Today's Headlines

Bloomberg:

• ECB's Policy Makers Say They Can't Do Much More to Stem Financial Crisis. European Central Bank policy makers said the bank can’t do much more to stem the region’s sovereign debt crisis, suggesting they are reluctant to significantly ramp up bond purchases to lower Italy’s borrowing costs. “Not much more can be expected from us, it’s up to the governments,” Governing Council member Klaas Knot, who heads the Dutch central bank, told lawmakers in The Hague today. Three other policy makers have also publicly rejected calls for more ECB intervention and two further officials, who spoke on condition of anonymity, said the central bank has no plans to make its purchase program unlimited. Bond yields in Italy, the third-largest economy in the 17- nation euro region, have surged above the 7 percent level that led Greece, Portugal and Ireland to seek bailouts from the European Union and International Monetary Fund. With politicians still unable to find a solution to the debt crisis that has raged for two years, the ECB is being asked to step into the breach to hold Europe’s monetary union together. The central bank, which cut interest rates last week, lends banks as much cash as they need and has announced a second round of covered-bond purchases. That 40 billion-euro ($55 billion) program started yesterday, said two people familiar with the matter.
• French Bond Risk Rises to Record as Crisis Spreads Beyond Italy. The cost of insuring against default on French government debt rose to a record on concern Europe’s leaders are failing to contain the region’s deficit crisis. Credit-default swaps on France rose eight basis points to 204, according to CMA prices at 12 p.m. in London, surpassing the record closing price of 202 set Sept. 22. The Markit iTraxx SovX Western Europe Index increased for a fifth day, climbing four basis points to a five-week high of 345. The European Union predicted that the French economy will grow more slowly next year than President Nicolas Sarkozy projects and called for “close vigilance” on the nation’s budget deficit. European Central Bank Governing Council member Klaas Knot said the bank, which was said to purchase Italian and Spanish bonds today after a rout of the securities yesterday, can’t do “much more” to stem the debt crisis. “France is starting to become more like a credit than a government bond,” said Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London. “As Italy goes, so will the rest of the EU. It totally depends on Italy.” Swaps on Italy fell eight basis points to 563 and Spain declined 11 to 420, after earlier rising to records, CMA prices show. Italy sold one-year bills at an average yield of 6.087 percent today after 10-year note yields surged past the 7 percent level at which Greece, Ireland and Portugal sought international bailouts. The additional yield investors receive for holding 10-year French, Spanish, Austrian and Belgian bonds instead of benchmark German bunds rose to euro-era records earlier. The European Commission predicts that France’s debt burden will climb to almost 92 percent of GDP in 2013, including the support it’s giving to other European countries and to its banks. Contracts on the Markit iTraxx Crossover Index of credit- default swaps on 50 companies with mostly high-yield credit ratings increased 4 basis points to 755.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 1.25 basis points to 183.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 7.5 basis points to 282.5 and the subordinated index was 13 higher at 518.
• Recession Risk Grows for Euro Region as Commission Reduces 2012 Forecast. The European Commission cut its euro-region growth forecast for next year by more than half and said it sees the risk of a recession as leaders struggle to contain the fiscal crisis. Gross domestic product may grow 1.5 percent this year and 0.5 percent in 2012, the Brussels-based commission said today. It had earlier projected the 17-nation region to expand 1.6 percent and 1.8 percent this year and next, respectively. In 2013, the economy may expand 1.3 percent, the commission said. The euro-area economy is edging toward recession as governments are seeking ways to end the turmoil that has rattled global equity markets. In Italy, Prime Minister Silvio Berlusconi failed to convince investors that his country can slash the region’s second-largest debt burden. The commission said the risk of an economic contraction is “not negligible” and identified the fiscal crisis among the main threats. “The outlook is unfortunately gloomy,” Olli Rehn, the EU economic and monetary affairs commissioner, told reporters in Brussels today. “The forecast is in fact the last wake-up call. The recovery has now come to a standstill and there’s the risk of a new recession unless determined action is taken.”
