Thursday Watch

Evening Headlines
Bloomberg:

• Libya's Ghanem Expects OPEC Quota Rollover, Expects $100 Crude Oil 'Soon'. The Organization of Petroleum Exporting Countries will keep its production quotas unchanged as oil gets ready to hit $100 a barrel, Shokri Ghanem, chairman of Libya’s National Oil Corp., said. OPEC, which is scheduled to gather Dec. 11 in Quito, Ecuador, will probably agree to a quota rollover and will focus on discussing compliance during this meeting, Ghanem said today at Amsterdam’s Schiphol airport.
• Copper Gains to Record in London on Concern Fed May Extend Asset Purchases. Copper climbed to a record in London and advanced to a 31-month high in New York on concern that the Federal Reserve may extend asset purchases to support the economy, driving the dollar lower and boosting the appeal of commodities as alternative investments. The metal for three-month delivery on the London Metal Exchange rose as much as 0.6 percent to $9,066 a metric ton on the London Metal Exchange, surpassing the previous peak of $9,044 on Dec. 7. It traded at $9,037.25 at 11:30 a.m. Singapore time, up 23 percent this year.
• Obama Proposes Easing Export Controls on 37 Allies. The Obama administration proposed easing controls on the export of technology items that may be used for military purposes to 37 allies, including Canada, Japan, Germany and France. The U.S. requires exporters to obtain a license to sell civilian technology, such as aircraft parts and encryption software, that also can be used for military purposes. The restrictions vary based on U.S. relations with the government, and those rules are administered by the Commerce Department and State Department.
• India's Inflation Holds Above 'Tolerance Level,' Subbarao Says. India’s inflation remains above “tolerance level,” central bank Governor Duvvuri Subbarao said ahead of the monetary policy announcement next week. “Inflation is coming down but is still above the RBI’s tolerance level,” Subbarao told reporters in the eastern Indian city of Kolkata yesterday. India’s benchmark wholesale-price inflation cooled to a nine-month low of 8.58 percent in October. The Reserve Bank of India aims to slow inflation to between 4 percent and 4.5 percent.
• Apple(AAPL) Displaces Samsung on Home Turf With iPhone. For more than a decade, Kim Jung Yeon only bought phones from Samsung Electronics Co. and LG Electronics Inc., passing on best sellers made by non-Korean companies such as Motorola Inc.’s Razr. Her loyalty ended with Apple Inc.’s iPhone. “The iPhone has a cool design and I love the feel and grip of the phone,” said the 37-year-old Web designer in Seoul, who bought the device last year, and enjoys using applications about food recipes. “I don’t see any reason why I should return to LG or Samsung phones again if I buy another smartphone.”
• LBO Defaults to Climb as Debt Costs Top Growth, Mudrick Says. Defaults on speculative-grade debt will climb in the next five years as companies bought by private-equity firms before markets seized up in 2008 struggle to boost earnings, said hedge-fund manager Jason Mudrick. Borrowers may renege on $150 billion to $250 billion of leveraged loans and high-yield bonds due by 2015, or between 15 percent and 25 percent of the amount maturing, said Mudrick, president of Mudrick Capital Management LP, at a briefing in New York. The former money manager at Contrarian Capital Management LLC, who started his fund in July 2009 and oversees $150 million, is predicting the rise in defaults even as Moody’s Investors Service said the 12-month rate in the U.S. fell to 3.5 percent in November from 14.7 percent last year.
• New York Teachers' Union Fights City Over Release of Performance Reports. The United Federation of Teachers went to court to stop the New York City Department of Education from publicly disclosing the names and performance reports of teachers in the biggest U.S. public school system.
• Mullen Says 'Too Much at Stake' for China 'Myopia' on North Korea. China’s reluctance to try and persuade North Korea to abandon its aggressive stance in Asia imperils regional stability, said U.S. Admiral Mike Mullen, chairman of the Joint Chiefs of Staff. China is “unwilling” to use its influence as the North’s biggest ally to curtail Kim Jong Il’s regime, Mullen told reporters today in Tokyo, reiterating earlier remarks. North Korea “has been unable” to “recognize the risks and the costs of miscalculation,” Mullen said. “China must lead and guide North Korea to a better future. There is too much at stake for this sort of myopia.” “What once was unusual is becoming all too routine,” he said. “I speak mainly here of North Korean aggression that threatens all of us, but it applies as well to a wide range of economic, social and political changes throughout the region. As threats evolve, so too must we.”

Wall Street Journal:

• House Democrats Seek Boost In Regulator Funding. A budget bill unveiled by U.S. House Democrats on Wednesday contains big funding boosts for federal securities and futures regulators working to erect a vast regime for the over-the-counter derivatives market.
• Traders Ready for Silver to Tarnish. There is a tinge of worry about silver in the options market. Bearish put options have been unusually active lately in the iShares Silver Trust, a popular exchange-traded fund tracking the metal that broke a new 52-week high on Tuesday. Puts convey the right to sell shares at a fixed price on or before an agreed-upon date. Nearly the same number of puts as bullish call options to buy the fund changed hands Wednesday, according to Trade Alert, following similar action in the previous session.
• Investor Survey Says: Bet Oppositely. When the American Association of Individual Investors' weekly gauge of sentiment hits the tape early Thursday, much of Wall Street will be ready to pore over the numbers.
• North Korea Claims Waters Around Shelled Island. North Korea state media on Thursday issued a statement that claimed possession of all waters around South Korea-controlled Yeonpyeong Island, clarifying for the first time that its Nov. 23 attack of the island was motivated by a different view of the inter-Korean maritime boundary in the Yellow Sea than is widely held.

