Stocks Reversing Lower into Final Hour on Rising Eurozone Debt Angst, Global Growth Fears, Rising Energy Prices, Financial/Tech Sector Pessimism

Broad Market Tone:

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

Equity Investor Angst:

• VIX 25.83 +.62%
  
• ISE Sentiment Index 117.0 +82.81%
  
• Total Put/Call 1.17 +32.95%
  
• NYSE Arms 1.66 -24.63%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 124.68 -1.06%
  
• European Financial Sector CDS Index 309.67 +1.16%
  
• Western Europe Sovereign Debt CDS Index 382.73 +.93%
  
• Emerging Market CDS Index 301.54 -.60%
  
• 2-Year Swap Spread 46.0 +1 bp
  
• TED Spread 54.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -140.55 -12.75 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 172.0 -7 bps
  
• China Import Iron Ore Spot $137.30/Metric Tonne -.72%
  
• Citi US Economic Surprise Index 75.0 -2.8 points
  
• 10-Year TIPS Spread 2.01 -4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -70 open in Japan
• DAX Futures: Indicating -52 open in Germany

Portfolio:

• Slightly Higher: On gains in my index hedges and emerging markets shorts
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish, as the S&P 500 reverses morning gains and trades to session lows on rising Eurozone debt angst, rising global growth fears, some earnings jitters, technical selling, profit-taking, more shorting and rising energy prices. On the positive side, Utility and Drug shares are slightly higher on the day. Gold is down -2.2%. Weekly retail sales rose +3.0% this week, which is still ok, but down from a weekly average of +4.6% gains in October. On the negative side, Coal, Alt Energy, Oil Service, Steel, Semi, Networking, Bank, I-Bank, Hospital, Construction, Homebuilding, Retail, Education, and Airline shares are under substantial pressure, falling more than -2.0%. (XLF) and (XLK) have traded poorly throughout the day. Cyclical and small-cap shares are substantially underperforming. Copper is falling -2.1%, the UBS-Bloomberg Ag Spot Index is rising +.7%, oil is gaining +1.4% and Lumber is dropping -1.4%. The 10-year yield is falling -6 bps to 1.95%. The Italy sovereign cds is rising +.6% to 568.17 bps, the France sovereign cds is rising +2.44% to 234.33 bps, the Japan sovereign cds is gaining +2.72% to 132.61 bps, the German sovereign cds is gaining +.37% to 103.83 bps. Moreover, the European Investment Grade CDS Index is rising +1.94% to 177.76 bps. The Western Europe Sovereign CDS Index is making another new all-time high today. The TED spread continues to trend higher and is at the highest since June 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is falling -10.01% to -140.55 bps, which is now back to Nov. 25th levels. The Libor-OIS spread is very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -28.5% since February 16th and -24.1% since Sept. 7th. The Citi Asia-Pacific Economic Surprise Index fell another -.2 point today to -25.50, which is the worst since April 2009. Asian equities continue to trade very poorly. The Shanghai Composite fell another -1.9% overnight to the lowest level since March 2009 and is now down -20.0% ytd. Major European equity indices reversed morning gains and finished in negative territory near session lows. European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand. Trading still had an overall complacent feel this morning given the action overseas. This afternoon's sharp reversal lower in stocks, after any Fed catalyst failed to materialize, may indicate that investors are shifting from a year-end performance chase mentality to "risk-off mode" again, given how badly some key credit gauges in Europe are deteriorating and intensifying worries over global growth. I still remain very cautious on the intermediate-term. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, financial/tech sector pessimism, profit-taking, technical selling, rising energy prices and more shorting.

Today's Headlines

Bloomberg:

• Euro Weakens to 11-Month Low Versus Dollar. The euro fell to an 11-month low against the dollar on concern European leaders won’t agree on ways to expand the region’s rescue capacities as debt-strapped nations struggle to fund their deficits. The 17-nation currency dropped against most of its major counterparts after Chancellor Angela Merkel told German coalition lawmakers that the 500 billion euro ($654 billion) cap on Europe’s planned permanent bailout fund will stay in place, two officials with knowledge of the discussion said. The dollar declined against the yen before the Federal Reserve holds a meeting today amid speculation officials will maintain their pledge to keep borrowing costs at almost zero. “You continue to see strains within the euro group,” said John McCarthy, managing director of currency trading at ING Groep NV (INGA) in New York. “A division means a lower euro. The euro was already a little weaker and once we got convincingly through $1.3170, it dropped more.” The euro dropped 0.7 percent to $1.3094 at 1:32 p.m. in New York, touching $1.3057, the lowest level since Jan. 12.
• The 1-Year EUR/USD Cross-Currency Basis Swap is falling -7.1 bps to -96.0 bps, the lowest since Nov. 29 on a closing basis, amid lingering concerns about interbank funding. "The ECB allocated $51B last week and it doesn't seem like anything has changed," says TD funding strategist Mike Lin. "I'm concerned about the one-week auction tomorrow. I see a pick-up as something's going on."
• RBS Says Buy German CDS in 'Talismanic' Trade as Crisis Deepens. Royal Bank of Scotland Group Plc advised investors to buy insurance on German government debt, betting that Europe's financial woes will deepen in 2012. Investors should bet the cost to protect German bonds for five years will increase to 200 basis points from 98 basis points, the strategists wrote.
• Greece's Budget Deficit Widens to $27.1 Billion in First 11 Months of Year. Greece’s state budget deficit widened 5 percent in the first 11 months of the year, better than a revised target for the period. The gap, which excludes outlays by state-owned institutions and companies, rose to 20.5 billion euros ($26.5 billion) from 19.5 billion euros a year earlier, according to preliminary figures received by e-mail from the Finance Ministry. The figure came in below a target of 21 billion euros set in the 2012 budget, it said. Final figures are due later this month. Ordinary budget revenue declined 3.1 percent in the first 11 months as Greece’s recession weighed on tax collection. Spending rose 3 percent, or by 3.7 billion euros, boosted by a 20 percent increase in debt-servicing costs that added 2.6 billion euros to the bill, the Athens-based ministry said. Efforts to trim the shortfall have deepened the recession, now in its fourth year. The Organization for Economic Cooperation and Development expects the economy to contract 6.1 percent this year, more than the 5.5 percent forecast in the government’s budget.
• Retail Sales in U.S. Climbed Less Than Forecast. Retail sales rose in November at the slowest pace in five months, indicating American consumers were trying to live within their means heading into the holiday shopping season as wages dropped. The 0.2 percent gain in purchases fell short of the 0.6 percent median forecast of economists surveyed by Bloomberg News and followed increases in the prior two months that were larger than previously estimated, according to data from the Commerce Department today in Washington. Other reports showed inventories climbed in October and job openings fell.
• Treasuries Advance After $21 Billion 10-Year Auction Draws Strong Demand. Treasuries gained for a second day after the U.S. sale of $21 billion in 10-year notes attracted higher-than-average demand, bolstered by concern Europe’s sovereign-debt crisis is far from a resolution. The securities drew a yield of 2.020 percent, compared with a forecast of 2.050 percent in a Bloomberg News survey of seven of the Federal Reserve’s 21 primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of debt offered, was 3.53, the strongest level since April 2010.
• Oil Surges on Speculation of Supply Disruption, U.S. Stimulus. Oil surged above $100 a barrel on speculation supplies will be disrupted after a report that Iran will hold drills to close the Strait of Hormuz and that the Federal Reserve may announce additional stimulus measures. Crude advanced as much as 3.6 percent after the state-run Fars news agency reported the military maneuvers will be “soon,” citing Parvis Sorouri, a member of the parliament’s national security and foreign policy committee. “I saw the Iran story yesterday but those headlines seem to have got traction this morning. There are also rumors for further action by the Fed, but where they come from I don’t know. In this electronic world things can jump quickly and trigger stops.” Crude for January delivery gained $1.91, or 2 percent, to $99.68 a barrel at 11:07 a.m. on the New York Mercantile Exchange. Crude pared gains after an Iranian Foreign Ministry spokesman said the Strait of Hormuz isn’t closed. The comments on the strait were made by people who don’t have an official title, said Ramin Mehmanparast, the spokesman.
• Oil-Tanker Glut Seen Expanding for Fourth Consecutive Week. A surplus of crude-oil tankers competing to collect crude from ports in the Persian Gulf expanded for a fourth consecutive week, according to Bloomberg. There are 20% more VLCCs for hire over the next 30 days than there are probable cargoes, according to the median survey of four brokers and two owners. The excess was 19% a week ago and 13% on Nov. 22.
• Record Aluminum Glut as Traders Seen Betting on Price Slump. Aluminum stockpiles rose to a record and orders to withdraw metal from warehouses fell to a 15-month low amid speculation traders are adding to bets the commodity will extend its biggest slump since the global recession. Inventories monitored by the LME rose 2% to 4.81 million metric tons today, enough to supply China, the biggest consumer for about 3 months. Canceled warrants fell 2.6% to 152,350 tons, the lowest since September 2010, bourse data show. Open interest, or contracts outstanding, rose 54% since mid-July, at a time when prices were falling, suggesting traders were adding to short positions, VTB Capital said in a report.
• Fitch Sees China Home Slowdown as Officials Hold Planning Session: Economy. Fitch Ratings said China faces slower growth in home sales and construction next year and UBS AG predicted stagnant exports as top officials meet in Beijing for an annual conference to map out economic policies. Lending to developers will remain tightly controlled as the government prolongs a campaign to stabilize property prices, Fitch said in a report today. The slowdown in trade may add pressure for monetary and fiscal easing, UBS said separately.
• China-Based Hacking of 760 Firms Reflects Global Cyber War. Google Inc. (GOOG) and Intel Corp. (INTC) were logical targets for China-based hackers, given the solid-gold intellectual property data stored in their computers. An attack by cyber spies on iBahn, a provider of Internet services to hotels, takes some explaining. iBahn provides broadband business and entertainment access to guests of Marriott International Inc. and other hotel chains, including multinational companies that hold meetings on site. Breaking into iBahn’s networks, according to a senior U.S. intelligence official familiar with the matter, may have let hackers see millions of confidential e-mails, even encrypted ones, as executives from Dubai to New York reported back on everything from new product development to merger negotiations. More worrisome, hackers might have used iBahn’s system as a launching pad into corporate networks that are connected to it, using traveling employees to create a backdoor to company secrets, said Nick Percoco, head of Trustwave Corp.’s SpiderLabs, a security firm.

Wall Street Journal:

• Banks in Push for Pact. Five large lenders could be forced to make concessions worth roughly $19 billion as bank representatives and government officials push to put the finishing touches on a settlement of most state and federal investigations of alleged foreclosure improprieties. Housing and Urban Development Secretary Shaun Donovan and state officials hope to reach a deal as soon as this week, though any agreement could be delayed by unresolved issues including the naming of a monitor to oversee the agreement.
• Greece, Private Creditors At Odds Over 50% Haircut: Sources. The Greek government is at odds with its private creditors over a 50% haircut in the value of bonds they own, two people with direct knowledge of the negotiations said Tuesday.
• OIL DATA: IEA Cuts 2011, '12 Demand By 0.2M B/D On Economic Woes. Global oil demand is set to fall in 2012 on the worsening global economic backdrop and persistently elevated oil prices, the International Energy Agency said Tuesday in its monthly oil market report. The Paris-based energy watchdog also trimmed its oil demand growth forecasts for the next five years in its medium-term outlook led by assumptions of slower economic growth in North America and Europe. A lower baseline figure for 2011 due to economic turmoil in the euro zone has also impacted the forecasts for this year and next, the IEA said.
  

Dow Jones:

• Merkel Rejects Raising ESM Limit, Lawmaker Says. German Chancellor Angela Merkel Tuesday at a party meeting reiterated her rejection to raise the EUR500 billion lending limit for the planned future European Stability Mechanism, or ESM, a government coalition official said. The euro after Merkel's comment continued its slide, falling to $1.3061 from $ 1.3186 before her comment. Countering fears that Germany's overall contribution to euro zone rescues may rise further, Merkel during a meeting with lawmakers of the Christian Democrats stressed that a planned increase of funds to the International Monetary Fund by Germany's Bundesbank was independent of government commitments to the ESM, the coalition official said.
  

CNBC.com:

• Europe May Be Preview Of What Is Happening In The US. (video)

Business Insider:

• FED HOLDS RATES STEADY, SAYS ECONOMY 'EXPANDING MODERATELY'.
• This Abandoned Theme Park On The Edge Of Shanghai Is Only The First Sign Of A Major Crash.
  

Zero Hedge:

• S&P Warns of Increased Corporate Bond Downgrade Risk Following Sovereign Action.
• Who Gave Permission To A Bankrupt MF Global To Sell Italian Bonds To JPM(JPM) At A 5% Discount To Market Value?
• Greek Bank Run Hits Record: Unprecedented €6.8 Billion In Deposits Pulled From Greek Banks In October. (graph)
  

The Detroit News:

• Muslims Consider Lowe's(LOW) Boycott. Local Muslim and Arab-American leaders from across the country were considering a national boycott against Lowe's after the home improvement retailer pulled its ads from the cable reality show "All-American Muslim." The move comes as Lowe's defended its position. Dawud Walid, the executive director of the Council on American-Islamic Relations Michigan, said Monday the issue has "invoked outrage in our community like I haven't seen in a while."

Hedgeweek:

• Hedge Fund Redemptions More Than Triple in October. Hedge fund redemptions in October totalled USD9 billion, more than triple September’s USD2.59 billion outflow, according to figures released by BarclayHedge and TrimTabs Investment Research. Industry assets decreased to USD1.66 trillion in October from USD1.73 trillion in September, the third straight monthly decline.

CNN:

• Best Buy's(BBY) Results Serve as a Holiday Warning. Electronics retailer Best Buy reported a large drop in quarterly earnings Tuesday, as weak sales in the months leading up to Thanksgiving cast a shadow on the all-important holiday season. Shares of Best Buy (BBY, Fortune 500) tumbled $3.23, or 11.6%, to $24.83 in early trading. Shares are now down more than 27% since the start of the year. Investors fretted the company's future even though Best Buy confirmed its full fiscal-year earnings guidance.

LA Times:

• NTSB Recommends Ban On All Driver Cell Phone Use. States should ban all driver use of cell phones and other portable electronic devices, except in emergencies, the National Transportation Board said Tuesday. The recommendation, unanimously agreed to by the five-member board, applies to both hands-free and hand-held phones and significantly exceeds any existing state laws restricting texting and cellphone use behind the wheel.

Reuters:

• Exclusive: Steve Cohen Calls Insider Trading Rules "Vague".
• Italian, Spanish Yields Rise as Ratings Threat Looms. Italian bond yields rose on Tuesday as the risk of sovereign rating downgrades across the euro zone kept markets on edge after steps towards fiscal integration failed to ease the debt crisis in the short term.Longer-dated Spanish bonds also rose as riskier assets suffered due to the risk that rating agency Standard and Poor's could act on its warning over the region's debt ratings. Measures to strengthen budget discipline agreed at a European Union summit last week were not seen as sufficient to ease immediate market worries over sovereign debt -- something only a huge financial backstop provided by the European Central Bank was seen likely to achieve. "Clearly investors have reassessed the EU agreement and the response of the sovereign ratings is at the forefront of investors' minds," said Nick Stamenkovic, strategist at RIA Capital Markets in Edinburgh. "Against that backdrop investors continue to shift away from the likes of Italy and Spain."

AP:

• Corzine Says He Never Authorized "Misuse" of Money. Jon Corzine has told a Senate panel that he never told anyone to "misuse" customer money that vanished when MF Global collapsed this fall. An estimated $1.2 billion in client funds are missing. Senators are demanding Corzine and two other executives at the securities firm explain who authorized the transfer of money in the days before the firm collapsed in the eighth-largest bankruptcy in U.S. history. "I never gave any instruction to anyone at MF Global to misuse customer funds," Corzine testified at a hearing of the Senate Agriculture Committee on Tuesday. Corzine, a former Democratic New Jersey senator and governor, resigned as CEO of the securities firm last month.

Financial Times:

• European Banks 'need tons of money', says GMO's Grantham. In a note released on Tuesday, GMO, the global asset management firm headed by Jeremy Grantham, writes that ”European banks need tons of money” to correct capital shortfalls. This much, we know.
• Meet The Credit Derivative "end-users".
  

Telegraph:

• Debt Crisis: Live.
  

Il Sole 24 Ore:

• Italy's government may delay until 2013 measures in its emergency budget plan to open up some closed professions and liberalize some businesses.

Xinhua:

• China Reasonable Home Price Fall Won't Cause Crisis. China property investment growth will slow in 2012 with falling home prices, citing Wang Yiming, director of the investment research institute under the planning body.
• China Needs 'Tight Controls' on Homes, Researcher Says. Even a "slight" change in curbs on property prices may cause a "dramatic price rebound", citing Wang Yulin, vice director of the housing ministry's policy research center. The government has set a clear tone on controlling home prices. Prices may drop 15-20% in 2012, citing Zhao Xiao, a professor at the University of Science and Technology in Beijing.
  

Bear Radar

Style Underperformer:

• Mid-Cap Growth (-.60%)

Sector Underperformers:

• 1) Gold & Silver -1.40% 2) Semis -1.20% 3) Retail -1.0%

Stocks Falling on Unusual Volume:

• BBY, IVN, RSH, DKS, FDS, VCI, PLT, CCOI, PTRY, ADTN, TIBX, ZUMZ, AWAY, DMND, HAYN, AMZN, NXPI, GMCR, NFLX, AEGR, RIMM, CONN, FSL, PRI, HGG and LRN
  

Stocks With Unusual Put Option Activity:

• 1) DHI 2) BBY 3) MGM 4) EWZ 5) EOG
  

Stocks With Most Negative News Mentions:

• 1) NSC 2) GS 3) ADTN 4) TOL 5) SCCO
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (+.64%)

Sector Outperformers:

• 1) Energy +.99% 2) Defense +.79% 3) Utilities +.78%

Stocks Rising on Unusual Volume:

• TWTC, CCMP, URBN, OPEN, ITMN, JOE, VCI and P
  

Stocks With Unusual Call Option Activity:

• 1) PAAS 2) IVN 3) BBY 4) LCC 5) WLP
  

Stocks With Most Positive News Mentions:

• 1) JEC 2) NKTR 3) STJ 4) LMT 5) BBY
  

Charts:

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

Tuesday Watch

Evening Headlines

Bloomberg:

• Investors May Shun Banks' Contingent Convertibles as Regulator Adds Limits. European banks seeking to meet capital targets by selling contingent convertible bonds may struggle to attract investors after regulators imposed limits on the form the instruments must take. The European Banking Authority said last week lenders could use the securities, bonds that convert into equity or are written down if a bank’s capital drops below a set level, to help plug a 115 billion-euro ($153 billion) capital shortfall. It published a standard set of terms for the securities, which investors said were unlikely to be attractive to buyers because the risk of triggering a conversion is too high and issuers will have too much control over interest payments. “The majority of institutions that actually need capital to reach the EBA target will not be able to attract private investors for these instruments,” said Satish Pulle, a portfolio manager at London-based European Credit Management Ltd., which oversees a fund that invests in CoCos and bank debt.
  
