Monday Watch

Weekend Headlines
Bloomberg:

• Italy Yield Surge Sets Berlusconi on Bailout Path: Euro Credit. Italian bond yields are sending the nation down the same path taken by Greece, Portugal and Ireland in the days before they were forced to seek rescues. Italy’s 10-year notes traded above 5.5 percent for 40 days before breaching the 6 percent mark on Oct. 28, according to data compiled by Bloomberg. The bailed-out nations followed a similar trajectory, consistently averaging above 6 percent for about a month before crossing the 6.5 percent barrier. After that, it took an average of 16 days for yields to pass the unsustainable 7 percent level. “The trend appears worryingly similar,” said Riccardo Barbieri, chief European economist at Mizuho International Plc in London. “Clearly, the longer it lasts, the worse it gets.” With almost 1.6 trillion euros ($2.2 trillion) of bonds outstanding, Italy has more liabilities than Spain, Portugal and Ireland combined, making it vulnerable to increases in borrowing costs. Prime Minister Silvio Berlusconi triggered the latest surge in yields after bowing to domestic demands to water down a 45.5 billion-euro austerity package. Yields on Italy’s bonds rose even as the European Central Bank bought the securities. Italy’s 10-year borrowing costs have increased to a euro-era record of 455 basis points more than German bunds, the benchmark for Europe. Germany is able to borrow at a yield of 1.8 percent for 10 years, less than a third of the 6.37 percent Italy has to pay. The cost of insuring Italy’s debt using credit-default swaps surged to as much as 519 basis points last week, approaching the record 534 reached in September, according to CMA. “The acceleration in Italy’s bond yields is very, very frightening,” said Gary Jenkins, the head of fixed income at Evolution Securities Ltd. in London “It’s surprising how quickly a difficult situation can become an impossible one. Politicians always think they have lots of time, but when the market decides to withdraw support, it can do so very suddenly.” Italy has to refinance 37 billion euros of bills and bonds by year-end and another 307 billion euros in 2012, Bloomberg data show.
• Thousands Rally in Rome, Pressing Italy's Berlusconi to Resign. Tens of thousands of Italians gathered in Rome to call on Prime Minister Silvio Berlusconi to resign, as defections eroded his parliamentary majority at a time when the country’s borrowing costs are at a euro-era high. Hundreds of buses and 14 special trains brought thousands of supporters of the opposition Democratic Party to the rally in front of the Basilica of St. John Lateran to hear calls for the premier to go. Demonstrators shouted “Shame”” and “Get Out” in the square that’s home to the first church built in Rome. The premier, who generally spends his weekends at his home in Milan, remained in Rome in consultation with his top advisers after several lawmakers said they planned to abandon his People of Liberty party, threatening to leave him without a majority in Parliament before a key vote. Calls will increase for Berlusconi to resign if he loses the ballot to rubberstamp the 2010 budget report, likely to be held on Nov. 8. “A lot of rumors and whispers are making the rounds of Rome’s palaces: the resignation of this government,” Berlusconi said in an e-mailed statement today. “But the responsibility toward the voters and the country force us and our government to continue the battle of civility that we have been conducting during this difficult moment of crisis.”
• Greece Will Form National Unity Government. Greek Prime Minister George Papandreou agreed to step down to allow the creation of a national unity government intended to secure international financing and avert a collapse of the country’s economy. Papandreou met with Antonis Samaras, leader of the main opposition party, and agreed to form a government to lead Greece “to elections immediately after the implementation of European Council decisions on October 26,” according to an e-mailed statement yesterday from the office of President Karolos Papoulias in Athens. Papandreou already stated he won’t lead the new government, the statement said. “If we take it to mean that Greece is making efforts to ensure that they continue to receive funding support from the euro zone, then the move is positive,” Sacha Tihanyi, a Hong Kong-based currency strategist at Scotia Capital, the investment banking unit of Bank of Nova Scotia, said today of the decision. “However, it would be much better to see sustained political stability out of the country.”
• Greece Euro Exit Threat is 'Pandora's Box,' Morgan Stanley Says. European leaders may have opened a "Pandora's box" of unintended consequences by raising the possibility of Greece leaving the euro, according to Morgan Stanley. Responding to Greek Premier George Papandreou's plan to hold a referendum on the nation's second bailout, Angela Merkel and Nicolas Sarkozy last week said the question must be framed as a choice between staying in the euro and submitting to the bailout, or exiting the single currency. Papandreou canceled the vote amid growing pressure on him to resign. The possibility of leaving the euro has been "so far a taboo in European political circles," Joachim Fels, Morgan Stanley's chief global economist in London, wrote in a note to clients today. "European governments may have set in motion a sequence of events which could potentially lead to runs on sovereigns and banks in peripheral countries that make everything we have seen so far in this crisis look benign." Responding to the sovereign debt crisis that is sweeping through Europe's peripheral economies, euro area leaders have torn up the rulebook in their efforts to stem contagion. As well as offering Greece a choice about remaining in the euro, they have been forced to abandon the clauses prohibiting bailouts in the treaty governing the euro.
