Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Transports Sector Weakness, US "Fiscal Cliff" Worries, High Food/Energy Prices

Broad Market Tone:

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

Equity Investor Angst:

• VIX 17.72 -1.45%
  
• ISE Sentiment Index 153.0 +50.0%
  
• Total Put/Call .90 +1.12%
  
• NYSE Arms .85 -37.72%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 100.35 bps -.68%
  
• European Financial Sector CDS Index 232.81 bps -2.47%
  
• Western Europe Sovereign Debt CDS Index 219.73 -1.85%
  
• Emerging Market CDS Index 235.74 -2.46%
  
• 2-Year Swap Spread 16.5 +.5 basis point
  
• TED Spread 30.75 -1.25 basis points
  
• 3-Month EUR/USD Cross-Currency Basis Swap -30.5 -3.25 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .10% +1 basis point
  
• Yield Curve 135.0 +1 basis point
  
• China Import Iron Ore Spot $86.70/Metric Tonne -.23%
  
• Citi US Economic Surprise Index -2.0 +.8 point
  
• 10-Year TIPS Spread 2.30 +3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +7 open in Japan
• DAX Futures: Indicating -7 open in Germany
  

Portfolio:

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

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower on eurozone debt angst, high food/energy prices, US "fiscal cliff" worries and rising global growth fears. On the positive side, Steel, Coal, Education and Airline shares are especially strong, rising more than +.75%. Copper is gaining +1.5%, the UBS-Bloomberg Ag Spot Index is down -1.3% and Gold is falling -.2%. The 10Y Yld is rising +2 bps to 1.59%. The Germany sovereign cds is down -.8% to 58.85 bps, the France sovereign cds is down -1.3% to 131.25 bps, the Spain sovereign cds is down -4.2% to 451.50 bps and the Italy sovereign cds is down -6.0% to 395.51 bps. Moreover, the European Investment Grade CDS Index is down -2.1% to 140.14 bps, the Spain 10Y Yld is down -2.4% to 6.41% and the Italian/German 10Y Yld Spread is down -5.6% to 403.55 bps. On the negative side, Alt Energy, Oil Tanker, Energy, Semi, Disk Drive, Networking, Medical Equipment and Road & Rail shares are especially weak, falling more than -.75%. Transport shares have traded poorly throughout the day again. Major Asian indices fell overnight, led lower by a -1.74% decline in South Korea. The Nikkei fell another -1.1% and is down -4.3% in 5 days. The Shanghai Comp fell another -.3% to the lowest level since early March 2009. This index is now down -7.4% ytd and down -15.7% over the last 12 months. The UBS/Bloomberg Ag Spot Index is up +25.0% since 6/1. The benchmark China Iron/Ore Spot Index is down -52.1% since 9/7/11. 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 +2.5%. US Trucking Traffic continues to soften. Moreover, the weekly MBA Home Purchase Applications Index has declined in 6 out of the last 7 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 +119% ytd. Oil tanker rates have plunged, 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 remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in a major way in an attempt to "save" the euro even as investors have been pricing this outcome into stocks. Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of economic competitiveness and growth incentives remain unaddressed problems. The European debt crisis is also really affecting emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades over the intermediate-term. 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, massive overcapacity in certain key parts of the economy and growing bad loans problem. 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. Little being discussed by global central bankers will actually boost global economic growth to an extent that overcomes the growing macro headwinds over the intermediate-term, in my opinion. 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. The explosion higher in the Israel sovereign cds(+31 bps in about 3 weeks to 165.0 bps) is another big red flag. The Mid-east appears to be unraveling again at an alarming rate. The quality of the stock rally off the June lows remains poor as breadth, volume, leadership, lack of big volume/gainers and copper/lumber/transports relative weakness 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. 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 eurozone debt angst, profit-taking, more shorting, high food/energy prices, US "fiscal cliff" concerns, growing Mid-east unrest, technical selling and rising global growth fears.

