Stocks Sightly Higher into Final Hour on US Economic Data, Investor Performance Angst, Short-Covering, Less Financial Sector Pessimism

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Mixed
  
• Volume: Light
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 27.07 -1.24%
  
• ISE Sentiment Index 70.0 +40.0%
  
• Total Put/Call .92 -3.16%
  
• NYSE Arms .90 -3.52%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 124.23 -2.64%
  
• European Financial Sector CDS Index 275.72 -4.92%
  
• Western Europe Sovereign Debt CDS Index 337.78 -1.43%
  
• Emerging Market CDS Index 303.98 -1.93%
  
• 2-Year Swap Spread 45.0 +3 bps
  
• TED Spread 53.0 unch.
• 3-Month EUR/USD Cross-Currency Basis Swap -126.0 -5 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 179.0 -6 bps
  
• China Import Iron Ore Spot $138.80/Metric Tonne +3.89%
  
• Citi US Economic Surprise Index 85.70 +23.8 points
  
• 10-Year TIPS Spread 2.05 -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +19 open in Japan
• DAX Futures: Indicating -18 open in Germany

Portfolio:

• Slightly Lower: On losses in my tech and medical sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 reverses sharp morning gains near its 200-day moving average and moves to session lows on Eurozone debt angst, rising global growth fears, technical selling, profit-taking, more shorting and rising energy prices. On the positive side, Paper, Disk Drive, Networking, Bank, I-Banking and Education shares are especially strong, rising more than +1.0%. Small-caps and cyclicals are outperforming. (XLF) has traded very well throughout the day. Copper is rising +1.95%, lumber is gaining +3.37% and the UBS-Bloomberg Ag Spot Index is falling -.13%. The Brazil sovereign cds is falling -4.69%, the Russia sovereign cds is falling -5.4% to 226.50 bps and the US sovereign cds is falling -5.56% to 49.17 bps. On the negative side, Gaming, HMO, Hospital, Drug, Medical Equipment, Wireless, Ag and Utility shares are under pressure, falling more than -1.0%. (XLK) has been relatively weak throughout the day. Oil is rising +.93% and gold is gaining +.17%. The Saudi sovereign cds is surging +4.96% to 127.0 bps, the France sovereign cds is gaining +.28% to 192.66 bps and the Ireland sovereign cds is gaining +.4% to 705.0 bps. The Italian/German 10Y Yld Spread is rising +7.4 bps to 454.71 bps. The US 10-year yield is falling -5 bps to 2.04%, despite today's jobs report. The TED spread continues to trend higher and is at the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is very near the highest since March 2009. The 3M EUR/USD Cross-Currency Basis Swap is falling -4.15% to -126.33 bps. The Libor-OIS spread is the widest since June 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -27.7% since February 16th and -23.3% since Sept. 7th. The Shanghai Composite fell -1.1% overnight, as it nears its October lows, and is down -16.0% ytd. Considering the recent global equity rally and RRR cut, Chinese shares still trade poorly. As well, Brazilian shares fell -.44% today and are down -16.5% ytd. Volume is surprisingly low today given the jobs report and leadership is of fairly low-quality. Breadth is decent. The market is likely coming under pressure this afternoon mainly on a number of negative headlines out of Europe. With technical resistance at hand, I suspect investors will need to see some concrete evidence that the "kick-the-can" Euro crisis solution that is currently being priced into equities has more support from key Eurozone officials before any further stock surge into year-end. I still believe that while US economic data remain mostly firm, a "real" solution to the Eurozone crisis is needed to prevent a global double dip next year. I expect US stocks to trade mixed-to-lower into the close from current levels on tech sector pessimism, Eurozone debt angst, global growth fears, profit-taking, technical selling and more shorting.

Today's Headlines

Bloomberg:

• Spanish Bonds Snap Seven-Day Gain on Downgrade Bets; Italian Debt Falls. Spanish 30-year bonds snapped a seven-day rally on speculation the nation’s credit ranking will be cut due to the euro-area debt crisis. Italian notes declined. Spain’s government debt pared gains today on concern a lower rating would make it more difficult for the nation to reduce its deficit. Spanish and Italian bonds advanced earlier as people familiar said a European proposal to channel central bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($270 billion) to fight the crisis. “There is a rumor circulating that Spain might be downgraded,” said Achilleas Georgolopoulos, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “The euro reacted immediately, Italian yields and Spanish yields the same. That’s pretty much why bunds are rallying.” Spanish 30-year yields were little changed at 6.17 percent at 5 p.m. in London, after dropping as much as 19 basis points. The 4.7 percent bond due in July 2041 traded at 80.135 percent of face value. Two-year Italian rates climbed 25 basis points to 6.57 percent. They earlier declined 56 basis points. German bonds rose, pushing the yield down four basis points to 2.14 percent. The euro slid 0.5 percent to $1.3391. Moody’s Investors Service currently ranks Spain as A1, its fifth-highest investment grade. Standard & Poor’s downgraded Spain on Oct. 13 to its fourth-highest investment rank, AA-, after Fitch Ratings cut it to the same level on Oct. 7.
  
