Tuesday Watch

Evening Headlines

Bloomberg:

• France Risks AAA on Bulked Up ESFS Bailout Fund: Euro Credit. Proposals to beef up Europe’s bailout fund by offering to guarantee portions of the debt owed by the region’s weaker governments threaten to trash France’s top credit rating. The nation’s 10-year notes are the third-worst performers this quarter -- behind only Greece and Belgium -- as traders speculate the European Financial Stability Facility will be used to insure the first portion of losses in the event of a sovereign default. Investors now demand to be paid a record 93.2 basis points more to hold French bonds rather than German notes, up from 29 basis points in April. “France is the key factor here,” said Bob McKee, chief economist at Independent Strategy Ltd. in London. “Offering insurance increases France’s contingent liability and that puts pressure on its rating. If France loses its AAA status, that in turn increases the pressure on Germany.” French bonds are being hurt as policy makers consider using the guarantee to ensure Italy, the world’s third-largest bond issuer, and Spain can continue to access markets as contagion spreads from Greece. A downgrade of France will also limit the EFSF’s ability to hold a top grade, according to Moody’s Investors Service. The cost of insuring French bonds using credit-default swaps has soared to 183 basis points, from an average of about 84 in the first half of the year. “Looking at the numbers, France is no longer a AAA credit,” said Nicola Marinelli, who oversees $153 million in funds at Glendevon King Asset Management in London. “They’re talking about guaranteeing trillions of euros of bonds but if France isn’t a AAA then even guaranteeing one more euro might not be sustainable.” “The deterioration in debt metrics and the potential for further contingent liabilities to emerge are exerting pressure on the stable outlook of the government’s Aaa debt rating,” Moody’s said in a report late yesterday. “The French government now has less room for manoeuvre in terms if stretching its balance sheet than it had in 2008.” Moody’s said it will monitor and assess its “stable” outlook on the nation’s debt over the next three months. French banks tumbled in the past three days with BNP Paribas SA, the biggest of the nation’s lenders, dropping more than 12 percent and Societe Generale SA down almost 14 percent on concern they would be downgraded along with the government. “Given the sheer size the French banking system it may end up being singled out as the most vulnerable country to a rating agency downgrade,” said Marchel Alexandrovich, an economist at Jefferies International in London.
• Euro Rescue Is Hard Sell for Poorest Members. Estonia and Slovakia, the euro area's two poorest members, will contribute the most to the bailout system relative to the size of their economies, giving leaders opposed to helping richer states ammunition to stall future euro-stability programs. Estonia's share in the newly expanded EFSF equals 13.9% of GDP, compared with 8.5% for Germany, the largest guarantor in nominal terms. Slovakia, the second-poorest euro country, ranks second with a share amounting to 11.7% of GDP.
• Euro Leaders' Crisis Campaign Bogs Down as Divisions Flare. Europe’s options for overcoming the debt crisis narrowed as Germany doused expectations of a breakthrough at this weekend’s summit and central bankers balked at extended bond purchases. European stocks and the euro reversed initial gains yesterday, slumping after German Chancellor Angela Merkel’s office knocked down what it called “dreams” that the Oct. 23 summit will be the last word in taming the crisis. Christian Noyer, head of France’s central bank, ruled out a ramping up of the European Central Bank’s bond-buying program as part of a multi-pronged strategy to shield countries like Italy. While Group of 20 finance ministers and central bankers pressed European Union leaders to set out a strategy by the end of the week, divisions flared over an emerging plan to avoid a Greek default, bolster banks and curb contagion. “We’re really in a bind here,” Carl Weinberg, founder and chief economist at High Frequency Economics, said in an interview with Betty Liu on Bloomberg Television’s “In the Loop.” “We have a lot of egos, a lot of national interests, a lot of political considerations, and that’s just hampering us from getting to a solution.” The ECB said yesterday it bought 2.2 billion euros ($3 billion) of bonds last week, the least since it restarted the market support program in August over the objections of Germans on its council. While looking to exit the bond-buying business, the ECB also opposes the use of its balance sheet to boost the government-financed 440 billion-euro rescue fund with enough firepower to do that job. “We don’t see how the EU officials will be able to present a solution by the weekend which will remotely approach the current expectations,” Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt, said in a research note yesterday.
• China Will Write Off $3 Trillion, Says Das of 'Extreme Money'. If Satyajit Das is right, China will end up writing off its $3.2 trillion in foreign reserves. Europe is shambling toward Japanese-style growth. And a day of reckoning is at hand for creditors and debtors alike.“Europeans are going to have to recapitalize their banks,” Das said as we discussed the sovereign-debt crisis and his new book, “Extreme Money,” over coffee in a Brussels hotel. “You have made bad loans; you’re going to have to write them off. That is the one axiomatic law of making a bad loan.” Das, 54, is the puckish derivatives specialist who lampooned banking excesses in “Traders, Guns & Money.” He was in town to brief members of the European Parliament on the crisis. Looking relaxed in a black V-necked sweater and black shirt, he talked about Germany’s fling with Greece, China’s unpaid loans and what Angela Merkel can learn from Winston Churchill. We began with Dexia SA’s second bailout.
• China Banking Crisis Possible. (video) Patrick Chovanec, a professor at Tsinghua University in Beijing, talks about China's economy. Chovanec speaks with Susan Li on Bloomberg Television's "First Up."
• GE(GE) Redeems $3.3 Billion Stake Buffett Bought Amid 2008 Crisis. General Electric Co. paid $3.3 billion today to repurchase preferred stock sold to Warren Buffett’s Berkshire Hathaway Inc. as financial markets froze in October 2008.
• IBM(IBM) Q3 Revenue Misses Estimates on Slow Demand. International Business Machines Corp. (IBM), the biggest computer-services company, reported third- quarter sales that missed analysts’ estimates on slowing revenue growth at its software, hardware and services businesses. Sales climbed 7.8 percent to $26.2 billion, Armonk, New York-based IBM said today in a statement. Analysts predicted $26.3 billion, the average of estimates compiled by Bloomberg. Chief Executive Officer Sam Palmisano is focusing on areas such as business analytics, emerging markets and cloud computing to boost sales amid sluggish economic expansion. “Because they didn’t beat, the stock’s going to trade down; the expectation is pretty high for this name,” said Josh Olson, an analyst with Edward Jones & Co. in Des Peres, Missouri, who has a “buy” rating on the stock. A slowdown in hardware revenue growth is occurring “sooner than I expected.” IBM fell as much as 4.1 percent to $179.02 in extended trading after closing at $186.59 in New York today.
• VMware(VMW) Braces for 'Difficult' 2012 as Corporations Cut Technology Spending. VMware Inc. (VMW), the biggest maker of programs that let computers run multiple operating systems, said it’s bracing for a “difficult” 2012 because corporations may slow spending on technology, including the company’s software. On a conference call today to discuss quarterly earnings, Chief Financial Officer Mark Peek said next year will be “challenging.” Net income in the third quarter more than doubled to $177.5 million, or 41 cents a share, from $84.6 million, or 20 cents, VMware said. Excluding some costs, profit was 53 cents, compared with the 49-cent average estimate of analysts surveyed by Bloomberg. “It will be a year of challenging revenue comparables and considerable investments,” Peek said on the conference call.

