Friday Watch

Evening Headlines
Bloomberg:

• France Scrutinizes EU's Terror Failings a Week After Attacks. (video) France took European allies to task after investigations exposed serious security flaws that may be partly to blame for the country’s worst attack on home soil since World War II. In a thinly-veiled jab at Belgium, whose intelligence services are under scrutiny after investigators found at least three Brussels residents took part in the carnage, French Interior Minister Bernard Cazeneuve said "it’s essential that Europe pulls itself together." "There needs to be a collective realization by all European ministers, we need to move quickly and forcefully," Cazeneuve said ahead of a meeting with European Union counterparts requested by France in the Belgian capital. An increasing body of evidence shows an intelligence breakdown may have allowed a well-flagged jihadi free to roam the continent. Cazeneuve highlighted how Abdelhamid Abaaoud, the suspected architect of the attacks killed in a police raid on Wednesday, had been implicated in four of six attacks foiled by French forces since January. He added that both international and European warrants had been issued for his arrest. At least four of the attackers were listed on a counter-terrorism database maintained by the U.S. intelligence community, with one or more on a U.S. no-fly list, Reuters reported, citing unidentified U.S. officials.
• The Politics Surrounding the Fight Against Islamic State. (video)
• Does China Have a $1.2 Trillion Ponzi Problem? (video) 
• BOJ Easing Seen as Blunt Tool by Invesco, Blowing Bubbles by TCW. TCW Group Inc. says the Bank of Japan has made a mistake and should exit quantitative easing as soon as possible. Invesco Ltd. says the only error was not starting sooner. The split in views at the funds, which manage a combined $971 billion, comes as BOJ Governor Haruhiko Kuroda kept monetary policy unchanged on Thursday and his board said inflation expectations seem to be rising. TCW is among critics that say easing has only served to artificially inflate asset prices above what is merited by the real economy, and the longer it continues, the bigger the eventual crash.
• Taiwan Tech Demise Shows Pain of Dependence on Desktop PCs. For a stark depiction of how Taiwan’s technology industry has been ravaged by the rise of the smartphone and the fall of the desktop computer, look at Asia’s stock market. The 10 worst performers in Morgan Stanley’s 106-member Asia-Pacific Infotech Index this year come from Taiwan, once the leader of computer innovation and a powerhouse in hardware and semiconductor manufacturing. The sagging companies include former PC giant Acer Inc. and its manufacturing spinoff Wistron Corp. -- both are down 40 percent -- and smartphone maker HTC Corp., once the biggest seller in the U.S.
• Deep Dive: Baltic Dry Index, Swiss Watchmakers. (video)
• Here's Why Consumption in Latin America's Biggest Economy Is Taking a Hit. Recession and inflation hobble growth and companies shed workers. When Brazil’s Dilma Rousseff was sworn in for her second presidential term in January, she proclaimed that maintaining jobs and raising salaries were her “greatest priority.” Months later, real wages are falling and — even with people leaving the workforce — unemployment has spiked to its highest in more than six years. How does all this look on the ground?  
• Asian Stocks Drop as U.S. Dollar Holds Biggest Slump in a Month. Asian equities pared their biggest weekly gain in six weeks as investors paused for breath after a rally fueled by optimism that the Federal Reserve’s pace of tightening will be gradual. The dollar held its biggest slump in a month, while oil languished near a three-month low. The MSCI Asia Pacific Index lost 0.3 percent as Japanese shares led declines, with exporters dragged lower by the yen’s advance.
• Are Energy Stocks Overvalued? (video)
• Fischer Says Fed Trying Not to Surprise Markets at Liftoff. Federal Reserve Vice Chairman Stanley Fischer said the central bank has done its best to prepare international markets for its first interest rate increase since 2006 and reiterated that no decision has been made yet about the precise timing of liftoff. "In the relatively near future probably some major central banks will begin gradually moving away from near-zero interest rates," Fischer on Thursday told the Asia Economic Policy Conference Thursday at the Federal Reserve Bank of San Francisco. "We have done everything we can to avoid surprising the markets and governments when we move, to the extent that several emerging market (and other) central bankers have, for some time, been telling the Fed to ’just do it.’”