• Banks Vie With Nations to Sate $2 Trillion 2012 Funding Need: Euro Credit. Europe’s banks will compete with their governments to borrow $2 trillion next year as the two groups refinance maturing bonds and bills. Euro-area governments have to repay more than 1.1 trillion euros ($1.5 trillion) of long- and short-term debt in 2012, with about 519 billion euros of Italian, French and German debt maturing in the first half alone, data compiled by Bloomberg show. European banks have about $665 billion of debt coming due in the first six months, with a further $370 billion by the end of the year, according to Citigroup Inc., based on Dealogic data. “Serious investors are fleeing from both European sovereign and European bank debt in droves,” said Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale, Florida. “The financials of both classes are in question, and nothing of substance has been achieved to correct the problems and quell the European crisis.” The 440 basis-point yield premium investors demand to hold bank bonds rather than benchmark government soared to 448 Nov. 30, the most since January 2009, according to Bank of America Merrill Lynch’s EUR Corporates, Banking Index. The average spread between January 2005 and January 2007 -- before the crisis struck -- was 38 basis points, the data show.
• U.S. Jobless Rate Unexpectedly Declines. Job gains in the U.S. picked up last month and the unemployment rate unexpectedly fell to the lowest level since March 2009, a decline augmented by the departure of Americans from the labor force. Payrolls climbed 120,000, after a revised 100,000 increase in October, with more than half the hiring coming from retailers and temporary help agencies, Labor Department figures showed today in Washington. The median estimate in a Bloomberg News survey called for a 125,000 gain. The decrease in the jobless rate reflected a 278,000 gain in employment at the same time 315,000 Americans left the labor force. “You’d like to see the unemployment rate coming down when people are coming into the job market, not disappearing,” James Glassman, senior economist at JP Morgan Chase & Co. in New York, said in a radio interview on “Bloomberg Surveillance” with Tom Keene. Employment at service-providers increased 126,000 in November, including a 50,000 gain in retail trade as companies began hiring for the holiday shopping season. The number of temporary workers increased 22,300. Average hourly earnings fell 0.1 percent to $23.18, today’s report showed. The average work week for all workers held at 34.3 hours. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- decreased to 15.6 percent from 16.2 percent. The report also showed an increase in long-term unemployed Americans. The number of people unemployed for 27 weeks or more increased as a percentage of all jobless, rose to 43 percent from 42.4 percent.
• The 3M EUR/USD Cross-Currency Basis Swap is down -5 bps to -126 bps, the biggest intraday decline since Nov. 29, amid lingering uncertainty regarding a resolution to the EU sovereign debt crisis. USD 3M Libor may be revised upward Mon., Dec. 5 as the Bank of Nova Scotia leaves the USD Libor panel.
• Risk perceptions in European stock and credit markets are diverging by the most in three years after a rally in equities pushed options prices down 32% since September. Teh VStoxx Index, which measures the cost of Euro Stoxx 50 Index options, dropped to 36.54 yesterday from 53.55 on Sept. 12, trimming its advance since May 11 to 73%. The European 2Y Swap Spread, a measure of stress in credit markets, has climbed about twice as much during the same period, according to Bloomberg data.
  
• Pakistan Prepares for U.S. Attack, Bild Reports, Citing Document. Pakistan has taken measures to prepare for a possible attack by U.S. forces, Germany’s Bild- Zeitung reported, citing a classified document by the U.S. government’s Combined Joint Intelligence Operations Center. Pakistan has set up defensive positions in the border region with Afghanistan in response to an attack the country’s military sees as potentially imminent, Bild cited the document as saying. Numerous anti-aircraft radar installations are in place to track low-flying vehicles, increasing Pakistan’s capability to spot helicopters and drones, Bild said. Afghanistan will suffer a civil war once the International Security Assistance Force leaves the country, Bild also reported, citing U.S. military intelligence.
• RIM(RIMM) Tumbles as Apple(AAPL) Extends Lead. Research In Motion Ltd. (RIM) plunged the most in 11 weeks after saying revenue missed its forecast last quarter amid accelerating market-share losses for BlackBerry smartphones and PlayBook tablets to Apple Inc. (AAPL). Third-quarter revenue was “slightly lower” than the $5.3 billion to $5.6 billion the company had projected and earnings were “at the low to mid point” of its forecast, according to an unscheduled statement from Waterloo, Ontario-based RIM today. RIM said it doesn’t expect to meet its full-year profit target.
• House Subpoenas Corzine for MF Hearing. The U.S. House Agriculture Committee voted to subpoena Jon S. Corzine, former chairman and chief executive officer of MF Global Holdings Ltd., for a Dec. 8 hearing on the collapse of the New York-based brokerage.
• Crude Oil Heads for First Weekly Gain in Five as Iran Tensions Increase. Crude oil for January delivery rose 21 cents to $100.41 a barrel at 12:33 p.m. on the New York Mercantile Exchange. Futures climbed as much as $1.36 before the report’s release at 8:30 a.m. in Washington. Prices have risen 3.8 percent this week and 9.9 percent this year. Brent oil for January settlement rose 47 cents, or 0.4 percent, to $109.46 a barrel on the London-based ICE Futures Europe exchange.
• Plosser Says Fed Role in Fiscal Policy Provokes Inflation Risks. Federal Reserve Bank of Philadelphia President Charles Plosser said the Fed has undertaken actions that should be conducted by the U.S. Treasury and risks fueling public expectations that inflation will accelerate. “Unfortunately, from my perspective, the Fed and other central banks have already embarked on a path that has blurred the distinction between monetary policy and fiscal policy,” Plosser said today in the text of a speech in Philadelphia. Plosser’s remarks come two days after the Fed and five other central banks cut in half the premium on currency swap agreements.

Wall Street Journal:

• France and Germany Remain Poles Apart. Two landmark speeches in two days were supposed to highlight France and Germany's determination to bring about a resolution to the euro crisis. Instead, they have highlighted how divided France and Germany remain. Both Angela Merkel and Nicolas Sarkozy agree on the severity of the crisis, the inadequacy of the European Union's current governance arrangements and the need for Treaty changes and new fiscal discipline. But they remain as far apart as ever on how this should be achieved.
• China Role Limited In Resolving EU Debt Crisis - China Life Asset Management Chief.
• German Banks Will Need To Raise Almost EUR10B After EBA Test -Sources. German banks will need to raise almost EUR10 billion after the European Banking Authority completes its latest stress tests, two people familiar with the matter said Friday.
  

MarketWatch:

• Shale Gas Gives Rise to Era of Energy Independence. A boom in shale gas production in recent years has helped lift U.S. natural gas supplies to a record level, creating an ideal environment to sustain low prices and offering a launching pad for a new era in a country striving for energy independence.

CNBC.com:

• Britain Threatens to Block Drive to Change EU Treaty. British Prime Minister David Cameron threatened on Friday to obstruct a Franco-German drive for swift change to the European Union's treaty intended to help save the euro. After talks with French President Nicolas Sarkozy, Cameron said he was not convinced treaty change was needed to reinforce the single currency zone, which Britain has refused to join. If the 27-nation bloc's charter were reopened at a crunch summit next week, he would have his own agenda.
• European Banks Scrambling for Euros - Not Dollars. Europe's banks are scrambling to tap every last available source of funding, including through their retail customers, as they stock up on securities they can use to access the central bank liquidity they will need to lean on for many more months. Fresh measures to flush banking systems with dollar liquidity do not tackle the broader euro funding shortages most of Europe's banks still face, as many find themselves shut out of mainstream bond markets. "It's amazing no bank has fallen over already when there are so many living hand-to-mouth," one senior financing banker said.

Business Insider:

• Why Dec. 9 Is Expected to be One of the Biggest Days in the History of Europe.
• Eliot Spitzer: 'The SEC Is The Most Grossly Inept Failed Group I've Ever Worked With'.
• Food Stamps Can Now Be Used To Buy Starbucks(SBUX) Coffee and Muffins.
• Meanwhile, Greece's 1-Year Bond Is Now Yielding 317%. (graph)
  

Zero Hedge:

• Key Charts From The NFP Report: Records In Jobless Duration and People Who Want A Job As Civilian Labor Force Plunges. (graphs)
• Greece - Has The Barber Retired?
  

The Hill:

• Conservatives Craft Bill to Prevent IMF Bailout of Eurozone. Conservatives say they will try to block the International Monetary Fund from bailing out Italy and Spain, which they say could leave U.S. taxpayers with a huge bill. Republicans on both sides of the Capitol complain that the Obama administration has refused to share details of what Treasury Secretary Timothy Geithner is discussing with European leaders amid reports the IMF could intervene. “We’re throwing good money after bad down a hole that I think is not a solvable problem,” he said. “Europe is going to default eventually, so why would you socialize their profligate spending,” he added. Coburn estimates the U.S. could be liable for as much as $176 billion if the IMF shores up Italy and Spain and the European Union collapses. President Obama this week said the U.S. “stands ready to do our part” to help resolve the crisis, and Geithner in October said using U.S. tax dollars through the IMF to shore up Europe’s efforts was appropriate. “We need some transparency about what’s really going on,” said McMorris Rodgers. “It’s hard to get information. We’re talking about U.S. taxpayer dollars being involved in the European bailout. The administration needs to be honest with the Congress. I believe Congress needs to be involved in making this decision.”

Gallup:

• Local Economic Outlook Dire in Hard-Hit EU Countries. Europeans' outlook on economic conditions where they live remains rather bleak in 2011. A median of 25% of residents in 25 EU countries that Gallup surveyed say their local economic situations are getting better, while a median of 38% say they are getting worse. 9% of Italians believe their economic situation is getting better, while 61% believe it is getting worse. Greeks are the least hopeful: 2% say their local economies are improving.
  

Reuters:

• Merkel Says Debt Crisis Will Take Years to Solve. German Chancellor Angela Merkel called on Friday for rapid EU treaty change to remedy the root causes of the euro zone's debt crisis but warned that Europeans faced a long, hard "marathon" to restore lost credibility. Outlining a long-term approach to tighter fiscal integration in the single currency area, with tougher budget discipline, she dismissed quick fixes such as massive Fed-style money printing by the European Central Bank or issuing joint euro zone bonds. "Resolving the sovereign debt crisis is a process, and this process will take years," Merkel told parliament, vowing to defend the euro, which she said was stronger than Germany's former deutschemark.
• Hedge Funds on Red Alert for Bank Leverage Squeeze. Hedge funds are steering clear of the big bets they are famous for, rattled by worries that the lenders who bankroll their most lucrative plays will soon turn the taps off. With memories of sudden margin calls at the height of the 2008 crisis still fresh, many managers are scrutinizing banking relationships and preparing for the likelihood of tighter, more expensive access to credit as several major banks face up to their own funding troubles. "This is a dynamic we're all very familiar with because it happened a great deal in 2008 and 2009," Benjamin Keefe, investment advisory director at Gamma Finance, said. "That will have a knock-on effect either in terms of forcing hedge funds to exercise a gate to stop investors redeeming or to sell their more liquid assets to meet recalled leverage lines."
• U.S. Headed the Way of Italy, Greece - Fed's Fisher. The United States is headed the way of debt crisis-wracked Italy and Greece unless U.S. leaders make a more concerted effort to fix the national deficit, a top Federal Reserve official said Friday. Dallas Fed President Richard Fisher told a meeting of business leaders they should take the Occupy Wall Street movement "seriously" because too many people are out of work. He urged them to lobby lawmakers to craft a fiscal solution to the nation's debt problem, which is creating uncertainty and holding back business investment. Otherwise, social unrest could result, Fisher said.
• Fitch: CDS Widening May Extend into 2012. The unprecedented widening of credit default swap (CDS) spreads across many regions and sectors that characterized 2011 figures to continue into next year, according to Fitch Solutions in its year-end Risk and Performance Monitor. 'With no clear resolution to the European debt crisis and the U.S. debt situation still in flux, CDS widening will likely persist in 2012,' said Author and Director Diana Allmendinger. This likely means added pressure on European sovereign CDS, which reached record highs this year after widening 170%, on average, over the course of 2011.

USA Today:

• Guns Are A Big Seller On Black Friday. Gun dealers flooded the FBI with background check requests for prospective buyers last Friday, smashing the single-day, all-time high by 32%, according to bureau records.

ORF:

• It would be a "severe mistake" for the European Central Bank to purchase unlimited amounts of euro-area government bonds, Otmar Issing, the ECB's former chief economist, said in an interview. "It would be an absolutely severe mistake which the ECB will certainly not commit," Issing said. "To guarantee the debt of all countries would mean to hand over control of the printing press to politicians, and history teaches us what happens next," Issing said. "At the moment the ECB is the only insitution that is trusted," Issing added. "If its reputation is tarnished, the euro would be in trouble."

People's Daily:

• China's government should be "highly concerned" about potential risks of insufficient company financing through the end of the year, citing Gu Shengzu, standing committee member of the National People Congress. Small and medium-sized companies face financing problems, labor shortages and rising costs, Gu said.

Bear Radar

Style Underperformer:

• Large-Cap Growth (+.15%)

Sector Underperformers:

• 1) Gold & Silver -2.10% 2) Agriculture -1.21% 3) Medical Equipment -1.11%

Stocks Falling on Unusual Volume:

• CF, EXK, MON, AEE, NVS, WABC, SJR, BNS, EEP, KCP, ATO, UVV, NNN, UGI, BIG, HRB, RIMM, SHPGY, STX and TEA
  

Stocks With Unusual Put Option Activity:

• 1) HRB 2) XLNX 3) CNX 4) RCL 5) PNC
  

Stocks With Most Negative News Mentions:

• 1) GES 2) PPG 3) GRPN 4) SINA 5) LMT
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (+.49%)

Sector Outperformers:

• 1) I-Banks +2.27% 2) Banks +2.19% 3) Education +1.78%

Stocks Rising on Unusual Volume:

• UBSI, BCS, HDB, DISH, JPM, LUK, ZUMZ, LULU, ULTA, AVGO, SFLY, BKS, WDC, WNR, MS, PVH, GS, MBI and UBSI
  

Stocks With Unusual Call Option Activity:

• 1) AVGO 2) DAL 3) VRUS 4) JBLU 5) BKS
  

Stocks With Most Positive News Mentions:

• 1) ANTH 2) LULU 3) WDC 4) ALL 5) BIG
  

Charts:

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

Friday Watch

Evening Headlines

Bloomberg:

• Franco-German Push for Budget Policing Snubs Investors' ECB Plea. Germany and France are pushing for closer economic ties among euro nations and tougher enforcement of budget rules to counter the debt crisis, snubbing investor pleas to back an expanded European Central Bank role. German Chancellor Angela Merkel, who will use a speech to lawmakers in Berlin today to outline her stance before a Dec. 9 European Union summit, has repeated her push to rework EU rules to lock in budget monitoring and seal off the ECB from political pressure. French President Nicolas Sarkozy late yesterday called for "more discipline" and automatic penalties for nations that break fiscal rules. Merkel's refusal to deploy the ECB is a rebuff to President Barack Obama after he exhorted Europe's leaders to take more action to combat the crisis. The chancellor is loath to agree to follow the Federal Reserve and the Bank of England in policies she views as akin to fighting debt with more debt. Enlisting the ECB in battling the crisis would violate the central bank's independence and set it on a course of action that might not work, destroying its credibility. "The market is questioning Merkel's tough approach," Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London, said in a telephone interview. Investors want "clarity on what the framework will look like and what the financial bridge will look like" to fund euro-area governments and banks that need aid while fiscal ties are negotiated, he said.
• Australia's Four Largest Banks Downgraded by S&P on Criteria. Commonwealth Bank of Australia, the nation’s largest lender, and its three biggest rivals were downgraded by Standard & Poor’s as the ratings company applied its revised criteria to Asia-Pacific financial institutions. Commonwealth, Westpac Banking Corp., Australia & New Zealand Banking Group Ltd. and National Australia Bank Ltd. were cut one level to AA- from AA, New York-based S&P said in a statement yesterday. Sydney-based Macquarie Group Ltd., Australia’s largest investment bank, was downgraded two grades, to BBB from A-. Standard Chartered Plc was raised to A+ from A, while Japan’s Nomura Holdings Inc. was kept at BBB+.
  
• EU Wimps Out on Oil Sanctions to Halt Iran's Nuclear Drive: View. Who would have thought a week in which protesters rampaged through the U.K. Embassy in Tehran would end with Europe going soft on the Iranian regime? Yet that’s exactly what happened. At a meeting Dec. 1 in Brussels, European Union foreign ministers signed off on measures against some 180 individuals and companies in reaction to Iran’s continued support for terrorism and an International Atomic Energy Agency report finding that Iran had conducted secret activities “specific to nuclear weapons.” This was expected and deserves a positive response (as do new penalties the ministers announced against Syria). The real news, however, was what the EU didn’t do: Announce an agreement, proposed by France and backed by the U.K., Germany and the Netherlands, to proceed with a full embargo on imports of Iranian oil. Instead, Catherine Ashton, the EU foreign policy chief, said that any consideration of steps against Iran’s energy sector would go “to the technical experts.”
• China's Stocks Decline on Economic Concern, Head for Fourth Week of Losses. China’s stocks (SHCOMP) fell, pushing the benchmark index towards a fourth week of losses, as sliding property prices and the slump in manufacturing added to concern the economic slowdown is deepening. China Shenhua Energy Co. (601088) and Jiangxi Copper Co. (600362) led losses for energy and material producers, the biggest decliners among 10 industry groups in the CSI 300 Index. China Southern Airlines Co. the largest domestic carrier (600029), plunged 4.9 percent after the China Securities Journal said the government raised wholesale jet fuel prices. The Shanghai Composite Index rose 2.3 percent yesterday, as the first cut in lenders’ reserve requirements since 2008 overshadowed a report showing the Purchasing Managers’ Index contracted for the first time in two years. The Shanghai Composite, which tracks the bigger of China’s stock exchanges, slid 33.88 points, or 1.4 percent, to 2,352.99 at 1:05 p.m. local time. The Shanghai Composite has fallen 1.2 percent this week, the worst performing major index in Asia. The measure has slid 16 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio six times to curb inflation that reached a three-year high of 6.5 percent in July.
• Hong Kong Retail Sales Growth Slows for Third Month as China Tourism Cools. Hong Kong’s retail sales growth slowed for a third straight month as the threat of a global recession clouds the outlook for the labor market and consumption in the city. Manufacturing indexes in China, Taiwan and South Korea contracted in November, reports yesterday showed, adding to evidence the global economy is slowing as Europe’s debt crisis deepens. Goldman Sachs Group Inc. and DBS Group Holdings Ltd. cut their estimates for Hong Kong’s 2012 expansion, with the city’s export dependence making it vulnerable to moderating growth in China and developed nations. “Hong Kong’s retail sales will soften on weakening consumer sentiment,” Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd., said before the release. ‘Households will spend more cautiously amid uncertainty in the economy and the jobs market while demand from Chinese visitors may also start to flag.’’

Wall Street Journal:

• A Euro Crisis Deal Emerges. Head of Europe's Central Bank Signals Bigger Role if Nations Tighten Fiscal Union. European Central Bank President Mario Draghi signaled the bank could ramp up its role battling the debt crisis if euro-zone governments enforce tougher deficit cutting—suggesting outlines are emerging of a deal that investors have been clamoring to see happen. In his first appearance before the European Parliament since taking the ECB helm last month, Mr. Draghi offered a road map for policy makers. He called on euro-zone governments to quickly craft a "new fiscal compact," calling it "the most important element to start restoring credibility." He added that "other elements might follow, but the sequencing matters."
• Soros: World Financial System on Brink of Collapse. The world financial system not only isn’t functioning, it’s on the brink of collapse, according to investor George Soros. Despite their assorted problems, including corruption, weak infrastructure and shaky government, developing countries are relatively unscathed by the “deflationary debt trap that the developed world is falling into,” Mr. Soros said at a New York gathering to mark the 10th anniversary of the International Senior Lawyers Project, a group that provides pro bono legal services around the world. The current global financial system is in a “self-reinforcing process of disintegration,” Mr. Soros warned, and “the consequences could be quite disastrous. You have to do what you can to stop it developing in that direction.”
• Fed Officials Don't See Central Bank Cutting. Two Federal Reserve officials shot down speculation that the central bank might cut the interest rate it charges on loans to banks from its discount window. Richard Fisher, president of the Federal Reserve Bank of Dallas, sought to shoot down market speculation the central bank will reduce the discount rate. “I wouldn’t make that assumption at all,” he said in an interview Thursday with The Wall Street Journal, adding, “I don’t think that’s the correct conclusion.”
• YouTube Redsigns Around "Channels' Strategy. YouTube unveiled its largest redesign yet Thursday, bringing user personalization and the video web site’s growing selection of programming topics, or “channels,” front and center.
• Google(GOOG) Targets Amazon's 'Prime' With 1-Day Deliver. Google Inc. is aiming to challenge the e-commerce supremacy of Amazon.com Inc. by diving deeper into the fast-growing world of Internet retailing. The Web-search giant is in talks with major retailers and shippers about creating a service that would let consumers shop for goods online and receive their orders within a day for a low fee, said people familiar with the matter. The effort is a risky one, and would escalate Google's budding rivalry with Amazon, which has been riding the success of its $79-a-year Amazon Prime program.
  

Business Insider:

• 12 Great Insights From Today's Big Bloomberg Hedge Fund Conference.
• Goldman's(GS) Top Strategist Sets His S&P 500 Target For 2012.
• Here's The SEC's Statement On Why It Can Prosecute Members Of Congress, But Doesn't.
  

Zero Hedge:

• US Debt/GDP Hits Post WW2 High 99.5% Following $55 Billion Overnight Debt Increase: Total Debt Now Over $15.1 Trillion.

CNBC:

• Return of the Credit Crunch: Caught in the Grip. “The credit market is not functioning right now,” says Guillermo Amann at Ormazabal, a Spanish maker of electrical components. “There is no money. The situation is becoming worse and worse.”It is a complaint that is being made across Europe and, increasingly, in the rest of the world. Sir Mervyn King, governor of the Bank of England, warned this week of “early signs of a credit crunch, with concerns that it will get worse”.
• Threat of Railroad Strike Spooks Retailers. A national railroad strike could potentially take place next week and it has the nation's retailers worried about their holiday season. "The Christmas shopping season could be severely affected as products destined for stores sit idle at ports or in traffic," a leading retail association said in an appeal to President Obama. It warned the economic effects of a strike would be broad and "linger into 2012."

