Today's Headlines

Bloomberg:

• Service Industries in U.S. Expanded at Faster Pace. Service companies in the U.S. expanded at a faster pace than projected in September, indicating the economic recovery is picking up heading into the fourth quarter. The Institute for Supply Management’s index of non- manufacturing businesses, which covers about 90 percent of the economy, rose to 53.2 from 51.5 in August. The ISM non-manufacturing employment gauge rose to 50.2 from 48.2 in August. The measure of new orders increased to 54.9 from 52.4. The group’s measure of business activity declined to 52.8 from 54.4.
• Gold Rises to Record on Investor Demand for Currency Alternative. Gold futures jumped to a record $1,341.20 an ounce as the dollar sagged, boosting demand for precious metals as alternative assets. Silver advanced to a 30- year high. The greenback fell to the lowest level since January against a basket of six currencies. Federal Reserve Chairman Ben S. Bernanke said yesterday the U.S. central bank may buy more debt to help the economy. The Bank of Japan today pledged to keep its benchmark interest rate at “virtually zero” percent. Since Sept. 14, gold has risen to a record in 12 sessions.
• Copper Futures Rise to 26-Month High on Dollar Slump; Tin Reaches Record. Copper rose to the highest price in 26 months as the dollar dropped, boosting demand for commodities as alternative assets. Tin climbed to a record.
• Illinois Pays More Than Mexico as Cash-Strapped States Sell Bonds Overseas. Illinois capital-markets director John Sinsheimer and Citigroup Inc. bankers took a globe-girdling trip from the U.K. to China in June to persuade investors that the state’s $900 million of Build America Bonds were a bargain. The seven-country visit worked. The state sold one-fifth of the federally subsidized securities abroad the next month, tapping investors who are the fastest-growing source of borrowed cash for U.S. municipalities. Illinois, with the lowest credit rating of any state from Moody’s Investors Service, dangled yields higher than Mexico, which defaulted on debt in 1982, and Portugal, which costs more to insure against missed payments.
• Ireland's Rating May Be Downgraded by Moody's on Banks. Ireland’s credit rating may be cut by Moody’s Investors Service after the government pledged as much as 50 billion euros ($68.6 billion) to save the country’s banks. Ireland’s Aa2 rating will “most likely” be cut by one level if a downgrade goes ahead, the company said in a statement today. A downgrade by Moody’s, which will finish its review within three months, will bring Ireland’s rating into line with Standard & Poor’s and Fitch Ratings. “We’re monitoring the banking system, which we now see has led to additional capitalization needs,” Dietmar Hornung, Frankfurt-based Moody’s analyst, said in a phone interview, adding the government won’t need outside aid. “The focus is on Ireland’s ability to recover financial strength.”
• Europe Services, Manufacturing Cool as Retail Sales Decline. Europe’s services and manufacturing industries grew at the slowest pace in seven months in September, adding to signs that the economy is weakening as governments from Spain to Ireland implement austerity measures. A composite index based on a survey of euro-area purchasing managers in both industries fell to 54.1 in September from 56.2, London-based Markit Economics said today.
• Downtown Manhattan Office Vacancy Rate Hits Six-Year High as Firms Move. Downtown Manhattan’s office vacancy rate jumped in the third quarter to the highest level since 2004 as new space came on the market from financial companies, according to brokerage Cushman & Wakefield Inc. The vacancy rate climbed to 12.1 percent from 9.9 percent a year earlier, Cushman, the biggest closely held commercial property broker, said today in a statement. It was also 9.9 percent in the second quarter. Rents declined to $39.08 a square foot from $42.01 in the third quarter of 2009.
• GM is Said to Approach Sovereign Wealth Funds to Boost Initial Stock Sale. Investment bankers for General Motors Co. have met with sovereign wealth funds and private investors in the Middle East and Asia to gauge interest in the automaker’s planned stock sale, said two people familiar with the meetings.

Wall Street Journal:

• Retailers Bank Together for Online Shipping Promotion. Some 40 retailers and brands are joining a new loyalty program created by GSI Commerce Inc. to offer shoppers unlimited two-day shipping and returns across their online stores. The program, called ShopRunner, will cost $79 per year—the same as the Prime shipping program offered by the largest online-only retailer Amazon.com Inc.

