Bull Radar

Style Outperformer:

• Small-Cap Value (+2.75%)

Sector Outperformers:

• 1) I-Banks +6.69% 2) Coal +5.59% 3) Steel +5.29%

Stocks Rising on Unusual Volume:

• CETV, TIVO, DB, COG, BCS, OXY, PBR, PHG, HES, CDNS, CEVA, AKAM, OTEX, PMTC, APKT, CTXS, NVLS, CAR, KCE, BYI, CRR, MS, FNSR, FCX, CLF, JPM, GS, JOYG and DO
  

Stocks With Unusual Call Option Activity:

• 1) MTG 2) AVP 3) RCL 4) FXE 5) HL
  

Stocks With Most Positive News Mentions:

• 1) OC 2) HRS 3) URBN 4) CSCO 5) AXTI
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• EU Sets 50% Greek Writedown, $1.4 Trillion in Debt Fight. European leaders persuaded bondholders to take 50 percent losses on Greek debt and boosted the firepower of the rescue fund to 1 trillion euros ($1.4 trillion), responding to global pressure to step up the fight against the financial crisis. Ten hours of brinkmanship at the second crisis summit in four days delivered measures that the euro area’s stewards said point the way out of the debt quagmire, even if key details are lacking. Last-ditch talks with bank representatives led to the debt-relief accord, in an effort to quarantine Greece and prevent speculation against Italy and France from ravaging the euro zone and wreaking global economic havoc. “The world’s attention was on these talks today,” German Chancellor Angela Merkel told reporters in Brussels at about 4:15 a.m. today. “We Europeans showed tonight that we reached the right conclusions.” Measures include a bigger role for the International Monetary Fund, a commitment from Italy to do more to reduce its debt and a signal from leaders that the European Central Bank will maintain bond purchases in the secondary market.
  
• China Default Swap Bets Double as Growth Slows: Credit Markets. Investors are taking out a record amount of debt insurance on China amid concern that rising bad bank loans and slowing global growth will depress the world's biggest exporter. The net amount of Chinese sovereign debt covered by credit-default swaps doubled this year to $9.3 billion, the eighth highest of 1,000 entities tracked by the Depository Trust & Clearing Corp. Contracts on China were the sixth most-traded last week behind France, Spain, Germany, Italy and Brazil, with a daily average of $488 million.
  
• Hedge Funds to Begin Opening Data to Regulators Next Year. The U.S. Securities and Exchange Commission responded to objections from hedge funds and private- equity funds by dialing back demands in its new rule requiring fund advisers to report internal information to regulators. The commission approved its final rule in a unanimous vote today, easing the thresholds for defining which large funds will have to report the most information to regulators. The final rule, which requires some funds to begin reporting as soon as next year, also allows private-equity funds to report less often than initially proposed.
• Commodities Tumble Most in a Week, Led by Oil, Nickel on Economic Concerns. Commodities fell the most in a week, led by oil, nickel and wheat, on a bigger-than-expected gain in crude inventories and speculation that demand for U.S. grain will shrink as the global economy falters. The Standard & Poor’s GSCI Index of 24 raw materials dropped 1.8 percent after oil declined the most in more than three weeks in New York. The index retreated for the first time in four days as commodity prices declined amid concern that European debt-crisis talks are stalling. Gold and silver rose. “The markets that fell were working based on their own fundamentals and the economic outlook,” said Mike Armbruster, a commodities analyst at Altavest Worldwide Trading in Mission Viejo, California. Crude’s supply increase “was a nice excuse for that market to pull back.” The S&P GSCI index dropped to 637.76. Commodity prices have rebounded 11 percent from a 10-month low on Oct. 4. Eighteen of the commodities in the index declined today.
• Congress May Pass Another Short-Term Government Spending Measure. For the sixth time in 2011, Congress may pass another short-term spending measure to keep financing the U.S. government while lawmakers work to complete annual appropriations legislation, lawmakers said. The stopgap legislation would fund the government from the Nov. 18 expiration of the current spending authority until sometime before Congress begins its annual holiday recess in late December, House Appropriations Committee Chairman Hal Rogers told reporters today. Congress hasn’t passed any of the 12 appropriations measures for the 2012 fiscal year, which began Oct. 1.
• Want to Create Jobs? First Cut Capital-Gains Taxes: Amity Shlaes. Along with jobs, raising taxes on the rich is one of things the Wall Street protesters feel strongly about, as Andrew Cuomo, the Democratic governor of New York, is learning all too well. Cuomo has become a target for activists because he’s refusing to fight to extend a state-tax surcharge on the wealthy that expires soon. Cuomo’s insistence on protecting the rich is causing fellow Democrats to ask whether he has forgotten that he stands for workers. But Cuomo’s insistence is born of experience. Higher taxes can destroy jobs. As data from the Tax Foundation show, New Yorkers are net migrants to Connecticut. Both Cuomo and various jubilant governors in Connecticut have attributed the shift to taxes. Cuomo has said that he aims to ensure the tax regime in the Empire State stops driving others away. “I think you are kidding yourself if you think you can be one of the highest-taxed states in the nation, have a reputation for being anti-business and have a rosy economic future,” Cuomo said recently, according to the Daily News. He may also have looked at weightier studies surveying the treatment of capital nationally.
• Currency Traders in Worst Year Since 1991 as Taylor Loses 12%. Currency-trading strategies are losing the most in two decades as the volatility that's boosted volume and profits for investment banks erodes the ability of investors to make money. Three out of four Royal Bank of Scotland Group Plc indexes of foreign-exchange trading strategies are down this year, including a 2.7 percent drop through September for its carry trade index. Deutsche Bank AG's dollar-denominated Currency Returns Index has fallen 3.4 percent, the biggest drop since a 4 percent slide in 1991. The Stark Currency Traders Index and a Barclays Plc index have declined by 8.6 percent and 0.4 percent.
• Chinese Military Suspected in Hacker Attacks on U.S. Satellites. Computer hackers, possibly from the Chinese military, interfered with two U.S. government satellites four times in 2007 and 2008 through a ground station in Norway, according to a congressional commission. The intrusions on the satellites, used for earth climate and terrain observation, underscore the potential danger posed by hackers, according to excerpts from the final draft of the annual report by the U.S.-China Economic and Security Review Commission. The report is scheduled to be released next month. “Such interference poses numerous potential threats, particularly if achieved against satellites with more sensitive functions,” according to the draft. “Access to a satellite‘s controls could allow an attacker to damage or destroy the satellite. An attacker could also deny or degrade as well as forge or otherwise manipulate the satellite’s transmission.”

