Stocks Reversing Lower into Final Hour on Global Growth Fears, Surging Emerging Markets/Eurozone Debt Angst, Yen Strength, Energy/Gaming Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Underperforming

Equity Investor Angst:

• Volatility(VIX) 13.83 +17.01%

• Euro/Yen Carry Return Index 155.11 -.45%

• Emerging Markets Currency Volatility(VXY) 8.85 +1.61%

• S&P 500 Implied Correlation 66.66 +2.39%

• ISE Sentiment Index 66.0 -30.53%

• Total Put/Call 1.01 -1.94%

• NYSE Arms 1.35 +22.43% 

Credit Investor Angst:

• North American Investment Grade CDS Index 64.56 +3.43%

• European Financial Sector CDS Index 57.29 +2.35%

• Western Europe Sovereign Debt CDS Index 25.67 +1.62%
• Asia Pacific Sovereign Debt CDS Index 62.87 +1.85%

• Emerging Market CDS Index 322.23 +5.69%

• China Blended Corporate Spread Index 327.48 unch.
• 2-Year Swap Spread 22.0 +.75 basis point

• TED Spread 22.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -10.25 +.25 basis point

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.

• Yield Curve 163.0 -4.0 basis points

• China Import Iron Ore Spot $69.80/Metric Tonne -2.74%

• Citi US Economic Surprise Index 15.90 +1.0 point
• Citi Eurozone Economic Surprise Index -21.40 +3.9 points

• Citi Emerging Markets Economic Surprise Index -6.8 -2.2 points

• 10-Year TIPS Spread 1.72 -3.0 basis points

Overseas Futures:

• Nikkei Futures: Indicating -80 open in Japan

• DAX Futures: Indicating -40 open in Germany

Portfolio: 

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

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

• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg: 

• Russia Bond Yields Surge to 5-Year High as Rate Pressure Mounts. Russia’s borrowing costs jumped to a five-year high as the tumbling ruble sparked speculation the central bank will raise interest rates as early as this week to stem the depreciation. The yield on 10-year local-currency bonds rose 60 basis points to 12.67 percent at 7:26 p.m. in Moscow and the ruble lost 2.3 percent to 53.75 per dollar. Shares of Mail.ru Group tumbled to a record in London after UBS Group AG downgraded the internet company amid growing concern that an economic slowdown will curtail corporate earnings next year. Pipemaker OAO TMK’s dollar bonds fell further past levels deemed as distressed.
• Russia's Ruble Disaster in One Chart.
• Emerging-Markets Currencies Tumble to Decade-Low on Dollar, Oil. Nothing’s going right for emerging-market currencies these days. Oil prices are falling the most in six years, undermining exchange rates of energy producers from Latin America to Russia, just as slowing growth in China and a tumbling yen weigh on currencies across Asia. And surging demand for the dollar, the result of speculation that U.S. interest rates will rise, is adding to the woes of developing-nation currencies. An index tracking 20 key exchange rates has fallen to levels last seen more than a decade ago, down 10.2 percent this year and headed for the biggest annual slide since 2008.
• Economists Wrong-Footed by Investment Drop at Japanese Companies. Differences between how Japan’s finance ministry and cabinet office assess corporate investments caught economists off-guard today, resulting in gross domestic product forecasts that missed their mark. Economists last week started narrowing their estimates for the size of Japan’s economic contraction in the third quarter, trimming their figures following the finance ministry’s release of data showing investment by companies rose in the three months through September. The statistics used by the cabinet office that fed into updated GDP numbers today showed business spending dropping 0.4 percent. 
• Europe Stocks Drop From 7-Year High as Sika, Energy Shares Slump. A plunge in construction and energy companies sent European stocks down after a four-week rally. The Stoxx Europe 600 Index slid 0.7 percent to 348.61 at the close of trading in London after a 1.1 percent gain last week propelled it to its highest level since January 2008. Sika AG tumbled a record 22 percent today and Cie. de Saint-Gobain SA also fell as a hostile bid by Europe’s biggest supplier of building materials sparked a management revolt at the Swiss company. Oil and gas producers reached a three-year low. The DAX Index dropped 0.7 percent from an all-time high after a report showed German industrial production climbed less than forecast. 
• Copper Declines on Concern China Metals Demand Will Wane. Copper for delivery in three months on the London Metal Exchange dropped 0.7 percent to $6,405 a metric ton ($2.91 a pound) at 5:02 p.m. local time. Prices fell for the fourth time in five sessions.
• Paulson Comeback Reverses as Event Fund Drops 27% in Year. John Paulson’s lousy 2014 is getting worse. The billionaire’s firm posted a 27 percent year-to-date loss in its event-driven fund after a 3.1 percent decline in November, according to two people familiar with the matter. The Paulson Recovery Fund has declined 14 percent this year and a version of the event-driven strategy that can buy new share issues such as Alibaba Group Holding Ltd. (BABA) has fallen 17 percent.

ZeroHedge:

• Stocks Suffer Mini Flash Crash Just As 4th Hindenburg Omen Spotted. (graph)
• Energy Bond Risk Soars To Fresh Record High As Stocks Slump To 20-Month Lows. (graph)
• Oil Crash Comes Home To Roost: ConocoPhillips(COP) To Slash 2015 CapEx By 20%.
• Hedge Funds Most Long The S&P500, Most Short The 10 Year In Six Months, Still Long Crude. (graph)
• Job Market Growth Hovers Near 2-Year Lows, Fed's Labor Market Index Shows. (graph)
• McDonalds(MCD) Implodes, Reports Worst US Sales In Over A Decade. (graph)
• Oil Prices Collapse To New Cycle Lows, Canada Heavy Tumbles Under $50. (graph)

Business Insider:

• The Northeast Is About To Get Hit With Another Major Snowstorm. 
• Three Nightmare Economic Scenarios That Could Trigger Recession In 2015.
• Elizabeth Warren Supporters Are Preparing For War Against Wall Street.

Telegraph:

• Six triggers that could renew a eurozone crisis in 2015. Tensions in the eurozone's largest economies could pull the region apart next year, as a number of political risks could bubble over according to Nordea. 
• Tumbling euro not enough to save Germany’s factories. German industrial production data has failed to match the expectations of analysts, as the country faces lower growth next year.

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.21%

Sector Underperformers:

• 1) Oil Tankers -5.85% 2) Oil Service -4.51% 3) Gaming -3.62%

Stocks Falling on Unusual Volume:

• MCC, HAL, HEES, TDW, WMB, ADT, TCAP, FUEL, TASR, GLF, AR, NGLS, MRD, CLR, DRIV, NOAH, MYCC, GLP, ARP, ANET, BBEPP, MERC, AB, NMM, SSL, JMLP, PRTA, CLR, CTP, SGEN, LGCY, AIMC, JMF, CBA, SFL, MRD, KWEB, BKW, BTE, LINE, WLL, OAS and VNR

Stocks With Unusual Put Option Activity:

• 1) TSO 2) WMB 3) MCD 4) AMD 5) COP

Stocks With Most Negative News Mentions:

• 1) PBR 2) COP 3) GM 4) TWTR 5) RHAT
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.09%

Sector Outperformers:

• 1) Biotech +2.28% 2) Hospitals +1.29% 3) Utilities +1.06%
  

Stocks Rising on Unusual Volume:

• CBST, LPX, ISIS, XLRN, BLUE, ISIS, CEMP, TTPH and ACAD

Stocks With Unusual Call Option Activity:

• 1) DWA 2) LPI 3) CRUS 4) ASHR 5) ZQK
  

Stocks With Most Positive News Mentions:

• 1) EBAY 2) ITW 3) NDAQ 4) SBUX 5) LUV
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Monday Watch

Weekend Headlines 
Bloomberg:

• Russia Contagion Spreads to Former Soviet States Amid Rout. Russia’s currency and bond rout is spreading to former Soviet states. Currencies are tumbling after holding steady since President Vladimir Putin annexed Crimea in March. Russia’s deepening crisis and the ruble’s 34 percent slump over the past six months hurt economies that rely on remittances and imports from the country. Georgia’s lari lost 10 percent against the dollar last week, surpassing the 6.5 percent decline in the ruble as the biggest loser among 169 currencies tracked by Bloomberg. The Armenian dram slumped 2.8 percent, the sixth weekly drop, the longest slump since March 2010. Kazakhstan’s dollar-denominated notes due in 2024 slid, sending yields up 57 basis points, or 0.57 percentage point, to 4.76 percent. 

• Ruble’s Rout Is Tale of Failed Threats, Missteps and Blown Cash. Russian President Vladimir Putin has tried everything from selling dollars to threatening speculators in his bid to stem this year’s plunge in the ruble. None of it has worked. The attached graph provides an upclose look at the ruble’s collapse over the past two months. It dropped 25 percent during that time to 52.51 rubles per dollar, extending this year’s slide to 37 percent. The only currency in the world that’s fallen more is that of Ukraine, the country where all of Putin’s financial troubles began when his troops invaded the Crimea peninsula in March. 

• Ukraine Accuses Rebels of More Attacks as Talks Seen. Ukraine said rebel attacks dropped off in the eastern part of the country, while the two sides neared an agreement to resume peace talks as soon as this week. The Defense Ministry said pro-Russia separatists had shelled government forces about 33 times as of 6 p.m. local time yesterday, down from 58 in the same period the day before.

• Japan’s Recession Deepens as Election Looms for Abe: Economy. Japan’s recession was deeper than initially estimated as company investment unexpectedly shrank, a blow to Prime Minister Shinzo Abe as he campaigns for re-election on his economic credentials. The economy contracted an annualized 1.9 percent in the July to September period from the previous quarter, weaker than the 1.6 percent drop reported in preliminary data. The result was also below every forecast in a Bloomberg News survey that showed a median 0.5 percent decrease. 

• ECB Loans Seen as Underwhelming Banks to Stoke Draghi’s Resolve. Mario Draghi is about to get an idea of how far reality falls short of his intentions. A round of long-term loans by the European Central Bank to lenders this week won’t even cover the repayments they owe from a previous program, according to a Bloomberg News survey of analysts. The operation could show that stimulus measures the ECB president says are “intended” to add as much as 1 trillion euros ($1.23 trillion) to the financial system won’t suffice without large-scale buying of assets such as government bonds. 

• China A-Shares ETF Slumps as Regulator Urges Caution. The largest U.S. exchange-traded fund that tracks mainland stocks fell after China’s securities regulator urged caution as a rally in Shanghai shares pushed their premium over Hong Kong companies to a 30-month high.

• Emerging Markets Masking Corporate Foreign-Debt Levels, BIS Says. Foreign-debt levels of companies in emerging markets from China to India and Brazil are underestimated, threatening financial stability, the Bank for International Settlements said. Companies are raising more foreign funds through their offshore affiliates and accounting practices understate the currency risk in such transactions, the Basel, Switzerland-based institution said in its quarterly report. Almost half of the $554 billion that the firms raised in the five years through 2013 came from the affiliates, the BIS said. 

• China Stocks Set for Record Run; Oil Heads to 5-Year Low. China’s CSI 300 Index (SHSZ300) advanced a 12th day, the longest streak ever, as the country reported a record trade surplus. Crude oil dropped toward a five-year low while emerging-market currencies were weaker against the dollar after a U.S. payrolls report beat all estimates. The CSI 300 climbed 2.3 percent by 11:47 a.m. in Tokyo, as China’s exports exceeded imports by $54.47 billion. The MSCI Asia Pacific Index swung between gains and losses.

• Oil Declines From 5-Year Low on Signs U.S. Taking Fight to OPEC. WTI for January delivery dropped as much as $1.21 to $64.63 a barrel in electronic trading on the New York Mercantile Exchange and was at $65.08 at 2:31 p.m. Sydney time. It slid 97 cents to $65.84 on Dec. 5, the lowest close since July 2009. The volume of all futures traded was about 27 percent above the 100-day average. Prices have decreased 34 percent this year.

• Merck(MRK) in Talks to Buy Cubist(CBST) for $7 Billion, NYT Reports. Merck & Co. (MRK) is in talks to acquire Cubist Pharmaceuticals Inc. (CBST), a maker of antibiotics, in a deal valued at more than $7 billion, the New York Times reported, citing people briefed on the matter. Merck would pay about $100 a share, and an agreement could be announced as early as next week, the newspaper said. An offer in that range would represent a 34 percent premium over Cubist’s closing share price yesterday. 

Wall Street Journal:

• Big Australian Banks Could Face Higher Capital Requirements. Panel Makes Recommendations to Prepare Against Potential Financial Crises. Australia’s big banks could face additional capital requirements to buffer against potential financial crises and new challenges to their dominance in mortgage lending from regional lenders, following the first comprehensive review of the country’s financial industry in 17 years. 

• Banks Urge Big Customers to Take Cash Elsewhere or Be Slapped With Fees. J.P. Morgan, Citigroup and Others Tell Large U.S. Clients That New Regulations Make Some Deposits Less Profitable. 

• ObamaCare’s Threat to Private Practice. The payment system is forcing doctors to sell out to hospitals. The trend, and the law, will be unstoppable without reform. Here’s a dirty little secret about recent attempts to fix ObamaCare. The “reforms,” approved by Senate and House leaders this summer and set to advance in the next Congress, adopt many of the Medicare payment reforms already in the Affordable Care Act. Both favor the consolidation of previously independent doctors into salaried roles inside larger institutions, usually tied to a central hospital, in effect ending independent medical practices.

• Watch Out for That Puddle, Soon It Could Be Federally Regulated. The EPA wants to redefine ‘the waters of the United States’ to mean virtually any wet spot in the country. 

Barron's:

• The Case for Hedge Funds. Morgan Stanley advisor Deborah Montaperto has boosted her assets under management sixfold in six years. Why she’s a huge fan of hedge funds.

Fox News:

• Will GOP's control of the South play significant role in 2016 races? The defeat Saturday of Louisiana Democratic Sen. Mary Landrieu was essentially the final act in the Republican Party’s control this fall of the South -- a transition expected to have a significant impact on the 2016 White House races. The victory by Republican challenger and Louisiana Rep. Bill Cassidy means that Democrats in January will be left without a single U.S. senator or governor across nine states -- stretching from the Carolinas to Texas.

CNBC: 

• Keep an eye on the Fed's accelerating asset sales. The U.S. monetary authorities (Fed) are stepping up the contraction of their balance sheet at a surprisingly fast pace. Since peaking at $4.07 trillion last August, the Fed's monetary base has been reduced by $259.2 billion as of the latest reserve reporting date on November 26, 2014.

Zero Hedge:

• Consumer Credit Growth Misses For 3rd Month, Credit Card Debt Trickles To A Halt. (graph)

• Third Hindenburg Spotted In Best Week For Silver Since June, Crude Crucified. (graph)

• 5 Things To Ponder: Unstoppable Force Paradox.

• Energy Bond Crash Contagion Suggests Oil Will Stay Lower For Longer. (graph)

• Jim Grant Sums It All Up In 2 Stunning Paragraphs. (graph)

• Barron's On The Crash? - "This Time It's Different".

• IceCap Asset Management: The Third Law Of 'Stock Market' Motion.

• Citi(C) Faces $270 Million Loss; "In Panic" Over Chinese Port Commodity Fraud.

• When Goldman(GS) Writes The New York Fed's Press Releases, Then All Is Lost.

• Citi(C): "The Limits Of Investors' Faith That Central Banks Can Push Up Asset Prices, Are Increasingly On Display".

• Even The BIS Is Shocked At How Broken Markets Have Become.

• 5 Ways Russia's Demise Could Spread Around The World.

• Something Stinks Inside The BLS Jobs Data.

• Caught On Tape - State Department Spokesperson Admits Her Own Propaganda Is "Ridiculous". (video)

• There Has Never Been A Greater Portion Of America Living On Food Stamps. (graph)

• Total Derivatives Decline By 3% In Q2 To Only $691 Trillion. (graph)

• Nikkei Slides Back Below 18,000 On Deeper-Than-Expected Recession, Record Bankruptcies. (graph)

• China Fixes Yuan At Strongest Since March As Trade Surplus Hits Record Highs. (graph)

• Wall Street Moves To Put Taxpayers On The Hook For Derivatives Trades.

Business Insider:

• Mexico's 'Arab Spring' Is Here.

• Russia's Strategy For Undermining Western Unity Is Working.

• Apple(AAPL) May Be Reintroducing The 4-inch iPhone.

• Russia Is Militarizing The Arctic.

• Afghan Students Are Becoming Inspired By The Islamic State's Success.

• There's A Troubling Level Of Fragility Hidden Beneath Market Bouyancy.

USA Today

• American journalist killed in failed Yemen rescue attempt.

Financial Times:

• Merkel accuses Putin of ‘creating problems’. German chancellor Angela Merkel delivered a sweeping criticism of President Vladimir Putin over the Ukraine crisis, warning that Russia was “creating problems” in Moldova and Georgia, and trying to make some Balkan states “politically and economically dependent”.

China Securities Journal:

• China Faces Rising Debt Ratio, Local Govt Debt. The Chinese economy faces a rising debt ratio, swelling local government debt and a possible property market correction, citing Li Yang, vice president of the government-backed Chinese Academy of Social Sciences.

People's Daily:

• China to Adopt 'Strong' Measures to Reduce Overcapacity. China won't allow any projects to build capacity in industries with "serious overcapacity such as steel and will charge more for power and water in the sectors, according to an article written by Renzhou, an official with the Ministry of Industry and Information Technology.

Weekend Recommendations
Barron's:

• Bullish on (CFX), (HPQ), (HON), (DOOR), (DIS) and (GOOG).

Night Trading

• Asian indices are -.50% to +.50% on average.

• Asia Ex-Japan Investment Grade CDS Index 101.0 -1.0 basis point.

• Asia Pacific Sovereign CDS Index 61.75 unch.

• FTSE-100 futures n/a.

• S&P 500 futures -.04%.

• NASDAQ 100 futures -.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (IDT)/.42

• (HRB)/-.42

• (PBY)/.12

Economic Releases
10:00 am EST

• Labor Market Conditions Index Change for November.  

Upcoming Splits

• (INFY) 2-for-1

Other Potential Market Movers

• The Fed's Lockhart speaking, German Industrial Production report, KeyBanc Engineering/Construction/Utilities Conference, UBS Media/Communications Conference, (AMGN) investor meeting, (DOV) investor meeting and the (SLG) investor conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the week.

Weekly Outlook

Week Ahead (audio) by Bloomberg. 
Wall St. Week Ahead by Reuters.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on global growth worries, rising European/Emerging Markets debt angst, profit-taking and technical selling. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.