Wall Street Journal:

• Yahoo(YHOO) Vexed by Weak Sales. As Yahoo Inc. shops itself to potential buyers, its core advertising business is weakening. That trend is evident through Craig Atkinson's ad agency.
• New Mortgage Plan Floated. Underwater Borrowers Current on Payments Would Get Help. State and federal officials are pushing a plan that could help some "underwater" borrowers get refinancing assistance in the latest government bid to break a legal impasse with big banks over alleged foreclosure abuses and ease problems in the housing market. The proposal was raised in a meeting last week between government negotiators and giant lenders as part of an effort to settle allegations of questionable foreclosure practices. Discussions are still fluid and any final outcome is uncertain. Talks between government officials and the banks are expected to continue this week.
• Traders Warn of Market Cracks. Amid the wild swings of the past few weeks, cracks are appearing deep in the workings of the stock market that some professional investors say are making the market treacherous to trade. Hedge-fund traders and mutual-fund managers say it has become increasingly tough to trade an individual stock without causing a big swing in its price. That's led many large investors to step back from the market instead of risking being stung by the trading difficulties.
• Polling The Occupy Wall Street Crowd by Douglas Schoen. In interviews, protesters show that they are leftists out of step with most American voters. Yet Democrats are embracing them anyway. President Obama and the Democratic leadership are making a critical error in embracing the Occupy Wall Street movement—and it may cost them the 2012 election.
• A New Spending Record. Washington had its best year ever in fiscal 2011. Maybe it's a sign of the tumultuous times, but the federal government recently wrapped up its biggest spending year, and its second biggest annual budget deficit, and almost nobody noticed. Is it rude to mention this?

MarketWatch:

• Chanos: China's Hard-Landing Has Already Begun. China is heading into an economic storm, and the much-feared hard-landing of the world’s second-largest economy has already started, warned celebrated hedge-fund manager and China-bear Jim Chanos of Kynikos Associates on Monday. “The numbers are falling faster than we thought,” said Chanos during an exclusive interview with MarketWatch on the sidelines of the 7th Annual New York Value Investing Congress.
• Fed's Lacker: Twist Will Boost Prices Not Growth. Richmond Federal Reserve Bank President Jeffrey Lacker said Monday that he does not support the central bank's Operation Twist move to help to recovery. "My sense is that the main effect will be to raise inflation somewhat rather than increase growth," Lacker said in a speech to a business group in Salisbury, Md. Lacker said he was more worried than most economists about inflation, saying he doubts it will fall much below 2% for a sustained period. Lacker also said he did not support the Fed's decision to reinvest proceeds from maturing agency mortgage-backed securities into the agency MBS market. Previously, the Fed had reinvested the proceeds into Treasurys. "It is simply inappropriate, in my view, for a central bank to channel credit toward some economic sectors and away from others," Lacker said.

Business Insider:

• Credit Card Delinquencies Rise As Issuers Offer More Cards To Subprime Borrowers. Last week, Citigroup analysts warned that improving credit metrics, like falling delinquency rates, were at an "inflection point." And it looks like they were right. Earlier today, Bank of America said delinquencies rates rose in September, the first increase in a year. In fact, five of the six largest credit card issuers reported higher delinquency rates. According to Eileen Connelly of AP, this is the first time since February 2009 that this many major credit card issuers reported rising delinquency rates.
• Former Sales Rep: Groupon And LivingSocial 'Absolutely' Inflate Regular Prices (And It's Going To Get Worse).

Zero Hedge:

• Moody's Announces That France's Debt Metrics Have Deteriorated And Are Now The Weakest Of All Aaa-Rated Peers. Full note:
• Chinese GDP Prints at 2-Year Low as Inflation Still Persists. (graph)
  

IBD:

• Finish Line(FINL) Kicks Its Running-Shoe Biz Up A Notch.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday 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).

Reuters:

• Crocs(CROX) Cuts Outlook on Sales Slowdown, Shares Dive. Shoemaker Crocs Inc (CROX.O) lowered its outlook for the first time in three years as it faces softening sales at its stores, amid a weak economy in Europe and shaky consumer confidence in the United States. The dim outlook sparked a sell-off in the Crocs' stock, wiping out nearly 40 percent of the company's market value in extended trading. They were trading at $17.08 in after-market trade, after closing at $26.64 on Monday on Nasdaq.

Financial Times:

• Companies Expect More Lawsuits. A boom in corporate litigation is expected in the US and UK due to increased regulation and whistleblower complaints, a transatlantic survey of top in-house lawyers by the law firm Fulbright & Jaworski has found. More than 90 per cent of US companies and 85 per cent of UK companies are expecting lawsuits to stay the same or rise next year, and stricter regulation was the top reason for the predicted increase, according to the survey of 405 companies.

Telegraph:

• A Leveraged EFSF Is Pure Poison. Big snag. If Europe’s leaders do indeed leverage their €440bn bail-out fund (EFSF) to €2 trillion or €3 trillion through some form of "first loss" insurance on Club Med bonds – as markets now seem to assume – the consequences will be swift and brutal. Professor Ansgar Belke, from Berlin's DIW Institute, said any leveraging of the EFSF would be "poisonous" for France’s AAA rating and would set off an uncontrollable chain of events. "It counteracts all efforts made so far to stabilize the eurozone debt crisis, which are premised on the AAA rating of a sufficiently large number of strong economies. In extremis, it would probably cause the break-up of the eurozone", he told Handlesblatt.

Rheinische Post:

• The structure of the European rescue fund would be undermined if France were to lose its AAA credit rating, citing Lueder Gerken, head of the Centre for European Policy, a Freiburg, Germany-based think tank. A cut in the rating would decrease the capacity of the European Financial Stability Facility by 35%, citing calculations by the CEP. Germany would have to increase its guarantees to the EFSF to 317 billion from 211 billion euros.

Yonhap News Agency:

• North Korean Official Threatens War with South Korea. A senior North Korean official, who is on a rare trip to the United States, said Monday the security condition on the Korean Peninsula is so unstable that a war may occur again anytime. Rhee Jong-hyuk, a ranking member of the all-powerful Workers' Party of the communist nation, blamed the conservative government of South Korea, claiming Pyongyang remains committed to peace on the peninsula.
  