Bear Radar

Style Underperformer:

• Mid-Cap Growth -.53%

Sector Underperformers:

• 1) Road & Rail -1.90% 2) Disk Drives -1.15% 3) Oil Tankers -1.08%

Stocks Falling on Unusual Volume:

• DK, BP, AXP, BBL, COP, DFS, OMG, SNTA, SSL, FE, NS, TGP, FRAN, HITK, CVGW, MHO, LUX, FDX, UPS, TAC, YZC, NATI, MATW, FGP, LANC, CEO, CAJ, LF, ELLI, NNI and FCFS
  

Stocks With Unusual Put Option Activity:

• 1) PHM 2) PAY 3) ECA 4) NUE 5) UPS
  

Stocks With Most Negative News Mentions:

• 1) AMD 2) FDX 3) BTU 4) AMR 5) GM
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value +.24%

Sector Outperformers:

• 1) Steel +1.66% 2) Airlines +1.51% 3) Restaurants +.81%

Stocks Rising on Unusual Volume:

• QLIK, GWRE, GDOT, SRPT, GPOR, SWY, HIG, YELP and LNKD
  

Stocks With Unusual Call Option Activity:

• 1) GFI 2) AOL 3) MRX 4) JNK 5) MWW
  

Stocks With Most Positive News Mentions:

• 1) HON 2) AN 3) LCC 4) AMZN 5) ICE
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Asian Stocks Fall 5th Day as U.S. Manufacturing Contracts. Asian stocks fell, with the regional benchmark index headed for the longest losing streak in eight weeks, as economic reports from the U.S. to China and Australia stoked concern global growth is slowing. Samsung Electronics Co. (005930), South Korea’s largest exporter of consumer electronics that gets 20 percent of its revenue in America, lost 1.3 percent in Seoul. Westpac Banking Corp. (WBC), Australia’s No. 2 lender by market value, slid 1.6 percent. Fortescue Metals Group Ltd., Australia’s third-biggest iron-ore producer, plunged 9.4 percent as prices of the steelmaking material fell to a three-year low on slowing growth in China. The MSCI Asia Pacific Index dropped 0.9 percent to 116.20 as of 12:45 p.m. in Tokyo, heading for a fifth day of losses. More than three stocks declined for each that rose on the index. Volatility across the region gained before the European Central Bank meets tomorrow. “The macro backdrop is quite challenging and growth conditions are fragile obviously,” said Nader Naeimi, Sydney- based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages almost $100 billion. “The market is getting nervous about going into the ECB meeting. There’s a lot of speculation on the ECB about what they will do.”
• Shanghai Stock Index Falls to Lowest Since 2009. China’s stock indexes fell, dragging the Shanghai Composite Index to the lowest level since February 2009, on concern the economic slowdown is deepening. Sany Heavy Industry Co. (600031), the country’s biggest machinery maker, slumped to the lowest level in two years as the Securities Times reported China’s 2012 industrial output growth may slow. Angang Steel Co. sank to a seven-year low, leading declines by material producers. China Vanke Co., the nation’s largest publicly traded property company, rose to a two-week high after August sales increased from July.
• FedEx(FDX) Cuts Profit Forecast as Express Sales Slump on Economy. FedEx Corp., operator of the world’s largest cargo airline, said quarterly earnings will fall short of its forecast after a weak global economy damped revenue from express shipments. Profit for the quarter that ended Aug. 31 will range from $1.37 to $1.43 a share, Memphis, Tennessee-based FedEx said today in a statement. That was less than the June 19 projection (FDX) of $1.45 to $1.60 a share, and the stock (FDX) slid 3.5 percent to $84.50 at 5:21 p.m. after regular New York trading. The cut in profit adds to evidence of how Europe’s economic slump and slowing growth in Asia are dragging on FedEx, which is seeking money-saving efforts such as buyouts for some employees. The company is considered an economic bellwether because it moves goods ranging from financial documents to pharmaceuticals. “The global economy is weak and it’s impacting their business in the short run,” said Arthur Hatfield, a Raymond James & Associates Inc. analyst in Memphis. “I don’t think there’s anything inherently broken with their business.”
• Risk Increases of Prolonged World Slowdown, BOJ’s Miyao Says. The odds of an extended world economic slowdown have increased and the Bank of Japan (8301) needs to remain ready to take decisive action if necessary, board member Ryuzo Miyao said. “The risk that the global economic slowdown will be prolonged is increasing slightly,” Miyao said in a speech in Shimonoseki, southwestern Japan today. For Japan, excessive strength in the yen may weigh on exports, profits and stock prices, Miyao said.
• Obama Enters Convention With Lowest Incumbent Ratings Since ’84. More voters had an unfavorable opinion of President Barack Obama than favorable going into the Democratic National Convention that began tonight, with his lowest ratings among women since he took office, a poll found. An ABC News/Washington Post survey found 49 percent of registered voters disapproving of Obama, compared with 47 percent viewing him favorably. The poll gave the highest unfavorable rating of any incumbent going back to 1984, and he is the first incumbent in the survey with a higher unfavorable than favorable rating.
• Euro May Decline to Two-Year Low on Channel: Technical Analysis.
• Most Influential 50 in 2012 Shows Turmoil: Bloomberg Markets. The ability to move markets or shape ideas and policies. The clout to affect the price of a security or the structure of a deal. These are the attributes that define the people who hold sway in the world of finance -- those who make up the second annual 50 Most Influential list in the October issue of Bloomberg Markets magazine.
• First Black President Can't Help Blacks Stem Wealth Drop. The employment roller coaster punched a hole in his bank balance and left his net worth “sitting at zero,” says the married father of two. “We’re easily three years behind where we would have been,” Brown says. So are millions of other African-Americans whose tenuous hold on prosperity has slipped since President Barack Obama reached the White House. The recession and anemic recovery, while painful for most Americans, have been especially punishing for blacks, stripping jobs, homes and wealth from people who have historically lagged. Today’s 14.1 percent black unemployment rate is almost twice the 7.4 percent white rate, and the racial gap -- after narrowing from 2005 to 2009 -- has widened since the recession’s June 2009 end. At Obama’s inauguration, 7.1 percent of whites were jobless compared with 12.7 percent of blacks. Amid a fitful economic recovery over the past three years, black households’ median annual income fell 11.1 percent, more than twice the 5.2 percent inflation-adjusted decline suffered by white households, according to an analysis of Census Bureau data by Sentier Research.
• Wells Fargo(WFC) Has Biggest Risk Appetite, CreditSight Says. Wells Fargo & Co., the U.S. bank with the biggest market value, takes greater risk on its investments in stocks and bonds than competing lenders, according to a CreditSights Inc. report. Wells Fargo’s $227 billion portfolio of securities marked for sale yielded 3.97 percent at the end of June, the most among 17 of the largest U.S. banks measured by CreditSights, according to a Sept. 3 report from the New York-based financial-research firm. The company’s investments appear to have more credit and interest-rate risk than rivals, CreditSights said. “Wells Fargo’s all-in securities yield of nearly 4 percent seems indicative of a higher risk appetite,” CreditSights analysts including Peter Simon wrote in the report.

