Stocks Slightly Higher into Final Hour on Bounce in the Euro, Short-Covering, Technical Buying, Less Tech Sector Pessimism

Broad Market Tone:

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

Equity Investor Angst:

• VIX 33.14 +.18%
  
• ISE Sentiment Index 128.0 +14.3%
  
• Total Put/Call 1.49 +24.17%
  
• NYSE Arms .87 +94.28%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 134.97 -1.69%
  
• European Financial Sector CDS Index 227.09 +.89%
  
• Western Europe Sovereign Debt CDS Index 336.33 +.69%
  
• Emerging Market CDS Index 331.90 -3.26%
  
• 2-Year Swap Spread 38.0 unch.
  
• TED Spread 40.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 185.0 +7 bps
  
• China Import Iron Ore Spot $164.40/Metric Tonne -1.26%
  
• Citi US Economic Surprise Index -2.50 +.6 point
  
• 10-Year TIPS Spread 1.96 +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -18 open in Japan
• DAX Futures: Indicating +8 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 consolidates recent gains above its 50-day moving average despite Eurozone debt angst, rising food prices, emerging markets inflation fears and real estate sector weakness. On the positive side, Coal, Oil Tanker, Education, Airline, Computer and Ag shares are especially strong, rising more than +1.25%. Cyclical and Small-cap shares have outperformed throughout the day again. As well, tech shares have traded relatively well throughout the day. Lumber is rising +.71% and Gold is falling -.61%. The China sovereign cds is falling -3.37% to 162.28 bps, the Japan sovereign cds is falling -9.38% to 111.91 bps, the Russia sovereign cds is falling -3.33% to 269.66 bps and the UK sovereign cds fell -3.48% to 87.17 bps. Weekly retail sales rose +4.8% versus a +4.4% gain the prior week. On the negative side, Utility, REIT and Telecom shares are under pressure, falling more than 1.0%. (IYR) has traded poorly throughout the day. The UBS-Bloomberg Ag Spot Index is jumping +2.8% and Copper is falling -2.2%. Rice is still close to its multi-year high, rising +27.0% in about 13 weeks. The Ireland sovereign cds is rising +2.46% to 695.0 bps and the Belgium sovereign cds is climbing +3.1% to 293.33 bps. The Libor-OIS Spread is unch. at 31.0 bps, which is the highest since July 2010. As well, the TED and 2-Year swap spreads are still very close to their recent highs, 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 only gained +.16% overnight, finishing near session lows, despite a huge global equity rally and their govt. attempting to prop up bank shares with purchases. Moreover, the China Development Bank Corp. cds jumped +7.23% to 336.68 bps. The Shanghai Property Index fell -.63%. India's Sensex also fell -.13% overnight. I still believe that in the short-term, given high levels of investor pessimism and the S&P 500's technical improvement, more stock gains are likely. I still believe that over the longer-term the massive tax hikes and spending cuts in Europe will further result in a meaningful deterioration in the region's economies which will then lead to an escalation in the debt crisis over the intermediate-term. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, emerging markets inflation fears, rising food prices, more shorting and global debt angst.

Today's Headlines

Bloomberg:

• Slovakia May Approve EFSF After Rebel Party Topples Radicova's Government. Slovakia may approve the euro region’s retooled bailout fund this week after a political storm that is likely to topple Prime Minister Iveta Radicova’s ruling coalition. The largest opposition party, which said it won’t back the motion today, will support the revamped European Financial Stability Facility in a second vote, should the first try fail and bring down the government, Robert Fico, the group’s leader, told reporters in the capital Bratislava. That would give the measure a majority. There is no date set for a repeated vote. Slovakia is the only country in the 17-nation euro area that hasn’t ratified the measure, following approval in Malta yesterday. The Freedom of Solidarity party, one of the members of Radicova’s four-way coalition, said it won’t support the EFSF even after the premier tied a no-confidence motion on her government, denying the plan a majority. “The government is set to fall, but the bailout fund will eventually be approved,” Grigorij Meseznikov, the head of the Public Affairs Institute, a think-tank in Bratislava, said by phone after Fico’s comments. “It could take a few days, though.” Parliament convened for the session with the EFSF on the agenda at 1 p.m. in Bratislava. There were 12 remaining deputies registered to speak as of 7:50 p.m.
• 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 rallied, a sign that short-term funding concerns have persisted as European leaders 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, according to data compiled by Bloomberg. The gap expanded 9 basis points in the two weeks ended Oct. 7 as the MSCI World Index of global stocks climbed 2.85 percent.
  
