Today's Headlines

Bloomberg: 

• Spanish Notes Drop as Rajoy Says Under No Pressure to Seek Aid. Spanish government notes fell, with two-year yields rising from the lowest in more than six months, after Prime Minister Mariano Rajoy said he was not facing pressure to seek a sovereign bailout.The two-year securities dropped for the first time in four days as Rajoy’s comments at a European Union summit in Brussels fueled concern a delay in asking for aid will prolong the nation’s debt crisis. German bunds advanced, pushing the yield down from near the highest in a month. Italian bonds completed a third weekly gain after the Treasury said yesterday it received orders for more than 18 billion euros ($23.6 billion) of retail securities it was selling to investors. “The market is still very sensitive regarding the bailout request” from Spain, said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “Our view is that the market will have to wait to get clarity.”  
• EU Leaders Agree On Bank Oversight Amid Merkel Questions. German Chancellor Angela Merkel said it’s an open question whether European policy makers can meet the deadline they’d set hours earlier to establish a euro-area bank supervisor by year-end. “There are complicated questions to clarify and we’ll see in December if we complete it or not,” Merkel told reporters after a two-day European Union summit in Brussels wrapped up today. “For now, the political will is there.” The comments underscore Germany’s go-slow approach that may stymie plans laid down in June to break the link between banks and governments that has worsened the region’s debt crisis. She also ruled out allowing Spain to shift bank-bailout loans off its balance sheet if they are made before the new system starts operating.  
• European Stocks Fall as EU Leaders Fail to Discuss Spain. Bankia SA led lenders lower, losing 14 percent as a gauge of banks contributed most to the Stoxx Europe 600 Index’s drop. Aggreko Plc (AGK) fell 7.2 percent after it said bad-debt provisions would hurt full-year results. Spectris Plc (SXS) surged 12 percent after it reported a 12 percent increase in sales last quarter and said it will meet its full-year targets. Carrefour SA (CA) advanced 5.9 percent after it agreed to sell its Colombian unit. The Stoxx 600 fell 0.8 percent to 274.08 at the close of trading. French President Francois Hollande said additional assistance for Spain wasn’t discussed at the summit of European leaders in Brussels. 
• Greece Nears Aid Revival as Samaras Wins EU Summit Praise. Greek Prime Minister Antonis Samaras moved closer to winning a delayed aid disbursement when European leaders praised his government’s budget-cutting push. At his first European Union summit since becoming premier in June, Samaras said record unemployment showed the price Greece was paying for austerity demanded by the euro area as a condition for emergency loans. He urged parallel steps to kick- start the economy and stuck to a request for two extra years until 2016 to meet targets for narrowing the budget deficit, prompting signs of European goodwill.  
• China Might Have Overstated Growth in Standard Chartered View. A slowdown in electricity production and an “unimpressive” reading in a manufacturing survey are reasons September’s pickup in factory output was “a bit difficult to believe,” Standard Chartered said in an Oct. 18 note. Electricity output slowed to a 1.5 percent year-over-year growth rate in September from 2.7 percent in August, according to the National Bureau of Statistics. Power production was down 11 percent from August.  
• Wealthy Advised to Sell for Gains Before Unfriendly 2013. Sell. That’s the message from some financial advisers, who are telling wealthy clients that the remainder of 2012 amounts to a last-chance sale on federal tax rates. Taxes are set to rise in January in the U.S., pushing the top rate on dividends to 43.4 percent from 15 percent and the top rate on capital gains to 23.8 percent from 15 percent. Even if Congress averts the so-called fiscal cliff of tax increases on investments, income and estates, pressure to reduce budget deficits will mean higher taxes eventually, said Ron Florance of Wells Fargo & Co. (WFC) The answer is to take advantage of historically low rates and move taxable income and investment gains into this year, said Florance, managing director of investment strategy at the company’s private bank. “It’s the opposite of what people normally do,” said Florance, whose clients usually have at least $1 million in investable assets. “You’re paying taxes today in anticipation of higher rates in the future.”  
• Swaps Rule Sends Wall Street Into Clearing Limbo: Credit Markets. The securities industry misinterpreted rules it assumed allowed as many as nine months to start moving swaps into clearinghouses that are meant to limit risks to the financial system. Firms dealing in $648 trillion of outstanding swaps contracts expected that trading during a phase-in period wouldn’t need to be processed by central clearinghouses, according to an Oct. 5 e-mail sent to clients by Davis Polk & Wardwell LLP, which represents the Securities Industry and Financial Markets Association. They were wrong, misreading one sentence in 17,000 words of regulation. Unless lobbyists convince the Commodity Futures Trading Commission to soften the deadlines, derivatives users that speculate on or hedge against losses on everything from changes in interest rates to corporate bankruptcies may need to find cash and Treasuries to back the trades sooner than they anticipated. 
• McDonald’s(MCD) Profit Falls 3.5% as U.S. Growth Slows. McDonald’s Corp. (MCD), the world’s largest restaurant chain by sales, reported third-quarter profit fell 3.5 percent as sales growth slowed at U.S. stores. Net income (MCD) dropped to $1.46 billion, or $1.43 a share, from $1.51 billion, or $1.45, a year earlier, the Oak Brook, Illinois-based company said today in a statement. Foreign- currency exchange-rate fluctuations reduced net income by 8 cents a share in the third quarter. Analysts projected $1.47, the average of 26 estimates compiled by Bloomberg. Chief Executive Officer Don Thompson, who took the helm in July, has tried to draw budget-conscious Americans with a new extra-value menu. Sales at U.S. stores open at least 13 months rose 1.2 percent in the quarter, marking the slowest growth in 11 quarters. Analysts projected an increase of 1.7 percent, according to 21 estimates compiled by Consensus Metrix. 
• Republicans Press Obama on Libya Security Before Debate. Top Republicans on a House oversight panel demanded that President Barack Obama say whether the White House staff played any role in decisions on security at the U.S. consulate in Benghazi, Libya, raising new questions days before a presidential debate on foreign policy. “Your administration has not been straightforward with the American people in the aftermath of the attack” on Sept. 11 that killed U.S. Ambassador to Libya Chris Stevens and three other Americans, House Oversight and Government Reform Committee Chairman Darrell Issa and Representative Jason Chaffetz, who heads a subcommittee, said today in a letter to Obama. In addition to repeating criticism of the administration’s changing accounts of the attack, the Republicans said the panel found requests from personnel in Libya for increased security beforehand had been turned down because the administration was eager for a “normalization” of relations with that country after the rebellion that ousted ruler Muammar Qaddafi. “These critical foreign policy decisions are not made by low or mid-level career officials –- they are typically made through a structured and well-reasoned process that includes the National Security Council at the White House,” wrote Issa of California and Chaffetz of Utah. 
• Honeywell(HON) CFO Says China Growth May Slow to 23-Year Low. Honeywell International Inc., the maker of cockpit controls and thermostats, is forecasting 2013 economic growth in China may decelerate to less than 7 percent, the slowest pace since 1990. The euro area will remain in recession next year and U.S. growth will likely be 1.8 percent, said Dave Anderson, chief financial officer of the Morris Township, New Jersey-based manufacturer. The company plans to cut costs and introduce new products to keep earnings growth in 2013 at a similar level as this year, he said. “It wouldn’t be surprising to us if China didn’t break 7 percent GDP growth in 2013,” Anderson said in a telephone interview. “Our expectation is that there’s going to be relatively muted growth overall in 2013.”