Wall Street Journal:

• Caddell and Schoen: A Campaign in Need of a Clintonian Pivot. With his poll numbers worsening, the president needs to appeal to swing voters and independents.
• Small Is New Order For Struggling Malls. Many struggling shopping malls are trying to find salvation by going small—in their purchasers, sales prices and, in some cases, size. As the nation's largest mall owners sell off or give up their most-troubled properties—dogged by deteriorating neighborhoods, newer rivals and online sales—smaller real-estate companies are snapping them up at discount prices and trying to find ways to pull them out their death spirals. Sometimes, that involves demolition.

MarketWatch:

• Australia’s Q2 growth falls shy of estimates. The country’s gross domestic product advanced 0.6% in the three months to the end of June, the Australian Bureau of Statistics said. The result missed a 0.8% forecast in a Dow Jones Newswires survey and a 0.7% rise tipped by Reuters.
• Many company insiders have recently accelerated their selling.

Business Insider:

• Facebook(FB) Announces Massive $2 Billion Share Buyback At Less Than Half Of The IPO Price*.
• As Soon As The National Debt Passed $16 Trillion, Republicans Dropped This Brutal Ad On Obama. (video)

Zero Hedge:

• What Happens Once Mario Draghi Unleashes The European Creosote Bank. (graphs)
• Visualizing The Political Importance And Truthiness Of The Payroll Report.
• Bernanke: "We Can't Really Prove It, But We Did The Right Thing Anyway".
• Financials Hide Analysts' "Earnings Recession" Expectations.

CNBC:

• Fears Rising, Spaniards Pull Out Their Cash and Get Out of Spain. “The macro situation in Spain is getting worse and worse,” Mr. Vildosola, 38, said last week just hours before boarding a plane to London with his wife and two small children. “There is just too much risk. Spain is going to be next after Greece, and I just don’t want to end up holding devalued pesetas.”Mr. Vildosola is among many who worry that Spain’s economic tailspin could eventually force the country’s withdrawal from the euro and a return to its former currency, the peseta.

