Bear Radar

Style Underperformer:

• Mid-Cap Growth -.71%

Sector Underperformers:

• 1) Oil Tankers -3.31% 2) Airlines -2.51% 3) Coal -2.04%

Stocks Falling on Unusual Volume:

• DB, FDX, DLLR, DK, RES, ING, E, ALLT, CRTX, PCRX, ET, HNI, OPTR, SWC, ASTE, KFRC, LKQ, PII, BBRG, LPX, MLHR, HCN, DECK, BSFT, WMS, CRR, BBBY, PODD, MPC, ELLI, SAVE, TWI and PSEC
  

Stocks With Unusual Put Option Activity:

• 1) PSX 2) EWJ 3) DECK 4) FDX 5) EMC
  

Stocks With Most Negative News Mentions:

• 1) HNI 2) ANR 3) PNRA 4) FDX 5) AMD
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.15%

Sector Outperformers:

• 1) Tobacco +1.19% 2) Hospitals +.56% 3) Biotech +.54%

Stocks Rising on Unusual Volume:

• DNDN, ENR, JIVE, SRPT, FFIV and MCP
  

Stocks With Unusual Call Option Activity:

• 1) MPEL 2) WFR 3) IAG 4) ONXX 5) GIS
  

Stocks With Most Positive News Mentions:

• 1) MANH 2) HRS 3) ERTS 4) ENR 5) COP
  

Charts:

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

Tuesday Watch

Evening Headlines
Bloomberg:

• Europe Banks Fail to Cut as Draghi Loans Defer Deleverage. European banks pledged last year to cut more than $1.2 trillion of assets to help them weather the sovereign-debt crisis. Since then they’ve grown only fatter. Lenders in the euro area increased assets by 7 percent to 34.4 trillion euros ($45 trillion) in the year ended July 31, according to data compiled by the European Central Bank. BNP Paribas SA (BNP), Banco Santander (SAN) SA, and UniCredit (UCG) SpA, the biggest banks in France, Spain and Italy, all expanded their balance sheets in the 12 months through the end of June. They have Mario Draghi to thank. The ECB president’s decision nine months ago to provide more than 1 trillion euros of three-year loans to banks eased the pressure to sell assets at depressed prices. The infusion, designed to encourage firms to lend, succeeded in averting a short-term credit crunch by reducing their reliance on markets for funding. It also may be making European lenders dependent on more central-bank aid. “Deleveraging isn’t taking place, especially in Spain and Italy,” said Simon Maughan, a bank analyst at Olivetree Securities Ltd. in London. “The fact that we haven’t got on with it, or very slowly, suggests that when the time comes we’ll need another ECB injection to roll over the first one, just to keep the balance sheets of Italian banks in business.”
• ECB’s Coene Says Widening Spreads May Force Spain to Ask for Aid. European Central Bank Governing Council member Luc Coene said rising bond yields may force Spain into asking for aid and submitting to the ECB’s conditions for granting it. If “markets see that Spain will not” ask for assistance, “then it will not last long before spreads will rise again, and then Spain will be somewhat forced to come back on its decision and submit to the conditionality program,” Coene said at a panel discussion in London yesterday. Coene stressed that if Spain does not ask for assistance, then “we will not buy its bonds.” The ECB would stop buying immediately if countries reneged on their agreements with the bank, he said. Coene said many officials in the ECB were reluctant to engage in bond purchases at all because “it enables profligate governments” to keep up spending.
• China’s Stocks Retreat to Two-Week Low; Automakers Decline. Chinese stocks fell to the lowest level in almost two weeks after the central bank said it’s placing more emphasis on price stability, boosting concern it will delay easing monetary policy even as the economy slows. Guangzhou Automobile Group Co., which has ventures with Japanese automakers including Toyota Motor Corp., slid for a second day as a Chinese industry association said some dealerships that sell Japanese cars have shut after some outlets were attacked amid a territorial dispute. Zhongjin Gold Corp. and Zijin Mining Group Co. fell at least 2.1 percent, tracking declines in the price of the precious metal, on concern that U.S. stimulus may not be enough to jumpstart the economy. “With no new stimulus from the central bank, investors are negative and stocks keep going down,” Zhang Gang, a strategist at Central China Securities Holdings Co., said by phone in Shanghai today. “Historically, whenever there’s unrest nearby, stocks will decline because of the uncertainty.” The Shanghai Composite Index (SHCOMP) slid 0.7 percent to 2,063.14 as of 9:40 a.m. local time, on course for the lowest close since Sept. 6, while the CSI 300 Index (SHSZ300) declined 0.7 percent to 2,242.31.
• China Home Prices Rise in Fewer Cities. Prices climbed in 35 of the 70 cities the government tracks from a month earlier, according to data released by the statistics bureau today. That compared with 49 cities in July, the most in 14 months. The eastern city of Wuxi and the central city of Zunyi led the month-on-month gains, while among major cities prices advanced in Beijing.

