Stocks Dropping Substantially into Final Hour on Rising Global Debt Angst, Sharp Euro Decline, Rising Financial Sector Pessimism, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 44.92 +4.54%
  
• ISE Sentiment Index 78.0 -19.59%
  
• Total Put/Call 1.28 +3.23%
  
• NYSE Arms 2.80 -30.21%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 145.28 +3.10%
  
• European Financial Sector CDS Index 269.43 +5.95%
  
• Western Europe Sovereign Debt CDS Index 346.0 +1.22%
  
• Emerging Market CDS Index 386.49 +4.62%
  
• 2-Year Swap Spread 36.0 +4 bps
  
• TED Spread 37.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.
  
• Yield Curve 155.0 -10 bps
  
• China Import Iron Ore Spot $171.30/Metric Tonne -.15%
  
• Citi US Economic Surprise Index -23.30 +6.2 points
  
• 10-Year TIPS Spread 1.74 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -110 open in Japan
• DAX Futures: Indicating -77 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech and Medical sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, and then covered some
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 falls below significant technical support with volume on rising global debt angst, rising financial sector pessimism, margin selling, a large euro currency decline, global growth worries and more shorting. On the positive side, Computer Services shares are holding up relatively well, declining less than -1.0%. The UBS-Bloomberg Ag Spot Index is dropping -.5%, lumber is jumping +3.69% and oil is falling -2.2%. On the negative side, Coal, Alt Energy, Oil Tanker, Ag, Steel, Paper, Disk Drive, Networking, Bank, I-Banking, Medical, Biotech, Hospital, HMO, Homebuilding, REIT, Gaming, Education and Airline shares are under severe pressure, falling more than -4.0%. Cyclical and Small-Cap shares are substantially underperforming. (XLF) has traded very poorly throughout the day. The 10-year yield is falling too much again, declining -14 bps to 1.78%. Copper is dropping -1.71% and gold is rising +1.6%. Rice is still close to its multi-year high, rising +26.0% in about 12 weeks. The Germany sovereign cds is gaining +5.0% to 117.83 bps, the France sovereign cds is rising +2.23% to 191.50 bps, the Russia sovereign cds is jumping +3.01% to 318.67 bps, the Belgium sovereign cds is rising +4.9% to 272.83 bps, the UK sovereign cds is gaining +2.4% to 96.67 bps, the China sovereign cds is rising +3.6% to 197.09 bps and the Brazil sovereign cds is rising +4.47% to 207.50 bps. The Eurozone Investment Grade CDS Index is jumping +5.23% to 196.97 bps, which is a new record high. The Western Europe Sovereign CDS Index and the European Financial Sector CDS Index are still near their records. The 3-Month Euro Basis Swap is falling -4.43 bps to -109.30 bps. The Asia-Pacific Sovereign CDS Index is soaring another +12.94% today to a new record 192.17 bps. The China sovereign cds is now at the highest level since March 2009. The China Development Bank Corp cds is still near 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 +66.0 bps to 978.0 bps. The Hang Seng, which continues to trade very poorly, plunged another -4.4% overnight, leaving it down -27.0% ytd at the lowest level since May 2009. Major European stock indices fell another 1-2% today. Brazilian equities are under pressure again, falling -2.4% today and are now down -26.2% ytd. Various global credit angst gauges continue to trend higher, telegraphing intense global recession fears, which remains a large negative. It appears as though quarter-end window-dressing/short-covering did in fact prop stocks up to an extent last week. The fact that the market didn't acknowledge better US economic data today is also a large negative. Stocks are getting technically oversold again, however until Europe/Asia stabilize, investors are likely to increasingly anticipate another downturn in US economic activity over the intermediate-term. I expect US stocks to trade mixed-to-lower into the close from current levels rising global debt angst, a rapidly falling euro, rising financial sector pessimism, global growth fears, more shorting and margin selling.

Today's Headlines

Bloomberg:

