what to watch for heading into the second half of the year... the signals that may move the market through the summer and fall. plus a complete earnings preview... with companies ready to report, what stocks could be ready to take off... and where are the bad banks? naming the states with a growing number of troubled institutions.. but banks tortellini and everybody laughs ahead on this program as earnings are about to come through for investors and finally is time to put up or shut up for these companies to prove to investors it's been worth this big market rally we've seen since march. if put up or shut up you can also think that's the case for a handful of state government and states have yet to pass their budget for fiscal 2010 and all eyes are on california and the most dire situation on the verge of defaulting on is that it has yet passed the budget and made

bond investors worry about the possible risks spreading to other states. california leads the market when it comes to a missed a bond market takes the temperature of the dumbest that financial sustain and i don't think we can get too far away from our submission that in march the financial pass some positive news that sparked a rally is still seen some gains but again is continuous at this point. this week, companies will begin reporting 2nd quarter earnings results... first up are alcoa, pepsi bottling, family dollar and chevron this week. according to zacks research, analysts estimate a 21% drop in median s&p 500 earnings... compared to a year ago. experts say it will be a matter of some sectors reporting really bad earnings... and others reporting slightly bad earnings. morningstar analysts believe the material sector will take the biggest hit for 2nd quarter earnings....that includes companies invovled in fertilizers, chemicals, and commodities... the big drop in earnings in the

materials sector is due to falling prices and volumes... because of the recession. "this area saw commodity prices down significantly.. more than 50% when those price declines flow through earnings.. we'll see those earnings down 40% in thsi sector." paul larson says of morningstar says there are some traditional defensive sectors that continue to hold up better. areas like consumer staples.. health, utlities are not falling nearly to the same degree.. still showing year over year declines... but they wll be down single digits range far better than average and according to zacks research.. the technology sector is expected to continue outperforming because of recent

strength in semiconductors - and better than expected results for hard disk drive and smart phone makers. going into the second half of 2009, the s&p 500 is down by 1% - the nasdaq is up almost 13% the bears were not able to last after the independence day holiday options city or at the cme group how about we saw selling pressure into the long holiday weekend and it did continue on monday until midday with the buyers came back. yesterday really was a plate of up and down we came off our los rallied up nine or eight points when down seven points the market doesn't know what to do right now. there's a lot of information coming out and wearily overzealous in this rally that we've had since march. right now the market is pulling back and taking stock of what is coming the head. rabat have a couple of punches on the program in a few moments

here. what is the real rate are what is all your watch list? right now were born to start burning season all over again as was gonna be interesting to see what these companies say their profits were flat last quarter and what they're forecasting for the last six months of the year. because the tone has really been set for the economy and how people start reacting to the stock market we can really see a major pullback. back to business fundamentals here for the market over the next several weeks liann feldstein of options city with us at the cme group. this week investors will be closley watching just how much demand still exists for u-s treasury bonds... with the government set to auction 3, 10 and 30 year notes... for a total of 65 billion in us debt. treasury auctions in recent months have been pretty strong partly because of lingering fears of economic uncertainty. in the coming week traders say demand for 3 and 10 year notes is expected to remain strong - but, demand for long term u-s debt could see a little weakness. and some believe that is a concern even today.. as the government issues more debt to

pay for a balloning deficit caused by bailout and stimulus spending - "i think the real concern is that other countries are diversifying away from the dollar .. we've seen the chinese buying short term denominated assets.. but they are less willing to bet on the us in the long run. " continued demand for u-s treasury bonds will largely depend on investor appetite for risk... if economic uncertainty continues to persist... it will likely drive investors toward bonds... pushing interest rates lower. higher yeilds on the risk theyng take buying us bonds - that will put pressure on us consumrs too. if the cost of funding goes up, the cost of everything goes up .. credit card loans go up.. auto loans go up.. real estate goes up... it will be extremely detrimental to the economy at this point. also, if the u-s dollar continues coming under pressure, that will also drive

investors to seek higher interest rates.. to make up for that risk. still to come watch what the pros watch... find out what market insiders are keeping an eye on heading into the second half of the year... and breaking down the bad banks... what states have reason to worry when it comes to the banking troubles...

