Bull Radar

Style Outperformer:

• Large-Cap Growth (-.09%)

Sector Outperformers:

• 1) Oil Tankers +1.09% 2) Homebuilders +1.07% 3) Airlines +1.03%

Stocks Rising on Unusual Volume:

• ARGN, TRAK, DMND, HOLX, HMSY, PCLN, DFZ, YPF, SIG, TOL and ROK
  

Stocks With Unusual Call Option Activity:

• 1) ERY 2) MDR 3) TRGT 4) ATVI 5) FIO
  

Stocks With Most Positive News Mentions:

• 1) MTZ 2) STJ 3) MCD 4) RAX 5) PCLN
  

Charts:

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

Tuesday Watch

Evening Headlines

Bloomberg:

• Italian Vote Will Test Berlusconi's Majority as Allies Defect. Italian Prime Minister Silvio Berlusconi must show today whether he still has enough support in parliament to stay in power and implement austerity measures to trim the region’s second-biggest debt and bring down record borrowing costs. The Chamber of Deputies will vote at 3:30 p.m. in Rome on a routine report on last year’s budget plan that will reveal whether Berlusconi retains a majority in the 630-seat house. It’s the first such test since three party members defected to join the opposition and six others publicly called on the premier to quit. Should Berlusconi fail to muster 316 votes, he would probably face a confidence vote that will decide his fate. The yield on Italy’s 10-year bond reached a euro-era record 6.68 percent yesterday before sliding back to 6.63 percent after reports that Berlusconi was poised to resign. Berlusconi denied he would step down and pledged to call a confidence vote himself next week to secure passage of an austerity package that aims to boost growth in the region’s third-largest economy and lower the 1.9 trillion-euro ($2.6 trillion) debt. “It’s fairly clear that the market would like him to step down,” Peter Schaffrik, head of European rates strategy at RBC Capital Markets in London, said in an interview. “When the news broke, bunds dropped immediately and Italian bonds reversed. The market’s bias is fairly clear. The question is; what comes afterward, assuming he falls?”
  
• European Banks Selling Sovereign Bonds May Worsen Debt Crisis. BNP Paribas SA and Commerzbank AG (CBK) are unloading sovereign bonds at a loss, leading European lenders in a government-debt flight that threatens to exacerbate the region’s crisis. BNP Paribas, France’s biggest bank, booked a loss of 812 million euros ($1 billion) in the past four months from reducing its holdings of European sovereign debt, while Commerzbank took losses as it cut its Greek, Irish, Italian, Portuguese and Spanish bonds by 22 percent to 13 billion euros this year. Banks are selling debt of southern European nations as investors punish companies with large holdings and regulators demand higher reserves to shoulder possible losses. The European Banking Authority is requiring lenders to boost capital by 106 billion euros after marking their government debt to market values. The trend may undermine European leaders’ efforts to lower borrowing costs for countries such as Greece and Italy while generating larger writedowns and capital shortfalls. “European regulators and leaders are shooting themselves in the foot because a big investor group for sovereign bonds has been taken out of the market,” said Otto Dichtl, a London-based credit analyst for financial companies at Knight Capital Europe Ltd. “The downward spiral will continue until policy makers find a back-up solution for the sovereigns.”
• EU Eyes December Start for Rescue Fund. European finance ministers pledged to roll out a bulked-up rescue fund next month, leaving Greece and Italy on the front lines until then in the fight against the debt crisis. Greece was ordered to provide written acceptance of bailout terms in order to win an 8 billion-euro ($11 billion) loan installment by the end of November, while Italy was pressed to turn budget-cut promises into reality. “It’s a two-way street; we do our part, Greece is expected to do its part,” European Union Economic and Monetary Commissioner Olli Rehn told reporters late yesterday after finance ministers met in Brussels. “It is essential that the entire political class now restores the confidence that had been lost.”
• Spain Candidates Clash on Banks; Socialists Urge Less Austerity. Spain’s candidates for the Nov. 20 election clashed over their plans for banks, pensions and the unemployed as Socialist candidate Alfredo Perez Rubalcaba said Spain should slow the pace of its budget cuts. Rubalcaba spent most of the debate interrogating opposition leader Mariano Rajoy -- the favorite to win the election. The Socialist said Spain should delay meeting the European Union’s deficit ceiling of 3 percent of gross domestic product by two years to 2015, and called on the European Central Bank to keep cutting interest rates. He accused Rajoy of planning cuts to unemployment benefits to bring the deficit in line, as well as reducing pensions and using public money to bail out banks.
• Hong Kong's Donald Tsang Sees '50-50 Chance' of World Recession. There's a "50-50 chance" of a global recession in the coming year, especially in the next two quarters, Hong Kong Chief Executive Donald Tsang said at an event in New York today. Tsang said the city's inflation isn't caused by the local currency's link to the U.S. dollar, and is instead a "global phenomenon."
• Hong Kong May Enter Recession, Most Accurate Forecaster Says. Hong Kong's economy, a barometer of global growth, probably sunk into a recession in the third quarter after a second consecutive quarterly contraction, said Daiwa Capital Markets Ltd. The economy likely shrunk 1.5% in the three months ended September from the previous three months, Kevin Lai, an economist at Daiwa, wrote in a report.
  
