Stocks Rising Into Final Hour on Euro Bounce, Quarter-End Short-Covering/Window-Dressing, Less Financial Sector Pessimism

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Mixed
  
• Volume: Slightly Above Average
  
• Market Leading Stocks: Substantially Underperforming
  

Equity Investor Angst:

• VIX 38.81 -5.53%
  
• ISE Sentiment Index 93.0 +75.47%
  
• Total Put/Call 1.19 -15.60%
  
• NYSE Arms .83 -82.47%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 139.94 +1.57%
  
• European Financial Sector CDS Index 247.67 +1.97%
  
• Western Europe Sovereign Debt CDS Index 340.0 +.09%
  
• Emerging Market CDS Index 349.86 -.83%
  
• 2-Year Swap Spread 30.0 unch.
  
• TED Spread 36.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .01% +1 bp
  
• Yield Curve 170.0 -5 bps
  
• China Import Iron Ore Spot $171.50/Metric Tonne -.64%
  
• Citi US Economic Surprise Index -36.50 +5.5 points
  
• 10-Year TIPS Spread 1.83 -4 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +19 open in Japan
• DAX Futures: Indicating +13 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech/Medical longs and Emerging Markets shorts
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them and some of my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is just mildly bullish, as the S&P 500 gives up some morning gains on rising Eurozone debt angst, rising tech sector pessimism, rising food/energy prices, global growth worries and profit-taking. On the positive side, Bank, I-Bank, Drug, Insurance, Homebuilding, REIT and Road & Rail shares are rising on the day. (XLF) has outperformed throughout the day. Major European stock indices rose 1-2% today. On the negative side, Coal, Alt Energy, Oil Service, Steel, Internet, Computer, Semi, Disk Drive, Networking, Biotech, HMO, Retail, Restaurant, Gaming and Education shares are under significant pressure, falling more than 2.0%. Growth stocks are substantially underperforming value shares. The tech sectors has also underperformed throughout the day. Lumber is falling -1.3%, the UBS-Bloomberg Ag Spot Index is rising +2.0%, oil is gaining +1.8%, gold is rising +.6% and copper is dropping -.9%. Rice is still close to its multi-year high, rising +27.0% in about 12 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.46/gallon. It is up .32/gallon in about 7 months. The Germany sovereign cds is gaining +1.76% to 105.83 bps, the China sovereign cds is gaining +4.84% to 173.76 bps, the Japan sovereign cds is gaining +2.3% to 144.0 bps and the Brazil sovereign cds is rising +2.24% to 186.34 bps. The Western Europe Sovereign CDS Index and the European Financial Sector CDS Index are still near their records. The 3-Month Euro Basis Swap fell -4.44 bps to -104.67 bps. The Asia-Pacific Sovereign CDS Index is surging another +5.5% today to a new record 166.25 bps. The China sovereign cds is now at the highest level since March 2009. The China Development Bank Corp cds is rising another +2.17% to 340.55 bps, which is also the highest since March 2009. As well, the China Blended Corporate Spread Index, which has been moving higher in a parabolic fashion, is making another new multi-year high, rising +22.0 bps to 840.0 bps. The Shanghai Composite, which continues to trade very poorly, fell another -1.1% overnight, leaving it down -15.78% ytd at the lowest level since July 2010. Various global credit angst gauges continue to trend higher, which remains a large negative. Many growth stock leaders are breaking down on volume today. Globally, market action indicates intensifying fears of recession, however according to a recent poll 79% of money managers don't see a double-dip, which is a negative. The bears inability to capitalize on this afternoon's swoon, likely means more short-term upside into quarter's end. I expect US stocks to trade mixed-to-higher into the close from current levels on quarter-end short-covering/window-dressing, less financial sector pessimism, bargain-hunting and a bounce in the euro currency.

Today's Headlines

Bloomberg:

• European Banks Chided for Lack of Transparency. The head of Europe’s markets regulator warned banks to be consistent in their valuations of sovereign debt amid concern some lenders have failed to record sufficient losses on Greek bonds. Steven Maijoor, chairman of the European Securities and Markets Authority, likened the lack of transparency about banks’ individual holdings of government debt to the subprime mortgages that triggered the credit crisis. “Lack of transparency regarding exposures to subprime mortgages created a situation of uncertainty about the financial positions of banks,” he said in a speech in Vienna today, according to a transcript released by ESMA on its website. Recently, “a lack of transparency from banks on their exposures to sovereign debt and related instruments are generating new suspicions about the conditions of individual banks and this requires similar answers in terms of transparency.”
• Norway to Cut Bank Support as Europe Girds for Deeper Crisis. Norway’s central bank will force lenders to wean themselves off its deposit facility in an effort to spur interbank lending even as Europe’s debt crisis threatens to trigger a region-wide liquidity squeeze. “Norges Bank wants the banks to use each other more for placing their money,” Kari Due-Andresen, an analyst at Svenska Handelsbanken AB in Oslo and former central bank economist, said in an interview. “But what the banks say is that at the moment the situation is so insecure and they are hoarding their own cash, so the new measures will just make things worse.”
  
