Today's Headlines

Bloomberg:

• Central Banks Push Dollar Cost to August Lows. Policy makers’ decision to offer unlimited dollar loans pushed the cost for European banks to fund in the U.S. currency back to levels at the end of August, indicating markets view the measures as a short-term fix. “This has done a trick,” said John Raymond, an analyst at CreditSights Inc. in London. “Whether it’s done the trick is another matter. The underlying issue of Greece is still there.” The cost of converting euro payments into dollars, measured by the three-month cross-currency basis swap, plunged 16.8 basis points to 81.9 below the euro interbank offered rate in London. That’s after the European Central Bank and peers in the U.K., Switzerland, Japan and the U.S. said they’ll provide unlimited three-month money to lenders in three tenders starting October.
• Bond Risk Falls in Europe as ECB, Fed Coordinate on Bank Loans. The cost of insuring European sovereign and corporate debt extended declines after the European Central Bank said it will lend dollars to euro-area banks and as the prospect of default by Greece receded. The Markit iTraxx SovX Western Europe Index of swaps tied to 15 governments dropped 16 basis points to 327 as of 4:25 p.m. in London, the lowest since Sept. 9 and signaling an improvement in perceptions of credit quality. Swaps on France fell 11 basis points to 170, contracts on Italy dropped 21 basis points to 450 and Spain fell 20 basis points to 372, CMA prices show. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 10.25 basis points to 173.75. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers dropped 24 basis points to 261, the lowest since Sept. 8, while the subordinated index was down 45.5 basis points at 472. Contracts on UBS AG fell, reversing an earlier increase when Switzerland's biggest bank said it may post a third-quarter loss after unauthorized trading at its investment bank cost it about $2 billion. Contracts insuring the lender's senior bonds fell 12 basis points to 198, while those on its subordinated notes dropped 15 basis points to 322, according to CMA. The Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings decreased 27 basis points to 714, according to JPMorgan Chase & Co. at 5 p.m. in London.
• Euribor-OIS Spread Falls for Third Day Amid Backing for Greece. A gauge of banks’ reluctance to lend to each other in Europe fell for a third day after Germany and France insisted they saw a future for Greece as part of the euro region. The Euribor-OIS spread, the difference between the three- month euro interbank offered rate and overnight index swaps, was at 77.2 basis points as of 11:17 a.m. in London, down from 79.6 yesterday and 84.6 on Sept. 12, which was the highest level since March 2009.
• Consumer Prices, Jobless Claims Exceed Forecasts. The cost of living in the U.S. climbed more than forecast and unemployment claims rose, battering the confidence of Americans squeezed by stagnant wages and higher prices of food, housing and energy. The consumer-price index increased 0.4 percent in August, and jobless claims climbed by 11,000 to 428,000 in the week ended Sept. 10, Labor Department figures showed today in Washington. The Bloomberg Consumer Comfort Index held last week at the second-lowest level of 2011 as the most households in three years said it was a bad time to spend. Today’s report showed inflation-adjusted hourly wages fell 0.6 percent in August, the most since July 2008, and were down 1.9 percent from the same month a year ago.
• Gold Slumps on Signs Europe Cash Infusion May Ease Sovereign-Debt Crisis. Gold dropped to a two-week low on signs that European banks will have enough cash through yearend, easing concern that the region’s debt crisis will worsen and eroding demand for the metal as an alternative asset. “This is an initial knee-jerk reaction after ECB’s statement as people are viewing it positive for the European economy,” Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago, said in a telephone interview. “The ECB has managed to find a band-aid for now.” Gold futures for December delivery fell $39.90, or 2.2 percent, to $1,786.60 an ounce at 10:01 a.m. on the Comex in New York, after touching $1,779.70, the lowest since Aug. 29. Before today, the precious metal climbed 29 percent this year, reaching a record $1,923.70 on Sept. 6.
• Commodity Derivatives May Need More Regulation, IOSCO Says. Global regulators may need to tighten their rulebooks for commodity derivatives markets to ensure they operate transparently and free from abuse, the International Organization of Securities Commissions said. IOSCO recommended supervisors use position limits, publication of open contracts and reporting of over-the-counter derivatives to tame commodity markets that operate in “disorderly conditions,” according to an e-mailed statement. The principles “help to ensure that the physical commodity derivatives markets serve their fundamental price discovery and hedging functions, while operating free from manipulation and abusive trading schemes,” Masamichi Kono, chairman of IOSCO’s technical committee, said.
• Boehner Asks Panel to Reject Tax Rate Hikes. House Speaker John Boehner called on the congressional debt-reduction supercommittee to lay the foundation for a tax-code overhaul that would reject rate increases and curb some tax breaks.
• Morgan Stanley(MS) Names Gorman Chairman. Morgan Stanley, the sixth-biggest U.S. bank by assets, said Chief Executive Officer James Gorman will take the additional job of chairman of the board on Jan. 1 as John Mack steps down.
• iPhone 5 Rush Orders Seen to Benefit Broadcom(BRCM). Broadcom Corp. (BRCM) stands out as one of the biggest beneficiaries from orders from Apple Inc. (AAPL), whose need for parts that go into iPhones and iPads represents a bright spot for a semiconductor industry plagued by weak demand.
• GOP Uses Solyndra to Bash Obma's Jobs Plan. House Republicans used a hearing on Solyndra LLC’s slide into bankruptcy to attack the Obama administration’s stimulus plans, past and proposed, showing the issue may linger as a political liability for the White House.The Fremont, California, solar-panel maker won a $535 million federal loan guarantee in September 2009, the first awarded by the Energy Department, using funds from that year’s stimulus package. The company filed for bankruptcy protection on Sept. 6, and the FBI raided its offices two days later. Republicans released a report at a House Energy and Commerce Committee panel hearing yesterday that they said showed White House officials sought to rush a decision on the loan award, and that Energy Department officials failed to see signs of the rising risks in supporting the company. Solyndra is a “poster child” of the first stimulus and a reason to oppose Obama’s proposed $447 billion package intended to create jobs, Representative Steve Scalise, a Louisiana Republican, said at the hearing.

