Tuesday, October 02, 2012

Tuesday Watch

Evening Headlines
Bloomberg: 
  • Spanish Banks Need More Capital Than Tests Find, Moody’s Says. Spain’s banks face a capital shortfall that could climb to 105 billion euros ($135 billion), almost double the estimate the government provided last week, according to Moody’s Investors Service. The nation’s lenders may need infusions of 70 billion euros to 105 billion euros to absorb losses and still keep capital ratios above thresholds outlined in legislation last year, Moody’s analysts wrote yesterday in a report. That compares with the 53.7 billion euro shortfall found last week after officials commissioned a stress test designed to lift doubts about the financial industry’s ability to withstand losses.
  • Portugal Tolerance for Higher Taxes Reaching Limit: Euro Credit. Prime Minister Pedro Passos Coelho's tax increases during Portugal's two-year recession may be about to backfire. The CGTP labor group said Sept 29 at a demonstration against austerity policies in central Lisbon that it may call a general strike. Portugal already has Western Europe's poorest population in terms of output per capita.
  • JPMorgan(JPM) Sued by N.Y. for Fraud Over Mortgage Securities. JPMorgan Chase & Co. (JPM), the biggest U.S. bank, was sued by New York Attorney General Eric Schneiderman over claims that the Bear Stearns business the bank took over in 2008 defrauded mortgage-bond investors. Investors were deceived about the defective loans backing securities they bought, leading to “monumental losses,” Schneiderman said in a complaint filed today in New York State Supreme Court. 
  • Investors Doubt QE3 Lift to U.S. Discretionary Spending. Investors are proving skeptical that the Federal Reserve’s announcement of additional quantitative easing will get Americans to spend more. The Consumer Discretionary Select Sector SPDR Fund -- which includes Amazon.com Inc. (AMZN) and Macy’s Inc. (M) --has lagged behind the Consumer Staples Select Sector SPDR Fund by 2.8 percent since Sept. 14, the day after the Fed unveiled plans to buy mortgage- backed securities at a pace of $40 billion a month until the labor market improves.
  • Hunt for Obama’s Middle East Policy Comes Up Empty. Like many observers of the Obama administration, I’ve been confused by its unwillingness to take even the relatively modest steps required to bring about a decisive end to the regime of Bashar al-Assad. More than 30,000 people have been killed since the beginning of the uprising against him, according to the Syrian Observatory for Human Rights, and untold numbers have been wounded, tortured or raped.  
Wall Street Journal: 
  • Militant Link to Libya Attack. U.S. Tracks Egyptian Operative Freed From Prison in Wake of Arab Spring. The revolutions that swept the Middle East and North Africa also emptied prisons of militants, a problem now emerging as a potential new terrorist threat. Fighters linked to one freed militant, Muhammad Jamal Abu Ahmad, took part in the Sept. 11 attack on U.S. diplomatic outposts in Libya that killed four Americans, U.S. officials believe based on initial reports. Intelligence reports suggest that some of the attackers trained at camps he established in the Libyan Desert, a former U.S. official said. Western officials say Mr. Ahmad has petitioned the chief of al Qaeda, to whom he has long ties, for permission to launch an al Qaeda affiliate and has secured financing from al Qaeda's Yemeni wing. U.S. spy agencies have been tracking Mr. Ahmad's activities for several months. The Benghazi attacks gave a major boost to his prominence in their eyes.
  • Strike Looms at ABC Ahead of Presidential Debate. As media outlets prepare for Wednesday’s first presidential debate, the specter of strike action is looming at ABC, which is providing broadcast coverage for all networks. The membership of the National Association of Broadcast Employees and Technicians has authorized its negotiation committee to call a strike, if necessary, among its members employed by ABC, which include camera operators. The Walt Disney Co.-owned network and the union have been in negotiations since the union’s labor contract ended in early 2011. The talks have been tense and have lately required the addition of a federal mediator.  
  • Greece's Creditors Look Askance at Cutbacks. Greece's international lenders cast doubt on parts of Athens' plans to save billions of euros through new cutbacks and tax measures, throwing a potential wrench in the government's efforts to reach a quick deal to unlock new aid for the country
  • Earnings Wizardry. CFOs around the nation have been busy closing their books and preparing for yet another earnings season. (It kicks off in earnest on Oct. 9, as always, with Alcoa Inc.) But what exactly have they been busy with? If you believe a recent academic study, one out of five U.S. finance chiefs have been scrambling to fiddle with their companies' earnings. Not Enron-style, fraudulent fiddles, mind you. More like clever—and legal—exploitations of accounting standards that "manage earnings to misrepresent [the company's] economic performance," according to the study's authors, Ilia Dichev and Shiva Rajgopal of Emory University and John Graham of Duke University. Lightly searing the books rather than cooking them, if you like. 
  • Property Owners Face a New Surtax. Passed in 2010 to help fund the health-care overhaul, this 3.8% surtax kicks in next year on many forms of investment income—including some interest, dividends, rents and capital gains.
