Stocks Lower into Final Hour on Rising Emerging Markets Debt Angst, Higher Long-Term Rates, Technical Selling, Transport/Tech Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.36 +1.98%

• Euro/Yen Carry Return Index 141.38 +.39%

• Emerging Markets Currency Volatility(VXY) 8.48 +1.44%

• S&P 500 Implied Correlation 33.41 unch.

• ISE Sentiment Index 154.0 +60.42%

• Total Put/Call .82 +5.13%

• NYSE Arms .91 -26.21% 

Credit Investor Angst:

• North American Investment Grade CDS Index 72.26 +1.20%

• European Financial Sector CDS Index 109.19 +3.21%

• Western Europe Sovereign Debt CDS Index 62.50 -2.34%

• Emerging Market CDS Index 291.62 +3.11%

• 2-Year Swap Spread 11.25 +.75 basis point

• TED Spread 16.75 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -2.25 +.5 basis point

Economic Gauges:

• 3-Month T-Bill Yield .07% unch.

• Yield Curve 242.0 +3 basis points

• China Import Iron Ore Spot $136.30/Metric Tonne -.51%

• Citi US Economic Surprise Index 5.20 +.2 point

• Citi Emerging Markets Economic Surprise Index -13.90 -1.8 points

• 10-Year TIPS Spread 2.19 -1 basis point

Overseas Futures:

• Nikkei Futures: Indicating +109 open in Japan

• DAX Futures: Indicating -1 open in Germany

Portfolio: 

• Higher: On gains in my biotech/medical sector longs, emerging markets shorts and index hedges

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back

• Market Exposure: 25% Net Long

Today's Headlines

Bloomberg: 

• OECD Cuts Global Growth Outlook on Emerging-Market Slowdown. The Organization for Economic Cooperation and Development cut its global growth forecasts for this year and next as emerging-market economies including India and Brazil cool. The world economy will probably expand 2.7 percent this year and 3.6 percent next year, instead of the 3.1 percent and and 4 percent predicted in May, the Paris-based OECD said in a semi-annual report today. “Most of the emerging economies have underlying fragilities that mean they cannot continue growing as they used to,” OECD Chief Economist Pier Carlo Padoan said in an interview. “They used to be an important support engine for global growth in bad times. Now the reverse is true and advanced economies can’t be said to be in very good times again.”   
• Italy Banks’ Bad-Loan Ratio Rises to Highest Since 1999. Bad loans at Italian banks climbed to the highest in almost 14 years as the nation’s economy endured its longest recession since World War II and sovereign-debt risks drove up funding costs for companies. Non-performing loans at face value as a proportion of lending increased to 7.5 percent in September from 5.9 percent a year earlier, according to data published by the Italian Banking Association today. That’s the highest since November 1999 and up from 3 percent in June 2008, prior to the financial crisis, said the Rome-based association, known as ABI. 
• Ibovespa Falls Most in Seven Weeks on Economy; Petrobras Drops. The Ibovespa (IBOV) declined the most in seven weeks on speculation Latin America’s largest economy will remain stalled, making stock rallies hard to sustain. Oil producer Petroleo Brasileiro SA (PETR3) contributed the most to the Brazilian equity gauge’s drop, following crude lower. Former billionaire Eike Batista’s LLX Logistica SA fell the most on the index after its biggest two-day gain since September. The Ibovespa slid 2.4 percent to 53,027.25 at 3:28 p.m. in Sao Paulo, the biggest decline since Sep. 30 on a closing basis and the worst performance among major global benchmarks after Argentina’s Merval.
• Europe Stocks Slip From Five-Year High; Paddy Power Drops. European stocks dropped from a five-year high as investors weighed equity valuations that are at the highest since 2009. Paddy Power Plc slumped the most in five years after Ireland’s biggest bookmaker cut its forecast for 2013 profit growth. KBC Groep NV (KBC) fell 2.7 percent as two shareholders sold a combined 18.8 million shares in the Belgian bank. EasyJet Plc (EZJ) rallied 7.1 percent after announcing a special dividend. The Stoxx Europe 600 Index declined 0.7 percent to 322.56 at the close of trading in London.
• Junk Glistens Under ‘Bernankecare’ as Worst Stocks Win. Carl Giannone says he’s given up hunting for quality stocks. Now he’s simply riding the wave of upward momentum in the U.S. market. “It’s a game of musical chairs,” said Giannone, who manages a team of stock pickers at T3 Trading Group LLC in New York. “You just want to make sure you can sit down.” The Federal Reserve’s near-zero interest rate turns five years old next month, the longest period without an increase in history. Coupled with more than $3 trillion of asset purchases, it adds up to “Bernankecare,” said Joshua Brown, chief executive officer of Ritholtz Wealth Management in New York. And it’s causing parts of the market to behave strangely. Stocks of companies with weak balance sheets are rising twice as fast as stronger ones; junk borrowers get rates lower than their investment-grade counterparts did before the credit crisis; and initial public offerings are doubling on their first day of trading. While in the minority, some investors say prices have climbed so high it’s possible to look ahead and see an ugly end. Laurence Fink, chief executive officer of BlackRock Inc., the biggest U.S. money manager, said in an interview with Bloomberg Television on Nov. 12 that he feared a bubble and the Fed ought to quit buying so many securities.
• Treasury 10-Year Yield Rises From 1-Week Low on Fed Speculation. U.S. 10-year yields rose four basis points, or 0.04 percentage point, to 2.71 percent as of 2:30 p.m. New York time, according to Bloomberg Bond Trader prices. Yields fell earlier to 2.66 percent, the least since Nov. 8.
• Wal-Mart(WMT) Touts $98 TV in Weakest Holiday Season Since ’09. U.S. retailers are discounting earlier than ever as they brace for the weakest holiday shopping season since 2009. Wal-Mart Stores Inc. (WMT) is dangling a 32-inch flat-screen TV for $98, down from $148 last year. Sears Holdings Corp. has waived layaway fees and its Kmart chain is introducing a rent-to-own program. More than a dozen retailers are opening earlier, or for the first time, on Thanksgiving Day. Among the attention-grabbing stunts: a $1 million jackpot for one of the first shoppers to visit Gap Inc. (GPS)’s Old Navy chain on Black Friday. Faced with wary shoppers and a shorter holiday season, retailers are piling on deals as they jockey for marketshare during the most important sales period of the year. For the fourth year in a row, disposable incomes in 2013 have only inched up.
• Best Buy(BBY) Falls After Saying Holiday Price War to Hurt Profit. Best Buy Co., the world’s largest consumer-electronics retailer, fell the most in nine months after saying it will keep pace with competitors’ discounts in the holiday season, hurting fourth-quarter profitability. The shares dropped 6.3 percent to $40.83 at 9:35 a.m. in New York and earlier slid as much as 6.7 percent for the biggest intraday decline since Feb. 13.
• UN Chief Scolds Rich Countries for Backtracking on Climate. United Nations Secretary-General Ban Ki-Moon lashed out at rich nations that are watering down commitments to fight global warming, citing the typhoon that devastated the Philippines.
• VIX Trader Bets $13 Million on 88% Jump in Fear Gauge. An investor bought $13 million in call options on the Chicago Board Options Exchange Volatility Index, betting the gauge will rally at least 88 percent in the next four months. About 100,000 VIX March calls were purchased with a strike price of 23 for about $1.30 each, making the contract the most traded on U.S. options exchanges, according to data compiled by Bloomberg and Trade Alert LLC.

Wall Street Journal: 

• J.P. Morgan(JPM), U.S. Settle for $13 Billion. Deal Ends a Number of Legal Headaches for Largest U.S. Bank.

CNBC:

• Was Jack Welch right? Jobs numbers under fire. (video) Jack Welch may not have been so off the mark after all. The former General Electric CEO was pilloried back in October 2012 when he suggested that the previous month's unemployment report smelled fishy and perhaps had been manipulated. 
• Obamacare may need a taxpayer bailout: Ex-HHS head. (video)

Zero Hedge: 

• Santelli Slams The Jobs Manipulation Scandal: "American Media, You Can Do Better". (video)
• Gold Manipulation Probed By U.K. Regulator.
• Increased Minimum Wage, Decreased Economic Prosperity. (graph)
• Big Trouble In Massive China: "The Nation Might Face Credit Losses Of As Much As $3 Trillion". (graph)
• Step Aside Carl Icahn, It's Time For Larry Fink's Dose Of Cold Water.
• The Structural Decline Of US GDP In 4 Charts.
• Boehner:"Obamacare Needs To Be Scrapped Now" - Live Webcast. (video)

ValueWalk:

• EPS Downgrades For 81 Straight Weeks, Matching Longest Drop Since 2000. EPS downgrades as measured by Citi’s Earnings Revision Index (ERI) have fallen for 81 straight weeks, matching the 2008-2009 drop in the wake of the financial crisis and beating every other negative streak since 2000. But Equities are up 25% since the current streak of downgrades began in May 2012, with much of the price growth happening this year, and investors are still mostly bullish.

Business Insider: 

• Government Rebukes Tesla(TSLA) For Saying It Requested The Model S Fire Investigation. 
• Why The Stock Market Has Become Increasingly Like Dog Racing.
• Here Are The 50 Stocks That Big Hedge Funds Love Most.
• An Unusual Development In The Volatility Markets Is Flashing A Stock Market Warning Sign.
• Obama's Poll Numbers Continue To Crash.

Washington Examiner:

• More Obamacare promises are going up in smoke. The keep-your-coverage promise was just part of the Obamacare sales job. Obama, then-House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid and top Democrats made all sorts of claims in their effort to convince a skeptical public to accept a complicated, far-reaching national health care scheme. Here are three promises that might cause serious trouble in the days to come:

Reuters:

• Investec sees euro crisis flare-up risk; short French bonds vs Bunds. Stagnant growth and possible deflation could trigger fresh upheaval in Europe next year, says Investec, which has short positions on peripheral bonds and expects European stocks to lag other developed equities in 2014. Philip Saunders, Investec's head of multi-asset investment business, told the Reuters Global Investment Outlook Summit on Tuesday that European equities would probably deliver positive returns next year but inflows of cash rotating from emerging and U.S. markets could soon dry up.
• Mexican stocks fall sharply after trading halt. Mexican stocks fell sharply on Tuesday after trading resumed following a halt due to technical difficulties. The IPC stock index shed 1.12 percent to 40,572 points.

Telegraph:

• OECD calls Europe's crisis policy unworkable, fears 'virulent episodes' in emerging markets. OECD's chief economist says current European policies are pushing a string of countries into deflation and onto a much lower growth path.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.77%

Sector Underperformers:

• 1) Hospitals -1.94% 2) Construction -1.80% 3) Gaming -1.80%

Stocks Falling on Unusual Volume:

• VJET, DDD, TLLP, ICLD, MEMP, BBY, AMRI, CPB, PER, SGMS, NOAH, CRM, ALTR, JEC, ECOM, PBT, SFM, ANFI, TM, VIPS, ATHN, NEE, HOS, CYH, HCLP, IEP, ALGN, MEMP, SSYS, TRN, BWP, FWM, DWRE and ELLI

Stocks With Unusual Put Option Activity:

• 1) BBY 2) CRM 3) XLNX 4) TWTR 5) KMB
  

Stocks With Most Negative News Mentions:

• 1) TSLA 2) CPB 3) F 4) JEC 5) COST
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth -.05%

Sector Outperformers:

• 1) Airlines +.64% 2) Medical +.29% 3) Biotech +.26%
  

Stocks Rising on Unusual Volume:

• SPEX, CWH, TTS, QIWI, UAL and TSLA

Stocks With Unusual Call Option Activity:

• 1) BBY 2) ADT 3) CRM 4) CPB 5) DRI

Stocks With Most Positive News Mentions:

• 1) TJX 2) HD 3) NOC 4) AAPL 5) AMZN
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg: 

• Credit-Driven China Glut Threatens Surge Into Bank Crisis. A $6.6 trillion credit binge during the past five years, encouraged by Beijing policy makers as stimulus to combat a global economic slowdown, now threatens to stoke a debt crisis. At stake are trillions of yuan in bank loans that companies producing everything from ships to steel to solar power are struggling to repay as the world’s second-largest economy heads for the weakest annual expansion since 1999. 
• Onions Bring Tears to RBI’s Rajan as Prices Surge: India Credit. Record onion prices and the soaring cost of rice and coriander are frustrating Reserve Bank of India Governor Raghuram Rajan’s battle to curb inflation while supporting growth in Asia’s third-largest economy. The wholesale-price index for onions, a staple food for India’s 1.24 billion people, has climbed 155 percent this year, hitting an all-time high of 820.5 in September, according to the Ministry of Commerce and Industry. The index, set at 100 in 2004, has almost quadrupled in 12 months. A broader measure for food is up 19 percent in 2013, while spot prices for coriander climbed about 29 percent and basmati rice advanced 40 percent. 
• Asia Stocks Outside Japan Rise as Hong Kong Extends Rally. Asian stocks outside Japan rose, with a regional benchmark index heading for a four-day rally, as Hong Kong stocks extended yesterday’s gains amid optimism China’s economic reforms will boost growth. China Life Insurance Co., the nation’s biggest insurer, rose 5.2 percent in Hong Kong after Citigroup Inc. named the company as one of the beneficiaries of Communist Party reforms. Olympus Corp. added 3.5 percent in Tokyo on a newspaper report the company will increase endoscope production capacity by 30 percent. Commonwealth Property Office Fund jumped 4.6 percent in Sydney after the Australian property fund received a higher competing bid. Honda Motor Co., which gets 83 percent of its revenue outside of Japan, lost 1.2 percent as the yen gained. The MSCI Asia Pacific excluding Japan Index added 0.2 percent to 478.59 as of 12:31 p.m. in Hong Kong.
• Rubber Declines for Second Day as Yen’s Rebound Weakens Appeal. Rubber declined for a second day as Japan’s currency rebounded from a two-month low against the dollar, reducing the appeal of yen-denominated futures. The contract for delivery in April on the Tokyo Commodity Exchange lost as much as 1.4 percent to 257.5 yen a kilogram ($2,581 a metric ton) and traded at 258.4 yen at 10:17 a.m. local time. Futures have fallen 15 percent this year. 
• Rebar Futures Swing as Investors Weigh Stockpiles, Steel Output. Steel reinforcement-bar futures in Shanghai swung between gains and losses as investors weighed falling stockpiles in China against higher steel production. Rebar for May delivery, the most-active contract by volume on the Shanghai Futures Exchange, earlier rose as much as 0.5 percent and fell as much as 0.2 percent before trading at 3,599 yuan ($591) a metric ton by 11:14 a.m. local time. The contract fell 1.9 percent last week. 
• Treasury Volatility Approaches Record Low Before Bernanke Speech. Treasury market volatility fell to near a record low on speculation Federal Reserve Chairman Ben S. Bernanke will support the case for maintaining bond purchases in a speech today. The Merrill Lynch MOVE Index slid to a six-month low of 58.31 yesterday, approaching the record of 48.87 set May 9. Bernanke is scheduled to speak at 7 p.m. in Washington. Vice Chairman Janet Yellen, in her confirmation hearing last week to be the next central bank chairman, said she’s committed to promoting an economic recovery and will ensure stimulus isn’t removed too soon.

Wall Street Journal:

• Gen. Dempsey Warns Syria Options Growing More Complex. The nation’s top military general warned Monday that America’s options for resolving the conflict in Syria are becoming more complex, narrowing the country’s ability to influence the outcome in the Middle East. Speaking at The Wall Street Journal CEO Council annual meeting, Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, said that the U.S. has few good options for dealing with a conflict that has claimed more than 100,000 lives.
• J.P. Morgan, U.S. Reach Historic Settlement. Some $4 Billion in Aid to Homeowners Was Final Hurdle in $13 Billion Accord.
• Marco Rubio: No Bailouts for ObamaCare. The health-care law's 'risk corridors' could result in a huge taxpayer burden. With every passing day, ObamaCare's flaws are being exposed in painful ways for the American people. What started as a broken website—and nonexistent Spanish one—is now snowballing into a full-scale disaster that makes it increasingly clear this law can't be fixed. Under ObamaCare, people are being recklessly exposed to identity theft and fraud through the dysfunctional website and navigator network.

Fox News: 

• Students suffer ObamaCare sticker shock as premiums soar, plans get cut. While millions of Americans are watching their individual polices get canceled due to ObamaCare regulations, the new health care rules are also having a major impact on college campuses.

CNBC:

• Market milestones feed fear of bubbles. "I think we're starting to get to the point where psychology is taking over," said Brad McMillan, chief investment officer for Commonwealth Financial. "You're seeing retail flows move back to equities. You have expectations in the institutions where the market is going to move up toward the end of the year. … Once you get disconnect from the fundamentals, you can drift as high as you want."

Zero Hedge: 

• Bitcoin Trades Over $1000 On BTC China Exchange And Crashes 30% ... Then Rebounds. (graph)
• Carl Icahn's "Personal Views" About The Market.
• Is Obamacare The Final Nail In The Coffin Of The Middle Class?
• "Bubble" In Riskiest Credit Exceeds 2008 Peak.
• How Wall Street Manipulates Everything: The Infographics.
• A Peek Beneath Tesla's(TSLA) Non-GAAP Hood Reveals Nothing But Cockroaches.
• Jeremy Grantham's GMO: "The S&P Is Approximately 75% Overvalued; Its Fair Value Is 1100".