what looked like a sinking ship just three months ago has roared back to life. the economy may still be weak with unemployment climbing, but stocks have shown small gains for the year thanks to the best quarter in more than a decade. that's what greets investors for the second half of the year. scott sheridan is with thinkorswim and lincoln ellis is with the linn group. dicey were here six weeks ago. scott you call that a bear market rally you called it too far too fast let me start with

you scott is the bare about ready to take over? i think so. we have and i thought we would have come down already and hasn't happened. we come off a bit from the high but if you look at where we were six weeks ago is unchanged. at both think the down move is coming. with that in mind the me action how far and how fast? a hundred on the s and p said another hundred points is in the cards. before the next holiday for labor day? the moves happen so fast of most could take weeks to months if not years it can definitely happen we're kind of in a range right now but we're crevice id to the lower side. the they're ready to take over? absolutely at the fundamental show was that the s and p numbers that were out for the second quarter of the year we're going to see are going to looked dismal and the third quarter is not one of the better. the question of how far how fast whether we get there before the end of the summer holiday it is

very very possible it does feel like it could happen at any moment and we were here six weeks ago there were some geopolitical factors those haven't gone away. the odd scenario where the demand equations seems to be falling apart and from of our eyes is about ready to play out. what has changed significantly back in march some banks came out and said the beginning of the year was one to be nearly as bad as the fourth quarter ended get everyone excited buyers in march and april in a pow in unemployment was bad in as bad now services were back then as bad now if the energy is still rising what has changed? " the perception. if the hope is the big one in my comment is this is a market where is the momentum game. people are power and the ftc the stock of the day would ever is and everybody wants a they have to have it if and when it's out of favor and one once it anymore and breaks down and hope usually is not a

recipe for success when trading. i think we are going to see is that people are want to take a step back and reevaluate smi buying the stocks for a reason? where my daughter because the guy on the left or the right is doing them? so how about lincoln what is perception of what is reality? at the perception that the moment is that we've had another bout with our love affair with the rational exuberant. the fact we found out in the beginning of march that the government was going to back all these things in all these businesses were gonna go out of business seemed to put fuel in to this fire. as god describe it whole. disapprove it game now and the reality it has shown us now. show us the strategy lincoln you first what is the second half strategy that people should keep in mind? could one be very nimble the need to be shortening up their time horizons in terms of their trades in very precise in terms

of what they think their return expectations are going to be. is there a particular type of market that you will like to go -- in particular like collectible short? i would rather be short equities at the moment and i think as moderately bearish case for the commodity complex because of deflation. and scott how about you? i agree at the french are born to lead us down you can see the financials are the rage in the wealth that is the media's. if they are ready star to come down a bit i'd be overall care for when the market short-term i'd keep a very close to the access points also very i did receive interest rates go up if somebody is looking. what is out their cash? if somebody says cash is turned up 1/2% one person does not so bad compared to down 20 at 30%. just be careful. scott sheridan with think or swim and lincoln ellis with the lynn

group. online items online at first business x dot com, can the victims of bernie madoff actually expect to get money back? a legal pro who works with victims of financial fraud shares his strategy for the scam of the century. in addition, more insights on what all investors can learn to avoid falling victim to similar scams. plus, state budgets in crisis. as legislatures work down to the wire, we examine how last- minute spending plans are affecting the economy. and still to come on the show, more on the u-s economy from the state's perspective as we pull out the map to locate where the bad banks do their business.

