Wednesday Watch

Evening Headlines

Bloomberg:

• Berlusconi Cabinet Will Call for Confidence Vote on Revised Austerity Plan. Italy’s Senate may approve Prime Minister Silvio Berlusconi’s revised 45.5 billion-euro ($63.7 billion) austerity package in a confidence vote after bond yields surged amid concern the government may weaken the plan. Senators will meet at 9:30 a.m. in Rome to discuss and cast votes on the amended package, which will raise the value-added tax rate by one percentage point to 21 percent, introduce a 3 percent levy on incomes over 300,000 euros a year and increase the retirement age of women in the private sector from 2014. The vote may pave the way for final approval later this week by the Chamber of Deputies. The measures were approved at a Cabinet meeting in Rome yesterday after Italians took to the streets in a general strike to protest the plan, and following weeks of bickering that stoked concern among investors and European leaders that Italy may struggle to tame Europe’s second-biggest debt burden. The confidence vote was forced by the “seriousness of the global financial crisis,” Berlusconi’s office said in a statement. This government only knows how to lie,” said Pier Luigi Bersani, leader of the main opposition Democratic Party, in an e-mailed statement. “The idea is always the same: offload the weight of the budget cuts on the masses and shield the rest.”
• U.S. Company Risk Measure Jumps as Europe Evokes '08 Comparison. A benchmark gauge of U.S. corporate credit risk climbed on concern that Europe's fiscal imbalances will hurt U.S. debt markets, as bankers cite parallels to the 2008 financial crisis. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 5.4 basis points from Sept. 2 to a mid-price of 126.4 as of 4:52 p.m. in New York, according to index administrator Markit Group Ltd. The measure is at the highest closing price since reaching a more than one-year high of 126.8 on Aug. 22. The index has increased from 95.8 basis points on Aug. 1 as investor concerns have mounted about the faltering U.S. economic recovery and upheaval in Europe's government bond markets. "It's a very gloomy market environment right now," said Rizwan Hussain, a credit strategist at Morgan Stanley in New York. "An '08 type of comparison clearly does not bode well.'' Credit-default swaps on Charlotte, North Carolina-based Bank of America Corp. climbed 26.1 basis points from Sept. 2 to 352.9 basis points, according to data provider CMA, as the largest U.S. lender's bid to resolve mortgage liabilities with an $8.5 billion settlement faces drawn-out litigation and may require a bigger payout as investors and regulators scrutinize the deal.
• The cost of protecting debt issued by India's state-run banks against default has climbed to a two-year high, spurred by concern that the lenders may have to set aside more money to cover bad loans. Five-year credit-default swaps on State Bank of India, the nation's biggest lender, rose 102 basis points this quarter to 290 basis points, the highest level since April 2009.
• Erdogan Promises New Sanctions in Escalating Turkey-Israel Feud. Tossing out an ambassador, suspending defense ties and boosting Turkey’s naval presence in the eastern Mediterranean won’t be Prime Minister Recep Tayyip Erdogan’s last word in his most recent showdown with Israel. Erdogan said his government will announce new steps to punish Israel -- not long ago its strongest regional ally -- unless Prime Minister Benjamin Netanyahu apologizes for the killing of nine Turks last year in an Israeli commando raid at sea. Among the moves may be a visit by Erdogan to the Gaza Strip, ruled by the Islamic group Hamas.
• Romney Calls for Corporate Tax Cut, China Sanctions in Plan. Republican presidential candidate Mitt Romney proposed a reduction of U.S. corporate taxes, fewer federal regulations, new trade agreements, and sanctions against China for currency manipulation in a plan he said would boost the U.S. economy and create jobs. The former Massachusetts governor, speaking today at a trucking company in North Las Vegas, Nevada, also called for the elimination of taxes on interest, dividends and capital gains for individuals making $200,000 or less per year. Seeking to highlight the business experience he has said sets him apart from other 2012 Republican presidential contenders, Romney released his 59-point proposal two days before President Barack Obama is scheduled to present his own job-revival ideas in a speech to Congress. "The right course for America is to believe in growth," Romney said. "The right answer for America is not to grow government."
• Citigroup(C) CEO Pandit's 'Globality' Goal Imperiled. Vikram Pandit, who oversaw Citigroup Inc. (C)’s recovery with the help of a $45 billion government bailout, faces a profit squeeze as he adds staff and branches outside the U.S. amid a global economic slump.
• 'Helicopter Ben' May Deter Lending With Lower Rates Policies, Gross Says. Federal Reserve Chairman Ben S. Bernanke risks causing a decline in longer-term lending by holding down benchmark interest rates, Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said in an opinion piece on the Financial Times website. If the Fed seeks to drive down longer-maturity yields, as some are anticipating, then the central bank may “destroy leverage and credit creation in the process,” Gross wrote in the piece, which was titled ‘Helicopter Ben’ Risks Destroying Credit Creation.’
• Dodd-Frank Forces Early Call in SEC Probe of Fannie Mae's Mudd. Last March the U.S. Securities and Exchange Commission told Daniel Mudd, former head of Fannie Mae, that he could face claims for his role in the firm’s collapse. He may be the first chief executive officer to benefit from a rule that regulators sue or drop such cases within six months.

Wall Street Journal:

• European Bailout Tensions Threaten German Coalition. Merkel Fights to Quell Rebellion as Mock Vote Shows 25 Lawmakers Oppose Legislation on Bigger Bailout Fund. German Chancellor Angela Merkel is fighting to quell a rebellion within her ruling coalition that could potentially destabilize her government, after 25 lawmakers from her center-right camp indicated they might not support legislation to strengthen Europe's bailout fund. Mock votes among lawmakers in Ms. Merkel's coalition late Monday showed she will have to fight to keep her governing majority together in a crucial ballot on Sept. 29, when Germany's parliament will vote on proposals to make the main euro-zone bailout fund bigger and more flexible. The measures in question are a key plank of a deal struck July 21 by European leaders to restore investor confidence in euro-zone government debt. But a larger-than-expected number of backbenchers from Ms. Merkel's Christian Democrats, as well as from her junior coalition partners the Free Democrats, refused to support the measures in Monday's mock votes. The lack of support is a public signal of dissent within the ranks of the party. Germany's parliament is widely expected to pass the measures despite the unrest in government ranks, because opposition parties have said they will back the legislation. But reliance on opposition votes would be a severe embarrassment for the chancellor, raising questions about the survival of her government. The unrest within the coalition reflects many lawmakers' belief that ever-expanding bailouts of poorer euro nations pose a growing risk to German taxpayers.
• Groupon Reevaluating IPO Plans Due to Market Volatility.
• Exclusive: Carol Bartz Out at Yahoo(YHOO); CFO Time Morse Named Interim CEO.
• S&P Met With Bond Firms. Some Investors Got the Impression U.S. Downgrade Was More Likely Than Not. Standard & Poor's Corp. officials held private meetings with large bond investors weeks before the firm's historic U.S. debt downgrade, leaving some believing the chance of a credit-rating cut was higher than they previously thought. Though S&P had put the U.S. on "credit watch" in mid-July, some investors were skeptical that S&P would actually strip the U.S. of its triple-A rating, maintained since 1941. S&P said in a news release on July 14 that "there is at least a one-in-two likelihood that we could lower" the U.S. ratings within 90 days.
• SEC Looks Into Effect of ETFs on Market. U.S. securities regulators are looking into whether turbocharged exchange-traded funds amplified August's topsy-turvy swings in the stock market. Securities and Exchange Commission officials have had discussions with firms that trade ETFs, asking questions about whether they added to the market's volatility, according to people familiar with the talks. ETFs, which typically track market indexes, trade on exchanges like stocks. Exchange-traded funds have surged in popularity and now generate 35% to 40% of exchange trading volume, according to Morningstar Inc. Such funds sometimes are used by high-frequency traders, who buy and sell stocks and other assets at a rapid clip.
• Probe Into Goldman(GS) Widens. Prosecutors in New York are pressing ahead with their inquiry into the way Goldman Sachs Group Inc. marketed certain mortgage-linked instruments before the financial crisis, issuing subpoenas to Morgan Stanley(MS) and other investors in the deals, people familiar with the matter said. Some of the subpoenas were received in recent weeks, the people said. The Manhattan district attorney's office began its probe into Goldman following the release in April of a U.S. Senate subcommittee report into the causes of the crisis. Goldman was featured prominently in that report.
• The Other Climate Theory.
  

Business Insider:

• Obama Jobs Plan to Cost $300 Billion.
• White House to Propose Short Term Plan to Avert Post Office Bankruptcy. President Barack Obama will propose a plan to allow the U.S. Postal Service to push off a scheduled $5.5 billion health care payment until the new year, The New York Times reports.

Zero Hedge:

• European Scramble to ECB Safety at Highest in Over a Year as ECB Deposits Surge to €167 Billion. (graph)
• "The European Financial System Is Finished" In Quotes.
  

