Tuesday Watch

Evening Headlines 
Bloomberg:

• Euro-Area Bailout Fund Faces Challenge at EU’s Highest Court. The euro area’s 500 billion-euro ($652 billion) bailout fund faces another test as the European Union’s highest court weighs claims that the firewall violates EU law and should be banned in its current form. A complaint by Thomas Pringle, an independent member of the Irish parliament, has reached the Luxembourg-based EU Court of Justice, which has the power to topple the European Stability Mechanism, or ESM. A hearing is scheduled for today, with a ruling possible as soon as the end of the year under a fast- track procedure. The EU court case follows a separate decision last month by Germany’s Federal Constitutional Court in Karlsruhe not to block the ESM. The German ruling handed a victory to Chancellor Angela Merkel, who championed the bailout facility as vital to save the euro area from a fiscal meltdown as it lurches between crises.
• Moody’s Cuts Ratings on Catalonia, Four Other Spanish Regions. Moody’s Investors Service, a week after deciding against cutting Spain’s credit-rating to below investment grade, lowered Catalonia and four other Spanish regions. Catalonia, which will hold an early election on Nov. 25 focused on whether to seek independence for the region that accounts for a fifth of Spain’s economy, was reduced two steps to Ba3 from Ba1, the ratings firm said in a statement dated yesterday. Extremadura was lowered to Ba1 from Baa3, Andalucia was slashed to Ba2 from Baa3, and Castilla-La Mancha was cut to Ba3 from Ba2 and Murcia dropped to Ba3 from Ba1. Moody’s decision to cut the regions was “driven by the deterioration in their liquidity positions, as evidenced by their very limited cash reserves as of September 2012 and their significant reliance on short-term credit lines to fund operating needs,” the ratings firm said. Moody’s also said that Catalonia, Andalucia and Murcia “face large debt redemptions” this quarter when retail bonds issued in 2011 are due to mature. The ratings of Basque Country, Diputacion Foral de Bizkaia, Madrid, Castilla y Leon, Galicia, Valencia and four government-related entities in Valencia were all left unchanged. 
• China’s Factories Losing Pricing Power in Earnings Threat. Chinese factories are losing pricing power in the worst wholesale-cost deflation since 2009, signaling corporate earnings may deteriorate further and putting a damper on global inflation pressures. Steelmaker China Oriental Group Co. (581) says falling prices are wiping out profits, while Yunnan Copper Industry Co. (000878) cited the declines for a third-quarter loss. The producer price index (SHCOMP) fell 3.6 percent in September from a year earlier and may stay negative until the second half of 2013 without large stimulus, according to Mizuho Securities Asia Ltd. 
• China’s Stocks Fall Most in Almost Two Weeks on Economic Outlook. China’s stocks fell, dragging the benchmark index down by the most in almost two weeks, on concern the nation’s economic and earnings outlook is worsening before a report on manufacturing scheduled for tomorrow. Gauges of health-care and consumer staple companies, the biggest gainers this year, led declines among industry groups in the CSI 300 (SHSZ300) Index. Shenzhen Hongtao Decoration Co. (002325) tumbled 10 percent after the company cut its earnings forecast. Shanxi Coking Co., the largest publicly traded coke producer in China, slid 1.2 percent after reporting lower third-quarter profit. Foreign buyers attending the Canton trade fair declined 11.4 percent from the spring session, the China Daily reported, while Citigroup Inc. cut its 2012 economic growth estimates for China. The Shanghai Composite Index (SHCOMP) fell 0.6percent to 2,119.65 at the 11:30 a.m. local-time break, heading for its biggest loss since Oct. 11.
• China Bans Foreign Ships From Rivers as Local Operators Struggle. China will ban foreign vessels from sailing on domestic waterways including the Yangtze River, the world’s busiest for freight, as local operators struggle to make money amid a global shipping glut. Overseas investors will also be barred from engaging in river shipping, including through the use of Chinese vessels, according to a statement posted on the government’s website yesterday. The ban, which comes into effect Jan. 1, doesn’t apply to vessels registered in Hong Kong, Macau and Taiwan. The new rules are designed to help promote a “healthy” domestic shipping sector and to ensure safety standards, according to the statement. The government also this month announced tax and financial support for local shipping companies after China Cosco Holdings Co. (1919) and China Shipping Container Lines Co., the nation’s largest listed operators, both posted wider first-half losses.
• Texas Instruments(TXN) Forecasts Earnings Below Estimates. Texas Instruments Inc., the largest maker of analog chips, forecast fourth-quarter profit that fell short of most analysts’ estimates, as chip resellers cut inventory on concern that economic growth will remain weak. Net income will be 23 cents to 31 cents a share on revenue of $2.83 billion to $3.07 billion, the Dallas-based company said today in a statement. The forecast includes a 6-cent restructuring and acquisition charge. Analysts on average had predicted earnings of 37 cents on sales of $3.22 billion in the current period, according to data compiled by Bloomberg. Texas Instruments has thousands of customers ranging from home-appliance providers to manufacturers of space hardware, making its earnings an indicator of economic demand. Concern that global growth will remain sluggish has led distributors to reduce orders to bring down inventory levels. “The fourth quarter is going to be a tough quarter, like last year,” said Tore Svanberg, an analyst at Stifel Nicolaus & Co. “Customers are basically delaying and waiting.” Texas Instruments shares fell to $27.71 in extended trading following the announcement. 
• Why Obama Doesn’t Deserve Another Term. It’s remarkable to watch a president run for re-election without discussing either his plans for the future or the main elements of his record. The stimulus and the health-care bill are two of Obama’s most consequential policies, and the U.S. could be paying for them for a very long time. They are only footnotes to Obama’s campaign. They ought to be his political epitaph.

