Stocks Falling Substantially into Final Hour on Soaring Eurozone Debt Angst, Rising Global Growth Fears, Financial Sector Pessimism, Technical Selling

Broad Market Tone:

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

Equity Investor Angst:

• VIX 35.82 +30.35%
  
• ISE Sentiment Index 74.0 -10.84%
  
• Total Put/Call 1.34 +9.84%
  
• NYSE Arms 6.38 +919.69%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 125.77 +1.35%
  
• European Financial Sector CDS Index 256.60 +11.87%
  
• Western Europe Sovereign Debt CDS Index 345.0 +2.01%
  
• Emerging Market CDS Index 310.49 +10.10%
  
• 2-Year Swap Spread 42.0 +6 bps
  
• TED Spread 44.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 174.0 -9 bps
  
• China Import Iron Ore Spot $134.40/Metric Tonne +6.41%
  
• Citi US Economic Surprise Index 24.30 +.7 point
  
• 10-Year TIPS Spread 2.03 -10 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -185 open in Japan
• DAX Futures: Indicating -71 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 rolls over again at its 200-day moving average on rising Eurozone debt angst, rising global growth worries, greater financial sector pessimism, profit-taking, more shorting and technical selling. On the positive side, Oil Tanker and Telecom shares are holding up relatively well, falling less than -2.0%. Gold is falling -1.01% and the UBS-Bloomberg Ag Spot Index is down -1.6%. On the negative side, Coal, Alt Energy, Energy, Oil Service, Steel, Software, Disk Drive, Networking, Bank, I-Bank, Construction and Homebuilding shares are under significant pressure, falling more than -5.0%. Oil is only -1.0% lower, copper is falling -3.8% and Lumber is falling -1.7%. India shares bucked gains in the rest of Asia overnight, falling -1.2%, and are now down -15.4% ytd. Major European equity indices fell 2-4% today. Italian shares are now down -25.3% ytd. The Germany sovereign cds is up +5.1% to 93.87 bps, the France sovereign cds is rising +7.11% to 196.85 bps, the Italy sovereign cds is up +9.63% to 570.83 bps, the Spain sovereign cds is gaining +7.4% to 430.51 bps, the Ireland sovereign cds is gaining +3.9% to 758.25 bps, the Belgium sovereign cds is up +7.54% to 315.0 bps, the Brazil sovereign cds is surging +6.34% to 153.99 bps, the Russia sovereign cds is gaining +7.5% to 225.0 bps, the UK sovereign cds is gaining +5.95% to 93.99 and the Israel sovereign cds is up +6.14% to 180.43 bps. Rice is still close to its multi-year high, rising +24.0% in about 4 months. The Italian 10-year yield jumped +48 bps to 7.25% today, which is the highest since June 1997. The Italian/German 10-Year Yield Spread is jumping another +55.79 bps to 552.57 bps, which is another new all-time high. The TED spread continues to trend higher and is at the highest since June 2010. The Libor-OIS spread is now at the widest since July 2009. The 2-Year Euro Swap spread is also making a new cycle high today, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -34.20% since February 16th and -30.2% since Sept. 7th. It appears as though the debt problems in Italy are now already spinning out of control, which greatly raises the odds of full recession in the Eurozone and thus the global economy. Moreover, some of the new rumored "solutions" coming out of the region today would have very negative intermediate-term consequences. I had anticipated further equity strength into month-end, but it may now come from lower levels. I suspect many of the large funds that do have solid gains this year will be back in profit-protecting mode. I will I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, greater financial sector pessimism, rising global growth worries, profit-taking, more shorting and technical selling.

Today's Headlines

Bloomberg:

• Italy Bond Attack Breaches Euro Defenses, Contagion Worsens. The euro-region’s defenses are being breached. Investors today propelled Italy’s 10-year bond yield to close at a euro-era high of 7.25 percent after the promised exit of Prime Minister Silvio Berlusconi failed to convince them that his country can slash Europe’s second-largest debt burden. The biggest signal yet that the single currency’s third- largest economy is falling prey to its two-year debt crisis forces German Chancellor Angela Merkel, European Central Bank President Mario Draghi and their peers to decide just how far they’re willing to go to defend the euro. “The market is testing the commitment of the euro zone’s stewards,” said Eric Chaney, Paris-based chief economist at insurer AXA SA and a former official in the French Finance Ministry. “Italy is the real crisis battleground.” At 1.9 trillion euros ($2.6 trillion), Italy’s debt exceeds that of Greece, Spain, Portugal and Ireland combined, though unlike those nations, it has systemic importance as the world’s third-largest bond market and eighth-biggest economy. Berlusconi’s offer to quit has still left his nation struggling to produce a government stable enough to deliver austerity after LCH Clearnet SA raised the deposit it demands for trading Italian securities.
• Trading Italy Comes With Financial Penalty as Bond Yields Surge Above 7%. Europe’s biggest clearinghouse said that customers must put down bigger deposits to trade Italian bonds as concern rises the government will struggle to reduce the world’s third-largest debt burden. The margin needed for Italian bonds due in 7 to 10 years will be raised to 11.65 percent, LCH Clearnet said in a document on its website dated yesterday. That compares with a charge of 6.65 percent announced on Oct. 7. The added costs will be applied at the close of trading today for all bonds, with the amount based on maturity. The deposit for French bonds due in seven to 10 years is 4.60 percent, according to the document. Bond yields across the euro region rose relative to benchmark German bunds following the change by LCH Clearnet.
• Italy May Struggle to Attract Treasury Buyers. Italy may struggle to sell 5 billion euros ($6.8 billion) of Treasury bills tomorrow, after bond yields surged to euro-era records on Prime Minister Silvio Berlusconi’s resignation offer and LCH Clearnet SA demanded more collateral on the country’s bonds. Italy auctions one-year bills tomorrow at 11:00 a.m. in Rome, followed by a sale of five-year bonds on Nov. 14. The auction comes after the country’s 10-year bond yield jumped 57 basis points to 7.33 percent, crossing the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts. Italy paid 3.57 percent the last time it sold one-year bills on Oct. 11. Similar maturity debt currently yields about 8.41 percent.
• Bank Stress Veers From Stocks as Italy Yields: Credit Markets. Measures of bank stress are diverging from the stock market, showing that credit markets remain concerned that Europe's debt crisis will engulf Italy and threaten the global financial system. A gauge of bank reluctance to lend in dollars, known as the Libor-OIS spread, reached the highest level since July 2009, according to data compiled by Bloomberg.
• Italy's Political Woes Spell 'Nightmare' for BNP, Agricole. BNP Paribas SA and Credit Agricole SA, France's largest banks by assets, are finding that their pursuit of growth in neighboring Italy in the past decade has a downside: political risk. As the world's biggest foreign holders of Italian public and private borrowings -- with $416.4 billion of such debt at the end of June -- French lenders face collateral damage from the political turmoil that sent Italy's bond yields to euro-era records. Austerity measures to balance Italy's budget are also threatening growth in an economy that has lagged behind the European average for more than a decade, and may hurt the French banks' consumer businesses. “Italy was a dream investment for French banks,” said Christophe Nijdam, a bank analyst at AlphaValue in Paris. “Nobody could have imagined a sovereign crisis touching a G-7 economy at that time. But the political deadlock is turning the dream into a nightmare.”
• Morgan Stanley(MS), Goldman Sachs(GS) Credit Swaps Rise on Italy Contagion Concern. Credit-default swaps on the biggest U.S. banks climbed as yields for Italy, the world’s third biggest sovereign borrower, rose to euro era records and stoked concern that Europe’s fiscal crisis is accelerating. Contracts linked to the debt of Morgan Stanley (MS) jumped 21.1 basis points to 413.8 basis points and those tied to Goldman Sachs Group Inc. surged 17.7 basis points to 330.6 as of 8:52 a.m. in New York, according to data provider CMA. A benchmark gauge of U.S. corporate credit risk jumped by the most in a week. “There is a risk of contagion that sits there in the financial sector,” Scott MacDonald, head of credit and economic research at Aladdin Capital Management LLC in Stamford, Connecticut, said in a telephone interview. “If we have a big tumble here with Italy, it’s going to cause a very steep recession in Europe and it will have ripples through interbank markets.” Swaps on Bank of America Corp. increased 16.4 basis points to 363.4 basis points, and those on Citigroup Inc. added 15.5 basis points to 245.5, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. Credit-default swaps tied to JPMorgan Chase & Co.’s debt increased 8.5 basis points to 148.7, and those on Wells Fargo & Co. added 8.3 to 153.8, the data show. The average of contracts of the six biggest U.S. banks has eased to 275.9 basis points from 360 on Oct. 4, CMA data show. LCH raising margin requirements “really is not a good sign,” according to MacDonald. “This is something that’s done when people feel that the country or the other party at the other end of the line cannot fund itself, so you’re beginning to raise issues of liquidity,” he said. The drying up of liquidity in international markets is “what gets dangerous,” MacDonald said. “That’s a real problem. That impacts Main Street, and that’s what you had in 2008.” The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 4.8 basis points to a mid-price of 126.1 basis points as of 11:19 a.m. in New York, according to index administrator Markit Group Ltd. The credit swaps index, which typically rises as investor confidence deteriorates and falls as it improves, has increased from 113.4 basis points on Oct. 27, the lowest level in more than two months, on concern that Europe’s debt crisis is spreading.
• Oil Drops on Concern Italy's Turmoil May Derail European Economy. Oil declined for the first time in six days in New York after political turmoil in Italy revived concern that Europe’s debt crisis may continue to spread. Futures fell as much as 1.9 percent after reaching their highest price in more than three months. European equities declined and the euro sank against the dollar as the cost of insuring against Italian default rose to a record. The Energy Department may say today gasoline supplies rose by 1 million barrels, analysts indicated in a Bloomberg News survey. “Further deterioration of the euro-zone crisis has shifted its focus from Greece to Italy, an economy too big to be bailed out,” said James Zhang, a strategist at Standard Bank Plc in London. “It has spurred a general ‘risk off’ in the market.” Crude for December delivery dropped as much as $1.79 to $95.01 a barrel in electronic trading on the New York Mercantile Exchange and was at $95.59 at 1:15 p.m. London time. The contract earlier rose to $97.32, the highest since Aug. 1. Brent oil for December settlement on the ICE Futures Europe exchange in London was down 1.4 percent at $113.40 a barrel, reversing a gain of 0.7 percent to $115.75.
• Computer Sciences(CSC) Drops After Cutting Full-Year Profit Forecast. Computer Sciences Corp., a contractor for U.S. government agencies and companies, fell the most in almost three months after reducing its fiscal 2012 profit forecast amid “federal budget uncertainty.” The shares declined 12 percent to $28.89 at 10:24 a.m. in New York, after dropping 13 percent for the biggest intraday slide since Aug. 10.