IBD:

• McDonald's(MCD) Benefits From New Menu Items.

NY Times:

• U.S. Takes Hard Line in Suits Over Bad Mortgages.
• In Euro Zone, Banking Fear Feeds on Itself. As Europe struggles to contain its government debt crisis, the greatest fear is that one of the Continent’s major banks may fail, setting off a financial panic like the one sparked by Lehman’s bankruptcy in September 2008. European policy makers, determined to avoid such a catastrophe, are prepared to use hundreds of billions of euros of bailout money to prevent any major bank from failing. But questions continue to mount about the ability of Europe’s banks to ride out the crisis, as some are having a harder time securing loans needed for daily operations. American financial institutions, seeking to inoculate themselves from the growing risks, are increasingly wary of making new short-term loans in some cases and are pulling back from doing business with their European counterparts — moves that could exacerbate the funding problems of European banks.

Forbes:

• Sallie Krawcheck Out At Bank Of America(BAC) Merrill Lynch.
• 4 Worrisome Jobs Charts.
• Pentagon Chief: Threat of Another 9/11 is Real. Defense Secretary Leon Panetta says that after a decade of war with al-Qaida the potential for another devastating terrorist assault "remains real."

CNN:

• Dear Mr. President... We asked 10 small businesspeople the one thing they'd ask President Obama to do to make it easier for them to hire. Below are edited excerpts of their conversations.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).

USA Today:

• More Restaurants are Targeting Customers Who Use Food Stamps. The number of businesses approved to accept food stamps grew by a third from 2005 to 2010, U.S. Department of Agriculture records show, as vendors from convenience and dollar discount stores to gas stations and pharmacies increasingly joined the growing entitlement program. Now, restaurants, which typically have not participated in the program, are lobbying for a piece of the action. Louisville-based Yum! Brands(YUM), whose restaurants include Taco Bell, KFC, Long John Silver's and Pizza Hut, is trying to get restaurants more involved, federal lobbying records show.

Reuters:

• No Plans for Extra Euro Zone Bank Capital Support - Sources. Euro zone governments have no plans to inject any further capital into banks over and above the money earmarked for the financial sector in the emergency loan programmes to Greece, Ireland and Portugal, sources said. Euro zone officials discussed the issue of banking sector recapitalisation on Monday and Tuesday as part of the preparations for the informal meeting of European Union finance ministers in Poland on September 16. The issue has returned to the table after the IMF called for additional capital to boost the European banking sector, estimating the extra need at 200 billion euros (175 billion pounds) in a draft version of an unpublished report leaked to the press.

Telegraph:

• German Austerity Drive Risks Euro-Slump. German finance minister Wolfgang Schäuble has vowed to halt rescue payments to Greece unless the country complies totally with the EU-IMF demands, brushing aside warnings that a Greek collapse would set off a disastrous chain reaction and a global banking crisis. “The next tranche can be paid only when the conditions have been met. There is no room for manouvre here,” he told the Bundestag. Yields on 10-year Greek debt spiked to a fresh record of 19.8pc on fears of a disorderly default. The tough words reflect sentiment in Berlin that Greece should be left to its fate or even be ejected from the monetary union, even though the chief reason Greece has failed to meet its deficit target is the crushing effect of recession. The economy will have shrunk by 12pc by the end of this year, playing havoc with debt dynamics. Mr Schäuble rebuffed calls from the International Monetary Fund for a softening of Europe’s austerity drive. “Piling on more debt now will stunt rather than stimulate growth in the long run. Highly indebted Western democracies need to cut expenditures, increase revenues and remove structural hindrances in their economies, however politically painful,” he wrote.
  

Economic Information Daily:

• The southwestern Chinese city of Chongqing may widen its property-tax trial to target more luxury home owners, citing an official. The existing property-tax trial, already implemented for seven months, has had a limited effect on the city's property market.

Evening Recommendations
Citigroup:

• Upgraded (DHI) to Buy, target $13.

Canaccord Genuity:

• Rated (DKS) Buy, target $43.
• Rated (FINL) Buy, target $24.

Night Trading

• Asian equity indices are +.50% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 160.50 -14.5 basis points.
  
• Asia Pacific Sovereign CDS Index 146.50 -8.25 basis points.
• FTSE-100 futures +1.39%.
  
• S&P 500 futures +.54%.
  
• NASDAQ 100 futures +.54%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (NAV)/1.26
• (MW)/1.04
• (CASY)/1.06
• (HOV)/-.50

Economic Releases
2:00 pm EST

• The Fed's Beige Book.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The German court bailout legality ruling, Fed's Williams speaking, Fed's Evans speaking, JOLTs Job Openings report, weekly MBA mortgage applications report, weekly retail sales reports, BofA Merrill Real Estate Conference, Kaufman Bros. Investor Conference, Stifel Nicolaus Healthcare Conference, CSFB Auto/Transports Conference, Robert W. Baird Healthcare Conference, Barclays Back-to-School Conference, Dahlman Rose Transports Conference, Scotia Capital Financials Summit, William Blair Life Sciences Conference, Goldman Sachs Retailing Conference, Jefferies Shipping Conference, Keefe Bruyette Woods Insurance Conference, (SCOR) Investor Day and the (POOL) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by technology 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 Lower into Final Hour on Rising Eurozone Debt Angst, Global Growth Worries, Emerging Markets Inflation Fears, Financial Sector Pessimism

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 37.39 +10.29%
  
• ISE Sentiment Index 122.0 +32.61%
  
• Total Put/Call 1.28 -11.11%
  
• NYSE Arms 1.52 -57.87%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 129.50 +4.10%
  
• European Financial Sector CDS Index 261.26 +1.04%
  
• Western Europe Sovereign Debt CDS Index 315.17 +2.16%
  
• Emerging Market CDS Index 281.08 +4.6%
  
• 2-Year Swap Spread 32.0 +1 bp
  
• TED Spread 32.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.
  
• Yield Curve 178.0 -1 bp
  
• China Import Iron Ore Spot $180.90/Metric Tonne +.22%
  
• Citi US Economic Surprise Index -55.10 +2.6 points
  
• 10-Year TIPS Spread 1.94% -9 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +75 open in Japan
• DAX Futures: Indicating +39 open in Germany

Portfolio:

• Slightly Higher: On gains in my Retail/Biotech sector longs, Index hedges and Emerging Markets shorts
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 trades back near the low-end of its recent range on rising Eurozone debt angst, more financial sector pessimism, more shorting, emerging markets inflation fears and global growth worries. On the positive side, Biotech shares are higher on the day. Oil is down -.8%, Gold is down -.3%, Lumber is rising +2.25% and the UBS-Bloomberg Ag Spot Index is down -1.57%. On the negative side, Coal, Alt Energy, Oil Service, Steel, Networking, Bank, I-Bank, Insurance, Homebuilding and Airline shares are under significant pressure, falling more than -2.5%. (XLF) has traded very poorly throughout the day. The Transports are also heavy. Copper is down -1.7%. Rice is still near a multi-year high and has risen +35.5% in about 9 weeks. The average US price for a gallon of gas is +.01/gallon today to $3.66/gallon. It is up .52/gallon in about 7 months. The Russia sovereign cds is gaining +2.77% to 206.67 bps, the Brazil sovereign cds is jumping +6.8% to 163.41 bps, the Greece sovereign cds is gaining +2.39% to 2,559.42 bps, the Portugal sovereign cds is gaining +1.68% to 1,053 bps and the Belgium sovereign cds is rising +5.23% to 288.17 bps. The US Muni CDS Index is jumping +4.65% to 181.89 bps. Moreover, the European Investment Grade CDS Index is rising +1.99% to 165.31 bps. The Italy and Belgium sovereign cds are making new record highs again today. The Greece, Germany, Spain and France sovereign cds are still near their recent all-time highs. The Eurozone Financial Sector and Western European Sovereign CDS Indices are also making new all-time highs today. The 3-Month Euro Basis Swap dropped another -3.06 bps to -99.69 bps, which is another new cycle low. The Citi Eurozone Economic Surprise Index has plunged -109.2 points in about 4 weeks to -103.10. The UBS-Bloomberg Ag Spot Index is still near its recent record high, which is also a large negative. The China Blended Corporate Spread Index is jumping +24.0 bps to a new multi-year high at 637.0 bps. The Nikkei took out its recent lows overnight, falling -2.21%, and is now down -16.0% ytd. Germany's DAX also continues to trade very poorly as it fell another -1.0% today and is now down -24.9% ytd, near a 2-year low. Italian shares also made new cycle lows today, falling another -1.99%, and are down -30.3% ytd. As well, the euro currency remains very heavy. Gauges of eurozone debt angst remain very elevated and continue to trend higher, which is a large concern. Today's equity rebound off the morning lows was on light volume and poor breadth. Given the amount and nature of the negative news over the holiday weekend, today's rebound was impressive, nonetheless. Growth stock leaders traded well throughout the day. I still believe a full test of the recent lows is an increasing possibility over the coming weeks unless the rapidly deteriorating situation in Europe improves materially. I expect US stocks to trade mixed-to-higher into the close from current levels on technical buying, short-covering, falling food/energy prices, bargain-hunting and better US economic data.