Wall Street Journal: 

• Rivals Duel in Final Face-Off. Messrs. Obama and Romney laid out their views of America's role in the world at a critical moment in the deadlocked presidential race, with many voters taking a last look at them before Election Day just two weeks away. 
• Election 2012: Live Coverage.
• Northern European Investors Steer Clear of Needy South. Risto Murto, the chief investment officer of Varma Mutual Pension Insurance Co., is pleased that the European Central Bank now says it is ready to fight the euro crisis by buying government bonds of troubled countries like Spain. But not so pleased he will join in. And that means Europe's leaders may have more work to do. Varma is Finland's largest investor. It manages €34 billion ($44 billion) and is responsible for the retirement savings of around 870,000 Finns.
• Low Rates Pummel Banks. Borrowers Benefit, but Industry Lending Profits Hit Lowest Level in Three Years.
• Regulators Clash Over Volcker Definitions. A rift has emerged among regulators responsible for crafting the so-called Volcker rule, one of the most complex and contentious regulations of the landmark Dodd-Frank financial overhaul. The dispute, between U.S. banking regulators and the Securities and Exchange Commission, casts doubt on whether regulators will finish drafting the rule by the end of the year and raises the unattractive possibility that the agencies will issue conflicting standards. 
• Banks Opt Out in Swap Row. Singapore's DBS, Sweden's Nordea Won't Register to Trade With U.S. Firms. Two large banks in Asia and Europe said they won't register with U.S. regulators to trade complex derivatives with U.S.-based financial companies, amid controversy over a proposed rule tied to the Dodd-Frank markets overhaul. Non-U.S. banks have been complaining for months about regulations that would force banks to register with U.S. regulators if they trade a set amount of swaps, a type of privately negotiated derivative, with U.S. banks or for U.S. clients.
• Jack Keane: Al Qaeda Is Making a Comeback. Across the Middle East and South Asia, the group isn't dead or dying but on the rise.

CNBC: 

• Earnings Cliff Ahead? Profit Outlooks Are 90% Negative. Earnings conference calls are beginning to resemble crisis hotlines as corporate executives slash profit forecasts because of fears of higher taxes, a recession in Europe and slowing economy in China.
• Yahoo(YHOO) Earnings, Revenue Beat Wall Street's Expectations. 
• China’s Doldrums Put Pressure on US Exporters. Cummins(CMI), the big Indiana engine maker, lowered its revenue forecast earlier this month and said it would eliminate 1,000 to 1,500 jobs by the end of the year, citing weak demand from China as a major reason. Schnitzer Steel Industries, a Portland, Ore., firm that is one of the nation’s biggest metal recyclers, is cutting 300 jobs, or 7 percent of its work force, as scrap exports to China plunge. And on Monday, Caterpillar(CAT) reported lower sales in China and cut its global outlook for 2012.

Zero Hedge:

• Japanese Government Demands BOJ Do QE 9 One Month After Failed QE 8. 
• BBBeauty Is Certainly In The Eye Of The BBBeholder.

Business Insider:

• Analyst: China Is Seeing A 'Remarkable Deepening Of Mistrust Over US Intentions'.
• Here's What's Going On In Mali, The Wildcard Failed State Mitt Romney Is Making A Centerpiece Of The Debate. 
• Iranian Cash Is Flooding Into Istanbul. 
• Egyptian President Says 'Amen' To Prayer About Destroying The Jews.

Reuters: 

• Japan justice minister resigns, blow to PM Noda. Japan's justice minister quit on Tuesday due to ill health, and amid calls for his resignation over past ties to an organized crime syndicate, dealing another blow to unpopular Prime Minister Yoshihiko Noda. Keishu Tanaka, 74, became justice minister only three weeks ago in a cabinet reshuffle on Oct. 1, and his resignation is the second by a minister since Noda took office September 2011, reflecting Noda's weak grip on the government.
• Barney Frank cries foul in government's lawsuit against JPMorgan(JPM). Democratic Congressman Barney Frank defended the largest U.S. bank on Monday, saying in a statement that the government was wrong to go after JPMorgan Chase & Co for the alleged misdeeds of Bear Stearns. Frank, who served as chairman of the House Financial Services Committee during the Bear Stearns acquisition, said federal and state officials should reconsider holding financial firms liable for the wrongdoing of institutions they absorbed at the government's urging.

Telegraph:

• Recovery at risk from zombie businesses. A growing army of “zombie” businesses is “choking” the economic recovery, an insolvency firm has warned.
• Japan to join currency wars as exports slump. Japan is poised to join the world's "currency wars" as it battles a triple crisis of crashing exports, recession and a suffocatingly-strong yen.

China Daily:

• Foreign buyers attending China's biannual Canton trade fair declined by -11.4% from the spring session during the first four days, citing statistics from the event organizers. Transaction values for machinery and electronics goods fell -23.1% with Europe.