NY Times:

• New SEC Tactics Yield Actions Against Hedge Funds. Financial regulators have long relied on outsiders to generate tips about potential fraud at hedge funds: disgruntled employees, news reports and disillusioned investors. Now, the Securities and Exchange Commission is ferreting out wrongdoing in a new way — and it’s bearing fruit. On Thursday, a new “analytics” division tasked with mining hedge fund data announced actions against six individuals and three hedge fund firms for alleged fraud.
• German Fears About Inflation Stall Bold Steps in Debt Crisis. Many economists say aggressive purchases of the sovereign bonds of heavily indebted states by the European Central Bank are the quickest and surest path to stabilizing the crisis. On Thursday, Mario Draghi, the bank’s president, laid the groundwork for bolder intervention in markets if certain conditions were met. To German ears those bond purchases, or anything that smacks of printing money, sound like a recipe for skyrocketing prices. German leaders, including Chancellor Angela Merkel and her former economic adviser, Jens Weidmann, now head of the German Bundesbank, have strongly discouraged any such move by the European Central Bank, stalling the rescue of the euro zone in the view of critics. The prospect of a dim historical memory — the antique photograph of the wheelbarrow full of nearly worthless bills — helping to drive the world off the economic precipice and into another deep recession may seem like the height of irrationality and even irresponsibility. But the German obsession with inflation has been difficult to overcome because Germans perceive themselves as more vulnerable to inflation today than their neighbors are. It is a force they believe could reduce or wipe out the competitive and financial edge they have labored to build. By robbing a currency of its value, inflation wipes the slate clean for debtors and savers alike. Germans say they like the slate the way it is because they are on the plus side of the ledger.

Forbes:

• Salvaging The Mythology Of Man-Caused Global Warming. If you read this column completely and carefully today, you will learn about the true state of the scientific debate over global warming. You will not get the truth about that from the Washington Post, the New York Times, or the rest of the self-regarded “establishment” media. They are devoted to the fun and games of play acting as if there is no legitimate scientific debate over whether mankind’s use of low cost, reliable energy from oil, coal and natural gas portends catastrophic global warming that threatens life on the planet as we know it.
  

CNN:

• Fed Can't Prop Up BofA(BAC) and Other Big Banks Forever.

Rothstein Kass:

• The Impact of Dodd-Frank on Investment Advisers:

Legal Insurrection:

• We Know Who Lost Egypt. Obama’s foolish policy of forcing Mubarak out of office precipitously without giving non-Islamist parties time to organize has resulted in Islamists achieving a sweeping victory in the first round of parliamentary elections. Strength by the Muslim Brotherhood was expected, but the extremely hard line Salafists had a very strong showing.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 19% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-three percent (43%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -24 (see trends).

AP:

• Egypt's Islamists Poised to Dominate Parliament. Islamists appear to have taken a strong majority of seats in the first round of Egypt's first parliamentary vote since Hosni Mubarak's ouster, a trend that if confirmed would give religious parties a popular mandate in the struggle to win control from the ruling military and ultimately reshape a key U.S. ally. Final results, expected Friday, will be the clearest indication in decades of Egyptians' true political views and give the long-banned Muslim Brotherhood a major role in the country's first freely elected parliament. An Islamist majority could also herald a greater role for conservative Islam in Egyptian social life and shifts in foreign policy, especially toward Israel and the Palestinians. The showing in Egypt — long considered a linchpin of regional stability — would be the clearest signal yet that parties and candidates connected to political Islam will emerge as the main beneficiaries of this year's Arab Spring uprisings. Tunisia and Morocco have both elected Islamist majorities to parliament, and while Libya has yet to announce dates for its first elections, Islamist groups have emerged as a strong force there since rebels overthrew Moammar Gadhafi in August. They also play a strong opposition role in Yemen.

