Bear Radar

Style Underperformer:

• Small-Cap Value (-2.10%)

Sector Underperformers:

• 1) Banks -3.71% 2) Alt Energy -3.70% 3) I-Banks -3.07%

Stocks Falling on Unusual Volume:

• FSLR, RMBS, UBS, CHL, ILMN, FIBK, LIFE, LMNX, HWCC, WYNN, QGEN, ANEN, SNDA, COLM, ISCA, SIAL, SINA, HAIN, HELE, NIHD, FNSR, FLDM, PKI, WAT, TMO, BRKR, ITC, MWE, RGP and LMNX
  

Stocks With Unusual Put Option Activity:

• 1) ILMN 2) SWY 3) GNW 4) ACN 5) A
  

Stocks With Most Negative News Mentions:

• 1) ILMN 2) ICE 3) LM 4) KEY 5) BAC
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (-.10%)

Sector Outperformers:

• 1) Retail +.69% 2) Drugs +.67% 3) Telecom +.65%

Stocks Rising on Unusual Volume:

• IPGP, PSMT, SIMO, E, GEOY, MBT, SGEN, SREV and CAR
  

Stocks With Unusual Call Option Activity:

• 1) BSX 2) CTXS 3) SLM 4) SGEN 5) EMC
  

Stocks With Most Positive News Mentions:

• 1) WYNN 2) FNSR 3) DLTR 4) AVB 5) LUV
  

Charts:

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

Friday Watch

Evening Headlines

Bloomberg:

• Merkel-Sarkozy Divided on Default Threat to Banks: Euro Credit. Angela Merkel and Nicolas Sarkozy are running out of road. Whether to allow Greece to default and how to manage the fallout, questions they have tried to avoid for more than a year, may finally require answers as European officials turn to fortifying banks and consider ways to ease Greece’s debt load. It costs $6 million plus $100,000 a year to insure $10 million of Greek securities for five years, with credit-insurance prices pointing to a 91 percent chance of default. As the German chancellor and French president prepare to meet in two days for their eighth one-on-one summit in 20 months, Merkel has cited the need to prepare for the default that investors see as a sure thing. Sarkozy, whose banks have the most to lose, is unwilling to gamble on letting Greece go. “The whole German debate about a default of Greece is a German debate, not a European debate,” said Stefan Collignon, a former German Finance Ministry official and political economist at the Sant’Anna School of Advanced Studies in Pisa, Italy. “The commitment everywhere else, including in France, is very much to avoid that by all possible means.” The heads of Europe’s two biggest economies meet in Berlin on Oct. 9 with the euro near a nine-month low against the dollar. French 10-year bonds yield 81 basis points more than their German equivalents, near the euro-era record set Aug. 8. Investors are demanding a premium of 21.4 percentage points to hold Greek 10-year bonds over benchmark German bunds of similar maturity. The leaders’ contrasting approaches on Greece may reflect the relative vulnerability of their top credit ratings and economies. France’s AAA rating and its banks are on the front line of potential damage, while German exposure to Greek debt is smaller. Already the biggest contributor to bailouts for Greece, Ireland and Portugal, Merkel may not offer much in return when she hosts Sarkozy at the Chancellery. She’s been stressing the limits of joint action, saying Oct. 5 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 in a Greek rescue. Germany is also resisting discussion of leveraging the 440 billion-euro ($586 billion) fund to boost its firepower. Sarkozy, whose popularity is near a record low as he decides whether to seek a second term next year, has reasons for concern. At the end of March, French financial firms had $672 billion in public and private debt in Greece, Portugal, Ireland, Italy and Spain, according to Basel, Switzerland-based Bank for International Settlements. That’s the biggest exposure to the euro-area’s troubled countries and almost a third more than German lenders.
• Summer of Banking Delusion Brings Crisis to Europe's Core: View. Once upon a time, like this summer, Dexia SA, the French-Belgian bank, was stable. By the measures global regulators deem important, its capital ratio stood at 11.4 percent of risk-weighted assets, according to data compiled by Bloomberg. That’s well above the 10 percent regulators plan to require of the world’s largest banks under new international rules. What a difference a summer makes. The Belgian and French governments now have a complicated mess on their hands. Dexia, which had received a government bailout in 2008, saw its shares plummet after Moody’s Investors Service put its main units on review for a downgrade on Oct. 3. Within days, Belgium and France said that they would stand behind the bank’s deposits and suggested a “bad bank” structure could be used to wind down its toxic assets. How this will be resolved is unclear. But Dexia crystallizes the need for smarter capital rules, credible stress tests and an aggressive plan to recapitalize Europe’s banks quickly should financial calamity strike.
• Gasoline Cargoes to U.S. to Slide 35% on European Refinery Maintenance. Gasoline shipments to the U.S. from Europe will decline over the next two weeks as refineries on both sides of the Atlantic Ocean enter a maintenance period to prepare for accelerated winter fuel production. Twenty tankers were booked or due to be chartered for loading in the two-week period, according to the median estimate in a Bloomberg News survey of three shipbrokers, one owner and one trader yesterday. That’s the lowest since the end of August and down 35 percent from 31 tankers last week. Refiners in Europe have cut production to conduct plant maintenance and in response to declining processing profits.
• Energy Department Says Loan Director Silver to Step Down. Jonathan Silver, executive director of the U.S. program under scrutiny for awarding Solyndra LLC a $535 million federal guarantee, has resigned, the Energy Department said. While Silver joined the department after the solar panel maker received its loan, Representative Cliff Stearns, a Florida Republican and chairman of the House panel investigating the award, has said he should be fired for his handling of the guarantee since arriving.
• Euro-Indebted Emerging Currencies Have Further to Fall on Growth. The worst declines since at least 2008 for emerging market currencies may have further to go as the debt and banking crisis in Europe buffets economies once resistant to the global slowdown. European lending of $3.4 trillion to developing counterparts is almost triple that from U.S. and Japanese institutions combined, according to Bank for International Settlements data through March 2011. This leaves developing countries more vulnerable to Europe’s sovereign debt crisis than they were to the global credit meltdown in 2008, according to Royal Bank of Canada. The International Monetary Fund reduced growth projections for emerging countries last month, as the deepening European crisis stifles liquidity and threatens to drive the global economy into recession. Option traders are increasingly bearish on currencies including the Brazilian real and South African rand, according to data compiled by Bloomberg. “The problems are centered in Western Europe and the U.S. so those asset prices moved first and it’s now trickling down to emerging markets,” Nick Chamie, the global head of emerging market research at Royal Bank of Canada’s RBC Capital Markets unit in Toronto, said by telephone Sept. 27. “Until conditions stabilize in a long-lasting way in Europe and the U.S. in terms of the economic outlook, emerging market assets will continue to come under selling pressure.” Investors pulled $3.2 billion out of emerging-market debt funds in the week ended Sept. 28, the biggest outflow since 2005, according a report by ING Groep NV on Sept. 29, citing data compiled by EPFR Global Data. The withdrawal accounted for 2.3 percent of total assets.
• Anti-Wall Street Protests Ignore Legitimate Gripe: Caroline Baum. Talk about haves and have-nots. The debt burden that the younger generation is staring at almost guarantees it will have a reduced standard of living.

