Today's Headlines

Bloomberg:

• Italian Borrowing Costs Jump at $8.8B Auction. Italian borrowing costs jumped at a 6.5 billion-euro ($8.8 billion) bond auction as contagion from Europe’s debt crisis leaves investors shunning the region’s most-indebted nations. The Rome-based Treasury sold 3.9 billion euros of a new benchmark five-year bond to yield 5.6 percent, up from 4.93 percent when similar-maturity securities were sold on July 14. Demand was 1.28 times the amount offered, down from 1.93 times at the last sale. The Treasury, which fell short of its maximum target of 7 billion euros, also sold 2.6 billion euros of bonds maturing in 2018 and 2020. Investors have dumped Italian debt as divisions among European governments over how best to fight the region’s debt crisis sparked concern the contagion would spread to the bloc’s third-biggest economy. Bonds have dropped even after the government passed a 54 billion-euro austerity plan that failed to ease concerns that weak growth would lead to a credit rating downgrade and hurt efforts to cut Europe’s second-biggest debt. Amid “talks about a Greece default” and “a possible downgrade of the Italian debt in the next couple of months, today’s auction results are not too bad,” Annalisa Piazza, a fixed-income analyst at Newedge Group in London, said in an e- mailed note to investors. As the country’s bonds slumped, officials met in the past month with delegates from the China Investment Corp. to discus investments in Italy, according to an Italian government official familiar with the situation. Government bonds were not the focus of the talks. The yield on Italy’s benchmark 10-year bond rose 16 basis points to a five-week high of 5.731 percent. The difference over similar-maturity German bunds increased 16 basis points to 398 basis points after today’s sale, the most since before the European Central Bank started buying Italy’s debt on Aug. 8.
• Merkel Rejects Greek Default, Defends Euro-Area. German Chancellor Angela Merkel said Greece is taking the right steps to get its next bailout payment, warning against allowing a Greek default because of the risk of contagion for other euro-area countries. Merkel, in a German radio interview broadcast today, said that an “uncontrolled insolvency” would further roil markets spooked by the prospect of a Greek default. The euro region currently has no system for “orderly” insolvency until the permanent rescue fund is established in 2013, she said. “The top priority is to avoid an uncontrolled insolvency, because that wouldn’t just hit Greece and the danger that it hits everyone, or at least a number of other countries, is very big,” Merkel told Berlin-based broadcaster Inforadio. “I have made my position very clear: that everything must be done to keep the euro area together politically, because we would very quickly face a domino effect.” Merkel’s comments are a rebuff to calls by members of her ruling coalition to consider allowing Greece’s insolvency and exit from the currency union as it struggles to satisfy the terms of its aid package. They also belie government plans to support German banks in the event that Greece goes into default.
• Sovereign, Bank Bond Risk Reach Records on Greek Debt Concerns. The cost of insuring against default on European sovereign and bank debt rose to records on mounting concern a default by Greece will trigger losses for banks holding the government’s bonds. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed six basis points to 359 basis points, an all-time high based on closing prices. The Markit iTraxx Financial Index of swaps on 25 banks and insurers rose 12 basis points to 326, while the subordinated index was up 19 basis points at 569, according to JPMorgan Chase & Co. at 9:30 a.m. in London. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high- yield credit ratings increased 13.5 basis points to 811. An increase signals deterioration in perceptions of credit quality. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 5.5 basis points to 204.
• Europe Close to Banking Crisis, El-Erian Says: Tom Keene. Pacific Investment Management Co.’s Mohamed A. El-Erian said organizations such as the International Monetary Fund need to act with European banks at risk of being engulfed in the region’s sovereign-debt crisis. “We’re getting close to a full-blown banking crisis in Europe,” El-Erian, Pimco’s chief executive officer and co-chief investment officer, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “We are in a synchronized global slowdown. There’s very little confidence in economic policy making both in Europe and the U.S.”
• Apple(AAPL) Dividend or Buyback 'More Likely': Morgan Stanley. Apple Inc. (AAPL), the world’s most valuable company, is “more likely than ever” to return money to shareholders in the form of a stock buyback or dividend, according to Morgan Stanley. Apple is able to finance a $25 billion share repurchase program or a 2.4 percent dividend using its available cash, said Katy Huberty, an analyst for Morgan Stanley in New York. Apple has $76 billion in cash and investment holdings, equivalent to about $81 a share, which could be used to fund the effort. “We believe Apple is more likely than ever to return cash to shareholders,” Huberty said in a note to clients.
• U.S. Poverty Climbed to 17-Year High in 2010. Data released by the Census Bureau today showed the proportion of people living in poverty climbed to 15.1 percent last year from 14.3 percent in 2009, and median household income declined 2.3 percent. The number of Americans living in poverty was the highest in the 52 years since the U.S. Census Bureau began gathering that statistic. Those figures may have worsened in recent months as the economy weakened. “Families are struggling to put food on the table, and they don’t have the purchasing power to help the economy recover,” said Isabel Sawhill, a senior fellow at the Brookings Institution in Washington.
• Best Buy(BBY) Profit Trails Analysts' Estimates as Television Sales Decline. Best Buy Co., the world’s largest consumer electronics retailer, reported second-quarter profit that trailed analysts’ estimates and cut its full-year earnings forecast as sales of televisions and mobile phones declined. Net income in the quarter ended Aug. 27 fell 30 percent to $177 million, or 47 cents a share, from $254 million, or 60 cents, a year earlier, the Richfield, Minnesota-based company said today in a statement. Analysts projected 53 cents, the average of 21 estimates.
• Russia Sees Stalling Economy, Ruble Plunge at $60 Oil. Oil at $60 a barrel may halt Russia’s two-year economic expansion next year, triggering a “substantial” devaluation of the ruble, the Economy Ministry said, according to a document obtained by Bloomberg. Gross domestic product may shrink as much as 1.4 percent next year under a negative scenario that projects a “world recession” cutting the average price of Urals crude by almost a half from the current level, according to the report, submitted to the government for approval last week. The price of Urals, the nation’s chief export oil blend, has averaged $109.35 this year and was at $114.23 yesterday. A reliance on raw materials, which President Dmitry Medvedev called “humiliating” and “primitive,” has left the economy vulnerable to dropping global demand for its commodity exports.

