Monday Watch

Weekend Headlines
Bloomberg:

• Germany Rejects Using ECB to Lift EFSF Rescue-Fund Firepower. Germany’s top two finance officials rejected using the European Central Bank to boost the euro-area rescue fund’s firepower, rebuffing a suggestion by U.S. Treasury Secretary Timothy Geithner. Inviting Geithner to a euro meeting for the first time, European finance chiefs who wrapped up two days of talks in Wroclaw, Poland, today also said the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation. The German stance risks leaving the euro area without sufficient means to prevent the crisis from engulfing Spain and Italy. Geithner floated a variation of a 2008 policy he developed while at the New York Federal Reserve that would expand the reach of the 440 billion-euro ($607 billion) European Financial Stability Facility using leverage in a partnership with the ECB, said Irish Finance Minister Michael Noonan. “The EFSF’s sole purpose is the financing of states and that’s in order as long as it’s done via the capital market,” Bundesbank President Jens Weidmann told reporters today. “If it’s done via the central bank it constitutes monetary state financing,” which is forbidden under European Union rules. Luxembourg Prime Minister Jean-Claude Juncker, who chairs meetings of euro region finance ministers, said yesterday: “We’re not discussing the increase or the expansion of the EFSF with a non-member of the euro area.” “We don’t think that real economic and social problems can be solved by means of monetary policy,” said German Finance Minister Wolfgang Schaeuble, speaking alongside Weidmann after the meeting of EU finance ministers and central bank governors. “That has never been the European model and it won’t be.” Germany’s credit risk on its contribution to the EFSF may reach 465 billion euros, the Ifo Institute said today. The risk has risen from less than 400 billion euros in April, the Munich- based economic institute said in a statement.
• CSU's Seehofer Sees Greek Euro Exit 'Conceivable,' Spiegel Says. A Greek exit from the euro zone is “conceivable” if rescue efforts fail, Spiegel magazine cited Horst Seehofer, chairman of the CSU party that’s in a governing coalition with Chancellor Angela Merkel’s CDU, as saying in an interview. “If the Greek government and parliament don’t want to or can’t follow this path any longer, we shouldn’t wait until the financial markets force us to face reality,” the magazine quoted Seehofer as saying in an e-mailed preview of the interview. “A Greek exit from the euro zone must then be conceivable.” The “idea of Europe” will live on if the euro zone splits, Spiegel cited him as saying.
• Euro Bulls Capitulating After Trichet Turnaround Leaves Redecker at $1.25. The rebound in the euro and European stocks last week may prove short-lived in the face of increasing pessimism over the region’s debt, if money-market and derivative trading are any indication. While the 17-nation currency strengthened 1 percent against the dollar and the Stoxx Europe 600 Index rose 2.5 percent, U.S. short-term debt funds have reduced lending to European banks and the cost for financial institutions to fund themselves in dollars rose. Goldman Sachs Group Inc. and Morgan Stanley cut forecasts for the currency this month, and bets against the euro rose to the most in more than a year.
• Greek Collateral Discussions Are Ongoing, Katainen Tells Diena. Discussions about whether Greece should post collateral for any loans it gets from other government are taking place “day and night,” Finnish Prime Minister Jyrki Katainen said in an interview with the Latvian newspaper Diena. The kind of collateral hasn’t been worked out, he said, according to the Riga-based newspaper. The euro region will “definitely not collapse,” he said, though it needs a supervisory agency that ensures member states adhere to rules, according to the newspaper.
• China Home Prices Rise, Challenge Curbs. China’s new-home prices rose in August in all 70 cities monitored by the government for the first time this year as developers watch policy directions before cutting prices. Prices in Beijing rose 1.9 percent from a year ago, while those in Shanghai, the nation’s financial center, increased 2.8 percent, the statistics bureau said on its website yesterday. New home prices rose in 67 out of 70 cities in the first half this year and were up in all but two in July. China’s measures to control its property market are at a critical stage and the nation needs to focus efforts on curbing price increases in less affluent cities, Premier Wen Jiabao said on Sept. 1. The government said in July that it will rein in residential prices in smaller cities after it raised down- payment requirements and mortgage rates earlier this year. “There’s still no obvious price falls as developers are reluctant to make big price cuts,” Jinsong Du, a Hong Kong- based property analyst at Credit Suisse Group AG, said in a phone interview. “This is actually the worst scenario because minor price reductions one after another will dampen market confidence.” The central city of Nanchang posted the biggest increase among the 70 cities, climbing 9.1 percent, the statistics bureau’s data for year-on-year showed. Prices in the western city of Urumqi rose 8.8 percent, the second-biggest gain. “Asset prices in China’s second- and third-tier cities are still rising rapidly, as local governments are reluctant to place more strict policies,” said Liu Li-Gang, a Hong Kong- based economist at Australia & New Zealand Banking Group Ltd. in a phone interview. “Especially some western and central cities are facing big pressure to pay out debts, while their main revenue comes from land sales.” Property prices are too high according to 75.6 percent of respondents to a central bank survey on Sept. 15, the highest level since real-estate data was included in the quarterly poll in 2009.
