I love today's action, even though there is a better than 50% chance the market closes at the lows of the session. But, having said that, what we are seeing is the fact that there are values out there and a ton of cash on the sidelines. The former can get cheaper, and those with cash aren't walking around with "S" on their chest. We are in that conundrum where you have to hold even as your gut says to flee. In Psychology 101, we learn there are other options, too, like fighting. But, it seems that fighting has been sucked out of so many people. (One running theme from most of the emails I've gotten in recent days and weeks is where so many people want to wait this out in a bunker or stick their head in the sand. I think that is the mistake the enemies of capitalism want you to make.)

Today's housing numbers underscore just how stupid government intervention can be. The role of the free market can be pushed aside and diverted, but in the end it rules. Sadly, that meant borrowing from future home sales while piling on debt, and now scaring the hell out of investors. Ironically, this probably means the Administration will push for one more giant bailout, but everyone other than the President would have to go on vacation for that to make it through Congress. The free market is waiting to kick in across the board today as it met bad, yet sobering, realizations. Interestingly, some homebuilder shares have begun to rebound. At the same time gold is edging higher, too. It says something; homebuilders are oversold while others are looking for safety in gold.

The moral of the story is nothing is free even if the government would like you to think that's the case. Generating wealth rather than attacking it is the only solution to fixing our circumstances.

Any Light in Sight?
By: Conley Turner, Research Analyst

In early afternoon trading, U.S stock indexes have continued to falter under the weight of persistent negative investor sentiment. The action represents follow through of the trend which developed over the past few weeks, but one that has gained added momentum over the past few sessions. The reasons for the decline are not altogether unfamiliar, but are nonetheless growing in importance. Concerns are mounting about the state of the global economic recovery and for all intents and purposes, reaching critical mass.

The situation in Europe deserves special mention given the precarious state of a number of EU members. The continent's GDP growth outlook is being marred by anxieties about sovereign debt as the situation in Greece is once again making its way to the forefront. After fading from the headlines a few weeks ago, there are now growing concerns among investors that the austerity measures put in place to help that country deal with its problems are in fact dragging it into an abyss. The unemployment rate is expected to rise to about 12.1% by year end, and revenues generated from taxes have plummeted. Fears of contagion to other EU members are resurfacing and as such, prompted a selloff in European bourses. The fact that an official at the Bank of England's Monetary Policy Committee, Dr. Martin Weale, commented that he considers a second downturn in the British economy to be the real threat did little to boost confidence throughout the markets.

As it stands, risk is being taken off the table across the board, and investors are beating a path towards increasing their exposure to bonds. To this extent, the yield on a 10-year bond is at record lows, conveying a heightened adversity to risk.

Similarly, recent U.S. government economic reports point to a slowdown in GDP growth in the most recent quarter, and an even more tempered outlook. The reduced pace of growth is due largely to a retrenchment of spending on the part of consumers. This is important as consumer spending in the U.S. represents a sizeable portion of GDP. In fact, coupled with the spending by the central government on healthcare, it represents what amounts to approximately 70% of GDP.

Not to be left out, Asia's contribution to the current malaise comes in the form of Japan, whose growth continues to be elusive. Data from the most recently completed second quarter highlight an economy afflicted by stagnant domestic consumption, debilitating deflation, and an export industry that is a shadow of its former self. In fact, China has just supplanted Japan as the world's second largest economy with its export driven economic model. To this end, the Nikkei is now on the cusp of being in a bear market territory.

So with all the major players on the world stage exhibiting some form structural handicap, the focus is on China to be the planet's engine of growth. However, this is not without concern as while the country's GDP growth rate was an impressive 11.9% in the 2010 first quarter of the year, that pace has ebbed around 10.3% in the second quarter. Projections are now for a further deceleration into the end of the year.

All in all, it's evident that this is a critical time for the market and for market history. Fear is in great abundance, and many investment decisions are being driven by the choice to take risk off the table. However, a review of market history would reveal that this is also a time of great opportunity. It is at times like this that those investors who choose to believe that the world is not coming to an end can benefit from the fear and reap sizable gains once the uncertainty has passed. That said, for the moment, Treasuries are expensive and being as cheap as they currently are, equities will be the place to be and where money can be made.

