Stocks Surging into Final Hour on Less Eurozone Debt Angst, Less Financial/Tech Sector Pessimism, Short-Covering, Technical Buying

Broad Market Tone:

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

Equity Investor Angst:

• VIX 37.01 -2.12%
  
• ISE Sentiment Index 88.0 -31.78%
  
• Total Put/Call 1.21 +13.08%
  
• NYSE Arms .53 +9.15%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 142.12 -2.99%
  
• European Financial Sector CDS Index 236.16 -7.64%
  
• Western Europe Sovereign Debt CDS Index 338.33 -2.09%
  
• Emerging Market CDS Index 349.79 -3.80%
  
• 2-Year Swap Spread 39.0 unch.
  
• TED Spread 39.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 173.0 +9 bps
  
• China Import Iron Ore Spot $170.0/Metric Tonne +.24%
  
• Citi US Economic Surprise Index -14.70 +2.1 points
  
• 10-Year TIPS Spread 1.89 +9 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +49 open in Japan
• DAX Futures: Indicating +19 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 builds on recent gains with decent volume on less Eurozone debt angst, short-covering, bargain-hunting, technical buying, less tech/financial sector pessimism and better economic data. On the positive side, Alt Energy, Oil Service, Ag, Steel, Computer, Networking, Bank, Hospital, Gaming and Airline shares are especially strong, rising more than +2.5%. Cyclicals and Small-Caps are outperforming. Tech/financial shares have also traded well throughout the day. Copper is soaring +5.39%, the Bloomberg-UBS Ag Spot Index is declining -.14% and Lumber is gaining +4.59%. The 10-year yield is rising +10 bps to 1.99%. The Germany sovereign cds is falling -10.46% to 97.0 bps, the France sovereign cds is falling -6.9% to 173.17 bps, the China sovereign cds is falling -6.1% to 179.99 bps, the Japan sovereign cds is falling -12.6% to 136.90 bps, the Russia sovereign cds is falling -7.12% to 291.33 bps, the UK sovereign cds is falling -6.69% to 89.50 bps and the Spain sovereign cds is falling -9.2% to 342.17 bps. Major Asian indices surged 3-5% overnight. Major European equity indexes surged 3-4% today. On the negative side, Oil Tanker, Telecom and Coal shares are lower-to-flat on the day. Oil is gaining +3.6% and gold is rising +.77%. Rice is still close to its multi-year high, rising +25.5% in about 12 weeks. The Libor-OIS Spread is rising +1 bps to 30.0 bps, which is the highest since July 2010. As well, the TED and 2-Year Swap Spreads haven't come in at all, which is noteworthy considering the recent strong equity advance. The Western Europe Sovereign CDS Index, the European Financial Sector CDS Index and the Asia-Pacific Sovereign CDS Index are still near their records. Ukraine shares fell another -.67% today, notwithstanding sharp gains in the rest of Europe, and are now down -46.5% ytd. Various global credit angst gauges continue to trend higher despite recent pullbacks, which remains a large negative. Investors seem to have gotten a bit ahead of themselves with respect to the prospects for a "solution" in Europe, in my opinion. We could see some equity weakness resurface over the next couple of days after tomorrow morning's likely in-line-to-better jobs report boosts stocks further. I expect US stocks to trade modestly higher into the close from current levels on less Eurozone debt angst, better economic data, short-covering, bargain-hunting, technical buying and less financial/tech sector pessimism.

Today's Headlines

Bloomberg:

• EU Urges Coordinated Bank Aid as Merkel Says Help Should Be a Last Resort. The European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default as Germany urges each country to prepare its own blueprint. “We are determined to do everything necessary to ensure that Europe’s banks are able to play their essential role in lending,” the commission’s president, Jose Barroso, told reporters in Brussels today. “Close coordination at European level is essential.” Financial shares continued their advance after German Chancellor Angela Merkel fed speculation that euro policy makers are working on plans to boost bank capital. In Brussels yesterday, Merkel made her most explicit comments yet on banks’ role in fighting the crisis, saying that the European rescue fund should only be relied upon as a last resort. “If a country cannot do it using its own resources and the stability of the euro as a whole is put at risk because the country has difficulties, then there’s the possibility of using the EFSF,” the European Financial Stability Facility, she said. Using the EFSF rescue fund is “always tied to a certain conditionality.”
• ECB Holds Rate at 1.5% at Trichet's Final Meeting. The European Central Bank resisted calls to cut interest rates at President Jean-Claude Trichet’s final policy meeting today and may opt to use other tools to stem the sovereign debt crisis. ECB officials meeting in Berlin left the benchmark rate at 1.5 percent, as predicted by 41 of 52 economists in a Bloomberg News survey. Five forecast a cut to 1.25 percent and six expected a reduction to 1 percent. With Greece on the brink of default, the ECB is under pressure to step up efforts to stop contagion by shoring up the euro region’s bond markets and helping banks weather the storm.
• Bank Default Risk Declines in Europe on Recapitalization Wagers. Credit-default swaps insuring European bank debt fell to the lowest in five weeks on speculation policy makers will inject more capital into lenders so they can withstand government bond losses. The Markit iTraxx Financial Index of swaps linked to senior debt of 25 banks and insurers declined 17.5 basis points to 252 at 12 p.m. in London, while the subordinated gauge was 24 basis points lower at 488, according to JPMorgan Chase & Co. “More bank capital is good, but solving the sovereign debt crisis would go a long way in improving the outlook for Europe’s banks,” Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London, wrote in a note to investors. Default swaps on sovereign bonds also dropped, with the Markit iTraxx SovX Western Europe Index of contracts tied to 15 governments declining eight basis points to 331.5, according to index administrator Markit Group Ltd. Swaps on German sovereign debt tumbled 11.5 basis points to 96.5, CMA prices show. The cost of insuring European corporate bonds fell, with the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropping 31.5 basis points to 814, according to JPMorgan. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down 9.5 basis points at 189.5.
• Crude Rises for a Second Day. Crude for November delivery rose as much as $1.47 to $81.15 a barrel in electronic trading on the New York Mercantile Exchange. It was at $80.19 at 1:29 p.m. London time. The contract gained 5.3 percent yesterday. Prices are down 12 percent this year.
• Jobless Claims Climb Less Than Expected. Claims for U.S. unemployment benefits rose less than forecast last week to a level that shows companies may be starting to slow the pace of dismissals. Applications for jobless benefits increased by 6,000 in the week ended Oct. 1 to 401,000, Labor Department figures showed today. Economists projected 410,000 claims, according to the median estimate in a Bloomberg News survey. The four-week moving average of claims, a less-volatile measure, fell to 414,000, the lowest since Aug. 27, from 418,000. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, fell to 2.9 percent in the week ended Sept. 24, from 3 percent, today’s report showed.
• U.S. Comfort Index Caps Worst Quarter Since '09. Consumer confidence last week capped the worst quarterly performance in more than two years, when the U.S. economy was still in a recession. The Bloomberg Consumer Comfort Index rose to minus 50.2 in the week ended Oct. 2, from the prior period’s minus 53 that was the second-lowest level on record. The gauge averaged minus 48.4 from July through September, the third-worst quarterly reading of all time and the weakest since minus 49.9 in the first three months of 2009. Ninety-two percent of those surveyed had a negative opinion of the economy, underscoring the concerns of Federal Reserve Chairman Ben S. Bernanke, who this week said the central bank can take further steps to sustain a recovery that’s “close to faltering.” An ailing housing market, stagnant payrolls and stock-price declines have reduced Americans’ ability to spend.
• Company Pension Deficit Jumps Most Ever as Stocks, Yields Plunge. Company pensions in the U.S. fell behind future payouts to retirees by the most ever in September, as stocks fell and the slowing economy and Federal Reserve policy drove down bond yields, according to actuarial and consulting firm Milliman Inc. The deficit between the assets of the 100 largest company pensions and projected liabilities widened by a record $124 billion in September to $439 billion, Seattle-based Milliman said today in a statement, based on data going back to 2000. Investment assets fell $31 billion to $1.175 trillion, while obligations to retirees rose $93 billion to $1.614 trillion.
• FedEx's(FDX) Sees Slow-Growth Economy. FedEx Corp. (FDX) doesn’t see a recession or contraction, rather a slow-growth economy, Chief Executive Officer Fred Smith said. Although holiday season shipments probably won’t increase as much as in 2010, they will still rise, Smith told an audience of chief executives at a General Electric Co (GE).-Ohio State University event for middle-market companies in Columbus, Ohio. “Our tax policy, our trade policy, our energy policy, and our regulatory policy are almost optimally designed to impede growth,” said Smith, who was interviewed by GE CEO Jeffrey Immelt as part of the event. Smith called some of the regulations “well-intentioned regulations that are job killers, that impede investment and until we address those things it’s going to be very difficult to get back to a reasonable growth rate.”

CNBC.com:

• Retail Sales Topping Estimates, Despite Growing Caution. Amid slumping consumer confidence, shoppers remained resilient, and many retailers posted solid results for the month of September. According to Thomson Reuters, U.S. retailers posted an average gain of 5.1 percent in sales at stores open at least a year, or same-store sales, outpacing the average analyst estimate, which called for same-store sales to rise 4.6 percent.