Wall Street Journal:

• Islamic State Tactics Shift, Borrowing From al Qaeda. Extremists are engineering larger, more coordinated plots against the West. U.S. and European counterterrorism officials believe Islamic State has changed its operational tactics by borrowing from al Qaeda’s playbook, deploying trusted lieutenants to engineer larger, more coordinated plots against the West.
• Paris Attacks Shine Light on Europe’s Failing Border Policies. EU nations have been slow to improve their information-sharing practices. In the minds of many Europeans, last Friday’s attacks in Paris have merged terrorism with the continent’s refugee crisis. That was probably the idea. A forged Syrian passport found near the body of a suicide bomber outside the Stade de France sports stadium strongly suggests the perpetrators of the outrage wanted it that way. The attacks have provided ammunition for nationalist politicians in Poland, Italy and elsewhere to reinforce an anti-immigration narrative. But the links between the two biggest issues on the European agenda have been made by mainstream policy makers too.
• NYPD Commissioner Bratton: Homelessness in NYC Has ‘Exploded’ in Past Two Years. Bratton said he was ‘frustrated’ by the problem during a panel discussion on quality-of-life issues. Police Commissioner William Bratton said Thursday that homelessness in New York City had “exploded” over the past two years—including in his own Upper East Side neighborhood—and was posing a challenge to police.
• Uncertain Leadership in Perilous Times. Paris is different, but the president can’t seem to change.

Fox News:

• Islamic State terrorists determined to build chemical weapons, officials say. (video) The Islamic State group is aggressively pursuing development of chemical weapons, setting up a branch dedicated to research and experiments with the help of scientists from Iraq, Syria and elsewhere in the region, according to Iraqi and U.S. intelligence officials.

MarketWatch.com:

• UnitedHealth(UNH) suggests Obamacare is being gamed. 
• The countries where ISIS finds support, in two charts.

CNBC: 

• Ken Griffin warns art prices 'cause for concern'. (video)
• UnitedHealth(UNH) move a 'wake-up call' for the White House: Analyst. As UnitedHealth Group threatens to opt out of participating in Obamacare in 2017, one expert says no one should be surprised.

Zero Hedge:

• The Great Fall Of China Started At Least 4 Years Ago. (graph)
• China's "Minksy Moment" - $1.2 Trillion In Ponzi Financing. (graph)
• Subprime Auto Lending Soars As Fed Report Shows Spike In Loans To Underqualified Borrowers.
• The Beginning Of The End For The Affordable Care Act? Largest US Health Insurer May Exit ObamaCare.
• Hillary Clinton's Aides Demand Comedy Club Remove Video Making Fun Of Her.
• The Stunning Visualization Of The World's 3 Billion Barrel Oil Glut.
• 3 Things: Earnings, Profits, Rates. (graph)
• Bonds & Bullion Bid As Fed "Policy Error" Fears Spark Dollar Drop, Stock Slop. (graph)

Business Insider: 

• The Clintons have generated $3 billion. The Washington Post just unveiled a jaw-dropping tally of Clinton Inc. showing that over four decades Bill and Hillary Clinton have generated $3 billion in total contributions to their global charitable, education and health care work, presidential and Senate campaigns and personal fees and royalties.
• Terrorism cost the world $52.9 billion in 2014.
• Yahoo(YHOO) insiders say Marissa Mayer is an indecisive micromanager and may be looking to quit.
• The US consumer has borrowed over $1 trillion for cars.
• The short seller who called out Lumber Liquidators' formaldehyde problem is now targeting a furniture company.
• The retail business is warning of an imminent recession.
• Gap(GPS) slashes forecast for earnings, shares drop. 
• Nike(NKE) is buying back $12 billion of itself.
• Senator: 'Young people are being robbed by older generations'.

Reuters:

• Mutual fund investors drive money out of U.S. stock funds -Lipper.

Financial Times:

• Paris attacks: Intelligence agencies forced to rethink tracking of Isis. Western intelligence agencies were forced to rethink their operations and reassess their ability to track Isis on Thursday as French officials confirmed the organiser of Friday’s Paris attacks had been operating under their noses.

Focus:

• German Police Discover Suspected Munich Terrorist Cell. German police found terrorist group in Central Apart Hotel in Berg am Laim district late Thursday evening. Investigators found several gas canisters and German police uniforms in hotel room. Federal, state police searching for suspects.

Evening Recommendations 

• None of note

Night Trading 

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 126.25 -.25 basis point.
• Asia Pacific Sovereign CDS Index 67.75 -.25 basis point.
• Bloomberg Emerging Markets Currency Index 71.12 +.09%.
• S&P 500 futures -.10%.
• NASDAQ 100 futures -.11%.

Morning Preview Links 

Earnings of Note 
Company/Estimate

• (ANF)/.22
• (FL)/.95
• (HIBB)/.68

Economic Releases
11:00 am EST

• The Kansas City Fed Manufacturing Activity Index for November is estimated to rise to 0.0 versus -1.0 in October.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Bullard speaking, German PPI report and the (K) analyst day could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by consumer 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.