Stocks Falling into Final Hour on Rising Eurozone Debt Angst, US Tax Hike Fears, Financial Sector Pessimism, Global Growth Worries

Broad Market Tone:

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

Equity Investor Angst:

• VIX 34.02 +9.88%
  
• ISE Sentiment Index 55.0 -11.29%
  
• Total Put/Call .91 -5.83%
  
• NYSE Arms 1.94 +144.67%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 128.13 +2.38%
  
• European Financial Sector CDS Index 270.17 +10.85%
  
• Western Europe Sovereign Debt CDS Index 340.60 +5.12%
  
• Emerging Market CDS Index 304.88 +4.84%
  
• 2-Year Swap Spread 32.0 unch.
  
• TED Spread 35.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 179.0 -11 bps
  
• China Import Iron Ore Spot $177.50/Metric Tonne -.22%
  
• Citi US Economic Surprise Index -42.20 +.9 point
  
• 10-Year TIPS Spread 1.89 -8 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -185 open in Japan
• DAX Futures: Indicating +28 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech and Medical sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my EEM short and then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 is rolling over at its downward-sloping 50-day moving average on rising Eurozone debt angst, increasing financial sector pessimism, US tax hike concerns, some more disappointing economic data, emerging markets inflation fears and global growth worries. On the positive side, Restaurant shares are higher on the day. Oil is falling -2.76%, Gold is down -1.85% and the UBS-Bloomberg Ag Spot Index is down -.6%. On the negative side, Road & Rail, Education, Construction, Insurance, I-Banking, Bank, Oil Service and Coal shares are under significant pressure, falling more than -3.0%. Cyclicals and small-caps are substantially underperforming. Copper is falling -3.72%. Rice is still very near its multi-year high, rising +33.5% in about 11 weeks. The average US price for a gallon of gas is -.02/gallon today to $3.59/gallon. It is up .45/gallon in about 7 months. The Germany sovereign cds is gaining +8.3% to 90.17 bps, France sovereign cds is surging +8.05% to 181.50 bps, the Italy sovereign cds is rising +6.2% to 472.50 bps, the Russia sovereign cds is gaining +6.1% to 229.33 bps, the Belgium sovereign cds is gaining +6.9% to 266.50 bps, , the Brazil sovereign cds is gaining +6.1% to 168.79 bps, the Portugal sovereign cds is rising +5.62% to 1,114.67 bps and the Spain sovereign cds is jumping +9.6% to 406.83 bps. The Germany sovereign cds is now only about 3 basis points away from its record high reached on Feb. 24, 2009. The France and Italy sovereign cds are still near their record highs. The Russia sovereign cds is close to breaking out of a multi-year trading range. The Western Europe Sovereign CDS Index and European Financial Sector CDS Index are still near their all-time highs. The 2-Year Euro Swap Spread is very close to a multi-year high, rising +4.07 bps to 98.81 bps. The 3-Month Euro Basis Swap is falling -4.90 bps to -92.03 bps. The TED spread is still at the highest level since July 2010 despite Europe's recent efforts. The Emerging Markets Currency VIX is surging 8.2% to 14.6, which is the highest since June 2010. Hong Kong stocks fell -2.8% overnight, and are now down -17.9% ytd, which places them back near their recent lows. The major European stock indices fell around -3% today and continue to trade poorly. Select growth stock leaders, such as (AAPL), remain on fire, which is masking broad-based weakness. The Naz is flat on the day, however breadth is -1,363. Volume is also lackluster on today's surge off the lows. The 10-year yield is falling too much again, declining -10 bps to 1.95%. Various credit gauges are indicating rising global recession fears. However, it appears to me equity investors expect stagnant growth, rather than true recession, which is likely the main reason a handful of true growth stocks are seeing huge outperformance and multiple expansion. I expect US stocks to trade mixed to lower into the close from current levels on profit-taking, rising Eurzone debt angst, increasing financial sector pessimism, global growth worries, emerging markets inflation fears, US tax hike worries and more shorting.