• Schaeuble Seeks to Stifle Debate Over Euro Rescue Fund as Pressure Mounts. Germany sought to stifle debate over boosting the firepower of the euro rescue fund, damping speculation of a breakthrough in talks to quell the European debt crisis. German Finance Minister Wolfgang Schaeuble opposed moves to further scale up the European Financial Stability Facility until the final three countries approve the fund’s latest upgrade. Slovakia, the Netherlands and Malta have yet to ratify an earlier decision to expand the fund to 440 billion euros ($584 billion). “Speculating makes no sense,” Schaeuble told reporters before a meeting of European finance ministers in Luxembourg tonight. “We will wait until the other countries that haven’t ratified it also do so.” European stocks and the euro fell today and investors shunned riskier countries’ bonds amid growing international impatience with 18 months of muddling through marked by clashes among Germany, France and the European Central Bank. Europe’s financial leaders are fighting on multiple fronts, trying to extinguish the Greek crisis while insulating Italy and Spain and coming up with a formula for banks that the International Monetary Fund says face as much as 300 billion euros in credit risks. The meeting, chaired by Luxembourg Prime Minister Jean- Claude Juncker, started at 5 p.m. No time was set for the concluding press conference.
• Dexia Plunges in Brussels on Concern Second Rescue of Lender Is Required. Dexia SA (DEXB), the lender rescued by France and Belgium in 2008, plunged 10 percent in Brussels on concern the bank is struggling to fund itself and will need a second bailout. The company is holding an emergency board meeting tonight, De Tijd reported, without saying where it got the information. The shares fell 15 euro cents to 1.30 euros, cutting Dexia’s market value to about 2.5 billion euros ($3.4 billion). The bank in August posted a 4.03 billion-euro second- quarter loss, the largest in its history, as the firm wrote down its holdings of Greek debt. The Brussels- and Paris-based lender said at the time that U.S. investors’ concern about the European sovereign debt crisis had limited its ability to borrow dollars in the money market. “There’s speculation that Dexia may be on the receiving end of a bailout,” said Jawaid Afsar, a trader at Securequity Ltd. in Sheffield, England. “The big worry for Dexia shareholders is a massive dilution of shares.”
• France, U.K. Want Payments to Bailout Nations Reduced, FT Says. European Union subsidies totaling 2.9 billion euros ($3.8 billion) to Greece, Portugal, Ireland, Latvia, Romania and Hungary may be cut by at least 50 percent after some EU countries voiced concern about the effect on their own public finances, the Financial Times reported, citing unidentified diplomats. The six countries are due to receive the money as part of a European Commission plan to quicken subsidy payments to countries that have received bailouts during the crisis, the newspaper said. A group of countries led by net contributors to the EU budget, including France, the U.K., the Netherlands and the Nordic nations, are questioning the arrangement, the FT said. The commission wants to lower to a little as 5 percent the proportion of costs borne by national governments in projects otherwise funded by the EU, and to make the arrangement retrospective to the time when countries began receiving international aid, the newspaper said.
• Greece Must Exit Euro or Risk Revolt, Spence Tells Repubblica. Greece risks a violent revolution unless it leaves the euro in an “orderly exit” organized by the European Central Bank and the European Union, Nobel Prize- winning economist Michael Spence told la Repubblica newspaper. Greece’s plans to scrap as many as 30,000 public-sector jobs, coupled with other austerity moves, are “unsustainable” and mean the country “risks being torched” by people “in a long agony,” New York University professor Spence, who won the Nobel in 2001, told the daily in an interview published today. The only solution is an orderly exit from the euro that allows Greece to lower costs and regain competitiveness, Spence was quoted as saying. Such a scenario wouldn’t spark the kind of chain reaction the collapse of Lehman Brothers Holdings Inc. did in 2008 because it would be orchestrated by the ECB and the EU, he said.
• Cost of Swapping Euro Payments to Dollars Rises to 3-Week High. The rate banks pay to convert euro payments into dollars rose to a three-week high, according to a money markets indicator, as European finance ministers meet on resolving the region’s debt crisis. The three-month cross-currency basis swap was 109 basis points below the euro interbank offered rate as of 2:52 p.m. in London, compared with 105 basis points on Sept. 30. The cost was 112.5 basis points under Euribor on Sept. 12, when the swap was the most expensive since December 2008. The TED spread, or the difference between what lenders and the U.S. government pay to borrow for three months, rose to 37 basis points from 35 at the end of last week.
• Forint Drops, Hungary Bond Risk Reaches 2-Year High on Debt Plan. The forint weakened for a fourth day and the cost of protecting against default on Hungarian bonds rose to the highest in more than two years amid government plans to restructure $819 million in local county debt. Hungary’s currency depreciated 1 percent to 296.3 per euro, the weakest since 2009, by 4:42 p.m. in Budapest. The country’s five-year credit-default swaps jumped more than 17 basis points to 549.3, the highest since March 2009, according to data provider CMA. Credit swaps rise as perceptions of creditworthiness worsen. “Today’s announcement from the prime minister on the takeover and possible restructuring of counties can be seen as negative news,” Zoltan Arokszallasi, an economist at Erste Group Bank AG in Budapest, in a research report today. The deteriorating global sentiment also put pressure on the forint, he said. Hungary’s government bonds maturing in 2017 weakened for a fourth day, lifting the yield 13 basis points, or 0.13 percentage point, to 7.91 percent, the highest since January. The country needs a precautionary standby loan agreement with the IMF to defend against contagion from a potential worsening of the euro crisis, Bank of America Corp. economist Raffaella Tenconi said in a research report today. “There isn’t enough ammunition left to protect the economy against an unfavorable global backdrop if the eurozone states do not take immediate action to stabilize the crisis,” Tenconi wrote.
• Macau gaming revenue growing 47% YTD y/y may slow to 10% y/y in coming quarters versus consensus estimates of 25% growth as the China economy weakens, Deutsche Bank said. Most vulnerable sectors in Chinese economic slowdown include gaming, travel, dining, sportswear and apparel, Deutsche said. (LVS) down 22% in past 2 weeks, (WYNN) down 27%, (MGM) down 15%, (MPEL) down 30% on concerns slowdown in China may hurt Macau, they said.
• Asian Economies Weaken as European Debt Crisis Crushes Investor Confidence. Indian and Australian manufacturing data were the weakest since 2009 and Japanese business sentiment failed to recover from the March 11 earthquake, signaling Asian economies are slowing as investor confidence sinks. A purchasing managers’ index for India fell to 50.4 in September from 52.6 in August, HSBC Holdings Plc and Markit Economics said in an e-mailed report today. A gauge for Australia slid to the lowest since June 2009. In Tokyo, the Tankan index of large manufacturers was at 2 in September, compared with 6 before the quake. Asian stocks tumbled ahead of a meeting of European finance ministers to consider measures to counter the sovereign-debt crisis, highlighting limits on the support that the region can give to global growth. The MSCI Asia Pacific Index tumbled 2.9 percent at 3:04 p.m. in Tokyo, after slumping last quarter by the most since 2008.
• Loans Fall to Six-Month Low in Asia as European Banks Retreat. Asian loans slumped to the lowest level in two quarters as Europe’s sovereign debt crisis pushed up banks’ funding costs and lenders under pressure in home markets retreated. Syndicated loans in the Asia-Pacific region outside of Japan fell to $104.7 billion in the third quarter, the least since the three months ended March 31, when they totaled $96.8 billion, according to data compiled by Bloomberg. Lending climbed 12 percent from the same period a year ago, when it totaled $93.2 billion. European banks lost ground and Credit Agricole CIB dropped out of the top 20 arrangers for the first time since 2002, the data show.
• U.S. Company Credit Risk Gauge Rises to Highest Since May 2009. A benchmark gauge of U.S. corporate credit risk rose to the highest level since May 2009 as Europe’s finance chiefs sought to prevent a Greek default and the cost of insuring German government debt climbed to a record. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 1.5 basis points to a mid- price of 145.7 basis points as of 8:53 a.m. in New York, according to index administrator Markit Group Ltd. The credit swaps index, which typically gains as investor confidence deteriorates and falls as it improves, has increased from 136.2 on Sept. 27 as concerns mount that Europe’s sovereign debt crisis is worsening. The region’s officials prepared to meet in Luxembourg today to consider how to shield banks from the debt crisis and boost a rescue fund after Greece missed a deficit target for 2012. Credit-default swaps on German debt climbed six basis points to an all-time high of 118.
• Holding Sovereign Debt With No Capital Is Risky, IASB Chief Says. Global capital rules that allow banks not to hold any reserves against highly rated debt, including sovereign bonds, create risk, the chairman of the International Accounting Standards said today. It’s “extremely risky to have a capital regime which says for certain types of assets you don’t need to put aside any capital,” Hans Hoogervorst, IASB chairman, told lawmakers in Brussels today.
• VIX Record Gain Signals Stock Rises Since 1990. The biggest quarterly increase ever in the Chicago Board Options Exchange Volatility Index pushed it above 40, a threshold exceeded only three percent of the time in 20 years and a level that has preceded stock rebounds. The VIX rose 160 percent to 42.96 in the third quarter as the Standard & Poor’s 500 Index fell 14 percent, the biggest retreat since 2008, according to data compiled by Bloomberg. Closes above 40 in the volatility measure have come before the equity gauge gained 3.2 percent in the next three months on average, data compiled by Bloomberg show.
• Global Air-Travel Growth Slowing as Confidence Wanes, IATA Says. Growth in global air travel slowed in August and a freight decline deepened as business and consumer confidence waned amid concern that economies may slide into recession, the International Air Transport Association said. Passenger traffic grew 4.5 percent in August, slowing from a 6 percent gain in July, the trade group said in a statement today. Europe logged the biggest year-to-year advance at 7.4 percent and North America the smallest at 0.9 percent, with U.S. domestic travel contracting 0.3 percent, it said. “The industry has shifted gears downward,” IATA Chief Executive Officer Tony Tyler said in the statement. “With business and consumer confidence continuing to slump there is not a lot of optimism for improved conditions anytime soon.”
• U.S. Manufacturing Unexpectedly Accelerates as Export Demand Spurs Output. Manufacturing in the U.S. unexpectedly accelerated in September, propelled by gains in exports and production. The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August, the Tempe, Arizona-based group said today. A level of 50 is the dividing line between growth and contraction. The median forecast of 82 economists surveyed by Bloomberg News projected a drop to 50.5. The ISM report wasn’t universally positive as a gauge of orders showed total demand shrank in September for a third consecutive month. A gauge of backlogs decreased to the lowest level since April 2009. “Some of the components were still pretty ugly,” said Christopher Low, chief economist at FTN Financial in New York, who projected the ISM index would rise to 52. The drop in backlogs is “worrisome because they are a buffer that allow companies to continue producing when orders are weak. If that continues, it will translate into weaker production.”
• AMR(AMR) Falls Most Since 2001 on Recession, Bankruptcy Concern. American Airlines parent AMR Corp. tumbled the most since September 2001 on growing concern the U.S. is nearing a return to recession and that the carrier may be forced to seek bankruptcy protection. Today's slide pointed toward a fifth straight drop for Fort Worth, Texas-based AMR, the longest streak in more than two months, and marked its biggest intraday plunge since Sept. 17, 2001. The shares dropped $1.05, or 35 percent, to $1.99 at 1:24 p.m. in New York Stock Exchange composite trading, after falling to $1.75. The stock was halted three times between about 12:58 p.m. and 1:21 p.m.
• Summers Told Solyndra Investor U.S. 'Crappy' Venture Capitalist. Lawrence Summers, a top economic adviser to President Barack Obama, agreed with a Solyndra LLC investor in December 2009 that the U.S. was a "crappy" venture capitalist. Summers, director of the National Economic Council until last year, sent an e-mail in response to comments by Brad Jones of Redpoint Ventures, an investor in Solyndra, who said government isn't "well-equipped" to make such decisions, according to a memo released today by staff for Democrats on the House Energy and Commerce Committee. The solar-panel maker filed for bankruptcy protection on Sept. 6, about two years after winning a $535 million U.S. loan guarantee. "I relate well to your view that gov is a crappy vc and if u were closer to it you'd feel more strongly," Summers said in his e-mail to Jones, according to the Democrats' memo.
• BofA(BAC) Falls Below $6 as Weakness in Europe, Economy Adds Pressure. Bank of America Corp., the largest U.S. lender by assets, fell below $6 in New York trading as concern increased that the world is on the brink of another recession. The bank dropped 15 cents, or 2.5 percent, to $5.97 as of 12:17 p.m. in New York Stock Exchange composite trading.
• Commodities Drop to 10-Month Low as Slowing Global Growth May Crimp Demand. Commodities fell to a 10-month low on increasing concern that stagnant global growth will crimp demand for metals, energy and agriculture. The Standard & Poor’s GSCI Spot Index dropped 8.32, or 1.4 percent, to 582.68 at 1:39 p.m. in New York, after touching 580.22, the lowest since Dec. 1. The gauge tumbled 12 percent in the third quarter, the most since the final quarter of 2008.

