Today's Headlines

Bloomberg:

• Fed Officials Were Prepared to Ease 'Before Long,' Minutes Say. Federal Reserve policy makers last month were prepared to ease monetary policy “before long” and focused on purchases of Treasury securities and boosting inflation expectations as ways to add stimulus. Policy makers “wanted to consider further the most effective framework for calibrating and communicating any additional steps to provide such stimulus,” the Fed said in minutes of the Sept. 21 session, released today in Washington. The Fed also said for the first time that it was considering targeting a path for the level of nominal gross domestic product as a way to increase price expectations. The report provides more clarity on the timing and components of potential easing actions without giving the amount of any additional asset purchases by the Fed. Since the meeting, weaker-than-forecast job growth in September and comments by policy makers, including New York Fed President William Dudley, have fueled speculation that the central bank will soon start a second wave of unconventional easing.
• S&P 500 Stocks With Highest P/Es Poised to Win, UBS's Golub Says. Investors should purchase stocks with the highest price-to-earnings ratios because their valuation premium to the cheapest shares is too low, according to Jonathan Golub at UBS AG. The gap between the Standard & Poor’s 500 Index industries with the highest and lowest P/Es narrowed to 3.6 last month from 9.6 in 2006, according to UBS, which used projected earnings for its valuations. The disparity suggests purchasing expensive stocks may boost returns during the next 12 to 24 months, the UBS strategist said. The three industries with the highest multiples in the S&P 500 are industrials, consumer discretionary and consumer staples, according to UBS. “This is akin to purchasing a Picasso when high-priced artwork is out of favor,” Golub, the New York-based chief U.S. market strategist, said in a telephone interview yesterday. “On a relative basis, cheap stocks are overvalued because they are much closer to the market average. It’s not that I want to overpay for companies, but rather traditionally high P/E stocks are cheaper than they should be.”
• Pfizer(PFE) Acquires Pain Drug Maker King(KG) for $3.6 Billion. Pfizer Inc. agreed to pay $3.6 billion in cash to buy King Pharmaceuticals Inc., expanding its range of pain treatments to include tamper-resistant medicines. Pfizer, the world’s largest drugmaker, will pay $14.25 a share, a premium of 40 percent over King’s closing share price yesterday, the New York-based company said today in a statement.
• Ex-Goldman Sachs(GS) Traders Raise $1.5 Billion for New Hedge Funds. Eric Mandelblatt expects to have raised at least $500 million when his Soroban Capital Partners LLC begins trading stocks next month, according to two people with direct knowledge of the New York-based hedge-fund firm. At least two other managers, Mark Carhart and Pierre-Henri Flamand, are slated to open in coming months with half a billion dollars or more each, said the people, who asked not to be named because the firms are private.
• Corn, Soybeans Rise for Fourth Session as Tighter U.S. Supply Spurs Demand. Corn and soybeans rose for the fourth straight session on speculation that processors will buy more inventory after the U.S. government said last week that production will be smaller than forecast in September.
• Obama Loses Support in Poll as Joblessness Prompts Growing U.S. Discontent. Hope has turned to doubt and disenchantment for almost half of President Barack Obama’s supporters. More than 4 of 10 likely voters who say they once considered themselves Obama backers now are either less supportive or say they no longer support him at all, according to a Bloomberg National Poll conducted Oct. 7-10. Three weeks before the Nov. 2 congressional elections that Republicans are trying to make a referendum on Obama, fewer than half of likely voters approve of the president’s job performance. Likely voters are more apt to say Obama’s policies have harmed rather than helped the economy. Among those who say they are most enthusiastic about voting this year, 6 of 10 say the Democrat has damaged the economy. “He’s made compromises that have hurt the middle class,” says poll respondent Alan Graham, 55, a surgeon in London, Kentucky, who supported Obama in 2008 and now is on the fence about the president.
• Philadelphia, Chicago and Boston Are University Study's Worst-Off Pensions. Philadelphia will run out of money by 2015 to pay pension obligations with existing assets, and Chicago and Boston by 2019, a study by economists at Northwestern University and the University of Rochester forecasts. The report, “The Crisis in Local Government Pensions in the United States,” warns that mounting liabilities threaten “the ability of state and local governments to operate.” The study examines 77 of the largest municipal defined pension plans, covering 2 million public employees and retirees, roughly two-thirds of the nation’s total. The estimated liability of all municipal retirement funds is $574 billion, according to economists Joshua Rauh of the Kellogg School of Management at Northwestern University and Robert Novy-Marx of the University of Rochester.
• India Industrial Production Growth Slows to 5.6%, Less Than Analysts' Estimates. India’s industrial production growth slowed to a 15-month low in August, adding to evidence that inflation and the impact of five interest-rate increases this year are prompting companies to curb output. Factory, utilities and mines output rose 5.6 percent from a year earlier after a revised 15.2 percent increase in July, the statistics office said in a statement in New Delhi today. The median estimate of 25 economists in a Bloomberg News survey was for a 9.5 percent gain in August.
• Further Fed Easing Could Alarm 'Bond Market Hawks,' Historian Meltzer Says. The Federal Reserve’s efforts to boost the economy by expanding its balance sheet probably won’t succeed while increasing the chances of higher long-term inflation, said Allan Meltzer, a historian of the central bank. “Sooner or later the bond market hawks are going to say, ‘How are they going to get rid of that $2 trillion of excess reserves?’ and the answer is they don’t know,” Meltzer, a professor at Carnegie Mellon University in Pittsburgh, said today in an interview on Bloomberg Television’s “In the Loop with Betty Liu.” “They can’t do much about the near term but they can do a lot about the longer term. But they ignore that,” said Meltzer, author of a history of the Fed. Meltzer said he opposes any move by the Fed to increase the amount of reserves in the banking system. “We don’t have a monetary problem, we have 1 trillion or more in excess reserves so it’s literally stupid to say we’re going to add another trillion to that,” Meltzer said last month.
• Weber Says ECB Should Phase Out Bond Purchases 'Now'. European Central Bank Governing Council member Axel Weber said the ECB should stop its bond- purchase program and signaled that it’s time for officials to show how they will withdraw other emergency measures. “As the risks associated with the Securities Markets Program outweigh its benefits, these securities purchases should now be phased out permanently,” Weber said, according to the text of a speech delivered in New York today. “As regards the two dimensions of exit consisting of phasing-out non-standard liquidity measures and normalizing our clearly expansionary monetary policy, there are risks both in exiting too early and in exiting too late,” Weber said. “I believe the latter are greater than the former.” Weber’s comments are the strongest so far from any of the ECB’s 22-member Governing Council advocating a withdrawal of emergency measures.
• GE(GE) Expands Solar Business as Immelt Seeks to Mirror Wind Growth. General Electric Co., which has become the world’s second-biggest wind turbine maker in less than a decade, is expanding production of two thin-film solar products to increase its renewable-energy business. GE will work with Japan’s Showa Shell Sekiyu KK’s Solar Frontier unit to make thin-film panels coated with a copper- indium-gallium-selenide compound, or CIGS, according to a statement today. GE’s PrimeStar Solar plant will make cadmium telluride-based thin film panels. Chief Executive Officer Jeffrey Immelt has spent more than $1 billion on research and development of renewable power since acquiring Enron Corp.’s wind division out of bankruptcy in 2002.
• Federal Reserve Sued by Minnesota Bank Over Limits on Credit Card Fees. TCF Financial Corp., a Minnesota bank, sued the Federal Reserve to block a U.S. law that limits the fees charged to retailers on debit-card transactions. The provision of the Dodd-Frank Act known as the Durbin Amendment puts the biggest U.S. banks at a competitive disadvantage as it forces them to provide debit-card services below cost and exempts smaller banks, the Wayzata-based company said in a lawsuit filed today in Sioux Falls, South Dakota, federal court. The law is akin to Congress telling Burger King “you can only charge for the hamburger and the bun,” TCF Chief Executive Officer William A. Cooper said in a telephone interview. “Ignore all the costs of the overhead and the cooks and the advertising and the interest expense.” The bank claims that the law unconstitutionally takes away its property in the form of legitimate fees and violates its constitutional right to equal protection by favoring smaller banks.
• Dell(DELL) CEO May Buy the PC Maker or Pay 'Huge' Special Dividend, Ainslie Says.
  