CNBC:

• 'Shove It' Indicator Turns Positive: More People Quitting. (graph)

Business Insider:

• Julian Assange May Have The Files For Every Single Prisoner In Guantanamo. Evidently, what's worrisome to government officials is evidence that GITMO prisoners have been released, despite clear evidence of their posing an ongoing threat.
• Treasury to Sell $10 Billion in AIG(AIG) Shares, Company to Recapitalize.
• Glenn Beck: Hey George Soros, Here's How I'd Create a Dictatorship! (video)
  

Zero Hedge:

• Department of Justice "Crackdown" on Wall Street is Just a P.R. Stunt Targeting Small-Time Crooks.
• Watch Latest Farcical Senate Hearing on Flash Crash. (video)
• 31 Consecutive Outflows From Domestic Equity Funds. (graphs)
  

NY Times:

• Morgan Stanley(MS) Aims to Rein in Executive Pay.

CNN Money:

• MasterCard(MA), Visa(V) Targeted in Apparent Cyberattack. The corporate websites of Visa and MasterCard were inaccessible at times Wednesday due to an apparent cyberattack by purported Wikileaks backers. Messages posted on Twitter indicated the attacks maybe be in response to recent moves by Visa and Mastercard against WikiLeaks, the website that recently released thousands of secret U.S. State Department documents.

Politico:

• Tax Deal Gains Steam Toward Passage. A wave of new Democratic support Wednesday signaled that President Barack Obama’s deal to renew the Bush tax cuts would make it through Congress, as long as most Republicans lined up behind it as expected. With Democrats in both chambers still angry about parts of the package, the administration scrambled to allay concerns and build momentum for the unusual deal with congressional Republicans reached this week. By the end of the day, the measure looked increasingly likely to pass, as Democrats stepped forward one by one to back it.

Reuters:

• Fortress(FIG) CEO Sees Raising $5 Billion of Capital in '10. Hedge fund and private equity firm Fortress Investment Group said that he expects the firm to have raised $5 billion in new capital this year as it works to build relationships with investors globally. The firm's Chief Executive Dan Mudd said at the Goldman Sachs U.S. Financial Services Conference in New York, that the company "should be over" $5 billion in new capital raising through the full year of 2010.
• BlackRock's(BLK) Fink Sees "Very Strong" Q4 Profit. BlackRock Inc, the world's largest money manager, will report "very strong" earnings and profit margins for the fourth quarter, Chief Executive Laurence Fink said on Wednesday.
• Fed Said to Unveil Debit-Card Fee Limits Next Week. The Federal Reserve is expected to unveil a proposed rule next week that would limit the transaction fees that banks can charge retailers when a customer uses a debit card, according to two industry sources familiar with the matter.

Financial Times:

• Merkel Seeks Calm After Juncker E-Bond Blast. Angela Merkel, the German chancellor, has called for calm in the European Union after an angry attack by Jean-Claude Juncker, prime minister of Luxembourg, who accused Berlin of being “un-European” and “a bit simple” in making some areas “taboo” in EU negotiations. Amid signs of increasing tension between eurozone leaders over how to cope with the sovereign debt crisis that has undermined their common currency, Ms Merkel urged her fellow EU leaders to concentrate on reaching a good decision for the future of the euro at their summit in Brussels next week. At the same time she repeated her rejection of Mr Juncker’s proposal for jointly guaranteed eurobonds to help finance the most debt-laden members of the currency union. “The discussion does not help us,” she said after meeting Fredrik Reinfeldt, the Swedish prime minister.

Telegraph:

• EU's Michel Barnier Unveils Clampdown on Derivatives, Bonds and Commodities Markets.

The Guardian:

• Allied Irish Banks to Pay €40m bonuses despite bailout. Stricken Allied Irish Banks says court case forces it to give out bonuses while Ireland's taxpayers suffer. Stricken Allied Irish Banks is preparing to hand out €40m (£34m) of bonuses next week – despite being on the brink of receiving another emergency bailout from the Irish government. As many as 2,400 bankers in its Dublin capital markets division are to receive the payments on 17 December under agreements struck with the bank in 2008. The bank, 19% owned by Ireland's taxpayers but expected to reach 95% state-ownership, had originally been blocked from making the payments under one of the government's bailout programmes.

Shanghai Daily:

• New homes in major Chinese cities are "overpriced" by an average of 30%, citing the Chinese Academy of Social Sciences' annual housing report released yesterday. The report said prices of new properties in Fuzhou in the southeastern seaboard province of Fujian were most inflated with a "price-bubble index" of .703. Hangzhou in Zhejiang province and Nanning in the Guangxi region were second and third.

Oriental Morning Post:

• China's three commodities exchanges in Shanghai, Dalian and Zhengzhou are considering increasing contract sizes to curb speculation, citing managers at futures brokerages. Large contract sizes require more funds to trade.

21st Century Business Herald:

• Former Chinese central bank deputy governor Wu Xiaoling said banks' reserve ratio should be raised more frequently while there are large foreign exchange inflows. There is still room to further raise reserve ratios, Wu said.

Evening Recommendations
Citigroup:

• Reiterated Buy on (GLW), target $22.50.
• Reiterated Sell on (GNW), target $13.

Oppenheimer:

• Rated (VPRT) Outperform, target $55.

Night Trading

• Asian equity indices are -.50% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 106.50 unch.
  
• Asia Pacific Sovereign CDS Index 106.0 +1.75 basis points.
  
• S&P 500 futures +.42%
  
• NASDAQ 100 futures +.32%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CIEN)/-.16
• (GRB)/.08
• (SFD)/.56
• (JW/A)/.95
• (BF/B)/1.00
• (NSM)/.32
• (PLL)/.50
• (GMCR)/.20
• (BGP)/-.51
• (ESL)/1.20

Economic Releases
8:30 am EST

• Initial Jobless Claims for last week are estimated to fall to 425K versus 436K the prior week.
• Continuing Claims are estimated to fall to 4237K versus 4270K prior.