• China PMI, Inflation Signal Rate Cut Unlikely. China's central bank probably won't follow G-20 counterparts such as Brazil and Australia in cutting interest rates unless there is a deeper slowdown in manufacturing and inflation, history shows. The PMI was at 38.8 and inflation 2.4% in November 2008 when the People's Bank of China last lowered its polity rate below the current level of 6.56%. The most-recent figures for manufacturing and CPI are 50.4 and 6.1%, respectively. "There's no urgency for a rate cut," Ken Pang, senior economist for China at BNP Paribas SA, said in an interview. "Shifting to a loose monetary policy needs a consensus among government officials, which will only be reached when economic growth weakens more obviously."
• China Credit Squeeze Prompts Suicides, Violence. Wenzhou’s 400,000 businesses are facing financial hardship because of rising costs, soaring black market interest rates and a sudden credit squeeze, Zhou said. Similar problems are happening across China because private enterprises in China rely on underground borrowing rather than banks to operate, he said. “This is a much bigger problem across the country,” said Tao, who estimates outstanding private loans stand at 4 trillion yuan, or 8 percent of total lending in China. “Wenzhou is just the tip of the iceberg.” Most of the informal lending has been pumped into real estate developers riding China’s property boom that is showing signs of slowing, said Tao.
• Hedge Funds Curb Raw-Material Bets for First Time in a Month: Commodities. Speculators reduced wagers on higher commodity prices for the first time in four weeks on mounting concern that Europe’s failure to contain its debt crisis will slow economic growth and demand for raw materials. Money managers cut combined net-long positions across 18 U.S. futures and options by 3.9 percent to 798,787 contracts in the week ended Nov. 1, Commodity Futures Trading Commission data show. The Standard & Poor’s GSCI Index of 24 raw materials tumbled 14 percent since reaching a 32-month high in April. “When you look out and see what’s happening in Europe, you get very worried that demand could disappoint,” said Nic Johnson, who helps manage about $30 billion in commodity assets at Pacific Investment Management Co. in Newport Beach, California. “How stable is industrial demand? Is it sustainable? People are waiting to see whether weakness shows up in the numbers.” Fifteen of 24 commodities tracked by the S&P GSCI fell last week, led by a 5.4 percent decline in cotton, a 4.6 percent retreat in aluminum and 4.1 percent drop in nickel.
• Berkshire(BRK/A) Profit Declines 24% on Buffett's Derivative Bets. Buffett, 81, uses derivatives to speculate on long-term gains in stocks and the creditworthiness of corporate and municipal borrowers. The contracts tied to equity indexes, which aren’t scheduled to settle until 2018 or later, produced a loss of $2.09 billion in the period as the Standard & Poor’s 500 Index posted its biggest decline since 2008. Liabilities on the equity derivatives rose to $8.85 billion. “He’s been in the negative position for some time now and I’m not worried yet, but it’s something to keep an eye on,” said Tom Lewandowski, an analyst with Edward Jones & Co., who has a “buy” rating on Berkshire.
• CFTC's Gensler Said to Recuse Himself From MF Global(MF) Probe on Corzine Ties. U.S. Commodity Futures Trading Commission Chairman Gary Gensler will recuse himself from the agency’s investigation of MF Global Holdings Ltd. (MF) amid concern that his ties to the bankrupt firm’s former chief executive may give the appearance of a conflict of interest, two people with direct knowledge of the decision said. Gensler decided this week against participating in the probe of MF Global because of his history with Jon Corzine, said the people, who spoke on the condition of anonymity because the decision isn’t public. Corzine, who stepped down as MF Global’s chairman and CEO yesterday, worked with Gensler at Goldman Sachs Group Inc. (GS) and during his term in the U.S. Senate, where Gensler served as an aide.
• CME(CME) Temporarily Reduces Margin to Ease MF Global(MF) Account Shift. CME Group Inc. is reducing the initial margin required to back futures trades to ease the bulk transfer of accounts held by MF Global Holdings Inc. customers. “This is a short-term accommodation to maintain market integrity and provide temporary relief to customers whose accounts have been disrupted by this event,” the Chicago-based exchange owner said in an e-mailed statement today.
• Tepco Finds Dangerous Level of Radiation at Fukushima Station. Tokyo Electric Power Co. found a dangerous level of radiation at its wrecked Fukushima nuclear plant, eight months after the March 11 earthquake and tsunami that caused the worst atomic crisis in 25 years. Workers at the company usually called Tepco detected 620 millisieverts of radiation an hour on the first floor of Reactor 3 on Nov. 3, the highest level found in that unit, it said.
• Syrian Forces Kill 22; Arab League Plans Emergency Meeting. Syrian security forces opened fire on protesters, killing 22 people yesterday and prompting the Arab League to call an emergency meeting to discuss the government’s failure to halt the bloodshed. Protests against the rule of President Bashar al-Assad followed prayers for the Islamic holiday of Eid al-Adha. At least 16 of those killed were in Homs, Usama al-Himsi, a Syrian activist in Homs, told Al Jazeera television by phone. “The army hit us with rockets,” he said, adding that a plane dropped unidentified chemical materials and tank shelling increased. There was no water, no power, and protesters weren’t able to aid the injured, he told Al Jazeera.

