Stocks Surging into Final Hour on Euro Bounce, Short-Covering, Less Financial Sector Pessimism, Technical Buying

Broad Market Tone:

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

Equity Investor Angst:

• VIX 28.31 -5.13%
  
• ISE Sentiment Index 90.0 +1.12%
  
• Total Put/Call 1.23 +26.80%
  
• NYSE Arms .78 +6.95%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 124.09 -.31%
  
• European Financial Sector CDS Index 236.79 +3.37%
  
• Western Europe Sovereign Debt CDS Index 338.0 +1.09%
  
• Emerging Market CDS Index 283.59 -.91%
  
• 2-Year Swap Spread 36.0 unch.
  
• TED Spread 44.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 183.0 +6 bps
  
• China Import Iron Ore Spot $122.90/Metric Tonne +1.04%
  
• Citi US Economic Surprise Index 23.60 +2.0 points
  
• 10-Year TIPS Spread 2.13 -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +89 open in Japan
• DAX Futures: Indicating +89 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bullish, as the S&P 500 builds on yesterday's reversal higher despite rising Eurozone debt angst, global growth worries and rising energy/food prices. On the positive side, Oil Tankers, Oil Service, Paper, Networking, Bank, Hospital, Homebuilding and Airline shares are especially strong, rising more than +1.50%. (XLF) has traded very well throughout the day. Gold is falling -.76% and Copper is gaining +.34%. Weekly retail sales have held up very well during this entire market pullback. They have averaged about a +4.5% gain over the last 4 months, which was one of the tells that the US economy was not plunging into recession even as investors were beginning to price this during Aug./Sept. However, this week sales rose +3.1%, which was down from a +4.7% gain the prior week and the weakest since the week of April 5th. This is only one week, but it warrants close attention, especially given the recent spike in energy prices. On the negative side, Biotech and Gaming shares are lower on the day. Oil is rising +.9%, the UBS-Bloomberg Ag Spot Index is rising +.9% and Lumber is falling -1.2%. The Nikkei fell -1.3% overnight and is now down -15.4% ytd. Brazilian equities are not participating in today's rally and are down -14.8% ytd. The Germany sovereign cds is up +2.69% to 89.50 bps, the France sovereign cds is rising +1.52% to 184.50 bps, the Italy sovereign cds is up +3.14% to 522.67 bps, the Spain sovereign cds is gaining +1.54% to 401.0 bps, the Ireland sovereign cds is gaining +2.21% to 729.0 bps, the Belgium sovereign cds is up +2.4% to 293.33 bps and the Israel sovereign cds is up +.6% to 170.0 bps. Rice is still close to its multi-year high, rising +26.0% in about 4 months. The Italian 10-year yield jumped +11 bps to 6.77% today, which is the highest since Aug. 1997. The Italian/German 10-Year Yield Spread is jumping another +9.13 bps to 496.78 bps, which is another new all-time high. The TED spread continues to trend higher and is near the highest since June 2010. The Libor-OIS spread is now at the widest since July 2010. The 2-Year Euro Swap spread is making a new cycle high today, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -34.20% since February 16th and -30.2% since Sept. 7th. It is noteworthy that various Eurozone credit gauges are not confirming today's equity optimism over Berlusconi's apparent departure. While China's upcoming inflation readings will likely show deceleration, I doubt that any meaningful policy easing is in store. Emerging market inflation is still a larger problem than perceived, in my opinion. Moreover, the recent surge in energy prices is becoming a concern and could pose another major threat to the global economy on any further spike higher. Despite many negative headwinds, the broad US equity market still trades well and looks higher in the short-term on fund year-end performance-chasing, perceptions that Europe is moving in the right direction, seasonality and better US economic data. However, I still think the rapidly deteriorating fundamentals in Europe will likely mute upside traction and eventually weigh meaningfully on the major averages again over the coming months. As of today, I am posting further commentary on the new Wall Street All-Stars site in the Platinum Conversation section on the front page. Please stop by and check it out. I expect US stocks to trade mixed-to-higher into the close from current levels on fund performance-chasing, short-covering, bargain-hunting, less financial sector pessimism, seasonality, a bounce in the euro and technical buying.

Today's Headlines

Bloomberg:

• Berlusconi Lacks Majority in Budget Vote. Prime Minister Silvio Berlusconi failed to muster an absolute majority in a routine parliamentary ballot, fueling further calls for him to resign as Italy struggles to convince investors it can fund itself. Berlusconi won 308 votes in the 630-seat Chamber of Deputies. The lower house had failed to pass the measure in an initial ballot last month, prompting a confidence motion that the premier won on Oct. 14. Since then, Berlusconi has faced defections that threaten to bring down his government. “The government doesn’t have a majority,” Pier Luigi Bersani, leader of the main opposition Democratic Party, said as he called on the premier to resign after the vote. “We all know that Italy runs the real risk of not being able to access the financial markets in the next few days.”
• Italian Bonds Fall on Berlusconi Vote, Margin Charge Speculation. Italy's bonds fell after Prime Minister Silvio Berlusconi won a routine vote without an absolute majority, casting doubt on the nation's ability to enact austerity measures under his leadership. Italian 10-year yields climbed to a euro-era record amid speculation LCH Clearnet Ltd., Europe's largest clearing house, will raise its margin charge on the debt, a rumor denied by the company. German government bonds pared a decline after European Central Bank council member Jens Weidmann said the bank can't bail out nations by printing money. "The problem is that he hasn't gone," said Marc Ostwald, a fixed-income strategist at Monument Securities Ltd. in London, referring to Berlusconi. "The other big problem is there's a lot of talk going around the market that LCH are going to revise the margins on Italian debt. A lot of people will have to jettison their positions" under such a move, he said. Italy's 10-year bond yield rose 11 basis points, or 0.11 percentage point, to 6.77 percent at 5:07 p.m. London time, the most since the introduction of the 17-member currency in 1999. The difference in yield, or spread, over similar-maturity German securities widened to a record 497 basis points.
• UniCredit's $10 Billion Fundraising Jeopardized as Contagion Strikes Italy. UniCredit SpA (UCG), Italy’s biggest bank, will decide this week whether to proceed with a 7 billion-euro ($10 billion) stock sale as Prime Minister Silvio Berlusconi fights to remain in power and the country’s debt crisis worsens. Chief Executive Officer Federico Ghizzoni is considering announcing the share sale as soon as Nov. 14, when the Milan- based lender reports third-quarter earnings, four people with knowledge of the talks said. The bank is preparing to hire six to eight underwriters to manage the sale, which may raise 5 billion euros to 7 billion euros, the people said.
• Weidmann: ECB Can't Print Money for Financing. European Central Bank council member Jens Weidmann said the ECB cannot bail out governments by printing money. “One of the severest forms of monetary policy being roped in for fiscal purposes is monetary financing, in colloquial terms also known as the financing of public debt via the money printing press,” Weidmann, who heads Germany’s Bundesbank, said in a speech in Berlin today. The prohibition of monetary financing in the euro area “is one of the most important achievements in central banking” and “specifically for Germany, it is also a key lesson from the experience of hyperinflation after World War I,” he said.
• Iran Worked to 'Miniaturize' Weapon Design. Iran sought to design a nuclear weapon to fit on the Persian Gulf country’s missile warheads and continued working to raise an atomic explosions yield as late as 2010, the United Nations inspectors reported today, citing “credible” intelligence from more than 10 countries. Iran carried out “work on the development of an indigenous design of a nuclear weapon including the testing of components,” the International Atomic Energy Agency said today in a 15-page restricted document obtained by Bloomberg News. “Some activities relevant to the development of a nuclear explosive device continued after 2003” and “some may still be ongoing.” The document, drawing on eight years of collected evidence, shows that Iran worked to re-design and miniaturize a Pakistani nuclear-weapon design by using a web of front companies and foreign experts, according to the report and an international official familiar with the IAEA’s investigation. The IAEA’s conclusion that Iran continued weapons work until at least 2010 clashes with U.S. intelligence estimates that Tehran’s government stopped pursuing a nuclear bomb in 2003. Until now, atomic inspectors had only voiced concerns publicly about the “possible existence” of weapons work in Iran. The new analysis is likely to heighten public pressure on Iran. The IAEA report “could increase the risk of a military attack on Iran’s nuclear facilities” and therefore “justified a certain risk premium on the price of oil,” Commerzbank wrote today in a research note.
• Gold Futures Advance in New York as Europe Crisis Spurs Investor Demand. Gold futures topped $1,800 an ounce for the first time in almost seven weeks as concern that European leaders will be unable to contain the region’s debt crisis spurred demand for the precious metal. “The turmoil in Europe has brought the fear trade back to gold,” Lance Roberts, the chief executive officer of Houston- based Streettalk Advisors, said in a telephone interview. “Also, a renewed wave of policy easing by central banks is helping gold.” Gold futures for December delivery rose 0.6 percent to $1,801.20 an ounce at 12:58 p.m. on the Comex in New York. Prices earlier reached $1,804.40, the highest since Sept. 21.
• Negative Deposit Rates Pose Risk to Funding of China's Banks, Moody's Says. China’s negative interest rates may hinder banks from increasing deposits and weaken the nation’s ability to cope with shocks from the global financial crisis, Thomas Byrne, a senior vice president at Moody’s Corp. said. “It’s important to eliminate negative interest rates as it runs the risk of undermining the deposit bases banks use to fund themselves,” Byrne said in an interview in Beijing yesterday. Having “dependable” funding “can reduce lots of vulnerabilities” for China’s banking system, he said. Deposits in China’s banking system rose the least in almost four years in the third quarter, data from the People’s Bank of China show. Savings rates have lagged behind inflation for 20 months, encouraging money to seek higher returns in areas such as property and informal lending, where interest is as high as 70 percent a year, according to Dong Tao, a Hong Kong-based economist with Credit Suisse AG.
• U.S. Plans Lease Sales in Gulf of Mexico, Offshore Alaska. President Barack Obama’s administration plans 15 offshore oil-lease sales from 2012 to 2017, keeping the Atlantic and Pacific seaboards off-limits for drilling. The government will hold 12 lease sales in the Gulf of Mexico and 3 off of Alaska’s coast, the Interior Department said today in an e-mailed statement announcing its proposed five-year oil and gas leasing program.
• Job Openings in U.S. Rise to Three-Year High. The number of positions waiting to be filled in the U.S. rose in September to the highest level in more than three years, indicating some companies are preparing for an improving economy. Job openings increased by 225,000 to 3.35 million, the most since August 2008, a month before the collapse of Lehman Brothers Holdings Inc. intensified the financial crisis, Labor Department data showed today in Washington. Hiring advanced by 185,000 to 4.25 million, and firings also climbed. Payrolls grew by 80,000 workers in October, and gains in the prior two months were revised up, Labor Department figures showed last week. At the same time, hiring is short of the pace needed to reduce unemployment hovering around 9 percent.

