Monday Watch

Weekend Headlines
Bloomberg:

• Bond Refinancings in Europe Outweigh Deficit Reduction Plans: Euro Credit. Record refinancing needs for Europe’s highest-deficit nations may overshadow spending cuts next year and increase the risk that more countries will follow Greece in requiring a rescue to avoid default. Euro-region governments have to repay 582 billion euros ($803 billion) of debt in 2011, up from 521 billion euros this year, according to estimates from ING Groep NV. Spain has to roll over almost 20 percent of its outstanding loans, government figures show. Portugal has 23 billion euros of debt coming due and Ireland has more than 10 billion euros, according to data compiled by Bloomberg. “I can’t ignore what’s going on in Ireland and Portugal, and the path of least resistance is for wider spreads or higher yields for both,” said Padhraic Garvey, head of developed market strategy at ING in Amsterdam. “I’m not predicting they will need a bailout next year. I’m just highlighting the risk.” The extra yield investors demand for holding 10-year Irish bonds rather than German bunds rose last week to 454 basis points, the most since the introduction of the euro. The yield premium for 10-year Greek bonds was 786 basis points more than Germany, the most of any euro nation. It was 181 basis points for Spain as of Oct. 1 and 384 basis points for Portugal.
• Fed Bond Buying's Unintended Consequences May Mean Higher Rates. A second round of bond purchases by the Federal Reserve may have the unintended consequences of pushing borrowing costs higher, say a growing number of U.S. government securities dealers, strategists and economists. Yields on 10-year Treasury notes, a benchmark for everything from home mortgages to corporate bonds, rose last month for the first time since March even as the central bank hinted that it may conduct more so-called quantitative easing to bolster the economy. The median forecast of more than 60 estimates in a survey by Bloomberg News is for yields to keep rising the rest of this year and through 2011. Based on what the Fed bought in 2009, yields are trading as if it has already acquired an additional $315 billion to $670 billion of securities, according to Deutsche Bank AG, one of the 18 primary dealers that trade with the central bank. Policy makers will announce plans buy $100 billion to $1 trillion in Treasuries before the year is out, a survey of 12 of the 18 dealers show. Three don’t expect the Fed to buy additional debt.
• Isilon Systems(ISLN) Said to Seek Buyers for Possible Company Sale. Isilon Systems Inc., the maker of devices used to store video, audio and digital images, is seeking bidders for a possible sale, according to two people briefed on the matter. The company hired Frank Quattrone’s Qatalyst Partners to canvas would-be acquirers, said one of the people, who declined to be identified because the plans haven’t been made public. Isilon, based in Seattle, is seeking to emulate the bidding war that surrounded rival data-storage maker 3Par Inc., both people said.
• More Than 80% of Iranians Apply for Government Aid When Food Subsidy Ends. Iran’s government will start paying cash to individuals next week to help them cope with rising prices as it phases out subsidies for food and energy, Economy and Finance Minister Shamseddin Hosseini said. About 60 million Iranians, or more than 80 percent of the population, have signed up for the program, which starts Oct. 7, Hosseini said in Tehran today, according to the state-run Fars news service. He didn’t say how many people will qualify for compensation or how much they will receive, according to Fars. “The accounts of Iranian families will be credited gradually,” Hosseini was cited as saying. “They will see how much they are eligible for when they check their accounts.” Hosseini didn’t say when caps on food and energy products will be lifted or by how much.
• Retirement-Age Increase Proposal in France Prompts Third Day of Protests. France today faces demonstrations across the country, the third day of protests in a month over President Nicolas Sarkozy’s proposed pension-system overhaul. Labor unions want the government to suspend plans to raise the retirement age, which were approved by the National Assembly on Sept. 15. The last protest, on Sept. 23, drew between 997,000 and 3 million protesters, according to diverging data published by the police and by unions. No strikes are planned today. “The demonstrations may be big,” Georges Tron, the minister for civil servants, told Canal Plus television yesterday. “It won’t change the precise elements” of the government plan, he said. Sarkozy’s pension bill raises the retirement age to 62 from 60 and the age for a full pension to 67 from 65. Unions want the retirement age to stay at 60.
• U.S. Unemployment Rate Probably Rose as Recovery Can't Generate Enough Jobs. The probably rose in September for a second month as the year-old U.S. recovery failed to generate enough jobs to keep up with a growing labor force, economists said before a report this week. Unemployment climbed to 9.7 percent from 9.6 percent in August, according to the jobless ratemedian estimate of 62 economists surveyed by Bloomberg News ahead of an Oct. 8 report from the Labor Department. The data may also show companies added 77,000 workers to payrolls, and total hiring stagnated amid cuts in government staffing as the decennial census wound down. A lack of jobs is restraining consumer spending, the biggest part of the economy, and underscores the Federal Reserve’s concern that the rebound from the worst recession since the 1930s has been too slow to develop. Economists surveyed by Bloomberg project unemployment will average at least 9 percent through 2011.
• Fat Surgery for Teenage Girls May Raise Birth Defect Risk, Study Suggests. Teenage girls who’ve undergone obesity surgery may not absorb enough of a vitamin needed to have healthy babies, raising the risk of bearing children with spine and brain birth defects, a study suggests.
• Chavez Says U.S. is Behind Failed Coup Attempt Against Ecuador's Correa. Venezuelan President Hugo Chavez says the U.S. was behind a failed uprising in Ecuador, in which President Rafael Correa claims he was held against his will in a hospital by police and soldiers protesting wage cuts. Washington is supporting coup d’etats against an alliance of Latin American left-wing countries, known as the Bolivarian Alliance for the Americas, or ALBA, which was formed by Chavez to counter U.S. influence in the region, he wrote in his weekly column “The Lines of Chavez.” “Let’s not forget, the failed attempt, manufactured by Washington, was looking not only to bring down Correa’s government but also the ALBA and Unasur (Union of South American Nations),” Chavez wrote in the column. The U.S. “has revived the old measure of coup d’etats to spoil plans of governments that don’t subordinate to it.”
• Banks Need More 'Intrusive' Oversight to Avoid Excess Risk, IMF Staff Says.
• S&P 500 Profits Cut for First time in Year in Analyst Forecasts. For the first time in more than a year analysts are cutting their forecasts for Standard & Poor’s 500 Index earnings, jeopardizing gains from the biggest September rally since World War II. Estimates for S&P 500 companies’ combined 2011 profit fell as low as $95.17 last month from an August high of $96.16 and posted the first quarterly reduction since the three months ended June 2009, according to more than 8,500 analyst forecasts tracked by Bloomberg. The revision came as the benchmark gauge for U.S. equities rose 8.8 percent last month, the largest September advance since 1939.
• FCC Investigating Verizon Wireless(VZ) For 'Mystery Fees'. Verizon Wireless, the largest U.S. wireless company, is under investigation by the Federal Communications Commission for “mystery” data fees it charged about 15 million customers. The FCC began its investigation 10 months ago after reports from consumers about the fees, the FCC said in an e-mail statement today. The commission said Verizon Wireless has reportedly put the amount of the overcharges at more than $50 million.
• Nomura Rates China Property 'Cautious' Amid Possible Tightening Measures. China’s property stocks were rated “cautious” in new coverage at Nomura Holdings Inc., which said there’s an increased risk of the government issuing new tightening measures. The introduction of property tax in the “overheated” cities of Beijing, Shanghai, Shenzhen and Hangzhou as well as the “full” enforcement of the land appreciation tax will likely be among policies used to curb speculation, Alvin Wong and Sunny Tam wrote in a report today. “Affordability is starting to get stretched in some overheated cities, while public housing supply does not seem sufficient to create a meaningful impact on overall housing supply,” the analysts wrote. “With this we believe there is higher risk of further tightening measures to clamp down on overheated markets.” The 18 stocks on the MSCI China Real Estate Index have dropped an average 12 percent this year, compared with a 1.8 percent gain in the broader MSCI China Index. The government last week added to curbs by tightening down-payment rules for first homes, suspending third-home loans and pledging to quicken a trial of a property tax. Given the lack of “strong evidence” of a price correction and continued signs of “speculative activities,” a property tax will be “inevitable,” the analysts said.
• Global Steel Demand to Slow on China, World Association Says. Global steel demand growth will probably fall to 5.3 percent next year on slowing sales in China, the World Steel Association said. China’s demand is likely to increase 3.5 percent in 2011, down from a projected 6.7 percent this year, the association said.