Wall Street Journal:

• Europe's Struggle to Keep Growing - And Avoid Vicious Cycle. Europe is at risk of a potentially devastating negative feedback loop. The economy is "practically in free fall," says Yves Mersch, a member of the European Central Bank's governing council. ECB President Mario Draghi has warned publicly of a recession. The latest economic data bear out their gloomy assessments. Failure to tackle the sovereign-debt crisis has fueled the downturn, but a new recession makes the crisis even harder to solve.
• Merkel Rejected IMF SDRs to Fund EFSF. A plan to have the International Monetary Fund issue its special currency as a powerful weapon in Europe's efforts to contain the widening euro-zone debt crisis was blocked by German Chancellor Angela Merkel, according to a report in a German newspaper. Leaders of the Group of 20 industrialized and developing nations meeting in Cannes this week pressed euro-zone leaders to deliver a credible plan to leverage the €440 billion European Financial Stability Facility, the euro-zone bailout fund, to quickly stop the European debt crisis from spreading to the global economy. One plan under discussion at the two-day meeting was to request that the IMF print more of its Special Drawing Rights. The SDRs are essentially an IOU that countries can exchange for cash and become part of the IMF's member's reserves. Such reserves are held by a country's central bank. Germany has rejected any plan that would involve direct funding of the EFSF through either the European Central Bank or the German Bundesbank. "This initiative was rejected by the German side," the Frankfurter Allgemeine Sonntagszeitung quotes Merkel's spokesman Steffen Seibert as saying in a report that was issued ahead of publication on Sunday. Mr. Seibert also dismissed speculation that G-20 leaders had discussed using gold and currency reserves held by the Bundesbank as a way to bolster the EFSF.
• Generation Jobless: Young Men Suffer Worst as Economy Staggers. Few groups were hit harder by the recession than young men, like Cody Preston and Justin Randol, 25-year-old high-school buddies who didn't go to college. The unemployment rate for males between 25 and 34 years old with high-school diplomas is 14.4%—up from 6.1% before the downturn four years ago and far above today's 9% national rate. The picture is even more bleak for slightly younger men: 22.4% for high-school graduates 20 to 24 years old. That's up from 10.4% four years ago.
• Credit Agricole Freezes Leveraged Loans. Credit Agricole's (ACA.FR) London leveraged finance desk has put a freeze on lending until the new year, according to six people familiar with the matter. Credit Agricole declined to comment. Other European banks are considering stepping back from corporate lending in the face of macroeconomic uncertainty and the euro-zone crisis.
• New Twist on Hedge Funds. A handful of mutual-fund companies say they've built a better mousetrap when it comes to investing like a hedge fund. But for investors, these funds require a very close look under the hood.
• Old Debts Dog Europe's Banks. European banks are sitting on heaps of exotic mortgage products and other risky assets that predate the financial crisis, adding to pressure on lenders that also are holding large quantities of euro-zone government debt. Four years after instruments like "collateralized debt obligations" and "leveraged loans" became dirty words because of the massive losses they inflicted on holders, European banks still own tens of billions of euros of such assets. They also have sizable portfolios of U.S. commercial real-estate loans and subprime mortgages that could remain under pressure until the global economy recovers.

Business Insider:

• Dear Congress: 'I Have Hundreds Of Thousands Stuck At MF Global(MF), And I Demand You Investigate The Following'.
• Is The U.S. About To Invade Iran?
• Goldman Sachs(GS) On The One PIIG That Really Matters: Italy.
• You Won't Believe How MF Global Treated Their Clients In The Final Days. Some incredibly galling behavior on the part of MF Global as exposed by Reuters' Matthew Goldstein:
• A Quick Reminder About China... (graph) It is extremely poor. The thought of it having to bail out ultra-rich Europe is a scandal. This chart from Nomura is priceless.
• This Might Be The Most Exciting Chart In America.
  

Zero Hedge:

• ECB Issues Ultimatum To Italy, Threatens To Halt Bond Purchases.
• Advance Look At This Week's Key Events: All About Europe, All Over Again.
• Wikileaks Exposes German Preparations For "A Eurozone Chapter 11".
  

NY Times:

• Leaving Iraq, U.S. Fears New Surge of Qaeda Terror. As the United States prepares to withdraw its troops from Iraq by year’s end, senior American and Iraqi officials are expressing growing concern that Al Qaeda’s offshoot here, which just a few years ago waged a debilitating insurgency that plunged the country into a civil war, is poised for a deadly resurgence.
• Sad Proof of Europe's Fallout. WHO are you going to believe — me, or your own lying eyes? That old line from the Marx Brothers came to mind last week as MF Global, the brokerage firm run by Jon S. Corzine, was felled by over-the-top leverage and bad derivative bets on debt-weakened European countries. Suddenly, all of those claims that American financial institutions have little to no exposure to Europe rang hollow.

PC World:

• China's Internet Firms Vow to Tighten Regulation of Web. China's top IT firms have pledged to step up the regulation of their services as government authorities have intensified calls to control the development of the nation's Internet.

Financial Times:

• Dodd-Frank May Add to Opacity in Derivatives Market.
• High Yield Bonds - Signs of Recovery in US and Europe. There are now tentative signs that the high yield market is recovering from the third quarter’s panic – particularly in the US, the largest and most developed junk bond market.