Wall Street Journal:

• Libyans Struggle to Rein In Militants. The investigation into last week's killing of four American diplomats in eastern Libya is raising pressure on a shaky new Libyan government to quash pockets of violent Islamists emerging after the country's revolution and now threatening its struggle for stability. Late Monday, one of the country's top security officials met with two leaders of the militant Islamist group Ansar al Sharia. Ansar has become a primary target in the search for those responsible for last Tuesday's deadly attack on the U.S. Consulate here.
• Anti-U.S. Protests Flare Again. Demonstrations related to an anti-Islam video showed no signs of ebbing Monday with protesters doing battle with police in Indonesia and Afghanistan nearly a week after angry crowds swarmed the U.S. Embassy in Cairo and killed the U.S. ambassador to Libya. Indonesian police fired water cannon to disperse a crowd of more than 500 protesters outside the U.S. Embassy in Jakarta, in the most violent protests to hit Indonesia since the emergence of the video, made in the U.S., which mocks the Prophet Muhammad.
• Sizing Up Manager David Einhorn's Sway. A Wall Street Journal analysis shows just how much influence hedge-fund manager David Einhorn's words have on investors.
• China Tensions on the Rise. Obama Seeks Trade Sanctions While Beijing Faces Off With Japan Over Islands. Political pressures in both the U.S. and China are straining ties between the two superpowers. President Barack Obama, under attack by Republican nominee Mitt Romney for being soft on China, said Monday he is asking the World Trade Organization to rule that Beijing is illegally subsidizing autos and auto parts. Mr. Romney, who has been running ads in Ohio criticizing the president on trade policies toward China, called the move "too little, too late."
• Syrian Jets Fire Into Lebanese Territory. Syrian warplanes fired missiles into Lebanese territory on Monday, heightening the potential for Syria's neighbors to be pulled into its 18-month-old conflict. Such spillover has rocked the delicate political balance in Lebanon, where rival sectarian political forces have thrown their support behind opposing sides in Syria's civil war. "As conditions deteriorate, we see dangerous implications for Syria's neighbors," Robert Serry, the United Nations special coordinator for the Middle East peace process, told the U.N. Security Council on Monday.
• Dorothy Rabinowitz: The Fourth Estate, Still Thrilling to the Spirit of '08. The spectacle of reporters over the past week hounding Mitt Romney for speaking his mind does not come as a surprise. After an astounding week of ardent media focus on Mitt Romney's criticism of the initial U.S. response to mob assaults on American diplomatic outposts, the furor is dying down—but it's not over by any means. Nor was the message that the furor sent a negligible one. Condemnations of Mr. Romney had come thick and fast. He had been "crass and tone deaf," in the view of MSNBC's Chuck Todd. He had committed a "slander" against the president, according to Jeffrey Goldberg of The Atlantic. Journalists in pursuit of this story—to the exclusion of virtually all else going on—were quick to point out that denunciations of Mr. Romney were by no means limited to Democrats, that criticism came from Republican commentators too. This fact was hardly surprising—the sanctimony of the virtuous knows no political bounds. The spectacle of those hordes of journalists in single-minded pursuit of the Romney story day after day—days that saw the killing of four Americans, embassies burned and trashed, mobs of the faithful running amok—shouldn't have been surprising either. It's the most dramatic indicator yet that in this election the pack journalism of four years ago is alive, and well, and in full cry again.

CNBC:

• Bob Woodward: Fiscal 'Day of Reckoning' Is Coming.