• Cargoes to U.S. Drop for First Time Since '09 as Confidence Wanes: Freight. U.S. imports on the world’s biggest trading route are dropping for the first time in almost two years as consumer confidence weakens to the lowest level since the recession that ended in 2009. Container volumes on the Asia-to-U.S. route fell 3.8 percent in the third quarter, the first decline since the last three months of 2009, according to Newark, New Jersey-based PIERS, a unit of UBM Global Trade that compiles cargo data. The slump probably continued last month, said Mario Moreno, a UBM economist. Rates for 40-foot containers to the West Coast, a benchmark, tumbled 24 percent this year, according to data from Clarkson Plc, the world’s biggest shipbroker. “This is another piece of data that suggests growth will remain slow for the foreseeable future,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Consumers are still getting used to the idea that they are not going to make as much money or accumulate as much wealth as they thought they would a few years ago.” Slumping rates for container lines from A.P. Moeller-Maersk A/S, the largest, to Neptune Orient Lines Ltd. are as much about capacity as trade. The fleet has expanded for two years to a record, according to Redhill, England-based IHS Fairplay. While cargoes to the U.S. West Coast from Asia are shrinking, volumes will probably expand 1.5 percent from 2010, signaling no return to the last recession, when they dropped 15 percent, London- based Clarkson estimates.
• Banning Sugary Soda From Schools Fails to Cut Teen Consumption. Banning sugar-filled sodas from American schools as an effort to combat childhood obesity doesn’t reduce overall consumption levels of sweetened beverages, research found. In U.S. states that banned only soda, about 30 percent of middle-school students still purchased sugary drinks like sports and fruit beverages at school, similar to states that had no policy, according to a study released online today in the Archives of Pediatrics and Adolescent Medicine. In states that banned all sugar-sweetened beverages, students still consumed the drinks outside of school, the researchers said.
• Citi(C), JPMorgan(JPM) May Face Highest Basel Surcharges, Draft Says. Citigroup Inc. (C), JPMorgan Chase & Co., BNP Paribas SA, Royal Bank of Scotland Group Plc, and HSBC Holdings Plc (HSBA) may face top capital surcharges of 2.5 percentage points, according to a provisional list prepared by global regulators and obtained by Bloomberg News.
• Most Solar Makers Will Disappear: Trina(TSL) CEO. Most of the biggest solar equipment makers may disappear in the next few years as plunging prices erode margins and drive the weakest out of business, according to Trina Solar Ltd. (TSL), the fifth-largest supplier of solar panels.“This is the decade of mergers and acquisitions,” Jifan Gao, chief executive officer of Changzhou, China-based Trina, said in an interview. “From now until 2015 is the first phase, when about two-thirds of the players will be shaken out.”
• Keystone Rerouting Said to Be Weighed by U.S. State Department. The U.S. State Department is weighing whether to seek a rerouting of TransCanada Corp.’s planned $7 billion Keystone XL pipeline away from the Sandhills region of Nebraska, a department official said. The department is considering how to respond to concern among Nebraska citizens and public officials about the risk that TransCanada’s current plans may pose to the Sandhills, said the official familiar with the deliberations, who spoke on condition of anonymity yesterday about internal discussions.

Wall Street Journal:

• Derivatives Tide Rises at Big Banks. Huge numbers can be scary, especially when it comes to derivatives. So investors should take a seat before reading third-quarter securities filings from some of the biggest U.S. banks. During the period, gross derivatives assets jumped 52% at Bank of America from the previous quarter, to $2.17 trillion. At J.P. Morgan Chase, they rose 47%, to $2.04 trillion. And at Citigroup, they increased 31%, to about $1.1 trillion. Although big, those moves aren't immediately apparent to investors. Under U.S. accounting rules, banks are able to "net" down the gross asset to reflect offsetting derivative liabilities and collateral. At J.P. Morgan, this net figure, which is what goes into the calculation of total assets shown on the face of the balance sheet, was $109 billion. It was about $79 billion at BofA and $60.3 billion at Citi. It isn't until banks release quarterly securities filings, usually a few weeks after they post earnings, that investors see the footnote disclosures detailing the gross positions.
• Repsol Taps Big Argentine Oil Find. Repsol YPF SA's discovery of a huge amount of shale oil in the south of Argentina could boost its energy reserves by 44% and mark a massive potential windfall for the country and the oil company. The Spanish company's Argentine unit said Monday it has identified 927 million barrels of oil equivalent in underground rock while exploring 428 square kilometers in the Loma La Lata area.
• Dynegy Files for Unusual Bankruptcy. Dynegy Inc.'s holding company filed for Chapter 11 bankruptcy protection in a way that could cause losses for bondholders without harming parent-company shareholders that include Carl Icahn and hedge fund Seneca Capital.

