Monday Watch

Weekend Headlines
Bloomberg:

• Europe Leaders Take Another Run at Fixing Crisis. European leaders will take another run at fixing the debt crisis this week after the failure of their fourth rescue blueprint sparked intensified concern the 17-nation euro area was on the brink of unraveling. With a European Union summit in Brussels looming Dec. 9, U.S. Treasury Secretary Timothy Geithner arrives in Frankfurt tomorrow to prod political leaders and the European Central Bank holds a policy meeting Dec. 8. Today, Chancellor Angela Merkel and French President Nicolas Sarkozy will hold talks in Paris in an attempt to bridge differences on a crisis resolution. Safeguarding banks, limiting the damage to Italy and Spain and finding additional rescue funds may hinge on the response to Franco-German demands for closer economic integration and tougher policing of fiscal rules. Markets climbed last week as investors looked toward the latest plan to rescue to the 17- nation euro, betting that a new regime of budget rules at the summit may clear the way for more intervention from the ECB. “The door should swing open for the ECB to become more aggressive,” Erik Nielsen, global chief economist at UniCredit SpA, wrote in a note to clients yesterday. Stepped-up bond purchases by the ECB will “restore a degree of sanity.”
• US, Euro Governments Consider Special IMF Fund, Welt Says. The governments of the 17-nation euro zone are considering giving hundreds of billions of euros to the International Monetary Fund in order to end the sovereign-debt crisis, Die Welt reported, citing sources close to the negotiations. “Triple-digit billions” will be paid into the fund which would then finance rescue programs for some countries, according to Welt. Other central banks such as the U.S. Federal Reserve are also said to be willing to contribute and Secretary of the Treasury Tim Geithner will fly to Europe this week to meet with politicians and bankers, Welt said.
• Sarkozy, Merkel May Not Reach Agreement Tomorrow, JDD Reports. French President Nicolas Sarkozy and German Chancellor Angela Merkel may not reach an agreement on proposals to overhaul European institutions tomorrow, Le Journal du Dimanche reported, without saying where it got the information. Sarkozy said last week he would meet Merkel to make “French-German propositions” that will help “guarantee the future of Europe.” The two heads of state are due to meet in Paris at 1:30 p.m. tomorrow for a “work lunch,” according to the Elysee presidential palace’s website. Sarkozy and Merkel have different opinions on several matters including the role of the European Central Bank and the closer monitoring of euro countries’ budgets with potential sanctions against persistent offenders, Le Journal du Dimanche reported.
• Monti to Lobby Parliament to Back Budget Plan. Prime Minister Mario Monti will lobby parliament to support a 30 billion-euro ($40 billion) package of austerity and growth measures to trim the euro-region’s second- biggest debt and prevent Italy from sparking the euro’s breakup. Monti presents the plan to the Chamber of Deputies in Rome at 4 p.m. and to the Senate at 6 p.m. after his Cabinet approved the package yesterday, a day ahead of schedule. The package, which includes more than 12 billion euros in spending cuts, will force workers to delay retirement, resurrect a tax on first homes, crackdown on tax evasion and open up closed professions.
• U.K. Economic Growth Forecasts Cut by EEF as Manufacturers See Stagnation. The EEF sees gross domestic product rising 1 percent in 2012 instead of the 2 percent forecast in September, with factory output growing 0.9 percent rather than 2.2 percent, Chief Economist Lee Hopley told reporters at a briefing in London on Dec. 2. A manufacturing survey published today showed companies predict flat output and a “modest contraction” in orders in the first quarter, Hopley said.
• China's Stocks Decline, Extending Fourth Weekly Loss, on Property Concerns. China’s stocks (SHCOMP) fell, with the benchmark index extending a fourth straight weekly loss, after non-manufacturing industries contracted as the government’s curbs on property and lending damped demand. Anhui Conch Cement Co. (600585), China’s biggest maker of the building material, and Hebei Iron & Steel Co. dropped at least 1.1 percent after a purchasing managers’ index shrank for the first time since February. China Vanke Co. (000002) and Financial Street Holding Co. retreated among property companies after the central bank said developers are facing tighter credit conditions. The Shanghai Composite Index lost 14.89 points, or 0.6 percent, to 2,345.78 at the 11:30 a.m. break, a second day of declines. The Shanghai Composite slid 0.8 percent last week, a third weekly loss, after manufacturing contracted for the first time since February 2009 in November. The index has tumbled 16 percent this year, extending last year’s 14 percent loss, after the central bank raised interest rates and lenders’ reserve-requirement ratios to curb inflation.
