Today's Headlines

Bloomberg:

• European Stocks Slide for Third Day; Dexia, Air France Tumble. European stocks dropped for a third day, the longest losing streak in four weeks, as policy makers signaled they may renegotiate terms of Greece’s bailout, deepening concern about the impact of the debt crisis. Dexia SA (DEXB) tumbled to a record low as the board asked Belgium’s biggest bank by assets to solve its “structural problems.” Deutsche Bank AG (DBK) slid 4.3 percent after abandoning its 2011 earnings forecast. National Bank of Greece SA (ETE) sank to the lowest since 1996. Air France-KLM (AF) Group retreated to a 20- year low after the head of the IATA industry association said profit projections may be unsustainable. The benchmark Stoxx Europe 600 Index fell 2.8 percent to 217.46 at the 4:30 p.m. close in London.
• Bank Default Swaps Surge as Bigger Losses on Greek Debt Loom. Credit-default swaps insuring bank debt surged after European lawmakers signaled lenders may have to take bigger losses on holdings of Greek debt. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers jumped 16.5 basis points to 305.5 and the subordinated index climbed 25 to a record 567, according to JPMorgan Chase & Co. at 1:30 p.m. in London. Credit-default swaps on Germany rose four basis points to an all-time high of 122 and France increased nine to 199, approaching the record closing price of 202.5 on Sept. 22, according to CMA. Deutsche Bank AG swaps jumped 19 basis points to 210 after saying the planned operating pretax profit target of 10 billion euros from its core businesses for 2011 is no longer achievable. Swaps on France's three biggest banks also rose, with Societe Generale SA up 26 basis points at 378, Credit Agricole SA 19 higher at 282 and BNP Paribas SA up 18 to 281, according to CMA. “Currently the tensions are such that we could see forced sellers, with some banks needing to de-risk sharply,” said Alberto Gallo, head of European credit strategy at Royal Bank of Scotland Group Plc in London. Swaps on Belgium jumped 22 basis points to 293.5, Italy rose nine to 480 and Portugal climbed 24 to 1,134, while Spain was seven higher at 387, all nearing records set last month. Ireland rose 21 basis points to 717, CMA prices show. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 11 basis points to 353. The cost of insuring corporate debt also increased. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings jumping as much as nine basis points to 215.5, surpassing the December 2008 record closing price of 215, before trading at 215, JPMorgan prices show. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 34.5 basis points to 892.5, the highest since April 2009.
• Deutsche Bank Scraps Profit Goal, Will Cut 500 Jobs on 'Unabated' Slowdown. Deutsche Bank AG (DBK) scrapped its profit forecast and announced 500 job cuts and further writedowns of Greek bond holdings amid a “significant and unabated slowdown in client activity” in the wake of Europe’s debt crisis. The bank also said “costs relating to an indirect tax position” weighed on third-quarter results. Deutsche Bank, which had targeted 10 billion euros ($13.2 billion) in operating pretax earnings this year, still expects a profit for the quarter ended Sept. 30 and “robust” earnings for the full year, according to a statement today. Deutsche Bank shares slid as much as 9.1 percent, the most since July 2009. The stock was down 7.4 percent to 23.85 euros at 4 p.m. in Frankfurt, where the bank is based.
• Goldman, Morgan Stanley(MS) Lead Rise in U.S. Bank Default Swaps. Goldman Sachs Group Inc. and Morgan Stanley led gains in the cost to protect the debt of the biggest U.S. banks as concern intensified that Europe’s sovereign financial crisis will infect lender balance sheets. Credit-default swaps on Goldman Sachs Group Inc. increased 48.9 basis points to 444.5 basis points at 9:50 a.m. in New York, according to data provider CMA. Contracts on Morgan Stanley, the New York-based owner of the world’s largest retail brokerage, climbed 40.7 to 623.4 and those on Citigroup Inc. added 30.6 to 382, the data show. “When you get stuff blowing out a couple of hundred basis points in the span of two days, it causes a lot of people to seize up,” said Michael Donelan, who oversees $4 billion of bonds at Ryan Labs Inc. “If you see equities continue to be under pressure, it just leads to a further contagion-type spreading to credit spreads, credit-default spreads, cash bonds you name it everything’s interlinked.” The Markit CDX North America Investment Grade Index, which investors use to hedge against losses or speculate on creditworthiness, added 1.4 basis points to a mid-price of 151.5 basis points as of 11:18 a.m. in New York, according to Markit Group Ltd. Five-year credit-default swaps tied to Charlotte, North Carolina-based Bank of America Corp.’s senior debt climbed 27.9 basis points to 484.5, according to CMA, a unit of CME Group Inc. that compiles prices quoted by dealers in the privately negotiated market. Contracts on New York-based JPMorgan Chase & Co. added 18.8 to 198.6, and those on Wells Fargo & Co. increased 19 to 195, the data show. Swaps on American International Group Inc. climbed to 598.4, the highest since May 2010. “What you’ve got right now is bear raiders making a bet that in the event of a sovereign crisis in Europe coming to a head, what you’re going to have is a freezing in the debt markets,” Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York, said on Bloomberg Television’s “InsideTrack.” That “will lead to funding problems and all the capital markets firms will be hurt,” he said.
• Commodities Drop to 10-Month Low as Debt Crisis May Limit Demand. Commodities declined to the lowest level in 10 months as European policy makers were still to reach an agreement on the region’s rescue fund, deepening concern that slower economic growth may curb demand for raw materials. The Standard & Poor’s GSCI Spot Index fell as much as 2.2 percent to 572.92, the lowest level since Nov. 26, and was at 578.59 at 3:42 p.m. in London. Goldman Sachs Group Inc. cut its global growth forecasts and predicted recessions in Germany and France. “We are seeing continuing pressure across the commodities complex from these concerns about the global growth prospects,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty Ltd. in Sydney. “The markets are universally bearish.” The S&P GSCI Index has shed 24 percent since reaching an almost three-year high in April, meeting the common definition of a bear market, as investors cut holdings of commodities amid slower economic expansion.
• Copper Substitution May Reduce Usage by 500,000 Tons, CRU Says. Replacement of copper with other materials may reduce demand for the metal by about 500,000 metric tons this year, according to researcher CRU. Use of plastic for tube production, aluminum for high- voltage energy cables and fiber optics for communications cabling is driving substitution, Paul Robinson, non-ferrous metals group manager at London-based CRU, said by e-mail yesterday.
• China Says U.S. Risks Trade War With Bill. China said the U.S. risks triggering a trade war through legislation before the Senate that would punish the Asian nation for what lawmakers say is the undervaluation of its currency, the yuan. The People’s Bank of China said it “regrets” the Senate vote yesterday to consider the bill, and the Foreign Ministry said the measure would violate World Trade Organization rules, in statements today on their websites. The bill is aimed at letting American businesses seek duties on Chinese imports to make up for the weak currency.
• Apple(AAPL) Debuts iPhone 4S With Faster Chip. Apple Inc. (AAPL), in its first product unveiling since Steve Jobs resigned as chief executive officer, introduced an iPhone with a speedier processor and a higher- resolution camera to help it vie with Google Inc. (GOOG)’s Android. The A5 chip in the iPhone 4S will be seven times faster than the processor in the old model, Apple said today at a press conference at its headquarters in Cupertino, California.

Wall Street Journal:

• Germany Debating Rules for Sovereign Default. Germany's Deputy Economics Minister Stefan Kapferer has called for creating guidelines to regulate an orderly insolvency of a euro-zone member, in a letter to Joerg Asmussen, his counterpart at the Finance Ministry. The letter highlights how the debate over resolving the euro-zone debt crisis is increasingly moving towards establishing a proper framework for sovereign default, despite being short on detail about the specific rules that may be needed.
  