Telegraph:

• Goldman(GS): Euro Could Split Apart. The chairman of Goldman Sachs Asset Management has said that the need for a German-led fiscal integration in the eurozone would make it increasingly unattractive for all the countries who joined to stay in the single currency.
• Europe's Rescue Fiasco Leaves Italy Defenceless. The six weeks allotted to save monetary union have expired. The G20 has come and gone, yet no workable firewall is in place as the drama engulfs Italy and threatens to light the fuse on the world’s third largest edifice of debt.

WirtschaftsWoche:

• Hans-Werner Sinn, president of the Munich-based Ifo economic institute, sees no possibility for Greece to remain in the euro region, citing an interview. Sinn said Greece won't be able to remain competitive within the euro zone.

Bild Zeitung:

• TUI AG is calling for Greece hoteliers to sign new contracts under which the tour operator will be entitled to payment in the new currency if Greece leaves the euro zone.
• German Economy Minister Philipp Roesler said there was no alternative for Greece to embracing reform if it wants to remain in the euro area. "The Greeks can decide themselves: reform in the euro area or don't reform and get out. There is no third way", Roesler said. Roesler, who head Chancellor Angela Merkel's Free Democratic Party coalition partner, said while the goal was to help countries stay in the euro area there could be no delays in reforms.

De Tijd:

• Belgium will miss a European Union target for reducing its structural budget deficit unless it intensifies its efforts, citing a document prepared by government officials. Belgium has averaged only .5 to .6 percentage point reductions in its structural deficit over the last three years compared with a .75 percentage point annual target set by the EU for the period 2010 to 2012. The shortfall may require the government to find an extra $2.76 billion in savings in the 2012 compared with current plans, it said.

Focus:

• German Top Court to Rule on EFSF Panel By Christmas. Germany's highest court may rule by Christmas on whether a special parliamentary body is authorized to clear emergency issues regarding the euro rescue fund, citing Andreas Vosskuhle, president of the court.
  

Handelsblatt:

• Canadian Finance Minister Jim Flaherty opposed the IMF granting aid to European economies battling the region's debt crisis, citing an interview. Flaherty instead called on richer European nations to provide funds, saying the IMF's role is to stand by financially weak states.

La Repubblica:

• As many as 20 lawmakers are ready to defect from Prime Minister Silvio Berlusconi's coalition before a Nov. 8 vote to rubberstamp the 2010 budget report. The defectors may abstain from the vote, signaling Berlusconi doesn't have an absolute majority in the lower house of Parliament, citing People of Liberty deputy Fabio Gava.

Xinhua:

• Chinese property developers are hoping in vain for a loosening of regulations and monetary policy which would allow them to raise property prices, Ma Guangyuan, an economist with the Chinese Academy of Social Sciences, wrote in a commentary. Decision-makers have reached a consensus that dependence on the housing market poses a huge risk to the nation's economy, Ma wrote. Ma cites Premier Wen Jiabao in the September issues of Qiushi, a Communist Party magazine, as saying that China won't waiver in its push for tighter real estate regulations.

China Business News:

• Beijing's existing home sales volumes in the past three months were close to the lowest level since the second half of 2008, citing Zhang Dawei, a researcher at Centaline Property Agency Ltd. The city's October existing home sales were fewer than 10,000 units for seven consecutive months and the lowest in 34 months. Beijing sold 7,262 exiting home units in October, 17% fewer than in September.

Weekend Recommendations
Barron's:

• Made positive comments on (EFX), (LH), (MELA) and (CVC).
• Made negative comments on (DMND).
  

Night Trading

• Asian indices are -.50% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 192.25 +2.75 basis points.
• Asia Pacific Sovereign CDS Index 152.25 +.25 basis point.
• FTSE-100 futures +.10%.
  
• S&P 500 futures -.23%.
• NASDAQ 100 futures -.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SYY)/.51
• (LPX)/-.17
• (KWK)/.05
• (PCLN)/9.30
• (RAX)/.13
• (WMS)/.29
• (DISH)/.73

Economic Releases
3:00 pm EST

• Consumer Credit for September is estimated to rise by $5.2B versus a decline of -$9.5B in August.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The EU Finance Ministers Meeting and the (ALTR) Investor Meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as global growth worries, Eurozone debt angst and technical selling offsets short-covering, seasonality and lower food/energy prices. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 1,253.23 -2.48%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,253.23 -2.48%
  
• DJIA 11,983.24 -2.03%
  
• NASDAQ 2,686.15 -1.86%
  
• Russell 2000 746.49 -1.91%
  
• Wilshire 5000 13,028.63 -2.29%
  
• Russell 1000 Growth 588.04 -1.68%
  
• Russell 1000 Value 618.11 -3.02%
  
• Morgan Stanley Consumer 731.86 -1.53%
  
• Morgan Stanley Cyclical 916.19 -3.02%
• Morgan Stanley Technology 640.18 -2.05%
  
