on and staff may not be able to finalize it by then, said the officials, who are familiar with thinking on the ECB Governing Council. An ECB spokesman in Frankfurt declined to comment.
• German Insurers Buy Junk Corporate Loans to Overcome Low Rates. German insurers, which came through the subprime mortgage crisis largely unscathed, are seeking to boost investment returns by buying junk loans to corporate borrowers.
• China’s Stocks Fall to Lowest Since March 2009 on Profit Concern. China’s stocks fell, dragging down the benchmark index to the lowest level since March 2009, after companies from Maanshan Iron & Steel (323) Co. to Shanxi Coal International Energy Group Co. reported weaker earnings. Maanshan Iron dropped to a 16-year low, while Shanxi Coal sank 6 percent as Shenyin & Wanguo Securities cut the company’s earnings estimates. Gemdale Corp. tumbled to a seven-month low after the official Xinhua News Agency reported the government is studying further measures to control the property market. The Shanghai Composite declined 1 percent to 2,092.10 at the close, the lowest since March 3, 2009. The CSI 300 Index (SHSZ300) lost 1.2 percent to 2,275.68. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong fell 1.8 percent.
• Oil Heads for Fourth Weekly Gain as Isaac Approaches Gulf. Oil headed for a fourth weekly gain as Tropical Storm Isaac strengthened in the Caribbean Sea on a path that may threaten crude production in the Gulf of Mexico. Prices rose as much as 0.9 percent on forecasts that Isaac will enter the Gulf next week after crossing Haiti late today and reaching the southwest coast of Florida on Aug. 27. BP Plc (BP/), Eni SpA (ENI) and Apache Corp. (APA) began evacuating nonessential workers from the Gulf. Crude for October delivery slipped 7 cents to $96.20 a barrel at 1:30 p.m. on the New York Mercantile Exchange. Brent oil for October settlement slid $1.31, or 1.1 percent, to $113.70 a barrel on the London-based ICE Futures Europe exchange.
• Mahindra Cuts Tractor Sales Forecast as Sowing Area Drops. Mahindra & Mahindra Ltd. (MM), the world’s biggest tractor maker by volume, cut its forecast for sales growth of the farm equipment in India as the worst rainfall in three years delays crop sowing. Mahindra estimates industry sales to expand as little as 2 percent in the year ending March 31, Pawan Goenka, president of the automotive and farm equipment division at the Mumbai-based company, said in an e-mail response yesterday. Goenka had earlier estimated sales to rise as much as 10 percent. Tractor revenue rose 22 percent at Mahindra last fiscal year.
• Credit Risk Rises as Insurers Become ‘Aggressive’11. U.S. property-casualty insurers are accumulating lower-rated bonds as near record-low interest rates limit investment income from higher-rated securities, JPMorgan Chase & Co. said. The portion of corporate bonds in the insurers’ portfolios that are rated A or higher fell to 54 percent as of Dec. 31 from 60 percent at the end of 2005, JPMorgan analysts led by Eric Beinstein said in a report today.

Wall Street Journal:

• Underlying Weakness in Durable-Goods Report.
• Bernanke Letter Defends Fed Actions.
• Norway Killer of 77 People Deemed Sane, Given 21 Years. The sentence means that Mr. Breivik, 33 years old, is regarded to have been in a sane state of mind at the time he committed the brutal actions. Mr. Breivik, dressed in a dark suit and charcoal-colored necktie, smirked as the verdict was read against him in a packed courtroom. He was surrounded by a crowd of his victims and family members of those killed on July 22, 2011.

MarketWatch:

• Amazon(AMZN) hits all-time high, Autodesk plunges.

CNBC.com:

• Europe's 'Big Bang' for Banks May Sputter Amid Delays. A hoped-for "big bang" start next year for new rules to make banks safer is set to sputter in Europe, creating more uncertainty in a sector struggling to win back investor confidence lost in the financial crisis.
• ECB Mulls Setting a Bond Yield Target: Sources. The European Central Bank is considering setting yield band targets under a new bond-buying program to allow it to keep its strategy shielded and avoid speculators trying to cash in, central bank sources told Reuters on Friday.
• Half of Homeowners Under 40 Are Still Underwater.