Wall Street Journal:

• Goldman(GS) Seeks $1.54 Billion From ICBC Sale. Goldman Sachs Group Inc. is trimming its stake in Industrial & Commercial Bank of China Ltd. through a share sale that could raise up to US$1.54 billion, according to a sales document to institutional investors seen by Dow Jones Newswires Wednesday. The sale, the third by the Wall Street firm in the Beijing-based bank, will cut Goldman's stake to 2.2%, from 2.9%. Goldman at one point had owned as much as 4.9% of China's biggest lender. Goldman's investment has been very profitable on paper, and the planned share sale would be at a price well above the price Goldman paid. But the recent volatility in those shares has contributed to sharp mark-to-market losses at the U.S. bank, which reported a US$1 billion writedown in the value of its stake in ICBC for the third quarter. ICBC's Hong Kong-traded shares tumbled 35% during the period amid the global equities correction. "Goldman Sachs is likely facing mounting pressure from its shareholders to cut its stake in ICBC to avoid the significant mark-to-market volatility," said an analyst an international investment bank, who declined to be named. Analysts also said the share sale reflects increased concerns over the asset quality of Chinese banks, adding that major banks in the West are facing more pressure to shore up capital in the face the global downturn and tighter regulatory requirements.
• Live Blog: Stakes Rise in Italy.
  

MarketWatch:

• Macy's(M) Profit Surges, But Q4 Outlook Weakens.

CNBC.com:

• Occupy Movement Inspires Unions to Embrace Bold Tactics. Organized labor’s early flirtation with Occupy Wall Street is starting to get serious.
• GM(GM) Profit Beats But Outlook Disappoints. General Motors posted a third-quarter profit that fell 15 percent after a loss in Europe but beat expectations. The auto maker also forecast that operating profit in the current quarter would be flat from a weak fourth quarter in 2010. GM(GM 22.51 -10.1%) vowed to slash costs and complexity to shore up margins in a sputtering economy but its fourth-quarter outlook disappointed investors and sent shares tumbling 8 percent Wednesday morning on the New York Stock Exchange.
• Italy's Woes Signal 'Dangerous Phase' in EU Crisis: El-Erian.
  

Business Insider:

• A Look At All The Major Issues In Europe Right Now.
• China's Elite Are Privately Talking About A Revolution.
• Nightmare for MF Global(MF) Customers: They Really Might Not Get Their Money Back.
  

Zero Hedge:

• Did Merkel Just Usher In The Deutsche Mark?
• Fitch Says Italian Insurers Can Not Pass Sovereign Losses => The Time Of ASSGEN, ALZ CDS Has Come.
• Reuters Says Germany, France Exploring Idea Of Core Euro Zone, End Of Existing Structure.
• Some Things You Should Know About China.
  

Financial News:

• Hedge Fund Outflows Worsen. New figures published today suggest outflows from hedge funds were far worse than expected, topping $30bn in September as investors fled from volatile global markets.

Reuters:

• India October Car Sales Suffer Biggest Drop In A Decade. Car sales in India fell 23.8 percent in October, the biggest percentage drop since December 2000, an industry body said, on higher interest rates and vehicle costs and labour unrest at the country's dominant carmaker, where sales fell by half. Rising finance costs and increasing prices drove down demand in Asia's third-largest economy for a fourth consecutive month, hurting carmakers. "The macroeconomic scenario is very weak, and that's obviously impacting the numbers," said Joseph George, auto analyst at Mumbai-based brokerage India Infoline. Sales fell 1.8 percent in September, 10.1 percent in August and 15.8 percent in July, the first slide in three years. The market is driven by a swelling aspirational middle class that mostly relies on bank financing for purchases. The Reserve Bank of India's 25 basis point increase in interest rates last month was its 13th hike since March 2010. "People who have taken a loan to buy a car already have a home loan," said Vishnu Mathur, SIAM director general. "A rise in interest rates will discourage him to take that car loan."
• China October Car Sales Up 1.4%, Weak Sentiment Seen In November. Car sales in China climbed 1.42 percent in October from a year earlier but fell 7.5 percent from the previous month as Beijing raised the bar for vehicles eligible for fuel-saving subsidies. Weak market sentiment will likely spill over to November, a traditional sluggish auto-selling months, followed by a mild rebound in December thanks to year-end promotions that will hopeful attract some buyers back to the showrooms.
• KKR's Kravis Sees Europe as Biggest Concern. Kohlberg Kravis Roberts co-founder Henry Kravis said on Wednesday volatility and uncertainty in global markets have created enormous challenges and threats as financial firms, investors and governments face sovereign debt crisis and a slowdown in major economies. Speaking at a gala dinner at the AVCJ conference in Hong Kong, Kravis said Europe "remains our biggest concern." Kravis, one of the pioneers of the private equity industry, also said it expects high U.S. unemployment to persist for a long time, but he doesn't see the world's largest economy hitting a double-dip recession.
• 2-Year Swap Spread at Widest Since June 2010. The spread on two-year U.S. interest rate swaps over Treasuries moved on Wednesday to its widest since summer 2010 after clearing house LCH.Clearnet SA increased the margin on Italian government bonds at a time when their bonds yields are close to levels deemed unsustainable. The two-year swap spread, which grows with risk aversion, touched 40.50 basis points, a level not seen since June 2010.

Financial Times:

• Italy CDS vs. Bonds: CDS Win! (graphs) Remember a month or so ago when we told you there was evidence that CDS spreads may influence bond yields? “Influence” is a strong word. It was more about which one leads the other. In our previous post, we gave an overview of a study which presented evidence suggesting that when spreads reach distressed levels, the degree to which the CDS spreads lead bond yields increases. One way to examine this is look at the CDS bond basis — a calculation which takes the CDS spread and subtracts the asset swap spread of the bond (ASW). FT Alphaville’s more recent thoughts around this can be summarised by one word: bunga

Le Monde:

• Europe risks entering a "lost decade" because German reticence prevents the euro zone's rescue fund from becoming large enough to both guarantee government debt and refinance banks, investor George Soros said in an interview.

La Stampa:

• Silvio Berlusconi expects Italy to hold national elections in early February and he won't be a candidate for prime minister, citing an interview with the premier.

CCTV:

• China won't change macroeconomic policy control this year, citing Zhou Wangjun, deputy director at the price department of the National Development and Reform Commission.

Bear Radar

Style Underperformer:

• Mid-Cap Growth (-3.41%)

Sector Underperformers:

• 1) Coal -6.01% 2) I-Banks -5.45% 3) Homebuilders -5.22%

Stocks Falling on Unusual Volume:

• BCS, DB, MBT, ADSK, ADBE, PHG, TI, SFLY, ROVI, NILE, TRNX, PSMT, RBCN, DIOD, ATVI, PERY, MYRG, FSYS, SGI, NTES, PAAS, THOR, TWTC, CTCT, MEOH, OPNT, MFB, IWZ, PAA, IXG, ASH, MLR, OCN, MRX, CSC, JKI, WTW, IWV, FEU, CNK, ITT, PAA, CLNY, ATVI, RL, SGI, WTW, FIO, JEF, GM, HSC, AH, NOG, FSYS and MFB
  

Stocks With Unusual Put Option Activity:

• 1) NTES 2) VIA/B 3) TSLA 4) MMM 5) ADBE
  

Stocks With Most Negative News Mentions:

• 1) SMG 2) NILE 3) NVDA 4) ANF 5) RBCN
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (-2.09%)

Sector Outperformers:

• 1) Gold & Silver +.07% 2) Biotech -1.01% 3) Telecom -1.05%

Stocks Rising on Unusual Volume:

• BBY, AEM, ALLT, KITD, SODA, PANL, SLXP and DMND
  

Stocks With Unusual Call Option Activity:

• 1) SODA 2) HDY 3) NOG 4) PXD 5) APOL
  

Stocks With Most Positive News Mentions:

• 1) SINA 2) ROVI 3) HRB 4) AMLN 5) QSII
  

Charts:

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

Wednesday Watch

Evening Headlines

Bloomberg:

• Berlusconi Resignation Shifts Italy's Focus. Prime Minister Silvio Berlusconi’s offer to resign leaves Italy struggling to produce a new regime stable enough to implement painful austerity measures in a country that has averaged almost a government a year since World War II. Berlusconi last night said he’d step down as soon as parliament passed austerity measures pledged to European Union allies in a bid to convince investors Italy can curb record borrowing costs. The text of the measures, which the government has yet to present, is due to be approved by parliament in the coming weeks. The euro strengthened and U.S. stocks rose for a second day after last night’s announcement, bolstering optimism a new leader will better be able to tame the euro-region’s second- biggest debt. Europe’s inability to contain the region’s sovereign crisis led to a surge in Italian bond yields in recent weeks that further frayed Berlusconi’s fractious coalition. “While the news could set a positive market tone, that could be short lived,” said Silvio Peruzzo, euro-area economist at Royal Bank of Scotland Group Plc. “Investors will look at the post-Berlusconi and see an option on two outcomes: new elections and a technocratic government. We believe the latter would be strongly preferred and could help the crisis resolution process in Europe.”
• Italian Crisis Ambushes Ireland After Greek Escape: Euro Credit. After convincing investors and the European Central Bank that it’s not Greece, Ireland may find it harder to escape the fallout from Italian turmoil. Irish bonds have declined almost 3.6 percent since the end of September, eroding the highest returns in the world since June. Since falling to an eight-month low on Oct. 4, the yield on two-year Irish notes has jumped to about 75 basis points above its average of the past two months, according to data compiled by Bloomberg. Borrowing costs for Ireland, which announced additional austerity measures last week, have risen as Italian Prime Minister Silvio Berlusconi struggles to cut the region’s second- biggest debt load and Greek premier George Papandreou tries to form a unity government under a new leader. “If the disaster scenario happens, I’m sure they’ll get hit with the same kind of contagion again,” said Haig Bathgate, chief investment officer at Turcan Connell, an Edinburgh-based manager of 1 billion pounds ($1.6 billion) for mainly wealthy clients. Current levels are “probably as good as it’s going to get until the rest of periphery Europe is dealt with,” he said.
  
• Bank Stress Veers From Stocks as Italy Yields: Credit Markets. Measures of bank stress are diverging from the stock market, showing that credit markets remain concerned that Europe's debt crisis may still engulf Italy and threaten the global financial system. A gauge of bank reluctance to lend in dollars, known as the Libor-OIS spread, reached the highest level since July 2009 yesterday, according to Bloomberg. An index that measures instability for lenders from Milan-based UniCredit SpA to Paris-based BNP Paribas SA ended October at about the same level as the months following the failure of Lehman Brothers Holdings Inc., the Bank of Italy said in a report. Concern is mounting that sovereign-debt strains will spiral into a broader crisis for a global financial system that is more linked than ever and where half of Europe's bank bonds are held by other lenders in the region.
  
• Ackman to Lose 'Lot of Money' on Hong Kong Bet, Tsang Says. William Ackman, founder of hedge fund Pershing Square Capital Management LP, will “lose a lot of money” on his bet that Hong Kong will amend its currency peg to the dollar, city Chief Executive Donald Tsang said. Ackman, who netted more than $1 billion on a six-year short bet against the bond insurer MBIA Inc., said in September that he is buying Hong Kong dollar call options. The wagers will make money if Hong Kong changes its three-decade long linkage to the U.S. dollar and allows the currency to rise or if option prices increase before maturity. “I think he’s going to lose a lot of money on that,” Tsang, 67, said in a Bloomberg Television interview in New York yesterday. The peg is a “very important anchor underpinning Hong Kong growth and Hong Kong’s monetary stability and we are not going to change,” he said.
• Aluminum Slump Means 25% of Smelters Losing Money: Commodities. The biggest decline in aluminum prices since the global recession means at least 25 percent of the world’s smelters may be unprofitable. The metal fell 23 percent to $2,135.50 a metric ton on the London Metal Exchange since May 1 and energy costs gained 16 percent in the past month. Twenty-five percent of production loses money below $2,350 and 50 percent under $2,000, according to estimates by Bloomberg Industries. About 10 percent of output may be shut by the first quarter, said Jochen Hitzfeld, the analyst at UniCredit SpA in Munich ranked by Bloomberg as the most-accurate price forecaster over two years.
• Oil Gains a Sixth Day in New York on Iran Nuclear Risk. “This current supply-shock potential that the markets are looking at with Iran has pushed the price well above our outlook,” said David Lennox, a resource analyst at Fat Prophets in Sydney, who had forecast oil to trade from $80 to $90 a barrel. Crude oil for December delivery gained as much as 52 cents to $97.32 a barrel in electronic trading on the New York Mercantile Exchange and was at 97.18 at 12:30 p.m. Sydney time. The contract yesterday advanced $1.28, or 1.3 percent, to $96.80, the highest settlement since July 28. Prices are 6.3 percent higher the past year. Brent oil for December settlement gained 59 cents, or 0.5 percent, to $115.59 a barrel on the London-based ICE Futures Europe exchange.
• Ackman Said to Recommend Lowe's(LOW) Shares at Investment Conference. Pershing Square Capital Management LP’s Bill Ackman recommended at a conference that investors buy shares of Lowe’s Cos., according to a person who attended the presentation who declined to be identified. The home-improvement retailer has fallen 9.2 percent in 2011 after rallying two straight years. It rose 2.1 percent to $22.77 today, extending gains after 3 p.m. New York time.
• Consumer Reports Recommends iPhone After Apple(AAPL) Fixes Antenna. Consumer Reports is recommending the new iPhone 4S after Apple Inc. fixed an antenna glitch that left the magazine unwilling to endorse the previous model.
• Hong Kong Won't Relax Housing Curbs, Chief Executive Tsang Says. The Hong Kong government plans to keep curbs on the housing market even after the value of home sales halved last month from a year earlier, Chief Executive Donald Tsang said. “You can see a soft landing, which is quite nice, but we are not going to retract or retrench some of the measures we have taken,” Tsang said in an interview at Bloomberg LP’s head office in New York today. “The market will not totally collapse. But over time, we’ll see a moderation in prices, which is exactly what we want.”