• Transports 4,912.17 -1.99%
  
• Utilities 451.17 -.55%
  
• MSCI Emerging Markets 41.08 -2.33%
  
• Lyxor L/S Equity Long Bias Index 974.30 +.94%
  
• Lyxor L/S Equity Variable Bias Index 838.49 +.07%
  
• Lyxor L/S Equity Short Bias Index 620.73 +.99%
  

Sentiment/Internals

• NYSE Cumulative A/D Line 128,352 -.29%
  
• Bloomberg New Highs-Lows Index -81 +55
  
• Bloomberg Crude Oil % Bulls 32.0 +52.4%
  
• CFTC Oil Net Speculative Position 161,612 +1.19%
  
• CFTC Oil Total Open Interest 1,345,024 -3.16%
  
• Total Put/Call 1.14 +16.33%
  
• OEX Put/Call 1.89 -.53%
  
• ISE Sentiment 91.0 +8.33%
  
• NYSE Arms 1.17 +32.95%
  
• Volatility(VIX) 30.16 +22.95%
• S&P 500 Implied Correlation 78.33 +10.04%
  
• G7 Currency Volatility (VXY) 12.71 +5.48%
  
• Smart Money Flow Index 10,783.33 +.3%
  
• Money Mkt Mutual Fund Assets $2.622 Trillion -.50%
  
• AAII % Bulls 40.18 -6.56%
  
• AAII % Bears 29.62 +18.48%

Futures Spot Prices

• CRB Index 320.44 -.81%
  
• Crude Oil 94.33 +1.07%
  
• Reformulated Gasoline 268.0 +1.32%
  
• Natural Gas 3.79 -3.44%
  
• Heating Oil 307.92 +.38%
  
• Gold 1,756.0 +.75%
  
• Bloomberg Base Metals 213.13 -1.59%
  
• Copper 356.40 -4.21%
  
• US No. 1 Heavy Melt Scrap Steel 401.67 USD/Ton -3.98%
  
• China Iron Ore Spot 122.90 USD/Ton +5.13%
  
• UBS-Bloomberg Agriculture 1,568.33 -1.51%
  

Economy

• ECRI Weekly Leading Economic Index Growth Rate -9.4% +60 basis points
  
• S&P 500 EPS Estimates (FY 2012 Mean) 109.59 +.05%
  
• Citi US Economic Surprise Index 18.70 +.9 point
  
• Fed Fund Futures imply 0.0% chance of no change, 100.0% chance of 25 basis point cut on 12/13
• US Dollar Index 76.95 +2.52%
  
• Yield Curve 181.0 -22 basis points
  
• 10-Year US Treasury Yield 2.03% -29 basis points
  
• Federal Reserve's Balance Sheet $2.805 Trillion -.85%
  
• U.S. Sovereign Debt Credit Default Swap 47.23 +21.25%
  
• Illinois Municipal Debt Credit Default Swap 255.0 -.33%
  
• Western Europe Sovereign Debt Credit Default Swap Index 333.55 +6.72%
• Emerging Markets Sovereign Debt CDS Index 244.0 +.90%
  
• Saudi Sovereign Debt Credit Default Swap 110.12 +6.91%
• Iraqi 2028 Government Bonds 85.59 -.38%
• China Blended Corporate Spread Index 709.0 +61 basis points
  
• 10-Year TIPS Spread 2.12% -3 basis points
  
• TED Spread 44.0 +1 basis point
  
• 3-Month Euribor/OIS Spread 88.0 +10 basis points
  
• N. America Investment Grade Credit Default Swap Index 123.20 +7.56%
  
• Euro Financial Sector Credit Default Swap Index 233.64 +20.25%
  
• Emerging Markets Credit Default Swap Index 282.60 +8.26%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 248.0 -67 basis points
  
• M1 Money Supply $2.125 Trillion -1.18%
  
• Commercial Paper Outstanding 979.70 +1.90%
  
• 4-Week Moving Average of Jobless Claims 404,500 -.50%
  
• Continuing Claims Unemployment Rate 2.9% unch.
  
• Average 30-Year Mortgage Rate 4.0% -10 basis points
  
• Weekly Mortgage Applications 665.60 +.25%
  
• Bloomberg Consumer Comfort -53.2 -2.1 points
  
• Weekly Retail Sales +4.70% +20 basis points
  
• Nationwide Gas $3.42/gallon -.03/gallon
  
• U.S. Heating Demand Next 7 Days 2.0% below normal
• Baltic Dry Index 1,817 -13.10%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 35.0 unch.
  
• Rail Freight Carloads 243,774 -.66%
  

Best Performing Style

• Small-Cap Growth -1.56%

Worst Performing Style

• Large-Cap Value -3.02%

Leading Sectors

• Disk Drives +1.61%
  
• Computer Hardware +1.15%
  
• Restaurants +.70%
• HMOs +.60%
• Gold & Silver +.48%

Lagging Sectors

• Oil Service -4.66%
• Banks -5.50%
  
• Education -6.20%
• Homebuilders -6.40%
• I-Banks -7.21%

Weekly High-Volume Stock Gainers (14)

• MDVN, ITT, SONO, ALGN, RATE, SPPI, NWL, VC, BPI, STMP, VRSK, HGG, MIC and CTCT
  

Weekly High-Volume Stock Losers (26)

• MWIV, ZIP, ROG, DNKN, HAE, HMSY, AWAY, NANO, ARTC, OLN, MDCA, OPEN, BGC, ECPG, NTRI, WBMD, CHSI, WMGI, BRLI, JEF, DMND, ANF, DRIV, IART, CODE and CPSI
  

Weekly Charts
ETFs

• High-Volume Gainers
• High-Volume Losers

Stocks

• High-Volume Gainers
• High-Volume Losers
  

*5-Day Change

Stocks Declining into Final Hour on Rising Eurozone Debt Angst, Financial Sector Pessimism, Global Growth Fears, Profit-Taking

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 30.48 -.07%
  
• ISE Sentiment Index 97.0 -7.62%
  
• Total Put/Call 1.15 +7.48%
  
• NYSE Arms 1.10 +81.62%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 123.20 +.51%
  
• European Financial Sector CDS Index 228.46 +2.05%
  
• Western Europe Sovereign Debt CDS Index 334.33 +.47%
  
• Emerging Market CDS Index 282.02 +2.50%
  
• 2-Year Swap Spread 36.0 +2.0 bps
  
• TED Spread 44.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 181.0 -2 bps
  
• China Import Iron Ore Spot $122.90/Metric Tonne +.16%
  
• Citi US Economic Surprise Index 18.70 +5.1 points
  
• 10-Year TIPS Spread 2.12 +3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -81 open in Japan
• DAX Futures: Indicating +19 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 trades lower on rising Eurozone debt angst, rising global growth worries, financial sector pessimism and rising energy prices. On the positive side, Coal, Alt Energy, Steel, Computer, Semi, Disk Drive, HMO and Restaurant shares are higher on the day. Tech shares have outperformed throughout the day. Gold is falling -.4% and Lumber is rising +.4%. Major Asian equity indices rose 1-3% overnight. The China sovereign cds is falling -10.95% to 135.89 bps, the Japan sovereign cds is falling -5.2% to 110.12 bps and the Saudi sovereign cds is falling -3.0% to 110.0 bps. On the negative side, Networking, Bank, I-Banking, REIT, Construction, Insurance and Biotech shares are under pressure, falling more than -1.5%. (XLF) has traded poorly throughout the day. Oil is rising +.3%, copper is falling -.67% and the UBS-Bloomberg Ag Spot Index is flat. Major European equity indices fell 2.0-2.5% today. The Spain sovereign cds is jumping +4.65% to 388.33 bps, the Italy sovereign cds is rising +1.77% to 496.67 bps, the Portugal sovereign cds is rising +3.3% to 1,038.0 bps, the Belgium sovereign cds is gaining +2.04% to 282.0 bps, the Russia sovereign cds is climbing +2.26% to 211.33 bps and the Ireland sovereign cds is rising +2.42% to 719.33 bps. Rice is still close to its multi-year high, rising +26.8% in about 4 months. The Italian 10-year yield jumped +17 bps to 6.37% today. The Italian/German 10-Year Yield Spread is soaring +26.47 bps to 454.64 bps, which is another new all-time high. The TED spread continues to trend higher and is near the highest since June 2010. The Libor-OIS spread is still very near the widest since July 2010. The 2-Year Euro Swap spread is still very near cycle highs, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -35.90% since February 16th and -32.0% since Sept. 7th. Despite this week's pullback, the broad US equity market still trades like it wants to move higher in the short-term on fund year-end performance-chasing, seasonality and better US economic data. However, the rapidly deteriorating fundamentals in Europe continue to get in the way. I still suspect one more meaningful push higher can occur before year-end, but that it will prove to be short-lived. I expect US stocks to trade mixed-to-lower into the close from current levels on rising financial sector pessimism, global growth fears, rising Eurozone debt angst, profit-taking, more shorting and technical selling.

Today's Headlines

Bloomberg:

• European Stocks Drop After G-20 Fails to Agree on IMF Funding. European stocks fell, capping the first weekly decline in six weeks, after the Group of 20 failed to agree on boosting the International Monetary Fund’s resources and German factory data fueled concern the region is slipping into recession. Alcatel-Lucent SA, France’s largest telecommunications equipment maker, slumped to the lowest price in more than two years as it cut its full-year profit margin forecast. Commerzbank AG (CBK) dropped 6.3 percent after reporting a bigger- than-estimated quarterly loss on Greek-debt writedowns. The benchmark Stoxx Europe 600 Index fell 1 percent to 239.76 at the close in London. The gauge has retreated 3.7 percent this week, the first weekly drop since Sept. 23, as Greek Prime Minister George Papandreou’s now-abandoned referendum call spurred concern the country may go into disorderly default. “Investors will certainly need to digest the latest developments in Greece and the outcome of the latest G-20 summit over the weekend,” said Jean-Maurice Ladure, head of investment strategy at Coutts & Co Ltd. in Zurich. “Hence, investors are likely to remain in ‘wait-and-see’ mode.” Global policy makers are awaiting more details of a week- old rescue package before they commit fresh cash to the IMF which could then lend to Europe’s bailout facility, German Chancellor Angela Merkel said at the end of a G-20 summit in Cannes, France. French President Nicolas Sarkozy said it may take until February for a deal.
  