• Greece's 2011 Deficit May Close at 9.1% of GDP, Kathimerini Says. Greece’s 2011 budget deficit may be 9.1 percent of gross domestic product, according to a European Union, European Central Bank and International Monetary Fund mission, Kathimerini said. The so-called troika, which completed its fifth review of the country’s economy, found Greece will miss the original target of 7.5 percent of GDP as well as a revised target of 8.5 percent for this year in the 2012 budget draft, the Athens-based daily reported, without citing anyone.
• European Banks May Face Forced Recapitalization, Welt Says. European governments are considering setting banks a deadline for boosting their capital levels, the German newspaper Die Welt said, citing an unidentified person involved in the negotiations. Under the plan, governments would force banks to accept public funds to increase their capital after the deadline has expired, the newspaper said today. For a public-funding guarantee to calm markets, European Union countries would have to act jointly, the newspaper cited the person as saying. While there is no agreement on the proposal at this time, a decision may be taken within the next two weeks, the newspaper cited unidentified people involved in the negotiations as saying.
• U.S. Charges Two in Iranian Plot to Kill Saudi's US Ambassador. The Justice Department charged two men, one allegedly a member of a secret Iranian military unit and the other with dual U.S.-Iran citizenship, in a plot to use a weapon of mass destruction to kill Saudi Arabia’s ambassador to the U.S. Manssor Arbabsiar and Gholam Shakuri were charged in a purported conspiracy to murder Ambassador Adel Al-Jubeir in a plan hatched earlier this year, according to papers filed in Manhattan federal court. Arbabsiar, a naturalized U.S. citizen, wired more than a $100,000 to the U.S. as part of the alleged plot, the government said. U.S. Attorney General Eric Holder said today that the U.S. will hold Iran responsible for any terrorist actions tied to the plot, which he said was sponsored by the Iranian government. He called the conspiracy a “flagrant” violation of international law.
• Chanos Says China Banks 'Deteriorating' as Government Buys Stock. Jim Chanos, the hedge-fund manager who’s been betting that Chinese bank stocks will tumble, said a rally spurred by government purchases of the shares hasn’t changed his bearish outlook. The MSCI China Financials Index surged 6 percent today after state-run Central Huijin Investment Ltd. started buying shares in the four biggest Chinese lenders. The gauge of banks, insurers and developers had tumbled as much as 43 percent in 2011 through Oct. 4, sending its price-to-earnings ratio to a record low of 5.6 on concern that slowing economic growth will spur bad debts after a three-year credit boom. “The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating,” Chanos, founder of New York-based hedge fund Kynikos Associates, said in a Bloomberg Television interview. Chanos, who told Bloomberg News last month he was selling short shares in “virtually all of the large banks in China,” said today that the country’s property market is in the “first parts of a very serious pullback.” China’s home transactions fell during last week’s public holidays after residential prices posted their first monthly decline in a year, according to Soufun Holdings Ltd., China’s biggest real estate website owner. “The property market is what investors ought to be watching, because that drives everything in China,” Chanos said. The decline in property sales volume last week, traditionally a peak period for Chinese developers, may mark a turning point for a property market that had defied the government’s recent efforts to contain surging home values, according to Credit Suisse Group AG.
