Thursday Watch

Evening Headlines

Bloomberg:

• ECB May Dig Deeper Into Crisis Toolbox as Leaders Mark 'Date With Destiny'. The European Central Bank may delve deeper into its toolbox today to stimulate bank lending and fight off a recession as Europe’s leaders gather to lay the foundations for a fiscal union. ECB policy makers meeting in Frankfurt will cut the benchmark interest rate by a quarter percentage point to 1 percent, according to 53 of 58 economists in a Bloomberg News survey. They may also loosen collateral criteria to give banks greater access to cheap cash and offer longer-term loans, said three euro-area officials with knowledge of the deliberations. Hours later, Europe’s leaders will convene in Brussels for talks to frame the fifth “comprehensive” solution in 19 months to a debt crisis that’s left Germany and France facing the threat of losing their AAA rating from Standard & Poor’s. The ECB says that governments must address the cause of the turmoil as it focuses on getting banks lending again rather than increasing purchases of indebted nations’ bonds. “It’s yet another date with destiny in the euro area,” said Julian Callow, chief European economist at Barclays Capital in London. “It’s clear there won’t be the ultimate resolution, but the proposals are going in the right direction. The markets seem to have finally understood that in the ECB’s eyes it’s up to governments to solve it, and it’s worth noting that it’s doing a lot on the banking side.”
• Draghi Courts Bundesbank in Bid to Avoid Trichet's Fate on Bond Purchases. Mario Draghi knows he can’t afford to repeat Jean-Claude Trichet’s mistake. A month into his term as European Central Bank president, Draghi is being careful not to alienate Bundesbank chief Jens Weidmann, a vocal opponent of the ECB’s bond purchases. As Europe’s sovereign debt turmoil enters what could be its decisive days, Draghi needs to keep Germany’s central banker onside for any expansion of the ECB’s crisis-fighting role, say economists from Barclays Capital to Societe Generale SA. “Draghi is likely to be very conscious and aware of the Bundesbank’s perspective,” said Julian Callow, chief European economist at Barclays in London. “It’s going to be a hard act for Draghi to balance strong views for dramatic action and calls from Weidmann for a more cautious approach.” Draghi, 64, may need all the diplomatic nous he’s accrued in a career that began under the tutelage of Stanley Fischer at the Massachusetts Institute of Technology and has taken him to Italy’s finance ministry, the boardrooms of Goldman Sachs Group Inc. and now the 35th floor of the ECB’s Frankfurt headquarters. As he pushes governments toward fiscal union to secure a lasting solution to the debt crisis, Draghi has signaled greater central bank intervention could be the quid pro quo.
  
• Europe Calls at 20-Month High Before EU Leaders Convene: Options. Options traders are pushing bullish bets on Europe to the highest level since March 2010 as governments work to forge a solution to the two-year-old sovereign debt crisis. The ratio of outstanding calls to buy the Euro Stoxx 50 Index versus puts to sell has climbed to a 20-month high of .92-to-1, according to data compiled by Bloomberg. The open interest for Euro Stoxx call options has risen 6.1% in the last two weeks to 22.3 million contracts, faster than the increase for puts, which rose 3.5% to 24.3 million. Optimistic investors may be punished as the cuts European economic growth and corporate profits, according to Gergor Smith, a London-based fund manager at Daiwa Asset Management, which oversees $111.3 billion. "It's a very dangerous position to have," Smith said in a phone interview. "The outlook into 2012, at least for the first half of the year, looks pretty poor." Even with those risks, investors are more concerned about trailing the market should equities climb, according to Lothar Mentel, who manages $3.9 billion as chief investment officer for Octopus Investments Ltd. in London.
  
• Deutsche Bank, BNP May Be Cut by S&P in European Credit Review. Deutsche Bank AG and BNP Paribas SA are among European lenders that were placed on CreditWatch negative by Standard & Poor’s amid a similar review of 15 countries in the region. “We intend to resolve the CreditWatch placement on these banks soon after the resolution of the CreditWatch placement on the related sovereign,” S&P said yesterday in a statement. S&P said earlier this week that Germany and France may be stripped of their top credit ratings, and yesterday put the European Union’s AAA rating on CreditWatch negative. The euro area’s six AAA-rated countries were among the nations placed on a negative outlook, and their credit ratings may be cut depending on the result of a summit of EU leaders this week, S&P said on Dec. 5. Other firms placed on CreditWatch negative include Frankfurt-based Commerzbank AG, Milan-based UniCredit SpA and French lenders Credit Agricole SA and Societe Generale SA. The ratings company said similar actions on other large European banks will follow. Deutsche Bank’s rating may be cut one-notch and likely will mirror the action on Germany’s rating, S&P said. S&P said it likely would downgrade BNP Paribas’s rating by one notch if it cut the rating on France by more than one level. If France’s rating is maintained or cut one notch, BNP’s rating likely will be affirmed, the ratings company said. S&P said it likely would downgrade Credit Agricole or SocGen with a one- notch cut in France’s rating.
  
• Bubble-Era Mortgage Wave Maturing Imperils CMBS: Credit Markets. A $19 billion wave of five-year commercial mortgages originated at the height of the property- market bubble starts maturing in less than a month, sparking concern that delinquencies will accelerate. About 43 percent of the $44 billion in loans packaged into bonds that come due next year were arranged in 2007 before property values tumbled 42 percent, according to Bank of America Corp. The largest deal ever, a $7.3 billion issue by Goldman Sachs Group Inc. and Royal Bank of Scotland Group Plc, has $586 million of loans maturing in 2012, Bloomberg data show. Owners of everything from strip malls to Manhattan skyscrapers may find it harder to refinance after Europe’s fiscal crisis sent relative yields on commercial-mortgage securities to the highest level since February 2010, roiled credit markets and forced a pullback in lending. Late payments, which declined to 9 percent from a record 9.1 percent in October, are likely to rise in part because of the 2007 class of maturing debt, according to Barclays Capital. “These loans were done at the peak of the market,” said Julia Tcherkassova, a commercial-mortgage debt analyst at Barclays in New York. “They will have trouble refinancing today.”
• Poll: Investors Predict China Bank Crisis. Most global investors predict China will face a banking crisis within the next five years, paring their appetite for the nation’s shares and eroding confidence in its leadership, a Bloomberg Global Poll indicated. Sixty-one percent of respondents said they anticipate a crash in the financial industry by late 2016, and only 10 percent were confident China’s banks will escape trouble, according to the quarterly poll of 1,097 investors, analysts and traders who are Bloomberg subscribers conducted Dec. 5-6. Evidence of slowing growth in China -- including the weakest manufacturing performance in more than two years, falling home sales and ebbing export growth -- has stoked concern that non-performing loans will climb in the world’s second-largest economy. The risk is a legacy of a record 17.6 trillion-yuan ($2.8 trillion) lending boom unleashed by Premier Wen Jiabao in 2009-2010 amid the global recession. “The deep-seated misallocation of resources, particularly in the real estate and banking sectors, will lead to a combination of political and economic instability,” says Lance Depew, managing director of UPI Management LLC in Santa Barbara, California, and a participant in the poll. “I expect further macroeconomic weakness and sub-par returns in the stock market for the foreseeable future.”
• Wheat Prices Shredded With Near-Record Crop Boosting Reserves: Commodities. The biggest slump in wheat prices in three years may have further to go as expanding harvests from Russia to Canada bolster inventories to the most in a decade. The U.S. Department of Agriculture will predict tomorrow a 3.4 percent gain in stockpiles to 202.89 million metric tons by June, according to the average of 16 analyst estimates compiled by Bloomberg. Prices that fell 34 percent from a 29-month high of $9.1675 a bushel in February will drop 12 percent more to $5.30 in the next 12 months, Credit Suisse Group AG forecasts. Global food costs tracked by the United Nations have declined 9.1 percent from a record in February, helping to contain inflation as economic growth slows. Corn and soybeans are also tumbling after farmers responded to record-high prices by planting more crops. Combined output of wheat, corn and soy will jump 3.4 percent to a record 1.8 billion tons this season, 32 percent more than a decade ago, the USDA said last month. “Every country that can plant more corn and wheat has done so,” said Alex Bos, the manager of agricultural commodities at Macquarie Group Ltd. in New York. “It’s an incredible shift, and there’s still spare farmland capacity that can be put into production.”
• LivingSocial Receives Funding Valuing It at $6B. LivingSocial.com, the online-coupon provider that competes with Groupon Inc., lined up $400 million in funding that gives it a valuation of about $6 billion, according to a person with direct knowledge of the matter. The company has already sold $176 million of the total, Washington-based LivingSocial said in a filing with the U.S. Securities and Exchange Commission. The funding will be a mix of equity and debt, said the person, who declined to be identified because the figure hasn’t been disclosed. The investment will come from both existing and new backers, the person said.
• Electronic Book Industry Probed by U.S. Over Possible Antitrust Violations. The U.S. is probing the possibility of anticompetitive practices in the e-book industry, the acting chief of the U.S. Justice Department’s antitrust division told a House committee in Washington. “We’re also investigating the electronic book industry along with the European Commission and state attorneys general,” Sharis Pozen today told the House Judiciary antitrust subcommittee, where she appeared for a general oversight hearing.
• Japan Machinery Orders Fall on Strong Yen, Global Slowdown. Japan’s machinery orders unexpectedly fell for a second straight month in October, signaling that a slowing global economy and the strong yen are prompting companies to postpone investment. Bookings, an indicator of capital spending, decreased 6.9 percent from a month earlier, the Cabinet Office said in Tokyo today. The median forecast of 27 economists surveyed by Bloomberg News was for a 0.5 percent gain. Orders fell 8.2 percent in September. Today’s report indicates that capital expenditure could slow next year as Japan struggles to recover from the March 11 earthquake and tsunami.
• Singh Retail Retreat 'Nail in the Coffin' for India Opening. Prime Minister Manmohan Singh’s decision to backtrack on plans to let overseas retailers expand in India may undermine efforts to revive growth and curb inflation, while deepening a yearlong paralysis in government. The 79-year-old Singh, credited with sparking India’s economic transformation when finance minister two decades ago, yesterday bowed to opposition protests that had forced repeated adjournments of parliament since the Nov. 24 move to allow foreign investment in multibrand retail. Finance Minister Pranab Mukherjee told lawmakers the decision was suspended until a consensus could be reached. The reversal indefinitely puts off an influx of foreign investment from companies including Wal-Mart Stores Inc. and Tesco Plc that are bidding to enter the $396 billion market, at a time when the rupee is already trading near a record low. It also adds to a list of unfinished economic initiatives that includes a proposed tax overhaul and changes to how land is acquired for infrastructure projects.
• China's Pork Prices May Have Reached Bottom, New Hope Group Says. Pork prices in China, the biggest consumer, may have bottomed after declines in the last two months reduced profits and curbed restocking of inventories, said New Hope Group Co. vice president Wang Hang. Prices of hogs, which are slightly above the profitability margin, "should not fall" further, Wang said in an interview. New Hope is China's biggest producer of animal feed. "Hog prices may rise as much as about 12.5%" before the January Spring Festival, returning to September levels said Feng Yonghui, general manager of Soozhu.com, which is China's biggest independent hog industry researcher.
• Japan Expands Rice Ban as Contamination Spreads. Japan will extend a ban on rice shipments from a third city in Fukushima prefecture after local authorities found more tainted grain, deepening food-safety concerns nine months after a nuclear disaster.
• German Lawmakers Call for Europe Ratings Company, Passauer Says. Michael Fuchs, the Christian Democratic Union’s deputy leader in Germany’s parliament, and Rainer Bruederle, parliamentary leader of Germany’s Free Democratic Party, want Europe to create an independent European debt-rating company, Passauer Neue Presse reported, citing interviews. Fuchs said the existing ratings companies appear to be “making policy” and “that is not their job,” according to the newspaper.

Wall Street Journal:

• Banks Prep for Life After Euro. Some central banks in Europe have started weighing contingency plans to prepare for the possibility that countries leave the euro zone or the currency union breaks apart entirely, according to people familiar with the matter. The first signs are surfacing that central banks are thinking about how to resuscitate currencies based on bank notes that haven't been printed since the first euros went into circulation in January 2002. At least one—the Central Bank of Ireland—is evaluating whether it needs to secure additional access to printing presses in case it has to churn out new bank notes to support a reborn national currency, according to people familiar with the matter. Outside the 17-country euro zone, numerous European central banks are eyeing defensive measures to protect against the possible fallout if the euro zone were to unravel, other people said. Several, including Switzerland, are considering possible replacements for the euro as the external reference point, or peg, they use to try to keep their currencies' values stable.
• China's Company-to-Company Loans Double in First 9 Months. Business-to-business lending, or so-called "entrusted" loans, rose by 562.5B yuan y/y in the first 9 months to 1.07t yuan, citing the most recent data from the PBOC.
• Euro's Allure Dims in Eastern Europe.
  
• Banks' Ratings Reliance Nears End. The largest U.S. banks would have to stop relying on credit ratings to evaluate the risk of assets they hold in their trading accounts under proposed rules aimed at reducing ratings firms' influence on financial markets. The proposal unveiled Wednesday by the Federal Deposit Insurance Corp., Federal Reserve and Office of the Comptroller of the Currency is a big first step toward complying with a directive in last year's Dodd-Frank financial-overhaul law.
• Copper Bets Flash a Warning. Despite a raft of good news—rising employment in the U.S., stronger growth in the euro zone and monetary easing in China—"Dr. Copper" believes the global economy is in poorer health than many think.
• Subsidizing Wall Street to Buy Chinese Solar Panels.
  

Business Insider:

• Roger McNamee Explains Why Windows Is Dying.
• Kuwait Is Building A $132 Billion City Around A Skyscraper With An 'Arabian Nights' Theme. (pics)
  

Zero Hedge:

• Goldman(GS) On Deleveraging And The Sovereign-Financial Feedback Loop.
• Pivot Capital On China's Investment Boom (And Pending Bust).
  

CNBC:

• JPMorgan(JPM) CEO Jamie Dimon: Stop Bashing the Rich. Dimon was responding to a question at an investor conference about the hostile political environment towards banks. "Acting like everyone who's been successful is bad and that everyone who is rich is bad — I just don't get it," said Dimon at the conference.

IBD:

• Ugg Boots Help Deckers(DECK) Step Up Pace.

NBC New York:

• NYPD Warns Banks About Letter Bombs After Device Mailed to Bank HQ in Germany. The NYPD is warning New York banks to concentrate their security efforts on mailrooms after a confirmed letter bomb was sent to the CEO of Deutsche Bank in Frankfurt, Germany, law enforcement officials said.

The Detroit News:

• California Proposes Rules to Boost Electric Vehicles by 2025. The California Air Resources Board proposed Wednesday new regulations to dramatically increase the number of electric vehicles on the Golden State's roads by 2025. By 2025, zero-emission or plug-in hybrid vehicles must account for one in seven new cars sold in California, under a proposal released Wednesday.
  

Orlando Sentinel:

• Turf War Brews for Prosecutors Probing MF Global. A turf war may be brewing between two high-profile U.S. prosecutors over who will take the lead in a criminal probe of collapsed futures brokerage MF Global Holdings Ltd . U.S. Attorney Patrick Fitzgerald in Chicago and Preet Bharara, his counterpart in Manhattan, are examining how hundreds of millions of dollars went missing from the futures brokerage, sources familiar with the matter have told Reuters. No charges have been brought, and no one at MF Global has been accused of wrongdoing.
  

Rasmussen Reports:

• 17% Say Country Heading In Right Direction, 75% Say On The Wrong Track.

Reuters:

• Singapore Property Shares Plunge On Gov't Cooling Move. Shares of Singapore property developers fell sharply on Thursday after the government announced new measures to cool the city-state's housing market. CapitaLand Ltd shares fell as much as 6.5 percent to S$2.44 while smaller rival City Developments Ltd fell 7.6 percent to S$9.26 and Wing Tai Holdings was down 6.5 percent at S$1.00. Shares of Ho Bee Investment Ltd, which develops high-end condominiums in Singapore, tumbled by as much as 12.1 percent to S$1.09. Singapore said on Wednesday foreigners who buy private homes will have to pay an additional stamp duty equal to 10 percent of the property value. Analysts said they expect developers with greater exposure to high-end luxury apartments to face more pressure because as foreign buyers make up a large chunk of their sales. "We believe each of the key residential demand drivers, foreign buying, job creation and credit availability, will likely see signs of softness," Goldman Sachs said in a report. It added that this could lead to a 15 percent decline in home prices over the next 18 months with the prime segment facing more immediate pressure as foreign buyers pull back.

Financial Times:

• JPMorgan(JPM) Increases Lending to Eurozone. JPMorgan Chase has increased its lending to troubled eurozone economies, its chief executive said on Wednesday, as US rivals retreat from the region. The bank’s loans in Spain, Italy, Greece, Portugal and Ireland have jumped 9 per cent since September 30, according to a presentation by Jamie Dimon, JPMorgan chief executive. The New York-based lender, the largest US bank by assets, has steadily increased its loans in the five economies since midyear, from $14bn as of June 30 to $15.2bn at the end of the third quarter and $15.9bn on November 17, according to filings with securities regulators and presentations to investors.

Telegraph:

• Mario Draghi to Drag Out ECB Rescue. Investors have febrile expectations of Mario Draghi. They are strangely hopeful that the Italian chief of the European Central Bank will soon unleash a blitz of bond purchases to halt the death spiral in southern Europe. Today they will learn whether this is wishful thinking. "The markets have come to believe wrongly there is a grand master plan to save the world," said Andrew Roberts, credit chief at RBS. "They have built up enormous hopes that a deal will be struck to unlock the ECB's balance sheet. They will be extremely disappointed if there isn't a big acceleration in bond buying." The ECB does not have a clear mandate to act as lender of last resort for sovereign states. "The bank is very conscious that it is a European institution and has to abide by EU treaty law, and Article 123 of the Lisbon Treaty prohibits the financing of governments," said Julian Callow from Barclays Capital. What the ECB does have is authority to backstop Europe's €23 trillion banking system – by far the biggest in the world. It is doing so with a ballooning balance sheet of €2.4 trillion or 26pc or eurozone GDP. It has increased bank support by over €500bn since March, including $51bn in US dollars for 34 lenders under the latest swap arrangement with the US Federal Reserve.

Die Welt:

• Greece's central government "doesn't have the capacity nor the knowledge to execute far-reaching reforms," with the 14 ministries lacking in data, knowledge, organization and co-operation, citing Caroline Varley, head of the government judgement panel at the OECD. The Greek general secretary meets with senior civil servants in ministries only twice a year and officials have little contact with colleagues in other departments or the same office, citing a study by the OECD in Athens. "The administration isn't working and is stopping Greece from pushing forward with structural reform," Varley said. "The central administration lacks the practical tools, culture and ability to form, execute and control constructive policies," the report concluded.

livemint:

• Indian Rating Agencies May Downgrade More Power Firms. Banks have stopped lending to loss-making power cos. due to concern about defaults.
  

The Times of India:

• Industrial Output Shrank 7% in Oct., Initial Data Show. There is more disappointing news for the slowing Indian economy. According to initial estimates, the country's industrial output has declined by 7% in October, dragged down by a fall in the capital goods sector. This is the first time industrial output has entered negative territory since June 2009 and comes at a time when the economy is passing through a difficult period. The industrial sector has been under stress for the past few months, hit by rising interest rates, input costs and stubbornly high inflation. Industrial growth slowed to a two-year low of 1.9% in September as a sluggish manufacturing sector hit by rising interest rates and a decline in mining output hurt expansion. The RBI has raised interest rates 13 times since March 2010 to tame price pressures. The news should ring alarm bells for a government already grappling with sliding export growth and vanishing capital flows. Public finances are also under stress with the fiscal deficit, the measure of the government's borrowing, set to widen due to the impact of subsidies. "IIP is negative, exports are slowing, and politicians don't want capital to come in. The policy is totally divorced from the fact that the country doesn't have money to invest and create jobs," said a senior finance ministry official.

Economic Observer:

• China to Keep 'Stable Policy Tone' Next Year. China will keep a "stable macroeconomic policy tone" next year, unchanged from this year. China's top government leaders will hold the country's annual economic work meeting from Dec. 12 to 14, the report said.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.50% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 191.0 -3.5 basis points.
  