Wall Street Journal:

• Yahoo(YHOO) Interest From Possible Bidders.
  

CNBC.com:

• Geithner Is Likely to Suggest Europe Leverage Bailout Fund. Treasury Secretary Timothy Geithner is likely to suggest to European finance ministers on Friday that they leverage their bailout fund along the lines of the U.S. TALF program, EU officials said.

Business Insider:

• Leon Cooperman's 'Avoid Treasuries' Call Turns Into Big Rant.

Zero Hedge:

• SocGen Redux - ETF Trader at Center of UBS(UBS) Rogue Trade.
• U.S. Misery Index at Fresh 28-Year High. (graph)
  

Reuters:

• EU Debt Woes Raising Risk to Commodities Outlook - Goldman(GS). Debt problems in the European Union are raising the risk to a bullish view for commodities, but a deeper recessionary event would be required to derail the outlook, Goldman Sachs analysts said on Thursday.
• Does The Euro Have a Future? by George Soros.
  

Telegraph:

• China Risks Hard Landing as Global Woes Spread. China's carefully-managed soft landing is turning harder by the day, threatening to deflate the torrid credit bubble of the past three years.

Financial Times Deutschland:

• Europe's rescue fund would have to be used to bail out banks facing losses on Greek sovereign bonds if the country defaults, citing people in Germany's governing coalition. The comments show that European policy makers are considering the possibility of a Greek default.

Sueddeutsche Zeitung:

• Greece won't be able to avoid a sovereign default even with an expanded European bailout fund, citing an analysis from the Kiel, Germany-based IfW Institute. The government in Athens would have to generate surpluses that have been historically impossible in order to remain solvent, citing the researchers. Greece's fiscal problems won't be manageable without a "significant" debt restructuring, the research paper said.

Handelsblatt:

• German Chancellor Angela Merkel was urged by Wolfgang Franz, the head of her council of economic advisers, to oppose secondary-market bond purchases by Europe's overhauled rescue fund, citing an interview with Franz. Joint debt issuance by euro-area countries, known as euro bonds, is illegal after a ruling this month by Germany's Federal Constitutional Court, Franz said.

Dagens Naeringsliv:

• Norway's Foreign Minister Jonas Gahr Stoere said it wasn't immediately apparent that the euro would survive the current crisis, citing the minister. The euro zone requires greater integration to succeed with a common currency system, which may not be achievable in today's Europe, Stoere said. The minister said he wasn't convinced the EU would be able to cope with the debt crisis, as it lacked the instruments required to respond to the challenges.

L'Hebdo:

• Jean-Pierre Roth, the former president of the Swiss National Bank, said he's "very pessimistic" about Europe's economy as governments struggle to contain the region's debt crisis. Historians will judge this period as a "total failure" of European leadership, Roth said.

El Pais:

• The wealth tax that Spain's government plans to re-introduce tomorrow will affect 150,000 people and raise 1 billion euros, citing a Public Works Minister Jose Blanco, who is also the government's spokesman.

Epoch Times:

• Chinese State Media Use 9/11 Anniversary for Anti-American Reports. While the 10th anniversary of 9/11 was a solemn occasion in the U.S., and a chance to remember America’s values of freedom and democracy, for Chinese state media it was a chance to go on the offensive.

Bear Radar

Style Underperformer:

• Mid-Cap Growth (+1.10%)

Sector Underperformers:

• 1) Alternative Energy -.59% 2) Gold & Silver -.39% 3) Homebuilders +.29%

Stocks Falling on Unusual Volume:

• PWRD, AIXG, NFLX, VECO, STMP, CYOU, ASNA, INSU, NTES and CLC
  

Stocks With Unusual Put Option Activity:

• 1) CNQ 2) P 3) SWN 4) YGE 5) NFLX
  

Stocks With Most Negative News Mentions:

• 1) KR 2) CL 3) GIII 4) HCA 5) NFLX
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (+.59%)

Sector Outperformers:

• 1) Oil Tankers +1.89% 2) I-Banks +1.19% 3) Energy +1.17%

Stocks Rising on Unusual Volume:

• GIII, NXPI, CSTR, RMBS, ALXN, ARUN, HCA, XTXI and TXT
  

Stocks With Unusual Call Option Activity:

• 1) CCL 2) TOL 3) EXXI 4) VVUS 5) ESRX
  

Stocks With Most Positive News Mentions:

• 1) GII 2) ONYX 3) S 4) ASCA 5) ABT
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• Money Funds' Cuts to French Banks Could Force Sales. U.S. money-market fund managers 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.
• European Bank Blowups Hidden With Shell Games: Jonathan Weil. The last time the world had a major banking crisis, fair-value accounting rules were near the top of the list of scapegoats most likely to be denounced by government and industry leaders. Not so this go-around. Today many of Europe’s largest financial institutions are seemingly on the brink again, driven by fears of pent-up losses stemming from the sovereign-debt debacle. Only you don’t hear much criticism of fair-value reporting anymore. That’s probably because the accounting mandarins gutted many of their fair-value rules in response to the financial system’s near-meltdown three years ago. This hasn’t made banks safer. It has given politicians and bankers one less culprit to blame, though.
• Currency 'Ugly Contest' Signals Euro to Weaken: Chart of the Day. The euro may win the “ugly contest” and drop against the dollar, as Europe’s debt crisis makes the region more likely to fall into an economic recession than the U.S., according to Westpac Banking Corp.
• A potential double-dip recession among developed economies could have "tough knock-on effects" for Asia-Pacific nations, S&P said today. "While not our base-case scenario, the region could be in for a hard landing if the U.S. and eurozone enter another recession," says Michael Petit, S&P's head of corporate and government ratings for Asia-Pacific.
  
• SocGen Says It's Underweight in Commodities Which Are Now in 'Danger Zone'. Societe Generale SA’s global asset allocation team went “underweight” on commodities, saying the asset class is in the “danger zone.” The team recommends that investors position for higher gold prices and lower oil prices, one of seven key calls made in the report distributed today by the Paris-based bank. The precious metal should benefit from risk aversion, central-bank purchases and negative real interest rates, the team wrote. Crude and copper may decline as economic growth slows and the dollar gains against the euro. “Prices of cyclically sensitive commodity prices, such as crude oil and copper, have held up well over recent weeks despite the recent deceleration in economic activity,” Societe General strategists Alain Bokobza, Roland Kaloyan, Arthur Van Slooten and Philippe Ferreira wrote in the report. “This should contribute to a meaningful drop in the prices of these commodities.” The Standard & Poor’s GSCI gauge of 24 commodities is down 14 percent since reaching a two-year high on April 11 amid mounting concern that demand for fuel, metals and food will slow as the European debt crisis deepens, U.S. employment stagnates and Chinese demand slows. This week, the dollar climbed to the highest since February against a basket of six major currencies, including the euro. Investor skittishness over the spread of Europe’s debt crisis has raised banks’ funding costs and roiled markets worldwide. European governments are aiming to ratify a July 21 agreement to bolster the euro bailout fund and extend a second rescue to Greece. Moody’s Investors Service cut long-term credit ratings today for SocGen and Credit Agricole SA by one level, citing risks posed by the banks’ investments in Greece. Speculators are holding their biggest wager on higher commodity prices in almost three months, U.S. Commodity Futures Trading Commission data show, anticipating shortages of everything from corn to copper.
• Fighters Tied to Pakistan Hit Kabul Embassy: U.S. A guerrilla faction with ties to Pakistan’s military intelligence agency hit the U.S. Embassy in Kabul with a half-dozen rocket-propelled grenades, American Ambassador Ryan Crocker said. The attackers who seized a high-rise building under construction belonged to the Jalaluddin Haqqani group, which operates largely from a sanctuary in Pakistan’s borderland with Afghanistan, Crocker said after Afghan forces ended the 20-hour siege yesterday. “The information available to us is that these attackers” are “part of the Haqqani network, they enjoy safe haven in northern Waziristan,” Crocker said in Kabul.

Wall Street Journal:

• Europe Lending Woes Deepen. Two Banks Tap ECB for Dollars; Companies Look Beyond Euro Zone for Loans. Europe's financial crisis intensified Wednesday as banks moved to obtain more dollars for loans to their U.S. customers, and some nervous corporate clients began looking to banks outside the euro zone for loans. Tensions in the 17-nation euro zone are increasing despite attempts by central banks to pump badly needed dollars into the region, as U.S. sources have shrunk. On Wednesday, the European Central Bank said two banks had tapped it for $575 million, only the second time in six months the ECB has doled out dollar funding. The names of banks that tap the ECB are kept confidential.
  