Wall Street Journal:

• Berlusconi to Resign After New Budget Is Approved. Italy's prime minister Silvio Berlusconi promised to the country's head of State Giorgio Napolitano he will resign after the 2012 budget bill is approved, Italy's president office said in a statement. Mr. Berlusconi's move came after his centre-right government failed to muster a majority in a key vote in the lower house of Parliament Tuesday. According to the statement, Mr. Berlusconi expressed worries over "the urgent necessity to provide precise answers" to Italy's European partners with the approval of the 2012 budget bill, to which growth-boosting measures required by the EU should be attached. After Mr. Berlusconi resignation, President Napolitano said he will start consultations with all the political parties on the possible future options.
• JPMorgan(JPM) One of Several Banks Doubting Bailout Leverage Plans - Sources. J.P. Morgan Chase & Co. (JPM) is one of several global banks that have recently voiced doubts to euro-zone officials about plans they are considering to leverage the bloc's sovereign rescue fund, people familiar with the discussions said Tuesday. Doubts from large financial institutions are among the main obstacles facing euro-zone governments as they try to boost the bloc's lending capacity to prevent Italy from being sucked into the crisis. Drawing in private investors with promises of guarantees from the rescue fund, the European Financial Stability Facility, will be crucial to these efforts. The euro zone is focusing on two major leverage options, and Klaus Regling, the EFSF chief executive, has been sounding out financial market participants around the world to understand whether the options are feasible. The first option would be to use the EFSF to guarantee part of new bonds issued by euro-zone governments. The second would create "co-investment funds" that would use EFSF money to absorb first losses on sovereign debt purchased by the funds. J.P. Morgan has expressed doubts that the fund will be able to raise the large amounts of money that will be needed to boost the bloc's lending capacity to around EUR1 trillion, these people said. The EFSF will only have around EUR260 billion of its EUR440 billion lending capacity left over for Italy and Spain, so that is nearly EUR750 billion in funds that will need to come from the private sector to backstop those two countries, a daunting amount in an environment where even the EFSF is facing higher borrowing costs.
• Exxon(XOM) Sees Global Shale Boom. Exxon Mobil Corp. is confident the shale boom that has changed the U.S. energy landscape will spread across the globe, resulting in increased oil and natural-gas supplies, a top executive said. "We do believe there is potential for unconventional oil development from shale resources globally," Mark Albers, Exxon Mobil senior vice president, said in an interview. "We are pursuing that not only in a number of the countries where we have unconventional gas potential but also here in the U.S."

MarketWatch:

• Third Appeals Court Upholds Health-Care Law.

CNBC.com:

• Is Spain the Next Domino to Fall? (video)
  

Business Insider:

• Greek Shipper: 'The World Does Not Appreciate The Extent Of Social Deterioration In This Country.
• Eric Holder Total Botched His Senate Testimony On 'Fast & Furious' Gun Smuggling Scandal.
• The Daily Names The Cain Accuser, And She Works In The Obama Administration.
  

Zero Hedge:

• Greek Bank Deposits Plunge By €5.5 Billion In September: Biggest Monthly Drop Ever. (graph)
• L'orrore, L'orrore... In Three Quick Charts.
• Iran to Israel: "We'll Show You Hell".
  

Politico:

• Bill Clinton: Let Presidents Serve Three Terms.

Reuters:

• Gloomy Outlook For China Exporters As Factory Closure Wave Looms. Up to a third of Hong Kong's 50,000 or so factories in China could downsize or shut by the end of the year as exporters get hit by cost rises and darkening global demand for Chinese goods, a major Hong Kong industrial body said on Tuesday. The Federation of Hong Kong Industries, which represents around 3,000 industrialists running factories in China, said it expected orders in the second half of this year and the first half of 2012 to fall between 5-30 percent. The European debt crisis and a fragile U.S. economy have depressed this year's Christmas orders, Stanley Lau, deputy chairman of Hong Kong's leading industrial promotion body, told a news briefing. He said a consolidation was on the cards, with around a third of Hong Kong's 50,000 or so factories in China likely to scale down operations or close by year-end. "We feel that this is not an overestimate," said Lau, who is also the owner of a Hong Kong watch factory in China, citing higher raw material costs and rising factory worker wages, which had already risen up to 20 percent this year. "Many (factory owners) can't see when the market will have a rebound so they are trying to cut their losses by closing, before all their money is gone," Lau said. One additional risk on the near horizon, however, was the specter of yet another round of expected minimum wage hikes from between 18-20 percent on January 1 in a number of key factory regions in southern China, Lau warned. "If we continue to see labor costs keep increasing, in the future the Hong Kong industries operational pressures will become more and more severe," he told reporters. A Reuters on-the-ground survey at Asia and China's largest trade event, the Canton Fair in southern China, found that many factory owners were now bracing for another severe round of factory closures given a sharp drop in orders from Western customers, primarily in the major market of Europe.
• Oil Up On Iran Buy Italy Uncertainty Limits Rise. Oil prices rose on Tuesday on geopolitical concerns about Iran's nuclear program and seasonal demand from the Northern hemisphere's winter. Crude pared gains after a budget vote in Italy and the possibility the prime minister will resign. A U.N. International Atomic Energy Agency report due this week is expected to show recent activity in Iran aimed at developing nuclear bombs, Western diplomats said. ICE Brent December crude rose 40 cents to $114.96 a barrel by 11:18 a.m. (1618 GMT), having traded from $114.20 to $116.48. U.S. December crude rose 35 cents to $95.87 a barrel, after reaching $96.87.
• McDonald's(MCD) Key October Sales Top Expectations.
  

USA Today:

• Sarkozy, Obama Rip Netanyahu (in private). Beware the open mike. President Obama and French counterpart Nicolas Sarkozy forgot that lesson last week, and got caught questioning the honesty of a major ally, Israel Prime Minister Benjamin Netanyahu. "I cannot bear Netanyahu, he's a liar," Sarkozy told Obama before the two made joint statements during last week's G-20 summit in Cannes, France, Reuters reported. "You're fed up with him, but I have to deal with him even more often than you," Obama replied, according to the French interpreter, per Reuters. Both leaders were unaware that the microphone was already turned on and French reporters could hear the private conversation.

Financial Times:

• EFSF: A Circular, Counterproductive, And Creative Cannibal. On Monday, Nomura strategists released a useful note explaining the two new aspects of the EFSF — the special purpose investment vehicle (SPIV) and the credit insurance option — along with their pros and cons. The cons list is longer and, in aggregate, suggests that in spite of its aesthetic values, the revamped EFSF is riddled with too many contradictions to do much to help Italy and/or Spain.
• EFSF: A Circular, Counterproductive, And Creative Cannibal. (continued)
  

Telegraph:

• Debt Crisis: Live.
• Once Greece Goes, The Whole Euro Project Will Unravel.
  

Bear Radar

Style Underperformer:

• Mid-Cap Growth (+.07%)

Sector Underperformers:

• 1) Gaming -.65% 2) Biotech -.63% 3) Road & Rail -.33%

Stocks Falling on Unusual Volume:

• DSW, URBN, DISH, TM, LPSN, ALLT, LGND, TWGP, SNHY, VRTX, FOSL, CRZO, SFLY, VRUS, TWIN, ECPG, IPHS, CBOE, SYNA, ETP, TGI, IFF, WMS, PXD, HOS, TLP, SMG, BWA, WAC and LXU
  

Stocks With Unusual Put Option Activity:

• 1) FMCN 2) ATVI 3) HYG 4) EWJ 5) FOSL
  

Stocks With Most Negative News Mentions:

• 1) RIMM 2) EXPE 3) OVTI 4) ITW 5) JPM
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.09%)

Sector Outperformers:

• 1) Oil Tankers +1.09% 2) Homebuilders +1.07% 3) Airlines +1.03%

Stocks Rising on Unusual Volume:

• ARGN, TRAK, DMND, HOLX, HMSY, PCLN, DFZ, YPF, SIG, TOL and ROK
  

Stocks With Unusual Call Option Activity:

• 1) ERY 2) MDR 3) TRGT 4) ATVI 5) FIO
  

Stocks With Most Positive News Mentions:

• 1) MTZ 2) STJ 3) MCD 4) RAX 5) PCLN
  

Charts:

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

Tuesday Watch

Evening Headlines

Bloomberg:

• Italian Vote Will Test Berlusconi's Majority as Allies Defect. Italian Prime Minister Silvio Berlusconi must show today whether he still has enough support in parliament to stay in power and implement austerity measures to trim the region’s second-biggest debt and bring down record borrowing costs. The Chamber of Deputies will vote at 3:30 p.m. in Rome on a routine report on last year’s budget plan that will reveal whether Berlusconi retains a majority in the 630-seat house. It’s the first such test since three party members defected to join the opposition and six others publicly called on the premier to quit. Should Berlusconi fail to muster 316 votes, he would probably face a confidence vote that will decide his fate. The yield on Italy’s 10-year bond reached a euro-era record 6.68 percent yesterday before sliding back to 6.63 percent after reports that Berlusconi was poised to resign. Berlusconi denied he would step down and pledged to call a confidence vote himself next week to secure passage of an austerity package that aims to boost growth in the region’s third-largest economy and lower the 1.9 trillion-euro ($2.6 trillion) debt. “It’s fairly clear that the market would like him to step down,” Peter Schaffrik, head of European rates strategy at RBC Capital Markets in London, said in an interview. “When the news broke, bunds dropped immediately and Italian bonds reversed. The market’s bias is fairly clear. The question is; what comes afterward, assuming he falls?”
  
