Monday Watch

Weekend Headlines
Bloomberg:

• Dollar Weakness Overstates Fed Printing Press as IMF Sees Best G-3 Growth. The dollar’s biggest quarterly decline in eight years may be setting the stage for a rally, if some of Wall Street’s top strategists are to be believed. The Dollar Index slid 8.5 percent last quarter, the most since June 2002, and 2.1 percent this month as Federal Reserve Chairman Ben S. Bernanke signaled he may inject more money into the economy to ensure the recovery stays on track. That new supply is reflected in exchange rates, based on how the currency reacted to the last round of so-called quantitative easing, say HSBC Holdings Plc, BNP Paribas SA and Nordea Bank AB. “The market will find it has been selling the rumor and will rush to buy the fact,” when the Fed begins fresh purchases, said Hans-Guenter Redeker, global head of currency research in London at BNP Paribas. “Everybody sits in the same boat and is heavily negative the dollar. When too many people are sitting in a boat it’s no longer safe.”
• Hedge Funds Raise Bullish Bets on Oil to Five-Month High: Energy Markets. Hedge funds raised bullish bets on oil to the highest level in more than five months amid speculation that the Federal Reserve will enact further stimulus measures to keep the economic recovery on track. Hedge funds and other large speculators increased wagers on rising crude prices by 44 percent in the seven days ended Oct. 5, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the highest level since April 23.
• Junk Yields in Europe Tumble to Lowest Since Before Crisis: Credit Markets. Lenders to speculative-grade companies in Europe are charging the lowest interest rates since before credit markets seized up in a sign they don’t expect the region’s fiscal crisis to infect the corporate debt market. Investors demand an average yield of 7.62 percentage points to hold junk-rated European debt, the lowest since July 2007, according to Bank of America Merrill Lynch index data. Yields on bonds sold by Continental AG, Europe’s second-largest auto parts supplier, and German drugmaker Phoenix Pharmahandel GmbH & Co KG have fallen more than 2 percentage points in the past three months. While nations from Greece to Ireland struggle with budget deficits above the European Union limit, companies are taking advantage of a global rally in corporate debt to refinance and extend maturities. The default rate in the region fell to 3.5 percent at the end of September from 5.6 percent three months earlier, and is forecast to drop to 2.2 percent by year-end, Moody’s Investors Service said in an Oct. 7 report.
• Ireland Relies on Treasury Cash to Avoid Greece-Style Rescue: Euro Credit. Ireland expects its 20 billion-euro ($28 billion) cash pile to stave off a Greek-style rescue, as the government taps the funds to avoid paying record rates to borrow. The government canceled next week’s debt auction and another scheduled for November after the yield on 10-year Irish bonds rose to a record 454 basis points above benchmark German bunds. Finance Minister Brian Lenihan has said Ireland is “fully funded” through the middle of 2011. The country has 4.4 billion euros of bonds maturing next year, compared with about 27 billion euros in Greece. “Twenty billion euros and the lack of redemptions buys the government some time,” said Jens Peter Soerensen, an analyst at Danske Bank A/S, Denmark’s biggest bank, who recommends investors buy Irish Treasury bills. “At some point, investors are going to look at 2 percent on a German bund or 6 percent on an Irish bond, and say let’s buy Ireland.”
• IMF Considers Extension of Greece's Loan Package, ECB's Bini Smaghi Says. The International Monetary Fund may transform its loan to Greece into a longer-term repayment plan, a move that would allow the country to pay its loan back later without restructuring, European Central Bank Executive Board member Lorenzo Bini Smaghi said.
• China's Zhou Warns Mounting Deficits Pose Risk of Sovereign Debt Default. China’s central bank governor Zhou Xiaochuan said the global economic recovery is “weak and highly uneven” and warned that mounting fiscal deficits in developed countries may lead to renewed risks of sovereign default that would destabilize financial markets. “Sovereign risks could deteriorate again at any time, producing systemic effects on the global financial stability,” he said in a statement released in Washington at the annual meeting of the International Monetary Fund. The developed countries, he said, “should formulate and implement credible fiscal consolidation plans, and prevent sovereign risks from damaging financial stability.”
• Corn Jumps 8.5% to Highest Price in Two Years After Supply Outlook Reduced. Corn futures in Chicago jumped 8.5 percent to the highest level in two years after the U.S. Department of Agriculture last week cut its supply forecasts. The December-delivery contract traded at 5.7325 a bushel at 10:05 a.m. Melbourne time, after advancing by the exchange- imposed 30-cent trading limit on Oct. 8.