• SEC Widens CDO Probe. Agency in Talks With Citigroup(C) on Settlement, Examines Mizuho Financial Deals. Securities regulators are stepping up their probe into mortgage-bond deals at the heart of the financial crisis, including by pushing for a settlement of more than $200 million with Citigroup Inc., according to people familiar with the matter. Securities and Exchange Commission officials are in advanced talks with Citigroup to settle civil charges related to a $1 billion mortgage-bond deal called Class V Funding III and created by the Wall Street company in 2007.
• Auto Dealers Oppose Gas Rules. The nation's politically influential automobile dealers, emboldened by the Obama administration's recent retreat on tougher smog regulations, are revving up a lobbying effort to block fuel-economy rules proposed by the administration. More than 400 dealers are set to fly to Washington in coming days to press legislation that would block the automobile rules for at least a year. They argue the new rules—which would raise the average fuel economy of new cars and light trucks to 54.5 miles a gallon over the next 14 years—would be too costly and lead to job losses.
• Commodity Fund Faces Shake-Up. High-profile commodity hedge-fund manager Paul Touradji, facing what could be his flagship fund's first losing year, is stepping back in to run his firm's trading business full-time. Mr. Touradji, a former protege of Julian Robertson's at Tiger Management, plans to drop responsibility for day-to-day management of Touradji Capital Management LLC to fully focus on trading, according to people familiar with the matter. As part of the shake-up, two other executives will leave the firm, and Touradji Capital plans to bring on new employees who can help expand the firm's business with institutional investors, the people said.
• Hedge Fund State of Mind. As many hedge funds found out during the financial crisis, the most-sophisticated investors can lose patience quickly when performance lags. Could state pension funds prove more forgiving? Such public funds from Alabama to Arkansas, which manage over $2 trillion in assets, have historically been slow to trust complex investment strategies. Pensions had 10% in alternatives like hedge funds and private equity in 2010, according to the National Association of State Retirement Administrators. While that's an increase from 3% in 2001, it still falls far short of many university endowments. One alternative asset class that may get a welcome boost is the struggling "funds of funds" business. These entities charge an extra layer of fees to build portfolios from individual hedge funds, which charge their own high fees. The funds of funds sector peaked at nearly $800 billion in assets in 2007. But after hedge funds' performance slumped during the financial crisis, the sector saw $171 billion in outflows between 2008 and 2010, according to Hedge Fund Research. The number of funds of funds has also shrunk. Many that did survive lost a large portion of their investors, leaving them heavily exposed to a few key investors. This year, though, funds of funds have seen slight net inflows of money. Helping tip the scale are pension funds like Kentucky Retirement Systems, which had no hedge fund investments before the crisis. It recently committed $1.2 billion of its $14.9 billion portfolio to funds of funds. A key reason for the move: overexposure to equities. State pension funds had 50.9% of their portfolios in equities at the end of 2010. The problem with elevated equity exposure became obvious in times like August, when many pensions experienced wild swings in their portfolios. And stocks have been volatile over the long term. The S&P 500 has generated an average annual return of 8.5% including dividends since 1990, while funds of funds generated 7.9%, according to Hedge Fund Research. But those statistics don't capture much higher volatility in the S&P 500. Hedge Fund Research found volatility in the broader market was nearly three times that of its index of funds of funds.
• Hedge Fund Titans Ponder Greece Doomsday. Some of the stars of the hedge fund world on Wednesday afternoon were playing a game of “what if?” Namely, what if Greece defaults?
• Economy Clips Factories. The earnings outlook for American manufacturers, whose rebound propelled the U.S. recovery last year, is deteriorating as the global economy sputters. Big industrial companies generally haven't begun chopping their own forecasts, but analysts are starting to do it for them. The average Wall Street forecast for 2012 earnings growth by 35 industrial companies included in the Standard & Poor's 500-stock index stood at about 16% Wednesday, down from 19% as of June 30, according to FactSet Research Systems.
• A Blue-State Bailout in Disguise. Our new study shows that under the Obama jobs bill, debt-ridden states will get another big handout. Last Thursday, the president urged Congress to pony up roughly $200 billion in taxpayer money to "provide more jobs for teachers [and] more jobs for construction workers" and more money to carry out other state and local activities. He urges Congress to spend this money even after handing out hundreds of billions of dollars for similar purposes as part of the 2009 stimulus package, as well as a score and more billion dollars again in 2010. These vast contributions to the coffers of state and local governments, though pitched as a jobs bill, are in reality the latest in a series of bailouts for debt-ridden state and local governments. They are of special benefit to states in the blue regions of the country where the president's most fervent supporters reside.

MarketWatch:

• China's BYD Suffers Mounting Troubles. What Chinese call “white terror” is gripping sales teams at BYD Auto dealerships around the country, as the once-rising star of the domestic car industry struggles with a slowdown. “White” refers to silence: Employees have been clamming up when asked about the business climate and an alleged staff shake-up that may lead to thousands of layoffs or dealer shop-to-factory job transfers by the end of September. The “terror” is about jobs. An Aug. 29 report by a microblogger named Yaluzang said: “All marketing and sales divisions of BYD Auto are being dissolved. (Employees) have to go by Sept. 30.”
• China's Role in World Overestimated, Says CCB Head. Some countries have overestimated China's role in the global economy, Guo Shuqing, chairman of state-run China Construction Bank Corp. (0939.HK), said Thursday. Speaking at the World Economic Forum in China's northeastern coastal city of Dalian, Guo, a former deputy governor of China's central bank, said he doesn't think China can purge the world of the economic crisis. He also said China doesn't have a big say in the pricing of raw materials although it's now the world's largest buyer of commodities.

Business Insider:

• The Big Ideas That Falcone, Loeb, And Cooperman Presented In New York Today.