Business Insider:

• A Brand New Bridge Just Collapsed In China.
• The One Poll Question That Should Make Barack Obama Cringe. The most stunning number in the poll comes from this question: Has the country changed for the better in the last four years, changed for the worse, or has the country not changed much either way in the last four years? Forty-six percent answered that question by saying it's changed for the worse. Only 29 percent said it was for the better.
• Drought Or Not, One In Five Americans Can't Afford To Put Food On The Table.
• Canada Is Walking Right Into A Subprime Mortgage Crisis.
• REPORT: Germany May Ask Greece To Exit The Euro 'Temporarily'.
• BofA: The US Economy Is 'In The Eye Of The Storm'.
• Japan Faces Its Own Terrible Fiscal Cliff.
• REPORT: EMPIRE STATE SHOOTING VICTIM HAD ORDER OF PROTECTION AGAINST ALLEGED GUNMAN.
• T. Boone Pickens: Wind And Solar Will Never Take Over For Coal.

Zero Hedge:

• Obama Requests Europe Bail Out His Reelection. Color us unsurprised; but the UK's Independent is reporting that American officials are worried that if the Troika decides Greece has not done enough to meet its deficit targets, it will withhold the money - triggering Greece's exit from the eurozone weeks before the presidential election. British government sources have suggested the Obama administration is urging eurozone Governments to hold off from taking any drastic action before then - fearing the resulting market destabilization could damage President Obama's re-election prospects.
• July Core Durable Goods Ex-Transports And Defense Implode. (graphs)
• Europe Ends Weak Week With Spanish Risk At 10-Day High.
• What Today's Real ECB News Really Means.
  

Chicago Tribune:

• 19 People Shot in Overnight Shootings Across Chicago. Nineteen people were shot across the South and West sides from Thursday evening through early Friday morning -- 13 of them wounded over a 30-minute period, authorities say. The overnight shootings peaked between 9:15 p.m. and 9:45 p.m. That's when eight people, many of them teens, were shot at 79th Street and Essex Avenue about 9:30 p.m.

Reuters:

• Syrian refugees top 200,000 as exodus grows-UN agency.
• S&P puts European synthetic CDOs on watch after July run.
• Brazil consumer confidence falls for 4th month in row in Aug. Consumer confidence in Brazil fell for the fourth consecutive month in August, as Brazilians grew increasingly dissatisfied with current economic conditions, a closely watched survey of consumer sentiment showed on Friday. Brazil's consumer confidence index fell to 120.4 in August from 121.6 in the prior month after seasonal adjustments, private research institute Fundação Getúlio Vargas said. Friday. This is the lowest figure since February. The survey's barometer of current economic conditions fell to 133.5 from 135.4 in July.
• Merkel offers Greek PM no extra time on bailout. Angela Merkel reassured Greek Prime Minister Antonis Samaras on Friday that she wanted his country to stay in the euro zone, but gave no sign of ceding to his pleas for more time to meet the tough terms of Athens' international bailout.
• Spain not in talks over European sovereign aid -Deputy PM. Spain is not in talks with the euro zone over financial assistance to lower its borrowing costs, Spain's deputy prime minister said on Friday.
• IEA may release oil reserves as soon as September: report.

The Economist:

• If China catches a cold. (table) A slowdown in China would have far-reaching effects

Telegraph:

• Debt crisis: Greek PM, Antonis Samaras, and Angela Merkel in crisis talks - live. German Chancellor says Greece is doing all possible to solve problems but must meet its commitments as Greek PM Antonis Samaras says his country just needs an opportunity to grow.

Irish Times:

• Germany's constitution says that a new constitution is needed if the government attempts to transfer large parts of the nation's sovereignty to the European Union, Schaeuble said in an interview.
  