Business Insider:

• George Soros Fails To Clear His Name Of Insider Trading In France.
• Watch Obama's Chief of Staff Laugh When Asked About The White House's Relationship With Business. (video)
• 10 Must-See Charts On The Labor Situation In America.
• Secret Government Panel Can Put Americans On A 'Kill List'. Reuters reports there is a 'secretive' group of government officials who have the power to place Americans on a capture or kill list and provide their decisions to the president. The group makes their decisions in secret and provides no records of their rulings. There is no law providing for its operation and there are no rules governing its operation.
• Boehner During Obama's Jobs Speech: He's 'Given Up On Governing And Leading'. During an interview Thursday at the Washington Ideas Forum, House Speaker John Boehner (R-OH) accused President Obama of going into full-on campaign mode and giving up on any efforts to compromise with Republicans. "We're legislating, he's campaigning," Boehner said. "Its very disappointing." "It takes two to tango, and I've reached out to the president," Boehner added. "You have to have a willing partner.
  

Zero Hedge:

• Interactive DIY Euro Bank Stress Test.

HousingWire:

• Obama: Subprime Lending Immoral, Not Illegal. President Barack Obama said Thursday the mortgage finance practices that led to the economic meltdown were "immoral, inappropriate and reckless," but not necessarily illegal, making it difficult to punish key players, specifically in the subprime debacle. Obama made those statements after a reporter asked the president during a news conference why the administration never filed any lawsuits or enforcement actions against corporate leaders who led lending institutions prior to the 2008 crash.

Washington Times:

• Taxpayers Financed Justice Official's Romantic Travel. First there were $16 muffins and $8 cups of coffee; then came emails suggesting that Attorney General Eric H. Holder Jr. fudged the truth about “Operation Fast and Furious”; and now it’s a Justice Department official using taxpayer funds to “facilitate a physical relationship with a woman in Florida.”

ABC News:

• Report: Even With A Job, Health Insurance Is No Longer A Sure Thing. Employer-based health insurance is quickly becoming a thing of the past for millions of American workers, a new report says. Workers are losing jobs that offer health insurance and getting part-time or contract jobs that make finding affordable coverage more difficult, researchers say in a report released Wednesday by the nonprofit Iowa Policy Project. "Employer-provided health insurance has become more rare and more expensive, leaving the economically weakest workers to fend for themselves," said Noga O'Connor, co-author of the report, which was funded by the U.S. Department of Labor.

HedgeFundBlogger.com:

• Top 10 Biggest Hedge Funds.

Insider Monkey:

• Impact of Hedge Fund Size and Age on Performance.

Quinnipiac University:

• Obama Job Approval Hits New Record Low. American voters disapprove 55 - 41 percent of the job President Barack Obama is doing, an all- time low, and say 77 - 20 percent that the economy is in a recession, according to a Quinnipiac University poll released today. Voters say 44 - 11 percent that the economy is getting worse, not better, while only 29 percent say the economy will improve if the president is re-elected. Voters also disapprove 48 - 34 percent of the way Obama is handling the Israeli- Palestinian dispute. The president should be a strong supporter of Israel, voters say 63 - 20 percent, but they split 39 - 40 percent on whether Obama is a strong supporter, the independent Quinnipiac (KWIN-uh-pe-ack) University survey finds. The Israelis and the Palestinians are equally to blame for the failure to achieve Middle East peace, 64 percent of American voters say, while 22 percent blame the Palestinians and 6 percent blame the Israelis. "The trend isn't good for President Barack Obama. His disapproval has gone up 9 points since the summer, from 46 percent in July to 52 percent in September to 55 percent today," said Peter A. Brown, assistant director of the Quinnipiac University Polling Institute. "Especially troubling for the president is that voters say 49 - 39 percent that Republican presidential contender Mitt Romney would do a better job on the economy.
  

Reuters:

• Exclusive: Dozens of states probe Medco(MHS)/Express Scripts(ESRX) Deal. Over two dozen states are scrutinizing Express Scripts' (ESRX.O) proposed acquisition of Medco Health Solutions (MHS.N), as pharmacists stoke fears that the $22 billion deal would propel the companies' aggressive tactics.

Telegraph:

• Debt Crisis: Live. Bank of England Governor Mervyn King says financial crisis could be "the most serious we've ever seen," as markets rally for a second day on £75bn quantitative easing plan.

Boersen Zeitung:

• European firms may face a wave of goodwill wirtedowns if the region's economy slows markedly, citing a study by U.S. investment bank Houlihan Loukey.

Handelsblatt:

• German lawmakers would not support any attempt to further leverage the European rescue fund or its permanent successor, the European Stability Mechanism, Economy Minister Philipp Roesler was cited as saying in an interview. "Parliament would have to approve that," Roesler was cited as saying when asked if he is against any further increase of the current rescue fund, the European Financial Stability Facility, or its post-2013 successor, the ESM. "I don't see any majority for that in the Bundestag," he said. "Leveraging, for instance via a bank license for the permanent crisis mechanism, the ESM, would exceed the agreed liability risk of 211 billion euros."

