Tuesday Watch

Evening Headlines

Bloomberg:

• Euro Chiefs Push Back Debt Crisis Summit Amid Tension Over Greek Writedown. European leaders pushed back a debt- crisis summit amid opposition to German Chancellor Angela Merkel’s drive for deeper-than-planned writedowns of Greek bonds. The Oct. 18 meeting was postponed to Oct. 23 as Europe gropes toward a master plan for dealing with Greece’s oversized debt, insulating the Spanish and Italian markets, and shielding banks from the fallout. Europe needs a strategy for shoring up banks before unstitching a July accord to cut Greek bond values by an average of 21 percent, Belgian Prime Minister Yves Leterme said. “It is a very sensitive item,” Leterme said in a Bloomberg Television interview at his Brussels residence yesterday. “You can’t at every European Council change the percentages and bring supplementary problems to banks.” Germany and France, Europe’s dominant tandem, this week pledged a crisis-management breakthrough in time for a Nov. 3 meeting of Group of 20 leaders, the informal steering committee for the world economy. Opposition to bigger Greek debt writedowns is coming from the European Central Bank, which is against any backsliding from the July 21 accord on a second Greek bailout, a central bank official said yesterday. An appeal to “fully implement all aspects” of the July roadmap was inserted into last week’s monthly policy statement as a warning to Germany, the official said under condition of anonymity.
  
• ECB Backs Guarantee Option for Rescue Fund. The European Central Bank says the firepower of Europe’s bailout fund should be magnified by using government guarantees rather than the central bank’s money market operations. The ECB says governments should use the 440-billion-euro ($603 billion) European Financial Stability Facility to insure a portion of new bonds issued by debt-strapped nations. That would leverage the amount available to protect member states from the region’s debt crisis. EFSF resources “should be dedicated to enhance sovereign debt new issuance of securities, thus multiplying their effect,” ECB Vice President Vitor Constancio said in a speech in Milan yesterday. Policy makers are trying to build a “firewall” around large European countries like Italy and Spain whose size would make them difficult to rescue if their debt became unsustainable. ECB President Jean-Claude Trichet opposes suggestions that the central bank should lend to the EFSF to boost its capacity, saying such a move would not be “appropriate.” The Frankfurt-based central bank maintains any such arrangement would constitute monetary financing of governments. A guarantee program would allow countries to access more capital without the EFSF exhausting its finite capital reserves.
• Rate Swap Spreads Rise With Europe Plan Elusive: Credit Markets. A gauge of stress in credit markets reached its highest level in 16 months even as stocks rally, showing short-term funding concerns persist as European leaders rush to recapitalize the region's banks. The two-year interest-rate swap spread, which measures perceived credit risk, climbed 5.75 basis points last week, the biggest jump since June, to 39 basis points. The gap expanded 9 basis points in the two weeks ended Oct. 7 as the MSCI World Index of global stocks climbed 2.85%.
  
• Economists Call for Crop-Trading Limits to Curb Volatility. Hundreds of economists including scholars from Oxford University and the University of California, Berkeley, are asking the Group of 20 nations to impose limits on speculative positions in food commodities to curb volatility in crop prices. “With around 1 billion people enduring chronic hunger worldwide, action is urgently needed to curb excessive speculation and its effects on global food prices,” according to a letter signed by 461 economists and sent to finance ministers from the G-20, which includes the world’s richest nations. The letter, dated today, was posted on Oxfam America’s website. Research sponsored by the United Nations, International Monetary Fund and other global organizations suggest speculation in crop futures by index funds and large banks may cause price spikes that can put grocery costs out of reach for poorer people.
  
• Societe Generale SA, France's 2nd largest bank, may reduce its lending in Asia because of market volatility, according to 4 people with knowledge of the matter. Units in Asia that provide financing for aircraft, shipping and commercial real estate are under review, said the people.
• IBM(IBM) Advances to Record Price as Investors Consider 'Safer' Bet. International Business Machines Corp., the world’s largest computer-services company, rose to a record, surpassing the mark set in July. IBM rose 2.3 percent to $186.62 at the close in New York, giving it a market value of $222.9 billion. The price topped the $185.21 it reached July 19. “It’s attractive as a safer, less volatile investment in tech in very turbulent times,” said Ed Maguire, an analyst at Credit Agricole Securities USA in New York who rates the shares “outperform.” IBM, which went public in 1915, has gained 27 percent this year, making it the best performer of the Dow Jones Industrial Average.
• Most Supertankers Idled Since '80s Won't Buoy Charter Rates: Freight. Owners of supertankers, losing money for a sixth consecutive quarter, will probably idle the most ships in more than two decades as they contend with a glut that drove charter rates to the lowest in at least 14 years. The combination of too many ships and slowing demand growth for oil means that about 6 percent of the fleet will be anchored in a year from almost none now, according to the median in a Bloomberg survey of eight brokers and analysts. That may not be enough to end the slump. Forward freight agreements, traded by brokers and used to bet on transport costs, anticipate rates no higher than $13,819 a day through 2013. Frontline Ltd., the biggest operator of the vessels, says it needs $29,800 to break even. The Hamilton, Bermuda-based company will report its biggest annual loss in 12 years in 2011, analysts’ estimates compiled by Bloomberg show. While owners can cut operating costs to as little as $2,000 a day from $12,000 by anchoring ships, it also means no income, said Andreas Sohmen- Pao, chief executive officer of the oil and gas shipping unit of BW Group Ltd., which is idling three vessels.

Wall Street Journal:

• Cantor Fitzgerald Bets On Expanding Private-Stock Market. Cantor Fitzgerald is looking to cash in on a growing secondary market for shares in hot private companies such as Facebook Inc. and Twitter Inc. The financial-services firm is creating a private-markets group to afford clients opportunities to invest in private-company stock along with private real estate investment trusts and private-equity and hedge-fund interests.
• Schapiro to Stay at SEC Through Next Fall.
• Longacre to Wind Down Main Hedge Funds. Longacre Fund Management LLC told investors Monday that it will wind down its main hedge funds, after losses and redemptions for the end of this year took a greater toll than the firm's managers expected. The high-profile firm was started 13 years ago by former Bear Stearns distressed-debt traders John Brecker, Vladimir Jelisavcic and Steven Weissman. As of February, Longacre had $835 million in assets, according to fund documents. Longacre executives told clients and others close to the matter that clients' withdrawal requests for the end of 2011 overwhelmed the firm, making the closure of its main funds the best course of action, the people said.

MarketWatch:

• China Selloff Reflects Lower Credibility: Analysts. China's sovereign-wealth fund stepped in Monday to buy shares of the country's battered banks, which have been caught in a selloff that analysts say partly reflects a loss of trust in the integrity of government statistics and corporate earnings. The skepticism of investors comes as China has become increasingly exposed to global markets, largely through stock listings of its state-owned enterprises and other companies, but more recently through its currency and bonds, which are now traded in Hong Kong.

Business Insider:

• AHEM: Wall Street "Protester" Says He's Getting Paid $22 An Hour (Plus Overtime) To "Protest".

Zero Hedge:

• Who Is 'Latour Trading' And How Dare They Upstage Goldman(GS)?

CNBC:

• Nervous Asia Has Good Reasons to Fear Euro Zone Crisis. Over recent weeks, Asia’s largely dispassionate observation of the economic slowdown in Europe has given way to fears that the eurozone’s sovereign debt woes could trigger deep problems for the broader Asian economy and its financial centers. Singapore and neighboring Southeast Asian nations are among the most vulnerable to direct disruption, because so much of their economic activity depends on international trade. Even the least bearish bankers are braced for at least a repeat of the 2008 hit to Asia’s economy — and its banks — when the first flush of the global financial crisis led to two quarters of negative growth in the region. The old idea of Asia, or many other emerging markets for that matter, being a safe haven from troubles in developed markets, has been discredited. As 2008 showed, there is no such thing as a decoupled economy in a globalized world.Asia today faces two waves of pain.
• China Shares Rise After State Props Up Bank Shares. Chinese shares rose nearly 2 percent in early trade on Tuesday, boosted by a unit of the country's sovereign wealth fund increasing its stakes in the "Big Four" lenders in a sign of government support for the languishing stock market.

NY Times:

• Wall St. Banks Help Hedge Funds Recruit. Wall Street banks often boast that they hire the best and the brightest. Now, scrambling to bolster profits, they have become full-time headhunters for some of their biggest hedge fund clients, a role that is rife with potential conflicts.

Forbes:

• ObamaCare Budgeting Could Turn The U.S. Into Greece. Heard of the Community Living Assistance Services and Supports program, or CLASS for short? It is a new government program that offers long-term care insurance. It was buried in the Affordable Care Act that was signed a year and a half ago (aka ObamaCare). If you haven’t heard of CLASS you’ve done your sanity a favor. But while re-reporting and re-fighting the health reform debate is perilous, and potentially boring, the fiasco around CLASS is worth outlining to show how Washington-style budgeting really works.
• Blink And You Missed It: Anonymous Attacks NYSE.
• Economic Policy In The E.U.: More Bailouts, More Debt, More Crises.
  

Chicago Tribune:

• Paulson Faces Big Test as Clients Mull Future. Hedge fund manager John Paulson, long lionized for his successful bets on the collapse of the subprime mortgage market and the surge in gold prices, is now facing the toughest challenge of his career. With one of Paulson's largest funds down nearly 50 percent for the year and several others also posting big losses, the big question is whether the manager's large and wealthy fan base will scurry for the exits and seek to redeem billions of dollars by year's end. "There will be a lot of internal discussion at big and small investors alike about the allocation to John Paulson and whether to redeem it or to keep it," said Professor Jim Liew, who teaches hedge fund strategies at New York University's Stern School of Business.
  

Reuters:

• Irish Banks Noncore Assets Must Fall in 2011 - Govt. Ireland's three remaining banks should dispose of almost half of their noncore assets under a targeted deleveraging program this year, Ireland's finance department said. Bank of Ireland (BKIR.I), Allied Irish Banks (ALBK.I) and Irish Life & Permanent (IPM.I) need to shrink their balance sheets by 70 billion euros by 2013, 34 billion of which are to be achieved through asset disposals. Some 46 percent of those disposals are expected to be accomplished during 2011, the finance ministry said in a half-year review of Irish banks to end-September that it published on its website on Monday.
• Carlyle-Blackstone(BX), THL Finalists for Morgan Keegan. Thomas H. Lee Partners and a consortium that includes Blackstone Group (BX.N) and Carlyle Group [CYL.UL] are the finalists for Regions Financial Corp's (RF.N) Morgan Keegan brokerage unit, sources familiar with the matter said.
• 25 States Urge Court to Make US EPA Delay Power Plant Rule. Adding pressure on the U.S. Environmental Protection Agency to relax air pollution rules, 25 states urged a federal court on Monday to require the agency to delay a rule on mercury emissions and other pollutants from power plants by at least a year, saying the measure is too costly. "In the past, EPA has designed its regulations pretty carefully to make sure that they wouldn't be forcing any facilities to shut down," Jeff Holmstead, the former EPA assistant administrator for air and radiation under President George W. Bush, said about the brief, filed electronically on Monday with the U.S. District Court for the District of Columbia. "But now, it looks like there are senior folks at EPA whose main goal is to shut down as many coal-fired power plants as possible."
• Congress Watchdog Probes Solar Loans After Solyndra. A top Republican congressional watchdog wants the Energy Department to turn over documents and emails about $4.7 billion in loan guarantees for four solar projects approved right before a Sept 30 deadline. The last-minute approvals of the projects raise fears that "the evaluation of loan guarantees may have been rushed in order to meet a deadline," said Darrell Issa, chairman of the House Oversight Committee, in a letter to Energy Secretary Steven Chu.

Financial Times:

• Netherlands Finance Minister Jan de Jager wants harsh enforcement measures for violations of budget agreements as part of any new pact to save the eurozone, citing an interview. Netherlands wants reforms from any country that seeks help from the European financial stability facility. Some measures Netherlands wants may require renegotiating European treaties.
• PrimeX Indices Suggest Mortgage Concerns are Spreading. (video) They are indices few have ever heard of outside the more arcane corners of the credit world. But they, nevertheless, are starting to flash warning signs, suggesting concerns about the mortgage market are spreading from subprime to better quality home loans.

Telegraph:

• Germany Push for Greek Default Risks EMU-Wide 'Snowball'. Germany is pushing behind the scenes for a "hard" default in Greece with losses of up to 60pc for banks and pension funds, risking a chain-reaction across southern Europe unless credible defences are established first. Officials in Berlin told The Telegraph it is "more likely than not" that investors will suffer fresh losses on holdings of Greek debt, beyond the 21pc haircut agreed in July. The exact level will depend on findings by the EU-IMF "Troika" in Athens. "A lot has happened since July. Greece has fallen back on its commitments, so we have to assume that the 21pc cut is no longer enough," said one source. Finance minister Wolfgang Schäuble told the Frankfurter Allgemeine that the original haircuts were "probably" too low, saying banks must have "sufficient capital" to cover greater losses if need be. Estimates near 60pc have been circulating in Berlin. The shift in German policy has ominous echoes of last year when Chancellor Angela Merkel first called for bondholder haircuts, setting off investor flight from Ireland and a fresh spasm in the EU debt crisis. "This could set off a snowball effect," said Andrew Roberts, credit chief at RBS. "The markets will instantly switch attention to Portugal, where two-year yields are already 17pc".
• Banque de France Turns a Blind Eye to European Financial Crisis. Crisis? What crisis? To judge by a speech in Tokyo last week from Christian Noyer, Governor of the Banque de France, you would never have guessed there was an almighty financial implosion going on at the heart of the eurozone.

Guardian:

• Spain Unlikely to Meet Deficit Target. Alarm is sounded over the country's borrowing, with the chance of the public deficit being cut from 9% to 6% said to be slim. Alarm bells are being rung over Spain's ability to hit its public deficit target this year without taking further dramatic steps to raise extra income or cut spending. Figures released last week by the national statistics institute (INE) show that the deficit level remained virtually unchanged during the first half of this year, according to one of the country's leading analysts. Angel Laborda, of the savings banks federation Funcas, said the figures on the overall borrowing needs of Spain's public administration meant the chances of bringing the deficit down from 9% to 6% this year were slim. The deficit could now head for between 7.5 and 8%of GDP – well off the target agreed by the socialist government of prime minister José Luis Rodríguez Zapatero and the European Union and much worse than previous analysts' estimates. "Most of the year has already gone so I think it is impossible to meet 6%," Laborda said. "I'd say it will be closer to 8%." He blamed the problem on the regional governments, who account for a third of public spending. Many had only seriously begun to cut spending after May elections, he said. Lower-than-expected growth was also a handicap. Separate figures show that central government has brought down its part of the deficit, suggesting that regional governments may have actually grown their deficits during the first half of the year, he said.

Sky News:

• Ratings Boss: Eurozone Crisis 'Getting Worse'. (video) "The eurozone crisis keeps on getting worse," he said on Jeff Randall Live. "It's now become a systemic crisis - not just in terms of spreading the contagion to Italy, which is deeply worrying - but it's now become a systemic banking crisis." His comments follow Fitch's downgrade of both Spanish and Italian government debt on Friday. But Mr Riley stressed there was "broad recognition" of what needs to be done to help the region. He said the solution includes dealing with Greece's debt, putting more money into banks and supporting weaker countries like Spain and Italy, which he described as "solvent but potentially illiquid". But when pressed by Randall on whether Germany would bankroll these measures, he admitted this was a problem. "It's not that they don't know the potential solution, it's that they don't want to put that one in place," he said. "That's one of the reasons why they've been behind the market, because where the market is wanting to take them... Germany in particular doesn't want to go there." He added:"(Prime Minister) David Cameron said they have weeks to do it, but I think this crisis could go on for months, not weeks."

Vietnam News:

• Floods in Vietnam's Mekong Delta had killed 24 people as of Oct. 9 and inundated 22,920 hectares of the autumn-winter rice crop, citing the National Steering Committee for Flood and Storm Prevention and Control.

Shanghai Daily:

• Dent in Shanghai Consumer Confidence. HIGH inflation, a weak stock market and concerns over tightening measures put a dent in the confidence of Shanghai's consumers who were pessimistic in the third quarter this year, the first time their confidence has dipped since the first quarter of 2009, according to a survey yesterday. The consumer confidence index dropped to 99 in July to September, down 7.7 points from the same period a year ago, the Shanghai University of Finance and Economics said in a report yesterday, quoting a quarterly index on consumer tendency in the city. A reading above 100 signals consumers are optimistic about the economy while one below indicates pessimism.

Shanghai Securities News:

• The Chinese Academy of Social Sciences expects China's 2011 CPI to Be 5.5%. CASS suggests that the country should continue to curb inflation and stabilize prices this year and early next year.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.75% to +2.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 222.50 -7.0 basis points.
  
• Asia Pacific Sovereign CDS Index 156.50 -10.0 basis points.
• FTSE-100 futures +.04%.
  
• S&P 500 futures -.25%.
  
• NASDAQ 100 futures -.27%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AA)/.23

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for September is estimated to rise to 88.8 versus 88.1 in August.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Slovakia EFSF vote, FDIC's Volcker rule vote, weekly retail sales reports, 3-Year Treasury Note auction, IDB/TIPP Economic Optimism Index for October, (FISV) investor conference and the (CVX) Interim 3Q Update could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by financial 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 Afternoon on Declining Eurozone Debt Angst, Less Financial Sector Pessimism, Short-Covering, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Every Sector Rising
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 34.17 -5.61%
  
• ISE Sentiment Index 123.0 +86.36%
  
• Total Put/Call 1.25 +12.61%
  
• NYSE Arms .78 -52.43%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 137.30 -.73%
  
• European Financial Sector CDS Index 221.01 -7.28%
  
• Western Europe Sovereign Debt CDS Index 333.83 -1.83%
  
• Emerging Market CDS Index 343.16 -.84%
  
• 2-Year Swap Spread 38.0 -2 bps
  
• TED Spread 39.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 178.0 unch.
  
• China Import Iron Ore Spot $166.50/Metric Tonne -2.06%
  
• Citi US Economic Surprise Index -3.10 +4.4 points
  
• 10-Year TIPS Spread 1.94 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating +178 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
  
• Market Exposure: Moved to 100% Net Long

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 breaks above its downward sloping 50-day moving average on less Eurozone debt angst, less financial sector pessimism, diminishing global growth worries, short-covering and bargain-hunting. On the positive side, Coal, Oil Tanker, Energy, Oil Service, Steel, Bank, Homebuilding and Gaming shares are especially strong, rising more than +4.0%. Cyclical and Small-cap shares have outperformed throughout the day. As well, (XLF) is trading well. Copper is rising +3.09% and Lumber is rising +2.77%. The Germany sovereign cds is falling -4.3% to 94.17 bps, the Ireland sovereign cds is falling -3.36% to 678.33 bps, the Russia sovereign cds is declining -3.16% to 278.94 bps and the Israel sovereign cds is falling -4.2% to 174.91 bps. Major European equity indices surged 2-3% today. On the negative side, Education, Telecom and Utility shares are underperforming, rising less than 2.0%. Oil is gaining +3.5%, the UBS-Bloomberg Ag Spot Index is gaining +1.97% and Gold is rising +2.24%. Rice is still close to its multi-year high, rising +24.0% in about 13 weeks. The Belgium sovereign cds is rising +.28% to 284.50 bps and the Brazil sovereign cds is rising +.89% to 179.97 bps. The Libor-OIS Spread is unch. at 31.0 bps, which is the highest since July 2010. The FRA/OIS Spread is unch. at 54.0 bps, which is also the highest since July 2010. As well, the TED spread hasn't come in at all, which is also 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 and trending higher despite the recent pullbacks. The Shanghai Composite, which was closed during last week's global rally, re-opened and declined -.6% overnight. It is down -16.5% ytd. Asia still appears to be more of a problem than investors currently perceive. As well, I still believe stocks have gotten a bit ahead of themselves with respect to the prospects for a "solution" in Europe. Moreover, even if another "kick the can" solution is imminent, the economies in the region will likely continue to deteriorate as the massive tax hikes and spending cuts intensify, which will further exacerbate their debt issues over the longer-term. However, in the short-term, given high levels of investor pessimism and the S&P 500's technical improvement, more gains are likely. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, emerging markets inflation fears, rising food/energy prices, more shorting and global debt angst.

Today's Headlines

Bloomberg:

• Stoxx Eruope 600 Index Posts Biggest Four-Day Jump Since 2008 on Bank Plan. European stocks advanced, with the Stoxx Europe 600 Index posting its biggest four-day rally since November 2008, as the leaders of Germany and France gave themselves three weeks to create a plan to recapitalize banks. The benchmark Stoxx 600 advanced 1.7 percent to 235.94 at the 4:30 p.m. close in London, extending the gauge’s rally over the last four days to 8.5 percent. National benchmark indexes rose in 15 of the 18 western European markets. The U.K.’s FTSE 100 Index gained 1.8 percent. France’s CAC 40 Index climbed 2.1 percent and Germany’s DAX Index jumped 3 percent. All three gauges posted their biggest four-day rallies since 2008.
  