Bear Radar

Style Underperformer:

• Small-Cap Value +.09%

Sector Underperformers:

• 1) Steel -1.41% 2) Networking -.83% 3) Alt Energy -.63%

Stocks Falling on Unusual Volume:

• CHH, SID, KRO, ATI, PCRX, CHU, ADSK, SCVL, HMSY, RUE, ADBE, SSYS, ZUMZ, CATM, WPRT, MMYT, LULU, INFA, GGP and SLH
  

Stocks With Unusual Put Option Activity:

• 1) ADSK 2) SWY 3) FXI 4) TIF 5) VALE
  

Stocks With Most Negative News Mentions:

• 1) SCVL 2) ADSK 3) PFMG 4) INTC 5) BK
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.25%

Sector Outperformers:

• 1) Biotech +1.17% 2) Telecom +.73% 3) Homebuilding +.59%

Stocks Rising on Unusual Volume:

• THLD, ARUN, MSG, MCRS, SOHU, CROX, QEP, BKH, YELP, MSG, WPI and USG
  

Stocks With Unusual Call Option Activity:

• 1) ADSK 2) GGP 3) ARUN 4) SCCO 5) WLL
  

Stocks With Most Positive News Mentions:

• 1) MCRS 2) ARUN 3) GGP 4) NOC 5) SPG
  

Charts:

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

Friday Watch

Evening Headlines
Bloomberg:

• Merkel Seeks to Keep Greece on Reform Path in Hollande Talks. German Chancellor Angela Merkel said she and French President Francois Hollande will coordinate on their approach to Greece to keep pressure on the country at the heart of Europe’s debt crisis to overhaul its economy. Merkel, speaking to reporters in Berlin before hosting a working dinner with the French president, said they will discuss “how to receive our colleague,” Greek Prime Minister Antonis Samaras, who visits the German capital today and Paris tomorrow. “It’s important to me that we all stand by our obligations and wait for the troika report and see what the result is,” Merkel said in a prepared statement late yesterday, referring to a report due next month on Greece’s progress in meeting its bailout terms. “We, and I, will encourage Greece to pursue the path of reform that demands a lot from the people.”
• China’s Stocks Fall, Head for Weekly Loss, on Property Measures. China’s stocks fell, extending weekly losses for the benchmark index, after PetroChina Co. posted a decline in profit and the Xinhua News Agency reported the government is studying further measures to strengthen its control of the property market. PetroChina, China’s biggest oil producer and the most heavily weighted stock on the Shanghai Composite Index, retreated after it reported a 6 percent drop in first-half net profit. Bank of China Ltd. paced declines for lenders after it reported the slowest increase in profit in three years. Poly Real Estate Group Co. tumbled to a four-month low. The government is “closely monitoring” changes in the real estate market and has ordered local governments not to relax property controls, the unidentified official with China’s Ministry of Housing and Urban-Rural Development was quoted as saying in the Xinhua report.
• Hong Kong Profit Warnings Hit Record on China: Chart of the Day. More Hong Kong-listed companies are predicting earnings declines than ever before as the slowdown in China's economy curbs demand for their goods and services. Profit warnings have been issued by 331 companies since the start of June, the most for a three-month time frame since Hong Kong Exchanges & Clearing Ltd. started compiling the data in July 2007. "Most of the companies that warned about profits have large exposure in China," said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong.
• The Slowdown in China Hitting Hong Kong's Economy. (video)
  
