Today's Headlines

Bloomberg: 

• Euro-Area Recession Deepens as Manufacturing Shrinks: Economy. Euro-area services and manufacturing output contracted more than economists forecast in October and German business confidence dropped to the lowest in more than 2 1/2 years as Europe’s recession deepened. A composite index based on a survey of euro-area purchasing managers in services and manufacturing fell to 45.8, the lowest in more than three years, from 46.1 in September, London-based Markit Economics said today. Economists had forecast a reading of 46.5, according to a Bloomberg News survey. A separate factory index in China rose. In Germany, the Ifo institute’s business climate index unexpectedly dropped to 100.0 from 101.4 in September.
• Draghi Defends Bond Purchases With Warning of Deflation. European Central Bank President Mario Draghi defended his plan to buy government bonds in the German parliament today with a warning about deflation risks. The ECB’s so-called Outright Monetary Transactions “will not lead to inflation,” Draghi told lawmakers in Berlin in a closed-door session, according to a text provided by the ECB. “In our assessment, the greater risk to price stability is currently falling prices in some euro-area countries,” he said. “In this sense, OMTs are not in contradiction to our mandate: in fact, they are essential for ensuring we can continue to achieve it.”
• German Ifo Business Confidence Unexpectedly Fell in October. German business confidence unexpectedly fell to the lowest in more than 2 1/2 years in October as the sovereign debt crisis damped growth in Europe’s largest economy. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 100.0 from 101.4 in September. That’s the sixth straight decline and the lowest reading since February 2010. Economists predicted an increase to 101.6, according to the median of 39 forecasts in a Bloomberg News survey.
• Volvo Third-Quarter Profit Misses Estimates on Asia Sales. Volvo AB (VOLVB), the world’s second-largest truckmaker, reported third-quarter profit that missed analysts’ estimates as sales dropped in South America and Asia, and it incurred costs for shutting a production line. Volvo fell the most in 14 months in Stockholm trading after the Gothenburg, Sweden-based manufacturer said net income plunged 64 percent from a year earlier to 1.37 billion kronor ($206.3 million). Earnings were less than the 2.83 billion-krona average of 12 analyst estimates compiled by Bloomberg. Sales decreased 6.2 percent to 67.1 billion kronor. “This is a lousy result,” Mattias Eriksson, an equity strategist at Nordea Bank AB with a buy recommendation on Volvo, said by phone. “Both trucks and construction equipment performed worse than expected. The question is, how much of the problem is with the company and how much is with the market.”
• Fed Says Growth ‘Moderate’ While Maintaining Bond Buying. The Federal Reserve said the economy is still growing modestly and unemployment remains elevated as it maintains $40 billion in monthly purchases of mortgage-backed securities aimed at spurring the three-year expansion.“Growth in employment has been slow,” the Federal Open Market Committee said today at the conclusion of a two-day meeting in Washington. “Household spending has advanced a bit more quickly.” Fed Chairman Ben S. Bernanke is leading a third round of unprecedented bond-buying as he seeks to speed job creation for 12.1 million unemployed Americans. The FOMC, in its last scheduled meeting before the presidential election, repeated today that it would press on with the asset purchases until the labor market improves “substantially.” “Strains in global financial markets continue to pose significant downside risks,” the statement said. “Inflation recently picked up somewhat, reflecting higher energy prices.” It said longer-term inflation expectations have remained stable.
• Bank of America(BAC) Sued for $1 Billion by U.S. Over Mortgages. Bank of America Corp. sold defective residential mortgage loans to Fannie Mae and Freddie Mac that later defaulted, the U.S. government said in a $1 billion fraud lawsuit against the bank. The U.S. Justice Department filed a civil complaint today in Manhattan federal court, claiming that Countrywide Financial and its parent Bank of America generated and sold Fannie Mae and Freddie Mac thousands of defective mortgage loans. Bank of America acquired Countrywide in 2008.
• Netanyahu Says Israel May Broaden Response to Gaza Rocket Fire. Israeli Prime Minister Benjamin Netanyahu warned today that “much more extensive” military action is possible following rocket attacks from Palestinian militants in the Gaza Strip today and in the past week. Four Palestinians were killed in the past 24 hours by Israeli air strikes in Gaza, as more than 75 rockets were fired today at the south of Israel by militant groups from the Hamas- controlled territory. 

