Today's Headlines

Bloomberg:

• European Stocks Climb Most in 16 Months Amid Effort to Contain Debt Crisis. European stocks climbed the most in 16 months amid speculation policy makers will increase efforts to contain the region’s sovereign-debt crisis. Rio Tinto Group led a rally in raw-material shares, surging 7.8 percent, as metal prices rose. BNP Paribas (BNP) SA and Societe Generale (GLE) SA, France’s biggest banks, soared more than 14 percent. MAN SE (MAN) rose the most in two years as European Union regulators cleared Volkswagen AG (VOW)’s takeover of the truckmaker. The benchmark Stoxx Europe 600 Index climbed 4.4 percent to 229.91 at the 4:30 p.m. close in London. That’s the biggest gain since May 10, 2010, when it jumped 7.2 percent after the EU unveiled a 750 billion-euro ($1 trillion) loan package aimed at controlling the debt crisis. The gauge has surged 7 percent over the past three trading days after falling to a two-year low on Sept. 22. “The markets are hoping that the international leaders and politicians will act together and do what is needed to avoid a disaster,” said Lars Knudsen, who manages about $110 million at LGT Capital Management AG in Pfaeffikon, Switzerland. “Politicians are starting to feel pressure to act on the crisis. It is important that the European leaders act now.” The Stoxx 600 fell 26 percent from this year’s peak in February through Sept. 22 as European and U.S. economic reports trailed forecasts, adding to concern that the global recovery is at risk.
• Papandreou Has Votes to Approve New Property Tax. Greek Prime Minister George Papandreou garnered the support of 151 lawmakers in a vote to approve a new property tax, according to a tally of votes in the parliament in Athens today. The result, if confirmed, will bolster his chances of meeting 2011 budget targets and securing further international financial aid for the country. The vote is being televised live on state-run Vouli TV and is continuing.
• Italy, Spain Sell $24 Billion of Debt at Higher Yields; Bonds Gain on Sale. Italy and Spain sold 17.7 billion euros ($23.9 billion) of debt and their bonds rose after the sale even as both countries had to pay more to borrow than a month ago. Italy sold 8 billion euros of 182-day bills to yield 3.071 percent, up from 2.14 percent at the last auction of similar- maturity debt on Aug. 26. The Rome-based Treasury also sold 76- day bills at 1.808 percent and zero-coupon bonds due in 2013 at 4.511 percent. Spain’s interest costs also rose as it sold 3.22 billion euros of three- and six-month bills, just below the maximum target for the auction. Spain’s auction was “a very good result” and “in the near term, assuming Greece receives its disbursement, we are in for at least a short period of relatively less volatile markets,” said Matteo Regesta, senior interest-rate strategist in London at BNP Paribas SA, referring to Greece’s next bailout payment. “The yield was a little bit up, but nevertheless the take-up was significant and the yield pick-up not massive.”
• Financial Debt Swaps Fall in Europe on Crisis Containment Bets. The cost of insuring against default on European financial debt fell for a third day amid speculation policy makers will step up efforts to contain the region’s deficit crisis. The Markit iTraxx Financial Index of credit-default swaps on senior debt of 25 banks and insurers declined 16.5 basis points to 259.5 and the subordinated gauge was 26 lower at 498, according to JPMorgan Chase & Co. at 3 p.m. in London. “How many ‘hope’ rallies have ended up in eventual disappointment in Europe over the last 18 months?” Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to investors. “The answer is they all have in the end. Is this time any different?” Credit-default swaps on BNP Paribas SA dropped 40 basis points to 232 and are down from a record 309 on Sept. 22, according to CMA. Contracts on Deutsche Bank AG declined 25 to 171, Credit Suisse Group AG tumbled 22 to 170 and Credit Agricole SA fell 35 to 232, CMA prices show. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings dropped 39.5 basis points to 793. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was down nine at 187.5 basis points. Both benchmarks are down from the highest levels in 2 1/2 years. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments dropped 17.5 basis points to 334.5, after reaching a record 358 on Sept. 23. A basis point on a credit-default swap protecting $10 million of debt from default for five years is equivalent to $1,000 a year. Contracts on Belgium declined 24 basis points to 258, France dropped 24 to 173 and Germany fell seven to 103, according to CMA. Ireland decreased 49 basis points to 751 and Italy fell 50 to 453, while Portugal was 61 lower at 1,121 and Spain was down 32 at 368.
• Brazil Prepares for a Greek Default This Week, Valor Says. Brazil’s government is preparing the country for a Greek default as early as this week, Valor Economico reported, citing an unidentified government official. President Dilma Rousseff and Finance Minister Guido Mantega got back from the U.S. this weekend more pessimistic about the global crisis after meeting with foreign officials and business leaders, the Sao Paulo-based newspaper said. The government may adopt new economic measures to shield the country if the crisis worsens, according to the newspaper.
• Commodities Rise Most in Four Months After European Debt Concerns Subside. Commodities rose the most in four months, led by metals, on signs that European policy makers will intensify efforts to contain the region’s debt crisis. The Standard & Poor’s GSCI index of 24 raw materials rose 2.9 percent to 617.86 at 12:50 p.m. New York time, heading for the biggest gain since May 9. Last week, the gauge plunged 8.2 percent, the most since May.
• Health-Benefit Costs Rise Most in Six Years. The cost for businesses to buy health coverage for workers rose the most this year since 2005 and may reach $32,175 for a family in 2021, according to a survey of private and public employers. The average cost of a family policy climbed 9 percent in 2011 to $15,073, according to a poll of 2,088 private companies and state and local government agencies by the Henry J. Kaiser Family Foundation in Menlo Park, California, and the Chicago- based American Hospital Association’s Health Research and Educational Trust.
• Apple(AAPL) to Introduce New iPhone at Oct. 4 Event. Apple Inc. (AAPL) will introduce a new iPhone at an Oct. 4 event in Cupertino, California, the company said in an e-mailed statement today. “Let’s talk iPhone,” Apple said in the statement. The new iPhone will include a better camera and faster processor, people familiar with the matter said earlier this year. Introduced in 2007, the iPhone is Apple’s top-selling product, accounting for about half its revenue in the third quarter. The touch-screen gadget has helped push Apple to be the world’s most valuable company, bigger than Exxon Mobil Corp. Apple’s shares rose $2.94 to $406.11 at 11:35 a.m. New York time on the Nasdaq Stock Market. The stock had climbed 25 percent this year before today.