Zero Hedge:

• SAT Reading Scores Hit All-Time Low. (graph)
• First Anti-Euro Protest in Front of the ECB.
• Shadow Banking Contagion Approaches as European Banks Sign Private Repo Agreements With US Counterparts.
  

NY Times:

• Judge Says Hedge Funds May Have Used Inside Information. There have long been whispers on Wall Street that hedge funds have hijacked the bankruptcy process, using their influence as debt holders to obtain and trade on insider information about when and how a company will restructure. A federal court ruling highlighted such concerns late Tuesday when a judge raised the possibility that four large hedge funds might have used confidential information to trade in the debt of Washington Mutual. The four hedge funds are Appaloosa Management, Aurelius Capital Management, Centerbridge Partners and Owl Creek Asset Management.

Seeking Alpha:

• Recent Sovereign and State CDS Trends; France Now More Risky Than California and New York. (graphs)
  

Chicago Tribune:

• Exclusive: French Banks Dial Down Asian Oil Derivatives. French banks have scaled back activity in the Asian oil swaps market this week, mainly in crude, traders said on Wednesday. Counterparties and trading partners of Societe Generale, Credit Agricole and BNP Paribas told Reuters they were "watching developments" after credit downgrades for two of the banks and a negative outlook for the third. In the Asian over-the-counter crude swaps market, SocGen and Credit Agricole have reduced activity levels this week compared to last week, having been active in that market for much of this year, the sources, who declined to be named, said. The trade sources said BNP Paribas has been selling aggressively at lower price levels on less liquid back-of-the-curve months, suggesting it was liquidating positions. "I think BNP is not taking positions but liquidating given their aggressive stance," a trading source said. Liquidating positions may help the three banks preserve cash as their borrowing costs have ballooned. None of the three French banks are in the top tier of investment banking in the global commodities markets. Their value at risk in commodities, a barometer of how much money a bank has at stake on any given day, is dwarfed by the big players including Deutsche Bank, Goldman Sachs and Morgan Stanley.

Reuters:

• Goldman(GS) Asset Management CIO Domotorffy Retires. Katinka Domotorffy, the head of Goldman Sachs Group Inc's (GS.N) quantitative investment strategies group, will leave the bank at the end of the year, according to an internal memo, as one of its biggest hedge funds continues to suffer from weak performance. Domotorffy is a Goldman veteran who joined the bank in 1998 as a portfolio manager and researcher. She took on her most recent title as chief investment officer and head of QIS within the asset management division in 2009 when Mark Carhart and Raymond Iwanowski, co-founders of Goldman's prominent Global Alpha Fund hedge fund, retired. Armen Avanessians will be taking over as head of the global quantitative business, according to the memo obtained by Reuters that was sent by Timothy O'Neill and Edward Forst, co-global heads of investment management. Goldman also hired Ron Hua as a partner to serve as chief investment officer and head of quantitative equity alpha businesses. The Global Alpha Fund is down 12 percent this year, according to sources familiar with the matter.
• US SEC: No Investigations Hurt by Destroyed Records. A past practice of destroying certain pre-investigative materials has not harmed any current or future investigations by the Securities and Exchange Commission, the U.S. agency's enforcement chief said on Wednesday. The comments from SEC Enforcement Director Robert Khuzami, which were made in a letter to Senator Charles Grassley, mark the strongest defense by the SEC yet after an internal whistleblower accused the agency of wrongfully destroying important investigative files, including so-called "matters under inquiry," or MUIs.
• World Bank Chief Says Economy in Danger Zone. World Bank President Robert Zoellick said on Wednesday the world had entered a new economic danger zone and Europe, Japan and the United States all needed to make hard decisions to avoid dragging down the global economy. "Unless Europe, Japan, and the United states can also face up to responsibilities they will drag down not only themselves, but the global economy," Zoellick said in speech at George Washington University. "They have procrastinated for too long on taking the difficult decisions, narrowing what choices are now left to a painful few," he said ahead of meetings of the World Bank and International Monetary Fund next week. His bluntly-worded speech highlighted mounting fears among global policymakers about an escalating sovereign debt crisis in Europe, which has for now overshadowed investor concerns about public finances and reforms in the United States and Japan.

Financial Times:

• American Superconductor(AMSC) Sues Chinese Group. A US high-technology company that was once a star of the clean energy sector is suing Sinovel, China’s largest wind turbine manufacturer, over alleged software theft, in one of the most acrimonious conflicts to break out between US and Chinese companies over the sensitive issue of intellectual property.

Telegraph:

• Will German Indecision on the Euro Drag the Whole World Down? Monetary union hasn’t worked, but Germany, Europe’s strongest nation, won’t face the consequences.

Les Echos:

• Nick Hill, head of French and Benelux financial institutions at Moody's Investors Service, said in an interview that French banks may suffer from tensions in refinancing markets. The longer that market tensions continue, the greater the chance of exceptional measures by French banks that could affect strategy and profitability, Hill said.