Wall Street Journal: 

• Consumer Agency Sets Sights on Debt Collectors. A U.S. consumer agency is planning to ring in the new year by examining the nation's largest debt collectors. On Jan. 2, the Consumer Financial Protection Bureau will move forward on plans to supervise 175 consumer debt-collection firms, beefing up scrutiny of the growing multibillion-dollar market a bit earlier than some industry officials expected.

MarketWatch.com:

• Bigger than Bernanke? Are today's problems bigger than Dr. Bernanke and the Federal Reserve?

Fox News:

• Weekly Home Purchase Applications Fall -8.3%. Applications for home mortgages fell sharply last week, registering the biggest percentage decline in a year as demand for both purchase loans and refinancings tumbled, data from an industry group showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell by 12 percent in the week ended October 19. The seasonally adjusted purchase index, which measures loan requests for home purchases, fell 8.3 percent over the previous week. Demand for purchase loans is a leading indicator of home sales. The MBA's seasonally adjusted refinance index fell 12.9 percent from the previous week to reach its lowest level since late August. The refinance share of total mortgage activity decreased to 81 percent of total applications from 82 percent the prior week.
• SEC Looking into Citi's(C) Disclosure of Pandit's Exit.

CNBC: 

• More Americans Walk Away from Their Mortgages.

Zero Hedge:

• Andalusia Seeks Greater Bailout From Spain, Says Amount For Regional Bailout Fund Was "Underestimated".  
• Full Mario Draghi Pro-Inflation Speech To Germany.  
• What Do CEOs Know That The Consumer Doesn't? (graph) 
• New Home Sales Highest Since April 2010... Until One Reads The Fine Print. 
• The World In Three Charts.  
• The 46 Million Foodstamp Man March - An Infographic.

Business Insider:

• Airlines Are Going To Start Tracking You And Deciding How Much You Should Pay For A Ticket. 
• In Preet Bharara's Suit Against BofA, He Reveals A Program Called 'The Hustle'. 
• GOLDMAN(GS): It Will Be 18 Months Before We Can 'Begin To Even Think' About An End To The Euro Crisis.

CBS:

• Norfolk Southern(NSC) shares fall -7.2%on lower earnings. Shares of Norfolk Southern Corp. hit a low for the year Wednesday after the railroad reported a 27 percent drop in third-quarter net income and an analyst downgraded the stock. The Norfolk, Va., company said late Tuesday that the main culprit in its falling profit and revenue last quarter was a steep drop in demand for coal, one of its biggest hauls.

Breitbart.com:

• White House Repeatedly Told Media 'No Evidence' Of Terror Attack In Libya.

RasmussenReports: 

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows Mitt Romney attracting support from 50% of voters nationwide, while President Obama earns the vote from 46%. Two percent (2%) prefers some other candidate, and two percent (2%) are undecided.

Reuters:

• White House told of militant claim two hours after Libya attack: emails. Officials at the White House and State Department were advised two hours after attackers assaulted the U.S. diplomatic mission in Benghazi, Libya, on September 11 that an Islamic militant group had claimed credit for the attack, official emails show. A third email, also marked SBU and sent at 6:07 p.m. Washington time, carried the subject line: "Update 2: Ansar al-Sharia Claims Responsibility for Benghazi Attack." The message reported: "Embassy Tripoli reports the group claimed responsibility on Facebook and Twitter and has called for an attack on Embassy Tripoli." While some information identifying recipients of this message was redacted from copies of the messages obtained by Reuters, a government source said that one of the addresses to which the message was sent was the White House Situation Room, the president's secure command post. Other addressees included intelligence and military units as well as one used by the FBI command center, the source said. 
• Greek coalition ally says he remains opposed to labour reforms. The leader of a junior partner in Greece's three-party coalition told Reuters on Wednesday that he remained opposed to labour reforms demanded by Greece's lenders, despite their latest concessions. "As things stand, my position remains unchanged," said Fotis Kouvelis, head of the small Democratic Left party. Kouvelis has blocked political agreement on a broad package of austerity cuts by refusing to back the reforms, saying that European Union and International Monetary Fund lenders must withdraw proposals that undermine labour rights.

Telegraph:

• This is an assault on living standards set to run and run. Close to the start of the economic crisis, someone I've always considered one of the City's more astute practitioners privately ventured what seemed a somewhat startling prediction – by the time it was all over, average living standards in Britain and many of other advanced economies would have fallen in real terms by 20pc or more.