Wall Street Journal:

• China May Suspend Some Military Exchanges With U.S. China has indicated it will suspend or cancel some military exchanges in response to the latest U.S. arms sales to Taiwan but has stopped short of a full suspension of bilateral defense ties, according to a senior State Department official. Yang Jiechi, China's foreign minister, asked the U.S. to reconsider the $5.3 billion package—consisting mainly of upgrades for Taiwan's existing fighter jets—in a meeting with Secretary of State Hillary Clinton in New York on Monday, the official told reporters in a briefing there.
• Solyndra Faced Headwinds Before Loan Guarantee - Report. Before Solyndra Inc. received a federal loan guarantee, there were warning signs that the solar panel maker's competitive edge was eroding, a new nonpartisan congressional report said. The Congressional Research Service, in a Sept. 9 report obtained by Dow Jones Newswires, said Solyndra had a niche technology and even before the loan guarantee was issued, one of the company's key advantages--high polysilicon prices--had disappeared.
• European Banks to Trade EUR15B of Real-Estate Loans 2012. European banks could trade up to EUR15 billion of non-performing real-estate loans in 2012, property consultants Situs Cos. said Tuesday, as institutions come under increasing pressure to deleverage their balance sheets and stimulate the wider economy.

MarketWatch:

• U.S. Home Prices Up for Fourth Month: Case-Shiller. The S&P/Case-Shiller 20-city home price index rose 0.9% compared to June, to narrow the year-on-year decline to 4.1%.

CNBC.com:

• Why Poland is Falling Out of Love With the Euro.

Business Insider

• Check Out The Latest Recipients Of 'Free Money' From The Federal Financing Bank. The Federal Financing Bank (FFB) has released it's August report. This is the bank that has provided the $500mm to Solyndra.
• If You're Outraged By Greece Now, Wait Till You Read Michael Lewis' New Book.
• UPRISING! Microsofties(MSFT) Trash Ballmer After Disastrous All-Hands Meeting.
• Here's How Medicare Wastes Almost $50 Billion A Year.
• Ford(F) Pulls Anti-Bailout Ad Over Objections From White House.
  

Zero Hedge:

• Venizelos Refuses to Release Bond Swap Data, Confirming Key Precondition to Second Greek Bailout Has Failed.
• Leverage: Yesterday's Problems, Today's Solution. Why is EFSF just not being expanded? Wouldn’t it be easier to just increase the size of the EFSF? It would be, but there is no support to get that done. So the group of bankers and politicians who do not have the courage to attempt to draw a line in the sand and attempt to fix the existing problem have embarked on a new crusade. The crusade is to come up a €2 trillion plan that will for once and all make Europe safe again. They have their goal and after being told, in no uncertain terms, that they wouldn’t get that much money, they put their thinking caps on. They started to figure out creative ways to turn the €440 billion they think they can get their hands on, and turn it into €2 trillion. There are several ways to accomplish this “miracle of finance”. There are a couple of ways that the EFSF could be used to create leverage. The potential to provide “equity” capital to the EIB would be another way. We will start with the EFSF.
• Fed's Fisher Comes Clean on Moral Hazard and 'Twist' Infeffectiveness.
• It Is Virtually Impossible To Land A Job as "Jobs Hard to Get" Responses Hit 28-Year High. (graph)
  

ABC News:

• Nightmare in Libya: 20,000 Surface-to-Air Missiles Missing. (video) U.S. officials had once thought there was little chance that terrorists could get their hands on many of the portable surface-to-air missiles that can bring down a commercial jet liner. But now that calculation is out the window, with officials at a recent secret White House meeting reporting that thousands of them have gone missing in Libya. "Matching up a terrorist with a shoulder-fired missile, that's our worst nightmare," said Sen. Barbara Boxer, D.-California, a member of the Senate's Commerce, Energy and Transportation Committee. The nightmare has been made real with the discovery in Libya that an estimated 20,000 portable, heat-seeking missiles have gone missing from unguarded Army weapons warehouses.