Wall Street Journal:

• Greek Deficit Sharpens Default Fears. European financial markets took another turn for the worse Monday, as the Greek government's announcement that it would miss its budget target made the prospect of a "hard" default more likely. Greece needs to cut its deficit to 7.6% of gross domestic product this year to keep receiving aid from the International Monetary Fund, the European Union and the European Central Bank, but Athens Sunday confirmed that an unexpectedly harsh recession means the actual deficit will be closer to 8.5%.
• White House Brushed Off Solyndra Worries, Emails Show. White House officials dismissed concerns about Solyndra LLC ahead of President Barack Obama's May 2010 visit to the failed solar-panel maker, despite acknowledging that the company and other clean-energy ventures could go "belly-up" by the 2012 election, according to emails released by Democratic lawmakers. The emails, provided to lawmakers in connection with a congressional investigation, continue to show White House and Department of Energy officials ignoring warning signs about the health of Solyndra, which filed for bankruptcy protection last month. The emails also show continuing debate between Energy Department officials and the Office of Management and Budget, which repeatedly warned about Solyndra's financial health. The company received a $535 million loan guarantee from the Energy Department in 2009.
• September U.S. Auto Sales Rise. U.S. auto sales climbed in September from a year ago as richer discounts and strong demand for larger pickup trucks and sport-utility vehicles helped the industry sidestep economic malaise. General Motors Co., Nissan Motor Co. and Chrysler Group LLC each reported U.S. auto sales last month climbed at least 20% from a year ago. Ford Motor Co. said its sales rose 8.9%. In contrast, Toyota Motor Corp and sales fell again reflecting weak dealer inventories stemming from the March earthquake in Japan. Toyota's efforts dropped 17.5% and Honda's fell 8%, both from a year ago.

MarketWatch:

• European Bank-Debt-Insurance Costs Rise. The cost of insuring European bank debt rose Monday after Moody's Investors Service warned about Dexia SA's liquidity position and exposure to Greek debt amid reports that a rescue package may be in the works for the French-Belgian bank. According to RBS analyst Christy Hajiloizou, Dexia's short-term funding position is most problematic, as the bank is over-reliant on wholesale funding. Also,"any further hits on Greek government bonds would likely generate a need to bolster capital cushion," she said. Adding to the negative tone, Greece said it would miss its deficit reduction targets. Around 1200 GMT, the iTraxx Senior and Subordinated Financials indexes, whose constituents are 25 financial institutions, were six and 11 basis points wider at 281/284 and 536/544 basis points, respectively. "Dexia is leading the way for us, but we also have to watch French and Belgian credit default swaps moving wider as well," one CDS trader said. Belgium's sovereign CDS suffered on the news, moving 18 basis points wider to 278 basis points, underperforming the rest of the European sovereigns and the SovX Western Europe index.

CNBC.com:

• Fitch Lowers Global Growth Forecasts. Fitch ratings agency on Monday revised down its growth forecasts for all major advanced economies, and said it expected growth in emerging economies to slow as well due to financial market volatility which has dented confidence and caused a drop in private consumption and business investment. Fitch revised down world growth based on market exchange rates to 2.6 percent in 2011 compared with 3.1 percent previously.
• Banks of America(BAC) Web Site Goes Down... Again. Bank of America's website, plagued by problems Friday and Saturday but supposedly fixed on Sunday, isn't working again.

Business Insider:

• Japan Is The Case Against More Quantitative Easing.
• China Is An Economy On The Verge Of A Nervous Breakdown.
• Exclusive Interview: Glenn Beck On The Future Of Television.
• If You Thought Last Week's Occupy Wall Street Protests Were Crazy, Get Ready...
  

Zero Hedge:

• Hunting the Squid(GS), Part 2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?

Absolute Return + Alpha:

• Billion Dollar Club. The largest 241 American hedge fund firms gain $102 billion in the first half of 2011, for a total of $1.399 trillion. Bridgewater Associates maintains its number one spot with $70.30 billion.

FINalternatives:

• Short-Seller Chanos Stilll Supports Obama. Many, if not most, of the hedge fund managers who helped bankroll President Barack Obama's run for the nation's highest office three years ago have abandoned him—or worse, switched sides. Kynikos Associates' James Chanos isn't one of them. Chanos was among the 116 attendees at a $10,000 a plate fundraiser for the president and the Democratic National Committee on Friday, The New York Times reports. The event raised more than $1.5 million—but fell about 14 people short of really selling out. The event, at the Four Seasons restaurant in New York, was hosted by Berkshire Hathaway's Warren Buffett, who has also not given up on the president, despite the fact that much of Wall Street has. Indeed, his help went beyond merely hosting the dinner: Those attendees who wanted some face time with Buffett had to pony up $35,800.