Today's Headlines

Bloomberg:

• Spain Riskier Than Bulgaria Signals Rating 'Wrong': Euro Credit. Spanish debt is more expensive to insure than Baa2-rated Bulgaria, signaling the euro region's fourth-biggest economy may not warrant its Aa2 credit status. Moody's Investors Service rates Spain two levels below AAA as does Standard & Poor's at AA. Fitch has Spain at AA+, one from the top, even after the European Central Bank stepped in to buy its bonds to bring yields down from euro-era records. While Spain is ranked the same as Slovenia by Moody's and S&P, costs to insure its debt against default are twice as much. "The rating agencies have got their head in the sand," Harvinder Sian, a strategist at Royal Bank of Scotland Group Plc in London. "Any country where you need the central bank in there supporting the bond market, and a AA rating, suggests something is very badly wrong with the ratings process." Spain's borrowing costs have soared as the government struggles to rein in the euro region's largest budget deficit after Greece and Ireland, which has pushed the debt to almost twice the level of four years ago. The surge in the 10-year yield to 6.46 percent led the ECB to start propping up Spanish bonds on Aug. 8, and has knocked 120 basis points off that high. The cost of insuring Spanish debt against default rose to 390, CMA prices showed today, compared with 329 for Bulgaria. Spain's 10-year bond yields 5.33 percent, about 160 basis points more than similar maturity bonds of Thailand, which Moody's rates five levels less than Spain at Baa1.
• Europe Bank Bonds Doubt Dollar Lending Success: Credit Markets. European bank bonds signal that investors remain skeptical that a move by central bankers around the world to provide dollars to financial institutions in need will solve the region's funding crisis. While the extra yield investors demand to hold bank bonds in euros instead of benchmark government debt shrank 15 basis points to 352 basis points after the Sept. 15 announcement, the spread remains within 18 basis points of the 2 1/2-year high reached earlier in the week, according to Bank of America Merrill Lynch index data. Euro-region banks' usual sources of dollar funding dried up on concern they'll be forced to take losses on bonds sold by Greece and the rest of Europe's most-indebted countries. In response, the European Central Bank and its counterparts in the U.K., Switzerland, Japan and the U.S. agreed to provide unlimited money to lenders until year-end. "It significantly reduces the possibility of a disorderly unwind of positions which certain banks may have had," said Roger Doig, a London-based analyst at Schroders Plc, which manages the equivalent of about $58 billion in fixed-income assets. "It doesn't change the fact that access to short-term wholesale dollar funding for certain banks is disappearing, and will be gone by the end of the year."
• Sovereign Default Risk Surges as Greek Woes Put Paid to Rally. The cost of insuring European sovereign debt rose, reversing a four-day rally, on concern a default by Greece is becoming more likely after the region's leaders failed to agree on new measures to halt the crisis. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments rose 14 basis points to 339 at 3 p.m. in London, approaching the record 354 set Sept. 12. Greece's economy will shrink 5.5 percent this year and will contract "notably" next year, Finance Minister Venizelos said at a conference in Athens today. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 41 basis points to 756, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 12.5 basis points to 188.5. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers increased 27 basis points to 292, while the subordinated index was up 34 basis points to 499.
• Euribor-OIS Spread Widens as Greece Concerns Boost Lending Costs. A gauge of banks' reluctance to lend to each other in Europe rose for the first time in a week amid renewed concern Greece is headed for a default. The Euribor-OIS spread, the difference between the three- month euro interbank offered rate and overnight index swaps, was at 79.1 basis points as of 4:18 p.m. in London, from 75.3 at the end of last week, according to data compiled by Bloomberg. That's within six basis points of the highest level since March 2009, reached Sept. 12.
• Europe Always Does Too Little, Too Late, Summers Writes in FT. European authorities, in the past two years, have repeatedly done just enough to avoid an imminent collapse, while never doing enough to establish a basis for renewed confidence, said Lawrence Summers, a former U.S. Treasury Secretary and now a professor at Harvard. Writing in the Financial Times, Summers said that authorities who assert, in the face of all the evidence, that Greece can service all its debts on time will enjoy little credibility when they claim that the fundamentals are sound in Spain and Italy. After European bank stress tests that treat assets as risk- free when credit default swaps exceed 500 basis points, markets can hardly be blamed when they ignore regulators’ assertions about financial institutions’ solvency, he said. It’s clear that market discipline within European monetary union isn’t powerful and credible enough to guarantee sound finance; there now has to be a simultaneous increase in the central authorities’ commitment to the financial stability of member-states and a reduction in the latter’s autonomy, if the euro is to survive, Summers said.