• Copper Drops Most in a Week as China's Exports May Ebb, Europe Woes Mount. Copper fell the most in a week on persistent concern that metal demand will wane as the global economy falters, Chinese exports wane and Europe’s debt woes escalate. Chinese export growth declined to 20.5 percent in September from 24.5 percent a month earlier, according to economists’ estimates compiled by Bloomberg. European Central Bank President Jean-Claude Trichet said the debt crisis threatens the financial system. Equities in the U.S. and Europe slumped. “China’s economy is contracting, and we are not seeing any greater demand there,” Frank Lesh, a trader at FuturePath Trading in Chicago, said in a telephone interview. “Europe has real troubles that will drag on the world economy, and it will remain a concern for the next year at least.” Copper futures for December delivery fell 2.6 percent to $3.28 a pound at 10:46 a.m. on the Comex in New York. A close at that price would mark the biggest drop for a most-active contract since Sept. 30. In the third quarter, copper tumbled 26 percent, the most since 2008. The metal touched a 14-month low of $2.994 on Oct. 3. “With respect to China, not only are there growing concerns about growth prospects, but renewed attention is being placed on the state of Chinese banks and the billions of dollars of nonperforming loans they are carrying,” Edward Meir, a senior commodity analyst at MF Global Holdings Ltd. in Darien, Connecticut, said in a report.
• Banks May Face Fraud, Municipal Claims After Foreclosure Accord. U.S. banks may still face state securities-fraud claims and municipal lawsuits over unpaid mortgage fees under a settlement that is “getting closer,” the official leading talks for state attorneys general said. Iowa Attorney General Tom Miller said in an interview yesterday that any settlement wouldn’t prevent a growing number of municipalities from suing banks for allegedly cheating them out of millions of dollars in filing fees, or individual states from pursuing securities claims against banks. “They won’t be released. They will go forward,” Miller said about securities claims brought by states. “There will be ongoing litigation” against the banks, he said.
• Egyptians Rally After Clashes Between Christians and Army. Hundreds of mourners carried the body of a protester killed in clashes between Coptic Christians and security forces through Cairo’s Tahrir Square, the site of protests that brought down President Hosni Mubarak. Egypt’s ruling military council, which took over from Mubarak in February, ordered the Cabinet to form a fact-finding committee to investigate the Oct. 9 violence. The clashes, in which at least 25 people died, were the most deadly since Mubarak’s ouster. Sectarian tensions have increasingly turned violent amid complaints about a lack of security and fears expressed by many Christians about a stronger role for Islamists in post-Mubarak Egypt, where parliamentary elections are scheduled to start on Nov. 28. The fighting erupted while Christians were protesting an attack on a church in southern Egypt. “If these protesters hadn’t been Christians, they wouldn’t have been treated that way,” Emad Gad, an analyst at the Al Ahram Center for Political and Strategic Studies in Cairo, said in a telephone interview. “This is a watershed moment for Egypt.” Thousands of mourners chanted against the military during a mass funeral of 17 Christian protesters held late yesterday in the Coptic Christian Cathedral in Cairo, the Associated Press reported.
• Volcker Rule Plan Released by Regulators. U.S. regulators requested public comment on Dodd-Frank Act restrictions that would ban banks from making short-term trades for their own accounts and prevent them from owning or sponsoring hedge funds and private-equity funds. The language of the rule is little changed from drafts that have been leaking in recent weeks. It would ban banks from taking positions held for 60 days or less, exempt certain market-making activities, change the way traders involved in market-making are compensated and make senior bank executives responsible for compliance. The board of the FDIC voted 3-0 today to seek comments on the proposal through January 13. The Federal Reserve also said it would accept feedback by that date.
• Chanos Says He's Shorting Vale, Other Companies With China Ties. Jim Chanos, founder of New York- based hedge fund Kynikos Associates, said he’s betting against Vale SA and other commodity-related companies with ties to China. Vale, the world’s biggest iron ore producer and a major China exporter, is building “a fleet that is larger than the U.S. Navy,” Chanos said today at the GAIM/GMA conference in New York. Rio de Janeiro-based Vale shipped about 41 percent of its total iron ore and pellet sales to China in the first quarter. “Vale is one of the more aggressive miners that has capital expenditure closely tied to China,” Chanos said in an interview. Chanos said he’s also betting against cement producers, without naming them, and reiterated that he’s shorting Chinese banks and property developers.

