Monday Watch

Weekend Headlines 
Bloomberg:

• Lagarde to Defend IMF Credibility in Euro-Area Talks on Greece. International Monetary Fund Managing Director Christine Lagarde said she’ll defend the IMF’s credibility in talks on Greece this week, signalling a potential clash with euro finance chiefs over Greek debt sustainability. Lagarde cut short a visit to Southeast Asia yesterday to return to Europe for a meeting with euro-region finance ministers in Brussels on Nov. 20. With the two sides deadlocked over the timeline for reducing Greek debt levels, Lagarde said she was approaching the talks feeling “patient and resilient.” Speaking in an interview in the Philippine capital Manila before leaving for Europe, Lagarde said she’ll seek to “operate independently” while sticking to the fund’s rules, suggesting no retreat from her position in the negotiations. Maintaining the “solidity of our advice” on Greece will be just as important as ensuring the country’s program works, she said. Lagarde took issue last week with European governments’ decision to push back a debt reduction target by two years to 2022 against the fund’s recommendations, raising questions over whether the IMF would keep financing Greece.
• Frankfurt Split Shows Euro Tension Over Banking Union. The effort to establish a euro-area banking regulator in Frankfurt is exposing deepening fault lines among the city’s banks as policy makers jostle over the shape of the industry. Deutsche Bank AG (DBK) co-Chief Executive Officer Juergen Fitschen, an advocate, is among top executives and officials meeting at the Euro Finance Week conference starting in the currency union’s financial capital today. At the center of the debate will be how much power the European Central Bank, based in Frankfurt, should be allowed to wield. The argument pits Fitschen, who favors centralized ECB regulation, against more than 1,500 smaller banks who lend more cash to Europe’s biggest economy than he does. The discord over banking union mirrors a wider dispute between politicians, regulators and central banks across the continent that has led the Bundesbank, also based in Frankfurt, to lock horns with the ECB. At stake is a revival of last year’s bank share sell-off, prompted by foot-dragging on steps to stem Europe’s debt crisis.
• BIS Chief Sees Risk of Financial Friction at ‘Delicate’ Juncture. Bank for International Settlements General Manager Jaime Caruana said he is concerned that diverging monetary policies may stoke discord. “We have reached a delicate global monetary policy configuration,” Caruana said yesterday at a conference in Punta del Este, Uruguay, according to an e-mailed copy of his speech. “If this analysis is correct, there is a real risk that frictions could multiply and intensify, especially if the economic environment were to deteriorate further,” he said, adding that conflicts may arise over currencies and bond-market investments, without providing details. Lackluster growth from the U.S. to Japan to Europe has prompted their central banks to increase monetary stimulus, raising concerns that such moves may end up hurting emerging economies by bolstering those currencies. At the same time, advanced nations have urged countries including China to allow the markets to set their exchange rates.
• Israel Ready to Invade Gaza if Cease-Fire Efforts Fail. Israeli ground forces are poised to invade the Gaza Strip for the first time in almost four years amid efforts by Egypt and Turkey to help end the rocket battles that have killed 71 Palestinians and three Israelis. “We will continue to act, to attack and perhaps even to intensify the operation,” Defense Minister Ehud Barak said during an appearance near Tel Aviv yesterday, according to an e- mailed statement. “If there is a need, we won’t hesitate to undertake ground maneuvers.” The escalating conflict between Israel and the Islamist Hamas movement, which controls the Gaza Strip, threatens a region still unbalanced after a wave of popular uprisings last year.
• PBOC's Zhou: China Monetary Policy Pressured by Other Interests. The China central bank is often asked by others to relax policies and boost growth, Governor Zhou Xiaochuan said a a conference in Beijing today. The PBOC believes China is often in danger of overheating and inflation, not deflation. China must always be alert over inflation, Zhou said. 
• China, Asean Downplay Sea Disputes as Economic Concerns Grow. Southeast Asian leaders sought to ease tensions with China over maritime disputes before a regional summit tomorrow involving U.S. President Barack Obama as concerns persist over weaker demand in the global economy.
• China’s Stocks Decline to Seven-Week Low, Led by Property Shares. China’s stocks fell to the lowest level in seven weeks, led by real-estate developers, on concern the government will refrain from relaxing curbs on the property market after new home prices rose in October in more cities. China Vanke Co. led a gauge of property stocks to the biggest decline among industry groups in the Shanghai Composite Index. (SHCOMP) Ping An Insurance (Group) Co. dropped to the lowest level since March after the Hong Kong Economic Journal reported that HSBC Holdings Plc plans to sell all of its shares in the Chinese insurance company. Kweichow Moutai Co., the biggest maker of baijiu liquor, slid to the lowest level in more than two months.
• Hedge Funds Cut Bets in Longest Retreat Since 2008: Commodities. Hedge funds cut bullish commodity bets for a sixth straight week, the longest slump since the depths of the global recession four years ago, on mounting concern that economies are slowing. Money managers lowered combined net-long positions across 18 U.S. futures and options by 17 percent to 772,512 contracts in the week ended Nov. 13, Commodity Futures Trading Commission data show. Holdings have tumbled 38 percent since Oct. 2 in the longest retreat since August 2008. Investors turned bearish on copper for the first time since August. Commodities are headed for the first annual loss since 2008 as weaker growth and more supply will mean surpluses in sugar, aluminum and zinc, according to Morgan Stanley.
• U.S. Treasury Exempts Foreign Exchange Swaps From Dodd-Frank. The U.S. Treasury Department exempted foreign-exchange swaps and forwards from Dodd-Frank Act regulations intended to reduce risk and increase transparency in the derivatives market. Foreign-exchange swaps and forwards are short-term transactions that already have high-levels of transparency and risk management, the department said in a statement yesterday announcing the exemption. Deutsche Bank AG, Bank of New York Mellon Corp., UBS AG (UBSN) and other banks urged Treasury Secretary Timothy F. Geithner to exempt the market. The exemption had been resisted by some regulators, Democratic lawmakers and advocates of tighter rules.
• Twinkies May Vanish as Union’s Brinkmanship Shuts Hostess. Misty Williams and other Hostess Brands Inc. workers arriving at the plant in Wayne, New Jersey, yesterday found a sign on the doors: “Hostess Brands Has Closed All Locations.” Williams, who’s 40 and has worked at the company for 14 years, was shocked that management and union leaders had let their dispute get to the point that the 82-year-old maker of Twinkies and Ding Dongs would close its 36 plants, fire more than 18,000 employees and liquidate assets.
• Shadow Banking Grows to $67 Trillion Industry, Regulators Say. The shadow banking industry has grown to about $67 trillion, $6 trillion bigger than previously thought, leading global regulators to seek more oversight of financial transactions that fall outside traditional oversight. The size of the shadow banking system, which includes the activities of money market funds, monoline insurers and off- balance sheet investment vehicles, “can create systemic risks” and “amplify market reactions when market liquidity is scarce,” the Financial Stability Board said in a report, which utilized more data than last year’s probe into the sector. “Appropriate monitoring and regulatory frameworks for the shadow banking system needs to be in place to mitigate the build-up of risks,” the FSB said in the report published on its website.
• 2013 Looks a Lot Like 1937 in Four Fearsome Ways by Amity Shlaes.
• Gold Advances as ETP Holdings Expand to Record, Dollar Declines. Gold gained for the first time in three days, climbing alongside other commodities as the dollar weakened and investors boosted holdings in exchange-traded products to a record. Spot gold advanced as much as 0.6 percent to $1,723.70 an ounce and traded at $1,722.30 at 12:15 p.m. in Singapore.
• Oil Rises a Second Day Amid Israel Conflict. Futures climbed as much as 0.9 percent after Israeli Prime Minister Benjamin Netanyahu said yesterday that the army is prepared to “significantly widen the operation,” raising concern Middle East unrest will disrupt oil supplies. 