• Sovereign, Corporate Credit-Default Swap Indexes Fall in Europe. The cost of insuring against default on European sovereign and corporate debt fell, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments dropped seven basis points to 324 at 3:30 p.m. in London. A decline signals improvement in perceptions of credit quality. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings decreased 32.5 basis points to 781, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings fell 9.75 basis points to 179.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased 11.5 basis points to 240.5 and the subordinated index dropped 19 to 483.
• Euro Chiefs Push Back Debt Crisis Summit Amid Tension Over Greek Writedown. European leaders pushed back a debt- crisis summit amid tensions between Germany, France and the European Central Bank over possible deeper-than-planned writedowns of Greek bonds. The planned Oct. 18 meeting was postponed to Oct. 23 as Europe gropes toward dealing with Greece’s oversized debt, insulating the Spanish and Italian markets, and shielding banks from the fallout. “Further elements are needed to address the situation in Greece, the bank recapitalization and the enhanced efficiency of stabilization tools,” European Union President Herman Van Rompuy said in an e-mailed statement in Brussels today. “This timing will allow to finalize our comprehensive strategy.” Germany and France yesterday set an end-of-month deadline for a breakthrough in handling the crisis, which has pushed Greece to the brink of default, roiled global markets and spurred speculation that the 17-nation euro region might not survive in its current form. German Chancellor Angela Merkel and French President Nicolas Sarkozy put recapitalization of Europe’s banks at the top of the priority list in a joint declaration in Berlin yesterday. Sarkozy said they would deliver a plan by the Nov. 3 Group of 20 meeting.
• Greek Public-Health Tragedy Looms, Academics Write in Lancet. The financial catastrophe in Greece is damaging public health and wellbeing, according to six medical academics including Alexander Kentikelenis and David Stuckler of Cambridge University and Martin McKee of the London School of Hygiene and Tropical Medicine. In a letter published in the Lancet, a medical journal with offices in London, New York and Beijing, they analyzed European Union statistics based on replies by 12,346 and 15,045 Greeks in 2007 and 2009, respectively. The group said 2009 saw significant increases in the number of people reporting that they didn’t see a doctor or dentist despite feeling it was necessary to do so, and in those reporting that their health was “bad” or “very bad.” Since Greece’s public health-care system entitles citizens to visit general practitioners free of charge and to attend hospital outpatient clinics at low cost, the reduced access probably reflected the fact that there were cuts of about 40 percent in hospital budgets, understaffing, occasional shortages of medical supplies, and bribery of medical staff to jump queues at overcrowded hospitals, the group wrote. The number of suicides was 17 percent higher in 2009 than in 2007, unofficial figures cited in parliament mentioned a 25 percent increase in 2010 compared with 2009, and the minister of health reported a 40 percent rise in the first half of 2011 compared with the year-earlier period, according to the letter.
• Morgan Stanley(MS) Leads Financials Higher. Morgan Stanley (MS) and Citigroup Inc. (C) led U.S. banks higher in New York trading after European leaders pledged to deliver a plan to stem the debt crisis that has led to concerns about global lenders’ balance sheets. Morgan Stanley climbed $1, or 7 percent, to $15.24 at 11:11 a.m. in New York Stock Exchange composite trading, bringing its increase during the last week to 22 percent. Citigroup jumped 6.2 percent and Bank of America Corp. (BAC) rose 5.8 percent, helping to lead the 81-company Standard & Poor’s 500 Financials Index to a 3.9 percent gain. The S&P 500 has rebounded about 8 percent from a 13-month low on Oct. 3 amid optimism that European leaders will succeed in taming the debt crisis.
• China's Stocks Drop to Two-Year Low After Banks, Property Developers Slump. China’s stocks fell, driving the benchmark index to the lowest level since March 2009, as housing sales slumped during a week-long holiday and energy producers declined after the government cut fuel prices. China Vanke Co. and Poly Real Estate Group Co., the nation’s biggest developers, plunged more than 3 percent after industry sales dropped last week and Shanghai Securities News reported high inflation signals tight monetary policies will remain in place. PetroChina Co., the country’s largest oil producer, retreated the most in two weeks as the first reduction in fuel prices this year spurred concerns about earnings. “Tight liquidity has hurt some small companies with anything related to monetary policy dragging banks and the market lower,” said Tu Jun, a strategist at Shanghai Securities Co. “Market sentiment is very weak at the moment and investors are more sensitive to bad news than good.” The Shanghai Composite Index slipped 0.6 percent to 2,344.79 at the close in Shanghai, the lowest since March 25, 2009. The CSI 300 Index (SHSZ300) lost 0.9 percent to 2,557.08. The Shanghai Composite sank 15 percent last quarter, the biggest loss since the three months to June 2010. The index has tumbled 17 percent this year as the government raised interest rates and reserve-requirement ratios for banks to cool inflation that’s at the highest level in almost three years.
• Oil Rises to Two-Week High. Crude oil climbed to the highest level in two weeks as the leaders of Germany and France pledged to stem the European sovereign-debt crisis. Futures rose as much as 3.8 percent after German Chancellor Angela Merkel and French President Nicholas Sarkozy said yesterday they will deliver a plan to recapitalize the region’s banks and address the Greek crisis by Nov. 3.
• U.S. Corporate Profit Rebound Loses Steam. This year’s rebound in corporate earnings is losing steam as slower economic growth and greater strain on consumers threaten sales and profit margins at companies from Texas Instruments Inc. (TXN) to Google Inc. (GOOG) Earnings per share for the Standard & Poor’s 500, excluding financial companies, rose 14 percent in the third quarter, the smallest gain since the end of 2009, analysts’ estimates compiled by Bloomberg show. That compares with 19 percent in the second quarter and 20 percent in the first. Analysts have begun reducing forecasts for the current quarter and beyond.
• Egypt on Alert AFter Deadly Clashes. Egyptian security forces were deployed outside government buildings in central Cairo after a night of clashes between Coptic Christian protesters and security forces that left at least 25 dead. Authorities ordered a fact-finding committee to investigate the violence, which began when several hundred Egyptian Christians protesting a recent attack on a church came under assault by people in plain clothes and were later confronted by security forces, witnesses said. Following the clashes, the army imposed a curfew until 7 a.m. in the center of the capital.
  

Wall Street Journal:

• Moody's: Portugal Fiscal Slippage Credit Negative For The Sovereign. Signs of fiscal slippage in Portugal are credit negative for the sovereign, and will make it harder for the government to achieve its deficit reduction targets for 2011 and 2012, Moody's Investors Service said in a report Monday.
• Tea Party Attacks Put GE(GE) on Defense. General Electric Co., where Ronald Reagan honed his communication skills as a company spokesman, is struggling to fend off attacks from conservatives over its relationship with the Obama administration and ventures in China, raising concerns inside GE that the controversy could damage its brand. Former Republican Alaska Gov. Sarah Palin last month slammed GE for being "the poster child of corporate welfare and crony capitalism." Presidential candidate Newt Gingrich used GE as an applause line during the Republican debate sponsored by the tea party in September. And Fox News television personality Bill O'Reilly has derided the conglomerate and Chief Executive Jeff Immelt almost weekly. The company's critics will get another opening this week. Mr. Immelt is to appear with President Barack Obama at a meeting of the president's jobs council in Pittsburgh on Tuesday, the same day that the Republican presidential contenders square off in a debate at Dartmouth College. The tea party and its allies are taking aim at GE for a number of alleged sins, including the company's paltry 2010 federal tax payment, an aviation joint-venture in China, moving jobs overseas and taking federal stimulus dollars for green-energy projects.