• Derivatives Erase October Optimism on Stresses: Credit Markets. October's optimism that Europe would solve its sovereign debt crisis has evaporated in the bond market. Credit-default swaps tied to an index of European banks from Italy's UniCredit SpA to London-based HSBC Holdings Plc are at the highest level since Oct. 5. In the U.S., a benchmark index of the cost to protect corporate debentures from losses rose yesterday the most in almost seven weeks. Interest-rate swap spreads, a gauge of stress in credit markets, are the widest in 17 months. Waning confidence threatens to make it more expensive for companies to raise financing, after bond returns soared last month by the most in more than two years as European leaders cobbled together a rescue package for Greece. Bondholders are demanding euro-era record yields to hold notes from Italy, the third-most indebted nation, with $2.15 trillion of debt. That compares with $469 billion for Greece. "People were kidding themselves to think that we were out of the danger zone," said David Nowakowski, credit strategist at Roubini Global Economics LLC in London. "The spillovers to the rest of Europe, through the economies, contagion effects in international markets, the damage to banks holding Italian bonds, would be much more severe for Italy than for Greece." Credit-default swaps, which typically rise as investor confidence deteriorates and fall as it improves, climbed yesterday for the biggest U.S. banks. Contracts linked to the debt of Morgan Stanley and Goldman Sachs Group Inc., both of New York, reached the highest levels in at least three weeks.
• Crude Oil Increase to Three-Month High. Crude for December delivery climbed $2.02, or 2.1 percent, to $97.76 a barrel at 1:44 p.m. on the New York Mercantile Exchange. Earlier, it touched $98.18, the highest intraday level since Aug. 1. Prices have risen 7 percent this year. Futures dropped for the first time in six sessions yesterday. Brent oil for December settlement gained $1.09, or 1 percent, to $113.40 a barrel on the London-based ICE Futures Europe exchange.
• Copper Drops to Two-Week Low as European Union Cuts Forecasts for Growth. Copper fell to the lowest price in more than two weeks as the European Union cut its growth forecast for next year by more than half amid the struggle to contain the debt crisis. Gross domestic product may expand 1.5 percent this year and 0.5 percent in 2012, the European Commission, the EU’s executive arm, said today. That’s down from projected expansion at 1.6 percent and 1.8 percent, respectively. Copper also dropped as China’s exports climbed at the slowest pace in almost two years, signaling cooling growth.
• U.S. Wind Market May 'Fall Off a Cliff' in 2013, Vestas CEO Says. The U.S. wind turbine sales may dry up in 2013 unless lawmakers extend tax credits supporting the market beyond the end of next year, said Vestas Wind Systems A/S Chief Executive Officer Ditlev Engel. The so-called production tax credit, or PTC, provides an incentive of 2.2 cents a kilowatt-hour for electricity from wind applied to operators' tax bills. In the past, the termination of such policies has shown markets can "disappear," Engel said today by phone interview. "Our concern is that if the PTC is not extended, history has shown us that these markets tend to fall off a cliff," Engel from the company's headquarters in Aarhus, Denmark. "We should prepare ourselves for it."
• U.S. Budget Deficit Narrowed to $98.5 Billion in October. The U.S. government’s budget deficit narrowed in October, the first month of the new fiscal year, reflecting a calendar-related reduction in spending and an increase in tax receipts. The $98.5 billion shortfall is smaller than the $140.4 billion deficit posted in the same month last fiscal year, according to Treasury Department data issued today in Washington. Economists projected a $102.5 billion gap, according to the median estimate in a Bloomberg News survey. The narrowing comes as a 12-member congressional supercommittee of Democrats and Republicans tries to find $1.5 trillion in savings over the next decade before an approaching deadline triggers spending cuts. America’s budget deficit was 8.7 percent of gross domestic product in fiscal 2011, the third- highest since 1945. “There is precious little progress being made on cutting back the mountain of red ink,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “If the supercommittee is going to be the bust that everyone is talking about, the U.S. could be saddled with increasingly hard-to-finance deficits from now on.” Today’s report showed federal spending dropped 8.7 percent in October from a year earlier to $261.5 billion. Some $31 billion in recurring benefit payments that would have been made in October were instead shifted to September because Oct. 1 fell on a Saturday, Treasury said. Without this shift in payments to the previous month, the October deficit would have been $129 billion.
  

Wall Street Journal:

• SEC Probes Nabors's Executive Perks, Jets. Nabors Industries Ltd., the oil-drilling contractor whose chairman is set to receive $100 million for relinquishing his chief-executive title, said Wednesday that the Securities and Exchange Commission has opened an investigation into perks received by its executives, including personal flights on company jets.
• Debt Crisis: Live Blog.
  

CNBC.com:

• Employers 'Scared' of Taking on Permanent Staff. Employers burnt by the cost of laying off workers in the last crisis are uneasy about taking on permanent staff amid faltering economic growth putting pressure on the current workforce, a staffing industry executive said on Thursday.

Business Insider:

• Right Now, Europe Is In The Same Position As It Was Right Before World War I.
• Al Gore Spears President Obama For Playing Gold While Thousands Protest Tar Sands Pipeline.
  

Zero Hedge:

• CDU Escalates Plans For EU Treaty 'Adjustment': Wants Option To Kick Habitually Broke Countries Out Of Eurozone.
• S&P Explains How A Technical Error May Have Led To Believe That France Is Massively Overrated At AAA.
• French Bund Spreads Hit Record On Fresh Downgrade Rumor. (graph)
  

Bespoke Investment Group:

• Bearish Sentiment Drops to 10-Month Low. (graph)

LA Times:

• Prospect of Online Sales Tax Grows. Momentum builds after Amazon's deal with California. A bipartisan group of U.S. senators introduces the Marketplace Fairness Act to let states collect sales taxes from most Internet retailers.

Reuters:

• Italian Banks Risk Becoming Dependent on ECB. The latest hike in how much it costs banks to raise funds using Italian bonds as collateral may be the last straw on the back of Italian lenders, pushing them to the point where they become dependent on loans from the European Central Bank. If Italy fails to pursue reforms that boost growth and cut debt and euro zone policymakers don't take measures that win Italy time to implement them, bond yields are likely to rise further prompting another increase in repo margins. That will again lead to a rise in bond yields and result in a spiral similar to what happened in Greece and Ireland, countries whose banks are now dependent on ECB support via its unlimited euro liquidity tenders. "If there is no improvement in the secondary (bond) market it is inevitable that you see more damage from further increases in (repo margins)," said Nikolaos Panigirtzoglou, global market strategist at JPMorgan. "Italian banks are shut out of unsecured markets. The big question right now is are the political changes that are being engineered at the moment enough to reverse the damage? My guess is that the damage to a large extent is not reversible." It may not be long before the snowball starts to roll.
• Jobless Claims Fall 10,000 in Latest Week. New U.S. claims for unemployment benefits declined for the second straight week, to the lowest level since the first week of April, the Labor Department said on Thursday. Initial claims for state unemployment benefits fell 10,000 to a seasonally adjusted 390,000 in the week ended November 5, slightly below the 400,000 that analysts polled by Reuters had expected. The four-week moving average of claims, considered a better measure of labor market trends, fell to 400,000 from 405,250 the prior week, which was revised up from the previously reported 404,500.

Financial Times:

• Italian CDS Curve Inverts (and who made money?) It’s not every day the second-biggest name in the CDS market goes from a healthy shape to a distressed one. But Wednesday was that day, thanks to Italy.

Telegraph:

• Italy is Sinking into Depression, and That is Before Any Act of Default. Here we go. The European economy seems already to have gone over the edge of the cliff, and that's before any of the eurozone 17 has technically defaulted. This morning's industrial production figures from Italy were a disaster, with output down a staggering 4.8pc in September.
• Eurozone Crisis: Who is Pulling the Strings in Europe? As the escalating eurozone crisis has toppled governments in Italy and Greece, decision-making is increasingly being driven by France, Germany and a powerful group of Brussels officials.

BBC:

• Italy's 'Web' of European Debt. (audio)
  

Bear Radar

Style Underperformer:

• Mid-Cap Growth (+.47%)

Sector Underperformers:

• 1) Airlines -1.21% 2) Gaming -.91% 3) Alt Energy -.60%

Stocks Falling on Unusual Volume:

• CSC, NILE, PAAS, AAPL, BBBY, WYNN, SSRI, SKM, WNR, VIV, OPNT, PEGA, TTWO, GMCR, INTX, PSMT, DGIT, PERY, LQDT, SODA, LGND, GIII, LORL, DMND, JOYG, OMG, MFB, HFC and OPNT
  

Stocks With Unusual Put Option Activity:

• 1) RSX 2) UAL 3) CS 4) CHK 5) GMCR
  

Stocks With Most Negative News Mentions:

• 1) WEN 2) CSC 3) SD 4) NOG 5) AAPL
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth (+.58%)

Sector Outperformers:

• 1) Oil Tankers +2.79% 2) Homebuilding +1.77% 3) Networking +1.56%

Stocks Rising on Unusual Volume:

• CSCO, MRK, SFLY, VRTX, ENS, OSG, AAP, FL, BKS and HOS
  

Stocks With Unusual Call Option Activity:

• 1) BKS 2) VIA/B 3) PWER 4) NXPI 5) MPEL
  

Stocks With Most Positive News Mentions:

• 1) ABC 2) REGN 3) CSCO 4) S 5) MRK
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• Too Big to Rescue Italy Forces EMU to Crossroads: Euro Credit. Italy is forcing Europe to choose between increased bond buying by the European Central Bank or a possible breakup of the euro. Italian 10-year yields have breached the 7 percent level that locked Greece, Portugal and Ireland out of the capital markets and forced them to seek aid. With debt of 1.9 trillion euros ($2.6 trillion), more than those three countries combined, Italy has to refinance about 200 billion euros of maturing bonds next year and more than 100 billion euros of bills. The future of the European monetary union is at stake after bond vigilantes claimed their fifth political scalp by driving Italy's borrowing costs to records, prompting Prime Minister Silvio Berlusconi to offer his resignation. ECB member Jens Weidmann said Nov. 8 his institution cannot print money to bail out governments. "There is now a full-scale run on the world's third- largest bond market," said Nicholas Spiro, managing director at Spiro Sovereign Strategy in London. "If Italy fails, the euro zone fails. The worse things get in Italy, the greater the pressure on the ECB to intervene on a massive scale." German Finance Minister Wolfgang Schaeuble told lawmakers that Italy should request aid from the European Financial Stability Facility if it needs it, said two people who were present at a private budget meeting yesterday in Berlin. Investors demand a premium of more than 550 basis points to lend to Italy for 10 years rather than Germany, more than double the average gap of the past year. Credit-default swaps on Italy jumped 38 basis points to 562, surpassing the previous record of 534 set Sept. 22, according to CMA. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 13 basis points to a one-month high of 341.
• Merkel's Party May Adopt Euro-Exit Clause in Platform, CDU's Barthle Says. German Chancellor Angela Merkel’s Christian Democratic Union may adopt a motion at an annual party congress next week to allow euro members to exit the currency area, a senior CDU lawmaker said. A motion that proposes allowing a euro member that doesn’t want to or is unable to comply with the common currency rules to leave the euro without losing membership in the European Union has been accepted by the party for debate at the CDU’s annual congress, Norbert Barthle, the ranking CDU member of parliament’s budget committee, said in a phone interview in Berlin. It probably has enough support to be passed by delegates at their meeting in the eastern German city of Leipzig on Nov. 14-15, he said. “This motion will go through, I am sure of it,” Barthle said late yesterday. “Any country that wants to leave the euro on its own should not be prevented from doing so.” Any German move to allow a state to exit the currency area, which is not envisaged under current euro rules, would require changes to the bloc’s guiding treaty to come into force. That can only happen with the backing of Germany’s EU partners. “It will become part of our party platform for future policy with regard to amending the framework treaties of the euro,” Barthle said. To become government policy, it would have to be agreed by all three parties in Merkel’s coalition and may need opposition support in a full parliamentary vote.
• Derivatives Erase October Optimism on Stresses: Credit Markets. October's optimism that Europe would solve its sovereign-debt crisis has evaporated in the bond market. Credit-default swaps tied to an index of European banks from Italy's UniCredit SpA to London-based HSBC Holdings PLC are at the highest level since Oct. 5. In the U.S., a benchmark index of the cost to protect corporate debentures from losses rose the most in almost seven weeks. Interest-rate swap spreads, a gauge of stress in credit markets, are the widest in 17 months.
• Derivatives Signal Bank Funding Pressures to Rise on Europe Debt. Derivative traders are wagering that U.S. and European banks' willingness to lend will ebb as financial institutions further shore up balance sheets amid signs the euro-zone debt crisis is worsening. The difference, or spread, between the dollar London interbank offered rate and the overnight index swap rate projected by contracts trading in the forward market rose yesterday to 56 basis points, the wides since June 2010, according to UBS AG data. The FRA/OIS spread for the March to June 2012 period projects a widening of nearly 20 basis points in the current spot dollar Libor-OIS spread, which is an indirect measure of the availability of funds in the money market and of banks' willingness to lend.
• Euro Trades Near One-Month Low Before Italy Tests Demand at Bill Auction. The euro traded 0.2 percent from its lowest level in a month before Italy sells 5 billion euros ($6.8 billion) of one-year bills today, testing investor appetite after borrowing costs surged to euro-era records. The 17-nation currency touched a two-week low against the yen after Italian yields yesterday climbed above 7 percent, the level at which Greece, Ireland and Portugal sought international bailouts. Italy will sell five-year debt on Nov. 14. New Zealand’s currency weakened for a third day versus the yen as Asian stocks dropped. Australia’s dollar pared declines after the unemployment rate fell as energy companies ramped up hiring. “The success of those auctions will be crucial to the near-term direction in euro,” said Richard Grace, the Sydney- based chief foreign-exchange strategist and head of international economics at Commonwealth Bank of Australia. “The risk is euro goes lower. The low $1.30s is certainly a risk over the next week or so.”
• China Exports Slow as Europe Dims Outlook. China’s exports rose at the slowest pace in almost two years in October as Europe’s deepening debt crisis crimped demand, adding pressure on policy makers to support growth in the world’s second-biggest economy.
• Solar Glut to Worsen After Prices Plunge 93% on Rising Supply: Commodities. The cost of solar cells and microchips has nowhere to go but down because of a supply glut for the commodity they’re made from, a brittle charcoal-colored semiconductor baked in ovens at 600 degrees centigrade. Polysilicon has plunged 93 percent to $33 a kilogram from $475 three years ago as the top five producers more than doubled output, data compiled by Bloomberg shows. The industry next year will produce 28 percent more of the raw material than will be consumed, up from 20 percent this year, said Robert Schramm- Fuchs and Shai Hill, analysts at Macquarie Group Ltd. “Polysilicon is a grossly, grossly, grossly oversupplied commodity product,” said Paul Leming, director of research at Ticonderoga Securities in New York. “We’re staring at years of stability where polysilicon pricing sits at something approaching cost of production and doesn’t move.”
• CMBS Sales Seen Little Changed in 2012 as Lenders Cut Back. Sales of commercial mortgage-backed securities aren’t likely to increase much next year as borrowing costs remain high and lenders back off making new loans, according to CMBS executives. “The Street’s not really taking risk, they’re very concerned,” Steven Schwartz, managing director of loan acquisitions for Torchlight Investors, said at the Bloomberg Commercial Real Estate Summit in New York. “The first quarter’s going to be grim.” Europe’s fiscal crisis has roiled credit markets since July, causing gyrations in the value of securities tied to shopping malls, skyscrapers and hotels and leading to a pullback in loan originations. CMBS issuance in the U.S. has totaled about $26 billion this year. While that’s up from $11.5 billion in 2010, it’s a fraction of the record of more than $200 billion in 2007 when commercial real estate peaked, according to data compiled by Bloomberg.
• Syria Violence May Trigger Libya-Like Civil War, UN Predicts. Syria is at risk of becoming like Libya, where an uprising against a long-standing dictator unleashed a civil war, the United Nations human rights chief predicted. “It happened in Libya; it may happen in Syria,” UN High Commissioner for Human Rights Navi Pillay told the Security Council today in New York. “More and more soldiers refuse to become complicit in international crimes and are changing sides.”
• Japan Machine Orders Fell More Than Forecast in September. Japan’s machinery orders fell more than forecast in September, indicating that companies may hold off on outlays on concern a global slowdown and a strong yen will hurt business. Bookings, an indicator of future capital spending, fell 8.2 percent in September from August, the Cabinet Office said in Tokyo today. The median forecast of 29 economists surveyed by Bloomberg News was for a 7.1 percent fall.
• APEC Finance Officials Concerned by Impact of Europe Debt Crisis on Region. Deputy finance ministers meeting at the Asia-Pacific Economic Cooperation forum in Honolulu expressed concern over the danger posed by contagion from Europe for a global economy still recovering from the 2008 financial crisis.