Wall Street Journal: 

• Tech Stocks Spark Dow Fall. Technology and materials shares paced a broad stock-market decline, as the tech-oriented Nasdaq Composite traded at its lowest level since August. The Dow Jones Industrial Average fell 195 points, or 1.4%, to 13354, in Friday afternoon trading. The index's stumble comes on the 25th anniversary of Black Monday, when the Dow tumbled more than 20% in a single day. The Standard & Poor's 500-stock index lost 23 points, or 1.6%, to 1432, and the Nasdaq gave up 65 points, or 2.2%, to 3008. 
• Germany Takes Hard Line on Spanish Banks. German Chancellor Angela Merkel took a hard line on Spain Friday, saying that Madrid will have to keep on its own balance sheet the tens of billions of dollars it is about to inject into its banks and won't be able to transfer them to the euro-zone bailout fund. That position, laid out after a two-day summit of European Union leaders in Brussels, would mean that Spanish borrowing from the euro zone to bolster the capital of shaky banks—estimated to be as much as €60 billion ($78.72 billion)—will swell the country's already-heavy debt load.
• Failed U.S. Deals Stir Tensions With China. 
• Spain's Largest Unions Call Nationwide Strike. Spain's largest unions Friday called a nationwide strike, warning Prime Minister Mariano Rajoy of their opposition to his austerity policies as he negotiates the terms of an international financial bailout. The strike announced by the General Workers Union and the Labor Federation will take place on Nov. 14, in tandem with planned general strikes in Greece and Portugal. Heavy budget cuts and high jobless rates have increased social tensions during the persistent debt crisis across peripheral euro zone nations. 

MarketWatch.com:

• Sales of existing homes drop in September.

CNBC: 

• Why 'Fiscal Cliff' May Be Bigger Threat Than You Think.

Zero Hedge:

• Chart Of The Day: Q4 Deja Vu Dead Cat Bounces Again.  
• Q3 Earnings Season To Date: Revenue Beats: 41%; Misses 59%. (graphs)  
• Spain's Regional Bailout Fund: A Drop In A Bucket Of Insolvency.  
• Europe Ends Winning Week By Giving Half Of It Back.  
• This Is The Housing Bubble Beneath The "Recovery".  
• Why Rajoy's 'Delay-And-Pray' Strategy Won't Work.

Business Insider:

• GALLUP: ROMNEY LEADS BY SIX POINTS. 
• Nassim Taleb's New Paper Explains Why Governments Always Miss Their Own Budget Targets. 
• The Economist Behind The Existing Home Sales Report Said Something Very Important Today. Here's what NAR chief economist Lawrence Yun had to say about that: "The shrinkage in housing supply is supporting ongoing price growth, a pattern that could accelerate unless home builders robustly ramp up production." This speaks to a troubling dynamic that's been developing in the market for new homes. In recent months, homebuilders have been ramping up the construction of new homes. In a new report from the Census, housing starts surged to a their highest levels since 2008. The problem is that new home sales haven't been keeping up pace. Here's a chart from TD Securities economist Millan Mulraine:  
• Microsoft(MSFT) Was Asked A Critical Question About Its Future Yesterday — And Its Response Wasn't Encouraging.  
• Everyone's Talking About The Growing Odds Of An Electoral College Nightmare. 