Valor Economico:

• Brazil's President Dilma Rousseff will hold a meeting next week to discuss rising ethanol prices, which she fears may push inflation to above its target ceiling of 6.5% this year.

Bear Radar

Style Underperformer:

• Large-Cap Value (+.59%)

Sector Underperformers:

• 1) Oil Tankers -.91% 2) Coal -.11% 3) Telecom -.01%

Stocks Falling on Unusual Volume:

• IMAX, RELL, HELE, OVTI, ISCA, KLAC, COST, YHOO, WDR and CNS
  

Stocks With Unusual Put Option Activity:

• 1) XLP 2) APOL 3) EWT 4) MDR 5) EXC
  

Stocks With Most Negative News Mentions:

• 1) CMG 2) XOM 3) COST 4) ILMN 5) CVX
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value (+1.09%)

Sector Outperformers:

• 1) Agriculture +3.36% 2) Steel +2.81% 3) Oil Service +2.74%

Stocks Rising on Unusual Volume:

• IVN, NOV, TLM, IOC, BAS, FSLR, EBS, PBR, ACOR, CMTL, ESRX, ZUMZ, WYNN, ZAGG, WBMD, WCRX, BIDU, NUAN, SXCI, ROST, ERTS, PCLN, SFLY, CIX, MHS, STZ, MDR, TGT, MON, MCP, AYI, WAC, SPN, GLW and BKE
  

Stocks With Unusual Call Option Activity:

• 1) MBI 2) NIHD 3) MDR 4) NUAN 5) CY
  

Stocks With Most Positive News Mentions:

• 1) FRED 2) XEL 3) TJX 4) WLP 5) M
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• Jobs, Who Built Most Valuable Technology Company, Dies at 56. Steve Jobs, who built the world’s most valuable technology company by creating devices that changed how people use electronics and revolutionized the computer, music and mobile-phone industries, died. He was 56. Jobs, who resigned as Apple Inc. chief executive officer on Aug. 24, 2011, passed away today, the Cupertino, California- based company said. He was diagnosed in 2003 with a neuroendocrine tumor, a rare form of pancreatic cancer, and had a liver transplant in 2009. “We are deeply saddened to announce that Steve Jobs passed away today,” Apple said. “Steve’s brilliance, passion and energy were the source of countless innovations that enrich and improve all of our lives. The world is immeasurably better because of Steve.”
  
• Jobs Rose From Parents' Garage to Technology Icon: Timeline.
• Europe's Rescue Fund Is Only Last Resort: Merkel. German Chancellor Angela Merkel said that Europe’s rescue fund will only be used as a last resort to save banks and that investors may have to take deeper losses as part of a Greek rescue. Merkel’s comments, her most explicit on banks’ role in fighting the debt crisis since the spillover from Greece began to threaten France and Italy, followed talks with European Commission President Jose Barroso in Brussels. Financial shares rose yesterday amid speculation that euro-area policy makers are working on plans to boost bank capital to contain the crisis. “Time is running out” to establish if recapitalization is necessary, Merkel told reporters. Troubled banks need to first seek capital on their own and national governments will help if that’s not possible, she said. “If a country cannot do it using its own resources and the stability of the euro as a whole is put at risk because the country has difficulties, then there’s the possibility of using the EFSF,” the European Financial Stability Facility, she said. Using the rescue fund is “always tied to a certain conditionality.”
• European Bank Rescue May Cost Up to $2 Trillion, Fink Says. Governments and private-sector partners may have to spend as much as $2 trillion to rescue Europe’s banks, said Laurence D. Fink, the chairman and chief executive officer of BlackRock Inc. “Stabilizing Europe is very costly,” Fink, who heads the world’s largest asset manager, said today during an event in Toronto. “It could be as much as a couple trillion dollars.”
  