Boston Herald:

• National Debt Hits $16 Trillion; GOP Critical. The Treasury Department said Tuesday that the national debt has topped $16 trillion, the result of chronic government deficits that have poured more than $50,000 worth of red ink onto federal ledgers for every man, woman and child in the United States. The news was greeted with a round of press releases from Barack Obama’s GOP rivals, who used the grim-but-expected news to criticize the president for the government’s fiscal performance over his 3 1/2 years in office. Obama has presided over four straight years of trillion dollar-plus deficits. "We can no longer push off the tough decisions until tomorrow," said No. 2 House Republican Eric Cantor, R-Va. "It’s time to address the serious fiscal challenges we face and stop spending money we don’t have."

NY Times:

• Banks Face Suits as States Weigh Libor Losses. The scandal over global interest rates has state officials like Janet Cowell of North Carolina working intensely behind the scenes to build a case for suing the nation’s largest banks. Ms. Cowell, the state’s elected treasurer, and several of her staff members have spent the summer combing through the state’s investments trying to determine how much the state may have lost because of suspected manipulation of the London interbank offered rate, or Libor, which is used as a benchmark for trillions of dollars of financial contracts around the world. “We think this could be as big as the mortgage crisis settlement, that this could be a really high impact situation and that we should be aggressive on this,” Ms. Cowell said, referring to the $25 billion settlement that the nation’s biggest banks entered with state attorneys general.
• A Chinese City Moves to Limit New Cars. It is as startling as if Detroit or Los Angeles restricted car ownership. The municipal government of Guangzhou, a sprawling metropolis that is one of China’s biggest auto manufacturing centers, introduced license plate auctions and lotteries last week that will roughly halve the number of new cars on the streets. The crackdown by China’s third-largest city is the most restrictive in a series of moves by big Chinese cities that are putting quality-of-life issues ahead of short-term economic growth, something the central government has struggled to do on a national scale.

ABC News:

• Red Carpet for Solyndra Figure at Democratic Convention. The Obama campaign rolled out the red carpet this week for a former top Energy Department official who was at the center of the ill-fated government loan to Solyndra, a California solar panel firm that wound up in bankruptcy. Steven J. Spinner joined other top fundraisers for a VIP tour of the Democratic National Convention floor in Charlotte Monday evening, posing and waving for a photographer while standing behind the podium. When he saw ABC News cameras, however, he ran for the exit.

Rasmussen Reports:

• 50% Favor Repeal of Health Care Law, 41% Opposed.

Reuters:

• HSBC China services PMI weakens to one-year low of 52.0. China's services sector grew at its slowest pace in a year in August, even though firms are hiring more workers at higher wages, a private sector survey showed on Wednesday, following gloomy manufacturing polls earlier in the week. The HSBC services sector Purchasing Managers' Index fell to 52.0 in August from 53.1 in July, but remained above the 50-point line that delineates expansion from contraction. A new business sub-index expanded at its slowest rate since August 2011, weighing on the headline figure. An employment sub-index rose to 52.7, its highest since November, while input prices, which primarily reflect labour costs, were at their highest since May.
• Solyndra backers could reap $341 million in tax breaks. Investment funds that were early backers of Solyndra LLC stand to reap up to $341 million in tax breaks from its bankruptcy, according to court documents filed on Tuesday, a prospect that could add fuel to the political firestorm around the failed solar panel maker. The U.S. government, which lent Solyndra $528 million and may never recover the money, had demanded that the company reveal the value of future tax breaks available to Madrone Partners and Argonaut Ventures, a fund which is controlled by a foundation linked to Democratic fundraiser George Kaiser. News of possible tax breaks for investors with ties to the Democratic Party could spark a new round of Republican attacks on the Obama administration for its decision to back Solyndra.
• S&P Report Says China's Metals Sector Faces A Profit Slump.
• Fortescue shares fall 10 pct on iron ore price slide. Shares in Australia's Fortescue Metals Group fell as much as 10 percent in early trade on Wednesday after iron ore prices hit fresh lows.
• Finisar(FNSR) 1st-qtr misses Wall Street view, sees weaker 2nd-qtr profit. Finisar Corp reported first-quarter results that fell short of Wall Street expectations as the optical communication components maker continued to grapple with slowing demand in Europe and China, and forecast a weak second-quarter profit.