China Daily:

• Former Vice Chinese Commerce Minister Wei Jianguo said the possibility of a full year trade deficit in 2012 "cannot be ruled out." Demand for Chinese exports in September and October, usually peak times for contracts ahead of holiday seasons in Europe and the U.S., is down "sharply" this year, citing Wei.
• An appreciation of the Chinese currency may have "complicated negative effects" on the global economy such as raising prices of industrial products and may worsen inflation in many countries including the U.S., Xing Susu, a researcher at the Chinese People's Institute of Foreign Affairs, wrote in a commentary today. The U.S.'s quantitative easing and other "beggar-thy-neighbor" policies have increased the risk of inflation, especially in developing nations, Xing said.
• China's public road projects have stalled because of a lack of funding over the last two or three months in some provinces, citing research by the Ministry of Transport. Road completion may be about 20% below plan. Public road construction may face greater funding pressures in Q4.
• Reports by 16 provincial authorities showed they owed a combined $199 billion for the construction of toll roads. Only 4 provinces and municipalities including Beijing recorded profits from toll roads, according to the report.
  

China Business News:

• Chinese rail projects are being halted on cash shortages. Over 10,000 km of building work has been halted, citing Wang Mengshu, a China Railway Group engineer.
• Coal stockpiles at five major Chinese power companies rose to more than 60m tons as of the end of September, citing a person from one of the companies. Average daily coal consumption fell as much as 16% to about 3.3m tons.
  

Evening Recommendations
Sterne Agee:

• Rated (HAL) Buy, target $48.
• Rated (BHI) Buy, target $71.
• Rated (CAM) Buy, target $57.
• Rated (NOV) Buy, target $81.
• Rated (WFT) Buy, target $20.
  

Night Trading

• Asian equity indices are -3.0% to -1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 209.50 +11.5 basis points.
  
• Asia Pacific Sovereign CDS Index 154.50 +4.5 basis points.
• FTSE-100 futures -.50%.
  
• S&P 500 futures +.17%.
  
• NASDAQ 100 futures +.31%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (STT)/.89
• (GPC)/.94
• (KO)/1.01
• (HOG)/.75
• (PH)/1.69
• (UNH)/1.12
• (PII)/.85
• (OMC)/.70
• (BAC)/.21
• (EMC)/.36
• (JNJ)/1.21
• (GS)/-.11
• (GWW)/2.33
• (FRX)/.99
• (CREE)/.25
• (AAPL)/7.31
• (LLTC)/.49
• (MANH)/.49
• (CSX)/.43
• (ISRG)/2.76
• (YHOO)/.72
• (INTC)/.61
• (JNPR)/.28
• (WERN)/.40
• (DPZ)/.33
  

Economic Releases
8:30 am EST

• The Producer Price Index for September is estimated to rise +.2% versus unch. in August.
• The PPI Ex Food & Energy for September is estimated to rise +.1% versus a +.1% gain in August.
  

9:00 am EST

• Net Long-Term TIC Flows for August are estimated to widen to -$20.0B versus $9.5B in July.

10:00 am EST

• The NAHB Housing Market Index for October is estimated to rise to 15.0 versus 14.0 in September.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, weekly retail sales reports and the Spain/Greece T-Bill Auctions could also impact trading today.
  

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

Stocks Falling Into Final Hour on Rising Global Debt Angst, Global Growth Fears, Technical Selling and Profit-Taking

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 32.58 +15.37%
  
• ISE Sentiment Index 81.0 -41.73%
  
• Total Put/Call 1.09 +10.10%
  
• NYSE Arms 1.75 +159.64%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 133.17 +2.64%
  
• European Financial Sector CDS Index 226.45 +1.35%
  
• Western Europe Sovereign Debt CDS Index 340.33 -1.4%
  
• Emerging Market CDS Index 309.42 +4.16%
  
• 2-Year Swap Spread 39.0 unch.
  
• TED Spread 39.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .02% +1 bp
  
• Yield Curve 188.0 -9 bps
  
• China Import Iron Ore Spot $153.40/Metric Tonne -2.60%
  
• Citi US Economic Surprise Index 2.0 -.2 point
  
• 10-Year TIPS Spread 1.95 -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -90 open in Japan
• DAX Futures: Indicating -40 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 rolls over at the upper end of its 2-month range on rising global debt angst, rising global growth worries, profit-taking, more shorting, rising financial sector pessimism and technical selling. On the positive side, Utility shares are higher on the day. Major Asian equity indices finished 1-2% higher overnight. Oil is falling -1.15%, lumber is gaining +2.08%, gold is down -.5% and the UBS-Bloomberg Ag Spot Index is falling -.64%. The Spain sovereign cds is falling -6.53% to 355.17 bps and the Israel sovereign cds is falling -10.1% to 150.12 bps. On the negative side, Coal, Oil Tankers, Computer, Disk Drive, Bank, Alt Energy, Oil Service, Steel, Networking, Construction, Homebuilding and Education shares are especially weak, falling more than 3.0%. Cyclicals and small-caps are substantially underperforming. (XLF) has traded poorly throughout the day. Copper is falling -1.4%. Rice is still close to its multi-year high, rising +30.5% in about 14 weeks. The Brazil sovereign cds is gaining +1.2% to 154.3 bps, the France sovereign cds is rising +1.0% to 184.67 bps and the US Muni CDS Index is climbing +1.0% to 208.0 bps. The Libor-OIS Spread is still at 32.0 bps, which is the highest since July 2010. As well, the TED, 2-Year Euro Swap 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 their recent pullbacks. India's Sensex fell -.34%, despite gains in the rest of Asia overnight, and is now down -17.0 ytd. Major European equity indices fell 1-2% today. Brazil's Bovespa fell -2.1% today and is now down -22.3% ytd. China Iron Ore Spot continues to pick up downside steam, falling -20.1% since February 16th. The accumulation of bad news over the last few days finally caught up with equity investors. (IBM) reports after the close today. Given the stock is right near all-time highs, the tech sector's recent relative strength and their exposure to Europe, I will closely monitor the stock's reaction to the report as a tell for the broad market. I expect US stocks to trade mixed-to-lower into the close from current levels on rising global debt angst, rising financial sector pessimism, global growth fears, more shorting, profit-taking and technical selling.

Today's Headlines

Bloomberg:

• Germany Shoots Down 'Dreams' of Swift Crisis Fix. Germany said European Union leaders won’t provide the complete fix to the euro-area debt crisis that global policy makers are pushing for at an Oct. 23 summit. German Chancellor Angela Merkel has made it clear that “dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled,” Steffen Seibert, Merkel’s chief spokesman, said at a briefing in Berlin today. The search for an end to the crisis “surely extends well into next year.” Group of 20 finance ministers and central bankers concluded weekend talks in Paris endorsing parts of Europe’s emerging plan to avoid a Greek default, bolster banks and curb contagion. Providing a week to act, they set the Oct. 23 meeting of European leaders in Brussels as the deadline. On the summit agenda is how any recapitalization of Europe’s banks “might be carried out in a coordinated way” and how to make the European Financial Stability Facility, the EU’s rescue fund for indebted states, as effective as possible, Seibert said. The leaders will also discuss aid for Greece and ways to tighten economic and financial policy, he said. The euro retreated as much as 1 percent to $1.3739 from a one-month high against the dollar after Seibert’s comments. The currency last week had its biggest gain in more than two years on speculation that policy makers were moving closer to stemming the crisis. German 10-year bonds rallied and the Stoxx Europe 600 Index reversed an advance of as much as 1.5 percent and was down 1.4 percent at 4.45 p.m. in Frankfurt.
• German Ministry Open to Discuss Separation of Investment Banking. Proposals to separate investment and retail banking are “interesting approaches” for international talks about financial-market regulation, German Finance Ministry spokesman Johannes Blankenheim said. “These ideas, these suggestions should be discussed intensively at the international level, especially to solve open questions such as the definition of the retail and investment business and the repercussions on the real economy,” Blankenheim said when asked by reporters today in Berlin about demands by Germany’s opposition Social Democratic Party to impose a separation.
• BOE New Stimulus May Not Be Enough as U.K. Outlook Worsens, ITEM Club Says. Ernst & Young LLP’s ITEM Club cut its U.K. growth forecast and said the Bank of England should lower its key interest rate as its new stimulus earlier this month is unlikely to be enough to revive economic growth. Gross domestic product will increase 0.9 percent in 2011 and 1.5 percent in 2012, compared with July projections of 1.4 percent and 2.2 percent respectively, the research group said in an e-mailed report in London today.
• U.S. Banks Fall as Wells(WFC), Citi(C) Revenue Slump. U.S. banks fell after Citigroup Inc. (C) and Wells Fargo & Co. (WFC), the nation’s third- and fourth-largest lenders, said quarterly revenue dropped amid economic weakness and market turmoil linked to Europe. Wells Fargo slid 7.3 percent, the most since Aug. 10, to $24.72 at 12:49 p.m. in New York trading, leading a 3 percent decline in the 24-company KBW Bank Index. (BKX) Citigroup slipped 1.3 percent to $28.02.
• U.S. Bank Credit Risk Increases as Wells Fargo(WFC) Revenues Decline. The cost to protect U.S. bank debt climbed after third-quarter revenue at Wells Fargo & Co. (WFC), the largest U.S. home lender, declined. Credit-default swaps on Wells Fargo, based in San Francisco, added 7 basis points to 152 basis points at 11 a.m. in New York, according to data provider CMA. Those tied to Goldman Sachs Group Inc. (GS) climbed 22.5 basis points to 361. A benchmark gauge of U.S. corporate credit risk also rose after a German government spokesman damped expectations for a swift resolution to the region’s debt crisis. Credit swaps on General Electric Co. (GE)’s finance arm General Electric Capital Corp. increased 17 basis points to 287. Contracts linked to Morgan Stanley, which pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt, added 21 basis points to 412, and those tied to Bank of America Corp. (BAC) increased 18.5 to 383.5, according to CMA. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, gained 3.4 basis points to a mid- price of 133.4 basis points as of 11:19 a.m. in New York, according to index administrator Markit Group Ltd.
• EU Said to Be Close to Deal for Curbs on Naked Sovereign CDS. The European Union is close to an agreement to insert an optional ban on naked credit-default swaps on sovereign debt into a draft law on short selling, under plans to be discussed by government officials and lawmakers tomorrow, according to two people familiar with the talks.
• U.S. Industrial Production Barely Increases. Industrial production in the U.S. advanced in September on growing demand for automobiles and computers after stalling the prior month, a sign manufacturers are contributing to growth. Output at factories, mines and utilities increased 0.2 percent, in line with the median estimate in a Bloomberg News survey, after being little changed in August, figures from the Federal Reserve showed today. Factory production, which makes up 75 percent of the total, climbed for a third month. Capacity utilization, which measures the amount of a plant that is in use, increased to 77.4 percent from 77.3 percent in August. The gauge compares with the average of 79.5 percent over the past 20 years.
• Manufacturing in New York Region Shrinks More Than Economists Forecast. Manufacturing in the New York region contracted in October at a faster pace than forecast, reflecting a lack of confidence in the U.S. recovery that failed to be confirmed by measures of orders and sales. The Federal Reserve Bank of New York’s general economic index rose to minus 8.5 from minus 8.8 in September. Economists projected an improvement to minus 4, based on the median of 53 forecasts in a Bloomberg News survey.
• Oil Slips From One-Month High as Germany Cools Optimism on Europe Rescue. Crude oil slipped from the highest level in a month after Germany said European Union leaders won’t provide a complete fix to the region’s debt crisis, damping hopes for a quick rescue plan. Oil fell as much as 1.1 percent after climbing above $88 a barrel as Chancellor Angela Merkel said expectations that rescue plans to be announced at an Oct. 23 summit will speedily address Europe’s problems were “dreams.” Prices also weakened as data showed manufacturing in the New York region contracted in October at a faster pace than forecast. “People started to accept that Europe is going to take awhile to recover and there is no quick fix,” said Carl Larry, director of energy derivatives and research with Blue Ocean Brokerage LLC in New York. Crude for November delivery fell 46 cents, or 0.5 percent, to $86.34 a barrel at 11:20 a.m. on the New York Mercantile Exchange. Earlier it gained as much as 1.6 percent to $88.18 a barrel, the highest since Sept. 16, on forecasts that China may say tomorrow its economy grew more than 9 percent last quarter. Brent oil for December settlement fell $1.33, or 1.2 percent, to $110.90 a barrel on the London-based ICE Futures Europe exchange.

Wall Street Journal:

• Chinese Company Scandals Are Spurring Due Diligence In Hong Kong - Hong Kong Exchange Exec.
• Tokyo Lowers Assessment of Economy. The Japanese government lowered its assessment of the economy in October, saying in its monthly economic report that the recovery from the March disaster is losing steam, as the global slowdown drags on exports and production while the strong yen and energy constraints continue to cloud the outlook. "The Japanese economy is still picking up, although the pace of recovery is decelerating, as difficulties due to the Great East Japan Earthquake persist," the cabinet office said in the report, released Monday. The government curbed its view of exports, industrial production and personal consumption, and said the adverse effects of deflation still threaten the economy. It also reiterated concerns about the strong yen, which makes imports less expensive but is negative overall for the export-driven economy.
• Bearish Bets Fall at NYSE, Nasdaq. Short-selling declined at the New York Stock Exchange and the Nasdaq Stock Market during the second half of September. In the exchanges' latest twice-a-month statistics, this time for the period ended Sept. 30, the number of short-selling positions at the NYSE not yet closed out, known as short interest, decreased 4.62%. The positions stood at 14,946,055,365 shares from a revised 15,669,413,241 shares in the period ended Sept. 15.
  

CNBC.com:

• Bank Fees Push Consumers to Put Money Elsewhere.