• Oil Demand Will Drop on Weak U.S., European Growth, Shana Says. Global demand for oil will continue to decline because of the “lack of economic growth” in the U.S. and Europe, the Iranian Oil Ministry’s Shana news website said today, citing Mohammad Ali Khatibi, the country’s OPEC governor. China’s demand for oil was at “a desirable level,” the news service said, citing Khatibi. Asia’s developed economies were “in a better economic situation in comparison to European countries but they are also experiencing falling economic growth, except China,” Khatibi was cited as saying by Shana.
• Hedge Funds Lower Bullish Commodity Bets Amid 'Contraction Fear'. Funds cut their bullish bets on raw materials for the first time in five weeks on speculation that demand for food, fuel and metals will decline as the European debt crisis deepens. In the week ended Sept. 13, speculators lowered their net- long positions in 18 commodities by 5.2 percent to 1.21 million futures and options contracts, government data compiled by Bloomberg show. That was the first drop since early August. Funds slashed bullish bets on copper by 91 percent, and became bearish on wheat for the first time in four weeks. Wagers on rallies in gold, corn and gasoline also were reduced. The Standard & Poor’s GSCI Index of 24 commodities has tumbled 14 percent since reaching a two-year high in April as escalating debt woes in Europe and the U.S. raised concern that global growth will stagnate.
• Buffett-Backed BYD Plans Most Bonds as Debt Costs Hit Record. BYD Co., the Chinese automaker part-owned by Warren Buffett’s Berkshire Hathaway Inc., may have to sell a record amount of bonds to pay off maturing debt next year just as the government’s inflation-fighting campaign pushes corporate borrowing costs to a high. Yields on its 1 billion yuan of bonds due 2014 have surged 450 basis points to 8.89 percent since they were sold in April, according to Royal Bank of Scotland Group Plc prices. Average yields on U.S. automakers’ debt were at 2.86 percent on Sept. 15, Bank of America Merrill Lynch indexes show. Vehicle sales at the Shenzhen-based company fell every month in the past year to July as the popularity of its best- selling F3 sedan model waned and General Motors Co. (GM) and Honda Motor Co. released new cars. Credit limits aimed at curbing price growth have raised average yields on five-year corporate bonds rated A+ by 130 basis points to a record 8.65 percent, according to Chinabond, the nation’s biggest clearing house. “It’s a real bad time for BYD to sell bonds when the company is surrounded by uncertainties,” said Charlene Gu, a Hong Kong-based analyst at Yuanta Securities HK Co. “Investors will ask for higher returns on the bond and it will in turn further squeeze the automaker’s profit margin.”
• Oil Drops for a Second Day After Europe Meeting on Signals Growth to Slow. Oil fell for a second day in New York on speculation that fuel demand will falter amid signs of weaker economic growth in Europe and in the U.S., the world’s largest consumer of crude. Crude dropped as much as 1 percent, extending a 1.6 percent decline on Sept. 16 as European finance ministers ruled out stimulus measures to spur their economy after meeting with Treasury Secretary Timothy Geithner. Purchases of previously owned U.S. homes in August probably held close to the weakest level this year and construction dropped to a three-month low, reports this week may show. Oil for October delivery fell as much as 88 cents, or 1 percent, to $87.08 in electronic trading on the New York Mercantile Exchange and was at $87.25 at 6:54 a.m. Singapore time.
• Volcker Rule May Be Extended to Overseas Banks With Operations in the U.S. A rule limiting proprietary trading by U.S. banks may be extended to overseas firms with operations in the country, according to four people familiar with the matter. Regulators next month will issue a proposal to carry out provisions of the so-called Volcker Rule, part of the Dodd-Frank financial-regulation law, that will clarify the types of offshore trading allowed under the rule, the people said.
• United Technologies(UTX) Said to Be in Talks to Buy Goodrich(GR); Goodrich Advances. United Technologies Corp. (UTX) is in talks to buy aerospace equipment maker Goodrich Corp. as it looks to expand through a major acquisition, according to three people with knowledge of the matter. A deal may be announced as soon as next week, said one of the people, who weren’t authorized to speak publicly. Goodrich is the most likely candidate of takeover targets being studied by Hartford, Connecticut-based United Technologies, one person said. Goodrich jumped 23 percent in late trading yesterday, adding to a market value of $11.6 billion.
• Chinese City Halts Solar Plant Operation After Violent Protests. The eastern Chinese city of Haining in the province of Zhejiang halted operation of a facility owned by Zhejiang Jinko Solar Co. after violent protests by villagers because of alleged pollution from the plant, according to a video of a local television report posted to the website of the city’s government. Villagers gathered at the gate of the solar panel producer and overturned eight vehicles and damaged four police cars in protests on Sept. 15 and Sept. 16, according to the report.