• Hong Kong Stocks Head for Biggest Monthly Drop in Three Years. Hong Kong stocks dropped, dragging the Hang Seng Index toward its biggest monthly decline in almost three years, amid lingering concerns over the global economy and Europe's debt crisis. Industrial & Commercial Bank of China Ltd., the nation's biggest lender by market value, sank 3.8 percent today after rallying as much as 9.9 percent yesterday. Hutchison Whampoa Ltd. declined after its mobile phone unit said an auction for signal spectrum in the U.K. faces delay. Active Group Holdings Ltd., a maker of men's shoes, fell as much as 6.7 percent in its Hong Kong listing debut today before closing 0.8 percent lower. The Hang Seng Index lost 0.7 percent to 18,011.06 as of the close in Hong Kong, dragging the measure toward a 12 percent decline this month, its biggest monthly drop since Oct. 2008. The measure is on course for a 20 percent loss this quarter, its steepest decline since the period ended Dec. 2008.
• U.S. Economy Grew at a Revised 1.3% Pace Last Quarter.
• Jobless Claims in U.S. Drop More Than Forecast. Claims for U.S. unemployment benefits fell more than forecast last week as an atypical calendar alignment made it more difficult for the government to adjust the data for seasonal changes.
• BofA(BAC) to Add Monthly Fee to Some Debit Customers. Bank of America Corp., the biggest U.S. lender by assets, plans to announce a $5 monthly charge for some debit-card users to recoup revenue lost after new federal rules capped so-called swipe fees. Customers with lower-tiered accounts, including the firm’s online-banking option, may start getting assessed the fee for debit-card purchases in January, said Anne Pace, a Bank of America spokeswoman.
• U.S. Decries Salaries, Staffing in New UN Budget. The Obama administration told the United Nations that too few of its 10,307 workers are being cut and average salaries, currently $119,000 a year, have risen “dramatically.” The U.S. ambassador for UN management and reform, Joseph M. Torsella, said today that the proposed $5.2 billion UN budget for the next two years would scrap only 44 jobs, a 0.4 percent reduction. After an “onslaught” of add-ons, the 2012-13 budget would rise more than 2 percent to $5.5 billion, he said. “That is not a break from ‘business as usual’ but a continuation of it,” Torsella said in a speech in New York to the UN’s administrative and budgetary committee. “How does management intend to bring these numbers and costs back in line?” Torsella’s attack on UN salaries and workforce size follows legislation introduced by U.S. House Republicans on Aug. 30 that, if passed into law, would have the U.S. withhold a percentage of its contributions until at least 80 percent of the UN budget is voluntary. Calling personnel the “largest and most important driver of long-term costs,” Torsella said those expenses increased to $2.4 billion in the 2010-11 budget from $1.4 billion a decade earlier. The U.S. pays 22 percent of the UN’s regular operating budget and is assessed 27 percent of the peacekeeping budget. U.S. payments totaled $3.35 billion in 2010, of which $2.67 billion was dedicated to the 16 peacekeeping operations worldwide, from South Sudan to Haiti.
• Plosser: Easing Moves May Be Undermining Fed. Federal Reserve Bank of Philadelphia President Charles Plosser said the central bank may be undermining its own credibility by pushing forward with monetary easing that will do little to boost growth. “The actions taken in August and September tend to undermine the Fed’s credibility by giving the impression that we think such policies can have a major impact on the speed of the recovery,” Plosser said today in a speech in Radnor, Pennsylvania. “It is my assessment that they will not.” The policy, so-called Operation Twist, is likely to reduce long-term rates by “less than 20 basis points” and “the pass- through to the rates at which consumers and businesses actually borrow is likely to be much less,” Plosser said at a Business Leaders Forum at the Villanova School of Business. “I am skeptical that this will do much to spur businesses to hire or consumers to spend.”
• Rare Earths Fall as Toyota, GE Develop Alternatives. Rare-earth prices are set to extend their decline from records this year as buyers including Toyota Motor Corp. (7203) and General Electric Co. (GE) scale back using the materials in their cars and windmills. Prices for cerium and lanthanum, the most abundant rare- earth elements, will drop by 50 percent in 12 months, Christopher Ecclestone, an analyst at Hallgarten & Co. in New York, has forecast. Neodymium and praseodymium, metals used in permanent rare-earth magnets, may fall as much as 15 percent, he said.