Business Insider:

• These Japanese Stocks Are Getting Slammed Thanks To China Row.
• This Map Shows How Municipal Bankruptcy Has Torn Through The U.S.
• US Military: American-Afghan Joint Military Operations 'Suspended'.
• OCCUPY WALL STREET: The Anniversary Was A Flop And The Movement Is Fading.

Zero Hedge:

• On The Hypocrisy Of Central Banks Removing Tail-Risk.
• Either You Believe In Math; Or You Believe In Magic.
• How China's Rehypothecated "Ghost" Steel Just Vaporized, And What This Means For The World Economy.

IBD:

• Alkermes(ALKS) Writes New Prescription For Growth.

Forbes:

• ObamaCare Could Cause Nonprofit Hospitals To Lose Their Tax-Exempt Status: Here's How.

Reuters:

• Japanese hunker down in China as protesters regather. Hundreds of Japanese businesses and the country's embassy suspended services in China on Tuesday, as anti-Japan protests threatened to reignite and drag a territorial dispute between Asia's two biggest economies deeper into crisis. Two people thought to be Japanese nationals landed on one of the islands at the centre of the dispute, police in Okinawa said, raising fears the move could lead to direct clashes.
• AMD(AMD) loses respected CFO, shares plunge. Advanced Micro Devices Inc said Chief Financial Officer Thomas Seifert was leaving the struggling personal computer chipmaker to pursue other opportunities, sending its shares down almost 12 percent. After filling in as AMD's temporary CEO through August last year, Seifert now wants to find a permanent CEO position, a source close to the company said. Seifert's departure is concerning because - even though he had only been CFO for three years - he had more experience at AMD than other top executives, said Evercore Partners analyst Patrick Wang.
• Toyota to halt some China plants as demonstrations spread -Kyodo.
• Putin watches war games, tells soldiers to boost Russian defence. President Vladimir Putin oversaw Russian military exercises on Monday and warned soldiers that more conflicts around the world meant they had to "keep their powder dry" and improve Russia's defences. Speaking to soldiers at manoeuvres in the Caucasus Mountain region on the country's southern border, near where Russian troops invaded neighbouring Georgia in a five-day 2008 war, Putin said the use of military force was rising worldwide. "You are all educated people, you see what is happening in the world. You see unfortunately that the use of force is increasing in international affairs," said Putin, wearing a beige jacket, flanked by Defence Minister Anatoly Serdyukov and the Chief of General Staff Nikolai Makarov. "That all speaks to the fact that we should keep our powder dry and that Russia's defences must improve," he said from a wooden podium, his eyes fixed on soldiers in uniform.
• Sony to close 2 of 7 China plants on Tues amid protests.
• Australia downgrades iron ore revenue as China cools. Australia, the world's biggest exporter of iron ore, cut its revenue forecasts for the key steel making ingredient by a fifth on Tuesday, a fresh sign the country's mining industry is losing steam as a slowdown in top customer China drives down prices.

Financial Times:

• US inflation fears rise after QE3. Market expectations for US inflation over the next 10 years rose as high as 2.73 per cent on Monday, based on the difference or the so-called “break-even rate” between nominal and inflation-protected Treasury debt. That represents the highest intraday break-even rate since May 2006 and near the all-time closing peak of 2.78 per cent from March 2005.

NHK World:

• Chinese planning more anti-Japan rallies. Anti-Japan demonstrations are expected across China on Tuesday to coincide with the 81st anniversary of an incident that led to Japan's 1931 invasion of Manchuria. Messages have appeared online calling for rallies in at least 58 cities. Japanese-affiliated companies and Japanese schools plan to close for the day. On Monday, around 200 people gathered in front of the Japanese Embassy in Beijing. It was the 7th straight day of protest since Japan brought 3 of the Senkaku Islands in the East China Sea under state control. Police in Beijing posted a statement online saying that destroying property is not patriotic. They called on protestors to uphold law and order. In Qingdao and Guangzhou, police detained suspects accused of attacking a Japanese-affiliated supermarket and destroying Japanese cars.
  

Financial Review:

• Shell Spells Out China Growth Fears. The Chinese economy could be in worse shape than official figures suggest, threatening demand for Australia’s resources at the same time as increasing international competition and rising costs spell trouble for this nation’s fledgling gas boom, says one of Royal Dutch Shell’s top global ­executives. Shell global downstream director Mark Williams said the energy giant was experiencing the equivalent of recession-level demand for key products such as diesel at the same time as China, one of the single largest markets, was posting official reports of strong growth. “The global economy seems weaker to me than the numbers indicate,” said Mr Williams, who sits on Shell’s global executive board. “I still expected more suction out of China than we’re getting. I’m just a bit uneasy with what we’re seeing in terms of fuel demand and chemical demand.” China’s power consumption growth slowed last month as its manufacturing sector, which accounts for more than half total electricity demand, experienced a significant slump in new orders. Bernstein’s Hong Kong-based energy analyst Neil Beveridge said China’s oil demand in August was down 0.4 per cent year on year, the third month of negative growth this year, while crude imports were the lowest in the last 22 months, and were down 12.5 per cent from a year earlier. “China’s economic and energy indicators in August continue to show little improvement from July, highlighting sustained weakness in the Chinese economy,” he said. “Following the weakest GDP growth since early 2009 – 7.6 per cent in the second quarter – some energy indicators in August showed a significant deceleration from a year ago.” The Chinese economy officially grew at 7.6 per cent in the year to the end of June but Shell’s Mr Williams said the accuracy of Chinese economic data was a cause for concern.

HKEJ:

• China is preparing economic sanctions against Japan and may ban exports of rare earths, if the Japanese government doesn't reverse its purchase of the Diaoyu Islands, citing a "well-informed mainland source." If Japanese Prime Minister Yoshihiko Noda speaks about the issue at the United Nations, it would be "the last straw," the person said.
  

Xinhua:

• Difficulties facing China's economy may continue for "a period of time" on European sovereign debt crisis and weak U.S. economy, according to a commentary written by Qi Zhongxi and Fan Xi. The economic problems are caused by sluggish external demand, domestic controls on real estate, increasing labor costs and long term overcapacity in industries.

Shanghai Daily:

• China concerned over trade outlook in eurozone crisis. CHINA believes the eurozone can manage its debt crisis but is concerned about the outlook for bilateral trade in the rest of this year, senior officials said yesterday ahead of Premier Wen Jiabao's visit to Europe tomorrow. "Europe's economic situation may not show a substantial improvement and we can't be optimistic about the bilateral trade outlook," Vice Commerce Minister Zhong Shan told a news briefing in Beijing. Vice Finance Minister Zhu Guangyao said China is confident the European Union can address the debt crisis and China appreciates efforts taken to ease the problem. China's exports to Europe fell 12.7 percent from a year earlier in August, a third straight month of decline, while overall exports grew 2.7 percent.

Evening Recommendations
Susquehanna:

• Rated (SPLK) Positive, target $48.

Night Trading

• Asian equity indices are -.50% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 116.50 +4.0 basis points.
• Asia Pacific Sovereign CDS Index 94.50 -1.0 basis point.
  
• FTSE-100 futures -.27%.
  
• S&P 500 futures +.09%.
  
• NASDAQ 100 futures +.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FDX)/1.40
• (CBRL)/1.30
• (CUB)/.75
• (EP)/.24
  

Economic Releases
8:30 am EST

• The 2Q Current Account Deficit is estimated at -$125.0B versus -$137.3B in 1Q.

9:00 am EST

• Net Long-term TIC Flows for July are estimated to rise to $27.5 billion versus $9.3 billion in June.
  

10:00 am EST

• The NAHB Housing Market Index for September is estimated to rise to 38.0 versus 37.0 in August.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Lacker speaking, Fed's Dudley speaking, Fed's Evans speaking, weekly retail sales reports, BoJ rate decision, UK inflation data, German ZEW Economic Sentiment Index, (TYC) investor day and the (INTU) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the day.

Stocks Lower into Final Hour on Rising Global Growth Fears, Rising Eurozone Debt Angst, Growing Mid-east Tensions, Earnings Concerns

Broad Market Tone:

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

Equity Investor Angst:

• VIX 14.66 +1.03%
  
• ISE Sentiment Index 120.0 -41.46%
  
• Total Put/Call .85 +25.0%
  
• NYSE Arms 1.21 +49.56%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 84.95 bps +2.29%
  
• European Financial Sector CDS Index 189.06 bps +2.17%
  
• Western Europe Sovereign Debt CDS Index 173.13 +1.38%
  
• Emerging Market CDS Index 195.30 +1.05%
  
• 2-Year Swap Spread 12.75 +.25 basis point
  
• TED Spread 29.0 +.25 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -19.0 -2.25 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% -1 basis point
  
• Yield Curve 159.0 -2 basis points
  
• China Import Iron Ore Spot $105.10/Metric Tonne +3.44%
  
• Citi US Economic Surprise Index 19.10 -1.3 points
  
• 10-Year TIPS Spread 2.59 -5 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +3 open in Japan
• DAX Futures: Indicating -15 open in Germany
  

Portfolio:

• Slightly Higher: On gains in my Biotech/Medical sector longs and index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges
  
• Market Exposure: Moved to 25% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows on more disappointing US economic data, high food/energy prices, growing Mid-east unrest, US "fiscal cliff" worries and rising global growth fears. On the positive side, Biotech and Tobacco shares are especially strong, rising more than +.75%. The UBS-Bloomberg Ag Spot Index is down -2.8%, Oil is down -2.9% and Gold is falling -.8%. Major Asian indices were mostly higher overnight, boosted by a +.42% gain in India. However, the Shanghai Comp fell -2.1%. This index is down -2.64% over the last week despite sharp gains in the rest of Asia and is down -5.5% ytd. As well, the Shanghai Property Stock Index fell -3.8% overnight and is down -5.9% over the last 5 days. The Germany sovereign cds is down -1.7% to 48.34 bps and the France sovereign cds is down -1.2% to 96.59 bps. On the negative side, Coal, Steel, Paper, Computer, Semi, Disk Drive, Networking, Bank, I-Banking, Homebuilding, Education and Road & Rail shares are especially weak, falling more than -1.5%. Transport, Homebuilding and Financial shares have traded poorly throughout the day. Major European indices are lower today, weighed down by a -.9% decline in Italy. The Bloomberg European Bank/Financial Services Index is down -.14%. Brazilian shares are -.7% lower today. The Spain sovereign cds is up +3.8% to 355.27 bps, the Italy sovereign cds is up +3.1% to 318.62 bps, the Russia sovereign cds is gaining +3.45% to 129.97 bps. Moreover, the European Investment Grade CDS Index is rising +1.9% to 120.37 bps, the Spain 10Y Yld is gaining +3.3% to 5.97% and the Italian/German 10Y Yld Spread is rising 3.7% to 343.21 bps. The UBS/Bloomberg Ag Spot Index is up +24.5% since 6/1. The benchmark China Iron/Ore Spot Index is down -41.9% since 9/7/11. The China Hot Rolled Steel Sheet Spot Index also continues to trend lower despite the recent bounce. As well, copper and lumber continue to trade poorly given equity investor perceptions that the Eurozone has successfully kicked-the-can, housing has hit a major bottom and global central bank stimuli will boost economic growth in the near future. US weekly retail sales have decelerated to a sluggish rate at +2.6%. US Trucking Traffic continues to soften. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -70.0% from its Oct. 14th high and is now down around -60.0% ytd. Shanghai Copper Inventories have risen +404.0% ytd. Oil tanker rates have plunged, with the benchmark Middle East-to-US voyage down to 27.50 industry-standard worldscale points, which is near the lowest since May, 2009. The 10Y T-Note continues to trade too well. There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in a major way in an attempt to "save" the euro even as investors have been pricing this outcome into stocks. Massive tax hikes and spending cuts have still yet to hit in several key eurozone countries that are already in recession. A lack of economic competitiveness and growth incentives remain unaddressed problems. The European debt crisis is also really affecting emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades over the intermediate-term. I continue to believe that China's problems are much larger than commonly perceived and cannot be solved with another massive stimulus package given their real estate bubble, soaring food prices, massive overcapacity in certain key parts of the economy and growing bad loans problem. I continue to believe QE3 is a major mistake given the recent surge in stock prices, rising inflation expectations, rising gas prices, worrisome food crisis headlines and less pessimistic US economic data. Little being discussed by global central bankers will actually boost global economic growth to an extent that overcomes the growing macro headwinds over the intermediate-term, in my opinion. Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff" and the election outcome uncertainty will likely become more and more of a focus for US investors into the fourth quarter. As I have been warning for awhile, the Mid-east is unraveling again at an alarming rate. The quality of the stock rally off the June lows remains poor as breadth, volume, leadership, lack of big volume/gainers and copper/lumber/transports relative weakness all continue to be concerns. Thus, recent market p/e multiple expansion on global central bank stimulus/action hopes, is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. For this year's equity advance to regain traction, I would expect to see further European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower food/energy prices, a US "fiscal cliff" solution, a calming in Mid-east tensions and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising eurozone debt angst, profit-taking, more shorting, high food/energy prices, US "fiscal cliff" concerns, growing Mid-east unrest, technical selling and rising global growth fears.

Today's Headlines

Bloomberg:

• Spanish Banks Bleeding Cash Cloud Bailout Debate: Euro Credit. Spanish banks, already hooked on cheap European Central Bank loans, are hemorrhaging deposits as the government debates whether to seek a bailout. Households and companies drained 26 billion euros ($34 billion) from Spanish bank accounts in July, driving the ratio of loans to deposits among lenders to 187 percent from 183 percent in December and 182 percent a year earlier, according to data compiled by the Bank of Spain. Shrinking deposits undermine the ability of banks to support economic growth by lending to companies and consumers. “There are significant outflows of deposits now in Spain and they won’t start coming back until people are sure they’re safe and that Spain is secure,” said Simon Maughan, a financial strategist at Olivetree Securities Ltd. in London.
• Spanish 10-Year Yield Rises to 6% as Bonds Slide for Third Day. Spanish 10-year bonds extended their decline, falling for a third day and pushing the yield on the securities to 6 percent. The rate climbed 22 basis points, or 0.22 percentage point, to 6.00 percent as of 3:01 p.m. London time, the highest level since Sept. 7.
• ECB to Set Up Repo Database as EU Moves to Rein in Shadow Banks. The European Central Bank plans to boost oversight of trading in repurchase agreements by setting up a transactions database amid a push by regulators to rein in so-called shadow banking, a European Union document shows. Michel Barnier, the EU’s financial services chief, raised the plan at a meeting of European Union finance ministers and central bankers in Nicosia, Cyprus, on Sept. 14-15, according to the document, whose authenticity was confirmed by an EU official. The database would cover the European market for repos. The official spoke on condition of anonymity because the talks are private. Barnier told the meeting that he is working on regulations targeted at “key actors” in the shadow-banking system, in particular money-market mutual funds, according to the document.
• European Stocks Slip From 15-Month High; SSAB Tumbles. SSAB sank 6.9 percent as the Swedish steelmaker said demand for strip products has been much weaker than expected. Hennes & Mauritz AB slid 1.6 percent after third-quarter sales missed estimates.
• Dry-Bulk Hire Costs Fall to 45-Month Low on Atlantic Cargo Slump. Hire costs for Panamax vessels, the largest to transit the Panama Canal, slumped to the lowest in three years and nine months, as a shortage of cargoes in the Atlantic Ocean region worsened an oversupply of ships. Average daily returns declined for a 17th day, falling 3.9% to $3,833, according to the Baltic Exchange. Rates have plunged 40% in four weeks and are within 8.4% of the record low recorded on Dec. 12, 2008, exchange data show.
• Slowdown Seen in U.S. Manufacturing With Parker Hannifin. Illinois Tool Works Inc. (ITW) and Parker Hannifin Corp. (PH), which will be releasing their quarterly results next month, are showing why the U.S. economy is maintaining a slow expansion. Both could see their total revenue fall “slightly,” primarily because of “adverse currency translation” and also because of disappointing sales in Europe and Asia, according to Robert McCarthy, a senior analyst with Robert W. Baird & Co. in Chicago. While it’s “incrementally more difficult” to forecast order growth in North America, it probably didn’t contract for either company in the three months ending Sept. 30, as this business segment continues to expand, he said.
• China-Japan Dispute Over Islands Risks $340 Billion Trade. China and Japan’s worst diplomatic crisis since 2005 is putting at risk a trade relationship that’s tripled in the past decade to more than $340 billion. Toyota Motor Corp. (7203), Honda Motor Co. (7267) and Panasonic Corp. (6752) reported damage to their operations in China as thousands marched in more than a dozen cities on Sept. 16 after Japan last week said it will purchase islands claimed by both countries. Protesters called for boycotts of Japanese goods and in some instances smashed store fronts and cars.