Business Insider: 

• Panera Bread(PNRA) Is Making Four Changes To Win Customers Back. 
• Maria Bartiromo Is Leaving CNBC.

NY Post:

• Census 'Faked' 2012 Election Jobs Report. In the home stretch of the 2012 presidential campaign, from August to September, the unemployment rate fell sharply — raising eyebrows from Wall Street to Washington. The decline — from 8.1 percent in August to 7.8 percent in September — might not have been all it seemed. The numbers, according to a reliable source, were manipulated. And the Census Bureau, which does the unemployment survey, knew it.

National Journal: 

• President Obama and His Gang That (Still) Isn't Shooting Straight. Incompetence, deception, and lack of accountability still hound White House and health reform.

Reuters:

• Salesforce.com(CRM) Q4 sales forecast bolstered by ExactTarget. Salesforce.com Inc forecast fourth-quarter revenue to come in slightly better than analysts' projections, helped by a strong performance by newly acquired email marketing firm ExactTarget.

Telegraph: 

• Bundesbank says Italian and Spanish banks still hooked on home state debt. The Bundesbank always like to spoil the party. Tucked away on page 33 if its November monthly report is a reminder that the banking systems and sovereign states of southern Europe remain stuck in a vicious circle:

China Securities Journal: 

• Guangzhou Raises Down Payment for 2nd-Home to 70%. The southern Chinese city of Guangzhou will raise the minimum down payment for 2nd-home purchasers to 70% starting Nov. 25, citing a statement from PBOC's Guangzhou branch.

Evening Recommendations

• None of note
  

Night Trading

• Asian equity indices are -.75% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 130.0 -2.0 basis points.

• Asia Pacific Sovereign CDS Index 101.75 -2.25 basis points. 

• FTSE-100 futures -.39%.

• S&P 500 futures +.06%.

• NASDAQ 100 futures +.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SPLS)/.42
• (DE)/1.90
• (ADT)/.46
• (LOW)/.47
• (JCP)/-1.74
• (JACK)/.39
• (GMCR)/.75
• (POST)/.21
• (LTD)/.28
• (WSM)/.54

Economic Releases
8:30 am EST

• The 3Q Employment Cost Index is estimated to rise +.5% versus a +.5% gain in 2Q.

Upcoming Splits

• None of note

Other Potential Market Movers

• The Fed Bernanke speaking, Fed's Evans speaking, Germany ZEW Index, weekly retail sales reports, Deutsche Bank SMID-Cap Conference, Morgan Stanley Consumer/Retail Conference, UBS Tech Conference and the (CHRW) investor day could also impact trading today.

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

Stocks Slightly Higher into Afternoon on Central Bank Hopes, Less Emerging Markets Debt Angst, Investor Performance Angst, Homebuilding/Defense Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Modestly Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 12.69 +4.10%

• Euro/Yen Carry Return Index 141.07 +.04%

• Emerging Markets Currency Volatility(VXY) 8.39 -2.10%

• S&P 500 Implied Correlation 33.41 unch.

• ISE Sentiment Index 99.0 -35.29%

• Total Put/Call .76 +1.33%

• NYSE Arms .97 +23.92% 

Credit Investor Angst:

• North American Investment Grade CDS Index 70.73 +.54%

• European Financial Sector CDS Index 105.79 -1.17%

• Western Europe Sovereign Debt CDS Index 64.0 +1.0%

• Emerging Market CDS Index 279.12 -1.91%

• 2-Year Swap Spread 10.5 +.25 basis point

• TED Spread 17.25 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -2.75 +.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .07% unch.

• Yield Curve 239.0 -2 basis points

• China Import Iron Ore Spot $137.0/Metric Tonne +.15%

• Citi US Economic Surprise Index 5.00 -1.9 points

• Citi Emerging Markets Economic Surprise Index -12.10 +.5 point

• 10-Year TIPS Spread 2.20 +1 basis point

Overseas Futures:

• Nikkei Futures: Indicating +126 open in Japan

• DAX Futures: Indicating +6 open in Germany

Portfolio: 

• Slightly Lower: On losses in my tech/retail sector longs and emerging markets shorts 

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long