Wall Street Journal:

• Greek Government Divided on Job Cuts. Greece's Socialist government is divided over a controversial plan to cut tens of thousands of jobs in the public sector, as it has promised the country's international creditors, with some agencies declining to put forward layoff plans. Two senior government officials with direct knowledge of the matter said the issue was to be discussed at a cabinet meeting Thursday—coinciding with the return of a troika of international inspectors to Athens—but was pulled from the agenda after many ministries failed to compile lists of personnel to be cut. Instead, the cabinet will revisit the issue at an extraordinary meeting.
• Soros: Euro Zone Needs Common Treasury, Other Remedies. European monetary authorities must act fast to regain the control they've lost over financial markets, or the result is likely to be a second Great Depression, hedge fund investor George Soros warned Thursday in an opinion essay published online by the Financial Times. Soros called for "three bold steps" that "would calm the markets and give Europe time to develop a growth strategy, without which the debt problem cannot be solved."
  

CNBC.com:

• German Finance Minister Shoots Down Levered Euro-TARP.
• EFSF Expansion Only a Short-Term Fix: Ex-Fed VP. The German Parliament's vote to expand the role of the European Financial Stability Facility (EFSF) has given the markets a "confidence boost," but it is only a short-term fix to Europe's solvency issues, Dino Kos told CNBC Thursday.

Business Insider

• Here's Why Everyone's Suddenly Freaking Out About China.
• Here's the Presentation That Jeff Gundlach Delivered to A Crowd in NY Yesterday.
• This Is The Type of Story That Makes People Freak Out About China's Underground Banking System.
• Everyone's Realizing That Europe Has A Much Bigger Problem Than Debt.
• 20 Reasons Why Millions Of Young Americans Are Furious About The Economy.

Zero Hedge:

• Bloomberg Consumer Comfort Index Reaches Second Weakest Ever. (graph)

Bespoke Investment Group:

• Bullish Sentiment Back Above 30%. (graph) In this week's sentiment survey from the American Association of Individual Investors (AAII), bullish sentiment rose back above 30% to 32.51% from last week's level of 25.33%. This week's 7.18 percentage point increase in bulls was the largest one week increase since June 23rd.

Politico:

• On Solyndra, The Buck Stops With Secretary Steven Chu. Energy Secretary Steven Chu is taking responsibility for making the final decisions at two critical moments in the rise and fall of Solyndra.
  

Reuters:

• RIM(RIMM) Says Remains Committed to PlayBook Tablet. BlackBerry maker Research In Motion brushed off suggestions on Thursday that it would discontinue production of its PlayBook computer tablet as "pure fiction" after an analyst said the company may be considering an exit from the market. "Rumors suggesting that the BlackBerry PlayBook is being discontinued are pure fiction," RIM spokeswoman Marisa Conway said in an emailed statement. "RIM remains highly committed to the tablet market and the future of QNX in its platform."

USA Today:

• Money Managers See Opportunities in Stocks. Despite worries on Wall Street that the weak economy will fall back into recession and drag stocks down more, eight of 10 money managers believe the USA will avoid a double dip, a survey of investment managers by Russell Investments to be released Thursday found. The fear of another downturn, just two years after the end of the Great Recession, has been a big factor in the stock market's swoon since its April high and the wildest price swings in history. But the message being sent by 79% of the 102 money managers in the quarterly survey who say another recession is unlikely is there might be more opportunities to make money in stocks than gloomy headlines suggest.

Financial Times:

• Eurozone Crisis: Live Blog.
• Chinese Property Boom Starts to Wobble. Chinese bonds and equities are flashing warning signs that suggest the booming mainland property sector is heading for a bust – a development that would send shockwaves through financial markets worldwide. A sector that was until last year the darling of international investors is turning into a horror show as traders have started to digest evidence that real estate prices are falling and developers are losing access to funding.

Telegraph:

• 'Greece Will Default'. (video) Ariel Bezalel, manager of the Jupiter Strategic Bond Fund, tells Robert Miller he expects a Greek debt re-structuring and calls on Eurozone politicians to prevent the crisis from engulfing other euro member states.

MailOnline:

• Bank of England Says Squeeze on Family Finances to Worsen With Inflation Set to Rise Above 5%. The squeeze on family finances will get worse this autumn as household energy bills soar, the Bank of England has warned. Inflation is expected to jump from the current level of 4.5 per cent to more than 5 per cent. Hard-pressed households are already £728 a year worse off than they were 12 months ago because of rising living costs, according to a recent study by Asda. But Spencer Dale, the Bank of England’s chief economist, told the Daily Mail that families should brace themselves for further pain in the coming months. In an interview in which he warned the global economy is at risk of ‘a rather nasty downward spiral’, he blamed the surge in the cost of living on double-digit price rises by the country’s energy giants.

The Guardian:

• US Justice Department Probing Chinese Accounting Scandal. A top securities regulator said U.S. criminal authorities are investigating accounting irregularities at Chinese companies listed on U.S. stock exchanges.