CNBC.com:

• Need Work? US Has 3.2 Million Unfilled Job Openings. Want to add about $100 billion more annually to the US economy and lower the unemployment rate by more than a percentage point—all without spending a dime of taxpayer money? Fill America’s more than 3.2 million open jobs. That’s the hidden story of America’s lousy jobs picture. Though there are more than 14 million unemployed, there are also 3.2 million job openings in America.

Business Insider:

• Why You Should Be Worried About Wal-Mart's(WMT) 'Green Pork' Incident In China.
• Forget Dexia: Here Are Other European Banks Praying For The PIIGS To Get Saved.
• A Key ISM Measure Points To Contraction. (graphs)
• John Hussman: Here Are 4 Things That Every Wall Street Protester Should Know.
  

Zero Hedge:

• 11th Hour Decision To Milliseconds Before Midnight As Slovakia Fails To Reach EFSF Decision.

24/7 Wall St.:

• E.U. Bailout Promise Poses "AAA" Ratings Question for France & Germany.

Reuters:

• OECD Indicators Paint Dark Picture of Global Economy. The outlook for the world's major economies is continuing to darken according to the latest data from the OECD published on Monday, which showed sharp falls in leading indicators for all countries except Japan. The Paris-based Organization for Economic Cooperation and Development said its composite leading indicator (CLI) for its 33 member countries dropped for a fifth straight month in August, hitting 100.8 after 101.4 in July and signaling a slowdown in economic activity. Individual country readings fell across the board, including for non-OECD member countries, with most seeing their CLIs drop below their long-term average of 100. "For all other major economies, except Japan, the CLIs are now pointing strongly to a slowdown in economic activity below long-term trend," the OECD said. The OECD CLIs are designed to anticipate turning points in economic activity relative to trend - a turnaround in an indicator tends to precede turning points in economic activity by around six months. The consensus at the moment is that many major western economies are teetering on the brink of recession, as they struggle to repay inflated levels of debt. The OECD's reading for the Group of Seven major economies -- France, Germany, Italy, Japan, the United Kingdom and the United States -- slumped to 101.1 in August from 101.7 in July, while the reading for the euro area fell 9 points, to 99.8 from 100.7.
• Bank Recaps Not An Answer To Crisis - French Bank Assoc. European states must restore confidence in their ability to reduce debt and public deficits, and a long-term solution for Greece must be implemented quickly in order to resolve the euro zone crisis, the French Banking Federation (FBF) said on Monday. The FBF said reinforcing the capital of European banks would not solve the crisis, adding that market worries were based on the public finances of certain euro zone countries and not on concerns about Europe's banks. "Certain states must regain investor confidence to continue to borrow on the markets under satisfactory conditions," the FBF said in a statement. The FBF added that euro zone governance also needed to be improved.

Frankfurter Allgemeine Zeitung:

• German Chancellor Angela Merkel's government is lobbying for an extensive haircut on Greek debt, citing government officials. Germany's government considers a Greek insolvency unavoidable in the long run.

Xinhua:

• China's Resources Tax Extended Nationwide From Sept. 1. Tax on crude oil, natural gas to be extended to entire country, citing the State Council.

Bear Radar

Style Underperformer:

• Large-Cap Value (+2.79%)

Sector Underperformers:

• 1) Foods +1.34% 2) Tobacco +1.35% 3) Telecom +1.49%

Stocks Falling on Unusual Volume:

• SNP, VRTX, HGSI, HRBN, SPN, SMG and BMC
  

Stocks With Unusual Put Option Activity:

• 1) LO 2) PXP 3) EWC 4) JEF 5) TSO
  

Stocks With Most Negative News Mentions:

• 1) S 2) PCLN 3) SMG 4) TIE 5) CF
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth (+3.19%)

Sector Outperformers:

• 1) Oil Tankers +5.97% 2) Gaming +5.09% 3) Oil Service +5.07%

Stocks Rising on Unusual Volume:

• TEO, E, SIMO, NFLX, PTEN, WYNN, AVGO, ILMN, CPX, PXJ, EWL, EWI, SNN, RES, PRX, PKI, CJES, BAS, BYI, KEG, SFLY and KCG
  

Stocks With Unusual Call Option Activity:

• 1) LYB 2) ROST 3) GME 4) ZMH 5) CELG
  

Stocks With Most Positive News Mentions:

• 1) ACN 2) MU 3) BYI 4) STJ 5) INSU
  

Charts:

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

Monday Watch

Weekend Headlines
Bloomberg:

• Merkel, Sarkozy Pledge Bank Recapitalization. Angela Merkel and Nicolas Sarkozy, racing to stamp out the euro debt crisis threatening to engulf the financial system, gave themselves three weeks to devise a plan to recapitalize banks, get Greece on the right track and fix Europe’s economic governance. “By the end of the month, we will have responded to the crisis issue and to the vision issue,” the French president said in Berlin yesterday at a joint briefing with the German chancellor before they dined at her office. Under rising pressure to defuse turmoil that’s raged for 18 months, and facing growing concern Greece is headed to a default, Merkel said European leaders will do “everything necessary” to ensure that banks have enough capital. Sarkozy said they would deliver a plan by the Nov. 3 Group of 20 summit. “Maybe they’re still running one step behind, but they are at least discussing the right things,” Carsten Brzeski, an economist at ING Group in Brussels, said in a phone interview.
• Belgium to Buy Dexia's Consumer Unit for $5.4 Billion. Belgium agreed to buy the local consumer-lending unit of Dexia SA (DEXB), ending a 15-year cross-border experiment with France after the European debt crisis deepened. The Belgian federal government will pay 4 billion euros ($5.4 billion) for the division and guarantee 60 percent of a so-called bad bank to be set up for Dexia’s troubled assets, Finance Minister Didier Reynders said at a press conference today in Brussels. The dismantling of Dexia, once the world’s leading lender to municipalities, became inevitable after concern over European sovereign debt holdings caused its short-term funding to evaporate. Dexia’s breakup, three months after it got a clean bill of health in European Union stress tests, brought the region’s banking crisis from the continent’s periphery to its center. “Dexia is not an isolated problem,” said Cor Kluis, an Utrecht, Netherlands-based analyst at Rabobank International who rates Dexia “reduce.” “The question for all investors in Europe is how politicians are going to handle this, and what they want to see is a coordinated and professional solution. That would be a good opportunity to restore calm.”
• Slovak SaS Party Won't Back EFSF After Compromise Rejected. Slovakia’s ruling Freedom and Solidarity party won’t back the overhaul of the European bailout mechanism after Prime Minister Iveta Radicova rejected the party’s conditions for approval, a lawmaker said. The party, known as SaS, insists its three coalition partners agree to two conditions before it will back the enhancement of the euro region’s bailout fund, the European Financial Stability Facility, in a parliamentary vote Oct. 11, said Jozef Kollar, head of SaS’s parliamentary caucus. “If the solutions we have put forward aren’t accepted then we will not vote for the EFSF,” Kollar said in a debate on state Slovak Radio today. Slovakia and Malta are the only countries that haven’t yet ratified the key element in the European Union’s plan to prevent the region’s debt crisis from spreading. The Slovak row risks sinking the EU plan, which needs the unanimous consent of all 17 euro members to come into force. SaS is calling for the creation of an inter-party committee that would have a right to veto individual EFSF disbursements. It is also demanding that Slovakia doesn’t participate in the European Stability Mechanism, a permanent rescue vehicle set to come into force in 2013. SaS will negotiate “until the last minute” with its coalition partners, according to a statement posted on the party’s web site today. Smer, the largest opposition party, has said it won’t support the EFSF overhaul unless the government steps down.
  