Business Insider:

• Hedge Fund Manager Gets All Fired Up Over The Likelihood People Who Bet On A Greek Default Will Not Get Paid.
• Obama: Congress Is Apparently Too Stupid To Understand My Jobs Bill, So We're Going To Simplify It For Them. President Barack Obama took a shot at Congress on Monday, saying they might have had difficulty wrapping their heads around his 200-page jobs bill. "We're going to break up my jobs bill. Maybe they [Congress] couldn't understand it all at once," he said in Asheville, North Carolina — the first stop of his three-day bus tour promoting the American Jobs Act.
• SocGen Strategist Has A Near Fit On Bloomberg TV: 'The Financial Blogosphere Is Really, Really Out Of Control'. (video)
• Now The Nazi and Communist Parties Are Throwing Their Support Behind 'Occupy Wall Street'.
  

Zero Hedge:

• Mall Vacancies Hit Record High. (graph)
• Waffle-Bund Spread Hits All-Time High. (graph)
  

NY Post:

• New York's Marxist Epicenter by Charles Gasparino.

New York Times:

• New Test for Down Syndrome Raises Hopes and Questions.

TickerSense:

• Blogger Sentiment Poll: Bullish 54.84%, Bearish 22.58%.

Rasmussen Reports:

• 2012 Presidential Matchup: Cain 43%, Obama 41%.

Reuters:

• Germany's Schaeuble Warns Summit Won't Bury Euro Crisis. Expectations of the October 23 summit have steadily built up since Chancellor Angela Merkel and France's Nicolas Sarkozy promised in bilateral talks on October 9 to unveil a comprehensive new euro zone crisis package, including an agreement on how to recapitalize Europe's banks. German Finance Minister Wolfgang Schaeuble warned on Monday against unrealistic expectations that this weekend's European Union summit can come up with a "definitive solution" to the euro zone's sovereign debt crisis. "We won't have a definitive solution this weekend," the German minister told reporters in Duesseldorf. But Schaeuble's comments that the summit would not draw a line under the crisis once and for all -- remarks echoed by an aide to Merkel -- put paid to a euro rally against the U.S. dollar and brought German Bund futures back from early losses. "The chancellor has pointed out that the dreams building up that this package will mean everything will be solved and over by Monday cannot be fulfilled," said Merkel's spokesman Steffen Seibert.
• ECB Has Reached Limits of Crisis Response - Stark. Heaping more responsibility on the European Central Bank to help solve the euro zone debt crisis would overburden it, ECB policymaker Juergen Stark said on Monday, putting the onus on the bloc's governments to act. Stark's comments echoed remarks last week from outgoing ECB President Jean-Claude Trichet, who said the bank had done "all it could" to fight the crisis.

Telegraph:

• Debt Crisis: Live.

Der Spiegel:

• The Next Domino? Top Economists Warn of France Downgrade. Top German economists are warning that France's AAA rating could be in danger should additional measures become necessary to prop up indebted euro-zone members or to save ailing banks. With debt relief for Greece under discussion, it may be a question of when, not if.
• Europe's Politicians Side With Protesters. Hundreds of thousands took to the streets in Europe and around the world this weekend to protest against the global banking system. Politicians in Europe, engaged in their own dispute with the banks, stood firmly on the side of the demonstrators.
• Europe Deeply Divided Ahead of Make-or-Make Summit. The head of Deutsche Bank is raging against politicians, Berlin is raging against Paris and the north is raging against the south. The world expects the upcoming euro summit to produce decisive results, but the Europeans remain split. Will German Chancellor Angela Merkel finally take the lead?

Helsingin Sanomat:

• The haircut investors will take as part of the second Greek bailout will be bigger than earlier agreed, Finland's Finance Minister Jutta Urpilainen said. "We're talking about a bigger cut" than the 21% agreed in July, Urpilainen said.

Jornal de Negocios:

• The Portuguese government forecasts the economy will contract more than previously estimated next year. The government's 2012 budget proposal forecasts gross domestic product will contract between 2.5% and 3% next year.

Shanghai Daily:

• Shanghai's Growth in Trade Slows Sharply. SHANGHAI'S growth in trade weakened sharply in September due to a stronger yuan, a moderating local economy and stubbornly high inflation, the Shanghai Statistics Bureau said yesterday. The city's exports expanded 11.1 percent from a year earlier to US$17.8 billion last month, while imports rose 18.7 percent on an annual basis to US$20.1 billion. But both figures slowed from August when exports jumped 21.7 percent and imports surged 27.1 percent. Yan Jun, a spokesman for the bureau, said the weaker-than-expected growth mirrored a larger trend of a slower pace of expansion for China's trade. "Shrinking external demand, uncertainties about the direction of the Chinese currency, together with a moderating economy in the city, may lead to slower trade growth in the months to come," Yan said. Shanghai's trade with the United States and the European Union, two regions hard hit by economic crises, grew by single digit last month, a sharp drop from the average growth rate of 15 percent previously.
  

Legal Evening News:

• Banks in 14 Chinese cities including Shanghai and Guangzhou increased interest rates on mortgages for first homes by as much as 50%. In Changchun in the northeast, some banks increased mortgage rates to 10.58%, 50% more than the central bank's benchmark lending rate.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-3.01%)

Sector Underperformers:

• 1) Steel -4.23% 2) Alt Energy -4.03% 3) Computer -3.61%

Stocks Falling on Unusual Volume:

• WFC, CLF, BMA, GMCR, VRTX, JVA, GHDX, MRVL, SLXP, CHFC, AMAG, TISI, PTEN, ASML, MWIV, CREE, CRUS, NWPX, TPCG, NIHD, PHO, NVO, ISH, MTX, IIT, SLF, SPN and EPB
  

Stocks With Unusual Put Option Activity:

• 1) PHM 2) EP 3) GMCR 4) BCS 5) VMW
  

Stocks With Most Negative News Mentions:

• 1) IPG 2) NAV 3) IBM 4) AA 5) AMR
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (-1.03%)

Sector Outperformers:

• 1) Utilities -.05% 2) Telecom -.13% 3) Tobacco -.18%

Stocks Rising on Unusual Volume:

• EP, WAG, KMP, BEXP, WPRT, APC, MMR and OAS
  

Stocks With Unusual Call Option Activity:

• 1) BEXP 2) USU 3) VMED 4) CADX 5) CMA
  

Stocks With Most Positive News Mentions:

• 1) ALK 2) ETN 3) CNH 4) SINA 5) VMC
  

Charts:

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

Monday Watch

Weekend Headlines
Bloomberg:

• Bankers Balk at EU Push for Bigger Greek Losses, Higher Capital. Josef Ackermann, the head of Deutsche Bank AG and chief lobbyist for the world's largest financial firms, has pressed European leaders for months to devise a strategy to stamp out the sovereign debt crisis. Now that European Union officials are moving toward an agreement that may include bigger losses on Greek debt holdings and the forced recapitalization of lenders, the Deutsche Bank chief executive officer and Washington-based Institute of International Finance he chairs are pushing back. He travels to Brussels this week for talks with policy makers. Forcing lenders to boost capital would be counterproductive, and getting investors to accept larger losses on Greek holdings difficult, Ackermann said on Oct. 13. Opposition from banks may hamper efforts by German Chancellor Angela Merkel and French President Nicolas Sarkozy to present a breakthrough at an Oct. 23 summit of euro leaders in combating the crisis, which has driven Greece toward default, roiled global markets and dented confidence in the survival of the 17- nation currency. “What's most depressing about this whole thing is the squabbling between politicians, regulators and banks,” said Christopher Wheeler, a London-based analyst with Mediobanca SpA. “Banks have to take positive action alongside the EU to find a solution, which is a combination of dealing with sovereigns as well as capital concerns.”
• G-20 Gives EU One Week to Fix Debt Crisis. European leaders have one week to settle differences and flesh out a strategy to terminate their sovereign debt crisis as global finance chiefs warn failure to do so would endanger the world economy. Group of 20 finance ministers and central banks concluded weekend talks in Paris endorsing parts of the emerging plan to avoid a Greek default, bolster banks and curb contagion. They set an Oct. 23 summit of European leaders in Brussels as the deadline for it to be delivered. “The risk of a recession would be increased dramatically were the Europeans to fail to accomplish goals that they’ve set for themselves,” Canadian Finance Minister Jim Flaherty said after the G-20 meeting, which ended Oct. 15. Two years to the week since Greece triggered the turmoil by revising its budget math, the inability of policy makers to stamp it out has pushed the Greek government to the edge of default and the European economy close to recession. The euro weakened from near its highest in a month as traders speculated European leaders may struggle to meet the deadline. The euro fell 0.2 percent to $1.3853 as of 11:21 a.m. in Tokyo from $1.3882 in New York on Oct. 14, when it completed a 3.8 percent weekly advance, the biggest since March 2009.
• Ackermann Says Bigger Rescue Plans May Be Illegal. Increasing the size of financial rescue packages for troubled countries in Europe may be illegal and people won’t allow it, Bild am Sonntag reported, citing Josef Ackermann, Chief Executive Officer of Deutsche Bank AG. Increasing such funds “may be right from an investor’s point of view, but won’t solve the problem,” the publication cited Ackermann as saying at a conference in Berlin on Oct. 13. He added that the only solution to the current crisis is for countries in trouble to step-by-step reduce their debt, a process that will slow future economic growth, the newspaper said. Banks and countries remain unable to refinance themselves on financial markets and the situation needs to be resolved, Bild cited Ackermann as saying. Ackerman also said the euro can only be saved by a closer political and economic integration of Europe, a process that may force the creation of a “new Europe,” Bild reported.
• Brazil's Mantega Says 'War of Currencies' Ongoing, Euro Reports. The expansive monetary policies of some industrial nations help keep the value their currencies low, creating problems for the economies of countries including Brazil in a “war of currencies,” Euro magazine said, citing Brazil’s Finance Minister Guido Mantega. Some countries are devaluating their currencies to increase competitiveness of their export industries in light of weak national demand, Mantega said in the interview, calling such behavior “manipulation” and “unfair practices in international trade.” Mantega said he has turned to the World Trade Organization for help on the matter, without being more specific.
• Republicans Expand Solyndra Probe to Investor Role on Navy Work. U.S. House Republicans expanded the investigation of Solyndra LLC., which received federal backing two years before it collapsed, to include the role an investor played in getting the company close to winning Navy work. “It is being looked at,” Representative Joe Barton, a Texas Republican, said yesterday after a House Energy and Commerce panel hearing on Solyndra’s $535 million U.S. loan guarantee. “The primary focus is on the Department of Energy, but it goes throughout the government.”
• Pimco's Gross Tells Clients 2011 a 'Stinker' as Main Fund Trails. Bill Gross, manager of the world’s biggest mutual fund, sought to reassure clients that he hasn’t lost his touch after he misjudged the extent of the economic slowdown, causing his Pimco Total Return Fund to trail rivals this year. “This year is a stinker,” Gross wrote in an October letter to clients titled “Mea Culpa,” a copy of which was obtained yesterday by Bloomberg News. “There is no ‘quit’ in me or anyone else on the Pimco premises. The early morning and even midnight hours have gone up, not down, to match the increasing complexity of the global financial markets.” Gross’s $242.2 billion Total Return Fund returned 1.3 percent this year through Oct. 13, lagging behind 82 percent of peers, according to data compiled by Bloomberg. That’s his worst performance relative to rivals since at least 1995, the earliest year for which Bloomberg has rankings for Newport Beach, California-based Pimco’s flagship.
• Merkel Says U.S. Reluctance on Financial Transaction Tax 'Not Acceptable'. German Chancellor Angela Merkel criticized governments including President Barack Obama’s administration for refusing to make the financial sector pay for the global financial crisis, and vowed to push for a financial transaction tax until it applies at least in Europe. “It’s not acceptable that especially those outside the euro region, who are time and again pushing us to take broad- based action to manage the debt crisis, are at the same time flatly refusing to impose a financial transactions tax,” Merkel said at a labor union congress in the city of Karlsruhe yesterday. “I think this is not okay. We want, and we have to make, financial market participants contribute to the costs of crisis management.” Merkel said she will continue to push for a levy because “reasonable regulation” is needed for economic confidence to return. Trust in the reliability and competence of many financial market participants has been damaged, she said. Her comments were published by the government press office. A European Commission proposal for a financial transactions tax, set to take effect in 2014 and raise about 57 billion euros ($79.1 billion) a year, would set minimum tax rates for financial transactions throughout the 27-nation the European Union, the commission said on Sept. 28. European Central Bank President Jean-Claude Trichet has said a levy on financial transactions should be global.
• Kinder Morgan(KMI) to Buy El Paso(EP) for $21 Billion in Cash and Stock. Kinder Morgan Inc.’s agreement to buy El Paso Corp. for $21.1 billion, the energy industry’s biggest transaction in more than a year, would create the largest natural-gas pipeline network in the U.S. The cash and stock offer is valued at $26.87 per El Paso share, or 37 percent more than the Oct. 14 closing price, Houston-based Kinder Morgan said in a statement yesterday. The combined company would have 67,000 miles (107,000 kilometers) of gas lines and eclipse Enterprise Products Partners LP as the biggest U.S. pipeline operator.
• Singapore's Exports Unexpectedly Decline as Electronics Slump. Singapore’s exports unexpectedly fell in September as weakening expansion in the world’s biggest economies eroded demand for electronics and petrochemicals. Non-oil domestic exports fell 4.5 percent from a year earlier, after a revised 3.9 percent increase in August, the island’s trade promotion agency said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 3.5 percent gain. “We expect a rough patch ahead for the economy,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said before the report. “Against the backdrop of a deteriorating external outlook and judging from the broad-based decline in global purchasing managers’ indices, ex-biomedical manufacturing production will most likely continue to decline.” Electronics shipments by companies such as contract manufacturer Venture Corp. dropped 13.6 percent in September from a year earlier, after declining 19.4 percent the previous month. Singapore’s non-oil exports dropped a seasonally adjusted 9.3 percent last month from August, when they rose a revised 7.2 percent, today’s report showed.