10:00 am EST'

• Wholesale Inventories for October are estimated to rise +.8% versus a +1.5% gain in September.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly EIA natural gas inventory report, Goldman Sachs Automotive Conference, Lazard Cloud Computing Summit, Barclays Tech Conference, (BFB) analyst conference, (AKAM) investor summit, (DPZ) analyst meeting, (DLR) investor day, (NUAN) analyst day, (PFG) investor day and the (UTX) analyst meeting could also impact trading today.
  

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

Stocks Slightly Higher into Final Hour on Short-Covering, Seasonal Strength, Less Financial Sector Pessimism, Tech Sector Strength

Broad Market Tone:

• Advance/Decline Line: About Even
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.78 -1.22%
  
• ISE Sentiment Index 98.0 -33.78%
  
• Total Put/Call .77 +2.67%
  
• NYSE Arms .68 +29.76%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 90.0 bps +2.26%
  
• European Financial Sector CDS Index 135.28 bps +5.82%
  
• Western Europe Sovereign Debt CDS Index 178.17 bps -1.29%
  
• Emerging Market CDS Index 211.88 bps +.78%
  
• 2-Year Swap Spread 20.0 -1 bp
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .14% +1 bp
  
• Yield Curve 263.0 +1 bps
  
• China Import Iron Ore Spot $165.0/Metric Tonne +.18%
  
• Citi US Economic Surprise Index -14.10 unch.
  
• 10-Year TIPS Spread 2.20% -5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +38 open in Japan
• DAX Futures: Indicating +9 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech, Medical and Technology 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 slightly higher despite soaring long-term rates, recent gains, China inflation worries and US municipal debt concerns. On the positive side, Education, Insurance, Hospital and Bank shares are especially strong, rising more than 1.0%. (XLF) has traded well throughout the day. Copper is rising +1.27% and Lumber is gaining +2.89% despite more euro weakness. The Italy sovereign cds is falling -3.81% to 194.40 bps. Gold is falling -1.11%. On the negative side, Airline, Road & Rail, Gaming, Restaurant, REIT, Homebuilding, Steel, Gold, Ag, Coal, Oil Tanker and Paper shares are under pressure, falling more than 1.0%. (IYR) has been heavy throughout the day. Cyclicals and small-caps are underperforming. The Greece sovereign cds is jumping +3.41% to 940.47 bps, the China sovereign cds is surging +5.51% to 74.19 bps and the Japan sovereign cds is rising +3.33% to 70.21 bps. The European Financial Sector CDS Index is beginning to trend higher again. Moreover, the US Muni CDS Index is rising +4.34% to 199.50 bps. The 10-year yield is soaring another +11 bps to 3.24%. The Citi Asia Pacific Economic Surprise Index is falling to another 52-week low today to -10.0. It is now at the lowest level since May 2009. Some key investor sentiment gauges remain a bit too bullish. The 10-year yield is mostly jumping on rising economic growth and inflation expectations, not on deficit worries, in my opinion. The US sovereign cds is flat over the last 5 days. Despite a number of potential negative equity catalysts, the bears remain unable to gain any traction, which is a big positive. I expect US stocks to trade mixed-to-lower into the close from current levels on soaring long-term rates, profit-taking, China inflation fears, US municipal debt concerns and technical selling,

Today's Headlines

Bloomberg:

• Wall Street Asks Agencies to Slow Down on New Derivatives Rules. Eleven financial-industry trade associations representing Wall Street banks, hedge funds, swaps dealers are asking federal regulators writing new derivatives rules to slow down. In a letter sent to the Commodity Futures Trading Commission and the Securities and Exchange Commission, the groups called for extending public comment periods on some regulatory proposals and said firms should be given more time to implement new directives. “We are concerned that market participants will be asked to do too much in too short a time,” the groups wrote in the letter sent yesterday. “This could have significant adverse consequences for the customers that rely on these products.”
• Democrats Urge Senate Leaders to Add Build-America Program to Tax Accord. Democratic senators are urging the chamber’s leaders to continue the Build America Bond program as part of legislation enacting the agreement that President Barack Obama struck to extend the 2001 and 2003 income-tax cuts. The federally subsidized initiative, which pays 35 percent of the interest on state and local government bonds sold for public-works projects, wasn’t included in the deal that the White House brokered with Republicans.
• Byron Wien Says S&P 500 May Advance to Record in 2011 on Profits, Economy. The Standard & Poor’s 500 Index may rise at least 28 percent through next year to a record as corporate profits and the economy improve, according to Byron Wien, the vice chairman of Blackstone Advisory Services.
• Physical Gold Sales Slowing as Prices Rally, Standard Bank Says. Gold investors and jewelers are becoming more accustomed to higher prices and physical sales of the metal slowed compared with when bullion last climbed above $1,400 an ounce, according to Standard Bank Plc. The Standard Bank Physical Gold Flow Index dropped to minus 21 yesterday as prices reached a record $1,431.25. That compares with a slide to as low as minus 85 on Nov. 11, two days after the metal climbed to a then-record $1,424.60. An index value below zero indicates net selling of physical gold and a value above zero shows net buying.
• U.S. States Face 'Cliff' as Federal Stimulus Ending Opens $38 Billion Hole. U.S. states are preparing for more budget cuts next year as tax revenue isn’t likely to rebound enough to replace almost $38 billion in aid that will be gone as federal economic stimulus ends, according to a report. At least 31 states and Puerto Rico are forecasting deficits of $82.1 billion in the next fiscal year even as tax receipts are picking up, the National Conference of State Legislatures said today. Under a temporary mandate since 2009, the U.S. has provided economic aid to states, helping to pay government workers and shoulder the cost of the Medicaid program to provide health care for the poor. That aid will be gone, the group said.
• Bank of America(BAC) Deal in Muni Case May be 'Tip of the Iceberg'.
• Banks in Europe Fail Stress Tests With No Authority. In the five months after the U.S. published results of its 2009 bank stress tests, the Standard & Poor’s 500 Financials Index rose 25 percent. Five months after the European Union released its version, the Bloomberg Europe Banks and Financial Services Index is down 4 percent. The failure of the EU tests to restore confidence in the region’s banks was underscored last month when Ireland directed its two biggest lenders, both of which passed the exams, to raise additional capital. Since the results were disclosed on July 23, the cost of insuring the senior debt of 110 European banks against default rose 113 basis points, or 1.13 percentage points, while credit-default swaps on 34 of the largest U.S. banks are unchanged, according to data compiled by Bloomberg.
• Tax Appeals Swamp US Cities, Towns as Property Prices Plunge. A fiscal flood that threatens to swamp local government budgets across the U.S. overflows from file cabinets in the office of Patty Halm, chair of the Michigan Tax Tribunal. The backlog of cases from taxpayers seeking to lower property-tax bills of more than $100,000 shot up to 14,236 this year from an annual average of about 6,000 during the past decade. The backlog of smaller claims was at 28,558 at the end of September, eight times higher than a decade ago, according to records at the tribunal, a Lansing-based administrative court.
• IMF's Strauss-Kahn Says Europe Still in 'Troubling' Situation on Deficits. Europe, where a debt crisis prompted bailouts of Greece and Ireland this year, remains in a “troubling” situation, the head of the International Monetary Fund said. The effects of the global financial turmoil “are far from over,” IMF Managing Director Dominique Strauss-Kahn said today in Geneva, according to a copy of his prepared remarks. “The situation in Europe remains troubling and the future is more uncertain than ever.”