• European Banks Selling Sovereign Bonds May Worsen Debt Crisis. BNP Paribas SA and Commerzbank AG (CBK) are unloading sovereign bonds at a loss, leading European lenders in a government-debt flight that threatens to exacerbate the region’s crisis. BNP Paribas, France’s biggest bank, booked a loss of 812 million euros ($1 billion) in the past four months from reducing its holdings of European sovereign debt, while Commerzbank took losses as it cut its Greek, Irish, Italian, Portuguese and Spanish bonds by 22 percent to 13 billion euros this year. Banks are selling debt of southern European nations as investors punish companies with large holdings and regulators demand higher reserves to shoulder possible losses. The European Banking Authority is requiring lenders to boost capital by 106 billion euros after marking their government debt to market values. The trend may undermine European leaders’ efforts to lower borrowing costs for countries such as Greece and Italy while generating larger writedowns and capital shortfalls. “European regulators and leaders are shooting themselves in the foot because a big investor group for sovereign bonds has been taken out of the market,” said Otto Dichtl, a London-based credit analyst for financial companies at Knight Capital Europe Ltd. “The downward spiral will continue until policy makers find a back-up solution for the sovereigns.”
• EU Eyes December Start for Rescue Fund. European finance ministers pledged to roll out a bulked-up rescue fund next month, leaving Greece and Italy on the front lines until then in the fight against the debt crisis. Greece was ordered to provide written acceptance of bailout terms in order to win an 8 billion-euro ($11 billion) loan installment by the end of November, while Italy was pressed to turn budget-cut promises into reality. “It’s a two-way street; we do our part, Greece is expected to do its part,” European Union Economic and Monetary Commissioner Olli Rehn told reporters late yesterday after finance ministers met in Brussels. “It is essential that the entire political class now restores the confidence that had been lost.”
• Spain Candidates Clash on Banks; Socialists Urge Less Austerity. Spain’s candidates for the Nov. 20 election clashed over their plans for banks, pensions and the unemployed as Socialist candidate Alfredo Perez Rubalcaba said Spain should slow the pace of its budget cuts. Rubalcaba spent most of the debate interrogating opposition leader Mariano Rajoy -- the favorite to win the election. The Socialist said Spain should delay meeting the European Union’s deficit ceiling of 3 percent of gross domestic product by two years to 2015, and called on the European Central Bank to keep cutting interest rates. He accused Rajoy of planning cuts to unemployment benefits to bring the deficit in line, as well as reducing pensions and using public money to bail out banks.
• Hong Kong's Donald Tsang Sees '50-50 Chance' of World Recession. There's a "50-50 chance" of a global recession in the coming year, especially in the next two quarters, Hong Kong Chief Executive Donald Tsang said at an event in New York today. Tsang said the city's inflation isn't caused by the local currency's link to the U.S. dollar, and is instead a "global phenomenon."
• Hong Kong May Enter Recession, Most Accurate Forecaster Says. Hong Kong's economy, a barometer of global growth, probably sunk into a recession in the third quarter after a second consecutive quarterly contraction, said Daiwa Capital Markets Ltd. The economy likely shrunk 1.5% in the three months ended September from the previous three months, Kevin Lai, an economist at Daiwa, wrote in a report.
  