Wall Street Journal: 

• Clashes Coming On Energy Trades. Deutsche Bank AG says it would be cheaper to simply pay a $1.6 million penalty sought by the Federal Energy Regulatory Commission in September for allegedly manipulating California electricity markets than to fight the agency in court. Yet the German bank sent FERC an 89-page document defending itself earlier this month. The reason: Giving in to the agency might set a precedent that would empower the electricity regulator to dole out much larger fines.
• Tech Sets Correction Course. Sector is a 'Canary in the Coal Mine' For the Market, Signaling Deeper Declines. In just six weeks, the stock market has gone from flirting with record highs to the brink of a correction. After extending their slumps last week, the Dow Jones Industrial Average and the Standard & Poor's 500-stock index are now down more than 7% from their recent peaks. A decline of 10% or more is commonly known as a correction. As investors look for clues as to what may lie ahead, they are homing in on one sector in particular—technology stocks.
• Investment Falls Off a Cliff. U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty. U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery. Half of the nation's 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls. Nationwide, business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009. Corporate investment in new buildings has declined. At the same time, exports are slowing or falling to such critical markets as China and the euro zone as the global economy downshifts, creating another drag on firms' expansion plans.
• Israeli Reservists Set For Potential Battle. Thousands of Israeli army reservists streamed Sunday to bases around the Gaza Strip, ready to invade the coastal enclave by land if cease-fire talks fail. The massing of regular troops and reservists marks a major commitment by Israel's government and raises expectations for an assault against Palestinian militants, though the Israeli military could still pull back.
• Drillers Begin Reusing 'Frack Water'. Energy Firms Explore Recycling Options for an Industry That Consumes Water on Pace With Chicago. Companies are racing to find ways to recycle the water used in hydraulic fracturing, chasing an emerging market that could be worth billions of dollars. From energy industry giants Halliburton Corp. and Schlumberger Ltd. to smaller outfits such as Ecologix Environmental Systems LLC, companies are pursing technologies to reuse the "frack water" that comes out of wells after hydraulic fracturing, or "fracking"—the process of using highly pressured water and chemicals to coax oil and gas out of shale-rock formations.
• Citigroup(C) on Track With Sales, Trading Job Cuts. 
• Capretta and Levin: Why ObamaCare Is Still No Sure Thing. The majority of state governors are Republicans, and they have the power to disarm the health-care law. Champions of ObamaCare want Americans to believe that the president's re-election ended the battle over the law. It did no such thing. The Patient Protection and Affordable Care Act won't be fully repealed while Barack Obama is in office, but the administration is heavily dependent on the states for its implementation.

