Morning Review - 091410

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 gained Monday (S&P 500 +1.1%, Dow +0.8%, Nasdaq +1.9%), boosted by new global banking Morning Markets Briefing
rules that were less stringent than feared and a report out of China showing that industrial output rose
almost 14% year-over-year last month. For the first time since early August, the S&P 500 broke
Market Commentary: September 14th, 2010
through its 200-day moving average. The U.S. Treasury monthly budget report for August showed a
deficit of $90.5 billion for a fiscal year-to-date deficit of $1.26 trillion, trailing the $1.38 trillion deficit at A snapshot of the markets through the
this time last year. Congress returns from its month-long break this week, with the small business lens of ConvergEx.
jobs bill as one of the items atop the agenda. Tomorrow Kroger and Best Buy are slated to announce
earnings before the bell, while retail sales are due out at 8:30am.
Cooking Up a Sustainable Rally – Analyst Revenue Estimates a Key Ingredient
Summary: Our monthly review of analysts’ revenue expectations for the 30 companies of the Dow Jones Industrial Average finds no fear of an upcoming “double dip”
when it comes to revenue growth for these large multinational companies. The worst sales “comp” is expected to be in somewhere in the first half of 2011, at 5-6% year-
on-year growth, but that’s not bad when you consider that Q1-Q3 of 2009 saw negative 6-10% comparisons. That’s the good news. On the more cautious side, analysts
do continue to trim Q310 and Q410 expectations for top line growth. Third quarter comps are expected to run +11.5% versus last year, down from an +11.9% comp
estimate last month for the same period and a 13.2% expected comp logged by analysts back in May 2010. Analysts are also cutting fourth quarter expectations, now
publishing revenue estimates of 6.1% growth year-on-year, down from 6.5% last month and the 7.8% growth expected back in May.
I like to cook, but I hate to bake. The reason is that cooking – that’s anything from grilling some steaks to making duck confit – feel like it has some room for
interpretation. A few more garlic cloves in a sauce? No problem. A little more cilantro in the salsa? Why not? It just personalizes the flavors to what you like.
But try the same slipshod measurements with a cake and you court disappointment, if not outright failure. Baking is more akin to chemisty; the instructions are
precise for a reason. If the recipe calls for walnut oil, don’t try Crisco. It won’t work. If you need baking soda, don’t try baking powder. They aren’t the same thing. Trust
me. I have tried and failed so you don’t have to.
And so it seems to me that the “recipe” for a sustainable rally in equities is – for the moment - more like baking than cooking. As we have seen this year – let’s
not forget that the S&P is up all of 0.6%, despite the rip in early September – the ingredients for a sustainable rally are hard to find, let alone portion correctly for a good
outcome in equity land. If anything, the multiyear rally in bonds has the carefree feel of a Southern cooking show, where a pinch of deflation and a cupful of slow growth
are all your need for a delicious plate of fixed income inflows.
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
We all know that growth in corporate earnings and cash flows are a one key ingredient to a sustainable rally, and by that measure alone stocks look cheap to
many investors. If the companies of the S&P 500 can really earn anywhere near close to $88 in operating earnings over the next year, as is the current consensus, then
market bulls hope that will spark a better price-earnings ratio than the 12X currently implied by this expected level of earnings. The purist, of course, will point out that
expectations for reported earnings (with writedowns, writeoff, and other “bad stuff”) are only expected to reach $74 per S&P 500 share over the next year. That puts the
market much closer to 15x earnings and a closer-to fair-value kind of valuation.
Just as with cooking or baking, however, sometimes you need to substitute when your preferred ingredient is not available. That is tricky, as I have mentioned
above, especially when it comes to baking and other finicky stuff like calling stocks. Still – with earnings expectations unable to really give stocks a reason to shine (at
least so far this year) – let’s look at the top of the income statement: revenues. Maybe we can do something with margarine if there is no butter available.
Every month we track analysts’ earnings expectations for each of the 30 stocks in the Dow Jones Industrial Average. In the accompanying charts we show the
average growth in expected top line “comps” for both all the companies in the DJIA, and just the non-financial enterprises. Our basic premise is that equity markets
would – ideally – like to see revenue expectations rising among the analysts that cover these companies. After all, we know that these large multinationals have done a
great job cutting costs to match the sluggish economies in the U.S. and much of the developed world. But how much can we expect in the way of help from actual end
demand? And when will it start to create the environment for earnings surprises based on better-than expected revenues rather than better-than-expected cost cutting?
Our data points to three conclusions:

• Analysts do not expect sluggish global economies to create a “double dip” in revenue comps for the 30 companies surveyed here. Yes, sales comps are
expected to slip a little in the next few quarters, from 11.5% in Q310 (versus Q309) to 4.5% in Q111 (versus Q110). But keep in mind that these companies did post
some pretty nasty negative comparisons back in 2009, so the mid-single-digit expectations for the first part of next year are still pretty benign.
• Analysts are, however, continuing to trim expectations for revenue growth for Q310 and Q410. In fact, they have been doing so for the past few months.
Back in May 2010, the analysts of the Dow 30 companies thought Q310 would be +13% better than last year. Now, the expectations hurdle is an 11.5%
comparison. The pattern for Q410 is similar; expectations back in May were for a 7.8% comp. Now 6.1% will make analysts happy.
• Analysts are also pulling in their horns – modestly – for the first half of 2011. Both Q111 and Q211 are now slated to run just 4.5-5.0% better than the same
periods in 2010, down from 5.8-6.5% expected growth earlier this year.
Our attempt to substitute revenue growth for earnings expansion in the “stock market rally” recipe has, in all fairness, not been an unqualified success. Analysts
are not increasing their expectations for a top-line tailwind to earnings expectations. On the contrary – they are cutting revenue estimates. Every month for several
months, truth be told. So what explains the recent flight to stocks? I think it has to do with the first observation – that revenues will not turn negative in the first part of
2011. Fair enough – where there is life there is hope, after all. But I would prefer using the real thing in the “stock market rally” recipe – increases in revenue
expectations – before serving up a dish of “unmitigated bullish outlook” for guests.
2
Expected Y/Y Revenue Growth: Q3 2010 Expected Y/Y Revenue Growth: Q4 2010
17% 9%
8.1%
15.1%
14.7% 8% 7.8% 7.8% 7.8%
15% 14.0% 7.6% 7.6%
13.4% 13.6% 14.1%
13.2%
12.9% 13.0% 13.6% 7.3%
8%
13% 12.1% 12.1% 7.1%
11.6%
12.0%
11.6% 6.9% 6.9% 7.0% 7.1%
11.3% 11.9% 11.5% 7% 6.8% 6.7%
10.5%
11% 9.9% 6.5%
7% 6.1%
9%
6%
7% 6%
5% 5%
All Ex-Fin All Ex-Fin
Dec Jan Feb Mar April May June July Aug Sept Feb Mar April May June July Aug Sept
Expected Y/Y Revenue Growth: Q1 2011 Expected Y/Y Revenue Growth: Q2 2011
8% 7.5% 8%
6.5% 6.6% 6.5% 6.7%
7% 7% 6.3%
6.1% 6.3% 6.2% 6.2%
5.9%
5.8% 5.8%
6% 5.2% 5.2%
6%
5.1% 5.0%
4.9%
5% 4.6% 4.5% 5%
4% 4%
3% 3%
2% 2%
1% 1%
0% 0%
All Ex-Fin All Ex-Fin
April May June July Aug Sept June July Aug Sept
3
Expected Y/Y Revenue Growth: Full Year 2010 Actual and Expected Y/Y Quarterly Revenue Growth
16% 20% 17.8% 18.0%
12.8% 15.2% 15.0%
14% 13.3% 13.6%
11.7% 12.7% 13.0% 15% 11.5%
11.0% 11.3% 11.5% 12.1% 9.6%
12% 10.9% 11.2% 10.6% 11.1% 8.2%
9.3% 11.0%
9.8% 10% 6.7%
9.4% 9.8% 10.4% 6.1% 5.0% 5.6% 5.8% 6.2%
10% 8.8% 9.6% 4.5% 6.2%
8.1% 5%
8% 6.8%
6.0% 0%
5.6%
6% 4.8%
-5% ALL EX-FIN
4%
-7.1% -6.4%
2% -10%
-10.4% -10.9%
0% -15% -13.2%
-14.6%
All Ex-Fin
Q1 '09 Q2 '09 Q3 '09 Q4 '09 Q1 '10 Q2 '10 Q3 '10 Q4 '10 Q1 '11 Q2 '11 Q3 '11
Sept Oct Nov Dec Jan Feb Mar April May June July Aug Sept
Ticker Current Revenue Estimate for Next 4 Quarters Exp Y/Y Revenue Growth in Q3 '10 Exp Y/Y Revenue Growth in Q4 '10 Exp Y/Y Revenue Growth in Q1 '11 Exp Y/Y Rev Growth Q2 '11
Current Current Current Current Dec Est Jan Est Feb Est Mar Est Apr Est May Est June Est July Est Aug Est Sept Est Feb Est Mar Est Apr Est May Est June Est July Est Aug Est Sept Est Apr Est May Est June Est July Est Aug Est Sept Est June Est July Est Aug Est Sept Est
Q3 Rev Est Q4 Rev Est Q1 Rev Est Q2 Rev Est Q3 2010 Q3 2010 Q3 2010 Q3 2010 Q3 2010 Q3 2010 Q3 2010 Q3 2010 Q3 2010 Q3 2010 Q4 2010 Q4 2010 Q4 2010 Q4 2010 Q4 2010 Q4 2010 Q4 2010 Q4 2010 Q1 2011 Q1 2011 Q1 2011 Q1 2011 Q1 2011 Q1 2011 Q2 2011 Q2 2011 Q2 2011 Q2 2011