Wall Street Journal:

• Borrowers of Euroland are Proving Einstein's Theory of Insanity Right. "Insanity: doing the same thing over and over again and expecting different results." So, it is alleged, spoke Albert Einstein. All over Europe officials are trying to prove him right. Greece led the peripheral countries in piling up debts that it had little hope of ever repaying. Non-peripheral countries, most notably Britain and France, joined in the fun, the latter despite its commitment to its Euroland partners to keep its fiscal deficit within 3% of GDP—in the event, borrowing reached 8%. Cometh the markets, cometh reality: payback time. National cupboards being bare, the Euroland authorities stepped in with a cunning plan to handle excessive debt: borrow more to repay the wild borrowings of the member countries. And the Irish government will drive its deficit to 32% of GDP by borrowing to bail out banks hit by the inability of property developers to repay excessive borrowings. If more borrowing to repay excessive borrowing doesn't fit the great physicist's definition of insanity, it is difficult to tell what does.
• Obama Likely to Scale Back Legislative Plans. In New Political Landscape, Incremental Approach Is in Works to Get Support for Some Proposals on Energy, Immigration. President Barack Obama, facing at best narrower Democratic majorities in Congress next year, is likely to break up his remaining legislative priorities into smaller bites in hope of securing at least some piecemeal proposals on energy, climate change, immigration and terrorism policy, White House officials say.
• The Trade and Tax Doomsday Clocks by Don Luskin.
  