The Hill:

• LightSquared Doubles Size of Its Lobbying Team in 2011. LightSquared, the wireless telecom firm facing Republican complaints that it has benefited from political ties to the White House, has significantly boosted its lobbying this year. The company has more than doubled the number of lobbying firms on its payroll, from four to nine K Street shops, in the first half of 2011.

Politico:

• Army, Marines Could Cut 150,000 Troops. Proposed Defense Cuts Highest Since WWII. If the supercommittee fails to agree on a plan to reduce the deficit by $1.2 trillion over 10 years, an automatic $600 billion reduction in Pentagon spending will be cut on top of $350 billion already mandated.
  

Reuters:

• Big Four Auditors Face Massive Shake-Up. The "Big Four" global auditors could be broken up, leaving them susceptible to takeovers if radical European Union plans to boost competition go ahead, a UK auditing official said on Tuesday.
• U.S. on "Knife Edge" of Contraction: Fed Economist. The U.S. economy is on a 'knife edge' between growth and contraction and monetary policy tweaks do not seem to be helping, the Dallas Federal Reserve's top economist said on Tuesday. The U.S. jobs engine has lost momentum and could be set for further "backtracking," Dallas Fed chief economist Harvey Rosenblum told a forum sponsored by the greater San Antonio Chamber of Commerce. Meanwhile, he said, there is also a "credible" risk of rising inflation. "We are in the midst of the Second Great Contraction," Rosenblum said, demonstrating the economy's predicament with a picture of a place on the Appalachian Trail known as "Knife's Edge." "Economic growth has slowed; it may have stalled," he said. "The patient isn't responding well to the medicine."
• Bank Demand for ECB Cash Stays High. Euro zone bank demand for European Central Bank loans remained high on Tuesday and was expected to stay strong at upcoming emergency tenders as banks build up cash buffers, fearing there will be no quick solution to the debt crisis.
• Investor Confidence Up Slightly in Sept. - State Street. The U.S. financial services firm said its global investor confidence index rose to 89.9 this month from 88.1 in August.

Financial Times:

• NY Fed Casts Doubt on Impact of Swaps Rules.

Die Welt:

• German Chancellor Angela Merkel's junior coalition partner, the Free Democratic Party, is threatening to vote against an overhaul of the European Financial Stability Facility if discussions about leveraging the fund don't stop. The FDP opposes any form of leverage for the region's rescue fund because it would increase the burden on German taxpayers and circumvent parliament, Hermann Otto Solms, the party's deputy floor leader and finance spokesman, said.

Sueddeutsche Zeitung:

• European Union Trade Commissioner Karel De Gucht said China's currency policy has a destabilizing effect on world trade.

Borsen:

• Danish toy brick maker Lego A/S is preparing for a period of global economic decline. CEO Joergen Vig Knudstorp's recent management changes are designed to help the company cope with adverse market conditions.

Xinhua:

• China's monetary policy faces dilemma because the nation has to deal with high prices and a potential slowdown in economic growth, Xinhua News said in a commentary posted on the central government's website.

Bear Radar

Style Underperformer:

• Large-Cap Growth (+2.57%)

Sector Underperformers:

• 1) Retail +.64% 2) Airlines +.65% 3) Utilities +1.02%

Stocks Falling on Unusual Volume:

• IOC, WAG, NEOG, DMND, JVA, NFLX, AMZN, FGP, NDN, AM and GDOT
  

Stocks With Unusual Put Option Activity:

• 1) EWT 2) IOC 3) LCC 4) CIGX 5) MELA
  

Stocks With Most Negative News Mentions:

• 1) WMS 2) ABT 3) ZMH 4) INTC 5) AMAT
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth (+3.38%)

Sector Outperformers:

• 1) Coal +4.89% 2) Oil Tankers +4.78% 3) Steel +4.75%

Stocks Rising on Unusual Volume:

• IVN, DB, SU, TDS, THO, SAPE, RIMM, CAVM, NUAN, IMGN, JOYG, SGA, TY, MIC and ATI
  

Stocks With Unusual Call Option Activity:

• 1) IVN 2) WAG 3) AMX 4) CI 5) SGMO
  

Stocks With Most Positive News Mentions:

• 1) KIM 2) SAM 3) BSX 4) LMT 5) BAX
  

Charts:

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

Tuesday Watch

Evening Headlines

Bloomberg:

• Geithner to Europe: 'Get on With' Crisis Response. U.S. Treasury Secretary Timothy F. Geithner predicted that European governments will step up their response to their region’s debt crisis after a chiding from counterparts around the world. “They heard from everybody around the world” in Washington meetings last week, Geithner said on ABC’s “World News With Diane Sawyer” program. Europe’s crisis is “starting to hurt growth everywhere, in countries as far away as China, Brazil and India, Korea.
  