Wall Street Journal:

• Two Large Banks Tied to Gerson, Big Network Firm. Two large Wall Street firms formed alliances with the nation's largest "expert-network" firm in recent years, giving them a vested interest in the outcome of a big insider-trading investigation. One of those Wall Street firms, Credit Suisse Group(CS), recently received a subpoena seeking information and documents related to its use of experts at Gerson Lehrman Group, a large expert-network firm, by the banks' researchers and clients, people familiar with the matter says. Credit Suisse declined to comment. Credit Suisse and Morgan Stanley(MS), another large bank, have formal partnership agreements with Gerson Lehrman dating back to 2008. Those alliances boosted access by the banks and their clients to Gerson's network of doctors, technology-firm employees and thousands of other experts; and some of the banks' researchers and analysts in turn were made available to consult with Gerson clients.
• Overhaul of Oil Industry Urged. The oil and gas industry needs a "major transformation" in its approach to safety to avoid another big offshore-drilling disaster, a leader of the presidential panel investigating the BP PLC accident plans to tell a gathering of industry officials Wednesday.
• Wells Fargo(WFC), Visa(V) Test Mobile Payments. Wells Fargo & Co. said Tuesday it is testing mobile payments through a pilot program with Visa Inc., stepping up competition with telephone companies that also hope to dominate the business. The pilot program, which will take place in San Francisco, where the two companies are based, comes on the heels of a mobile payments joint venture announced last month between three major U.S. wireless carriers. The developments underscore tension among card lenders and wireless companies over who controls the mobile-payment network.
• States Face Budget Shortfalls of $26.7 Billion. States are reporting billions in midyear budget shortfalls, and the crunch is likely to continue for at least several more years, a new report says. Fifteen states are facing combined budget gaps midway through their 2011 fiscal year totaling $26.7 billion, according to a National Conference of State Legislatures report to be released Wednesday. Illinois had the largest midyear shortfall relative to the size of its budget among the 15 states with deficits: $13 billion, or 47% of its general-fund budget. While states have been able to rely partly on federal funding from the stimulus program to weather the recession and its aftermath, most of that funding will be exhausted next year, fiscal 2012. States will have $37.9 billion less in federal stimulus funding in fiscal 2012, compared with this year.
• EU Seeks Limits on Commodity Trading. The European Commission Wednesday said it wants to ensure that national regulators have the power to limit commodity traders' bets. The proposal is aimed at preventing traders from manipulating commodities markets, a common accusation in the summer of 2008 when food and energy prices soared to record highs. The commission, the European Union's executive arm, said it wants to ensure that EU national regulators have the authority to set limits when they determine that commodity markets aren't functioning properly, with EU institutions having a coordinating role.
• Investors Pile Into Commodities. Investors are holding their biggest positions on record in the commodities markets as prices surge and debate intensifies among U.S. regulators about whether to limit the amount that any one trader can bet in markets for energy, metals and agricultural products. Hedge funds, pension funds and mutual funds dramatically ramped up their holdings in everything from oil and natural gas to silver, corn and wheat this year. In many cases, the number of contracts held for individual commodities now far exceeds the amount outstanding in mid-2008, the last time commodity markets were soaring to records and debate raged about whether excessive speculation was driving up prices. Contracts held by investors have risen 12% this year through October and are 17% higher than June 2008, according to data from the Commodity Futures Trading Commission, the market regulator. In several commodities, including the $200 billion crude oil market, so-called speculative investors now make up a significantly larger proportion of the market than they did in 2008. Investors increased their bullish bets on crude oil by 24% since June 2008 and now represent 16% of the market, up from 13% just over two years ago. Bets in the copper market are up 58% and for silver they are up 52%, according to the CFTC data. "Speculative money from the likes of hedge funds, index funds and pension funds is coming into the commodity markets at a blistering pace," Mr. Chilton said in prepared remarks for a speech he plans to make on Wednesday at a conference in New York. "If prices are skewed in a manner that is not fair by speculators, consumers can pay more than they should," he said. According to Barclays Capital, investors have piled a total of $121.2 billion into commodities since the beginning of 2009. The emergence of exchange-traded funds that buy commodities futures contracts, such as the U.S. Oil Fund and U.S. Natural Gas Fund, have helped lead a march into commodities over the past few years. Gold has jumped 29% this year and reached a nominal record of $1,415.30 per troy ounce this week. Copper is up 22% and trading near its record high of $4.0775 per pound. Silver prices are at 30-year highs and oil on Tuesday surpassed $90 during the trading day for the first time since October 2008.
• BofA Merrill to Expand Its Online Brokerage Business.
• The Bush Tax Cuts Never Went Far Enough. A permanent reduction in capital taxes would increase productivity and wages. Postwar Britain shows how higher capital tax rates reduce investment and damage economic growth.