Wall Street Journal:

• Italian Bond Auction Spells Trouble. Troubles increased for Italy after its closely watched auction of government bonds met with tepid demand and the country had to fork out higher yields to lure buyers, fueling concerns that a Spanish bond sale on Thursday may also prove to be a tough sell. Markets scrutinized the auction because Italy's funding costs have recently surged again and stabilized above 5% in the 10-year segment, despite steady buying by the European Central Bank, widely seen as the only major buyer of Italian bonds at present.

CNBC.com:

• Europe's 'Liquidity Jolt' to Asia Highly Underestimated: Strategist. Investors in Asia appear to be downplaying the risks posed by Europe’s debt crisis, and the potential outflow of funds from the region should major European banks collapse, warns Emil Wolter, Head of Regional Strategy, Asian Equities at RBS Global Banking & Markets. “The number one risk, which is still underestimated by the Asian investors that I speak to, is the potential for Europe to deliver a liquidity jolt to financial markets,” Wolter told CNBC on Tuesday. “(The) potential for one or more major financial institutions in Europe to basically put their hand up for emergency funding is going to be a real danger to fund flows to the region,” he said. “You’re talking about an event on the scale of Lehman, but possibly times several different institutions,” he added.
• U.S. Small Business Optimism Weakens Again in August. Small businesses in the U.S. became less confident in the economy's future for the sixth straight month in August, a survey showed on Tuesday. The National Federation of Independent Business (NFIB) said its Small Business Optimism Index fell 1.8 points to 88.1. The decline was largely due to weaker expectations for real sales gains and reduced hope for an improvement in business conditions in the next six months. "With such a dim outlook, owners are not going to do a lot of hiring or expanding," said William Dunkelberg, chief economist at the NFIB.
• Huge Surge in Bank of America(BAC) Foreclosures. Bank of America is ramping up its foreclosure processing, sending out far more notices of default to borrowers in August than in previous months, well over 200 percent more month-to-month.

Business Insider:

• Yet Another Top Hedge Fund Manager Bruce Kovner Is Retiring. The commodity fund Caxton's chairman and founder is retiring, according to Bloomberg. He's passing the reigns to the firm's CIO, Andrew Law.
• Obama Has No Intention of Getting His Jobs Plan Passed.
  

Zero Hedge:

• Import Prices Decline Less Than Expected, Export Prices Increase.
• Europe Facts, Not Fiction: Usage of ECB Deposit Facility Goes Parabolic, Sov CDS Wider Across The Board. (graph)
• Morgan Stanley Slashes EURUSD Target to 1.30, Says EUR Attraction as an Alternative Reserve Currency Ending.
  

Reuters:

• New al Qaeda Head Hails Arab Spring, Says U.S. Losing. New al Qaeda leader Ayman al-Zawahri voiced support in an Internet video for popular revolts shaking the Middle East, saying Arabs no longer feared the United States 10 years after the country was targeted by the militant network. Zawahri, an Egyptian who took up the reins of al Qaeda after the killing of Osama bin Laden in May, hailed popular uprisings that have toppled leaders in Egypt, Tunisia and Libya this year, and urged other Muslims to overthrow their rulers too. "The Arab people have been freed from the chains of fear and terror, so who is the winner and who is the loser?"
• International Alarm Over Euro Zone Crisis Grows. International alarm over Europe's debt crisis reached new heights on Tuesday, with U.S. President Barack Obama pressing the bloc's big countries to show leadership as talk of a Greek default escalated and markets heaped pressure on Italy. German Chancellor Angela Merkel sought to quash talk of an imminent Greek default or exit from the euro zone, but confusion over whether she would issue a joint statement on Greece with French President Sarkozy sent markets gyrating up and then down. Confidence in the 17-nation currency area was further dented when Italy was forced to pay the highest interest rates since joining the euro in 1999 to sell 5-year bonds. "I think there is a possibility, if the wrong steps are taken, that the system goes off the rails," Sergio Marchionne, the CEO of Italian carmaker Fiat, told reporters in Frankfurt when asked if the euro's survival was at risk.

Telegraph:

• Debt Crisis: Live.

Der Spiegel:

• Loose Talk on Greek Default Could 'Cost Billions'. Members of Angela Merkel's government have been openly discussing the possibility of a Greek bankruptcy, a debate the chancellor sought to quash on Tuesday. The statements made by her junior coalition partners have unsettled markets and could "cost billions," German commentators warn.

Focus-Money:

• Banks may face writedowns because of defaults on European commercial mortgage-backed securities. A S&P study showed that on average only one in three maturing commercial mortgage-backed securities in Europe has been paid back since January. 11% of the $14.6 billion in CMBS due since the beginning of the year has defaulted.

Le Echos:

• Societe Generale SA CEO Frederic Oudea said that nationalizing the bank is out of the question. "It seems totally premature and aside from the subject today to evoke such a hypothesis," French Industry Minister Eric Besson said

Style Underperformer:

• Large-Cap Value (+.48%)

Sector Underperformers:

• 1) Homebuilders -.41% 2) Insurance -.13% 3) REITs -.09%

Stocks Falling on Unusual Volume:

• QLIK, SWI, BBY, ACOM, ITMN, EXLS, RPXC, JVA, ULTA, STMP, SHPGY, HRBN, TLEO, GIII and PPDI
  

Stocks With Unusual Put Option Activity:

• 1) LRCX 2) BBY 3) DB 4) STX 5) LCC
  

Stocks With Most Negative News Mentions:

• 1) HCA 2) SWI 3) BRCM 4) BBY 5) CVX
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value (+.29%)

Sector Outperformers:

• 1) Airlines +3.09% 2) Road & Rail +2.17% 3) Alt Energy +1.29%

Stocks Rising on Unusual Volume:

• WPRT, PANL, CIEN, CMI, KSU, CNW, CMA and OPTR
  

Stocks With Unusual Call Option Activity:

• 1) ADBE 2) NETL 3) DLTR 4) MJN 5) WDC
  

Stocks With Most Positive News Mentions:

• 1) MGM 2) HMA 3) MGP 4) SPWRA 5) KEX
  

Charts:

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

Tuesday Watch

Evening Headlines

Bloomberg:

• Italy Seeks $10 Billion as Contagion Slams Demand: Euro Credit. Italy is auctioning as much as 7 billion euros ($10 billion) of bonds one day after borrowing costs surged at a bill auction, as Greece’s slide toward default roils global markets. The treasury is selling 4 billion euros of a new benchmark five-year bond today, after 10-year yields climbed to a five- week high of 5.571 percent. Investors charged Italy 4.153 percent yesterday in a one-year bill offering, up from 2.959 percent a month ago. “It’s rather unfortunate that the Italian auction is taking place when the market is in a panic mode,” said Fabrizio Fiorini, the head of fixed income at Aletti Gestielle SGR SpA in Milan. “Borrowing costs are likely to remain at elevated levels. The rise in Italian yields is manifestation of a lack of market confidence in European leaders’ ability to tackle the problem.” A debt of 1.9 trillion euros -- more than Spain, Greece, Ireland and Portugal combined -- leaves Italy vulnerable to any advance in borrowing costs as it refinances maturing debt. The sales, which also include as much as 3 billion euros of bonds due in 2018 and 2020, will help fund 14.5 billion euros of debt scheduled for repayment on Sept. 15. Italian officials have held talks with Chinese counterparts about potential investments in the euro region’s third-largest economy, an Italian government official said late yesterday. The purchase of Italian bonds by China wasn't the focus of the talks, which took place in the past few weeks, the official said on condition of anonymity. A spokesman for Italian Finance Minister Giulio Tremonti declined to comment. The Financial Times earlier reported that Italy aims to sell ``significant'' quantities of bonds and stakes in strategic companies to China. The yield on Greece’s two-year note yesterday surged to almost 70 percent, while the cost of insuring Greek, French, Spanish and Italian debt against default all rose to records. The premium investors demand to hold Italian 10-year bonds rather than comparable German bunds rose to 383 basis points, nearing a euro-era record close of 389.5 set on Aug. 4. “The contagion impact of a default will be severe, because next in the firing line will be Italy, Spain, and it will take in the whole of the European banking sector too,” Suki Mann, a strategist at Societe Generale SA in London, wrote in a report. While Italy has completed more than 70 percent of its debt financing this year, it still needs to sell about 70 billion euros of bonds by year-end to cover its budget deficit and other redemptions. Italian yields are at their highest since the European Central Bank started buying Italian bonds on Aug. 8.
• Funds' Cuts to French Banks Could Force Asset Sales. U.S. money-market fund managers, led by Vanguard Group Inc. and Legg Mason Group Inc., have cut their lending to French banks at a pace that may force the banks to raise capital by selling assets, according to William Prophet, a desk analyst at Deutsche Bank Securities Inc. Prime money funds in the U.S. reduced their holdings in certificates of deposits issued by French banks by about 40 percent in the three months through Aug. 11, Prophet wrote in a Sept. 9 report, based on a review of seven of the 10 largest funds eligible to purchase corporate debt. The proportion of the remaining holdings maturing in less than a month increased to 56 percent on Aug. 11 from 17 percent on June 11. “What’s happened very recently is simply unsustainable,” Prophet wrote. “While a decent amount of funding is evidently still available to the French banking system, it is all migrating towards the very front end of the money-market curve, and regulators no longer look the other way when this happens.” U.S. funds are cutting their holdings in European banks on concern the financial institutions may face funding problems as the sovereign-debt crisis escalates.
• Energy Future Sues to Block EPA Cross-State Pollution Rules. Energy Future Holdings Corp. units in Texas filed a lawsuit challenging Environmental Protection Agency rules aimed at curbing cross-state pollution, saying the measure would cost it $1.5 billion through 2020 and at least 500 jobs. The Dallas-based power company, which was taken private in 2007 in the largest buyout in history, today asked the U.S. Court of Appeals in Washington to review the rule, which mandates that 27 states reduce emissions of sulfur dioxide and nitrogen oxide. Energy Future said it will ask the court to delay enforcement of the rule, set to begin in January, while the case is being decided. The company said it would be forced to shutter 1,200 megawatts of coal-fired generation to comply with the new standard, and would halt mining operations that provide coal to the idled power plants. “Meeting this unrealistic deadline also forces us to take steps that will idle facilities and result in the loss of jobs,” David Campbell, chief executive officer of Luminant Holding Co., an Energy Future unit, said in a statement.
• Fed's Fisher Sees High Bar to Support Yield Curve 'Jujitsu'. Federal Reserve Bank of Dallas President Richard Fisher said he probably won’t support further monetary easing by the Fed, arguing that steps that would boost the recovery are the responsibility of fiscal authorities. “If I believe further accommodation or some jujitsu with the yield curve will do the trick and ignite sustainable aggregate demand, I will support it,” Fisher said today in a speech in Dallas. “But the bar for such action remains very high for me until the fiscal authorities do their job, just as we have done ours. And if they do, further monetary accommodation may not even be necessary.”
• Obama Proposes Limits on Breaks for Muni Bond Investors. President Barack Obama proposed curbing the amount of interest from municipal bonds that top earners can exclude from their taxable income, a step that may diminish demand for state and local-government securities. “We’re very much opposed” to limiting the tax exemption, said Mike Nicholas, chief executive of the Bond Dealers of America, a Washington-based lobbying group for banks that underwrite municipal bonds. “You’re going to end up punishing state and local governments.”
• Israel Surrounded as Arab Spring Turns Darker: Jeffrey Goldberg. The Middle East is plunging toward crisis. The early promise of Tahrir Square has been supplanted by dismay that the Egyptian authorities -- such as they are -- allowed mobs to lay siege to the Israeli embassy in Cairo this past weekend. Not long ago, Turkey and Israel were strategic partners. Now, relations between those two key U.S. allies are in ruins. When a recent United Nations report on the deadly confrontation between the Israeli military and a flotilla of Gaza-bound activists that sparked this crisis largely exonerated Israel, Turkey reacted by threatening to send warships to the eastern Mediterranean. And the Jewish state faces a miserable month at the UN, where the Palestinians, who have refused to meet Israel at the negotiating table, are planning to seek recognition as an independent state, with potentially catastrophic consequences for both sides. “As the months of Arab Spring have turned autumnal, Israel has increasingly become a target of public outrage,” the New York Times’ Ethan Bronner wrote this weekend from Jerusalem.
• More Job Cuts Loom for European Banks Locked Into Higher Pay. European banks may resort to more jobs cuts or zero bonuses as they struggle to maintain fixed compensation levels amid deteriorating financial markets. The companies are facing shrinking revenue and higher costs after raising base salaries of investment bankers by as much as 100 percent. That decision, which followed regulations to curb bonuses in the wake of the credit crisis, is irreversible even if conditions worsen, lawyers and consultants said, leaving banks with fewer options in their bid to improve margins. “The absolute last thing banks will want do is cut current salaries unless they have an explicit contractual right to do so,” said Jason Butwick, a London-based employment attorney at law firm Dechert LLP. “The legal, reputational, commercial and logistical risks of going down that route are huge.” European banks including UBS AG, Barclays Plc, HSBC Holdings Plc, Royal Bank of Scotland Group Plc and Credit Suisse Group AG have announced more than 70,000 job cuts since midyear, compared with 42,000 by U.S. peers, according to data compiled by Bloomberg.
• Australia's August Business Confidence Slumps to Lowest Since April 2009. Australian business confidence plunged last month to the lowest level since April 2009 as a rout in global equity markets and concern about contagion from Europe’s debt crisis damaged sentiment, a private survey showed. The confidence index slumped to minus 8 in August from 2 in July, according to a National Australia Bank Ltd. (NAB) survey of more than 500 companies from Aug. 24-30 that was released in Sydney today. The business conditions gauge, a measure of hiring, sales and profits, slid to minus 3 from minus 1. Monthly employment growth in Australia averaged 2,800 from January through August this year, less than a 10th of the average of 30,500 job gains in the first eight months of 2010. Australia’s currency and benchmark stock index dropped last month and the MSCI World (MXWO) Index of equities sank 7.3 percent as concern increased that the Greek fiscal crisis would drag down other euro-area economies. The result reflects “heightened global uncertainty, large falls in equity markets and the fear of debt market contagion,” NAB Chief Economist Alan Oster said in a statement.
• China PBOC Statement on Inflation 'Hawkish,' ING Says. China's central bank statement yesterday that inflation is still too high is "hawkish," Tim Condon, head of Asia research at ING Groep NV, said today. He reiterated the bank's call for one more 25 basis-point increase in benchmark interest rates by the end of the year.
• China's Stocks Fall to 14-MOnth Low as Economic Data Fuel Policy Concerns. China’s stocks fell, dragging the benchmark index to a 14-month low, on concern the government may intensify policy tightening after imports jumped to a record and new lending increased. Industrial & Commercial Bank of China (601398) Ltd. and China Construction Bank Corp. (939) declined at least 1.2 percent after the Beijing News reported the central bank sold additional bills to major lenders, a step to drain liquidity from the banking system. Jiangxi Copper Co. and Aluminum Corp. of China Ltd. retreated more than 2 percent among commodity companies. BYD Co., the automaker part-owned by Warren Buffett’s Berkshire Hathaway Inc., tumbled to a record low on a bond-sale plan. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 35.65 points, or 1.4 percent, to 2,462.10 at the 11:30 a.m. local-time break. The gauge, which fell 1.2 percent last week, is headed for its lowest close since July 16, 2010. “Although there’s a small risk of a hard landing for China’s economy, a possible rebound in inflation and the impact of worsening European debt crisis on the global economy still remain the biggest concern to investors,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “There’s also no sign that policies will be loosened in the short term. Stocks might test a new low.”
• Gold's 'Perfect Storm' to Continue on Haven Demand, Morgan Stanley Says. Gold’s “perfect storm” is expected to continue on renewed investor demand for haven assets, potentially driving the metal to its 1980 inflation- adjusted record, according to Morgan Stanley. The firm retains a positive view on gold for its role as portfolio insurance against a “formidable cocktail” of macro challenges including financial systemic risk, concern of a double dip recession and sustained low interest rates, its analysts including Peter Richardson wrote in a report. The outlook for gold is now in favor of the firm’s “bull case” target of $1,625 an ounce this year and $1,819 an ounce in 2012, they said. Bullion now has an estimated 85 percent probability of trading between $1,819 an ounce and $2,085 an ounce next year, according to Morgan Stanley’s calculations.