• China Banks Shunned by Investors Eying 2003 Low in Credit Bust. The cheapest Chinese bank stocks since 2004 may drop further as the three-year credit boom that created the world’s most profitable lenders shows signs of turning into a bust. The MSCI China Financials Index sank 24 percent this month, falling more than benchmark bank gauges for Europe, the U.S., Japan and emerging markets. Valuations in China dropped below levels reached during the global financial crisis for the first time last week, even after Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. said first-half profits hit a record and analysts raised forecasts for next year. While banks in the MSCI index reported $104 billion of earnings in the past 12 months, bad loans to local governments, a fading real estate boom and slower economic growth are making some of the most successful investors bearish. Jim Chanos, the short seller who predicted Enron Corp.’s collapse, says Chinese banks will fall below the value of their net assets for the first time since December 2003, from an average premium of about 20 percent. Fund managers at Vontobel Asset Management Inc. and International Value Advisers LLC who beat 99 percent of peers this year are avoiding the stocks. “China’s economy is very distorted, and the banks, as ever, are at the epicenter of the distortions,” Edward Chancellor, who helps oversee about $106 billion as a strategist at Grantham Mayo Van Otterloo & Co. in Boston and warned of a “sucker’s rally” in Chinese stocks three days before the benchmark index peaked in August 2009, said in an interview. “If China runs into problems with the banking system, which I think it will, I cannot see a situation in which foreign investors are the main priority of Beijing.” Bad debts may cut China’s growth rate to near zero from 9.5 percent, hurting a global economy that’s already weighed down by Europe’s sovereign debt crisis and a stagnant U.S. job market, according to Chanos, founder of New York-based hedge fund Kynikos Associates LP. “The main concern we have, and the reason we’re not touching the banks, is we’re not sure that the Chinese economy is sustainable as it is,” said Charles de Lardemelle, whose $2.3 billion IVA International Fund slipped 5 percent this year through Sept. 23, compared with an 18 percent average drop for peers, according to data compiled by Bloomberg. Similar surges in credit and investment in Japan, Thailand and South Korea all ended with a collapse in economic growth, he said in a phone interview from New York. Evidence is building that Chinese property developers and local government financing vehicles, used to get around laws prohibiting direct borrowing, are struggling to repay their obligations as the economy slows. About 85 percent of the government financing vehicles in China’s Liaoning province, on the border with North Korea, had insufficient income last year to cover debt-servicing payments, according to a July speech by the provincial auditor.
• China's Developers Facing 'Increasingly Severe' Credit Outlook, S&P Says. Chinese developers face an “increasingly severe” credit outlook, which may force them to cut prices and turn to costlier funding sources as sales weaken, Standard & Poor’s said. A 30 percent decline in sales may leave many developers facing a liquidity squeeze, S&P said after conducting stress tests of the nation’s real estate companies. Most developers would be able to “absorb” a 10 percent sales drop next year, the credit rating company said. “The worst isn’t over for China’s real estate developers,” S&P analysts led by Frank Lu wrote in a report today. “Developers are bracing themselves for slower sales and lower property prices ahead.”
• Freddie Mac Mishandled Loan Reviews, May Have Spared Banks, Watchdog Says. Freddie Mac is reviewing its procedures for examining mortgages after auditors faulted its handling of lapsed loans issued before the 2008 credit crisis, a government watchdog said in a report on the finance firm. The mortgage-finance firm, which is operating under U.S. conservatorship, didn’t do enough to find flaws that could’ve increased recovery of money from banks that sold defective loans, the Federal Housing Finance Agency’s inspector general said in the report released today. FHFA, the regulator that oversees Freddie Mac and larger rival Fannie Mae, suspended loan-repurchase agreements while the agency and the McLean, Virginia-based company explore ways to uncover more defective loans, according to the report. “It is critical that this issue be resolved, as it involves potentially considerable recoveries for Freddie Mac and ultimately taxpayers,” the inspector general’s office said in the report.
• Gold Rebounds From Slump on Speculation Greece Is Set to Default on Debt. Gold rallied as the biggest three- day drop since the failure of Lehman Brothers Holdings Inc. in 2008 encouraged purchases by investors seeking a store of value amid market turmoil. Silver also advanced. Immediate-delivery gold gained for the first day in five, climbing as much as 0.9 percent to $1,641.40 an ounce and trading at $1,640.75 at 10:41 a.m. in Singapore. The price had lost 8.8 percent in the previous three days as some investors sold the metal to cover losses in other markets, which plunged on concern that the global economy may lapse into recession. The European Central Bank is likely to debate next week restarting covered-bond purchases and may discuss interest-rate cuts to ease funding strains, a euro-region central bank official said. Policy makers are under pressure to halt the European debt crisis that has Greece on the brink of default. “The facts haven’t changed,” said Gijsbert Groenewegen, a partner at Silver Arrow Capital Management. “They’re just postponing what will happen in three months or six months or whatever, but we will get default.”
• JPMorgan(JPM) Differs With JPMorgan(JPM) on Apple(AAPL) iPad. JPMorgan Chase & Co. (JPM) analyst Mark Moskowitz said research from his colleagues in Asia about a cut in Apple Inc. (AAPL) iPad orders doesn’t represent the views of the securities firm’s U.S. team. “Apple is fine,” Moskowitz wrote.