Foreign Policy:

• U.S. Now Importing Chinese Shoppers to Buy Its Chinese Goods.

Reuters:

• ADR Report - Growth Fears Hit Chinese Real Estate, Gaming ADRs. Concern about slower growth and tighter credit pushed down U.S.-listed shares of Chinese companies on Monday, with gaming and real estate stocks among the biggest decliners.
• Mexico's Cemex(CX) Resumes Trading, Down 17%. Trading in Mexican cement maker Cemex was halted Monday afternoon after its shares plunged to the weakest level in more than 12 years, as investors worried about the company's financial future. Cemex's shares in the local market fell 14.6 percent to 3.79 pesos -- its lowest since the first quarter of 1999 -- when they were suspended, a trader told Reuters.
• Global Economy - Manufacturing Shrinks For First Time Since 2009.
• Senate Aims at China's Yuan With Eye on Jobs. Lawmakers will take aim at one of China's core economic policies Monday when the Senate begins debating a bill aimed at pressing China to let its currency rise in value in the hope of creating jobs. A procedural vote late Monday is expected to open a week of Senate debate on the Currency Exchange Rate Oversight Reform Act of 2011, which would allow the government to slap countervailing duties on products from countries found to be subsidizing their exports by undervaluing their currencies.

Financial Times:

• Eurozone Crisis: Live Coverage.

The Independent:

• Banks Plan New Job Cuts as Confidence Falls. Banks and other financial companies are planning a new round of job cuts after confidence in the sector dropped for the first time since the depths of the financial crisis, a closely watched survey shows. The expected job cuts will follow thousands already announced amid a grim outlook for growth and profitability in the CBI's quarterly financial services survey. Financial companies expect business growth to slow and no boost to profitability for the first time in two years. Business confidence has fallen for the first time since March 2009.

El Pais:

• The economic situation faces Europe doesn't look "very different" to a recession even if the region doesn't fall into one under a technical definition, Angel Gurria, Secretary-General of the OECD said in an interview. The process of resolving Greece's debt crisis cannot proceed without the participation of private creditors because adding more debt cannot be a solution, Gurria said.

Yonhap News Agency:

• South Korea Facing Growing Stagflation Concerns: Think Tank. South Korea's economy is facing growing risks of stagflation amid the worldwide economic slowdown and rising inflation at home, a private think tank said Monday. The Korea Institute of Finance (KIF) said in a report that an increasing number of experts are raising alarms that the country could face serious challenges down the line.
  

Economic Times:

• Shipping Corp. of India on Brink of Financial Collapse. NEW DELHI: Warning that an Air India-like situation is being replicated at SCI, the Shipping Ministry has raised red flag over the state-run company's plans to acquire fresh vessels, stating the firm stands to lose around USD 200 million from the proposed purchases. According to an internal document of the Shipping Ministry, Shipping Corporation of India (SCI) "is on the brink of financial collapse" and its plans to acquire 33 vessels would lead into a "debt-trap, almost on the lines of Air India".

Bear Radar

Style Underperformer:

• Small-Cap Growth (-4.01%)

Sector Underperformers:

• 1) Airlines -7.31% 2) Oil Tankers -7.05% 3) Coal -6.03%

Stocks Falling on Unusual Volume:

• UBS, STT, IOC, WLL, BMA, AIXG, IMO, SAN, SBNY, SU, OLN, WBSN, DMND, WYNN, RDWR, ACIW, CAKE, SPSC, ININ, WPRT, FSLR, FCFS, LANC, SOHU, NICE, SHOO, AIRM, SIMO, PICO, PANL, LAYN, KCE, PBS, RPG, ATE, PEZ, IXC, PUW, JKG, PGJ, IIT, IWP, RFG, BG, NFP, BOE, CFX, FCFS, ACI, OHI, UAL, AMR, WLL, ACIW and VHC
  

Stocks With Unusual Put Option Activity:

• 1) AMR 2) JDSU 3) XOP 4) DBC 5) XLY
  

Stocks With Most Negative News Mentions:

• 1) STT 2) BEN 3) CHS 4) UAL 5) LCC
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.11%)

Sector Outperformers:

• 1) Gold & Silver +1.19% 2) Tobacco +1.09% 3) Wireless +.69%

Stocks Rising on Unusual Volume:

• GOLD, DCM, PPDI, MDCO, FMCN, EBS, WWW and CF
  

Stocks With Unusual Call Option Activity:

• 1) MDR 2) SGMO 3) EK 4) WLL 5) ED
  

Stocks With Most Positive News Mentions:

• 1) IRBT 2) EOG 3) ANGO 4) MDCO 5) HUM
  

Charts:

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

Monday Watch

Weekend Headlines

Bloomberg:

• Euro Drops to Eight-Month Low Versus Dollar Before European Crisis Meeting. The euro fell to an eight-month low against the dollar before European finance ministers gather today to weigh the threat of a default in Greece, which is making fresh budget cuts to secure an international bailout. The 17-nation euro slid for a second day ahead of the meeting, at which officials will discuss how to shield banks from the region’s debt crisis and consider increasing a rescue fund. The dollar touched a two-week high versus the yen after a survey showed that sentiment at Japan’s biggest manufacturers remained below levels seen before a record earthquake struck in March. The baht slid to the lowest in more than a year as data showed Thailand’s export growth slowed. Europe’s “crisis will probably be stretched for many, many months,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “A crisis prolonged means the euro will keep sliding.” The euro depreciated to $1.3329 per dollar as of 12:23 p.m. in Tokyo from $1.3387 in New York last week, after declining to $1.3322, its weakest since Jan. 18.
• Greece Approves $8.8 Billion in Austerity. Greece’s government pledged to fire workers as part of a 6.6 billion-euro ($8.8 billion) austerity package designed to help secure a rescue-loan payout and a second European Union-led bailout. The steps outlined by Prime Minister George Papandreou’s administration would leave a 2012 budget deficit equivalent to 6.8 percent of gross domestic product, missing the 6.5 percent goal previously set with the EU, International Monetary Fund and European Central Bank, known as the troika. Troika inspectors agreed to the proposed 2012 budget. The euro dropped to an eight-month low against the dollar before European finance ministers gather today to consider an enhancement to the region’s rescue fund and the risk of a Greek default. Troika members had been squeezing Papandreou for deeper spending cuts as the country’s three-year recession sapped the revenue needed to close the fiscal gap. “Important decisions which need to be taken on a European level depend first and foremost on us,” Papandreou told his ministers last night, according to an e-mailed statement from his office in Athens. “We need to show our dedication to reaching the goals.”
• New York Fed May Demand Liquidity Reports From European Banks. The Federal Reserve Bank of New York may ask foreign lenders for more detailed daily reports on liquidity as the U.S. steps up monitoring of risks from Europe’s sovereign debt crisis, according to two people with knowledge of the matter. Regulators held informal talks with some of the largest European lenders about producing a “fourth-generation daily liquidity” or 4G report, according to the people, who asked for anonymity because communications with central bankers are confidential. The reports may cover potential liabilities such as foreign-exchange swaps and credit-default swaps, said one person. The U.S. has already increased the number of examiners embedded in these banks, the person said. Concern is growing that European lenders may falter as Greece teeters on the brink of default. U.S. Treasury Secretary Timothy F. Geithner has warned that failure to bolster European backstops would threaten “cascading default, bank runs and catastrophic risk” for the global economy. “The Fed is trying to understand what the pressure points are in terms of liquidity and potential risks that are imposed by foreign banks to domestic institutions in our financial system,” said Kevin Petrasic, an attorney at the Washington- based law firm of Paul, Hastings, Janofsky & Walker LLC. “There is a little bit more sense of urgency as a result of what’s going on in Europe.”
• Commodities Record Biggest Quarterly Drop Since 2008 on Economic Turmoil. Commodities posted the biggest quarterly drop since the end of 2008 as bearish data on economies in Europe and China added to concerns that the world will tilt into another recession. This month, European inflation quickened to the fastest since October 2008 amid the region’s sovereign-debt crisis. German retail sales in August fell the most in more than four years. A gauge of Chinese manufacturing shrank for the straight third month, the longest contraction since 2009. A “deadly combination” of economic indicators show the U.S. is heading for a recession, Lakshman Achuthan of the Economic Cycle Research Institute said today. Prices for energy, metals and crops tumbled in September as fiscal woes in Greece mounted, driving worldwide equities lower. In September, corn had the biggest monthly slump since at least 1959, and silver tumbled the most since 1980. “The demand outlook doesn’t look too good with these global concerns in terms of the commodity markets,” Boyd Cruel, a senior analyst at Vision Financial Markets in Chicago, said in a telephone interview. The Standard & Poor’s GSCI index of 24 raw materials fell 2.6 percent to close at 591 at 3:46 p.m. New York time. This quarter, the gauge dropped 11 percent. In September, the measure slumped 12 percent, the most since November 2008.
• Oil Falls, Caps Biggest Quarterly Slump Since 2008 on Bets Demand to Drop. Oil capped the largest quarterly drop since the 2008 financial crisis by tumbling to a one-year low as signs of slowing growth in China, the U.S. and Germany heightened concern that fuel demand will weaken. Futures dropped 3.6 percent after China’s purchasing managers’ index fell for a third month while German retail sales declined in August and U.S. consumer spending slowed. Prices tumbled 17 percent from the end of June, the biggest quarterly decline since the 56 percent plunge during the last three months of 2008. Crude oil for November delivery fell $2.94 to $79.20 a barrel on the New York Mercantile Exchange, the lowest settlement since Sept. 29, 2010. Futures dropped 11 percent this month, the biggest decline since May 2010, and lost 0.8 percent this week. “There are increasing signs that we are tipping into recession and that’s playing into a weaker demand outlook,” said John Kilduff, a partner at Again Capital LLC, a New York- based hedge fund that focuses on energy. Total products supplied averaged over four weeks, a measure of fuel demand, fell 0.6 percent in the period ended Sept. 23 to 19 million barrels a day, the lowest level since July, the Energy Department reported this week. The Organization of Petroleum Exporting Countries’ oil output in September rose to the highest level since November 2008, as a Saudi cut was outpaced by Iraqi and Libyan gains, a Bloomberg News survey showed. Production increased 75,000 barrels, or 0.3 percent, to average 30.055 million barrels a day, according to the survey of oil companies, producers and analysts.
• Oil Markets Are Balanced, Saudi, Iranian Oil Officials Say. Global oil demand is balanced with supply, said officials from OPEC’s two largest producers Saudi Arabia and Iran, as the group evaluates the outlook for economic growth and the return of Libyan output. Markets are “stable and in balance,” Saudi Arabian Oil Minister Ali Al-Naimi was cited by Asharq Al-Awsat newspaper as saying yesterday in Riyadh. “The kingdom is ready to play a positive role to ensure the stability of the market.” Iran sees no need for the Organization of Petroleum Exporting Countries to raise oil production, given the lack of clarity about global demand, Mohammad Ali Khatibi, the country’s representative to the group, told the state-run Mehr news agency. Oil capped the largest quarterly drop last week since the 2008 financial crisis, tumbling to a one-year low as signs of slowing growth in China, the U.S. and Germany heightened concern demand will weaken. The International Energy Agency cut global oil demand forecasts for this year and next in their latest market reports released last month. OPEC is set to meet in December in Vienna to evaluate supply and demand and consider current production levels.
• Euro Slumps in 3rd Quarter as Crisis, Slow Economy Damp Demand. The euro had its worst quarter against the dollar and the yen in more than a year as concern increased European leaders won’t be able to contain the region’s debt crisis and Greece may default on its debt. The 17-nation currency slumped against the dollar even as Standard & Poor’s cut its U.S. debt rating and as the Federal Reserve set further economic stimulus. The yen rose against all of its 16 major counterparts as the global economy slowed and investors sought refuge. The Swiss franc pared a gain against the euro after the nation’s central bank imposed a currency ceiling. One in four economists surveyed by Bloomberg forecast the European Central Bank will cut interest rates in five days. “The twin stories driving the markets are still the European debt crisis and fears of a global economic downturn,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “All signs are still that the markets are very cautious and risk-averse and that’s helping the dollar and other safe-haven currencies.” The euro dropped 7.7 percent to $1.3387, from $1.4502 on June 30. The shared currency weakened 11.7 percent to 103.12 yen, from 116.84, and touched 101.94 on Sept. 26, the weakest level since June 2001.
• BofA(BAC), JPMorgan(JPM) Proposed Accord Rejected by California's Harris. A proposed nationwide settlement with banks including Bank of America Corp. and JPMorgan Chase & Co. is being rejected by California Attorney General Kamala Harris, who will pursue her own mortgage investigation in the state that had the second-highest foreclosure rate in August. The proposed agreement is “inadequate” and would allow too few California homeowners to stay in their homes, Harris said in a letter yesterday obtained by Bloomberg News.
• U.S. Approves $4.75 Billion in Solar Power Loans on Final Day of Program. The U.S. Energy Department completed $4.75 billion in loan guarantees for four solar projects yesterday, the deadline for a 2005 program funded by the stimulus act. Projects being developed by ProLogis Inc., SunPower Corp. (SPWRA), and First Solar Inc. (FSLR) won U.S. backing, and First Solar and SunPower immediately sold theirs. The guarantees come at the end of a month in which the Energy Department’s program became the center of a political scandal, said Brett Prior, an analyst at GTM Research in Boston. The shift came after Solyndra LLC, a solar company that received $527 million in backing through the same program, closed its doors Aug. 31. During a May 2010 visit to its factory, President Barack Obama said Solyndra showed “the promise of clean energy.” The Fremont, California-based company received the first guarantee under the Energy Department’s program, which was funded by Obama’s 2009 stimulus legislation, and the largest for any manufacturer. It filed for bankruptcy Sept. 6. The four projects approved yesterday join 25 solar, wind and geothermal companies that have won more than $11.4 billion in loan backing for projects from Maine to Hawaii, including Solyndra, which borrowed $527 million against its $535 million guarantee.
• Syrian Opposition Activists Form Council, Warn of Civil War. Syrian activists formed a council to coordinate efforts to end President Bashar al-Assad’s rule and stop his deadly crackdown that has claimed more than 3,600 lives this year. The so-called Syrian National Council will include the head of Syria’s Muslim Brotherhood, an Islamic political party banned in the country, as well as Kurdish and other groups, Burhan Ghaliun, a political sociologist at Paris’s Sorbonne University and member of the council, told reporters in Istanbul today. Assad’s crackdown on dissenters threatens the country with civil war, he said.
• Global Ad Spending Growth Slowed in Second Quarter, Nielsen Says. Advertising spending declined in almost half of the world’s most important media markets in the second quarter, deflating global growth, as economic concerns crimped sales, according to Nielsen Holdings NV. Sixteen of 36 major markets, mainly in Europe, experienced a decline, while Asian countries posted a 9.3 percent increase, Nielsen said. Overall ad spending rose by 5.7 percent in the quarter, compared with 8.9 percent in the first three months of the year, to about $127 billion, the market research company said in a statement. Advertisers are looking for new avenues of growth as consumer spending stagnates in many developed countries and large corporations cut marketing budgets.
• Schumer Says Overwhelming Support for China Currency Measure. Senator Charles Schumer said overwhelming support has emerged in the Senate for legislation letting U.S. companies seek duties on imports from China to compensate for the effects of a weak yuan. “This bill is on a fast track for passage in the Senate,” Schumer, a New York Democrat, said today on a conference call with other lawmakers. “Once it passes the Senate, it’s going to be hard for the House to block it. I’m optimistic this bill can get to the president’s desk.”
• Falling Wages Threatening U.S. as Consumers May Reduce Spending. Take-home pay, adjusted for prices, fell 0.3 percent in August, the third decrease in five months, and personal income dropped for the first time in two years, the Commerce Department reported last week. The declines followed news from the Census Bureau that median household income in 2010 fell to $49,445, the lowest in more than a decade, and the poverty rate jumped to 15.1 percent, a 17-year high. Salary and benefit growth “has been going nowhere,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “One of the key reasons the recovery has stalled is that real incomes have fallen.”
• Australian Manufacturing Index Falls for Third Month. A gauge of Australian manufacturing fell for a third month in September as a surging currency hurt exports and the highest borrowing costs in the developed world curbed demand at home. The manufacturing index dropped to 42.3, the lowest level since June 2009, from 43.3 in August, the Australian Industry Group and PricewaterhouseCoopers said in a survey released today. It was the sixth month in seven the index was below 50, the dividing line between expansion and contraction.
• Japan Tankan Sentiment Below Pre-Quake Level on Global Slump. Sentiment among Japan’s largest manufacturers remains worse than before the March earthquake, signaling concern that weakening global demand will restrain the nation’s recovery. The quarterly Tankan index of sentiment at large manufacturers rose to 2 in September from minus 9 in June, the Bank of Japan said in Tokyo today. The reading was below the reading of 6 in March and in line with the median estimate of 23 economists surveyed by Bloomberg News.
• Hong Kong Banks Face Higher Credit Risks in Midterm, KPMG Says. Hong Kong banks’ credit quality may be at risk over the medium term because of short supply of the local currency caused by strong loan growth last year and rising yuan demand, KPMG LLP said. The city’s banks expanded their gross loan portfolio by 29 percent last year, while total customer deposits only grew 7.5 percent, boosting their loan-to-deposit ratio to 62 percent from 52 percent, KPMG said in a report today. The report follows a Hong Kong Monetary Authority request in April that local lenders reassess credit growth and funding plans. “While Hong Kong’s banking sector has remained highly profitable over the past year, executives recognize that there are some dark clouds on the horizon,” Martin Wardle, head of financial services at KPMG in Hong Kong, wrote in the report. “Liquidity concerns are intensifying, driven by local cross- border dynamics, as well as global economic sentiment.”
• Tokyo Electron Misses Estimate for Machine Orders on Excess Chip Supply. Tokyo Electron Ltd. (8035)’s second-quarter orders fell more than the 20 percent drop estimated by the Japanese semiconductor-equipment maker because of excess chip inventories, Chairman Tetsuro Higashi said.