Wall Street Journal:

• Live Blog: European Debt-Crisis Summit.
• John Paulson Bets Wrong (Again). John Paulson’s push to scale back the bullish bets that led to steep losses earlier this year now is costing the hedge-fund titan a chance at regaining ground during this month’s stock-market rally. One of Paulson & Co.’s largest funds, Paulson Advantage, is up less than 1% in October, two investors say. The S&P500 is 9.92% higher so far this month. October’s lackluster returns come at a critical time for Paulson. Investors in Paulson’s two biggest funds have until Oct. 31 to decide whether they want to pull some or all of their money from the funds before the end of the year.
• Fed Ties Purse Strings of Banks. J.P. Morgan Chase & Co.(JPM) recently approached U.S. regulators about potentially buying back more of its shares but the giant bank was told it might not get the answer it wanted, according to people familiar with the situation. J.P. Morgan decided against submitting a formal application following the Fed's discouraging feedback. But it isn't the only big, healthy bank clashing with regulators over how it may spend its money.
• Bigger Haircuts Would Make Greek CDS Trigger More Likely. The bigger the loss or "haircut" that European officials will force private investors to take on Greek bonds, the more likely it is that an aggressive restructuring of the nation's debts would trigger payouts on the $3.7 billion of credit-default swaps tied to its bonds, analysts said Wednesday.
• Chinese Tech Giant Aids Iran. When Western companies pulled back from Iran after the government's bloody crackdown on its citizens two years ago, a Chinese telecom giant filled the vacuum. Huawei Technologies Co. now dominates Iran's government-controlled mobile-phone industry. In doing so, it plays a role in enabling Iran's state security network.

Business Insider:

• Everything That Happened at Wednesday's Big, 10-Hour EU Summit.
• DOWNGRADE WATCH: The Super Committee Is (Predictably) Deadlocked Over Taxes.

Zero Hedge:

• Here Is How The 50% Greek Haircut Is Actually Just 28%.
• Freddie CEO Leaving Company: To Get $3.9 Million For Receiving $14.5 Billion In Bailout Cash Over His Tenure.
• Gun Ownership Soars To 18 Year High: 47% Of Americans Admit To Owning A Gun. (graph)
• Boots On The Ground In China: Signs Of A Slowdown Are Obvious.

CNBC:

• FBR to Cut Workforce Up to 35%. FBR is laying off up to 35 percent of its workforce. The middle market investment bank is cutting its workforce by 30 to 35 percent as it struggles to stay profitable in a difficult environment.
• China Labor Costs Soar as Wages Rise 22%. The government, which has made it a policy priority to boost incomes, welcomed the development, but economists warned that it would add pressure to companies already struggling against weak global demand. As of the end of September, local authorities in 21 of China’s 31 provincial-level regions had increased minimum wages by an average 21.7 percent, the ministry of human resources and social security said. Several more have also promised to raise minimum wages before the end of the year.
• Visa(V) Earnings Beat But Revenue Misses; Shares Slip. Visa reported quarterly profit that beat analysts' expectations on Wednesday but revenue fell slightly short. Shares of the credit-card company slipped in after-hours trading.

IBD:

• Tibco's(TIBX) Software Knows Where You Are.

CNN:

• Investors (and the Fed) are Addicted to Liquidity. Fed vice chair Janet Yellen, Fed governor Daniel Tarullo and NY Fed president William Dudley have all hinted in speeches recently that another so-called quantitative easing program, or QE3, could be possible. Why? The Fed has already pumped trillions of dollars into the economy with the first two renditions of QE. It has left its key interest rate near zero since December 2008 and has pledged to keep rates low until the middle of 2013. And the Fed is buying even more bonds now through Operation Twist, a program that allows the central bank to sell short-term Treasuries and trade them in for longer-term ones so it doesn't have to add more to its already bloated balance sheet.What has this accomplished? The economy is still in a sluggish growth phase that feels more like a recession than a recovery. Unemployment remains above 9%.
• The 53%: We are NOT Occupy Wall Street. Occupy Wall Street protesters might say they represent 99% of the nation, but there's a growing number of Americans who are making it clear they are not part of the dissident crowd. They call themselves the 53%...as in the 53% of Americans who pay federal income taxes. And they are making their voices heard on Tumblr blogs, Twitter and Facebook pages devoted to stories of personal responsibility and work ethic. The number originates in the estimate that roughly 47% of Americans don't pay federal income tax, according to the nonpartisan Tax Policy Center. The 53 percenters stress the fact that they are paying the taxes that support the government assistance the protesters say they want.

LA Times:

• California Eyes Solar Path After Solyndra. Lawmakers and executives say Solyndra's failure shouldn't be used against the clean-tech industry.

Washington Post:

• Banks to Define Greek Bond 'Default'. The world economy may soon find itself in the hands of a small group of bankers who must make a seemingly technical decision that has huge ramifications. As European government leaders rush to find a strategy to contain the debt crisis in Greece and other nations, they are looking for the owners of Greek bonds to take a significant reduction in what they are owed — as much as 60 percent, according to some reports. That prompts a key question: Will that officially count as a “default” for purposes of the massive market that allows investors to insure against those losses? At issue is the market for “credit default swaps,” which allow investors to buy protection against an entity — whether a company or country — failing to pay its debts. If owners of Greek debt are seen as taking a voluntary cut in what they are owed, the credit default swaps would not have to pay off. If the cut is considered to be forced on debt holders, the swaps would have to pay. A committee of representatives from giant banks and other financial firms will make the call.