CNBC:

• In Shift, Mexico to Allow Oil Drilling Again. In a major shift for Mexico, the country will allow private companies—both domestic and foreign—to drill for oil there, the first time in 70 years. This move came as a result of a supreme court decision there on Tuesday. This step for Mexico is crucial for the oil-rich nation and it’s long-term prospects. Even though it has so much oil, if the country doesn’t make the right moves—and build infrastructure—the nation will end up importing oil. Mexico ranks number three as an oil supplier to the US.
• Online Retail Sales Up 12% and Best Yet to Come. The latest read on online holiday shopping from Comscore shows a 12 percent increase in spending in the first 35 days of the November through December shopping season compared with the same period a year ago.

Business Insider:

• David Einhorn Explains How QE2 Will Affect The Average American In One Sentence. In case you've been MIA the past month, the Federal Reserve decided to buy another $600 billion in Treasuries (and might buy more) on November 3rd. Technically, they did it "to lower borrowing costs and stimulate the economy," says Einhorn, but QE2 will instead probably result in rising prices of basic goods for consumers and businesses, which will curtail economic growth. Basically, the Fed just threw away $600 + billion because QE2 "will be counterproductive," he told Rose, according to Bloomberg. “The goal of quantitative easing right now is to raise the inflation rate. If you do raise the price of clothing, it effectively lowers everybody’s standard of living and gives them less money to buy other things.”

Zero Hedge:

• Maryland Democrat Chris Van Hollen Says "Unsure Whether Obama-Republican Deal Can Pass House In Current Form".
• TIPS Breakevens Indicate Inflation Expectations "Double" From Two Months Ago.
  

New York Times:

• What the Fed Is Still Owed by Wall Street. The Federal Reserve has a story and is sticking to it: We didn’t lose taxpayer money, and we won’t. But several emergency programs and credit lines still exist, and the path to profitability on them remains uncertain. Hedge funds, pension funds and other investors have some $25 billion in outstanding loans from the Fed, some backed by subprime consumer debt. The central bank’s books are stocked with $66 billion of securities related to Bear Stearns and the American International Group, and the troubled insurer also owes $20 billion on a Fed credit line.
• Three Years After Private Equity Boom, an Exit Strategy. Private equity firms may finally have an exit strategy for deals made at the height of the buyout boom. While the market for initial public offerings remains unpredictable, the industry increasingly is finding a steady stream of buyers among rival firms and corporate suitors flush with cash.
• Central Bank and Financiers Fight Over Fate of the Euro. On one side is the European Central Bank, which is spending billions to prop up Europe’s weak-kneed bond markets and safeguard the common currency. On the other side are hedge funds and big financial institutions that are betting against those same bonds and, by extension, against the central bank, that mighty symbol of Europe’s monetary union. The war keeps escalating as traders position themselves for what some believe is inevitable: a default by Greece, Ireland or perhaps even Portugal. The central bank owns about 17 percent of the combined debt of Greece, Ireland and Portugal, Goldman Sachs estimates.

Forbes:

• Russell Abrams' Hedge Fund Accused of Fraud Amid Losses of 70%. Russell Abrams, founder of New York hedge fund firm Titan Capital Group, which not so long ago reportedly managed $400 million, is having a terrible year. One of his main hedge funds has suffered losses of as much as 70% since the end of June, according to a document filed in Manhattan’s New York state court.

GoldSeek:

• Fed's QE Ponzi Scheme Begins to Backfire.

Reuters:

• ECB Consensus at Risk Unless Governments Act. A fragile consensus at the European Central Bank could break down soon, threatening its triage operation to buy bonds from the euro zone's weakest economies, unless governments do more to resolve the bloc's debt crisis.
• US Regulations Hurt Competitiveness - Business Group. A broad-based financial regulatory overhaul enacted this year overreaches and must be modified to avoid hurting U.S. companies' ability to compete and create jobs, a prominent business group said on Wednesday. The Business Roundtable, made up of chief executives of leading firms from banking to oil production, said the Dodd-Frank bill contains provisions that reach far beyond the financial sector and could be a drag on economic recovery.

Telegraph:

• Eurozone Debt Fears Infect German Bonds. Eurozone debt crisis worries spread to German bonds as nervous markets turned their attention from Ireland to the splits within the European Union over how to stem contagion.

DigiTimes:

• LED Lighting to Reach US$15.4 Billion in 2011 With Over 10% Market Share. Lighting will generate significant growth for the LED industry. Based on latest data from Digitimes Research, the high brightness LED market will grow to US$12.6 billion in 2011, up 53% from US$8.25 billion in 2010. The overall use of LEDs in lighting will increase to 12.4 billion units in 2011 from 4.8 billion units in 2010, as the effects of LED light bulbs replacing incandescent bulbs will start to show in 2011.