Wall Street Journal:

• Stopgap Fix Ends Budget Impasse. A budget deadlock that had raised the risk of a federal government shutdown was broken Monday, as the Senate approved a short-term funding measure and the House appeared likely to follow suit. The Senate, on a 79-12 vote, approved a bill late Monday to fund the government through Nov. 18. The vote came after the main sticking point in negotiations between the two parties was resolved.
• New Capital Rules Likely for Banks. International regulators are set to rebuff heavy lobbying by banks and stick with a plan to require some of the world's largest financial institutions to hold extra capital, according to people familiar with the matter. The watchdogs that make up the Basel Committee on Banking Supervision are gathering Tuesday in the Swiss city to consider comments on a planned rule requiring big banks to maintain thicker capital cushions than other institutions.
• Welcome to the Boardroom: Chelsea Clinton Joins Diller. She's 31. She's still a graduate student. And she's held many different jobs in different industries over the last five years. But those factors didn't prevent Chelsea Clinton from landing a plum assignment: joining the board of Barry Diller's Internet media holding company. In her new role, the daughter of former President Bill Clinton and U.S. Secretary of State Hillary Clinton will be the youngest member of IAC's board by seven years.
• Mr. Buffett's Tax Secrets. The least he can do is show Americans why he pays so little.

CNBC:

• Greece Set to Approve Tax; Unions Prepare to Strike. Lawmakers are expected to approve an unpopular property tax on Tuesday to open the way for the return of inspectors from Greece's bailout lenders and the release of vital aid, despite growing anger among austerity-hit Greeks.

Zero Hedge:

• "Anonymous" Enters Securities Analysis: Alleges Hong Kong's HK$ 8.5 Billion Chaoda Is Next Sino Forest.
• UBS' Euro Doom and Gloom Team Releases Sequel: "The Eurozone Sovereign Crisis Has Entered A More Dangerous Phase".
  

IBD:

• Buckeye Technologies(BKI) Helps Make Lots of Stuff.

NY Times:

• Two Tibetan Monks Set Themselves on Fire in Protest. Two young Tibetan monks set themselves on fire on Monday at an embattled monastery in western China to protest Chinese policies in the area, according to a Tibet advocacy group. The monks were apparently taken to a hospital, and it was unclear what condition they were in on Monday night.
• Goldman Sachs(GS) Draws Up Deeper Job Cuts. Goldman Sachs, bracing for what could be one of its worst quarters since it went public 12 years ago, is preparing to expand its cost-cutting initiative by hundreds of millions of dollars, a move that could lead to additional job losses at the Wall Street bank.

Forbes:

• Buckeye Oil Billions Will Unleash an Ohio Manufacturing Tech Boom. A prediction. The Ohio Valley is on track to become a hotbed of innovation. And one which will almost certainly focus on 21^st century manufacturing. The catalyst for this seemingly counter-intuitive claim? Money. Black gold. Ohio is about to be awash in both.

CNN:

• 10 Highest-Paid Bank CEOs. J.P. Morgan Chase's Jamie Dimon made $20.8M in 2010, a hefty 1,541% increase from the dark paydays of 2009. See which other bank executives raked in big bucks last year.

LA Times:

• New Facebook Information Sharing Features Cause Privacy Concerns. Privacy watchdogs are urging the Federal Trade Commission to look into the social networking service's new features that they say push Facebook users to share more than they may feel comfortable sharing.
• Obama Advisors Raises Warning Flags Before Solyndra Bankruptcy. Treasury chief Timothy F. Geithner and others were worried that the selection process for federal loan guarantees fell short and raised the risk that funds could be going to the wrong firms.

Reuters:

• ECB's Liikanen - Risks to Growth "Substantially" to Downside. European Central Bank Governing Council member Erkki Liikanen said on Monday he thought risks to euro zone growth were now "substantially" to the downside, when asked whether the ECB should cut interest rates next month. Asked if the ECB could reverse this year's rate hikes at its October 6 meeting --a move markets currently expect-- Liikanen stressed that the economic situation had continued to deteriorate since the ECB last met earlier this month. "We said (at last meeting) risks to inflation are balanced and risks to growth are balanced. And my personal opinion is that the growth is substantially to the downside."

Financial Times:

• Hedge Funds: Concern Over ETFs' Shorting Role. Which came first, a hedge fund wanting to profit from the fall of an index inexpensively or the security that allowed it do so? As exchange traded funds race to provide easy access to ever more exotic indices, sectors, geographies and asset classes, this is a question that is increasingly on the minds of long-oriented asset managers and retail investors. They are concerned that by buying ETFs they may inadvertently be facilitating, or in some cases funding, the short positions of hedge funds. This is especially the case when ETFs are structured synthetically utilising swaps. “Both parties use these long and short, though hedge funds do use them more on the short side, while retail investors will do it the other way,” says Ken Heinz, president of Hedge Fund Research of hedge fund monitoring agency HFR.

Telegraph:

• Germany at War Over Eurozone Bail-Out. European officials have confirmed that discussions are afoot to boost the eurozone bail-out fund's firepower as part of a grand plan to contain the region's sovereign debt crisis in Greece. Confirmation of the talks, however, sparked outrage in Germany, where opposition politicians threatened to derail the plans by voting against a key amendment to the bail-out fund this Thursday. The head of Germany's constitutional court also piled on the pressure by warning the government not to circumvent the law "by the back door".
• German Turmoil Over EU Bail-Outs as Top Judge Calls for Referendum. Germany's top judge has issued a blunt warning that no further fiscal powers may be surrendered to Europe without a new constitution and a popular referendum, vastly complicating plans to boost the EU's rescue machinery to €2 trillion (£1.7 trillion).