IBM 24,106 27,879 23,619 24,736 2.67% 2.75% 3.53% 3.53% 3.60% 4.05% 4.12% 3.97% 2.30% 2.29% 3.36% 3.36% 3.44% 4.09% 4.23% 4.00% 2.37% 2.38% 3.35% 3.78% 4.11% 4.29% 3.39% 3.33% 4.38% 4.30% 4.19% 4.27%
CVX 52,860 52,850 56,910 60,691 8.24% 8.14% 4.15% 4.15% 15.83% 18.94% 18.94% 12.27% 13.37% 13.37% 27.70% 27.70% 10.91% 19.48% 19.48% 12.63% 8.57% 8.57% 15.60% 18.78% 18.78% 16.79% 9.05% 18.12% 12.05% 16.67% 5.83% 14.50%
MMM 6,807 6,472 6,718 7,203 5.62% 7.10% 7.04% 7.01% 6.74% 7.52% 6.92% 6.37% 9.65% 9.91% 4.48% 4.39% 4.17% 4.74% 4.46% 3.93% 5.61% 5.71% NA 6.38% 6.38% 5.08% 5.83% 5.83% 8.67% 8.72% 7.01% 7.01%
XOM 98,869 98,007 101,237 103,857 16.36% 19.96% 22.28% 22.28% 23.85% 27.46% 23.87% 18.73% 18.78% 20.19% 15.95% 15.95% 18.65% 17.38% 13.28% 8.55% 9.01% 9.09% 18.07% 19.04% 18.65% 16.65% 15.57% 12.17% 14.59% 16.99% 15.00% 12.29%
UTX 13,926 14,585 12,832 14,446 2.66% 4.28% 5.15% 5.26% 5.04% 5.19% 4.65% 4.32% 4.14% 4.12% 4.16% 4.35% 4.50% 4.84% 5.02% 4.71% 3.47% 3.44% 7.41% 6.55% 6.49% 6.49% 6.13% 6.13% 5.53% 5.75% 4.00% 4.00%
MCD 6,182 6,021 5,761 6,197 4.63% 4.63% 3.37% 3.27% 2.93% 2.92% 1.47% 0.37% 1.80% 2.24% 2.36% 2.13% 1.83% 1.92% 0.61% -0.46% 0.80% 0.81% 4.33% 3.69% 2.79% 1.29% 2.70% 2.70% 4.22% 3.58% 4.29% 4.24%
PG 20,179 21,097 19,761 19,914 4.91% 5.15% 4.81% 4.40% 4.52% 4.46% 2.85% 2.26% 1.79% 1.88% 3.31% 2.79% 2.65% 2.92% 1.48% 0.79% 0.44% 0.34% 4.19% 4.42% 2.68% 2.38% 3.06% 3.04% 3.94% 4.01% 5.19% 5.22%
JNJ 15,174 16,205 16,072 16,009 5.44% 5.44% 5.88% 5.80% 5.29% 4.35% 3.28% 2.23% 0.61% 0.62% 1.92% 2.18% 1.87% 0.85% -0.20% -1.26% -2.10% -2.09% 5.99% 5.36% 4.74% 4.65% 2.82% 2.82% 5.58% 6.07% 4.43% 4.43%
CAT 10,446 11,114 10,011 12,357 27.25% 27.25% 25.50% 25.50% 24.87% 38.99% 37.49% 38.67% 42.87% 43.13% 25.65% 25.65% 24.77% 36.37% 35.39% 38.25% 40.53% 40.72% 20.89% 17.67% 18.00% 20.17% 22.21% 21.52% 16.33% 17.83% 19.46% 18.72%
KO 8,289 7,637 7,883 9,065 6.94% 7.12% 6.19% 6.22% 6.38% 5.44% 4.69% 3.77% 3.04% 3.04% 3.29% 12.88% 11.02% 4.39% 3.62% 2.50% 1.69% 1.69% 30.44% 6.41% 5.96% 5.68% 5.26% 4.76% 6.29% 5.41% 4.94% 4.51%
TRV 5,402 5,243 5,316 5,759 0.84% 0.77% 0.00% 0.00% -0.01% 0.87% 0.87% 0.93% 1.16% 1.16% 0.67% 0.67% 0.68% 0.99% 0.99% 1.10% 1.05% 1.05% 0.67% 0.52% 0.52% 0.50% 1.25% 1.25% 1.05% 1.47% 1.25% 1.25%
WMT 102,643 117,762 105,518 111,099 5.69% 6.14% 5.69% 4.94% 4.93% 4.89% 4.41% 4.41% 4.47% 3.25% 5.17% 4.27% 4.33% 4.33% 3.57% 3.68% 3.66% 2.84% 6.55% 5.09% 5.54% 2.24% 6.09% 5.68% 6.22% 7.10% 6.94% 7.11%
BA 16,504 17,223 16,614 17,680 -2.29% -3.08% -3.47% -4.07% -3.38% -2.50% -2.24% -2.31% -1.59% -1.10% -6.14% -6.19% -6.10% -3.99% -3.79% -3.62% -4.07% -3.98% 4.48% 8.49% 8.04% 8.04% 10.09% 9.19% 7.26% 7.61% 13.24% 13.53%
HPQ 32,743 32,690 32,309 32,121 3.32% 3.35% 3.47% 4.78% 4.90% 5.53% 5.94% 5.98% 5.92% 6.39% 4.38% 7.85% 7.96% 8.67% 9.00% 8.86% 8.87% 9.06% 5.25% 1.90% 4.33% 4.33% 4.34% 4.73% 5.84% 5.84% 5.36% 4.53%
JPM 24,654 24,707 25,740 26,223 -6.47% -6.97% -9.31% -9.07% -9.23% -9.63% -9.63% -10.06% -14.19% -14.34% 4.49% 4.84% 4.27% 2.50% 2.50% 2.91% -2.03% -2.10% -6.96% -5.06% -5.06% -3.88% -8.63% -8.63% 2.66% 6.74% 2.38% 2.38%
AXP 6,786 7,107 6,827 7,207 3.72% 6.77% 9.64% 9.92% 9.18% 13.38% 13.40% 13.57% 12.98% 12.80% 7.91% 8.24% 7.43% 10.14% 10.35% 10.45% 9.85% 9.52% 1.92% 3.20% 3.63% 4.32% 3.34% 3.34% 5.26% 5.31% 5.09% 5.09%
DD 6,725 6,712 9,282 9,486 N/A 12.41% 10.67% 10.67% 10.25% 10.38% 9.27% 8.58% 12.81% 12.81% 5.27% 5.27% 4.44% 3.13% 3.01% 2.06% 4.56% 4.56% NA NA NA NA 6.00% 9.40% NA NA 6.65% 10.10%
MRK 11,238 11,578 10,966 11,116 91.69% 90.10% 84.26% 87.97% 88.60% 88.47% 87.61% 86.54% 85.77% 85.74% 22.07% 24.67% 25.77% 25.02% 24.35% 23.47% 23.21% 23.46% -1.28% -6.76% -0.63% -0.63% -2.06% -4.00% 0.59% 0.77% -1.99% -2.03%