• Silver Gains as Much as 1.5% to Highest Level in 30 Years as Dollar Drops. Silver for immediate delivery gained as much as 1.5 percent to a 30-year high of $23.6025 an ounce before trading at $23.5763 an ounce at 10:51 a.m. Melbourne time.
• China Has Done Enough to Get More Power at IMF, Central Bank's Zhou Says. China’s central bank Governor Zhou Xiaochuan said his country has done enough to deserve more say at the International Monetary Fund, rejecting calls for Beijing to take greater responsibilities in the global economy.
• Geithner Says Yuan 'Significantly' Undervalued, Wants China to Let It Rise. U.S. Treasury Secretary Timothy F. Geithner renewed his call for China to let its currency rise, in a speech to the International Monetary Fund that said countries with big foreign exchange reserves are distorting the global financial system. Geithner did not cite China by name, instead referring to countries whose currencies are “significantly undervalued.” That is the phrase the U.S. has used to describe the yuan’s relationship to the dollar. “It is critical to see more progress by the major emerging economies to more flexible, more market-oriented exchange rate management,” Geithner said today in Washington. “This is particularly important for those countries whose currencies are significantly undervalued.” Geithner said the IMF should have more authority to identify problem spots and prescribe remedies. He also said the fund should make all of its economic assessments public, not just when a country consents. “Excess reserve accumulation on a global scale is leading to serious distortions in the international monetary and financial system, and is inhibiting the international adjustment process,” Geithner said.
• Attorneys General in 40 States Said to Join on Foreclosures. Attorneys general in about 40 states may announce by next week a joint investigation into potentially faulty foreclosures at the largest banks and mortgage firms, according to a person with direct knowledge of the matter. State attorneys general led by Iowa’s Tom Miller are in talks that may lead to the announcement of a coordinated probe as soon as Oct. 12, said the person, who asked not to be named because an agreement wasn’t completed. The number of states may change because several are deciding whether to join, the person said.
• Central Bankers Say Basel Agreement a 'Minimum,' Expect More Global Rules. Central bankers from Switzerland and Canada told bank executives to expect more global financial rules, especially for the largest institutions. Switzerland’s Philipp Hildebrand, president of the Swiss National Bank, and Bank of Canada Governor Mark Carney told a panel of chief executives that included Bank of America Corp.’s Brian Moynihan that the agreement reached in Basel by international regulators represented the “minimum,” according to Carney. “There is unfinished business that is pretty important,” Carney said yesterday at a panel discussion in Washington. Banks worldwide are grappling with the new rules approved in September by regulators, meeting as the Basel Committee on Banking Supervision. New minimum capital requirements take effect in less than five years. The banking industry persuaded regulators to soften rules after a lobbying campaign, pushing off implementation of some requirements for about a decade. “The acceleration of the Basel calendar is a big risk,” said Alfredo Saenz Abad, the chief executive officer at Madrid- based Banco Santander SA.
• Check Your Mailbox to See Where U.S. Is Headed: Kevin Hassett. To understand where the advocates of big government will take this country, look at the U.S. Postal Service. Start with the fact the Postal Service is a great jobs machine, employing 712,000 people at an average annual compensation, including wages and benefits, of $83,000. And those hefty pay checks are a great source of political contributions for Democrats. In 2010, almost 90 percent of the approximately $4 million contributed to campaigns by postal unions went to Democrats. Take a guess where much of the opposition to reform comes from. But high-priced labor, which accounts each year for about 80 percent of costs, leads to high-priced mail services, and even higher costs for taxpayers. Over the past 10 years, the price of a stamp has risen from 33 cents to 44 cents, exceeding the inflation rate at a time when computerization should have been leading to big cost savings. Even so the Postal Service lost about $6 billion this year and by its own projections it will drop a cool $238 billion over the next decade. By 2020, the last year in the projections, the Postal Service will be losing $33 billion annually. If its losses level off and it continues to lose that much each year, the Postal Service will lose $550 million from 2010 to 2030. If the growth rate of losses projected over the next decade continues until 2030, it will lose more than $1 trillion in that span. The fiscal black hole that the Postal Service has become is no small potatoes, even in government terms.