• Cargoes to U.S. Drop for First Time Since '09 as Confidence Wanes: Freight. U.S. imports on the world’s biggest trading route are dropping for the first time in almost two years as consumer confidence weakens to the lowest level since the recession that ended in 2009. Container volumes on the Asia-to-U.S. route fell 3.8 percent in the third quarter, the first decline since the last three months of 2009, according to Newark, New Jersey-based PIERS, a unit of UBM Global Trade that compiles cargo data. The slump probably continued last month, said Mario Moreno, a UBM economist. Rates for 40-foot containers to the West Coast, a benchmark, tumbled 24 percent this year, according to data from Clarkson Plc, the world’s biggest shipbroker. “This is another piece of data that suggests growth will remain slow for the foreseeable future,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Consumers are still getting used to the idea that they are not going to make as much money or accumulate as much wealth as they thought they would a few years ago.” Slumping rates for container lines from A.P. Moeller-Maersk A/S, the largest, to Neptune Orient Lines Ltd. are as much about capacity as trade. The fleet has expanded for two years to a record, according to Redhill, England-based IHS Fairplay. While cargoes to the U.S. West Coast from Asia are shrinking, volumes will probably expand 1.5 percent from 2010, signaling no return to the last recession, when they dropped 15 percent, London- based Clarkson estimates.
• Banning Sugary Soda From Schools Fails to Cut Teen Consumption. Banning sugar-filled sodas from American schools as an effort to combat childhood obesity doesn’t reduce overall consumption levels of sweetened beverages, research found. In U.S. states that banned only soda, about 30 percent of middle-school students still purchased sugary drinks like sports and fruit beverages at school, similar to states that had no policy, according to a study released online today in the Archives of Pediatrics and Adolescent Medicine. In states that banned all sugar-sweetened beverages, students still consumed the drinks outside of school, the researchers said.
• Citi(C), JPMorgan(JPM) May Face Highest Basel Surcharges, Draft Says. Citigroup Inc. (C), JPMorgan Chase & Co., BNP Paribas SA, Royal Bank of Scotland Group Plc, and HSBC Holdings Plc (HSBA) may face top capital surcharges of 2.5 percentage points, according to a provisional list prepared by global regulators and obtained by Bloomberg News.
• Most Solar Makers Will Disappear: Trina(TSL) CEO. Most of the biggest solar equipment makers may disappear in the next few years as plunging prices erode margins and drive the weakest out of business, according to Trina Solar Ltd. (TSL), the fifth-largest supplier of solar panels.“This is the decade of mergers and acquisitions,” Jifan Gao, chief executive officer of Changzhou, China-based Trina, said in an interview. “From now until 2015 is the first phase, when about two-thirds of the players will be shaken out.”
• Keystone Rerouting Said to Be Weighed by U.S. State Department. The U.S. State Department is weighing whether to seek a rerouting of TransCanada Corp.’s planned $7 billion Keystone XL pipeline away from the Sandhills region of Nebraska, a department official said. The department is considering how to respond to concern among Nebraska citizens and public officials about the risk that TransCanada’s current plans may pose to the Sandhills, said the official familiar with the deliberations, who spoke on condition of anonymity yesterday about internal discussions.

Wall Street Journal:

• Derivatives Tide Rises at Big Banks. Huge numbers can be scary, especially when it comes to derivatives. So investors should take a seat before reading third-quarter securities filings from some of the biggest U.S. banks. During the period, gross derivatives assets jumped 52% at Bank of America from the previous quarter, to $2.17 trillion. At J.P. Morgan Chase, they rose 47%, to $2.04 trillion. And at Citigroup, they increased 31%, to about $1.1 trillion. Although big, those moves aren't immediately apparent to investors. Under U.S. accounting rules, banks are able to "net" down the gross asset to reflect offsetting derivative liabilities and collateral. At J.P. Morgan, this net figure, which is what goes into the calculation of total assets shown on the face of the balance sheet, was $109 billion. It was about $79 billion at BofA and $60.3 billion at Citi. It isn't until banks release quarterly securities filings, usually a few weeks after they post earnings, that investors see the footnote disclosures detailing the gross positions.
• Repsol Taps Big Argentine Oil Find. Repsol YPF SA's discovery of a huge amount of shale oil in the south of Argentina could boost its energy reserves by 44% and mark a massive potential windfall for the country and the oil company. The Spanish company's Argentine unit said Monday it has identified 927 million barrels of oil equivalent in underground rock while exploring 428 square kilometers in the Loma La Lata area.
• Dynegy Files for Unusual Bankruptcy. Dynegy Inc.'s holding company filed for Chapter 11 bankruptcy protection in a way that could cause losses for bondholders without harming parent-company shareholders that include Carl Icahn and hedge fund Seneca Capital.

MarketWatch:

• China's Exporters See Slowing Growth. China’s export growth continued to slow on a drop in demand from developed countries, according to data from the 110th China Import and Export Fair. With total exports hitting $37.9 billion, up 8.9% year-on-year, trade figures from the fair showed a marked decrease in expansion from the 14.5% rate of growth clocked just one year ago. Judging from export destinations, demand in European and American markets accounted for the largest decreases, down 19% and 24%, respectively.

Business Insider:

• Democrats Push Financial Transactions Tax, Say It Would Raise $350 Billion.

Zero Hedge:

• Complete Hedge Fund October Score Card.
• Presenting The Latest Eurodebt Exposure Masking Scam Courtesy Of Morgan Stanley(MS): Level 1 To Level 2 Transfers.
  

CNBC:

• Cash-Rich Firms Sit Tight, Fearing Government Meddling. Fears of government intervention and regulatory changes are causing companies in Asia and Europe to refrain from increasing spending despite improved balance sheets since the global financial crisis, a survey by money manager Fidelity Worldwide Investment showed.
• Greece Runs Into Trouble Picking a New Prime Minister. Greek party leaders are struggling to agree on a new prime minister, despite EU demands that the political class commit itself fast to the nation's financial salvation and end the chaos threatening the entire euro project.

IBD:

• Lululemon(LULU) Strikes A Pose In Canada And U.S.
  

CNN:

• Insider Selling on the Rise. (graph)
• Big Bank SEC Settlements: Toothless Face-Savers? If big banks get to settle with the SEC without admitting or denying any wrongdoing, what good does a settlement do in the end?

MSNBC:

• Is Obama's Rail Initiative a 'Train to Nowhere'? High-speed train plan draws little enthusiasm as California costs soar.

