Today's Headlines

Bloomberg: 

• Spanish Banks’ Bad Loans Ratio Climbs to Record 12.1%. Spanish defaults as a proportion of total lending climbed to a record in August as companies and consumers struggled to make loan payments in an economy with an unemployment rate that’s still above 26 percent. Non-performing loans accounted for 12.1 percent of lending in August, compared with 12 percent in July and 10.5 percent in the same month a year earlier, the Bank of Spain said on its website today. The stock of bad loans rose to 180.7 billion euros ($247.2 billion) during the month as 2 billion euros of lending turned sour.

• European Stocks Gain for Seventh Day as China’s GDP Rises. European stocks rose for a seventh day, their longest winning streak this year, as China’s economic growth accelerated for the first time in three quarters. Schindler Holding AG jumped 4.3 percent after the Swiss elevator maker announced a share buyback. Cap Gemini (CAP) SA climbed to six-year high after saying it will repurchase convertible bonds to forestall a potential dilution of equity. Grifols SA fell 3.5 percent after an investor sold a stake in Europe’s largest blood-plasma products maker. The Stoxx Europe 600 Index advanced 0.8 percent to 318.47, extending its highest level since June 2008.

• Google(GOOG) Surpasses $1,000 for First Time on Ad Optimism. Google Inc. (GOOG) reached $1,000 for the first time amid optimism about new advertising for wireless devices and online video, joining a small club of U.S. stocks. The world’s largest search-engine company gained a record 13 percent to $1,007.40 before retreating to $1,001.99 at 12:17 p.m. New York time. The stock, sold at $85 in a 2004 initial public offering, has risen every year since except for 2010 and 2008, when it slumped 56 percent during the recession. The Internet company is benefiting from ads for new formats after expanding beyond delivering advertisements alongside search results on desktop computers. Google should take 33 percent of the global online-advertising market this year, up from 31 percent in 2012, according to EMarketer Inc.

• Boeing(BA) Cuts 747-8 Output Again as Jumbo-Jet Sales Slump. Boeing Co. (BA) is cutting production again for its 747-8 jumbo jet, the planemaker’s biggest model ever, as demand continues to dwindle for four-engine aircraft. The new rate will be 1.5 planes a month instead of 1.75, a pace that will be maintained through 2015, Boeing said today in a statement.

Wall Street Journal:

• eBay(EBAY) CEO on “Cautious” Holiday Outlook: We Didn’t Mean to Sound So Negative. 

• Health Website Woes Widen as Insurers Get Wrong Data. New Errors Indicate Technological Problems Extend Issues Already Identified.

Barron's:

• Hedge Funds Surge to New Asset Record: $2.51 Trillion. Investors keep forking over the money. Hedge-fund assets surged to a fifth straight all-time record in the third quarter, at $2.51 trillion, Hedge Fund Research reports this morning.

CNBC:

• BoE's Tucker warns on shadow banking risk. Regulators need to "up their game" in overseeing hedge funds and shadow banks as risky pools of capital build up beyond the heavily scrutinized world of traditional banking, one of the world's top central bankers has warned.

• ETF investors are making a hugely bullish bet.

Zero Hedge: 

• Fed Balance Sheet Increases By $50 Billion In One Week, $100 Billion In One Month, $1 Trillion In One Year. (graph)

• IMF Discusses 'One-Off' Wealth Tax.

• Conservatism And The Debt Ceiling.

• China's Largest Conglomerate Buys The Building That Houses JPMorgan's(JPM) Gold Vault.

Business Insider: 

• This One Statistic Explains Why Google's Stock Exploded Through $1,000 A Share.