Xinhua:

• S. Korea's Swap Market Reflects Deep Concerns Over Europe's Fiscal Crisis. South Korea's cross-currency swap market plunged on Wednesday as investors took hefty receiving positions in the market due to deepening concerns over the possible Greek default and the potential credit crunch of the European banks. The cross-currency dollar/won swap rates tumbled by some 35 basis points (bps) in all tenors, with the 1-year and 2- year rates diving to 1.38 percent and 1.20 percent respectively. The 35-basis-point was the largest daily drop since February 2009. The nation's interest rate swap (IRS) rates fell sharply following the sharp falls in the cross-currency swap rates, with the 1-year and 2-year IRS rates sliding to 3.365 percent 3.305 percent each. The swap basis, or the difference between the cross-currency swap rate and the IRS rate, widened sharply, with the 1-year and 2-year basis jumping to 198.5 bps and 210.5 bps respectively. "The cross- currency swap rates dropped relatively sharply as the market reflected negative issues from Europe at one time after the four- day holiday, but it is true that worries about the European fiscal crisis deepened as the possible Greek default may trigger credit crunch among European banks," a swap dealer at the local branch of a European bank, who declined to be identified,told Xinhua.
  

Economic Information Daily:

• China's property market may face risks of "over adjustment," which may cause default on some loans by local government finance vehicles that they've pledged to repay with land sales, citing Ba Shusong, a researcher at the State Council's Development Research Center. Property investments may drop beyond a "reasonable level" by the end of this year or in 2012 as the government further restricts home purchases, curbs borrowing by developers and increases regulation of the "shadow banking" industry, citing Ba.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 175.0 -4.0 basis points.
  
• Asia Pacific Sovereign CDS Index 158.25 -3.5 basis points.
• FTSE-100 futures +.62%.
  
• S&P 500 futures -.30%.
  
• NASDAQ 100 futures -.24%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PIR)/.14
• (DMND)/.44
• (AIR)/.45

Economic Releases
8:30 am EST

• The Consumer Price Index for August is estimated to rise +.2% versus a +.5% gain in July.
• The CPI Ex Food & Energy for August is estimated to rise +.2% versus a +.2% gain in July.
• The 2Q Current Account Balance is estimated at -$122.4B versus -$119.3B in 1Q.
• Empire Manufacturing for September is estimated to rise to -4.0 versus -7.72 in August.
• Initial Jobless Claims are estimated to fall to 411K versus 414K the prior week.
• Continuing Claims are estimated to fall to 3710K versus 3717K the prior week.
  

9:15 am EST

• Industrial Production for August is estimated unch. versus a +.9% gain in July.
• Capacity Utilization for August is estimated at 77.5% versus 77.5% in July.
  

10:00 am EST

• Philly Fed for September is estimated to rise to -15.0 versus -30.7 in August.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Tarullo speaking, ECB's Trichet speaking, Fed's weekly balance sheet/M1, M2 reports, weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, BMO Capital Education Conference, (MOH) investor day, (BWC) analyst day, (RENT) investor day and (RBCN) analyst meeting could also impact trading today.
  

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

Stocks Rising into Final Hour on Falling Eurozone Debt Angst, Declining Energy Prices, Short-Covering, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Around Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 34.15 -7.48%
  
• ISE Sentiment Index 103.0 -24.26%
  
• Total Put/Call 1.06 -10.92%
  
• NYSE Arms .34 -61.65%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 130.19 -3.33%
  
• European Financial Sector CDS Index 270.59 -3.63%
  
• Western Europe Sovereign Debt CDS Index 341.83 -2.93%
  
• Emerging Market CDS Index 309.50 +.67%
  
• 2-Year Swap Spread 34.0 +1 bp
  
• TED Spread 35.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 183.0 +5 bps
  
• China Import Iron Ore Spot $179.0/Metric Tonne -.22%
  
• Citi US Economic Surprise Index -39.40 -.9 point
  
• 10-Year TIPS Spread 1.93% -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +135 open in Japan
• DAX Futures: Indicating +90 open in Germany

Portfolio:

• Higher: On gains in my Tech, Biotech, Medical and Retail sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my(EEM) short, then added some back
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 surges meaningfully higher to session highs, despite Eurozone debt angst, US tax hike concerns, some disappointing economic data, emerging markets inflation fears and global growth worries. On the positive side, Software, Computer, Semi, Disk Drive, Networking, Computer Service, Bank, Education, Road & Rail and Airline shares are especially strong, rising more than +3.0%. Small-Cap and Cyclical shares are outperforming. Tech stocks have traded very well throughout the day. Oil is declining -1.06%, gold is falling -1.05% and the UBS-Bloomberg Ag Spot Index is down -1.2%. The Spain sovereign cds is falling -5.91% to 375.33 bps, the France sovereign cds is declining -5.98% to 181.0 bps, the Italy sovereign cds is falling -6.09% to 473.50 bps, the Portugal sovereign cds is declining -5.96% to 1,138.18 bps, the Ireland sovereign cds is falling -6.41% to 831.67 bps and the Belgium sovereign cds is falling -4.98% to 277.67 bps. On the negative side, Telecom and REIT shares are underperforming, rising less than +1.25%. Lumber is down -.27% and Copper is falling -1.5%. Rice is still very near its multi-year high, rising +35.0% in about 10 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.63/gallon. It is up .49/gallon in about 7 months. The Greece sovereign cds is soaring +24.3% to 5,034.45 bps, the Russia sovereign cds is gaining +1.83% to 227.0 bps, the Israel sovereign cds is gaining +1.4% to 188.60 bps and the Brazil sovereign cds is gaining +2.64% to 175.0 bps. The Greece sovereign cds is hitting an all-time high again today. The Germany sovereign cds is still near its record high. The Eurozone Financial Sector CDS Index and the Western Europe Sovereign CDS Index are still near all-time highs. The The UBS-Bloomberg Ag Spot Index is still near its recent record high, which is also a large negative. Korean shares plunged -3.52% overnight to the low end of their recent range and are now down -14.7% ytd. Most gauges of eurozone debt angst remain very elevated and continue to trend higher, despite today's pullbacks. Today's volume was better, but still not good. Europe is attempting to kick the can down the road again, which could lead to more short-covering/bargain-hunting in the near-term. However, the situation is still very problematic as Europe's "solutions" will only further dampen economic activity and worsen budgets over the longer-term. I expect US stocks to trade modestly higher into the close from current levels on declining eurozone debt angst, short-covering, bargain-hunting, technical buying and falling energy/food prices.