Wall Street Journal:

• Alibaba CEO 'Interested' in Buying Yahoo(YHOO). Jack Ma, chief executive of Chinese Internet company Alibaba Group Holding Ltd., told an audience at an event at Stanford University on Friday that he was "interested" in buying Yahoo Inc., according to a spokesman for Mr. Ma. At the event, Mr. Ma said he was interested in buying Yahoo and added that private-equity firms and others had approached him as well, said the spokesman. When asked about his friendship with Yahoo director and co-founder Jerry Yang, Mr. Ma said it was business, not personal, according to the spokesman.
• The Long Arm of Debt Stretches into Condo Fees, Car Repos. Lenders and lawyers have a get-tough message for borrowers who think foreclosure gets them off the hook. As The Wall Street Journal reported in a Page One article Saturday, 41 U.S. states and the District of Columbia allow borrowers to be sued for debt that remains if a house is sold at foreclosure for less than the outstanding loan amount. If lenders win in court, these “deficiency judgments” are good in most states for up to 20 years. Hedge funds, private-equity firms and other investors looking for new ways to bet on the battered housing market are hungry for securities created by bundling hundreds of deficiency judgments at a time, say distressed-debt brokers. But deficiency judgments aren’t just for soured mortgages. Lawsuits are also piling up against borrowers who still owe money to the bank after their car is repossessed, according to lawyers for people sued by lenders. In addition, homeowners living in condominium complexes battered by foreclosures are going after unpaid condo-association fees.
• Casino Giants Struggle Against Volatile Credit Markets. Volatile credit markets have made financial maneuvering difficult for debt-burdened casino companies, casino industry financial officers said at a conference Saturday. Credit has become particularly difficult to access in recent weeks, they said. Marc Falcone, the chief financial officer of Station Casinos Inc, said two banks that hold debt his company's debt—Deutsche Bank and J.P. Morgan Chase & Co.—had intended to sell the majority of the loans in the past 30 days.
• Wall Street's New Watcher. Two weeks after moving into a skyscraper near Wall Street to start assembling a muscular new agency overseeing banks and insurers in New York, Benjamin M. Lawsky got a surprise during an introductory meeting with a midlevel manager: His power was even broader than he thought. The 41-year-old former federal prosecutor, who spent the last four years as Andrew Cuomo's confidant and adviser in the New York attorney general's office, learned that he had greater latitude to pursue criminal fraud cases than he initially knew. As the head of the New York State Department of Financial Services, which officially opens its doors Monday, he says he plans to use that authority to put the new agency on the map.

Marketwatch.com:

• Internet Investors Brace For Hit To Chinese IPOs. Ownership structure popular with tech companies under threat. Chinese Internet companies may need to curtail their listing ambitions following revelations authorities are no longer willing to look the other way on foreign ownership in sensitive sectors.