Caijing.com:

• Subprime Crisis Sweeps Wenzhou as Bankrupt Bosses Flee. Up to 29 bankrupt bosses in Wenzhou, a manufacturing center in south China’s Zhejiang Province, have fled since April this year and another one committed suicide, the 21st Economic Herald reported, reflecting rising money tensions in small Chinese companies. Among the 29 bosses, 11 are leather shoe and leather products makers, five in electronic industry, four in iron and copper sector while two are operating restaurants, with assets value in each of these companies reaching 100 million yuan, the report said. The bosses fled brought with no less than 2.9 billion yuan worth of assets, according to a preliminary estimate. The situation is getting worse in September, with on a single day of September 25, nine bankrupt bosses fled in Wenzhou, the newspaper said, quoting a government source without giving the person’s name. Authorities have realized the problem. Acting Governor of Zhejiang Province has called Saturday to expand financing channels for small companies. The bankruptcy of companies in the city is due to a restless expansion and borrowing at a high rate from unofficial channels against a backdrop of unfavorable micro economic situation, said Chen Derong, the party chief in Wenzhou.
  

Bear Radar

Style Underperformer:

• Mid-Cap Growth (-2.53%)

Sector Underperformers:

• 1) Education -4.20% 2) Internet -3.01% 3) Restaurants -2.73%

Stocks Falling on Unusual Volume:

• YOKU, IPGP, BIDU, CEVA, TIF, FDO, VRUS, FMCN, SINA, YNDX, INSU, SOHU, WYNN, AWAY, NFLX, NUVA, SPRD, FOSL, JOBS, SNDA, SFLY, PCLN, LQDT, BMRN, ZOLL, DVA, EW, EDU, CRR, MOS, SFY and NUVA
  

Stocks With Unusual Put Option Activity:

• 1) TIF 2) CTRP 3) FMCN 4) IP 5) CMA
  

Stocks With Most Negative News Mentions:

• 1) AMD 2) MU 3) SINA 4) AZO 5) RIMM
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value (+1.67%)

Sector Outperformers:

• 1) Insurance +2.49% 2) Banks +2.45% 3) Homebuilders +1.59%

Stocks Rising on Unusual Volume:

• RNOW, DB, HGIC, THO, ATE and CNP
  

Stocks With Unusual Call Option Activity:

• 1) AMD 2) DG 3) KGC 4) WNR 5) UCO
  

Stocks With Most Positive News Mentions:

• 1) RAD 2) ATU 3) UNG 4) BIDU 5) RL
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• Germany to Vote on Euro Rescue Fund, Set Stage for Next Steps. German lawmakers are set to back an expansion of the euro-area rescue fund’s firepower as European officials turn to look at what next steps may be needed to stem the debt crisis. The plan before the lower house in Berlin today would allow the fund to buy bonds of distressed states and offer emergency loans to governments, raising Germany’s guarantees to 211 billion euros ($287 billion) from 123 billion euros. The main opposition Social Democrats and Greens have said they will vote with Chancellor Angela Merkel’s government, assuring passage. Lawmakers vote from about 11 a.m. Berlin time as government officials weigh further measures to bolster Greece and stem investor concern that helped end the biggest three-day rally in 16 months for European stocks yesterday. Options include seeking further writedowns on Greek sovereign bonds, adding yet more firepower to the rescue fund and a “plan B” for banks. “The German parliament is voting for too little, too late,” Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said by phone. “Merkel can’t possibly believe this is the final point in a rescue package that will calm global markets and lead us out of the crisis.”
  
• Ernst & Young Says Greek Default Inevitable as Risk of Recession Rises. A Greek default is inevitable and there is 35 percent chance of the euro-area economy slipping back into recession, Ernst & Young said. “The euro zone sovereign-debt crisis shows no sign of abating,” E&Y said in an e-mailed report in London today. “A default on Greek government debt now seems unavoidable. The key question is when this default will occur and how it will be managed.” European leaders have struggled to allay investor concerns that a potential debt restructuring in Greece will plunge the region’s economy into a recession. Greek bonds have tumbled and insurance against default has soared as markets put the probability of insolvency at more than 90 percent. Former European Central Bank chief economist Otmar Issing told Germany’s Stern magazine that the country “won’t get back on its feet without a drastic debt restructuring.” Experts from the European Commission, the European Central Bank and International Monetary Fund will return to Athens today as officials try to put in place a package of measures that will ring-fence Greece and prevent the turmoil from spreading to countries such as Italy and Spain. “Authorities have been slow in trying to tackle the problems facing Greece, Ireland and Portugal,” E&Y said. “It was hoped that the rescue package for Greece announced in July would bring to an end the long period of indecision and uncertainty.”
• Euro is 'Burning Building,' EU Has Too Much Power, Hague Tells Spectator. U.K. Foreign Secretary William Hague said his 1998 comment that the euro area was “a burning building with no exits” has been proved right and that member countries will have to live with the consequences for decades. Hague first described the euro in those terms when he was leading the Conservative Party in opposition and Prime Minister Tony Blair favored joining the single currency. In a 1998 speech in Fontainebleau, near Paris, Hague warned that the single currency could damage the stability of Europe by tying together economies that were too different.
• Euro Area's Rescue Options Are Shrinking Fast: Anil K Kashyap.
  