Bear Radar

Style Underperformer:

• Mid-Cap Value +.39%

Sector Underperformers:

• 1) HMOs -2.18% 2) Biotech -1.44% 3) Steel -1.37%

Stocks Falling on Unusual Volume:

• CMRX, ACTG, EVEP, TAM, IPG, UTEK, UNH, ISRG, HUM, ENTA, GPC, BGS, PBCT, NOAH, ASML, WAL, BITA, CI, CTB, KERX, CYT, TSN and CMLP

Stocks With Unusual Put Option Activity:

• 1) GOOG 2) RDN 3) SPF 4) GCI 5) MRO
  

Stocks With Most Negative News Mentions:

• 1) HUM 2) GM 3) ISRG 4) BAX 5) UTEK
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Large-Cap Growth +1.0%

Sector Outperformers:

• 1) Internet +4.3% 2) Oil Service +1.91% 3) Gaming +1.14%
  

Stocks Rising on Unusual Volume:

• ALGN, ATHN, ANAC, GOOG, SMC, BHI, PH, CHK, VISN, FNSR, IR, BIDU, AMZN, YOKU, SLB, EGOV, ALDW, FSLR, YELP, ANIK, AFOP, CJES, FB, URI, WETF, POL, ZUMZ, GMCR, PIR and EGHT

Stocks With Unusual Call Option Activity:

• 1) KKR 2) XLK 3) FLR 4) CAM 5) GOOG

Stocks With Most Positive News Mentions:

• 1) GOOG 2) LVS 3) CMG 4) FB 5) AAPL
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Friday Watch

Evening Headlines 
Bloomberg:

• Fault Lines Fracture Rebalanced World Economy: Cutting Research. The rebalancing of global demand following the financial crisis may mask fault lines that still threaten the world economy, according to HSBC Holdings Plc and Deutsche Bank AG. The international economy’s overreliance on U.S. consumer demand and Chinese exports were among imbalances policy makers later said helped fuel the turmoil of 2008. By leading to a misalignment of currencies and leverage, they threw the world out of kilter, paving the way for its deepest recession since World War II. While there are some signs the global economy is now on a more even keel, there may be reasons to worry about how that shift occurred and how sustainable it is, according to separate studies published recently by Stephen King at HSBC and Deutsche Bank’s Thomas Mayer and Markus Jaeger.

• Bird Flu’s Return in China Seen Sped by New Year Chicken. The avian flu strain that killed 45 people in Asia last spring is poised to return as poultry flocks swell before Chinese New Year, amplifying the virus that hides undetected in birds.

• Gold Demand in Asia Seen Surging by HSBC as Inflation Fans Sales. Gold demand across Asia will keep expanding as inflation spurs investment purchases, said HSBC Holdings Plc, estimating that the region’s share of worldwide consumption jumped in the past decade.

• Asian Stocks Climb With Won And Copper as China GDP Grows. Asian stocks rose, pushing the benchmark index to a five-month high, and emerging-market currencies gained with copper after China’s economic growth quickened. U.S. equity-index futures climbed as Google Inc. sales topped estimates. The MSCI Asia Pacific Index added 0.2 percent to at 12:32 p.m. in Tokyo as Australian stocks headed for the highest close in five years.

• Rebar Swings as Market Weighs China Inventories, Iron Ore Price. Steel reinforcement-bar futures in Shanghai swung between gains and losses as an increase in China’s inventory of the material weighed against an advance in iron ore prices. Rebar for delivery in January on the Shanghai Futures Exchange fell as much as 0.5 percent and climbed as much as 0.3 percent. The contract was down 0.2 percent at 3,551 yuan ($583) a metric ton at 10:38 a.m. local time and has lost 1.4 percent this week.

• Delayed September U.S. Employment Report Coming Out Next Week. The September U.S. employment figures, delayed by the 16-day partial shutdown of the federal government that ended today, will be issued on Oct. 22, the Labor Department said. A total of nine releases were rescheduled, including the October employment report, which will be pushed back to Nov. 8 from the originally announced Nov. 1, according to an announcement today on the Labor Department’s website.

Wall Street Journal:

• Behind Debt Deal: Silence, Distrust and Hardball. Both parties focused mostly on trying to kill any plans that emerged—both from the opposing party and their own colleagues. 