• Pakistan, Iran Fund Afghanistan Insurgent Training, Bild Reports. Pakistan and Iran are together supporting insurgents in Afghanistan, Germany’s Bild reported today, citing a classified NATO document. The document stated evidence from July showed Pakistan’s Inter-Services Intelligence was leading a joint initiative to provide funds and training to Taliban insurgents in northern Afghanistan, where 5,000 German soldiers are based, Bild said. The ISI is also sponsoring production of automatic weapons in Peshawar, Pakistan, for use in Afghanistan, Bild said.
• Builders Shrink 'Great Australian Dream' as Housing Falters.
• Tepco Reports More Radioactive Water Leaks. As much as 45 tons of radioactive water leaked from Japan’s crippled Fukushima nuclear station at the weekend and some may have reached the sea, Tokyo Electric Power Co. (9501) said. The leakage shows the company known as Tepco is still struggling to control the disaster nine months after an earthquake and tsunami wrecked the plant. The water contained 1.8 millisieverts per hour of gamma radiation and 110 millisieverts of beta radiation, Tepco said in an e-mailed statement yesterday. “The source of the beta radiation in the water is likely to include strontium 90, which if absorbed in the body through eating tainted seaweed or fish, accumulates in bone and can cause cancer,” said Tetsuo Ito, the head of Kinki University’s Atomic Energy Research Institute. Since the March 11 disaster, the utility has reported several leaks of radiated water into the sea, though its estimates of their size has been disputed. In October, a French nuclear research institute said the Fukushima plant was responsible for the biggest discharge of radioactive material into the ocean in history.
• China Rejects U.S. Solar Imports Ruling. China rejected a preliminary ruling by a U.S. trade panel that imports of Chinese solar panels are harming the domestic industry, saying the decision shows the country’s “inclination to trade protectionism.” The U.S. International Trade Commission on Dec. 2 took the first step toward imposing added tariffs on Chinese solar imports, voting unanimously in Washington on a petition by Bonn- based SolarWorld AG (SWV) that called for antidumping and countervailing duties. The commission will now hold a full investigation.
• Failure to Cut Record Debt Pushes Developer Yields Above 20%: India Credit. India’s biggest developers are failing to rein in record debt as borrowing costs above 20 percent and the worst economic slump since 2009 erode earnings.
• China Can't Use Reserves to 'Rescue' European Countries, Minister Fu Says. China can’t use its $3.2 trillion in foreign exchange reserves to “rescue” European nations and the country “has done its part” to help the region deal with its financial crisis, Vice Foreign Minister Fu Ying said.
• Global Warming Fight Threatened by Debt Crisis as Kyoto Aim Starts to Fade. Global warming concerns are being pushed down the political agenda by the European debt crisis and U.S. economic slump, reducing the chance for an accord limiting climate change this week.
• Iranian Forces Shot Down U.S. Spy Aircraft, PressTV Reports. Iran’s military shot down a U.S. reconnaissance drone in the country’s east, PressTV reported, citing an unidentified military official. The unmanned RQ-170 Sentinel aircraft suffered minimal damage in the attack, the state-run Iranian television station said. The Lockheed Martin Corp. RQ-170 is a stealth drone.
• Oil Rises on Iran Tension. Oil rose for a second day in New York on concern that tension in the Middle East will curb supplies and speculation that Europe will take steps to tame a debt crisis that threatens economic growth. West Texas Intermediate oil gained as much as 0.8 percent, after posting the first weekly increase in three.
• SAP(SAP) to Buy SuccessFactors(SFSF) for $3.4 Billion to Match Oracle(ORCL). SAP AG, the largest maker of business-management software, agreed to buy SuccessFactors Inc. for $3.4 billion in cash to keep pace with archrival Oracle Corp. in the cloud-computing market. SAP will purchase San Mateo, California-based SuccessFactors, which makes software used to manage employee performance, for $40 per share, 52 percent more than the closing price in New York trading on Dec. 2, Walldorf, Germany-based SAP said in an e-mailed statement today.