Wall Street Journal:

• Pain Mounts for Europe Banks. Fears About Greece Persist Despite Efforts to Quell Worry. Europe's banks, burdened by concerns about exposure to ailing Greece, took a perilous turn Monday despite efforts by the biggest of them to calm panicked investors. France's financial system was especially hard hit, with shares in its three largest banks all falling more than 10%, as concerns about Greek default continued to cascade across Europe. European banks are cutting back on dollar-denominated loans, a troublesome sign of credit contraction at a time when American and European economies can least afford it.
• GOP Balks at Taxes to Finance Jobs Plan. The prospects for President Barack Obama's $447 billion jobs plan grew dimmer Monday as he unveiled the fine print of how it would be paid for—primarily through tax increases that Republicans said would destroy jobs, not create them.
• China's New Lenders of Last Resort.
• Perry's the Man in the Middle. Fellow Republican Presidential Candidates Take Aim at Front-Runner in Debate.
• Dark Side of Brazil's Rise. Brazil is booming amid a tectonic shift in global investing toward the developing world that has lifted its stock market, strengthened its currency and provided financing for new ports and World Cup soccer stadiums. But while foreign investment is mostly a good thing, there are downsides. The abundance of cash has helped fund riskier bank loans and fueled a potential real-estate bubble. By some measures, the Brazilian real is now the world's most overvalued currency, and many local factories aren't competitive in global markets.
• Britain's Tories Press to Weaken Ties to EU, Exposing Ruling-Party Divide. Lawmakers in U.K. Prime Minister David Cameron's Conservative Party are angling to use the financial crisis to weaken British ties to the European Union, a move that threatens to expose fault lines in the ruling coalition and previews the political wrangling that could accompany any efforts to reshape EU finances. Late Monday, more than 100 "euro-skeptic" members of the Conservative Party met for the inaugural session of a group dedicated to rethinking Britain's links with the EU. The discussion included ways to bring powers back to London, according to one attendee.
• The Trouble With French Banks. 'We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNP Paribas, who declines to be named, told me last week. "Since we don't have access to dollars anymore, we're creating a market in euros. This is a first. . . . We hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore." He's not the only one worried.

CNBC:

• Obama's Jobs Plan May Force US to Raise Debt Limit Again. President Obama's goal of winning a big enough increase in the U.S. debt limit to get him through the November 2012 election could be thwarted by his own job-creation proposal, budget experts said Monday. The 447 billion in new spending Obama wants to juice up a weak U.S. economy would have to be spent quickly if it is to be effective. That would immediately pile onto annual budget deficits of over $1 trillion, even though the president has promised to pay for his program in full. The problem is that he proposes paying for it over a much longer period.
• Fed Inflation Hawks Downplay Need for Easing. Two regional Federal Reserve presidents on Monday cast doubt on the notion, widely prevalent in financial markets, that the central bank will ease monetary policy further at its Sept. 20-21 meeting.