Reuters:

• Exclusive: Fed's Fisher Says Still Against New Easing. Dallas Federal Reserve Bank President Richard Fisher on Monday said his support for the Fed's decision last week to continue efforts to push down borrowing costs does not mean he is a convert to the need for more easing. Fisher voted with the 9-1 majority on the Fed's policy-setting panel last Wednesday to hold a steady course on the central bank's super-easy policy. It was a departure for the Texas central banker, who opposed the Fed's easing in August and again in September. "I already dissented, and everybody knows it. I didn't support those programs and I haven't changed my mind," Fisher, 62, said in an interview with Reuters at the regional Fed bank's headquarters. "There was no new proposal, no new initiative, so therefore there was no reason to dissent," he said. "But we didn't take any new steps, and to me, that's progress," adding that if there had been a proposal to do additional easing, he would have opposed it. As if to signal just how comfortable he was with his vote last week, Fisher swung his legs over the arm of his leather chair partway through the interview and conducted the balance of it from a partially prone position. His grounds for voting against the Fed's decision in previous meetings were that what the economy needs is not lower interest rates but more clarity from lawmakers on the future of tax and regulatory policy. Fisher said, as he has repeatedly, that the Fed has done its job, keeping rates near zero for nearly three years and buying more than $2 trillion in long-term securities to send borrowing costs down still further. Fisher said he still sees the lack of clarity on U.S. fiscal policy as the biggest drag on U.S. growth. But credit problems in Europe are also hurting, and not just because a slowdown in Europe could hurt U.S. exports. "It's one more inhibitor of confidence, it's one more factor of uncertainty" that is holding back the recovery, he said. "We could make it worse by signaling we could inflate our way out of it or flood our way out of it." Fisher said he sees about 2.5 percent to 3 percent growth for the rest of this year. Though that is not fast enough to put much dent in an unemployment rate that has stayed a 9 percent or above for more than a year, it's "highly doubtful" monetary policy can do much to help, he said. "All it does is build up our balance sheet" and makes an eventual exit from easy policy more difficult, he said. Most Wall Street economists believe the snail's pace of recovery and weak U.S. jobs growth will push the Federal Reserve to undertake more measures to help the economy, according to a Reuters poll on Friday. But Fisher, who will rotate into a non-voting spot on the Fed's policy-setting panel next year, re-emphasized his opposition to a third round of quantitative easing, which would be known as QE3. "QE3 is not going to happen in my book, unless it's clear we have not provided enough liquidity," he said.
• Rackspace(RAX) Revenue Beats on Growing Web Hosting Demand. Web hosting company Rackspace Hosting Inc's third-quarter revenue came in above analysts' expectations, as the demand for hosting applications rose in a sluggish macro economy.
• Priceline(PCLN) Profit Higher as Bookings Jump. Online travel agency Priceline.com on Thursday posted a higher quarterly profit that topped analysts' expectations as strong growth at its overseas markets boosted bookings. Priceline also forecast third-quarter profit above Wall Street expectations and its shares jumped 10 percent in after-hours trading to $532.56.

Financial Times:

• Not So Hedge Funds. Hedge funds used to promise “absolute returns” until hefty losses in the financial crisis reminded clients that there is no such thing. Since then, hedgies have preferred to talk about “uncorrelated returns”, appealing to pension fund advisers and others who use variants of the capital asset pricing model. Once again, the sales pitch is far from the truth.

Telegraph:

• Eurozone Ministers Fail to Create €1 Trillion Bail-Out Fund. Eurozone finance ministers have failed to sanction measures to create the bloc's crucial €1 trillion bail-out fund – despite warnings that Europe is dangerously ill-equipped to cope with the financial and economic crisis enveloping Italy. Despite publishing a more detailed mandate following a summit in Brussels, the Eurogroup delayed agreeing specifics on how to leverage the €440bn European Financial Stability Facility (EFSF), risking further market turmoil ahead of votes on Tuesday that could topple Silvio Berlusconi's government. The EFSF also pushed ahead with a 10-year bond auction which it had put off from last week because of lack of demand. The fund, which is supposed to be the eurozone's key weapon against the debt crisis, managed to raise €3bn but only after having to pay record returns to entice investors. Joachim Fels of Morgan Stanley said: "The leveraged EFSF may still turn into a bazooka but so far it looks more like a water pistol."
• France Cuts Frantically as Italy Nears Debt Spiral. France has unveiled the toughest austerity measures since World War Two despite the looming danger of a double-dip recession, vowing to slash borrowing by €65bn over the next five years in a last-ditch effort to save the country's AAA rating.

Leipziger Volkszeitung:

• Germany's Finance Minister Wolfgang Schaeuble expects additional costs to be shouldered by Germany's Soffin rescue fund in the event Greece goes bankrupt or bondholders have to accept a "larger" writedown on Greek government bonds, citing a letter by Schaeuble to Carsten Schneider, the Social Democratic Party's budget spokesman in parliament. Additional costs potentially amounting to billions of euros could stem from higher payments to the so-called bad banks for Hypo Real Estate Holding AG and WestLB, and are not yet included in Germany's fiscal budget.

