Tuesday Watch

Evening Headlines 
Bloomberg:

• Grand Bargain Inadequate to Fix U.S. Fiscal Woes, Study Finds. (video) Even a so-called grand bargain might not be enough to solve the U.S. fiscal woes. A $4 trillion combination of spending cuts and tax increases over 10 years envisioned by Democrats and Republicans as a long-term fix would be inadequate, according to a Bloomberg Government study. Almost $6 trillion in deficit reduction will be needed in the next decade "to make a minimum down payment that puts the nation on a sounder fiscal footing," the report said.
• Islands Seek Funds for Climate Damage at UN Discussions. Islands that are most vulnerable to rising oceans are seeking an insurance program to protect against damage related to climate change, adding to pressure on industrial nations to increase aid committed to fight global warming to more than $100 billion a year. The islands are proposing a “loss and damage” mechanism that would insure and compensate countries that suffer from extreme weather, erosion and drought. The request is raising tension levels among more than 190 industrial and developing nations at United Nations climate talks in Doha this week. “All we are asking is that they help us with these issues that aren’t our doing,” Malia Talakai of Nauru, lead negotiator for the Alliance of Small Island States, or AOSIS, a bloc of 43 island nations, said in an interview in Doha. “We are trying to say that if you pollute you must help us.” 
• Most Accurate Economic Forecaster Sees Lethargic U.S. Expansion. Shapiro has scored the top spot among forecasters of the U.S. economy for the two-year period ended on Sept. 30, according to data compiled for the annual Bloomberg Markets ranking of global forecasters. Shapiro sees monetary policy, with the Federal Reserve benchmark interest rate at almost zero, as having a limited near-term impact on growth. And he considers the $1 trillion U.S. fiscal deficit an important drag on future expansion. “There is an element of repetitiveness in being an economist these days, because adjustments that affect the economy are all very long-term and are not going to change anytime soon,” he says.
• China’s Stocks Drop to Lowest Level Since 2009; Moutai Declines. China’s stocks fell, dragging the benchmark index down for the sixth time in seven days, as liquor shares extended yesterday’s rout on concern demand will weaken. Kweichow Moutai Co. dropped for a third day, pushing losses for a gauge of consumer staples producers over the past month to 20 percent after excessive levels of plasticizer were found in JiuGuiJiu Co. products. Chengdu B-Ray Media Co. plunged 10 percent, sending a gauge of small-company stocks to the lowest level since March 2009. The Shanghai Composite Index (SHCOMP) slipped 0.4 percent to 1,951.85 at the 11:30 a.m. break, heading for the lowest level since Jan. 15, 2009. “Investors have kind of given up for this year,” Zhang Haidong, analyst at Tebon Securities Co. analyst, said by telephone in Shanghai. “The stock market hasn’t reached a bottom yet. Investors are concerned that demand for high-end products like liquor will suffer.” 
• SEC Says Big Four Audit China-Affiliates Blocked Probe. U.S. regulators probing potential fraud by China-based companies increased pressure on their auditors by formally accusing affiliates of Big Four firms of withholding documents from investigators. Deloitte Touche Tohmatsu CPA Ltd., Ernst & Young Hua Ming LLP, KPMG Huazhen and PricewaterhouseCoopers Zhong Tian CPAs Limited have refused to cooperate with accounting fraud investigations into nine companies whose securities are publicly traded in the U.S., the Securities and Exchange Commission said in an administrative order yesterday. BDO China Dahua Co. Ltd. was also named by the SEC in the action.
• Hong Kong Leads Singapore, U.S. in Youth Gap: Chart of the Day. Singapore Prime Minister Lee Hsien Loong’s concern about a low birthrate underscores a common problem in the world’s richest nations, where shrinking pools of workers and taxpayers will shift burdens onto the elderly.
• Japan Deploys Missile Defense Against North Korean Rocket Test. Japan will deploy its Patriot anti- missile defense system in Okinawa and around Tokyo to guard against this month’s planned North Korean rocket launch, the Defense Ministry said. Ships carrying PAC-3 missile interceptors set out for Okinawa from a naval base in Hiroshima yesterday, Defense Ministry spokesman Takaaki Ohno said. The move follows an order issued by Defense Minister Satoshi Morimoto over the weekend, he added. North Korea said last weekend it will fire a rocket between Dec. 10 and Dec. 22 to put a satellite into space, the same explanation given for an April launch that failed shortly after liftoff.
• Japan Tunnel Collapse Threatens to Add to Fiscal Burden: Economy. Japan’s fatal tunnel tragedy this week escalated a political debate over infrastructure spending as the nation heads for elections, bringing focus to aging transport networks in the world’s third-largest economy.
• RBA Cuts Key Rate to Half-Century Low of 3% as Hiring Slumps. The Reserve Bank of Australia cut its benchmark interest rate to the half-century low set during the 2009 global recession as hiring falters and an elevated currency hurts industries such as manufacturing and tourism. Governor Glenn Stevens and his board reduced the overnight cash-rate target by a quarter percentage point to 3 percent, the central bank said in a statement in Sydney today. The sixth cut in the past 14 months was predicted by 20 of 28 economists surveyed by Bloomberg. The rate matches the level reached from April-October 2009 that was the lowest since 1960.
• Qualcomm(QCOM) Said to Agree to 5 Billion Yen Investment in Sharp. Sharp Corp. (6753), the Japanese TV maker that warned last month about its ability to survive, agreed to sell a stake in itself to Qualcomm Inc. and team up with the U.S. company to make displays, two people familiar with the plan said. Sharp plans to make an announcement today on the agreement, which includes selling 5 billion yen ($61 million) of new shares to the San Diego-based chipmaker this year, one of the people said, asking not to be named because the plan hasn’t been made public. That would give Qualcomm a 2.6 percent stake in Sharp, based on its 191 billion yen market value yesterday. 