Wall Street Journal:

• Google's(GOOG) Share of US Search Advertising Market Up 2 Points in 3Q. Google Inc.'s (GOOG) share of the U.S. search advertising market grew more than two percentage points to 77.9% in the third quarter, making it the "early winner" as rivals Microsoft Corp. (MSFT) and Yahoo Inc. (YHOO) began to integrate their search operations, according to a report to be released on Tuesday.
• Reliance Communications, Tata Teleservices In Talks With Apple(AAPL) on CDMA iPhone - Sources. Two Indian telecom operators are in talks with Apple Inc. (AAPL) to launch an iPhone in India based on the code division multiple access technology in a bid to tap the growing smartphone market in one of the world's fastest-growing mobile markets, people familiar with the matter said.
• China Warns Governments About Support for Liu. China warned foreign politicians not to interfere in its internal affairs, as the U.S. urged Beijing to lift restrictions on the movements of the wife of Liu Xiaobo, the jailed Chinese dissident awarded the Nobel Peace Prize last week. Chinese authorities continued to prevent his wife, Liu Xia, from meeting friends and journalists Tuesday, and only allowed her to leave her apartment in Beijing with a police escort, according to a friend who spoke directly with her.

CNBC:

• Senior Citizens Brace for Social Security Freeze.
• Emerging Markets are 'Yesterday's Story': Bernstein. Investing in emerging markets has lost its appeal and investors should get behind the next growth area, Richard Bernstein, CEO of Richard Bernstein Advisors, told CNBC Tuesday. "People tend to chase yesterday's story," Bernstein said. "They're doing it now with emerging market stocks, rushing into emerging market stocks after they've been outperforming for twelve years. The question is what's the next story coming up?" Bernstein thinks the next big investment opportunity is small companies in the United States because they're "starved for capital."
• More Fed Easing is Unlikely to Help Economy: Hoenig. Kansas City Federal Reserve President Thomas Hoenig, who all year has steadfastly opposed the Fed's super-easy monetary policy, fleshed out his stance against further easing on Tuesday, saying it would do little to aid the recovery and could spark inflation.