Wall Street Journal:

• Foreclosures, Forestalled. As politicians step up their interventions to slow down the pace of foreclosures amid concerns about widespread document fraud, economists say such delays could deal another blow to a still-weak housing market. They fear a slowdown could inflate the inventory of unsold vacant homes—delaying the day they're put on the market—especially in the 23 states in which foreclosures must be approved by a judge. One comparison widely cited: In California, where judges don't handle foreclosures, the housing market appears to have hit bottom a year ago and has been bouncing back. In Florida, where foreclosures go through the court system, prices keep falling, and foreclosure inventory continues to rise.
• U.S. to Step Up Pressure on China. The U.S. will try to intensify pressure further on China over its exchange-rate policy after a weekend meeting of the International Monetary Fund failed to produce an agreement on international currency movements. A U.S. official said the Obama administration was pleased that it was able to put China's currency policies at the center of discussions at the IMF's annual meeting, and felt that Beijing was responding to U.S. efforts by lifting the value of the yuan at an accelerated pace over the past month. But the official said continued pressure was needed to prevent China from backsliding.
• Banks Lose Their Post as Drivers of Rally No Longer Driving. Divergence with Indexes Spurs Debate Over Truism: As Financials Go, So Goes the Market.
• Shutting Up Business. Democrats unleash the IRS and Justice on donors to their political opponents.

Marketwatch.com:

• Potash Corp.(POT) Reportedly Working on Break-Up Plan.

IBD:

• Maker of Ugg Boots Plans More Stores, Seeks an Acquisition. When it comes to wowing consumers, Deckers Outdoor(DECK) knows how to gain a leg up on the rest of the pack.

NY Times:

• Flying Fewer Planes, Airlines Find Stability. For the first time since their industry was deregulated in the late 1970s, airlines in the United States have managed to hold the line on the number of planes they fly. Evidence of this discipline can be seen at airports around the country, where empty seats are increasingly difficult to find and fares have jumped.
• Wife Arrested After Visiting Nobel Winner. The wife of this year’s Nobel Peace Prize winner, Liu Xiaobo, was allowed to meet with her husband on Sunday at the prison in northeastern China where he is serving an 11-year sentence, but she was then escorted back to Beijing and placed under house arrest, a human rights group said. Prison officials had informed Mr. Liu that he won the award — a decision vehemently condemned by the Chinese government — the day before. In their hourlong visit, Mr. Liu’s wife, Liu Xia, said her husband had told her, “This is for the lost souls of June 4th,” and then was moved to tears.
• Fed's Hoenig: Financial Overhaul Rule Writing Critical to Reform's Success. Federal Reserve Bank of Kansas City President Thomas Hoenig said recently passed financial oversight legislation will only be effective if regulators implement the law correctly, repeating a point he has made in recent speeches.
• Democrats Are Conflicted Over Black Vote, Obama. Democrats say it is critical that they turn out African American voters this November. But for Robin Carnahan, the party's nominee for Senate in Missouri, that is proving to be a tricky proposition. The key to energizing black voters is to persuade them that sending Democrats to Washington is important to President Barack Obama, strategists say. The Democratic National Committee plans to increase an ad campaign targeting black voters here and elsewhere to $3 million. A radio ad mentions Mr. Obama four times. An ad running in African American newspapers says simply: "Stand with President Obama..'' Yet, Ms. Carnahan is keeping a distance from the president and Democratic leaders.
• Adding Predictability to Benefits. Express Scripts(ESRX) Is Launching an Initiative to Reach Those Patients Who Fail to Take Medications. Pharmacy-benefit manager Express Scripts Inc. is unveiling a new program that aims to contact people who fail to take their prescription drugs—before they actually stop. The company Monday will announce an initiative intended to predict in advance who's most likely to discontinue a medication regimen, and keep those people on their drugs with interventions such as letters or phone calls. This is an effort to encourage compliance and offer help such as mail-order prescriptions. It's one of a growing number of efforts to forecast and prevent costly health problems.
• Bankers Still Upbeat on Pay. Despite greater regulations and scrutiny over Wall Street pay, many bankers and traders remain optimistic about their bonuses, according to a new survey. In a recent study of more than 2,100 financial-services employees, about 50% of respondents thought their bonus would go up this year from 2009. That was more than double the percentage expecting their bonus to decline, according to recruiting Web publisher eFinancialCareers.
• Congressional Staffers Gain From Trading in Stocks. Chris Miller nearly doubled his $3,500 stock investment in a renewable-energy firm in 2008. It was a perfectly legal bet, but he's no ordinary investor. Mr. Miller is the top energy-policy adviser to Nevada Democrat and Senate Majority Leader Harry Reid, who helped pass legislation that wound up benefiting the firm.