Politico:

• Indicted Goldman(GS) Exec Was Major Democrat Donor. Rajat Gupta, the former head of McKinsey & Co. and Goldman Sachs who pleaded not guilty today in his insider trading case, was a major Democratic donor, according to FEC data. Gupta has given to various Democratic candidates and committees, totaling just over $100,000 since 1990. He gave $2,500 to Obama during the '08 cycle and $10,000 to the Democratic Congressional Campaign Committee, plus donations to a handful of congressional candidates. Gupta cut a $23,000 check to the DNC in 2004, plus two $10,000 donations to the DCCC in 2005 and 2006. He also donated to Al Gore, Chris Dodd and Hillary Clinton, among others.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 19% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -21 (see trends).

Financial Times:

• Scrutiny is Price SAC Pays for Performance. Too good to be true is the argument that has dogged SAC Capital for years, as outsiders ponder how a hedge fund responsible for about 2 per cent of daily trading volume on the New York Stock Exchange can persistently be one of the industry’s best performers.
• Counterparty Risk Makes An Anxious Return. Every week the fixed income team of one large European bank takes two minutes out of its busy schedule to look at the credit default swap spreads of its competitors. They have been blowing out in recent months, a sign of rising stress at these institutions, becoming a prime marketing tool for the bank.
• Qatar Joins Mexico With 25% Oil Hedge. Qatar, a member of the Opec oil cartel, has joined Mexico in taking out an insurance policy against falling oil prices next year, hedging some of its oil for 2012 as both nations adopt a cautious view about the global economy. Oil brokers said that Mexico hedged the bulk of its net exports for the year, as it has done in the past, of around 800,000 barrels a day at a price of around $75 per barrel for the West Texas Intermediate crude. Qatar, however, hedged only a portion of its oil exports, with some brokers estimating about 200,000 b/d, a quarter of its annual oil output.

Telegraph:

• Debt Crisis: Live.
• European Banks Given Just Eight Months to Raise €106bn.
• Europe's Grand Gamble Risks Failure Without ECB. Europe's banks will be recapitalised for €100bn, first by private funds, then state funds, and only from the EFSF as a last resort. This falls well short of the €200bn figure first mooted by the IMF. Banks will have until next June to meet a core Tier 1 capital ratio of 9pc. The draft said banks must "enhance capital" and "avoid a credit crunch" at the same time, a contradiction in terms. Lenders have already begun to shrink their balance sheets rather than dilute capital. The danger is a brutal contraction of lending, perhaps by €5 trillion, according to RBS. The view in the markets is that only the ECB has the credible lending power to contain the crisis, and on that score the summit did not advance one millimetre.

People's Daily:

• More than 60% of Chinese bankers surveyed felt pressure from limited lending and uncertainty in economic growth and inflation trends, citing a survey by the China Banking Association and PricewaterhouseCoopers. More than half of the bankers felt management of their operations are under pressure from uncertain macroeconomic policy and possible regulatory changes.
• Bill Gates Opens Doors to Help China. China's Ministry of Science and Technology signed a memorandum of understanding with the Bill & Melinda Gates Foundation to invest together in research and development of new products and technologies to help with global health and agriculture. Under the $300 million project, for every dollar the foundation gives to support selected China-grown products and technologies that can help advance health and agriculture, particularly in the developing world, the ministry will offer $2 as grant money.

China Securities Journal:

• It's necessary to continue tightening the housing sector as expectations remain strong for a home price rise, China Securities Journal says today in an editorial. The upward trend in home prices hasn't changed in tier-2, 3 cities. China may take more measures after Premier Wen Jiabao said the government would adjust economic policy at a "suitable time", the editorial said.

Evening Recommendations
Citigroup Global Markets:

• Reiterated Buy on (BA), lowered target to $78.
• Reiterated Buy on (F), target $16.

Night Trading

• Asian equity indices are +.50% to +1.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 201.0 +1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 153.0 unch.
• FTSE-100 futures +1.75%.
  
• S&P 500 futures +1.35%.
  
• NASDAQ 100 futures +1.33%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (IP)/.80
• (BG)/1.58
• (LLL)/2.15
• (CLI)/.67
• (CAH)/.72
• (HOT)/.39
• (JCI)/.76
• (XOM)/2.13
• (DBD)/.60
• (GR)/1.51
• (MWW)/.12
• (PHM)/.00
• (CL)/1.30
• (AET)/1.14
• (TWC)/1.14
• (ZMH)/1.03
• (CTXS)/.58
• (PFCB)/.32
• (RTN)/1.33
• (GILD)/1.00
• (MCRS)/.47
• (KLAC)/1.16
• (CLF)/3.67
• (LVS)/.52
• (ERTS)/-05
• (FII)/.38
• (CSTR)/.88
• (CERN)/.47
• (MET)/1.09
• (AMD)/.10
• (PCP)/2.04
• (AVP)/.46
• (OXY)/1.94
• (EXPE)/.73
• (HSY)/.84
• (OMX)/.23
• (DECK)/1.35
• (PG)/1.03
• (CELG)/.95
• (RCL)/1.83
• (UAL)/2.08
• (BMY)/.58
  

Economic Releases
8:30 am EST

• Advance 3Q GDP is estimated to rise +2.5% versus a +1.3% gain in 2Q.
• Advance 3Q Personal Consumption is estimated to rise +1.9% versus a +.7% gain in 2Q.
• Advance 3Q GDP Price Index is estimated to rise +2.4% versus a +2.5% gain in 2Q.
• Advance 3Q Core PCE is estimated to rise +2.2% versus a +2.3% gain in 2Q.
• Initial Jobless Claims are estimated to fall to 401K versus 403K the prior week.
• Continuing Claims are estimated to fall to 3700K versus 3719K prior.
  