• The Holdouts. More than four years after the housing market peaked, many of the nation's wealthiest homeowners are slashing prices in earnest. The asking price on the late Brooke Astor's Park Avenue duplex has plummeted to $24.9 million from $46 million. Thursday Peter Sperling, son of the University of Phoenix founder John Sperling, dropped the price on his San Francisco limestone mansion to $47 million; he had been asking $65 million since 2006. Then there are the ultimate holdouts: a rarefied slice of extremely wealthy sellers who are holding the line on today's deal-making, price-slashing mentality. Even as their properties have lingered on the market, these sellers haven't budged on initial asking prices, some of which were set in the waning days of the housing bubble.
• Ford(F) Heads Toward More Cash Than Debt.
  

CNBC:

• Currency War Dears Ting Upcoming IMF Meetings. If there's one thing the world's economic powers can agree on, it's that none of them wants a strong currency right now.

IBD:

• Even in a Recession, Consumer Still Need a Cure for the Sniffles. This partly explains why Perrigo (PRGO) maintained steady financial growth even as the economy sputtered and consumers cut back on spending.

NY Times:

• Claims to BP(BP) Fund Attract Scrutiny. Kenneth R. Feinberg spent part of his summer barnstorming towns near the Gulf of Mexico, urging people who felt they had suffered financial hardship because of the oil spill to apply for a share of the $20 billion BP fund he was overseeing. The point of the fund was to pay claims rather than litigate them in court. “It’s my opinion you are crazy if you don’t participate,” Mr. Feinberg told a crowd at one stop in Louisiana. And participate they did. Mr. Feinberg has seen applications that could bring a tear to the eye. Others are likelier to raise eyebrows. Take the businessman who explained that his part of the $20 billion fund should be ... $20 billion. His income last year? Fifty thousand dollars. A restaurant worker asked for $5.9 million in emergency payments, even though his earnings before the spill were just $18,000. And then there are the 4,000 claims, using a one-page form letter, that flooded in from Plaquemines Parish a couple of weeks ago, some hand delivered to local claims offices. They asked for grocery money, from $150 a month to hundreds of dollars, to make up for the fish they would have pulled from the gulf waters had there been no spill. Few offered any substantiation for the claim, though one person brought a dead fish. In all, about 31,000 claims have little or no documentation, and the people who filed them have been asked to provide more information. And 1,000 more are “very, very suspicious,” Mr. Feinberg said, and are being held for further examination.
• Companies Borrow at Low Rates, but Don't Spend. As many households and small businesses are being turned away by bank loan officers, large corporations are borrowing vast sums of money for next to nothing — simply because they can. Companies like Microsoft are raising billions of dollars by issuing bonds at ultra-low interest rates, but few of them are actually spending the money on new factories, equipment or jobs. Instead, they are stockpiling the cash until the economy improves.

CNNMoney:

• Latest Unemployed: Stimulus-Subsidized Workers. Tens of thousands of low-income workers lost their jobs Thursday as a stimulus-subsidized employment program came to an end.

Business Insider:

• It's Time for the Fed to Stop Screwing Savers and Bailing Out Banks and Borrowers With 0% Rates.
• Why Yes, It Really is Insanity to Raise Taxes When the Economy is So Weak.
  

Zero Hedge:

• Scientists, Secrets and Wall Street's Lost $4 Trillion. Thanks to an ever growing influx of Ph.D.s from the Ivies and an insatiable demand for an algorithmic trading edge by secretive hedge funds and proprietary trading desks at the largest firms, Wall Street has become part physics lab, part casino, part black hole. What Wall Street bears no relationship to any longer is its primary mission in the U.S. economy: to be a fair and efficient allocator of capital to worthy businesses and innovators to propel job growth while also providing a medium for allowing investors to buy or sell stocks and bonds of those businesses at a fair price.
• Is Europe Getting Ahead of Itself as Excess Cash in Euro Banking System Drops to Post-Lehman Low.
• On Tomorrow's Secret Meeting to Plot the End of High Frequency Trading. The SEC's "definitive"(ly worthless) report on what happened on May 6^th was a dud, and was nothing more than a distraction-based smear campaign against Waddell and Reed (an experiment in which we can only hope W&R participated involuntarily): a firm which did something that was completely in its right to do. But is this unexpected? After all had the SEC confirmed that it is indeed HFT who is responsible for a broken market structure, it would have effectively destroyed itself: if and when the SEC does indeed confirm that the entire market topology over the past 5 years has been hijacked by young and pustular math Ph.D.'s with fast computers, the implications to fair markets would be orders of magnitude worse than the fallout associated with the Madoff scandal, and could serve as grounds for the unwind of the SEC itself, which would have to explain why it has been avoiding calls against HFT impropriety for years. So in a sense Mary Schapiro's conclusion is nothing less than a lass desperate act of self preservation.

LA Times:

• Bell Officials Cut Police Pensions While Boosting Their Own. As Bell provided record high pensions for Robert Rizzo and 40 other officials, the city cut the pensions for new police officers, claiming it could no longer afford their full retirement benefits. Rizzo, the longtime Bell city manager who was charged with public corruption last week stands to receive an annual pension of an estimated $1 million thanks to major enhancement the City Council approved beginning in 2003. But three years later, the city created a two-tiered pension system for Bell police officers, with officers hired after that year receiving less generous pensions than other police employees.