CNNMoney:

• Was this Apple's(AAPL) $20 Billion Quarter? The blogger-analysts say damn straight. The Street isn't far behind.
• Premium Hikes Loom for Long-Term Care Insurance. One of the nation's largest providers of long-term care insurance is planning to raise premiums an average of 40% next year.

Business Insider:

• Northern Trust: QE1 Failed, So Why Will QE2 Be Any Different?
  
• Here's Why California's Budget Crisis Is Going To Be Much Worse Next Year.
  

Zero Hedge:

• Rick Santelli On the Fed's Upcoming "Nixonian" Price Controls.

Seeking Alpha:

• Queasing Over Quantitative Easing, Part VI. Does the Fed ask what entities they might be hurting through quantitative easing? They hurt any entity that has to make payments over the long term.

McClatchy:

• How Hank Paulson's Inaction Helped Goldman Sachs(GS). Henry Paulson has received widespread acclaim for his bare-knuckled decision-making as the treasury secretary at the peak of the 2008 financial crisis, but former federal regulators say he missed multiple chances to contain the disaster.

Politico:

• Democrats Feud Over Plan to Fix Deficits. President Barack Obama’s already got problems refereeing his party’s bitter family feud over deficits. Now, Alice Rivlin is about to make that job a lot tougher. Rivlin is an influential voice in Democratic circles but has developed a reputation as something of a fiscal scold, who says government’s largesse isn’t unlimited. Obama picked her for his presidential deficit commission. And right at the moment when liberals are telling the president to keep his hands off Social Security, Rivlin’s about to announce a plan to fix the deficit that’s expected to include some of her past prescriptions for the problem. Cut Social Security benefits. Or maybe raise the retirement age from 66 to 70. Or both.
  

Reuters:

• Venezuela Nationalizes Koch, Eni Fertilizer Plant. Venezuela's President Hugo Chavez nationalized a large U.S. and Italian-owned fertilizer factory on Sunday, just days after vowing to radicalize his state-led revolution in the aftermath of elections last month. The government will take over Fertinitro, one of the world's main producers of nitrogen fertilizer and part-owned by private U.S. company Koch and Saipem (SPMI.MI), a subsidiary of Italy's Eni (ENI.MI), Chavez said. During 12 years in power, the 56-year-old former soldier has put large swathes of the OPEC member country's economy into state hands. On Sunday, he also announced the nationalization of Venezuelan motor lubricants company Venoco.

Telegraph:

• George Soros Warns China of Global 'Currency War'. George Soros has warned that a global “currency war” pitting China versus the rest of the world could lead to the collapse of the world economy. Mr Soros, the hedge fund manager best known as the man who broke the Bank of England” after he made a billion betting against the value of Sterling on Black Wednesday in 1992, said the China had created a “lopsided currency” system. He criticised China for deliberately keeping the yuan - its currency - low in order to keep exports cheap, which is hurting US competitors. Mr Soros told BBC Radio 4’s Today programme that China had a “huge advantage” over international competitors because it can control the value of its currency. He said China could also influence the value of other world currencies because they have a “chronic trade surplus”, which means the Chinese have a lot of foreign currencies. “They control not only their own currency but actually the entire global currency system,” he said.
• US Physics Professor: 'Global warming is the greatest and most successful pseudoscientific fraud I have seen in my long life'. Harold Lewis is Emeritus Professor of Physics at the University of California, Santa Barbara. Here is his letter of resignation to Curtis G. Callan Jr, Princeton University, President of the American Physical Society. Anthony Watts describes it thus: This is an important moment in science history. I would describe it as a letter on the scale of Martin Luther, nailing his 95 theses to the Wittenburg church door. It is worthy of repeating this letter in entirety on every blog that discusses science. It’s so utterly damning that I’m going to run it in full without further comment.
• The Gloves Are Off, QE Is Now Seen As An Aggressive Depreciation Tool. We live in a strange world. On Friday, data were released showing that during September alone the US economy lost a worrying 95,000 jobs. In response, Wall Street rallied.

Apple Daily:

• Pegatron Corp. will begin shipping Apple's(AAPL) iPhone 4 to China Telecom Corp. from November or December.

Weekend Recommendations
Barron's:

• Made positive comments on (CIT) and (EAT).

Night Trading

• Asian indices are -.25% to +1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 104.0 -2.0 basis points.
• Asia Pacific Sovereign CDS Index 97.75 +.5 basis point.
• S&P 500 futures +.13%.
• NASDAQ 100 futures +.20%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GPN)/.69
  

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Dudley speaking, Fed's Yellen speaking and the ECB's Trichet speaking could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by real estate and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.