“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.” — Warren Buffett

1. Eurozone risks double-dip recession looms as euro economy contracts — Eurozone GDP fell a quarterly 0.2% in Q2, which was in line with forecasts but was down from unchanged in Q1. Germany’s GDP growth slowed to 0.3% from 0.5%, with the meager growth helped by exports and private and public consumption.
2. Housing Building Permits Rebound — below is the chart depictings a rebound in housing.
3. Second quarter earnings beat rate slow — chart courtesy of the Bespoke Investment Group showing percent of companies beating revenue estimates from 2000 to present.

4. Peregrine CEO Russell Wasendorf Indicted on 31 Counts — per Bloomberg, Russell R. Wasendorf Sr., chief executive officer of the collapsed commodity firm Peregrine Financial Group Inc., was indicted by a federal grand jury on 31 counts of making false statements to regulators. Wasendorf, who allegedly stole as much as $215M from customers over a 20-year period, was arrested in early July after attempting suicide and is facing up to 155 years in prison and a $7.8M fine.
5. Government proposes restricted drilling for Alaska — Interior Secretary Ken Salazar proposed opening 12M acres of Alaska’s National Petroleum Reserve for oil and natural-gas drilling but restricting production on the remaining 11M acres due to conservation reasons. The area for drilling is thought to contain 550M barrels of economically recoverable oil and 8.7T cubic feet of natural gas.
6. Buffett’s Berkshire exits Intel, buys more banks — based on the latest disclosure, Berkshire sold 7.7M Intel (INTC) shares just nine months after buying into the chipmaker. Berkshire also significantly reduced its holdings in Johnson & Johnson (JNJ), Kraft (KFT) and Procter & Gamble (PG), while buying into Phillips 66 (PSX) and National Oilwell Varco (NOV).
7. China Bad Loans Rise for Third Quarter as Economy Slows — per Bloomberg, Non-performing loans rose by 18.2 billion yuan ($2.86 billion) in the three months ended June 30 to 456.4 billion yuan, the China Banking Regulatory Commission reported. Bad loans increased for a third straight quarter, the longest streak of deterioration in eight years.
8. China’s Premier Wen Jia Bao indicates that more easing in the near future — Chinese Premier Wen Jiabao has struck an upbeat note about the economy, saying that while downward pressure is “relatively large,” there have been “some positive changes” recently, especially in July.
9. Spain’s bank bad loans hit record high in June — according to Reuters, Spanish banks’ bad loans rose to a record high in June as assets tied to the country’s deflating property market soured further. In the same month that Spain sought a European bailout of up to 100 billion euros for its struggling lenders, their non-performing loans rose to 9.42 percent of outstanding portfolios from 8.95 percent in May.

The week ahead — Economic data from Econoday.com:

“Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes.” – Jesse Livermore

1. Germany and Italy near blows over euro — per The Telegraph, German politicians from across the spectrum have reacted furiously to warnings by Italy’s Mario Monti that Bundestag control over EU debt policies threatens to bring about the “disintegration” of the European project.
2. Eurozone gets ever tougher with Greece — Greece plans to raise about €6bn of short-term funds this week from local banks after its eurozone partners turned down a request for a bridge loan to repay a bond held by the European Central Bank that matures later this month.
3. S&P lowers its outlook on Greece to negative — S&P has revised its outlook on Greece’s long-term rating to negative, reflecting the potential for a downgrade if the country fails to secure the next disbursement from the EU/IMF financing program.
4. US 10-year yields — yields have a positive correlation with risk assets. Below is the chart that depicts perhaps a false breakdowns in bond that typically provides enough fuel for equity to rally.

5. Saudi cuts oil output to 9.8 mln bpd in July — per Reuter, top oil exporter Saudi Arabia pumped 9.8 million barrels per day (bpd) of crude oil in July, cutting output by 300,000 bpd from June.
6. U.S. corn crops suffer, global food prices rise — the UN’s index of global food prices increased 6% in July, its largest rise since November 2009, boosted by too much rain in Brazil, not enough rain in the U.S., and a hot summer in Russia.

The week ahead — Economic data from Econoday.com:

“As for it being different this time, it is different every time. The question is in what way, and to what extend ” — Tom McClellan

The major indices encountered resistance at the 50SMA and closed down about 3% for the week. Below are the major events which occurred this week.
1. UK adminstration announced $59 billion in spending cuts and raised taxes by 20%.
2. Financial Legislation Overhaul passed the House & Senate — Fannie Mae & Freddie Mac were left out of the overhaul.
3. 1Q GDP 2.7% versus estimate 3%
4. New Home Sales dropped sharply after home-stimulus expired
5. President Obama fired Gen. McChrystal after a negative article in the RollingStone magazine — replaced by Gen. Patraeus.
6. G-20 Meeting in Canada — no major results were accomplished. Global recovery is “Uneven & Fragile”.
7. FOMC meeting — rate to remain “low for an extended period”

The week ahead:
1. Greece looks to financial market to raise $4.9 billion in July.
2. Tues 6/29 — Consumer Confidence; 2Q earnings -> GIS

The major indexes (US & Abroad) sold-off this week based on fear of Greece “Contagion” spinning out of control.
We believe the sell-offs have not finished and are “watching” the market for a possible entry point.
Other negative events that occurred this week:
1. China raised rates to clamp down on real estate prices and manufacturing slowed.
2. Greek parliament voted through the auterity measure; Riots broke out that resulted in the death of 3 bankers. The Greek market continued selling pick up momentum as the ECB refused to buy Greek Bonds;
3. Gulf of Mexico oil spill worsened — Congress talked about raising the cap on damages.
4. EU at risk from the Greece “Contagion” — costs to insure Portugal & Spain spiked higher this week as the EUR hits 1-year low vs USD. This problem seems to resemble the Lehman problem that led to its insolvency in the fall of 2008;
5. VIX spiked upward — spiked to 42 from the low of 15.5 (as noted on April 16 Blog)
6. Australia imposed a “profit” tax of 40% to “resource” companies
7. UK election resulted in a Conservative win with a majority of the votes.
8. NASDAQ corrected 10%+ for the week (from the high on Apr 23).

Next Week
1. G-7 conference call announcement about the “Greece Contagion”

Below is the chart of the S&P500; We are expecting a re-test of 1,095 next week.