Wall Street Journal:

• Rajaratnam Ordered to Pay Record SEC Penalty. Raj Rajaratnam, the former hedge-fund manager sentenced to more than 11 years in prison for insider trading, was ordered to pay a record financial penalty of more than $92.8 million in a related civil case brought by the Securities and Exchange Commission.
• Ohio Voters Reject Public-Union Limits. Voters on Tuesday defeated by a wide margin a law that would have restricted the powers of unions representing teachers, police officers and other public-sector workers. The law would have stripped the state's 350,000 public employees of most of their collective-bargaining rights and forced workers to pay at least 15% of their health-care costs. With 88% of precincts reporting, about 61% of voters in a referendum voted against the Republican-backed law, known as Senate Bill 5, while 39% supported it.
• Europe's Entitlement Reckoning. From Greece to Italy to France, the welfare state is in crisis. In the European economic crisis, all roads lead through Rome. The markets have raised the price of financing Italy's mammoth debt to new highs, and on Tuesday Silvio Berlusconi became the second euro-zone prime minister, after Greece's George Papandreou, to resign this week. His departure may keep the world's eighth largest economy solvent for the time being, but it hardly addresses the root of the problem.

Dow Jones:

• Deutsche Bank(DB) CEO: Restructuring Greek Debt Sets Risky Precedent For Banks - FT. Agreeing to a 50% cut in value on Greek sovereign debt holdings could set a risky precedent for banks and other bond holders, the chief executive of Deutsche Bank AG said, according to a Financial Times report Tuesday. "If you open up the Pandora's box, then who is willing to invest in sovereign risk?" Josef Ackermann told the newspaper. "The violation of a risk-free asset class will have long-term consequences." Ackermann did insist that the deal on Greece's sovereign debt should be an "exception," the FT cited him as saying.

MarketWatch:

• Adobe(ADBE) to Cut 750 Jobs, Shares Fall. Adobe Systems on Tuesday said it is cutting about 750 jobs, mainly in North America and Europe, as part of an effort to restructure of the company. Shares of Adobe ADBE -9.04% fell more than 8% in after-hours trading, as the software maker also lowered its earnings target for the quarter ending Dec. 2, to reflect a charge related to the restructuring.
• China’s BYD veers off entrepreneurship road. Shenzhen-based BYD Co. is a private auto maker. It’s also a company heavily reliant on government support.

Business Insider:

• Report: The Number Of Potential Victims In The Penn State Scandal Has DOUBLED In The Last 24 Hours. The number of alleged victims in the Jerry Sandusky child-molestation case has more than doubled since Monday, FOX29 in Philadelphia reports. Eight victims were named the intial grand jury report against Sandusky, but now that number is closer to 20, the TV station was told.
• Riot Police Are Out At Penn State As Students Fill The Streets In Support Of Joe Paterno.
• With The Nord Stream Pipeline, Russia And Europe Are Slowly Becoming Completely Interdependent.

Zero Hedge:

• As Geithner Says Supercommittee "Holds Key To Rebuiling Confidence" Supercommittee Says "Trillions Of Dollars Apart".
• Barclays Says Italy Is Finished: "Mathematically Beyond Point Of No Return".
• ECB 'Inaction' Succeeds In Doing What Nobody Has Achieved In Decades! Sending Risk Soaring. (graphs)
  

CNBC:

• China October Inflation Easses. China's annual inflation rate eased to 5.5 percent in October, a third straight month of decline from July's three-year peak.
• For Her: Trendiest Holiday Gifts, 2011.
  

Mediaite:

• Jon Stewart Skewers Former NJ Gov. Jon Corzine For Risky Bank Bets. (video)

Rasmussen Reports:

• Election 2012: Generic Republican 46%, Obama 42%.

Reuters:

• Caterpillar(CAT): China Price Pressure Due In 2012. Caterpillar Inc's head of emerging markets said on Tuesday the company expects to see pressure on pricing in China as early as next year as machinery manufacturing capacity could grow beyond demand levels. Rich Lavin, who also heads Caterpillar's construction industries business, said that "there will be overcapacity" in China into 2012 and 2013, and "that could create downward pressure on pricing." Caterpillar has been among a chorus of companies warning that the global economy is headed for slow growth in 2012. Lavin was speaking at a Robert W. Baird & Co investor conference in Chicago.
• Fannie Mae Taps Taps $7.8 Billion From Treasury, Loss Widens. Fannie Mae , the biggest source of money for U.S. home loans, on Tuesday said it needed a further $7.8 billion in federal aid to stay afloat as a shaky housing market widened its third-quarter loss to $5.1 billion. The government-controlled firm also attributed the deeper cash drain to losses on derivatives used to hedge its exposure to interest-rate swings and on expenses related to home loans made prior to the 2008 financial collapse. In the year-earlier quarter it had a loss of a $1.3 billion. Fannie Mae has now drawn $112.6 billion in bailout funds from the Treasury Department since being seized by the government in 2008 as mortgage losses mounted.
• IMF Chief Warns World Economy Risks "Lost Decade". The head of the International Monetary Fund warned on Wednesday that Europe's debt crisis risked plunging the global economy into a "lost decade" and said it was up to rich nations to shoulder the burden of restoring growth and confidence. Christine Lagarde told a financial forum in Beijing that European plans to bolster a rescue package for Greece were a "step in the right direction," but that the outlook for the world economy remained dangerous and uncertain. "There are clearly clouds on the horizon," Lagarde said. "Clouds on the horizon particularly in the advanced economies and particularly so in the European Union and the United States." "Our sense is that if we do not act boldly and if we do not act together, the economy around the world runs the risk of downward spiral of uncertainty, financial instability and potential collapse of global demand... we could run the risk of what some commentators are already calling the lost decade."
• Sina(SINA) Swings to Q3 Loss, Cautious on 2012 Ad Spend Outlook. Sina Corp , the operator of China's largest Internet portal, swung to a third-quarter loss on steep investment losses and said it doesn't expect a significant increase in advertising spending next year. Sina shares were down nearly 4 percent in extended trade after closing at $86.94 on Tuesday on Nasdaq.
• Italy Faces Limbo After Berlusconi Agrees To Go. Italy looks set for lengthy political uncertainty after Prime Minister Silvio Berlusconi's pledge to resign, with his centre-right party calling for elections and the main opposition for a national unity government.
• Papademos candidacy for Greek PM hitting snags - sources. A plan for former European Central Bank vice-president Lucas Papademos to lead a Greek coalition government has run into trouble, sources from the Socialist and Conservative parties said on Wednesday, delaying a resolution to the country's political limbo. "The Papademos candidacy has hit problems that have to do with both parties," one of the sources told Reuters on condition of anonymity. The parties are looking at other options for the new prime minister, the sources said. Greek media have mentioned parliament speaker Filippos Petsalnikos and socialist PASOK party MP Apostolos Kaklamanis but both have denied the reports that they had been picked.
• US Senate Bill Would Clear Way For Online Sales Tax. State governments would be able to collect online sales taxes under a bill due to be introduced in the U.S. Senate on Wednesday, said sources familiar with the bill.
• Blue Nile(NILE) Forecasts Weak FY, CEO Resigns. Blue Nile Inc forecast weak full-year earnings and said its Chief Executive Diane Irvine has resigned, sending its shares down 15 percent after the bell.

Telegraph:

• Italy Still at Risk as Silvio Berlusconi Delays Departure. Silvio Berlusconi has given a "commitment to resign" but defied calls to step down immediately, prolonging a political deadlock that has pushed Italy's borrowing costs to danger levels.
• ECB Stymied On Debt Crisis Without Fiscal Union. Germany's top banker has vehemently rejected demands from David Cameron and other world leaders for drastic action by the European Central Bank to stop the eurozone crisis spiraling out of control.

China Daily:

• The migration of China's wealthy abroad to the U.S. and other nations will hurt the Chinese economy and prevent the creation of an "olive-shaped" society with a large middle class, Zhang Monan, a researcher with the State Information Center, wrote in a commentary today. Only by making China more attractive can the nation keep its wealthy from leaving, Zhang writes. "Skyrocketing" living costs, pollution, poor social welfare and a growing tax burden are contributing to the move by wealthy Chinese abroad, Zhang said.

Economic Observer:

• The eastern Chinese province of Jiangsu banned lending between companies to prevent risk from spreading to state-owned companies from private enterprises, citing a notice from the local government. Many state-owned companies, with easy access to funds, have acted as "shadow banks," lending money to small companies and real estate developers.

Shanghai Securities News:

• The China Insurance Regulatory Commission has banned insurers from private lending on concern of risk, citing a notice from the regulator. The regulator last month ordered a nationwide investigation into whether insurance companies have taken part in informal lending.
• China May Limit Power Use in 17 Provinces, Cities. Guizhou, Hunan and 15 other Chinese provinces and cities may limit the use of electricity this winter, citing the State Electricity Regulatory Commission. Rising coal costs are to blame for the possible limits on power usage, citing Li Zhaolin, a coal industry researcher. China's Bohai-Rim steam-coal price index is at 853 yuan a ton, the highest level in more than a year, according to the report.
  

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 193.50 -2.0 basis points.
  
• Asia Pacific Sovereign CDS Index 148.25 -2.0 basis points.
• FTSE-100 futures +.76%.
  
• S&P 500 futures -.31%.
  
• NASDAQ 100 futures -.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GGP)/.22
• (WEN)/.04
• (DF)/.15
• (LIZ)/-.04
• (GM)/.96
• (RL)/2.24
• (CSC)/.68
• (MBI)/.30
• (GMCR)/.47
• (RKT)/.56
• (AAP)/1.18
• (CSCO)/.39
• (PEGA)/.31
• (M)/.16
• (PSMT)/.54

Economic Releases
10:00 am EST

• Wholesale Inventories for September are estimated to rise +.5% versus a +.4% gain the prior week.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +500,000 barrels versus a +1,826,000 barrel gain the prior week. Distillate supplies are estimated to fall by -2,200,000 barrels versus a -3,575,000 barrel decline the prior week. Gasoline inventories are estimated to rise by +1,000,000 barrels versus a +1,356,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.35% versus a +.5% gain the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Tarullo speaking, ECB's Stark speaking, 10-year Treasury Note Auction, weekly MBA mortgage applications report, USDA Crop Report, Sandler O'Neill Financial Services Conference, (CY) Analyst Meeting, (ADBE) Analyst Meeting, (HAS) Investor Day, (LOGI) Investor Day, (AA) Investor Day, (CBI) Investor Day, (BDX) Analyst Day and the (OWW) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and industrial 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 day.

Stocks Surging into Final Hour on Euro Bounce, Short-Covering, Less Financial Sector Pessimism, Technical Buying

Broad Market Tone:

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

Equity Investor Angst:

• VIX 28.31 -5.13%
  
• ISE Sentiment Index 90.0 +1.12%
  
• Total Put/Call 1.23 +26.80%
  
• NYSE Arms .78 +6.95%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 124.09 -.31%
  
• European Financial Sector CDS Index 236.79 +3.37%
  
• Western Europe Sovereign Debt CDS Index 338.0 +1.09%
  
• Emerging Market CDS Index 283.59 -.91%
  
• 2-Year Swap Spread 36.0 unch.
  
• TED Spread 44.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 183.0 +6 bps
  
• China Import Iron Ore Spot $122.90/Metric Tonne +1.04%
  
• Citi US Economic Surprise Index 23.60 +2.0 points
  
• 10-Year TIPS Spread 2.13 -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +89 open in Japan
• DAX Futures: Indicating +89 open in Germany

Portfolio:

• Higher: On gains in my Tech, Retail 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 bullish, as the S&P 500 builds on yesterday's reversal higher despite rising Eurozone debt angst, global growth worries and rising energy/food prices. On the positive side, Oil Tankers, Oil Service, Paper, Networking, Bank, Hospital, Homebuilding and Airline shares are especially strong, rising more than +1.50%. (XLF) has traded very well throughout the day. Gold is falling -.76% and Copper is gaining +.34%. Weekly retail sales have held up very well during this entire market pullback. They have averaged about a +4.5% gain over the last 4 months, which was one of the tells that the US economy was not plunging into recession even as investors were beginning to price this during Aug./Sept. However, this week sales rose +3.1%, which was down from a +4.7% gain the prior week and the weakest since the week of April 5th. This is only one week, but it warrants close attention, especially given the recent spike in energy prices. On the negative side, Biotech and Gaming shares are lower on the day. Oil is rising +.9%, the UBS-Bloomberg Ag Spot Index is rising +.9% and Lumber is falling -1.2%. The Nikkei fell -1.3% overnight and is now down -15.4% ytd. Brazilian equities are not participating in today's rally and are down -14.8% ytd. The Germany sovereign cds is up +2.69% to 89.50 bps, the France sovereign cds is rising +1.52% to 184.50 bps, the Italy sovereign cds is up +3.14% to 522.67 bps, the Spain sovereign cds is gaining +1.54% to 401.0 bps, the Ireland sovereign cds is gaining +2.21% to 729.0 bps, the Belgium sovereign cds is up +2.4% to 293.33 bps and the Israel sovereign cds is up +.6% to 170.0 bps. Rice is still close to its multi-year high, rising +26.0% in about 4 months. The Italian 10-year yield jumped +11 bps to 6.77% today, which is the highest since Aug. 1997. The Italian/German 10-Year Yield Spread is jumping another +9.13 bps to 496.78 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 making a new cycle high today, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -34.20% since February 16th and -30.2% since Sept. 7th. It is noteworthy that various Eurozone credit gauges are not confirming today's equity optimism over Berlusconi's apparent departure. While China's upcoming inflation readings will likely show deceleration, I doubt that any meaningful policy easing is in store. Emerging market inflation is still a larger problem than perceived, in my opinion. Moreover, the recent surge in energy prices is becoming a concern and could pose another major threat to the global economy on any further spike higher. Despite many negative headwinds, the broad US equity market still trades well and looks higher in the short-term on fund year-end performance-chasing, perceptions that Europe is moving in the right direction, seasonality and better US economic data. However, I still think the rapidly deteriorating fundamentals in Europe will likely mute upside traction and eventually weigh meaningfully on the major averages again over the coming months. As of today, I am posting further commentary on the new Wall Street All-Stars site in the Platinum Conversation section on the front page. Please stop by and check it out. I expect US stocks to trade mixed-to-higher into the close from current levels on fund performance-chasing, short-covering, bargain-hunting, less financial sector pessimism, seasonality, a bounce in the euro and technical buying.