10:00 am EST

• Pending Home Sales for September are estimated to rise +.3% versus a -1.2% decline in August.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The 7-Year Treasury Note Auction, ECB's Weidmann speaking, Kansas City Fed Manufacturing Activity for Oct., weekly Bloomberg Consumer Comfort Index and the (ETH) Investor Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by financial and commodity shares in the region. I expect US stocks to open higher and to maintain gains into the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Surging into Final Hour on Less Financial Sector Pessimism, Short-Covering, Diminishing Global Growth Worries, Falling Food/Energy Prices

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 30.56 -5.15%
  
• ISE Sentiment Index 84.0 +18.31%
  
• Total Put/Call 1.0 -2.91%
  
• NYSE Arms .90 -59.68%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 128.59 -.29%
  
• European Financial Sector CDS Index 222.96 -1.13%
  
• Western Europe Sovereign Debt CDS Index 340.50 -.69%
  
• Emerging Market CDS Index 298.41 -4.0%
  
• 2-Year Swap Spread 37.0 -1 bp
  
• TED Spread 41.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .01% +1 bp
  
• Yield Curve 192.0 +6 bps
  
• China Import Iron Ore Spot $127.40/Metric Tonne -3.26%
  
• Citi US Economic Surprise Index 14.90 +3.0 points
  
• 10-Year TIPS Spread 2.09 +6 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +17 open in Japan
• DAX Futures: Indicating +47 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech and Medical sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short and then added some back
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 reverses morning losses on less financial sector pessimism, diminishing global growth worries, short-covering and falling energy prices. On the positive side, Coal, Energy, Oil Service, Steel, Computer, Disk Drive, Bank, Biotech, HMO, Insurance and Homebuilding shares are especially strong, rising more than 2.0%. Small-cap and cyclical shares are substantially outperforming. (XLF) has traded well throughout the day. Oil is dropping -2.23%, lumber is up +2.09%, copper is gaining +2.54% and the UBS-Bloomberg Ag Spot Index is down -1.45%. The 10-year yield is rising +10 bps to 2.20%. The US sovereign cds is falling -2.59% to 42.04 bps. On the negative side, Defense, Internet, Software, Semi, Wireless, Retail and Education shares are lower on the day. Tech shares have traded poorly throughout the day. Despite the recent rally in equities, better economic data and rising inflation expectations, the 10-year yield is lower over the last 10 days, which is also a negative. Rice is still close to its multi-year high, rising +33.0% in about 15 weeks. The China sovereign cds is surging +9.54% to 148.94 bps, the Italy sovereign cds is gaining +.65% to 457.33 bps and the Portugal sovereign cds is gaining +.29% to 1,115.59 bps. The TED spread is still very near the highest since June 2010. The Libor-OIS spread is still very near the widest since July 2010. The 2-Year Euro Swap and 2-Year swap spreads are still very close to their recent highs, which is also noteworthy considering the recent strong equity advance. The Western Europe Sovereign CDS Index, the European Financial Sector CDS Index and the Asia-Pacific Sovereign CDS Index are still near their records and trending higher. China Iron Ore Spot continues to pick up downside steam, plunging -33.6% since February 16th and -29.6% since Sept. 7th. Gauges of Eurozone credit angst are mixed-to-higher, which is a large negative given investor perceptions that the crisis is finally on its way to being "solved". While these perceptions may persist for awhile longer, I continue to believe leveraging the EFSF will prove a massive mistake over the intermediate-term. I expect US stocks to trade mixed-to-higher into the close from current levels on less financial sector pessimism, diminishing global growth worries, short-covering, falling food/energy prices and technical buying.

Bear Radar

Style Underperformer:

• Large-Cap Growth (-.31%)

Sector Underperformers:

• 1) Education -4.02% 2) Internet -2.01% 3) Retail -1.51%

Stocks Falling on Unusual Volume:

• AMZN, CHRW, CCI, YPF, WBSN, TMO, SINA, ABG, WAT, MASI, GMCR, DGII, SONO, FTNT, BRCM, BHLB, HTLD, PAAS, VRUS, FEIC, HANS, RIMM, CYOU, MEOH, SODA, VCI, BMS, RSH, HCC, DV, AVY, BCR, POL and F
  

Stocks With Unusual Put Option Activity:

• 1) MF 2) CBG 3) LNG 4) HMY 5) NFX
  

Stocks With Most Negative News Mentions:

• 1) RSH 2) CHRW 3) DV 4) RIMM 5) AMZN
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth (+.98%)

Sector Outperformers:

• 1) HMOs +2.80% 2) Coal +2.09% 3) Steel +1.69%

Stocks Rising on Unusual Volume:

• ABAX, XCO, ONXX, VLO, IRBT, ULTI, SMCI, ITRI, TSS, PNRA, ITRI, QCOR, SLAB, FSLR, FFIV, SSRI, BIIB, ESRX, STX, MIM, MDP, MHS and MTW
  

Stocks With Unusual Call Option Activity:

• 1) SSRI 2) LNG 3) TRGT 4) NKTR 5) AEO
  

Stocks With Most Positive News Mentions:

• 1) FFIV 2) AMZN 3) CPTS 4) F 5) GD
  

Charts:

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

Wednesday Watch

Evening Headlines

Bloomberg:

• Europe Struggles for Crisis Remedy. European leaders “have risen to the challenge,” German Chancellor Angela Merkel said. French President Nicolas Sarkozy proclaimed their July 21 summit a “historic turning point” and Luxembourg Prime Minister Jean- Claude Juncker called it the “final package, of course,” to put out the debt inferno. Then they went on vacation. Before they returned to work, the deal fizzled. The euro’s stewards are back in Brussels today for an emergency summit struggling to heed the world’s calls to once and for all extinguish what U.S. Treasury Secretary Timothy F. Geithner called the “catastrophic risk” of the debt crisis. A potential Greek default threatens shockwaves that could engulf Italy and France, jolt the banking system and spell havoc for the global economy. “Buck up, this crisis is going to be with us still for a while,” Barry Eichengreen, an economics professor at the University of California at Berkeley, said on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “I fear they’re not going to take the kind of steps to resolve it.” The gathering marks the interim climax to six days of haggling among finance ministers, central and commercial bankers, chancellors and prime ministers over the shape of Greece’s second bailout, the recapitalization of banks and the retooling of the 440 billion-euro ($612 billion) rescue fund into a more potent weapon.
• Joke Is on Europe as Sarkozy Laughs at Berlusconi: Euro Credit. The leaders of France and Germany shared a smile when asked whether Prime Minister Silvio Berlusconi can fix his nation’s finances, echoing investor concern about the Italian premier delivering on pledges to tame Europe’s second-biggest debt. The reaction of Nicolas Sarkozy and Angela Merkel at an Oct. 23 Brussels news conference highlights one of the issues policy makers must tackle at today’s European Union summits. Italy plans to sell 10.5 billion euros ($14.6 billion) of bonds today as rising borrowing costs reflect investor skepticism about its creditworthiness. The country has to repay 298 billion euros of debt next year, double its 2013 obligations and more than Germany, France, Spain or any other euro member. ‘‘Berlusconi’s standing in international politics has been seriously damaged,’’ said Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London. ‘‘Any hint of a buyers’ strike’’ during today’s auction ‘‘would be negative for risk in general,’’ she said. Berlusconi is struggling to convince investors he can tame Italy’s 1.9 trillion-euro debt burden, worth about 120 percent of economic output and second only to Greece in the euro region. The yield on Italy’s benchmark 10-year bond is about 5.93 percent, close to the 6 percent level that prompted the European Central Bank to start buying the debt in an effort to drive borrowing costs down from euro-era records.
• BHP(BHP), Rio(RTP) Credit-Default Swaps Surge After Iron Ore Price Plunge. The cost of bond protection on BHP Billiton Ltd. and Rio Tinto Group surged after the cash price of iron ore for immediate delivery to China, a benchmark for Asia, dropped yesterday by the most in more than two years. Credit-default swaps on Rio rose 20 basis points to 200 as of 10:23 am in Sydney. Contacts on BHP jumped 10 basis points to 120. Iron ore for delivery to the port of Tianjin fell $10.20, or 7.2%, yesterday to $131.70 a metric ton, according to a price index compiled by The Steel Index Ltd. That is the biggest slump since August 20, 2009, and is the lowest price in 15 months.
• Floods Ruining Thai Rice Erases Global Glut. Thailand’s worst floods in more than a half century may have wiped out as much as 14 percent of paddy fields in the world’s biggest rice exporter, potentially erasing the predicted global glut. The Thai export price, a global benchmark, may climb 20 percent to $750 a metric ton by December, said Sumeth Laomoraphorn, the president of C.P. Intertrade Co., the country’s largest seller of packaged rice. Tropical storms inundated 62 of 77 provinces, destroying 1.4 million hectares (3.5 million acres) and as much as 7 million tons of crops, the government says. That equals 4.6 million tons of milled grain, 1 million more than the surplus anticipated by the U.S. Department of Agriculture. Rice, a staple for half the world, was already this year’s best-performing agricultural commodity after drought cut the U.S. harvest to the lowest level in 13 years. Prices also rose as Thailand started buying at above-market costs to boost farmer incomes. That is adding renewed pressure to global food prices monitored by the United Nations, which had dropped 5 percent from a record in February as other grains declined. “I’ve never seen such a catastrophe, watching the field turning into a sea of floodwater,” said Wichian Phuanglamchiak, a 74-year-old farmer in the central province of Ayutthaya, speaking from the second floor of his house. “My entire crop was wiped out and I have to wait for the water to recede before I can replant in December.”
• Crisis of 2012 May Hurt China More Than U.S.: William Pesek. Many would be taken aback to think that China, too, might experience its share of setbacks compared with the U.S. Some are well-known, including inflation that fans social unrest and a financial crisis erupting as the massive stimulus of 2009 comes back to haunt Beijing. All that investment created the illusion of economic vitality. Too much of it was funneled into unproductive sectors of the economy, setting up China for a banking meltdown. Choyleva adds a less obvious twist to the critique: how China’s financial proximity to the U.S. is a bigger problem than many people appreciate. By tying itself to the dollar and amassing more than $3 trillion of currency reserves, China essentially merged with the U.S. financial system. When the Fed pumps money into the economy, it inflates China more than America. There are rumblings in Washington about punishing China for its undervalued currency. Yet China is only now realizing the extent to which it surrendered sovereignty to the U.S. As the Fed adds more cash to markets, China’s inflation becomes more entrenched and Beijing loses even more control. Over time, this dynamic will harm China’s competiveness more than if Beijing had allowed the yuan to strengthen, as per the U.S.’s demands. China could increase interest rates to temper rising prices, but that would devastate growth. The thing about the G-2 is that pundits often view China as being in the stronger position -- its massive reserve holdings are both leverage and a fortification. Yet China is trapped. It’s addicted to cheap U.S. financing and is increasingly feeling the side effects.
• Occupy Wall Street Knows Not What It Does Hurting Local Jobs. Occupy Wall Street protests assailing income inequality, joblessness and big banks may have some unintended consequences. They’re hurting nearby merchants as police barricades deter shoppers. “If this doesn’t stop soon I will be out of business,” said Marc Epstein, 53, president of Milk Street Cafe on Wall Street, less than a block from the New York Stock Exchange. Sales have dropped about 20 percent since the protests began last month and the 103 jobs created by the cafe’s opening in June are now at risk, said Epstein, who is not alone. Caroline Anderson, general manager of Boutique Tourbillon, a Wall Street jewelry store, said customer traffic is down about 20 percent, and Vincent Alessi, a managing partner at Bobby Van’s Steakhouse on Broad Street, said his lunch business has been cut in half. The Occupy Wall Street movement that began in New York with about 1,000 people on Sept. 17 has spread to cities on four continents as demonstrators from London to Rome and Chicago to Sydney have pitched tents in public spaces. Police, whose displays of force also may be hurting business as they block access to tourist destinations, have arrested hundreds. “These protesters don’t understand the consequences of their actions,” Epstein said. “Who’s going to create the jobs they’re banging their drums for?”
• First Solar(FSLR) Plunges Most Ever After Chief Gillette Departs. Rob Gillette has left First Solar Inc. after almost doubling production capacity during the two years he ran the world’s biggest maker of thin-film solar panels. “Effective immediately, Rob Gillette is no longer serving as chief executive officer,” the Tempe, Arizona-based company said today in a statement that didn’t give a reason. Chairman and founder Mike Ahearn, 54, was named interim CEO. With demand and prices for solar panels falling, expanding First Solar’s production may have been the wrong decision, said Paul Leming, an analyst at Ticonderoga Securities LLC in New York. Declining prices also make it unlikely that the company will be seen as a buyout target. “Rob Gillette made one overwhelmingly bad decision,” Leming said today in an interview. “He made the decision early in his tenure to put the company on an aggressive capacity expansion.” The company’s shares have dropped 71 percent in the past year. First Solar is developing three projects that use its panels. It sold all of them after they received $3.1 billion in backing under the same U.S. Energy Department loan guarantee program that supported the failed solar panel maker Solyndra LLC.
• Amazon(AMZN) Profit Plunges; Shares Tumble. Amazon.com Inc., the world’s largest Internet retailer, reported a plunge in third-quarter profit after it ramped up spending on new products such as the Kindle Fire tablet. The shares tumbled 19 percent in late trading. Net income fell 73 percent to $63 million, or 14 cents a share, from $231 million, or 51 cents, a year earlier, the Seattle-based company said today in a statement. That missed the 24 cents predicted by analysts, according to Bloomberg data. Amazon also said it may post an operating loss this quarter. The company is sacrificing profit margins in search of sales volume and market-share gains. Amazon will sell its Kindle Fire tablet for as low as $199, less than half the price of Apple Inc.’s cheapest iPad. Chief Executive Officer Jeff Bezos is counting on revenue from digital music, books and movies to make up for selling the product at a loss -- estimated by IHS Inc. to be about $10 per device. “They missed investors’ expectations,” said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco. The companies’ growth plans aren’t doing enough to spur profit, rather than just sales, he said. “If they don’t show a corresponding increase in earnings, investors start to scratch their heads.”
• Groupon IPO Said to Ask Triple Amazon's(AMZN) Price-to-Sales for 2012. Groupon Inc. is seeking a valuation of about 5 times projected 2012 sales in its initial public offering, people familiar with the plans said, making it three times more expensive than Amazon.com Inc. Advisers to Groupon based the asking price for the IPO on a projection that the company will have sales of about $2.1 billion next year, said the people, who asked to remain anonymous because the figures are private. The $17 midpoint of Groupon’s IPO price range would value the company at $10.8 billion, or about 5 times that sales prediction. That means unprofitable Groupon would be more expensive than Amazon.com, the biggest online retailer, which trades at about 1.6 times estimated 2012 revenue, according to data compiled by Bloomberg.
• Hong Kong Office Rents May Fall Up to 40%, Barclays Says. Office rents in Hong Kong, the world's costliest place to lease commercial space, may fall as much as 40% over the next two year if China goes through an economic "hard landing," said Barclays Capital Research.
• MetLife(MET) Says Fed Rejects Life Insurer's Plan for Dividend Boost, Buybacks. MetLife Inc., the largest U.S. life insurer, said its plan to increase the dividend and resume share repurchases was rejected by the Federal Reserve. The stock declined in extended trading. “We are disappointed that we cannot commence increased capital actions now,” Chief Executive Officer Steven Kandarian said in a statement today.
• Morgan Stanley Smith Barney Said to Change Broker Pay Structure. Morgan Stanley Smith Barney, the world’s largest brokerage, plans to adjust its compensation structure to boost profitability, according to a person familiar with the discussions. The new pay policies are set to go into effect in 2012, said the person, who declined to be identified because compensation decisions aren’t public. The New York-based firm is raising the minimum amount of revenue a broker must generate to avoid pay cuts to $300,000 from $250,000, the person said.
• China's Communists Vow to 'Strengthen Management' of Internet. China’s ruling Communist Party said it would work to “strengthen management” of online social media sites that have increasingly questioned government actions and exposed official graft. Vowing to promote the development of a “healthy Internet culture,” the party’s Central Committee said it would step up supervision of the world’s biggest online community, promoting “cultural treasures” and “constructive” websites, and punishing the spread of “harmful information,” according to a communique from the committee’s Oct. 15-18 meeting released overnight by the official Xinhua News Agency. China’s leaders are grappling with how to manage Twitter- like social-media sites such as one run by Sina Corp.(SINA) that are hard for government censors to control. Members of the party’s Politburo visited Internet companies after a deadly train crash in July. Web users criticized the government’s handling of the crash and spread commentary and photos of the accident at odds with the official line. China had 195 million microbloggers at the end of June, a 209 percent increase from the end of 2010, Xinhua reported last month, citing the China Internet Network Information Center.
• Gold Advances to One-Month Highs as European Debt Risk Stokes Haven Demand. Gold advanced to the highest level in a month, extending gains above $1,700 an ounce, as concerns European leaders may fail to resolve the region’s debt crisis spurred demand for a haven. Bullion for immediate-delivery gained for a fourth day, rising as much as 0.3 percent to $1,710.70, the most expensive level since Sept. 23. The metal traded at $1,709.25 by 1:01 p.m. Melbourne time. Gold for December delivery climbed as much as 0.7 percent to $1,712.10 on the Comex in New York, the highest price for the most active contract since Sept. 23.