• Caterpillar(CAT) Cuts China Production as Digger Slump Reaches Mining. Xu Biao could sit in his office waiting for orders to roll in during a Chinese building boom two years ago. Now, he’s hitting the road trying to drum up business. “Life is difficult,” said Xu, a sales manager at Maanshan Fangyuan Slewing Ring Co. (002147), which supplies parts to Sany Heavy Industry Co. (600031), XCMG Construction Machinery Co. and other equipment-makers. “Every client is cutting production.” Caterpillar Inc. (CAT), which gets 25 percent of sales in Asia, Komatsu Ltd. (6301) and Sany have all slashed output in the world’s biggest construction-equipment market this year as a demand slump caused by slower economic growth spreads from building to mining. Sales of large excavators, mainly used by miners, last month plunged the most since at least January 2009, contributing to the 15th straight decline in the overall market. “The market is just getting worse,” said Wang Shuangming, an analyst with consultant China Construction Machinery Business Online. “It doesn’t matter if you’re a foreign or domestic producer -- everybody is sitting in the same boat.” Total excavator sales fell 24 percent from a year earlier in July to 5,827, according to China Construction Machinery Association data cited by Nomura Holdings Inc.
• Palm-Oil Imports by China Head for 4-Year Low as Economy Slows. Palm-oil imports by China, the world’s biggest buyer after India, are poised to decline to the lowest level in four years as the economy slows and the government seeks to keep cooking-oil prices stable. Shipments will probably drop 7 percent to 5.5 million metric tons in 2012 from 5.9 million tons last year, according to the median in a Bloomberg survey of three analysts and two traders. Port inventories in China totaled 760,000 tons last week, 50 percent more than a year earlier, said Cao Huimin, an analyst at Beijing-based China Cereals & Oils Business Net. Palm oil, used in everything from Nestle SA (NESN)’s Maggi instant noodles and Unilever’s soaps, to candy bars and biofuels, has tumbled 16 percent from a 13-month high in April as a slowdown in China and Europe cut demand, reducing profits at Wilmar International Ltd. (WIL), the largest processor. Palm is trading near the cheapest versus soybean oil in about a year.
• RBI Says Weak India Growth Outlook Imperils Budget Deficit Goal. The Indian government may exceed its budget-deficit target because of higher spending on petroleum subsidies and a weak economic growth outlook that could lead to a tax shortfall, the Reserve Bank of India said. “There is no scope for complacency as fiscal slippage is likely” in the year through March 2013, the central bank said in its annual report released in Mumbai yesterday. The shortfall in the current account, the broadest measure of trade, is set to remain above a sustainable level, it said. These risks must be tackled “forthwith” to contain threats to economic stability, it said, adding India needs to revive investment in public works to help counter the weakest expansion in nine years. The Reserve Bank left interest rates unchanged in July to fight an inflation rate that has averaged more than 7 percent for most of 2012. It said yesterday that damping price increases remains the “cornerstone” of monetary policy. “There are significant risks to deficit and revenue targets,” said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai. “Standard & Poor’s and Fitch Ratings are watching us closely and if the deficit keeps slipping, then a credit-rating downgrade will be a very credible scenario.”
• U.S. Incomes Fell More in Recovery, Sentier Says. American incomes declined more in the three-year expansion that started in June 2009 than during the longest recession since the Great Depression, according an analysis of U.S. Census Bureau data by Sentier Research LLC. Median household income fell 4.8 percent on an inflation- adjusted basis since the recession ended in June 2009, more than the 2.6 percent drop during the 18-month contraction, the research firm’s Gordon Green and John Coder wrote in a report today. Household income is 7.2 percent below the December 2007 level, the former Census Bureau economic statisticians wrote. “Almost every group is worse off than it was three years ago, and some groups had very large declines in income,” Green, who previously directed work on the Census Bureau’s income and poverty statistics program, said in a phone interview today. “We’re in an unprecedented period of economic stagnation.” While gains in hourly earnings and average hours worked per week may have had “a minor mitigating effect” on income declines, they couldn’t offset a jobless rate that hasn’t fallen below 8 percent since February 2009 and a record duration of unemployment, according to the Annapolis, Maryland-based firm. The average duration of unemployment increased to a record 41 weeks in November and remains at 39 weeks, Labor Department data show. Almost 5.2 million Americans have been out of work for at least six months.
• Gold Bulls Strongest in Nine Months as Hoard Builds: Commodities. Gold traders are the most bullish in nine months after investors’ bullion holdings expanded to a record on mounting speculation that central banks will do more to bolster economic growth. Twenty-nine of 35 analysts surveyed by Bloomberg expect prices to rise next week and three were bearish. A further three were neutral, making the proportion of bulls the highest since Nov. 11. Investors bought 46.9 metric tons valued at $2.5 billion through gold-backed exchange-traded products this month, the most since November, overtaking France as the world’s fourth-largest hoard when compared with national reserves.
• Dish Network(DISH) Sued by FTC Over ‘Do Not Call’ Violations. Dish Network Corp. was sued by the U.S. Federal Trade Commission and accused of violating the agency’s National Do Not Call Registry in its telemarketing operations. The FTC said in a lawsuit filed yesterday in federal court in Springfield, Illinois, that the second-largest U.S. satellite-television provider illegally called millions of consumers who asked its telemarketers or its affiliates not to call them again.
• Autodesk(ADSK) Tumbles on Reduced Sales Forecast and Job Cuts. Autodesk Inc. plunged as much as 23 percent after the maker of architectural, engineering and entertainment software lowered its annual sales forecast and said it plans to cut jobs as part of a restructuring program. The company will post fiscal 2013 sales growth of 4 percent to 6 percent, San Rafael, California-based Autodesk said today in a statement, down from an earlier forecast for at least a 10 percent expansion. Its operating margin will decrease by 2.1 percent instead of rising by 1.2 percent as previously forecast.