Business Insider:

• 'Culturomics' Predicted The Arab Revolutions - And Now It Predicts Global Unrest.
• Russia Wants to Sell Hundreds Of Its T-50 Stealth Fighters To Syria and Iran.
  

Zero Hedge:

• The Cost of Obama's Stimulus Plan: $312,500 Per Job Created or Saved.

NY Times:

• Fears Rattle Big Banks in France. French banks moved toward the center of the European debt storm Monday as investor concern about their ability to handle a potential Greek default raised the possibility that France’s government might need to shore up the banks’ financial positions. Even as French officials proclaimed that the country’s banks were sound, shares in BNP Paribas and Société Générale, two globally connected French banks considered “too big to fail” by their home government, slid as much as 12 percent. And their cost of short-term borrowing continued to soar, making it more expensive for them to finance day-to-day operations. The looming question is whether the French government will have to step in to support its banks, much as the American government did during the financial crisis in September 2008. Then, as now, a retreat by nervous investors threatened the banks’ liquidity.
• Wary Investors Start to Shun European Banks. When a $225 million loan to BNP Paribas comes due Thursday at Legg Mason’s Western Asset management unit, managers at its money market funds will be exercising caution. Instead of renewing the loan as they would have as recently as two months ago, they are looking to park investors’ money elsewhere, avoiding BNP and other Continental banks in favor of institutions in Scandinavia, Canada and Britain. Even as European investors race to abandon shares in French banks, on this side of the Atlantic, banks, brokerages and other American financial institutions are quietly reducing their exposure too, turning down requests for fresh loans from the euro currency region and seeking alternative investments.
• German Leader Faces Key Choices on Rescuing Euro. As Europe struggles to reverse a plunge in financial confidence, the world waits for Germany’s chancellor, Angela Merkel, to make a fundamental choice. She, more than any other European politician, will have to either summon the leadership to rescue the euro or concede that the political will is not there. Mrs. Merkel, 57, faces far-reaching decisions about how to deal definitively with the debt crisis in Europe and, more immediately, whether to allow Greece to default or even to leave the currency union. American officials fear that if she does not act more decisively, bank lending could freeze up and the result would be another sharp financial downturn on both sides of the Atlantic. Fears of a worsening debt crisis slammed European stocks on Monday, especially shares of French banks, forcing the French government to declare its support for its three largest financial institutions. The turmoil added to worries that the Greek crisis would prove difficult to contain without more robust action from Germany and, ultimately, its taxpayers.

Politico:

• Feinstein: 'Wiped Out' by Scandal. Sen. Dianne Feinstein (D-Calif.) said she was “wiped out” by Kinde Durkee, a well-connected California Democratic political operative who served as treasurer for hundreds of state, local and federal campaign committees. Durkee was arrested by the FBI on Sept. 2 on allegations of fraud surrounding the diversion of more than $670,000 from the reelection committee for a California state assemblyman, and a growing list of California Democrats, including Feinstein and Reps. Susan Davis and Loretta Sanchez, now appear to victims as well.

Reuters:

• Euro Firm After Round of Short-Covering; Downtrend Intact. The euro held firm on Tuesday after a choppy session overnight saw a wave of short-covering lift it by more than two cents on hopes that China will bolster Italy by buying its bonds, but traders found few reasons to stay upbeat about the currency.
• Spanish Treasury's Morales: No Chance of Euro Breakup. There is no chance of the euro zone breaking up, the Spanish Treasury's public debt manager said on Tuesday. "I don't see the euro breaking up at all," Ignacio Fernandez-Palomero Morales said at a seminar in Tokyo. "The problem is not decisions, the problem is the way decisions are made," he said, noting markets are not good at pricing in political uncertainty. "Everything is going in the right direction," he added. Debt crisis fears in Europe have escalated as Greece's fiscal repair efforts appear to be faltering and as Italy and Spain continue to be sucked deeper into trouble.
• Bank Analysts Slash Goldman(GS) Estimates Hardest. Analysts have been slashing earnings estimates for big Wall Street banks recently, particularly for Goldman Sachs, as unpredictable trading markets and weak merger and underwriting volumes hurt the sector's profit potential. Third quarter average profit estimates for Goldman Sachs Group Inc (GS.N) have fallen 18 percent over the last month to $2.28 per share, according to Thomson Reuters I/B/E/S.
• Steel Dynamics(STLD) Q3 Profit Outlook Lags Street View. They fell 3 percent after the bell.
• PIMCO's Gross Boosts Treasuries to 16% in Flagship Fund. Bill Gross, the manager of the world's largest bond fund, increased exposure to Treasuries dramatically in August, reflecting his view of the rising risks of recession in the United States. According to PIMCO's website on Monday, Gross' $245 billion Total Return Fund (PTTRX.O) held 16 percent in U.S. Treasuries and Treasury-related securities as of the end of Aug. 31, up from 10 percent as of the end of July.

Passauer Neue Presse:

• Wolfgang Gerke, the president of the Bavarian Center of Finance in Munich, called for a Greek sovereign default and said the country should be expelled from the euro area. "Insolvency would be a sensible step," Gerke said. A sovereign-debt write-off and a return to the drachma are "necessary" for Greece to become competitive again, he said. He said the German government had too long presented a Greek rescue as the only alternative.

Financial Times Deutschland:

• The Basel Committee on Banking Supervision plans to step up its examination of how U.S. and European banks assess their credit risk in an effort to increase the harmony of the global banking system. The group's general secretary, Stefan Walter, told the newspaper that the committee will intensify efforts to see how banks were analyzing their own balance sheets.

Beijing News:

• China Central Bank Orders Some Lenders Buy Bills. China's central bank sold more than 20 billion yuan of additional bills to Industrial and Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd. and some other lenders after they were judged to have lent excessively.

Evening Recommendations
Janney Montgomery:

• Rated (SODA) Buy, target $60.

Night Trading

• Asian equity indices are -2.0% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 176.0 +1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 159.0 +2.0 basis points.
• FTSE-100 futures +1.34%.
  
• S&P 500 futures +.28%.
  
• NASDAQ 100 futures +.30%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CBRL)/.99
• (BBY)/.53

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for August is estimated to fall to 88.0 versus a reading of 89.9 in July.