MarketWatch:

• China's Exporters See Slowing Growth. China’s export growth continued to slow on a drop in demand from developed countries, according to data from the 110th China Import and Export Fair. With total exports hitting $37.9 billion, up 8.9% year-on-year, trade figures from the fair showed a marked decrease in expansion from the 14.5% rate of growth clocked just one year ago. Judging from export destinations, demand in European and American markets accounted for the largest decreases, down 19% and 24%, respectively.

Business Insider:

• Democrats Push Financial Transactions Tax, Say It Would Raise $350 Billion.

Zero Hedge:

• Complete Hedge Fund October Score Card.
• Presenting The Latest Eurodebt Exposure Masking Scam Courtesy Of Morgan Stanley(MS): Level 1 To Level 2 Transfers.
  

CNBC:

• Cash-Rich Firms Sit Tight, Fearing Government Meddling. Fears of government intervention and regulatory changes are causing companies in Asia and Europe to refrain from increasing spending despite improved balance sheets since the global financial crisis, a survey by money manager Fidelity Worldwide Investment showed.
• Greece Runs Into Trouble Picking a New Prime Minister. Greek party leaders are struggling to agree on a new prime minister, despite EU demands that the political class commit itself fast to the nation's financial salvation and end the chaos threatening the entire euro project.

IBD:

• Lululemon(LULU) Strikes A Pose In Canada And U.S.
  

CNN:

• Insider Selling on the Rise. (graph)
• Big Bank SEC Settlements: Toothless Face-Savers? If big banks get to settle with the SEC without admitting or denying any wrongdoing, what good does a settlement do in the end?

MSNBC:

• Is Obama's Rail Initiative a 'Train to Nowhere'? High-speed train plan draws little enthusiasm as California costs soar.

Reuters:

• Exclusive: Fed's Fisher Says Still Against New Easing. Dallas Federal Reserve Bank President Richard Fisher on Monday said his support for the Fed's decision last week to continue efforts to push down borrowing costs does not mean he is a convert to the need for more easing. Fisher voted with the 9-1 majority on the Fed's policy-setting panel last Wednesday to hold a steady course on the central bank's super-easy policy. It was a departure for the Texas central banker, who opposed the Fed's easing in August and again in September. "I already dissented, and everybody knows it. I didn't support those programs and I haven't changed my mind," Fisher, 62, said in an interview with Reuters at the regional Fed bank's headquarters. "There was no new proposal, no new initiative, so therefore there was no reason to dissent," he said. "But we didn't take any new steps, and to me, that's progress," adding that if there had been a proposal to do additional easing, he would have opposed it. As if to signal just how comfortable he was with his vote last week, Fisher swung his legs over the arm of his leather chair partway through the interview and conducted the balance of it from a partially prone position. His grounds for voting against the Fed's decision in previous meetings were that what the economy needs is not lower interest rates but more clarity from lawmakers on the future of tax and regulatory policy. Fisher said, as he has repeatedly, that the Fed has done its job, keeping rates near zero for nearly three years and buying more than $2 trillion in long-term securities to send borrowing costs down still further. Fisher said he still sees the lack of clarity on U.S. fiscal policy as the biggest drag on U.S. growth. But credit problems in Europe are also hurting, and not just because a slowdown in Europe could hurt U.S. exports. "It's one more inhibitor of confidence, it's one more factor of uncertainty" that is holding back the recovery, he said. "We could make it worse by signaling we could inflate our way out of it or flood our way out of it." Fisher said he sees about 2.5 percent to 3 percent growth for the rest of this year. Though that is not fast enough to put much dent in an unemployment rate that has stayed a 9 percent or above for more than a year, it's "highly doubtful" monetary policy can do much to help, he said. "All it does is build up our balance sheet" and makes an eventual exit from easy policy more difficult, he said. Most Wall Street economists believe the snail's pace of recovery and weak U.S. jobs growth will push the Federal Reserve to undertake more measures to help the economy, according to a Reuters poll on Friday. But Fisher, who will rotate into a non-voting spot on the Fed's policy-setting panel next year, re-emphasized his opposition to a third round of quantitative easing, which would be known as QE3. "QE3 is not going to happen in my book, unless it's clear we have not provided enough liquidity," he said.
• Rackspace(RAX) Revenue Beats on Growing Web Hosting Demand. Web hosting company Rackspace Hosting Inc's third-quarter revenue came in above analysts' expectations, as the demand for hosting applications rose in a sluggish macro economy.
• Priceline(PCLN) Profit Higher as Bookings Jump. Online travel agency Priceline.com on Thursday posted a higher quarterly profit that topped analysts' expectations as strong growth at its overseas markets boosted bookings. Priceline also forecast third-quarter profit above Wall Street expectations and its shares jumped 10 percent in after-hours trading to $532.56.

Financial Times:

• Not So Hedge Funds. Hedge funds used to promise “absolute returns” until hefty losses in the financial crisis reminded clients that there is no such thing. Since then, hedgies have preferred to talk about “uncorrelated returns”, appealing to pension fund advisers and others who use variants of the capital asset pricing model. Once again, the sales pitch is far from the truth.

Telegraph:

• Eurozone Ministers Fail to Create €1 Trillion Bail-Out Fund. Eurozone finance ministers have failed to sanction measures to create the bloc's crucial €1 trillion bail-out fund – despite warnings that Europe is dangerously ill-equipped to cope with the financial and economic crisis enveloping Italy. Despite publishing a more detailed mandate following a summit in Brussels, the Eurogroup delayed agreeing specifics on how to leverage the €440bn European Financial Stability Facility (EFSF), risking further market turmoil ahead of votes on Tuesday that could topple Silvio Berlusconi's government. The EFSF also pushed ahead with a 10-year bond auction which it had put off from last week because of lack of demand. The fund, which is supposed to be the eurozone's key weapon against the debt crisis, managed to raise €3bn but only after having to pay record returns to entice investors. Joachim Fels of Morgan Stanley said: "The leveraged EFSF may still turn into a bazooka but so far it looks more like a water pistol."
• France Cuts Frantically as Italy Nears Debt Spiral. France has unveiled the toughest austerity measures since World War Two despite the looming danger of a double-dip recession, vowing to slash borrowing by €65bn over the next five years in a last-ditch effort to save the country's AAA rating.

Leipziger Volkszeitung:

• Germany's Finance Minister Wolfgang Schaeuble expects additional costs to be shouldered by Germany's Soffin rescue fund in the event Greece goes bankrupt or bondholders have to accept a "larger" writedown on Greek government bonds, citing a letter by Schaeuble to Carsten Schneider, the Social Democratic Party's budget spokesman in parliament. Additional costs potentially amounting to billions of euros could stem from higher payments to the so-called bad banks for Hypo Real Estate Holding AG and WestLB, and are not yet included in Germany's fiscal budget.

Xinhua:

• About 1,000 Beijing property agencies have closed this year, the most in three years, because of cooling demand for homes, citing Homelink Real Estate. About 177 property agencies closed in Beijing last month.

China Securities Journal:

• The Chinese government may reduce spending on railways by 38% to $79B/year through 2015, citing sources.

Evening Recommendations
Piper Jaffray:

• Rated (DD) Overweight, target $62.
• Rated (CNH) Overweight, target $51.

Night Trading

• Asian equity indices are -.75% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 195.50 +3.25 basis points.
  
• Asia Pacific Sovereign CDS Index 150.25 -2.0 basis points.
• FTSE-100 futures +.38%.
  
• S&P 500 futures -.44%.
  
• NASDAQ 100 futures -.33%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FOSL)/1.04
• (SMG)/-.44
• (ROK)/1.21
• (ATVI)/.02
• (IGT)/.23
• (NILE)/.17
• (MDR)/.29
• (ANDE)/.17
• (EBIX)/.38

Economic Releases
7:30 am EST

• NFIB Small Business Optimism for October is estimated to rise to 90.0 versus a reading of 88.9 in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Kocherlakota speaking, Fed's Plosser speaking, JOLTs Job Openings report for Sept., EU Finance Ministers Meeting, China CPI, 3-Year Treasury Note Auction, weekly retail sales reports, IBD/TIPP Economic Optimism Report for November, Baird Industrial Conference, CSFB Healthcare Conference, Piper Jaffray Tech/Media/Telecom Conference, Wells Fargo Tech/Media/Telecom Conference, (SE) Investor Meeting, (SWI) Analyst Day, (AWH) Investor Day and the (QSII) Analyst Day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology 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 day.

Stocks Reversing Higher into Final Hour on Euro Bounce, Short-Covering, Bargain-Hunting, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 30.59 +1.43%
  
• ISE Sentiment Index 89.0 -2.20%
  
• Total Put/Call 1.03 -9.65%
  
• NYSE Arms .91 -21.35%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 124.47 +1.03%
  
• European Financial Sector CDS Index 235.12 +.63%
  
• Western Europe Sovereign Debt CDS Index 333.33 -.07%
  
• Emerging Market CDS Index 288.04 +1.93%
  
• 2-Year Swap Spread 36.0 unch.
  
• TED Spread 45.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 177.0 -4 bps
  
• China Import Iron Ore Spot $122.90/Metric Tonne +1.71%
  
• Citi US Economic Surprise Index 21.60 +2.9 points
  
• 10-Year TIPS Spread 2.14 +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +18 open in Japan
• DAX Futures: Indicating +38 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 reverses morning losses despite rising Eurozone debt angst, rising global growth worries and rising energy prices. On the positive side, Medical, Homebuilding, Oil Service and Software shares are especially strong, rising more than +.75%. The UBS-Bloomberg Ag Spot Index is falling -.56% and Lumber is rising +2.16%. On the negative side, Coal, Alt Energy, Oil Tanker, Paper, Semi, Networking and Airline shares are under pressure, falling more than -.75%. Cyclicals and small-caps are underperforming. (XLF) has underperformed throughout the day. Oil is rising +1.32%, copper is flat and Gold is surging +2.3%. The 10-year Yield is falling -3.0 bps to 2.00%. Spanish stocks fell -1.4% today and are back below their 50-day moving average. The Germany sovereign cds is up +1.1% to 87.33 bps, the France sovereign cds is rising +2.42% to 182.17 bps, the Italy sovereign cds is up +2.38% to 507.0 bps, the Belgium sovereign cds is up 1.34% to 285.50 bps and the Israel sovereign cds is up +2.88% to 169.08 bps. Moreover the European Investment Grade CDS Index is up +4.5% to 163.59 bps and the Emerging Markets Sovereign CDS Index is jumping 8.95% to 265.83 bps. Rice is still close to its multi-year high, rising +27.0% in about 4 months. The Italian 10-year yield jumped +29 bps to 6.66% today, which is the highest since Aug. 1997. The Italian/German 10-Year Yield Spread is soaring another +33.01 bps to 487.65 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 now at 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 -34.90% since February 16th and -30.93% since Sept. 7th. Gains in oil and gold are likely much more related to all the rumors regarding a potential attack on Iran rather than perceptions of global demand improvement, which is another large negative. Despite more negative headwinds, the broad US equity market still trades fairly well and looks higher in the short-term on fund year-end performance-chasing, seasonality and better US economic data. However, the rapidly deteriorating fundamentals in Europe will likely mute upside traction and will likely weigh meaningfully on the major averages again over the coming months. I expect US stocks to trade mixed-to-higher into the close from current levels on fund performance-chasing, short-covering, bargain-hunting and technical buying.

Today's Headlines

Bloomberg:

• Italian 10-Year Yield Surges to Record on Debt, Growth Concern; Bunds Rise. Italian benchmark yields climbed to a euro-era record amid concern the region’s third-largest economy is struggling to manage its debt loads, while growth in Europe is faltering. German two-year note yields were within seven basis points of an all-time low as European finance chiefs meet to discuss the region’s bailout fund. Greek politicians agreed to form a national unity government to win international aid payments. The extra yield investors receive for holding 10-year Italian debt over similar-maturity bunds fell from a euro-era record after Il Foglio said Prime Minister Silvio Berlusconi may step down within “hours.” The rumor was denied. “Ultimately, Italy is a lot bigger issue than Greece for the future of the euro zone, given the size of the bond market,” said Lyn Graham-Taylor, a fixed-income strategist at Rabobank International in London. “You’ve got very high bond yields and they can’t live at this level forever.” Italy’s 10-year bond yield climbed 30 basis points, or 0.30 percentage point, to 6.67 percent at 4:26 p.m. London time, after rising to a record 6.68 percent. That pushed the difference in yield, or spread, over German securities to as wide as 491 basis points. The 4.75 percent security maturing Sept. 2021 dropped 1.92, or 19.20 euros per 1,000-euro ($1,376) face amount to 87.045. The Italian two-year note yield surged 55 basis points to 6.01 percent, after narrowing the spread over 10-year yields to 58 basis points, the least since September 2008. “The ongoing self-fulfilling pessimistic dynamics may ultimately restrict the sovereign’s ability to roll over its liabilities and thus bring its sustainability into question,” wrote Huw Pill, London-based chief European economist at Goldman Sachs Group Inc. “While yields are elevated and confidence is at a low ebb, these conditions weigh on the real economy, which appears to be entering a deep recession.”
• Italy Leads Surge in European Sovereign Default Risk Amid Berlusconi Concern. Italy led an increase in the cost of insuring European sovereign debt on concern Prime Minister Silvio Berlusconi’s government is collapsing as he faces a parliamentary budget vote tomorrow. Credit-default swaps on Italy climbed 13 basis points to 506 at 1 p.m. in London, approaching the record 534 set Sept. 22, according to CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose five basis points to 328. “With Greece temporarily off the market agenda, we fully expect Italy to fill that void this week,” said Harpreet Parhar, a strategist at Credit Agricole SA in London. “The turning point required may be for Berlusconi to do the decent thing and step down.” Credit-default swaps on Belgium climbed six basis points to 286, France rose three to 181, Germany increased one to 87 and Portugal was 10 higher at 1,047 CMA prices show. Italian companies also led an increase in the cost of insuring corporate debt. Swaps on energy company ENI SpA jumped 39 basis points to 189, Compagnie Industriale Riunite SpA, which owns daily la Repubblica, soared 93 to 868 and Finmeccanica SpA rose 37 to 430, CMA prices show. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 11 basis points to 725.5, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 1.5 basis points to 175 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased six basis points to 251.5 and the subordinated index climbed 10 to 470.
• EFSF Rescue Fund Said to Revive Bond Sales as Crisis Deepens. The European Financial Stability Facility revived the 3 billion-euro ($4.1 billion) bond sale it pulled last week even as the region's sovereign crisis deepened. The bailout fund will price the bonds due February 2022 to yield 104 basis points more than the benchmark swap rate, according to two people with knowledge of the transaction. The proceeds will be used to help finance the rescue of Ireland.
• EU Seeks Time on Fund Boost, Demands Cuts in Greece, Italy. European finance ministers pleaded for more time to work out how to boost the region’s rescue fund and counted on budget cuts in Greece and Italy to allay doubts about the response to the debt crisis. Finance chiefs won’t decide tonight how to scale up the 440 billion-euro ($606 billion) bailout fund or approve the next 8 billion-euro installment of Greece’s aid package, Luxembourg Prime Minister Jean-Claude Juncker said. “I don’t expect we’ll come to any decisions today,” Juncker told reporters as he arrived to lead the Brussels meeting. He called talks on using financial engineering to bulk up the rescue fund “insanely complicated.”
• European Service Sector PMI's are Collapsing. (graph)
• Gold Rises to Six-Week High on Mounting European Sovereign-Debt Concerns. Gold futures rose to a six-week high as Europe’s escalating sovereign-debt crisis spurred demand for a haven. Italian Prime Minister Silvio Berlusconi’s allies pressured him to step aside after contagion from the region’s fiscal woes pushed the nation’s borrowing costs to euro-era records. Gold jumped to a record $1,923.70 an ounce on Sept. 6 on demand for an alternative to equities and some currencies. “The problems in Europe are not disappearing in a hurry, and there is so much confusion,” Thorsten Proettel of Landesbank Baden-Wuerttemberg in Stuttgart, Germany, said in a telephone interview. “There is a basis for gold to continue to rise.” Gold futures for December delivery gained 1.5 percent to $1,781.70 at 9:53 a.m. on the Comex in New York. Earlier, the metal reached $1,784.20, the highest for a most-active contract since Sept. 22. Before today, the commodity climbed 24 percent this year.
• Oil Rises to Three-Month High Before Greek Talks. Crude oil increased to a three-month high in New York on the prospect of new leadership in Italy and Greece, two countries that are in the forefront of Europe’s sovereign debt crisis. Crude oil for December delivery rose 78 cents, or 0.8 percent, to $95.04 a barrel at 11:56 a.m. on the New York Mercantile Exchange. The contract reached $95.66, the highest intraday price since Aug. 2. Brent oil for December settlement climbed $1.94, or 1.7 percent, to $113.91 on the London-based ICE Futures Europe exchange. The European benchmark reached $114.88, the highest level since Sept. 15. Oil traders are also awaiting the release of a United Nations report this week that may trigger action against Iran, the second-biggest oil producer in the Organization of Petroleum Exporting Countries after Saudi Arabia. The International Atomic Energy Agency is scheduled to publish its quarterly report on Iran’s nuclear work this week, and inspectors are expected to conclude for the first time that Iran is working toward nuclear weapons. Iran is moving closer to developing a nuclear weapon after a Russian scientist showed Iranians techniques that could make smaller atomic weapons capable of bigger explosions, according to three officials with knowledge of the document who have been briefed on the UN atomic agency’s eight-year probe.
• Berkshire Hathawy(BRK/A) On Cusp of Oversight by Fed Under Risk Council Criteria. Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) may be on the cusp of getting Federal Reserve oversight under a proposal by regulators that also increases the chances that American International Group Inc. (AIG) and MetLife Inc. (MET) will receive heightened scrutiny. Berkshire had $29.7 billion in credit-default swaps linked to its debt as of Oct. 28, putting it just under a $30 billion threshold proposed last month by the Financial Stability Oversight Council. AIG, now majority-owned by the U.S., had $45.3 billion in swaps written against it, and MetLife, the New York-based insurer, had $32.9 billion. The council, responsible for deciding which non-bank financial firms are systemically important and require Fed oversight, plans to evaluate those that have $50 billion or more in assets and meet any one of five other criteria, including the credit-default swap threshold. Berkshire, AIG and MetLife all meet the asset minimum.
• Citigroup(C), JPMorgan(JPM), BNP Paribas May Face Top Basel Surcharges. Citigroup Inc., JPMorgan Chase & Co., BNP Paribas SA, Royal Bank of Scotland Group Plc, and HSBC Holdings Plc may face top capital surcharges of 2.5 percentage points, according to a provisional list prepared by global regulators and obtained by Bloomberg News. The list was drawn up as part of plans by the Group of 20 nations to force banks whose failure could damage the global economy to boost their reserves by 1 to 2.5 percentage points above minimum levels agreed by international regulators. Bank of America Corp., Barclays Plc and Germany’s biggest bank Deutsche Bank AG may face surcharges of 2 percentage points, according to the list. “You’re saying by virtue of being a bigger bank, you’re going to have to pay for that,” Joseph R. Mason, a finance professor at Louisiana State University in Baton Rouge, said in a telephone interview. “You’re creating an incentive for big banks to hide even more risk, to get the surcharge reduced.”
• Lagarde Warns of East Europe Liquidity Squeeze. International Monetary Fund Managing Director Christine Lagarde warned that eastern Europe may face a credit squeeze as western European banks mired in the euro-area debt crisis withdraw liquidity from the region. “Big fault lines” remain in the former communist bloc’s financial systems, adding to its high dependence on exports to western Europe, Lagarde said today in speech at Moscow’s State University of the Ministry of Finance after meeting President Dmitry Medvedev. The risks include a high share of external debt and loans in foreign currencies, both funded by western banks, she said. “If the storm strengthens further in the euro area, emerging Europe as its closest neighbor would be severely hit,” Lagarde said. “This time around, western parent banks, which have been instrumental in keeping those economies afloat, would no longer necessarily be here to sustain growth and the health of those countries.”

MarketWatch:

• Banks Cool Move to Easier Loan Terms: Fed. The recent trend of U.S. banks easing restrictions on loan terms cooled in the third quarter, according to a survey of banks' senior loan officers released Monday by the Federal Reserve. Fewer banks eased standards and terms over the past three months, particularly on loans to large and middle-market firms. Many foreign banks actually tightened their requirements for business loans. U.S. banks have also tightened standards on their loans to European banks, according to the Fed survey of 51 domestic banks and 22 foreign banks. Business demand for the third quarter also weakened in the third quarter. On the consumer side, there was a pickup in demand for home loans although this may have been tied to the major rise in refinancing activity.
• China's Wen: Beijing Wants Real Estate to Correct.
  

CNBC.com:

• Jefferies Dumps Europe. Jefferies Group dramatically reduced its gross exposure to Europe over the weekend. The firm sold off $1.1 billion of both long and short positions on the sovereign debt of Italy, Ireland, Greece, Portugal, and Spain. The firm says that is 49.5 percent reduction in its gross holdings since the close of business Friday.
• UPS(UPS) Plans 55,000 Holiday Hires, Sees Solid Demand. United Parcel Service said on Monday it plans to hire 55,000 seasonal workers during the holiday shipping season, up from 50,000 a year ago, due to "solid" shopping activity and an increase in global volume.
• Next Crisis? Why Markets Are Worried About Italy Now. The markets are making it clear they think Italy will be better off financially if the country’s Prime Minister, Silvio Berlusconi, steps down. There’s a reason for that: his repeated failure to deliver on promises to reform the Italian economy.

Business Insider:

• Russia Warns Israel That Attacking Iran Would Be A 'Very Serious Mistake'.
• The German Economy Is Falling Off The Cliff. he good news is that Germany can no longer maintain the illusion that it's an island of stability, immune to the problems its neighbors are facing. The bad news is that its economy is tanking. German industrial production just fell 2.7% in October; much worse than September's 1% decline, and far worse than the expected fall of 0.5%, according to Markit. This comes on the heels of some really bad data last week.

Zero Hedge:

• Italian Cash 5s10s Curve Inverts For First Time Since 1995. (graph)

New York Times:

• Businesses Feel The Pinch as China Tightens Lending.