Wall Street Journal:

• Mitt Romney: What I Learned at Bain Capital. My business experience taught me how to help companies grow—and what to do when trouble arises. When you see a problem, run toward it before the problem gets worse.
• Morgan Stanley(MS) Funds in Big Facebook Bet. U.S. mutual funds run by Morgan Stanley, the lead underwriter in Facebook Inc.'s $16 billion initial public offering, have disproportionately high investments in the social-media company, leaving fund shareholders exposed to the stock's big drop since its May 18 IPO. New data show that eight of the top nine U.S. mutual funds with Facebook shares as a percentage of total assets are run by Morgan Stanley's asset-management arm, according to fund tracker Morningstar Inc.
• South Korea Court Says Samsung, Apple(AAPL) Infringed Each Other's Patents. A South Korea court on Friday delivered a split decision in its piece of the global legal battle between Apple Inc. and Samsung Electronics Co. over mobile computing patents. A three-judge panel in Seoul Central District Court said Apple infringed two Samsung technology patents, while Samsung violated one of Apple's patents. The court awarded small damages to both companies and said they must halt sales of the infringing products in South Korea.
• New Delhi Expands Curbs on Web Content. India on Thursday broadened recent efforts to regulate the Internet with moves to block Twitter accounts of some prominent journalists and content from mainstream news organizations, sparking a backlash across social media in the country.
• Citigroup(C): Wall Street's Frankenstein Is Still a Monster.
• Strassel: The Silent Second-Term Agenda. Despite the Democrats' shellacking in 2010, the president moved left. Re-election in November will reinforce his view that he was correct to do so.

Business Insider:

• There's A Mysterious Tattoo Infection Outbreak Running Rampant.

Zero Hedge:

• For Marc Faber The Iron 'Ore' Lady Has Sung. (graph)
• Why One SEC Commissioner Spoiled The Fed And Treasury's Plan For Money Market Capital Controls: In His Words.
• JPM's(JPM) London Whale May Face Jail Time For Mismarking Billions In CDS.

NY Times:

• China Confronts Mounting Piles of Unsold Goods. After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses. The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home. The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government — all part of an effort to prop up confidence in the economy among business managers and investors. But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.

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:

• Poll: Romney Widens Lead Among Small Business Voters. Sixty-one percent of small business owners plan to vote for the Republican challenger, more than double the 26 percent who say they will vote for President Obama, shows a survey released Tuesday by Manta. The president’s numbers have fallen six points since May, while Mitt Romney has picked up four points with business owners.

CNN:

• Athens and Berlin in spat over funds. Leaders in Athens and Berlin wrangled publicly over how to deal with Greece's plea for further assistance as fears of a renewed eurozone recession mounted yesterday. An index of business activity in the single currency area showed a seventh consecutive monthly contraction and an accelerating decline in output from Germany, the main engine of eurozone growth. As the debt storm spreads Europe's leaders battle to save the eurozone.
• Oil near $100. Thanks a lot, Fed! Federal Reserve chairman Ben Bernanke may or may not give the market more hints about a possible third round of bond purchases at his speech in Jackson Hole next week. But investors are clearly betting on more quantitative easing or other forms of stimulus. Just look at what's going on in the commodity and currency markets.