Wall Street Journal:

• Q&A: Zoellick on the Euro-Zone Crisis and Growth Risks.
  
• Fed Ponders Jobs, Inflation Targets. Federal Reserve officials, worried that a wobbly economy and their fractious debates are confusing the public, are examining whether to adopt more explicit economic targets to clarify their strategy for lowering unemployment without fueling inflation.
  
• Paulson Still a Bull After His Bare Year.
• Voters Want State Government Reform by Douglas Schoen. Polling in 10 states shows that Americans want politicians to cut spending and reduce public employee benefits before they raise taxes.

Marketwatch.com:

• More Warnings on China's Debt. Shadow banking sparks new worries.

CNBC:

• Foreign Credit Growth Risk for Emerging Markets: BIS. The Bank of International Settlements (BIS) said the flow of international credit, fuelled by major central banks' bond purchase operations, could limit emerging market monetary authorities' ability to slow credit growth in their economies. In a report released on Monday, the BIS said authorities need to be vigilant of this credit flow, because it posed significant policy challenges, and the risks posed by low interest rates elsewhere in the globe to their economies. It said such vigilance was necessary as dollar credit had grown rapidly outside the United States, particularly in Asia.

Business Insider:

• Obama to Propose $1.5 Trillion In Tax Increases. President Barack Obama will ask the Super Committee to double its mandate and cut $3 trillion from the federal deficit, according to White House officials, with half of the savings coming from tax increases on corporations the wealthy. Rep. Paul Ryan called the tax increase "class warfare," saying it would hurt small businesses and pledging that GOP lawmakers would rally against it.
• Deep Thoughts From Currency Guru John Taylor On The Massive Risks From The Swiss Intervention.
• Watch: Russian Billionaires Get Into Fist-Fight On Live TV.
• Nomura Presents 5 Possible Outcomes For Europe.
• UBS Rushes to Make Changes After The Trader's $2.3 Billion Loss Shows $10 Billion Wagered on Positions.
• ECRI: "Risk of Recession is Quite High... We Are Skating On Very Thin Ice".
• Troika Reportedly Demands Massive New Spending Cuts In Greece.
• China Warns The U.S. Against Vetoing Palestine's UN Request.
  

Zero Hedge:

• Frankfurter Allgemeine: "German Banks Need $175 Billion More In Capital".

NY Times:

• Obama's Disapproval Rating Rises to 50%. President Obama’s support is eroding among elements of his base, and a yearlong effort to recapture the political center has failed to attract independent voters, according to the latest New York Times/CBS News poll, leaving him vulnerable at a moment when pessimism over the country’s direction is greater than at any other time since he took office. Despite Mr. Obama’s campaign to sell the plan to Congress and voters, more than half of those questioned said they feared the economy was already in or was headed for a double-dip recession, and nearly three-quarters of Americans think the country is on the wrong track.
• Merkel's Efforts in Euro Crisis Complicated by Berline Vote. Chancellor Angela Merkel’s conservative party held its own in the closely watched Berlin regional election on Sunday. But her junior coalition partner is now in a political free fall, complicating her fight to contain the European debt crisis despite the infighting within her bloc.

Seattle Times:

• Business Loans Shrink at Washington Banks.

Reuters:

• Exclusive - Popular China Company Structure Under Threat. China's securities regulator is asking the government to clamp down on the controversial corporate structure used by companies such as Sina and Baidu to list overseas, and employed in thousands of other investments by foreigners into domestic Chinese companies, four legal sources told Reuters. Lawyers at four different firms in China and Hong Kong said they have seen an internal report, dated August 17, said to come from the China Securities Regulatory Commission (CSRC) which asks China's State Council, or cabinet, to take action against the structures known as Variable Interest Entities (VIEs).
• Analysis: Volatility Stymies Even Smart Money. Volatility in equity markets is burning smart-money players, and even experienced traders are finding it hard to keep up. Some fund managers have been dipping back into stocks to pick up bargains but could end up in a value trap if equities fall into a bear market and the economy falls into recession. Others are taking a wait-and-see approach after getting blindsided by market swings not seen at least since the financial crisis -- and by some measures well before that. Most are unlikely to dive back in given fears over Europe's debt crisis and fears of a second recession in the United States that sent equity markets sliding over the summer. The $2 trillion hedge fund industry -- often seen as the smartest of the smart -- will ultimately play an important role in whether stocks can rise over the long-term. Uncertainty there means more of the same churning action and precipitous falls without that wall of money to act as a back stop. "Gross exposures have come down industrywide and large bets in either direction have also decreased because of the volatility," said Robert Francello, head of equity trading a Apex Capital, a hedge fund in San Francisco.
• No New China Stimulus - Former Deputy Central Banker Says. China should refrain from boosting credit and fiscal spending again as stimulus measures to avoid fueling inflation and pushing up government debt, Wu Xiaoling, a former deputy central bank governor said in remarks published on Monday. "Currently, China's economy faces inflationary pressures as well as pressures on government debt, which means we cannot go down the road of expanding both credit and fiscal spending," the official Finance News quoted Wu as telling a forum. Chinese policymakers should be "extremely wary" about the risk of government debt, said Wu, who is now a senior lawmaker. China faces more economic challenges in the fourth quarter of this year and 2012, Wu said, adding that slower economic growth next year would be highly likely. Weak global demand, government tightening steps to target the property sector and a slowdown in investment for highways and high-speed railways as could weigh on China's growth, she added. Wu said the government should not rush to loosen monetary policy as 3-5 percent inflation could be a "normal phenomena" in the next several years.

Financial Times:

• Spanish Lenders to Be Seized by Madrid. Spain’s official bank rescue fund, Frob, is preparing to nationalise three more groups of savings banks at the end of the month at a cost of nearly €5bn ($6.9bn), but could allow two others extra time to find investors to help boost their capital, according to people familiar with the discussions. NovaCaixaGalicia (NCG), Caixa Catalunya and Unnim are expected to be recapitalised by Frob after failing to present adequate plans to secure new investors by a September 10 deadline

Telegraph:

• China 'Faces Subprime Credit Bubble Crisis'. Monetary tightening in China threatens to pop the $1.7 trillion (£1.07 trillion) credit bubble in local government finance and expose the country's simmering "subprime" crisis, according to the Communist Party's economic guru. Cheng Siwei, head of Beijing's International Finance Forum and a former deputy speaker of the People's Congress, said interest rate rises and credit curbs to cool overheating were inflicting real pain on thousands of companies used by local party bosses to fund the construction boom. "The tightening policy is creating a lot of difficulties for local governments trying to repay debt, and is causing defaults," he told a meeting at the World Economic Forum in Dalian. "Our version of subprime in the US is lending to local authorities and the government is taking this very seriously." "Everybody assumes that they will be bailed out by the central government if they default, but I disagree with this. It means that the people will ultimately pay the bill for it all, at a cost to the broader welfare." "Those who are not highly indebted are forced to help those who are," he said, echoing the debate over moral hazard that has divided opinion in the West since the banking rescues.
• Can China Escape as World's Debt Crisis Reaches Act III? Even after Lehman and AIG collapsed a year later -- and Europe's economy crashed into slump -- it remained an article of faith in Berlin, Paris, and Rome that this was just fall-out from the Anglo-Saxon casino. Few understood that the `China Effect' had engendered credit bubbles everywhere, and that Europe's variant was even more pernicious because euro-banks were more leveraged, with much greater liabilities, and the structure of EMU concentrated the damage on weaker states with no policy defence against sovereign collapse.

Frankfurter Allgemeine Sonntagszeitung:

• Germany's main opposition Social Democratic Party wouldn't form a government with Chancellor Angel Merkel's Christian Democrats without elections if the chancellor's coalition disintegrates amid debate over the euro crisis, SPD leader Sigmar Gabriel said in an interview. A new ruling mandate is only possible through a parliamentary election, Gabriel said.
  

Bild am Sonntag:

• German Finance Minister Wolfgang Schaeuble said a financial transaction tax should be introduced in the euro area this year.
• German Finance Minister Wolfgang Schaeuble said Greece must demonstrate it will fulfill its responsibilities and ultimately "get a grip" on its debt problems for aid to continue. The troika of the European Commission, European Central Bank and IMF must see confirmation that Greece is fulfilling its commitments for the next tranche of aid to be paid, Schaeuble said.
  

Folha de S. Paulo:

• HSBC Global Asset Management favors Brazil inflation bonds for investors seeking protection against inflation, citing Philip Poole, HSBC global head of investment strategy. The risks of higher inflation have increases in Brazil and there is concern over how the nation's central bank may react, citing Poole.

Hong Kong Economic Times:

• Growth in new bank loans is "still too fast," with lending increasing at an annualized rate of more than 18% in June and July, citing the Hong Kong Monetary Authority's Deputy Chief Executive Arthur Yuen. The city's de facto central bank may adopt measures on mortgages if needed, citing Yuen.

Kyodo News:

• Fukushima prefectural government will examine the thyroid glands of 360,000 children starting in October.

People's Daily:

• A U.S. arms sale to Taiwan will "greatly damage" ties with China, Wang Xinjun, a researcher with the Academy of Military Sciences under China's People's Liberation Army, wrote in a front-page commentary.

Financial News:

• The construction of large scale affordable housing may not resolve the problem that property prices exceed households' purchasing ability, citing Li Jiange, chairman of China International Capital Corp. Social housing construction involves a large amount of debt and may induce corruption when homes are given out, he said.

Weekend Recommendations
Barron's:

• Made negative comments on (MFW).
  

Night Trading

• Asian indices are -2.0% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 170.50 +6.5 basis points.
• Asia Pacific Sovereign CDS Index 154.25 +3.0 basis points.
• FTSE-100 futures n/a.
  
• S&P 500 futures -1.65%.
• NASDAQ 100 futures -1.45%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (LEN)/.11

Economic Releases
10:00 am EST

• The NAHB Housing Market Index for September is estimated at 15 versus a reading of 15 in August.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The UBS Life Sciences Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by financial and industrial shares in the region. I expect US stocks to open lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising financial sector pessimism, increasing eurozone debt angst, global growth worries, more shorting, technical selling, profit-taking and emerging market inflation fears. My intermediate-term trading indicators are giving mostly bearish signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,216.01 +5.35%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,216.01 +5.35%
  
• DJIA 11,509.0 +4.70%
  
• NASDAQ 2,622.31 +6.25%
  
• Russell 2000 741.31 +5.98%
  
• Wilshire 5000 12,631.30 +5.37%
  
• Russell 1000 Growth 571.97 +5.49%
  
• Russell 1000 Value 598.90 +5.17%
  
• Morgan Stanley Consumer 719.66 +3.63%
  
• Morgan Stanley Cyclical 867.29 +5.48%
• Morgan Stanley Technology 602.18 +6.86%
  
• Transports 4,664.60 +6.77%
  
• Utilities 439.29 +4.62%
  
• MSCI Emerging Markets 40.30 -1.48%
  
• Lyxor L/S Equity Long Bias Index 946.45 -.14%
  
• Lyxor L/S Equity Variable Bias Index 864.73 -.21%
  
• Lyxor L/S Equity Short Bias Index 637.57 -1.35%
  

Sentiment/Internals

• NYSE Cumulative A/D Line 121,891 +1.87%
  
• Bloomberg New Highs-Lows Index -224 -54
  
• Bloomberg Crude Oil % Bulls 32.0 +30.0%
  
• CFTC Oil Net Speculative Position 165,395 +.15%
  
• CFTC Oil Total Open Interest 1,462,207 -4.05%
  
• Total Put/Call 1.03 -25.36%
  
• OEX Put/Call 1.22 -24.69%
  
• ISE Sentiment 62.0 -10.0%
  
• NYSE Arms .80 -84.93%
  
• Volatility(VIX) 30.98 -19.50%
• S&P 500 Implied Correlation 79.54% +2.62%
  
• G7 Currency Volatility (VXY) 13.09 -3.61%
  
• Smart Money Flow Index 10,262.68 +2.21%
  
• Money Mkt Mutual Fund Assets $2.633 Trillion -.60%
  
• AAII % Bulls 30.50 +.93%
  
• AAII % Bears 41.35 +2.63%

Futures Spot Prices

• CRB Index 329.55 -1.40%
  
• Crude Oil 87.89 +1.07%
  
• Reformulated Gasoline 278.39 +.60%
  
• Natural Gas 3.82 -2.63%
  
• Heating Oil 300.25 +.62%
  
• Gold 1,812.10 -2.62%
  
• Bloomberg Base Metals 237.92 -.73%
  
• Copper 392.65 -1.79%
  
• US No. 1 Heavy Melt Scrap Steel 419.67 USD/Ton unch.
  