Business Insider:

• Hacker Group 'Anonymous' Doing Securities Analysis, Attempting to Blow Up Chinese Frauds. Hacktivist group Anonymous's new securities research branch, dubbed Anon Analytics, recently published a damning report about Chaoda Modern Agriculture, a Chinese vegetable and fruit supplier.
• Some Anecdotes About Chinese Real Estate, As Told By Deutsche Bank.
• Bernanke on US Banks: No More Bailouts... Technically.
• T2 Partners Plummets 9% in September, Whitney Tilson Says Big Losers Will Be Big Gainers.
  

Zero Hedge:

• Bank of America(BAC) Charts The Four "Crash Landing" Systemic Endgames For China.
• S&P Warns "Prospect Of European Double Dip Looking More Likely".
  

NY Post:

• BofA(BAC) Loses Leverage. Could take $150M hit in PE misadventures. Bank of America, the biggest player in the leveraged-loan market, is pulling back from the business after getting pinched in the credit squeeze, The Post has learned. BofA has retreated in the pitched battle for leveraged loans -- a source of funding for private-equity acquisitions -- until it can unload its loan backlog, according to two private-equity managers at different firms. “They’ve unequivocally become more conservative than others,” a PE manager said. BofA is in a jam after taking the lead in underwriting several leveraged financing deals in July and August, at levels that have proved hard to resell in the tightening credit market.

Detroit News:

• Treasury Will Be 'Patient' Before Selling GM(GM) Stake. The Treasury Department, holding onto a 26.5 percent stake in General Motors Co., plans to be "patient" before selling its remaining 500 million shares in the Detroit automaker. The Treasury's declaration came Monday as GM fell to another all-time low: $19.65 a share, a decline of 2.63 percent. GM is down 40 percent since its initial public offering last year. Monday was the first time GM has closed below $20 a share since going public in November. "We have to balance the goal of divesting these stakes — because the government should not be in the business of owning stakes in private companies — with the goal of maximizing taxpayer returns," Assistant Secretary for Financial Stability Tim Massad told CNBC in an interview Monday. That's a shift from the government's previous statements that it would sell its shares as soon as "practicable." It's an acknowledgement that the sharp fall in GM's stock price has made it impossible to sell its shares. The government has had the ability to sell additional shares in GM since a lock-up period expired in May, but has declined to do so.

Institutional Investor:

• Ken Griffin's Citadel Made Money in September. Ken Griffin’s Kensington and Wellington hedge funds were able to make a little money in September when most of the global markets extended their slide to five straight months. The Citadel founder’s main hedge funds were up 0.25 percent in September, putting them up by about 15.10 percent for the year, according to sources, making them among the best performers this year.

Reuters:

• No Dexia Capital Injection in Works - French Source. Tuesday's pledge of state support for troubled Franco-Belgian bank Dexia does not mean a capital injection or capital increase is in the works, a French source close to the matter told Reuters on Tuesday. The source said that Dexia debt currently guaranteed by the French and Belgian governments would mature in the months ahead, although any of that debt that is refinanced would also be backed up by the governments.
• EU to Object to D. Boerse/NYSE Deal: Sources. EU regulators will formally object this week to the planned merger of Deutsche Boerse and NYSE Euronext (NYX.N), two sources with knowledge of the case said, which may force the companies to offer concessions to ease competition concerns. The Commission opened an in-depth investigation into the $9 billion deal on August 4, citing concerns about the deal's impact on derivatives and equities. It has set a December 13 deadline to decide whether to clear or block the merger, which would create the world's largest stock operator. "The European Commission is expected to send a statement of objections to the parties this week," one of the sources said on Tuesday, declining to provide more details because of the sensitivity of the subject.
• Hedge Funds Suffer Through Worst Quarter Since '08. Hedge funds posted their worst returns in three years in the third quarter, and the fourth quarter appears to be off to an equally rocky start. For hedge funds around the world, the average loss was 5.02 percent in the three months ended Sept. 28, according to Hedge Fund Monitor, a report compiled by analysts with Bank of America. Not since the third quarter of 2008, when the global financial system ground to a halt and hedge funds posted an average decline of 9.48 percent, has the $2 trillion industry performed so poorly. Many savvy money managers were badly bruised by August's vicious market sell-off, and September brought no reprieve. The report said the average hedge fund loss was 2.31 percent last month as concern mounted about the European debt crisis and commodities from gold to corn nose-dived. The selling in the stock markets has continued into October, something that could bode poorly for many fund managers heading into the end of the year. Last month, managers who specialize in going long and short on stocks were hit particularly hard, with those hedge funds registering an average decline of 4.76 percent. John Paulson, manager of the $32.8 billion Paulson & Co, who earned billions with prescient bets on the sub-prime mortgage crisis and gold, miscalculated the timing of a U.S economic recovery and has paid dearly for it. His flagship Advantage fund has lost about 35 percent this year, investors say.

Financial Times:

• The propinquity of U.S. and French presidential elections and a Chinese leadership change next year, with a German election due in 2013, threatens to complicate economic policy-making at a crucial time, said Kenneth Rogoff, a professor of economics at Harvard. While circumstances that shut down the political business cycle might sometimes be seen as positive for long-term stability and growth, that's far from the case when political paralysis threatens to cause a euro crash, Rogoff said.
• CDS Numbers Count Against Banking System. The iTraxx credit defaults swaps index, which measures the risk of default for eurozone banks, has leapt above levels seen around the time of the collapse of Lehman Brothers in 2008. This highlights worries that many banks are struggling to fund themselves as Europe’s debt crisis deepens. But it has also reopened a debate over whether CDS, a form of insurance against bond defaults, is in effect the “tail wagging the dog” as its ability to often move faster than most other securities allows it to influence the much bigger and slower equity and bond markets, say analysts.

Bild:

• Opposition among Germany's coalition parties against Greece's second aid package is rising. If observers from the European Commission, the European Central Bank and the IMF questioned the feasibility of a second bailout plan, the same would hold true for Germany's lower house of parliament, Michael Fuchs, the Christian Democratic Union's deputy leader in the Bundestag, was quoted as saying.

Handelsblatt:

• The European Central Bank should cut interest rates immediately to counter growing economic risks, citing a majority of members of the so-called shadow ECB council.

De Tijd:

• The Belgian government may consider a full nationalization of Dexia Bank Belgium NV pending a sale of the retail bank. Dexia may need tens of billion euros of debt guarantees, according to De Tijd.

National Post:

• Mike Brock: The Hidden Canadian Housing Bubble.