Reuters:

• Salesforce(CRM) Q3 forecast misses estimates, shares drop. Salesforce.com Inc's third-quarter earnings outlook missed analysts' estimates and its stock fell more than 5 percent in after-hours trading.
• Japan manufacturing mood worsens on global slowdown -Reuters Tankan. Big Japanese manufacturers' sentiment worsened in August and is expected to improve only slightly in the coming months, a Reuters poll showed, as Europe's debt crisis, a global slowdown and a stubbornly strong yen take their toll on the export-reliant economy.
• Illinois pension reform inaction a negative - Moody's. Illinois' failure to improve its sagging public retirement system during a special legislative session last week is a negative credit factor for the state, Moody's Investors Service said. "Inaction on the state's pension liabilities will further strain this lowest-rated U.S. state's finances," the credit rating agency said in a report on Thursday.
• Romney seeks North American energy independence by 2020. Republican presidential candidate Mitt Romney said on Thursday that if elected, he will ensure North American energy independence by 2020 by pursuing a sharp increase in production of oil and natural gas on federal lands and off the U.S. East Coast.
• German finance ministry studying "Grexit" costs: paper. A working group led by Germany's deputy finance minister is studying the possible economic impact of a Greek exit from the euro zone, a newspaper reported on Friday, as Chancellor Angela Merkel prepared for talks with Greece's prime minister. The Financial Times Deutschland newspaper, citing finance ministry sources, said the decision to set up the working group showed that Merkel and Finance Minister Wolfgang Schaeuble wanted to be fully prepared for a possible "negative scenario". "Colleagues are making calculations about the financial consequences (of a Greek exit) and are considering how a domino effect on other euro member states might be prevented," the daily quoted the ministry sources as saying.

Figaro:

• The number of overnight stays in hotels in France dropped 10% in August, citing the national association of hotels, restaurants, cafes and caterers. Drops reached 25-30% on the Atlantic Coast, Normandy.

The Australian:

• Budget's $10Bn Hit From Coal, Iron Ore Slump. PLUNGING iron ore and coal prices will lower the government's tax revenue as much as $10 billion this year, destroying its promised budget surplus in the absence of a fresh round of spending cuts. The commodity price falls since the budget have been much greater than Treasury forecast and will further cut receipts from mining and company taxes.

People's Daily:

• China still faces limits on expanding demand, problems with companies' profitability and uncertainties about the agricultural harvest this year, according to a front page commentary. Global economic growth may remain sluggish for a relatively long period. Stabilization of economic growth doesn't mean the most difficult time has passed, according to the commentary.

China Securities Journal:

• The Chinese steel industry will face more difficulties in 4Q and 1Q, citing Wang Xiaoqi, vice chairman of China Iron and Steel Association. Large inventories will affect the steel industry's future profits, Wang said.

Financial News:

• People's Bank of China Governor Zhou Xiaochuan said the country still faces relatively big pressure on economic growth, according to a statement posted on the central bank's website today, citing Zhou speaking at a meeting on Aug. 22. China may face new challenges for maintaining financial stability as the national adjusts its economic structure, implements interest rate liberalization and reforms its exchange rate forming mechanism, Zhou said.
  

Wen Wei Po:

• Sinotrans Expects Market Glut to Last 2-3 Years. The outlook for the shipping industry in the short term is not optimistic because of an imbalance in supply and demand, citing the Co.'s General Manager Tian Zhongshan. The Co.'s future development focus is still dry bulk carriers. The gap between demand growth and supply growth will narrow to 1.5 percentage points by 2014, from 5 percentage points in the past 2-3 years, Tian said.
  

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.25% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 149.0 +2.0 basis points.
• Asia Pacific Sovereign CDS Index 130.0 +2.5 basis points.
  
• FTSE-100 futures -.36%.
  
• S&P 500 futures +.06%.
  
• NASDAQ 100 futures +.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
8:30 am EST

• Durable Goods Orders for July are estimated to rise +2.5% versus a +1.6% gain in June.
• Durables Ex Transports for July are estimated to rise +.5% versus a -1.1% decline in June.
• Cap Goods Orders Non-Defense Ex Air for July are estimated to fall -.2% versus a -1.4% decline in June.
• Cap Goods Shipments Non-Defense Ex Air for July are estimated to fall -.1% versus a +1.2% gain in June.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The UK GDP/Trade reports, Greek Officials meeting with Merkel and the Troika meeting regarding Spain's Bad Bank could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Falling into Final Hour on Surging Eurozone Debt Angst, Rising Global Growth Fears, Tech Sector Weakness, US "Fiscal Cliff" Concerns

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 16.32 +7.94%
  
• ISE Sentiment Index 90.0 -19.64%
  
• Total Put/Call .91 -6.19%
  
• NYSE Arms 1.57 +113.28%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 101.77 bps +2.36%
  
• European Financial Sector CDS Index 244.63 bps +3.62%
  
• Western Europe Sovereign Debt CDS Index 228.86 -.59%
  
• Emerging Market CDS Index 248.11 +1.40%
  
• 2-Year Swap Spread 17.75 -2.0 basis points
  
• TED Spread 33.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -33.5 -.25 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .10% unch.
  