CNBC:

• 700 Arrested After Protest on NY's Brooklyn Bridge. More than 700 protesters demonstrating against corporate greed, global warming and social inequality, among other grievances, were arrested Saturday after they swarmed the Brooklyn Bridge and shut down a lane of traffic for several hours in a tense confrontation with police. The group Occupy Wall Street has been camped out in a plaza in Manhattan's Financial District for nearly two weeks staging various marches, and had orchestrated an impromptu trek to Brooklyn on Saturday afternoon. They walked in thick rows on the sidewalk up to the bridge, where some demonstrators spilled onto the roadway after being told to stay on the pedestrian pathway, police said. The majority of those arrested were given citations for disorderly conduct and were released, police said.
• After Steve Jobs: Cook's Time to Shine with New iPhone.
• ECB's Noyer Doesn't Expect Bigger EFSF. European Central Bank member Christian Noyer said on Monday it is unrealistic to expect an increase in Europe's bailout fund beyond what was agreed in July, but that he is open to schemes that would allow leveraging to expand capacity.

Business Insider:

• Bloomberg: 'We'll See' How Long Wall Street Protests Are Allowed To Continue. "The protesters are protesting against people who make $40-50,000 a year and are struggling to make ends meet. That's the bottom line," he said.
• German Finance Minister: We're Giving $283 Billion To The EFSF And "That's It. Finished."
• Why Everyone Suddenly Started Freaking Out About China This Week.
  

Zero Hedge:

• Third Point Down 3.6% In September.
• Goldman's(GS) Jim O'Neill: "Let's Worry About Everything".
• Are Things About To Get Even Worse for China?
• Currency Peg Causes 50% Surge In Swiss National Bank Balance Sheet, Major FX Losses.

LA Times:

• Amid Poverty, Chinese Officials Splurge on Lavish Vanity Projects. Reporting from Wangjiang, China— There are no highways running through this impoverished rural county. Children study in dilapidated schoolhouses. On many streets, you're just as likely to run into a chicken as you are a pedestrian.
  Yet the Wangjiang local government is constructing a headquarters on a slab of land the size of the Pentagon building — a sprawling edifice of granite and glass with a $10-million price tag in a county where the average resident earns $639 a year. "The government building is so grand, but at the same time, many people are still living in poverty here," said Ye Daoman, a local farmer and activist. It's a common phenomenon in China. Like teenagers with their first credit card, local officials armed with cheap state loans and money from land sales are splurging on lavish projects of dubious value. In growth-obsessed China, officials' careers are judged by how well they meet development targets set by Beijing. The easiest and fastest way to juice growth figures is to borrow money and build something. The grander the edifice or attraction, the thinking goes, the more authority it projects.
  

Chicago Tribune:

• CBOE Holds Talks With Other States About Possible Move. The parent of the Chicago Board Options Exchange has held talks with a number of governors and state officials about a possible move of its headquarters to another state after Illinois raised its tax rate, providing another challenge to the city's status as the self-styled "derivatives capital of the world." January's tax increase is seen increasing CBOE Holdings Inc.'s state tax bill by a quarter. Chicago-based CME Group Inc., the world's largest futures exchange operator, is also talking about relocating its headquarters.

Washington Times:

• Wolf: Bending Obamacare's Honesty Curve Downward. The Obama administration’s signature piece of legislation brings a sixth of the U.S. economy under federal control, and the writing is on the wall: Obamacare will collapse under the weight of its own false promises. The only mystery left is whether we will allow America to go down with it.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-four percent (44%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -23 (see trends).

Reuters:

• China Delays 80% of Railway Construction. China has postponed the building of 80 percent of new railway projects pending clarification of government policies for the sector, a newspaper reported on Saturday. "At present, more than 80 percent of ongoing railway construction projects have been suspended, and the completion of many projects has been pushed back by a year," the 21st Century Business Herald newwspaper said. The government said it would suspend new railway project approvals and launch safety checks on existing equipment to address public anger following a crash on a new high-speed rail line in July which killed 40 people. The Railway Ministry is facing a high debt burden too. It said in August that its total liabilities at the end of June were 2.1 trillion yuan ($329 billion), up by nearly half from the end of 2009 and bringing its liability-to-asset ratio up to 59 percent. "Almost all banks have stopped lending for railway construction," the newspaper cited an unnamed source close to the Railway Ministry as saying. "There is no decision yet on the next move for China's high-speed railways." China has also temporarily stopped all plans with foreign companies to build high-speed railways abroad, the newspaper cited another person who attended a recent high-level meeting as saying. The government came under fire again this week after a collision on Shanghai's rapidly expanding subway injured more than 270 people.
• Greek Budget Draft Sees Deficit Targets Missed. Greece will miss deficit targets set just months ago in a massive bailout package, sources said citing a budget draft being adopted by the cabinet on Sunday, in a setback in Europe's efforts to stave off the country's bankruptcy. The dire forecasts come while inspectors from the International Monetary Fund, EU and European Central Bank, known as the troika, are in Athens scouring the country's books to decide whether to approve a loan tranche, without which Greece could run out of cash this month. Two sources confirmed the new budget numbers, which predict a budget deficit of 8.5 percent of gross domestic product (GDP) for this year and 6.8 percent next year, compared with targets of 7.6 percent for this year and 6.5 percent for 2012. European Union officials say the troika's assessment of Greece's future prospects could determine whether it needs to demand more debt relief from private creditors, a measure that could effectively amount to default. GDP is predicted to fall by 5.5 percent this year and 2.0-2.5 percent next year. Those numbers are in line with recent forecasts by the IMF, but much worse than predictions used to calculate a 109 billion euro ($146 billion) bailout in July, which anticipated Greece posting a 0.6 percent growth next year. The shortfall in the 2011 deficit target means Greece would need almost 2 billion extra euros just to finance its expenses for this year. It also means emergency tax hikes and wage cuts announced in the past two months to hit the target have not been enough to put Greece's finances back on track. The inspectors are widely expected to give a green light to the release of the next 8 billion euro tranche of aid to avoid plunging the euro zone deeper into turmoil. But all eyes will be on their forecasts for 2012-2014. If the inspectors conclude that Greece's recession will continue to be worse than predicted, EU officials have suggested that banks that agreed to write off 21 percent of the value of their Greek debt holdings in July may be forced to take deeper losses. The austerity measures are deeply unpopular, and public sector unions hope that strikes and demonstrations can wreck the Socialist government's resolve to enact them.
• German Conservative MP Says 'Greece is Bankrupt'. Greece is bankrupt and it will most likely need a "haircut" forgiving at least 50 percent of its debt, a leading conservative member of parliament was quoted saying on Monday. Michael Fuchs, a deputy parliamentary floor leader for Chancellor Angela Merkel's Christian Democrats, told the "Rheinische Post" newspaper that Greece is broke despite all the financial aid from the European Union. "Greece is bankrupt. Probably there is no other way for us other than to accept at least a 50 percent forgiveness of its debts," said Fuchs, who is also the chair of the influential CDU small business group in parliament.
  