• Health Website Woes Widen as Insurers Get Wrong Data. New Errors Indicate Technological Problems Extend Issues Already Identified. 

• SEC Pads Case Tally With Easy Prey. Late Surge Helps Offset Steep Drop in Enforcement Actions.

• Fukushima Watch: Protest Filed Vs Decision Not to Indict Tepco. In the latest chapter in the search for justice following the Fukushima nuclear disaster, one person filed a protest Wednesday against a decision by Tokyo prosecutors not to indict former executives of Tokyo Electric Power Co., the operator of the Fukushima Daiichi nuclear plant. In the filing to the Tokyo District Court, Ruiko Muto reiterated her claim that Tepco executives ignored research findings suggesting a tsunami more than 10 meters high could reach the plant, and didn’t take steps to prepare for such a scenario. The group Ms. Muto works with says the worst nuclear power accident since Chernobyl was caused by human error, and could have been prevented.

• Jim DeMint: We Won't Back Down on ObamaCare. Fighting a law that is unfair, unworkable and unaffordable is reasonable and necessary. Now that the government shutdown has ended and the president has preserved ObamaCare for the time being, it's worth explaining why my organization, the Heritage Foundation, and other conservatives chose this moment to fight—and why we will continue to fight. The reason is simple: to protect the American people from the harmful effects of this law.

Fox News:

• House panel on Benghazi eyes White House document, Panetta testimony. As they wrap up their 13-month probe into the terrorist attacks in Benghazi that killed four Americans, congressional investigators have zeroed in on a press release issued the day before the murders by White House Press Secretary Jay Carney. They also are seeking fresh testimony from former Defense Secretary Leon Panetta.

CNBC:

• Google(GOOG) shares hit new high after earnings beat. Google shares hit a new high in after-hours trading Thursday after the Internet giant's earnings blew past expectations as its advertising business expanded. Google shares, which are up around 24 percent this year, rose more than 5 percent in after-hours trading, topping $948 a share. The previous high was $924.30, set on July 15. "They were able to grow their revenue pretty substantially, particularly in their own websites, in spite of having lower overall ad prices,'' said JMP Securities analyst Ronald Josey.

• Fed won't slow easing any time soon, thanks to Congress. "Taper talk" could pretty much be dead until next year.

Zero Hedge:

• Stocks Best 6-Day Swing in 20 Months As USD Collapses And Gold Soars.

• Fukushima Beta-Radiation Levels Soar To New Record In Aftermath Of Typhoon Wipha.

• The Most Dangerous Line Uttered During The Debt Ceiling Debate.

• America The Reckless.

• Obamacare's Failure In One Chart.

• Janet Yellen Exposed - The Truth Behind The Myth.

• BLS Releases Updated Economic Data Schedule.

Business Insider:

• ART CASHIN: I'm Hearing Things That Are Reminiscent Of The Dotcom Bubble.

• Knife-Wielding Man Hijacks Arkansas School Bus Carrying Elementary Students.

Washington Post:  

• Budget deal allows for January federal pay raise. The budget measure that ended the partial government shutdown allows for a 1 percent raise for federal employees in January in addition to providing back pay for those furloughed, according to two Democratic Maryland senators.

New York Times:

• White House Weighs Easing Sanctions on Iran With Tapered Release of Assets. The Obama administration, in the wake of a promising first round of nuclear diplomacy with Iran, is weighing a proposal to ease sanctions on Tehran by offering it access to billions of dollars in frozen funds if the Iranian government takes specific steps to curb its nuclear program, a senior administration official said on Thursday.

The Blaze:

• Glenn Beck ‘Horrified’ by ‘America’s Latest Propaganda Machine’. Glenn Beck on Thursday broached a topic that he said “horrified” him when it was brought to his attention roughly two weeks ago, describing it as an “effort to re-write our history and catalyze a new culture for America” with the help of “America’s latest propaganda machine.” Beck proceeded to tell his viewers about two groups, the first called “Imagining America” and the second called “The U.S. Department of Arts and Culture.” “…So we have the government, radicals, and the universities, and some of their affiliates are actually public officials. They actually hold conferences and presentations about how to re-author American history, and it’s [funded] by you.”