CNBC:

• Inflation China's Key Long-Term Risk: Central Bank Chief. Inflation is the main long-term risk for China as the economy makes a transition from a planned economy to a market-based one and deeper financial reforms are needed to complete the move, central bank governor Zhou Xiaochuan said on Saturday. "There is a general tendency for overheating impulses during China's economic transition process and we should always stress the need to control inflation," Zhou told a financial forum. "In most occasions, pressures from various sides is to loosen monetary policy to spur growth, but there is less push for preventing economic overheating and inflation," he said. A main feature of China's economic transition is that many entities, including local governments, are not subject to "soft constraints", which means they tend to spend more and fuel economic overheating, Zhou added.
• Emboldened by Election, Democrats Draw New Line. President Barack Obama's re-election has stiffened Democrats' spine against cutting popular benefit programs such as Medicare and Social Security. Their new resolve could become as big a hurdle to a deal that would skirt crippling tax increases and spending cuts in January as Republicans' resistance to raising tax rates on the wealthy.
• Change in Negotiators Shakes Up US-China Trade Policy. The rare congruity of the political calendars in the United States and China, with both countries choosing leaders this month, is about to produce an equally rare replacement of most of each side’s senior trade negotiators, with unpredictable results for bilateral economic relations.

Zero Hedge:

• Stratfor Update on Gaza, Israel, And Hezbollah.
• Argentina Ignores US Court Decision, Will Not Pay Elliott And Holdouts.
• Understanding the "Exorbitant Privilege" of the U.S. Dollar.

Business Insider: 

• GOLDMAN(GS): 'Clear And Present Downside Risks' Will Send Stocks Tumbling Into The End Of The Year.
• Now We Know Why The French Were So Upset About The New Economist Cover. 
• This Survey Is Devastating For Microsoft(MSFT): 42% Of Windows Users Plan To Switch To Apple(AAPL).
• Here's What Futurist Ray Kurzweil Thinks Life Will Be Like In The Next 20 Years. 
• KYLE BASS: There's A New School Of Economic Thought That Will 'Lead Sheep To The Slaughter'. 
• MORGAN STANLEY(MS): The Solution To The Fiscal Cliff Will Be Another Fiscal Cliff. 
• Jim O'Neill's Latest Take On Europe Is Much Gloomier Than Normal. 
• Check Out All The New Taxes You're Going To Pay To Pay For Obamacare...
• In 6 Weeks, A New Dividend Tax Will Smack Rich People Upside The Head. 
• Iran Says The Muslim World Must Strike Back At Israel For Gaza Attacks.
  

Wall Street All-Stars: 

• Indicator Update: Thanksgiving Opportunities?

New York Times:

• Drug Shortages Persist in U.S., Harming Care.
• European Countries Seek More Taxes From U.S. Multinational Companies.

New York Post: 

• Poverty rate, food stamp use rising in NYC.
  

The Blaze: 

• Congress to Investigate Inaccurate Benghazi Talking Points: ‘This Whole Process Is Going to Be Checked Out’. Lawmakers said Sunday they want to know who had a hand in creating the Obama administration’s now-discredited “talking points” about the Sept. 11 attack on a U.S. diplomatic post in Benghazi, Libya, and why a final draft omitted the CIA’s early conclusion that terrorists were involved. The answers could explain why President Barack Obama and his top aides, including U.N. Ambassador Susan Rice, described the attack for roughly two weeks afterward as a protest against an anti-Islam video that spontaneously turned violent, and why they played down any potential link to al-Qaeda despite ample evidence to the contrary.