• Short Selling Rise Most Since '06 as Stocks Erase $11 Trillion. Investors are increasing bearish trades around the world by the most in at least five years, convinced the lowest valuations since 2009 will prove no barrier to losses after $11 trillion was erased from equities. Borrowed shares, an indication of short selling, climbed to 11.6 percent of stock last month from 9.5 percent in July, the biggest increase since at least 2006, according to information compiled for Bloomberg by Data Explorers, a London-based research firm. Trades that profit when Chinese equities decline have reached a four-year high and bearish bets in the U.S. are the most since 2009, exchange data show. Slowing economies are spurring short sellers after indexes in 37 out of 45 major countries tumbled 20 percent, the common definition of a bear market.
• Paulson Main Fund Said to Lose 47% This Year Through September. John Paulson, the billionaire who is betting on an economic recovery by the end of 2012, has lost 47 percent this year in his largest hedge fund, according to two people familiar with the matter. Paulson’s Advantage Plus Fund, which seeks to profit from corporate events such as takeovers and bankruptcies, uses leverage to amplify returns. The fund’s gold share class declined 32 percent this year through the end of September, said the people, who asked not to be identified because the fund is private. Paulson, 55, would have to return about 89 percent in the remainder of the year to break even in the Advantage Plus Fund. Paulson & Co., which is based in New York and manages $30 billion, has lost money this year on investments including Citigroup Inc., Bank of America Corp. and Sino-Forest Corp.
• AT&T(T) Says Pre-Orders for Apple(AAPL) iPhone 4S Broke The Company's Sales Records. AT&T Inc. (T) received more than 200,000 preorders for the iPhone 4S in 12 hours, marking the company’s most successful debut yet for the Apple Inc. (AAPL) device. There has been “extraordinary demand” for the new iPhone, the Dallas-based carrier said today in a statement. AT&T, along with Verizon Wireless and Sprint Nextel Corp. (S), provide service for the phone. The rush of orders signals that there’s pent-up demand for the new model, which followed the previous version by 16 months -- longer than usual.
• China Companies Evading Rule With U.S. Listings Stump Regulators. A common corporate structure that has allowed dozens of Chinese companies to get listed on U.S. exchanges is drawing increased scrutiny from American audit regulators. Chinese Internet companies such as Sina Corp. and Baidu Inc. have used so-called variable interest entities, or VIEs, to work around Chinese restrictions and seek foreign investors since 2000. Now, the Securities and Exchange Commission is also asking questions about the structure, said Paul Boltz, a Hong Kong-based partner at Ropes & Gray LLP, who cited comment letters the agency sent to six companies since December. Judith Burns, an SEC spokeswoman, declined to comment. The heightened attention may add to investors’ caution regarding Chinese stocks trading in North America.
• Too Big to Fail Not Fixed, Despite Dodd-Frank: Simon Johnson. Here we go again. Major shocks potentially threaten the solvency of some of the world’s largest financial institutions. Concerns grow over the ability of European leaders to shore up their banks, which are reeling from a sovereign-debt crisis. In the U.S., the shares of some large banks are trading at less than book value, while creditor confidence crumbles.
• Green Europe Imperiled as Debt Crisis Triggers 46% Carbon Market Collapse. The European sovereign debt crisis that’s spread from Greece to Italy and is roiling the region’s banks now has another potential victim: energy policy. European emissions permits, needed by polluters from utilities to cement makers for each ton of the carbon dioxide they put in the atmosphere, slumped to their lowest in 2 1/2 years on Oct 4. An auction of permits by Greece, trying to avoid the euro area’s first default, worsened a glut of permits, UBS AG analyst Per Lekander said last week. Lower carbon prices discourage European utilities including EON AG and GDF Suez SA from investing in wind farms and solar plants that don’t need permits.

Wall Street Journal:

• SEC Cop to Back Claim. The U.S. Securities and Exchange Commission's internal watchdog will back a whistleblower's claim that the regulator for years destroyed enforcement records it should have kept, according to people familiar with a report on the findings of a months-long probe. The report by David Kotz, the SEC's inspector general, also criticizes the regulator for misleading another federal agency, the National Archives and Records Administration, the people said.
• Hong Kong's CEO: Govt Made Mistakes In Housing, Land-Supply Policy. Hong Kong's Chief Executive Donald Tsang said Saturday that his administration had made mistakes in housing and land-supply policies, which have helped propel home prices to levels beyond the reach of many local households. Tsang said the government might have overreacted in the few years following 2003, when the city was hit by the SARS outbreak and property prices plummeted more than 60% from their peak in 1997. "We made some mistakes, honestly. We stopped doing a series of things after the property bubble burst. This included the fact that we didn't put enough effort into building up adequate land reserves," Tsang said in an interview with Commercial Radio Hong Kong.
• Discord Riddles Libyan Factions. Six weeks after the fall of Tripoli, the palmy days of rebel unity have begun to disintegrate into a spiral of infighting, political jockeying and even the occasional violent flare-up threatening to derail Libya's post-Gadhafi transition.
• California Governor Signs Dream Act. California Governor Jerry Brown on Saturday finished signing the California Dream Act, under which California students who are undocumented immigrants will qualify for state-funded financial aid for college.
• GOP Lawmaker Questions Loan Guarantees to 3 Firms. A top Republican lawmaker is questioning whether the Energy Department rushed approval for $4.75 billion in loan guarantees to three companies just hours before much of the funding for the loan guarantee program was set to expire. Rep. Darrell Issa of California, chairman of the House oversight committee, sent a letter Friday to Energy Secretary Steven Chu seeking information about loans provided to First Solar Inc., SunPower Corp. and ProLogis Inc.
• Secret Orders Target Email. The U.S. government has obtained a controversial type of secret court order to force Google Inc.(GOOG) and small Internet provider Sonic.net Inc. to turn over information from the email accounts of WikiLeaks volunteer Jacob Appelbaum, according to documents reviewed by The Wall Street Journal. Sonic said it fought the government's order and lost, and was forced to turn over information. Challenging the order was "rather expensive, but we felt it was the right thing to do," said Sonic's chief executive, Dane Jasper. The government's request included the email addresses of people Mr. Appelbaum corresponded with the past two years.
• The Solyndra Economy.
  