• The crude oil tanker market is failing to adjust vessel supply through slower speeds, ship-demolitions or idling, Goldman Sachs International analyst Edouard Baldini in London said today.
• Euro to Fall After Bounce, Citigroup(C) Says: Technical Analysis. The euro’s gain last week against the dollar won’t last and the currency may depreciate to a level last reached in January, said Citigroup Inc., citing technical indicators.
• Commodities Fall, Copper Drops to 9-Month Low on Europe Concerns. Commodities fell, led by copper’s drop to a nine-month low, on speculation that demand for raw materials will decline as European policymakers prepare to assess whether Greece can meet conditions of a rescue loan. Industrial users of metals and energy and companies that use agriculture commodities to make food may slow purchases, waiting on a solution to the euro crisis. The Standard & Poor’s GSCI Spot Index dropped 2.4 percent by 3:23 p.m. London time, the biggest drop on a closing basis since Aug. 18. Copper for three-month delivery declined 4.1 percent to $8,336 a metric ton on the London Metal Exchange, the lowest price since Nov. 30. Crude oil for November delivery declined 3.4 percent to $84.99 a barrel in New York.
• Solyndra Flop Doesn't Slow Push to Wind, Solar. The Obama administration, defying congressional Republicans after the failure of solar-panel maker Solyndra LLC, is working to award as much as $9.2 billion in government financing to renewable energy companies before a Sept. 30 deadline. Loan guarantees for 14 companies will close by month’s end if the projects meet government lending rules, Damien LaVera, a Department of Energy spokesman, said in an interview. “We want to get as many of these done in a way that responsibly protects the taxpayers’ interest,” he said. “If they meet conditions set out in the agreement, then they’ll close.” Solyndra filed for bankruptcy protection on Sept. 6, after receiving $535 million in loan guarantees from the administration, and the Federal Bureau of Investigation raided its Fremont, California, headquarters two days later. Republicans have called Solyndra a “poster child” for the failure of clean-energy subsidies awarded by the Department of Energy under President Barack Obama. “I am very concerned about where the $10 billion DOE has left to spend before the September 30 deadline is going,” Representative Cliff Stearns, a Florida Republican, said at the Sept. 14 hearing of a House oversight panel he heads. “Taxpayers would be better served by not risking even more of their money, instead using it to reduce our mounting national deficit.” Obama’s stimulus program, passed by Congress in 2009, set the Sept. 30 deadline for loan guarantees for most alternative energy projects. Programs to invest in advanced-technology vehicles and nuclear power plants will continue.
• China's JinkoSolar Drops Most Ever After Idling Factory on Pollution. JinkoSolar Holding Co. fell the most ever in New York, leading other Chinese solar companies down, after idling a factory that environmental regulators say may have polluted a river. JinkoSolar’s American depositary receipts sank as much as $2.24, or 25 percent, to $6.80 in New York Stock Exchange composite trading and was down $2.08 at 12:03 p.m. That’s the biggest intraday decline since the company began trading in May 2010. They have dropped 66 percent this year. Other Chinese solar companies fell as analysts said that margins are contracting and demand for panels will be less than expected this year. Yingli Green Energy Holding Co., LDK Solar Co. and Suntech Power Holdings Co. all dropped as much as 10 percent and the Bloomberg Industries Large Solar Energy Index declines as much as 6.2 percent. “It’s more of the same, unfortunately, with many of these companies seeing shipments growth with no margin,” said Aaron Chew, analyst at Maxim Group in New York. “I think these stocks don’t really go anywhere until next year.” Goldman Sachs Group Inc. revised its global forecast for solar shipments, according to a research note published today. The company now expects total shipments of 15,697 megawatts of panels in the second half of the year, 18 percent lower than its previous estimate.
• Tyco's(TYC) Split Creates Takeover Targets: Analysts. Tyco International Ltd. (TYC) plans to break itself into three publicly traded companies that may prove more attractive to potential suitors on their own than as pieces of a conglomerate. The separation, ending a decade in which Chief Executive Officer Ed Breen transformed the scandal-plagued conglomerate into a Standard & Poor’s 500 Index outperformer, will create standalone companies from ADT’s North American residential security, flow-control and the world’s biggest commercial security and fire-systems division.
• Homebuilders Targeted by U.S. Along With Hotels Over Pay Abuses. The Obama administration, 11 states and the Internal Revenue Service will join in an effort to crack down on companies such as homebuilders, hotels and restaurants that classify employees as independent contractors to avoid paying overtime. The agencies and states agreed to share wage information filed by the companies to help the Labor Department find and prosecute companies that misidentify workers in order to skirt paying unemployment benefits or federal taxes, according to Mike Wald, a department spokesman.