Reuters:

• Japan Q3 GDP Likely To Be Revised Down After Capex Fall. Sales, profits and capital spending at Japanese companies fell for the second straight quarter in July-September as some firms turned cautious about the pace of recovery in the country due to a strong yen and the murky outlook for the global economy. Analysts said the faster-than-expected 9.8 percent drop in capital spending points to a downward revision in the nation's third quarter gross domestic product numbers, released next week. While the scenario that Japan's economy rebounded from an earthquake-triggered recession in July-September will remain intact, Friday's figures indicate a cautions stance among corporations.
• TEXT: Fitch: Chinese Banks' Cash Buffer Thinning as Liquidity Erodes. Fitch Ratings says that the weakening of bank asset quality in China is unlikely to fully appear in NPL ratios until well into a deterioration, if at all, as the authorities pursue a selective policy of forbearance and support for distressed borrowers. Instead, loan delinquencies will manifest themselves first as liquidity stress, as cash inflows from distressed borrowers slow and more resources are directed to support weak entities. In a special report published today, Fitch notes that while recent problems in informal lending and among property developers, SMEs, and local governments have not reached systemic levels, these are not isolated cases of distress, but rather emblematic of excesses from the recent credit boom.
• US Senators Blast CFTC, Gensler for MF Global Mess. Republican lawmakers blasted the chairman of the U.S. futures regulator on Thursday for his agency's role in the collapse of MF Global and called his recusal from the investigation a way to "avoid the heat." The Commodity Futures Trading Commission and its chairman, Gary Gensler, are under pressure because of the quick collapse of the futures brokerage and for allegedly not policing the firm's bookkeeping closely enough. Investigators are searching for as much as $1.2 billion in missing customer money, which regulators have said the firm may have diverted for its own needs.
• Solyndra Saw Staff 'Mutiny' Before Obama Visit. In the weeks leading up to a visit by President Barack Obama to Solyndra on May 25, 2010, the California solar-panel maker was in crisis. Prices for solar panels were in free-fall and the company's chief executive officer was bickering with customers unhappy with the amount of electricity produced by the cylindrical panels he invented, according to new e-mails released by Republicans investigating the now-bankrupt company. An initial public offering was on the skids, and finally, there was a "mutiny" by the company's entire executive team, who flagged the crisis to the company's board of directors.

Financial Times:

• MF Global Accessed Client Funds For Weeks. MF Global had been dipping into client funds for weeks before its failure – rather than just in its final days as had been previously reported – say US authorities investigating the broker-dealer’s collapse. This comes as the failed company’s bankruptcy trustee revealed that some customer money from MF would never be recovered.

Handelsblatt:

• The stress test for European banks won't be intensified, according to an agreement between the European Banking Authority and national regulators, citing a person close to the talks.

Shanghai Securities News:

• Shanghai Home Sales Plunge to 6-Year Low in November. Transactions by area slump 53% y/y to 450,000 square meters last month, citing data from Shanghai Deovolente Realty. Sales were 36% lower than during the same time in 2008. Average home prices fell 6.6% y/y in November to 20,988 yuan per square meter. November new home transactions fell 39% y/y to 6,683 units in Beijing, the biggest drop among top 4 cities, citing Centaline Property data. Beijing's daily average sales of used-homes fell 56% y/y in Nov to lowest in 35 months.

Evening Recommendations
Night Trading

• Asian equity indices are -1.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 206.0 -2.0 basis points.
  
• Asia Pacific Sovereign CDS Index 160.25 -1.75 basis points.
• FTSE-100 futures +.41%.
  
• S&P 500 futures +.35%.
  
• NASDAQ 100 futures +.48%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BIG)/.09

Economic Releases.
8:30 am EST

• The Change in Non-Farm Payrolls for November is estimated at 125K versus 80K in October.
• The Unemployment Rate for November is estimated at 9.0% versus 9.0% in October.
• Average Hourly Earnings for November are estimated to rise +.2% versus a +.2% gain in October.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Fisher speaking, Fed's Plosser speaking, Fed's Stark speaking and the Fed's Rosengren speaking could also impact trading today.
  

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

Stocks Slightly Lower into Final Hour on Profit-Taking, More Shorting, Financial Sector Pessimism

Broad Market Tone:

• Advance/Decline Line: About Even
  
• Sector Performance: Most Sectors Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 27.27 -1.91%
  
• ISE Sentiment Index 44.0 -58.59%
  
• Total Put/Call .92 +3.37%
  
• NYSE Arms .84 +204.98%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 127.60 -2.42%
  
• European Financial Sector CDS Index 288.37 -1.25%
  
• Western Europe Sovereign Debt CDS Index 342.0 -.98%
  
• Emerging Market CDS Index 303.98 -.43%
  
• 2-Year Swap Spread 42.0 +2 bps
  
• TED Spread 53.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 185.0 +3 bps
  
• China Import Iron Ore Spot $133.60/Metric Tonne +2.06%
  
• Citi US Economic Surprise Index 61.90 +.1 point
  
• 10-Year TIPS Spread 2.07 +1 bp

Overseas Futures:

• Nikkei Futures: Indicating +35 open in Japan
• DAX Futures: Indicating +30 open in Germany

Portfolio:

• Higher: On gains in my retail, technology, medical and biotech sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 100% Net Long