• China Hot Rolled Domestic Steel Sheet 4,804 Yuan/Ton -.64%
  
• UBS-Bloomberg Agriculture 1,682.61 -4.29%
  

Economy

• ECRI Weekly Leading Economic Index Growth Rate -7.10% -90 basis points
  
• S&P 500 EPS Estimates 1 Year Mean 95.98 -.07%
  
• Citi US Economic Surprise Index -43.10 -1.3 points
  
• Fed Fund Futures imply 28.0% chance of no change, 72.0% chance of 25 basis point cut on 9/21
• US Dollar Index 76.58 -.77%
  
• Yield Curve 188.0 +13 basis points
  
• 10-Year US Treasury Yield 2.05% +13 basis points
  
• Federal Reserve's Balance Sheet $2.847 Trillion +.19%
  
• U.S. Sovereign Debt Credit Default Swap 49.35 -4.07%
  
• Illinois Municipal Debt Credit Default Swap 241.0 -2.33%
  
• Western Europe Sovereign Debt Credit Default Swap Index 324.03 -2.17%
• Emerging Markets Sovereign Debt CDS Index 249.50 +11.05%
• Saudi Sovereign Debt Credit Default Swap 110.86 +.69%
• Iraqi 2028 Government Bonds 86.49 -2.71%
• China Blended Corporate Spread Index 650.0 +17 basis points
  
• 10-Year TIPS Spread 1.97% -1 basis point
  
• TED Spread 35.0 +2 basis points
• 3-Month Euribor/OIS Spread 75.0 -8 basis points
  
• N. America Investment Grade Credit Default Swap Index 125.15 -4.17%
  
• Euro Financial Sector Credit Default Swap Index 243.71 -6.07%
  
• Emerging Markets Credit Default Swap Index 290.98 -5.38%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 297.0 +10 basis points
  
• M1 Money Supply $2.136 Trillion +.60%
  
• Commercial Paper Outstanding 1,043.2B -2.1%
  
• 4-Week Moving Average of Jobless Claims 419,500 +1.0%
  
• Continuing Claims Unemployment Rate 3.0% unch.
  
• Average 30-Year Mortgage Rate 4.09% -3 basis points
  
• Weekly Mortgage Applications 638.70 +6.27%
  
• Bloomberg Consumer Comfort -49.3 unch.
  
• Weekly Retail Sales +4.70% -20 basis points
  
• Nationwide Gas $3.61/gallon -.05/gallon
  
• U.S. Cooling Demand Next 7 Days 1.0% below normal
• Baltic Dry Index 1,907 +7.01%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 32.50 unch.
  
• Rail Freight Carloads 208,090 -11.05%
  

Best Performing Style

• Small-Cap Growth +6.23%

Worst Performing Style

• Mid-Cap Value +5.11%

Leading Sectors

• Road & Rail +8.2%
  
• Airlines +7.94%
• Disk Drives +7.98%
  
• Software +7.96%
• HMOs +7.68%

Lagging Sectors

• Foods +1.49%
• Agriculture +1.36%
  
• Homebuilders -.91%
  
• Coal -1.89%
  
• Gold & Silver -2.53%

Weekly High-Volume Stock Gainers (9)

• NETL, JAKK, STMP, MFW, ULTA, LAD, HCA, DG and BBY
  

Weekly High-Volume Stock Losers (8)

• CFX, RAH, ITMN, SYNT, TBI, EXLS, RPXC and VHS
  

Weekly Charts
ETFs

• High-Volume Gainers
• High-Volume Losers

Stocks

• High-Volume Gainers
• High-Volume Losers
  

*5-Day Change

Stocks Rising into Final Hour on Triple Witching, Short-Covering, Falling Energy/Food Prices, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Above Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 31.40 -1.78%
  
• ISE Sentiment Index 64.0 -23.81%
  
• Total Put/Call 1.0 -.99%
  
• NYSE Arms .86 +114.02%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 125.15 -1.65%
  
• European Financial Sector CDS Index 250.58 +2.87%
  
• Western Europe Sovereign Debt CDS Index 325.0 -1.59%
  
• Emerging Market CDS Index 290.03 -2.73%
  
• 2-Year Swap Spread 32.0 unch.
  
• TED Spread 36.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 190.0 +1 bp
  
• China Import Iron Ore Spot $177.90/Metric Tonne unch.
  