Bear Radar

Style Underperformer:

• Large-Cap Value (-1.50%)

Sector Underperformers:

• 1) Gold & Silver -4.70% 2) Agriculture -3.10% 3) Hospitals -3.01%

Stocks Falling on Unusual Volume:

• IBN, VRUS, BNS, SU, PTR, MBT, AAPL, LBTYA, SJR, SFLY, CPNO, AMED, AGNC, WPRT, JAKK, LINE, CWEI, QSII, COLM, MORN, GLNG, RIMM, SHPGY, RGLD, YNDX, RNOW, AM, GNI, MTR, PBT, NTT, NLY, CYS, NU, PXP, QSII, PHK, PCP, GCN, WRC, PTY, PPO, JAKK, ATI, RHT, PMC and OCR
  

Stocks With Unusual Put Option Activity:

• 1) LEN 2) DISH 3) CCL 4) IBKR 5) WFC
  

Stocks With Most Negative News Mentions:

• 1) BBBY 2) AXP 3) BAC 4) MA 5) CLI
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth (+1.36%)

Sector Outperformers:

• 1) Networking +2.53% 2) Airlines +1.89% 3) Semis +1.87%

Stocks Rising on Unusual Volume:

• WNR, TI, OVTI, PLCM, CYMI, SHLD, FMCN, RIMM, SGEN, OSG, MDP, AKAM, ACI, WYNN, ANR, CLF, INCY, RMBS and FSLR
  

Stocks With Unusual Call Option Activity:

• 1) ARO 2) CREE 3) CX 4) CNO 5) SRS
  

Stocks With Most Positive News Mentions:

• 1) LCAV 2) FO 3) SNH 4) VRTX 5) ICE
  

Charts:

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

Tuesday Watch

Evening Headlines

Bloomberg:

• EU Signals Bigger Losses on Greek Bailout. European governments dropped clues that bondholders may have to take bigger losses on Greek debt in a second aid package, as Greece’s deteriorating economic outlook forces bolder steps to quell the fiscal crisis. Finance ministers considered reshaping a July deal that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion-euro rescue. That “private sector involvement” includes debt exchanges and rollovers. “As far as PSI is concerned, we have to take into account that we have experienced changes since the decision we have taken on July 21,” Luxembourg Prime Minister Jean-Claude Juncker told reporters early today after chairing a meeting of euro finance chiefs in Luxembourg. “These are technical revisions we are discussing.” Together with plans to get more firepower out of the 440 billion-euro rescue fund, the review of Greece’s aid package was a response to growing international frustration with Europe’s inability to get to grips with the crisis after 18 months of incremental steps. Juncker gave no details about a possible recalibration of the debt exchange. The talks came after seven countries including Germany, Europe’s dominant economy, weighed calling for Greek bond writedowns of as much as 50 percent, two European officials said. The ministers also pushed back a decision on the release of Greece’s next 8 billion-euro loan installment until after Oct. 13. It was the second postponement of a vote originally slated for yesterday as part of the 110 billion-euro lifeline granted to Greece last year. “The endgame for Greece has now begun,” Sony Kapoor, managing director of policy group Re-Define Europe, said in an e-mailed note. “It seems that the ground is being laid to revisit the private sector involvement agreement reached in July.”
  
• Dexia, BNP Resist Greek Losses Three Times Worse Than Booked. Dexia SA, BNP Paribas SA and Societe Generale SA are resisting pressure from regulators to accept more losses on their holdings of Greek government debt amid criticism they haven’t written down the bonds sufficiently. While most banks have marked their Hellenic debt to market prices, a decline of as much as 51 percent, France’s two biggest lenders and Belgium’s largest cut the value of some holdings by 21 percent. The practice, which doesn’t violate accounting rules, may leave them vulnerable to bigger impairments in the event of a default. The three firms would have about 3 billion euros ($4 billion) of additional losses if they took writedowns of 50 percent, according to data compiled by Bloomberg.
• Dexia Board Asks Chief Mariani to Resolve 'Structural Problems'. Dexia SA, Belgium’s biggest bank by assets, said its board asked Chief Executive Officer Pierre Mariani to take steps to fix the company’s “structural problems” after Europe’s sovereign debt crisis worsened. “In the current environment, the size of the non-strategic asset portfolio impacts the group structurally,” Dexia said in an e-mailed statement today. “This is why the board of directors asked the CEO, in consultation with the relevant governments and the supervisory authorities, to prepare the necessary measures to resolve the structural problems.” The bank didn’t elaborate on its plans.
• Morgan Stanley(MS), Goldman Sachs(GS) Credit Risk Soars to Highest Since 2008. The cost to protect the debt of Morgan Stanley and Goldman Sachs Group Inc. surged to the highest levels since the weeks after Lehman Brothers Holdings Inc.'s bankruptcy as concern intensified that Europe's debt crisis will infect the global banking system. Contracts on Morgan Stanley, the New York-based owner of the world's largest retail brokerage, soared 92 basis points to a mid-price of 583 basis points as of 4:30 p.m. in New York, the highest since October 2008, according to London-based data provider CMA. Those on Goldman Sachs increased 65 basis points to a mid-price of 395. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses or speculate on creditworthiness, climbed to the highest since May 2009, adding 6.7 basis points to a mid-price of 150.9 basis points as of 5:10 p.m. in New York, according to index administrator Markit Group Ltd. Five-year credit-default swaps tied to Charlotte, North Carolina-based Bank of America's senior debt climbed 33 basis points 457, according to CMA, a unit of CME Group Inc. that compiles prices quoted by dealers in the privately negotiated market. Contracts on American International Group Inc. surged 76 to 545, the highest since May 2010, CMA prices show. The cost to protect Morgan Stanley's debt has risen from 305 basis points on Sept. 15 and is at the highest level since October 13 2008, four weeks after Lehman Brothers Holdings Inc. filed for bankruptcy.
• BofA(BAC), JPMorgan(JPM) Face $13.5 Billion in FHA Claim Costs, FBR Says. Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. are among mortgage servicers that may face $13.5 billion in costs if the Federal Housing Administration rejects insurance claims on soured loans, according to FBR Capital Markets Corp. Denials from the FHA, which insures loans made by banks and private lenders for home purchases, could be the latest expense from U.S. housing programs, Paul Miller, an FBR analyst, said today in a note to clients. The government said in May that it could pursue other lenders after suing Deutsche Bank AG for more than $1 billion, accusing the firm of lying to the FHA while arranging mortgage insurance.
• Oil Declines for Third Day on European Debt Crisis, Rising Crude Supplies. Oil dropped a third day in New York as investors speculated that Europe’s debt crisis will slow the economy and curb fuel demand as crude supplies climb. Futures slipped as much as 2.2 percent today after falling to the lowest settlement in more than a year yesterday. Crude for November delivery declined as much as $1.69 to $75.92 a barrel in electronic trading on the New York Mercantile Exchange and was at $76.32 at 11:27 a.m. Sydney time. The contract yesterday fell 2 percent to $77.61, the lowest close since Sept. 28, 2010. Prices are down 16 percent this year. Brent oil for November settlement slid $1.05, or 1 percent, to $100.66 a barrel on the London-based ICE Futures Europe exchange. New York crude may test technical support at around $74 a barrel and $64 a barrel, levels that correspond with the 50 and 62 percent retracement levels on a Fibonacci study from lows in January 2009, said Stephen Schork, president of Schork Group Inc., an energy advisory company in Villanova, Pennsylvania. Brent oil may fall to $84 a barrel after its 50-day moving average fell below the 200-day average last week in a formation known as the “death cross,” according to technical analysis by hedge fund Again Capital LLC.
• BMW Dangles 19% Discounts as China's Luxury Market Cools: Cars. China is turning into a buyer’s market for luxury cars as dealers for Bayerische Motoren Werke AG, Daimler AG and Volkswagen AG’s Audi offer discounts to maintain sales as demand cools. In Beijing, BMW dealerships are giving markdowns of as much as 19 percent on a 3-series car, while some Mercedes dealers are selling the C-Class Elegance model at 20 percent less than the suggested retail price, according to cheshi.com, a pricing guide tracking more than 3,000 dealers in the country. BMW, Daimler and Audi, the three largest luxury carmakers, face slowing sales growth and falling prices in China, the world’s largest automobile market, as some cities impose driving curbs and the central bank tightens lending. “We’re in a cycle of dropping prices,” said Scott Laprise, a Beijing-based analyst at CLSA Asia Pacific Markets. “Dealers are worried about sales slowing and are cutting selectively in the luxury segment. They see where the overall market is going. They want to be preventive and keep their sales going.”
• Budget Office Raised 'Significant Concerns' on Solyndra Loan. White House budget officials raised "significant concerns" about Energy Department oversight of Solyndra LLC last year, months before the collapse of the solar- panel maker backed by a U.S. loan guarantee. Office of Management and Budget officials in 2010 expressed frustration with the Department of Energy's monitoring of Solyndra's cash flow and performance and said the company might default on its $535 million federal loan guarantee, according to a memo released today by staff for Democrats on the House Energy and Commerce Committee.
• Salida Capital's Wolfe Says Toronto Fund 'Not Blowing Up.' Salida told investors last month that its Salida Strategic Growth Fund fell 16 percent in August for a year-to-date loss of 19 percent.
  