Reuters: 

• GE(GE) cautious on 2013 after sales miss Wall Street target. General Electric Co reported weaker-than-expected third-quarter revenue, hurt by unfavorable exchange rates, and set a cautious tone for 2013, saying it expects the tough economic environment to continue. The largest U.S. conglomerate on Friday reported a 2.8 percent rise in sales, with revenue down at its aviation and healthcare arms, while the stronger U.S. dollar crimped overall results by diminishing the value of its foreign sales. Its shares fell almost 3 percent. "We're not assuming that Europe gets any better," Chief Executive Officer Jeff Immelt told investors on a conference call. "We're looking at '13 being kind of like '12, with the big variable being the fiscal cliff." 
• Protests, gunfire in Lebanon after Beirut killing. Sunni Muslims took to the streets and burned tyres across Lebanon in protest against the killing of senior intelligence official Wissam al-Hassan in a car bomb on Friday, witnesses said. Protesters, infuriated by the death of the prominent Sunni, blocked roads in the eastern Bekaa valley region, the northern area of Akkar, neighbourhoods of the capital Beirut and in the southern city of Sidon. Former Lebanese Prime Minister Saad al-Hariri accused Syrian President Bashar al-Assad - a member of an offshoot of Shi'ite Islam - of being behind the huge car bomb which killed Hassan and at least seven other people in central Beirut on Friday. The attack has brought the violence in neighbouring Syria to the Lebanese capital, confirming fears that the conflict is infecting the surrounding region. 
• Al Qaeda attack on Yemen army base kills 24. Al Qaeda killed 16 soldiers in an attack on an army base in south Yemen on Friday, medical and military sources said, in a further show of strength by Islamist militants despite a U.S. campaign of drone strikes to neutralise them. Militants tightened their hold on parts of Yemen during an uprising that ousted veteran president Ali Abdullah Saleh in February, raising concern for the security of top oil exporter Saudi Arabia next door and nearby shipping lanes.

Financial Times:

• Manufacturers warn of ‘fiscal cliff’ threat.

Telegraph: 

• Europe mistakes market lull for vote of confidence.

Handelsblatt:

• BlackRock's(BLK) Fink Says Market to Stay Volatile. Political risks, which are high at the moment, will continue to cause financial-market volatility, BlackRock CEO Laurence D. Fink said in a guest commentary. Public attention is shifting to U.S. from European debt crisis. European govts raising taxes adn cutting benefits has led to uncertainty and has put a brake on consumption. 

Cinco Dias:

• Spanish Banks Resist Taking Stakes in Bad Bank. Bank of Spain governor Luis Maria Linde met executives of lenders including Santander, BBVA, La Caixa, Banco Sabadell, Bankinter, Kutxabank and Unicaja. Lenders don't like to take part in the bad bank as Bank of Spain has yet to clear purchase prices to be applied by the bad bank. Lenders also want clarification on possible inclusion in the bad bank of new types of assets, including real estate, such as consumer loans.

Bear Radar

Style Underperformer:

• Small-Cap Growth -2.20%

Sector Underperformer:

• 1) Restaurants -4.60% 2) Education -4.45% 3) Coal -4.01%
  

Stocks Faling on Unusual Volume:

• GE, CMG, GOOG, MCD, MMR, PGI, FHN, BCS, SBGI, CATY, E, GORO, CPNO, VOC, ATHN, HWAY, BOOM, APD, PH, SHAW, WAC, AEGR, AFFY, CCC, CEB, XXIA, CPHD, BJRI, MCS, TNC, THC, DIOD, PNRA, MLU, VRA, PRU, SBUX, ORB, MDF, UTEK, BKW, ARIA, VRTX, APOL, JACK and NAV

Stocks With Unusual Put Option Activity:

• 1) TRIP 2) NAV 3) MRVL 4) SPLS 5) ETN
  

Stocks With Most Negative News Mentions:

• 1) MRVL 2) ETFC 3) AMD 4) APD 5) CSX
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth -.93%

Sector Outperformers:

• 1) Homebuilders +.09% 2) Utilities -.31% 3) Drugs -.34%
  

Stocks Rising on Unusual Volume:

• COF, SNDK, RVBD, RHI and MAN

Stocks With Unusual Call Option Activity:

• 1) XRX 2) VMED 3) FL 4) RVBD 5) PCYC
  

Stocks With Most Positive News Mentions:

• 1) STLD 2) HOG 3) COF 4) CQP 5) CAT

Charts:

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

Evening Headlines
Bloomberg: 