Today's Headlines

Bloomberg:

• Greek Yields, CDS at Records on Debt Concern; Italy Notes Slide. Greece’s two- and 10-year yields rose to records on speculation the nation’s deepening recession may make a second international bailout agreement redundant even before it’s implemented. German two- and 10-year yields dropped to all-time lows as equities fell. The yield difference, or spread, between Greek 10-year bonds and German bunds widened to the most since at least 1998, and the cost of insuring against default on Greek sovereign debt surged to a record. Italian two-year yields rose to the highest level in a month as workers held a general strike. Spanish 10-year bonds rose for the time in eight days as the European Central Bank bought the nation’s debt. “The consensus seems to be that the second bailout package for Greece might be obsolete before it has been put into law, which is obviously detrimental for sentiment,” said Michael Leister, a fixed-income strategist at WestLB AG in London. “The ECB is having a hard time stabilizing these markets. The pressure is rising.” Greece’s 10-year yield climbed 50 basis points to 19.81 percent at 4:51 p.m. in London. The 6.25 percent security due June 2020, fell 1.155, or 11.55 euros per 1,000-euro ($1,400) face amount, to 45.47. Two-year note yields added 283 basis points, or 2.83 percentage points, to 53.20 percent. The yield spread between Greek 10-year securities and similar-maturity German bunds widened as much as 50 basis points to a euro-era record 1,796 basis points. Credit-default swaps on Greece climbed 109 basis points to 2,659, according to CMA. German Chancellor Angela Merkel told members of her Christian Democrat party that Greece will not receive aid payments due this month unless it meets conditions of the rescue, two party officials said. Greece’s economic woes, wavering commitment to budget cuts in Italy and mounting borrowing costs for European banks underscore investor concern that efforts by euro-area officials to contain the debt crisis are unraveling. Portuguese two-year notes fell for a third day, pushing the yield on the securities up 77 basis points to 14.48 percent, after touching 14.62 percent, the highest level since Aug. 4. The nation’s 10-year bond yield reached 10.87 percent, the most since Aug. 30. The yield difference between Belgian 10-year bonds and similar-maturity German bunds widened as much as eight basis points to 233 basis points. That’s the widest since the euro’s debut in 1999, according to data compiled by Bloomberg.
• Schaeuble Urges Curbs on European Debt to Soothe Global Market 'Anxiety'. German Finance Minister Wolfgang Schaeuble called on euro-area governments to fully implement curbs on debt, saying that only fiscal “solidity” will help tame financial-market turmoil. Schaeuble’s comments to lawmakers in Berlin today seek to raise the pressure on euro-area states to follow Germany and clamp down on debt to tackle the core cause of the sovereign crisis that is rocking markets worldwide. Financial markets are in “a state of anxiety,” requiring “a new mentality” rather than short-term stimulus, he said. “Markets are not the problem, excesses are,” Schaeuble said in parliament’s first session after the summer recess, as he opened a debate on the 2012 budget. The constitutionally mandated debt ceiling enacted by Germany and now being emulated by France and Spain is “of fundamental importance,” he said. Only “financial-policy solidity will win the confidence of markets.”
• Berlusconi Cabinet Will Call for Confidence Vote on Revised Austerity Plan. Italian Prime Minister Silvio Berlusconi called a Cabinet meeting today to authorize a confidence vote in Parliament on an amended 45.5 billion-euro ($64.5 billion) austerity plan that prompted a general strike. The meeting at 6 p.m. in Rome will pave the way for a vote on the measures, which will include raising the value-added tax rate by one percentage point to 21 percent, a 3 percent levy on incomes of more than 500,000 euros a year as well as an increase in the retirement age of women in the private sector starting in 2014, Berlusconi’s office said in an e-mailed statement.
• The cost of insuring against default on European bank bonds rose to a record as the region's debt crisis roils credit markets. The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers increased 7 basis points to 277, according to JPMorgan Chase at 4 pm in London. The subordinated index was up 6.5 basis points at 487.5 basis points. Credit-default swaps on Madrid-based Banco Popular Espanol SA increased 48 basis points to 847, according to CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 4 basis points to a record 330. The Markit iTraxx Crossover Index of credit-default swaps on 40 companies with mostly high-yield credit ratings increased 15.5 basis points to 771, the highest level since July 2009, according to JPMorgan. The Markit iTraxx Europe Index of 125 companies with investment grade ratings climbed 5 basis points to 188.5.
• U.S. ISM Services Index Increased in August. Service industries unexpectedly expanded at a faster pace in August, easing concern the biggest part of the U.S. economy was slumping. The Institute for Supply Management’s index of non- manufacturing businesses increased to 53.3 last month from 52.7 in July. Economists forecast the gauge would drop to 51, according to the median estimate in a Bloomberg News survey. The index of new orders in the services industry increased to 52.8 from 51.7 the prior month. A gauge of business activity fell to 55.6 from 56.1 in July. The measure of prices paid increased to 64.2 from 56.6. The group’s employment index declined to 51.6, the lowest since September 2010, from 52.5 a month earlier.
• German Factory Orders Decline More Than Forecast on Exports. Factory orders in Germany, Europe’s largest economy, fell more than economists forecast in July, led by a drop in export demand as the global economy cooled. Orders, adjusted for seasonal swings and inflation, dropped 2.8 percent from June, when they rose 1.8 percent, the Economy Ministry in Berlin said in a statement today. The decline, the first in four months, exceeded economists’ forecast of 1.5 percent, according to the median of 37 estimates in a Bloomberg News survey.
• Commodities Drop to One-Week Low on Deepening European Debt-Crisis Concern. Commodities fell to the lowest level in more than a week on deepening concern the European sovereign debt crisis may further slow global economic growth, damping demand for raw materials. Gold fell from a record in London after the Swiss central bank set a minimum exchange rate. The Standard & Poor’s GSCI Index dropped as much as 2.1 percent to 647.88, the lowest intraday level since Aug. 26, and was down 2 percent at 648.46 by 1:58 p.m. in London. Crude oil fell as much as 3.8 percent in New York.
• Zoellick Says World in 'Dangerous' Period as Europe Turmoil Adds to Risks. World Bank President Robert Zoellick indicated that risks to the global economy are intensifying, with the euro region’s outlook dependent on European leaders making the right decisions. “We are moving into a dangerous period,” Zoellick said in an interview with Bloomberg Television in Singapore today. While the U.S. is likely to avoid a return to recession, escaping with slow growth, the euro zone is facing a “particularly sensitive time,” he said.
• Fund Managers Bullish on Stocks in Q3: HSBC. Global fund managers are bullish on stocks for the third quarter, as the turmoil in financial markets offers investors “attractive buying opportunities,” according to a HSBC Holdings Plc (5) survey. A survey of 12 investment companies overseeing $4.4 trillion in funds showed 63 percent are holding “overweight” positions on equities this quarter, up from 44 percent in the previous three months, HSBC said in a statement today. Some 57 percent of fund managers are “underweight” bonds in the third quarter, compared with 38 percent in the previous period.
• U.S. Employment Index Drops for Fourth Time in Five Months. A measure of job prospects in the U.S. fell in August for a fourth time in five months, reflecting declines in consumer confidence and job openings that indicate payrolls may fail to pick up in the final months of the year. The Conference Board’s Employment Trends Index decreased 0.3 percent to 100.8 from the prior month’s revised reading of 101.0, the New York-based private research group said today.
• Fed's Kocherlakota: Economy Does Not Need More Easing. Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said the U.S. economy didn’t need additional stimulus in August and probably won’t require more easing this month. “The data in August did not justify the additional accommodation provided” by the central bank on Aug. 9, Kocherlakota said today in the text of a speech in Minneapolis. “It is unlikely that the data in September will warrant adding still more accommodation.”
• Brazil Inflation Accelerated to Fastest Since 2005 Ahead of Shock Rate Cut. Brazil’s inflation accelerated for the 12th straight month in August to its fastest annual rate since 2005, reinforcing economist views that the central bank may have cut borrowing costs prematurely. Consumer prices, as measured by the IPCA index, rose 0.37 percent in August from the previous month, the national statistics agency said today. That was in line with analyst expectations for a 0.36 percent increase, according to the median estimate of 40 analysts surveyed by Bloomberg. Prices rose 7.23 percent from a year ago, the highest since June 2005. “Inflation is worrying, mostly in the long run with elevated service prices growth,” Mauricio Rosal, chief economist at Raymond James in Sao Paulo, said in a telephone interview. “It will be harder for the central bank to bring inflation down to its target because it’s at such a high rate.”