Bear Radar

Style Underperformer:

• Small-Cap Growth -.55%

Sector Underperformers:

• 1) Road & Rail -2.80% 2) Disk Drives -2.31% 3) Computer Hardware -1.63%
  

Stocks Faling on Unusual Volume:

• GLW, FTI, JNPR, LVLT, VMED, CAM, DPS, NFX, CTCM, UMBF, TPLM, NEE, NSM, SIX, IACI, EAT, KMT, IRBT, BBRG, UTHR, TPX, INVN, TNC, NSC, BWLD, BKI, UIS, ALXN, UMBF, ABAX, JNY, NYB, SRCL, NFLX, ALTR, MDCO, MFRM, CHRW, WBSN, SIX and ATI

Stocks With Unusual Put Option Activity:

• 1) VMED 2) DDD 3) NSM 4) NSC 5) TPX
  

Stocks With Most Negative News Mentions:

• 1) RCL 2) NSC 3) NTAP 4) BWLD 5) NFLX
  

Charts:

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

Style Outperformer:

• Large-Cap Value +.08%

Sector Outperformers:

• 1) HMOs +1.39% 2) Homebuilders +.89% 3) Hospitals +.69%
  

Stocks Rising on Unusual Volume:

• IBKC, TCK, PLCM, MM, POL, FB, CP, LL, FBHS, MNST, NUVA, REGN, ARMH and AVY

Stocks With Unusual Call Option Activity:

• 1) TPX 2) RFMD 3) LCC 4) MNST 5) CBI
  

Stocks With Most Positive News Mentions:

• 1) NWSA 2) V 3) PRGS 4) JNPR 5) AMGN

Charts:

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

Wednesday Watch

Evening Headlines 
Bloomberg: 

• Draghi Takes Pitch Into Lion’s Den as German Faith in ECB Wavers. Mario Draghi is taking his sales pitch into the lion’s den. By appearing before a joint session of three committees of the German parliament in Berlin today, the European Central Bank president is seeking popular support in Europe’s largest economy for his plan to purchase government bonds to stem the debt crisis. While Draghi says his so-called Outright Monetary Transactions are required for price stability, some German policy makers say they are an affront to the monetary orthodoxy upon which the ECB was founded. “Draghi is on a mission to smooth concern that OMT won’t send inflation skyrocketing or lumber German taxpayers with liabilities they can’t pay,” said Frank Schaeffler, finance spokesman for the Free Democrats, who are in coalition with Chancellor Angela Merkel’s Christian Democrats. “Many lawmakers -- even if they don’t admit it -- have grown suspicious of the ECB and its head, once dubbed the most German of non-German central bankers.” While the announcement of Draghi’s yet-to-be-deployed bond- buying program has calmed financial markets, Germany’s revered Bundesbank has openly opposed the plan, fanning concerns among politicians and the public. Some 42 percent of respondents to a Stern survey published Sept. 6 said they had little or no trust in the ECB president, compared with just 18 percent who judged him favorably.
• Giant Taj Mahal Can’t Hide Weakness of Dubai’s Property Market. Dubai proclaimed its real estate comeback in the only style it knows: grandiose. A replica of the Taj Mahal about four times bigger than the original, a skyscraper with nine swimming pools and a mile-long canal winding its way around office buildings are among the high-profile projects unveiled in the past few weeks. The plans had been on hold since the financial crisis brought the emirate’s property boom to a halt in 2008. The eye-catching developments may be creating a buzz. In reality, few areas of Dubai are showing signs of recovering from a slump that caused property values across the emirate to fall by as much as 65 percent. About a quarter of Dubai’s residential properties are empty and an additional 25,000 are due to be completed next year as developers fulfill contracts awarded before the crash, Jones Lang LaSalle Inc. estimates.
• Pimco Prepared to Reduce Emerging-Market Corporate Debt on China. Pacific Investment Management Co., manager of the world’s biggest mutual fund, is prepared to cut its holdings of emerging-market corporate debt next year on concern a flood of new sales and further economic slowdown in China will put an end to a 12-month rally in the securities. The plunge in yields to a record 4.73 percent since the Federal Reserve unveiled a third round of asset purchases known as quantitative easing in September means some corporate bond prices don’t accurately reflect the chances of further economic deterioration in Asia or Europe, said Brigitte Posch, who helps manage about $92 billion in emerging-market corporate bonds for Newport Beach, California-based Pimco. “The rally will probably continue until the end of the year, but the market is starting to get weaker,” Posch said in an interview in Rio de Janeiro on Oct. 22. “At the beginning of next year, depending where the credit spreads are, I will probably be increasing my underweights. If we have two more months of this type of rally, I’d rather be more defensive.”
• Netflix(NFLX) 1.16 Million Customer Signups Miss Analyst Estimates. Netflix Inc., the world’s largest online video service, reported new customer signups that missed analysts’ projections, a shortfall that forces the company to cut its U.S. growth outlook for the year. The shares fell. Netflix added 1.16 million U.S. streaming subscribers in the third quarter, the Los Gatos, California-based company said today in a statement on its website. Analysts predicted 1.43 million, the average of 10 estimates in a Bloomberg survey. Netflix tumbled almost 19 percent to $55.58 in extended trading after the report. 
• Facebook(FB) Sales Top Estimates as Companies Warm to Mobile Ads. Facebook Inc., owner of the biggest social network, posted sales that topped analysts’ estimates, a sign of early success in a push to make more money from advertisements aimed at users of handheld electronics.
• Tempur-Pedic(TPX) shares plunge after-hours on loss. Tempur-Pedic International Inc.'s shares plunged more than 18 percent in after-hours trading Tuesday after the specialty mattress maker posted a third-quarter loss, reported a decline in mattress sales and cut its full-year outlook.The company said tough competition continued to weigh on its business in North America and the weak economy softened demand in Europe.
• Dow Chemical(DOW) to Eliminate 2,400 Jobs and Close Factories. Dow Chemical Co., the largest U.S. chemical maker by sales, will cut about 2,400 jobs and shut 20 manufacturing plants to reduce annual costs by $500 million in the face of slow global economic growth.
• Mortgage Lenders See Tighter Credit Under New U.S. Rules. Mortgage bankers and Realtors are warning that it could become even harder for borrowers to qualify for a home loan early next year as the industry faces a barrage of new rules. Regulators are preparing to release the language of two rules taking effect in January to set standards for non-abusive lending and require banks to hold a slice of risky mortgages on their books. In addition, U.S. banking overseers must also complete new capital standards mandated in the international Basel III accords next year. The housing rules, coming almost simultaneously, may overlap or conflict, creating what National Association of Realtors President Maurice “Moe” Veissi called a “perfect storm” of regulation. “There’s this intersection of policies that are absolutely not being considered by this massive array of institutions, all involved in deciding the future of homeownership and rental opportunity,” David Stevens, president of the Mortgage Bankers Association, said in an Oct. 22 speech at the association’s annual conference in Chicago.

Wall Street Journal:  

• Candidates Battle to Lock Up Key States. Backed by a ramp-up in TV ad purchases, Mitt Romney will spend much of the final two weeks of the campaign presenting himself as a bipartisan bridge-builder, aides said. 
• Cheap Natural Gas Gives New Hope to the Rust Belt. Three decades after being devastated by the closing of steel mills, this gritty river valley is hoping its revival will come from cheap natural gas. The hope doesn't rest on drilling rigs, but on a multibillion-dollar chemical plant that Royal Dutch Shell PLC is considering building here because of a flood of domestically produced natural gas. Community leaders are touting the plant as the first step toward reviving a manufacturing industry many thought was gone for good.
• Weak Earnings Spark Selloff. U.S. Stocks Lose $500 Billion in Three Days, as Fed's Impact Appears to Fade. In just a few days, American corporations have doused months of euphoria for stock investors.
• Syrian Warplanes Strike Rebel-Held Town in North. Syrian warplanes on Tuesday struck a strategic rebel-held town in the country's north in an attempt to reopen a key supply route, activists said, as a U.N.-proposed cease-fire meant to start this week appeared increasingly unlikely to take hold. The U.N.-Arab League envoy to Syria has suggested that both sides in Syria's 19-month-old conflict lay down their arms during Eid al-Adha, a four-day Muslim holiday that begins Friday. However, neither Syrian President Bashar al-Assad nor rebels fighting to topple him have committed to a truce, and international envoy Lakhdar Brahimi hasn't said how such a truce would be monitored.
• Fear Trails a Test of Afghan Pullout. Taliban checkpoints have mushroomed on the main roads leading here as the insurgency spreads into Bamiyan—the province selected last year to kick off the U.S.-led coalition's handover to Afghan security control because it was deemed the country's safest. With insurgents and bandits openly roaming Bamiyan's remote districts and the Taliban blowing up food and fuel trucks on the road to Kabul, many residents here increasingly fear they will be overrun once the last coalition base in the province closes in April. "Right over these mountains, they are waiting to launch rockets at us as soon as the foreign forces leave," said Ali Hekmat, dean of Bamiyan University's Education Department, pointing at the pink-hued cliffs ringing the provincial capital. "It is very easy to destabilize this province."
• Hedge Funds Belt Few Home Runs. They are the few. The proud. The hedge-fund managers making a killing this year. David Tepper's firm was up about 25% through Friday, partly from a bet Europe will avoid a meltdown. Steve Mandel's firm gained nearly as much from soaring consumer and technology stocks. Pine River Capital Management rose 30% thanks in part to subprime mortgages, as did Josh Birnbaum's Tilden Park. And the Barnegat Fund has climbed over 39% with a debt strategy that the manager concedes isn't for the faint of heart.
• J.P. Morgan(JPM) Gets Stung by China Downturn. Fund Run by Bank Loses High-End Residential Tower to Foreclosure as Rules on Property Purchases Hit Luxury Market. A luxury apartment building that is one of the most visible casualties of China's high-end property bust is up for auction in the northeast city of Dalian, after a bank foreclosed on the property.
• A Second First Term. Meet Obama's new agenda, same as the old agenda, only less.

Zero Hedge: 

• Merkollande Becomes Merde. European Discord Mounts – The Fraying Franco-German Alliance. 
• Greece Kills Bond Buyback Proposal.
• On Iranian Sanctions And Chinese Energy Needs.
• A Mushroom Cloudy Future: In 2016 Japan, Net Debt Per Capita Will Be $140,000.
• China Flash Manufacturing PMI Posts Modest Improvement Even As It Contracts For 12 Months In A Row.

Business Insider: 

• Uh Oh, Microsoft's(MSFT) Surface Tablet Is Getting Some Awful Reviews.
• Gen X Has Been Absolutely Clobbered By The Recession.
• Keeping Capital Gains Taxes Low Actually Helps Growth.
• Japan Pulls Back From 'World's Factory' As China Tensions Simmer.
• DYLAN GRICE: Greek Austerity Is Reopening Deep Social Wounds And Could Lead To Civil War.

Washington Post: 

• ‘Fiscal cliff’ warning: Senators urge financial industry not to sit on sidelines. Two key senators told the financial community on Tuesday that the industry’s engagement is critical if the country is to avoid the “fiscal cliff,” a series of automatic tax hikes and spending cuts that are scheduled to take effect in January. Sens. Mark R. Warner (D-Va.) and Saxby Chambliss (R-Ga.), both central players in a bipartisan effort to avert the cliff, said the industry cannot sit back as it did last year when an ugly political battle unfolded over raising the federal debt limit.

Reuters: 

• Buffalo Wild Wings(BWLD) profit misses; sees comp sales slowing. Buffalo Wild Wings Inc's profit missed analyst estimates as high costs pinched, and the casual dining chain disclosed slowing comparable sales in the beginning of the fourth quarter, sending its shares down 11 percent after market.

Telegraph: 

• Debt crisis: Europe ratchets up grip on Madrid. The EU-IMF Troika in charge of Spain's €60bn (£48bn) bank rescue is to demand much tougher action by the country's authorities to clean up toxic debts, risking a clash that could deter Madrid from requesting a full sovereign bail-out.

China Daily:

• Rising production costs in China and U.S. plans to bolster its manufacturing sector will contribute to a trend of long-term capital outflows, Zhang Monan, a researcher with the State Information Center, writes in a commentary published today. Foreign capital likely to move to other lower-cost nations as the cost of production rises in China, Zhang writes.

China Securities Journal:

• China's northern province of Shaanxi will select some areas for a trial of a profit margin cap on property project sales at about 10%, citing Zhang Jigang, head of the property market supervision bureau under the provincial government constitution department.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 122.0 +6.0 basis points.
• Asia Pacific Sovereign CDS Index 95.25 +1.25 basis points.
• FTSE-100 futures +.29%.
• S&P 500 futures +.53%.
• NASDAQ 100 futures +.46%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KMB)/1.32
• (LMT)/1.85
• (OC)/.33
• (PX)/1.39
• (TMO)/1.16
• (GRA)/1.00
• (WYN)/1.10
• (ALXN)/.47
• (LLY)/.84
• (GD)/1.78
• (NOC)/1.69
• (TUP)/.90
• (EMC)/.42
• (BA)/1.12
• (IACI)/.66
• (BMY)/.42
• (DAL)/.91
• (DPS)/.77
• (T)/.60
• (AVY)/.45
• (AKAM)/.41
• (CCI)/.16
• (AVB)/1.40
• (SYMC)/.37
• (CLF)/1.06
• (EQR)/.72
• (SLG)/1.12
• (TSCO)/.67
• (CTXS)/.65
• (FFIV)/1.18
• (OI)/.67
• (WYNN)/1.34
• (RYL)/.17
• (EAT)/.38
• (BNNY)/.25
• (ATI)/.39
• (LCC)/.92
• (CAKE)/.49
• (JNY)/.33 

Economic Releases
8:58 am EST

• The Markit US PMI Preliminary reading for October is estimated to rise to 51.5 versus 51.1 in September. 