Barron's:

• Apple: Ticonderoga Starts With Buy, Street-High $430 Target.

CNBC:

• Fed's Evans Favors 'Much More' Easing: Report. The U.S. Federal Reserve should do "much more" monetary easing to spur a sluggish economic recovery, a top Fed official said in an interview published Tuesday. "In the last several months I've stared at our unemployment forecast and come to the conclusion that it's just not coming down nearly as quickly as it should," Chicago Federal Reserve Bank President Charles Evans told the Wall Street Journal. "This is a far grimmer forecast than we ought to have," he said, for which reason he favors "much more accommodation than we've put in place."
• Flash Crash Continues to Rattle Investors' Faith in the Market.
• Middle Class to Suffer Most From Bank Rules: Whitney. The 26 percent of mostly low-income Americans who don't have bank accounts—as well as the wealthy—are only marginally affected by tighter credit from more stringent banking regulations, Whitney said. But those in the middle class who have relied on access to credit will suffer as banks that "can't price risk now" become increasingly afraid to make loans.

Business Insider:

• Microsoft(MSFT) Slapped With Another Downgrade.
• We Have a New GM, But the Same Old UAW, And That's Going to Be a Major Problem.
• THE RADAR: 10 Emerging Stories You Must Start Watching Right Now.
  

BarclayHedge:

• Only 31% of hedge fund managers are bullish on the S&P 500, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for September. About 37% of the 109 hedge fund managers surveyed are bearish on stocks, while 32% are neutral. “Hedge fund managers were extremely bearish on equities at the end of August, and they remain downbeat even though the S&P 500 soared 8.8% in September,” said Sol Waksman, founder and President of BarclayHedge. “Negative sentiment has proven costly, as the industry underperformed by more than 500 basis points last month. But managers are sticking to their bearish guns; four in 10 are forecasting stock prices will fall at least 2% in the coming weeks.” About 27% of hedge fund managers are bearish on the 10-year Treasury note, the largest share in four months, while only 24% are bullish. Additionally, 36% are bearish on the U.S dollar index, while only 21% are bullish. These shares are the largest and smallest, respectively, since May. Meanwhile, 19% of hedge fund managers plan to increase leverage in the next month.

The Orange County Register:

• Mark Landsbaum: Escape Clause From California Global Warming Law. If Proposition 23 on the Nov. 2 ballot doesn't pass, your lives, livelihoods and liberties will come inescapably under the thumb of the Administrative State. Hyperbole, you say? Landsbaum's off his rocker, you say? Read on.

St. Louis Federal Reserve:

• Deflation and the Fisher Equation by William T. Gavin.

Washington Examiner:

• Gallup's Astonishing Nubmers and the Lake Superior Congressional Districts. Late yesterday, Gallup came out with new numbers on the generic ballot question—which party’s candidates would you vote for in the election for House of Representatives? Among registered voters Gallup shows Republicans ahead by 46%-42%, about as good a score as Republicans have ever had (and about as bad a score as Democrats have ever had) since Gallup started asking the question in 1942. However, Gallup also shows the results for two different turnout models. Under its “high turnout model” Republicans lead 53%-40%. Under its “low turnout model” Republicans lead 56%-38%. These two numbers, if translated into popular votes in the 435 congressional districts, suggest huge gains for Republicans and a Republican House majority the likes of which we have not seen since the election cycles of 1946 or even 1928.
  

NY Post:

• Gymboree(GYMB) Kids Chain Sees Green in Private Sale. Children's clothing chain Gymboree isn't playing around anymore. The San Francisco-based retailer has hired Goldman Sachs to begin a formal auction of the company, and big-name buyout firms are already lining up in a sale that's expected to fetch well over $1 billion, sources told The Post.