Wall Street Journal:

• Turkey Suspends Defense Trade With Israel. Turkey's Prime Minister Recep Tayyip Erdogan said Tuesday that his country was suspending defense trade with Israel completely and that Turkish naval vessels would be seen in the Eastern Mediterranean more often, as Ankara ratcheted up pressure in a rising dispute with its former ally.
• Slovak Official's Delay of Rescue Fund Vote Poses Problem for Euro Zone. Slovakia's Parliament Speaker Says He Will Push Back Vote to Widen Role of Fund. Slovak lawmakers will reconvene here Tuesday after their summer break, but a critical piece of legislation will be conspicuously absent from the agenda: A bill to widen the role of a euro-zone rescue fund. Parliament Speaker Richard Sulik said he will do everything he can to delay a vote on the measure—passage of which is necessary for the common currency bloc to move ahead with plans to strengthen the financial safety net for the euro's weakest members. As speaker, Mr. Sulik has significant power in setting Parliament's legislative agenda. "It's not possible to solve a debt crisis by creating new debts," Mr. Sulik said in an interview Friday, in which he made clear his opposition to any expansion of the European Financial Stability Facility. He pledged to postpone a final vote on the measure until at least the end of the year. The delay is one of a growing list of potential disruptions that is vexing European policy makers and unsettling markets, which are anxious about precarious state finances in Greece and Italy and are questioning the political resolve of euro-zone governments.
• Debt Anger Imperils GOP, Democrats Alike. As dark as the political picture is for President Barack Obama right now, Republicans aren't exactly basking in a healthy glow either, suggesting that some wild and unpredictable political forces have been unleashed across the land.
  

CNBC.com:

• Poll: Do You Approve of Obama's Handling of the Economy?
• US Risking Recession With Attack on Big Banks: Bove. Speaking just days after the Federal Housing Finance Agency sued 17 banks over mortgage-related practices during the collapse of the subprime lending industry, Bove told CNBC that Washington is acting without concern over what effect its actions against banks are having.
• More Bad News on Jobs: Stores Trim Holiday Hiring. Although the vast majority of retailers — some 68 percent — plan on keeping holiday hiring at roughly the same level as last year, a quarter expect to trim hiring plans for seasonal workers, according to an annual hiring survey conducted by the Hay Group, a global management consultancy. That’s a greater number than last year, when 17 percent of the retailers Hay surveyed said they would scale back hiring.

Business Insider:

• The 15 Stocks That Everyone is Shorting Right Now.
• A Few Reasons Why Switzerland's All-In Bet Will Fail. I have repeatedly said in these pages that for currency intervention to be successful it has to be done in conjunction with other big central banks. The Go it Alone policy has not worked over the past 20 years.
• A Bunch of Hedge Funds Just Got Burned By The Swiss Bank Intervention. This morning the Swiss Bank intervened, sending the Swissie down. The bank will buy an unspecified amount of Francs until the exchange rate with the Euro hits 1.20 francs. This morning's press release read, "With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20." The move will catch a lot of hedge funds, which had flocked to the Swiss Franc as a safe haven. Bridgewater might be one of them. Word was that Bridgewater was invested in gold, Treasuries, and the Swiss Franc as recently as a few weeks ago.
• Jeremy Siegel: Stocks Are Cheap! (And Getting Cheaper)
• Botched U.S. Gun Smuggling Operation Let Grenades, IEDs 'Walk' Into Mexico.
• Chris Whalen: Bank of America(BAC) Should Declare Bankruptcy. Bank of America has over $100 billion in mortgage liabilities, says Chris Whalen Co-founder of Institutional Risk Analytics.

Zero Hedge:

• Italy Announces Austerity Plan 2.0 as Local Protests Spread, Turn Violent.

NY Post:

• 46 Shot in Brooklyn Since Saturday Morning. Gunfire erupted today near the massive West Indian Day Parade in Brooklyn -- not far from where Mayor Bloomberg was marching -- as the entire city reeled from a epidemic of shootings over the past two days. By noon today, a total of 46 people had been shot in the city since Saturday morning, authorities said.

New York Time:

• Hacking in the Netherlands Took Aim at Internet Giants. Attackers who hacked into a Dutch Web security firm have issued hundreds of fraudulent security certificates for intelligence agency Web sites, including the C.I.A., as well as for Internet giants like Google, Microsoft and Twitter, the Dutch government said on Monday. Experts say they suspect the hacker — or hackers — operated with the cooperation of the Iranian government, perhaps in attempts to spy on dissidents. The latest versions of browsers including Microsoft’s Internet Explorer, Google’s Chrome and Mozilla’s Firefox are now rejecting certificates issued by the firm that was hacked, DigiNotar.

Washington Post:

• Obama Ratings Sink to New Lows as Hope Fades. Public pessimism about the direction of the country has jumped to its highest level in nearly three years, erasing the sense of hope that followed President Obama’s inauguration and pushing his approval ratings to a record low, according to a new Washington Post-ABC News poll. More than 60 percent of those surveyed say they disapprove of the way the president is handling the economy and, what has become issue No. 1, the stagnant jobs situation. Just 43 percent now approve of the job he is doing overall, a new career low; 53 percent disapprove, a new high.
• U.S. Postal Service May Lose $8 Billion More. The postmaster general is going to Congress to discuss the Postal Service’s mounting debt. Postmaster General Patrick Donahoe is among the witnesses scheduled to appear Tuesday before the Senate Homeland Security and Governmental Affairs Committee. The Postal Service is facing a second straight year of losses of $8 billion or more. A decline in mail because of the Internet and the loss of revenue from advertising amid the economic downturn have taken a toll on the agency. Postal officials say they will be unable to make this month’s $5.5 billion payment to cover future employee health care costs because the agency will have reached its borrowing limit and doesn’t have enough cash.

Insider Monkey:

• Jeff Vinik and Vinik Asset Management's Top Stock Picks.

9To5Mac:

• GameStop(GME) to Carry iOS Devices Soon. We’ve received a word from several sources that GameStop will soon begin offering the entire lineup of Apple’s(AAPL) popular iOS mobile devices such as iPhones, iPods and iPads at their stores. The announcement was made to dealers at an annual trade show in Las Vegas this past week. Also, as of this week, GameStop began accepting iOS device trade-ins for in-store credits.

Reuters:

• 25 German MPs Rebel in Preliminary EFSF Votes. Twenty-five lawmakers from Germany's ruling coalition refused to back a draft law that would boost the powers of the euro zone's rescue mechanism in votes late on Monday, underscoring the risk that Chancellor Angela Merkel might fail to secure a conservative majority for the measure. In a vote taken by members of Merkel's conservative bloc of Christian Democratic Union (CDU) and Christian Social Union (CSU), 12 members of parliament voted against introducing the law into parliament and seven others abstained, party sources told Reuters. In a separate vote by lawmakers from the Free Democrats (FDP), two voted against the measure to boost the European Financial Stability Facility (EFSF) and four abstained. Germany's Bundestag lower house of parliament is due to vote on new powers for the EFSF on Sept. 29. Although a majority in the broader house is a foregone conclusion due to opposition support for the legislation, Merkel would face pressure to dissolve parliament and call new elections if she was unable to secure a majority with conservative allies alone. Her coalition has 330 seats in the 620-seat Bundestag, meaning she can afford 19 dissident votes.
• Alden Global Hedge Fund Down 13% in August - Letter. U.S.-based hedge fund manager Alden Global Capital saw its Distressed Master fund fall 13 percent in August, as tumbling global markets played havoc with hedge funds' returns. New York-based Alden, which runs approximately $3 to $4 billion in assets, also saw its Value Recovery fund lose 13.9 percent, according to an investor letter obtained by Reuters.
• Eurozone Worries Raise Dollar Funding Costs.
• Italy to Hike VAT as Strikers Protest Austerity. Italy's government pledged on Tuesday to hike value added tax and introduce a constitutional balanced budget amendment as hundreds of thousands of people went on strike against an already widely criticised plan.
  
• Global Private Sector Growth Weakest in 2 Years - PMI. The global private sector grew at its weakest pace since August 2009 last month as a subdued service sector added to feeble growth amongst manufacturers, a business survey showed on Tuesday. JPMorgan's Global All-Industry Output index, which is based on the results of purchasing managers surveys of thousands of companies worldwide, nudged down to 51.5 in August from July's 52.5.