Securities Times:

• China's conditions aren't ready for the government to cancel limits on home purchases, introduced a year ago, citing Wang Juelin, a researcher at the Ministry of Housing and Urban-Rural Development.

People's Daily:

• China should maintain a proactive fiscal policy along with prudent monetary policy because it helps curb inflation and prevent "over adjustment" of polices, Jia Kang, head of Chinese Ministry of Finance's research institute for fiscal science, writes in a commentary.

Oriental Morning Post:

• Chinese regulators plan to conduct spot checks on some banks next month to ensure borrowers use their money for their stated purposes, citing a person familiar with the situation. Regulators will check banks whose borrowers may use their lending for high-yielding loans to a third party.

China National Radio:

• The possibility of a global double-dip recession is rising because of a slowdown in the world's economic growth, citing Ba Shusong, a researcher at the State Council's Development Research Center.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +1.0% to +3.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 216.0 -7.0 basis points.
  
• Asia Pacific Sovereign CDS Index 174.25 +9.75 basis points.
• FTSE-100 futures +1.9%.
  
• S&P 500 futures +.13%.
  
• NASDAQ 100 futures +.19%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AM)/.25
• (WAG)/.55
• (JBL)/.56
• (PAYX)/.38
• (PRGS)/.28

Economic Releases
9:00 am EST

• S&P/CS 20 City MoM% SA for July is estimated to rise +.1% versus a -.06% decline in June.

10:00 am EST

• Consumer Confidence for September is estimated to rise to 46.0 versus a reading of 44.5 in August.
• The Richmond Fed Manufacturing Index for September is estimated to fall to -11 versus -10 in August.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Fisher speaking, Fed's Lockhart speaking, 2-Year Treasury Note Auction, weekly retail sales reports, CSFB Small/Mid-Cap Conference, Jefferies Healthcare Conference, (CY) analyst event, (PRGO) analyst day and the (OKE) investor conference could also impact trading today.
  

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

Stocks Rising into Final Hour on Eurozone Debt Crisis Rumors, Quarter-End Short-Covering/Window-Dressing, Less Financial Sector Pessimism

Broad Market Tone:

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

Equity Investor Angst:

• VIX 41.28 +.02%
  
• ISE Sentiment Index 111.0 -24.49%
  
• Total Put/Call 1.02 -11.30%
  
• NYSE Arms .49 -42.82%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 138.79 -1.45%
  
• European Financial Sector CDS Index 256.33 -.70%
  
• Western Europe Sovereign Debt CDS Index 353.83 -.46%
  
• Emerging Market CDS Index 365.35 -.63%
  
• 2-Year Swap Spread 29.0 -1 bp
  
• TED Spread 36.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 167.0 +8 bps
  
• China Import Iron Ore Spot $172.90/Metric Tonne -.69%
  
• Citi US Economic Surprise Index -40.40 +.4 point
  
• 10-Year TIPS Spread 1.80 +5 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +85 open in Japan
• DAX Futures: Indicating +29 open in Germany

Portfolio:

• Slightly Higher: On gains in my Medical and Retail sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, 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 bounces off technical support on a precious metals collapse, short-covering, bargain-hunting, quarter-ending window dressing, numerous Eurozone rumors and less financial sector pessimism. On the positive side, Coal, Energy, Oil Service, Steel, Computer Service, Bank, Insurance and Education shares are especially strong, rising more than +2.0%. Cyclicals are outperforming. (XLF) has also outperformed throughout the day again. Copper is rising +1.4% and Gold is dropping -1.9%. The 10-year yield is rising +6 bps to 1.90%. The Spain sovereign cds is falling -3.4% to 400.83 bps, the Belgium sovereign cds is declining -4.18% to 282.0 bps and the Brazil sovereign cds is down -3.7% to 201.87 bps. Major European indicies rose 2-3% today. On the negative side, Alt Energy, Oil Tanker, Biotech, Road & Rail, Gaming, REIT, Semi and Ag shares are slightly lower to flat on the day. Small-caps are underperforming. Tech shares have also underperformed throughout the day. The UBS-Bloomberg Ag Spot Index is rising +.6% and oil is gaining +.82%. Rice is still close to its multi-year high, rising +27.0% in about 12 weeks. The average US price for a gallon of gas is -.05/gallon today to $3.49/gallon. It is up .35/gallon in about 7 months. The Russia sovereign cds is gaining +3.2% to 318.17 bps, the Hungary sovereign cds is rising +3.1% to 505.92 bps, the China sovereign cds is gaining +.9% to 160.81 bps, the Portugal sovereign cds is rising +.83% to 1,167.83 bps and the France sovereign cds is rising +.55% to 196.67 bps. The Germany sovereign cds is still right near a record high. The China sovereign cds is braking to the highest level since April 2009. The Russia sovereign cds is breaking out to the highest since July 2009. The Western Europe Sovereign CDS Index and the European Financial Sector CDS Index are still very near their records. The 3-Month Euro Basis Swaps is falling -1.54 bps to -106.42 bps. The Emerging Markets Sovereign CDS Index is surging another +16.8 bps today to a record 302.7 bps. The China Blended Corporate Spread Index is continuing its parabolic move higher, rising another +40.0 bps to 820.0 bps, which is the highest since February 2009. The China Development Bank Corp cds is surging +9.0% to 328.98 bps, which is the highest since March 2009. Asian shares fell substantially overnight with most making new 52-week lows. Various credit gauges continue to indicate intense global recession fears. Gauges of Asian credit continue to rapidly deteriorate. The S&P 500 bounced off the lower end of its recent trading range again. However, given how oversold we are, technical support, the break in the precious metals fever, a bounce in financials and numerous rumors out of Europe, today's lackluster equity breadth and volume is noteworthy once again. With many of the year's biggest equity losers posting the largest gains today, much of today's advance is likely related to quarter-end short-covering/window dressing. Today's rally could gain traction in the short-term on any perceived "solution" to the Eurozone debt problem. However, if Europe's "solution" to fixing an acute sovereign debt crisis is to use leveraged debt in another attempt at kicking the can down the road, any equity rally will very likely prove unsustainable over the intermediate-term. I expect US stocks to trade modestly higher into the close from current levels on quarter-end short-covering/window-dressing, less financial sector pessimism, bargain-hunting, technical buying and Eurozone debt crisis rumors.