Business Insider:

• California Stimulus Pays for $152 Million Rose Bowl Upgrade. The Pasadena City Council approved a $152 million renovation to the Rose Bowl Stadium on Monday, the AP reported. The 88-year-old stadium will get 2,000 more luxury seats, a new scoreboard, more bathrooms, and more concession stands.
  

MarketWatch.com:

• Apple(AAPL) Affirmed Overweight at Barclays Capital; Target $385.

New York Times:

• Investors Flock to Greek Bond Sale. With an austerity program well underway, Greece held a successful bond sale Tuesday amid a growing debate about whether the country should be given more time to repay the international bailout loans that saved it from bankruptcy.

TechCrunch:

• U.S. Online Advertising Rises 11.3% in First Half of 2010.

Washington Post:

• After Mortgage Meltdown, Barney Frank Gets Another Chance to Remake Housing Finance. Rep. Barney Frank, the disheveled, fast-talking Democrat from Massachusetts, had long been known more for his acerbic tongue than for the cause that has captivated him since he was a young aide in the Boston mayor's office. Frank had championed housing for America's poor for four decades, but he gained the chance to leave his biggest mark in 2007 when he became chairman of the House Financial Services Committee. He dreamed of tapping into the riches of Fannie Mae and Freddie Mac - at the time, both fabulously successful mortgage finance companies - to help pay for the construction of thousands of affordable apartments. It was too good to be true. Fannie and Freddie would soon melt down, requiring a federal bailout so far costing more than $160 billion. Frank's critics have alleged that his aspirations blinded him to the danger. Now Frank is poised to play a pivotal role on Capitol Hill as the Obama administration prepares to tackle the future of Fannie and Freddie and to overhaul how millions of Americans are housed.

NY Post:

• No Sale for NYC Tax. Retailers fear customers will flee. Is the other shoe about to drop? That's what some New York City retailers fear, as savvy consumers ratchet up spending online, because of the new sales tax and bargain-hunt in neighboring states for cheaper clothes and a pair of loafers. New York state, which lifted the sales tax exemption of 4.375 percent on clothing and shoes under $110 -- its plan is to raise $330 million this year to help balance the state budget -- is inadvertently encouraging online and out-of-state spending, brick-and-mortar retailers warn.
• First the Stimulus, Now the Hangover. Last week's dismal jobs figures tell us exactly what the President Obama's stimulus did: It temporarily saved jobs in state and local government -- thereby slowing our recovery. Friday's job scorecard for September -- the last before Election Day -- didn't carry even a hint of an imminent boom. Unemployment stayed at 9.6 percent, with private companies adding 64,000 jobs. And 64,000 jobs is nothing. The economy must create nearly five times that to keep up with population growth and replace 7.6 million jobs lost since 2007. Worse, the new hires were down a third from August -- and the positions were low-paying, in bars, restaurants and retail.

Pew Research:

• 36% - Tattooed Gen Nexters. Gen Nexters, Americans in the 18-25 age bracket, are not afraid to express themselves through their appearance and tattoos are the most popular form of self-expression -- more than one-in-three (36%) now has one. Tattoos, however, are at least as prevalent among the preceding generation of Gen Xers -- 40% of them have a tattoo. Other nontraditional appearance-altering practices are also prevalent among Gen Nexters: About half (54%) have done one or more of the following: gotten a tattoo, dyed their hair an untraditional color, or had a body piercing in a place other than their ear lobe.

Politico:

• President Obama to End Deep-Water-Drilling Ban.

Rasmussen Reports:

• Most Voters Fear Health Care Law Will Cause Some Companies to Drop Employee Coverage. Nearly three-out-of-four voters (73%) believe it is at least somewhat likely that the new health care law will cause some companies to drop health insurance coverage for their employees, including 47% who say it is Very Likely. A new Rasmussen Reports national telephone survey of Likely U.S. Voters finds that just 19% think that’s unlikely.

Reuters:

• Maverick's Ainslie Says Tech Stocks "Cheap". Technology stocks are at their cheapest in 20 years and the weaker dollar will likely benefit the entire sector, hedge fund industry pioneer Lee Ainslie said on Tuesday.

China Central Television:

• The China Banking Regulatory Commission's Shanghai branch will strictly check non-compliant lending and curb loans to property developers, citing Yan Qingmin, head of the regulator's Shanghai branch.