CNBC:

• Hedge Funds Suffer Worst Quarter Since 2008. The average hedge fund suffered a 2.8 percent fall in the value of its assets in September, which took total average losses for the quarter to 5.5 percent, according to Hedge Fund Research. Equity-focused hedge funds, meanwhile, did no better than the broader market. In a blow to highly paid stock-pickers, funds that buy shares and use short sales to hedge their positions have delivered the same returns as the S&P 500 index, including dividends, in the first nine months of the year, a loss of 8.7 percent.
• Dow(DOW), Saudi Oil Company Sign Accord for $20B Plant. Dow Chemical Co. and the Saudi Arabian Oil Co. said Saturday that they signed an agreement that advances their plan to build one of the world's biggest chemical plants in Saudi Arabia. The $20 billion complex is expected to begin production in 2015.
• Deficit 'Supercommittee' Struggles as Clock Ticks. After weeks of secret meetings, the 12-member deficit-cutting panel established under last summer's budget and debt deal appears no closer to a breakthrough than when talks began last month. While the panel members themselves aren't doing much talking, other lawmakers, aides and lobbyists closely tracking the so-called "supercommittee" are increasingly skeptical, even pessimistic, that the panel will be able to meet its assigned goal of at least $1.2 trillion in deficit savings over the next 10 years.

Business Insider:

• It's Not Just Paulson: Look At All The Other Big Names Getting Crushed In 2011.
• Unemployment Rate/Stimulus Plan. (Chart)
• WOW: A Shocking 90% Of Families In This Chinese City Are Involved In Underground Banking.
  

Zero Hedge:

• Key Market Events In The Coming Week.

NY Times:

• Clamping Down on Rapid Trades in Stock Market. Regulators in the United States and overseas are cracking down on computerized high-speed trading that crowds today’s stock exchanges, worried that as it spreads around the globe it is making market swings worse. The cost of these high-frequency traders, critics say, is the confidence of ordinary investors in the markets, and ultimately their belief in the fairness of the financial system. “There is something unholy about them,” said Guy P. Wyser-Pratte, a prominent longtime Wall Street trader and investor. “That is what caused this tremendous volatility. They make a fortune whereas the public gets so whipsawed by this trading.” Regulators are playing catch-up.

LA Times:

• Few Places to Hide as Bear Growls. Funds that own small stocks and emerging-market issues take the biggest hits. China-region stock funds took the biggest dive of any equity sector in the third quarter, losing 25.6% on average, according to fund tracker Lipper Inc. Chinese investors and foreigners alike have soured on the country's equities as inflation has surged and the government has tightened credit in response. The fear is that China could be headed for a "hard" economic landing. What's more, new trade tensions with the U.S. are weighing on investor sentiment. A U.S. Senate bill would make it easier to boost tariffs on Chinese exports unless Beijing allows its currency to rise faster against the dollar.
• Fast and Furious Weapons Were Found in Mexico Cartel Enforcer's Home. Guns illegally purchased under the ATF operation were found in April hidden in violence-plagued Ciudad Juarez, Mexico, court records show. High-powered assault weapons illegally purchased under the ATF's Fast and Furious program in Phoenix ended up in a home belonging to the purported top Sinaloa cartel enforcer in Ciudad Juarez, Mexico, whose organization was terrorizing that city with the worst violence in the Mexican drug wars. In all, 100 assault weapons acquired under Fast and Furious were transported 350 miles from Phoenix to El Paso, making that West Texas city a central hub for gun traffickers. Forty of the weapons made it across the border and into the arsenal of Jose Antonio Torres Marrufo, a feared cartel leader in Ciudad Juarez, according to federal court records and trace documents from the Bureau of Alcohol, Tobacco, Firearms and Explosives.
• Obama Fundraiser Took Active Interest In Solyndra Loan, Emails Show. Steven Spinner, an Energy Department advisor whose wife worked for a law firm representing Solyndra, may have done more than simply monitor the progress of the $535-million loan guarantee to the now-bankrupt company, White House emails indicate.
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 20% 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 -23 (see trends).

AP:

• 19 Dead in Worst Cairo Riots Since Mubarak Ouster. Massive clashes raged Sunday in downtown Cairo, drawing Christians angry over a recent church attack, hard-line Muslims and Egyptian security forces. At least 19 people were killed and more than 150 injured in the worst sectarian violence since the uprising that ousted Hosni Mubarak in February. The violence lasted late into the night, bringing out a deployment of more than 1,000 security forces and armored vehicles to defend the state television building along the Nile, where the trouble began. The clashes spread to nearby Tahrir Square, drawing thousands of people to the vast plaza that served as the epicenter of the protests that ousted Mubarak. On Sunday night, they battled each other with rocks and firebombs, some tearing up pavement for ammunition and others collecting stones in boxes. At one point, an armored security van sped into the crowd, striking a half-dozen protesters and throwing some into the air. Christians blame Egypt's ruling military council for being too lenient on those behind a spate of anti-Christian attacks since the ouster of Mubarak. The Coptic Christian minority makes up about 10 percent of the country of more than 80 million people. As Egypt undergoes a chaotic power transition and security vacuum in the wake of this year's uprising, Christians are particularly worried about the increasing show of force by the ultraconservative Islamists. The Christian protesters said their demonstration began as a peaceful attempt to sit in at the television building. But then, they said, they came under attack by thugs in plainclothes who rained stones down on them and fired pellets. "The protest was peaceful. We wanted to hold a sit-in, as usual," said Essam Khalili, a protester wearing a white shirt with a cross drawn on it. "Thugs attacked us and a military vehicle jumped over a sidewalk and ran over at least 10 people. I saw them." Wael Roufail, another protester, corroborated the account. "I saw the vehicle running over the protesters. Then they opened fired at us," he said. Later in the evening, a crowd of ultraconservative Muslims known as Salafis turned up to challenge the Christian crowds, shouting, "Speak up! An Islamic state until death!" In the past weeks, riots have broken out at two churches in southern Egypt, prompted by Muslim crowds angry over church construction. One riot broke out near the city of Aswan, even after church officials agreed to a demand by local Salafi Muslims that a cross and bells be removed from the building. Aswan's governor, Gen. Mustafa Kamel al-Sayyed, further raised tensions by suggesting to the media that the church construction was illegal. Protesters said the Copts are demanding the ouster of the governor, reconstruction of the church, compensation for people whose houses were set on fire and prosecution of those behind the riots and attacks on the church.