8:30 am EST

• The Import Price Index for August is estimated to fall -.8% versus a +.3% gain in July.

2:00 pm EST

• The Monthly Budget Deficit for August is estimated to widen to -$132.0B versus -$90.5B in July.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bullard speaking, weekly retail sales reports, IBD/TIPP Economic Optimism Index for September, 10-Year T-Note Auction, (HTZ) Investor Meeting, (STN) Investor Day, ThinkEquity Growth Conference, Deutsche Bank Tech Conference, Morgan Keegan Industrial/Transportation Conference, Morgan Stanley Helathcare Conference, BMO Media/Telecom Conference, CSFB Chemical/Ag Science Conference and the Deutsche Bank Transports/Aviation Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial 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 Reversing Higher into Final Hour on Italian Debt Rumors, Short-Covering, Technical Buying, Bargain-Hunting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 39.03 +1.32%
  
• ISE Sentiment Index 77.0 +10.0%
  
• Total Put/Call 1.25 -9.42%
  
• NYSE Arms .67 -87.32%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 136.29 +4.36%
  
• European Financial Sector CDS Index 302.22 +13.29%
  
• Western Europe Sovereign Debt CDS Index 351.17 +5.70%
  
• Emerging Market CDS Index 315.65 +2.19%
  
• 2-Year Swap Spread 34.0 -1 bp
  
• TED Spread 35.0 +2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 172.0 -3 bps
  
• China Import Iron Ore Spot $179.50/Metric Tonne unch.
  
• Citi US Economic Surprise Index -39.50 +2.3 points
  
• 10-Year TIPS Spread 1.96% -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -20 open in Japan
• DAX Futures: Indicating +68 open in Germany

Portfolio:

• Slightly Higher: On gains in my Tech, Biotech and Retail sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and then covered some
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 bounced off the lower end of its recent range despite rising Eurozone debt angst, US tax hike worries, emerging markets inflation fears and global growth worries. On the positive side, Semi, Disk Drive, Networking, Retail, Internet, Bank, Insurance and Restaurant shares are especially strong, rising more than +1.0%. Tech shares held up well throughout the day. Gold is declining -2.35%. On the negative side, Coal, Ag, Steel, Paper, Drug, Hospital, Construction, Homebuilding and Road & Rail shares are under pressure, falling more than -.75%. Cyclicals are substantially underperforming. Lumber is down -3.71%, Oil is rising +1.09% and Copper is falling -.75%. Rice is rising +.3% today and is still very near its multi-year high, rising +38.3% in about 10 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.65/gallon. It is up .51/gallon in about 7 months. The China sovereign cds is jumping +11.6% to 132.77 bps, the Japan sovereign cds is gaining +11.1% to 124.15 bps, Germany sovereign cds is gaining +1.69% to 85.67 bps, the France sovereign cds is surging +4.68% to 188.50 bps, the Spain sovereign cds is surging +3.4% to 426.83 bps, the Italy sovereign cds is gaining +7.52% to 501.67 bps, the Greece sovereign cds is gaining +6.42% to 3,617.96 bps, the Ireland sovereign cds is gaining +4.91% yo 913.33 bps, the Russian sovereign cds is gaining +4.63% to 223.67 bps, the Brazil sovereign cds is rising +7.47% to 172.67 bps, the Portugal sovereign cds is gaining +6.58% to 1,211.00 bps, the Belgium sovereign cds is gaining +4.64% to 299.50 bps and the UK sovereign cds is rising +2.99 to 82.33 bps. The Emerging Markets Sovereign CDS Index is soaring +14.2% to 256.50 bps. Moreover, the Eurozone Investment Grade CDS Index is surging +9.05% to 190.28 bps, which is a new record high. The Greece, Spain, Belgium, Portugal and Italy sovereign cds are hitting all-time highs today. The France and Germany sovereign cds are very close to their record highs. The Eurozone Financial Sector and Western European Sovereign CDS Indices are making new all-time highs. The 3-Month Euribor-OIS Spread is rising +2 bps to a new multi-year high at 85.0 bps. The 3-Month Euro Basis Swap is dropping -5.32 bps to a multi-year low of -112.53 bps. The China Corporate Blended Spread Index is surging +24 bps to a multi-year high of 657.0 bps. The The UBS-Bloomberg Ag Spot Index is still near its recent record high, which is also a large negative. The rise in oil despite euro weakness and global growth worries is becoming a concern and is related to escalating violence in the Mideast. Hong Kong stocks plunged -4.21% overnight and are down -17.4% ytd, which puts them back to their recent lows. The major European stock indices plunged around -3.0% today and are making new multi-year lows. German stocks are now down -26.7% ytd, French stocks are down -25.0% ytd, Spain stocks are down -22.5% ytd and Italy stocks are down -33.2% ytd. Most gauges of eurozone debt angst remain very elevated and continue to surge higher, which remains a large negative. The euro currency is oversold near-term, but still has substantial downside risk longer-term. Stocks are rallying into the final hour on rumors that China plans to purchase Italian debt. These rumors have been persistent throughout the entire Eurozone debt crisis. Moreover, while this would likely buy Europe some more time, it doesn't change the underlying deterioration of the fundamentals in the region. Until the fundamentals stabilize and credit angst subsides, any stock rallies will likely remain short-term in nature. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, less financial sector pessimism, technical buying and China/eurozone debt rumors.

Today's Headlines

Bloomberg:

• Italian Yields Surge as Papandreou Struggles With Greece Default Concern. Italian bond yields surged at an auction today and Greek Prime Minister George Papandreou failed to reassure investors that his country can avert default as the euro region’s debt crisis worsened. Italy sold 12-month bills today to yield 4.153 percent, up from 2.959 percent a month ago as demand fell. The yield on Greece’s two-year note surpassed 60 percent for the first time after the government said it would raise property taxes to meet the 2011 deficit goal in its European Union-led rescue. Papandreou is struggling to convince investors that Europe’s most-indebted country can avoid a default that threatens to roil the euro region. That’s undermining European leaders’ efforts to stop contagion from spreading to Spain and Italy as splits emerge in the German government about how best to handle Greece. “We have got to the stage when markets have lost an enormous amount of faith with the euro project as a whole,” said Marc Ostwald, strategist at Monument Securities Ltd. in London. Papandreou’s pledges to meet the deficit target was undermined by data released today showing the central government’s budget gap widened 22 percent in the first eight months as austerity measures deepened a three-year recession. The government now expects the economy to shrink more than 5 percent this year, more than the 3.8 percent forecast by the European Commission.
• Merkel, Roesler Clash as Prospect of Greek Default Splits German Coalition. German Chancellor Angela Merkel’s government lurched into open conflict over tackling the debt crisis, as Merkel called for Greece to get more time and her coalition allies suggested it may need to default and leave the euro area. The deepening divisions underscore Merkel’s challenge of keeping her three-party coalition united behind bailout aid for Greece as she seeks to prevent a breakup of the euro while prodding Europe toward more joint economic and fiscal policies. A state election in Berlin on Sept. 18, the last of seven this year that have seen the coalition parties punished amid bailout fatigue, further adds to the political pressure. “To stabilize the euro in the short term there can’t be any taboos,” Philipp Roesler, the vice chancellor and economy minister who heads Merkel’s Free Democratic coalition partner, said in an op-ed published in Die Welt newspaper today and e- mailed by his party. “That ultimately includes Greece’s orderly insolvency, if the necessary instruments are available.”
• Insurance Against Sovereign, Bank Defaults Rises to Record Highs in Europe. The cost of insuring European sovereign and bank debt rose to records on speculation Germany is preparing for a default by Greece while French lenders may be downgraded because of their holdings of the country’s bonds. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments soared 17 basis points to 353 at 5:30 p.m. in London. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 14 basis points to 314 and the subordinated index jumped 15 to 550, according to JPMorgan Chase & Co. Swaps on BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s largest banks, surged to all-time highs on bets they’ll have their ratings cut by Moody’s Investors Service this week. “The situation in Greece is just the initial problem,” said Alberto Gallo, a strategist at Royal Bank of Scotland Group Plc in London. “Our economists expect a hard default is likely by year-end. We are focused on the consequences of that for European banks.” Credit-default swaps on Portugal, Greece, Italy and France surged to records, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Portugal jumped 79 basis points to 1,213, Italy rose 40 basis points to 503 and France was up 11 at 189. Swaps on Societe Generale were 53 basis points higher at 443, Credit Agricole increased 41 to 331 and BNP Paribas rose 31 basis points to 306, according to CMA. “It would not be a surprise if Moody’s downgraded Italy and a couple of French banks” this week, Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London, wrote in a note to investors. Swaps on U.K. banks rose to records as plans to strengthen consumer lenders may cost as much as 7 billion pounds ($11 billion) to implement, a government-appointed commission said. Contracts on Barclays Plc’s senior debt climbed 30 basis points to 290, while swaps on Royal Bank of Scotland Group Plc notes increased 26 basis points to 394, CMA prices show. The cost of insuring corporate debt rose to the highest levels in 2 1/2 years, according to JPMorgan. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was up 6.5 basis points at 198.5 after rising as high as 204. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings climbed 22.5 basis points to 797.5 after earlier touching 811.5, the highest since May 2009.
• French Banks Tumble on Possible Moody's Cut on Greek Woes. BNP Paribas SA, Societe Generale SA and Credit Agricole SA plunged in Paris on a possible ratings cut by Moody’s Investors Service, extending their more than 40 percent slide in the last three months. Societe Generale fell as much as 13 percent to its intraday lowest level in 19 years. Credit Agricole tumbled almost 14 percent to its lowest on record. BNP Paribas dropped as much as 15 percent to a 2 ½-year low. Credit-default swaps tied to the senior debt of the three banks, reflecting the cost of insuring against default, rose to records, according to CMA. France’s three largest banks by market value may have their credit ratings cut as early as this week because of their Greek holdings, two people with knowledge of the matter said. The country’s lenders top the list of Greek creditors with $56.7 billion in overall exposure to private and public debt, according to a June report by the Basel, Switzerland-based Bank for International Settlements. “SocGen’s market value has lost about 20 billion euros over two months, you can’t explain that only with sovereign risks and a potential downgrade from Moody’s,” said Lutz Roehmeyer, who helps manage about $14 billion at Landesbank Berlin Investment GmbH and owns shares in Societe Generale, BNP Paribas and Credit Agricole. “The market is playing broader themes. The fear is liquidity, banking crisis and of course recession.”
• Europe Stress Seen in French Bank Commercial Paper Rates: Credit Markets. Societe Generale SA, BNP Paribas SA and Credit Agricole SA (ACA) are being quoted higher rates than their competitors in the commercial paper market as the crisis in the euro zone spreads beyond Greece, Portugal and Italy. Investors charged the French companies an average 6.7 basis points more to borrow three-month commercial paper on Sept. 8 than the rate the lenders said they could pay in the London interbank offered rate market, according to two buyers who asked not to be identified because the talks are private. As recently as July, the banks received CP rates that were lower than Libor. Premiums on short-term loans are rising as odds of a default by Greece grows, with German Chancellor Angela Merkel preparing plans to aid her nation’s financial companies.
• Chinese Property Prices to Decline in Next 12 Months, Lo Says. China’s property prices may fall in the next 12 to 18 months as banks curb loans to real estate companies, which may slow development, Hong Kong billionaire developer Vincent Lo said. The government is pushing banks to hold back lending to property firms as it attempts to cool the housing market, said Lo, chairman of Shui On Land Ltd. (272) The developer received a Chinese bank’s approval for a loan, which was withdrawn as the lender had a policy change, he said in an interview with Bloomberg Television.
• Crude Oil Rises in New York Trading as Euro Rebounds From a Six-Month Low. Crude oil rose for the first time in three days in New York as the euro rebounded from a six-month low, increasing the appeal of commodities as an alternative investment to the U.S. dollar. Crude advanced after the European currency pared losses after touching the lowest level since Feb. 15 as investors bet that Europe’s debt crisis will limit economic growth. Oil for October delivery gained 96 cents, or 1.1 percent, to $88.20 a barrel at 12:21 p.m. on the New York Mercantile Exchange. Futures ranged from $85 to $88.95. Prices have fallen 3.5 percent this year.
• Gold Retreats as Some Investors Sell to Cover Losses in Equity Markets. Gold declined in New York as some investors sold the metal to cover losses in equities that dropped on concerns that the European debt crisis is worsening. “The margin clerks will be sharpening their knives today and will take dead aim even upon gold if that is where they think they can find liquidity,” Dennis Gartman, an economist and the editor of the Suffolk, Virginia-based Gartman Letter, said in his daily report. Some investors “will argue that gold will prove valuable and will hold its value even as stock prices plunge, and in the long run they may well be right.” Gold for December delivery fell $35.20, or 1.9 percent, to $1,824.30 an ounce by 12:13 p.m. on the Comex in New York. Immediate-delivery gold was 1.9 percent lower at $1,821.22 in London.
• Business Economists Cut U.S. Growth Forecast. The U.S. economy will grow less than previously estimated through 2012, reflecting a slump in confidence, limited consumer spending and a struggling housing market, a survey showed. Gross domestic product in the world’s largest economy will expand 1.7 percent this year, less than the May forecast of 2.8 percent, according to results of a survey by the National Association for Business Economics issued today in Washington. Growth in 2012 will average 2.3 percent after a previous projection of 3.2 percent. Some 54 percent of respondents lowered their growth forecasts because they said the legislation stemming from the debt-ceiling debate will fail to reduce the long-term budget deficit. Unemployment projected to stay above 8.5 percent until late next year and Europe’s debt crisis were also among panelists’ top concerns.
• Broadcom(BRCM) to Buy NetLogic(NETL) for $3.7 Billion in Record Takeover for Company. Broadcom Corp. (BRCM), the maker of communications chips, agreed to buy NetLogic Microsystems Inc. (NETL) for about $3.7 billion in cash to gain processors used in data networks. NetLogic shareholders will get $50 a share, the companies said today in a statement. That’s 57 percent more than Santa Clara, California-based NetLogic’s closing price on Sept. 9.
• Bank of America(BAC) to Slash 30,000 Jobs Under New Plan. Bank of America Corp. (BAC), the biggest U.S. lender by assets, will eliminate 30,000 jobs in the next few years as part of Chief Executive Officer Brian T. Moynihan’s plan to bolster profit and the company’s stock. The reductions, equal to about 10 percent of the staff, are part of an overhaul that aims to remove about $5 billion in annual costs by the end of 2013.
• Obama Team Stood by Solyndra as Troubles Mounted. Solyndra LLC’s workers making solar-power panels in a California factory subsidized by U.S. taxpayers showed “the promise of clean energy isn’t just an article of faith,” President Barack Obama said on a visit to the company in May 2010. Two months before Obama’s visit, accounting firm PricewaterhouseCoopers LLP warned that Solyndra, the recipient of $535 million in federal loan guarantees, had financial troubles deep enough to “raise substantial doubt about its ability to continue as a going concern.” The Obama administration stood by Solyndra through the auditor’s warning, the abandonment of a planned initial public offering and a last-ditch refinancing where taxpayers took a back seat to new investors. That unwavering commitment has come under increasing scrutiny since the company’s travails culminated in its filing for bankruptcy protection on Sept. 6 and a raid on its headquarters by the Federal Bureau of Investigation two days later. “People including our government put blinders on and did not want to believe in the obvious,” Jonathan Dorsheimer, an analyst in Boston for Canaccord Genuity Inc. of Vancouver, said in an interview with Bloomberg Government. “The fact that the government chose Solyndra as their white horse is mind- boggling.”