Reuters:

• Spain's Rajoy says EU budget proposal unacceptable. Spanish Prime Minister Mariano Rajoy said on Saturday that a draft European budget was unacceptable. The proposed seven-year budget would turn Spain into a net contributor to the EU for the first time by cutting aid and subsidies. European Union chief Herman Van Rompuy proposed a compromise draft EU budget on Wednesday, aiming to go part way to meeting spending cut demands from Britain, Germany, Sweden and the Netherlands. France on Thursday rejected the proposal saying the limits it proposes on farm subsidies were unacceptable. Van Rompuy's draft would cut 80 billion euros out of the roughly 1 trillion euro ($1.3 trillion) budget for 2014-2020 proposed by European Commission President Jose Manuel Durao Barroso.
• Cisco(CSCO) to buy cloud-networking start-up Meraki for $1.2 bln.
• Green groups slam Keystone pipeline, march around White House. Hundreds of people who say they worry oil that would be carried the Keystone XL pipeline will accelerate climate change marched around the White House on Sunday, hoping to revive a movement credited with slowing down the permit process for the crude oil project. The protesters changed "Hey, Obama! We don't want no climate drama" and said they hope President Barack Obama's election-night promise to address climate change means he will reject the pipeline. It needs a presidential permit to cross into the United States from Canada. "We're interested in sending a clear message to Obama," said Molly Pugh from nearby Alexandria, Virginia, marching with her husband and 2-year-old daughter, who rode in a stroller.
• Facing austerity, Europe's bureaucrats chafe. Workers protesting austerity on the streets of southern Europe weren't to know it, but earlier this month there was also a strike at the heart of the European Union - by bureaucrats fighting possible cuts. For an increasing number of Europeans, cuts in Brussels are what is needed.

Telegraph: 

• Merkel's day of reckoning as taxpayer haircut on Greece looms. Germany, Holland, and the creditor states of northern Europe have not lost a single cent on eurozone rescue packages, so far. 
• The euro has become Germany’s new Deutschemark. "You must tell your readers,” says Prof Gunther Schmid, one of Germany’s leading labour market experts, leaning forward over the Berlin brasserie dining table to emphasise his point. “It will be a disaster if Britain leaves the European Union.”

Der Spiegel: 

• Betting with Trillions Prison of Debt Paralyzes West. Be it the United States or the European Union, most Western countries are so highly indebted today that the markets have a greater say in their policies than the people. Why are democratic countries so pathetic when it comes to managing their money sustainably?

Handelsblatt:

• Regling Signals Greece Won't Get Debt Relief. Debt reduction involving the public sector is "something very exceptional that can only happen in extreme situations," citing Klaus Regling, CEO of ESM rescue fund, in an interview.

Expansion:

• Catalonia has asked Spain to increase the region's 2013 deficit target to 2% from .7%, citing comments by regional finance chief Andreu Mas-Colell.

El Pais:

• The Spanish region of Catalonia reiterates calls on Prime Minister Mariano Rajoy to open talks on its independence, citing its President Artur Mas. Catalonia has called early regional elections Nov. 25. Mas has pledged to negotiate independence with the central government if he's re-elected with strong report.

Australian Financial Review:

• Growth heading for cliff in Australia, says Chaney. Australia is likely to fall off a “growth cliff” when the resources investment boom ends in the next few years because the economy is not becoming more productive, says Michael Chaney, chairman of National Australia Bank and Woodside Petroleum. Economic growth was likely to slow to less than 2.5 per cent after 2015 because of burdens on business, including overlapping state and federal environmental regulations, and Labor’s industrial relations system, which made the workplace less ­flexible, along with other problems, he told The Australian Financial Review.

China Securities Journal:

• China Should Lower Economic Growth Expectations. Economic growth of around 7% and M2 money supply increases of about 12% for the Asian nation are "more appropriate," according to a front-page commentary written by Cao Shuishui, a researcher at the newspaper.

Weekend Recommendations

Barron's:

• Made positive comments on (LUK), (AAPL), (JCP), (SPA), (LEA) and (CPB).

Night Trading

• Asian indices are -.25% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 126.0 -4.5 basis points.
• Asia Pacific Sovereign CDS Index 95.0 +2.0 basis points.
• FTSE-100 futures +.77%.
• S&P 500 futures +.23%.
• NASDAQ 100 futures +.29%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (LOW)/.35
• (TSN)/.44
• (URBN)/.41
• (A)/.80
• (NUAN)/.48 

Economic Releases
10:00 am EST

• The NAHB Housing Market Index for November is estimated at 41 versus 41 in October.
• Existing Home Sales for October are estimated at 4.75M versus 4.75M in September.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Italian Industrial Production report and the (HON) Investor Day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the week.