Financial Times:

• Deutsche Bank(DB) cuts equities sales staff in Asia. Deutsche Bank cut 10 per cent of its Asian equities sales and trading staff on Tuesday, according to people familiar with the situation, as a long-expected cull across the industry in the region gets under way.
• US accuses BP of gross negligence in gulf. The US Department of Justice intends to prove at trial that gross negligence or wilful misconduct by BP caused the 2010 Deepwater Horizon disaster in the Gulf of Mexico, government lawyers have said, in the clearest statement yet that they are seeking the maximum possible penalties from the British oil group.

Telegraph:

• Brinkmanship as Spain warns over bail-out terms. Spain has issued a veiled warning that it will not accept a full bail-out from Europe if the terms are too harsh, a move that would paralyse the European Central Bank and call the euro’s survival into question.

China Daily:

• China is considering taking retaliatory measures against a likely European Commission probe into photovoltaic companies of the Asian nation, citing an official at the Ministry of Commerce. The ministry is "not optimistic" about results of recent consultations with the EU over the solar issue, the person said.

China Business News:

• The combined net loss at 80 large to medium-sized Chinese steel cos. for July was 1.98b yuan, citing a document from the China Iron and Steel Association. 38 had losses totaling 3.6b yuan for the month, the report said.

Securities Times:

• China's 2012 industrial output growth may slow to about 10%, from 13.9% in 2011 and 15.7% in 2010, citing a joint report by the Ministry of Industry and Information Technology and the Chinese Academy of Social Sciences. The manufacturing industry is facing weakening demand and production overcapacity, according to the report.

Shanghai Securities News:

• The China Banking Regulatory Commission has required lenders to count interbank payment financing due by year-end as on-balance-sheet lending, citing a notice from the commission. This will help stop banks from skirting loan quotas through interbank payment financing.

Evening Recommendations
Piper Jaffray:

• Rated (DGI) Overweight, target $27.

Night Trading

• Asian equity indices are -1.25% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 150.5 -3.5 basis points.
• Asia Pacific Sovereign CDS Index 122.0 -3.0 basis points.
  
• FTSE-100 futures +.19%.
  
• S&P 500 futures -.30%.
  
• NASDAQ 100 futures -.20%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MW)/4.13
• (PAY)/.70
• (HRB)/-.37
• (DG)/.64
• (KFY)/.18

Economic Releases
8:30 am EST

• Final 2Q Non-Farm Productivity is estimated to rise +1.8% versus a prior estimate of a +1.6% gain.
• Final 2Q Unit Labor Costs are estimated to rise +1.4% versus a prior estimate of a +1.7% gain.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Eurozone Services PMI, Bank of Canada rate decision, weekly retail sales reports, weekly MBA mortgage applications report, ISM New York for August, BofA Merrill Industrials/Materials Conference, Robert W. Baird Health Care Conference, Cowen Consumer Conference, Barclays Back to School Conference, Goldman Retail Conference, Keefe Bruyette Woods Insurance Conference, Jefferies Global Shipping Conference and the CSFB Automotive/Transports Conference could also impact trading today.
  

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

Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Transport/Commodity Sector Weakness, More Shorting, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Mixed
  
• Volume: Light
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 17.99 +2.98%
  
• ISE Sentiment Index 106.0 -4.5%
  
• Total Put/Call .91 +1.11%
  
• NYSE Arms 1.18 +58.71%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 100.83 bps -.97%
  
• European Financial Sector CDS Index 238.39 bps -.71%
  
• Western Europe Sovereign Debt CDS Index 223.87 -2.38%
  
• Emerging Market CDS Index 241.92 -1.97%
  
• 2-Year Swap Spread 16.0 -1.0 basis point
  
• TED Spread 32.0 -1.25 basis points
  
• 3-Month EUR/USD Cross-Currency Basis Swap -27.25 +3.5 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 134.0 unch.
  