CNBC.com:

• 'Only a Matter of Time' Before Greek Default: Bove. Greece is unable to repay its debts, according to Richard Bove, banking analyst at Rochdale Securities, and given that the euro zone banking system has yet to mark sovereign debt holdings to market, many banks will be forced to raise new capital. “Even though it is clear that Greece is unable to repay its debts and its banks are probably insolvent, no European or American bank has, to my knowledge, marked the sovereign debt to market,” Bove said in a research note on Sunday.
• Hedge Funds See September Cash Infusion. With global equity markets facing turmoil and fixed income yields trading at 60-year lows, investors continue to pour capital into hedge funds, according to new data.
• Market Swings Are Becoming New Standard.
  

Business Insider:

• Here's Who Gets Hurt if Greece Goes Bust.
• Obama's Jobs Plan to Raise $400 Billion in Taxes.
• China to Save Europe Part 98572379.
• Glenn Beck's New Internet Show Already Has More Paid Subscribers Than Oprah's Network Has Viewers.
• OMG! Check Out The Crazy Palace Built By a Chinese State-Owned Enterprise.
• Clock Ticks Toward U.S. Government Shutdown, As Congress Begins 'Crazy' Three Weeks.
  

Zero Hedge:

• UBS' George Magnus Says European "Viability is Far From Assured".

The Detroit News:

• Wikileaks Details U.S. Help for Big 3. Wiki documents show how diplomats wield influence globally on carmakers' behalf.

Ad Age:

• Ad Spending Grows Again in the Second Quarter - but Growth Slows Again, Too. The growth in U.S. ad spending continued to slow in the second quarter of 2011, increasing 2.8% from the second quarter of 2010, according to a new report from Kantar Media. U.S. ad spending had increased 4.4% in the first quarter, the smallest rate of growth since ad outlays began rising again. "Advertising grew at a slower rate in the second quarter, contributing to speculation about the durability of an advertising recovery that is into its second year," Jon Swallen, senior VP-research at Kantar Media North America, in said a statement accompanying the new numbers.

Reuters:

• Maersk Line Says Container Sector to Stay Depressed. Conditions in the overall ship container industry will remain depressed in the coming months due to a glut of ships on order, the chief executive of Maersk Line, the world's biggest container shipping company, said on Monday. Prospects for a recovery in the global container shipping industry could be derailed if global economic turmoil spreads and consumer demand in Europe and the United States slides. "Overall the industry is suffering and will probably do so for some months," Maersk Line CEO Eivind Kolding told Reuters on Monday.

USA Today:

• I am going to be honest with the American people by Rick Perry. The first step to fixing a problem is honestly admitting there is a problem. America's goal must be to fix Social Security by making it more financially sound and sustainable for the long term. But Americans deserve a frank and honest discussion of the dire financial challenges facing the nearly 80-year-old program.

Financial Times:

• Currency Basis Swaps as a Funding Tool. (graph) Currency basis swaps are all the rage again. SocGen has even referred to the basis swap market as a key means for managing “access to short-term USD liquidity” in its “hard facts” release. Of course, with everyone swapping cheap euros (obtained probably from the ECB) for US dollars in the currency swap market, rates are starting to reflect the one-sided demand. The latest three-month EURUSD currency swap rate was being quoted at about 123 basis points according to Icap (via Reuters) — worryingly within Lehman territory: