Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Financial Sector Pessimism, Global Growth Fears, Rising Energy Prices

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: About Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 31.05 -.54%
  
• ISE Sentiment Index 83.0 +3.75%
  
• Total Put/Call 1.49 +35.45
  
• NYSE Arms 1.03 +10.49%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 131.64 -1.06%
  
• European Financial Sector CDS Index 277.89 +2.23%
  
• Western Europe Sovereign Debt CDS Index 354.66 -1.32%
  
• Emerging Market CDS Index 322.24 +.76%
  
• 2-Year Swap Spread 51.0 +4 bps
  
• TED Spread 47.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 175.0 -7 bps
  
• China Import Iron Ore Spot $147.20/Metric Tonne +.62%
  
• Citi US Economic Surprise Index 49.90 +5.3 points
  
• 10-Year TIPS Spread 1.95 -7 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -60 open in Japan
• DAX Futures: Indicating -74 open in Germany

Portfolio:

• Slightly Higher: On gains in my Index hedges and Emerging Markets shorts.
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short and then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 trades to session lows as it fails again at its 200-day moving-average on rising Eurozone debt angst, rising global growth worries, rising financial sector pessimism and rising energy prices. On the positive side, Oil Service and Homebuilding shares are higher on the day. Gold is falling -.85%, Lumber is rising +2.06% and the UBS-Bloomberg Ag Spot Index is declining -.78%. The Germany sovereign cds is down -3.18% to 94.0 bps, the France sovereign cds is down -3.89% to 224.83 bps, the UK sovereign cds is down -4.43% to 90.83 bps and the US sovereign cds is down -3.4% to 50.24 bps. On the negative side, Coal, Internet, Software, Bank, I-Banking, Medical, Hospital, HMO, Insurance, Restaurant and Road & Rail shares are under meaningful pressure, falling more than -2.0%. (XLF) has traded poorly throughout the day. Copper is down -.98% and oil is surging +2.4%. Major Asian indices fell 1-2% overnight. Hong Kong shares fell -2.0%, back to their downward-sloping 50-day moving average, and are now down -17.7% ytd. The Saudi sovereign cds is gaining +1.2% to 120.74 bps and the Brazil sovereign cds is rising +.34% to 167.25 bps. Moreover, the Asia Pacific Sovereign CDS Index is rising +2.4% to 157.50 bps. The TED spread continues to trend higher and is at the highest since June 2010. The 2-Year Swap spread is at the highest since May 2010 today. The FRA/OIS Spread is jumping +6.6 bps to 68.50 bps, which is the highest since May 2010. The 2yr Euro Swap Spread is still near the highest since Nov. 2008. The 3M Euro Basis Swap is falling -3.62 bps to -123.12 bps, which is the worst since November 2008. The Libor-OIS spread is at the widest since July 2009, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -23.3% since February 16th and -18.7% since Sept. 7th. The 10-year yield fell -4 bps to 2.00% today despite more positive US economic data. Oil continues to trade very well, which is also a large negative. As I said yesterday, given the recent and ongoing significant deterioration in gauges of Eurozone debt health, the big jumps in some gauges of stock investor bullish sentiment and the recent equity rally, investors seem a bit complacent. Stocks were holding up very well again today until Fitch's warning about US banks' European exposure this afternoon. The market's very negative reaction to these unsurprising statements is a bad sign. I still think the risk of another meaningful turn lower in stocks is substantial unless a positive catalyst emerges from Europe very soon. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth worries, profit-taking, rising financial sector pessimism, more shorting, rising energy prices and technical selling.

Today's Headlines

Bloomberg:

• Monti Sworn In as PM to Solve Italy Debt Crisis. Mario Monti was sworn in as Italian prime minister and finance minister, taking over an unelected government charged with imposing austerity to prevent the euro area’s third-biggest economy from succumbing to the debt crisis. Monti, 68, and his Cabinet took the oath in Rome from President Giorgio Napolitano, who reached outside the political arena to offer Monti the job after the resignation of Prime Minister Silvio Berlusconi on Nov 12. Monti’s ministers include Corrado Passera, chief executive officer of Intesa Sanpaolo SpA (ISP), the new industry minister and Antonio Catricala, head of the antitrust regulator, who will serve as deputy premier. “We have received a lot of encouragement from our European partners and international authorities,” Monti said at a press conference in Rome this morning when he presented his government to Napolitano “I hope this translates into a calming of the markets, especially regarding the tensions facing our country.” Italian bond yields remain near the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts, piling pressure on Monti to quickly spell out how he plans to cut the world’s fourth-biggest debt. He may be hamstrung by the refusal of the main parties to accept Cabinet positions, leaving Monti’s team of “technocrats” with no political base in parliament to pass legislation.
• U.S. Marines to Be Deployed in Australia. President Barack Obama said the U.S. is sending a “clear message” of its intent to lead in the Asia-Pacific region with an agreement he and Australian Prime Minister Julia Gillard announced to deploy American Marines on Australian bases next year. Moving to counter China’s regional influence, the defense accord will anchor an American presence in the western Pacific that can help safeguard sea lanes that carry more than $5 trillion of commerce, about $1.2 trillion of it U.S. trade. “The United States is stepping up its commitment to the entire Asia Pacific,” Obama said at a news conference yesterday with Gillard in the Australian capital of Canberra. “This is a region of huge strategic importance to us.”
• Oil Rises Above $100 in New York on Announced Reversal of Seaway Pipeline. Oil in New York climbed above $100 a barrel to a five-month high as Enbridge Inc. said it would reverse the direction of the Seaway pipeline, adding an outlet for crude from the central U.S. and Canada. Futures rose as much as 2.9 percent after Enbridge agreed to acquire ConocoPhillips (COP)’s share of the pipeline that runs between Cushing, Oklahoma, and the Gulf Coast and announced the reversal. The change may alleviate a bottleneck at the Cushing storage hub that had lowered the price of West Texas Intermediate, the grade traded in New York, versus other oils. “In the short term, this will definitely clear some of the crude out of Oklahoma,” said Francisco Blanch, head of commodities research at Bank of America Corp. in New York. “This may not be enough to eliminate the glut in the Midwest because output is growing by hundreds of thousands of barrels a year. We still need additional transportation capacity.” Crude oil for December delivery rose $2.31, or 2.3 percent, to $101.68 a barrel at 12:46 p.m. on the New York Mercantile Exchange. Futures reached $102.29, the highest level since June 9. The contract traded at $99.70 before the Seaway announcement. Brent oil for January settlement dropped $1.02, or 0.9 percent, to $111.16 a barrel on the ICE Futures Europe exchange in London.
• Industrial Production Rises More Than Forecast. Industrial production in the U.S. advanced more than forecast in October, adding to evidence the world’s largest economy is weathering disruptions in financial markets caused by the crisis in Europe. Output at factories, mines and utilities climbed 0.7 percent after a revised 0.1 percent drop in September, figures from the Federal Reserve showed today. Other reports showed the cost of living unexpectedly fell and builder sentiment improved. The cost of living dropped in October for the first time in four months, data from the Labor Department showed. The consumer-price index declined 0.1 percent from the prior month after a 0.3 percent rise in September. The so-called core rate that excludes volatile food and fuel costs rose 0.1 percent, matching September as the smallest gain this year. Over the past 12 months prices climbed 3.5 percent, the smallest year-over-year gain since April. Also today, National Association of Home Builders/Wells Fargo index of builder confidence rose to 20 in November, the highest level since May 2010, the Washington-based group said. Readings lower than 50 mean more respondents said conditions were poor.
• Lacker Says Fed's Credit Policies Have Sparked 'Understandable' Antagonism. Federal Reserve Bank of Richmond President Jeffrey Lacker said the Fed’s current purchases of mortgage bonds and financing of private sector assets during the credit crisis has fueled some of the antagonism aimed today at the central bank. Central bank credit allocation is “bound to be controversial,” Lacker said today in remarks prepared for the Cato Institute’s Annual Monetary Conference. “We need to recognize the extent to which some measure of antagonism is an understandable consequence of the Fed’s own credit policy initiatives.” At the same time, Lacker said he is “concerned about the possibility of upside risks to inflation.” He reiterated his belief that the central bank should set an objective for inflation. Lacker warned in his speech that credit allocation policies can “entangle” the Fed in political conflicts that undermine independence, adding that the executive and legislative branches in times of crisis may try to channel credit to particular constituents.
• Banks Face On-Site Checks by Basel Regulators. Global regulators will carry out on- site inspections of banks to ensure they have enough capital and liquidity under rules drawn up to prevent another financial crisis. Details of lenders that fall short of the required standards will be made public, Stefan Ingves, chairman of the Basel Committee on Banking Supervision, said in prepared remarks for a speech in San Francisco today. National authorities will also face checks to make sure they are enforcing the rules. “The corrosive forces of short memories and supervisory complacency” must be avoided, Ingves said. “The committee has not previously taken its assessments to the doorsteps of banks or supervisors. However this is exactly what it seeks to do.”
• Microsoft(MSFT), Oracle(ORCL) Call to Lower Offshore Tax. Multinational companies including Microsoft Corp. (MSFT) and Oracle Corp. (ORCL) are urging Congress to make passing a measure to allow a tax break on their offshore profits a greater priority than a comprehensive tax-code overhaul. The opportunity to boost the economy by encouraging repatriation of more than $1 trillion in earnings held by U.S. corporations overseas should, in the short run, trump the longer process of revamping the tax code, the WIN America Coalition said in a letter congressional leaders released today.

Wall Street Journal:

• Greek Deficit Could Exceed 9%. Greece's budget deficit could exceed 9% of gross domestic product this year compared with an 8.9% to 9% estimate as the economy is expected to sink deeper into recession, a senior government official said Wednesday. "It will likely be above 9% as the recession this year will be around 6%. First estimates call for a budget deficit of around 9.2%," the official with direct knowledge of the country's finances and planning said. "Tax collection remains the main problem," he said.
• Derivatives Pricing In Extreme Fears About The Euro. Foreign-exchange options are sending out strong signals that investors expect a sharp fall in the euro's value against the dollar over the next month, with a key benchmark fear gauge breaching record highs Wednesday. The so-called one-month risk-reversal indicator--a measure of the weight of negative options bets on the euro against the positive bets--jumped to 4 volatility points, surpassing levels seen at the peak of the financial crisis in 2008, when the indicator was trading just below 3.5 volatility points.

CNBC.com:

• Democrats, Republicans Far Apart on Deficit Deal.
• More Americans Want Health Care Law Repealed: Poll. A Gallup survey of more than 1,000 U.S. adults found that 47 percent favor the repeal of healthcare reform, versus 42 percent who want the law kept in place. Eleven percent had no opinion.
• Forget About Italy and Greece, Spain Next on Agenda. Spain has come to the forefront of the European markets agenda again this week as yields on its debt soared and it prepared for a new government. "In a lot of ways it's more worrisome than Italy," Megan Greene, senior research analyst at Roubini Global Economics, told CNBC.com.

Business Insider:

• Outrage of the Month: Insider Trading In Congress. If you're not appalled by this, you should be.
• Protesters Have Regrouped at Zuccotti, And Are Now Getting Ready For A Massive Response Tomorrow.
• Guess What: Prosecutions For Financial Fraud Have Fallen To New Lows Under Obama. (graph) Someone show this to Occupy Wall street.
• Whoops: Everyone's Starting To Tell The Truth About the Euro Rescue Fund.
• Europe Bans X-Ray Body Scanners Used At U.S. Airports Because They Cause Cancer.
  

Zero Hedge:

• Squids, Morgans & Counterparty Risk: Blowing Up The World One Tentacle At A Time.
• Italy Opts Not To Release Preliminary GDP Data As It Sets Off To Raise $600 Billion In Debt In 2012.
• Whatever You Do, Don't Look At The UniCredit Long Bond. (graph)
• Houston: We Have A Funding Crisis (And A Broken Libor Primer). (graph)
  

Reuters:

• Analysis: EU Risks Reopening Pandora's Box With Treaty Change. If there are two words causing quiet alarm across the European Union right now - beyond the turmoil already convulsing the countries that share the euro - they are "treaty change". They may not carry the same drama as "bond market mayhem", but the very idea of altering the fundamental laws underpinning the European Union so soon after they were agreed runs the risk of shaking the 50-year-old European project to its core and may end up exacerbating the sovereign debt crisis. German Chancellor Angela Merkel has been the most forthright of Europe's leaders in calling for changes to the Lisbon Treaty, arguing that amendments are necessary if there is to be more rapid integration and greater stability in the euro zone. The changes she is seeking include much stricter sanctions on countries that miss budget deficit targets. "It is time for a breakthrough to a new Europe," she said in Berlin last week, emphasizing that the survival of the EU depended on being able to amend its treaty, even though it took eight years to negotiate and came into force only two years ago. "A community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules, that community simply can't survive. I'm convinced of this."
• UniCredit Seeks Wider ECB Funding for Italian Banks - Source. The CEO of Italy's UniCredit will ask the European Central Bank at a meeting on Wednesday to extend access to ECB funding for Italian banks by widening the range of collateral that can be offered to get funds, a source close to UniCredit said. Italian banks have increased their reliance on the ECB for cheaper funding since the summer as Italy was sucked ever depeer into the euro zone debt crisis and its lenders faced sharply higher funding costs.
• Juncker Says German Debt Cause for Concern. Eurogroup head Jean-Claude Juncker was quoted in a German newspaper on Wednesday saying that Germany's debt level is worrying and even higher than Spain's. In an interview to appear in Thursday's General-Anzeiger newspaper in Bonn, Juncker also said it would be a disastrous scenario if Greece were to exit the euro zone. "I consider the level of German debts to be a cause for concern," Juncker said. "Germany has higher debts than Spain," he added. "The only thing is that here (in Germany) no one wants to know about that." Juncker said Greece was on the right path. But if it were to leave the euro zone it would lead to a "disastrous scenario".
• French Debt Hit As Euro Zone Crisis Deepens. French borrowing costs rose on Wednesday and were expected to increase further as the euro zone debt crisis spreads to the core of the currency bloc, while European Central Bank buying of Italian and Spanish debt failed to reassure markets. The premium investors demand to hold French rather than German government bonds rose to a new euro-era high near 2 percent for 10-year debt before easing to 190 basis points, largely tracking Italian and Spanish spreads in volatile trade.

USA Today:

• Facebook Tracks User Web Activity for 90 Days. Facebook uses tracking-cookie technology similar to online advertisers, citing the co.'s engineering director Arturo Bejar. Non-members are also tracked after they visit Facebook's website for any reason.

Market News International:

• EU's Barroso Warns On Tough 2012, Calls For Reforms. The economic problems facing Europe in 2012 are likely to be even more urgent than those of today, the president of the European Commission said Wednesday in a speech before the European Parliament in which he outlined his vision for further economic governance reforms. Citing data from the Commission released last week that showed a heightened risk that Europe could fall into a recession next year, Jose Manuel Barroso said there was "no way out of the current crisis except growth" and urged European governments use "all levers of action without delay." The Commission's autumn economic forecast projected that growth in the euro area would grind to a halt by the end of the year and remain stagnant until 2013. It also warned that "a deep and prolonged recession complemented by continued market turmoil cannot be excluded." As well as adopting prudent fiscal policies and structural reforms, the European Union and its members sharing the euro need to integrate their economic policies more closely and accept greater oversight from Brussels, he said.

Financial Times:

• The euro area's members are pointing in all directions, each believing it's done its fair share to resolve a crisis that seems intractable and endless, said Bill Gross, PIMCO's joint chief investment officer. Gross said it's become clear that debt-driven growth is an unsatisfactory business model when financial markets no longer have an appetite for it. Nations' abilities to derive more than their fair share of growth from a weak global economy has become the defining condition of credit worthiness; in this environment, "dysfunctional euroland" is particularly vulnerable, he said. A permanent credit spread of damaging proportions threatens southern European economies with higher bond-market yields, increasing rather than diminishing debt-to-GDP levels; sovereign creditworthiness becomes questionable and potential default looms larger, pointing to greater likelihood of significant losses, he said.

Telegraph:

• Hedge Funds Bet China Is A Bubble Close To Bursting. The world is looking to China as a springboard out of recession - but some hedge funds are betting the country's credit and growth levels cannot be sustained. The manager, who wanted to remain anonymous, said: “The Chinese delegation has said all week that there will be double-digit growth for years to come and the Brits have lapped it up. But the data doesn’t add up. We think we’ve experienced credit bubbles over the past few years, but China is the biggest. And yet the global economy is looking to China as not just a crutch but a springboard out of the recession. It’s crazy.” He is not alone. Hugh Hendry, a former star of Odey Asset Management, has launched a distressed China fund at Eclectica Asset Management. He follows Mark Hart of Corriente Advisors, the American hedge fund manager who made millions of dollars predicting both the subprime crisis and the European sovereign debt crisis, who started a fund based on the belief that rather than being the “key engine for global growth”, China is an “enormous tail-risk”. There have been academics and analysts who have argued about the dangers of China’s economy overheating for some time. But for many, the fact that hedge funds, particularly those with track records on previous crises, are launching specific funds is the sign that the bubble is close to bursting.
• Sir Mervyn King: ECB is Right Not to Bail Out Eurozone.
• Debt Crisis: Live.
  

Financial Times Deutschland:

• German financial markets regulator BaFin is concerned about the effect a potential default by a European country would have on banks because the secondary effects can no longer be accurately calculated, citing BaFin. The European Banking Authority is planning a survey of the region's lenders to determine which ones hold and sold credit default swaps on sovereign debt, citing Raimund Roeseler, head of banking supervision at BaFin.

Frankfurter Allgemeine Zeitung:

• European Financial Stability Facility Chief Executive Officer Klaus Regling is drawing limited interest in his search for investors to boost the fund's firepower. Euro area finance ministers are unlikely to be presented with guidelines on leveraging the bailout mechanism that they can decide on at a meeting in two weeks, citing European Union diplomats.

Epoch Times:

• Chinese TV Host Says Regime Nearly Bankrupt. China’s economy has a reputation for being strong and prosperous, but according to a well-known Chinese television personality the country’s Gross Domestic Product is going in reverse. Larry Lang, chair professor of Finance at the Chinese University of Hong Kong, said in a lecture that he didn’t think was being recorded that the Chinese regime is in a serious economic crisis—on the brink of bankruptcy. In his memorable formulation: every province in China is Greece. The restrictions Lang placed on the Oct. 22 speech in Shenyang City, in northern China’s Liaoning Province, included no audio or video recording, and no media. He can be heard saying that people should not post his speech online, or “everyone will look bad,” in the audio that is now on Youtube.

Bear Radar

Style Underperformer:

• Large-Cap Value (-.31%)

Sector Underperformers:

• 1) I-Banks -1.90% 2) HMOs -1.61% 3) Restaurants -.60%

Stocks Falling on Unusual Volume:

• WNR, VLO, VOD, PTNR, HBC, CTRP, ROVI, BOBE, FMCN, CME, ININ, AMRS, ABFS, SHOO, YNDX, FRAN, CHE, ANF, GME, TSO, EW, DK, LNKD, BOBE, HFC, MPC and CVI
  

Stocks With Unusual Put Option Activity:

• 1) JCI 2) LDK 3) NTAP 4) M 5) GFI
  

Stocks With Most Negative News Mentions:

• 1) STI 2) PRU 3) RIG 4) BAC 5) MS
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth (-.35%)

Sector Outperformers:

• 1) Oil Service +.96% 2) Homebuilders +.86% 3) Disk Drives +.59%

Stocks Rising on Unusual Volume:

• JOYG, TSRA, INCY, GMCR, ADSK, RLJ, FIO, CFX and DMND
  

Stocks With Unusual Call Option Activity:

• 1) HS 2) DLTR 3) GME 4) PEP 5) ANF
  

Stocks With Most Positive News Mentions:

• 1) SYY 2) ADSK 3) TXN 4) RGLD 5) LMT
  

Charts:

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

Wednesday Watch

Evening Headlines

Bloomberg:

• Euro Declines to Lowest in Five Weeks Before Spanish, French Debt Auctions. The euro declined to a five-week low against the dollar and the yen as Spain and France prepare to sell securities tomorrow after Italy led a slump in euro-area debt, signaling Europe’s debt crisis is spreading. The 17-nation currency weakened for a third day after the extra yield investors demand to hold bonds from France, Belgium, Spain and Austria instead of German bunds climbed to euro-era records. The dollar rose against 15 of its 16 most-traded peers as investors sought safer assets. China’s yuan declined after the People’s Bank of China set its daily reference rate weaker for a second day, suggesting the nation won’t bow to a U.S. call for faster currency appreciation. “France, Spain, they’re all seeing yields move out, so you get the impression that we’re at some sort of juncture where banks, investors and corporations are starting to prepare for the worst-case outcome,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “The euro will remain under pressure.” The euro fell 0.6 percent to $1.3456 as of 1:21 p.m. Tokyo time from the close in New York yesterday, after touching $1.3437, the weakest level since Oct. 10. The shared currency declined 0.6 percent to 103.69 yen after dropping to as low as 103.59 yen, also the least since Oct. 10. Japan’s currency was little changed from yesterday at 77.06 versus the dollar. Spain is scheduled to sell as much as 4 billion euros ($5.4 billion) of bonds due 2022, while France will auction notes maturing from 2013 to 2016 tomorrow. Spain and Belgium sold less than the maximum target of bills at auctions yesterday as financing costs increased. Ten-year Spanish yields jumped 23 basis points to 6.34 percent. The extra yield over similar-tenor bunds surged to 455 basis points. The spread investors demand to hold 10-year French debt instead of bunds was 190 basis points. The euro extended declines on speculation so-called stop- loss orders around the $1.35 level were activated, according to Satoshi Okagawa, a senior global markets analyst in Singapore at Sumitomo Mitsui Banking Corp., a unit of Japan’s second largest banking group by market value. “There seems to be risk-off sentiment, given worries over France, Italy and Spain,” said Okagawa. “Selling of the euro looks strong, and stop-losses in euro-dollar were probably triggered.”
• No Stopping Technocrats Rule as Debt Crisis Brings Down Europe Governments. The European debt crisis has toppled four elected governments with the last two, in Greece and Italy, falling last week without a shove from voters. The appointment of prime ministers in Athens and Rome to push through unpopular austerity measures echoes efforts in the past five decades by European leaders to control policy-making when democratic means fall short. “The euro zone would never have been created if voters had been given a say,” Fredrik Erixon, head of the European Centre for International Political Economy in Brussels, said in a telephone interview. “It’s an elite project but that doesn’t mean it’s a bad project.” Greek Prime Minister Lucas Papademos, a former central banker, and Italian Prime Minister-designate Mario Monti, an academic and former European commissioner, were chosen by each nation’s president after their elected predecessors were abandoned by political allies, making them unable to pass legislation demanded by the other members of the euro region. “They’re there not just because they’re technocrats, but because it was easier to ask independent personalities to construct political consensus,” European Commission President Jose Barroso said Nov. 14 in Paris. “The level of hostility between different political forces is enormous.” Progress toward building -- and now saving -- the 27-nation union has rested largely with the ruling elites. Decisions are taken at meetings of ministers from national governments, and the commission, its executive arm, is appointed by those governments.
  
• Feldstein Poised to Secure Victory Over Euro as Trichet Departs a Crisis. Harvard University Professor Martin Feldstein, who predicted in 1998 that the euro would prove an “economic liability,” said the single currency will survive for now, even as he bets Greece quits within a year. “With the exception of Greece leaving, I don’t think the whole thing is going to fall apart anytime soon,” Feldstein said in a Nov. 14 telephone interview. “The Greek situation is impossible.” Feldstein’s views on Europe carry increased weight as the region’s two-year debt crisis validates his warnings in the 1990s that uniting so many disparate nations under the same exchange and interest rates could backfire. While he said he doesn’t like to “use the word vindicate,” Feldstein, who turns 72 next week, said he recently reviewed his euro-skeptic articles and “thought they were pretty much on target, even though they were written 20 years ago.” His conclusions often left him at odds with now-former European Central Bank President Jean-Claude Trichet, who consistently rejected as “absurd” any speculation the euro area would shrink and warned that a member shouldn’t be allowed to default.
• JPMorgan(JPM) Joins Goldman(GS) Keeping Italy Derivatives Risk in Dark. JPMorgan Chase & Co. and Goldman Sachs Group Inc., among the world's biggest traders of credit derivatives, disclosed to shareholders that they have sold protection on more than $5 trillion of debt globally. Just don't ask them how much of that was issued by Greece, Italy, Ireland, Portugal and Spain, known as the GIIPS. As concerns mount that those countries may not be creditworthy, investors are being kept in the dark about how much risk U.S. banks face from a default. Firms including Goldman Sachs and JPMorgan don't provide a full picture of potential losses and gains in such a scenario, giving only net numbers or excluding some derivatives altogether. "If you don't have to, generally people don't see the advantage to doing it," said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who worked at Bear Stearns Cos. from 1999 through 2006. "On the other hand, if there were a run on Goldman Sachs tomorrow because the rumor was that they had exposure to Greece, you'd see them produce those numbers." A case in point: Jefferies Group Inc., the New York-based securities firm, disclosed every long and short position it held on European debt earlier this month after its shares plunged more than 20 percent.
• Trading at 2008 Lows in U.S. as Europe Swoons: Credit Markets. Corporate bond trading volume is plummeting in the U.S. to the lowest level in almost three years as concern deepens that Europe's sovereign-debt crisis will slow the global economy. The average daily volume of publicly traded investment-grade and junk bonds has declined to $12.4 billion this month, a 37% drop from January, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That's 23% below the daily mean for this year of $16.2 billion and the lowest level since December 2008. The decline has contributed to a 72% slump in average monthly issuance of high-yield bonds since July, making it harder for the neediest borrowers to tap credit markets, according to Bloomberg.
  
• BNP Cuts China Developers' EPS Est., Price Targets On Home Price Outlook. BNP Paribas lowers EPS forecasts for property developers by 6%-26% for 2012 and 11%-33% for 2013 to reflect expectations of a 10% drop in home prices from now to 1H 2012, analyst Frank Chen wrote in a note. Price targets for developers were cut by 11%-37%. NAV est. revised down by 9%-29%. The property market will remain challenging until 2H 2012. Developers' Oct. sales declined 24% m/m and 14% y/y.
• Hong Kong Credit Growth Risks Bad Loans Amid EU Crisis, IMF Says. Hong Kong's "rapid" credit growth has increased the risk that bank made bad loans as the city faces a potential recession if the European crisis deepens, the IMF said. "Credit has been growing at an extraordinary pace, particularly for loans in foreign currency," the IMF said in a report. Such growth may "lead to a worsening of average credit quality" and create "strains on bank funding," it said.
  
• Paulson Said to Cut Risk in Main Hedge Funds. John Paulson, the billionaire hedge- fund manager having the worst year of his career, is cutting risk in his hedge funds further as the European sovereign-debt crisis roils markets, according to two people familiar with the matter. The New York-based firm, which has $28 billion in assets, has cut the so-called net exposure in its main hedge funds to 30 percent, Paulson told investors yesterday, according to the people, who asked not to be identified because the company is private. That number stood at 60 percent about four months ago. The firm is reducing its bullish bets across all funds until there is more certainty that Europe can contain its debt crisis, Paulson said during the two-day annual meeting at the Metropolitan Museum of Art in New York. Paulson’s biggest funds, the Advantage Plus and Advantage funds, which have $11 billion in combined assets and aim to profit from corporate events such as takeovers and bankruptcies, have fallen 44 percent and 29 percent this year, respectively.
• Derivatives Market Growth Accelerates to 18%, BIS Says. Growth in derivatives markets accelerated in the first half of this year, a report from the Bank of International Settlements showed today. Notional amounts outstanding of over-the-counter derivatives climbed 18 percent to $707.6 trillion by the end of June, compared with the six months ended December 2010, when they increased 3 percent, the bank said in the report. Interest-rate swaps jumped 21 percent to $441.6 trillion in the first half, accounting for 62 percent of the total amount, the report showed. Credit-default swaps rose 8 percent to $32.4 trillion, the BIS said.
• Facebook Risks Losing Users as Porn, Violence Jam Newsfeeds. Facebook Inc. risks losing users who are offended by what researchers said is an inundation of violent images and hardcore pornography into some newsfeeds. The social network said it's investigating the matter. "We are hearing this problem is spreading," said Graham Cluley, senior technology consultant at security firm Sophos Ltd. "Facebook needs to get this under control, because the content is so offensive. Some people may quit Facebook." Porn, pictures of extreme violence and faked photos of celebrities such as Justin Bieber in sexual situations have overrun the profiles of some Facebook users in the last 24 hours, Abingdon, U.K.-based Sophos said. Some of Facebook's more than 800 million active users may pull the plug on profiles if Facebook doesn't quickly resolve the spam, Sophos said.

Wall Street Journal:

• Fed Mulling Higher MBS Collateral From Primary Dealers - Sources. The Federal Reserve is mulling increasing collateral requirements on 21 primary dealer banks in transactions dealing with mortgage-backed securities, a move that would be aimed at securing an extra layer of protection against settlement risks with its counterparties, according to several people familiar with the matter.
• Citi(C) May Slash 3.000 Jobs. Citigroup Inc. is preparing to eliminate 900 jobs in its securities and banking division, or about 5% of the unit's world-wide staff, as turmoil in the equity and debt markets erodes revenue, people familiar with the situation said.
• Purgatory for MF Global Customers. About 33,000 Account-Holders Can't Get to Their Cash: 'My Entire Business Has Come to a Halt'.
• Gimmicks Could Help Rescue Deficit Talks. Experts Say Accounting Tricks Are Being Used Instead of Fundamental Policy Changes Needed for Long-Term Budget Fix. With Congress's deficit-reduction supercommittee barreling toward a deadline for striking a big budget deal, both parties are reaching for accounting gimmicks to help reach their target of $1.2 trillion in savings over 10 years. Some tools are familiar to old Washington hands, such as massaging budget assumptions and painting rosy economic scenarios. Others include taking credit for "saving" money on wars that are ending and putting off until next year what lawmakers don't want to deal with now. All told, none of these efforts make the fundamental policy changes needed for a long-term budget fix.
• The Keystone Debacle. Was Obama's decision to delay the Canadian oil pipeline shrewd politics? Maybe not.
• As Rivals Slip, Gingrich Finds Traction.
• To Increase Jobs, Increase Economic Freedom by John Mackey. Business is not a zero-sum game struggling over a fixed pie. Instead it grows and makes the total pie larger, creating value for all of its major stakeholders, including employees and communities.

Barron's:

• Credit Suisse: Bove Downgrades as Dark Clouds Gather. Credit Suisse (CS) is “in the wrong place at the wrong time”, veteran analyst Richard Bove wrote in a note today downgrading the shares to Neutral from Buy. Bove, of Rochdale Partners, sees five problems facing Credit Suisse:

MarketWatch:

• Apple(AAPL) Names Levinson Chairman; Iger Joins Board.

Business Insider:

• The Part Of The Jerry Sandusky Interview That Didn't Air Last Night Is Just As Disturbing As The Rest Of It.
• Here's How The Post Office Lost $5 Billion In 2011(And Will Lose Almost Three Times That Next Year).
  

Zero Hedge:

• JPMorgan(JPM) To Issue CMBS Backed By... Defaulted Loans. JP. Morgan Chase & Co. (JPM) next year plans to issue the first U.S. commercial mortgage-backed securities supported by defaulted loans since the 1990s as it revives a practice that regulators used to extricate the nation from the savings-and-loan crisis. The investment bank has approached rating agencies with two pools of distressed loans that it acquired from European banks and other financial institutions, according to people familiar with the matter.
• Dark Pool Flush: Game Over Pipeline; Next Up Goldman's Sigma X?
• Kyle Bass Summarizes Europe: "They Have A German Pope And An Italian Central Banker". (video)
  

CNBC:

• BOJ Keeps Policy On Hold But Cuts Economic Assessment. The Bank of Japan kept monetary settings unchanged on Wednesday but toned down its economic assessment and warned of a widening fallout from Europe's debt crisis, signaling readiness to ease its policy again if risks to the country's recovery heighten.
• Dell(DELL) Earnings Beat Forecast While Revenue Falls Short. Dell reported quarterly earnings that beat Wall Street's expectations and revenue that fell short of analysts' forecasts on Tuesday, hurt by lower sales to consumers.
• Woori to Sue Citi(C), Merrill, RBS Over Derivatives. Woori Bank is preparing to sue Citigroup, Bank of America Merrill Lynch and Royal Bank of Scotland over losses on as much as $300 million in derivatives investments, a spokesman of the South Korean bank said, in the latest legal salvo against large banks that sold risky debt.

IBD:

• Panera Bread(PNRA) Stays On Top With Good Food And Service.
  

Reuters:

• Iran Ready To Help Turkey With Nuclear Plant - Aide. An adviser to Iran's Supreme Leader said on Tuesday that Tehran was willing to share its controversial nuclear technology with neighbouring countries, suggesting it could help Turkey build an atomic power plant. The United States, European Union and their allies suspect Iran is trying to develop nuclear weapons and, along with the U.N. Security Council, have imposed sanctions to try to stop it from enriching uranium. But Tehran says its nuclear program is to generate electric power and refuses to halt it. "Iran developed a very sophisticated nuclear science and technological capability, which we are quite ready to share with ... neighbouring countries and friendly countries in the region," the adviser, Mohammad Javad Larijani, said.

Financial Times:

• Sovereign CDS Soar For Bid Eurozone Countries. The cost to insure eurozone debt against default soared to record highs for most of the leading economies amid growing fears over the single currency. The jump in credit default swap prices on Tuesday came as the extra cost to swap euros for dollars jumped to highs last seen in December 2008 when many markets had seized up in the wake of the collapse of Lehman Brothers. The cost to insure the debt of Italy, Spain, France, Belgium, Austria and the Netherlands hit all-time highs since the sovereign CDS markets saw their first trades around 2002, according to Bloomberg data.

Telegraph:

• Paul Krugman is Rewriting History on Eurzone Decline. There is only one path Europe can take if it is to avoid economic meltdown: dramatic cuts in public spending, the dismantling of its welfare states, the removal of crippling taxes and business regulations, the downsizing of the public sector, and a return to self-determination for EU member states. It is Europe’s lack of fiscal responsibility, economic freedom, and national sovereignty, that are at the heart of the current economic crisis, and the United States must do all it can to avoid European-style decline.
• Italian Unity Fails to Stem Market Fears Over Eurozone. Economists at Schroders warned that Rome's borrowing costs were "unsustainable" even with the help of the European Central Bank (ECB). "With no solution to Italy's problems in sight... we are heading for an almighty crash," they said in a note.
• Bank of England to Downgrade UK Growth Forecasts. The Bank of England is set to give a gloomy update on the state of the British economy, sharply downgrading growth forecasts and issuing a stark warning on the eurozone debt crisis.

Hong Kong Economic Times:

• Li Daokui, an adviser at the People's Bank of China, forecast that property prices in China won't fall by more than 15% in the next two to three years. Sharp declines in home prices will cause social problems, citing Li at a conference in Hong Kong.

21st Century Business Herald:

• China may limit financial asset management companies and financial leasing firms to invest in trust products or may ban them from such investment, dealing a "blow" to "shadow banking," citing a company official.

Evening Recommendations
Raymond James:

• Rated (PCLN) Outperform, target $620.
• Rated (MELI) Outperform, target $98.
• Rated (ACTV) Strong Buy, target $20.
• Rated (SFLY) Strong Buy, target $50.

Night Trading

• Asian equity indices are -2.0% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 208.50 +7.5 basis points.
  
• Asia Pacific Sovereign CDS Index 155.0 +1.75 basis points.
• FTSE-100 futures -.76%.
  
• S&P 500 futures -.97%.
  
• NASDAQ 100 futures -.68%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TGT)/.74
• (ANF)/.71
• (AMAT)/.19
• (NTAP)/.60
• (PETM)/.48
• (LTD)/.24
• (ZOLL)/.49
• (BJ)/.49

Economic Releases
8:30 am EST

• The Consumer Price Index for October is estimated unch. versus a +.3% gain in September.
• The CPI Ex Food & Energy for October is estimated to rise +.1% versus a +.05% gain in September.
  

9:00 am EST

• Net Long-term TIC Flows for September are estimated to fall to $50.0B versus $57.9B in August.

9:15 am EST

• Industrial Production for October is estimated to rise +.4% versus a +.2% gain in September.
• Capacity Utilization for October is estimated to rise to 77.6% versus 77.4% in September.

10:00 am EST

• The NAHB Housing Market Index for November is estimated at 18.0 versus 18.0 in October.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,200,000 barrels versus a -1,370,000 barrel decline the prior week. Distillate supplies are estimated to fall by -2,350,000 barrels versus a -6,020,000 barrel decline the prior week. Gasoline supplies are expected to fall by -1,000,000 barrels versus a -2,107,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a -2.7% decline the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Rosengren speaking, Fed's Lacker speaking, weekly MBA mortgage applications report, (QCOM) analyst meeting, (OMX) investor day, (ALK) investor meeting, Citi Small/Mid-cap Conference and the Morgan Stanley Tech/Media/Telecom Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by real estate and technology shares in the region. I expect US stocks to open modestly lower and to maintain loses into the afternoon. The Portfolio is 50% net long heading into the day.

Stocks Rising into Final Hour on Better US Economic Data, Short-Covering, Bargain-Hunting, Investor Performance Angst

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 30.74 -1.22%
  
• ISE Sentiment Index 77.0 -58.90%
  
• Total Put/Call 1.11 unch.
  
• NYSE Arms .77 -59.09%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 133.05 +3.95%
  
• European Financial Sector CDS Index 277.90 +9.46%
  
• Western Europe Sovereign Debt CDS Index 356.67 +2.22%
  
• Emerging Market CDS Index 316.56 +3.55%
  
• 2-Year Swap Spread 47.0 unch.
  
• TED Spread 46.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .01% +1 bp
  
• Yield Curve 182.0 +1 bp
  
• China Import Iron Ore Spot $146.30/Metric Tonne +5.78%
  
• Citi US Economic Surprise Index 44.60 +8.1 points
  
• 10-Year TIPS Spread 2.02 -4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +39 open in Japan
• DAX Futures: Indicating +45 open in Germany

Portfolio:

• Higher: On gains in my Technology, Medical and Biotech sector longs.
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short and then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 trades back near its 200-day moving-average despite rising Eurozone debt angst, rising global growth worries and rising food/energy prices. On the positive side, Construction and REIT shares are especially strong, rising +1.5%. Small-caps are outperforming. Tech shares have traded well throughout the day. Johnson Redbook Weekly Retail Sales rose +3.2% this week versus +3.1% last week. This is down from an avg. of +4.6% weekly gains in October. On the negative side, Energy, Ag, Paper, Hospital, Retail and Airline shares are flat-to-lower on the day. Lumber is falling -.26%, copper is just slightly higher, gold is flat and oil is surging +1.56%. India shares continue to trade very poorly, falling another -1.38% overnight, and are now down -17.7% ytd. Major European equity indices fell 1-2% again today. The France sovereign cds is surging +8.8% to 233.50 bps, the Spain sovereign cds is rising +4.7% to 480.50 bps, the Belgium sovereign cds is rising +6.13% to 343.33 bps, the UK sovereign cds is gaining +3.56% to 95.17 bps, the Italy sovereign cds is gaining +5.91% to 592.50 bps, the China sovereign cds is rising +3.9% to 144.61 bps, the Russia sovereign cds is gaining +6.85% to 247.50 bps, the Brazil sovereign cds is gaining +5.3% to 166.68 bps, the Israel sovereign cds is gaining +5.4% to 195.0 bps and the Germany sovereign cds is rising +3.06% to 97.17 bps. The TED spread continues to trend higher and is at the highest since June 2010. The 2-Year Swap spread is at the highest since June 2010 today. The FRA/OIS Spread is now at the highest since June 2010. The 2yr Euro Swap Spread is rising today to the highest since Nov. 2008. The 3M Euro Basis Swap is falling -6.52 bps to -119.50 bps. The Libor-OIS spread is at the widest since July 2009, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -23.8% since February 16th and -19.2% since Sept. 7th. The 10-year yield is flat today despite stock strength and better economic data. Oil continues to trade very well, which is also a large negative. As well, retailers are lower on the day despite the better-than-expected monthly retail sales report and market rally. Equity market volume remains poor. I still believe that given the recent and ongoing significant deterioration in gauges of Eurozone debt health, the big jumps in some gauges of stock market bullish sentiment and the recent equity rally, investors seem a bit complacent. Stocks do trade very well, however the risk of another turn lower in equities is rising substantially unless a positive catalyst emerges from Europe over the coming days. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth worries, profit-taking, more shorting, rising food/energy prices and technical selling.