• Bond Traders Left Adrift as Dealers Reduce Risk: Credit Markets. Europe’s crisis of confidence is crippling credit-market trading as banks shrink bond inventories to the least since the depths of the last recession. Federal Reserve data show U.S. primary dealers cut their holdings of corporate debt by 33 percent to $63.5 billion since May, bringing stockpiles to within $4 billion of the five-year low reached in April 2009. Trading in investment-grade company bonds has dropped 27 percent since February, according to Trace data compiled by Barclays Capital, and a measure of the cost to buy and sell debt is at the highest in more than two years. Evaporating liquidity is contributing to the biggest junk- bond losses since the failure of Lehman Brothers Holdings Inc. three years ago as Europe’s leaders seek to prevent the region’s fiscal imbalances from infecting the global banking system and the U.S. economic recovery struggles to gain footing. Sales of new high-yield securities have all but disappeared and prices in debt markets are swinging by the most since 2008. “Everything is moving very quickly,” said Tom Farina, a managing director in New York at Deutsche Insurance Asset Management, which oversees more than $200 billion. “With the experience of the credit crisis still fresh in our minds, there’s a greater appreciation for how much the market could decline over a short period of time.”
• Emerging Debt Swaps Surpass Crisis-Hit Europe. Emerging market government debt is more expensive to insure than that of developed countries on concern the global slowdown will send investors fleeing all but the safest assets. The Markit iTraxx SovX CEEMEA Index of credit-default swaps on 15 governments in central and eastern Europe, the Middle East and Africa now exceeds a benchmark of western European creditworthiness by 14 basis points. Europe's worsening deficit crisis is hurting manufacturers, eroding demand for commodities and undermining capital flows in developing economies. Investors are pulling money out of emerging-market bond and equity funds as the risk of a Greek default and losses on sovereign bond holdings mounts. "Emerging markets are still highly vulnerable through their weak banking systems," said Gabriel Sterne, a senior economist at broker Exotix Ltd. in London.
• HSBC Lowers Forecasts for Most Asian Economies. HSBC Holdings Plc lowered its growth forecasts for most Asian economies in 2011 and 2012, saying risks are rising in a region that’s “still tied to the global trade cycle.” Forecasts for Hong Kong, South Korea, Malaysia, Taiwan and Thailand were among those that were lowered.
• Junk-Bond Spreads Widen to Levels Reached When Lehman Collapsed. Relative yields on junk bonds have soared to the level reached the day Lehman Brothers Holdings Inc. collapsed after systemic risks escalated in both Europe and the U.S., according to Bank of America Corp. analysts. The extra yield investors demand to hold speculative-grade debt has soared 436 basis points to 910 basis points, or 9.1 percentage points, since May, according to Bank of America Merrill Lynch index data. The percentage of corporate bonds considered in distress has surged to 28 percent from 8 percent two months ago, an indicator that is "flashing red," analysts led by Oleg Melentyev wrote in a report yesterday. Bond spreads are signaling another recession as Europe's leaders seek to prevent Greece from defaulting, the U.S. unemployment rate holds above 9 percent and the cost to protect the debt of financial institutions surges. Investors need to be wary of disruptions in the banking system that may lead to mass selling and declining high-yield values, the Bank of America analysts said. "Once the level of distress in a financial system reaches a certain level, it can become an uncontrollable force, with the potential to push market participants into deleveraging as counterparty exposures are being cut," the New York-based analysts said. "This, in turn, would push asset values lower, which, of course, would create further need for deleveraging."
• Oil's Best See No Reversing Worst Run Since 2008: Energy Markets. Brent oil will struggle to recover from its longest slump since the 2008 financial crisis as a weakening global economy cuts growth in demand to the lowest level for any fourth quarter in the past three years. Brent crude will trade an average 2 percent higher than Oct. 5’s opening price of $101.81 a barrel during the final three months of the year, according to the mean prediction of 10 analysts whose third-quarter projections were the most accurate of 31 compiled by Bloomberg. Futures lost 8.6 percent in the third quarter, extending a 4.2 percent drop in the second. Oil is falling as Saudi Arabia, the world’s biggest exporter, pumps crude at near-record levels and Libya revives production just as the economic slowdown shows signs of sapping demand. Consumption, which typically climbs toward the end of the year as the northern hemisphere’s winter approaches, will rise 4 percent this quarter, about half the levels of 2009 and 2010, according to the International Energy Agency. “The outlook is deteriorating more and more, and the velocity is somewhat alarming,” said Eugen Weinberg, the Frankfurt-based head of commodities research at Commerzbank AG who predicts Brent may average less than $100 a barrel in the fourth quarter. “The risks to forecasts right now are to the downside, and not just on demand. Libyan production is coming back sooner than expected.”
• Obama's Bill Would Hinder Work Search by Jobless, Langone Says. Unemployed job applicants would find it harder to get hired under an anti-discrimination provision in President Barack Obama’s jobs bill, according to Home Depot Inc. co-founder Kenneth Langone. The president’s bill, submitted to Congress on Sept. 12, would allow companies to be sued for discrimination if they exclude unemployed applicants from consideration. Businesses will avoid even meeting with unemployed job-seekers for fear of triggering a lawsuit, Langone said in an interview yesterday with Charlie Rose broadcast on PBS and Bloomberg Television. “There’s a provision in the jobs bill, if I am unemployed and you give me an interview and don’t hire me, I can sue you for discrimination because you didn’t hire me because I was unemployed,” said Langone. “You know what’s going to happen? They are not going to get the interview.”
• Microsoft(MSFT) Is Said to Be Nowhere Close to a Bid for Yahoo(YHOO).
• Policy Uncertainty Is Choking Recovery: Baker, Bloom and Davis. The recovery from the recession of 2008-09 remains anemic. Job growth has stalled, unemployment stands above 9 percent, and there are renewed fears of another output drop. A major factor behind the weak recovery and gloomy outlook is a climate of policy-induced economic uncertainty. An index we devised (see attached chart) shows U.S. policy uncertainty at historically high levels.
• Volcker Rule Draft Puts Short-Term Bank Trading Under Scrutiny. U.S. banks seeking to gain from or hedge against short-term price movements in securities and derivatives markets would be subject to restrictions under a proprietary-trading ban contained in the Dodd-Frank Act, according to a draft of the so-called Volcker rule. The 205-page document, dated Sept. 30 and obtained today by Bloomberg News, is the latest version to emerge of the rule that is being written by four federal banking regulators and is scheduled to be released by the Federal Deposit Insurance Corp. on Oct. 11.