• Citi US Economic Surprise Index -43.10 -.9 point
  
• 10-Year TIPS Spread 1.97% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -54 open in Japan
• DAX Futures: Indicating +29 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 builds on recent gains despite rising Eurozone debt angst, US tax hike concerns, some more disappointing economic data, emerging markets inflation fears and global growth worries. On the positive side, Defense, Internet, Computer Service and Retail shares are especially strong, rising more than +1.0%. Oil is falling -1.41% and the UBS-Bloomberg Ag Spot Index is down -1.81%. The Greece sovereign cds is plunging -28.9% to 3,535.66 bps and the Brazil sovereign cds is declining -3.8% to 159.12 bps. On the negative side, Alt Energy, Coal, Oil Tanker, Oil Service, Steel, Networking, Wireless, Bank, Construction and Education shares are under pressure, falling more than -1.0%. Cyclicals and small-caps are underperforming. Lumber is down -2.24%, Gold is rising +1.0% and Copper is falling -.73%. Rice is still very near its multi-year high, rising +36.0% in about 10 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.61/gallon. It is up .47/gallon in about 7 months. The Germany sovereign cds is gaining +.54% to 83.33 bps, the Portugal sovereign cds is rising +.29% to 1,061.0 bps and the Ireland sovereign cds is gaining +.72% to 798.33 bps. The Western Europe Sovereign CDS Index is still near its all-time high. The 3-Month Euro Basis Swap is falling -5.21 bps to -87.12 bps. The TED spread is now at the highest level since July 2010 despite Europe's recent efforts. The China Development Bank Corp CDS is falling today, however it has risen +15.0% over the last 5 days despite most other cds falling. The Shanghai Composite failed to rally again overnight, despite nice gains in most of the rest of Asia, and is now down -11.6% ytd. Given the negative news out of Europe today's stock advance is more impressive. (AMZN) and (AAPL) are on fire of late, which is helping boost the Naz. However, breadth is poor and it is hard to gauge how much triple witching is helping prop up equities. Unless the news out of Europe improves over the next few days, I suspect we will give some of this week's stock gains back next week. I expect US stocks to trade mixed to lower into the close from current levels on profit-taking, rising Eurzone debt angst, global growth worries, emerging markets inflation fears and more shorting.

Today's Headlines

Bloomberg:

• Europe Rules Out Stimulus, Skips Bank Aid. European finance ministers ruled out efforts to prop up the faltering economy and gave no indication of providing aid for lenders to go along with yesterday’s liquidity lifeline from the European Central Bank. Clashing with U.S. Treasury Secretary Timothy Geithner, finance chiefs from the euro region said the 18-month debt crisis leaves no room for tax cuts or extra spending to spur an economy on the brink of stagnation. “We have slightly different views from time to time with our U.S. colleagues when it comes to fiscal stimulus packages,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing today’s trans-Atlantic finance meeting in Wroclaw, Poland. “We don’t see any room for maneuver in the euro area which could allow us to launch new fiscal stimulus packages. That will not be possible.” Europe’s economy will barely grow in the second half of 2011, a casualty of the debt buildup that 256 billion euros ($353 billion) in aid for Greece, Ireland and Portugal has failed to extinguish.
• Fix on Banks' Dollar Funding Costs Brings Next-Day Cost Rise. The cost for European banks to fund in dollars rose, signaling that investors view policy makers’ offer of unlimited loans in the currency as a short-term fix that doesn’t address the euro region’s underlying problems. “Major central banks have merely treated the symptom rather than the cause,” said Michael Derks, the chief strategist at foreign-exchange broker FxPro in London. The cost of converting euro payments into dollars, measured by the three-month cross-currency basis swap, was 85.4 basis points below the euro interbank offered rate as of 3:20 p.m. in London, from 81.9 basis points yesterday, after the European Central Bank and peers around the world made it easier to fund in the greenback. “Policy makers are fighting the wrong disease,” said Alberto Gallo, a strategist at Royal Bank of Scotland Group Plc in London. “Liquidity is not an issue, but solvency still is.” The Euribor-OIS spread, the difference between three-month Euribor and overnight index swaps, fell to 75.6 basis points, from 76.9 yesterday, still within nine basis points of the highest level since March 2009, reached Sept. 12. Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- rose to 1.535 percent from 1.531 percent yesterday. One-week Euribor gained to 1.111 percent, from 1.089 percent. The three-month London interbank offered rate, or Libor, in dollars rose to 0.351 percent from 0.350 percent, according to the British Bankers’ Association. The European Central Bank said financial institutions increased overnight deposits. Banks parked 98 billion euros with the ECB yesterday, compared with 87 billion euros the day before and 197.8 billion euros on Sept. 12, the Frankfurt-based lender said in data released overnight.
• Spanish Regional Debt Surges to Second-Quarter Record, Bank of Spain Says. Spanish regions’ debt burden surged to a record in the second quarter, adding to pressure on the central government to rein in spending or risk missing the nation’s deficit goal. The 17 semi-autonomous regions’ outstanding debt burden rose to 133.2 billion euros ($183.7 billion), or 12.4 percent of gross domestic product, from 11.6 percent in the first quarter, the Bank of Spain said on its website today. From a year earlier, the debt surged 24 percent and the outstanding amount has more than doubled since 2007. Spain’s regions are key to the nation’s efforts to cut the euro area’s third-largest budget deficit as they manage more than a third of public spending, including health and education. Fitch Ratings downgraded five regions including Andalusia and Catalonia this week, saying debt levels are climbing and the weak economic recovery will undermine revenue. Spain’s regional governments are behind schedule to meet deficit targets, according to data released last week that Moody’s Investors Service called “credit negative.” Slippage by the regions “adds to pressure on the central government to make the needed cuts to meet the general government deficit targets,” Fitch Director Douglas Renwick said on Sept. 13. Risks to Spain’s sovereign rating are “clearly on the downside,” he said.
• Local Government Debt Is China's Subprime. Borrowing by thousands of companies set up by China’s local governments to fund construction is the nation’s equivalent of the U.S. subprime mortgage crisis, said Cheng Siwei, a former deputy head of the country’s top legislative body. “Our version of the U.S. subprime crisis is the lending to local governments, which is causing defaults,” Cheng said at the World Economic Forum in the Chinese city of Dalian today. He served as vice chairman of the standing committee of the National People’s Congress from 1998 to 2003. Local governments in China, barred from directly selling bonds or taking bank loans, set up more than 6,576 companies to raise money for roads, sewage plants and subways. A June report by the national auditor warned of repayment risks and said some authorities had offered illegal guarantees for these companies, known in China as local government financing vehicles.
• Solyndra Collapse Foreseen by Some Workers, a 'Shock' to Others. Alex Brudny, a mechanical engineer at Solyndra LLC until two weeks ago, says he wondered why the Obama administration gave the California company $535 million in loan guarantees. “To a majority of us, it looked like a political stunt,” Brudny, 59, said in a telephone interview. “The product was not as good as we counted on, and things were not really going well, and it was just a matter of time to me.” The collapse of Solyndra, a solar-power manufacturer, has prompted inquiries by Congress, the FBI and watchdogs at the Energy and Treasury departments. For 1,100 workers such as Brudny, it also has meant the loss of a job when the company shut down on Aug. 31.
• U.S. Household Worth Declines by $149B. Household wealth in the U.S. dropped in the second quarter for the first time in a year, hurt by falling share prices and declining home values. Net worth for households and non-profit groups decreased by $149 billion, a 1 percent drop at an annual pace, to $58.5 trillion, the Federal Reserve said today in its flow of funds report from Washington. It rose at a 7.4 percent rate in the previous three months. Housing wealth decreased for a fourth consecutive quarter from April to June. A loss of $947 billion in real estate assets over the past year was compounded by a drop in the Standard & Poor’s 500 Index last quarter, the first decline in a year.
• Payrolls Decreased in 30 U.S. States in August. Payrolls fell in 30 U.S. states in August, led by New York and Georgia, while the jobless rate increased in 26, showing the slump in hiring is broad-based. Employers cut staff by 22,700 workers in New York last month, and by 18,200 in Georgia, figures from the Labor Department showed today in Washington. Nevada continued to lead the nation in unemployment with a rate of 13.4, up from 12.9 percent in July.
• Consumer Confidence in U.S. Rises More Than Estimated on Economic Outlook. Confidence among U.S. consumers rose in September from the lowest level since November 2008 as Americans’ views of current economic conditions improved. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 57.8 this month from 55.7 in August. The median estimate of economists surveyed by Bloomberg News called for a reading of 57. The group’s measure of consumer expectations six months from now dropped to the lowest level since May 1980.
• Crude Oil Futures Decline Most in a Week in New York on European Concern. Crude oil tumbled the most in a week in New York on concern that European leaders meeting today haven’t taken sufficient steps to contain the region’s debt crisis. Futures fell as much as 2.7 percent as the euro halted a two-day advance against the dollar on signs that an agreement to bail out Greece may be hindered by demand from Finland for collateral. Technical resistance at about $90 a barrel also caused prices to retreat after yesterday’s rally. Crude for October delivery fell $1.54, or 1.7 percent, to $87.86 a barrel at 12:28 p.m. on the New York Mercantile Exchange. Futures have fallen 3.9 percent this year and gained 0.7 percent this week.
• Gold Jumps Most in a Week as European Debt Concerns Boost Demand for Haven. Gold rose the most the in a week on renewed concern that Europe’s debt crisis will threaten economies, boosting demand for a haven. European finance ministers ruled out efforts to prop up the faltering economy and gave no indication of providing aid for lenders at a meeting today. Before today, gold jumped 25 percent this year, reaching a record $1,923.70 an ounce on Sept. 6, on mounting signs the global economy will slow. Gold futures for December delivery rose $35.20, or 2 percent, to $1,816.60 on the Comex at 12:18 p.m. in New York. A close at that price would be the biggest gain since Sept. 8. Prices are still heading for a weekly drop of 2.3 percent.
• BRIC Outlier India May Raise Rates Further as Prices Trump Europe Threat. India’s central bank may extend its record interest-rate increases, economists predicted after Governor Duvvuri Subbarao said a “premature” change in the monetary policy stance may fan inflationary expectations.
• Leon Black: Europe Banks to Shrink Dramatically. European banks need to sell 1.5 trillion euros ($2.1 trillion) in assets because of the region’s sovereign-debt crisis, said Leon Black, head of private-equity firm Apollo Global Management LLC. “Banks need to sell a trillion and a half euros of assets off their balance sheets in the next few years,” he said today at an investment forum in Sochi, a resort town in southern Russia. “There are going to be great sales and they have already started.”

Wall Street Journal:

• Bank Group Courts IMF, BRICs on EUR20B Greek Debt Proposal. The bank industry group negotiating Greece's debt refinancing is asking the International Monetary Fund and major emerging markets to back a private-sector led plan for Athens to buy back EUR20 billion ($27.6 billion) of its debt.
• Greece May Tap Bank Fund For Cash As EU-IMF Loan Delayed - Source. Greece may tap an emergency fund for banks to keep it going as its creditors pushed back the decision on whether to continue its financing to October, a senior government official said Thursday.
• Hong Kong Dollar Doubters Rush In. Hedge fund manager Bill Ackman created a stir this week with a call to go long on the Hong Kong dollar, a currency that has been linked in a in a very tight range near 7.8 to the U.S. dollar since 1983.
• ECRI Leading Index Still Falling, Now With More Falling-Ness. (graph) The Economic Cycle Research Institute’s weekly index of leading economic indicators continues to trot in the wrong direction, down. The ECRI’s index ticked lower last week, the institute said today, and the four-week rolling average fell to -7.1%, the worst rate of decline in nearly a year.
  