Wall Street Journal:

• Bank Group Sees EU Recession Amid Push for Bigger Write-Downs. Amid a push for banks to take a bigger hit on their Greek debt holdings, the Institute of International Finance Tuesday warned that tightening credit conditions in Europe would likely force the euro zone into an economic recession. The group represents more than 440 of the world’s largest banks, insurance companies and other financial service firms, including those in negotiations over the private sector role’s in the Greek debt talks. The IIF has been actively opposing bigger write-downs on Greek debt and is campaigning against more stringent regulations they say would further crimp growth prospects in the U.S. and Europe. One of the major sticking points in talks among euro zone leaders trying to tame the growing sovereign debt crisis is how much of a write-down on Greek debt holdings the private sector should bear. European officials are pushing to double or even triple the hit previously agreed to by the IIF. “We have trimmed our already meager GDP growth forecast for the euro area in coming quarters, and now project a mild recession in the region,” the bank group said in its October Global Economic Monitor. European banks are also being asked to boost their capital buffers to protect against the rising risk of default in the euro zone. “As banks adjust aggressively to this new reality, a wave of credit contraction will severely dampen business activity, especially in credit-sensitive areas, such as construction,” the IIF warned. Compounding poor growth prospects, governments are also tightening their budgets to cut looming debt levels. And while the European Central Bank has taken some measures to offset this market-based tightening, the ECB “is doing too little too late to stave off outright weakness,” the IIF said. The group raised the specter of a European recession sparking a contraction in the U.S. as well.
• Lower Demand Has Iron Ore Under Fire. The iron-ore sector has remained relatively buoyant in the face of broad commodity losses since the summer. But a deterioration in demand for steel in the past six weeks has put prices under pressure. Prices for steel have fallen as the deteriorating economic situation in the West has hit demand and sentiment. In addition, credit tightening in China continues to weigh on heavy industry there. As a result, the prospects for a recovery in iron-ore prices any time soon are looking remote, according to market players. "It is hard to see any significant increase in the price, given the state of the steel market at the moment," said Steve Hardcastle, head of client relations at commodities broker Sucden Financial, which is forecasting a pullback in the iron-ore price to around $120 a ton heading into the end of the year. A common spot iron-ore benchmark, published by the Steel Index, one of several information providers that supply price indexing, marked its eighth straight week of declines last week. Benchmark spot iron-ore prices for delivery into China fell 7.2% to $131.70 per ton Tuesday, the lowest since July 2010. The same benchmark was trading at a record high of just over $190 in February. China's crude steel production has fallen on a month-to-month basis since May, and the number of vessels being chartered to ship iron ore to China is beginning to soften, according to industry analysts. In addition, around 20 million to 25 million metric tons of apparent steel demand could be at stake in 2012 and 2013 if Europe were to re-enter recession, Michel Van Hoey, a partner at management consultancy firm McKinsey & Co. said. Several European steelmakers have cut production due to expectations of lower demand as a result of poor economic growth.
  
• IBM(IBM) Names Rometty as Next CEO. International Business Machines Corp. named Virginia M. Rometty as its next CEO, turning to an executive responsible for the technology giant's sales and marketing to lead the company as the industry shifts toward mobile computing and emerging markets. Ms. Rometty, now in her 30th year at IBM, will be the first woman to head Big Blue. She takes over as president and chief executive on Jan. 1 from Samuel J. Palmisano, age 60, who will remain the company's chairman.
• Turkey Hits Group of Militants Inside Iraq. Turkey's military engaged in full combat with militants from the outlawed Kurdistan Workers' Party inside Iraq on Tuesday, said the PKK, as the group is known. The PKK saıd around 1,000 Turkish troops with heavy weaponry had entered part of the militants' base area, supported by planes and "Cobra-type" helicopters.
• The Flat-Tax Sweepstakes. Perry's 20% optional rate joins the GOP debate over pro-growth tax reform.

MarketWatch:

• Australian Inflation Leaves Door Open For Rate Hike.

Business Insider:

• 16 Stocks Investors Are Shorting Like Crazy.

Zero Hedge:

• Ex-Goldman(GS) Director Will Turn Himself In To FBI, To Face Criminal Charges.
• NYSE Short Interest Drops To Two Month Low. (graph)
• Brazil Refuses To Buy European Bonds, Dashing Hopes For A BRIC-based European Rescue.
• The Beginning of the European End Game.
  

CNBC:

• China's Largest Real Estate Developer Warns of Price Falls. China’s largest real estate developer believes the country’s property market, a key driver for the economy, has turned and expects conditions to worsen in the coming months as sales prices and volumes decline further. China Vanke, the country’s biggest developer by market share, said government efforts over the past year to rein in soaring prices were having a severe impact on the market and developers were being squeezed after sales volumes in 14 of the country’s largest cities halved in September from a year earlier. “We can see a trend of declining sales, especially in the major cities,” Shirley Xiao, executive vice-president at China Vanke, said on a conference call with investors on Tuesday. “Prices have begun to decline little by little so we think even buyers who are able to buy will choose to wait for now because they’re targeting even lower price cuts.”

Forbes:

• Obama Kick-Back Cronyism, Part 1: Stimulating Green Energy the Chicago Way. This article is the first in a four-part series discussing the early formative Chicago political career days of Barack Obama as community organizer, lawyer, Illinois state senator, financial foundation executive, and U.S. Senate campaigner. Part 2 will emphasize his activities related to Illinois health care issues leading to Obamacare. What do federal subsidy rip-offs for green energy and Chicago low-cost public housing politics have in common? Just about everything—including certain key players.

Washington Post:

• Money managers lay groundwork for challenge to SEC rules.

cnet:

• Gazelle: BlackBerry Trade-Ins at All-Time High.

Washington Times:

• From Arab Spring to Islamist Winter.
  