21st Century Business Herald:

• A cap on profits of property sales in China's northern Shaanxi province may spur false accounting by developers, citing an official from a state-owned developer. The policy is "unscientific" and bad for mid-to-high-end projects, a second developer said.

Shanghai Securities News:

• China's property market sales are expected to rise in October from the same period last year, citing brokerage estimates. Property sales in the second half may be higher than the first half, citing Zhang Dawei, a researcher at Centaline Property Agency Ltd.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.50% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 116.0 +.5 basis point.
• Asia Pacific Sovereign CDS Index 94.0 +1.25 basis points.
• FTSE-100 futures +.23%.
• S&P 500 futures -.10%.
• NASDAQ 100 futures -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BEAV)/.70
• (R)/1.17
• (AKS)/-.37
• (ARG)/1.06
• (UTX)/1.19
• (LXK)/.81
• (WHR)/1.60
• (DD)/.46
• (CIT)/-1.22
• (COH)/.75
• (HOG)/.58
• (WAT)/1.18
• (RF)/.21
• (MMM)/1.65
• (UPS)/1.06
• (ITW)/1.06
• (BCR)/1.63
• (TPX)/.69
• (BRCM)/.77
• (NFLX)/.05
• (GILD)/.94
• (ALTR)/.46
• (CHRW)/.73
• (CYMI)/.07
• (VMW)/.63
• (AFL)/1.66
• (BXP)/1.16
• (JNPR)/.17
• (NSC)/1.23
• (PNRA)/1.19
• (ILMN)/.39
• (FB)/.11
• (AMGN)/1.47
• (BWLD)/.61

Economic Releases
10:00 am EST

• The Richmond Fed Manufacturing Index for October is estimated to rise to 5.0 versus 4.0 in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The US Presidential Debate, Eurozone consumer confidence data, Spain T-Bill auction, China HSBC Manufacturing PMI, 2Y T-Note auction, weekly retail sales reports and Apple's iPad Mini introduction 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 modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Slightly Lower into Final Hour on Rising Global Growth Fears, Rising Eurozone Debt Angst, US Fiscal Cliff Worries, Earnings Concerns

 Broad Market Tone:

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

Equity Investor Angst:

• VIX 17.41 +2.05%
• ISE Sentiment Index 115.0 +29.21%
• Total Put/Call .94 -16.07%
• NYSE Arms 1.09 -56.33%

Credit Investor Angst:

• North American Investment Grade CDS Index 94.76 bps +1.12%
• European Financial Sector CDS Index 163.41 bps +.56%
• Western Europe Sovereign Debt CDS Index 106.95 bps +1.35%
• Emerging Market CDS Index 211.99 bps -.50%
• 2-Year Swap Spread 9.25 -1.5 basis points
• TED Spread 22.5 unch.
• 3-Month EUR/USD Cross-Currency Basis Swap -24.50 +.75 basis point

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
• Yield Curve 150.0 +2 basis points
• China Import Iron Ore Spot $117.50/Metric Tonne +1.91%
• Citi US Economic Surprise Index 50.60 -2.6 points
• 10-Year TIPS Spread 2.53 +2 basis points

Overseas Futures:

• Nikkei Futures: Indicating +38 open in Japan
• DAX Futures: Indicating -3 open in Germany

Portfolio:

• Higher: On gains in my Tech and Medical sector longs
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and some of my (EEM) short
• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg: 