• Asia Pacific Sovereign CDS Index 151.0 -1.0 basis point.
• FTSE-100 futures +.54%.
  
• S&P 500 futures -.09%.
  
• NASDAQ 100 futures +.06%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (JW/A)/1.00
• (CIEN)/.05
• (SFD)/.70
• (BF/B)/1.09
• (COO)/1.21
• (ESL)/1.19
• (PLL)/.65
• (CMTL)/.29
• (COST)/.80
• (KFY)/.34

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to fall to 395K versus 402K the prior week.
• Continuing Claims are estimated to fall to 3700K versus 3740K prior.
  

10:00 am EST

• Wholesale Inventories for October are estimated to rise +.3% versus a -.1% decline in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The EU Finance Ministers Summit, ECB Rate decision, BoE Rate Decision, ECB's Constancio speaking, EBA's Stress Test Results, China CPI, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report, Goldman Sachs Clean Energy Conference, (TXN) Mid-Quarter update, (HIG) Investor Day, (HRB) Investor Conference, (LYB) Investor Day and the (AKAM) Analyst Day could also impact trading today.
  

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

Stocks Reversing Slightly Higher into Final Hour on More Eurozone Rumors, Short-Covering, Seasonality, Investor Performance Angst

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Declining
  
• Volume: Light
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 29.46 +4.76%
  
• ISE Sentiment Index 133.0 -16.88%
  
• Total Put/Call .93 +10.71%
  
• NYSE Arms 1.06 +3.72%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 122.24 -1.30%
  
• European Financial Sector CDS Index 257.36 +1.19%
  
• Western Europe Sovereign Debt CDS Index 336.17 +1.82%
  
• Emerging Market CDS Index 283.38 -1.83%
  
• 2-Year Swap Spread 42.0 -1 bp
  
• TED Spread 54.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -109.0 +8 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 178.0 -5 bps
  
• China Import Iron Ore Spot $139.40/Metric Tonne -.14%
  
• Citi US Economic Surprise Index 74.90 -.2 point
  
• 10-Year TIPS Spread 2.05 -4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -70 open in Japan
• DAX Futures: Indicating +7 open in Germany

Portfolio:

• Slightly Higher: On gains in my retail sector longs and index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 reverses morning losses and moves to session highs back near its 200-day moving average despite recent gains, rising Eurozone debt angst, rising global growth fears and high energy prices. On the positive side, Airline, I-Banking and Drug shares are especially strong, rising more than +.50%. (XLF) has traded well throughout the day. The UBS-Bloomberg Ag Spot Index is falling -1.44%, lumber is rising +.43% and oil is falling -.4%. On the negative side, Coal, Oil Tanker, Oil Service, Steel, Homebuilding, Construction and Networking shares are under pressure, falling more than -1.0%. Copper is falling -.6% and gold is gaining +.8%. The 10-Year Yield is falling to session lows despite the equity reversal higher, dropping -6 bps to 2.03%. The TED spread continues to trend higher and is at the highest since June 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is the highest since February 2009. The Libor-OIS spread is the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -27.4% since February 16th and -23.0% since Sept. 7th. The Shanghai Composite rose just +.29% overnight as it continues to trade very poorly despite investor optimism over their recent RRR cut and global equity rally. Brazil shares fell -1.5% today and are now down -15.4% ytd. US stock volume remains poor and leadership is of fairly low-quality again. Breadth is also lacking. The S&P 500 is back near its 200-day moving average and near the high-end of its recent range. Overall, considering how many times Europe has disappointed the market with its debt crisis "solution" deadlines over the last couple of years, investors still seem very complacent ahead of the Dec. 9 summit. Moreover, any near-term market surge from current levels as a result of another perceived eurozone debt solution will likely falter over the coming weeks as global economic growth continues to disappoint. I expect US stocks to trade mixed-to-higher into the close from current levels on a bounce in the Euro, short-covering, technical buying, investor performance angst and seasonality.

Today's Headlines

Bloomberg:

• European Stocks Decline After Germany Rejects Combining Euro Bailout Funds. European stocks dropped after Germany rejected combining the current and permanent euro-area rescue funds and expressed pessimism over the outcome of a European Union summit this week. Banca Monte dei Paschi di Siena SpA (BMPS), Italy’s third-biggest bank, led a drop among lenders. ING Groep NV (INGA) fell 4.7 percent after saying it plans to take a charge related to its U.S. annuity business. Airline shares slid after the International Air Transport Association forecast a decline in industry profits in 2012. “This once again highlights the difficulties European leaders are having in reaching agreement,” said Benoit Peloille, equity market strategist at Natixis.
• Libor for Three-Month Dollars Climbs to Most Since July 2009. The rate at which London-based banks say they can borrow for three months in dollars rose to the highest level in almost 2 1/2 years as the euro region’s sovereign debt crisis intensifies. The London interbank offered rate, or Libor, for three- month dollar loans climbed to 0.54000 percent, from 0.53775 percent yesterday, data from the British Bankers’ Association showed. That’s the highest level since July 6, 2009, exceeding the previous high of 0.53925 percent reached June 17, 2010. The dollar Libor-OIS spread, a measure of bank reluctance to lend, widened. French banks have led the increase in Libor amid concern they may need additional capital as the debt crisis weighs on the values of their government bond holdings, according to data compiled by Bloomberg. Credit Agricole Corporate & Investment Bank submitted the highest rate today among the contributing panel of 18 lenders, at 0.5950 percent, the same as yesterday. HSBC Holdings Plc posted the lowest, unchanged at 0.340 percent. “The upward pressure on dollar Libor comes predominately from the scramble for funding by European banks,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “There are concerns about the euro-zone debt crisis and the uncertainty over European bank portfolio holdings of sovereign debt.” The European Central Bank said demand for three-month dollar loans surged after it almost halved the cost of the funds in a concerted action with five other central banks including the U.S. Federal Reserve.
• Merkel-Sarkozy Letter Proposes Tighter Budget Rules in EU Treaty Overhaul. French President Nicolas Sarkozy and German Chancellor Angela Merkel proposed amending European treaties to tighten rules on deficit spending and water down provisions demanding investor losses. In a joint letter to European Union President Herman Van Rompuy, the French and German leaders said they want a decision at an EU summit starting tomorrow so that the measures can be ready by March 2012. The new treaty should call for “automatic consequences” for euro-zone members with deficits over 3 percent of their economic output. The treaty should “make clear that Greece required a unique and exceptional solution” and that other euro-area members “reaffirm their inflexible determination to honor fully their own individual sovereign signature.”
• ECB To Consider More Measures to Stimulate Bank Lending. The European Central Bank may announce a range of measures tomorrow to stimulate bank lending, said three euro-area officials with knowledge of policy makers’ deliberations. Options on the table include loosening collateral criteria so that institutions have more access to cheap ECB cash and offering them longer-term loans to grease the flow of credit to the economy, said the officials, who spoke on condition of anonymity because the discussions are private. Two said an interest rate cut is likely, with only the size of the reduction to be determined for the monthly decision tomorrow.
• Belgian Economy Shrinks, Threating Di Rupo's Deficit Plan. Belgium’s economy contracted for the first time in more than two years, heaping pressure on new Prime Minister Elio Di Rupo as he tries to cut the deficit in a bid to stave off contagion from the European debt crisis. Gross domestic product in Belgium, the sixth-largest economy in the euro area, fell 0.1 percent in the third quarter from the previous three-month period, when it rose 0.4 percent, the National Bank of Belgium said today in a statement. The drop, revised from an earlier estimate of no growth, was the nation’s first GDP decline since the first quarter of 2009.
• China Sees Growing Challenges as Declining Demand Weakens Exports: Economy. China sees an increase in domestic costs and a slowdown in overseas demand putting “severe” pressure on its exports next year, a sign that policy makers may have little appetite to allow faster gains in the yuan. Premier Wen Jiabao’s embrace of higher wages, along with a jump in land and raw-materials prices and a stronger yuan are restraining shipments, the Commerce Ministry said today. While the nation can achieve export gains as long as Europe’s crisis doesn’t deepen, it will need to focus on strengthening links with emerging markets, Wang Shouwen, head of the foreign trade department, said at a briefing in Beijing. The yuan weakened last month by the most in more than a year, a shift that may stoke the ire of U.S. lawmakers and presidential candidates who see the Asian nation’s competitiveness as a damper on American job growth. China’s surging trade surplus since joining the World Trade Organization a decade ago has helped the country accumulate a record $3.2 trillion in foreign-exchange reserves and made it the U.S.’s largest overseas creditor. “The room for yuan appreciation is very limited and the currency will have higher volatility,” said Dariusz Kowalczyk, a senior economist with Credit Agricole CIB in Hong Kong. “It seems China is moving to protect its exporters more aggressively, especially as the external environment deteriorates.”
• Gold Futures Rebound as ECB Said to Weigh Measures to Bolster Bank Lending. Gold futures rose for the first time in three days as the European Central Bank was said to be planning to announce measures to bolster lending, reviving demand for the precious metal as an inflation hedge. Gold futures for February delivery rose 0.4 percent to $1,739 an ounce at 9:56 a.m. on the Comex in New York. The metal dropped 1.1 percent in the previous two days. Before today, the price climbed 22 percent this year, partly because the U.S. Federal Reserve has kept its benchmark interest rate at a record low.
• Oil Fluctuates in New York as U.S. Supplies Increase. Gasoline supplies rose 5.15 million barrels to 215 million last week, the highest level since the week ended July 29, the report showed. Inventories of distillate fuel, a category that includes heating oil and diesel, climbed 2.53 million barrels to 141 million. Production of the fuels rose 205,000 barrels to 5.03 million barrels a day last week, the highest level since at least 1982 when the data starts.

Wall Street Journal:

• S&P Waves the Downgrade Stick Again, Scaring Stocks. It just played that role again, putting the European Union and several large European banks on notice they could all get downgraded, too. Stocks, which were mostly neutral before the news, are now slightly lower, with the Dow down 16 points, the S&P off 6 and the Nasdaq down 18. This all follows naturally on its recent warning to 15 of 17 euro-zone nations that they could get downgraded (excluding basket-case Greece and already on-notice Cyprus). The EU is AAA rated. Here is the S&P’s press release on the EU:
• Sarkozy, Merkel Outline Plan for New EU Treaty. French President Nicolas Sarkozy and German Chancellor Angela Merkel on Wednesday set out their plan to press ahead with changes to the European Union treaty, a day before EU leaders convene at a crucial Brussels summit to shore up the euro zone. Mr. Sarkozy and Ms. Merkel, who made their proposals in a letter to European Council President Herman Van Rompuy, issued an ultimatum to the 27 EU governments, saying they must decide whether they will accept greater central control over their national budgets.
  

MarketWatch:

• Poll Shows Investor Bullishness Rising. Bullish sentiment rose among financial advisers surveyed in the weekly Investors' Intelligence poll from last Friday. The percentage of financial advisers who are bullish on the market rose to 47.4% from 44.2%, while bearish sentiment fell to 29.5% from 30.5%. The percentage of financial advisers expecting a market correction fell to 23.1% from 25.3%.

CNBC.com:

• The Robin Hood Tax Gains Support Globally. They call it the Robin Hood tax — a tiny levy on trades in the financial markets that would take money from the banks and give it to the world’s poor.

Business Insider:

• Satellite Pictures Of The Empty Chinese Cities Where Home Prices Are Crashing.
• Blago Sentenced to 14 Years.
• 23 Tech Superstars Poised To Own 2012.
• This Much Leverage Is Like Strapping Dynamite To Our Markets by Dylan Ratigan.
  

Zero Hedge:

• Spanish Spreads Jump Most Since July As Italy 10Y Breaches 6% Again. (graphs)
• EU Fiscal Union=EU Debt Serfdom. "Fiscal union" is a code-phrase for a highly profitable debt-serfdom: the banks profit, the EU bureaucracy flourishes and the people of the EU are imprisoned in a modern serfdom.
• Japan to Fudge GDP Calculation, Will Add Up To 2% To GDP.

Chicago Tribune:

• Staffing Company Lays Off Nearly 500 in Illinois. A Milwaukee-based temporary staffing company has laid off nearly 500 employees in Illinois, blaming the high cost of workers' compensation benefits in the state. Parallel Employment Group closed four of its five branches in Illinois that provided temporary labor to manufacturing clients in the Chicago area. "The only reason we are downsizing is competitive issues related to workers' compensation," said Kirk LaDu, executive vice president of operations. "It seems foolish to us to continue operating in a state where workers comp made it difficult to make money."
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 21% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

Reuters:

• Italy's Monti Popularity Dips Over Austerity, Unions Call. Italy's new Prime Minister Mario Monti, trying to push through a tough austerity package he says is vital for the country's financial salvation, faced two calls for national strikes and saw a dip in his public support on Wednesday. The three main trade union confederations, after divisive dithering over their individual responses, announced a joint national three-hour strike in the private sector for December 12. Public sector workers will strike for eight hours on December 19 against the 30 billion-euro ($40.3 billion) package affecting pensions and property taxes. The labor actions were called as Monti was hit by a new poll that showed his overall approval rating had dropped to 64 percent from 73 percent late last month before the details of the package were known.
• Europe's Debt Crisis Hits South Korea's Shipyards. South Korea's major shipbuilders have received requests to delay deliveries of 24 ships worth some $3 billion as the debt crisis in Europe bites and company credit lines tighten, with growing fears of a worsening crisis in the seaborne sector next year. South Korea is home to the world's biggest shipbuilders including Daewoo and Hyundai Heavy Industries . The Seoul stock market's shipbuilding subindex has slumped 40 percent over the past six months versus a 10 percent drop in the overall market. "Everybody is squeezed and banks are pulling back because of their concerns in Europe," Jens Martin Jensen, chief executive of Frontline, the world's largest independent tanker operator, told Reuters on Wednesday. "The pressure is building. Yes, we will see more of this (delays and cancellations) going on, absolutely." A glut of ships ordered when times were good have continued to hit the water this year, outpacing demand for commodities such as iron ore and coal in the dry bulk sector and crude oil in the tanker market, battering ship owner earnings. Tougher trading has been compounded by global economic turmoil.
• France and Germany are "at odds" over the EU500B ceiling for ESM permanent bailout fund, citing EU sources. France and Germany are in agreement in opposition to Euro area bonds.
  

Financial Times:

• Germany Insists On New Treaty For Europe. Germany on Wednesday insisted that its European partners must undertake the politically fraught process of changing European Union treaties, or at least accepting a binding new eurozone accord, to bring stability to the single currency and restore the confidence of investors. On the eve of a European summit in Brussels to stem the eurozone crisis, a senior German government official dismissed the suggestion by Herman Van Rompuy, European Council president, that tougher fiscal discipline could be enforced without a full-blown treaty overhaul.

Telegraph:

• Forget The 'Big Bazooka' Bailout Fund Idea, It Has No Ammunition. At the risk of joining Standard & Poor’s in the summit-saboteurs corner, I've got to say the markets are over-anticipating this new “big bazooka.”
• If One EU Bail-Out Fund Flops, Create Two. If you think that running together Europe’s old rescue fund (EFSF) with the new one (ESM) to double firepower to €880bn is a reassuring move – as some analysts apparently do – you should have your head examined.

Handelszeitung:

• Romano Prodi, former president of the European Commission, said the euro may collapse unless the region agrees to sell euro bonds, citing an interview. "If the European Central Bank isn't granted this option, then a collapse of the euro is really not far off."

Handelsblatt:

• The German government may force banks to accept state financing in certain cases as part of its revived Soffin bank-rescue fund.

Die Presse:

• Slovak Prime Minister Iveta Radicova said the European Union should have let Greece default rather than bail it out last year, according to an interview. "It's obvious that the financial aid hasn't solved the problem," Radicova said. Asked whether the EU should have let Athens "go bankrupt," she said: "I'm absolutely certain of that." Radicova also said that the EU's policy choices are now between measures that will cause either "very high inflation or very high unemployment."

O Estado de Sao Paulo:

• Vale SA agreed to cut iron-ore prices for delivery in the fourth quarter by 20% to 25% for China Steel Corp., citing Taiwan's largest steelmaker.

DigiTimes:

• Everlight Electronics Sees Low Demand in LED Market Through 1Q. Everlight says low demand in the LED market will likely continue through 1Q, and sees LED lighting more likely to grow than LED TV backlighting, citing the co. chairman. Separately, DigiTimes cites unidentified industry sources saying global growth of MOCVD equipment in 2012 should stagnate due to current oversupply of machinery.
  

Bear Radar

Style Underperformer:

• Mid-Cap Growth (-1.31%)

Sector Underperformers:

• 1) Oil Service -3.20% 2) Coal -3.10% 3) Oil Tankers -2.41%

Stocks Falling on Unusual Volume:

• INFA, HAL, OLN, TCBI, VRA, SPRD, CASY, GEOI, MWIV, YRCWD, DECK, ECOL, IACI, DK, ONE and REN
  

Stocks With Unusual Put Option Activity:

• 1) EWT 2) NG 3) XHB 4) XLNX 5) EFA
  

Stocks With Most Negative News Mentions:

• 1) FAST 2) BTU 3) C 4) JNPR 5) BAC
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (-.03%)

Sector Outperformers:

• 1) Airlines +2.95% 2) Drugs +.69% 3) REITs +.59%

Stocks Rising on Unusual Volume:

• HXM, SAN, FSLR, IOC, IMO, MIND, FRAN, SODA, YNDX, MW, GCI, NCS, RATE and SAI
  

Stocks With Unusual Call Option Activity:

• 1) NYX 2) SLM 3) HTZ 4) PAAS 5) ELN
  

Stocks With Most Positive News Mentions:

• 1) TLB 2) LMT 3) BA 4) DUK 5) NOC
  

Charts:

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

Wednesday Watch

Evening Headlines

Bloomberg:

• French-German Plan Gets Geithner Backing. A German-French push for closer economic ties in Europe won the backing of U.S. Treasury Secretary Timothy F. Geithner, who urged governments to work with central banks to erect a “stronger firewall” to end the debt crisis. Geithner, speaking in Berlin yesterday after talks with German Finance Minister Wolfgang Schaeuble, praised the commitment to fiscal programs put in place by new governments in Spain, Italy and Greece, and said he was “very encouraged” by recent efforts to buttress the euro area. He welcomed “progress toward a fiscal compact for the euro zone,” echoing language used last week by European Central Bank President Mario Draghi. Geithner’s comments backing German Chancellor Angela Merkel and French President Nicolas Sarkozy were more upbeat than his recent remarks urging Europe to move faster. In a September trip to Europe, Geithner asked leaders to set aside their differences to excise “catastrophic risks” from markets, prompting European criticism of U.S. debt levels.
  
• Germany Says Private-Sector Role in Stemming Crisis Ensured by IMF Rules. Germany rejected comments by French Prime Minister Francois Fillon that Chancellor Angela Merkel agreed to drop demands on investors to accept losses in any sovereign default, saying that International Monetary Fund rules will ensure private-sector involvement. “We only made it clear that the kind of PSI you had with Greece is an extreme case that won’t be repeated,” Steffen Seibert, Merkel’s chief spokesman, said by text message late yesterday. So-called collective action clauses “will stay, so the investors will only encounter risks in Europe that they already know from everywhere else in the world.”
• Saudi Arabia's Crude Production Rises to Highest Level in 30 Years. Saudi Arabia, the world’s biggest crude exporter, boosted output last month to the most in more than three decades to meet customer demand. “We produced 10 million and 40 barrels in November because that’s what the customers wanted,” Ali al-Naimi said in an interview in Durban, South Africa, where he is attending a climate conference. That’s the highest level since at least 1980, according to data from the U.S. Energy Department. The desert nation pumped 9.4 million barrels a day in October, al- Naimi said on Nov. 20. Saudi Arabia, the largest and most influential member of the Organization of Petroleum Exporting Countries, will meet with other members of the group on Dec. 14 in Vienna to set output targets for early 2012.
• Libyan Leaders Impose Lockdown in Tripoli and Demand Weapons. Tripoli was placed under a security lockdown as the governing National Transitional Council sought to impose control over local militias and demanded that residents give up their weapons by the end of the month. Side streets were closed and armed security units set up checkpoints on main roads in the Libyan capital in the most extensive security operation in the city since Muammar Qaddafi was toppled and Tripoli fell to revolutionary forces in August. Prime Minister Abdurrahim el-Keib said in a statement he ordered armed military units to impose the lockdown. Citizens have complained that the militias, many from outside the city, lack discipline and have engaged in skirmishes with residents and nightly shooting in the streets. Tripoli residents have until Dec. 31 to hand in firearms, and non-Tripoli militias must leave the city by Dec. 20, the National Transitional Council said in a statement yesterday. “The people demand safety provided by legitimate government enforcement bodies, and it is our duty to respond,” Razzak Abuhajar, the head of Tripoli’s city council, said in a statement. “These plans, coordinated by the government and the people of Tripoli, reflect a necessary step in the city’s transitional process.”
• Citigroup(C) Plans to Cut 4,500 Jobs, Take $400 Million Charge. Citigroup Inc. Chief Executive Officer Vikram Pandit will cut about 4,500 jobs in coming quarters as he seeks to trim costs amid slumping revenue. Citigroup will take a charge of about $400 million in the fourth quarter tied to the reductions, including severance, Pandit, 54, said today during an investor conference in New York. Citigroup, the third-biggest U.S. lender by assets, employed about 267,000 people as of Sept. 30, according to a quarterly filing. Pandit is cutting staff as the European sovereign-debt crisis persists and banks prepare for regulations on minimum capital levels to take effect, threatening revenue from trading and investment banking. Citigroup said in September it would limit hiring to “critical” jobs to control costs. “The 4,500 is a drop in the bucket for them, particularly when you consider how big they are and their global scope,” Nancy Bush, an analyst at SNL Financial, a bank-research firm in Charlottesville, Virginia, said in a phone interview. “I’d be suspicious that this may be the tip of the iceberg.”
• Cesium in Baby Mild Shows Risk for Japan Food. Radioactive cesium was found in milk powder in Japan made by a Meiji Holdings Co. unit, causing the shares to fall the most in eight months and raising concern that nuclear radiation is contaminating baby food.

Wall Street Journal:

• Spain Weighing a Fast, Costly Cleanup of Banks. Spain's incoming prime minister, intent on curing the country's ailing banking sector, is considering cleanup plans that could dwarf the cost of previous efforts, including the creation of a state-funded "bad bank" to acquire toxic assets or a move to force banks to dramatically boost loan-loss reserves, people close to the situation say.
• U.S. General Seeks Pause in Afghan Pullout. The top military commander in Afghanistan is privately recommending staving off new U.S. troop reductions until 2014, a position that could put him at odds with a White House eager to wind down the 10-year-old war. Gen. John Allen, who commands U.S. and North Atlantic Treaty Organization forces in Afghanistan, has shared his thinking with visiting congressional officials and other delegations in a series of recent closed-door briefings in Kabul, according to participants and other officials.
• Obama Take Populist Swing. President Says GOP Policies Threaten Middle Class; Republicans Blame Him. Adopting a sharply partisan and populist tone, President Barack Obama on Tuesday painted a picture of the American middle class under siege from wealthy interests, drawing an explicit comparison to the industrial monopolies of an earlier era. In a gamble, Mr. Obama largely put aside optimism about the U.S., a tone he struck at his State of the Union address in January, and instead worked to embrace the anger and skepticism emanating from much of the electorate.
• The Two Left Coasts. Cuomo and Brown decide to 'occupy' taxpayers.
• Obama and the Hezbollah Terrorist. Call it the triumph of ideology over national interest and honor. Having dithered for nearly three years, the Obama administration has only a few weeks to bring to justice a Hezbollah terrorist who slaughtered five U.S. soldiers in Iraq in 2007. Unfortunately, it appears more likely that Ali Musa Daqduq will instead be transferred to Iran, to a hero's welcome.

MarketWatch:

• NYC Weighs Change in Hedge Funds Tax. New York City is considering a tax change that could hurt the coffers of the already ailing private equity and hedge funds. At the heart of the change is a current tax arrangement that allows expenses related to management of funds, like staff compensation, to be exempt from a 4% unincorporated business tax, a corporate tax on unincorporated entities such as alternative investment management companies.

Business Insider:

• Goldman Sachs(GS) On The One Massive Area Of Disagreement Between Merkel And Sarkozy. Our bottom line is the following: the ‘clean’ solutions that would have seen clear resolution of that impasse appear to have been ruled out following Monday’s German/French meeting. That makes something altogether fuzzier likely to emerge from Friday, and this risks falling short of market expectations. The sequencing that we believe is being followed will be delayed further into the new year.
• Social Security Is Running Out Of Money At Least 5 Years Ahead Of Schedule.
  

Zero Hedge:

• Here Is Who Has Been Selling European CDS. Bloomberg last night reported that Italian banks are the culprits. The Top 5 Italian banks (which comprise 90% of the country's derivatives market) increased their net sold protection by an amazing 41% to the end of June, now standing at $24bn. Of course, there is no evidence of them selling protection on one another in a quid-pro-quo sense (a la Greece), but it seems the creation of carry out of thin air remains alive and well and given that every credit in the world is significantly wider no than it was on average through the first half of the year, we hesitate to guess at the MtM losses their trading desks are sitting on.
• Presenting How Wells Fargo(WFC) Nickel and Dimes Clients To (Account) Death.
• Bloomberg News Fires Back at Bernanke's Blustering Rebuttal.
• Has The Imploding European Shadow Banking System Forced The Bundeesbank To Prepare For Plan B?
  

Seeking Alpha:

• 8 Rallying Biotech Stocks Being Bought Up By Hedge Funds.

Fox Business:

• Exclusive: Kiss the MF Global Money Goodbye, Sources Say. Investigators looking into the disappearance of customer funds during the implosion of MF Global last month are coming to the conclusion that the money is likely gone for good, sources with direct knowledge of the matter tell the FOX Business Network.

Washington Times:

• Putting Government Between Doctors and Patients.

Reuters:

• Chanos: Moody's, S&P Wrong on China. Hedge fund manager James Chanos, who has been a long-time skeptic on the Chinese growth story, is sticking with his gloomy view of ratings agencies Moody's Corp (MCO.N) and Standard and Poor's, saying their rosy outlook on China's debt only bolsters his bearish bet. The famed short-seller said he's puzzled by the readiness of S&P, a division of McGraw-Hill Companies Inc (MHP.N), to downgrade the sovereign debt of countries like the United States and much of Europe while continuing to give a nod of approval to China and its banks. "The rating agencies are getting this one really wrong," Chanos, the founder and president of hedge fund Kynikos Associates, told the Reuters 2012 Investment Outlook Summit. S&P earlier on Tuesday affirmed its long-term rating on China's sovereign debt at AA-minus, just one day after it threatened to downgrade 15 countries in the troubled euro zone, including that of Germany, Europe's biggest economy. Moody's rates China at Aa3, with a positive outlook. For at least a year now, Kynikos, with $6 billion under management, has been shorting shares of Moody's Investor Services and S&P parent McGraw-Hill. Chanos, who specializes in making money when stocks fall in value, said China's housing bubble and opaque political and economic systems merit greater scrutiny and cynicism by the rating agencies. He is shorting mining companies and construction companies that ship raw materials to China and is also betting against shares of some Chinese banks. Short sellers make money by borrowing stocks in the hope that the price will decline, allowing them to buy the shares at a lower price and pocket the difference. Chanos, who founded Kynikos in 1985 with $16 million, gained famed on Wall Street after his prescient call on accounting fraud at Enron a decade ago. Since then, his most well-known target has been China, whose economy he says will eventually crash, driven by an unsustainable real estate bubble. "It is already happening," Chanos said, citing what he said is a drop in new apartment sales across the country of about 40 percent year-on-year. "Everybody is admitting transaction volumes have plummeted. This is what we saw in places like Las Vegas and Florida before the crash; transactions just stopped." "We are short anyone involved in the China real estate boom," he added. Recently, Chanos has been focused on China's banks, which he says have made and continue to make billions in risky loans without sufficient capital. Kynikos is short shares of the Agricultural Bank of China (601288.SS), the country's largest county lender.
• China Export Outlook Darkens, Officials Say. China's annual rate of export growth slowed in November versus October, vice commerce minister Chong Quan told reporters on Wednesday after an official media briefing. "Export growth in November was even slower than October," Chong said on the sidelines of a news conference releasing a government report on China's long term trade development. China is due to publish November trade data on Saturday, December 10, with economists expecting the numbers to reveal the weakest growth in two years, excluding an anomalous slide in February when the Lunar New Year holiday disrupted activity.
• Massachusetts Picks 10 More Hedge Fund Managers. Massachusetts, already a big investor with hedge funds, hired 10 more managers on Tuesday as part of its push into direct investments with these types of portfolios. Trustees for the $48 billion state pension fund picked a hometown hedge fund, some funds based in London and others from New York to jointly oversee $245 million. The state pension fund, which began putting money into hedge funds in 2004, will soon have 10 percent of its capital, or $5 billion, invested in these kinds of portfolios.
• India Suspends Foreign Supermarket Entry After Backlash. India's government has put on hold its decision to open the country's $450 billion supermarket sector to foreign firms such as Wal-Mart Stores Inc(WMT). The decision came after a meeting of ruling coalition and opposition political parties in New Delhi, an attempt by the government to douse political fires over one of Prime Minister Manmohan Singh's boldest reforms in years. "The decision is suspended till the consensus is developed through consultation among various stakeholders," the finance ministry said in a statement, giving no timeframe for the reform to be back on track.

Financial Times:

• Brazil's Rapid Growth Shudders To A Halt. Brazil’s economy stalled in the third quarter of this year, demonstrating the vulnerability of the world’s emerging market growth engines to the eurozone crisis and the slowdown in the developed world. Gross domestic product contracted 0.04 per cent in the three months ending on September 30 compared with the previous quarter as weakness in the industrial sector spread to Brazil’s once vibrant consumer.
• BofA(BAC) Less Confident Than Rivals On Dividends. Some of the largest US banks intend to raise dividend payments after the Federal Reserve board completes its latest stress tests on their financial health, with Bank of America a notable absentee from the optimism expressed by its peers.

Telegraph:

• Bank of France Debts Jump Tenfold on Capital Flight. The Bank of France faces surging debts to Germany's Bundesbank and fellow central banks in the EMU system as foreign investors pull large sums out of French accounts. French lenders lost €100bn (£86bn) in short-term deposits in September alone, mostly due to precautionary moves by US money market funds and Asian investors afraid of France's exposure to Italy. "There were huge net capital outflows," said Eric Dor from the IESEG School of Management in Lille. The effects of this capital flight are surfacing on the Bank of France's books under the European Central Bank's so-called "Target2" scheme, an ECB payment network that lets funds move automatically where needed. Liabilities jumped suddenly in late July, rising from €10bn to €98bn by September. Ireland's central bank owes €118bn, Spain's €108bn and Italy's €89bn. The triple-trigger appears to have been a sudden drop in Club Med manufacturing orders, an ECB rate rise, and the EU's July summit – which led to haircuts on Greek bondholders and battered faith in EMU sovereign debt.
• Bob Dudley Says High Oil Prices Threaten Economic Recovery. Oil prices are so high as to risk stunting global economic growth, according to BP chief executive Bob Dudley. A combination of low supply and high prices could particularly damage the US and have a knock-on effect on the rest of the world, threatening the already fragile economic recovery, he said.

The Standard:

• JPMorgan(JPM) Forecasts China Property Gloom. Flat prices in first-tier mainland cities may plunge as much as 30 percent next year and investors should consider shedding related equities, JPMorgan warned yesterday. "China's property market is the most volatile one among emerging markets," said Adrian Mowat, chief strategist of Asian and Emerging Market Equity at the US investment house. Mowat said inflows into the mainland property sector and related assets such as stocks have been receding in the past few months due to concerns over sliding home prices. "The correction in the Chinese property market will inevitably drag down the country's gross domestic product growth to 7 percent for the coming six months," he said. Sales revenue of developers has continued to slip. Contracted sales at Country Garden (2007) fell 43 percent in November to 2.5 billion yuan (HK$3.05 billion) from October. Beijing Capital Land (2886) sales slipped 10 percent from October to 1.11 billion yuan in November.

South China Morning Post:

• Chan Warns European Funds May Exit Overseas Markets. Treasury chief says European banks may need to scale down in the region to shore up their capital bases in the face of tighter rules and S&P review. European banks may withdraw their funding from global markets including Hong Kong because of the European debt crisis, warned Secretary for Financial Services and the Treasury Professor Chan Ka-keung.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 194.50 unch.
  
• Asia Pacific Sovereign CDS Index 152.0 -1.25 basis points.
• FTSE-100 futures +.50%.
  
• S&P 500 futures +.53%.
  
• NASDAQ 100 futures +.51%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,250,000 barrels versus a +3,932,000 barrel build the prior week. Distillate inventories are estimated to rise by +1,150,000 barrels versus a +5,526,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +875,000 barrels versus a +213,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.63% versus a -.90% decline the prior week.

3:00 pm EST

• Consumer Credit for October is estimated at $7.0B versus $7.39B in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Germany bond auction, Fed's Sarah Bloom Raskin speaking, weekly MBA mortgage applications report, Barclays Tech Conference, CSFB Consumer Conference, (OMI) Investor Day, (OC) Investor Day, (YUM) Investor Conference, (IGT) Investor Conference and the (PH) Investor Day could also impact trading today.
  

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