Wall Street Journal:

• U.S-Chinese Progress on Accounting Is Dealt Setback. U.S.-Chinese negotiations to allow American audit-firm inspectors into China suffered a setback Monday, as U.S. regulators indicated that a planned visit to Washington by their Chinese counterparts to continue the talks has been postponed. Regulators previously said the Chinese were slated to visit Washington this month for a second round of the talks, which began in Beijing in July. The two countries are negotiating on whether to allow inspectors from the Public Company Accounting Oversight Board, the U.S.'s auditing regulator, into China to scrutinize the work of Chinese accounting firms which audit U.S.-traded companies.
• Iran Rejects Proposed U.S. Military Hot Line. Iranian military leaders have rebuffed a plan championed by senior Obama administration officials to establish a military-to-military hot line between Washington and Tehran, increasing U.S. fears about the potential for clashes between American and Iranian planes and ships operating in the oil-rich Persian Gulf.
• Report: Fannie Mae, Regulator Missed Foreclosure Abuses. Mortgage titan Fannie Mae and its federal regulator failed to pay enough attention to mounting evidence of abuses at foreclosure-processing law firms until the issue gained broad public attention last year, a federal watchdog says. The inspector general of the Federal Housing Finance Agency, in a report being released Tuesday, questioned Fannie Mae’s oversight of law firms that conduct foreclosures on its behalf.
• Taking Out The Trash. Despite Sales, Unwanted Assets Weigh on Citigroup; Mortgages to Credit Cards.
• Hedge Funds Pay Top Dollar for Washington Intelligence.
• Stimulus Has Been a Washington Job Killer. The political graveyards are full of politicians who thought that temporary, targeted economic policies would get them re-elected.

MarketWatch:

• Solar-Panel Firms' Outlook Dims, May Remain Darker. Solar-panel company stocks have plunged to multiyear lows as slowing demand and a glut of panels from Asia have squeezed margins, creating a cloud that could hang over the industry for some time.
• Macau Casino Stocks Hit by VIP Revenue Worry. A big drop in Macau-casino stocks reflects concerns China’s biggest gamblers could trim their bets if the economy there loses its growth sparkle. Hong Kong’s biggest casino-operator stocks took heavy, double-digit-percentage hits in Monday trading. And although the sector rebounded somewhat Tuesday, the shares remained well below their levels from the previous week.

Business Insider:

• Microsoft's(MSFT) Compensation Committee Has Determined That CEO Steve Ballmer Is UNDERPAID...Really.

Zero Hedge:

• US Closes 2010-2011 Fiscal Year With $14,790,340,328,557.15 In Debt, $95 Billion Jump On The Day, $1.2 Trillion Increase In One Year.
• Goldman(GS) Raises US Recession Odds to 40%; Sees More Fed Easing, Expects Recession in Germany and France.
• Things About to Turn Violent Again - Greece May Mobilize Police Against Striking Students and Teachers.
  

CNBC:

• Overheard in the Greene Room: Kyle Bass. Hedge-fund manager Kyle Bass, Hayman Capital Management LLC managing partner, spoke exclusively to CNBC about Germany's next move. Here's what he told me: "I believe that Germany and the balance of the Eurocrats will attempt to default Greece within the euro zone first. The frictions associated with such an event will prove to be problematic and the usual benefits of a substantially weakening currency that would historically accrue to the country in default will not be available to Greece. Greece will therefore be forced to go back to the drachma at some point in the near future.
• More Fed Easing Could Do More Harm Hawks Say. Two top Federal Reserve officials known for their hawkish views on inflation reiterated on Monday their opposition to further Fed monetary policy easing, saying it would do more harm than good. But the two, Richmond Fed President Jeffrey Lacker and Dallas Fed President Fisher, sketched somewhat different reasons for their views on the eve of Fed Chairman Ben Bernanke's appearance before Congress on Tuesday. Lacker said he was primarily concerned with the threat of inflation; Fisher said he was mainly worried that the policy would not work as advertised. "We want to rekindle this economy; we don't want, on the other hand, to kindle inflationary embers. I don't think the latter is an issue right now," Fisher said in an interview on Bloomberg Radio. He reiterated his view that U.S. politicians need to lay a sounder base for economic growth, or the Fed's easy monetary policy will simply be "pushing on a string." Fisher told CNBC television he expected the U.S. economy would grow at an annual rate of under 2 percent over the remainder of the year, but he warned: "We could slip." With inflation running above the Fed's target rate of 2 percent, the central bank should be careful of doing anything to exacerbate price rises, which can occur even when unemployment is so high, Lacker said. The Fed's "twist" operation may do just that, he said. "It is more likely to raise inflation than it is to measurably raise growth, that's my assessment," Lacker told reporters. Had he been a voter on the Fed's policy-setting panel this year, he added, "I would not have supported it." "We have a limited amount of ammunition," Fisher told CNBC, adding that there were plenty of studies that suggested the Fed's "Operation Twist" would not have that great an impact spurring stronger economic growth. "I personally did not feel that the benefits ... outweighed the costs," he said. "I think we have done enough at this juncture." Fisher, who has long argued that an uncertain regulatory and budget environment was damping business spirits, said he felt it would do little good to ease monetary policy because the level of interest rates was not the problem facing the economy. Lacker concurred. "There are impediments to growth that somewhat lower, longer-term interest rates will not be the antidote for," he told students.
• Greece Falls Into 'Death Spiral': Rising Debt, No Growth. Drowning in red ink, Greece has nowhere to turn to revive the economic growth that might put its debt on a sustainable trajectory, reassure angry foreign creditors and offer hope to its recession-weary citizens. Instead, the country finds itself in a vicious circle—a death spiral, some would say—in which it is borrowing ever more to keep up on its existing debts, crushing growth in the process and thereby worsening its all-important ratio of debt-to-gross domestic product.

IBD:

• Hain Celestial(HAIN) Profits From Healthy Eating Trend.

NY Times:

• Anti-Wall Street Protests Spreading to Cities Large and Small. A loose-knit populist campaign that started on Wall Street three weeks ago has spread to dozens of cities across the country, with protesters camped out in Los Angeles near City Hall, assembled before the Federal Reserve Bank in Chicago and marching through downtown Boston to rally against corporate greed, unemployment and the role of financial institutions in the economic crisis.

Forbes:

• Yahoo(YHOO): Report Alibaba, Silver Lake, DST Mull Joint Bid.
• Skype Competitor is Gaining Ground and Fast. Tango was featured as a Forbes ‘Name You Need To Know,’ in May with more than 13 million users. Today, the company touts more than 23 million users in 190 countries, adding between 70,000 to 80,000 new users per day on mobile.

American Banker:

• Credit Card Delinquencies Poised to Rise, FICO Survey Data Suggest. Many bank risk-management executives worry that credit card delinquency rates, which have been declining for more than two years, may begin to rise again soon if the economy does not improve, according to new FICO survey data. The Minneapolis-based credit-scoring firm owned by Fair Isaac Corp. said 40% of 188 bank risk managers it surveyed in August expected credit card delinquencies to rise during the next six months.