• Doctor Shortage Spreading in U.S. Presaged in Las Vegas. In the Las Vegas area, with about 2 million people, patients and doctors said it can take six months to see a primary-care doctor for a simple check-up. For more serious matters, the waits are far longer -- more than a year, for example, to get an appointment with a neurologist who specializes in autism. Once a problem limited to rural areas, the doctor shortage is now hitting large population centers such as Las Vegas and Detroit where people are forced to wait weeks or months or travel hundreds of miles for care. Nationwide, there is a shortage of more than 13,000 doctors, according to the Association of American Medical Colleges, a Washington-based nonprofit that represents medical schools. That shortfall is expected to grow 10-fold to 130,000 doctors within 12 years as the U.S. population ages and 30 million more people are added to insurance rolls under the 2010 health-care law, the medical college association said. 
• Rajoy Asserts Vindication in Galicia Elections. Spanish Prime Minister Mariano Rajoy’s People’s Party said victory in regional elections yesterday that extended its majority in Galicia vindicated his austerity program. “The steps that we have explained have to be taken to resolve the crisis have had overwhelming support,” Carlos Floriano, the party campaign chief, said in an interview on public broadcaster Radio Nacional de Espana. “There is no precedent in this crisis situation of a government not just defending but increasing its majority.”
• European Stocks Drop for Second Day; Veolia, Nexans Fall. European stocks fell for a second day as Japanese exports tumbled and investors speculated that victory in regional elections for Spain’s Prime Minister Mariano Rajoy reduces pressure for him to seek a bailout.
• Greece Austerity Diet Risks 1930s-Style Depression: Euro Credit. The economy shrank 18.4 percent in the past four years and the International Monetary Fund forecasts it will contract another 4 percent in 2013 as Greece struggles to reduce debt in exchange for its $300 billion rescue programs. That’s the biggest cumulative loss of output of a developed-country economy in at least three decades, coming within spitting distance of the 27 percent drop in the U.S. economy between 1929 and 1933, according to the Bureau of Economic Analysis in Washington.
• Caterpillar(CAT) Sees Sales Growth Slowing Next Year on Economy. Caterpillar Inc. (CAT), the world’s largest maker of construction and mining equipment, forecast sales growth for 2013 that would be slower than in the previous three years as the global economy decelerates. Sales next year will be from 5 percent below to 5 percent more than 2012 results, the Peoria, Illinois-based company said today in a statement. That compared with an average projection for an increase of 5.1 percent based on 17 analysts’ estimates compiled by Bloomberg. Revenue year-over-year grew 31 percent in 2010, 41 percent in 2011 and was estimated to increase 13 percent this year. “The biggest concern is the declining backlog, which would imply a more challenging year next year, especially for mining, and whether or not North American construction will re- accelerate,” Larry De Maria, a New York-based analyst for William Blair & Co. who has a buy rating on the shares, said today by phone. “Caterpillar’s business is very economically sensitive. Due to the softening of the global economy and increasing uncertainty, order rates have declined.” The order backlog fell 18 percent to $23.1 billion at the end of the third quarter from three months earlier with the most significant decrease in the resource-industries segment, the company said. Production across much of the company has been reduced with temporary shutdowns and layoffs as it works through excess inventory, Caterpillar said in the statement.
• Volcker Rule May Cut $10 Billion in Bank Profit, S&P Says. The Volcker rule could cut profit at the biggest U.S. banks twice as much as earlier estimates if regulators take a strict stance on limiting proprietary trading, Standard & Poor’s said. “We currently estimate that the Volcker rule could reduce combined pretax earnings for the eight largest U.S. banks by up to $10 billion annually, up from our initial $4 billion estimate two years ago,” S&P said today in a statement announcing a new report on the issue. 
• Monster Energy Drinks(MNST) Cited in Death Reports, FDA Says. Monster Beverage Corp. energy drinks have been cited in the deaths of five people in the past year, according to incident reports that doctors and companies submit to the U.S. Food and Drug Administration. The five reports received by the agency said the victims consumed Monster drinks prior to their deaths, Shelly Burgess, an FDA spokeswoman, said today in a telephone interview.
• Overseas Shipholding(OSG) Plummets on Bankruptcy Talk. Overseas Shipholding Group Inc.’s bonds and stocks plunged after the largest U.S. tanker company said in a regulatory filing it’s considering filing for Chapter 11 bankruptcy protection.

Wall Street Journal:

• Obama, Romney Gird for Final Debate. Locked in a race that is now a dead heat, President Barack Obama and Republican nominee Mitt Romney have one final opportunity Monday night to challenge each other directly and detail their differences in the third presidential debate. This time, the focus will be on foreign policy, with a heavy emphasis on the Middle East. With only 15 days remaining in the campaign, the televised debate may be the candidates' last, best opportunity to alter the dynamic of the race.  
• Kudrin's Outlook for Euro Zone Is Grim. Just over a year ago, Alexei Kudrin came out of the Group of 20 meetings in Washington warning that the U.S. and Europe weren't doing enough to head off economic slowdown. Now, no longer in government but still highly respected for his fiscal prudence, the former Russian finance minister doesn't have to mince words. His message is even more dire. Keeping Greece in the euro zone? "Already impossible," he says in an interview. Spain and Italy next for the exit? "The probability is very high." And creditors beware—Mr. Kudrin sees both Greece and Spain defaulting on their sovereign debt.  
• Microsoft's(MSFT) Mobile Strategy Ripples Through Industry. Microsoft Corp. is testing new tactics to refashion its software for the mobile-device era, reaping reactions ranging from excitement to consternation from the computer makers and others it relies on as partners. The company, which plans to release a new version of its flagship Windows software on Friday, is taking a page from Apple Inc. and Google Inc. by incorporating the kind of touch commands and applications that consumers have embraced on smartphones and tablets.

MarketWatch.com: 

• North Face sales slump in Europe slams VF(VFC). Among investors’ key concerns: sales in Europe, about one-fifth of the company’s total, rose 3%, compared with a 13% rate in the first quarter and a 16% increase in the second quarter. Meanwhile, North Face, the company’s biggest label with close to $2 billion in sales worldwide, reported a mid-single digit sales decline in Europe, its first such drop in several years, despite growth elsewhere in the world. 

CNBC: 

• Greece's Extreme Right Strengthens as Economy Sinks.
• Hedge Funds Cite 'Fiscal Cliff' as Top Concern: Survey. The upcoming elections and the impending “fiscal cliff” have hedge funds more on edge than any other issue, according to a survey by Macro Risk Advisors.

Zero Hedge:

• Risk Appetite At Extreme Highs. (graph) 
• Euroarea 2011 Debt/GDP Rises To Record, Set To Rise Further. (graph)
• Charting The Worst Earnings Guidance In Over Five Years.  
• Spiegel On Schrödinger Schauble: When It Gets Serious, He Has To Lie.   
• Stabbing Attempt On Finland PM Thwarted.

Business Insider: 

• This New Poll Is A Pretty Big Disaster For Obama. 
• Two Global Industrial Companies Are Seeing A Devastating Downturn In Their 'Green' Businesses.
• Here's Everything You Need To Know About The iPad Mini Before Tomorrow's Announcement.
• The Pentagon Is Taking Potential Threats Against The Nation's Pacemakers Very Seriously.
• Every Future MBA Student Should Consider These Two Questions When Selecting A Program.
• The BBC's Own Reporters Are Tearing It Apart After Huge Sex Abuse Scandal.
• SPAIN: The Bad Economic News Continues To Pile Up. 

 Washington Examiner:

• Report: Taxpayer loss due to Solyndra may be as high as $849 million. The cost to taxpayers for the failure of solar panel company Solyndra may be much higher than the $535 million dollar federal loan guarantee the company received. After the company went bankrupt in last August, 2011, the Energy Department, which had given the original loan, okayed an unprecedented deal to attract more private investment to Solyndra. One result of this deal is that it has allowed more than $350 million in tax write-offs to pass to those private creditors, one of which is owned by a major donor to President Obama. The House Oversight Committee now warns the total loss on Solyndra now could be as high as $849 million.

HousingWire: 

• RealtyTrac: 65% of housing markets worse off than in 2008. Sixty-five percent of U.S. housing markets studied by RealtyTrac are worse off than they were four years ago, according to the Irvine, Calif.-based real estate research firm. The results of the survey arrive the same day as the final presidential debate and just weeks before the general election. RealtyTrac measured five key housing metrics in 919 U.S. counties and discovered the majority are still suffering from falling average home prices, unemployment, and higher foreclosure inventories, foreclosure starts and distressed sales. Of those counties studied, 580, or 65%, showed results in three of the five metrics as being worse off when compared to 2008 levels. Only 315, or 35%, of the counties had three of five housing metrics with improved performance over four years time. "The U.S. housing market has shown strong signs of life in recent months, but many local markets continue to struggle with high levels of negative equity as the result of home prices that are well off their peaks. In addition, persistently high unemployment rates are hobbling a robust real estate recovery in most areas," said Daren Blomquist, vice president at RealtyTrac.

Reuters: 

• Healthcare costs top U.S. executives' concerns - Adecco survey. U.S. corporate executives are more worried about providing healthcare benefits to their employees than about issues like wages, taxes or attracting qualified workers, according to a survey by the world's No. 1 staffing company, Adecco SA. In Adecco's poll of senior executives, 55 percent named healthcare benefits as their biggest current business challenge, and about a third say they are holding back hiring because of healthcare reforms introduced by U.S. President Barack Obama. Obama's 2010 healthcare law, upheld this year by the U.S. Supreme Court, is expected to raise insurance costs for employers because it calls for wider coverage of more people, including those with pre-existing medical conditions. "A lot of firms just don't know how the (law) is going to impact them financially," said Senior Vice President Janette Marx. "If it does increase costs, it causes executives to question whether they can hire more." 
• Copper slides to 1-month low after weak Japan export data.

Christian Science Monitor:

• Japan, China, South Korea island disputes threaten global economy (+ video). Island disputes between Japan, China, and South Korea are threatening financial stability in East Asia, and with it, the global economy. The next US administration should push publicly and persistently for a solution.

Telegraph:

• Cash-strapped Cyprus plots Russian exit from austerity. It has been three years since I was last in Paphos, a resort on Cyprus's west coast, and at first glance not much has changed.
• German economy may stagnate as crisis drags on powerhouse. The German economy could grind to a standstill by the end of the year amid the combined impact of the debt crisis and the global slowdown, the Bundesbank has warned.

Chongqing Morning Post:

• China may expand a property tax trial in November, citing Jia Kang, director of the Ministry of Finance's fiscal science research center. People who own luxury property or multiple omes will be the main subjects of the tax, Jia said.

Bear Radar

Style Underperformer:

• Large-Cap Value -1.04%

Sector Underperformer:

• 1) Oil Tankers -3.72% 2) Oil Service -1.60% 3) Homebuilders -1.53%
  

Stocks Faling on Unusual Volume:

• MNST, AVA, KEY, STI, BP, JPM, EFII, NXY, VOC, NLSN, ELLI, APD, CEB, HWAY, ALXN, VFC, PATK, BMI, AAP, BNNY, DHR, PNRA, CMG, TOO, NCR, CCC and ABMD

Stocks With Unusual Put Option Activity:

• 1) UTX 2) NUE 3) TWX 4) JNPR 5) MNST
  

Stocks With Most Negative News Mentions:

• 1) MAT 2) AVID 3) TXN 4) D 5) OSG
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value -.06%

Sector Outperformers:

• 1) Coal +7.29% 2) Steel -.94% 3) Airlines +.55%
  

Stocks Rising on Unusual Volume:

• ACOM, VOLC, BTU, PHG, OPEN and AFFY

Stocks With Unusual Call Option Activity:

• 1) MTG 2) NXY 3) SVU 4) ANN 5) MDRX
  

Stocks With Most Positive News Mentions:

• 1) UPS 2) AGU 3) SNDK 4) CQF 5) ELY

Charts:

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

Monday Watch

Weekend Headlines 
Bloomberg:

• Worst Carry Trades Show Central Banks Reaching Stimulus Limits. The $4 trillion-a-day foreign- exchange market is losing confidence in central banks’ abilities to boost a struggling world economy. Rather than sparking bets on growth, the JPMorgan Chase & Co. G7 Volatility Index, which more than doubled in 2007 to 2008 before policy makers employed extraordinary measures to address faltering global expansion, has dropped to a five-year low. While small foreign-exchange swings historically favor the strategy of borrowing in low-yielding currencies to buy those with higher returns, a UBS AG index that tracks profits from the so-called carry trade has fallen to the lowest level since 2011.
• Rajoy Wins Heartland Victory as Spaniards Lift Bailout Obstacle. Prime Minister Mariano Rajoy extended his majority in the stronghold region of Galicia as Spanish voters offered some respite to his 10-month-old government and removed one obstacle to a European bailout. 
• Greece Austerity Diet Risks 1930s-Style Depression: Euro Credit. Greece is spiraling into the kind of decline the US and Germany endured during the Great Depression. The economy shrunk 18.4% in the past four years and the IMF forecasts it will contract another 4% in 2013 as Greece struggles to reduce debt in exchange for its $300 billion rescue programs. That's the biggest cumulative loss of output of a developed-country economy in at least three decades, coming within spitting distance of the 27% drop in the U.S. economy between 1929 and 1933. 
• Asset-Backed Securities May Face Tougher Oversight in Basel Plan. Banks trading asset-backed securities may face tougher capital requirements and stricter oversight from global supervisors amid concerns that regulation is failing to curb excessive-risk taking. The Basel Committee on Banking Supervision is about to embark on a “fundamental” review of how securitization is regulated, Wayne Byres, the group’s secretary general, said in an interview last week.
• China’s Stocks Drop Most in a Week on Earnings, Property Concern. China’s stocks fell, sending the benchmark index to the biggest loss in a week, on concern corporate earnings are worsening and local governments will take further steps to cool the property market. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. (600111), China’s biggest producer of rare earth, declined the most in a month after third-quarter profit slumped. Shaanxi Construction Machinery Co. plunged 7.4 percent and China Vanke Co. led losses for real-estate developers after the China Securities Journal said northwest Shaanxi province will prevent property companies from reaping profit margins of more than 10 percent. “Third-quarter earnings reports aren’t optimistic and corporate earnings are still finding a bottom,” said Wu Kan, a fund manager at Dazhong Insurance Co. in Shanghai, which oversees $285 million. “Given the current policy outlook, any relaxation on property prices is still far away.” The Shanghai Composite Index (SHCOMP) dropped 0.5 percent to 2,117.66 as of 9:46 a.m. local time, heading for the steepest loss since Oct. 11. 
• Rosneft, BP Said to Near $28 Billion Deal for TNK-BP Stake. OAO Rosneft (ROSN) has agreed to the terms of a deal to buy BP Plc (BP/)’s half of its TNK-BP Russian venture, releasing the U.K. company from a fractious nine-year alliance and bringing state-backed Rosneft closer to becoming the world’s biggest publicly traded oil producer, according to people familiar with the talks.
• S. Korea Prepares to Evacuate DMZ Citizens After Threat. South Korea is preparing to evacuate more than 800 residents along the demilitarized zone after North Korea threatened to fire on activists planning to send balloons across the border carrying leaflets critical of its regime. While no orders to leave are currently in place, authorities have been preparing citizens residing within the civilian control line to evacuate if any signs of a possible attack emerge, Park Kwang Hae, an official at Paju City Council, said by telephone today.
• Lebanon Clashes Erupt in ‘Day of Rage’ to Protest Bombing. Supporters of Lebanon’s opposition March 14 coalition clashed with police following the funeral of an assassinated security official as they held a “Day of Rage” protest against Syrian President Bashar al-Assad. Hundreds headed toward the Grand Serail, headquarters of Prime Minister Najib Mikati, whom the group has blamed for the Oct. 19 bombing that killed Brigadier General Wissam al-Hassan. They pelted police with stones, spurring security forces to fire into the air to disperse the crowd. Protesters turned violent after a top March 14 politician, former Prime Minister Fouad Siniora, demanded that Mikati step down. Mikati’s Cabinet is backed by the Shiite Muslim militant Hezbollah group, an Assad ally and the main bloc in the pro- Syria March 8 coalition. “Leave, Mr. Prime Minister, otherwise you’ll be accused of covering up for the criminals,” Siniora told the cheering crowds. “The Lebanese will no longer accept the continuation of the Cabinet of assassination."
• Australia to Announce Cuts at Budget Review Tomorrow, Swan Says. The Australian government will announce “significant” cuts at a budget update tomorrow as it remains committed to restoring a surplus, according to Treasurer Wayne Swan. “The toughest conditions in the global economy in generations have cut a swathe through traditional sources of revenues,” Swan said today in his weekly economic note. “This will require more savings to be found. The savings will be significant.”
• Poor in India Starve as Politicians Steal $14.5 Billion of Food. Ram Kishen, 52, half-blind and half- starved, holds in his gnarled hands the reason for his hunger: a tattered card entitling him to subsidized rations that now serves as a symbol of India’s biggest food heist.
• Hedge Funds Cut Bets to 12-Week Low as Prices Drop: Commodities. Hedge funds cut bullish commodity bets to the lowest since July as speculation that governments in China and Europe aren’t doing enough to boost growth drove prices to the biggest loss in five weeks. Speculators reduced net-long positions across 18 U.S. futures and options by 4.4 percent to 1.18 million contracts in the week ended Oct. 16, the lowest since July 24, U.S. Commodity Futures Trading Commission data show. Gold bets slid 7 percent, the first decline since Aug. 14, and those in silver fell 5.8 percent, the first drop in 12 weeks.