AllHeadlineNews:

• Gunmen Kidnap 22 Acapulco Tourists. Twenty-two Mexican tourists went missing in Acapulco on Thursday after they were kidnapped by gunmen, the local media reported on Saturday. A spokesman for the Guerrero State attorney general's office confirmed the kidnapping of the busload of tourists on Saturday, according to CNN. Incidences of mass kidnappings in Mexico have been linked to the turf war of competing drug cartels. Kidnap victims usually end up dead.
  

U.S. Department of State:

• Travel Alert. The State Department alerts U.S. citizens to the potential for terrorist attacks in Europe. Current information suggests that al-Qa’ida and affiliated organizations continue to plan terrorist attacks. European governments have taken action to guard against a terrorist attack and some have spoken publicly about the heightened threat conditions. Terrorists may elect to use a variety of means and weapons and target both official and private interests. U.S. citizens are reminded of the potential for terrorists to attack public transportation systems and other tourist infrastructure. Terrorists have targeted and attacked subway and rail systems, as well as aviation and maritime services. U.S. citizens should take every precaution to be aware of their surroundings and to adopt appropriate safety measures to protect themselves when traveling.

Rasmussen Reports:

• Obama's Full-Month Approval Rating Falls to New Low. The number of voters who Strongly Disapprove of the president’s performance inched up a point to a new high of 44% in September. At the same time, the number who Strongly Approve held steady at 27%. Those figures generate a full month Presidential Approval Index rating of -17, down a point from last month.

Financial Times:

• Ireland's Budget Deficit Will Be Higher Than Expected. Ireland's budget deficit this year will be 11.9% of national income and not the 11.6 percent previously forecast. The figures, due out today, are a result of a slowing economy rather than a reduction in project tax receipts, citing officials.
  
• One in four hedge fund managers have moved from London to Switzerland, at an annual cost to the U.K. government of an estimated $791 million in tax revenue. Hedge fund managers are relocating to Switzerland because of its stable tax system and to avoid "fiscal volatility and political hostility" in the U.K., citing consultancy Kinetic Partners LLP.
• Traders Angered by Swaps Legislation. Foreign exchange traders are up in arms over a decision to include currency derivatives in Dodd-Frank legislation aimed at reducing risk in the $600,000bn privately negotiated swaps market. The decision to bring foreign exchange options, forwards and swaps under the same umbrella as the toxic products that caused the credit crises has infuriated currency market participants, who claim foreign exchange was entirely innocent in the global economic meltdown. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which became law on July 21, introduced mandatory clearing for all over-the-counter swaps alongside tighter rules on execution, reporting and capital provision. The earliest drafts of the legislation passed in the House of Representatives and the Senate exempted forex swaps and forwards from the legislative definition of “swaps”. However, the final wording contained no such exemption, and put the matter in the hands of the Treasury Secretary. The inclusion has caused a furore across the industry, which claims the market’s size and lack of standardisation makes it an almost impossible candidate for central clearing. Intensive lobbying in Washington and Brussels has ensued.

Telegraph:

• Ireland's Austerity Programme Was Bogus. Ireland needs genuine cuts and to leave the euro if it wants to return to speedy economic growth, says Sam Bowman. It has not been a pleasant few days to be an Irishman. The Irish Government’s gamble in guaranteeing 100 per cent of all banking deposits, seen as a cheap way to avoid bank runs during the start of the financial crisis, committed it to enormous bailouts of any banks that ultimately did fail. This resulted in the Irish state having to bail out the property development bank Anglo Irish Bank last week. It was confirmed that worst-case scenario bill for bailing out the Irish banks will be over €50bn – roughly €25,000 for every taxpayer in the country. To compound this, the "bad bank" set up to purchase toxic property development assets is likely to cost at least another €50bn. Although this is said to be a once-off bailout, it is likely that further injections of public money will be required in the years to come. Ireland has tried to spend its way out of a banking crisis – a mistake which may ultimately cause the collapse of the state’s finances.
• Joseph Stiglitz: the euro may not survive.
  

TimesOnline:

• Nine of the top 15 drugmakers may "wither" or "get taken out" within five years, GlaxoSmithKline Plc(GSK) CEO Andrew Witty said in an interview. About half a dozen of the biggest pharmaceutical companies may survive as patents expire and business strategies are "tested to destruction," Witty said.

SkyNewsHD:

• UK 'On Cusp of Second Banking Failure'. High street banks stand on the verge of another credit crunch and taxpayers may be forced to plug a £25bn-a-month funding gap, an economic think-tank has claimed. Faced with a huge financial black hole, the New Economics Foundation (NEF) has said the banks could turn again to the Government for support. According to its report - Where Did Our Money Go? - an estimated £1.2trillion of state cash has already been pumped into the banking system. However, NEF has described a "shocking" lack of information about how that money has been used and demanded "urgent reform". The report warns that the industry is on a collision course for a severe funding crisis when current financial lifelines are withdrawn. In particular, there are fears over the Bank of England's Special Liquidity Scheme - a vital source of money since the credit crunch - which ends in 2012. The group has urged a range of changes, including splitting retail operations from more risky investment banking and the breaking up of "too big to fail" players. It comes against a backdrop of incoming regulation - such as the Basel III capital rules - that demand banks put aside more cash to boost their capital strength. Calling for reform, Tony Greenham, head of the finance and business programme at NEF, said: "We are on the cusp of a second banking failure.