• EU Governments Said to Be Close to Deal on OTC Derivatives Law. European Union governments are close to a deal on rules for trading of over-the-counter derivatives in the region following a negotiation meeting yesterday, said two people familiar with the discussions.
• Sony(SNE) Says It Expects 'Huge Impact' on Earnings From Euro Slump. Sony Corp., Japan’s largest exporter of consumer electronics, said it expects a “huge impact” on earnings from the weaker euro, underscoring the company’s vulnerability to the European debt crisis. While the company hedged risks against the U.S. currency by hiring Asian contract manufacturers that settle orders in dollars, Sony can’t use that tactic with the euro, Hiroshi Kurihara, corporate treasurer at Sony, said in an interview in Tokyo yesterday. The electronics maker also doesn’t purchase many components from the region, limiting its ability to benefit from a weaker European currency, he said. “There is a huge impact on our earnings,” he said. “There are no countermeasures that we can take for the moment.”
• China Stocks Sink to 14-Month Low as Investors Predict Slowdown. China’s stocks fell, sending the benchmark index to a 14-month low, on concern economic growth will slow as the government maintains measures to curb inflation and demand for exports falters in Europe and the U.S. PetroChina Co. and Jiangxi Copper Co. paced declines by commodity producers after oil and metal prices dropped. China Vanke Co. and Gemdale Corp. retreated among developers after Vice Premier Li Keqiang said the top priority will continue to be stabilizing prices. Most global investors predict Chinese growth will slow to less than 5 percent by 2016, a Bloomberg poll showed. “The European debt problem will remain hanging over the market as there’s no possibility of solving it in the near future,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “That’ll continue to bring turmoil to global financial markets as the appetite for risky assets is falling.” The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 13.11 points, or 0.6 percent, to 2,378.95 at 9:36 a.m. local time, set for its lowest close since July 5, 2010.
• Solar-Panel Makers Said to Plan China Trade Complaint. Solar manufacturers including the U.S. unit of SolarWorld AG (SWV) are preparing a trade complaint against imports from China, as they seek help from President Barack Obama to counter subsidies to their competitors, according to people familiar with the matter. The case, which would be filed at the Department of Commerce and the U.S. International Trade Commission in Washington, would be one of the largest targeting China, with political implications as both nations race to develop clean- energy technologies. The companies argue that China’s subsidies to solar companies violate global trade rules and provide those manufacturers with an unfair advantage, according to the people, who spoke on condition of anonymity because no complaint has yet been filed.
• Morgan Stanley Cuts 2012 Brent Forecast to $100 from $130. Morgan Stanley said Brent oil will average $100 next year, down from a previous projection of $130, because of increasing supply and a weaker demand outlook. Production capacity in the Organization of Petroleum Exporting Countries will climb almost 800,000 barrels a day in 2012, led by the return of Libyan fields, Morgan Stanley analysts led by New York-based Hussein Allidina said in a report today. Non-OPEC output will rise 225,000 barrels. Slowing global economic growth will result in reducing demand growth, the analysts said. Consumption will advance 600,000 barrels a day in 2012, down from a 950,000 gain this year and 2.7 million barrel advance in 2010. Brent oil for November settlement fell $3.33, or 3.1 percent, to end the session at $103.81 a barrel on the London- based ICE Futures Europe exchange today.
• AMD(AMD) Cuts Q3 Sales Forecast; Shares Slump. Advanced Micro Devices Inc. (AMD), the second-largest maker of processors for personal computers, cut its forecasts for third-quarter sales and profitability, citing manufacturing glitches. Shares dropped as much as 11 percent.
• Commodities Head for Biggest Quarterly Drop Since 2008 on Economy's Woes. Commodities fell, heading for the biggest quarterly slump since 2008, as Europe’s sovereign-debt crisis threatened to derail the global economy, slashing raw- material demand. The Standard & Poor’s GSCI index of 24 raw materials slid 2.7 percent to settle at 603.55 at 3:46 p.m. New York time. Since June 30, the gauge has slumped 9.8 percent, the most since the last quarter of 2008 during the most-severe recession since the 1930s. Copper closed at the lowest price in 13 months, and crude oil fell almost 4 percent.