Wall Street Journal:

• GOP Makes Counteroffer In Cliff Talks. Proposal Calls for $800 Billion Increase In Revenue, Half What Obama Seeks. The GOP offer was immediately rejected by the White House, but it provides the most detailed statement to date of what Republicans are willing to concede for now. It comes days after the White House put forward its opening bid in the high-stakes deficit talks. With both sides now having made preliminary offers, the parameters for future negotiations between Republicans and the White House are becoming clearer.
• Fiscal Cliff: Live Stream.
• GM(GM) Moves to Reduce Inventory. General Motors Co., saddled with large stocks of unsold cars and trucks, is taking steps to cut excess production and signaled there may be more to come. Workers at its Lordstown, Ohio, assembly plant soon will be off the job for three weeks instead of a planned two-week Christmas shutdown as the Detroit auto maker curtails Chevrolet Cruze output. A second U.S. plant also may be idled according to a person familiar with the matter. The company also said on Monday that year-end inventories of Silverado and Sierra pickups may exceed 220,000 vehicles in part due to a decision to hold the line on discounts. The higher-than-expected supply will likely push GM's overall car and truck inventory beyond a year-end target of 670,000 vehicles. 
• Top U.S. Firms Are Cash-Rich Abroad, Cash-Poor at Home.
• U.S. Warns Syria on Chemical Arms. White House Draws 'Red Line' After Seeing Large Stockpile Movement, but Pentagon Remains Opposed to Land War.
• China Tightens Reins on Macau. Police in Gambling Enclave, Mainland Detain Junket Operators; First Sign of a Corruption Crackdown. The Chinese government is increasing its scrutiny of Macau's booming casino industry and the junket operators that bankroll its high-rolling gamblers, the first sign of a crackdown on corruption following stepped-up rhetoric by China's new leadership.
• Matthew Kaminski: Trying to Save Europe 'Step by Step'. Finance Minister Wolfgang Schäuble on Germany's balancing act between euro scold and bailout enabler. Last week's Greek deal depends on the successful buyback of bonds from private creditors later this month, and it makes rosy assumptions about future Greek growth. Within hours of its approval, Mr. Schäuble had to admit that the deal might not be enough to stave off Greek insolvency. He says that alternatives are available down the road but won't "explicitly" spell them out. Germany first needs to see the promised Greek reforms "fully implemented." "If there is no crisis, Europe doesn't move," Mr. Schäuble says. "If you have success you start to destroy the basis of the success. That is what Sisyphus is about."