• EU Aims For Euro-Area Bank Supervision To Start In 2013. European leaders committed to their goal of establishing a euro-area bank supervisor by year-end, opening the prospect of direct aid to Spain’s banking sector. The EU will seek to agree on a framework that makes the European Central Bank the main supervisor by Jan. 1, according to conclusions released early today after leaders met at a summit in Brussels. The new system, intended to break the link between banks and governments at the root of the region’s financial crisis, will phase in over the next year and could cover all 6,000 euro-area banks by Jan. 1, 2014. The supervisor can “probably be effectively operational,” allowing the euro bailout fund to lend directly to banks, as soon as 2013, EU President Herman Van Rompuy told reporters after the meeting. He said finance ministers will design rules for such bank rescues. German Chancellor Angela Merkel, underscoring a go-slow approach, said before direct aid, the bank-oversight system needs to reach “practical completion.”
• Rajoy Seeks Proof Cuts Don’t Mean Defeat in Spain Regional Vote. Prime Minister Mariano Rajoy may hold on to power in his home region of Galicia even as fallout over austerity saps his support elsewhere, in local voting that may ease an obstacle to a Spanish bailout request. The People’s Party may hold on to its 38 seats in the 75- member regional assembly in voting this weekend, maintaining the majority it’s held since 2009, a poll by the state-run CIS indicated on Oct. 5. If it falls short, Socialists and Galician nationalists would seek to govern in a coalition. The Basque Country, where the PP has never won an election, also votes on Oct. 21, and polls signal nationalists in the lead. Rajoy, who flies home from a European summit in Brussels today to give the closing campaign speech in Galicia, is counting on the outcome to show he can still win votes even after implementing the deepest budget cuts in three decades. The end of the campaign may also reduce political pressure on the premier to delay a European bailout request and free his hand to make deeper deficit cuts. “If they keep their majority, Rajoy’s first message will be we can implement austerity and still win elections,” said Antonio Barroso, an analyst at Eurasia in London and former Spanish government pollster. “He’ll gain breathing space.”
• Forced Conservation in France Prompts Big Brother Outcry: Energy. Heating a French home could soon require an income tax consultation or even a visit to the doctor under legislation to force conservation in the nation’s $46 billion household energy market. A bill adopted by the lower house this month would set prices that homes pay based on wages, age and climate. Utilities Electricite de France SA and GDF Suez SA will use the data to reward consumers who cut power and natural gas usage and penalize those whom regulators decide are wasteful. “It’s Orwellian,” opposition lawmaker Daniel Fasquelle said by telephone. “The law will create huge inequalities and infringe on people’s individual freedoms. It won’t work.” Socialist President Francois Hollande is pushing boundaries of privacy and privilege in carrying out a campaign promise to reduce energy costs.
• Aluminum Supply Outpaces iPhone, Audi Demand: Chart of the Day. A jump in the amount of aluminum used in products ranging from Apple Inc.'s iPhone to Audi AG cars probably won't be enough to cut a supply glut amid record output in China, the world's top producer. Inventories in 2013 are projected to be enough to supply 8.7 weeks of global demand, according to figures from Barclays Plc. That's 12% higher than this year and more than double the ratio in 2006. Output in China increased 9.4% in August from a year earlier to an all-time high, International Aluminum Institute data show. "Aluminum is a structurally weak market, and the oversupply hasn't been fully reflected in the price," said Jeffrey Sherman, who helps manage more than $45 billion in assets at DoubleLine Capital in Los Angeles. "It looks like the direction from here is lower. There's a lot of downside risk to it." 
• China Navy Conducts East China Sea Exercises Amid Japan Row. China’s navy will conduct exercises in the East China Sea to better coordinate missions to protect Chinese territory, Xinhua News Agency said, a move that may heighten tensions with Japan over disputed islands. Today’s exercises with the fishery administration and the marine surveillance agency will involve 11 ships and eight aircraft, Xinhua reported yesterday, citing a statement from the navy’s Donghai fleet. “When carrying out missions in disputed waters, patrol vessels of the fishery administration and marine surveillance agency have been stalked, harassed and even intentionally interfered with by foreign vessels, greatly challenging their duties,” Xinhua said, citing the statement. 
• Southeast Asia Seen Leading Rate Increases Next Year: Economy. Central banks in Southeast Asia may be forced to abandon this year’s monetary easing and raise interest rates before their north Asian peers in 2013, as rising inflation risks overshadow the current economic gloom.
• Microsoft(MSFT) Profit Falls Short as Weak PC Demand Hurts Windows. Microsoft Corp., the largest software maker, reported fiscal first-quarter profit and sales that missed analysts’ estimates as anemic personal computer sales crimped demand for Windows, its core operating system. Net income declined to $4.47 billion, or 53 cents a share, in the three months through Sept. 30, from $5.74 billion, or 68 cents, a year earlier, the Redmond, Washington-based company said in a statement. That missed the 56-cent average estimate of analysts polled by Bloomberg. Sales fell 7.9 percent to $16 billion, compared with the $16.4 billion average estimate. Microsoft’s Windows unit revenue is suffering in a depressed PC market as some consumers switch to buying tablets. During the quarter, global PC shipments slumped 8.3 percent from a year earlier to 87.5 million, market-research firm Gartner Inc. said last week.
• Black Monday Echoes With Computers Failing to Restore Confidence. A quarter century after the worst one-day stock crash in history, measures to prevent a repeat are failing to keep investors from losing confidence in the market.
• AMD(AMD) Forecast Misses Estimates; to Cut 15 Percent of Staff. Advanced Micro Devices Inc., the second-largest maker of processors for personal computers, forecast fourth-quarter sales that will miss analysts’ estimates and said it will cut 15 percent of its staff. AMD’s outlook adds to evidence that PC makers and their suppliers are being battered by a weak economy and a shift in consumer spending to tablets and smartphones -- getting scant relief from holiday sales that usually kick in this time of year.

Wall Street Journal: 

• Early Uncertainty on Libya Account. The night before Susan Rice went public with the administration's assessment of the Sept. 11 U.S. consulate attack in Libya, intelligence analysts were receiving new information that contradicted the account she gave. It then took weeks longer—until early October—for a new intelligence assessment discounting the role of protests in the attack to make its way into public statements from senior officials in the Obama administration. 
• Buyers Run Back Into Open-Ended ARMs. Luxury-home buyers are returning to adjustable-rate mortgages, despite pitfalls that pushed many homeowners into foreclosure during the housing bust. The pitch? A lower interest rate—at least for a period—than a fixed-rate mortgage means savings could be huge. 
• China Faces Tough Choice on Growth. Incoming Leaders Must Decide Whether to Stick to Old Economic Model or Tackle Reforms to Get More Money to Consumers. China's latest evidence of sputtering growth underlines a dilemma for its incoming leaders: They can shore up the economy by doubling down on an exhausted growth model, or take a risky political bet on reforms that could worsen the slowdown in the short term. The challenge—an unusual one for a Communist government—is to put more money in the pockets of its consumers by tackling the burgeoning inequality in income, which has contributed to pushing China's growth off kilter.
• Syria Strikes Claim Dozens a Day After Helicopter Downed. Dozens of people were killed in airstrikes Thursday in northwestern Syria as the government appeared to move to reclaim a strategically located town from rebels, activists said, in one of the bloodiest recent incidents in the country's civil conflict. Regime fighter jets attacked Maarat al-Nouman, a town on a highway linking Syria's largest cities, according to activists, providing a gruesome glimpse into the growing toll of aerial bombardment by the regime.
• The Foreign Policy Debate. How Romney can show Americans he can be a capable Commander in Chief. When the history of the Obama Administration is written, it will be noted that never before has an American President bet so much on the power of his own charisma to change the world. As Mitt Romney prepares for the foreign policy debate in Florida on Monday, his challenge will be to show what a losing bet that's been—and how a Romney Administration would do better.

CNBC:

• High Profile Earnings Misses Keep Investors Skeptical. 
• China's Foreign Investment Shows Further Declines. China's foreign direct investment inflows fell 3.8 percent in the first nine months from a year ago, extending the longest run of declines since the depths of the global financial crisis as stiff economic headwinds dent corporate spending plans. The Commerce Ministry said on Friday that China drew $83.4 billion in foreign direct investment between January and September, with September's inflow alone down 6.8 percent on year-ago levels at $8.4 billion. 
• Top Bankers Urge Washington to Avoid Fiscal Cliff. Top financial industry executives urged the Obama administration and Congress on Thursday to stop automatic fiscal austerity measures from kicking in at year-end, but did not propose fresh ideas for replacing those harsh budget and tax measures. "The consequences of inaction ... would be grave," members of the Financial Services Forum, an industry trade association, wrote to President Barack Obama and members of Congress in a letter released on Thursday. The letter, signed by 15 top executives of some of largest U.S. and global financial services companies, points to rising concern that lawmakers will run out of time to seal a deal to avoid sharp tax increases and spending cuts. With a presidential election leaving the political landscape uncertain, negotiations to avert what has become known as the fiscal cliff are not expected until after the ballots have been counted on November 6 - and that has made many nervous.

Zero Hedge: 

• Some Context On Spain's 'Big' Week. (graphs) 
• Spain Proposes Law Prohibiting Recording And Capturing Of Local Cops In Action. 
• Man Self-Immolates In Front Of Rome's Presidential Palace.

Business Insider: 

• There's A Troubling Dynamic Developing In The Market For New Homes. 
• Here's How The US Invited Iranian Hackers To Attack America's Banks. 
• Obama Has Completely Lost His Lead In Wisconsin. 
• CHIPOTLE(CMG) MISSES EARNINGS BIG, STOCK PLUNGES AFTER HOURS.

Washington Post: 

• CIA seeks to expand drone fleet, officials say. The CIA is urging the White House to approve a significant expansion of the agency’s fleet of armed drones, a move that would extend the spy service’s decade-long transformation into a paramilitary force, U.S. officials said. The proposal by CIA Director David H. Petraeus would bolster the agency’s ability to sustain its campaigns of lethal strikes in Pakistan and Yemen and be able, if directed, to shift aircraft to emerging al-Qaeda threats in North Africa or other trouble spots, officials said.

Mediaite.com: 

• Romney Roasts President Obama, Himself At The Al Smith Dinner. (video)

Washington Examiner:

• Poll shows Romney leading in blue Pennsylvania. A new poll shows Republican Mitt Romney leading in Pennsylvania, a state that Republicans had all but written off just weeks ago but which is now listed as a toss up by the Real Clear Politics website. Susquehanna Polling and Research provided The Washington Examiner with a poll it conducted for state party officials that shows Romney with a 49 percent to 45 percent lead over President Obama. It's the first poll to show Romney leading among likely voters in the Keystone State.

The Hill:  

• Obama on Benghazi attack: 'When four Americans get killed, it's not optimal'. President Obama vowed Thursday to fix any problems that contributed to the deaths of four American foreign service personnel during last month's attack on the U.S. Consulate in Benghazi, Libya, saying that "when four Americans get killed, it's not optimal."

Reuters: 

• Ally Financial latest U.S. bank to face cyber attacks. Ally Financial Inc on Thursday became the latest U.S. financial institution to face cyber attacks that may stem from hackers in Iran. Bank of America Corp (BAC.N), Wells Fargo & Co (WFC.N) and other banks in recent weeks have suffered so-called denial of service attacks in which hackers use a high volume of incoming traffic to delay or disrupt customer websites. Regional bank BB&T Corp (BBT.N) and credit card issuer Capital One Financial Corp (COF.N) confirmed disruptions earlier this week. A spokeswoman for Ally, the former auto lending arm of General Motors Co (GM.N), said the bank was investigating the "unusual traffic" on its website. Sources have previously told Reuters that the attacks could be part of a year-long cyber campaign waged by Iranian hackers against major U.S. financial institutions and other corporate entities. 
• Moody's keeps negative outlook for German banking system. Moody's Investors Service said the outlook for Germany's banking system remained negative, citing margin pressure due to intense competition, limited loan growth, Europe's recession and deteriorating asset quality. "Moody's says that intense competition and low interest rates are causing margin pressure that will likely further erode the banks' already-weak revenues and profits over the 12-18 month outlook period," the rating agency said in a report. 
• SanDisk(SNDK) sees margin growth, memory prices stabilizing. SanDisk Corp's quarterly results topped expectations as rising demand for chips used in smartphones and tablets and a limited supply drove up prices for flash memory, a trend that the chipmaker expects will continue. The surprisingly strong margin outlook from the company and current-quarter revenue forecast of $1.5 billion, plus or minus $50 million, drove shares up 4 percent after market.