Wall Street Journal:

• U.S. Balks at GM(GM) Plan to Sell Government Stake at Huge Loss Before Election. Government Is Reluctant to Sell Auto Stake at a $15 Billion Loss. The Treasury Department is resisting a push by General Motors GM Co. to sell the government's entire stake in the auto maker—the latest source of tension between two unlikely partners thrust together at the depths of the financial crisis. U.S. taxpayers kept the nation's largest auto maker by sales afloat with a $50 billion bailout in 2009 and now own 26.5% of the Detroit company. But GM executives have grown increasingly frustrated with that ownership, and the stigma of being known as "Government Motors." Executives have said the U.S.'s shadow is a drag on its reputation and hurts the company's ability to recruit talent because of pay restrictions. Privately, executives are also irked at the continued curbs on corporate jet use. Earlier this summer, GM floated a plan with Treasury officials to repurchase 200 million of the roughly 500 million shares the U.S. holds in the auto maker, according to people familiar with the discussions. Under the plan, Treasury would sell the remaining shares through a public stock offering. But Treasury officials aren't interested in GM's offer at the current price and aren't in a rush to offload shares, according to people familiar with the matter. The biggest reason: A sale now would leave the government with a hefty loss on its investment. At GM's Friday share price of $24.14, the U.S. would lose about $15 billion on the GM bailout if it sold its entire stake. While GM stock would need to reach $53 a share for the U.S. to break even, Treasury officials would consider selling at a price in the $30s, people familiar with the government's thinking have said.
• B-School Applicants Decline for Four Years. The business-school numbers are in and they aren't pretty. Applications for two-year, full-time M.B.A. programs that start this fall declined for the fourth year in a row, according to new data from the Graduate Management Admission Council, which administers the Graduate Management Admission Test. The median number of applications world-wide fell 22% in 2012 for the two-year degrees, after a nearly 10% decline last year.
• Chicago Teacher Strike Moves to Courtroom. The teacher strike that has shut 350,000 students out of classes will continue for at least another day, as a judge declined Monday to immediately rule on a city lawsuit seeking to force teachers back into the classroom. The Chicago school district, under the control of Mayor Rahm Emanuel, had asked a Cook County Circuit Court judge to prohibit the Chicago Teachers Union from striking on grounds that it is illegal.
• BASE METALS: Weaker Manufacturing Data Weigh on Copper. Copper futures fell Monday on unexpected declines in the New York Federal Reserve's manufacturing activity index and amid pressure from a stronger dollar. The most actively traded contract, for December delivery, was recently down 2.45 cents, or 0.6%, at $3.8080 a pound on the Comex division of the New York Mercantile Exchange. The Empire State business conditions index fell to minus 10.41 in September, after it plunged more than 13 points to minus 5.85 in August. The index has been declining since May, though economists had forecast a much healthier reading of 0 for September.
• Protests Turn Violent Around Asia. Hundreds of protesters demonstrating against an anti-Islam film torched a press club and a government building in northwest Pakistan on Monday, sparking clashes with police that left at least one person dead. Rioting demonstrators battled with police outside a U.S. military base in Afghanistan and the U.S. Embassy in Indonesia. In Lebanon, thousands of followers of Lebanon's powerful Hezbollah militant group are rallying against an anti-Islam film that has provoked a week of unrest in Muslim countries worldwide.
• Violent Protests in Kabul, Jakarta (pics).

MarketWatch:

• Moody's lowers 2013 growth forecast for auto sales. Moody's Investors Service said it has lowered its growth forecast for global auto sales in 2013 amid sluggish demand in Europe and weakening sales in China. The ratings company projected growth in global light-vehicle sales of 2.9% for next year, down from its January forecast for a 4.5% increase.