Wall Street Journal:

• Slovakia Dithers on European Bailout Vote. Slovakia's lawmakers were scrambling to vote on a crucial expansion of the euro zone's bailout fund, but their slow progress Tuesday renewed concerns about prospects for the region, while the European Central Bank's president warned the crisis has "reached a systemic dimension." Slovakia, the poorest country in the bloc, is the last of the 17 euro-zone countries to vote on the €440 billion ($600.34 billion) European Financial Stability Facility, which was agreed upon by euro-zone members in July to address the euro zone's debt crisis.
  
• U.S., U.K. Regulators to Weigh High-Frequency Registration. Top market regulators of the U.S. and the U.K. this week will discuss the idea of formally registering high-speed electronic trading firms, the chairman of the U.S. Commodity Futures Trading Commission said Tuesday. Such a move could give regulators a better idea of the identities of the often small firms that use computer-driven strategies to power a big chunk of each day's trade in stocks, futures and options markets.
• Christie to Endorse Romney for President.
• Wall Street Job Losses Are Seen Hitting 10,000.
  

Business Insider:

• Here's The Real Reason Why China's Sovereign Wealth Fund Is Buying Bank Shares. Last time when Huijin announced a similar purchasing plan of bank shares on Sep 18, 2008, SHCOMP and HSCEI rose by +9.5% and +15.5% respectively the next day. However, the market fell back even more after just a week’s rally with SHCOMP and HSCEI declined by 26% and 51% respectively within a month of the short-term peak.
• Nouriel Roubini's Firm Is Losing Millions and Now He's Trying to Sell It.
• Here's The Real Reason Why Occupy Wall Street Protesters Aren't Getting Kicked Out Of Zuccotti Park. Coming on the heels of the Solyndra debacle, the Obama administration has just approved a $168.9 million loan guarantee for the Granite Reliable wind farm project owned by Brookfield Asset Management (BAM). Among its many holdings BAM owns Brookfield Renewable Power, which owns the Granite Reliable and it also owns Brookfield Office Properties, whose holdings include the now famous Zuccotti Park.
• John Paulson Just Took Two Big Steps To Retail Investors As 25% Might Flee.
• Jeff Immelt's Plan To Save The Economy: More Solyndras Please. President Barack Obama's jobs council, headed by GE CEO Jeff Immelt, is calling on the federal government to offer more loans like the one given to the failed solar company Solyndra, in order to promote job creation.
• The Entire World Is Close To Stall Speed. (graphs)
  

Zero Hedge:

• Italy Votes, IMF Gives, And EFSF Yields Increase. (graph)
• PrimeX Update.
  

ForexTV:

• EBA Demands European Banks to Achieve 7% of Core Tier 1 Ratio in Internal Stress Tests. EU Banking regulator demands banks to achieve a core tier one ration of 7 pct in internal stress tests, - Reuters quotes a regulatory source as saying. But it is not clear whether capital qualifying for the core tier one will be defined as per Basel III or Basle 2.5. Source added that banks failing meet this will be asked to bolster their capital. Source expects a significant number of banks to fail in the current internal stress tests.

Politico:

• Obama Jobs Bill May Not Get 51 in Senate. President Barack Obama’s jobs plan is at risk of getting less than 51 votes Tuesday evening in the Senate as a handful of politically vulnerable moderate Democrats hold out on the president’s signature economic proposal. Adding to the uncertainty, Sen. Jeanne Shaheen (D-N.H.) who supports the proposal, may be a no-show due to a scheduling conflict, potentially leaving Democrats short of the symbolic simple majority on the jobs bill.

Reuters:

• S&P Cuts 10 Spanish Banks, Including Santander, BBVA. Standard & Poor's on Tuesday downgraded the credit ratings of 10 Spanish banks, saying that dimming economic prospects for the country will continue to hurt the banking sector in the next 15-18 months. Among the banks downgraded were Santander and BBVA, the country's largest banks. S&P also revised the rating outlooks of four banks to negative from stable, and placed one bank on CreditWatch negative. The banks downgraded were:

Financial Times:

• Eurozone Crisis: Live Blog.

La Figaro:

• Estonia wants the EFSF to be ratified as soon as possible and doesn't believe that the amount in the facility should be increased, citing the country's prime minister Andrus Ansip.

European Systemic Risk Board:

• Introductory Statement by Jean-Claude Trichet. Let me start by describing the current situation and the actions that, in our view, need to be taken. The crisis has reached a systemic dimension. In a press release published after the ESRB General Board meeting of 21 September, we stated the following: “ Over the last months, sovereign stress has moved from smaller economies to some of the larger EU countries. Signs of stress are evident in many European government bond markets, while the high volatility in equity markets indicates that tensions have spread across capital markets around the world. The situation has been aggravated by the progressive drying-up of bank term funding markets. The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. This threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond.

Bear Radar

Style Underperformer:

• Large-Cap Value (-.21%)

Sector Underperformers:

• 1) REITs -1.93% 2) Utilities -1.12% 3) Alt Energy -.90%

Stocks Falling on Unusual Volume:

• RVBD, TECD, CPX, PTR, CNP, EOC, NFLX, VOLC, FSLR, OPNT, INFY, ASML, SPN, FMX, AVX, KUB and SBH
  

Stocks With Unusual Put Option Activity:

• 1) STEC 2) PXP 3) FTR 4) CCL 5) AXL
  

Stocks With Most Negative News Mentions:

• 1) LM 2) COP 3) RBCN 4) FII 5) VECO
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth (+.37%)

Sector Outperformers:

• 1) Airlines +2.29% 2) Disk Drives +1.69% 3) Education +1.42%

Stocks Rising on Unusual Volume:

• YOKU, JVA, SYNA, MDCO, JNY, NDN, ALX, ARO, FIO and WDC
  

Stocks With Unusual Call Option Activity:

• 1) BRCD 2) WIN 3) LLY 4) SPN 5) GNW
  

Stocks With Most Positive News Mentions:

• 1) GIS 2) PAYX 3) ARO 4) EXPE 5) SYNA
  

Charts:

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

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.