Wall Street Journal:

• Italy Fears Rattle World's Investors. Markets in U.S. and Europe Drop as Turmoil Fuels Fears Crisis Could Ricochet Across Atlantic, Endanger Common Currency.
• Paterno Ousted at Penn State. In its fifth day, the metastasizing scandal at Pennsylvania State University ended the career of Joe Paterno—the longest-tenured coach in major-college football—and resulted in the ouster of the university's president. After an emergency meeting Wednesday evening, the school's Board of Trustees announced at a news conference that they had dismissed Mr. Paterno and Graham Spanier, the school's president for the past 16 years.
• Sprint Stalks Free Growth. Brenda Parker lives in government housing, can't work because of chronic medical problems and depends on federal disability checks. She is just the kind of customer Sprint Nextel Corp. is looking for. Ms. Parker, of Shallotte, N.C., is one of millions of low-income Americans who get 250 minutes a month of free cellphone service through a little-known government subsidy program called Lifeline. The program, funded by charges levied on cellphone bills nationwide, pays carriers such as Sprint as much as $10 a month per customer to be used toward a free or discounted wireless plan.
• Hedge Funds Getting Queasy On Wild Market Ride. Just when some managers thought it was getting safe to re-enter and start buying stocks again, events in Europe have overwhelmed the markets, especially on Wednesday. “This market is like Chinese water torture – managers are reaching exhaustion point in this guessing game,” said Vidak Radonjic, of The Beryl Consulting Group LLC, which advises investors on hedge funds.
• Farmer Mac Swings To 3Q Loss, Stung By Derivatives. Federal Agricultural Mortgage Corp. (AGM), commonly known as Farmer Mac, swung to a third-quarter loss as write-downs on derivatives weighed down the bottom line, masking a stronger core profit from improving interest income.
• Bank Quandary: Valuing the Assets. Goldman Sachs Group Inc.(GS) and Morgan Stanley(MS), which became bank-holding companies to help them survive the financial crisis, are considering an accounting change that would make them look even more like a traditional bank. The two firms are discussing whether to reduce their use of mark-to-market accounting, in which companies immediately take profits or losses as asset values fluctuate, according to people familiar with the situation. Such swings routinely affect the bottom line at Goldman and Morgan Stanley, including in the third quarter.
• Nations Diverge on Pressing Iran. The U.S. and its European allies struggled to present a unified international stance against Iran a day after the United Nations' nuclear agency said it had uncovered extensive evidence that Tehran has been developing the technologies needed to produce nuclear weapons. Russia on Wednesday formally vowed to block any move at the U.N. Security Council to impose new sanctions against Iran, saying it wasn't convinced by the new intelligence presented by the International Atomic Energy Agency on Tuesday. China called for the IAEA to be "objective" in its work.

Business Insider:

• Mayhem at Penn State: Students Pour Into Streets As Riot Fears Grow. (pics) Angry Penn State students are back in the streets tonight after Joe Paterno was abruptly fired by the board of trustees. CNN is on the ground, and the situation is really tense right now. We'll update you here with pictures, video, and any news from State College.
• Jefferson County Just Filed For The Largest Municipal Bankruptcy In U.S. History. Commissioners of Jefferson County, Alabama, voted today to file for the largest-ever municipal bankruptcy today, ending nearly three years of drama over the county's $3.1 billion sewer debt. The decision comes less than two months after the county reached a provisional agreement with its creditors, that included $1.1 billion in concessions. But county officials have been unable to get signed commitments from its creditors before today's vote, according to Bloomberg.
  

Zero Hedge:

• Short Interest Plunges, YTD Equity Fund Outflows Hit $112 Billion. (graph)
• Get Ready to Start Paying These Taxes Too.
  

CNBC:

• Debate Recap: Economy Can Thrive With Less Government. Herman Cain swatted away character issues, Rick Perry couldn't remember which federal agencies he wants to eliminate, and a still-crowded field of Republican candidates agreed that the way to save the government is by shrinking it.
• ECB's Stark to Europe: We Are Not 'Lender of Last Resort'. European Central Bank policymaker Juergen Stark warned European governments on Wednesday against asking the ECB for support in dealing with the region's sovereign debt crisis, saying this would put the central bank's independence at risk.

NY Times:

• Euro Fears Spread to Italy as the Debt Crisis Deepens. Since the start of the euro crisis two years ago, the big fear has been contagion, that market unease about the high debt and slow growth in Europe’s southern rim would infect the core. On Wednesday, contagion arrived with brute force.
• Clients Question Oversight by MF Global's Regulator.
  

Rasmussen Reports:

• 17% Say U.S. Heading In Right Direction.