CNBC.com:

• Brusca: China's 'Truth' and Consequences. It is not as though China is being singled out. US energy giant Enron cooked its books. Greece, got help playing hide and seek from the facts using Goldman Sachs’ advice, and hid a pile of its debt to join the European Monetary Union. Bankers have long come to mistrust official data when they make lending decisions in the international realm. But how do they pick and choose who to believe?
• Shine Comes Off Euro Membership, Even for Poorest Country. Once seen as a crowning moment in a long process for new EU states aspiring to full integration, even the EU's poorest member is now having second thoughts.

Business Insider:

• Look How Much Less Americans Can Afford Now Compared To Six Years Ago.
• We Asked David Kotok What His Biggest Economic Fear Was, And What Told Us Was Absolutely Terrifying.
• The 16 Most Insane Images From The Anti-Japan Protests In China.
• 1000 Chinese Boats Now Setting Sail Towards Disputed Islands. (video)
• Wall Street Pros Tell Us The #1 Thing That Could Wreck This Rally.
• Bob Woodward Says Obama Is 'In Over His Head'.

Zero Hedge:

• Empire Manufacturing Index Prints At Lowest Since April 2009. (graph)
• What's More Important - Growth Or Policy? (graph)
• Japanese Businesses Shuttering Chinese Facilities As Mainland Anger Spreads.
• Full Summary Of The Latest In Anti-American Sentiment. (map)
• Update: The San Fran Fed Asks What People Think Of QE3: The People Respond.
  

Rasmussen Reports:

• 53% Favor Repeal of Health Care Law. The latest Rasmussen Reports national telephone survey finds that 53% of Likely U.S. Voters favor repeal, while 43% are opposed. This includes 45% who Strongly Favor repeal of the health care measure and 33% who are Strongly Opposed.
• Swing State Daily Tracking: Romney 47%, Obama 45%.

Reuters:

• France calls emergency G20 grains meeting for mid-Oct. France has called an emergency meeting of G20 farm ministers for mid-October to discuss curbing price swings on grain markets, the French president's office said, after a year of drought and record prices renewed fears of a crisis in food supplies. France currently presides over a grains body created last year under the Group of 20 major economies and it has made several proposals in recent days, including the development of strategic stocks and a halt in the expansion of biofuels that use food crops.
• Muslim protesters rage at United States in Asia, Middle East.
• Schwab trading volumes fall in August. Charles Schwab Corp said on Monday its trading volumes fell 31 percent in August from a year earlier, highlighting the difficult environment for brokerage firms due to disengaged retail investors and low volatility in the markets. Schwab, one of the largest U.S. brokerages, said its clients made an average of 375,900 trades a day in August, down 31 percent from August 2011 and down 5 percent from July.
• Hezbollah leader warns U.S. over Prophet film. Hezbollah leader Sayyed Hassan Nasrallah made a rare public appearance on Monday to warn the United States that it faced further anger and repercussions across the Muslim world unless it suppressed a video that mocks the Prophet Mohammad. "The world should know our anger will not be a passing outburst but the start of a serious movement that will continue on the level of the Muslim nation to defend the Prophet of God," Nasrallah told tens of thousands of marchers in Beirut's southern suburbs.

Die Welt:

• ArcelorMittal warns against the costs of the energy shift in Germany leading to potential factory closures, citing an interview with Lutz Bandusch, the co.'s head in Hamburg. Steel companies will have to pay an additional $2 billion a year as of 2013, he said.
  

Bear Radar

Style Underperformer:

• Small-Cap Value -1.10%

Sector Underperformers:

• 1) Homebuilders -2.04% 2) Education -2.03% 3) I-Banking -1.32%

Stocks Falling on Unusual Volume:

• CLF, VLTR, BMA, BAC, UIL, BIP, THLD, ACHN, CAF, CHL, NTES, SHS, SWC, SBS, RKT, VMC, GSM, KEYW, PNW, ADI, BECN, PCH, NRGY, MBT, MNRO, BLOX, SATS, NU, EW, RS and WPRT
  

Stocks With Unusual Put Option Activity:

• 1) RVBD 2) TYC 3) XHB 4) HD 5) AFL
  

Stocks With Most Negative News Mentions:

• 1) NAV 2) CLF 3) OPEN 4) VLO 5) WFC
  

Charts:

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