Telegraph:

• Cost of Insuring RBS, Lloyds Against Default at New High. (graph) Credit default swaps, effectively insurance on a borrower becoming unable to payback their debt, written on state-backed lenders Royal Bank of Scotland and Lloyds Banking Group yesterday hit new highs. At yesterday’s close, RBS credit default swaps were quoted at 355 basis points, up 37.9 basis points on their Friday close. Lloyds TSB credit default swaps hit a new high of 340 basis points, up 33.4 basis points on last Friday. The cost of insuring the junior debt of the two banks also soared to new highs of 653 basis points for Lloyds and 705 basis points for subordinated bonds issued by RBS. HSBC and Standard Chartered saw their credit default swaps widen to new 12-months highs, while Barclays saw its trade just below the 12-month high it reached late last month.
• Debt Crisis: Live. UN: Eurozone Austerity Could Lead to 'Lost Decades'.
  

ynetnews.com:

• IDF General: Likelihood of Regional War. Senior IDF officer warns of 'radical Islamic winter' that may lead to regional war, could prompt use of WMDs; new, more lethal weapons discovered in hands of terrorists during latest round of fighting in Gaza, Major General Eisenberg says. "It looks like the Arab Spring, but it can also be a radical Islamic winter," he said in a speech at the Institute for National Security Studies in Tel Aviv. "This leads us to the conclusion that through a long-term process, the likelihood of an all-out war is increasingly growing," the IDF general said.

Bear Radar

Style Underperformer:

• Large-Cap Value (-1.51%)

Sector Underperformers:

• 1) Steel -2.71% 2) Coal -2.52% 3) Networking -2.35%

Stocks Falling on Unusual Volume:

• UBS, ABB, PHG, DB, MBT, TSU, CEO, ECA, TOT, HRBN, KNXA, WPPGY, INFA, SSRI, PNFP, CIEN, PWRD, STMP, FNSR, CBSH, BOOM, HUBG, ICFI, VRA, AIMC, MIDD, VLCCF, UEIC, FSLR, IXG, EWO, EWP, CCH, VCO, BKE, CS, INFA and KNXA
  

Stocks With Unusual Put Option Activity:

• 1) FXY 2) FXF 3) HRBN 4) EGO 5) NTES
  

Stocks With Most Negative News Mentions:

• 1) KLAC 2) HOG 3) BBY 4) LDK 5) WHR
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Small-Cap Value (-1.21%)

Sector Outperformers:

• 1) Education +.49% 2) Gold & Silver -.31% 3) Biotech -.60%

Stocks Rising on Unusual Volume:

• LQDT, IP, RKT, TIN, TLK, SUN, GOLD, VRUS, RGLD, REGN and SODA
  

Stocks With Unusual Call Option Activity:

• 1) ATML 2) MSI 3) XRA 4) EGO 5) SSRI
  

Stocks With Most Positive News Mentions:

• 1) AOL 2) S 3) SYK 4) LMT 5) GLD
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Tuesday Watch

Weekend Headlines
Bloomberg:

• Merkel's Euro Debt Crisis Gambit Ends in Election Defeat in Her Home State. German Chancellor Angela Merkel’s party suffered its fifth election loss this year after she failed to sway voters in her home state with a campaign based on her handling of the euro-area debt crisis. The Social Democrats, the main opposition party nationally, took 35.7 percent to win yesterday’s election in Mecklenburg- Western Pomerania, preliminary results show. Merkel’s Christian Democratic Union had 23.1 percent, its worst tally since voting began in the state in 1990 after reunification that year between West Germany and the former communist East Germany. The result in the eastern state where Merkel’s election district is located means her national coalition has been defeated or lost votes in all six German state elections so far this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts. “Merkel’s problem is that she fails to generate confidence in her policies and those of her coalition partner,” Gero Neugebauer, a political science professor at the Free University in Berlin, said by phone. “It’s about the consistency of her statements” on bailouts for indebted euro countries.
• Euro Falls as Merkel Election Defeat, Stock Losses Boost Haven Currencies. The euro weakened for a fifth day versus the dollar after an election loss for Germany’s ruling party stoked concern support is fading for bailouts of Europe’s most-indebted nations, boosting demand for refuge currencies. The Swiss franc rose against all major peers as Greek two- year note yields surged above 50 percent and the cost of insuring Europe’s government bonds from default rose to records. The Dollar Index climbed to a one-month high as economists said U.S. data tomorrow will show service industries slowed, adding to signs global growth is weakening. The yen gained versus the euro after German Chancellor Angela Merkel’s Christian Democratic Union was defeated in the election in her home state. “Another state that Merkel’s CDU has failed to secure in the vote, that’s six now in total, has spurred some euro selling,” said Lauren Rosborough, a senior strategist at Westpac Banking Corp. on London. “We’ve got risk aversion across the board with dollar buying, Swiss buying, gold a little bit stronger and the euro has been sold off.” The Stoxx Europe 600 Index of shares slumped for a second day, losing 4.1 percent, and gold for immediate delivery rose to as much as $1,903 an ounce. The Social Democrats, Germany’s main opposition party, won yesterday’s election in Mecklenburg-Western Pomerania with 36.1 percent of the vote, while Merkel’s party had 23.3 percent, ZDF television projections showed. The result in the eastern state, where Merkel’s election district is located, means her national coalition has been defeated or lost votes in all six German state elections this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts. “Positioning has turned against the euro again and news flow isn’t helping,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London, wrote in an e- mailed note. Merkel’s defeat “simply adds to the sense that saving the euro is going to be made more difficult by opposition from within Germany.”
• Merkel Said to Tell CDU Members That Greece Must Meet Conditions for Aid. German Chancellor Angela Merkel told members of her Christian Democrats that Greece will not receive aid payments due this month unless it meets conditions of the rescue, two party officials said. The remarks, made at a meeting of ruling party lawmakers in Berlin late yesterday, were repeated by Finance Minister Wolfgang Schaeuble and reiterate existing policy, one of the officials said, speaking on condition of anonymity because the talks were in private. “It was very clear that we expect Greece to meet its obligations, that there can’t be more aid without adequate behavior by Greece,” Peter Altmaier, the chief whip for Merkel’s Christian Democratic Union, told reporters after the talks. “But it was also very clear that we stand by our commitments within the euro stabilization and that we’re ready to maintain and defend the euro as our common currency.” Merkel’s coalition is trying to appease voter anger at government moves to prevent a euro-region breakup by putting more taxpayers’ money on the line. The coalition will introduce a bill in parliament today raising Germany’s share of loan guarantees to 211 billion euros ($297 billion) from 123 billion euros -- two days after Merkel’s CDU suffered its worst-ever result in an election in her home state.
  
• Tremonti Rushes to Rome for Austerity Talks as Bonds Plunge. Finance Minister Giulio Tremonti canceled a public appearance in northern Italy to rush to Rome for budget talks as bonds plunged amid concern the government may backslide on its latest austerity package. “The minister received a request to head to Rome immediately to go to the Senate, just as he was coming to Piacenza,” Stefano Rodota, moderator of the conference where Tremonti had been scheduled to speak, announced at the event, which was broadcast live on the Internet. The Senate will begin a debate tomorrow on Prime Minister Silvio Berlusconi’s 45.5 billion-euro ($64 billion) austerity package just as CGIL, the nation’s biggest union, holds a strike across Italy against the measures. “The austerity plan runs the risk of becoming a farce and this weighs on those banks holding lots of government bonds,” Gianmaria Bergantino, a fund manager at Bank Insinger de Beaufort in Rome, said by phone. “As the government doesn’t seem to be responding to the ECB’s requests, investors are starting to price in a further budget adjustment within a month.” The price of the nation’s 10-year bond fell for an 11th day, pushing the yield to 5.57 percent, the highest in more than four weeks. Milan’s stock benchmark FTSE MIB Index closed down 4.8 percent, with UniCredit SpA and Intesa Sanpaolo SpA, Italy’s biggest banks, dropping 7.3 and 7 percent, respectively.
• Bank, Sovereign Bond Risk Surge to Records as European Debt Crisis Deepens. The cost of insuring against default on European sovereign and financial debt surged to records on concern the region’s debt crisis is worsening. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose 18 basis points to 328 at 5 p.m. in London. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers soared 24 basis points to 270, according to JPMorgan Chase & Co. Both gauges are at all- time highs based on closing prices. An election loss for German Chancellor Angela Merkel’s party and reports of a rift between Greece and the International Monetary Fund fueled concern that support for bailing out indebted nations is waning. A senior IMF economist forecast a “hard default” for Greece by March, the Wall Street Journal said, as officials suspended a budget review and Italy backtracked on its austerity pledges. Credit-default swaps on Greece soared 182 basis points to 2,532, according to CMA. Contracts on Italy jumped 44 basis points to a record 446.5, Portugal climbed 46 to 1,026 and Spain rose 28 to 420, while Germany increased 5 to 84 and France was up 14.5 at an all-time high of 186. The yield on 10-year Italian bonds has risen for 11 days, the longest streak since the euro’s 1999 debut. It’s now at 5.55 percent, less than a percentage point away from its level before the ECB started buying the country’s notes on Aug. 8. A U.S. lawsuit over the sale of mortgage-backed securities also undermined confidence in European lenders. Markit Group Ltd’s subordinated financial index jumped 39 basis points to 481, JPMorgan prices show. Default swaps on HSBC Bank Plc increased 10 basis points to 125 and Barclays Plc rose 22 basis points to 252, after both lenders were named in the suit. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 61.5 basis points to 755.5, the highest since July 2009. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 13.25 basis points to 183.25 basis points, the highest since March 2009.
• Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show. The cost of insuring against default on European corporate debt rose, according to traders of credit- default swaps. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 26 basis points to 720, according to Markit Group Ltd. at 7:30 a.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up six at 171 basis points.
  