Wall Street Journal:

• Greenspan: To Stay Viable, Euro May Need Political Union - FT. A full-fledged political union might be needed for the euro zone to sustain its common currency and overcome divisions that sometimes reward less-responsible members, former U.S. Federal Reserve chairman Alan Greenspan said. In an opinion essay published online by the Financial Times late Thursday, Greenspan took aim at the "failed" Stability and Growth Pact -- a mechanism by which euro states are supposed to balance risk by ensuring no one member's debt grows too large. To constrain "aberrant behavior" by some in the 17-member zone, he added, a stronger bond might be need. "It may be that nothing short of a politically united euro zone, or Europe, will, in the end, be seen as the only way to embrace the valued single currency," wrote Greenspan, who left the Fed in 2006. "The future of the euro beyond a select group of northern countries with a similar culture will depend on the ability of all euro zone nations to follow suit" by achieving higher rates of personal saving and lower inflation. He also warned "less collegial and less prudent" euro states could use currency-pooling -- meant to equalize members' risk from fluctuating exchange rates -- to their advantage ("as Greece so brazenly did recently") because these arrangements tend to "disproportionately" distribute value in favor of such members.
• Cables Says Syria, Iran Illegally Moved Cash to North Korea. As it sought to stop North Korea from spreading its nuclear technology, the U.S. uncovered signs in 2007 that the country was channeling funds through a major Middle Eastern bank based in Jordan, one of its closest regional allies, according to diplomatic cables posted online by document leaking website WikiLeaks. In the cables, viewed by The Wall Street Journal, U.S. officials warned their counterparts in Jordan that North Korea was using Amman-based Arab Bank PLC to receive money from Syria and Iran, circumventing international sanctions.
• The Multibillion - Dollar Leak. Bankers, lobbyists and lawmakers from Wall Street to Washington scrambled to dissect, analyze and react to a leaked proposal for one of the most controversial elements of the Dodd-Frank financial-overhaul law: the "Volcker rule."