  • Stephens: Benghazi Was Obama's 3 a.m. Call. Libya was a failure of policy and worldview, not intelligence. Why won't the Libya story go away? Why can't the memory of U.S. Ambassador Chris Stevens and his staff be consigned to the same sad-and-sealed file of Americans killed abroad in dangerous line of duty? How has an episode that seemed at first to have been mishandled by the Romney camp become an emblem of a feckless and deluded foreign policy? The story-switching and stonewalling haven't helped. But let's start a little earlier.
MarketWatch.com: 
  • The fault lines of Anti-Japan fury in China. Police did little to calm unrest and looters of stores were organized. Recent anti-Japan fury spurred angry crowds to march through streets in cities across China. The protests sometimes turned violent, as when a vicious rampage in Xi’an, in the northern province of Shaanxi, left a father paralyzed.
 CNBC: 
  • After 'Fiscal Cliff,' 90% of Americans' Taxes Would Rise. In the latest forecast of trouble ahead if Capitol Hill cannot overcome its fiscal paralysis, the Tax Policy Center, a Washington think tank, predicted taxes would rise by $500 billion in 2013, or an average of almost $3,500 per household.
Zero Hedge: 
Business Insider: 
  • Mexican Diplomat Says America Pretty Much Invited The Sinaloa Drug Cartel Across The Border. Leaked emails from the private U.S. security firm Stratfor cite a Mexican diplomat who says the U.S. government works with Mexican cartels to traffic drugs into the United States and has sided with the Sinaloa cartel in an attempt to limit the violence in Mexico. Most notably, the reports from MX1 line up with assertions by a Sinaloa cartel insider that cartel boss Joaquin Guzman is a U.S. informant, the Sinaloa cartel was "given carte blanche to continue to smuggle tons of illicit drugs into Chicago," and Operation Fast and Furious was part of an agreement to finance and arm the Sinaloa cartel in exchange for information used to take down rival cartels.   
  • Student Loan Default Rates Are Getting Real Ugly. (graph)
Rasmussen Reports:
Reuters: 
  • Exclusive: Spain ready for bailout, Germany signals "wait"- sources. Spain is ready to request a euro zone bailout for its public finances as early as next weekend but Germany has signaled that it should hold off, European officials said on Monday. 
  •  Samsung allowed to sell Galaxy Tab in US as court lifts ban. A U.S. court removed a temporary sales ban against Samsung Electronics Co Ltd's Galaxy Tab 10.1 won by Apple Inc(AAPL) in a patent dispute, allowing the South Korean company to sell the product in the United States.  
  • Lockheed(LMT) won't issue notices on job cuts after US government guidance. The White House got some good news on Monday when Lockheed Martin said it would not issue notices of possible job reductions before the Nov. 6 election. With numerous defense industry jobs on the line in critical states including Virginia, a wave of job cuts could embarrass Democratic President Barack Obama's administration.  
  • Brazil car sales plunge in Sept as tax breaks lose punch. Brazilian auto sales plunged 31 percent in September from a record-breaking August, an industry group said on Monday, as the effect of extended tax breaks waned on consumers. Sales of cars and light trucks were also down 8 percent compared with September of last year, according to data from dealer association Fenabrave.
Financial Times: 
  • Call for bank bonuses to be paid in debt. Banks should pay bonuses in debt, which would be wiped out if a bank failed, an EU banking report will suggest as Europe attempts to step up the fight against bankers’ pay. The Liikanen commission, an independent review set up almost a year ago by EU commissioner Michel Barnier, will on Tuesday recommend reforms for long-term pay incentives as well as advocating ringfencing trading activities to make big banks safer. 
  • Banks reap profits on mortgages after QE3. Although the average rate on a fixed 30-year mortgage reached 3.4 per cent this week – a record low – mortgage rates could be lower if banks passed on the full drop in their funding costs. “For banks which are mortgage originators this [QE3] was some of the best news they could possibly have heard,” said Steven Abrahams, mortgage strategist at Deutsche. “They will continue originating loans and selling them into the market at a significant premium.”
Telegraph: 
Evening Recommendations 
  • None of note
Night Trading
  • Asian equity indices are +.25% to +.75% on average.
  • Asia Ex-Japan Investment Grade CDS Index 136.50 unch.
  • Asia Pacific Sovereign CDS Index 114.25 -1.0 basis point.
  • FTSE-100 futures -.60%.
  • S&P 500 futures +.06%.
  • NASDAQ 100 futures +.01%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (AYI)/.93
  • (MOS)/1.16
Economic Releases
Afternoon:
  •  Total Vehicle Sales for September are estimated to rise to 14.5M versus 14.46M in August.
Upcoming Splits
  • None of note
Other Potential Market Movers
  • The Eurozone inflation data, Brazil industrial production report, China's Non-Manufacturing PMI, Australia trade figures, ISM New York for September, weekly retail sales reports, RBA rate decision, (PVH) analyst day and the (ATU) investor day could also impact trading today.
BOTTOM LINE: Asian indices are mostly higher, boosted  by commodity and financial 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.