Reuters:

• Intuitive Surgical(ISRG) profit falls, da Vinci sales drop. Intuitive Surgical Inc on Thursday reported lower third-quarter profit as sales of its high-priced da Vinci surgical robots declined sharply. Intuitive said net profit fell to $157 million, or $3.99 per share, from $183 million, or $4.46 per share, a year ago. Revenue for the quarter fell 7 percent to $499 million, missing Wall Street estimates of $526 million compiled by Thomson Reuters I/B/E/S. The company sold 101 da Vinci surgical units in the quarter, down from 155 a year ago and 143 in the second quarter of this year.

• Chipotle(CMG) lures more diners, profit jumps. Chipotle Mexican Grill Inc on Thursday reported a 15 percent jump in quarterly profit after sales at established restaurants rose more than expected due to an increase in visits from diners. The fast-growing burrito seller's third-quarter net income rose to $83.4 million or $2.66 per share, from $72.3 million or $2.27 per share, a year earlier. Chipotle's sales at restaurants open at least 13 months, a closely watched gauge of industry performance, were up 6.2 percent for the latest quarter, more than the average analyst estimate of 4.7 percent compiled by Consensus Metrix. Shares of the Denver-based Chipotle rose 1.9 percent to $447.50 in after-hours trading.

• Lenovo will face obstacles in any BlackBerry(BBRY) deal -source. Chinese computer maker Lenovo, which has signed a non-disclosure deal to examine BlackBerry's books, faces regulatory obstacles if it bids for all of the company and will likely pursue just parts, a source familiar with the matter said on Thursday.

Sankei:

• A Group of 159 Japanese Lawmakers Visits Yasukuni. Members of a cross-party group formed by Japanese lawmakers with a common interest in visiting Yasukuni went to the shrine today for an annual autumn festival, citing the group.

China Daily:

• Japan PM's Offering to Yasukuni Shrine Same as Visiting. Japanese Prime Minister Shinzo Abe's sending an offering to the Yasukuni Shrine is no difference than visiting the shrine in person, a commentary said. The act has hurt the feelings of the Asian nations and challenged the current international order by hailing back to the spirit of militarism. China is not taking the act "calmly" as reported by Japan's Kyodo News.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are unch. to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 132.75 +.75 basis point.

• Asia Pacific Sovereign CDS Index 101.25 -3.0 basis points. 

• FTSE-100 futures +.53%.

• S&P 500 futures +.12%.

• NASDAQ 100 futures +.34%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BHI)/.78

• (GE)/.36

• (GPC)/1.20

• (HON)/1.24

• (IR)/1.10

• (IPG)/.18

• (KSU)/1.11

• (LH)/1.80

• (MS)/.41

• (PH)/1.47

• (SLB)/1.24

• (STI)/.69

• (TXT)/.48

Economic Releases

• None of note

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed's Stein speaking, Fed's Evens speaking, Fed's Taruillo speaking and Canadian inflation data could also impact trading today.

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

Stocks Reversing Higher into Final Hour on Central Bank Hopes, Lower Long-Term Rates, Short-Covering, Homebuilding/Metals & Mining Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Most Sectors Rising
  

• Volume: Slightly Below Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• Volatility(VIX) 13.51 -8.16%

• Euro/Yen Carry Return Index 139.56 +.16%

• Emerging Markets Currency Volatility(VXY) 8.54 -2.73%

• S&P 500 Implied Correlation 38.81 -7.81%

• ISE Sentiment Index 81.0 unch.

• Total Put/Call .90 -3.23%

• NYSE Arms 1.33 +107.29% 

Credit Investor Angst:

• North American Investment Grade CDS Index 71.34 -3.06%

• European Financial Sector CDS Index 124.15 +3.16%

• Western Europe Sovereign Debt CDS Index 70.53 +.76%

• Emerging Market CDS Index 264.42 +.26%

• 2-Year Swap Spread 13.50 unch.