VZ 26,333 26,395 26,531 26,769 -0.18% -0.08% -0.46% -0.59% -0.66% -0.69% -0.11% -2.83% -3.40% -3.42% 0.61% 0.42% 0.36% 0.18% 0.66% -1.89% -2.54% -2.57% 1.67% 1.04% 1.47% -0.51% -1.42% -1.42% 2.78% 0.57% -0.01% -0.01%
DIS 9,982 10,456 9,141 10,193 -0.58% -0.52% 3.48% 3.85% 4.08% 4.44% 4.00% 3.92% 3.98% 1.17% 2.86% 2.86% 3.52% 3.85% 5.02% 4.75% 5.10% 7.36% 6.72% 4.40% 5.44% 5.06% 5.15% 6.54% 5.03% 5.63% 5.36% 1.91%
MSFT 15,859 19,110 16,060 17,137 17.62% 17.76% 19.50% 19.61% 19.86% 20.85% 21.01% 20.72% 23.42% 22.75% -2.09% -2.07% -1.35% -0.12% 0.09% 0.20% 0.47% 0.46% 9.80% 9.75% 10.17% 10.14% 10.92% 10.74% 9.24% 8.96% 7.29% 6.85%
HD 16,673 14,692 17,089 19,943 2.26% 2.21% 2.41% 3.87% 3.80% 3.97% 4.33% 3.80% 3.53% 1.91% 3.37% 7.81% 7.57% 7.81% 7.25% 6.71% 6.35% 4.77% 3.94% 0.30% 3.73% 3.27% 3.06% 1.34% 4.38% 4.28% 3.92% 2.75%
KFT 12,026 13,260 12,420 12,852 4.83% 4.37% 12.68% 16.13% 21.80% 22.22% 24.92% 24.82% 23.19% 22.68% 11.59% 12.90% 18.66% 18.92% 20.62% 20.55% 20.04% 19.81% 9.29% 5.46% 8.96% 8.99% 10.42% 9.74% 4.14% 4.25% 5.02% 4.89%
T 31,199 31,291 31,168 31,315 1.08% 1.16% 1.05% 1.08% 0.96% 0.99% 1.04% 1.22% 1.10% 1.12% 1.26% 1.28% 1.19% 1.29% 1.42% 1.60% 1.42% 1.40% 2.32% 2.71% 2.44% 2.47% 1.68% 1.69% 1.82% 1.71% 1.63% 1.65%
CSCO 10,742 11,075 11,448 11,999 10.41% 10.62% 17.22% 17.22% 17.57% 18.94% 20.91% 20.89% 21.34% 19.08% 19.03% 19.03% 19.29% 20.53% 22.58% 22.53% 22.81% 20.58% 10.82% 10.31% 11.88% 12.05% 12.18% 10.41% 12.07% 12.09% 12.18% 10.74%
INTC 11,013 11,439 10,708 10,605 5.02% 5.98% 10.31% 10.82% 11.02% 16.53% 16.46% 16.25% 23.73% 17.30% 4.58% 5.11% 5.26% 9.75% 9.74% 9.44% 15.81% 8.23% 5.58% 4.92% 4.97% 4.87% 9.94% 3.97% 4.13% 4.14% 3.74% -1.48%
PFE 16,665 17,082 16,094 16,407 47.11% 45.17% 47.31% 47.34% 47.12% 46.44% 45.18% 43.94% 43.39% 43.63% 6.39% 6.97% 6.96% 6.03% 4.91% 3.93% 3.32% 3.40% -4.90% -6.17% -6.17% -4.17% -3.75% -3.88% -3.63% -4.93% -6.11% -5.27%
BAC 27,239 27,247 28,188 28,523 9.89% 8.69% 9.21% 10.22% 9.98% 12.47% 13.12% 11.72% 5.41% 4.63% 15.34% 16.35% 15.88% 16.89% 17.60% 15.99% 9.17% 8.66% 8.63% -6.24% -4.46% -4.48% -11.82% -11.83% 3.70% 3.53% -1.71% -2.16%
GE 37,847 41,092 35,204 36,572 0.00% 1.29% 2.62% 2.62% 2.90% 2.63% 2.75% 2.09% 0.61% 0.13% 1.29% 1.25% 2.15% 2.06% 2.01% 1.65% -0.38% -0.83% NA 0.21% 0.21% -2.73% -3.83% -3.83% NA NA -2.33% -2.33%
AA 4,888 5,299 5,339 5,775 8.08% 15.95% 23.99% 23.99% 21.06% 17.37% 15.91% 11.48% 5.70% 5.91% 2.71% 3.63% 1.50% -0.22% -0.31% -1.63% -2.84% -2.47% 1.53% 8.88% 7.03% 7.72% 8.93% 9.24% 7.78% 13.00% 10.38% 11.34%
Average: 9.89% 10.46% 11.27% 11.62% 12.13% 13.23% 12.91% 11.95% 11.92% 11.48% 6.76% 7.55% 7.12% 7.82% 7.63% 6.88% 6.47% 6.13% 6.53% 4.66% 5.19% 4.87% 4.60% 4.47% 5.78% 6.34% 5.09% 5.00%
Average Ex-Financials*: 11.62% 12.13% 13.04% 13.40% 14.04% 15.09% 14.68% 13.61% 14.07% 13.60% 6.93% 7.81% 7.33% 8.09% 7.82% 6.97% 7.06% 6.70% 7.48% 5.93% 6.49% 6.14% 6.30% 6.15% 6.22% 6.68% 5.92% 5.83%
*Financials include AXP, BAC, GE, JPM and TRV.
**WMT, HPQ, DIS, HD and CSCO have not yet reported Q2 '10 revenue.
Source: ThomsonOne
4
U.S. EQUITIES
Many financials advanced after news that banks will have until 2018 to comply with new Basel III banking capital rules, which are also not as strict as
feared. Keefe, Bruyette and Woods upgraded the European banking sector to “Overweight” from “Neutral,” while Sanford Bernstein lifted its rating on
several regional banks to “Outperform” from “Market Perform.” Additionally, Citigroup cut 3rd quarter profit estimates for GS (+2.7%) and MS (+2.1%),
though both traded higher. In M&A news, DTG (+5.4%) accepted HTZ’s (+7.9%) $1.56 billion bid, and HPQ (+0.2%) announced it will buy ARST (+25.1%) for
$1.5 billion in cash.
Important Earnings Today (with Estimates) From…