Reuters:

• Exclusive: SEC Weighs Easing Hedge Fund Data Rule. Regulators are considering easing a proposed rule so that fewer hedge fund advisers would have to hand over troves of confidential data to the government, according to people familiar with the deliberations. The Securities and Exchange Commission is due to vote on a final rule on Wednesday on the threshold that would trigger extensive reporting requirements for advisers to large hedge funds and other private funds.
• Broadcom(BRCM) Sees Revenue Decline, Stock Falls. Broadcom Corp warned revenue could fall as much as 13 percent this quarter due to broad- based weakness in demand, even in wireless, where it supplies chips for Apple Inc products such as the iPhone. The shares in the maker of chips for products from cellphones to television set-top boxes fell about 5 percent after it forecast fourth-quarter revenue of $1.7 billion to $1.8 billion compared with Wall Street expectations for revenue of $2 billion, according to Thomson Reuters I/B/E/S. "The guidance is disappointing to say the least," said Sanford C. Bernstein analyst Stacy Rasgon. "People thought there might be enough upside in the wireless business to offset the rest. It doesn't seem to be the case."
• Panera(PNRA) Forecasts Top Street, Shares Up. Panera Bread Co on Tuesday forecast fourth-quarter and 2012 earnings above Wall Street expectations, sending its shares up almost 10 percent. Panera shares closed down $115.72 and jumped 9.8 percent to $127.01 in extended trading.
• Express Scripts(ESRX) Profit Beats Views, Shares Rise. Express Scripts Inc posted better-than-expected third-quarter earnings on Tuesday as the U.S. pharmacy benefit manager reported increased use of more profitable generic drugs. The shares rose 3.2 percent to $39.70 in after-hours trading on Tuesday.

Financial Times:

• Bankers Fear Political Moves Will Kill Off CDS. It has been blamed by politicians for causing the eurozone debt crisis and attacked as the favoured asset of “evil speculators”. Now, politicians are seeking to take their revenge: not just with the recent introduction of bans on some trading of credit default swaps but also in their attempts to ensure that any haircut on Greek government bonds does not trigger a credit event. Combined, these two events could spell the end of the credit default swaps market, say bankers.
• Fitch Rejects Third of Complex Debt Packages. One in three new structured finance deals, the complex debt packages that were at the heart of the recent financial crisis, that are being rated by Fitch, are being sent back to issuers for improvements, the agency has said.
• Obama Loses Magic for Young Voters. Mr Obama’s campaign is this week trying to rekindle some of the magic that propelled the president to victory in 2008, when Mr Obama won an unprecedented two-thirds of voters under 30. This time around, the president faces an enormous challenge in generating a similar level of enthusiasm and motivating millions of first-time voters to participate. The jobs problem is a key part of this. The unemployment rate among people under 25 is almost 15 per cent, far higher than the national average of 9.1 per cent.

Telegraph:

• Debt Crisis: Live.
  
• EU Rescue Plans Hostage to Raw Politics. Europe's debt crisis has taken a deeply political turn as parliamentary battles rock Italy and Greece and once again cause simmering dissent in Germany, vastly complicating the search for a workable solution. Italy's coalition was scrambling to head off collapse late on Tuesday after deep rifts on austerity measures dictated by Brussels for a Wednesday deadline, when EU leaders reconvene for yet another crisis summit. "I remain pessimistic," said Umberto Bossi, Northern League leader and key ally of premier Silvio Berlusconi, who had warned earlier in the day that the government was in danger of collapse. Mr Bossi said his party had offered a compromise on fresh austerity but could not accept EU demands for a rise in the retirement age to 67. "The people would kill us," he said. The pension reform is the EU's tacit condition for intervention to shore up Italy's bond markets. Silvio Peruzzo from RBS said the Italian government is likely to "implode" before its mandate ends, risking "an ever more severe deterioration of the crisis in Europe". The warning came as French President Nicolas Sarkozy told an Élysée breakfast meeting held behind closed doors that "Europe has never been so close to explosion".

21st Century Business Herald:

• China may not ease its policies for the real estate market, including limits on home purchases, within a year's time, citing a researcher from the Ministry of Housing and Urban-Rural Development.

Securities Times:

• About 67% Chinese bankers said large declines in the nation's home price are major risks for them, citing a survey conducted by China Banking Association. Almost 60% of bankers are concerned about the risk of loans made to local government financing vehicles, according to the report.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 200.0 +3.0 basis points.
  
• Asia Pacific Sovereign CDS Index 153.0 -.25 basis point.
• FTSE-100 futures -.13%.
  
• S&P 500 futures +.47%.
  
• NASDAQ 100 futures +.47%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GLW)/.42
• (DPS)/.70
• (OC)/.76
• (HES)/1.36
• (LMT)/1.81
• (ADP)//.61
• (SEE)/.49
• (EAT)/.27
• (MHS)/1.05
• (WLP)/1.67
• (PX)/1.39
• (WYN)/.88
• (F)/.44
• (GD)/1.77
• (S)/-.22
• (BA)/1.10
• (NOC)/1.68
• (COP)/2.18
• (ACOM)/.35
• (CA)/.49
• (TER)/.23
• (BYI)/.43
• (V)/1.25
• (SFSF)/.00
• (EQR)/.61
• (SYMC)/.39
• (SLG)/.99
• (RYL)/-.08
• (NSC)/1.41
• (AFL)/1.60
• (OI)/.72
• (JNY)/.44
• (NVLS)/.68
• (AKAM)/.33
• (JBLU)/.13
• (BMC)/.80
• (AGN)/.91
• (ATI)/.60
  

Economic Releases
8:30 am EST

• Durable Goods Orders for September are estimated to fall by -1.0% versus a -.1% decline in August.
• Durables Ex Transports for September are estimated to rise +.4% versus a -.1% decline in August.
• Cap Goods Orders Non-defense Ex Air for September are estimated to rise +.5% versus a +1.1% gain in August.
  

10:00 am EST

• New Home Sales for September are estimated to rise to 300K versus 295K in August.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,475,000 barrels versus a -4,729,000 barrel decline the prior week. Distillate inventories are estimated to fall by -2,000,000 barrels versus a -4,266,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,750,000 barrels versus a -3,324,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a -1.1% decline the prior week.
  

Upcoming Splits

• (QSII) 2-for-1
  

Other Potential Market Movers

• The EU Leaders Meeting, ECB's Corstancio speaking, ECB's Coone speaking, ECB's Mersch speaking, 5-Year Treasury Note Auction and the weekly MBA mortgage applications report could also impact trading today.
  

BOTTOM LINE: Asian indices are slightly 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.