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With information streaming over newswires 24/7, it is easy to get bogged down with noise. We’d thought we cut through the chatter and find the most relevant, big picture articles of the week. Enjoy.

The Good:

  • “Goldman Gains on Rivals’ Pain”Goldman (NYSE:GS) crushes earning expectations. “Net income in the second quarter was $3.44 billion, or $4.93 a share -- more than Goldman earned in all of 2008, when it was hammered by the financial crisis. Analysts had been expecting strong earnings, but they were surprised by how much the firm exceeded expectations.” (WSJ)

Good to see some positive earnings news for once, but let's not get too ahead of ourselves here. You better make a profit if you borrow for virtually nothing and loan it out of 300/400 basis point margin.

In addition, credit spreads are still well above pre-Lehman levels, so with less competition, market makers in FI should be able to make some pretty big profits. This extreme outperformance will not last as spreads come down.

Ways-to-Play: XLF, IAI, KCE

  • Intel Gives Rosy Outlook as Sales Recover – Intel (NASDAQ:INTC) provides tech sector with confident forecast. "While the global economic environment is still recovering, our customers signaled increased confidence" with their ordering patterns, said Intel Chief Executive Paul Otellini during a conference call Tuesday. (WSJ)

Ways-to-Play: SMH, IGW, IYW

  • U.S. Economy: Factory Gauges Signal StabilizationThe 0.4 percent decrease in output at factories, mines and utilities in June was the smallest in eight months, Federal Reserve figures showed today in Washington. The New York Fed’s Empire Index rose to minus 0.6 in July from minus 9.4 the month before. (Bloomberg)

The Bad:

  • Fed's Hoenig says U.S. recovery to be very slow” – Kansas City Fed President Hoenig sees very slow recovery. "I am not suggesting a V-shaped cycle," he said, referring to a quick bounce back. "I think ... it will be a very slow recovery, given the seriousness of the problems in the financial industry and the slowness with which the capital in those institutions will be rebuilt." (Reuters)

Ways-to-Play: IWM, SPY, SDS, TWM

  • U.S. Economy: Gasoline Lifts Sales, Producer Prices” – Gas lifts retails sales, but job losses still weigh on consumers. “Today’s figures indicate that consumer spending likely fell last quarter, with little momentum heading into the latter part of the year. Job losses and declining home values are weighing on households, leaving them with little appetite to spend more, other than on necessities or at discount chains such as TJX Cos. and 99 Cents Only Stores." (Bloomberg)

Consumer demand is constrained by job fears and limited credit availability. We are still wary of any sustained and robust economic recovery without a significant pick up from consumers.

With the unemployment rate reaching near 10%, increasing labor market “slack”, decreasing work weeks, increasing nonpaid time off, and over course the consumer getting “small” we see a significant risk in consumer spending coming in much weaker than the market is pricing in.

We are in a consumer recession. The level of non-housing durable goods assets on household balance sheets, after adjusting for the increase in population and inflation, the ownership of “stuff”, is almost 20% higher today than it was during the last consumer recession in 1990-91 and 40% higher than the consumer recession of the early 1980s.

Ways-to-Play: XLT, XRT

  • Airlines, Already Suffering, Brace for Further Woes” – Some analysts say if conditions continue to deteriorate, several airlines may not survive. (NYT)

ATA showing passenger rev. down 26% over past year on 9.5% slide in traffic & 18% drop in fares per traveler. With businesses aggressively cutting costs and consumers unlikely to open their wallets anytime soon, there is a long runway ahead for the airline industry.

Ways-to-Play: FAA, MGU, MFD

  • Emerging Markets Priciest Since 2007 When Shares Fell” - The last time stocks in developing countries got this expensive was in October 2007, just before the MSCI Emerging Markets Index began a 12-month tumble that erased half its value. But who’s really paying attention to valuation now anyway? (Bloomberg)

Ways-to-Play: EEM, BIK, BKF

  • Consumer Prices Post Monthly Rise in June” – The core CPI, which excludes food and energy prices, rose 0.2%, also slightly above expectations. Unrounded, the CPI rose 0.744% last month. The core CPI advanced 0.198% unrounded. (WSJ)
  • Minutes of the Federal Open Market Committee” – “Most participants saw the economy as still quite weak and vulnerable to further adverse shocks,” the central bank said in minutes of the Federal Open Market Committee’s June 23-24 meeting released today in Washington. “Although financial market conditions had improved, credit was still quite tight in many sectors.” (FRB)

The Ugly:

  • The Economy is Worse than You Think” – Oped from M Zuckerman in the WSJ. “The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion”. (WSJ)

Unfortunately, we tend to think a lot like Mr. Zuckerman. The employment picture is ugly and we feel this will have a lasting effect on consumer spending.

Ways-to-Play: IWM, SPY, SDS, TWM

  • California’s Bond Credit Rating Slashed by Moody’s" – California gets closer to junk status – California’s credit rating, the lowest of all U.S. states, was cut for the second time in as many weeks amid lawmakers’ failure to close a $26 billion deficit that left the most-populous state issuing IOUs to creditors. (Bloomberg)

How do we put this lightly? California is a mess. Government offices closed, state workers taking involuntary unpaid furloughs, taxpayers waiting for refunds, and no deal in sight.

Ways-to-Play: CXA, PWZ, MUC, MCA, PZC

  • Is China fraying?” – China’s civil unrest makes world uneasy. “The ethnic Uighurs in the far western city of Urumqi, the capital of Xinjiang province, accused Han Chinese factory workers in the southern province of Guangdong of racial violence against Uighur co-workers. By the time Urumqi’s Uighurs had finished venting their anger, more than 150 people were dead and hundreds more injured.” (Economist)

The FT is making comparisons to present day China to the USSR of the early ‘90s. Far-fetched as it seems, it's typical of an empire under challenge. Violence works until it doesn’t.

Ways-to-Play: FXI, PGJ

  • CIT troubles could hurt; widespread impact uncertain”- CIT has been an important lender to retailers, suppliers, small businesses and more. These businesses that are the backbone of the US economy. While CIT’s potential demise is not a as much of a structural concern, it could withdraw much needed cash from struggling business as well as be a sign of ongoing credit deterioration. (Reuters)

Ways-to-Play: KRE (assume credit deterioration is equally bad)

News Meter (1-10): 4.5 out of 10.

Glad to see some positive earnings news and guidance this week, but we need a little more than Goldman taking their competition to school with spreads well above pre-Lehman levels to get excited.

The bad is still pretty bad; retail sales report give us little reason to cheer.

And the ugly just really gets us down. California is heading down the toilet and as the old adage states: “As California goes so goes the nation."

Disclosure: No positions