• Greece's stance in the debt crisis roiling the country "is a provocation," said Rainer Bruederle, parliamentary leader of Germany's Free Democrats, the junior party in Chancellor Angela Merkel's coalition. "You can't just fail to meet your obligations," Bruederle told reporters. Halting Greece's second bailout is "a conceivable reaction" by other euro-area governments, he said.
• Hermann Otto Solms, the deputy floor leader and finance spokesman of Germany's Free Democratic Party, said European governments should halt financial aid to Greece if the country falls behind on austerity goals. "Greece must keep to the conditions or it just won't get the money," the lawmaker told reporters in Berlin today. That would have to be a "common decision" by euro-area governments, he said.
  
• Ackermann Says Market Reminiscent of 2008. Deutsche Bank AG (DBK) Chief Executive Officer Josef Ackermann said conditions in the stock and bond markets are reminiscent of the financial crisis of late 2008. “The ‘new normal’ is characterized by volatility and uncertainty -- not only in respect to market developments, but also in consideration of the future of the financial branch,” Ackermann said today at a conference in Frankfurt organized by Euroforum. “All this reminds one of the fall of 2008, even though the European banking sector is significantly better capitalized and less dependent on short-term liquidity.” The Bloomberg Europe Banks and Financial Services Index of 46 stocks dropped as much as 5.3 percent today, and tumbled 32 percent this year. Deutsche Bank fell 8 percent, the biggest decline in more than two years, by 2:05 p.m. in Frankfurt trading. Many European banks “obviously” wouldn’t be able to shoulder writedowns on sovereign debt held in their banking books based on market values, Ackermann said today. Therefore European governments agreed to financial aid measures for countries, and forcing banks to boost their capital would undermine the credibility of existing support measures, he said. Banks face “a row of challenges” and containing costs is increasingly important when it is hard to boost revenue, Ackermann said. Deutsche Bank would consider additional cost reductions if markets don’t improve from August levels and if the outlook for the investment-banking division remains difficult in the long term, he said. DZ Bank AG Chief Executive Officer Wolfgang Kirsch, speaking at the same conference, said European politicians need to agree on a solution for the sovereign debt crisis to avoid a repeat of the events of 2008. “Otherwise we will enter a very difficult market situation,” Kirsch said.
• ECB Asked Spain to Cut Deficit, Change Labor Rules, Mundo Says. European Central Bank President Jean-Claude Trichet wrote to the Spanish government asking it to tackle the budget deficit and cut unemployment, El Mundo said. As part of the ECB’s plan to buy Spanish bonds on the secondary market, Trichet asked the government to take steps to prevent the budget deficit overshooting its target of 6 percent of gross domestic product this year, El Mundo reported, without saying where it got the information. He also urged the administration to carry out another overhaul of wage bargaining rules to allow for a deeper correction in Spanish salaries and to make hiring rules more flexible, the newspaper said.
  
• Solyndra Says It Did Not Have to Warn Its Workers. The abrupt collapse of solar company Solyndra on Wednesday came without warning - and without WARN, a state and federal law requiring advance notice of a large layoff or shutdown. But the Fremont company most likely was exempt from notifying its 900 full-time and 200 contract workers ahead of time under a loophole in the law, officially known as the Worker Adjustment and Retraining Act. "Because we were actively seeking funding and hoping to avoid this up until the last minute, we didn't file WARN until we knew (that shutdown was inevitable), which was pretty much simultaneous to the announcement," said Dave Miller, a Solyndra spokesman.
• Swaps on Treasuries Reach Record Low Against Bunds in S&P Denial. U.S. debt rated AA+ is beating AAA German bunds as investors seek the safety of the world’s biggest bond market amid slowing growth and Europe’s financial crisis. Traders are paying $73,840 a year to protect $10 million of Treasuries against default, less than during the height of the financial crisis in 2008 and below the $78,670 for higher-rated German bunds, according to CMA. The difference between prices of the credit-default swaps reached a record $17,370 on Aug. 29, even after Standard & Poor’s cut America’s credit rating. Investors have determined Germany, the largest European economy, is riskier because of rising costs to bail out Greece, Portugal and Ireland.
• Global Investors Should Brace 'For More Pain' on China Policy, CICC Says. Global investors should brace “for more pain” as manufacturing growth slumps and prospects that Chinese monetary policies will loosen have faded, said China International Capital Corp., Asia’s biggest investment bank. China’s August manufacturing data was one of the lowest since the end of the global financial crisis, while factory output in South Korea, Taiwan, France, Italy, the UK and Sweden all dropped below expansion levels, Hao Hong, a Beijing-based global strategist at CICC, wrote in a report. CICC and Shenyin & Wanguo Securities Co. cut their earnings forecasts for publicly traded companies this year on speculation the central bank may not halt measures to curb credit growth and tame inflation. “Our view has been that rebounds are likely to be fleeting and feeble unless fundamentals start to improve,” Hong said. “For now, we should brace ourselves for more pain.” CICC is the top-ranked China research provider in Asiamoney magazine’s survey while Shenyin & Wanguo was ranked the country’s most influential brokerage for research by New Fortune magazine last year.
• China Ties Suffer if Arms Sales Confirmed: Libya. Libya’s relations with China will suffer if there is confirmation of a report that Chinese state companies offered to sell Muammar Qaddafi $200 million worth of arms during the rebellion, the North African nation’s new leaders said. “If indeed the Chinese government agreed to sell arms to Qaddafi only a month ago, definitely it will affect our relationship with China,” the National Transitional Council’s finance minister, Ali Al Tarhouni, told Al Jazeera television yesterday. The outcome would be “not favorable,” he said. Tarhouni was speaking in response to a story by Toronto’s Globe and Mail newspaper, whose reporter in Tripoli said he found Qaddafi-government documents suggesting Chinese companies offered to sell to surface-to-air missiles designed to bring down aircraft, in addition to other weapons and munitions. The Arabic-language documents, copies of which were posted on the newspaper’s website on Sept. 4, include details of a trip to Beijing by Libyan security officials to discuss the possible purchase of weapons on July 16, when Libya was six months into the conflict and under a United Nations arms embargo.
• Crude Oil Extends Drop on Signs of Slowing U.S. Economy, Rising Stockpiles. Oil extended declines in New York as investors speculated that signs of a weakening U.S. economy and increasing crude stockpiles indicate fuel demand will falter in the world’s biggest consumer of the commodity. Futures slid as much as 3.8 percent before a report today that may show service industries grew at the slowest pace in more than a year. Crude supplies at Cushing, Oklahoma, the delivery point for West Texas Intermediate oil, rose 2.4 percent on Sept. 1 from Aug. 31, according to DigitalGlobe Inc. London- traded Brent widened its premium to U.S. prices.
• Gold Trades Within .6% of Record as Debt Concern Boosts Haven Demand. Gold may advance toward a record on speculation Europe’s debt crisis will worsen, damping economic growth and driving investors to protect their wealth. Gold for immediate delivery was little changed at $1,899.70 an ounce as of 10:03 a.m. Singapore time. The metal touched $1,903.48 earlier, within 0.6 percent of the all-time high of $1,913.50 reached Aug. 23. Futures for December delivery in New York were at $1,902.20, up 1.4 percent from their close on Sept. 2.
• BofA(BAC), JPMorgan(JPM) Among 17 Banks Sued by U.S. for $196 Billion. Bank of America Corp. and JPMorgan Chase & Co. (JPM) were among 17 banks sued by the U.S. to recoup $196 billion spent on mortgage-backed securities bought by Fannie Mae and Freddie Mac. The Federal Housing Finance Agency, on behalf of Fannie Mae and Freddie Mac, filed 17 lawsuits yesterday in New York state and federal courts and in federal court in Connecticut. The FHFA accuses the banks of misleading Fannie Mae and Freddie Mac about the soundness of the mortgages underlying the securities. “The loans had different and more risky characteristics than the descriptions contained in the marketing and sales materials provided to the enterprises for those securities,” the FHFA said in a statement.
• RBS Leads Europe Banks Lower on U.S. Mortgage Suit, Liquidity Speculation. Royal Bank of Scotland Group Plc (RBS) led European banks lower, dropping the most in more than two years after 17 lenders were sued by the U.S. over the sale of mortgage-backed securities and on investor concern over interbank lending. RBS, Britain’s biggest government-owned lender, fell 12 percent to 21.78 pence in London, the sharpest decline since May 2009. Other European lenders also fell including Barclays Plc (BARC), down 6.7 percent to 154.15 pence and Deutsche Bank AG (DBK) retreated 7.5 percent to 23.82 euros.
• Solarworld in Renewable Energy 'War' With China, Closing California Factory. Solarworld AG (SWV), Germany’s largest module maker, plans to close a factory to cut costs and compete against Chinese manufacturers that its chief executive officer says are subsidized by the state. Solarworld will shutter a California manufacturing plant and some production lines in Germany, the Bonn-based company said yesterday in a statement. The move was needed to increase efficiency and reduce costs as Chinese rivals have helped drive down the price of solar cells by 42 percent this year, CEO Frank Asbeck said.
• US Taxpayers Rank Behind Solyndra Investors. The Obama administration let $385 million in taxpayer support for Solyndra Inc. take a back seat to funds from new investors in an unsuccessful effort to keep the solar-panel manufacturer operating. The Energy Department decided the January refinancing represented the “highest probable net benefit” for the government, according to a government document obtained by Bloomberg News. Investors provided the company $75 million that became senior debt, ahead of all but $150 million of the federal government’s stake. Solyndra said on Aug. 31 that it will file for bankruptcy reorganization next week in Wilmington, Delaware. The administration’s agreement to subordinate the government aid to new investment may add fuel to criticism by Republicans who have said President Barack Obama spent too much money pushing a favored company in the name of green energy.
• California Employment at Record Low 55.4% as Fewer Women Find Jobs. The percentage of working-age Californians with jobs has fallen to a record low, and employment may not return to pre-recession levels until the second half of the decade, according to a research group. Just 55.4 percent of working-age Californians, defined as those 16 or older, had a job in July, down from 56.2 percent a year earlier and the lowest level since 1976, the Sacramento- based California Budget Project said in a report released late yesterday. California’s 12 percent unemployment rate in July, the nation’s second-highest after Nevada, compared with 9.1 percent nationwide.
• Funds Increase Bullish Agriculture Bets on 'Explosive' Supply Constraints. Funds increased bullish bets on agricultural commodities by the most in more than a year on signs of tightening supplies amid adverse weather conditions. In the week ended Aug. 30, speculators raised their net- long positions in 11 commodities by 18 percent to 915,341 futures and options contracts, government data compiled by Bloomberg show. That was the biggest gain since Aug. 3, 2010. Holdings in wheat more than tripled, bullish corn bets reached an 11-week high, and soybean positions jumped to the highest since November 2010. Corn prices have jumped 70 percent in the past year and soybeans have gained 43 percent.
• Leveraged Buyout Loans in Europe Lose Most Since Greek Bailout. Leveraged loans in Europe posted their biggest loss since Greece was first bailed out as the region’s slowing economy spurred selling of riskier assets. Loans used to fund leveraged buyouts ended August down 3.1 percent from the end of July, at an average of 88.3 percent of face value. That’s the biggest monthly drop since May 2010, when Greece got the first of two bailout packages for 110 billion euros ($155 billion) and loans dropped 3.8 percent, according to data compiled by Markit Group Ltd.
• CEOs Cutting Estimates Fall 38% With Cheapest S&P 500 Since '85. The number of chief executive officers cutting profit forecasts fell 38 percent below average last month, even as the slowing economy pushed valuations to the lowest level at the start of September since 1985. A total of 138 companies reduced earnings forecasts in August, compared with the average of 221 for the same month since 2000, according to data compiled by Bloomberg. At the same time, the Standard & Poor’s 500 Index slumped 5.7 percent, pushing its price-earnings ratio to 13.3, the data show. For bears, the lowest multiples since March 2009 show companies will capitulate and lower their estimates, causing the benchmark index for American equities to fall this month, historically the worst for U.S. stocks, according to Bloomberg data since 1928. Bulls say CEOs are the better gauge and that lower multiples, combined with expectations for 15 percent earnings growth this quarter, will make stocks irresistible.
• Carbon Cap Revival Led by Gillard Called Stupid by Xstrata. Julia Gillard, determined to join efforts to reduce global warming, intends to revive cap and trade as Europe puts curbs on the United Nations-run emissions credit market and the U.S. opts out entirely. The Australian prime minister’s plan to make factories and utilities either cut the nation’s greenhouse gases or pay for pollution-curbing programs abroad may force companies to buy an average 66 million metric tons of credits a year starting in 2015, sending prices up 29 percent, according to Bloomberg New Energy Finance. That’s about two-thirds of Europe’s annual demand since 2008. By pushing Australia into carbon trading, Gillard is seeking to satisfy Greens party members of her Labor-led coalition while breathing new life into a market that’s floundering elsewhere. The European Union is setting limits on UN credits to draw in less-developed nations. The U.S. rejected a federal cap-and-trade program for emissions last year.