Financial Times:   

• China Solar-Panel Industry Like 'Patient on Life Support'. China's solar-panel industry will have to undergo "radical" consolidation and cuts to overcome its "crisis" of overcapacity, citing Li Junfeng, deputy director of the energy research institute of China's National Development and Reform Commission, as saying. At least half of the global solar-panel-manufacturing capacity will have to be eliminated, he said in Beijing. 

China Daily:

• China Should Keep Stimulus Small, CASS Researcher Says. China should keep stimulus measures to a scale that won't cause a rebound in housing prices, Yi Xianrong, researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, writes in a commentary today. Loose monetary policy would likely reverse housing market curbs, Yi writes. Low borrowing costs wouldn't promote growth because companies won't expand investment without increases in orders, he said.

Xinhua:

• China's Xinjiang should curb the "rapid" rise in electrolytic aluminum capacity, citing the National Development and Reform Commission.

Shanghai Securities News:

• China should avoid large profits in the real estate industry, citing Wang Juelin, a researcher at the Ministry of Housing and Urban-Rural Development. China will continue limits on property purchases for at least the next 1-2 years, citing Wang.

Evening Recommendations 
Piper Jaffray:

• Raised (CMI) to Overweight, target $115.

Night Trading

• Asian equity indices are -.75% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 115.50 +2.50 basis points.
• Asia Pacific Sovereign CDS Index 92.75 -2.75 basis points.
• FTSE-100 futures -.31%.
• S&P 500 futures -.01%.
• NASDAQ 100 futures unch.

Morning Preview Links

Earnings of Note
Company/Estimate

• (APD)/1.44
• (BHI)/.85
• (CBE)/1.14
• (GE)/.37
• (HON)/1.13
• (IDXX)/.73
• (IR)/.98
• (MAN)/.68
• (MCD)/1.48
• (PH)/1.76
• (SLB)/1.07 

Economic Releases
10:00 am EST

• Exiting Home Sales for September are estimated to fall to 4.74M versus 4.82M in August.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The German PPI could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial 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 Falling into Final Hour on Rising Eurozone Debt Angst, Earnings Worries, Rising Global Growth Fears, US Fiscal Cliff Concerns

Broad Market Tone:

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

Equity Investor Angst:

• VIX 15.29 +1.46%
• ISE Sentiment Index 127.0 +2.42%
• Total Put/Call .85 +8.97%
• NYSE Arms .73 -7.54%

Credit Investor Angst:

• North American Investment Grade CDS Index 90.82 bps +1.29%
• European Financial Sector CDS Index 158.48 bps +3.45%
• Western Europe Sovereign Debt CDS Index 105.94 bps +1.10%
• Emerging Market CDS Index 210.14 bps +.31%
• 2-Year Swap Spread 9.75 +.75 basis point
• TED Spread 22.25 +.75 basis point
• 3-Month EUR/USD Cross-Currency Basis Swap -25.25 -1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .10% -1 basis point
• Yield Curve 153.0 +2 basis points
• China Import Iron Ore Spot $115.50/Metric Tonne +.09%
• Citi US Economic Surprise Index 53.90 -1.6 points
• 10-Year TIPS Spread 2.52 +4 basis points

Overseas Futures:

• Nikkei Futures: Indicating -10 open in Japan
• DAX Futures: Indicating -19 open in Germany

Portfolio:

• Slightly Lower: On losses in my Medical/Tech/Biotech sector longs
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges
• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• EU Summit Tussle Over Costs Threatens to Derail Bank Union Plans. The French-backed effort to fast- track a European bank supervisor is running into German-led concern over potential costs as the region’s leaders tussle over putting their crisis-fighting blueprint into action. The 27-nation European Union has struggled to maintain momentum on a June plan to spur investor confidence by putting the European Central Bank in charge of banks across the euro area. Divisions have flared over the scope of the ECB’s supervisory powers and how losses would be shared. As leaders gather in Brussels for a two-day summit, French President Francois Hollande says efforts to stem the turmoil that began in 2009 could unravel if the EU fails to deliver on its promises. He called on the EU to press ahead on banking union, provide economic help to countries that rein in budget deficits, and show investors that Greece will be able to stay in the euro zone if it keeps its commitments. 
• Merkel Proposes EU Aid Fund as Disagreements Loom Over Summit. German Chancellor Angela Merkel proposed a new European aid fund to bolster competitiveness as she highlighted disagreements over budget rules, joint borrowing and bank supervision in a pre-summit address. Speaking to lawmakers in Berlin before heading to Brussels for a two-day gathering of European Union leaders, Merkel laid out her vision for more economic coordination, while expressing “surprise” at negative reaction to a proposal for a watchdog with veto power over national budgets. Her vision includes a fund “limited in time and project-based” and possibly stocked by the proposed financial transaction tax, she said. “To give all member states the opportunity then to improve their competitiveness and to actually be able to implement these commitments, I propose that we introduce a new element of solidarity,” Merkel said in her speech at the Reichstag parliament building. “Yes, we need solidarity, but we need a form of solidarity that leads to what we need: more competitiveness.”
• On Crisis Anniversary, Athens Tear Gas Defies Merkel’s Stability.  
• UBS(UBS) Said to Widen Job Cuts to 400 at Investment Bank. UBS AG (UBSN) is preparing another round of job cuts across its investment bank in Europe as Chief Executive Officer Sergio Ermotti tries to overhaul the firm, two people with knowledge of the matter said. UBS is considering cuts in equities and fixed income as it trims its merger advisory staff, bringing total reductions to about 400, or 10 percent of the unit’s front-office employees in the region, said the people, who asked not to be identified because the review is private. The cuts are part of plans to pare back headcount globally, said one of the people.
• Google(GOOG) Reports Profit, Sales That Miss Analysts’ Estimates. Google Inc. (GOOG) reported third-quarter profit and sales that missed analysts’ estimates, a sign that its tools are becoming less valuable to advertisers while costs associated with expansion into new businesses are chipping away at profitability. Profit excluding some items was $9.03 a share, the Mountain View, California-based company said in a regulatory filing today. Excluding sales passed to partner sites, revenue was $11.3 billion. Analysts on average had estimated profit of $10.65 a share on sales of $11.8 billion. The stock tumbled after the results were released inadvertently, and trading was later halted. The average amount advertisers paid each time a user clicks on a promotion declined about 15 percent from a year earlier, and was 3 percent less than the prior period. The company also is ramping up spending on engineering, marketing and acquisitions to help it expand beyond search advertising. The company earlier this year spent $12.4 billion on Motorola Mobility Holdings, pushing it further into the hardware market and stepping up its rivalry with Apple Inc. “The core business itself is slowing down,” said Colin Gillis, an analyst at BGC Partners LP. Google shares tumbled as much as 11 percent to $676 after the report, which came during regular trading hours in New York. The stock was later halted.
• Wall Street CMOs Crushed as Sales at 3-Year Low: Credit Markets. The Federal Reserve’s effort to support the economy by acquiring $40 billion a month of mortgage bonds is crimping Wall Street’s business of packaging the government-backed securities into new notes. After falling last month to a three-year low of $19 billion, issuance of so-called agency collateralized mortgage obligations, or CMOs, may decline 10 percent to 20 percent in October, according to Scott Buchta, head of fixed-income strategy at Brean Capital LLC. Sales last month were 25 percent below the 2012 average through August, according to data compiled by Bloomberg. “When you have a buyer with a different goal than the rest of the market” it can crowd out other investors, said Bill Anast, who runs the agency CMO business in New York at Barclays Plc, the third-largest underwriter.
• Man Group Outflows Rise to $2.2 Billion Amid ‘Subdued’ Sales. Man Group Plc (EMG), the world’s biggest publicly traded hedge-fund manager, said outflows increased 57 percent in the third quarter amid an environment for sales Chief Executive Officer Peter Clarke called “subdued.” Clients pulled a net $2.2 billion from the firm, up from $1.4 billion in the second quarter, the London-based firm said in a statement today. Customers redeemed $5.2 billion from Man Group’s investment funds, compared with $3 billion of sales. “The flow environment continues to be challenging and this was reflected in lower sales in the quarter,” Clarke said in the statement. “Investor sentiment, and consequently the outlook for flows, continues to be subdued.”
• A123(AONE) Shows Risks as Battery Science Meets Government Cash. A123 Systems Inc., the electric-car battery maker that filed for bankruptcy this week, had promising chemistry and marquee customers. What it couldn’t overcome, even with government funding, were missteps in manufacturing. A123’s filing immediately became a presidential campaign issue, because the Obama administration pledged $249.1 million in grants three years earlier to help the company bring jobs and factories to the U.S. Republican Mitt Romney’s campaign pointed to the bankruptcy as an example of President Barack Obama’s failures in economic policy.

Wall Street Journal:

• Dividends: Start Screaming. Enough about the "fiscal cliff." What about the dividend cliff? At one second after midnight on Jan. 1, 2013, the maximum tax rate on dividends is likely to go from 15% to either 18.8% or 43.4%. The best-case scenario: Congress retains the top dividend-income tax rate of 15%, and the only increase is the scheduled 3.8% surtax on investment income for high earners. The worst case: Congress decides dividends are to be taxed at ordinary-income rates, and the highest rate jumps to 39.6%, plus the same 3.8% surtax.
• Weaker U.S. Jobs Data Pressure Copper Price. The most actively traded contract, for December delivery, was recently down 1.60 cents, or 0.4%, at $3.7320 a pound on the Comex division of the New York Mercantile Exchange. Weekly claims for initial unemployment benefits in the U.S. unexpectedly ticked higher in the week ended Oct. 13, instilling a cautious tone among copper traders. Jobless claims rose by 46,000 to a seasonally adjusted 388,000, exceeding forecasts of 365,000 new applications.

CNBC:

• Google's(GOOG) Miss Highlights Big Worry on Wall Street. Google's stunning earnings disappointment on Thursday is a dramatic example of what has become Wall Street's latest worry: revenue is coming in much worse than anyone thought. 
• Student Loan Debt Hits Another New Record: Study. The average college student who graduated in 2011 had $26,600 in student loans, according to a new report, which estimates two-thirds of last year’s college graduates had student loan debt. 
• Cyberattacks 'Huge Security Issue' for the US: PNC(PNC) CEO. Computer hackers and other foreign adversaries pose an increasingly grave challenge to the U.S. banking system, PNC Financial Services CEO James Rohr told CNBC Thursday, adding that growing cyberthreats “could really disrupt this country.”