• China Import Iron Ore Spot $86.90/Metric Tonne -2.47%
  
• Citi US Economic Surprise Index -2.8 -.5 point
  
• 10-Year TIPS Spread 2.27 +1 basis point
  

Overseas Futures:

• Nikkei Futures: Indicating +9 open in Japan
• DAX Futures: Indicating +29 open in Germany
  

Portfolio:

• Higher: On gains in my Tech, Medical, Retail and Biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short, then covered some of them
  
• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Draghi Told Lawmakers ECB Must Buy Bonds for Euro’s Survival. European Central Bank President Mario Draghi said the bank’s primary mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival. Mounting his strongest case yet for ECB bond purchases, Draghi told lawmakers in a closed-door session at the European Parliament in Brussels yesterday that the bank has lost control of borrowing costs in the 17-nation monetary union. Bloomberg News obtained a recording of his comments, some of which were published by Italian news agency AGI yesterday. “We cannot pursue price stability now with a fragmented euro area because changes in interest rates affect only one country, or two countries at most,” Draghi said. “They have no importance whatsoever in the rest of the euro area.” ECB bond purchases are therefore “a way to comply with our primary mandate,” he said, adding: “Frankly, all this also has to do very much with the continuing existence of the euro.”
• European Stocks Decline on U.S. Manufacturing Report. European stocks retreated the most in two weeks as a report showed that U.S. manufacturing unexpectedly contracted in August. Vodafone Group Plc (VOD) fell 2.6 percent after Sanford C. Bernstein & Co. downgraded the world’s second-largest mobile- phone operator. Royal Ahold NV rose 2.5 percent after saying it may sell its 60 percent stake in Scandinavian retailer ICA, possibly through an initial public offering. The Stoxx Europe 600 Index slid 1.1 percent to 265.43 at the close of trading, its biggest drop since Aug. 22.
• Merkel Swings Into 2013 Election Mode Evoking Crisis, China. German Chancellor Angela Merkel swung into campaign mode with a message of cutting debt, bolstering energy security and a jab at her Social Democratic challengers. Merkel used separate events in the south and west of the country yesterday to hone her stump speech one year out from federal elections that she has said will be fought on the euro- area crisis that spread from Greece and on Germany’s shift away from nuclear power to renewable energies. Due in the fall of 2013, the vote will determine whether Germany’s first woman chancellor and its first from the former communist east secures a third term. “We got used to living beyond our means and to running up debts,” Merkel told a meeting of her Christian Democratic Union party in the western Ruhr Valley city of Recklinghausen. “This has brought us into dependency on financial markets. We will only get out of this dependency if we start thinking more about how we spend less than we take in.”
• Emerging Market Stocks Decline on China, Europe Concerns. Emerging-market stocks fell for the first time in three days as Goldman Sachs Group Inc. cut Chinese earnings estimates and a report showed contraction in U.S. manufacturing for a third straight month. The MSCI Emerging Markets Index (MXEF) slipped 0.6 percent to 947.53 by 11:17 a.m. in New York. Brazil’s Bovespa stock index (VXEEM) declined to a one-month low, with telecommunications company Oi SA and steelmaker Cia. Siderurgica Nacional SA leading the losses. China Merchants Bank Co. dropped for a fifth day in Hong Kong, while the Shanghai Composite Index closed at its lowest level since February 2009. Hyundai Motor Co. (005380) and Kia Motors Corp. (000270) retreated more than 2 percent in Seoul.
• China’s Stocks Fall on Growth, Earnings Concerns. Chinese stocks fell, dragging the benchmark index to the lowest level since February 2009, as Societe Generale SA predicted a weaker growth outlook and Goldman Sachs Group Inc. cut its estimates for Chinese earnings. China Construction Bank Corp. (939) sank the most in ten weeks as Credit Suisse Group AG warned of softening loan demand and lower net interest margins at lenders. The Shanghai Composite Index (SHCOMP) closed 0.8 percent lower at 2,043.65, the lowest level since Feb. 2, 2009