Wall Street Journal:

• H-P(HPQ) Banker In Defense Move. Hewlett-Packard Co. has hired Goldman Sachs Group Inc. to help the company defend itself against possible activist investors who could push for change at H-P, people familiar with the matter said.
• Private Equity Bribery Risk Grows As Tax Shelters Clamp Down. The private equity industry will be at a higher risk of violating foreign bribery laws as a result of money barred from tax shelters, according to one expert. The world of capital flight has shrunk, as countries like Switzerland try to shed the image of being havens for tax evaders and heads of state to park stolen assets, said Daniel Karson, the Americas chairman of Kroll, who spoke on a panel at the Dow Jones Private Equity Analyst Conference in New York. The possibility of such assets ending up in private equity funds represents an “added peril” to private equity, he said. With many firms now in the market hunting down new backers for new funds, there’s also a risk of violating anti-bribery laws by inadvertently taking capital from a government-connected source, said both Karson and James Gaven, senior compliance counsel for Welsh Carson Anderson & Stowe. As a firm grows and raises money globally, it may need to deal with placement agents in new markets, exposing it to another risk if those agents have government connections, Gaven said. Private equity firms are among financial firms reportedly being examined by the U.S. Justice Department over dealings with employees of sovereign-wealth funds.
• Health Law Heads to Justices. The Obama administration asked the Supreme Court to decide the fate of its health-care overhaul, setting the stage for arguments at the high court and a likely ruling in the thick of the 2012 presidential campaign.
• Copper Fall Hints At Broader Pains. In little more than a month, copper has careened into a bear market, catching commodities traders off guard and triggering alarm bells across financial markets. Copper prices have plunged 23% this month—a decline of 20% or more is commonly considered a bear market.
• 'Earned American Exceptionalism'. Christie's critique of the Obama era.

Business Insider:

• Herman Cain Vaults To Top-Tier: Romney and Perry Lead - But Not By Much.
• Two Top Italian Bank Execs Sound Terrified Of EuroCrisis Contagion.
• Why China Just Can't Stimulus Its Economy Like It Used To.
  

Zero Hedge:

• Deputy PM Says Tax Limits of Greek Society Exhausted. As G-Pap goes from meeting to meeting with his hand held out making promises to asset strip and tax his country into oblivion, AP is reporting that Deputy PM Theodore Pangalos that the country's tax-ability is exhausted (and has exhausted for some time). It is truly astounding that this farce has gone on for so long even as it appears (from the riots/strikes/press) that everyone (serfs and lords alike now) sees through the plans.
• "A Panorama Of The European Debt System" - The Definitive Primer Of The Eurozone.

CNBC:

• Greece Faces Auditor Verdict, Fresh Aid at Stake. International auditors return to Athens on Thursday to deliver a verdict on whether Greece's tougher austerity measures qualify for aid to avert a default that would plunge the country into bankruptcy.
• Bernanke Tells US to Learn From Emerging Economies. The U.S. can learn how to boost long-run growth from successful emerging economies, U.S. Federal Reserve chairman Ben Bernanke said in a speech on Wednesday that will delight developing countries more used to admonishment than admiration from Washington.
• Equity Rout May Force Shift in SWF Strategy. Sovereign wealth funds may be shifting towards alternative investments such as infrastructure and property as they reconsider their investment strategies after a decade of equity underperformance against low-yielding fixed income.

LA Times:

• New York Fed to Monitor Facebook and Twitter. The Federal Reserve Bank of New York wants to see what's being said about it on social networks. But critics say it wants to keep tabs on them.

Women's Wear Daily:

• China's Cotton Subsidies Reached $7.9 Billion in 2010. China’s support to its cotton producers reached $7.9 billion in 2010, surpassing by a wide margin the levels provided by the other major cotton nations.

AppleInsider:

• Roughly 40% of Mobile Users in North America and UK Plan to Buy the iPhone 5.

cnet:

• E-Voting Machines Vulnerable to Remote Vote Changing. U.S. government researchers are warning that someone could sneak an inexpensive piece of electronics into e-voting machines like those to be used in the next national election and then remotely change votes after they have been cast. The Vulnerability Assessment Team at Argonne Laboratory, which is a division of the Department of Energy, discovered this summer that Diebold touch-screen e-voting machines could be hijacked remotely, according to team leader Roger Johnston. Salon reported on it today, noting that as many as a quarter of American voters are expected to be using machines that are vulnerable to such attacks in the 2012 election.

Baltimore Sun:

• Exclusive: CFTC Lacks Votes on Position-Limit Plan. The U.S. futures regulator delayed a final vote on controversial measures to crack down on excessive speculation in commodity markets because it lacks the three votes needed for approval, sources familiar with the situation told Reuters on Wednesday. The U.S. Commodity Futures Trading Commission announced on Tuesday it was delaying by another two weeks to October 18 its meeting to consider the long-awaited rule on position limits. It was the second time a vote had been postponed.