BBY: $0.44 S&P Futures
CBRL: $1.12 One Day (High –1124.00; Low – 1112.00):
KR: $0.36
PLL: $0.64
Source: Bloomberg
Important Conferences/Corporate Meetings Today:

Bank of America Merrill Lynch Investment Conference – San Francisco, CA
Barclays Financial Services Conference – New York, NY
Credit Suisse Small and Mid Cap Conference – Boston, MA
Deutsche Bank Technology Conference – San Francisco, CA
Goldman Sachs Global Retail Conference – New York, NY
Morgan Stanley Global Healthcare Conference
Robert W. Baird Health Care Conference – New York, NY
Rodman & Renshaw Global Investment Conference – New York, NY
Prior Day SPX (High – 1123.87; Low – 1113.38; Close – 1121.92): Three Day (High – 1124.00; Low – 1101.00):
Source: Thomson ONE

5
FIXED INCOME
Treasuries advanced Monday, pushing the benchmark 10-year note yield down from a 5-week high, as the U.S. government’s monthly Treasury budget
report showed a smaller-than-expected deficit in August ($90.5 billion – down from $103.6 billion in the year-ago month) and the Fed purchased $3.4
billion in U.S. debt. The current fiscal year-to-date budget gap is $1.26 trillion, compared with $1.37 trillion at the same time last year. Yields on 10-year
notes dropped 6 basis points to 2.74% after rising to 2.85% early in the trading session.
Source: Bloomberg Source: Bloomberg
Today’s Important Economic Indicators/Events (with Consensus):