Xinhua:

• About 1,000 Beijing property agencies have closed this year, the most in three years, because of cooling demand for homes, citing Homelink Real Estate. About 177 property agencies closed in Beijing last month.

China Securities Journal:

• The Chinese government may reduce spending on railways by 38% to $79B/year through 2015, citing sources.

Evening Recommendations
Piper Jaffray:

• Rated (DD) Overweight, target $62.
• Rated (CNH) Overweight, target $51.

Night Trading

• Asian equity indices are -.75% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 195.50 +3.25 basis points.
  
• Asia Pacific Sovereign CDS Index 150.25 -2.0 basis points.
• FTSE-100 futures +.38%.
  
• S&P 500 futures -.44%.
  
• NASDAQ 100 futures -.33%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FOSL)/1.04
• (SMG)/-.44
• (ROK)/1.21
• (ATVI)/.02
• (IGT)/.23
• (NILE)/.17
• (MDR)/.29
• (ANDE)/.17
• (EBIX)/.38

Economic Releases
7:30 am EST

• NFIB Small Business Optimism for October is estimated to rise to 90.0 versus a reading of 88.9 in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Kocherlakota speaking, Fed's Plosser speaking, JOLTs Job Openings report for Sept., EU Finance Ministers Meeting, China CPI, 3-Year Treasury Note Auction, weekly retail sales reports, IBD/TIPP Economic Optimism Report for November, Baird Industrial Conference, CSFB Healthcare Conference, Piper Jaffray Tech/Media/Telecom Conference, Wells Fargo Tech/Media/Telecom Conference, (SE) Investor Meeting, (SWI) Analyst Day, (AWH) Investor Day and the (QSII) Analyst Day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Reversing Higher into Final Hour on Euro Bounce, Short-Covering, Bargain-Hunting, Technical Buying

Broad Market Tone:

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

Equity Investor Angst:

• VIX 30.59 +1.43%
  
• ISE Sentiment Index 89.0 -2.20%
  
• Total Put/Call 1.03 -9.65%
  
• NYSE Arms .91 -21.35%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 124.47 +1.03%
  
• European Financial Sector CDS Index 235.12 +.63%
  
• Western Europe Sovereign Debt CDS Index 333.33 -.07%
  
• Emerging Market CDS Index 288.04 +1.93%
  
• 2-Year Swap Spread 36.0 unch.
  
• TED Spread 45.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 177.0 -4 bps
  
• China Import Iron Ore Spot $122.90/Metric Tonne +1.71%
  
• Citi US Economic Surprise Index 21.60 +2.9 points
  
• 10-Year TIPS Spread 2.14 +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +18 open in Japan
• DAX Futures: Indicating +38 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 reverses morning losses despite rising Eurozone debt angst, rising global growth worries and rising energy prices. On the positive side, Medical, Homebuilding, Oil Service and Software shares are especially strong, rising more than +.75%. The UBS-Bloomberg Ag Spot Index is falling -.56% and Lumber is rising +2.16%. On the negative side, Coal, Alt Energy, Oil Tanker, Paper, Semi, Networking and Airline shares are under pressure, falling more than -.75%. Cyclicals and small-caps are underperforming. (XLF) has underperformed throughout the day. Oil is rising +1.32%, copper is flat and Gold is surging +2.3%. The 10-year Yield is falling -3.0 bps to 2.00%. Spanish stocks fell -1.4% today and are back below their 50-day moving average. The Germany sovereign cds is up +1.1% to 87.33 bps, the France sovereign cds is rising +2.42% to 182.17 bps, the Italy sovereign cds is up +2.38% to 507.0 bps, the Belgium sovereign cds is up 1.34% to 285.50 bps and the Israel sovereign cds is up +2.88% to 169.08 bps. Moreover the European Investment Grade CDS Index is up +4.5% to 163.59 bps and the Emerging Markets Sovereign CDS Index is jumping 8.95% to 265.83 bps. Rice is still close to its multi-year high, rising +27.0% in about 4 months. The Italian 10-year yield jumped +29 bps to 6.66% today, which is the highest since Aug. 1997. The Italian/German 10-Year Yield Spread is soaring another +33.01 bps to 487.65 bps, which is another new all-time high. The TED spread continues to trend higher and is near the highest since June 2010. The Libor-OIS spread is now at the widest since July 2010. The 2-Year Euro Swap spread is still very near cycle highs, which is also noteworthy considering the recent strong equity advance. China Iron Ore Spot has plunged -34.90% since February 16th and -30.93% since Sept. 7th. Gains in oil and gold are likely much more related to all the rumors regarding a potential attack on Iran rather than perceptions of global demand improvement, which is another large negative. Despite more negative headwinds, the broad US equity market still trades fairly well and looks higher in the short-term on fund year-end performance-chasing, seasonality and better US economic data. However, the rapidly deteriorating fundamentals in Europe will likely mute upside traction and will likely weigh meaningfully on the major averages again over the coming months. I expect US stocks to trade mixed-to-higher into the close from current levels on fund performance-chasing, short-covering, bargain-hunting and technical buying.