The Blaze:

• 'This Is Revolution Not Reform' - Occupy Wall Street Organizer To 'Excited' Al Sharpton: We Are Anarchists And Revolutionaries, 'This Is The Beginning Of A Revolution In This Country'. (video)

Reuters:

• China Says "Deeply Regrets" U.S. Currency Bill. China's central bank said on Tuesday it "deeply regrets" a U.S. currency bill that pressed China to allow its yuan currency to rise in value. The People's Bank of China also said the passage of the bill may seriously affect its currency reform, potentially leading to a trade war between the two sides. "There are multiple reasons for the global trade imbalance, and the trade imbalance between China and the United States is not because of the renminbi's exchange rate," it said in a statement posted on its website.
  
• Seoul Shares Plummet Led by Banks, Refiners. Seoul shares dropped as much as 6.3 percent on Tuesday as investors dumped stocks amid deepening fears over Greece's debt crisis. Traders said the selloff would likely continue for the next couple of weeks as markets and global leaders seek answers to the persistent debt crisis in Europe. "Investors are cutting their exposure to risk as the most extreme risks -- such as Greek default -- are looming closer than they expected," said Jung Sang-jin, a senior fund manager at Dongbu Asset Management. "The selloff is likely to continue for a couple of weeks, until either shares become really cheap or some sort of resolution is more apparent."

Financial Times:

• Hedge Funds Eye Outright Bet Against France. Its bond yields have already broken away from Germany, while its credit default swaps are far higher. French banks are weak; if they do not get bailed out, lending and economic growth is likely to slow further, hurting France’s creditworthiness. If Paris steps in and helps them, the additional debt is again bad for France’s credit standing.
• Brazil CDS Doubles in Five Months. Brazilian five-year credit default swaps were on Monday paying 202.4 basis points, around double their lows of mid-May. This compares with 146.92 bps for Japanese government debt, 112.19 bps for German bunds and 52.24 bps for the US, according to prices from data provider CMA.

Telegraph:

• Deutsche Bank CEO Josef Ackermann warned that Europe's debt crisis will extend into the "medium-term," and said European politicians' failure to address the region's debt crisis risked damaging its "social fabric," citing Ackermann speaking in Stockholm. The only solution to the European debt crisis is a return to economic growth, which is "necessary to maintain the social fabric of our societies, to fight deprivation and unemployment," Ackermann said.
• Greece Default Not An Option, Says Jean-Claude Juncker. If Greece doesn't receive the €8bn slice by mid-October, the debt-ridden country will be unable to pay pensions and salaries and eventually go bankrupt. Mr Juncker said after a meeting of eurozone finance ministers that he expected a decision about the loan to come sometime in October. And European Monetary Affairs Commissioner Olli Rehn strongly suggested that Athens would get the loan, saying the country's spending cuts and other efforts "go a very long way to meeting the conditions" set by its creditors.

FAZ:

• Euro-area countries unable to pay their debt should be restructured under procedures that would force them to partially renounce some of their sovereign rights, German Economy Minister Philipp Roesler proposed in a letter to the finance ministry. The newspaper said Roesler, who heads German Chancellor Angela Merkel's Free Democratic coalition ally FDP, wants his proposals included in the draft contract of the European Stability Mechanism, or ESM. According to the FAZ, the ESM would only provide financial aid if creditors agree to "take an appropriate share" in the rescue effort and both parties should face material disadvantages if they fail to reach an agreement.

Sing Tao Daily:

• Hong Kong Shippers Council Says Vessels Being Idled. Falling rates may cause some shippers to post losses, citing Hong Kong Shippers Council Executive Director Sunny Ho. Bocom International says shipping rates will fall in the fourth quarter as Christmas-related volumes decline from last year. Hong Kong shipping rates plunged 50% in the third quarter, Ho said.

South China Morning Post:

• Hong Kong Toy Exports May Drop Up to 25% on Year. Demand remains very weak in Europe and the U.S., so performance may be worse than during the global financial crisis, citing Toy Manufacturers' Association Executive VP Yeung Chi-Kong. China supplies about 90% of toys on sale in the U.S. Yeung sees up to a 20% drop in exports; Frankie Cheng, a manager at Galey Toys, sees up to a 25% decline. Confidence in the UK, Italy and Ireland has weakened "markedly" in the past three months, Cheng said.
• Economists Say China SME Credit Crisis 'could sweep China'. After a wave of businesses failures in Wenzhou caused by firms forced to borrow at steep rates, economists fear the problem will be contagious. Inner Mongolia could be next area to see small and medium enterprises fold because of its underground lending and rising property market fueled by the region's mining boom, citing Yao Wei, chief Asia-Pacific economist at Societe Generale. SMEs in Guangdong and the Pearl River Delta may face similar problems, citing Joy Yang, Greater China chief economist at Mirae Asset Securities.
  

Evening Recommendations
Piper Jaffary:

• Rated (ANDE) Overweight, target $45.

Morgan Stanley:

• Rated (WRC) Underperform, target $43.

Oppenheimer:

• Rated (ESRX) Outperform, target $54.

Night Trading

• Asian equity indices are -3.0% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 265.0 +10.0 basis points.
  
• Asia Pacific Sovereign CDS Index 173.50 +1.5 basis points.
• FTSE-100 futures -2.10%.
  
• S&P 500 futures unch.
  
• NASDAQ 100 futures -.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GPN)/.74
• (YUM)/.82
  

Economic Releases
10:00 am EST

• Factory Orders for August are estimated unch. versus a +2.4% gain in July.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• Bernanke's Congressional Testimony, ECB's Trichet speaking, Fed's Raskin speaking, weekly retail sales reports, (AAPL) iPhone 5 Media Event, RBC Oil & Gas Conference, (SIG) investor day, (VAR) investor meeting and the (BKH) analyst day could also impact trading today.
  

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

Stocks Dropping Substantially into Final Hour on Rising Global Debt Angst, Sharp Euro Decline, Rising Financial Sector Pessimism, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 44.92 +4.54%
  
• ISE Sentiment Index 78.0 -19.59%
  
• Total Put/Call 1.28 +3.23%
  
• NYSE Arms 2.80 -30.21%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 145.28 +3.10%
  
• European Financial Sector CDS Index 269.43 +5.95%
  
• Western Europe Sovereign Debt CDS Index 346.0 +1.22%
  
• Emerging Market CDS Index 386.49 +4.62%
  
• 2-Year Swap Spread 36.0 +4 bps
  
• TED Spread 37.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.
  