Macau Daily Times:

• Five Unused Plots to Be Taken Back. The Government has decided to push forward with the recall of five undeveloped plots, secretary for Transport and Public Works, Lau Si Io, revealed yesterday at the Legislative Assembly. The process to declare that the concession of these areas has lapsed has already begun, he explained. During the 2011 Policy Address, Lau said two more cases were sent to the Public Attorney’s Office to evaluate whether or not there are grounds for a civil suit. In total, he stated, “approximately 30 cases” of unused plots are being analysed.

Bear Radar

Style Underperformer:

• Mid-Cap Value (+.52%)

Sector Underperformers:

• 1) Coal -2.26% 2) Restaurants -1.66% 3) REITs -1.65%

Stocks Falling on Unusual Volume:

• LUV, TGA, GIII, HANS, DECK, DORM, NFLX, RP, CISG, ARII, CEPH, PAAS, VECO, JOSB, JRCC, GOLD, UNFI, ASIA, CTRP, GDOT, KFN, VLKPY, PUDA, SWC and POWL
  

Stocks With Unusual Put Option Activity:

• 1) XLK 2) CIEN 3) KSS 4) FO 5) LOW
  

Stocks With Most Negative News Mentions:

• 1) PSA 2) V 3) HAL 4) MA 5) ETR
  

Bull Radar

Style Outperformer:

• Small-Cap Growth (+.11%)

Sector Outperformers:

• 1) Education +1.90% 2) Hospitals +1.29% 3) Banks +1.09%

Stocks Rising on Unusual Volume:

• AVID, OREX, AVAV, GNTX and RDWR
  

Stocks With Unusual Call Option Activity:

• 1) OREX 2) VVUS 3) JBLU 4) ARNA 5) SLE
  

Stocks With Most Positive News Mentions:

• 1) OCII 2) COST 3) AVGO 4) CQB 5) HHS
  

Wednesday Watch

Evening Headlines
Bloomberg:

• Mortgage-Bond Yields That Guide Home Loan Rates Soar to Highest Since June. Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates jumped to their highest levels in almost six months, suggesting borrowing costs will continue to climb from record lows. Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds rose to 4.04 percent as of 5 p.m. in New York, according to data compiled by Bloomberg. Yields, whose changes typically create similar movements in loan rates, have increased from 3.27 percent on Nov. 4.
• Greenlight's Einhorn Says Global Sovereign Debt Crisis Looms. David Einhorn, president of hedge- fund operator Greenlight Capital Inc., said the global economy will face a sovereign debt crisis after governments around the world increased spending to deal with the fallout from the financial crisis. “We managed to transfer a lot of the problems from the private sector to the public sector,” Einhorn said in an interview with the Charlie Rose television show. “It’s created a very, very large budget deficit. And it’s created a monetary policy that’s extremely easy. It is eventually going to come to a tough spot.” The U.S. reported on Oct. 15 its second-largest annual budget deficit, $1.29 trillion, for the fiscal year ended Sept. 30. The Federal Reserve’s decision to buy an additional $600 billion in Treasuries to lower borrowing costs and stimulate the economy will probably result in rising prices of basic goods for consumers and businesses, curtailing economic growth, according to Einhorn. “It’ll be counterproductive,” Einhorn said. “The goal of quantitative easing right now is to raise the inflation rate. If you do raise the price of clothing, it effectively lowers everybody’s standard of living and gives them less money to buy other things.”
• Bank Swaps Led by Citigroup(C) Drop Below Europe. U.S. bank bonds are about the safest on record relative to debt from European financial institutions as a growing economy allows Citigroup Inc. to wean itself off government support and a fiscal crisis roils Europe. The average cost of protecting the notes of the six biggest U.S. banks including Citigroup and JPMorgan Chase & Co. against default fell to 12.16 basis points below the Markit iTraxx Financial Index of 25 European banks and insurers. Credit- default swaps on U.S. banks were 341 basis points higher than their European counterparts at the height of the credit crisis in October 2008.
  