Bear Radar

Style Underperformer:

• Mid-Cap Value (+.01%)

Sector Underperformers:

• 1) Road & Rail -1.73% 2) Oil Tankers -1.47% 3) Education -1.12%

Stocks Falling on Unusual Volume:

• ERTS, QSFT, BEXP, VQ, FAST, RBCN, ACOR, GPN and FLO
  

Stocks With Unusual Put Option Activity:

• 1) AVP 2) GME 3) EWY 4) CX 5) S
  

Stocks With Most Negative News Mentions:

• 1) HOS 2) MT 3) WWE 4) YUM 5) BX
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.03%)

Sector Outperformers:

• 1) Disk Drives +.73% 2) Gaming +.72% 3) Internet +.60%

Stocks Rising on Unusual Volume:

• RNOW, ARUN, FNF, NVS, TRGL, CHK, SNP, AA, ININ, RNOW, MOTR, WYNN, GMCR, UFPI, AMSC, SBUX, AMAG, WCRX, CTXS, ANSS, FFIV, CCME, CHKP, MYGN, GOOG, TRMB, BCSI, KG, AVP, SCX, SHI and URI
  

Stocks With Unusual Call Option Activity:

• 1) AVP 2) SBUX 3) EUO 4) CHS 5) AGU
  

Stocks With Most Positive News Mentions:

• 1) GOOG 2) AAPL 3) JCI 4) BA 5) GPS

Tuesday Watch

Evening Headlines
Bloomberg:

• Leveraged Loan Issuance Doubles on Narrower Spread to Junk: Credit Markets. Leveraged loan issuance is accelerating to the most in three years, enabling companies to slash borrowing costs, as the gap in yields between the debt and junk bonds hovers at about the narrowest in 10 months. Reynolds Group Holdings Inc. and Tomkins Plc boosted loans in the past month at the expense of secured junk bonds, according to data compiled by Bloomberg. High-yield bonds yield 0.8 percentage point more than leveraged loans, about the narrowest since December, and down from a gap of 1.65 in April.
• Baby Boomers Pushing Surge in Therapies to Sharpen Blurring Eyesight. The number of older Americans getting help for fading eyesight almost tripled by 2007 from a decade earlier as the nation aged and treatment improved with approaches such as Roche Holding AG’s Lucentis.
• GM Defends Volt While Critics Say It's Not a Real Electric Car. General Motors Co., the largest U.S. automaker, is disputing accusations that its low-emission Chevrolet Volt is a hybrid and not a true electric vehicle a month before the car goes on sale. Auto critics Edmunds.com, Motor Trend and Popular Mechanics have said that during heavy acceleration the Volt uses its gasoline engine to power an electric generator which helps turn the wheels, similar to how hybrids run.
• OPEC May Maintain Oil Output in Vienna on Uneven Economic Growth. OPEC may leave oil production quotas unchanged when it meets Oct. 14 in Vienna after Saudi Arabian Oil Minister Ali al-Naimi described the market as “very well- balanced” between the interests of consumers and producers. “Everyone is happy with the market,” al-Naimi said late yesterday when asked, as he arrived at his hotel, whether the Organization of Petroleum Exporting Countries should boost supplies this year. “Consumer, producer, everyone is happy.” Oil futures touched a five-month high of $84.43 a barrel last week in New York, well above the $70 to $80 price level that al-Naimi reiterated is “ideal.” Prices have settled above $80 for the past seven days, the longest stretch since August.
• Crude Oil Futures Decline in N.Y. as Dollar Strengthens Against Euro, Yen. Crude oil fell for a second day after the dollar rose against the euro and yen, reducing the appeal of commodities as an investment. “The dollar is so heavily sold at the moment, creating the opportunity for a bit of strength in the dollar and softness in oil,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. in Melbourne, said by phone. “You would be leaning toward a softer oil price this week.” “The market’s not that strongly supported by fundamentals, so people are watching things like the currency,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “The dollar’s still low, but maybe people think we’re close to the bottom.” Total petroleum supplies in the U.S. were 1.14 billion barrels in the week ended Oct. 1, 5 million barrels below a record set in the week ended Sept. 17, according to figures from the Energy Department released last week. Fuel consumption dropped 6.4 percent to 18.5 million barrels a day in the week ended Oct. 1, the biggest weekly decline since Feb. 27, 2004, according to the department.
• Euro to Retreat to $1.35 as Fed Easing Snaps Momentum: Technical Analysis. The euro may retreat to $1.35 as a technical indicator suggests its 11 percent gain in the past month has been too rapid, according to Ueda Harlow Ltd. The shared currency’s 14-day relative strength index against the dollar has remained above 70 since Sept. 28, the longest stretch since March 2008 and exceeding the level some traders see as a sign an asset’s price is poise to change direction.
• China Bank-Ratio Rise May Signal Officials Divided on Policy, Goldman(GS) Says. Chinese policy makers may be divided over the pace of credit growth with inflation picking up even as there are “downside” risks to economic growth, according to Goldman Sachs Group Inc.