• Greece Better Off Out of Euro - German Conservative. The deputy leader of the Christian Social Union, one of three parties in Chancellor Angela Merkel's centre-right coalition, said on Sunday Greece may be better off leaving the euro zone if it cannot restore its fiscal health. Alexander Dobrindt told Deutschlandfunk radio that a Greek exit from the euro would be a last resort measure and that Greece would find it easier to recover outside the currency bloc. "I believe it is a solution, if one wants to bring Greece back into a economically stable competitive condition, that this would be done outside the euro zone," he said, according to an advance text of the interview to be aired on Sunday.

Financial Times:

• Hedging Fuels Commodities and Credit Volatility. Investors have been preparing for the worst in recent weeks, scrambling to hedge themselves against an array of worrying risks – and in the process driving a spike in volatility in currencies, credit and commodities to match what has been seen in equities.

Telegraph:

• Eurozone Teeters on the Verge of a 'Euroquake' if Greek Default is Bungled. More than one in three international investors expect a global economic meltdown within the next 12 months, according to a new Bloomberg poll. Far more - almost 70pc - say the world economy is deteriorating, up from just 18pc four months ago. At the heart of the gloom, of course, is the eurozone, with 90pc of those surveyed judging that the economy of the single currency area is getting worse. One wonders what planet the other 10pc are on. The eurozone is clearly sliding. The European Commission's economic sentiment indicator fell to 95 in September, from 98.4 the month before, plunging at a rate not seen since the Lehman Brothers collapse. German retail sales dropped faster in August than at any time since May 2007. The eurozone – an economy second in size only to the US – is on the brink of a double-dip recession. This grim prognosis, though, is set against a more hideous backdrop – the danger of a "euro-quake". Greece will default. The only question is how the default is managed – indeed, if it is managed at all. A bungled Greek payment failure will spark "contagion", as spooked creditors pull the plug on some big eurozone government, leading to non-payment of wages and benefits, serious social unrest, and a single currency break-up. We face the very real prospect of a major economic shock, the negative impact of which will be felt around the world. Those who've ignored all previous warnings, waving them away by attacking the character of those making them, remain in charge of rescuing Europe from this mess. And they still don't get it. Far from feeling humbled, or contrite that their incoherent currency union is on the verge of disaster - a disaster which could trigger another global slump when we've yet to recover from the last one - the eurozone's architects remain in denial, continuing to question the integrity of those who advocate straight-forward common sense. Common sense now tells us that any "short-term fix" for the eurozone will do nothing to address the basic incompatibilities which have been there since monetary union began. Yet all the current proposals are just that, "extend and pretend" efforts to buy time in the hope that the single currency's inherent contradictions will disappear given the requisite "political will". Europe's policy-making "elite" wants a fully-blown fiscal union and sees this crisis as a way to get there. It is simply not going to happen, because almost no-one outside of the Brussels salons, or the broader EU establishment, wants it. That is the fundamental truth that must be spoken, repeatedly, to power – whatever offence is now caused. Because this currency union experiment, essentially an exercise in bureaucratic megalomania and hubristic nation-building, is about to do serious damage that extends way beyond Europe. A smaller, stronger eurozone might work. For a while. If everyone sticks to the rules. Not that they will in the long-term, of course, because local electorates always take precedence. That's how democracy works. But if the weaker, peripheral nations are now stripped-out, as their electorates want, the euro being reduced to a Franco-German rump, that would provide Europe with a 3-5 year pause for breath, allowing the global economy to recover, before the single currency is consigned, finally and irrevocably, to the dustbin of history.
• Banking Crisis Set to Trigger New Credit Crunch. Credit default swaps on lenders as far afield as China and Australia, countries that until recently seemed immune to the chaos, have doubled in the last two months to levels not seen since the financial crisis. In Europe, French and Belgian government officials are due to meet on Monday to discuss the crisis enveloping Dexia as speculation mounts about a possible break-up of the Franco-Belgian lender. Last week, the cost of insuring Dexia bonds hit an all-time high of 900 basis points, nearly double the level just two months ago, meaning the annual cost to insure €10m (£8.59m) of the bonds is £900,000. "The money ran out in June and what you are seeing now is the beginning of a new credit crunch, except this time it will be truly global, not Western," said one senior London-based credit analyst.

MailOnline:

• Meet the Texan investor who made millions from the credit crunch... and now he's betting Europe will go down the drain. He believes Greece, Portugal, Ireland, Switzerland, Italy and Spain are the countries least likely to be able to pay off their debts. He bought Greek default insurance for 11 basis points - meaning insuring $1m of bonds would cost $1,100 dollars a year. A Greek default would make it pay down its debt by around 70 per cent, meaning every $1,100 bet would net him an astonishing $700,000, Mr Bass said. ‘It may not be the end of the world,’ Mr Bass added. ‘But a lot of people are going to lose a lot of money. Our goal is not to be one of them.

Welt-am-Sonntag:

• Europe must push political integration to end the debt crisis, creating a new form of political "governance" between sovereign states that falls short of setting up a continental "super state," German Finance Minister Wolfgang Schaeuble said in a guest column. Without such enhanced political coordination Germany will loose influence in Europe, Schaeuble states.

Le Monde:

• France would prefer to have Greece buying back part of its debt with financing from a European fund than asking private bondholders, including banks, to contribute more than agreed upon on July 21.

Korea JoongAng Daily:

• CDS Premium Jumps to Alarming Two-Year High. The cost of insuring Korea’s sovereign debt against default spiked more than 90 basis points in September from a month earlier amid the European debt crisis, data showed yesterday. According to the data by the Korea Center for International Finance, the credit default swap (CDS) premium on Korea’s five-year foreign currency bonds closed at 219 basis points on Friday, up 24 basis points from the previous day and 91 basis points from Aug. 31.
  

Weekend Recommendations
Barron's:

• Made positive comments on (TYC), (LOW) and (HPQ).

Night Trading

• Asian indices are -4.0% to -2.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 255.0 +20.0 basis points.
• Asia Pacific Sovereign CDS Index 172.0 +6.0 basis points.
• FTSE-100 futures -1.92%.
  
• S&P 500 futures -.60%.
• NASDAQ 100 futures -.76%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WWW)/.75

Economic Releases
10:00 am EST

• Construction Spending for August is estimated to fall -.2% versus a -1.3% decline in July.
• ISM Manufacturing for September is estimated to fall to 50.3 versus a reading of 50.6 in August
• ISM Prices Paid for September is estimated to fall to 54.0 versus a reading of 55.5 in August.
  

Afternoon:

• Total Vehicle Sales for September are estimated to rise to 12.6M versus 12.1M in August.

Upcoming Splits

• (EMN) 2-for-1
  

Other Potential Market Movers

• The Fed's Lacker speaking could also impact trading today.
  

BOTTOM LINE: Asian indices are sharply 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 50% 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 mixed as rising financial sector pessimism, global debt angst, global growth worries and emerging market inflation fears offset short-covering, technical buying, bargain-hunting and lower food/energy prices. My intermediate-term trading indicators are giving mostly bearish signals and the Portfolio is 50% net long heading into the week.