• Yield Curve 155.0 -10 bps
  
• China Import Iron Ore Spot $171.30/Metric Tonne -.15%
  
• Citi US Economic Surprise Index -23.30 +6.2 points
  
• 10-Year TIPS Spread 1.74 -2 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -110 open in Japan
• DAX Futures: Indicating -77 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech and Medical sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, and then covered some
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 falls below significant technical support with volume on rising global debt angst, rising financial sector pessimism, margin selling, a large euro currency decline, global growth worries and more shorting. On the positive side, Computer Services shares are holding up relatively well, declining less than -1.0%. The UBS-Bloomberg Ag Spot Index is dropping -.5%, lumber is jumping +3.69% and oil is falling -2.2%. On the negative side, Coal, Alt Energy, Oil Tanker, Ag, Steel, Paper, Disk Drive, Networking, Bank, I-Banking, Medical, Biotech, Hospital, HMO, Homebuilding, REIT, Gaming, Education and Airline shares are under severe pressure, falling more than -4.0%. Cyclical and Small-Cap shares are substantially underperforming. (XLF) has traded very poorly throughout the day. The 10-year yield is falling too much again, declining -14 bps to 1.78%. Copper is dropping -1.71% and gold is rising +1.6%. Rice is still close to its multi-year high, rising +26.0% in about 12 weeks. The Germany sovereign cds is gaining +5.0% to 117.83 bps, the France sovereign cds is rising +2.23% to 191.50 bps, the Russia sovereign cds is jumping +3.01% to 318.67 bps, the Belgium sovereign cds is rising +4.9% to 272.83 bps, the UK sovereign cds is gaining +2.4% to 96.67 bps, the China sovereign cds is rising +3.6% to 197.09 bps and the Brazil sovereign cds is rising +4.47% to 207.50 bps. The Eurozone Investment Grade CDS Index is jumping +5.23% to 196.97 bps, which is a new record high. The Western Europe Sovereign CDS Index and the European Financial Sector CDS Index are still near their records. The 3-Month Euro Basis Swap is falling -4.43 bps to -109.30 bps. The Asia-Pacific Sovereign CDS Index is soaring another +12.94% today to a new record 192.17 bps. The China sovereign cds is now at the highest level since March 2009. The China Development Bank Corp cds is still near the highest since March 2009. As well, the China Blended Corporate Spread Index, which has been moving higher in a parabolic fashion, is making another new multi-year high, rising +66.0 bps to 978.0 bps. The Hang Seng, which continues to trade very poorly, plunged another -4.4% overnight, leaving it down -27.0% ytd at the lowest level since May 2009. Major European stock indices fell another 1-2% today. Brazilian equities are under pressure again, falling -2.4% today and are now down -26.2% ytd. Various global credit angst gauges continue to trend higher, telegraphing intense global recession fears, which remains a large negative. It appears as though quarter-end window-dressing/short-covering did in fact prop stocks up to an extent last week. The fact that the market didn't acknowledge better US economic data today is also a large negative. Stocks are getting technically oversold again, however until Europe/Asia stabilize, investors are likely to increasingly anticipate another downturn in US economic activity over the intermediate-term. I expect US stocks to trade mixed-to-lower into the close from current levels rising global debt angst, a rapidly falling euro, rising financial sector pessimism, global growth fears, more shorting and margin selling.

Today's Headlines

Bloomberg:

• Schaeuble Seeks to Stifle Debate Over Euro Rescue Fund as Pressure Mounts. Germany sought to stifle debate over boosting the firepower of the euro rescue fund, damping speculation of a breakthrough in talks to quell the European debt crisis. German Finance Minister Wolfgang Schaeuble opposed moves to further scale up the European Financial Stability Facility until the final three countries approve the fund’s latest upgrade. Slovakia, the Netherlands and Malta have yet to ratify an earlier decision to expand the fund to 440 billion euros ($584 billion). “Speculating makes no sense,” Schaeuble told reporters before a meeting of European finance ministers in Luxembourg tonight. “We will wait until the other countries that haven’t ratified it also do so.” European stocks and the euro fell today and investors shunned riskier countries’ bonds amid growing international impatience with 18 months of muddling through marked by clashes among Germany, France and the European Central Bank. Europe’s financial leaders are fighting on multiple fronts, trying to extinguish the Greek crisis while insulating Italy and Spain and coming up with a formula for banks that the International Monetary Fund says face as much as 300 billion euros in credit risks. The meeting, chaired by Luxembourg Prime Minister Jean- Claude Juncker, started at 5 p.m. No time was set for the concluding press conference.
• Dexia Plunges in Brussels on Concern Second Rescue of Lender Is Required. Dexia SA (DEXB), the lender rescued by France and Belgium in 2008, plunged 10 percent in Brussels on concern the bank is struggling to fund itself and will need a second bailout. The company is holding an emergency board meeting tonight, De Tijd reported, without saying where it got the information. The shares fell 15 euro cents to 1.30 euros, cutting Dexia’s market value to about 2.5 billion euros ($3.4 billion). The bank in August posted a 4.03 billion-euro second- quarter loss, the largest in its history, as the firm wrote down its holdings of Greek debt. The Brussels- and Paris-based lender said at the time that U.S. investors’ concern about the European sovereign debt crisis had limited its ability to borrow dollars in the money market. “There’s speculation that Dexia may be on the receiving end of a bailout,” said Jawaid Afsar, a trader at Securequity Ltd. in Sheffield, England. “The big worry for Dexia shareholders is a massive dilution of shares.”
• France, U.K. Want Payments to Bailout Nations Reduced, FT Says. European Union subsidies totaling 2.9 billion euros ($3.8 billion) to Greece, Portugal, Ireland, Latvia, Romania and Hungary may be cut by at least 50 percent after some EU countries voiced concern about the effect on their own public finances, the Financial Times reported, citing unidentified diplomats. The six countries are due to receive the money as part of a European Commission plan to quicken subsidy payments to countries that have received bailouts during the crisis, the newspaper said. A group of countries led by net contributors to the EU budget, including France, the U.K., the Netherlands and the Nordic nations, are questioning the arrangement, the FT said. The commission wants to lower to a little as 5 percent the proportion of costs borne by national governments in projects otherwise funded by the EU, and to make the arrangement retrospective to the time when countries began receiving international aid, the newspaper said.
• Greece Must Exit Euro or Risk Revolt, Spence Tells Repubblica. Greece risks a violent revolution unless it leaves the euro in an “orderly exit” organized by the European Central Bank and the European Union, Nobel Prize- winning economist Michael Spence told la Repubblica newspaper. Greece’s plans to scrap as many as 30,000 public-sector jobs, coupled with other austerity moves, are “unsustainable” and mean the country “risks being torched” by people “in a long agony,” New York University professor Spence, who won the Nobel in 2001, told the daily in an interview published today. The only solution is an orderly exit from the euro that allows Greece to lower costs and regain competitiveness, Spence was quoted as saying. Such a scenario wouldn’t spark the kind of chain reaction the collapse of Lehman Brothers Holdings Inc. did in 2008 because it would be orchestrated by the ECB and the EU, he said.
• Cost of Swapping Euro Payments to Dollars Rises to 3-Week High. The rate banks pay to convert euro payments into dollars rose to a three-week high, according to a money markets indicator, as European finance ministers meet on resolving the region’s debt crisis. The three-month cross-currency basis swap was 109 basis points below the euro interbank offered rate as of 2:52 p.m. in London, compared with 105 basis points on Sept. 30. The cost was 112.5 basis points under Euribor on Sept. 12, when the swap was the most expensive since December 2008. The TED spread, or the difference between what lenders and the U.S. government pay to borrow for three months, rose to 37 basis points from 35 at the end of last week.
• Forint Drops, Hungary Bond Risk Reaches 2-Year High on Debt Plan. The forint weakened for a fourth day and the cost of protecting against default on Hungarian bonds rose to the highest in more than two years amid government plans to restructure $819 million in local county debt. Hungary’s currency depreciated 1 percent to 296.3 per euro, the weakest since 2009, by 4:42 p.m. in Budapest. The country’s five-year credit-default swaps jumped more than 17 basis points to 549.3, the highest since March 2009, according to data provider CMA. Credit swaps rise as perceptions of creditworthiness worsen. “Today’s announcement from the prime minister on the takeover and possible restructuring of counties can be seen as negative news,” Zoltan Arokszallasi, an economist at Erste Group Bank AG in Budapest, in a research report today. The deteriorating global sentiment also put pressure on the forint, he said. Hungary’s government bonds maturing in 2017 weakened for a fourth day, lifting the yield 13 basis points, or 0.13 percentage point, to 7.91 percent, the highest since January. The country needs a precautionary standby loan agreement with the IMF to defend against contagion from a potential worsening of the euro crisis, Bank of America Corp. economist Raffaella Tenconi said in a research report today. “There isn’t enough ammunition left to protect the economy against an unfavorable global backdrop if the eurozone states do not take immediate action to stabilize the crisis,” Tenconi wrote.
• Macau gaming revenue growing 47% YTD y/y may slow to 10% y/y in coming quarters versus consensus estimates of 25% growth as the China economy weakens, Deutsche Bank said. Most vulnerable sectors in Chinese economic slowdown include gaming, travel, dining, sportswear and apparel, Deutsche said. (LVS) down 22% in past 2 weeks, (WYNN) down 27%, (MGM) down 15%, (MPEL) down 30% on concerns slowdown in China may hurt Macau, they said.
• Asian Economies Weaken as European Debt Crisis Crushes Investor Confidence. Indian and Australian manufacturing data were the weakest since 2009 and Japanese business sentiment failed to recover from the March 11 earthquake, signaling Asian economies are slowing as investor confidence sinks. A purchasing managers’ index for India fell to 50.4 in September from 52.6 in August, HSBC Holdings Plc and Markit Economics said in an e-mailed report today. A gauge for Australia slid to the lowest since June 2009. In Tokyo, the Tankan index of large manufacturers was at 2 in September, compared with 6 before the quake. Asian stocks tumbled ahead of a meeting of European finance ministers to consider measures to counter the sovereign-debt crisis, highlighting limits on the support that the region can give to global growth. The MSCI Asia Pacific Index tumbled 2.9 percent at 3:04 p.m. in Tokyo, after slumping last quarter by the most since 2008.
• Loans Fall to Six-Month Low in Asia as European Banks Retreat. Asian loans slumped to the lowest level in two quarters as Europe’s sovereign debt crisis pushed up banks’ funding costs and lenders under pressure in home markets retreated. Syndicated loans in the Asia-Pacific region outside of Japan fell to $104.7 billion in the third quarter, the least since the three months ended March 31, when they totaled $96.8 billion, according to data compiled by Bloomberg. Lending climbed 12 percent from the same period a year ago, when it totaled $93.2 billion. European banks lost ground and Credit Agricole CIB dropped out of the top 20 arrangers for the first time since 2002, the data show.
• U.S. Company Credit Risk Gauge Rises to Highest Since May 2009. A benchmark gauge of U.S. corporate credit risk rose to the highest level since May 2009 as Europe’s finance chiefs sought to prevent a Greek default and the cost of insuring German government debt climbed to a record. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, added 1.5 basis points to a mid- price of 145.7 basis points as of 8:53 a.m. in New York, according to index administrator Markit Group Ltd. The credit swaps index, which typically gains as investor confidence deteriorates and falls as it improves, has increased from 136.2 on Sept. 27 as concerns mount that Europe’s sovereign debt crisis is worsening. The region’s officials prepared to meet in Luxembourg today to consider how to shield banks from the debt crisis and boost a rescue fund after Greece missed a deficit target for 2012. Credit-default swaps on German debt climbed six basis points to an all-time high of 118.
• Holding Sovereign Debt With No Capital Is Risky, IASB Chief Says. Global capital rules that allow banks not to hold any reserves against highly rated debt, including sovereign bonds, create risk, the chairman of the International Accounting Standards said today. It’s “extremely risky to have a capital regime which says for certain types of assets you don’t need to put aside any capital,” Hans Hoogervorst, IASB chairman, told lawmakers in Brussels today.
• VIX Record Gain Signals Stock Rises Since 1990. The biggest quarterly increase ever in the Chicago Board Options Exchange Volatility Index pushed it above 40, a threshold exceeded only three percent of the time in 20 years and a level that has preceded stock rebounds. The VIX rose 160 percent to 42.96 in the third quarter as the Standard & Poor’s 500 Index fell 14 percent, the biggest retreat since 2008, according to data compiled by Bloomberg. Closes above 40 in the volatility measure have come before the equity gauge gained 3.2 percent in the next three months on average, data compiled by Bloomberg show.
• Global Air-Travel Growth Slowing as Confidence Wanes, IATA Says. Growth in global air travel slowed in August and a freight decline deepened as business and consumer confidence waned amid concern that economies may slide into recession, the International Air Transport Association said. Passenger traffic grew 4.5 percent in August, slowing from a 6 percent gain in July, the trade group said in a statement today. Europe logged the biggest year-to-year advance at 7.4 percent and North America the smallest at 0.9 percent, with U.S. domestic travel contracting 0.3 percent, it said. “The industry has shifted gears downward,” IATA Chief Executive Officer Tony Tyler said in the statement. “With business and consumer confidence continuing to slump there is not a lot of optimism for improved conditions anytime soon.”
• U.S. Manufacturing Unexpectedly Accelerates as Export Demand Spurs Output. Manufacturing in the U.S. unexpectedly accelerated in September, propelled by gains in exports and production. The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August, the Tempe, Arizona-based group said today. A level of 50 is the dividing line between growth and contraction. The median forecast of 82 economists surveyed by Bloomberg News projected a drop to 50.5. The ISM report wasn’t universally positive as a gauge of orders showed total demand shrank in September for a third consecutive month. A gauge of backlogs decreased to the lowest level since April 2009. “Some of the components were still pretty ugly,” said Christopher Low, chief economist at FTN Financial in New York, who projected the ISM index would rise to 52. The drop in backlogs is “worrisome because they are a buffer that allow companies to continue producing when orders are weak. If that continues, it will translate into weaker production.”
• AMR(AMR) Falls Most Since 2001 on Recession, Bankruptcy Concern. American Airlines parent AMR Corp. tumbled the most since September 2001 on growing concern the U.S. is nearing a return to recession and that the carrier may be forced to seek bankruptcy protection. Today's slide pointed toward a fifth straight drop for Fort Worth, Texas-based AMR, the longest streak in more than two months, and marked its biggest intraday plunge since Sept. 17, 2001. The shares dropped $1.05, or 35 percent, to $1.99 at 1:24 p.m. in New York Stock Exchange composite trading, after falling to $1.75. The stock was halted three times between about 12:58 p.m. and 1:21 p.m.
• Summers Told Solyndra Investor U.S. 'Crappy' Venture Capitalist. Lawrence Summers, a top economic adviser to President Barack Obama, agreed with a Solyndra LLC investor in December 2009 that the U.S. was a "crappy" venture capitalist. Summers, director of the National Economic Council until last year, sent an e-mail in response to comments by Brad Jones of Redpoint Ventures, an investor in Solyndra, who said government isn't "well-equipped" to make such decisions, according to a memo released today by staff for Democrats on the House Energy and Commerce Committee. The solar-panel maker filed for bankruptcy protection on Sept. 6, about two years after winning a $535 million U.S. loan guarantee. "I relate well to your view that gov is a crappy vc and if u were closer to it you'd feel more strongly," Summers said in his e-mail to Jones, according to the Democrats' memo.
• BofA(BAC) Falls Below $6 as Weakness in Europe, Economy Adds Pressure. Bank of America Corp., the largest U.S. lender by assets, fell below $6 in New York trading as concern increased that the world is on the brink of another recession. The bank dropped 15 cents, or 2.5 percent, to $5.97 as of 12:17 p.m. in New York Stock Exchange composite trading.
• Commodities Drop to 10-Month Low as Slowing Global Growth May Crimp Demand. Commodities fell to a 10-month low on increasing concern that stagnant global growth will crimp demand for metals, energy and agriculture. The Standard & Poor’s GSCI Spot Index dropped 8.32, or 1.4 percent, to 582.68 at 1:39 p.m. in New York, after touching 580.22, the lowest since Dec. 1. The gauge tumbled 12 percent in the third quarter, the most since the final quarter of 2008.