• OPEC to Maintain Production Quotas as Crude Exceeds $90: Energy Markets. Oil’s rally to a more-than-two-year high is unlikely to coax OPEC into raising production quotas at this week’s meeting in Ecuador, as member nations consider the global recovery strong enough to withstand price gains. Iran, Venezuela and Libya said this month they would accept prices as high as $100, while OPEC Secretary- General Abdalla El-Badri said the group won’t necessarily boost production unless there’s a need for more oil. Prices will return to $100 a barrel for the first time in two years during 2011, according to strategists at Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co. and Bank of America Merrill Lynch.
• Bernanke's 21-Month U-Turn Takes 60 Minutes: Commentary by Caroline Baum. He probably wishes he hadn’t said it, the part about the Federal Reserve not printing money and his 100 percent confidence in his ability to raise interest rates at the appropriate time to prevent an acceleration of inflation. But he did. The Fed does (print money). And nothing is 100 percent certain in this world, except death and taxes. After Sunday’s interview, we no longer have to worry about the Fed’s commitment to doing whatever it takes to promote a self-sustaining recovery. The real concern is policy makers won’t know when they’ve done enough. If history is any guide, we can be almost 100 percent certain that they won’t.
• China Asks Flour Makers to Refrain From Price Hikes. China has asked some of the country’s biggest flour producers to refrain from raising prices until March, when the National People’s Congress holds annual meetings, the Beijing Times reported today, without citing anyone.
• MBIA Sues Morgan Stanley(MS) Over Mortgage-Backed Debt. MBIA Insurance Corp. sued Morgan Stanley over allegations the securities firm “fraudulently induced” the insurer to issue policies covering $223.2 million in mortgage-backed securities. The bond-insuring unit of MBIA Inc. claims Morgan Stanley and one of its units failed to disclose that most of the 5,000 underlying loans didn’t meet the underwriting guidelines of the firm or the originators, according to a complaint filed yesterday in New York state court in White Plains. “A vast number of the mortgage loans were made to borrowers who could not reasonably have been expected to repay their mortgage debt,” MBIA’s attorneys alleged in the complaint.
• Italy Budget Adds Political Risk to Debt Woes for Berlusconi: Euro Credit. Italy’s passage of a 2011 budget plan paves the way for a confidence vote that will decide Prime Minister Silvio Berlusconi’s political fate and complicate passage of more deficit cuts called for by the European Union. “It’s a problem if Italy really does become ungovernerable, or if Berlusconi is clinging on for dear life,” said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London.
• Texas Leaders Demand Spending Cuts Topping $500 Million in Current Year. Texas Governor Rick Perry and two other state leaders directed agencies to curb spending by as much as $750 million over the next nine months, citing “insufficient revenue” to cover costs. The 2.5 percent reduction is aimed at producing savings of $500 million to $750 million, said Mike Walz, a spokesman for Lieutenant Governor David Dewhurst, who signed a letter to state officials with Perry and House Speaker Joe Straus. State revenue receipts for the year ended Aug. 31 came in $2 billion below estimates, they noted in the letter, which was dated yesterday. “Reduced spending in the current fiscal year puts state government in a better position to prepare for the budget reductions that will be necessary to balance the budget,” Perry, Dewhurst and Straus, all Republicans, said in the letter.
• BlackRock(BLK) May Lose Massachusetts Pension Assets Because Firm Not 'Focused'. BlackRock Inc., the world’s biggest money manager, is set to lose assets it oversees for the $42.9 billion Massachusetts state pension fund because of concern that the firm isn’t adequately focused on some fixed-income markets.
• Texas Instruments(TXN) Fourth-Quarter Profit, Sales Forecasts Match Estimates. Texas Instruments Inc., the second- largest U.S. chipmaker, narrowed its fourth-quarter profit and sales forecasts. The midpoints of the ranges are in line with analysts’ projections.
• Wind-Power Producer NextEra Replaces California Turbines to end Bird Suit. NextEra Energy Resources LLC, the largest U.S. producer of wind power, agreed to replace thousands of outdated turbines in California, ending a five-year legal battle with environmental groups that claimed the spinning blades are killing endangered birds.
• U.S. Treasury Sets Record for Debt Sales at $2.116 Trillion. The U.S. Treasury set a record for borrowing in a calendar year after selling $32 billion of three- year securities to push its total note and bond sales to $2.116 trillion amid all-time high demand for the debt.
• Japan's Machinery Orders Decline for Second Month. Japanese machinery orders fell for a second month in October because of declining demand from the service sector, adding to signs that the nation’s export-led recovery is stalling.
• Kerry Says Congress Is 'Impatient,' U.S. May Take Action on Yuan Next Year. Senate Foreign Relations Committee Chairman John Kerry said the U.S. Congress is “impatient” with the artificially low value of China’s yuan and may take action next year. The Massachusetts Democrat, speaking in Washington about U.S.-China relations, also said that if the Group of 20 nations isn’t able to address currency values, the U.S. should find another way to deal with the issue. “The United States Congress is getting increasingly impatient and in the next session may take matters into its own hands,” Kerry said, noting that the value of the yuan contributes to the U.S. trade deficit. “If the G-20 can’t deal with this problem, then we ought to look at other multilateral tools, ones with teeth, that can fix this.”
• Fortune Brands(FO) May Spin Off Golf, Home and Security Businesses, WSJ Says. Fortune Brands Inc., the maker of Jim Beam bourbon and Titleist golf balls, may split into as many as three separate businesses, the Wall Street Journal reported, citing unidentified people familiar with the matter. The home and security unit could be spun off to shareholders and the same may be done for the golf division while Fortune Brands would continue as a publicly traded liquor company, the Journal reported yesterday, citing people briefed on the plan. An announcement may come as soon as today, it said.

Wall Street Journal:

• Fannie, Freddie Pressed on Mortgages. Fannie Mae and Freddie Mac are in talks with Obama administration officials to join fledgling government programs aimed at reducing loan balances of mortgages where borrowers owe more than their homes are worth, according to people familiar with the situation. An agreement with the two government-owned mortgage giants to write down so-called underwater loans could reduce the threat to the U.S. housing market from the glut of homeowners believed at risk of default should their personal finances or home prices worsen. A deal would deepen losses at Fannie Mae and Freddie Mac, which already have cost taxpayers about $134 billion.
• Goldman Sachs Hires Lures Big New York Prosecutor In House. Goldman Sachs(GS) is hiring David Markowitz of New York Attorney General's office for its litigation and regulatory proceedings group. Markowitz joined the attorney general's office in 2008 from the SEC, where he worked eight years.
• Canadian Finance Minister Says European Response to Crisis Still Insufficient. European nations haven’t yet managed to get ahead of the financial crisis that’s rocking the region, said Canadian Finance Minister Jim Flaherty. “It’s important… to get ahead of the markets rather than play catch-up,” said Mr. Flaherty. “I think they have to demonstrate to the markets that they can fund adequately to restore confidence by the markets in the sovereigns and in the banks.” Mr. Flaherty’s comments come as global investors fret that other European nations — particularly Portugal and Spain — may also fall prey to fears that they could default on debt, spurring a full-fledged banking crisis. His sentiments echo concerns aired Tuesday by International Monetary Fund chief Dominique Strauss-Kahn, who said European nations need to come up with a comprehensive fix for their problems, rather than the slow, ad hoc response they’ve shown thus far.
• Sale of New Silver Coin Delayed. The U.S. Mint said it is delaying the sale of 2010 "America the Beautiful" five-ounce silver coins due to concerns about the high prices and premiums that were to be charged for the bullion coins by its network of authorized purchasers.
• New Players, Ties Surface in Trading Probe. Federal authorities have failed in two attempts to enlist the help of individuals to gather evidence against Steven Cohen's SAC Capital Advisors LP as part of a wide insider-trading investigation.
• For New MBA Grads, Jobs Still Tough to Find.
• Unions Want Limits on Firms' Use of Contractors. Unions are stepping up a campaign to get the Obama administration to crack down on companies that treat workers as independent contractors instead of employees—a practice that effectively puts tens of thousands of workers out of reach of labor organizers.