Retail Sales (8:30am EST): 0.3%
o Excluding autos: 0.4%
Business Inventories (10:00am EST): 0.6%
6
U.S. EQUITY OPTIONS
SPX- The index had a steady gain Monday, ending +1.1%, with a range of+.3% to +1.3%. The VIX reflected the positive mood, ending down 3.3%. There
were several trades which also reflected this net complacent upside mood. For example, the December/June 1100 put spread was sold 5,000 times @
$47.50. The October 1050 puts were sold several times over 5,000 on the day. The October 1050/1165 strangle was also sold over 2,000 times. However,
the largest trade of note was the sale of the September/October call spread 20,000 times for $1.35, which was a likely roll of a short September call
position.
ETF- Even with scant economic news, the market opened higher before selling off a bit, and then rebounding to close up 1.1%. In SPYs we noted what
looked like a short-term hedge as paper bought Oct 112 /109 put spreads 30,000 times. In sector flow, we saw a volatility buyer in XLP (Consumer
Staples) through the purchase of 20,000 Oct 28 calls delta neutral. In the international space, one EEM investor sold ~7,000 Oct 42 /40 put spreads, while
in EFA paper sold the Oct 52 /50 put spread 20,000 times. Lastly in FXI (FTSE/Xinhua China 25 Index), we saw one investor making a volatility play through
selling 27,500 Oct 40 puts delta neutral.
CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY
Rank 9/7/2010 9/8/2010 9/9/2010 9/10/2010 9/13/2010 30-Day Implied Vol
1 MKC ARG ARG ARG ARG 39.45
ARG FDO FDO FDO FDO 31.10
BIGGEST MOVERS
2
3 NOVL NOVL NOVL NOVL NOVL 54.15

4 Q Q Q FSLR MKC 26.24 Top 10 30-Day Implied Vol Bottom 10 30-Day Implied Vol
FDO MKC DTV Q Q 20.50
5
6 STZ PEP MKC DTV CEPH 35.42