Hurt'n for Certain
By: Brian Sozzi, Equity Research Analyst

We are smack in the middle of back to school shopping. Sales tax free events are en vogue, and so are the discounts. The reasons for the discounts at apparel chains are straightforward. First, consumers have retrenched, having satisfied their pent up thirst for frivolous goods earlier in the year. The savings rate nearing 6.5% is evidence of the "pause" we are hearing mentioned by many retailers on their second quarter earnings conference calls. Second, retailers simply got too amped up by the positive reads in their business that resulted in the first quarter, ordering inventory to support sales growth. Since inventory has to be ordered 6-8 months in advance for an apparel retailer, retail management teams sized up the demand environment as one that would continue to improve in health. My oh my, how wrong they were.

Specific to teen retailers, it will be a trying back to school season. While I believe a Target (TGT) will do well this season as a result of a strong merchandise selection in food and back to school essentials, and even Macy's (M) is likely to stick out as a winner as private label offerings gain share, leading mall-based names such as American Eagle (AEO), Aeropostale (ARO), and Pacific Sunwear (PSUN) are in store for an interesting remaining weeks in August and transition into September. I would summarize the sales environment as littered with irrational competitors, companies essentially reducing prices to bring in traffic and work down inventory prior to holiday flows. For example, Abercrombie & Fitch (ANF) is running a 40% off all jeans sale; this is indeed telling of demand trends as the company is positioned as an accessible luxury destination for teen apparel and accessories. The company's surfwear inspired Hollister division is peddling t-shirts for under $10.00 and jeans at $20.00, seriously encroaching on the promotional turf held by Aeropostale. Price wars, you bet.

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Techs Holding On
By: Carlos Guillen, Research Analyst

As the trading day reaches its midpoint, tech stocks continue to recover from the precipitous drop they made at the open of today's trading session. The tech sector, as measured by the Philadelphia Semiconductor Index (SOX), appears to be ramping higher, but it is still down 1% from yesterday's closing level Today's sharp drop may be the result of a combination of light volumes and poor housing data. However, I think the situation could have been much worse, and the upward ramping SOX is somewhat encouraging. Clearly, the main concern continues to be the state of the macro-economy, and the poor housing data continues to show the effects of continuing high unemployment levels, which may threaten to derail consumer spending growth in the second half of 2010.

So, while the macro-economy is still in a very precarious position, it is encouraging to see that many semiconductor players are growing cautiously confident. While semiconductor players had been limiting inventories for quite some time as visibility remained constrained, it now appears that they are more confident and, as a result, they are purposely increasing their inventory levels. For the most part, semiconductor companies have been posting record revenues above expectations for the past couple of quarters. Moreover, managements' guidance has also been strong. All this is giving semiconductor companies the green light to ramp up inventories, so ramping inventories is purely intentional and not an involuntary buildup that is occurring. In fact, according to iSuppli, the quick rise in demand is making it difficult for semiconductor suppliers to restock to pre-recessionary levels. This, in turn, has pushed some semiconductor manufacturers to invest in capacity expansions.

Capacity expansions have been ramping higher across the semiconductor industry, and there is still room for more growth during the rest of calendar 2010. For instance, at the end of July, Taiwan Semiconductor (TSM) raised its 2010 capital spending forecast, which bodes well for semiconductor equipment players. The company said it now expects to spend $5.9 billion on capital expenditures in 2010, up from its previous forecast of $4.8 billion, representing an increase of approximately 23%. A couple of weeks prior to this, Intel (INTC) had also raised its 2010 capital spending forecast to $5.2 billion (plus or minus $200 million); this compared to the company's prior expectation of $4.8 billion (plus or minus $100 million). So, it seems that semiconductor companies are sensing ramping demand and are planning for more capacity availability.

All in all, the inventory ramp up is not a red flag at the moment; instead, it is a sign of confidence from management teams that have been so very vigilant of these levels, making sure no gluts form.

Home Sales Quite Soft
By: David, Urani, Research Analyst

Existing home sales plunged to a rate of 3.83 million units in July, marking a 27% drop from June. This is the lowest rate of home sales we have seen since the 1990's as the loss of the tax credit benefit took the floor out from under the housing market. It was bad across all regions, with each falling by more than 20%. Inventory continues to rise as well, reaching 12.5 months of supply versus 8.9 months previously. By number of houses, inventory increased by 2.5% to nearly 4 million, which was actually a relatively modest gain considering the slow sales and the high rates of foreclosure. We do suspect that inventory will continue to rise, however. So far, no data has shown a weakening of prices, but considering such low sales rates across the board, and near-record high rates of home repossessions by banks, it is more than likely that prices will slide soon.