Wall Street Journal:

• Plan Prompts German Bashing From France. A Franco-German plan aimed at solving the euro-debt crisis by a partial loss of sovereignty and deeper fiscal integration sparked bellicose anti-German comments from French opposition politicians. Leaders of far-left and far-right groups, and representatives of mainstream parties, accused Paris of bending to German diktats after President Nicolas Sarkozy said Thursday that he was in favor of increasing European supervision over national fiscal and budget policies. Far-left leader and presidential candidate Jean-Luc Mélenchon said in a blog post Friday that Mr. Sarkozy had "capitulated" in the face of German Chancellor Angela Merkel.
• An 'Arab Winter' Chills Christians.
• Obama Laments Pakistan Killings. President Barack Obama called his Pakistani counterpart to personally express his condolences for the deaths of 24 Pakistani soldiers in a recent NATO airstrike along Afghanistan's border, a sign the White House was stepping up efforts to ease tensions. The White House said Mr. Obama told Pakistani President Asif Ali Zardari during the call that "this regrettable incident was not a deliberate attack on Pakistan and reiterated the United States' strong commitment to a full investigation." Mr. Obama called the loss of life "tragic."

CNBC:

• HSBC China Services PMI Falls, Slowdown Spreads. The HSBC Purchasing Managers' Index for China's services sector fell to 52.5 from 54.1 in November, signaling its slowest rate of growth in three months and the latest in a series of data points portraying a quickly cooling economy.

Business Insider:

• The Fed's New Communication Strategy Is Taking Shape.
• Germany's Deal For Europe: EVERYONE Has To Be Miserable.
• It's Suddenly Cheaper To Eat Out. Supermarket prices soaring.
• Germany Doesn't Understand Why Everyone In Europe Is So Ungrateful.
  

Zero Hedge:

• Germany Planning For Commerzbank Nationalization.
• Putin Loses Majority In Russian Elections As Communist Party Soars.
• The Latest Rumor: Fed To Fund IMF, Bypassing Congressional Refusal Of European Bailout.
  

NY Times:

• Italian Prime Minister Is Set to Unveil New Austerity Plans. Prime Minister Mario Monti enjoys broad popular support as he takes on the daunting mandate of turning around the moribund Italian economy. But the honeymoon may end as soon as Monday, when he is scheduled to announce austerity measures aimed at saving up to $25 billion to balance the budget by 2013. While the details are not yet known, he is expected to ask for higher taxes on the super-rich and luxury items like yachts, an increase in the retirement age and the reintroduction of property taxes — political third rails that are expected to meet fierce opposition with the public and Parliament. Mr. Monti, an economist who is also acting as finance minister, has told Italians that such changes are essential for Italy to boost its anemic growth, stave off a recession and pay down its staggering public debt, which is $2.5 trillion, or 120 percent of gross domestic product, in order to stabilize the Italian economy and protect the euro. It is a tricky balancing act, and already labor unions are objecting to pension reforms, to say nothing of changes to Italy’s labor market, which Mr. Monti has also said are on his agenda, though not immediately. “The road will be very rocky, very bumpy,” said Roberto D’Alimonte, a political science professor at Luiss Guido Carli University in Rome. “This is a government that doesn’t have friends in Parliament,” he added. Members of Parliament “aren’t convinced of the gravity of the crisis, because it’s a mediocre political class, not to say anything worse,” Mr. D’Alimonte said. It will also be a test for Italy’s technocracy: the cabinet of specialists widely seen as towering figures in their fields but lacking grass-roots political support.
• U.S. Agents Launder Mexican Profits of Drug Cartels. Undercover American narcotics agents have laundered or smuggled millions of dollars in drug proceeds as part of Washington’s expanding role in Mexico’s fight against drug cartels, according to current and former federal law enforcement officials. The agents, primarily with the Drug Enforcement Administration, have handled shipments of hundreds of thousands of dollars in illegal cash across borders, those officials said, to identify how criminal organizations move their money, where they keep their assets and, most important, who their leaders are.

NY Post:

• NYC Pensions 'Hedge' Bets. The city’s $109 billion pension funds are expected to make their first-ever direct investments in hedge funds early next year, a spokesman for Comptroller John Liu revealed yesterday. “We are beginning to build a direct hedge-fund portfolio, which will be approximately 4 percent to 5 percent of each participating NYC pension fund and should ultimately approach $4 billion,” the spokesman said.
  

Seeking Alpha:

• 20 Small Cap Stocks That Hedge Funds Are Buying.

Wall Street All-Stars:

• Unlucky 13. In many ways we look like Mexico in the critical years of 1976, 82’ and 94’. In the year preceding an election the country has taken a number of steps to kick the can down the road. Promises have been made that all of those emergency steps will be reversed starting in January 2013. Some of the big issues that have been tabled:

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

Reuters:

• Wall St. Sues CFTC Over Commodity Trading Crackdown. Wall Street's top trade groups launched on Friday a second major legal assault on the biggest overhaul of U.S. financial regulations in decades, suing to block new rules on commodity speculation. In the suit, which had been widely expected given fierce objections from big investment banks and traders, the groups said the Commodity Futures Trading Commission's rule to prevent excessive speculation in markets like oil and gold was procedurally flawed and "lacked a reasoned basis."

Financial Times:

• Political Turmoil Takes Hedge Funds Out Of Comfort Zone. Fundamental commodity hedge funds have had a difficult year, not least because of the increased correlation between energy and equity markets, but investors are still backing them for the information edge they provide. Several big names in the sector, which usually benefit from previous experience in commodity trading, have returned double digit losses so far this year. Investors in London-based Clive Capital, BlueGold, and the Merchant Commodity Fund have said they all had difficulties, notably during August.