MKC 41.07% 26.24 MSFT -24.86% 24.01
7 YHOO STZ GENZ GIS FSLR 40.03 AGN 40.07% 29.96 AEE -24.46% 19.04
8 PEP DPS FTR STZ AGN 29.96 ODP 27.45% 63.54 XRX -20.38% 35.81
9 NKE SLM SLM GENZ STZ 30.42
10 GENZ GENZ YHOO DTE DTV 24.24 KO 24.47% 15.75 NU -18.27% 16.83
11 MAT YHOO STZ CEPH GENZ 27.77 SJM 19.92% 18.32 AMD -14.87% 55.30
12 PX NKE CLX SLM SLM 47.02
13 MSFT PBCT NKE YHOO HSP 35.02 CTAS 19.85% 27.23 DTE -13.13% 19.21
14 PBCT MSFT HSP HSP PEP 16.65 XOM 18.89% 19.66 ZION -12.64% 44.24
15 CAM CEPH PNW CLX YHOO 30.50
16 AZO CLX PEP NKE CLX 15.95 SPG 18.30% 29.54 HIG -11.99% 44.02
17 DTV MAT GIS WFR KMB 14.43 LSI 17.20% 39.90 TSS -11.05% 28.77
18 C HSP STR AZO AZO 25.35
19 CTL AZO CEPH MSFT WAG 26.52 SLE 16.70% 23.34 GNW -10.22% 46.41
20 SLM PX MSFT PX WFR 44.42
21 WAG MCK WAG PEP JEC 32.02
22 BMY C MAT CTXS PX 22.64
23 KR JEC WPI RSH NKE 25.75 We ranked the S&P 500 companies from the highest to lowest 30 day implied to
24 MCK STR PX WAG GIS 24.52 historical volatility ratio. Above we identify the 10 most positive and negative
25 COG WPI KR MAT BBY 41.28 movers.
AXP SLM JEC KR MAT
MO WAG C WPI RSH The table to the left represents the 25 highest 30 day implied to historical
BSX BMY MCK PNW CTXS volatility ratios within the S&P 500 companies. The green represents names
NTRS COG AZO FTR DTE new to the list while the red represents names that have fallen out.
VIA/B CAM PBCT MKC MSFT
CB DTV DPS STR
CTL
KR
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 1.11% Energy XLE 0.73% -3.68% Telecomm IYZ 0.90% 5.94%
SPDR Gold Shares GLD N/A -0.09% Health XLV 0.24% -4.02% Technology XLK 1.79% -3.49%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts 2.39% Industrials XLI 0.99% 10.47% Consumer Discretionary XLY 1.21% 9.67%
iShares MSCI EAFE Index EFA Foreign Large Blend 1.82% Utilities XLU 0.45% 1.81% Financials XLF 2.13% 3.06%
iShares S&P 500 Index IVV Large Blend 1.05% Consumer Staples XLP 0.11% 4.08% Materials XLB 1.61% 1.09%
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 145,464,147 Australian Dollar FXA 1.02% 4.05% Mexican Peso FXM 0.45% 1.36%
Financial Select SPDR XLF Specialty - Financial 67,516,870 British Pound Sterling FXB 0.41% -4.77% Swedish Krona FXS 1.13% -0.16%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts 59,308,524 Canadian Dollar FXC 0.78% 2.03% Swiss Franc FXF 1.20% 2.54%
PowerShares QQQ QQQQ Large Growth 53,309,182 Euro FXE 1.26% -10.25% USD Index Bearish UDN 1.16% -5.27%
iShares Russell 2000 Index IWM Small Blend 51,271,919 Japanese Yen FXY 0.65% 10.98% USD Index Bullish UUP -1.08% 2.77%
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 Semicondct Bull 3X Shares SOXL N/A 9.24% iPath S&P 500 VIX VXX -5.18% -48.40% Aggregate AGG 0.24% 4.44%
Direxion Daily China Bull 3X Shares CZM Pacific/Asia ex-Japan Stock 7.67% Short-Term Futures ETN Investment Grade LQD 0.14% 6.58%
ProShares UltraPro Russell2000 URTY Small Blend 7.53% High Yield HYG 0.52% 1.08%
Direxion Daily Emrg Mkts Bull 3X Shares EDC Diversified Emrg Markets 7.31% iPath S&P 500 VIX VXZ -2.01% 10.87% 1-3 Year Treasuries SHY 0.08% 1.45%
Direxion Daily Latin America Bull 3X Shares LBJ Latin America Stock 7.29% Mid-Term Futures ETN 7-10 Year Treasuries IEF 0.48% 9.73%
20+ Year Treasuries TLT 0.49% 14.39%
Others
ETF Ticker 1-Day Perf YTD Perf ETF Ticker 1-Day Perf YTD Perf
Gold GLD -0.09% 13.34% Crude Oil USO 0.77% -13.37%
Silver SLV 0.62% 18.14% EAFE Index EFA 1.82% -2.73%
Natural Gas UNG 1.39% -34.72% Emerging Markets EEM 2.39% 4.27%
SPDRs SPY 1.11% 1.15%
Major Index Changes:

None
ETFs in the Headlines and Blogs:

Silver ETF rallies to close near record high - http://www.marketwatch.com/story/silver-etf-rallies-to-close-near-record-high-2010-09-12
Metal Commodity ETFs in Review (GLD, SLV, PALL, PPLT) - http://etfdailynews.com/blog/2010/09/12/metal-commodity-etfs-in-review-gld-slv-pall-pplt/
8
Top Online Social Networking Stories

Latest Popular Digg.com Business Stories
Overworked Americans Giving Up Vacation Days - http://www.nileguide.com/blog/2010/09/10/overworked-americans-giving-up-vacation-days/
How Much Does the Government Make Off of Gambling? - http://blog.turbotax.intuit.com/tax-tips/how-much-does-the-government-make-off-of-gambling/
Cash for Clunkers a Year Later: It Was a Wash - http://www.toyotainthenews.com/cash-for-clunkers-a-year-later-it-was-a-wash/
Some say bypassing a higher education is smarter than paying for a degree - http://www.washingtonpost.com/wp-
dyn/content/article/2010/09/09/AR2010090903350.html
Is Your Boss Younger Than You? - http://www.focus.com/fyi/human-resources/your-boss-younger-you/
Calculated Risk
House Prices and Foreclosures - http://www.calculatedriskblog.com/2010/09/house-prices-and-foreclosures.html
Housing and the Business Cycle - http://www.calculatedriskblog.com/2010/09/paper-housing-and-business-cycle.html
Early Review of Byron Wien’s “Ten Surprises” List for 2010 - http://www.calculatedriskblog.com/2010/09/early-review-of-byron-wiens-ten.html
The Big Picture

It Was the Best of Times. It Was the Worst of Times. Yup. - http://www.ritholtz.com/blog/2010/09/it-was-the-best-of-times-it-was-the-worst-of-times-yup/
Fair Value: Why Should Home Prices Stabilize? - http://www.ritholtz.com/blog/2010/09/fair-value-why-should-home-prices-stabilize/
Only 1 in 3 Americans Favor Keeping Tax Cuts for the Wealthy - http://www.ritholtz.com/blog/2010/09/favor-tax-cuts-to-expire/
The Baseline Scenario

The Importance of the 1970s - http://baselinescenario.com/2010/09/13/the-importance-of-the-1970s/
Bespoke Investment Group

Using the Past to Predict the Future - http://www.bespokeinvest.com/thinkbig/2010/9/10/using-the-past-to-predict-the-future.html
Senate Odds - http://www.bespokeinvest.com/thinkbig/2010/9/10/senate-odds.html
A Breakdown in Fixed Income? - http://www.bespokeinvest.com/thinkbig/2010/9/9/a-breakdown-in-fixed-income.html
Robert Reich’s Blog

The Two Categories of American Corporation – And Their Politics - http://robertreich.org/post/1110659210/the-two-categories-of-american-corporation-and-
their
The Becker-Posner Blog

Higher Education and Technological Advances as Countries Develop (Becker) - http://www.becker-posner-blog.com/2010/09/higher-education-and-
technological-advances-as-countries-develop-becker.html
Education and Innovation in Developing Countries (Posner) - http://www.becker-posner-blog.com/2010/09/education-and-innovation-in-developing-
countriesposner.html
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,
as it does not constitute substantive research or analysis, 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. In addition, the information is not intended to provide sufficient basis on which to make an investment decision. 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. This material does not purport to contain all of the information that an
interested party may desire and, in fact, provides only a limited view of a particular market.
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.

Cooking Up a Sustainable Rally – Analyst Revenue Estimates a Key Ingredient

Our data points to three conclusions:

Important Earnings Today (with Estimates) From…

Important Conferences/Corporate Meetings Today:

Source: Thomson ONE

Source: Bloomberg Source: Bloomberg

Today’s Important Economic Indicators/Events (with Consensus):

U.S. EQUITY OPTIONS

3 NOVL NOVL NOVL NOVL NOVL 54.15

6 STZ PEP MKC DTV CEPH 35.42

Major Index Changes:

ETFs in the Headlines and Blogs:

Top Online Social Networking Stories

The Big Picture

The Baseline Scenario

Bespoke Investment Group

Robert Reich’s Blog

The Becker-Posner Blog

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