• Home Sales Double in Beijing on Rate Cuts, Centaline Says. Beijing home sales in August surged 110 percent from a year earlier driven by first-home buyers after the central bank cut interest rates and signs of a price rebound damped expectations for cheaper housing.
• U.S. Banks Still Battling Excessive Non-Performing Loans: Mizuho. Two key indicators of banking health in U.S., non-performing loan balances and coverage ratios, still show signs of stress, and this will weigh on the economy, writes Mizuho chief economist Steven Ricchiuto in a client note. Based on FDIC data, non-performing loans still at 4% of total assets, about 2% higher than typical. Coverage ratio still stuck at recessionary levels at just above 1.5%, FDIC data show. Historically, economy likely to remain stuck in "jobless recovery" until the coverage ratio and NPL balances converge. Convergence could take another 2-3 years, they said.
• Manufacturing in U.S. Shrank in August for Third Month. U.S. manufacturing shrank for a third month in August in the longest decline since the recession ended in 2009, threatening to deprive the world’s largest economy of a driver of growth. The Institute for Supply Management’s factory index fell to 49.6 last month, the lowest since July 2009, from 49.8 in July, the Tempe, Arizona-based group said today. Economists in the Bloomberg survey projected an August reading of 50, which is the dividing line between expansion and contraction. Measures of orders and production dropped to three-year lows. The group’s production index decreased to 47.2, the weakest since May 2009. The new orders measure fell to 47.1, while the employment index dropped to 51.6, the lowest since November 2009. The measure of orders waiting to be filled fell to 42.5 from 43. The inventory index rose to 53 from 49.
• Egypt Has ‘No Objection’ to Importing Iranian Oil, Ahram Says. Egypt has “no objection” to importing and refining Iranian oil, the state-run Al-Ahram reported, citing Oil Minister Osama Kamal. Kamal said he believed that President Mohamed Mursi’s recent visit to Iran would open doors for economic cooperation between the two countries, the Cairo-based daily reported.
• Apple(AAPL) Announces Sept. 12 Event As New iPhone Anticipated. Apple Inc. (AAPL) sent out invitations to a Sept. 12 product event in San Francisco, where the company is expected to unveil a redesigned iPhone.
• Food-Stamp Use Climbs to Record, Reviving Campaign Issue. Food-stamp use reached a record 46.7 million people in June, the government said, as Democrats prepare to nominate President Barack Obama for a second term with the economy as a chief issue in the campaign. Participation was up 0.4 percent from May and 3.3 percent higher than a year earlier and has remained greater than 46 million all year as the unemployment rate stayed higher than 8 percent. New jobless numbers will be released Sept. 7. “Too many middle-class families who have fallen on hard times are still struggling,” Agriculture Secretary Tom Vilsack said in an e-mailed statement today. “Our goal is to get these families the temporary assistance they need so they are able to get through these tough times and back on their feet as soon as possible.” Food-stamp spending, which has more than doubled in four years to a record $75.7 billion in the fiscal year ended Sept. 30, 2011, is the USDA’s biggest annual expense.
• Amazon(AMZN) Rivals Netflix(NFLX) in Epix Deal Adding Movies to Prime. Amazon.com Inc. reached a deal with pay-television channel Epix to add movies such as “The Hunger Games” to the roster of films available through Amazon Prime Instant Video, ratcheting up competition with Netflix Inc. (NFLX).
• Oil Falls on U.S., European Manufacturing Data. Oil fell as U.S. and euro-area manufacturing contracted in August, raising concern that slower economic growth will reduce demand. Prices fell as much as 1.5 percent after the Institute for Supply Management’s U.S. factory index declined more than analysts forecast. In the euro area, manufacturing slipped more than initially estimated, London-based Markit Economics reported yesterday.