Boston Globe:

• Federal Agents Charge Ashland Man With Targeting Pentagon, Capitol With Aerial Explosives. Federal authorities today arrested and charged a 26-year-old Ashland man with plotting to damage the Pentagon and US Capitol with a remote-controlled aircraft filled with C-4 plastic explosives. Rezwan Ferdaus, a US citizen, was also charged with attempting to provide material support and resources to a foreign terrorist organization, specifically to al-Qaida, in order to carry out attacks on US soldiers stationed overseas, the US attorney’s office said in a statement.

Gallup:

• Obama Job Approval: 40% Approve, 51% Disapprove. (graph)

Reuters:

• Worthington(WOR) Q1 Lags Street View. Worthington Industries Inc's first-quarter profit lagged analysts' estimates, hurt by raw material costs that outpaced selling prices. "The stalled economy, and the uncertainty surrounding it, has hindered a quicker and more robust recovery which has an impact on our customers," Chief Executive John McConnell said in a statement.

Financial Times:

• Greece Creditors in Bail-Out Backlash. Greece’s private creditors have reacted angrily to suggestions that some eurozone countries want bondholders to suffer bigger losses than those agreed in the second bail-out of Athens. Banks and other bondholders are resisting the idea by lobbying countries such as Germany and the Netherlands, where hardliners are pushing for private creditors to write down more than the current 21 per cent agreed in July’s €109bn Greek rescue, according to people close to the deal.
• SEC Probes Banks Over Mortgage Loans. The Securities and Exchange Commission is investigating Royal Bank of Scotland, Credit Suisse and other financial institutions for their handling of problem mortgage loans, according to public disclosures and people familiar with the matter. The SEC is examining whether banks misled shareholders about the number of loans they might be forced to buy back because of early defaults – known as loan repurchase requests – and set aside sufficient reserves to fund those purchases or handle related litigation, people familiar with the matter said.

Telegraph:

• Debt Crunch Threatens China and Emerging Markets. Europe's banking woes have begun to set off a funding crunch in the emerging markets of Asia, Latin America, and Eastern Europe, leaving them nakedly exposed as the rich world slides into a double-dip downturn. Contagion has spread to Chinese "Dim Sum" bonds issued in yuan on the offshore market in Hong Kong, where companies linked to China's property market and building sectors have taken a beating. Yields on Dim Sum bonds jumped by 105 basis points to 5.85pc in August, the worst month since the instruments were created.
• Debt Crisis: Live.
  

The Independent:

• Syria Slips Towards Civil War as Sanctions Bid Fails. UN resolution diluted after veto threat from China and Russia. Fears are mounting that Syria may be on the verge of civil war as reports emerged yesterday that hundreds of army deserters were battling Bashar al-Assad's forces in the first major confrontation against the regime.

AFP:

• Muslim Brotherhood-Led Bloc Threatens Egypt Vote Boycott. Egypt's first democratic elections since the overthrow of Hosni Mubarak have been called into question after an electoral coalition led by the Muslim Brotherhood threatened a boycott. The coalition said in a statement it would not take part in November's legislative elections if a controversial article in the new electoral law was not amended. The bloc objected to Article Five of the electoral law, which bans political parties from running in a third of the seats in parliament, which are reserved for independent candidates. "We refuse to take part in elections if Article Five of the electoral law is not cancelled," said the statement, issued late Wednesday.

Macro Business:

• CDS Signaling Trouble for Chinese Banks. (graph) There is a widespread belief that Chinese banks are a safe investment because they can’t possibly go bankrupt. After all, the government will be there to back-stop. I don’t disagree with the judgment, but have often joked that we will probably see an outcome similar to RBS, with Chinese banks still around but equity holders wiped out. Credit markets are also now showing distrust in Chinese banks. Credit default swaps spreads for Bank of China and China Development Bank have surged according to Société Générale, and they are rising at much faster rates than the rest of Asia ex. Japan:

Sydney Morning Herald:

• Suburbs in 'Ring of Fire' Feeling the Heat. Sydney is surrounded by the mortgage belt equivalent of a ring of fire, as what seems to be Australia's own version of the euphemistically named sub-prime lending crisis emerges in specific regions. An analysis of mortgage-backed securities by Moody's Investor Services indicates a dramatic shift in the number of regions in Australia where people are struggling to keep up with their home loan payments. Although Moody's data only covers about 10 per cent of the total $1.1 trillion mortgage market, the ratings agency reckons that is a more than solid sample of trends around the country. Scratch beneath the surface data on the ''delinquencies'' - where borrowers are more than 30 days behind in their repayments - and some ugly trends emerge.

Evening Recommendations
CSFB:

• Upgraded (OKS) to Outperform, target raised to $54.

Night Trading

• Asian equity indices are -1.25% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 239.0 +12.5 basis points.
  
• Asia Pacific Sovereign CDS Index 157.50 -3.5 basis points.
• FTSE-100 futures -1.41%.
  
• S&P 500 futures -.24%.
  