Dow Jones:

• ECB Taps Swap Lines Again For $500 Million At Higher Rate. The European Central Bank accessed the Federal Reserve's foreign exchange swap facility for $500 million this week at a modestly higher interest rate, the New York Fed reported Thursday, underscoring a persistent scarcity of dollars among banks as Europe's debt crisis rages on. For the third consecutive week ended Wednesday, the ECB has been forced to tap the swap line to slake a thirst for greenbacks among euro-zone institutions. By all indications, the price for doing so is growing more expensive: terms for a seven day loan crept up to 1.09%, from 1.07% in the period ending Sept. 28. At that time, the ECB borrowed $500 million, on the heels of a $575 million loan in the week ended Sept. 21.

Business Insider:

• Basically, Any Hedge Fund Strategy Exposed To Fixed-Income And Equity Got Creamed In September.
• IMF Advisor: Could See Eurozone 'Meltdown' in 2 Or 3 Weeks. In an interview on the BBC (via ZeroHedge), IMF advisor Robert Shapiro said some incredibly alarmist things.

CNBC:

• Emerging Markets Money Braced for China Shock. For all the confidence in China's resilience to global economic shocks over the past decade, some investors are now starting to worry about a hard landing for the high-flying economic giant. Fears of a Chinese growth shock are compounding a broader sell-off bedevilling emerging markets, prompting many to raise cash levels and reposition portfolios to cope with an end to the China-driven commodities boom and a resurgent dollar. Beyond the obvious impact on Asian markets, commodity-exporters South Africa and Brazil are seen as vulnerable while India and Turkey have been identified as relative beneficiaries should long-gestating fears over China be realised. "I've rarely seen such a quick shift in market sentiment as I am seeing towards China. There was a near-total faith in the ability of the command economy to deal with the challenges," said Deutsche Bank strategist John-Paul Smith, who has been a long-term sceptic on the China investment story. "But suddenly people are thinking that the government may have lost control over the economy." A collapse in Chinese growth is at the top of global geopolitical and macroeconomic risks identified by advisory firm Oxford Analytica, which warns that annualised economic expansion there of less than 5 percent would be a massive shock to the global economy. On top of growth worries, the protracted instability in the euro zone and the threat of global recession have fanned concern that China's drive to choke off credit to an overheated property market could hit its banks, whose deteriorating asset quality has prompted a ratings warning from Fitch.Already, the cost of insuring Chinese sovereign debt against default has soared to 2-1/2 year highs as investors scramble to hedge exposure to Chinese corporate borrowers while offshore dollar/yuan forwards have jumped on expectations that currency appreciation will stall in the coming months to help the country cope with stuttering export growth.
• Jack Welch: How I'd Fix The Economy.
  

NY Times:

• 200 Chinese Subsides Violate Rules, U.S. Says. Under pressure from Congress to do more to confront China on economic issues, the Obama administration has notified the World Trade Organization of nearly 200 Chinese subsidy programs, saying many of them may violate free trade rules.
• Some Unemployed Find Fault in Extension of Jobless Benefits. As President Obama urges Congress to act on renewing an extension to unemployment benefits, some are arguing that it’s a hindrance to the economy and discourages workers.

NY Post:

• Hard-Hit Hedgies Running for Cover. Hedge-fund guru Daniel Arbess’s once perfect investment score card is taking a hit this year with losses approaching 19 percent, The Post has learned. Arbess, a Harvard-educated lawyer who runs the $2.8 billion Xerion Fund for boutique investment bank Perella Weinberg, lost roughly 10 percent last month on soured equity trades, according to sources familiar with the fund. That has pushed Xerion down nearly 19 percent this year.

CNN:

• China Isn't The Only Currency 'Manipulator' A newsflash to the legislators in Washington who suddenly want to act tough against China for currency manipulation: Have you looked in the mirror lately? How can anyone with a straight face declare that China needs to be punished for keeping the yuan artificially low when the United States is also aggressively trying to devalue the dollar with its monetary and fiscal policies?

Credit Writedowns:

• Europe's Bank Problem. Another informative chart from the IMF showing the fundamental problem in Europe’s banking system - excessive leverage and dependence on wholesale funding. Add to that overexposure to highly indebted sovereigns with deteriorating credit fundamentals. It also illustrates why the German DAX and French CAC stock indices have been hammered over the summer and are two of the worst performing markets this year.
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 19% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -24 (see trends).