Wall Street Journal:

• Obama Presses for New Taxes. President Barack Obama on Monday offered a plan to reduce the nation's deficit by $3.6 trillion, almost half of which would come from tax increases, including a new tax on millionaires. Republicans were quick to denounce the president's plan. "Pitting one group of Americans against another is not leadership," House Speaker John Boehner (R., Ohio) said in a statement. "This administration's insistence on raising taxes on job creators and its reluctance to take the steps necessary to strengthen our entitlement programs are the reasons the president and I were not able to reach an agreement previously,'' Mr. Boehner said. "And it is evident today that these barriers remain."
• Netflix(NFLX) Separates DVD and Streaming Services. Netflix Inc. Chief Executive Reed Hastings said in a blog post the company is separating its movie-streaming business and its DVD-by-mail service, to be renamed Qwikster, a move he said was the undisclosed impetus for a recent price increase that outraged customers and sent the company's stock price plummeting. "I messed up," Mr. Hastings wrote in opening his lengthy, apologetic missive posted late Sunday night on Netflix's website. "I owe everyone an explanation."
• EU Banks Stress Tests Weren't Tough Enough, Document Says. The European Union's bank stress tests used out-of-date macroeconomic assumptions that didn't reflect the severe turmoil wracking sovereign debt markets when the tests were completed, according to a confidential document prepared by senior EU finance officials. One way they could be improved, the document says, would be to use a more up-to-date scenario "to avoid that it is taken over by events and therefore becomes obsolete, as was the case for instance, for the scenario of a relatively mild shock in banking books, a scenario which was clearly taken over by events as months passed by." Banks mainly hold sovereign debt in their "banking books," which is where they park bonds that they plan to hold until they mature. The tests required banks to make relatively limited provisions for losses on sovereign bonds in the banking book, even though Greek 10-year bonds, for example, were trading at around 50 cents on the euro when the tests were published.

CNBC.com:

• Management Shakeup at Soros Hedge Fund. Soros Fund Management, the $25 billion hedge fund co-founded by legendary investor George Soros, has named Scott Bessent as its new CIO, according to an investor letter obtained by CNBC.
• Fannie and Freddie's Boss Speaks Out on Obama's Refi Plan. Barely two weeks after President Obama proposed expanding a government mortgage refinance program in order to make millions more borrowers eligible, the man who would have to guide such a program announced yet another barrier to entry. The President's plan would work through Fannie Mae and Freddie Mac and their existing Home Affordable Refinance Program (HARP), by potentially eliminating loan-to-value ratios and lowering fees. But fees at Fannie and Freddie are about to go up, according to their conservator, the Federal Housing Finance Agency (FHFA).

Zero Hedge:

• Hugh Hendry Fund Soars 40% YTD as China Sinks. As everyone else was complaining about their performance (and P&L) collapsing, blaming it on everything from the weather, to Bernanke's diet, to fundmanetals and technicals, Hugh Hendry was raking it in and is now up 38.65% YTD, with a stunning +22.5% in August alone (or pretty much mirroring the collapse at Paulson & Co) and another 11% in September!

NY Post:

• How the 'Buffett Tax' Will Kill Jobs by Charles Gasparino. So President Obama is about to come out for another “millionaires tax,” one White House insiders are calling “the Buffett tax.” The sad thing is, even if he could get it, it would just be another jobs-killer. With many economists worried that we’re heading toward a double-dip recession, our fearless leader is still playing politics. The new tax would presumably go to pay for some of the government spending he still says will spur the economy, despite the evidence of his first three years in office. Aspects of the new plan remain scant, but what we do know isn’t good.