Wall Street Journal: 

• Crash Puts New Focus on China Leaders. As a Chinese court prepares to expose the alleged crimes of former Communist Party highflier Bo Xilai, censors and security officials have been trying to bury a separate scandal that has emboldened critics of President Hu Jintao and could complicate efforts to restore the party's tarnished image. Just three days after Mr. Bo was fired as party chief of Chongqing in March, the 23-year-old son of President Hu's closest confidant crashed a black Ferrari at 4 a.m. on a snow-slickened Beijing ring road. Ling Gu died on the spot, according to party insiders, Chinese reporters and others whose accounts offer new insights into the hushed-up incident. Two ethnic Tibetan women squeezed into the vehicle were badly hurt, and one later died. All details of the crash, including the name of the driver, were quickly suppressed. 
• Chinese Investors Fear Chill in Canada. 
• Law Firms Face Fresh Backlash Over Fees. 
• Pennsylvania: Last-Minute Game-Changer? The State Hasn't Backed a GOP Presidential Candidate Since '88, but as Obama's Lead Narrows, Romney's Camp Eyes It. 
• Spanish Vote Delivers Mixed Verdict. Premier's Party Controls Home Region, Trails Basque Nationalists, in Test of Rajoy's Crisis Management.
• Dorothy Rabinowitz: The Unreality of the Past Four Years. The Benghazi fiasco is a brutally illuminating portrait of the Obama White House in crisis mode.

Business Insider:

• If These 5 People Who Tried Windows 8 Are Normal, Microsoft(MSFT) Has A Big Problem On Its Hands. 
• Caterpillar(CAT) Announces Earnings On Monday — Here Are The 4 Questions We Want Answered. 
• The REAL Eurozone Crisis Is About Much More Than Debt. 
• GALLUP: Mitt Romney Expands His Lead To An Enormous 7 Points. 
• Every Investor And CEO Needs To See This Chart Before The Fiscal Cliff Is Hit. (graph) 
• Iran And The White House Issue Opposing Statements About Post-Election "One-on-One" Talks.

Zero Hedge:

• Presenting All The US Debt That's Fit To Monetize. (graph) 
• Spanish Regional Bailout Fund Runs Out Of Money Just As Regional Elections Begin. 
• Q3 Earnings Season To Date Summary: Ugly... And Getting Worse. 
• China, China, Everywhere; But Not A Drop Of QE To Drink.
• In Historic First China Begins Oil Extraction In Afghanistan.

CNBC: 

• Psst: This Tax About to Go Up for 163 Million People. President Barack Obama isn't talking about it and neither is Mitt Romney. But come January, 163 million workers can expect to feel the pinch of a big tax increase regardless of who wins the election. 
• Kudlow: White House Benghazi Blunder Grows Even Worse. With each passing day it seems the White House response to the Libya attacks grows all the more baffling. Larry Kudlow smells a rat.

Reuters:

• Jordan foils al Qaeda plot, arrests 11 militants: state TV. Jordan has foiled a plot by an al Qaeda-linked cell to bomb its shopping centres and assassinate Western diplomats, state television said on Sunday, thwarting an attempt to destabilize the key U.S. ally. Security forces had detained 11 suspects, all Jordanians, in connection with the plot, which envisaged carrying out attacks in the capital Amman using smuggled weapons and explosives from Syria, according to security officials cited by television. The plot had been active since June. Minister of Information Samih al Maaytah said the arrests underscored the serious threat posed by radical "terror groups" seeking to undermine the kingdom's long tradition of stability. A key U.S. ally in the Middle East and Israel's peace partner, Jordan enjoys close ties with Western intelligence agencies and has often been targeted by al-Qaeda and other Islamist militants. The cell had targeted two major shopping malls in the capital and was planning a bombing campaign in the capital's affluent Abdoun neighborhood, where many foreign embassies are located. A security source said the suspects had manufactured explosives "aimed at inflicting the heaviest losses possible".
• Japan exports tumble -10.3%, China row hits manufacturing mood. Japan's exports tumbled at their sharpest pace since the aftermath of last year's earthquake in the year to September, while manufacturers' mood hit its lowest since early 2010, data published on Monday showed, a sign the diplomatic row with China is further hurting the export-reliant economy. The latest data reinforce concerns that Japan, the world's third largest economy, may slide back into recession as sales to China and Europe sag amid the global slowdown and demand at home led by rebuilding from last year's earthquake and tsunami disaster loses momentum. They weak figures pile pressure on the Bank of Japan to stimulate the economy, and it will likely cut its economic forecasts and ponder further easing monetary policy at its Oct. 30 meeting, according to sources familiar with its thinking. Exports fell 10.3 percent in the year to September, against a 9.6 percent drop expected by economists, down for four months in a row, as shipments of cars, ships and electronics slumped, Ministry of Finance data showed on Monday.