Monday, October 01, 2012

Stocks Weakening into Final Hour on Rising Global Growth Fears, US Fiscal Cliff Worries, Earnings Jitters, Tech/Real Estate Sector Weakness

Broad Market Tone:
  • Advance/Decline Line: Higher
  • Sector Performance: Most Sectors Rising
  • Volume: Below Average
  • Market Leading Stocks: Underperforming
Equity Investor Angst:
  • VIX 16.41 +4.32%
  • ISE Sentiment Index 110.0 +10.0%
  • Total Put/Call .87 -12.12%
  • NYSE Arms .93 -45.16%
Credit Investor Angst:
  • North American Investment Grade CDS Index 98.98 bps -.17%
  • European Financial Sector CDS Index 200.81 bps -1.34%
  • Western Europe Sovereign Debt CDS Index 145.61 -1.53%
  • Emerging Market CDS Index 219.22 -1.82%
  • 2-Year Swap Spread 13.25 -.25 basis point
  • TED Spread 27.5 +.75 basis point
  • 3-Month EUR/USD Cross-Currency Basis Swap -27.25 -1.0 basis point
Economic Gauges:
  • 3-Month T-Bill Yield .08% -1 basis point
  • Yield Curve 138.0 -1 basis point
  • China Import Iron Ore Spot $104.20/Metric Tonne unch.
  • Citi US Economic Surprise Index 11.0 +5.2 points
  • 10-Year TIPS Spread 2.42 unch.
Overseas Futures:
  • Nikkei Futures: Indicating +21 open in Japan
  • DAX Futures: Indicating -44 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Biotech/Medical/Retail sector longs
  • Disclosed Trades: None
  • Market Exposure: 25% Net Long