Business Insider:

• Netflix(NFLX) CFO Leaves Becuase He Can't Become CEO.

NY Times:

• Rigs in Gulf Ready to Drill, but There's Little Work. A slow permit process has idled oil rigs and threatened prospects for rig owners, despite the end of the moratorium on drilling in the Gulf of Mexico.

Forbes:

• The Economic Incompetence of the Political Class. The sovereign debt crisis now threatening Europe, as well as major American states and cities, discloses the sheer incompetence of a political class that has over-promised, under-delivered and squandered vast amounts of their citizens' wealth.

mocoNews.net:

• CNBC Brings Its 'Real-Time' Data To The iPad - Paid Products Coming Soon. As its rivals look to buttress their existing “real-time” data businesses with separate digital products, CNBC has released its first iPad app that promises to bring up-to-the-second financial information to a more general audience. While most real-time services costs thousands of dollars in subscription fees, CNBC is keeping the iPad app free. However, in the coming weeks, the company is planning to rollout additional apps, with a focus on offering premium, paid content.

Politico:

• Elizabeth Edwards Dies of Cancer. Elizabeth Edwards, who remade the role of the political spouse for a new media age, died Tuesday at her home in Chapel Hill, N.C., after a six-year struggle with cancer. Edwards, a lawyer, best-selling author and the wife of former U.S. Sen. John Edwards, was 61.
• Harry Reid Tries to Add Online Poker to Tax Bill. Senate Majority Leader Harry Reid is trying to use the tax cut package President Barack Obama brokered with Republicans to legalize online poker, POLITICO has learned — a move that could further complicate the deal Obama announced Monday.
• Anger of House Democrats Boils Over. House Democrats railed against President Barack Obama's tax cut deal with congressional Republicans in a closed-door caucus meeting Tuesday night, even as there were signs that the White House could pick up enough support for the package to win enactment. Speaker after speaker expressed frustration at the president's acquiescence to Republican demands for a multi-year freeze on the rates for top income in exchange for an extension of unemployment insurance and a basket of Democratic-favored tax breaks, according to several Democratic sources.

Telegraph:

• Ireland's Austerity Budget Puts the Squeeze on Public Sector Workers. Ireland's public sector workers are to bear the brunt of next year's austerity measures with cuts to their pensions, pay and staff numbers as the government tries to grapple with the scale of the nation's debts.

The Guardian:

• WikiLeaks Cables: Lockerbie Bomber Freed After Gaddafi's 'Thuggish' Threats. The British government's deep fears that Libya would take "harsh and immediate" action against UK interests if the convicted Lockerbie bomber died in a Scottish prison are revealed in secret US embassy cables which show London's full support for the early release of Abdelbaset al-Megrahi.

YTN:

• Artillery shells fell in North Korean waters today. The shells fell near South Korea's Baengyeong Island and may have been fired by North Korea.

Asahi:

• North Korean 'New Military' Led by Hard-Line General. The North Korean propaganda machine has repeatedly described Kim Jong Un as an artillery genius who can speak seven languages, took up a rifle when he was 3 and is capable of striking a target every time he fires. But a hard-line army general who represents a "New Military" with increasing influence over the North Korean regime appears to be the true architect of the Nov. 23 artillery attack on Daeyeonpyeongdo island, according to sources.

ABC Radio Australia:

• China Works to Avoid Its Own Subprime Loans Crisis. A senior Chinese economist has warned of the risks facing China in the coming year, including a potential sub prime loans crisis.

China Securities Journal:

• Shanghai will be among the first group of Chinese cities to undertake property tax trials, citing an official with the city's housing bureau.

Haaretz.com:

• Israel-U.S. Talks on Renewed Settlement Freeze Reach Dead End. Senior Israeli official says U.S., Israeli governments to announce that negotiations have failed, two sides to find new ways to advance Mideast peace process.

Evening Recommendations
Citigroup:

• Reiterated Buy on (GE), target $21.

Susquehanna:

• Rated (UNP) Positive, target $115.
• Rated (KSU) Positive, target $60.
• Rated (WERN) Positive, target $28.
• Rated (NSC) Positive, target $76.

Night Trading

• Asian equity indices are -.75% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 106.50 -1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 104.25 -3.5 basis points.
  
• S&P 500 futures -.29%
  
• NASDAQ 100 futures -.21%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (COST)/.69
• (UNFI)/.39
• (GIII)/2.09
• (KFY)/.24
• (MATK)/.37

Economic Releases
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,400,000 barrels versus a +1,066,000 barrel increase the prior week. Gasoline supplies are estimated to fall by -300,000 barrels versus a +561,000 barrel gain the prior week. Distillate supplies are estimated to fall by -900,000 barrels versus a -194,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +1.0% versus a -2.9% decline the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly MBA mortgage applications report, Barclays Tech Conference, Goldman Sachs Financial Services Conference, CSFB Holiday Conference, Wells Fargo Real Estate Conference, UBS Media/Communications Conference, (ROK) analyst meeting and the (YUM) analyst conference could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial 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 75% net long heading into the day.