more than 50 banks have failed this year, making it the worst year for bank failures since 1992. while depositors haven't lost money, the seizures by the federal depository insurance corporation have costs hundreds of millions of dollars. michael iannaccone runs mdi investments, a financial services analysis firm. michael welcome back to the program. thank you. talk to was about the scope of this problem number of banks is a growing severity? is growing in severity and this is to be turned out to be a true financial crisis because the recession just legs on and the economy sours. pretty much if you look at what the regulators are looking for banks that have capital ratios above 8% leverage 11% total risk-based capital

bambi's about a third of the banks out there about 25 per hundred banks. the fall on those levels. and still considered a risk by the regulators at this point. some our worst off than others but there's 2500 their fall below that. talking about almost $21 billion in total assets here if geographically there's been banks in many states that have failed by really significant because the trade in the midwest and illinois with dozens of banks f as jordan has had nine banks fail and taxes their risk why he stays at more risk than others? illinois and let's take illinois first because they're the largest one on list. illinois and indiana were the last two states to get rid of interstate banking lost and we did in the writ of them in illinois and until probably the late 1990's so there's a lot more banks in illinois and many other states taxes is one of the

top five states in the country geographically and square miles of they also have a lot of banks in georgia does happen to be at a really heart market in the late 90's to in the early part of this decade for people moving to the south east there were a lot more banks that were started. talk was about the core of a problem if the court has been brought in and you have four ideas basically on why these banks continue to have difficulty getting above those ratios the regulators are seen. the big problem for the banks that are in trouble our inspection and development loan will we turn now has just development loans because they changed the definition back in september. there's no construction caught so you have different projects whether is a land project whether its buildings up and there's nobody living in them where there is no improvement of the land. the next big problem that you have is securities that are backed by one to four family mortgages

or they're backed by some type of real-estate component. real- estate keeps on going down. but lateralization or the support behind the securities is dwindling as time goes on if real-estate does indeed better than those securities don't get better. and your third point here is under the cornerstone of all this is real estate and prices are still. correct commercial and residential. i think commercial is a bigger problem, forward you have the sub prime who was a one trillion dollar mess and the commercial real estate market the bigger companies the middle to larger companies that went out and get their loans for 56 years ago from wall street or the syndicated market the market doesn't exist anymore in those loans are coming due and is going to cause a big drift in the economy and the market. finally your fourth reason why problems persist has nothing to do with the macro empire in the to the we're real-estate is

just bad business practices. banks went out there in the case to yield and paid for deposits thinking that the deposit rate is five and a half percent was a good long-term rate and now we have private print quarter and they are under water. it has nothing to do they can have mary lowe development loans in a securities and it can still be bleeding money. broken business model at this point i can appreciate the analysis. michael is back with us he runs m d i investments. this week the u.s. government is set to auction billions of dollars in u.s. treasury bonds in coming in chart talk we will take a look at the short-term and long-term bond e t f charts. coming up next.

this week is a big one for the u.s. government is set to auction off billions of dollars in short and long-term treasury bonds. we've seen this time and time again in every other week really since the spring the government continues to issue a record amounts of ious every week backed by you and i in every other market. let's take a look at how this is plain and charts to f t zero t f which is the e t f that tracks long-term treasury bonds and f s h why is the e t f that tracks short- term want to pre year treasury bonds in and he compared them both you can see that s h why the short term bond e t f which is down 1% and t o t a one that tracks the long-term bonds is

down 21%. if to what is this telling you is telling you that people don't mind buying owns but they better mature in a year or three years or something like that very quick time in what some interesting here is that when you take a look at the stock market hit the flat spot in june or july this when you saw the shy which is short-term treasury prices moved higher as people plowed back into the treasury market to get a little bit of yield and a lot of protection. there's a big difference in demand for short- term and long-term as far as this e t f is concern is a reflection of much greater demand and jim, and vestian said on our show even china is becoming a little bit on easy as to its willingness to bet on the u.s. in the long term.

one more item the credit crunch here in the u- s may mean you have to put up more collateral to get a loan...but listen to this. in eastern europe, in lativa...one company is offering a loan agreement withg borrowers pledging their quote, immortal soul. and souls are going cheap...only about $500 bucks.

also shield with the rinse.