Wall Street Journal:

• France's AAA Rating Is A Fragile Linchpin In Euro Zone Crisis Plan. Mounting trouble at Franco-Belgian bank Dexia SA (DEXB.BT) and a sudden downgrade of Italy's sovereign debt rating have shined a spotlight on a major risk to the euro zone's effort to avert financial disaster: the prospect that France could lose its triple-A credit rating. If France is downgraded, the euro zone's bailout fund--the European Financial Stability Facility--would also lose its own top-notch rating unless members injected cash, analysts say. That would raise the fund's cost of borrowing and could thus undermine the 17-member euro zone's ability to support the region's debt-burdened countries and beleaguered banks. It would hinder regional leaders' efforts to expand the EFSF's powers and ward off contagion from what many see as an inevitable debt default by Greece. "If France becomes double-A, the whole thing doesn't work," said David Hoffman, managing director at Brandywine Global Investment Management LLC. Moody's Investors Service has previously said the creditworthiness of the EFSF "is particularly sensitive to changes in the ratings of Aaa countries with large EFSF contribution keys," including France.
• Steven Paul Jobs, 1955-2011. Apple Co-Founder Transformed Technology, Media, Retailing And Built One of the World's Most Valuable Companies. Steven P. Jobs, the Apple Inc. chairman and co-founder who pioneered the personal-computer industry and changed the way people think about technology, died Wednesday at the age of 56. His family, in a statement released by Apple, said Mr. Jobs "died peacefully today surrounded by his family." The company didn't specify the cause of death. Mr. Jobs had battled pancreatic cancer and several years ago received a liver transplant. In August, Mr. Jobs stepped down as chief executive, handing the reins to longtime deputy Tim Cook. "Apple has lost a visionary and creative genius, and the world has lost an amazing human being," Mr. Cook said in a letter to employees. "We will honor his memory by dedicating ourselves to continuing the work he loved so much."
• IMF Considers Plan to Purchase European Bonds. New initiatives emerged Wednesday as part of efforts to quell Europe's twin sovereign-debt and banking crises. Germany pushed a proposal to encourage the euro-zone's national authorities to announce backstops in case their banks hit difficulties, and a senior International Monetary Fund official said the IMF could step in to help shore up the bonds of troubled euro-zone governments. On a visit to Brussels, German Chancellor Angela Merkel said euro-zone governments should quickly agree on a system of backstops for banks that relies mainly on national support measures, but could also draw on the euro zone's bailout fund.
• Hedge Funds' Bets Pay Off. Some of the world's largest hedge funds are finally seeing their bearish bets pay off as markets struggle. Brevan Howard Asset Management LLP, one of Europe's biggest hedge-fund firms with $34 billion in assets, is up nearly 13% in its flagship fund this year as of Sept. 23, according to a person close to the fund. The outsize gains—a rarity in a difficult year for hedge funds and much better than the loss of nearly 10% for the Standard & Poor's 500-stock index in the same period—are partly because of the London-based firm's cautious approach to riskier investments tied to global economic growth.
• 5 Truths About Climate Change. During the decade that Al Gore dominated the environmental debate, global carbon-dioxide emissions rose by 28.5%. It's time to move the debate past the dogmatic view that carbon dioxide is evil and toward a world view that accepts the need for energy that is cheap, abundant and reliable.

MarketWatch:

• Insiders Like These 14 Large-Cap Stocks.

Business Insider:

• Not Everyone's Hurting: Some Hedge Funds Are Making A Killing On The European Collapse.
• 'DO WHAT YOU LOVE': Watch Steve Jobs' Legendary Stanford Commencement Speech In 2005.
  

Zero Hedge:

• Total US Debt Update: $14.86 Trillion; $162 Billion Increase In Three Days; 98.9% Debt/GDP.
• GOP Seeks All White House Communication On Solyndra Since Obama Inauguration.
  

CNBC:

• BofA(BAC) CEO: $5 Feed Need to Pay for Dodd-Frank. Bank of America CEO Brian Moynihan defended the bank's decision to impose a $5 debit card fee on customers next year, saying it was needed, in part, to recoup billions of dollars in costs from complying with Dodd-Frank law.

IBD:

• Polaris(PII) Makes Vehicles For Work and Play.

NY Times:

• Freddie and Fannie Reject Debt Relief. Home values have fallen so much in Arizona that almost half the people with mortgages there owe more than their homes are worth. So when federal money became available to help stem the tide of foreclosures, the state flagged that group for help. If banks would forgive some of a homeowners’ mortgage debt, the state said it would pay half, up to $50,000 of a $100,000 loan reduction. Despite the generous terms, most banks balked. Only three homeowners have been approved for debt reduction since the program began in September 2010. A major obstacle has been that the two largest mortgage guarantors, Fannie Mae and Freddie Mac, will not participate — in Arizona or elsewhere. No loans are eligible for the state’s program if they were bought and held or securitized by the two companies, which are now under government control and guarantee more than 70 percent of the country’s home loans. “It is extremely difficult for the principal reduction program to be successful” when Fannie and Freddie opt out, said Shaun Rieve, a spokesman for the Arizona Department of Housing.
• Greeks Protest Cutbacks Amid Growing Weariness.
  

Rasmussen Reports:

• 26% Have Favorable Opinion of Bernanke, 51% Unfavorable.

AP:

• Retail Trade Group Sees Modest Holiday Sales Gain. The National Retail Federation, the nation's largest retail trade group, expects winter holiday sales to rise 2.8 percent to $465.6 billion this year.That would be smaller than 2010's 5.2 percent increase.

Reuters:

• Paper Talks of Contingency Planning for French Banks. A French government agency has drawn up contingency plans in case it has to take a stake in one or more French banks on behalf of the French state, the French newspaper Le Figaro said on its website. In a brief article, Le Figaro said the agency that manages government shareholdings had been working for a few days on how it would act if it had to move to bolster one or more banks. Quoting what it described as a source close to the matter, Le Figaro said the planning had involved a scenario where intervention was limited to two or three banks, unlike a broader support plan drawn up in 2008, when the global banking system was rattled by the demise of Lehman. "It's just in case," Le Figaro reported its source as having said. As the euro zone's debt crisis grinds on, Franco-Belgian lender Dexia has got into difficulty and the governments of both countries are hoping to come up with a rescue plan, possibly as early as Thursday. A Dexia bailout, the second in three years, has heightened speculation that President Nicolas Sarkozy and his government may need to support other financial institutions. The government has refused to confirm whether any such plans are being considered.
• Ruby Tuesday(RT) Forecasts Q2 Loss; Shares Fall. Ruby Tuesday Inc forecast a second-quarter loss on lower same-restaurant sales, higher advertising costs and increased interest expenses. The company's stock, which already lost more than half its value since January, was down 9 percent at $6.48 in extended trading on Wednesday.
• Christopher & Banks(CBK) Q2 Loss Widens, Shares Down. Women's apparel retailer Christopher & Banks Corp posted a wider second-quarter loss hurt by a fall in sales, sending the company's shares down 11 percent in extended trade.
• Zumiez(ZUMZ) Raises Q3 Outlook, Shares Up. Zumiez Inc's September same store sales blew past expectations as customers spent more at its stores, prompting the apparel retailer to raise its third-quarter outlook. Shares of the company rose 14 percent in trading after the bell.

Financial Times:

• The European Banking Authority has been told to provide a country-by-country breakdown of how much new capital banks would need in the event that Greek bonds were written down, citing unnamed senior officials.
• Eurozone Funding Worries Hit US REITs. Over the past five sessions the Bloomberg Mortgage Reit index has fallen 8.2 per cent, against a 2.7 per cent drop for the S&P 500 index. This represents the biggest weekly drop since March 2009. “The risk is that, whether it’s concerns about European banks or any bank whose credit default swaps have been widening, there might be a move to cut risk and stop lending into the repo market,” said Douglas Harter, a Credit Suisse analyst.
• China Sees Surge in CDS on Slowdown Fears. Fears of an economic slowdown in China have fuelled a trading surge in instruments that insure investors against sovereign bond defaults, making the country a new focal point for the widely used financial products. The net value of outstanding credit default swaps on Chinese sovereign debt has soared to $8.3bn, according to data released this week by The Depository Trust and Clearing Corporation. “Clearly there is increasing market concern about China and a few cracks are starting to appear in its economic growth,” said Ann Wyman, head of emerging market research at Nomura. “A ‘hard landing’ still isn’t our house base case scenario, but we’re more concerned about this than we have been in the past.”