Wall Street Journal:

• Investors Balking at New Ross Fund. Wilbur Ross Jr. is one of the world's richest and best-known investors on Wall Street. But that hasn't been enough to win over some firms that looked at his latest private-equity fund. As of August, the 73-year-old Mr. Ross's eponymous firm, WL Ross & Co., had raised a little more than one-tenth of the $4 billion it set out to attract last year. The firm has told people it has cut its fund-raising target to between $2 billion and $2.5 billion, according to people familiar with the conversations. WL Ross's difficulties reflect the fund-raising challenges facing many private-equity firms as the financial markets seesaw and some investors conclude that they already have enough exposure to buyout shops or distressed strategies in their portfolios. Also, some people who decided against investing in Mr. Ross's latest fund said they also were concerned about succession planning at WL Ross.
• MF Global(MF) Told to Boost Capital. Regulators ordered MF Global Holdings Ltd., the brokerage firm led by former New Jersey Gov. Jon Corzine, to boost its net capital in August after they grew concerned about its exposure to European debt.
• Tiny Kingdom's Huge Role in Libya Draws Concern.
• Optimism Ahead of Earnings. Analysts See Blue-Chip Firms Reporting Quarterly Revenue Growth of 10.6%.
• ObamaCare Starts to Unravel. The real story behind the Class program failure, and what to do now.

Marketwatch.com:

• Hong Kong's Property-Hoarding Problem. As Hong Kong’s chief executive delivered his farewell policy address last week, revelations about the extent of apartments lying empty in the territory grabbed the headlines, rather than a new subsidized-housing initiative.

CNBC:

• December Deadline Won't Market End of US Debt Fight. December looms as the deadline for tackling a U.S. fiscal mess punctuated by a $14.8 trillion national debt. But it's December 2012, not 2011, that is really worth keeping an eye on.
• Higher Greek Debt Writedown Needed: German Official. Greece's debt crisis cannot be solved without a debt write-down which will most likely exceed that agreed this summer, German Finance Minister Wolfgang Schaeuble said on Sunday, adding that he hoped Europe's banks would work with governments on a plan.

Business Insider:

• Indy 500 Champion Dan Wheldon Dies After A Horrifying IndCar Crash In Las Vegas. (videos)
• Another Awesome Jeff Gundlach Presentation On The Market, And How He's Investing In It Now.
• Shockingly Violent Pictures of Saturday's Occupy Rome Protests.
• Spooky Chart: French With An Irish Brogue.
• 7 Reasons Why Europe's Recent Rally Could Be Short-Lived.
  

Zero Hedge:

• Advance Look At Next Week As 33% Of The S&P Market Cap Reports Earnings.
• Key Events In The Week Ahead.
  

IBD:

• Customer Management In One Place, RightNow(RNOW).

Forbes:

• China's Economy: The Correction History Will Remember.

Las Vegas Review-Journal:

• Exploding the Promise of 'Green Jobs'. There is simply no spinning or distorting the failure of one of President Obama's biggest initiatives and campaign promises. "Hope" and "Change" hinged on creating 5 million green jobs in 10 years. As a down payment, the stimulus abomination set aside billions of dollars, including a $500 million grant to train 125,000 people for the noble work of the future. As of this summer, of the nearly 53,000 people who had completed the training at a cost of $163 million, barely 8,000 had found work. Only 1,000 had held a job for more than six months, according to a report released this month by the Labor Department's inspector general.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -22 (see trends).

Reuters:

• EU aid for Tunisia is 4 bln euros up to 2013:report. The European Union has allocated a total of four billion euros in loans and grants to Tunisia for the period 2011-2013 to help economic recovery, the official TAP news agency quoted the EU ambassador as saying on Friday. The cash comes from several EU institutions including the European Investment Bank, the news agency quoted ambassador Adrianus Koetsenruijter as saying. The EU promised to support Tunisia after its revolution in January which inspired the "Arab Spring" uprisings.
• Allianz exposure to UniCredit around 8 bln euros-paper. German insurer Allianz has an exposure of around 8 billion euros ($11.1 billion) to Italian bank UniCredit , an Allianz board member told Italian weekly MilanoFinanza on Saturday, confirming a press report. Italian newspaper MF, the daily edition of the same publication, had earlier reported the 8 billion euro exposure, which it said had created tension between the two groups. When asked for a comment, an Allianz spokesman had said relationships with the bank were excellent. Asked if the 8 billion euro figure was credible, Allianz board member Enrico Cucchiani said: "I don't have the data handy, but I believe it is a correct ballpark figure." The insurer owns 2.04 percent of UniCredit, Italy's biggest bank by assets. Asked whether Allianz would take part in a possible capital increase at UniCredit, Cucchiani said: "If and when it will be announced, we'll consider it with great attention."
• German private banks call Greece bankrupt -magazine. Germany's private banks called for euro zone policymakers to finally accept that Greece is insolvent and also pressed for rules that would force lenders to set aside capital on their balance sheets for government bonds, a magazine reported. "Greece is not able to pay back its current debts even over the course of generations," said Andreas Schmitz, the head of German bank lobbying group BdB, in an interview with the WirtschaftsWoche. Schmitz called for a change in Basel III regulations, which spell out the amount of capital reserves that banks must set aside for so-called risk-weighted assets. Under the current Basel II rules and EU guidelines, all euro zone sovereign debt can be assigned zero risk, which has provided a strong incentive for banks to buy and hold government bonds. "The current situation shows that zero (risk weighting) accounting doesn't accurately reflect reality," Schmitz said. "Politicians are not tackling this issue, since it concerns them," he added, explaining that this exemption has helped sovereign borrowers market their debt to banks. Hesse, the German federal state home to the country's banking centre of Frankfurt, said late in September it would push for an end to the exemption of capital reserves for central government debt. "The exemption distorts investment markets and sweeps under the carpet the actual inherent risks," said Hesse's finance minister, Thomas Schaefer, and its economy minister, Dieter Posch, at the time. At the same time, Schmitz opposed a forced recapitalisation of German banks, because it would only cause further uncertainty in the markets. "Compulsory recapitalisations do not solve the political crisis of confidence," he said.
• SEC Wrestling With "Conflict Minerals" Disclosure. Securities regulators are struggling to craft a rule that sheds light on companies that use certain African "conflict minerals" but avoids a compliance nightmare that hurts manufacturers. The Securities and Exchange Commission is six months behind schedule in finalizing the rule that is required by last year's Dodd-Frank financial oversight law. The rule, which was tucked into the legislation at the last minute, will require companies to disclose whether they use tantalum, tin, gold or tungsten from the war-torn Democratic Republic of the Congo.