• Greek Lawmakers Seek Route to National Government as Confidence Vote Nears. Greek politicians are trying to map out a plan to put in place a new government to ratify last week’s European Union bailout agreement as Prime Minister George Papandreou struggles to keep his majority in parliament. With Papandreou facing a confidence vote at midnight Athens time, opposition leader Antonis Samaras is refusing to share power with the premier. Samaras wants a caretaker government chosen by the president. Should Papandreou win the vote, his options this weekend include handing over power to a national unity government or fighting on. Papandreou’s Pasok party currently controls 152 seats in the 300-member legislature. “The issue is how to keep the country going and then evolve the current government into a broader government that takes on board other political forces,” Energy Minister George Papaconstantinou told Bloomberg Television’s Nicole Itano in an interview. “We need broader support and approval for the kind of measures that were taken.”
• ECB's Stark Says Economy May Not Expand at All in Fourth Quarter of 2011. European Central Bank Executive Board member Juergen Stark said the euro-area economy may not grow at all in the final three months of the year. “Possibly we will see, and I say this with all caution, a red zero in the fourth quarter,” Stark said in a speech in Frankfurt today. Growth will be “very weak” going into 2012 and “there are consequences for price and wage developments,” he said. Stark also said he assumes the ECB will end its bond purchases “as soon as possible” as they set the wrong incentives.
  
• European CEOs Prepare for Recession Risk Amid Greek Flipflopping on Euro. The squabbling over Greece’s future in the euro zone may push Europe’s economy into recession and reduce companies’ ability to compete internationally, according to executives of some of the region’s biggest corporations. “There are legitimate reasons to be worried,” Alexey Mordashov, chief executive officer of Russia’s second-biggest steelmaker OAO Severstal, said in an interview in Cannes, France, where leaders of the Group of 20 economic powers are meeting. “We expect it to undermine growth in Europe.”
• U.S. Payrolls Rose in October; Jobless Rate 9%. The U.S. jobless rate unexpectedly fell in October while employers added fewer workers than forecast, illustrating the “frustratingly slow” progress cited by Federal Reserve Chairman Ben S. Bernanke this week. The unemployment rate fell to a six-month low of 9 percent from 9.1 percent, even as the labor force grew. The 80,000 increase in payrolls followed gains in the prior two months that were revised up by 102,000, Labor Department figures showed today in Washington. Average hourly earnings rose 0.2 percent to $23.19, while the workweek held at 34.3 hours, today’s report showed. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- dropped to 16.2 percent from 16.5 percent. The number of people jobless for 27 weeks or more fell to 42.4 percent as a share of all those without work from 44.6 percent. It was last lower in November 2010. The number of temporary workers increased 15,000 after rising 21,100 the prior month.
• Germany Worried About Libya Missile Proliferation, Bild Says. Germany’s Federal Bureau of Criminal Investigation is concerned about the spread of surface-to-air missiles from Libya that may fall into the hands of terrorists, Germany’s Bild-Zeitung newspaper reported. The bureau issued a warning to German customs authorities that Russian-made SA-7 missiles have been offered illegally in countries including Egypt, Bild reported, without saying where it got the information. Hundreds of shoulder-launched, heat-seeking missiles were probably stolen from Libyan stocks during the revolutionary turmoil, Bild cited the bureau as saying. Rainer Wendt, head of Germany’s union of police officers, called for tighter controls around German airports, Bild said.
• Baum: You Can't Fix a Burst Bubble With More Hot Air.
• Groupon(GRPN) Surges After Pricing IPO Above Range. Groupon Inc. jumped as much as 56 percent in its trading debut after the online-coupon company raised $700 million in an initial public offering that limited the amount of shares typically available to investors. The shares of the Chicago-based company, listed under the symbol GRPN, climbed $7.22, or 36 percent, to $27.22 at 12:07 p.m. New York time in Nasdaq Stock Market trading, after surging to $31.14. Yesterday, Groupon sold 35 million shares at $20 each, the biggest IPO by a U.S. Internet company since Google Inc. (GOOG) raised $1.9 billion in its 2004 initial offering.

Wall Street Journal:

• China Summons Internet Executives. Executives from China's top Internet companies have been summoned for an unusual policy-training session by the Communist Party's propaganda department, according to people familiar with the matter, the latest move in the government's campaign to increase oversight of the nation's fast-growing Internet sector. The executives are participating in a multiple-day policy-training event held on the outskirts of Beijing this week, similar to training sessions often held for government officials to review new regulations, the people said.
• ECRI Leading Index: Another Tick Higher. (graph) For the third week in a row, the Economic Cycle Research Institute’s weekly leading index has ticked a little bit higher, pushing its rolling growth rate up for the first time since July. The ECRI’s leading index edged up to 122.1 from 121.2 the prior week, and its rolling growth rate rose to -9.4% from -10.1%. That’s still a low growth rate, but hasn’t gotten worse in a couple of weeks now.

MarketWatch:

• Corzine's Ungraceful Exit. Commentary: Former CEO expresses ‘sadness’ but not regret.

CNBC.com:

• After Greece, Italy Could Be Next Focus for Markets. The eyes of the world have been trained on Greece for most of this week, but, as the Hellenic crisis approached breaking point, signs are that Italy will be the next focus. "The whole stability of Europe depends on whether Italy gets its act together," Commerzbank Chief Financial Officer Eric Strutz told analysts in a conference call on Friday.
• Greek Drama Not Over Yet: What May Happen Next.
  

