Morning Review - 081210

Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.
com
Christine Clark: 212 448 6085 or cclark@convergex.com
Beth Reed: 212 448 6096 or breed@convergex.com
Stocks sank more than 2% Wednesday amid light volume as investor confidence in the economic Morning Markets Briefing
recovery waned after the Fed’s dimmer outlook on Tuesday. The S&P 500 lost 2.8%, while the Dow
was down 2.5%, and the Nasdaq dropped just over 3%. The VIX soared 13%, climbing above 26 before
Market Commentary: August 12th, 2010
settling near 25 at the close. In June the U.S. trade deficit widened to $-49.9 billion (the most since
October 2008), compared with estimates for $-42.5 billion. Exports fell 1.3% after a 2.5% gain in May, A snapshot of the markets through the
as imports advanced 3.0% following a similar rise the prior month. After the bell, CSCO reported lens of ConvergEx.
earnings of 43 cents a share that topped estimates, but quarterly revenue fell slightly short of
expectations.
Wall Street, Sesame Street, and the Number 83,000
Summary: The government’s latest highly detailed report on job openings and labor turnover (the BLS’s JOLTS report, out yesterday) showed that the U.S. employment
situation softened in June, echoing that month’s Employment Situation report that revealed nonfarm payrolls declined 221,000. Job openings grew a minimal 83,000 from
January to June, while both hires and separations gained on a seasonally adjusted basis. In June, net jobs added (total hires minus total separations) was negative after 4
months of gains. Hires declined 7%, hitting a 4-month low, while layoffs reached a 2010 high, and total separations (including quits) were the most since this time last
year. However on the positive side, excluding government positions and the volatility created by recent temporary census hires, the economy actually added 120,000 jobs.
Also, the 12-month rolling average of net employment showed the fewest losses (-197,000) before the onset of the recession when the economy lost 139,000 jobs in May
2008. Yes, that’s “less bad,” rather than “good,” and highlights just how stagnant the U.S. labor market remains more than a year into economic “recovery.”
_______________________________________________________________________________________________________________________________________________
For those of you with either small children or long memories, you will recall that every episode of Sesame Street begins with the statement “Brought to you by
the letter…” An homage, no doubt, to the shout-out public TV gives its corporate sponsors in lieu of advertising.
With apologies to Sesame Street, today’s note is brought to you by the number 83,000.
A little background on 83,000, our number du jour:
For you New Yorkers out there, 83,000 people is only enough to fill 339 subways cars to the max (think rush hour this morning). That is just 5% of total cars in
operation every weekday in Gotham.
Market Commentary – Pages 1-4, Equities/Conferences & Earnings – Page 5, Fixed Income – Page 6, Options – Page 7, Exchange-Traded Funds/Indexes – Page 8, Social
Media & Internet Blogs Top Stories – Page 9
1
1
Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com
Been to Meadowlands Stadium yet? It holds exactly 83,000 roaring fans.
83,000 individuals also happens to be one-third the population of my Manhattan zip code – 180 square blocks occupied by 695 residents each.
83,000 just isn’t very many people – a bit of New York, or one stadium on Sunday, or a tiny bit of a frenetic morning commute.
Compared to the more than 15,000,000 (and growing) U.S. adults who are currently looking for jobs, 83,000 just fades into the woodwork.
The number of incremental job openings in the U.S. economy from January to June of this year amounts to just 83,000. That number comes from yesterday’s
Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS), which is a monthly assessment of the health of the U.S. labor market in terms of the number
of available positions (as of the last day of the month) and total hires and separations (including layoffs and quits) over the course of the month. Yesterday’s release
includes data for the month of June. Overall the news is expectedly weak, with total hires falling the most month-over-month since November 2008, layoffs standing at a
YTD high, and separations jumping the most (4.9%) in a year and a half.
Before jumping into the detailed June data, we provide a broad look at what has happened from a labor market perspective in the first half of 2010. As we
mentioned above, total job openings in June were just 83,000 higher than in January – and that number drops to 73,000 when taking government positions out of the
equation. In terms of hiring, 167,000 more people were hired in June than in January, which initially sounds like a decent number. That is, until you realize that June also
had 196,000 more separations than January.
From a regional perspective, the Midwest and West had fewer job openings in June than January, while the South and Northeast had more positions that needed
to be filled. Every region except the Northeast hired more people in June than in January, while the South was the only region that experienced more separations at the
halfway point than in the beginning of 2010.
On to the more specific monthly data for June:

• Total hires declined 7.1% in June to 4.26 million, which is the least since March’s 4.33 million.
• Total separations (layoffs, quits, and retirements/deaths/disability) reached 4.35 million and were up 4.9% from the prior month.
• Separations have not increased by this much since December 2008, and the last time they saw a level in excess of 4.3 million was July 2009.
• For the first time since January, hires outpaced separations, indicating a monthly loss of 97,000 jobs.
• Layoffs in June climbed just above 2 million for the first time this year, as they advanced almost 7% from the previous month and backtracked to a pace similar to
that of last year’s 4th quarter.
• For the first time since January, more workers were laid off than chose to voluntarily leave their jobs (quits totaling 1.96 million) – a sign consumer confidence
may be turning a corner, albeit the wrong corner. We’d argue quits are indicative of a certain level of confidence in the job market and one’s ability to find
another job, or willingness to accept the risk of losing a steady income. To voluntarily leave a job requires some fundamental level of confidence in the economy
as a whole from the perspective of the consumer, making quits a tangible alternative to consumer confidence surveys.
• The total number of open positions companies were looking to fill was 2.94 million, basically flat in June from May but significantly lower than the cyclical high of
3.30 million in April. Comparison to pre-recession levels (4.8 million at the peak) the June number is still quite dismal.
2
We have 2 items to report in terms of positive (or less negative) news :

• Total net jobs in June equaled a positive 120,000 excluding the 217,000 government workers (mostly temporary census hires) who were let go.
• The 12-month rolling average of net employment (total hires – total separations) declined to -197,000 in June from -554,000 the prior month and its cyclical
trough of -6.8 million in July 2009. In fact, 197,000 jobs lost is the best net employment number since 139,000 positions were eliminated in May 2008. The last
monthly job gain was in April 2008, when employers added 231,000 payrolls.
Lastly, from a regional standpoint, the Midwest, Northeast and West continued to add jobs in June, while the South saw a decline of 80,000 positions after 3
months of solid gains. Though it is improving, the West still appears to be the region with the toughest job prospects. For the first half of the year, Californians and
other Westerners lost 45,000 payroll positions, while the Midwest added 948,000 with the Northeast (+198,000) and South (+198,000) also posting net employment gains.
Job Openings and Labor Turnover Survey (JOLTS) Data Net Jobs Added to the Economy (Hires - Total Separations): Jan 2008-June
2010
6,000
5,500 375
5,000
4,500 175
4,000
Thousands
-25
3,500
Thousands
3,000
-225
2,500
2,000
-425
1,500
1,000 -625
-825
Hires Openings Layoffs and Discharges Quits Total Separations Total Net Jobs Net Jobs Excluding Government
3
Rolling 12-Month Employment Gain/Loss: Nov 2001-June 2010 Net Jobs Gained/Lost by Region: Past 12 Months
3,000 200
2,000 150
1,000
100
0
50
-1,000
Thousands
0
-2,000
-50
-3,000
-100
-4,000
-5,000 -150
-6,000 -200
-7,000 Midwest Northeast South West
Monthly JOLTS Data: Jan 2010 versus June 2010 Regional JOLTS Data: January 2010 vs June 2010
4,500 4,351 1600
4,254
4,087 4,155
1400
4,000
1200
Thousands
3,500 1000
2,937 800
Thousands
3,000 2,854
600
2,500 400
1,953 2,034 1,961 200
2,000 1,772
0
Openings
Openings
Openings
Openings
Separations
Separations
Separations
Separations
Hires
Hires
Hires
Hires
1,500
1,000
Hires Openings Layoffs and Quits Total Separations
Discharges Midwest Northeast South West
Jan-10 Jun-10 January June
4
U.S. EQUITIES
M jumped 5.9% after reporting second quarter profit of 35 cents a share, compared with the average analyst estimate of 29 cents. Shares of MEE fell
6.4% on news that company executives will be subpoenaed in the investigation of April’s deadly West Virginia coal mine explosion that a safety regulator
called “a preventable occurrence” on Wednesday. A Robert W. Baird note said that BRCM (-6.1%) could see a deceleration of orders in September and is
likely to miss its current quarter revenue forecast.
Important Earnings Today (with Estimates) From…