El Mundo:

• Spain's social security reserve fund won't be able to buy government bonds after the country's top credit rating was cut one level by Moody's Investors Services, citing the rules governing the fund. Managers of the fund worth $86 billion in assets can only buy bonds with the maximum credit rating.
• Spain needs to deepen and speed up structural reforms to help its economic recovery, IMF Managing Director Dominique Strauss-Kahn was quoted as saying. Pension reform has not been fully resolved in Spain, Strauss-Kahn said. The country should also modify collective bargaining rules for setting salaries and employment conditions, he said.
  

Sunday Tribune:

• Ireland's government may need to cut its 2011 budget further or raise taxes to find 4.5 billion euros($6.2 billion) of "savings" required to bring its deficit in line with European Union rules. Another 6 billion euros to 7 billions euros of savings in total may have to be included in budgets for 2012-2014.

South China Morning Post:

• Shenzhen has introduced greater restrictions on home purchases to help cool the property market, citing a statement from the local government. Families with residency status are now limited to the purchase of two homes and those without a permit are allowed to buy one if they can show they have paid taxes in the city for at least a year.

Weekend Recommendations
Barron's:

• Made positive comments on (UTX) and (SNA).
• Made negative comments on (MMYT).

Citigroup:

• Removed (FCX) from Top Picks Live list, Maintain Buy, target $92.
• Reiterated Buy on (AMZN), boosted target to $190.

Night Trading

• Asian indices are +.25% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 114.50 -2.5 basis points.
• Asia Pacific Sovereign CDS Index 109.50 -.5 basis point.
• S&P 500 futures -.15%.
• NASDAQ 100 futures -.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MOS)/.73

Economic Releases
10:00 am EST

• Factory Orders for August are estimated to fall -.4% versus a +.1% gain in July.
• Pending Home Sales for August are estimated to rise +2.8% versus a +5.2% gain in July.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• Fed Chairman Bernanke speaking and the (EC) Investor Day could also impact trading today.
  

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

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on profit-taking, technical selling, mounting global economic fears, increasing financial sector pessimism and China bubble worries. My intermediate-term trading indicators are giving mixed signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,146.24 -.21%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,146.24 -.21%
  
• DJIA 10,829.68 -.28%
  
• NASDAQ 2,370.75 -.44%
  
• Russell 2000 679.29 +1.23%
  
• Wilshire 5000 11,865.51 +.04%
  
• Russell 1000 Growth 517.17 -.09%
  
• Russell 1000 Value 585.15 -.05%
  
• Morgan Stanley Consumer 705.72 +.19%
  
• Morgan Stanley Cyclical 885.44 +.05%
• Morgan Stanley Technology 583.93 -.51%
  
• Transports 4,509.08 -.13%
  
• Utilities 400.37 +.11%
  
• MSCI Emerging Markets 45.10 +2.99%
  
• Lyxor L/S Equity Long Bias Index 984.08 +.33%
  
• Lyxor L/S Equity Variable Bias Index 852.21 -.19%
  
• Lyxor L/S Equity Short Bias Index 818.34 -1.75%
  

Sentiment/Internals

• NYSE Cumulative A/D Line +101,529 +2.18%
  
• Bloomberg New Highs-Lows Index +423 -1
  
• Bloomberg Crude Oil % Bulls 42.0 +223.08%
  
• CFTC Oil Net Speculative Position +61,496 +40.08%
  
• CFTC Oil Total Open Interest 1,332,755 +.65%
  
• Total Put/Call .80 -2.44%
  
• OEX Put/Call 1.32 +11.86%
  
• ISE Sentiment 130.0 -9.72%
  
• NYSE Arms .68 +30.77%
  
• Volatility(VIX) 22.50 +3.64%
  
• G7 Currency Volatility (VXY) 11.83 -1.0%
  
• Smart Money Flow Index 9,284.93 -.27%
  
• Money Mkt Mutual Fund Assets $2.805 Trillion +.1%
  
• AAII % Bulls 42.53 -5.43%
  
• AAII % Bears 31.61 +24.45%
  

Futures Spot Prices

• CRB Index 285.69 +.73%
  
• Crude Oil 81.58 +6.64%
  
• Reformulated Gasoline 208.61 +7.50%
  
• Natural Gas 3.80 -5.62%
  
• Heating Oil 229.38 +6.83%
  
• Gold 1,317.80 +1.50%
  
• Bloomberg Base Metals 231.23 +2.56%
  
• Copper 369.05 +1.75%
  
• US No. 1 Heavy Melt Scrap Steel 350.0 USD/Ton +6.17%
  
• China Hot Rolled Domestic Steel Sheet 4,274 Yuan/Ton -1.20%
• S&P GSCI Agriculture 387.49 -7.02%
  