Business Insider:

• Credit Derviatives and Leverage Sank Jon Corzine's MF Global(MF).

Zero Hedge:

• Back to European Sov Exposure: Moody's Will Downgrade Austria's Erste Over Attempt To Hide Billions In Sovereign CDS.
• Jefferies Releases Yet Another Set Of Numbers On Its European Exposure That Differ From 24 Hours Ago.
• Making Sense Of The Chaos: Europe's Calendar Of Events For The Rest Of November.
• Former Bundesbank President Weber Warns Germany Will Be On The European Bailout Hook For Up To 314% Of Its GDP With Levered EFSF.
  

NY Post:

• RenTec Fund Has Rebirth. Renaissance Technologies, the super-secretive $19 billion hedge fund started by math whiz Jim Simons, is doing just fine without its founder. Almost two years after Simons stepped back from day-to-day operations, the firm’s most troubled fund, the Renaissance Institutional Equities Fund, is staging a major comeback. RIEF, with assets of $6.1 billion, is up 31 percent this year, notching returns of nearly 5 percent last month, sources said. Ironically, the stellar returns finally place RIEF in the same rank as its older, more famous fund sibling, the Medallion fund, which is up 32 percent this year net of fees, one investor said.
  

FINalternatives:

• Index Has Hedge Funds Up 1.85% In Oct. Hedge funds bounced back last month with most posting positive returns. But they still have a ways to go if they're to end 2011 in anything but the red. The average fund rose 1.85% in October, the Dow Jones Credit Suisse Core Hedge Fund Index shows. But after a rough August and September—the benchmark fell more than 4% in the latter month—the index remains down 6.13% on the year, with just two months to go. Long/short equity hedge funds had the best month, rising 5.27% to cut their average year-to-date loss to 4.37%. Event-driven funds also did well, adding 2.66%, but they remain down an average of 11.01%. By contrast, managed futures funds had the worst October, dropping 5.07%, leaving the strategy down 5.18% on the year.

Reuters:

• Italy Govt Hangs by Thread as Coalition Crumbles. Italian Prime Minister Silvio Berlusconi refused to step down on Friday despite growing desertions from his crumbling centre-right coalition in protest over the ruling party's handling of an accelerating economic crisis. Berlusconi is widely believed to have already lost the numbers he needs to survive in parliament but he told reporters at a G20 summit in France: "We have a majority which I continue to believe is solid and so we will continue to govern."
• Bunds Rise on EFSF Worries, Italy Under Pressure. German Bund futures rose on Friday as worries over a lack of commitment from G20 countries to participate in Europe's bailout fund and heightened political tension in Italy forced investors towards perceived safer assets. Italian two-year government bond yields jumped and the spread of Italian 10-year yields over Bunds hit a new lifetime high after Prime Minister Silvio Berlusconi said he had refused an offer of financial support from the International Monetary Fund.

Financial Times:

• Pricing CDS on the EFSF. Dealers are shying away from offering quotes on credit default swaps referencing the European Financial Stability Fund, despite customer demand for the instruments. Five major dealers contacted by IFR all denied quoting CDS on Europe’s sovereign bailout fund, citing the potential political fallout of doing so.
• The epistemology of US banks’ European exposure. Can we really know anything about US banks exposure to Europe? A familiar epistemological question, which is being asked again in the wake of MF Global’s demise and Jefferies’ circuit-breaking slide. We’ve taken a depressingly long look at some of the data and if you don’t want to read the splurge below, in sum, we don’t think we can confidently say very much ex ante about the extent and form of US banks’ exposure to European sovereigns, banks and corporations.

Telegraph:

• Eurozone Trapped in 'Straitjacket', Says Rio Tinto(RTP) Chairman Jan du Plessis. The nations of the eurozone are trapped in a "straitjacket" of a shared currency with no way out, the chairman of mining giant Rio Tinto has warned.
• Debt Crisis: Live.
  

Imerisia:

• Greek net budget revenue in October fell 6.9% from the same month in 2010 to 4.22 billion euros. For the 10 months through Oct. 31, budget revenue declined 4.4% to 39.17 billion euros, implying Greece needs to find 12.4 billion euros in the last two months of the year to reach the revenue target for 2011 of 51.58 billion euros.

Ansa:

• Italy doesn't want to use a credit line from the IMF after having had contacts with the fund, citing European sources.

China Securities Journal:

• The bad-loan ratio for banks in China's Wenzhou city, a hub of smaller exporters, rose in September for the first time in ten years. Total outstanding bad loans for Wenzhou's banks may be 3.4 billion yuan at the end of September, based on total credit of 619.2 billion yuan. Non-performing loans may continue to increase after "some government agencies" asked lenders to be more tolerant of bad loans for smaller businesses, citing a person from the banking industry. Wenzhou banks reported declines in property lending, bank acceptance and consumer credit, reflecting cooling property purchases and weaker business activity and consumer demand, according to the report. Deposits by stock and futures investors plunged as some investors withdrew funds to repay borrowings from informal lending channels.
• Ninety percent of Chinese polysilicon makers may halt operations by the end of November because of declining spot prices.