Today's Headlines

Bloomberg:
  • Greek Budget Predicts Economy Will Shrink for Sixth Year. Greece’s economy will contract for a sixth year in 2013 as the government prepares further cuts to pensions, wages and social benefits to meet the terms of its bailout packages. Gross domestic product will shrink 3.8 percent next year after contracting 6.5 percent in 2012, according to the 2013 draft budget, e-mailed by the Finance Ministry in Athens and submitted to parliament today. This compares with a prediction in Greece’s March rescue agreement with the European Union and the International Monetary Fund that the economy would contract 4.8 percent this year before stabilizing in 2013.
  • Analysts Cut Profit 52% as Europe Valuations Hit 2-Year High. Analysts are lowering estimates for European earnings growth by 52 percent, clashing with investors whose confidence in the European Central Bank helped send equity valuations to a 2 1/2-year high.  
  • Global Factory Weakness Spreads as Debt Crisis Persists. Manufacturing from Europe to China contracted in September as the euro region’s fiscal crisis eroded investor confidence and clouded global growth prospects. A gauge of manufacturing in the 17-nation euro region was at 46.1, above an initial estimate of 46 on Sept. 20, Markit Economics in London said today. A reading below 50 indicates contraction. A Chinese factory index was at 49.8 for September, a statistics bureau report showed.  
  • U.S. Households Face Tax Increase From 2013 Fiscal Cliff. U.S. households are facing an average tax increase of $3,446 in 2013 if Congress doesn’t avert the so- called fiscal cliff, the nonpartisan Tax Policy Center said in a study released today. The top 1 percent of households face some of the largest tax increases in 2013 and would see their after-tax incomes fall by 10.5 percent if Congress does nothing. That would translate to an average tax increase of $120,537 for that group. A typical middle-income household earning between about $40,000 and $60,000 would face a tax increase of about $2,000. “This is a very large tax increase,” Donald Marron, the center’s director, told reporters in Washington today. If Congress does nothing, tax rates on income, capital gains, dividends and estates would increase, and the alternative minimum tax would spread to 21.7 million households, up from 4 million this year. The top statutory tax rate on ordinary income would reach 39.6 percent, up from 35 percent, and the top rate on capital gains would be 23.8 percent, up from 15 percent. A 2 percentage point payroll tax cut is set to expire at the end of 2012.
  • Jobs Outlook Seen Weak as U.S. Companies Reporting Cost Cuts. Weakening demand is forcing new and accelerated cost reductions at companies from Bank of America Corp. and Hewlett-Packard Co. (HPQ) to Staples Inc. (SPLS) and Eastman Kodak Co. (EKDKQ), dimming the outlook for an already struggling U.S. labor market. Sales for businesses in the Standard & Poor’s 500 Index fell 0.9 percent from a year earlier in July through September, the second consecutive quarterly drop and biggest decline since 2009, according to analyst forecasts compiled by Bloomberg. A 1.2 percent gain projected for October-December still is smaller than the 5.4 percent rise in this year’s first three months.   
  • Manufacturing in U.S. Expands Unexpectedly as Orders Rise. The Institute for Supply Management’s factory index rose to 51.5 last month from 49.6 in August, the Tempe, Arizona-based group said today. Readings above 50 show expansion, and the September measure exceeded the most optimistic forecast in a Bloomberg survey.  
  • Bernanke Says Fed to Keep Rates Low Even as Growth Rises. “We expect that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economy strengthens,” Bernanke said today in a speech in Indianapolis. Policy makers’ forecast to hold the main interest rate near zero until at least mid-2015 “doesn’t mean that we expect the economy to be weak through” that year. 
  • Google(GOOG) Passes Microsoft’s(MSFT) Market Value as PC Loses to Web. Google Inc. has surpassed Microsoft Corp. to become the world’s second-largest technology company as computing over the Internet reduces demand for software installed on desktop machines
Wall St. Journal:
CNBC: 
  • Euro Zone Factory Data Flag ‘New Recession’. Euro zone manufacturing put in its worst performance in the three months to September since the depths of the Great Recession, with factories hit by falling demand despite cutting prices, a business survey showed on Monday — pointing to a new recession. Factories helped lift the 17-nation bloc out of its last recession, but the survey suggests a downturn that began in smaller periphery countries has taken root in core members Germany and France. "Despite seeing some easing in the rate of decline last month, manufacturers across the euro area suffered the worst quarter for three years in the three months to September," said Chris Williamson, chief economist at data collator Markit. "The sector will act as a severe drag on economic growth. It therefore seems inevitable that the region will have fallen back into a new recession in the third quarter."   
  • 'Disappointing Earnings' Season Ahead: Pro.
Zero Hedge:
Business Insider:
Reuters:
Telegraph:
  • Spanish banks will need up to €105bn, warns Moody's. Fears for Spain escalated after rating agency Moody’s warned that the country’s stricken banks may need almost twice as much capital as the official estimate and Catalan’s separatists stepped up their rhetoric against Madrid. 
  • G7: Europe will tell US to deal with 'fiscal cliff'. Europe will tell the US, Japan and Canada next week that it is acting to resolve its sovereign debt crisis, but that US fiscal policy and slowing growth in Japan and China also pose risks to the global economy, according to reports
El Mundo:
  • Spain Considers Tax on Stock Market Trades, Energy. Spain's Budget Minister Cristobal Montoro considers in 2013 introduction of tax on stock market trades, new "green" taxes on energy and reform of corporate tax.

Bear Radar

Style Underperformer:
  • Mid-Cap Growth -.41%
Sector Underperformer:
  • 1) REITs -1.40% 2) Networking -1.23% 3) Disk Drives -1.11%
Stocks Faling on Unusual Volume:
  • EDR, CLI, PNR, JDSU, TM, AZN, GMAN, JAKK, SPLK, TAP, RTN, MSM, AMAP, GPN, LECO, MKTX, SAM, EAT, CBT, FET, SYNA, AVT, NOW, AZZ, NOW, FTNT, AME, CASC, PCL, LXU, COR, ACTV and PNR
Stocks With Unusual Put Option Activity:
  • 1) UA 2) SAP 3) XLV 4) MDR 5) NSM
Stocks With Most Negative News Mentions:
  • 1) WEN 2) KNX 3) PCL 4) JAKK 5) CAT
Charts:

Bull Radar

Style Outperformer:
  • Large-Cap Value +.95%
Sector Outperformers:
  • 1) Airlines +1.37% 2) Banks +1.35% 3) Steel +1.33%
Stocks Rising on Unusual Volume:
  • SNTA, MDRX, CRDN, TRW, NSM, GNRC, BTH and SRPT
Stocks With Unusual Call Option Activity:
  • 1) NSM 2) THLD 3) OCN 4) LVLT 5) CVC
Stocks With Most Positive News Mentions:
  • 1) GILD 2) RIG 3) SYK 4) TRW 5)THC
Charts:

Monday Watch

Weekend Headlines
Bloomberg: 
  • Euro Leaders Face October of Unrest After ECB’s September Rally. Europe faces a month that may decide the success of the European Central Bank’s bid to end the debt crisis as leaders navigate a tougher approach from creditor countries, unrest in Spain and a looming report on Greece. With the first of three summit meetings that European Union President Herman Van Rompuy has called “crucial” taking place in Brussels on Oct. 18-19, investor sentiment toward the euro area that surged in September is on the wane. “People are beginning to look at this in a more sober way” after the ECB bond-buying plan and a German high-court decision releasing bailout financing spurred optimism over the past month, Clemens Fuest, an economist at Oxford University’s Said Business School, said in an interview yesterday. October, which marks the third anniversary of the debt crisis, will showcase euro-area leaders fighting out their differences. The discord underscores the inadequacy so far of ECB President Mario Draghi’s bid to calm the crisis through a pledge on sovereign-debt purchases. Spain’s 10-year bonds fell last week, with the yield rising 18 basis points, amid turmoil in the country. The euro, which surged 4.4 percent in the first two weeks of September, had its second weekly decline against the U.S. dollar last week, sliding 0.4 percent to $1.2860 on Sept. 28. Spanish Prime Minister Mariano Rajoy, under pressure to trigger the ECB’s new financial weaponry by requesting assistance, pleaded over the weekend for national unity as he hit out at nationalists for hampering crisis-fighting efforts.
  • As Europe’s South Spirals, North Fiddles and Chaos Looms. Anyone who thought the euro crisis was coming under control might want to think again. Only three weeks after the European Central Bank calmed markets with its open-ended promise to support sovereign bonds and hold down borrowing rates throughout the euro area, harsh reality is reasserting itself: Greece, Spain and other struggling governments are being compelled to stick to austerity measures that are thwarting their economies, while Germany and other core euro countries remain unwilling to do what’s needed to prevent the euro area from breaking up.
  • Spain to Borrow $267 Billion of Debt Amid Rescue Pressure. Spain plans to borrow 207.2 billion euros ($266.5 billion) next year, the Budget Ministry said today, as pressure builds for Prime Minister Mariano Rajoy to tap the European rescue fund instead of financial markets. Spain’s debt will widen to 90.5 percent of gross domestic product in 2013 as the state absorbs the cost of bailing out its banks, the power system and euro-region partners Greece, Ireland and Portugal. This year’s budget deficit will be 7.4 percent of economic output, Budget Minister Cristobal Montoro said at a press conference. Spain’s 6.3 percent target will be met because it can exclude the cost of the bank rescue, he said. Spain’s borrowing plans may test investors’ willingness to continue financing the government with the European Central Bank waiting to buy the country’s debt should Rajoy agree to conditions. 
  • Spain's debt-to-GDP ratio will reach 85.3% this year as the government takes power system debt, townhall bailout fund, rescues of Greece, Ireland, Portugal and the bailout of the banking system onto its book, the Budget Ministry said. Debt-to-GDP jumped 16.8 percentage points from last year
  • China’s Manufacturing Shrinks for 11th Month, HSBC PMI Shows. The purchasing managers’ index from HSBC Holdings Plc (HSBA) and Markit Economics had a final reading of 47.9 for September, compared with 47.6 in August and a preliminary level of 47.8 released Sept. 20. New export orders declined in September at the fastest pace in 42 months and purchasing activity in manufacturing fell for a fifth consecutive month. “The failure of both external and internal demand is weighing heavily on Chinese manufacturing,” said Glenn Maguire, principal at consultant Asia Sentry Advisory Pty and former Societe Generale SA chief Asia economist. “External demand recovery requires a stronger U.S., Japan and Europe - a highly unlikely dynamic in the near term. Internal demand recovery requires greater policy support.” Yesterday’s data also showed that manufacturing output and input prices continued to decline and that employee numbers decreased a seventh straight month. The HSBC and Markit Economics PMI hasn’t had a monthly reading above 50, which would indicate expansion, since October 2011.
  • Japan Tankan Sentiment Worsens as Slowdown Hurts Exports. Big Japanese manufacturers became more pessimistic as slowdowns in China and Europe sapped export demand and pushed the nation closer to an economic contraction. The quarterly Tankan index for large manufacturers fell in September to minus 3 from minus 1, the fourth negative reading, the Bank of Japan said today in Tokyo. The median estimate of 18 economists surveyed by Bloomberg News was for minus 4. A negative figure means pessimists outnumber optimists.   
  • Korea’s Exports Fall for 3rd Month as Global Demand Wane. South Korea’s exports fell for a third month as Europe’s debt crisis and gains in the won damped demand, keeping pressure on the central bank to cut interest rates this month. Overseas shipments fell 1.8 percent in September from a year earlier, after a 6.2 percent decline in August, the Ministry of Knowledge Economy said in a statement today. The median estimate in a Bloomberg News survey of 12 economists was for a 5.5 percent decline.