Economy

• ECRI Weekly Leading Economic Index 122.50 +.25%
  
• Citi US Economic Surprise Index -6.40 +2.3 points
  
• Fed Fund Futures imply 72.1% chance of no change, 27.9% chance of 25 basis point cut on 11/3
• US Dollar Index 78.08 -1.64%
  
• Yield Curve 209.0 -8 basis points
  
• 10-Year US Treasury Yield 2.51% -9 basis points
  
• Federal Reserve's Balance Sheet $2.281 Trillion -.38%
  
• U.S. Sovereign Debt Credit Default Swap 47.17 -.64%
• U.S. Municipal CDS Index 218.50 +2.34%
  
• Western Europe Sovereign Debt Credit Default Swap Index 154.17 -.80%
  
• 10-Year TIPS Spread 1.82% -2 basis points
  
• TED Spread 14.0 -1 basis point
  
• N. America Investment Grade Credit Default Swap Index 104.96 -4.25%
  
• Euro Financial Sector Credit Default Swap Index 121.17 -5.89%
  
• Emerging Markets Credit Default Swap Index 220.62 -4.42%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 259.0 unch.
  
• M1 Money Supply $1.758 Trillion +.05%
• Business Loans 601.50 -.41%
  
• 4-Week Moving Average of Jobless Claims 458,000 -1.4%
  
• Continuing Claims Unemployment Rate 3.5% unch.
  
• Average 30-Year Mortgage Rate 4.32% -5 basis points
  
• Weekly Mortgage Applications 784.0 -.83%
  
• ABC Consumer Confidence -45 +1 point
  
• Weekly Retail Sales +2.6% -10 basis points
  
• Nationwide Gas $2.69/gallon -.02/gallon
  
• U.S. Cooling Demand Next 7 Days 50.0% below normal
• Baltic Dry Index 2,452 +.33%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 30.0 -7.69%
  
• Rail Freight Carloads 241,167 +.48%
  
• Iraqi 2028 Government Bonds 85.81 -.11%
  

Best Performing Style

• Small-Cap Growth +1.38%

Worst Performing Style

• Large-Cap Growth -.09%

Leading Sectors

• Steel +4.55%
• Airlines +4.31%
• Education +3.76%
• Gaming +3.75%
• Coal +3.10%

Lagging Sectors

• Biotech -1.0%
• Drugs -1.01%
• Oil Tankers -1.02%
  
• Road & Rail -1.60%
• Agriculture -2.66%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Rising Into Final Hour on Short-Covering, Rising QE2 Expectations, Commodity Strength

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Around Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 22.67 -4.35%
  
• ISE Sentiment Index 128.0 +42.22%
  
• Total Put/Call .84 +1.20%
  
• NYSE Arms .72 -47.75%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 104.96 bps -1.80%
  
• European Financial Sector CDS Index 119.72 bps -5.24%
  
• Western Europe Sovereign Debt CDS Index 154.17 bps -1.18%
  
• Emerging Market CDS Index 220.43 bps -2.93%
  
• 2-Year Swap Spread 20.0 +2 bps
  
• TED Spread 14.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 210.0 +2 bps
  
• China Import Iron Ore Spot $141.10/Metric Tonne unch.
  
• Citi US Economic Surprise Index -6.40 +1.5 points.
  
• 10-Year TIPS Spread 1.82% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +36 open in Japan
• DAX Futures: Indicating +17 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech and Medical long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades at the upper end of its recent trading range despite being technically overbought and mixed economic data. On the positive side, Education, I-Banking, Bank, Disk Drive, Steel, Coal and Energy shares are especially strong, rising 1.25%+. The Ireland sovereign cds is dropping -2.69% to 445.31 bps. Moreover, the decline in the euro financial sector cds index is also a large positive. Copper is rising another +.99%. The ongoing weakness in the US dollar, which is extremely negative for US equities longer-term, is a short-term positive. On the negative side, Road & Rail, HMO, Oil Tanker and Tobacco shares are under pressure, falling more than .75%. The S&P GSCI Ag Spot Index, which led the recent stock rally, is declining another -.64% today. Lumber is falling -2.07% and China Stainless Steel spot prices are down -3.94% this week. The Illinois Muni Credit Default Swap is jumping +9.8% today to 286 bps and the California Muni CDS is rising +7.88% to 281 bps. Despite better economic data of late and recent declines, the 10-year yield is flat on the day at 2.52%. I still do not think that QE2 is a foregone conclusion even as the euro soars ahead of a US election that will will likely be US dollar positive. Moreover, I do not believe QE2 will have much of a positive impact on the economy, while further imperiling the long-term fiscal health of the country. Much of the leadership today is in the worst-performing stocks YTD and many market leaders are under mild pressure. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking and China worries.