Financial Times: 

• Fears rise of mortgage ‘ticking time bomb'. Claims management companies that feed off compensation payments made by banks are shifting their attention to interest-only mortgages as fears grow that tougher regulation could open the doors to a future mis-selling scandal. Lenders are increasingly concerned that a looming clampdown on these mortgages, which do not require borrowers to pay off the capital each month, will put the onus on them to ensure customers can afford to repay the loans at the end of the term. 
• Merkel to warn UK on Europe budget veto. Germany is planning to warn Britain that it will seek to cancel next month’s European budget summit if David Cameron, the prime minister, insists that he will veto any deal other than a total freeze on spending. Angela Merkel, Germany’s chancellor, does not believe there is any point in holding the budget summit to agree on a seven-year framework for EU spending if Britain intends to veto any deal, say people close to the negotiations.
• Democrats Threaten Payroll Tax Cut Consensus. Some Democrats in Congress are seeking to include an extension of the $120bn payroll tax cut in negotiations over the looming “fiscal cliff”, shaking what had appeared to be a bipartisan consensus to allow the measure to expire as planned at the end of the year. The move could complicate the budget talks due to begin after the November presidential election and alarm rating agencies – since the sunset of the payroll tax measure is the only big provision that both parties seem comfortable directing towards deficit reduction.

Telegraph: 

• IMF's epic plan to conjure away debt and dethrone bankers. So there is a magic wand after all. A revolutionary paper by the International Monetary Fund claims that one could eliminate the net public debt of the US at a stroke, and by implication do the same for Britain, Germany, Italy, or Japan. "If you enacted this plan, it would devastate bank profits and cause a massive deflationary disaster. There would have to do `QE squared' to offset it," he said. The result would be a huge shift in bank balance sheets from private lending to government securities. This happened during World War Two, but that was the anomalous cost of defeating Fascism. To do this on a permanent basis in peace-time would be to change in the nature of western capitalism. "People wouldn't be able to get money from banks. There would be huge damage to the efficiency of the economy," he said. Arguably, it would smother freedom and enthrone a Leviathan state. It might be even more irksome in the long run than rule by bankers. Personally, I am a long way from reaching an conclusion in this extraordinary debate. Let it run, and let us all fight until we flush out the arguments. One thing is sure. The City of London will have great trouble earning its keep if any variant of the Chicago Plan ever gains wide support.

WirtschaftsWoche:

• IFO president Hans-Werner Sinn says Germany will end opposition to eurobonds sooner or later. Sinn said "political actionism" won't stop with the ESM as the money won't be enough despite the leveraging.

Welt am Sonntag:

• The European Central Bank rejects concrete yield targets for Spain, citing central bank officials. Spain would like the ECB to push yields on 10-year bonds below current levels while the ECB sees role in preventing tensions like in July this year when yields rose >7%. Different opinion may be reason for Spain reluctance to apply for the ESM. 

Parapolitika:

• Greece's main opposition Syriza party, which as vowed to cancel the terms of the country's two international bailouts, would come in first if general elections were held now, a poll by Rass shows. Syriza would get 23.8% of the vote. Prime Minister Antonis Samaras's New Democracy party 22.7% and the Nationalist Golden Dawn party third with 9.2%% of the vote. 87.7% say the government should adopt tougher stance in talks with the troika.

Kyodo:

• Tokyo's metropolitan police department, Kanagawa prefectural Police and Osaka prefectural police will help monitor the water around Senkaky islands and prevent illegal landing by Chinese activists.

China State Oceanic Administration:

• Chinese marine patrol ships returned to waters near a group of disputed islands after earlier departing to avoid a typhoon. The ships are continuing to carry out patrols in the area.

The Peninsula: 

• Wave of attacks by Boko Haram kills 23 in Nigeria. A wave of attacks by suspected Boko Haram Islamists in northeastern Nigeria has killed at least 23 people and destroyed several buildings, a hospital official and residents said yesterday. A nurse at the Potiskum general hospital spoke of 20 bodies being brought to the morgue, while residents said three bodies were buried by their families following explosions and shootings in the restive city on Thursday. “We now have a total of 20 bodies brought in yesterday from the attacks of the previous night. Initially, 11 bodies were brought and nine more were received later,” a nurse who asked not to be named said. “Most of them have gunshot wounds but some had their throat slit. The bodies included that of a police sergeant and a prison warder,” he said. Residents said the toll could be higher as some relations had taken some bodies from the streets for burial.

Weekend Recommendations

Barron's:

• Made positive comments on (AAPL), (GOOG), (TXI), (BBT), (NOV) and (EMC).
• Made negative comments on (BNNY).

Night Trading

• Asian indices are -.50% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 117.0 +1.5 basis points.
• Asia Pacific Sovereign CDS Index 93.75 +1.0 basis point.
• FTSE-100 futures -.31%.
• S&P 500 futures +.25%.
• NASDAQ 100 futures +.42%.

Morning Preview Links

Earnings of Note
Company/Estimate 

• (BTU)/.34 
• (STI)/2.02
• (HAS)/1.20
• (VFC)/3.49
• (CAT)/2.22
• (FCX)/.73
• (TXN)/.40
• (HMA)/.20
• (YHOO)/.25
• (VECO)/.31
• (WDC)/2.30
• (WYNN)/1.34 
  

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Pianalto speaking and the German Finance Ministry Monthly Report could also impact trading today.

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