Washington Post:

• IAEA Says Foreign Expertise Has Brought Iran to Threshold of Nuclear Capability. Intelligence provided to U.N. nuclear officials shows that Iran’s government has mastered the critical steps needed to build a nuclear weapon, receiving assistance from foreign scientists to overcome key technical hurdles, according to Western diplomats and nuclear experts briefed on the findings. Documents and other records provide new details on the role played by a former Soviet weapons scientist who allegedly tutored Iranians over several years on building high-precision detonators of the kind used to trigger a nuclear chain reaction, the officials and experts said. Crucial technology linked to experts in Pakistan and North Korea also helped propel Iran to the threshold of nuclear capability, they added.

Investment News:

• Hedge Fund Stars Plummet to Earth. Bad timing on big bets trips up former winners John Paulson, Bill Ackman and Bruce Berkowitz.

Reuters:

• France Unveils New Budget Savings as Growth Slows. France will announce about 8 billion euros of budget cuts and tax hikes for 2012 on Monday, imposing more pain on voters to protect its credit rating and curb its deficit in a gamble for President Nicolas Sarkozy six months from an election. Sarkozy's center-right government says extra savings are urgently needed to keep France's finances from going off the rails, since it cut its growth forecast for next year to 1 percent from 1.75 percent last week.

AFP:

• China Fund Official Slams 'Indolence' in Europe. A top official of China's $400 billion sovereign wealth fund has accused Europe of "indolence" and said any Chinese investment in the debt-laden region would be based on financial returns. Jin Liqun, chairman of the board of supervisors of China Investment Corp, slammed the welfare systems of European countries and said the continent must address its own problems to attract outside investment. "If you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of the worn out welfare society," Jin told Al-Jazeera television in an interview broadcast at the weekend. "The labour laws induce sloth, indolence, rather than hardworking." Jin, a former vice finance minister, said Beijing would consider investing in Europe but any decision would be based on likely investment returns. A move to help developed European countries would be a hard sell for Communist Party leaders in a country where millions of people live in poverty and inflation and soaring housing costs are straining household budgets.

Financial Times:

• Live Blog: Eurozone Crisis.

Telegraph:

• Debt Crisis: Live.

Kommersant:

• IMF Director Christine Lagarde said financial strains have increased sharply and global risks are at a dangerously high level, according to an interview.

Sydney Morning Herald:

• Booming Echoes of Global Crisis in China. Back in 2008, when the crisis broke, industrial production collapsed around the world. Chinese factories were mothballed and the workers laid off. China’s communist leaders well understood the potential for serious social unrest so they ordered Chinese banks to keep the economy moving by expanding credit. At one stage, the annualised increase in credit growth in China hit 170 per cent, almost certainly the biggest such surge there has ever been. The result was over-investment on a colossal scale: not just in industrial capacity but in property. China is now awash with factories that will struggle to make a profit and with a glut of overpriced housing. Historically, an uncontrollable rise in credit has been the best indicator of a financial crisis, as the west knows from recent experience. Can China buck this trend? Well, it is interesting that many of the arguments along the ‘‘this time it’s different’’ line propounded in the US in the mid-2000s are being trotted out again. The fundamentals justify elevated property prices, just as they did in the US. There is exaggerated confidence in the ability of the People’s Bank of China to finesse a soft landing, just as there was in the ability of the ‘‘maestro’’ Alan Greenspan to prevent the American bubble popping a decade ago. There are booming echoes of the sub-prime crisis: too much leverage, property sold at distressed prices, and evidence of wrongdoing.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.61%)

Sector Underperformers:

• 1) Networking -2.53% 2) Coal -2.41% 3) Alt Energy -2.20%

Stocks Falling on Unusual Volume:

• OVTI, CCJ, BRKS, AIXG, DLLR, MDRX, MED, DMND, HWCC, BSFT, TESO, ORBK, ARIA, SGEN, OPTR, VRTX, MXWL, IACI, ROVI, SATS, MEAS, PANL, AKAM, CYOU, SGNT, MSG, CIX, MTZ, PHG and ISH
  

Stocks With Unusual Put Option Activity:

• 1) KBH 2) AMGN 3) GPS 4) ARIA 5) HFC
  

Stocks With Most Negative News Mentions:

• 1) TSL 2) DOX 3) DHI 4) DOW 5) JOYG
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (-.11%)

Sector Outperformers:

• 1) Gold & Silver +1.59% 2) Homebuilders +1.03% 3) Energy +.09%

Stocks Rising on Unusual Volume:

• DWA, CDE, HMY, TKLC, VRUS, AMGN, HMSY, DISH, KEYN and CBRL
  

Stocks With Unusual Call Option Activity:

• 1) PHM 2) WEN 3) ACE 4) HUM 5) SGEN
  

Stocks With Most Positive News Mentions:

• 1) INHX 2) JNPR 3) ANR 4) SYMC 5) NEM
  

Charts:

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