• TED Spread 20.75 +5.75 basis points

• 3-Month EUR/USD Cross-Currency Basis Swap -6.25 +1.25 basis points

Economic Gauges:

• 3-Month T-Bill Yield .04% -6 basis points

• Yield Curve 227.0 -7 basis points

• China Import Iron Ore Spot $134.40/Metric Tonne +.52%

• Citi US Economic Surprise Index 24.0 -2.8 points

• Citi Emerging Markets Economic Surprise Index -8.60 -1.4 points

• 10-Year TIPS Spread 2.17 -2 basis points

Overseas Futures:

• Nikkei Futures: Indicating +18 open in Japan

• DAX Futures: Indicating +14 open in Germany

Portfolio: 

• Higher: On gains in my tech/medical/biotech sector longs

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 75% Net Long

Today's Headlines

Bloomberg:   

• China’s Dagong Cuts U.S. Credit Rating After Debt Limit Raised. China’s Dagong Global Credit Rating Co. cut its sovereign rating for the U.S. hours after President Barack Obama signed legislation raising the federal debt limit. Dagong, one of China’s four biggest credit rating companies, downgraded the local and foreign currency credit ratings of the U.S. to A- from A, maintaining a negative outlook, the company said in an e-mailed statement yesterday. That’s below Dagong’s rating of Botswana, which has a A rating, and puts the U.S. on par with Brazil.

• China Companies Rank Lowest in Survey of Transparency Reporting. Chinese companies ranked the lowest in a survey of public reporting practices in emerging markets, underscoring concern that the government’s anti-corruption campaign may not take root in the corporate sector. The 33 Chinese multinationals surveyed averaged a score of 2 out of 10 points in Berlin-based Transparency International’s “Transparency in Corporate Reporting” survey, released yesterday. Chery Automobile Co., the closely held carmaker based in Wuhu, China, joined one other company among the 100 surveyed with a score of zero across the three categories measured.

• Iron Ore Futures Debut in Dalian as China Seeks Pricing Power. Iron ore futures for physical delivery debut on the Dalian Commodity Exchange today as China takes greater control of price setting in the biggest seaborne commodity trade after oil. 

• Gold Jumps Most in Four Weeks on Dollar Slump, Stimulus. Gold futures jumped the most in four weeks as the dollar slumped and speculation mounted that the Federal Reserve will hold off on scaling back monetary stimulus, boosting demand for the metal as an alternative investment. Gold futures for December delivery rose 3.2 percent to settle at $1,323 an ounce at 1:41 p.m. on the Comex in New York, the biggest gain for a most-active contract since Sept. 19. Trading was 31 percent above average for the past 100 days for this time, data compiled by Bloomberg showed. 

• Crude Drops as API Reports Increase in U.S. Inventories. Prices slid 1.6 percent. Supplies climbed by 5.94 million barrels, according to the American Petroleum Institute yesterday. Jobless claims reached 358,000 last week, the Labor Department said. WTI rose 1.1 percent yesterday before Congress voted to end the government shutdown and raise the debt limit.

• European Stocks Erase Their Decline as U.S. Equities Rise. European stocks erased their decline in the final half an hour of trading, leaving the Stoxx Europe 600 Index at a five-year high, as U.S. equities rebounded after Congress agreed to extend the American government’s debt limit. SABMiller Plc rose 4.2 percent after posting an unexpected increase in lager volumes. Sulzer dropped 4.4 percent as the Swiss pump maker cut its full-year sales forecast for a second time. Outotec slid the most in almost five years after the supplier of smelters to mining companies reduced its guidance for 2013. Royal KPN (KPN) NV plunged 7.9 percent after America Movil SAB withdrew its $9.7 billion takeover offer for the company. The Stoxx 600 added 0.1 percent to 315.98 at the close, rebounding from a decline of as much as 0.6 percent.