Wall Street Journal:

• Europe Signals Global Gloom. International financial markets tumbled as a darkening global economic outlook and deepening fissures in Europe over its debt crisis fueled fears the world economy could slip into a period of prolonged malaise. The Stoxx Europe 600 index fell 4.1% Monday, with banks hard hit.
  
• U.S. Eyes Covert Plan to Counter Iran in Iraq. Military commanders and intelligence officers are pushing for greater authority to conduct covert operations to thwart Iranian influence in neighboring Iraq, according to U.S. officials. The move comes amid growing concern in the Obama administration about Iran's attempts in recent months to expand its influence in Iraq and the broader Middle East and what it says is Tehran's increased arms smuggling to its allies.
• A Battered Firm's Long Road Back. Keefe Bruyette Has Strong Revenue and a Wall Street Niche, but It Still Lives With the Painful Memories of Sept. 11.
• Immelt and GE(GE), 10 Years In. If Jeff Immelt could pick a period that captures his vision for General Electric Co., the fourth week in August might do: GE signed an electricity joint venture in China, the conglomerate's airplane jet-engine partnership won $2.2 billion in orders from a U.S. airline and the company at a ceremony in Brazil said it was extending its Olympics sponsorship. The part he might want to leave out: GE's stock ended that week in August down 15% from the start of the year and 61% lower than when he took over as chairman and chief executive.

CNBC:

• Don't Bet on a 'United States of Europe'.
• Europe's Banks Face Unsecured Bond Test.
• US Banks Offered Deal Over 'Robosigning' Lawsuits. Big U.S. banks in talks with state prosecutors to settle claims of improper mortgage practices have been offered a deal that is proposed to limit part of their legal liability in return for a multibillion dollar payment.

Business Insider:

• UBS Declares "The Euro Should Not Exist" In A Monster Report On The Odds Of An EU Breakup.
• Labor Leader On The Tea Party: "Let's Take These Sons of Bitches Out". (video) Teamsters President James Hoffa, Jr. provided a controversial — and profane — opening act for President Barack Obama in Detroit Sunday, telling a union crowd to "take these son of bitches out" while raving against the tea party and members of the GOP.
• New Chinese State Report Calls For Far Stricter Internet Regulation.
  

Zero Hedge:

• Open Europe Briefing On What The German Constitutional Court Ruling Will Mean For The Eurozone.
• The CEO of Europe's Most Troubled Bank, Dexia, Quits as Contagion Tsunami Sweeps Over Belgium.
  

NY Times:

• U.S. Is Appealing to Palestinians to Stall U.N. Vote. The Obama administration has initiated a last-ditch diplomatic campaign to avert a confrontation this month over a plan by Palestinians to seek recognition as a state at the United Nations, but it may already be too late, according to senior American officials and foreign diplomats.
• Postal Service Is Nearing Default as Losses Mount. The United States Postal Service has long lived on the financial edge, but it has never been as close to the precipice as it is today: the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances. “Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, said in an interview. “If Congress doesn’t act, we will default.” In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year.

NY Post:

• New Yorkers Moving to Charlotte for Charm, Lower Taxes. "The cost of living in New York is extremely high right now, while the cost of living in Charlotte is 93 percent -- 7 percent lower than national average -- where in New York City it is 140 percent, or 40 percent over the national average," Watkins said.

Forbes:

• Can Obama End "Carried Interest" by Regulation? - Experts Start Weighing In.

The Detroit News:

• UAW's Williams: Be Grateful for Auto Bailout. Speaking at the annual Labor Day march, Williams called on the president to forget about the debt ceiling and start putting Americans back to work. "We don't care about the debt," he said. "Spend it."

Institutional Investor:

• GAO Warns on Pension Investments in Alternatives.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 20% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -23 (see trends).