Economic Daily News:

• Motech Industries Inc. CEO Chang Ping-heng urged the solar industry to cut output to avoid pushing up inventories, citing Chang.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +1.0% to +3.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 255.0 -19.0 basis points.
  
• Asia Pacific Sovereign CDS Index 186.75 +13.25 basis points.
• FTSE-100 futures +.40%.
  
• S&P 500 futures -.06%.
  
• NASDAQ 100 futures -.25%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (RBN)/.75
• (STZ)/.66
• (ISCA)/.31

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to rise to 410K versus 391K the prior week.
• Continuing Claims are estimated to fall to 3725K versus 3729K prior.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Fisher speaking, ECB Rate Announcement, BOE Rate Announcement, ICSC chain store sales for Sept., weekly Bloomberg Consumer Comfort Index, RBC Consumer Outlook Index for October, weekly EIA natural gas inventory report, (SMTC) analyst day and the (ORCL) analyst day could also impact trading today.
  

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

Stocks Surging into Final Hour on Less Eurozone Debt Angst, Short-Covering, Bargain-Hunting, Better Economic Data

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Above Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 38.53 -5.66%
  
• ISE Sentiment Index 129.0 +61.2%
  
• Total Put/Call 1.11 -5.13%
  
• NYSE Arms .89 +239.0%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 146.50 -3.48%
  
• European Financial Sector CDS Index 255.81 -7.01%
  
• Western Europe Sovereign Debt CDS Index 344.0 -2.48%
  
• Emerging Market CDS Index 364.27 -3.34%
  
• 2-Year Swap Spread 39.0 unch.
  
• TED Spread 38.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 164.0 +10 bps
  
• China Import Iron Ore Spot $169.60/Metric Tonne -.99%
  
• Citi US Economic Surprise Index -16.60 +5.3 points
  
• 10-Year TIPS Spread 1.80 +4 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +140 open in Japan
• DAX Futures: Indicating +21 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 builds on yesterday's sharp reversal higher with volume on less Eurozone debt angst, short-covering, bargain-hunting, technical buying, less tech sector pessimism and better economic data. On the positive side, Coal, Alt Energy, Energy, Oil Service, Ag, Steel, Internet, Computer, Networking, Education, Homebuilding, Construction and Biotech shares are especially strong, rising more than +3.0%. Cyclicals are substantially outperforming. Tech shares have also traded well throughout the day again. Copper is rising +1.0% and Lumber is gaining +1.34%. The 10-year yield is rising +8 bps to 1.9%. The Germany sovereign cds is falling -9.1% to 108.33 bps, the France sovereign cds is falling -7.15% to 186.0 bps, the Russia sovereign cds is falling -7.2% to 313.67 bps, the UK sovereign cds is falling -6.7% to 95.5 bps, the Israel sovereign cds is falling -9.1% to 192.69 bps and the Brazil sovereign cds is falling -11.3% to 200.32 bps. Major European equity indexes surged 3-5% today. On the negative side, Oil Tanker, Telecom, REIT and Restaurant shares are lower on the day. The UBS-Bloomberg Ag Spot Index is rising +1.2%, oil is gaining +3.0% and gold is rising +1.18%. Rice is still close to its multi-year high, rising +26.0% in about 12 weeks. The Spain sovereign cds is rising +.71% to 376.83 bps, the Japan sovereign cds is rising +1.59% to 156.7 bps and the Hungary sovereign cds is rising +1.9% to 532.60 bps. The Western Europe Sovereign CDS Index, the European Financial Sector CDS Index and the Asia-Pacific Sovereign CDS Index are still near their records. The China sovereign cds is also still very near the highest level since March 2009. As well, the China Blended Corporate Spread Index, which has been moving higher in a parabolic fashion, is still very close to a multi-year high at 1,025.0 bps. Despite the sharp gains in US stocks during yesterday's final hour, Asian shares were mostly weaker overnight. Korea fell another -2.3% and is now down -18.7% ytd. The recent severe weakness in Korean equities is a bit odd given the extreme strength in US tech shares. As well, Ukraine shares fell another -1.8% and are now down -46.2% ytd. Various global credit angst gauges continue to trend higher despite today's pullbacks, which remains a large negative. Recent stock gains have been mainly the result of a renewed sense of optimism regarding the situation in Europe. If another "kick the can" solution in Europe is forthcoming, stocks should build on recent gains over the coming weeks, however a test of the lows is likely if a solution does not materialize soon. I expect US stocks to trade modestly higher into the close from current levels on less Eurozone debt angst, better economic data, short-covering, bargain-hunting, technical buying and less financial/tech sector pessimism.