ADSK: $0.20 DNEX: $0.79 PRGO: $0.67 S&P Futures
BYI: $0.57 EL: $0.30 RGLD: $0.25 One Day (High –1119.75; Low – 1085.00):
BLOKA: $-0.27 KSS: $0.81 SLE: $0.20
EAT: $0.46 JWN: $0.66 WEN: $0.05
DV: $0.82 NVDA: $0.11 Source: Bloomberg
Important Conferences/Corporate Meetings Today:

BofA Merrill Lynch Specialty Pharmaceuticals Conference – Southampton, NY
Canaccord Adams Global Growth Conference – Boston, MA
Goldman Sachs Annual Power and Utility Conference
Jefferies Global Industrial and A&D Conference – New York, NY
Morgan Keegan Technology Conference – New York, NY
Prior Day SPX (High – 1116.89; Low – 1088.55; Close – 1089.47): Three Day (High – 1126.75; Low – 1085.00):
Source: Thomson ONE

5
FIXED INCOME
Treasuries rallied Wednesday, with benchmark 10-year yields dropping to a 16 month intraday low of 2.6814%, after the Federal Reserve said Tuesday
that the economic recovery was likely “more modest” than previously expected. Two-year note yields fell to the lowest on record (0.4892%). The
government’s $24 billion sale of 10-year notes drew the lowest yield since January 2009 (2.730%), while coverage of 3.04 times was slightly below the
average of 3.06 times over the past 10 offerings. Indirect bidders accounted for 57% of the purchases, compared with a 52% average.
Source: Bloomberg Source: Bloomberg
Today’s Important Economic Indicators/Events:

Jobless Claims: 460K
Import and Export Prices
Federal Reserve Governor Elizabeth Duke speaks in Chicago – 12:30pm
6
U.S. EQUITY
OPTIONS
SPX – The index was down sharply all day ending -2.8 %, near the low of -2.9%. The implied volatility in the options premium rose by over 10 % as measured by the VIX, as
would be expected given unambiguous selloff. In early trading, the August 875/950 put spread was bought 8,500 times at $0.40. The August 1120 calls were bought several
times for a total of over 15,000 contracts on the day. Separately, the August 1100/1120 call spread was bought 10,000 times at $6.40 near the close. In longer dated options, the
March (2001) puts were bought 3,000 times at various prices. There was also a sizable trade of around 18,000 contracts selling the September 1090/1110 put spread for $9.20.
ETF- Economic worries sparked a sharp selloff in the broad market and a 13% gain in the VIX on Wednesday. In the options market, investors were seeking protection through
various put spreads. The biggest trade of the day was in SPY, where it looked like one investor was hedging a portfolio through buying the Oct 94 /104 put spread 60,000 times
(95,000x trading over the course of the day). In XRT (Retail), an investor bought the Aug 36/37 put spread 54,000 x 27,000 times - a bearish trade that would see the most profit,
with the ETF settling near $36 by Aug expiration in 10 days. Finally, in XLF (Financials) an investor financed the purchase of the Sep 13/14 put spread through selling the Sep 15
calls 15,000 paying even money to do so. In addition to the put spread, we also saw flow similar to Tuesday’s in XLF with paper selling another 37,000 Jan 9 puts.
CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY

Rank 8/5/2010 8/6/2010 8/9/2010 8/10/2010 8/11/2010 30-Day Implied Vol
1 Q ARG Q ARG Q 41.84 BIGGEST MOVERS
2 ARG Q ARG Q ARG 20.30 Top 10 30-Day Implied Vol Bottom 10 30-Day Implied Vol
3 PTV PTV PTV PTV PTV 52.47
4 NOVL NOVL NOVL NOVL NOVL 46.37
Q 41.76% 41.84 WY -561.18% 45.25
5 CFN EL NU CFN KR 26.36 HCBK 21.58% 25.19 CFN -69.16% 33.54
6 EL CFN CFN KR CRM 47.06 TLAB 18.25% 39.63 RSG -17.75% 24.86
7 KR MJN FLIR CRM AMAT 36.48
8 SWN KR EL SWN LMT 21.49
GIS 17.98% 18.59 CSC -17.12% 27.46
9 MJN FLIR KR MJN STZ 26.94 AIV 14.57% 44.41 ODP -17.01% 59.99
10 FLIR AMAT MJN LMT LO 20.59 SRE 14.32% 19.91 ROK -15.17% 34.18
11 AMAT SAI SAI PLL MO 16.85
12 SAI SWN AMAT DE MJN 34.59 CI 14.30% 36.25 SWN -14.30% 38.57
13 SJM SJM CPB AMAT CPB 18.68 LSI 12.98% 46.09 PNW -14.14% 13.91
14 PLL FRX INTU EL INTU 28.67 NTRS 12.83% 34.47 AYE -12.05% 20.99
15 INTU MRK SWN INTU FLIR 31.27
16 AIG PLL SLE FLIR SAI 27.77 DTV 12.68% 25.41 TSS -11.70% 23.87
17 MRK SLE CRM CPB SWN 38.57
18 CLX CPB SJM RDC DE 36.20
19 TGT INTU PLL LO PLL 36.15
20 CPB TGT NSM NSM MCK 26.32
21 FRX TSN FRX STZ NSM 34.88 We ranked the S&P 500 companies from the highest to lowest 30 day implied to
22 NSM CRM MCK SLE EL 34.69 historical volatility ratio. Above we identify the 10 most positive and negative
23 MCK NSM MDT CPWR MRK 24.79 movers.
24 SLE MCK RDC AAPL DVN 28.95
25 AZO CLX BIG SAI AZO 20.59 The table to the left represents the 25 highest 30 day implied to historical
CLX AZO CLX BIG AAPL volatility ratios within the S&P 500 companies. The green represents names
MRK AIG TSN MDT CPWR new to the list while the red represents names that have fallen out.
ROST TGT MCK SLE
PPL MRK MRK RDC
TSN NU CFN
BIG FRX
MIL 7
Exchange-Traded Funds/Indexes
Prior Day Peformance of Largest ETFs by Assets S&P 500 Sector ETFs
Name (Net Assets*) Ticker Category Daily Return Sector Ticker 1-Day Perf YTD Perf Sector Ticker 1-Day Perf YTD Perf
SPDRs SPY Large Blend -2.74% Energy XLE -2.98% -5.70% Telecomm IYZ -2.58% -0.15%
SPDR Gold Shares GLD N/A -0.33% Health XLV -2.58% -6.37% Technology XLK -2.39% -5.49%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts -3.19% Industrials XLI -3.73% 6.69% Consumer Discretionary XLY -2.62% 4.87%
iShares MSCI EAFE Index EFA Foreign Large Blend -4.57% Utilities XLU -2.01% -1.19% Financials XLF -3.53% -1.32%
iShares S&P 500 Index IVV Large Blend -2.77% Consumer Staples XLP -1.65% 1.40% Materials XLB -3.37% -5.27%
Prior Day Top Volume ETFs Currency ETFs
Name Ticker Category Shares Traded Currency Ticker 1-Day Perf YTD Perf Currency Ticker 1-Day Perf YTD Perf
SPDRs SPY Large Blend 227,487,507 Australian Dollar FXA -1.56% -0.11% Mexican Peso FXM -1.19% 2.17%
Financial Select SPDR XLF Specialty - Financial 89,486,005 British Pound Sterling FXB -1.05% -3.12% Swedish Krona FXS -2.67% -2.90%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts 84,501,150 Canadian Dollar FXC -1.24% -1.70% Swiss Franc FXF -0.97% -2.37%
PowerShares QQQ QQQQ Large Growth 71,924,230 Euro FXE -2.27% -10.15% USD Index Bearish UDN -1.56% -5.95%
iShares Russell 2000 Index IWM Small Blend 66,191,063 Japanese Yen FXY -0.02% 8.78% USD Index Bullish UUP 1.74% 3.68%
Prior Day Top Performers VIX ETNs Fixed Income ETFs
Name Ticker Category Daily Return Name Ticker 1-Day Perf YTD Perf Bonds Ticker 1-Day Perf YTD Perf
Direxion Daily Dev Mkts Bear 3X Shrs DPK Bear Market 13.56% iPath S&P 500 VIX VXX 7.23% -32.96% Aggregate AGG 0.10% 4.58%
Direxion Daily Semicondct Bear 3X Shares SOXS N/A 12.40% Short-Term Futures ETN Investment Grade LQD -0.01% 6.19%
ProShares UltraPro Short Russell2000 SRTY N/A 11.84% High Yield HYG -1.30% -0.92%
Direxion Daily Small Cap Bear 3X Shares TZA Bear Market 11.47% iPath S&P 500 VIX VXZ 4.06% 13.98% 1-3 Year Treasuries SHY 0.02% 1.54%
ProShares UltraPro Short MidCap400 SMDD N/A 10.23% Mid-Term Futures ETN 7-10 Year Treasuries IEF 0.54% 10.46%
20+ Year Treasuries TLT 1.34% 12.67%
Others
ETF Ticker 1-Day Perf YTD Perf ETF Ticker 1-Day Perf YTD Perf
Gold GLD -0.33% 9.35% Crude Oil USO -3.15% -11.56%
Silver SLV -2.45% 5.99% EAFE Index EFA -4.57% -7.85%
Natural Gas UNG 0.28% -27.78% Emerging Markets EEM -3.19% -4.02%
SPDRs SPY -2.74% -1.92%
Major Index Changes:

None
ETFs in the Headlines and Blogs:

7 ETFs Helped or Hurt by China’s Trade Numbers - http://www.etftrends.com/2010/08/7-etfs-helped-hurt-by-chinas-trade-numbers/
Commodity ETF Gamechanger: U.S. Commodity Index Fund (USCI) Launches - http://etfdb.com/2010/commodity-etf-gamechanger-u-s-commodity-index-fund-usci-
launches/
8
Top Online Social Networking Stories
Latest Popular Digg.com Business Stories:

It’s Official: Epix, Netflix Announce “Multi-Year” Deal for Streaming Movies - http://mediamemo.allthingsd.com/20100810/its-official-epix-netflix-announce-
multi-year-deal-for-streaming-movies/
Should We Raise Tax Rates on the Rich? - http://www.theatlantic.com/business/archive/2010/08/should-we-raise-tax-rates-on-the-rich/61182/
Calculated Risk
Trade Deficit increases sharply in June - http://www.calculatedriskblog.com/2010/08/trade-deficit-increases-sharply-in-june.html
MBA: Mortgage Applications Essentially Unchanged Despite Low Rates - http://www.calculatedriskblog.com/2010/08/mba-mortgage-applications-
essentially.html
“Quantitative Neutrality” - http://www.calculatedriskblog.com/2010/08/quantitative-neutrality.html
NY Fed: Technical Note on Reinvestment - http://www.calculatedriskblog.com/2010/08/ny-fed-technical-note-on-reinvestment.html
Lowell: The Natural History of a Rumor - http://www.calculatedriskblog.com/2010/08/lowell-natural-history-of-rumor.html
The Big Picture