Bloomberg:

• ISM U.S. Manufacturing Index Decreased to 54.4 in September. Manufacturing expanded in September at the slowest pace in 10 months, underscoring the Federal Reserve’s forecast of “modest” U.S. growth in coming months. The Institute for Supply Management’s factory index dropped to 54.4 from 56.3 in August, the Tempe, Arizona-based group said today. Measures of orders and production fell to the lowest level since June 2009. Growth in European manufacturing slowed. A gauge of manufacturing in the 16-nation euro region declined to 53.7 in September from 55.1 the previous month, London-based Markit Economics said today. The ISM’s U.S. new orders measure declined to 51.1 from 53.1, while the production index dropped to 56.5 from 59.9. The employment gauge fell to 56.5 in September, the lowest in six months, from 60.4, and the index of export orders dropped to 54.5, the lowest this year. The measure of orders waiting to be filled fell to 46.5 from 51.5 and the index of prices paid jumped to 70.5 from 61.5. The inventory index increased to 55.6 in September, the highest since July 1984, while a gauge of customer stockpiles dropped to 42.5.
• Irish 'Groundhog Day' Leaves Lenihan Battling Biggest Deficit. It must feel like deja vu for taxpayers and investors in Ireland. Finance Minister Brian Lenihan said yesterday he cleaned up the mess left by “reckless” bankers. Now he has to turn back to tackling the largest budget deficit in the history of the euro region after the premium bondholders demand to buy Irish debt climbed to a record this week. “It’s a bit like groundhog day, like you’ve been on the wrong road and have to come back and start all over again,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “It’s a long way home.”
• European Manufacturing Cools, Unemployment Stays at 12-Year High. Growth in Europe’s manufacturing industry slowed and unemployment held at a 12-year high as a cooling global recovery restrained demand. A gauge of manufacturing in the 16-nation euro region declined to 53.7 in September from 55.1 the previous month, London-based Markit Economics said today. A separate report showed that the region’s jobless rate stayed at 10.1 percent in August, the highest since June 1998.
• Corporate Bond Market Suffers 'Indigestion' in Europe After Spreads Widen. Corporate bond sales fell 51 percent in Europe this week after issues from power group Alstom SA and voucher company Edenred lost value as investors demanded higher rewards. Renault SA pulled a note issue by the second-biggest French carmaker’s financing unit as the yield investors seek to hold investment-grade company debt rose. Alstom’s 2018 notes issued Sept. 28 fell 8.6 euros per 1,000-euro ($1,400) face amount, to a bid price of 98.873, according to Bloomberg composite prices. The all-in yield buyers want to hold company bonds jumped 8 basis points to 3.264 percent this week, according to Bank of America Merrill Lynch index data. Sales slowed to 5.3 billion euros as investors became more selective after a flood of 51 billion euros of supply in the first three weeks of September. “We have been seeing some signs of indigestion in the market as the primary deals have simply not performed in secondary trading,” said Harpreet Parhar, a credit strategist at Credit Agricole SA in London.
• Barclays Capital 'Quant' Index Helps Fuel Growth in Computer-Driven Notes. Barclays Capital plans to sell notes based on a proprietary index that allocates investments according to a computer model, as the number of so-called quantitative benchmarks grows. The Multi-Alpha Equal Risk Allocation Index, or Era, is the second quantitative index released by Barclays in the past month, joining a growing list of products based on strategies where mathematical models are used to determine where to allocate assets. Era uses an algorithm developed by the London-based bank to measure historical volatility and determine how to invest across four asset classes including stocks, commodities, interest rates and currencies, according to Barclays Capital.
• Corn Futures Plunge Most Since April, Extending Slump, on U.S. Supply Gain. Corn plunged the most since April after the U.S. said supplies left from last year’s crop climbed to the highest level since 2006. Inventories on Sept. 1 rose 2 percent to 1.708 billion bushels from a year earlier, the Department of Agriculture said yesterday. That was 322 million bushels above the agency’s Sept. 10 estimate. Corn surged 33 percent in the third quarter, the most for that period since 1974, as hedge funds increased bets on higher prices to a record.
• India Insider Selling Stocks at Fastest Pace Since Sensex Peak. India’s company executives are selling shares at the fastest pace since prices peaked 2 1/2 years ago, just as foreign investors pour record amounts of money into the best-performing major emerging market. Insiders of Bombay Stock Exchange Sensitive Index companies made at least 110 stock sales last quarter for a combined $21 million, according to exchange data compiled by Bloomberg. The last time the number of sales was this high, in the fourth quarter of 2007, the Sensex sank 23 percent in three months.
• Fed's Dudley Says Further Easing Probably Warranted. Federal Reserve Bank of New York President William Dudley said the outlook for U.S. job growth and inflation is “unacceptable” and that the Fed will probably need to take action to spur the recovery and avert deflation. “We have tools that can provide additional stimulus at costs that do not appear to be prohibitive,” Dudley, who serves as vice chairman of the Fed’s policy-setting Open Market Committee, said today in a speech to business journalists in New York. “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.”
• U.S. Postal Service Had $6 Billion Loss in 2010.
• Foreclosure Errors Cloud Homeownership With 'Blighted Titles'. U.S. courts are clogged with a record number of foreclosures. Next, they may be jammed with suits contesting property rights as procedural mistakes in those cases cloud titles establishing ownership. “Defective documentation has created millions of blighted titles that will plague the nation for the next decade,” said Richard Kessler, an attorney in Sarasota, Florida, who conducted a study that found errors in about three-fourths of court filings related to home repossessions.
• Ford(F) Sept. Sales Up 46%, Est. Up 40%.
  