Reuters:

• Green Mountain(GMCR) Sales Miss Raises Growth Fears. Green Mountain Coffee Roasters' weak quarterly revenue raised fears about the company's growth potential, as sales of its Keurig coffee makers did not rise as much as Wall Street had expected, sending its shares down 34 percent.
• Republican Candidates: No U.S. Bailout of Europe. Leading Republican candidates for the U.S. presidency said on Wednesday the United States should stay out of the financial problems in Europe and resist any calls for direct infusions of cash.
• Cisco(CSCO) Q2 Beats Cautious Street View. Cisco Systems Inc forecast revenue and earnings above Wall Street expectations as demand from government and enterprises for its network equipment remained resilient despite global economic troubles. Analysts had expected conservative quarterly guidance, given the economic uncertainty.
• US May Delay Pipeline Decision Past 2012 Election. The United States may choose to reroute a proposed Canada-to-Texas oil pipeline, a move that could defer a decision on approving the politically charged project beyond the 2012 U.S. election, a U.S. official said on Wednesday.

Financial Times:

• Subprime Loans Come Back to Haunt HSBC. For a bank that is keen to trumpet its global footprint at every opportunity, HSBC is struggling to shake-off one very parochial issue. Almost three years after it began to wind down its US consumer finance business, the bank is facing another severe bout of losses linked to subprime mortgages in the country.

Telegraph:

• Europe Pushes Italy Into The Abyss. It has taken three trading days since the failure of the G20 summit to detonate the explosive charge on Italy's €1.9 trillion (£1.6 trillion) bond market, the world's third-largest stock of public debt. Europe's purported "firewall" to safeguard Italy does not, in fact, exist. The EU's vague plans to leverage its EFSF rescue fund to €1 trillion have come to nothing. Investors could see at once that plans to use the fund as a "first loss" bond insurer concentrates risk, dooming France's AAA rating and accelerating contagion to the core. The European Central Bank (ECB) has been buying Italian bonds, but too slowly to stop the debt spiral. The ECB's new chief, Mario Draghi, kicked off his term with a blunt warning that it would be "pointless" for the bank to try to cap the yields of struggling debtors for long. It was an invitation for frightened investors to dump their bonds. With almost nothing in place to halt contagion, the market verdict has been swift and brutal. Capital Economics said "the Rubicon may have been crossed" after yields on 10-year Italian bonds smashed through 7pc on Wednesday.

Kleine Zeitung:

• Standard & Poor's Ratings Service may comment next week about Austria's AAA debt rating, and officials are worried it may change the rating outlook to "negative". S&P may comment as soon as Nov. 15.

Sankei:

• Iran and North Korea jointly operate three nuclear research institutes beneath Iranian military facilities, citing a person familiar with the matter. About 10 North Korean scientists visited the research centers this year to help Iran develop nuclear weapons.

liveMint.com:

• Mercedes, BMW May Miss Their Yearly Targets In India. Demand for premium cars contracted 11% between April and Oct, says SIAM; dealers turn to discounts.

Hong Kong Economic Journal:

• More Chinese companies may delist in the U.S because of close scrutiny by regulators there, citing Terence Ho, a partner at Ernst & Young LLP. Chinese companies that listed by means of reverse takeover face "confidence risk".
  

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -4.0% to -1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 215.50 +22.0 basis points.
  
• Asia Pacific Sovereign CDS Index 155.25 +7.0 basis points.
• FTSE-100 futures -1.41%.
  
• S&P 500 futures +.28%.
  
• NASDAQ 100 futures +.32%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FLO)/.23
• (KSS)/.79
• (VIA/B)/1.02
• (JWN)/.59
• (DIS)/.54
• (NVDA)/.31
• (MCP)/.68
• (KLIC)/.26

Economic Releases
8:30 am EST

• The Import Price Index for October is estimated unch. versus a +.3% gain in September.
• The Trade Deficit for September is estimated to widen to -$46.0B versus -$45.6B in August.
• Initial Jobless Claims are estimated to rise to 400K versus 397K the prior week.
• Continuing Claims are estimated to fall to 3680K versus 3683K prior.
  

2:00 pm EST

• The Monthly Budget Deficit for October is estimated at -$102.5B versus -$140.4B.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Lockhart speaking, Fed's Evans speaking, BoE Rate Decision, 30-Year Treasury Bond Auction, ECB's Stark speaking, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, Deutsche Bank Hospitality/Gaming Conference, Sidoti Emerging Growth Forum, BMO Digital Entertainment Conference, RBC Gold Conference, Suntrust Government Services Conference and the (BX) Investor Day could also impact trading today.
  

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

Stocks Falling 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.