Reuters:

• CBOE to Launch 2nd Exchange in Late Oct. CBOE Holdings Inc (CBOE), the biggest U.S. options market, will launch its planned second exchange targeted at high-frequency traders between Oct. 15 and Nov. 1, Vice Chairman Edward Tilly said on Tuesday.
• Wolverine(WWW) Q3 Beats, Raises FY Profit View. Wolverine World Wide Inc. raised its full-year earnings view for the third time this year on strong order backlogs, after posting a better-than-expected third-quarter profit.

Financial Times:

• Hendry Plots Path to Go Short on China. Hugh Hendry, the outspoken hedge fund manager, has taken short positions on the bonds of a number of Japanese companies in a trading strategy designed to profit from a downturn in the Chinese economy. Mr Hendry is one of only a handful of hedge fund managers that has begun to explore ways of being “short” China – a trade that has so far proved as tricky to implement as it is unpopular. In June, Eclectica, his firm, opened a fund on the back of investor interest in bearish trades designed to benefit from a Chinese slowdown. Mr Hendry has constructed a portfolio that targets Japanese corporate credits as some of the instruments likely to be worst affected. The fund has taken short positions through credit default swaps, whose prices reflect the solvency position of issuers, against 20-30 single-name corporate bonds, the majority of which are Japanese. Mr Hendry has purchased cheap credit protection on companies such as Nippon Steel or JFE Holdings for as little as 50 basis points annually, expecting that spreads will blow out following an export-led slowdown. Japanese companies were highly exposed to China but such risks were currently underpriced, he said. Mr Hendry expects the trades to pay off within the next 18 months. “We want to be in early and out early,” he said. As yet, few other market participants have voiced such bearish positions on China, partly because of the technical difficulties associated with such trades. Jim Chanos, the renowned short-seller, is understood to have taken a number of short positions against Hong Kong-listed Chinese property firms. Interest from investors in such strategies is growing, however, as part of a trend towards portfolio “disaster insurance” that involves investing in extremely bearish trades designed to reap big rewards from small investments. Eclectica’s China-focused fund, which opened in June, has raised three-quarters of its target capital already, according to people close to the firm. It was likely to close before the year-end, they said. The fund, which will be valued at about $140m, stands to deliver huge returns if its trades pay off.
• Obama's Promise to End Tax Cuts for Rich Unravels. Nobody in Washington has put it quite so bluntly. But it seems almost certain now that Barack Obama will be unable to fulfil his pledge of reversing George W. Bush’s tax cuts for the wealthiest Americans. Last week, Democratic lawmakers returned home to prepare for next month’s midterm elections having failed in either chamber even to put the issue to a vote. In spite of the fact that President Obama made reversing the tax cuts a central pledge of his election campaign – along with ending combat operations in Iraq, a promise he fulfilled in August – the White House was abandoned last week by nervous Democrats to fight alone at the barricades.
• Rehn Warns on Threat From Strong Euro. Europe’s fledgling economic recovery could suffer if the euro is undercut by other currencies, the European Union’s economics chief warned as China rebuffed fresh pleas to allow the renminbi to strengthen. The warning from Olli Rehn, Europe’s commissioner for economic and monetary affairs, reflected a growing concern that moves by other nations to restrain their currencies in order to boost exports was taking its toll on Europe’s competitiveness. “If the euro continues to bear a disproportionate burden in the adjustment of global exchange rates, the recovery of the euro area might be weakened,” Mr Rehn said in Brussels after meetings Wen Jiabao, China’s prime minister, during an EU-Asia summit.

Telegraph:

• Banks' $4 Trillion Debts are 'Achilles' Heel of the Economic Recovery, Warns IMF. More taxpayer support is needed to ensure global financial stability despite the billions already pledged, the International Monetary Fund has warned, as banks remain the “achilles heel” of the economic recovery.

DigiTimes:

• Hard Drive Makers to See 4Q10 Shipments Remain Flat or Drop Sequentially. Hard drive makers expect their shipments in the fourth quarter to only remain flat and they might even drop slightly by 1-2% sequentially, as weak back-to-school demand has created a pileup of hard drive inventory among PC players. These players will work on digesting the inventory in the fourth quarter, so they are likely to reduce their orders for the quarter, with total shipments in the second half to grow only 5-6% compared to the first, according to sources from hard drive makers.