  • Aleppo World Heritage Site in Flames in Syria Fighting. Syrian troops loyal to President Bashar al-Assad fought with rebels in the commercial hub of Aleppo in a deadly battle that set fire to an ancient marketplace that was once a tourist attraction. Fighting in the country’s largest city continued for the third day in what insurgents said would be a “decisive battle” to control Aleppo. Rebels captured four neighborhoods, Al Jazeera reported, citing an interview with a local activist. Syrian government troops killed 104 people yesterday across the country, including 61 in or around the capital Damascus, the opposition Local Coordination Committees said in an e-mailed statement. International efforts to end the 18-month conflict have failed to stop the violence as rebels continue the fight, begun in March 2011, to overthrow Assad. The conflict has killed 30,000 people, according to estimates by the Syrian Observatory for Human Rights, an opposition group.   
  • US military deaths in Afghanistan hit 2,000. The killing of an American serviceman in an exchange of fire with allied Afghan soldiers pushed U.S. military deaths in the war to 2,000, a cold reminder of the perils that remain after an 11-year conflict that now garners little public interest at home. The toll has climbed steadily in recent months with a spate of attacks by Afghan army and police — supposed allies — against American and NATO troops. That has raised troubling questions about whether countries in the U.S.-led coalition in Afghanistan will achieve their aim of helping the government in Kabul and its forces stand on their own after most foreign troops depart in little more than two years.
  • S&P 500 Posts Biggest Weekly Drop Since June on Economy U.S. stocks fell for the week, as the Standard & Poor’s 500 Index posted its biggest drop since June, on concern Europe’s debt crisis is worsening and stimulus measures may not be enough to boost economic growth. The S&P Supercomposite Homebuilding Index (S15HOME) slid 7.3 percent for the first drop in five weeks amid worse-than-expected housing data. Technology stocks and commodity producers led declines as investors sold shares of companies most tied to economic swings. Apple (AAPL) Inc. posted its biggest drop since May after the release of its iPhone 5. Caterpillar Inc. (CAT) slid 6.2 percent as it cut its earnings forecast (CAT). The S&P 500 erased 1.3 percent to 1,440.67, the biggest weekly slump since June 1.  
  • U.S. Urged by Advocacy Group to Weigh Drones’ Harm to Civilians. The Obama administration should establish a special task force to evaluate the impact of covert drone operations on civilian communities, a report from the Center for Civilians in Conflict, a Washington-based advocacy group dedicated to protecting civilians, urged.
Wall Street Journal: 
  • Odd Debt Rule to Lose Bite. Adjustments That Whipsaw Bank Earnings Won't Affect Bottom Lines in Future.  
  • GOP Again Slams Obama on Libyan Attacks. Allies of Republican presidential candidate Mitt Romney intensified charges Sunday that the Obama administration botched its response to the deadly Sept. 11 attacks on a U.S. diplomatic post and a second facility in Libya, fueling domestic political tension around a foreign-policy crisis. Just a month ahead of the presidential election, Republicans accused Mr. Obama and his team of providing muddled explanations of the events and intentionally playing down al Qaeda's role in the attacks, which resulted in the deaths of U.S. Ambassador Chris Stevens and three other Americans
  • Mitt Romney: A New Course for the Middle East. Restore the three sinews of American influence: our economic strength, our military strength and the strength of our values.
Marketwatch.com: 
Fox News: 
  • The Myriad Broken Promises of Obamanomics. *The stimulus will prevent unemployment from rising above 8%, and will fall to 5.6% by 2012. *Solyndra, “leading the way toward a brighter and more prosperous future.” *”I’m committed to an all-of-the-above energy program." * Obamacare, which “…won’t add another dime to the deficit.” *”Health premiums will go down $2,500 by the end of my first term.” *Under Obamacare “you will keep your health insurance. This law will only make it more secure and more affordable.” *My goal is to strengthen and preserve Medicare.” *"Since my election…you're starting to see some restoration of America's standing in the world." *”If I don’t fix the economy in three years, then I’ll be a one-term president. " To which Mr. Romney can say: “Mr. President, this is one promise I’m determined to help you keep.
Business Insider:
Zero Hedge:
CNBC: 
Wall Street All-Stars: 
New York Times: 
  • Payroll Tax Cut Unlikely to Survive Into Next Year. Regardless of who wins the presidential election in November or what compromises Congress strikes in the lame-duck session to keep the economy from automatic tax increases and spending cuts, 160 million American wage earners will probably see their tax bills jump after Jan. 1. That is when the temporary payroll tax holiday ends. Its expiration means less income in families’ pocketbooks — the tax increase would be about $95 billion in 2013 alone.
US News:
  • Media Ignore Romney's Strength With Independents. Here's one statistic we don't hear much about: Gallup reports that 22 percent of swing-state voters say they may still change their minds. Those one-in-five who say they might change their minds includes 10 percent who currently say they support Obama and 7 percent who support Romney. In swing states that are within the margin of error, that's huge. And we're not hearing much about that at all.
hedgetracker.com:
  • Top 300 Hedge Funds see assets jump by 12% year-to-date – Big Gainers Lead the Charge. The Top 300 US Equity Hedge Funds have seen their assets increase by more than $76 billion, or 12%, since the beginning of 2012. Overall, the top U.S. equity hedge funds manage a combined $712 billion in equity assets. On an absolute basis, 49 hedge fund managers on the list have seen their US equity assets surge by more than $500 Million since the beginning of the year. The biggest YTD gainers include Renaissance Technologies Corporation, Citadel Investment Group, D.E. Shaw & Co and Two Sigma Investments.
Reuters: 
  • U.S. group urges $2 trillion alternative to fiscal cliff "time bomb". The independent watchdog group Taxpayers for Common Sense will unveil a $2 trillion deficit-reduction proposal in hopes of averting an economic debacle at year's end known as the fiscal cliff. On Monday, the group plans to detail about 130 specific deficit-reduction steps the U.S. Congress could take to replace across-the-board spending cuts of $1.2 trillion that are scheduled to take effect on January 2. These would occur just as tax increases for all income groups are due to kick in. 
  • Analysis: They're back! Yield hunt pushes funds into CLOs, CDOs. Fund managers are increasingly eyeing riskier exotic assets, some of which haven't been in fashion since the financial crisis, as yields on traditional investments get close to rock bottom. In particular, the Federal Reserve's latest move to juice the U.S. economy by purchasing $40 billion of agency mortgage-backed securities every month is forcing some money managers who had previously been feasting on those securities to get more creative. The only problem is they may be getting out of their comfort zones and taking on too much risk. Returns from investments in "junk" bonds, government guaranteed mortgage securities and even some battered euro-zone debt are plunging in the wake of global central bank policies intended to suppress borrowing costs. "I would not be surprised if some managers are reaching outside of their expertise for a few extra basis points," said Bonnie Baha, a portfolio manager for DoubleLine's Global Developed Credit strategy. To keep performance high, credit-focused managers are moving back into some of the risky assets that got tarnished during the financial crisis like collateralized loan obligations, or CLOs, securities cobbled together from pools of corporate loans.
AFP: 
  • Venezuela's Chavez would 'vote for Obama'. Venezuelan President Hugo Chavez says that if he were a US citizen, he would vote for President Barack Obama in the November 6 presidential election -- and if Obama were Venezuelan, he'd vote for Chavez. If Obama came from a working-class Caracas neighborhood, he would "vote for Chavez," the Venezuelan president claimed. "Obama recently said something very rational and just: Venezuela is not a threat to the interests of the United States," Chavez said, calling the US president a "nice guy."
Financial Times:
Telegraph: 
Die Welt:
  • Merkel to Propose Common EU Budget at October Summit. The proposal would replace existing structural cohesion funds with a common budget to enable aid to stricken member states, citing European Union sources. The budget is the first priority for Chancellor Angela Merkel at Oct. 18-19 EU summit in Brussels. Funds could flow from national budgets and transaction taxes. France and Spain may see the proposal as a diversion tactic. Germany wants to end the debate over common euro bonds with the proposal.
Der Spiegel:
  • ECB Acting Outside Mandate, Says Ex-Board Member Stark. Former European Central Bank Executive Board member Juergen Stark said the ECB is acting beyond its mandate in its new bond-purchase program, citing an interview. Stark said the conditionality attached to the bond-purchase program has undermined the independence of the  ECB's  monetary policy.
La Vanguardia:
  • Poll Shows 55% of Catalans Back Independence. Opinion poll shows 55% support for Catalan independence. Poll shows 84% backing for referendum on independence. Poll shows 43% support for CiU party vs 38.4% won in 2010 regional elections.
Les Echos:
  • France to Propose EU4b-EU5b in Tax Increases Tomorrow. Proposed increases to be disclosed include doubling levy on beer and raising tax on bank salaries.
Nikkei:
  • Japanese domestic sales of new automobiles probably fell in September, the first decline in the past 12 months, and are expected to fall through the rest of the year.
Weekend Recommendations
Barron's:
  • Made positive comments on (SCS), (AIG), (DLPH), (DVN) and (GS).
  • Made negative comments on (OPK).
Night Trading
  • Asian indices are -1.0% to -.25% on average.
  • Asia Ex-Japan Investment Grade CDS Index 136.50 -.5 basis point.
  • Asia Pacific Sovereign CDS Index 115.25 +.5 basis point.
  • FTSE-100 futures -.21%.
  • S&P 500 futures -.40%.
  • NASDAQ 100 futures -.41%.
Morning Preview Links

Earnings of Note

Company/Estimate
  • (CALM)/.35
Economic Releases
10:00 am EST

  • ISM Manufacturing for September is estimated to rise to 49.8 versus 49.6 in August.
  • ISM Prices Pad for September is estimated to rise to 55.8 versus 54.0 in August.
  • Construction Spending for August is estimated to rise +.5% versus a -.9% decline in July.
Upcoming Splits
  • (PAA) 2-for-1
  • (CTRX) 2-for-1
  • (PZE) 2-for-1
Other Potential Market Movers
  • The Fed's Bernanke speaking, Fed's Evans speaking, Fed's Williams speaking, Eurozone Manufacturing PMI, Spain Manufacturing PMI, Eurozone Unemployment, India Manufacturing PMI, Johnson Rice Energy Conference and the (SIG) investor day could also impact trading today.
BOTTOM LINE: Asian indices are lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the week.