• NASDAQ 100 futures -.16%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MU)/.02

Economic Releases
8:30 am EST

• Final 2Q GDP is estimated to rise +1.2% versus a prior estimate of a +1.0% gain.
• Final 2Q Personal Consumption is estimated to rise +.4% versus a prior estimate of a +.4% gain.
• Final 2Q GDP Price Index is estimated to rise +2.4% versus a prior estimate of a +2.4% gain.
• Final 2Q Core PCE is estimated to rise +2.2% versus a prior estimate of a +2.2% gain.
• Initial Jobless Claims for last week are estimated to fall to 420K versus 423K the prior week.
• Continuing Claims are estimated to fall to 3730K versus 3727K prior.
  

10:00 am EST

• Pending Home Sales for August are estimated to fall -2.0% versus a -1.3% decline in July.

11:00 am EST

• The Kansas City Fed Manufacturing Activity Index for September is estimated at 3.0 versus a reading of 3.0 in August.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Lockhart speaking, Fed's Rosengren speaking, Fed's Plosser speaking, German Parliament's EFSF vote, 7-Year Treasury Note Auction, weekly Bloomberg Consumer Comfort Index and the weekly EIA natural gas inventory report could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Dropping into Final Hour on Rising Eurozone Debt Angst, Global Growth Worries, Rising Financial Sector Pessimism, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 39.53 +4.96%
  
• ISE Sentiment Index 53.0 -20.90%
  
• Total Put/Call 1.37 +22.32%
  
• NYSE Arms .46 +46.01%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 137.78 +3.43%
  
• European Financial Sector CDS Index 246.17 +1.98%
  
• Western Europe Sovereign Debt CDS Index 340.83 +.45%
  
• Emerging Market CDS Index 351.60 +2.67%
  
• 2-Year Swap Spread 30.0 +1 bp
  
• TED Spread 36.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 175.0 unch.
  
• China Import Iron Ore Spot $172.60/Metric Tonne unch.
  
• Citi US Economic Surprise Index -42.0 -.2 point
  
• 10-Year TIPS Spread 1.87 -3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -51 open in Japan
• DAX Futures: Indicating -61 open in Germany

Portfolio:

• Slightly Higher: On gains in my Technology/Retail sector longs, Emerging Markets shorts and Index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and then covered them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 rolls over at its downward-sloping 50-day moving average again on rising Eurozone debt angst, rising financial sector pessimism, global growth worries, profit-taking, technical selling and more shorting. On the positive side, Computer Service, Telecom and Retail shares are rising on the day. Oil is falling -3.2%, gold is down -2.8% and the UBS-Bloomberg Ag Spot Index is falling -2.25%. The 10-year yield is rising +4 bps to 2.0%. The Ireland sovereign cds is falling -3.98% to 715.33 bps and the Israel sovereign cds is falling -3.47% to 193.17 bps. On the negative side, Coal, Alt Energy, Oil Tanker, Oil Service, Steel, Paper, Networking, HMO, Construction and Road & Rail shares are under significant pressure, falling more than 3.0%. Cyclicals and small-caps are substantially underperforming. (XLF) has also been relatively weak throughout the day. Lumber is falling -1.4% and copper is plunging -7.6%. Rice is still close to its multi-year high, rising +28.0% in about 12 weeks. The average US price for a gallon of gas is -.01/gallon today to $3.47/gallon. It is up .33/gallon in about 7 months. The Germany sovereign cds is gaining +4.0% to 104.0 bps, the France sovereign cds is rising +4.8% to 178.33 bps, the Italy sovereign cds is rising +3.06% to 459.50 bps, the China sovereign cds is rising +4.85% to 164.86 bps and the UK sovereign cds is rising 4.33% to 90.17 bps. The Western Europe Sovereign CDS Index and the European Financial Sector CDS Index are still near their records. The FRA/OIS spread is rising another +2.99 bps to 45.59 bps. The China sovereign cds is still right near the highest level since April 2009. The China Development Bank Corp cds is rising another +.5% to 333.32 bps, which is the highest since March 2009. As well, the China Blended Corporate Spread Index, which has been moving higher in a parabolic fashion, is jumping back near its recent multi-year high, rising +23.0 bps to 818.0 bps. The Shanghai Composite, which continues to trade very poorly, fell another -.95% overnight, leaving it down -14.8% ytd at the lowest level since July 2010. Various global credit angst gauges continue to trend higher, which remains a large negative. I cautioned a few months ago that Asia was becoming a bigger problem than most investors perceived and today fear's over hard-landings in the region are intensifying. As well, it appears as though Germany is realizing the massive long-term damage that the recent suggested leveraged debt "solution" would do to their country, which once again leaves the problem in limbo. I expect US stocks to trade modestly lower into the close from current levels on profit-taking, rising Eurozone debt fears, rising financial sector pessimism, more shorting and global growth concerns.