Zero Hedge:

• Total US Debt Hits $16,369,548,799,604.93; Debt Ceiling Just $63 Billion Away.
• ISM - Outlook Declines. (graphs)
• Is That As Good As It Gets For US Macro? (graph)
• Time For Bernanke To Retract His Sworn Testimony To Congress. (video)

Business Insider:

• CHEESECAKE FACTORY CEO: Obamacare Will Be 'Very Costly'.
• ElBaradei: 'Egypt Is Threatened By 4 Time Bombs'.
• This Could Be The Beginning Of The Liberal Media Backlash.

IBD:

•  PetSmart(PETM) Prospers; Pet Owners Treat Fido Like Family.

Washington Post:

• U.S. pushes to restart peace talks with Taliban. The Obama administration has launched a post-election push to restart moribund peace talks with the Taliban, despite resistance from the U.S. military, mixed signals from Pakistan and outright refusal by the militants themselves, according to U.S. officials. Senior White House and State Department officials reiterated the administration’s negotiating position — including its willingness to exchange prisoners with the Taliban — to a reluctant Defense Department at a meeting of national security deputies two weeks ago.

NY Times:

• High-Speed Trades Hurt Investors, a Study Says. A top government economist has concluded that the high-speed trading firms that have come to dominate the nation’s financial markets are taking significant profits from traditional investors. The chief economist at the Commodity Futures Trading Commission, Andrei Kirilenko, reports in a coming study that high-frequency traders make an average profit of as much as $5.05 each time they go up against small traders buying and selling one of the most widely used financial contracts.

Reuters:

• Morgan Stanley(MS) wealth unit aims to close lending gap.

Financial Times:

• Europe’s property loans go unpaid. More than 70 per cent of the European commercial property loans that were at the heart of securitisation deals structured before the subprime crisis and that reached maturity this year have not been repaid. Fresh figures from Fitch Ratings point to the continued difficulties facing issuers and investors involved in European commercial mortgage-backed securities deals that were structured in the securitisation boom between 2004 and 2006.
• Yen short positions hit five-year high.

Telegraph:

• French economy buckles as car sales collapse. France’s industrial woes deepened last month as car sales crashed 19pc and French brands lost market share at an dramatic pace, raising fears of a serious economic crisis next year once austerity hits.

Globe and Mail:

• Investors fume at Sprott’s shakeup of Flatiron funds. Just six months after Sprott Inc. bought Flatiron Capital Management, the asset manager is shutting one of the acquired funds and replacing the managers of the others after assets under management plummeted by 45 per cent.

Yonhap News Agency:

• U.S. to mull 'appropriate actions' if N. Korea fires rocket: Samore. A senior security aide to President Barack Obama said Monday the U.S. is concentrating efforts in cooperation with South Korea, China, Russia and Japan to dissuade North Korea from pressing ahead with another rocket launch. Gary Samore emphasized that if the launch takes place Washington will take "appropriate actions." "We've made it very clear that we consider this to be a very unfortunate provocative event, which is not going help North Korea nor the people of North Korea," Samore told Yonhap News Agency.

Kontan:

• United Tractors Co. Estimates 2012 Sales May Fall 27%. The co. expects heavy equipment sales may fall to 6,200 units in 2012, from 8,500 units last year, citing Director Loudy Ellias. 

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.75% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 112.5 +1.0 basis point.
• Asia Pacific Sovereign CDS Index 84.0 +1.25 basis points.
• FTSE-100 futures -.36%.
• S&P 500 futures -.30%.
• NASDAQ 100 futures -.24%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TOL)/.24
• (BIG)/-.26
• (AZO)/5.39
• (OXM)/.21
• (MFRM)/.46
• (P)/.01
• (AVAV)/.22

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bullard speaking, Eurozone inflation data, Canada rate decision, Australia GDP, China HSBC Services PMI, weekly retail sales reports, (ASH) analyst day, (URI) investor day, ISM New York for November and the Goldman Sachs Financial Services Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.