Wall Street Journal:

• Greek Deficit Sharpens Default Fears. European financial markets took another turn for the worse Monday, as the Greek government's announcement that it would miss its budget target made the prospect of a "hard" default more likely. Greece needs to cut its deficit to 7.6% of gross domestic product this year to keep receiving aid from the International Monetary Fund, the European Union and the European Central Bank, but Athens Sunday confirmed that an unexpectedly harsh recession means the actual deficit will be closer to 8.5%.
• White House Brushed Off Solyndra Worries, Emails Show. White House officials dismissed concerns about Solyndra LLC ahead of President Barack Obama's May 2010 visit to the failed solar-panel maker, despite acknowledging that the company and other clean-energy ventures could go "belly-up" by the 2012 election, according to emails released by Democratic lawmakers. The emails, provided to lawmakers in connection with a congressional investigation, continue to show White House and Department of Energy officials ignoring warning signs about the health of Solyndra, which filed for bankruptcy protection last month. The emails also show continuing debate between Energy Department officials and the Office of Management and Budget, which repeatedly warned about Solyndra's financial health. The company received a $535 million loan guarantee from the Energy Department in 2009.
• September U.S. Auto Sales Rise. U.S. auto sales climbed in September from a year ago as richer discounts and strong demand for larger pickup trucks and sport-utility vehicles helped the industry sidestep economic malaise. General Motors Co., Nissan Motor Co. and Chrysler Group LLC each reported U.S. auto sales last month climbed at least 20% from a year ago. Ford Motor Co. said its sales rose 8.9%. In contrast, Toyota Motor Corp and sales fell again reflecting weak dealer inventories stemming from the March earthquake in Japan. Toyota's efforts dropped 17.5% and Honda's fell 8%, both from a year ago.

MarketWatch:

• European Bank-Debt-Insurance Costs Rise. The cost of insuring European bank debt rose Monday after Moody's Investors Service warned about Dexia SA's liquidity position and exposure to Greek debt amid reports that a rescue package may be in the works for the French-Belgian bank. According to RBS analyst Christy Hajiloizou, Dexia's short-term funding position is most problematic, as the bank is over-reliant on wholesale funding. Also,"any further hits on Greek government bonds would likely generate a need to bolster capital cushion," she said. Adding to the negative tone, Greece said it would miss its deficit reduction targets. Around 1200 GMT, the iTraxx Senior and Subordinated Financials indexes, whose constituents are 25 financial institutions, were six and 11 basis points wider at 281/284 and 536/544 basis points, respectively. "Dexia is leading the way for us, but we also have to watch French and Belgian credit default swaps moving wider as well," one CDS trader said. Belgium's sovereign CDS suffered on the news, moving 18 basis points wider to 278 basis points, underperforming the rest of the European sovereigns and the SovX Western Europe index.

CNBC.com:

• Fitch Lowers Global Growth Forecasts. Fitch ratings agency on Monday revised down its growth forecasts for all major advanced economies, and said it expected growth in emerging economies to slow as well due to financial market volatility which has dented confidence and caused a drop in private consumption and business investment. Fitch revised down world growth based on market exchange rates to 2.6 percent in 2011 compared with 3.1 percent previously.
• Banks of America(BAC) Web Site Goes Down... Again. Bank of America's website, plagued by problems Friday and Saturday but supposedly fixed on Sunday, isn't working again.

Business Insider:

• Japan Is The Case Against More Quantitative Easing.
• China Is An Economy On The Verge Of A Nervous Breakdown.
• Exclusive Interview: Glenn Beck On The Future Of Television.
• If You Thought Last Week's Occupy Wall Street Protests Were Crazy, Get Ready...
  

Zero Hedge:

• Hunting the Squid(GS), Part 2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?

Absolute Return + Alpha:

• Billion Dollar Club. The largest 241 American hedge fund firms gain $102 billion in the first half of 2011, for a total of $1.399 trillion. Bridgewater Associates maintains its number one spot with $70.30 billion.

FINalternatives:

• Short-Seller Chanos Stilll Supports Obama. Many, if not most, of the hedge fund managers who helped bankroll President Barack Obama's run for the nation's highest office three years ago have abandoned him—or worse, switched sides. Kynikos Associates' James Chanos isn't one of them. Chanos was among the 116 attendees at a $10,000 a plate fundraiser for the president and the Democratic National Committee on Friday, The New York Times reports. The event raised more than $1.5 million—but fell about 14 people short of really selling out. The event, at the Four Seasons restaurant in New York, was hosted by Berkshire Hathaway's Warren Buffett, who has also not given up on the president, despite the fact that much of Wall Street has. Indeed, his help went beyond merely hosting the dinner: Those attendees who wanted some face time with Buffett had to pony up $35,800.

Foreign Policy:

• U.S. Now Importing Chinese Shoppers to Buy Its Chinese Goods.

Reuters:

• ADR Report - Growth Fears Hit Chinese Real Estate, Gaming ADRs. Concern about slower growth and tighter credit pushed down U.S.-listed shares of Chinese companies on Monday, with gaming and real estate stocks among the biggest decliners.
• Mexico's Cemex(CX) Resumes Trading, Down 17%. Trading in Mexican cement maker Cemex was halted Monday afternoon after its shares plunged to the weakest level in more than 12 years, as investors worried about the company's financial future. Cemex's shares in the local market fell 14.6 percent to 3.79 pesos -- its lowest since the first quarter of 1999 -- when they were suspended, a trader told Reuters.
• Global Economy - Manufacturing Shrinks For First Time Since 2009.
• Senate Aims at China's Yuan With Eye on Jobs. Lawmakers will take aim at one of China's core economic policies Monday when the Senate begins debating a bill aimed at pressing China to let its currency rise in value in the hope of creating jobs. A procedural vote late Monday is expected to open a week of Senate debate on the Currency Exchange Rate Oversight Reform Act of 2011, which would allow the government to slap countervailing duties on products from countries found to be subsidizing their exports by undervaluing their currencies.

Financial Times:

• Eurozone Crisis: Live Coverage.

The Independent:

• Banks Plan New Job Cuts as Confidence Falls. Banks and other financial companies are planning a new round of job cuts after confidence in the sector dropped for the first time since the depths of the financial crisis, a closely watched survey shows. The expected job cuts will follow thousands already announced amid a grim outlook for growth and profitability in the CBI's quarterly financial services survey. Financial companies expect business growth to slow and no boost to profitability for the first time in two years. Business confidence has fallen for the first time since March 2009.

El Pais:

• The economic situation faces Europe doesn't look "very different" to a recession even if the region doesn't fall into one under a technical definition, Angel Gurria, Secretary-General of the OECD said in an interview. The process of resolving Greece's debt crisis cannot proceed without the participation of private creditors because adding more debt cannot be a solution, Gurria said.

Yonhap News Agency:

• South Korea Facing Growing Stagflation Concerns: Think Tank. South Korea's economy is facing growing risks of stagflation amid the worldwide economic slowdown and rising inflation at home, a private think tank said Monday. The Korea Institute of Finance (KIF) said in a report that an increasing number of experts are raising alarms that the country could face serious challenges down the line.
  

Economic Times:

• Shipping Corp. of India on Brink of Financial Collapse. NEW DELHI: Warning that an Air India-like situation is being replicated at SCI, the Shipping Ministry has raised red flag over the state-run company's plans to acquire fresh vessels, stating the firm stands to lose around USD 200 million from the proposed purchases. According to an internal document of the Shipping Ministry, Shipping Corporation of India (SCI) "is on the brink of financial collapse" and its plans to acquire 33 vessels would lead into a "debt-trap, almost on the lines of Air India".