• Yield Curve 140.0 -4 basis points
  
• China Import Iron Ore Spot $99.60/Metric Tonne -4.87%
  
• Citi US Economic Surprise Index -13.70 +.9 point
  
• 10-Year TIPS Spread 2.30 +3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -103 open in Japan
• DAX Futures: Indicating -9 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Retail, Medical and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  
• Market Exposure: Moved to 25% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows on surging eurozone debt angst, high food/energy prices, US "fiscal cliff" worries and rising global growth fears. On the positive side, Food, Tobacco and Biotech shares are slightly higher on the day. Copper is gaining +.7%, Oil is falling -1.3%, Lumber is gaining +.9% and the UBS-Bloomberg Ag Spot Index is falling -1.4%. Major Asian indices were mostly higher overnight, boosted by a +1.2% gain in Hong Kong. On the negative side, Defense, Coal, Oil Tanker, Steel, Computer, Disk Drive, Education and Airline shares are especially weak, falling more than -1.25%. Tech shares have traded heavy throughout the day again. Gold is rising +.9%. Major European Indices were lower today, weighed down by a -1.5% decline in Italy. The Bloomberg European Bank/Financial Services Index is falling -.8% today. Brazilian shares are -1.4% on the day. The Germany sovereign cds is rising +4.2% to 60.83 bps, the France sovereign cds is jumping +7.2% to 138.67 bps, the Spain sovereign cds is up +5.2% to 484.67 bps and the Italy sovereign cds is up +4.1% to 435.32 bps. Moreover, the European Investment Grade CDS Index is rising +2.4% to 145.1 bps, the Spain 10Y Yld is gaining +1.2% to 6.35% and the Italian/German 10Y Yld is rising +2.9% to 432.18 bps. The UBS/Bloomberg Ag Spot Index is up +25.4% since 6/1. The benchmark China Iron/Ore Spot Index is down -45.0% 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 the Eurozone has successfully kicked-the-can and global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +1.9%. US Trucking Traffic continues to soften. Moreover, the weekly MBA Home Purchase Applications Index has declined in 5 out of the last 6 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 -65.0% from its Oct. 14th high and is now down around -60.0% ytd. Shanghai Copper Inventories have risen +181.0% 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 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 still remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in an attempt to "save" the euro even as investors have been pricing this outcome into stocks. Focus Magazine reported recently that a poll by TNS Emnid found that 52% of Germans don’t want European countries to share debt even if the EU takes control over budgets of individual countries, while 31% were in favor of this. The Citi Eurozone Economic Surprise Index is at -52.50 points. 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. I continue to believe that China's problems are much larger than commonly perceived and cannot be solved with another massive stimulus package given their real estate bubble, soaring food prices and massive overcapacity in certain key parts of the economy. 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 US 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 QE3 have risen recently on comments in the FOMC minutes. This appears to be prompting institutional investors to buy gold, sell the US dollar, sell stocks and buy bonds. I continue to believe QE3 would be a major mistake given the recent surge in stock prices, rising inflation expectations, rising gas prices, worrisome food crisis headlines and less pessimistic US economic data. The quality of the stock rally off the June lows remains poor as breadth, volume, leadership, lack of big volume/gainers and copper/transports divergences all continue to be concerns. Thus, recent market p/e multiple expansion on global central bank stimulus/action hopes, is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. The explosion higher in the Israel sovereign cds(+30 bps in about 2 weeks to 164.0 bps) is another big red flag. The Mid-east appears to be unraveling again at an alarming rate. For this year's equity advance to regain traction, I would expect to see further 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, a calming in Mid-east tensions 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, high food/energy prices, US "fiscal cliff" concerns, growing Mid-east unrest, technical selling, a shift into bonds from stocks and rising global growth fears.