Business Insider:

• CNN's Rick Sanchez Calls Jon Stewart a Bigot and Suggests That Jews Control the Media.
• 20 Key Charts From the Flash Crash Report.
• Chart of the Day: Americans Just Added More Money to Emerging Markets Than from 1995-2005.
  

Zero Hedge:

• SEC Releases Final Flash Crash Report - Waddell and Reed Blamed as Selling Catalyst. 100+ pages of garbage, and yes, Waddell and Reed, and their destructive hedging trade of 75,000 e-minis is the culprit that apparently set everything off: "At 2:32 p.m., against this backdrop of unusually high volatility and thinning liquidity, a large fundamental trader (a mutual fund complex) [ZH: Waddell and Reed] initiated a sell program to sell a total of 75,000 E-Mini contracts (valued at approximately $4.1 billion) as a hedge to an existing equity position."
• Questioning the Competency of the SEC Report's Authors.
  

New York Times:

• Fiorina Calls for More Hedge Fund Transparency. Carly Fiorina, campaigning to be California’s first Republican senator elected in two decades, said hedge funds should be subject to greater transparency requirements and the financial regulatory overhaul known as the Dodd-Frank Act doesn’t go far enough, Bloomberg News reported. The lightly regulated businesses that engaged in some of the riskiest activities, the so-called shadow financial system targeted by the legislation, still exist, the former Hewlett-Packard chief executive officer told Bloomberg in an interview. The Dodd-Frank Act “punishes hedge funds, but it’s not clear to me we’ve created transparency in hedge funds,” Ms. Fiorina said.

ABC News:

• Big Banks Face Even Stricter Capital Rules: Sources. Banks considered too big to fail could soon be held to even stricter capital requirements than those in the global Basel III package, sources told Reuters on Friday. As part of new rules mooted by central bank governors and regulators, large international lenders would have to retain an equity buffer of up to 3 percentage points above the minimum rates agreed last month, regulatory and financial sources said. Disagreement remains over which banks would plunge global markets into turbulence if they folded and should therefore set aside more equity capital and the plans are at an early stage. While the inclusion of Germany's biggest lender Deutsche Bank is all but certain there are doubts whether the country's No.2, Commerzbank , would fit the criteria, sources in Germany said. A main concern is that the fewer institutions that fall under the stricter rules, the bigger the risk of putting them at a competitive disadvantage against smaller rivals.

Reason.com:

• How ObamaCare's Exchanges Undermine Quality Health Care.

NY Post:

• D.E. Shaw Drops Off Fund List. After laying off 10 percent of its staff this week, D.E. Shaw suffered another black eye yesterday when it was bumped from AR Magazine's top 10 list of the biggest hedge funds. The previous list, which surveyed assets as of 2009, put D.E. Shaw in fifth place, with $23.6 billion of assets. In the first half of 2010, D.E. Shaw dropped out of the top 10 entirely after its assets fell to $17.8 billion.

Politico:

• What to Watch as Rahm Emanuel Leaves.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 28% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-six percent (46%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -18 (see trends).
• For Second Straight Month, Number of Democrats in U.S. Falls to Record Low.
  

Reuters:

• India Has Access to BlackBerry Messenger Service - Govt. The Indian government has manual access to Canadian Research in Motion's(RIMM) BlackBerry messenger services and is hopeful of getting automated access from January 1, a top official said on Friday. India, which along with several other countries has expressed concerns that BlackBerry services could be used to stir political or social instability, had threatened RIM with a ban if it were denied access to data. "We have manual access to the messenger services. We want automated access and we are hopeful of getting that from January 1," G.K. Pillai, home secretary, told Reuters.

Financial Times:

• Almost half of Britain's main commercial property companies expect no market improvement in the next six months and more than a quarter foresee a further drop, citing research by Lloyds Banking Group Plc.

Telegraph:

• UK Manufacturing Recovery Fades as Export Orders Fall for First Time in 14 Months. (graph) Britain's manufacturing recovery faded further in September with export orders falling for the first time in more than a year as global demand weakened.

Sky News:

• Exclusive: Goldman(GS) Partners' Secret Shares Windfall. Goldman Sachs has secretly handed its top London-based employees tens of millions of pounds-worth of free shares following a decision to cap their pay in the wake of this year's Labour Government tax on bank bonuses. I have learned that Goldman made the share awards to its London-based partners towards the end of August.

Xinhua:

• Foxconn Hikes Salaries Again in South China Factory After Suicides. Foxconn, the world's largest electronics contractor, which has been plagued by a string of worker suicides, has again raised monthly salaries for employees in a south China factory. The rise, which will start from October, is the second this year for Foxconn workers at its production base in Shenzhen. Assembly workers would get a pay rise of about 66 percent to bring salaries to 2,000 yuan (298.5 U.S. dollars) per month, said company spokesman Liu Kun. In June, Foxconn increased salaries by 30 percent, from 900 yuan to 1,200 yuan, for its Shenzhen employees. "I cannot believe the company will raise salaries for a second time within a year. It means my monthly salary will double," said Wang Xuchu, a Foxconn worker from the central Henan Province, Friday.