Wall Street Journal:

• States to Probe Mortgage Mess. Attorneys General Hope Lenders Will Re-Write Loans With Troubled Documents. A coalition of as many as 40 state attorneys general is expected Wednesday to announce an investigation into the mortgage-servicing industry, an effort some of them hope will pressure financial institutions to rewrite large numbers of troubled loans.
• Wall Street Pay: A Record $144 Billion. Financial Overhaul Has Affected Structure but Not Level; Revenue-to-Compensation Ratio Stays Flat. Pay on Wall Street is on pace to break a record high for a second consecutive year, according to a study conducted by The Wall Street Journal. About three dozen of the top publicly held securities and investment-services firms—which include banks, investment banks, hedge funds, money-management firms and securities exchanges—are set to pay $144 billion in compensation and benefits this year, a 4% increase from the $139 billion paid out in 2009, according to the survey. Compensation was expected to rise at 26 of the 35 firms.
• Vulture Funds Struggle. Funds that snap up the cheap debt of troubled companies—often referred to as vulture funds—expected to have a field day during a financial crisis that took down several banks and depressed asset prices. But now some private-equity managers are forecasting their demise, in part because banks have been able to resist the pressure to sell asset at fire-sale prices, thanks to government bailouts and a prolonged period of low interest rates.
• Wal-Mart(WMT) Lands Agreement to Sell iPad. Wal-Mart Stores Inc. said it will start selling Apple Inc.'s iPad on Friday at hundreds of stores throughout the U.S.
• Boehner's 'Plan B' for ObamaCare. Hearings can be used to sell market-friendly fixes.
• Business Backlash Grows. Rick Woldenberg runs an educational-products company from a suburban Chicago office stacked with brightly colored toys. He supported President Barack Obama in 2008. But he has turned on Democrats this year.
• Farm Belt Bounces Back. Major agricultural commodities continued their extended run-up in price, underscoring how much of America's farm belt is booming even as the overall economy continues to struggle.
• More Balk at Cost of Prescriptions. Growing numbers of Americans with health insurance are walking away from their prescriptions at the pharmacy counter, the latest indication that efforts to contain costs may be curbing health-care consumption. A review of insurance-claims data shows that so-called abandonment—when a patient refuses to purchase or pick up a prescription that was filled and packaged by a pharmacist—was up 55% in the second quarter of this year, compared with four years earlier. The phenomenon coincides with rising co-payments for many drugs and increasing enrollment in high-deductible insurance plans that require patients to pay hundreds or thousands of dollars out of pocket before insurance kicks in. Patients are deserting prescriptions for the most expensive drugs most often, according to the review by Wolters Kluwer Pharma Solutions, a health-care data company. For instance, nearly one in 10 new prescriptions for brand-name drugs were abandoned by people with commercial health plans in the quarter, up 88% from four years earlier, when the data were first tracked and before the recession began. Abandonment of generic drugs was higher, too, according to the data.
• New ETFs for Metals May Push Prices Higher. Metals markets are about to get some insatiable new customers with the launch of exchange-traded funds that will target industrial resources like copper, aluminum and tin. Like the $55 billion SPDR Gold Shares, these new funds will buy actual metal, creating a conundrum for markets where supplies are already struggling to meet the demands of China's booming economy.
• The 2010 Spending Record. In two years, a 21.4% increase. Perhaps you missed it, but then so did the Washington press corps. Late last week the Congressional Budget Office released its preliminary budget tallies for fiscal year 2010, and the news is that the U.S. government had another fabulous year—in spending your money.
• Goldman Sachs(GS) Raises 12-Month Gold Price Target to $1,650/oz.
  

CNBC:

• Short Interest Eased in Late September as US Stocks Rose. Bearish bets on major U.S. exchanges declined in the second half of September, suggesting investors abandoned positions as the market closed out its best month since April 2009. Short interest on the Nasdaq saw the bigger drop, falling 1.2 percent in the second half of September, the exchange said on Monday. Short bets on NYSE inched down just 0.04 percent.

Business Insider:

• WHOA: FINRA Paid Mary Schapiro $9 Million in 2008. Some people think it's a good idea for regulatory officials to receive pay like the Wall Streeters they're supposed to reign in. Turns out at least one of them already has - Mary Schapiro, who's now the head of the SEC. In 2008, FINRA paid Schapiro almost $9 million.

Zero Hedge:

• Van Hoisington On Why QE2 Will Be Either a Small or Massive Failure.

American Spectator:

• California's Green Nightmare. It's hard to know where the fairy tale of "green jobs" first came from. It was probably a clever marketing scheme by radical environmentalists who realized that their anti-growth climate change agenda wasn't going to sell among the American electorate if workers realized how many jobs would be eviscerated by the new taxes and regulation. So, from somewhere out of Madison Avenue or K Street, the left devised the green jobs story line: we can impose a $1 trillion new tax on the U.S. economy over the next decade, and it will save jobs, as hundreds of thousands of Americans begin assembling windmills and solar paneling. If we want to see how green policies work in the real world, we don't have to look any further than America's left coast. California has become the poster child of green jobs.