Zero Hedge:

• Reality Storms Back As Jobless Claims Explode Higher By 46,000 From Last Week's Upward Revised Aberration. (graph) 
• To Promote The Great European Socialist Revolution, France's Hollande Will Ban Homework.  
• Philly Fed Beats Even As Core Components Deteriorate. (graphs)
• How '125' Became The Most Important Number For The US Economy. Unintended consequences of 'leaking liquidity' finding its way into hard assets and 'things that have relatively limited supply' have stalled hopes of a stimulus in China (food inflation) and caused refis to mysteriously lag on misplaced future rate expectations in the US (ZIRP). The biggest 'problem' the central-bankers face, however, is energy prices. The liquidity surges directly impact the price of oil (which is already under pressure from the ever-igniting fears of Middle-East flare-ups).   
• Banker-Muppet M.A.D. Begins: JPM Cuts 2013 GDP By 1% Due To "Fiscal Cliff".

Business Insider: 

• GALLUP: Romney Opens Up Huge Seven-Point Lead Over Obama. Mitt Romney widened his lead over President Barack Obama to seven points today, giving the Republican challenger his biggest lead yet in the poll and putting him well outside the margin of error. The seven-day tracking poll of likely voters showed Romney at 52 percent, up from 51 percent Wednesday. Obama's numbers stayed static at 43 percent. Today's results — which include polling from last Thursday through yesterday — are the first round of national poll numbers that factor in the second presidential debate. 
• ZULAUF: China Is Actually Growing At A 3% Rate. Swiss hedge fund manager Felix Zulauf believes everyone is overestimating China's growth rates while underestimating its problems. 

Washington Post:

• Obama’s plan: Push Republicans off the fiscal cliff. I’ve criticized the Obama campaign for failing to detail much of a vision for a second term. But that’s not to say they don’t have one. They do. It’s just a hard one to campaign on.

NYPost:

• Getting off easy. Source: FTC leaning toward light Google(GOOG) penalties

AARP:

• AARP: No Further Extension of Payroll Tax Holiday. AARP CEO A. Barry Rand sent a letter opposing any further extension of the Social Security payroll tax holiday to Congress and the White House.
  

FXStreet.com:

• Is Italy the Next Domino to Fall After Spain? - Capital Economics.

Reuters:

• Spanish bad loans hit new record in August. Spanish households and companies defaulted on their debts in record numbers in August, hurting the country's lenders and highlighting the need for an aid package and bad bank to help the economy out of recession. A property crash left banks with billions of euros in bad debt from real estate developers on their balance sheets but the problems have spread to small businesses and other sectors. Loans that fell into arrears in August increased by 5.3 billion euros ($7 billion) from July, reaching 178 billion euros, Bank of Spain data showed on Thursday. Spain is setting up a bad bank to siphon property assets off lenders' balance sheets and banks are preparing to receive the first funds from a 100-billion-euro credit line agreed with the European Union. But the record loan data raises the question of whether consumer loans should also be transferred to the bad bank and if Spain will take too little of the European cash. The government estimates it only needs 40 billion euros. "The most obvious thing from this data is that the Spanish government should aim for a greater recapitalization exercise," said Gilles Moec, economist at Deutsche bank. "There is a risk of undershooting with the recapitalization plan as it stands today."
• Britain seems to be saying "bye bye" to EU, says Finland. Britain's policy towards Europe is becoming harder to understand and there is a sense the country is slowly waving goodbye to the European Union, Finland's Europe minister said on Thursday. Speaking at an EU summit, Alex Stubb said Britain appeared to be purposefully putting itself at odds with its partners. Finland allies closely with Germany on a range of EU issues and has a substantial voice in EU policymaking. "It's almost as if it's 26 plus 1, to be very honest," he said when asked if the push for deeper integration among the 17 euro zone countries risked leaving Britain and the other nine EU member states in a second-tier group. "I think Britain is right now, voluntarily, by its own will, putting itself in the margins," he told Reuters in an interview. "We see it in foreign policy, we see it in economic policy, we see it linked to the single currency. And I, as someone who advocates the single market and free trade, find that very unfortunate, very unfortunate. "It's almost as if the boat is pulling away and one of our best friends is somehow saying 'bye bye' and there's not really that much we can do about it."
• European slowdown could hurt Mexico -cenbank's Sanchez. A further decline in Europe's economic growth could hurt Mexico by causing a reduction in exports to Europe and curbing investment in Mexico, central bank board member Manuel Sanchez said on Thursday. Sanchez, in the text of a speech delivered to a central bank conference in Poland, also said some Mexican banks could face fallout from events affecting their European parents, although the sector in general was in a sound position. "Further deceleration of EU growth could hurt Mexico's economic prospects, indirectly if the U.S. economy slows as a result, but also directly through less dynamic exports of goods and services to Europe, especially in vehicle shipments which are the most important export item, and lower European investment, likely in manufacturing and financial services, which have been the leading recipient sectors," he said.

Telegraph:

• Debt crisis: EU summit - live. Police fire tear gas at Greeks on the sidelines of a protest against austerity held amid a general strike, as EU leaders prepare to gather in Brussels to discuss a banking union and Spanish bail-out.
• EU Summit: Angela Merkel moves to block Hollande bank union deadline. Angela Merkel refused to commit to Francois Hollande’s deadline for the banking union, frustrating one of the key aims of a summit paralysed by indecision. 
• EU summit: France to clash with Germany over eurozone bailout fund. France and Germany will clash over Berlin’s attempts to block using the eurozone bailout fund to recapitalise banks but no decision will be taken before the end of the year, say senior officials.