Telegraph:

• Euro Doomed Form Start, Says Jacques Delors. In an interview with The Daily Telegraph, Jacques Delors, the former president of the European Commission, claims that errors made when the euro was created had effectively doomed the single currency to the current debt crisis. He also accuses today’s leaders of doing “too little, too late,” to support the single currency.
• Germany: A Reason Why Fiscal Union and ECB Funny Money Won't Happen. Angela Merkel "vows to build fiscal union," we were told on Friday, after the German Chancellor's speech to the Bundestag. I just don't buy it.
• Fiskalunion Is Worst Of All Worlds For Europe. Be careful of the German term 'Fiskalunion', the next phase of Europe’s misadventure. What Chancellor Angela Merkel means is increased powers to police the budgets of EMU sinner states.

Times:

• U.K. retailers are coming under greater financial pressure than in the months following the collapse of Lehman Brothers Holdings Inc. in 2008, citing a report by Ernst & Young LLP.

Welt am Sonntag:

• Eurobonds would turn Germans against Europe, former European Central Bank Chief Economist Otmar Issing said in an interview. Joint bonds would increase the cost of German borrowing, leaving the country's taxpayers with the bill for a process which would get "out of control" and increase their antipathy toward Europe, Issing said.

FTD:

• Most chief economist at the world's leading international banks think that a breakup of the euro zone is possible, citing its own survey. Invesco LTD.'s Chief Economist John Greenwood saw the greatest chance of a breakup at 70%.

Focus:

• German Chancellor Angela Merkel and French President Nicolas Sarkozy are willing to risk a division among countries that share the euro, should some member states object to their stability proposals, citing government officials. If all countries using the currency don't accept the proposals, then Germany and France will seek to reach an agreement with countries such as Austria, the Netherlands and Finaland. The German government plans to strengthen European treaties while returning some powers to national governments. Such a move would reduce the influence that eurosceptic nations such as the U.K. and Czech Republic have in budgetary decisions.
• The introduction of the euro was a bad idea, 60% of Germans said in a poll published today by Focus. The poll, carried out by TNS Emnid for Focus, found that 74% of Germans agreed that the deutschmark was more stable than other currencies when compared with the euro, and that 85% said prices had increased significantly since the euro's introduction.
  

Le Journal du Dimanche:

• Europe needs "immediate actions," not a new treaty, Francois Hollande, the Socialist Party candidate for France's 2012 presidential elections, said. Negotiations for a new EU treaty would take "months," citing Hollande.

ANP:

• The problems related to the European debt crisis won't be resolved after the heads of state meet Dec. 9 in Brussels, citing Finance Minister Jan Kees de Jager in an interview. The storm will continue for a while, he said.

BCBusiness:

• Housing Has Become Vancouver's Toxic Asset. The rapidly inflating housing market in the Vancouver area is turning into a system of toxic financial assets that threatens the entire region's economy.

China Business News:

• China should suspend the introduction of new policies to internationalize the yuan, former central bank adviser Yu Yongding writes in a commentary. Pressure for yuan appreciation will weaken because investment capital inflows have fallen, he wrote. The yuan may depreciate in the short term which should be seen as an early warning sign to Chinese economic development, Yu writes. The country should strengthen capital controls to avoid being hit by a turbulent international financial market, he said.

CRIEnglish:

• China Wants Housing Curbs Extended. China's central government has ordered local governments to extend restrictions on the property market, some of which are set to expire within coming months. The announcement partly dispelled uncertainties of whether China would continue the tight controls on the property market after the central government pledged to "fine-tune" macroeconomic policies to sustain growth and on concerns that falling home prices may hurt the economy. But Premier Wen Jiabao said last month that the government will not waver on tightening measures and pledged to bring house prices down to a "reasonable level."

Weekend Recommendations
Barron's:

• Made positive comments on (GY), (SPLS), (NFLX), (GD), (MSFT), (HPQ), (BBT), (GES), (JNJ), (MRK) and (HAS).
• Made negative comments on (SFLY).
  

Night Trading

• Asian indices are -.75% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 195.0 -7.0 basis points.
• Asia Pacific Sovereign CDS Index 158.25 -2.0 basis points.
• FTSE-100 futures n/a.
  
• S&P 500 futures +.76%.
• NASDAQ 100 futures +.59%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DG)/.47

Economic Releases
10:00 am EST

• ISM Non-Manufacturing for November is estimated at 53.8 versus 52.9 in October.
• Factory Orders for October are estimated to fall -.3% versus a +.3% gain in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Evans speaking, UBS Media/Communications Conference, (NVLS) Mid-Quarter Update, (SLG) Investor Conference and the (DOV) Investor Meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.