Reuters:

• China should continue to be on high alert against price increases, citing Ma Delun, a deputy governor of the People's Bank of China. Inflation may remain high in the near futures, Ma said.
• Former German Leader Calls for 'United States of Europe'. Former German chancellor Gerhard Schroeder on Sunday called for the creation of a "United States of Europe", saying the bloc needed a common government to avoid future economic crises. Schroeder, a Social Democrat who ran the country from 1998 to 2005, said in an interview with Der Spiegel that European Union leaders were wrong to expect the euro to drive the bloc on its own. "The current crisis makes it relentlessly clear that we cannot have a common currency zone without a common fiscal, economic and social policy," Schroeder said. He added: "We will have to give up national sovereignty." "From the European Commission, we should make a government which would be supervised by the European Parliament. And that means the United States of Europe."
• Pension Funds in New Crisis as Deficit Hole Grows. Pension funds in developed economies are facing a new crisis as falling equities and tumbling bond yields widen their deficits, threatening the incomes and retirement dates of future retirees. At the heart of their problems is a steady move by pension plans in the United States, euro zone, Japan and the UK to cut exposure to risk after the financial crisis. But this "de-risking" may end up depressing their long-term returns from stock market investment and challenge the conventional wisdom that shares generate higher returns than bonds. With weaker holdings and increased liabilities, companies will find it more difficult to fund existing pension schemes. They may cut new business investments as they use more cash to pay pensions. For future pensioners, it means they will potentially face a lower retirement income and a longer working life -- or both.

Financial Times:

• Fed 'Hawk' Says Stimulus Will Only Hit Inflation. Further monetary stimulus from the US Federal Reserve would raise inflation without doing much to lower unemployment, one of the central bank’s leading ‘hawks’ on monetary policy said in an interview with the Financial Times. “My sense is that more monetary stimulus at this point would likely show up almost entirely in higher inflation with very little constructive influence on growth,” said Jeffrey Lacker, president of the Richmond Fed.
• Hedge Funds Fail to Use Fitful Markets. Hedge funds found themselves once more in the firing line in August, with authorities pointing the finger of blame in their direction during periods of stress. But it should be investors who are venting their anger at the dismal performance of strategies supposed to benefit from volatile market conditions.

The Independent:

• Banks Suffer as Eurozone Crisis Triggers Fresh Market Slump. Growth worries and concerns about a US sub-prime lawsuit add to investor fears. Banks were at the centre of another Europe-wide stock market sell-off last night as concerns about global growth and the eurozone's debt woes came back to haunt investors. The reversal wiped £49bn off the value of London's blue chips, with the FTSE 100 sliding by 3.6 per cent to 5,102.58. The index was outdone by Germany's DAX, which fell by more than 5 per cent to its lowest level in nearly two years. The French and Spanish markets were 4.6 per cent lighter at the beginning of the week, while the main Italian index fell by 4.8 per cent. Banks bore the brunt of the sell-off as traders fled on fears about the fallout of a US lawsuit over toxic mortgage debt. Royal Bank of Scotland, one of the 17 lenders being sued by a federal regulator over losses on subprime bonds, fell by more than 12 per cent amid speculation about potential damages. Lloyds lost 7.5 per cent of its value.

Sky News:

• Exclusive: Moody's Poised To Deliver Bank Downgrades. The ratings agency Moody’s is poised to downgrade the creditworthiness of some of Britain’s biggest banks and building societies after a key report on banking reform this month that is set to recommend the imposition of robust firewalls and more stringent capital requirements. I have learned that executives at Moody’s met this week with a number of major UK financial institutions to renew a hint that the Independent Commission on Banking’s (ICB’s) report on September 12 would be followed by a decision to downgrade the credit ratings of some of the 14 lenders whose credit status it is reviewing. These include the state-backed Lloyds TSB and Royal Bank of Scotland (RBS) as well as Santander UK and the Yorkshire Building Society. The potential move by Moody’s – one of the world’s largest ratings agencies – may spark a row with senior British bankers, who argue that Sir John Vickers’ report should not provide a trigger for the agency to announce decisions which they are concerned could have consequences for their ability to fund themselves. An announcement is expected by Moody's before the end of September.
• The 'greater risk' to Europe's economies, including the U.K., is that they will "bump along the bottom," with several going "in and out of recession," former U.K. Chancellor of the Exchequer Alistair Darling said today.
  

Der Spiegel:

• Germany may be required to guarantee at least 250 billion euros of the European rescue fund. The German government has accepted a clause that calls for funds to be increased by 20% if needed. Germany has so far committed to backing the fund with 211 billion euros.

Wirtschaftswoche:

• The European Central Bank is partly responsible for Italy rolling back some of its budget cuts after its lowered interest costs by buying the country's bonds, Otmar Issing, the ECB's former chief economist, said in an interview. The bond purchases take pressure off governments to consolidate finances and raise the expectations of additional support for debt-strapped countries, citing Issing.

Die Welt:

• Ninety percent of Germans don't believe the euro-area debt crisis can be solved by means of an expanded European rescue fund, citing a poll by opinion research firm TNS Emnid.

Handelsblatt:

• The European Commission is planning steps to rein in growing speculation in raw-material markets, citing proposals by financial services commissioner Michel Barnier. Investors and traders should be obliged to "prevent market abuse" and ensure proper pricing of raw materials including wheat, cooking oil and metals, citing a legal blueprint drawn up by Barnier.

Le Soir:

• Luxembourg's Jean-Claude Juncker, who leads the group of euro-area finance ministers, said Belgium needs structural Economic reforms. Junk said he "wonders" if Belgium's caretaker government can push through such reforms, citing an interview.
• Luxembuorg's Jean-Claude Juncker, who leads the group of euro-area finance ministers, called for "immediate sanctions" on countries that violate the single-currency zone's Stability and Growth Pact. Juncker said euro-area countries must return to "strict respect" of the pact and should reinforce it by "increasing penalties" on nations that "are at odds with the application of the rules," citing an interview. "We need immediate sanctions," Juncker said. "We're working on that."
  

Liberation:

• Five French labor unions agreed to call for a day of protest on Oct. 11 against the government's austerity plan, citing a joint statement by the unions.

NET TV:

• European Union, International Monetary Fund, and European Central Bank officials are asking Greece to better implement fiscal measures, Elias Plaskovitis, general secretary of the country's finance ministry said. "The troika assigns part of the blame for the recession to inefficient structural reforms," Plaskovitis said. "They are asking for more radical measures and the implementation of reforms."

Interfax:

• Russia's oil output may reach a record this year, exceeding the 505 million tons produced in 2010, citing Energy Minister Sergey Shmatko.
• Russian oil companies will invest $19 billion to expand production until 2015, citing energy minister Sergey Shmatko.
  

The Globe and Mail:

• The Roots of the Sino-Forest Mystery. Partnering on the deal with Sino-Forest, which would soon obtain a stock market listing in Canada, was the Leizhou Forestry Bureau – an arm of the Chinese government. For Mr. Chan and his co-founder at Sino-Forest, a former Forestry Bureau official in Guangdong named Kai Kit Poon, the Leizhou deal served as a key pillar in the initial stages of building their business. Between 1994 and 1997, Sino-Forest would report $60-million (U.S.) in sales from the venture. There was just one problem: The Leizhou joint venture never produced a single panel, according to a key executive involved in the project. More than 17 years later, things are quickly unravelling for Mr. Chan and Mr. Poon.

Xinhua:

• China's current price level will take "certain time" to fall, citing a central bank official.

Economic Information Daily:

• China will take steps to curtail the blind expansion of heavy-energy-consuming and outdated production capacity. The National Development and Reform Commission and 9 other Chines government agencies plan to introduce the measures. They may include increasing punitive electricity fees and resource taxes, setting vehicle fuel-economy standards and creating an accountability system.
  

Financial News:

• China's consumer prices likely rose around 6.2% in August, citing analysts. Inflation continues to be the focus of government policy, the central bank-run newspaper said. Managing liquidity should remain the central bank's priority, the report cited Wang Yong, a professor at the Zhengzhou Training Institute of the People's Bank of China.
• Fan Jianping, director of economic forecasting at the Sate Information Center, said that China should withdraw its economic stimulus as soon as possible to curb inflationary pressures.
  

China Securities Journal:

• Reserves places at the PBOC by 14 listed banks may increase by 700 billion yuan over the next 6 months after China required banks to include margin deposits when calculating reserve requirements.

Shanghai Securities News:

• China should choose an "appropriate time" to raise interest rates and to ease the situation of negative real rates, Li Ruoyu, a researcher with the Sate Information Center, wrote in an article. China should appropriately allow the yuan to appreciate and crackdown on hot money to create room for domestic interest rate adjustments, according to the commentary.

Haaretz:

• Some 450,000 Israelis March at Massive 'March of the Million' Rallies Across Country. Protests held in major cities across Israel represent biggest rallies in country's history; protest leader says 'we have chosen to see instead of walking blindly toward the abyss.'

Weekend Recommendations

• None of note

Night Trading

• Asian indices are -2.0% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 175.0 +12.0 basis points.
• Asia Pacific Sovereign CDS Index 154.75 +6.5 basis points.
• FTSE-100 futures -1.21%.
  
• S&P 500 futures -2.67%.
• NASDAQ 100 futures -2.28%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PAY)/.46

Economic Releases
10:00 am EST

• The ISM Non-Manufacturing Composite for August is estimated to fall to 51.0 versus 52.7 in July.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Kocherlakota speaking, Citi Tech Conference and the Barclays Energy Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by industrial and commodity shares in the region. I expect US stocks to open sharply lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.