Financial Times:

• EU Faces 20 Years of Rising Energy Bills. European businesses and consumers face at least 20 years of electricity price rises, according to a leaked European Commission report on how the region can meet its green energy targets. It also forecasts a huge growth in the number of wind farms, which would push up prices even higher.
• US and Europe 'may be in recession'. The US and much of Europe may already be in recession while demand is dropping sharply in emerging markets, the head of one of the US’s biggest manufacturers has warned. In an interview with the Financial Times, Tom Linebarger, who will take over as chief executive of Cummins(CMI), one of the world’s biggest engine-makers, in January, said he expected the next six to nine months to be a highly uncertain time for the global economy.

Telegraph:

• Europe's Lost Decade as $7 Trillion Loan Crunch Looms. Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade. The risk is "Japanisation" without the benefits of Japan, without a single government, or a trade super-surplus, or 1pc debt costs, or unique social cohesion. Even today, the jobless rate for youth is near 10pc in Japan. It is already 46pc in Spain, 43pc in Greece, 32pc in Ireland, and 27pc in Italy. We will discover over time what yet more debt deleveraging will do to these societies.
• Lack of ECB Firepower Weakens Europe's Grand Plan. Top officials from the US Treasury and the International Monetary Fund are privately worried that Europe’s `Grand Plan’ to overcome the debt crisis is fundamentally deficient and may fail to restore market confidence.
• German Foreign Minister Hits Out at U.S. Over Debt Crisis. Germany's foreign minister today lashed out at the United States over criticism the eurozone is not doing enough to solve its economic woes, noting that US debt had also contributed to the current crisis. Guido Westerwelle told the Bild am Sonntag weekly: "Let us not forget that the cause of the current crisis is too much debt in Europe, but also too much debt worldwide. "Therefore, I cannot understand some of the critical comments from our American friends regarding our policy of reducing debt." Westerwelle's remarks were the latest in a series of barbs between Berlin and Washington over Europe's perceived dithering over the crisis.

Der Spiegel:

• Sigmar Gabriel, leader of Germany's main opposition Social Democratic Party, said German banks should separate investment banking and commercial banking business. Gabriel said banks' investment banking business should receive no government help, citing an interview with the politician.

Bild:

• German politicians want caps on salaries for bankers whose companies may need government help, citing comments by lawmakers. Cem Oezdemir, the Greens co-leader, demands a salary cap and wants no dividend payouts or bonus payments until potential government aid has been repaid. Carsten Schneider, budget spokesman for Germany's main opposition Social Democratic Party, wants a salary cap and a higher tax on bonus payments.
• Germany may veto requests from countries seeking funds from the EFSF that have not tried to help their banks first, citing an interview with lawmaker Rainer Bruederle. Europe must prepare for writedowns on Greek bonds "in the foreseeable future" in order to avoid the danger of contagion, Bruederle, leader of the German Free Democrats group in the lower house of parliament, was cited as saying.
  

Frankfurter Rundschau:

• German millionaires could contribute as much as $138 billion in additional tax revenue to help improve social justice and the country's budget, citing an interview with Gert Wagner, chief executive of Berlin's DIW economic institute.

Cinco Dias:

• Making banks recapitalize to cover latent losses in their holdings of European Union sovereign debt would be an error that could have "devastating" consequences, Angel Ron, Chairman of Banco Popular Espanol SA, said in an interview.
• EADS CEO Louis Gallois said Spain had $833 million in debt related to the Eurofighter combat-jet project. Gallois called on Spain to settle the payment, saying it was a "very worrying problem" and that the size of the debt would increase in coming months, citing comments he made to reporters.
  

CBC News:

• Italy Tallies Damage From 'Occupy' Violence. Violence that broke out at what began as a peaceful protest in Rome against economic inequality is a “worrying signal for civil society,” and rioters will be identified and punished, Italian Prime Minister Silvio Berlusconi says. About 100 people were taken to hospital for injuries suffered in Saturday's violence in the Italian capital. Police arrested about 20 people, but that number is expected to rise as investigators examine surveillance cameras. Thousands turned up to protest in Rome — one of hundreds of cities across the globe where activists held protests inspired by the Occupy Wall Street movement — but the peaceful march was quickly hijacked by hundreds of hooded and masked protesters who hurled rocks and bottles at the police. Some used clubs and sticks to smash shop and bank windows. Dumpsters and cars were set on fire. Police in anti-riot gear used tear gas and water cannons to try to disperse the rioters.

Veja:

• Brazil's economic situation may change "radically" and the central bank may have to resume interest-rate increases unless inflation slows further, former central bank President Arminio Fraga said. He said the global economic situation is "scary".

NHK:

• Tokyo Electric Power Co. measured radiation levels of 4,700 millisieverts per hour inside the No.1 reactor building of its Fukushima Dai-Ichi nuclear plant, citing the utility company.

Yomiuri:

• The Bank of Japan may cut its projection for the nation's fiscal 2012 economic growth to less than 2.1% from 2.9%.

Economic Observer:

• China has no need to abandon its prudent monetary policy now because money supply is already high compared to the economy, citing People's Bank of China adviser Zhou Qiren. The real interest rate remains negative and loosening up monetary controls won't give much support to small companies, whose biggest problem is high production costs rather than funding difficulties, citing Zhou's comments in an interview.

Xinmin Evening News:

• Some banks in Shanghai have raised loan rates for individuals buying first homes, citing people at banks.

China National Radio:

• Nearly 20% of Chinese cities have a debt ratio exceeding 100%, citing Jia Kang, head of the research institute for fiscal science under the Ministry of Finance. Jia made the remarks at a conference in Beijing yesterday.

Economic Information Daily:

• Banks in more Chinese cities have increased mortgage rates for first time home loans, citing people in the industry. Cities include Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Jinan, Qingdao, Zhengzhou, Wuhan, Changsha and Suzhou. Higher rates may last till the first quarter of 2012, the report cities Zong Liang, deputy general manager at Bank of China's strategic management department.

Weekend Recommendations

• None of note

Night Trading

• Asian indices are -.25% to +1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 198.0 -16.0 basis points.
• Asia Pacific Sovereign CDS Index 150.0 -5.5 basis points.
• FTSE-100 futures +1.10%.
  
• S&P 500 futures +.59%.
• NASDAQ 100 futures +.48%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SCHW)/.19
• (HAL)/.91
• (GCI)/.44
• (HAS)/1.30
• (MMR)/-.16
• (C)/.81
• (WFC)/.72
• (STLD)/.21
• (VMW)/.49
• (IBM)/3.22
• (SWK)/1.31
• (BRO)/.30
• (PKG)/.43

Economic Releases
8:30 am EST

• Empire Manufacturing for October is estimated to rise to -4.0 versus a reading of -8.82 in September.

9:15 am EST

• Industrial Production for September is estimated to rise +.2% versus a +.2% gain in August.
• Capacity Utilization for September is estimated to rise to 77.5% versus 77.4% in August.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Lacker speaking, Fed's Evans speaking, EC Meeting and China's GDP/Fixed Asset Inv./Industrial Production/Retail Sales reports could also impact trading today.
  

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