10:00 am EST

• New Home Sales for September is estimated to rise to 385K versus 373K in August.   

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,800,000 barrels versus a +2,860,000 barrel gain the prior week. Distillate inventories are estimated to fall by -1,200,000 barrels versus a -2,218,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +500,000 barrels versus a +1,720,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a +.7% gain the prior week.

2:15 pm EST

• The FOMC is expected to leave the benchmark fed funds rate at .25%.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Eurozone Manufacturing PMI, German Business Expectations, ECB's Draghi meeting with German Parliament, 5Y T-Note auction and the weekly MBA mortgage applications report could also impact trading today.

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

Stocks Falling into Final Hour on Rising Global Growth Fears, Surging Eurozone Debt Angst, US Fiscal Cliff Worries, Earnings Concerns

 Broad Market Tone:

• Advance/Decline Line: Lower
• Sector Performance: Almost Every Sector Declining
• Volume: Below Average
• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• VIX 18.37 +10.53%
• ISE Sentiment Index 83.0 -28.45%
• Total Put/Call 1.05 +11.70%
• NYSE Arms 2.47 +139.29%

Credit Investor Angst:

• North American Investment Grade CDS Index 96.82 bps +3.02%
• European Financial Sector CDS Index 171.41 bps +4.90%
• Western Europe Sovereign Debt CDS Index 108.37 bps +1.34%
• Emerging Market CDS Index 212.49 bps +.22%
• 2-Year Swap Spread 10.75 +1.5 basis points
• TED Spread 21.25 -1.25 basis points
• 3-Month EUR/USD Cross-Currency Basis Swap -25.50 -1.0 basis point

Economic Gauges:

• 3-Month T-Bill Yield .10% +1 basis point
• Yield Curve 146.0 -4 basis points
• China Import Iron Ore Spot $117.50/Metric Tonne unch.
• Citi US Economic Surprise Index 49.0 -1.6 points
• 10-Year TIPS Spread 2.49 -4 basis points

Overseas Futures:

• Nikkei Futures: Indicating -93 open in Japan
• DAX Futures: Indicating +19 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech, Biotech and Medical sector longs
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges
• Market Exposure: Moved to 25% Net Long

Today's Headlines

Bloomberg:

• Spain Output Shrinks Fifth Quarter Amid Bailout Talk: Economy. Spain’s economy contracted for a fifth quarter, adding pressure on Premier Mariano Rajoy to seek more European aid even as the euro area’s fourth-largest economy met a bill-sales target. Gross domestic product fell 0.4 percent in the three months through September from the previous quarter, matching the contraction of the second quarter, the Bank of Spain said in an estimate in its monthly bulletin released in Madrid today. That compares with a median forecast for a 0.7 percent contraction in a Bloomberg News survey of 10 economists. Spain’s bonds have declined since European Union leaders last week failed to discuss further aid for the nation at a Brussels summit. Rajoy has struggled to trim a 2011 budget deficit that was more than three times the EU limit, after the country’s deepening recession pushed the jobless rate over 25 percent, sapping demand and tax revenue. “Progress isn’t conclusive, there is a huge amount of uncertainty in Spain right now,” said Ebrahim Rhbari, a London- based economist at Citigroup Inc. “There are question marks about the banking sector and public finances and economic fundamentals suggest we will see a bailout sooner than later.”  Spain’s economy probably contracted 1.7 percent in the third quarter from a year ago, as job losses continued, households ate into their savings and low disposable income reduced their ability to pay down debt, the Bank of Spain said.
• Rajoy Sees Case for Slowing Spain’s Austerity as Economy Shrinks. Spanish Prime Minister Mariano Rajoy said there is a case for easing budget-deficit targets set by the European Union as the recession undermines tax revenue. “I think what a lot of other people think,” Rajoy told the Spanish senate today. “Things could be done more calmly, taking into account especially that we are in a recession, but in any case I can’t give up on Spain’s commitments.” Rajoy’s comments undercut Budget Minister Cristobal Montoro’s insistence that Spain can stick to the path of budget consolidation demanded by the EU even after the Bank of Spain said the euro area’s fourth-largest economy contracted for a fifth quarter between July and October.
• EU’s Van Rompuy, Barroso Warn Against Debt-Crisis Complacency. Two top European Union officials warned the euro area against complacency about the debt crisis after an easing of market tensions, saying political battles lie ahead over the latest push to protect the single currency. EU President Herman Van Rompuy and Jose Barroso, head of the EU’s regulatory arm, said the euro region can’t afford to backtrack on plans for a single bank supervisor and tougher oversight of national budgets. “Not all member states feel the same degree of urgency, which probably is due to the fact that they are in different financial and fiscal positions,” Barroso, president of the European Commission, said in a debate with EU lawmakers today in Strasbourg, France. “Some of these issues are extremely difficult from a political and technical point of view, but the decisions should be as urgent as possible.”
• ECB Would Gain Power Over Banker Bonuses in Oversight Plan. The European Central Bank would get power to oversee bankers’ compensation under draft legislative proposals to establish the ECB as a bank supervisor. The Frankfurt-based institution would get the power to monitor risk management, capital standards and “remuneration policies and practices,” according to the draft dated today. The blueprint also says the ECB would be able to carry out stress tests and “where appropriate publish the results.” 
• Merkel Ally Warns of Concern at U.K. as Hague Threatens Veto. Germany is growing increasingly concerned at the rise of euro-skepticism in the U.K., a leading party ally of Chancellor Angela Merkel said. 
• 3M(MMM) Cuts Full-Year Forecast Range as Sales Fell in Europe. 3M Co. (MMM), the manufacturer of products including Scotch tape and dental braces, reduced its full-year forecast as a recession in Europe and slowing Asia growth crimped sales. The shares declined the most in 11 months. 3M now sees earnings of $6.27 to $6.35 a share, including 3 cents of an acquisition-related cost, 3M said in a statement. That’s down from a previous target of $6.35 to $6.50, which didn’t include the expense, and lower than the $6.40 average of analysts’ estimates complied by Bloomberg.
• DuPont(DD) to Cut 1,500 Jobs as Profit Misses Estimates. DuPont Co. (DD),  the most valuable U.S. chemical maker, said it will eliminate 1,500 jobs after posting a smaller-than-estimated third-quarter profit and cutting its forecast on declining demand for paint pigment and solar cells. Net income dropped to $10 million, or 1 cent a share, from $452 million, or 48 cents, a year earlier, Wilmington, Delaware- based DuPont said today in a statement. Profit excluding earnings from the auto-paint unit and one-time items was 32 cents a share, trailing the 47-cent average of 14 analysts’ estimates compiled by Bloomberg. The shares fell.
• Obama’s Claim on Spending Cuts Not Matched By Progress. President Barack Obama’s statement that $109 billion in automatic spending cuts “will not happen” in 2013 isn’t matched by progress with lawmakers in Congress toward a deficit-cutting deal to avert the reductions. Obama made the prediction during last night’s presidential debate after Republican challenger Mitt Romney accused him of endangering the national defense by proposing “a combination” of budget cuts and “sequestration cuts” that would curb military spending by $1 trillion. 
• Iran Threatens to Halt Crude Exports If Sanctions Intensify. Iran will suspend all oil exports, pushing global crude prices higher, if the U.S. and Europe tighten sanctions further on the OPEC member’s economy, Oil Minister Rostam Qasemi warned. “If you continue to add to the sanctions, we will stop our oil exports to the world,” he said at a news conference in Dubai. “The lack of Iranian oil in the market would drastically add to the price.”
• Emerging ETF Sinks Most Since July on Declining Earnings. The exchange-traded fund tracking emerging-market shares slipped the most since July in New York and stocks slumped on concern the global slowdown is crimping company earnings and as commodities erased this year’s gains. The iShares MSCI Emerging Markets Index ETF, which tracks companies including Korea’s Posco and Moscow-based OAO Gazprom, sank 2.3 percent to $40.95 by 11:44 a.m. in New York, poised for the biggest one-day slide since July 23.
• Commodities Erase Gains for Year. Commodities declined, erasing this year’s gain, as slowing global economic growth may curb demand for raw materials even as central banks pledge more stimulus. The Standard & Poor’s GSCI spot gauge of 24 commodities fell for a third consecutive session, after sliding for the first month in four in September. The measure declined 1.3 percent to 639.71 at 9:28 a.m. in New York, after slipping to 640.17, the lowest since Aug. 3. The GSCI first erased gains for the year in May, and most recently in July. The last annual drop was in 2008. 