AP:

• Feds Target Pot Dispensaries For Closure. Federal prosecutors have launched a crackdown on some pot dispensaries in California, warning the stores that they must shut down in 45 days or face criminal charges and confiscation of their property even if they are operating legally under the state's 15-year-old medical marijuana law. In an escalation of the ongoing conflict between the U.S. government and the nation's burgeoning medical marijuana industry, at least 16 pot shops or their landlords received letters this week stating they are violating federal drug laws, even though medical marijuana is legal in California. The state's four U.S. attorneys are scheduled to announce a broader coordinated crackdown at a Friday news conference.

Reuters:

• Samsung Estimates Q3 Profit Down 14%; Beats Forecasts. Samsung Electronics , the world's top maker of memory chips and televisions, estimated on Friday a July-September operating profit that exceeded the most bullish analyst forecasts , helped by strong profit recovery in its handset business. Earnings at the world's biggest technology firm by revenue are set to decrease further in the fourth quarter on persistent declines in memory chip prices and as flat screens fail to show a strong rebound.
• Stock, Bond Fund Outflows in Week Ended Oct. 5 - Lipper.
  
• Illumina(ILMN) Sees Q3 Revenue Below Street View; Shares Fall. Illumina Inc forecast third-quarter revenue below market view, mainly on continued uncertainty related to levels of research funding in the United States and Europe. Shares of the company, which also suspended its prior full-year outlook, were down 22 percent at $32 in after-market trade.

Financial Times:

• China Labour Costs Push Jobs Back to US. Rising Chinese labour costs are changing the economics of global manufacturing and could contribute to the creation of 3m jobs in the US by 2020, according to a study being released on Friday. The Boston Consulting Group analysis says the new jobs will be generated by a “re-shoring” of manufacturing activity lost to China over the past decade. “While Chinese labour costs are rising, US competitiveness has been improving,” says Mei Xu, the Chinese-born co-owner of Chesapeake Bay Candle, which makes candles and other home fragrance products. “We can invest in automation to make our candles in a factory near Baltimore for a similar cost to doing the same job in China.”
• China Scholar Says U.S. War on Yuan May Backfire. Democratic Senator Charles Schumer's proposed legislation to impose tariffs on China because of the low value of its currency will not boost U.S. exports, Yao Yang, director of the China Center for Economic Research at Peking University, wrote. If the tariffs were imposed, China could place charges on goods imported from the U.S., Yao wrote.
• Royal Bank of Scotland could need further U.K. aid to ensure it has sufficient capital to comply with new European moves to recapitalize the continent's banking industry, citing an unnamed official.
• China's Disappearing Bank Deposits. Although the mystery remains unsolved for the moment, solving the mystery is important for investors who want a sense of where the economy is heading. If large sums are indeed disappearing into the shadow banking system, then a rapidly rising share of the financial system is beyond the direct control of the government. If large sums are indeed flowing out of China, we may have the beginning of major, sustained outflows from China.

Handelsblatt:

• Germany, France Split on EFSF Bond Purchases. Germany and France are at odds over whether the European Financial Stability Facility should have limits on government bond purchases, citing a high-ranking European Union diplomat. France doesn't want to restrict the EFSF on how much of its funds it can use for such purchases, the newspaper said. Germany wants to limit the amount EFSF can spend for bonds per country and is also considering whether there should be a time limit for bond purchases.

EuroWeek:

• EFSF Levels Deteriorate as Hedge Funds Hit Easy Target. The European Financial Stability Fund — the cornerstone of the rescue plan for the eurozone crisis — came under pressure again in the secondary market this week with its spreads widening by the day as ambiguity about its role and eventual issuance volume undermine its credibility.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +1.0% to +3.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 239.0 -16.0 basis points.
  
• Asia Pacific Sovereign CDS Index 166.50 -20.25 basis points.
• FTSE-100 futures +.89%.
  
• S&P 500 futures +.09%.
  
• NASDAQ 100 futures +.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (LRN)/.00

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for September is estimated at 55K versus 0K in August.
• The Unemployment Rate for September is estimated at 9.1% versus 9.1% in August.
• Average Hourly Earnings for September are estimated to rise +1.9% versus a +1.9% gain in August.

10:00 am EST

• Wholesale Inventories for August is estimated to rise +.6% versus a .8% gain in July.

3:00 pm EST

• Consumer Credit for August is estimated to fall to $8.0B versus $11.96B in July.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Lockhart speaking 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 higher and to weaken 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, 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