Today's Headlines

Bloomberg:

• Stocks, Euro Gain on Europe Debt Optimism. Stocks extended gains, sending the Standard & Poor’s 500 Index higher for a third day, as German and French leaders expressed support for Greece to remain in the euro monetary union and speculation grew that China may offer help for Europe’s most-indebted nations. The euro rose against most peers, while commodities fell. U.S. stocks and the euro extended gains as French President Nicolas Sarkozy and German Chancellor Angela Merkel said they're “convinced” Greece will remain in the euro area, according to a statement issued by Sarkozy after they spoke to Greek Prime Minister George Papandreou by telephone today. Italian and Spanish debt rose as Caijing reported that China is willing to buy bonds of nations hit by the debt crisis, citing Zhang Xiaoqiang, a vice chairman of the National Development and Reform Commission. “There’s still hope out there that Europe will get their issues worked out and that Greece is not as big a problem as people think,” Don Wordell, a fund manager for Atlanta-based RidgeWorth Capital Management, which oversees about $48 billion, said in a phone interview.
• The cost of insuring European sovereign and corporate debt fell for a second day, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps tied to 15 governments dropped 11 basis points to 341 as of 1 pm in London.
• Credit Agricole Debt Ratings Cut by Moody's Along With Societe Generale's. Credit Agricole SA (ACA) and Societe Generale SA, France’s second- and third-largest banks, had their long-term credit ratings cut one level by Moody’s Investors Service, which now plans to examine the impact of tighter financing markets on French lenders. Moody’s put the companies, along with BNP Paribas (BNP) SA, on review for a possible downgrade on June 15, citing the risks posed by their investments in Greece. Since then, concern over Europe’s escalating sovereign debt crisis has crimped European banks’ ability to raise funds in dollars. “We extended the review to take into account the system fragility in the banks’ financing markets,” said Nicholas Hill, senior vice president at Moody’s in Paris, in an interview.
• Euro Strengthens as European Leaders Work to Contain Region's Debt Crisis. The euro rose against the majority of its most-traded counterparts as optimism increased that area leaders will work to avoid a default in Greece and contain the region’s debt crisis.
• China has its own problems such as asset bubbles and inflationary pressure, Li Daokui, an adviser to the People's Bank of China said. The government should be "super cautious" in navigating the "troublesome weather" and puts its own domestic policies in proper orders, he said. China can help the U.S. and Europe by increasing its investments there and not by buying bonds, Li said.
• China Willing to Buy Bonds From Crisis Nations. China is willing to buy bonds from nations involved in the sovereign debt crisis, National Development and Reform Commission Vice Chairman Zhang Xiaoqiang said in an interview with the media in Dalian yesterday. China is willing to offer assistance, Zhang said without elaborating, adding that Premier Wen Jiabao made similar remarks earlier, according to a transcript distributed on the planning agency’s website yesterday evening.
• Retail Sales in U.S. Unexpectedly Stagnate. The unchanged reading followed a 0.3 percent gain for July that was smaller than previously estimated, Commerce Department figures showed today in Washington. Prices paid by producers were also unchanged in August, according to the Labor Department, while so-called core costs that exclude food and fuel rose less than forecast.
• Intel(INTC) Plans First Straight Bond Issue in 24 Years to Fund Stock Buybacks. Intel Corp. (INTC), the world’s largest chipmaker, is planning its first non-convertible bond offering in more than two decades as corporate debt issuance revives in September with borrowing costs at about record lows. The company plans to sell at least $1.5 billion of debt maturing in five, 10 and 30 years, mainly to fund stock buybacks, Santa Clara, California-based Intel said today in a statement distributed by Business Wire. Intel last tapped the market for bonds that aren’t convertible into stock in 1987, according to data compiled by Bloomberg.
• Obama Plan to Begin Taxing Health Insurance Stirs Democrat Opposition. President Barack Obama is asking lawmakers to tax the health-insurance benefits of top earners, stirring opposition from congressional Democrats who fought a similar proposal in the 2010 health-care law. The provision, tucked deep inside the 155-page jobs legislation Obama submitted to Congress on Sept. 12, would make health plans provided by employers partially taxable for couples earning more than $250,000 a year and individuals earning more than $200,000. For these taxpayers, the proposal is a dramatic departure from their current tax treatment, in which all their health benefits are exempt from taxation. It also revives a debate among Democrats over whether taxing health-insurance plans for the wealthy sets the stage for one day expanding the tax to lower-income brackets.
• Obama Aides Pushed for Solyndra Decision. President Barack Obama’s aides pressured White House budget officials to complete a review of a $535 million U.S. loan guarantee to Solyndra LLC, a solar-panel maker that has filed for bankruptcy protection, according to a U.S. House committee report based on e-mails and documents. Republicans on the House Energy and Commerce Committee released the findings of a seven-month investigation into U.S. support for Fremont, California-based Solyndra today before a hearing where two administration officials faced questions about White House support for the company and its goals for clean energy. The Department of Energy and the Office of Management and Budget “did not take adequate steps to protect taxpayer dollars,” according to the report. Solyndra, promoted by the Obama administration as a successful example of the use of stimulus money to spur development of a clean-energy industry, filed for bankruptcy on Sept. 6, and two days later its offices were raided by the Federal Bureau of Investigation. “Was Solyndra just one bad bet by an administration rushing to claim credit for the first loan guarantee, or is it the tip of the iceberg?” said Committee Chairman Fred Upton, a Michigan Republican. Documents collected during the Republicans’ investigation “raise troubling questions” about whether the staff at the Office of Management and Budget “was rushed to complete its review of the Solyndra loan guarantee by Sept. 4, 2009, in time for a groundbreaking event organized at Solyndra’s facilities organized by the White House,” according to the report.