Today's Headlines

Bloomberg:

• ECB to Consider New Crisis Tactics. European Central Bank policy makers are likely to next week debate restarting their covered-bond purchases along with further measures to ease monetary conditions, a euro-region central bank official said. The reintroduction of 12-month loans to banks will also be discussed at the ECB’s Oct. 6 policy meeting, said the person, who spoke on condition of anonymity because the information is confidential. Interest-rate cuts are likely to be discussed, though they are not on the current agenda, the official said. The euro rose half a cent against the dollar to as high as $1.3543. Yield spreads between covered bonds and interest-rate swaps tightened.
• European Central Bank Governing Council member Ewald Nowotny said it's "dangerous" if Germany feels ignored because it's outvoted in the ECB, and those feelings need to be respected. "It's very dangerous if in Germany the feeling emerges that the country is passed over," Nowotny said. "To be precise, that such an important country is being outvoted at the ECB," he said. There is now a "protectionist tendency" in the euro area's biggest economy, and its sensitivities need to be considered, he added.
• Rehn Says European Banks Should Be Recapitalized, Welt Reports. A recapitalization of European banks should be part of the region’s effort to contain the sovereign-debt crisis, European Union Monetary Affairs Commissioner Olli Rehn told Germany’s Welt newspaper. “We have to supplement the repair work in the financial sector with a stronger recapitalization of banks to reduce the risk of a credit squeeze and prevent a further slowdown of economic growth, which is now materializing in Europe and the U.S.,” Rehn was quoted as saying. “The current crisis is a serious combination of a sovereign-debt crisis and weakness in the banking sector. We can’t solve one without the other.”
• Dimon Attacks Bank of Canada Chief Over Basel Rules. (video) Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., criticized Bank of Canada Governor Mark Carney on the subject of the new Basel III capital rules, saying many of them discriminated against U.S. banks and he would continue to describe them as "anti-American," the Financial Times reported. Dimon's attack on Carney, who is an advocate of the rules, was delivered in a closed-door meeting last week in the presence of more than two dozen bankers and finance officials, the newspaper said.
• Gold Plummets More Than $100, Silver Slumps on Euro Debt Crisis. Gold tumbled more than $100 and was set for its worst two-day slump since 1983 as equities and other commodities fell on speculation European governments will struggle to contain the region's debt crisis, threatening global growth. Silver headed for its worst two-day drop in 31 years. Cash gold fell as much as $124.08, or 7.5 percent, to $1,532.72 an ounce, the lowest price since July 8. The metal traded at $1,558.55 at 3:12 p.m. in Singapore, down 13.3 percent since Sept. 20. Spot silver lost as much as 16.3 percent to $26.07 an ounce, the lowest since November, and traded at $28.30. "It all depends on the stability of the financial situation in Europe and how that gets managed, but it's difficult times at the moment for gold," Alexandra Knight, an economist at National Australia Bank, said by phone from Melbourne. "It's possible people are selling gold to cover losses in other markets. We could see it come back as it's still a favored asset."
• New Home Sales Fall to Six Month Low. Purchases of new houses in the U.S. declined in August to a six-month low as the biggest drop in prices in two years failed to lure buyers away from even less expensive distressed properties. Sales, tabulated when contracts are signed, dropped 2.3 percent to a 295,000 annual pace, figures from the Commerce Department showed today in Washington. The median estimate of 73 economists in a Bloomberg News survey called for a decline to 293,000. The median price slumped 7.7 percent from August 2010, the steepest 12-month drop since July 2009.
• CICC's Hong Recommends Selling China Stocks on Any Rebound. Investors should sell Chinese stocks on rebounds because valuations are not “compelling” in terms of book value, China International Capital Corp. said. Price-to-book ratios are still about 35 percent higher than the lows reached during the 2008 global financial crisis, Hao Hong, a global equity strategist at CICC, wrote in a report today. The report was referring to the MSCI China Index, Hong said by phone. Investors should wait until economic fundamentals start to improve, the report said. “Consensus believes that Chinese markets now offer compelling valuations after the recent plunge,” Hong wrote. “We beg to differ.”
• Thai Stocks Drop Most in Almost Three Years on Economic Concern. Thailand's benchmark stock index slumped the most in almost three years after the central bank said it may trim its economic growth projections as the global recovery falters. The SET Index fell the most among Asian benchmark gauges today, declining 6 percent to 900.75 as of 3:30 p.m. local time, poised for the biggest drop since Oct. 27, 2008. PTT Pcl, whose shares account for 10 percent of the index, slumped as much as 12 percent as crude fell for a fourth day. Global investors have cut holdings in Thailand's equities and currency this month on expectation exports, which account for about 60 percent of the economy, will slow amid the European debt crisis and weakening U.S. recovery. The Bank of Thailand expects "some possibility for downward adjustments" in the growth forecast, Governor Prasarn Trairatvorakul said in an interview in Washington on Sept. 24.
• Brazil Economists See 2011 Inflation Topping Target Range. Brazil’s central bank will miss its inflation target this year for the first time since 2003, a central bank survey of economists shows. Consumer prices will rise 6.52 percent this year, according to the median forecast in a Sept. 23 central bank survey of about 100 analysts published today, as record low unemployment and a weaker currency fuel consumer price increases. The forecast was up from 6.46 percent the previous week. The central bank targets inflation of 4.5 percent, plus or minus two percentage points, and year-end inflation has remained within the target range for the past seven years.
• Trader Pay Would Face Restrictions Under Draft Volcker Rule. U.S. banks would have to change the way they compensate traders involved in market-making activities under one of the proposed restrictions of the so-called Volcker rule, according to a draft circulating among regulators.