Wall Street Journal:

• Gold Bugs Loving QE3 Chatter.
• In Europe, Signs of a Jobless Generation.
• Moody's: U.S. Banking Outlook Negative Despite Stronger Banks.

CNBC.com:

• Spain's Capital Flight Now Worse Than Asian Financial Crisis. The flight of capital from Spain is now worse than what Indonesia, one of the hardest hit countries during the Asian financial crisis, experienced in the late 1990s, according to analysis by Nomura.

Business Insider:

• The Scale Of Conflict In Aleppo, Syria Will Blow Your Mind. You wouldn't know it from the lack of media attention, but a major city is being destroyed in Syria.The country's largest city, Aleppo, has been under siege for over a month. It has emerged as the key stronghold in the rebellion against President Bashar al-Assad, whose forces continue to intensify their aerial bombardment of the city. With nearly 3 million people in the city, this is a bigger siege than Leningrad.
• Why Facebook(FB) Is Tanking: Morgan Stanley(MS) Cut Its Facebook Forecast.
• Why Asking For Higher Tax Rates Is Just Plain Stupid.
• Overexposed SEAL Team 6 Has Been 'Likely Benched,' Says An Insider.
• BIG MISS: Construction Spending Falls 0.9%.

Zero Hedge:

• Weak Indian Monsoon Dries Up Centrally-Planned Liquidity Expectations.
• The One Chart To Explain Why ECB's Short-Dated Bond Buying Program Will Fail.
• As The Iron Anvil Falls, Will Australia Be Stuck Below It?
• Nomura: "Spain Will Need Full-Blown Bailout".

Washington Post:

• Pickups drive US auto sales as GM, Ford recover from poor July.

Gallup:

• Americans' Economic Confidence in August Ties 2012 Low. (graph)
  

Rasmussen Reports:

• Rasmussen Employment Index Falls to Ten Month Low. The Rasmussen Employment Index fell nine points in August to 72.0, the lowest level of confidence since October 2011. Worker confidence in the labor market is now roughly the same as it was in the month following the Wall Street meltdown in the fall of 2008.

The Blaze:

• 2012 Dem Platform Drops Language Committing to Keeping Jerusalem the Capital of Israel.

Reuters:

• Baltic index drops as panamax rates weaken. The Baltic Exchange's main sea freight index, which tracks rates for ships carrying dry commodities, fell on Tuesday as rates for panamax vessels continued to slip. The main index, which factors in the average daily earnings of capesize, panamax, supramax and handysize dry bulk transport vessels, fell 5 points or 0.72 percent to 693 points. The overall index, which gauges the cost of shipping commodities such as iron ore, cement, grain, coal and fertiliser, has fallen about 60 percent this year.
• Struggling Charlotte awkward setting for Obama, Democrats. It's what campaign strategists might call an "optics" problem: A president asking for another term before an adoring crowd in a state where the unemployment rate hovers around 10 percent four years after the U.S. financial crisis battered its big banks and manufacturers.
• Halliburton(HAL) sees drop in N.American revenue in 3rd qtr. Halliburton Co, the largest oilfield services provider in the United States, said a decline in North American drilling would lower revenue in the region in the third quarter from the second quarter. U.S. benchmark natural gas prices, despite pulling away from decade lows, are still down more than 25 percent from last year. So the number of rigs working has steadily dropped across North America, dampening services companies' pricing power.
• Hedge fund manager Einhorn scores 4.2 percent gain August.

Telegraph:

• Asian exports crumble. (graph)

Irish Independent:

• Global Crisis Moves East as China Suffers Rapid Downturn. CHINA’S industrial output is contracting at the fastest pace since the depths of the global financial crisis, with knock-on effects spreading across the Far East. “It just keeps getting worse,” said Alistair Thornton and Xianfang Ren from IHS Global Insight. “The government has underestimated the pace of the slowdown and is behind the curve.” Evidence of a hard landing over the summer is becoming clearer. Rail volumes fell 8.2pc in July from a year before. The Japanese group Komatsu said its exports of hydraulic excavators to China – a proxy gauge for Chinese construction – fell 48pc in August from a year before. The twin effect of China’s downturn and Europe’s double-dip recession has turned into a full-blown shock for much of Asia. Hong Kong and Singapore both contracted in the second quarter and are probably in technical recession. South Korea’s exports fell 6.2pc in August, with car sales down 18.2pc. India’s exports fell 14.8pc in July, an extra blow as it grapples with its own post-boom hangover. “The coming days ahead are tough,” said Indian commerce secretary S R Rao. Stephen Jen from SLJ Macro Patrners said we are starting to see Phase III of the global crisis as “the eye of the storm moves East”, with China and emerging markets succumbing at last to the effects of debt leverage. Mr Jen said markets have already discounted any likely trouble in Europe and America, but have yet to “price” the mounting risks in Asia correctly. “There seems to be a big gap between the prevalent view on China, and what is likely to happen: the sanguine consensus view that China can do no wrong will likely be proven to be incorrect,” he said.

Ansa:

• Fiat CEO pessimistic about European market picking up. The European automobile market "unfortunately is in a phase of severe contraction" that "reflects economic conditions - one will have to wait a long time for a trend reversal," Marchionne said on a visit to the new Fiat plant in Kragujevac, where he met with Serbia's new president, Tomislav Nikolic. "I am still pessimistic about 2012-2013. We'll have to see in 2014," Marchionne added. Fiat reported a slump in sales on the sluggish European market of 20% in August and July. Marchionne said in July that the carmaker may have to close one of its plants in Italy if weak demand on the European auto market continues.