Wall Street Journal:

• Noda 'Concerned' Over Chinese Military Build-Up. Japan's Prime Minister Yoshihiko Noda voiced concern over China's military build-up and increased maritime activity near Japan, even as he emphasized the importance of ties between Asia's two largest economies. "I have concerns over the lack of transparency in [China's] reinforcement of its national defense capability, as well as the acceleration of maritime activities" by Beijing, Mr. Noda said Wednesday during a parliamentary session. "I expect China to play an appropriate role as a responsible member of the international community."
• US Bancorp(USB) Wants to Boost Dividend. U.S. Bancorp Chairman and Chief Executive Richard Davis said the bank will be asking federal regulators for permission to raise its dividend and buy back more shares, with approval likely coming early next year. Davis, speaking Wednesday at the Barclays Capital financial conference in New York, reiterated the bank expects to use anywhere from 60% to 80% of its earnings for dividends and repurchases. He said the nation’s biggest banks are expecting to deliver new stress-test scenarios to regulators by the end of the year and would expect to receive regulatory approval on capital plans in the first quarter of the year. “Well, you can bet we are going to be asking for permission to raise the dividend,” said Davis, the head of the nation’s fifth largest bank.
• Hedge Fund Fees Totally Worth It, Says Hedgie.
• Papandreou to Ask Sarkozy, Merkel to Squelch Criticism, Default Leaks - Sources. Greek Prime Minister George Papandreou later Wednesday will ask German Chancellor Angela Merkel and French President Nikolas Sarkozy to tone down their criticism of Greece and control leaks that the debt-ridden country will default, according to people familiar with the agenda of a planned teleconference.
• MF Global to Cut Staff in Asia, Europe.
  

Business Insider:

• Wow! Top Strategist at Bank of America(BAC) is Replaced 3 Days After He Called for S&P 1450.

9to5Mac:

• Apple's(AAPL) Sprint-Compatible iPad Appears Ready and Waiting for Launch.

San Francisco Chronicle:

• Obama Approval Rating at 46% in California. Even as President Obama's approval rating has plummeted across the nation, it was always sunnier in California. Until now. For the first time since Obama became president in January 2009, fewer than half (46 percent) of California voters approve of his performance as president - a figure that's dropped eight percentage points in three months, according to a Field Poll survey of attitudes toward Obama released today.

Sueddeutsche Zeitung:

• Italy is prepared to give up "all sovereignties necessary" to allow the creation of a European central government," citing Foreign Minister Franco Frattini. The European Union's existing contracts should be extended or changed if necessary to incorporate a "stabilizing finance mechanism," according to the report. The ECB should gain a "political role," while remaining an independent institution, Frattini said.

Globe and Mail:

• Survey Shows Unprecedented Demand for iPhone 5. RBC Dominion Securities Inc. has released details of a proprietary survey that shows “unprecedented” demand for the iPhone 5 and strong back-to-school buying intentions for the iPad. The survey, taken Aug 2 to 10, found that 31 per cent of 2,200 respondents were very or somewhat likely to buy the iPhone 5. That significantly exceeds the 25 per cent of respondents who had said they intended to buy the iPhone 4 ahead of its launch more than a year ago. Meanwhile, 66 per cent of existing iPhone users said they were very or somewhat likely to buy the iPhone 5, suggesting many current customers are planning to upgrade.