Wall Street Journal:

• The October Surprise? Corporate America’s Backward Slide Dents Job Prospects. The October run of stinko corporate financial results is bad news for stocks. It’s also bad news for people who want a new or better job, and the prospects for a quick bounce-back aren’t looking good. Analysts today are scrambling to skin back their forecasts for fourth quarter revenue and profits as some 22 companies have warned that fourth quarter numbers will fall short of Wall Street’s estimates, says ThomsonReuters analyst Greg Harrison. One sign of how the outlook has soured, Mr. Harrison says, is how far Q4 profit estimates have fallen this year. In April, analysts were expecting, on average, 16.3% earnings growth for the current quarter. At the beginning of October, the outlook had fallen to 9.9% growth. Now, the consensus is for 8.9% growth, and based on what companies are saying, “maybe those estimates need to come down,” he says.
• BASE METALS: Comex Copper Falls to Six-Week Low on Spain Woes. Copper futures slipped to six-week lows on Tuesday, as a gloomier economic outlook from Spain's central bank renewed concern about Europe's banking system. The most-actively traded copper contract, for December delivery, recently traded down 5.5 cents, or 1.5%, at $3.567 a pound on the Comex division of the New York Mercantile Exchange. Futures fell as low as $3.56 a pound, the lowest intraday price since Sept. 7. The Bank of Spain said the country's recession accelerated in the third quarter, with an annual contraction rate of 1.7%. The year-on-year contraction in the prior three-month period was estimated at 1.3%.
• Apple(AAPL) Unveils iPad Mini.
• Commanders in Chief. A foreign policy debate for Cuyahoga County.
• A Perfectly Plausible President. All Mitt needed to do was sound reasonable. He succeeded. 

MarketWatch.com: 

• Richmond Fed business index falls in October. The Richmond Fed's index of manufacturing activity fell in October to -7 from 4 in September, the bank said Tuesday. The decline is another sign of broader weakness in the U.S. manufacturing sector since the end of spring. Most of the index's components decreased, including new orders and shipments. The new-orders gauge sank 13 points to -6 and shipments retreated 18 points to -9. The employment index held steady at -5. Numbers below zero indicate contraction.

CNBC:

• World ‘Close’ to Recession: Stanley Fischer.
• Mulberry Stock Plunge Sends Chill Down Luxury Sector.
• Spain’s ‘Vicious Circle’ Worsens as Moody’s Downgrades Regions.

Zero Hedge:

• European Stocks And Bonds Plunge Most In A Month.
• Debt - Driving The Economy Since 1980. (graph)
• How Iran Evades The Western Blockade: The Turkey-Dubai-Iran PetroGold Triangle.

Business Insider:

• It's Official: This Is Apple's(AAPL) iPad Mini.
• CHART OF THE DAY: A Measure Of Stock Correlations Suggests We May Have Just Hit A Major Turning Point In The Market.
• 8 Crucial Global Regions That Were Completely Ignored In The Final Debate.
• There's A Good Reason Why Chinese College Graduates Are Applying To Be Street Cleaners.
• Morgan Stanley's(MS) Awesome Presentation On Every Major Economic Debate In The World.
• Taxmageddon Is Coming And It's Going To Burn A Hole In Your Wallet.

InsiderMonkey: 

• Best Hedge Funds in 2012.

DailyFinance:

• Weekly Retail Sales Rise Just +1.6% YoY. The Redbook Retail Sales data, part of the Johnson Redbook Index, is showing some mixed results for the retail sector. Today's report showed that U.S. retail sales were down by 1.7% so far in October when compared to September. However, if you go back by one year, the first three weeks of October sales were up by 1.6% in 2012 versus 2011.

Gallup:

• Election 2012 Likely Voters: Obama 46%, Romney 51%. (graph)

RasmussenReports:

• Daily Swing State Tracking Poll. Swing State Tracking: Romney 50%, Obama 45%.

Reuters:

• U.S. companies sharpen job-cutting shears as sales slow.
• French budget lacking in spending cuts - ECB's Noyer.

Telegraph:

• Britain has left the European Union in all but name.

Expansion:

• Spanish officials agreed with their counterparts from the EU and ECB on the haircuts that the so-called bad bank will apply to real estate assets it buys. New homes face a 54% haircut. Used homes face a 48% haircut and land faces a 86% haircut on average.

Europa Press:

• Cemex to Cut 22% of Its Spanish Workforce.