Reuters:

• Not Many Early Bonuses for Wall St Banks - Experts. Large Wall Street banks are unlikely to accelerate bonus payouts, even if doling out bonuses in December would cut the tax bills of employees, compensation experts said. Paying out bonuses early would likely be a public relations disaster for a sector already blamed for the economic downturn, they said.
• Japan Kaieda: Rapid Yen Rise Undesirable for Economy. Japanese Economics Minister Banri Kaieda said on Tuesday that the yen's rapid rise is undesirable for achieving a self-sustainable recovery in the Japanese economy and beating deflation, and the government will take decisive action in the currency market if necessary. Kaieda also said that Japan gained a certain understanding at the latest Group of Seven meeting on its explanation of its currency intervention.

Financial Times:

• Blow to Bank Crisis Plans. Regulators are struggling to create a global mechanism that could wind down a big financial institution without the disruption caused by Lehman Brothers’ collapse in 2008. The US is due on Tuesday to propose its own so-called “resolution” regime that would allow officials to stabilise a big, distressed bank, sell off assets over time and force creditors to take a discount on the value of their debt, without taxpayer money or market disruption. But policymakers attending meetings around the International Monetary Fund and Institute of International Finance criticised the US regime and cast doubt on whether anything but a modest set of principles could be agreed at the Group of 20 meeting in Seoul next month.

Telegraph:

• Jobless America Threatens to Bring Us All Down With It. A depression may have been averted, but nothing has been fixed. This is the depressingly downbeat message that came across loud and clear from last weekend's annual meeting of the International Monetary Fund. The destructive trade and capital imbalances of the pre-crisis era are back, banking reform appears stuck in paralysing discord, public debt in many advanced economies remains firmly set on the road to ruin, and the spirit of international co-operation that saw nations come together to fight the crisis has largely disappeared. This was not where we were meant to be in tackling the underlying causes of the crisis and returning the world to sustainable growth. The US has no strategy for the jobless and no strategy for rolling back debt. Little wonder that a renewed sense of gloom has settled on international policy makers.

China Daily:

• China should set up a forward market for rare-earth elements to help boost prices, Guo Chaoxian, a researcher at the Institute of Industrial Economics of the Chinese Academy of Social Sciences, wrote. The government should also set up a mechanism to purchase and store rare-earth commodities to "strike a balance between demand and supply," Guo wrote. The Chinese government should encourage mergers of rare-earth companies with the goal of setting up an oligarchy of three to five "giant enterprises," Guo said.
• The China Insurance Regulatory Commission found "big" problems in the management of property insurers, citing an official from the regulator. Some property insurers faked business fees and didn't pay claims in time. Corruption and misuse of premiums was also discovered.
  

Economic Daily News:

• Apple's(AAPL) iPad has received approval from Taiwan's National Communications Commission and will be available for sale as early as this month, citing an official at the commission.

Evening Recommendations
Citigroup:

• Rated (APEI), (BPI), (CPLA), (DV) and (LOPE) Buy.
• Reiterated Buy on (NKE).
• Reiterated Buy on (BEN), boosted target to $143.

BMO Capital:

• Rated (CIEN) Outperform, target $20.

Night Trading

• Asian equity indices are -1.0% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 100.0 -4.0 basis points.
  
• Asia Pacific Sovereign CDS Index 94.25 -3.0 basis points.
  
• S&P 500 futures -.42%.
  
• NASDAQ 100 futures -.39%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FAST)/.50
• (INTC)/.50
• (LLTC)/.60
• (CSX)/1.04

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for September is estimated to rise to 89.6 versus 88.8 in August.
  

2:00 pm EST

• Minutes of FOMC Meeting.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Hoenig speaking, weekly retail sales report, ECB's Trichet speaking, $32 Billion 3-Year Treasury Notes Auction, IBD/TIPP Economic Optimism Index and the weekly ABC Consumer Confidence report could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Slightly Lower into Final Hour on Profit-Taking, Rising US Housing Concerns, More Shorting

Broad Market Tone:

• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Mixed
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 18.87 -8.88%
  
• ISE Sentiment Index 131.0 -16.56%
  
• Total Put/Call .79 -7.06%
  
• NYSE Arms 1.52 +57.67%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 95.80 bps -1.25%
  
• European Financial Sector CDS Index 100.83 bps -8.21%
  
• Western Europe Sovereign Debt CDS Index 148.33 bps -1.11%
  
• Emerging Market CDS Index 198.70 bps +.04%
  
• 2-Year Swap Spread 17.0 unch.
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .11% unch.
  
• Yield Curve 204.0 unch.
  
• China Import Iron Ore Spot $147.90/Metric Tonne +1.79%
  
• Citi US Economic Surprise Index +1.20 +3.0 points.
  
• 10-Year TIPS Spread 1.98% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +57 open in Japan
• DAX Futures: Indicating +10 open in Germany

Portfolio:

• Slightly Higher: On gains in my Tech, Ag and Retail long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades near session lows despite overseas gains and falling sovereign debt angst. On the positive side, Gaming, HMO, Disk Drive, Semi, Computer Ag, Alt Energy and Coal shares are especially strong, rising 1.0%+. Small-caps are outperforming. Gaming sector leaders (LVS) and (WYNN) continue to soar. The S&P GSCI Ag Spot index is jumping again, rising +1.56% today, lumber is gaining +.90% and copper is rising +.32%. The Spain sovereign cds is falling -2.31% to 213.65 bps, the Portugal sovereign cds is losing -2.67% to 388.08 bps, the US sovereign cds is declining -5.2% to 44.02 bps and the UK sovereign cds is declining -3.74% to 58.31 bps. The -17.4% plunge over the last 5 days in the Euro Financial Sector CDS Index is a major positive. On the negative side, Airline and I-Banking shares are under mild pressure, falling more than .5%. (XLF) has been underperforming throughout the day. Gold is rising +.4%. As a result of rising QE2 expectations, total commodity net speculative longs(.CCLOSH Index on Bloomberg) are at a new record +1,525,795 contracts, which is up from +499,416 in mid-June and eclipses the record set during the peak of the commodity bubble in Feb. 2008, which was +1,370,021 contracts. This leaves most commodities vulnerable to any meaningful US dollar reversal higher. However, if the Fed succeeds in re-inflating the commodity bubble it will have dramatically negative consequences for the US economy and stocks longer-term. Today's light volume mild pullback should be seen as a healthy consolidation of recent gains. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, falling sovereign debt angst, buyout speculation and tax policy/election optimism.

Today's Headlines

Bloomberg:

• Greece Leads Drop in Sovereign Debt Risk as IMF May Extend Loan. Credit-default swaps on Greece fell to the lowest level in four months after the International Monetary Fund said it may be willing to extend bailout loans. Contracts on Greek bonds dropped 36 basis points to 695, according to data provider CMA. The Markit iTraxx SovX Western Europe Index of credit-default swaps on 15 governments declined 3 basis points to 143, the lowest in six weeks. IMF managing director Dominique Strauss-Kahn said the $154 billion of aid to Greece could be extended beyond 2013 as long as European governments that took part in the bailout agree and the nation sticks to budget deficit cuts. Chancellor Angela Merkel’s administration opposes any move to grant Greece more time, the German Finance Ministry said today. Investors demand a yield premium of 729 basis points to lend to Greece for 10 years rather than Germany, the most of any country in the euro zone. That’s compared with 754 basis points on Friday and down from a euro-era record of 973 basis points on May 7. Credit-default swaps of other so-called peripheral euro- zone nations also fell. Portugal dropped 9 basis points to 387, while Spain was 7.5 basis points lower at 209, according to CMA. The cost of insuring against losses on corporate bonds also fell with the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings declining 8 basis points to 459, according to JPMorgan Chase & Co. in London. The Markit iTraxx Europe index of 125 companies with investment-grade ratings dropped 3 basis points to 98.75.
• Title Insurers Are in Talks on Creating Foreclosure Warranties, Group Says. Title insurers, banks and regulators are in talks to create warranties under which lenders assure they followed proper procedures before selling foreclosed homes, said Kurt Pfotenhauer, head of the insurers’ trade group. “Everyone sort of sees the same risks, and that’s the good part,” Pfotenhauer, chief executive officer of the American Land Title Association, said today in a telephone interview. “You just have to craft a solution that’s acceptable to all the parties, and we’re making progress.”
• Gymboree(GYMB) to Be Bought by Bain Capital for About $1.8 Billion. Gymboree Corp., the San Francisco- based children’s clothing retailer, agreed to be bought by Bain Capital LLC for about $1.8 billion, giving the buyout firm a business whose free cash flow has tripled since 2008. The acquisition price is $65.40 a share, the companies said today in a statement. That’s 57 percent more than Gymboree’s closing price on Sept. 30, when reports of a takeover surfaced. Gymboree may seek acquisition proposals from third parties through Nov. 20, according to the statement. The purchase is the largest leveraged buyout in the retail- apparel sector worldwide over the past three years by more than $1 billion.
• Commodities Rise to Highest Level in Two Years, Led by Agriculture Futures. Commodities rose to the highest in two years, led by agriculture futures, after a U.S. Department of Agriculture report last week showed corn production in the country would decline more than expected by analysts. The Standard & Poor’s GSCI Index of 24 raw materials rose as much as 1.3 percent to 571.4810, the highest level since Oct. 3, 2008. Corn futures gained as much as 8.5 percent and soybeans jumped to a 16-month high.
• CNOOC to Pay $1.08 Billion for Stake in Texas Shale Gas Project. Cnooc Ltd. will pay $1.08 billion for a one-third stake in Chesapeake Energy Corp.’s Eagle Ford shale project in Texas, in the biggest acquisition of a U.S. oil and gas asset by a Chinese company. Cnooc, listed in Hong Kong, plans to buy 33.3 percent of Chesapeake’s 600,000 oil and gas leasehold acres in Eagle Ford, the companies said in separate statements. Cnooc will also pay $1.08 billion of Chesapeake’s drilling costs in the basin, Chief Executive Officer Aubrey McClendon said in an interview. The sale gives Cnooc its first energy asset in the U.S., five years after it dropped an $18.5 billion bid for Unocal Corp. amid political opposition. China’s third-largest oil company has spent at least $3.8 billion on overseas acquisitions in the past year as the nation’s energy demand surges.
• Lower Temperatures Expected in U.S. East at End of October. The last two weeks of October may see temperatures in the eastern U.S. drop to below normal, forecasters said. The forecast for Oct. 18 to Oct. 24 calls for below-normal temperatures from Texas to Maine, according to the U.S. Climate Prediction Center in Camp Springs, Maryland. The cold snap may extend into November, said Jim Rouiller, senior energy meteorologist at Planalytics Inc. in Berwyn, Pennsylvania. “There is a chance of a major pattern change in the later half of the month,” Rouiller said. “The potential is there for a significant cold-weather event.”

Wall Street Journal:

• Hedge Funds Saw August Inflows of $11.3 Billion - TrimTabs/Barclays.

CNBC:

• Fed Certain to Act in November In a Big Way: Survey. Following Friday’s disappointing jobs report, market participants are now virtually certain that the Federal Reserve will announce that it will resume buying assets at the conclusion of its November meeting and do so in a sizeable way, according to an exclusive CNBC Fed Survey. Nearly 93 percent of the 70 respondents, including economists, fund managers and traders, believe the Fed will boost the size of its portfolio, up from 69 percent in the survey two weeks ago. Of those who expect the Fed to move, 86 percent look for an announcement in November, up from 38 percent in the last survey. Market participants forecast that the Fed will announce plans to purchase $500 billion in assets at the conclusion of the upcoming meeting, the first time the question has been asked. Despite the $500 billion average, expectations for the November announcement span a range from $100 billion to as high as $1.5 trillion. But the larger numbers are outliers, with 83 percent of respondents saying they expect the Fed to announce incremental targets for its portfolio size on a monthly or quarterly basis, rather than a single, so-called “shock and awe” strategy as it did in 2009.

Business Insider:

• Here's Why Quantitative Easing 2 Will Fail Spectacularly.

Zero Hedge:

• 60 Minutes Brings High Frequency Trading to the Mainstream, As CFTC Refutes HFT Liquidity-Provisioning Argument.

New York Times:

• Paris Hints at Willingness to Bend on Hedge Fund Rules in Europe. The French economy minister, Christine Lagarde, has rebuffed U.S. criticism that demands for tough new European rules on hedge funds are protectionist, but she also has signaled her readiness to compromise on the issue of Europe-wide licensing, a letter showed.

CNNMoney:

• Economists Lower Already Bearish Outlook. The recovery is sputtering and the outlook for the rest of the year isn't looking much brighter, according to a new survey of leading economists. Economists surveyed by the National Association for Business Economics have cut their growth forecasts for both this year and next, the report released Monday showed. The panel of 46 economists expects gross domestic product, the broadest measure of the economy, to grow at a pace of 2.6% in both 2010 and 2011, down from the group's previous prediction of 3.2%. About 37% of survey respondents expect the recovery to remain "subpar as severe wealth losses and onerous debt burdens inhibit spending and lending."

Rasmussen Reports:

• 55% Favor Repeal of Health Care Law. The majority of U.S. voters continue to favor repeal of the new national health care law but are slightly less emphatic about the impact the law will have on the country. A new Rasmussen Reports national telephone survey finds that 55% of Likely U.S. Voters at least somewhat favor repeal of the new health care law. Only 39% oppose repeal. These figures include 41% who Strongly Favor repeal and 32% who are Strongly Opposed.

Reuters:

• China has raised reserve requirements by 50 basis points for six large commercial banks. The increase, which takes the required reserve ratios to 17.5%, is a temporary measure and will be in place for two months.
• China Invites North Korea's New Leaders to Visit. Chinese President Hu Jintao has invited North Korea's aged ruler, Kim Jong-il, and his new leadership circle, including implicitly the son set to succeed him, to visit, Xinhua news agency said on Monday. Zhou stressed how much effort China has poured into shoring up ties with its much smaller neighbour while Kim crafts succession plans likely to give Kim Jong-un the top job. Beijing is the North's sole major economic and diplomatic backer. "This year has been one of high-points for Chinese-North Korean relations," Zhou told Kim on Monday, Xinhua reported. Zhou said Beijing wanted to work with Pyongyang to "scrupulously protect and constantly develop the friendship and cooperation between China and North Korea." In recent years, China has sought to strengthen relations and increased aid and investment to its poor neighbour, which it sees as a strategic buffer against the U.S. and its regional allies.
• Al Qaeda Offers to Free French if Burqa Ban Ended. Al Qaeda's north African arm wants a repeal of a ban on the Muslim face veil in France, the release of militants and 7 million euros to free hostages who include five French, Al Arabiya TV said on Monday. Al Qaeda in the Islamic Maghreb (AQIM) is holding seven foreigners in the Sahara desert after kidnapping them last month.

La Tribune:

• France may consider scrapping its wealth tax together with a fiscal shield that limits the proportion of a person's income that can be paid in tax, citing remarks by President Nicolas Sarkozy.