CNBC.com:

• How Goldman Sachs(GS) Lost One of Its Crown Jewels.

Business Insider:

• The Next Solyndra? Conservatives Pounce on New Obama Scandal Involving Phil Falcone. Hedge fund titan Phil Falcone is one of the biggest funders of LightSquared, a telecom company that wants to implement a nationwide satellite phone network.
• 10 Key Dates That Are Crucial for the Future of Europe.
• Another Report About Greece Violating its Bailout Agreement.
  

Zero Hedge:

• Europe's Response to Geithner's Advice: "I'd Like To Hear How The United States Will Reduce Its Deficits ... And Its Debts".

NY Post:

• Dems' 'Primary' Message to Obama. Two days after his party’s humiliating loss in the special election to fill disgraced ex-Rep. Anthony Weiner’s House seat, President Obama faced angry complaints from some in his own party that a primary challenge might be the best way to catch his attention in case he missed the political warning signs that seem to be flashing red. “It’s a common refrain, and it’s certainly common in my district among Democrats [because] they want the guy back that they voted for,” liberal Rep. Peter DeFazio of Oregon said, referring to the perceived political shift by the president.

Dow Jones:

• German Cabinet Delays Discussing Stability Mechanism. Eurozone fund now unlikely to be in place by end of year.

Washington Times:

• Obama Agrees to Sell Arms to Taiwan. President Obama has decided to sell a new arms package to Taiwan that will likely include weapons and equipment to upgrade the island’s F-16 jets, according to administration and congressional officials. Congress will be briefed Friday on the arms package, worth an estimated $4.2 billion, said officials who spoke on the condition of anonymity. A formal announcement is expected soon. China, which opposes U.S. arms sales, is expected to react harshly to the upgrade package. China's military cut off exchanges with the Pentagon in 2008 and last year after two arms packages were announced.

Economist:

• Gauging the Gloom. (graph) An uptick in press mentions of recession bodes ill for the world economy.

Chicago Tribune:

• Germany's Weber Says Eurozone's Debt Issues to Worsen and Need Crisis Management. As the Eurozone debt crisis threatens banks and potentially the global economy, former German central banker Axel Weber said he “fears” financial conditions will have to deteriorate more in Europe before leaders take “drastic action.” Meanwhile, he said, “Europe needs to improve the probability of successful crisis management.” Speaking at the Chicago Council of Global Affairs, Weber said policy makers need the political cover of an emergency to take action. “Things have to get worse before they get better,” he said. “If you act swiftly in the middle of a crisis people” appreciate the need for urgent action. He described recent Greece bailout measures as “an attempt to kick the can down the road,” but added “If Europeans don’t react the markets will get worse. Pressure from the bond market is already there. Investors want to hear a convincing story why they should buy new bonds.” “The debt problems of countries like Greece have become a problem for all the other countries” in the Eurozone, he said. Even France has been impacted, and along with Germany it is critical to the core of the union. Weber said resolution of the financial crisis is complicated because in the Eurozone there is “no common view of the origins of the crisis or solution.” Ultimately, Weber thinks there must be shared fiscal practices so that some countries don’t spend excessively and rely on more frugal companies to provide aid later. He envisions a two tiered system with the current Eurozone “a training ground” for countries that wish to get into a fiscal union with standards for stability. But, he said, that “is not around the corner” and will take years to get there. Meanwhile, the bailout has had a sharp impact on Germany, already. Weber said a couple of years ago Germany’s debt to GDP was a sound 64 percent. But two years into the bailouts of countries on the periphery of Europe, debt has jumped to 84 percent of GDP. Weber said in the past it would have taken 1.5 years for debt to mount so dramatically. “The numbers are moving up fast,” he said. If Germany were to guarantee the debt for the European Union, Germany’s debt would be 320 percent of GDP. “Germany would no longer be a triple A country,” said Weber. While hedge fund manager George Soros and others have suggested that issuing Eurobonds would be a solution, Weber said that “would do more harm than good.”

Reuters:

• Exclusive: United Tech(UTX) Seeks Financing for Deal: Sources. United Technologies Corp is lining up financing in the double-digit billions of dollars to support a major acquisition in the United States, according to people with direct knowledge of the matter. The U.S. industrial conglomerate is tapping the credit market for funds that could top $20 billion, said one of the sources.

Frankfurter Allgemeine Zeitung:

• Germany's credit risk on its contribution to the expanded European Financial Stability Facility could swell to as much as 400 billion euros if interest obligations are considered in extreme cases. That figure is about twice as much as German officials have indicated, citing calculations from Deutsche Bank AG.

Handelsblatt:

• International Monetary Fund Managing Director Christine Lagarde called for concerted action by policy makers to cut debt and keep the global economy on track, she said. Dithering by politicians in dealing with debt in developed countries has contributed to a vicious circle that is holding back consumer demand, investment and job creation, Lagarde wrote.

Sina:

• Twitter Launches Chinese Service.

Beijing Business Today:

• Beijing new home prices fell 6.6% in the first eight months from a year earlier, citing the city's housing association. Transaction volume dropped 17.2% y/y to 32,000 units.