• Fed’s Evans Sees QE Tapering Postponed After Data Shutdown. Federal Reserve Bank of Chicago President Charles Evans, an outspoken advocate of pressing on with Fed stimulus, said the central bank should not begin reducing the pace of asset purchases as the data used to gauge the economy’s health stopped during the government shutdown.

• Treasury Yields Fall to Lowest in 2 Weeks on Fed-Buying Wagers. Treasury 10-year note yields fell to the lowest level in two weeks on speculation the Federal Reserve will maintain its bond-buying program into next year after the government shutdown weighed on economic growth. 

• EBay(EBAY), Ellison Embrace Microgrids in Threat to Utilities. Oracle Corp. Chief Executive Officer Larry Ellison plans to build one to power the Hawaiian island he bought last year. EBay Inc. (EBAY) has one to run a data center. The University of California at San Diego and the federal government have invested tens of millions of dollars in the technology.

Wall Street Journal:

• Attention Likely to Shift to Health Law. After Budget Distraction, Measure Could Become Focus of Greater Scrutiny. The end of Washington's budget showdown is likely to shift attention back to President Barack Obama's health law and its rocky rollout, news of which was sometimes submerged in the past 16 days of struggle. 

• Prosecutors and SAC Head Toward a Possible Record-Breaking Settlement. Potential Deal in SAC's Insider-Trading Case Could Top $1.2 Billion. 

• Goldman Sachs(GS) Revenue Drops as Fixed-Income Slumps. Investment Bank Raises Quarterly Dividend to 55 Cents. 

• UnitedHealth(UNH) Reports Muted Profit Growth, Cautious Outlook. Company Expects Funding Cuts From Federal Health Law.

Fox News:

• With budget ‘deal,’ national debt free to soar again. The good news: The national parks are open, furloughed federal workers are back on the job, and the country will not cut off benefit payments because it can't borrow. The bad news: The national debt is back on course to hit $17 trillion any day now, with no deal in sight to ever reverse the climb.  The latest increase in the debt cap is the sixth since President Obama took office, when the debt was $10.6 trillion.

MarketWatch:

• Individual policy pricing skyrockets under Obamacare, broker site says. If you want to see what will happen to individual health policies next year once Obamacare takes effect, you might take an online trip through the eHealth Inc. web site.

CNBC: 

• Signs of a new credit bubble emerge in business lending. The Federal Reserve's latest economic report raises the prospect that credit standards in loans to businesses may be slipping. "The Philadelphia, Cleveland, Richmond, Chicago, and Dallas Districts reported intense competition on pricing and terms for commercial and industrial loans. In addition, contacts in Philadelphia and Chicago expressed concern about an easing of credit standards on these loans," the Fed reported in its Beige Book summation of regional Fed activity.

Zero Hedge: 

• "Idiotic" Initial Claims "Rise Above" As Made Up California Numbers Continue Trickling In.

• It's Always Funny In Philadephia: Philly Fed Optimism Soars To Second Highest Ever. (graph)

• Fonzie Or Ponzi? One Theory On The Limits To Government Debt.

• Chart Of The Day: Entitlement Nation, Now And Forever.

• Ten Things to Expect from Obamacare in 2014.

Business Insider:

• GUNDLACH ON TESLA(TSLA): There's Something Wrong With This Picture.

• 50 Charts That Every Gold Investor Will Love.

• GUNDLACH: Interest Rates Will Stay Low 'For As Long As The Eye Can See'.

Foreign Policy:

•  Meet China's Beverly Hillbillies. The absurdity of the Middle Kingdom's Bentley-driving, blinged-out nouveau riche.

Real Clear Politics:

• Rubio: "There Is Going To Be An All-Out Revolt" Over Obamacare In 2014. (video)

Telegraph:

• Diageo reports lower-than-expected first quarter sales. Drinks giant Diageo sees slower growth in emerging markets as it report lower-than-expected first quarter sales.