Wall Street Journal:

• Europe's Banks Face New Funding Squeeze. An extraordinary dry spell in the market for long-term European bank funding is amplifying pressure on policy makers to devise a solution to the continent's banking crisis. For the past three months, European banks have been largely unable to sell debt at affordable prices to investors, who are wary of the banks' vulnerability to risky euro-zone government bonds and other loans. At $34 billion, the amount of senior unsecured debt issued by the continent's financial institutions this quarter is on track to be the smallest of any quarter in more than a decade, according to data provider Dealogic.
• Technicals Suggest Stocks Oversold.
• Eurozone SPV: What Could Possibly Go Wrong? Here Are a Few Possibilities.
  

Barron's:

• Bad Week? Not Here. Despite central banks' best efforts, foreign-exchange specialist John Taylor of FX Concepts thinks the euro is headed sharply lower and the dollar will gain.

MarketWatch:

• Apple(AAPL) Shares Stung by Reported iPad Cuts. But analysts say demand for popular tablet remains strong.

CNBC.com:

• Euro Area Facing 'Outright Recession': Economist. The euro zone will be in a recession before the end of the year, an economist from the Royal Bank of Scotland (RBS) told CNBC Monday. "The euro zone will enter a recession by the fourth quarter of this year with contractions in growth for this quarter and the first quarter of next year, which in the current environment could be very damaging," said Silvio Peruzzo, European economist at RBS. Peruzzo said with a sizeable contraction in the industrial sector, and chances of a disorderly Greek default remaining elevated, a recovery when it comes will be extremely modest.
• Senate to Vote on Bill to Avert Government Shutdown.
  

Business Insider

• Top Republican Strategist Rejects Calls for More US Funding for Eurozone Bank Bailouts, Lagarde Wants $4 Trillion EFSF.
• Buffett's Berkshire(BRK/A) Buyback Helps Shareholders Dodge Taxes.
• A Look Inside the New Boeing(BA) 787 Dreamliner.
• Soros: Failing to Resolve the Euro Debt Crisis Will Trigger a Breakdown of the Global Financial System.
  

Zero Hedge:

• After Dropping Under $100,000/Share, Berkshire(BRK/A) Announces Stock Buyback Plan.

The Memphis Daily News:

• NYC Investor Paul Tudor Jones Recalls Memphis Roots.

Reuters:

• ETF Industry Braces Itself for Transparency Push.
• German FinMin Stresses No Aim to Top-Up EFSF Funding. Finance Minister Wolfgang Schaeuble on Monday moved to dispel doubts in Germany's parliament that the euro zone's current bailout mechanism could be boosted with substantial funding. The Free Democrats, (FDP) junior coalition partners in the government, had earlier said they were concerned over rumors the European Financial Stability Facility (EFSF) could be topped up just before parliament is expected to it new powers in a vote on Thursday. "No, that is clear... We do not intend to increase it," Schaeuble told broadcaster N-TV when asked if the government planned on boosting the size of the 440 billion-euro EFSF.

Telegraph:

• Debt Crisis: Live.
• S&P Under Threat of Lawsuit Over CDOs.
  

Diario Economico:

• The Portuguese government will cut its forecast for GDP in 2012. The government is working with a forecast that indicates a contraction of more than 2% and as much as about 2.5%. The government on Aug. 31 had announced a forecast for GDP to shrink 1.8% in 2012.