Rasmussen Reports:

• 56% Favor Repeal of Health Care Law, 52% Says Law Is Bad for the Country.

Reuters:

• Amid China Boom, Job Search for Many Grads Goes Bust. Yan Minglong, one of millions of recent Chinese college graduates, is not impressed with the doors opened by higher education. "Jobs? What jobs?" the 23-year-old said, whiling away his Saturday afternoon in a billiards hall in Shigezhuang, a gritty neighborhood on Beijing's northern outskirts where cheap rent is the main draw for some of China's white-collar hopefuls. Students from the country's largest-ever college graduating class, 6.6 million, have gone from hitting the books to hitting the streets in search of work this summer. But pouring that many graduates into an economy long known as the world's workshop has fueled worries about the market's capacity to absorb them and the potential for political unrest.
• Italy to Cut 2011, 2012 Growth Forecasts - Sources. A government forecasting document to be published in the next few days following the austerity plan approved by parliament last week will cut the 2011 growth forecast to 0.7 percent from 1.1 percent and lower the 2012 forecast to "1 percent or below" from 1.3 percent, the sources said. Many analysts expect Italy to post growth of below 0.5 percent next year, and several believe the economy will actually contract as the austerity plan bites.
  
• Home Builder Sentiment Dips in September: NAHB. The NAHB/Wells Fargo Housing Market index slipped 1 point to 14 from 15 the month before, the group said in a statement. That was shy of expectations for 15, according to a Reuters poll of economists.
• U.S. SEC Veteran to Depart for Sidley Austin.
• Expulsion of Troubled Euro States Sends Bad Message - Merkel. It would send a disastrous political message if euro zone member states could be thrown out of the currency bloc because they faced difficulties, German Chancellor Angela Merkel said on Monday. The euro zone should consider however whether it is fully equipped to make member states follow fiscal rules, Merkel added, speaking at a regional conference of her conservative Christian Democrat (CDU) party.

USA Today:

• Anti-Virus Firms Push Security Software for Mobile Devices. The prospect of consumers and employees physically losing information-packed mobile devices, or getting them hacked, is driving a red-hot sector of the tech industry: supplying mobile security.

Telegraph:

• Alliance Trust Chief Katherine Garrett-Cox Compares European Debt Crisis With Botox. Katherine Garrett-Cox, chief executive of Alliance Trust, has dismissed Europe's attempts to solve its debt crisis as "economic cosmetic surgery", warning there is "more pain" to come over the next few months.
• Debt Crisis: Live.
  

Bear Radar

Style Underperformer:

• Large-Cap Value (-2.41%)

Sector Underperformers:

• 1) Construction -4.03% 2) Road & Rail -3.85% 3) I-Banks -3.61%

Stocks Falling on Unusual Volume:

• BCS, UBS, IVN, SCX, EMM, JKL, TRH, CH, TXT, COL, MNTA, NFLX, PPDI, KIOR, CTCM, RLOC, TRS, POWI, BSFT, SNDA, LRCX, SUSS, SIMO, ZBRA, FSLR, PWRD, EBAY, GLPW, RGLD and PPDI
  

Stocks With Unusual Put Option Activity:

• 1) TYC 2) TSL 3) FMCN 4) ADBE 5) TXT
  

Stocks With Most Negative News Mentions:

• 1) CAT 2) AMAT 3) LDK 4) JKS 5) LRCX
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth (-1.21%)

Sector Outperformers:

• 1) Restaurants +.09% 2) Gold & Silver -.22% 3) Biotech -.33%

Stocks Rising on Unusual Volume:

• CMG, SSRI, CCOI, WMGI, NFLX, ATHN, OPTR, REGN, ULTA, MAKO, GR and TYC
  

Stocks With Unusual Call Option Activity:

• 1) SH 2) CMCSK 3) SPLS 4) SYMC 5) DHI
  

Stocks With Most Positive News Mentions:

• 1) BMY 2) MCK 3) MU 4) DMND 5) ULTA
  

Charts:

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

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.