Reuters:

• War Drones Keep Flying Despite Computer Virus. The U.S. government's unmanned Predator and Reaper drones are continuing to fly remote missions overseas despite a computer virus that has infected the plane's U.S.-based cockpits, according to one source familiar with the infection.
• Special Report: China's Debt Pileup Raises Risk of Hard Landing. When China announced a nearly $600 billion package to ward off the 2008 global financial crisis, city planners across the country happily embarked on a frenzy of infrastructure projects, some of them of arguable need. Chengdu, the capital of southwestern Sichuan province, answered the call for stimulus action with a bold plan for a railway hub modeled after Waterloo railway station in London. Except London's Waterloo was not ambitious enough. "I was shocked when I finally got to visit Waterloo. It was so small," said Chen Jun, a director at Chengdu Communications Investment Group, which built the new Chinese terminal. "I realized we would probably need a station a few times bigger to meet the demands of our city." In a manner typical of many infrastructure projects in China, Chengdu more than doubled the size of its planned transport hub, borrowed 3 billion yuan ($473 million) from a state bank to finance it, then set out on a blistering construction timeline that saw the finishing touches put on the project two years later. But instead of getting the accolades they expected for helping to stimulate the economy, Chengdu Communications and many of China's 10,000 local government financing vehicles (LGFV) have now come under a harsh spotlight for the grim side-effects of the construction binge. China's local governments have piled up a mountain of bad debt, some of it to finance bridges to nowhere and other white elephant projects, which now threatens to constrict growth at a time when the global economy is sputtering. It is adding to other systemic risks in China, including a sharp downturn in the property market and a rapid rise in problematic loans. Local governments had amassed 10.7 trillion yuan in debt at the end of 2010. The government expects 2.5 to 3 trillion yuan of that will turn sour, while Standard and Chartered reckons as much as 8 to 9 trillion yuan will not be repaid -- or about $1.2 trillion to $1.4 trillion. In other words, the potential debt defaults could be even larger than the $700 billion U.S. bail-out programme during the 2008 crisis.

Financial Times:

• Steel prices in Europe are at "a disastrous level" for some grades as buyers "stay out of the market" and delay orders in anticipation of the prices going down "even more," citing Bruno Bolfo, chairman of Duferco. The turmoil in the market will continue into 2012, which is likely to see "short-term economic and financial issues impacting long-term economic sustainability," citing Sajjan Jindal, CEO of JSW.

Telegraph:

• Global Crisis Heralds Loss for Goldman Sachs(GS). The losses – estimated to run into several hundred millions of dollars – are expected to spark a $1.45bn (£930m) cost-cutting programme at the bank. A number of highly paid bankers are expected to lose their jobs and be replaced by graduates. The bank wants to maintain headcount but cut some of the costly employees.

Deutsche Presse-Agentur:

• Euro-Area finance ministers are discussing scenarios for a Greek haircut of as much as 60%, citing people in the finance industry and people familiar with the negotiations. Such a debt restructuring would affect both banks and tax payers, DPA said. People close to the German government said it's too early for a definitive assessment before the so-called troika delivers its report on whether the Greek government is meeting the conditions of its rescue.

Wirtschaftswoche:

• World Bank President Robert Zoellick said Europe won't solve its debt crisis by ensuring banks have access to cash, citing an interview. "Thus far, the Europeans have tried to solve the problem through liquidity assistance," he was quoted as saying. "That won't solve the problem. It only gains time."

Frankfurter Allgemeine Sonntagszeitung:

• German Finance Minister Wolfgang Schaeuble said the extent of the debt reduction Greece needs to make may have been underestimated, citing an interview. There's a high risk that the debt crisis will intensify and spread, Schaeuble said. He said euro-area governments must ensure that banks have enough capital to withstand any losses they incur in the event of a Greek debt restructuring. Schaeuble also rejected the suggestion that the EFSF could be given a bank license so that it could borrow from the ECB, saying that would amount to the monetization of government debt.

FAZ:

• France's five largest banks are prepared to accept a capital injection of as much as 15 billion euros from the government, citing people in the finance industry. France is however insisting that Germany's Deutsche Bank AG also increase its capital base.

Bild-Zeitung:

• Germany Economy Minister Philipp Roesler opposes the idea of letting the European Financial Stability Facility support banks directly, citing an interview. The bailout fund can prevent contagion in the banking sector of it's used as a last resort to make loans to nations seeking to recapitalize banks, he said.

Welt am Sonntag:

• Greece must undertake deeper reforms for its bailout to work, citing representatives of the so-called troika that is assessing whether the government is meeting the conditions of its rescue. "Greece is standing at a crossroads," Poul Mathias Thomsen, head of the International Monetary Fund's delegation in Thomsen, head of the IMF's delegation in Athens, was quoted as saying. "It's obvious that the program won't work if authorities don't take the path that requires much tougher structural reforms than those we've seen so far." The European Commission's representative on the troika, Matthias Mors, criticized the Greek government for taking too long to implement planned reforms, according to the German newspaper.
  

Boersen-Zeitung:

• Deutsche Postbank AG CFO Marc Hess expects lenders to take additional writedowns on their holdings of Greek government bonds, citing an interview. Hess estimated that the 21% writedown that his company took on its holdings in August won't be enough, according to the report.

Automotive News Europe:

• Fiat SpA CEO Sergio Marchionne said mismanagement of Europe's sovereign debt crisis may cause a regional slump worse than a regular recession, citing an interview.

Handelsblatt:

• The German Free Democratic Party's finance spokesman, Frank Schaeffler, said the state shouldn't help to recapitalize struggling banks, citing an interview. Failing banks should be managed in an orderly insolvency procedure, Schaeffler said. The FDP is the coalition partner of Chancellor Angela Merkel's Christian Democrats.

Le Figaro:

• European banks must favor private funding if they need to raise capital, including to reassure investors, citing a person close to French Finance Minister Francois Baroin. Injecting public capital must be a last-resort solution, the person said.

Imerisia:

• Greece's financing needs until 2020 will be bigger due to a deeper than expected recession and the outcome of private-sector participation on debt swaps, citing the country's representative to the IMF. The gap must be covered by an increase in the 109 billion-euro bailout loan agreed to by European leaders, bigger losses for private creditors or a longer repayment period for Greece's debt, citing Panagiotis Roumeliotis.

Nikkei:

• Japanese Executives Grow More Pessimistic, Nikkei Survey Says. One-third of executives at 139 companies that respond to the survey said the global economy is worsening or in a downturn, up from 6.5% in a similar survey in July.

Beijing Post:

• Chinese central bank adviser Zhou Qiren said the country should keep prudent monetary policy because small companies will have a better development environment only if inflation is thoroughly curbed. China shouldn't loosen money supply, Zhou says.

Securities News:

• China should keep its monetary policy tight as long as there are not great changes to the economic situation, citing Li Yang, a former adviser to the country's central bank. Economic growth in the first half of 2012 will slow more "obviously" compared with slowing growth in the second half of this year, Li says. Li is currently a vice president of the Chinese Academy of Social Sciences.
• Stabilizing Prices Remains China's Top Priority. China's central bank has reiterated stabilizing overall prices levels remains the top priority of macro-economic policy, citing information from People's Bank of China's meeting of its monetary policy committee. Prudent monetary policy will continue. Inflationary pressures have eased slightly, but still remain high.
  

China Finance:

• China would keep interest rates at "reasonable" and "appropriate" levels to stabilize prices and manage inflation, three officials from the People's Bank of China jointly write in a commentary. The officials are Wu Ge, Zhang Wen and Ming Ming from the central bank's monetary policy departments.

Weekend Recommendations
Barron's:

• Made positive comments on (MCHP) and (HOT).

Night Trading

• Asian indices are -.50% to -50% on average.
• Asia Ex-Japan Investment Grade CDS Index 229.50 -9.5 basis points.
• Asia Pacific Sovereign CDS Index 170.0 +3.5 basis points.
• FTSE-100 futures +.69%.
  
• S&P 500 futures +1.22%.
• NASDAQ 100 futures +1.31%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The China CPI and (KRC) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial shares in the region. I expect US stocks to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the week.