Road to Nowhere? - http://www.ritholtz.com/blog/2010/08/road-to-nowhere/
Comparing FOMC Statements - http://www.ritholtz.com/blog/2010/08/comparing-fomc-statements/
CPI, CRB Do Not Disprove Deflation Thesis - http://www.ritholtz.com/blog/2010/08/cpi-crb-do-not-disprove-deflation/
Robert Reich’s Blog

Confessions of a Class Worrier - http://robertreich.org/post/932556288/confessions-of-a-class-worrier
Zero Hedge
Trade Deficit Surges to Highest Since October 2008, Trounces Expectations; Q2 GDP to Be Revised to Sub-1% - http://www.zerohedge.com/article/trade-
deficit-surges-highest-october-2008-trounces-expectations-q2-gdp-be-revised-sub-1
Visualizing Job Prospects by State - http://www.zerohedge.com/article/visualizing-job-prospects-state
Bespoke Investment Group

Up 100% in 2010 - http://www.bespokeinvest.com/thinkbig/2010/8/10/up-100-in-2010.html
Democrats Now the House Underdogs - http://www.bespokeinvest.com/thinkbig/2010/8/10/democrats-now-the-house-underdogs.html
EconomistMom
Social Security: A Small Problem That Still Grows Bigger Over Time - http://economistmom.com/2010/08/social-security-a-small-problem-that-still-grows-
bigger-over-time/
9
GENERAL DISCLOSURES
This presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It is
provided for general informational purposes only and should not be relied on for any other purpose. It is not, and is not intended to be, research, a
recommendation or investment advice, nor an offer to sell or the solicitation of offers to buy any BNY ConvergEx Execution Solutions LLC (“ConvergEx”)
product or service in any jurisdiction. It does not take into account the particular investment objectives, restrictions, tax and financial situations or other
needs of any specific client or potential client. Please consult with your financial and other advisors before buying or selling any securities or other
assets. This presentation is for qualified investors and NOT for retail investors.
Please be advised that options carry a high level of risk and are not suitable for all investors. To receive a copy of the Options Disclosure Document
please contact the ConvergEx Compliance Department at (800) 367-8998.
The opinions and information herein are current only as of the date appearing on the cover. ConvergEx has no obligation to provide any updates or
changes to such opinions or information. The economic and market assumptions and forecasts are subject to high levels of uncertainty that may affect
actual performance. Such assumptions and forecasts may prove untrue or inaccurate and should be viewed as merely representative of a broad range
of possibilities. They are subject to significant revision and may change materially as market, economic, political and other conditions change.
Past performance is not indicative of future results, which may vary significantly. The value of investments and the income derived from investments
can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur. The information and statements provided herein do
not provide any assurance or guarantee as to returns that may be realized from investments in any securities or other assets.
The opinions expressed in this presentation are those of various authors, and do not necessarily represent the opinions of ConvergEx or its affiliates.
This material has been prepared by ConvergEx and is not a product, nor does it express the views, of other departments or divisions of BNY ConvergEx
Group, LLC and its affiliates.
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.

Wall Street, Sesame Street, and the Number 83,000

A little background on 83,000, our number du jour:

Been to Meadowlands Stadium yet? It holds exactly 83,000 roaring fans.

On to the more specific monthly data for June:

We have 2 items to report in terms of positive (or less negative) news :

-7,000 Midwest Northeast South West

Jan-10 Jun-10 January June

Important Earnings Today (with Estimates) From…

Important Conferences/Corporate Meetings Today:

Source: Thomson ONE

Source: Bloomberg Source: Bloomberg

Today’s Important Economic Indicators/Events:

CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY

Major Index Changes:

ETFs in the Headlines and Blogs:

Top Online Social Networking Stories

Latest Popular Digg.com Business Stories:

The Big Picture

Robert Reich’s Blog

Bespoke Investment Group

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