• Spain's 'Cayenne Crisis' Spreads to BMW. Roberto Murga, a construction manager from Barcelona, loved his platinum gray Porsche Cayenne until the debt crisis made the sport-utility vehicle’s leather interior and electronic seats expendable. The 66,370-euro ($88,800) status symbol is now unnecessary ballast for Murga, 33, who like other Spaniards has been forced to cut spending because of the country’s weakening economy. Car demand, which has halved since peaking in 2007, probably won’t recover this decade, analysts predict. “I can’t splurge anymore, and maintaining my precious Cayenne is just too expensive,” said Murga, who made as much as 8,000 euros a month before the real estate bubble went bust three years ago, forcing him to fire half his workers. “We have no profit at all. We just try to survive.” Murga has lots of company. “This car was the paradigm of how we lived above what we could afford,” Conde said. “Banks were giving way too many loans and everybody here was driving a Cayenne.” Those days are over and may never be coming back. Porsche sales in Spain and Portugal have fallen 34 percent from the 2007 peak to 1,900 cars last year. Deliveries of Bayerische Motoren Werke AG’s namesake brand have dropped 47 percent to 32,500.
• MF Global Officials Say They Don't Know. Henri Steenkamp, chief financial officer of MF Global Holdings Ltd., said he doesn’t know the location of $1.2 billion in missing client funds and didn’t have direct involvement with accounts and fund transfers at the failed brokerage. “I do not know why these funds cannot be accounted for, but based on the fact that no shortfalls had been reported to me previously, it appears that any irregularities were likely caused by events that occurred shortly before the bankruptcy filing."
• Australia Cuts Estimate for Agricultural Exports on World Economic Outlook. Australia, set to be the world’s second-biggest wheat shipper, cut its forecast for agricultural- export earnings on concern that the European debt crisis may damp global economic growth and hurt commodity demand. Earnings from farm, forest and fisheries products may total A$38.4 billion ($38.6 billion) in the year to June 30, the Australian Bureau of Agricultural and Resource Economics and Sciences said today. That compares with A$38.6 billion forecast in September and a revised A$36.1 billion in 2010-2011, it said.
• Oil Trades Near Two-Week Low; Kuwait Says OPEC Production Cut Not Needed. Oil traded near a two-week low as signs Europe is struggling to tame a debt crisis that threatens economic growth countered a forecast drop in crude stockpiles in the U.S., the world’s biggest consumer of the commodity. Futures were little changed after falling 1.7 percent yesterday as Moody’s Investors Service said it will review the credit ratings of all European Union countries. An Energy Department report tomorrow may show U.S. crude supplies dropped for the first time in three weeks. Kuwait’s oil minister Mohammad al-Busairy said there is no need to change OPEC’s output or production quotas because “the market is stable.” “We’re expecting further pressure on the market and most of it relates to Europe,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty. in Sydney who predicts oil in New York will trade just above $95 a barrel in the short-term.
• Democratic Payroll Tax Position Hardens Ahead of Deadline. Democratic leaders in the U.S. Senate are hardening their opposition to a House Republican measure that would extend the payroll tax cut for workers while restructuring unemployment compensation and speeding approval of a Canadian oil pipeline. Senator Richard Durbin of Illinois, the chamber's No. 2 Democrat, said lawmakers must cover the cost of extending a payroll tax cut for workers with new revenue. Republicans have blocked Democratic proposals in the Senate to pay for the payroll tax cut by imposing a surtax on income exceeding $1 million a year. "If we do pay for it, it's going to be paid for with a revenue source, such as the millionaire's tax," Durbin said in an interview today. "It's not going to be paid for with spending cuts." Durbin's comments underscore the differences that exist between congressional leaders over how to extend the payroll tax cut. If Congress doesn't act by Dec. 31, employees will begin paying a 6.2 percent tax on their first $110,100 in wages in January, up from 4.2 percent this year.
• China's 'Interventionist Policies' Remain a Concern, U.S. Says. China’s trade restrictions and “interventionist policies” in areas such as intellectual property rights remain a concern for American companies doing business in the Asian nation, the U.S. said. China discriminates against foreign business in “numerous sectors” of the economy, the U.S. Trade Representative said in its annual report on Chinese compliance with World Trade Organization rules.
• Zoomlion Biggest Short on Wagers China Building Binge Will Slow. Short sellers have never been so sure that Zoomlion Heavy Industry Science & Technology Co., China's second-biggest maker of construction equipment, will drop as building slows and customers fall behind on payments. Speculators lifted bets against Zoomlion to 22 percent of shares outstanding last month, the highest proportion on record and the most among Hong Kong-traded stocks tracked by Data Explorers. Bearish wagers increased even after the stock tumbled as much as 47 percent this year to an all-time low on Sept. 26. Zoomlion, whose sales of cranes and concrete machinery in China make it a gauge of the world's largest building boom, posted a 50 percent gain in first-half revenue and a 110 percent jump in profit, four times more than the Hang Seng China Enterprises Index average. The company spurred sales by letting customers buy machinery without paying upfront, a strategy that some investors say may backfire after banks curbed real-estate loans.
• Sino-Forest Will Miss Earnings Deadline, May Default. Sino-Forest Corp. (TRE), the timber producer fending off fraud allegations, said it will default on its bonds and miss a self-imposed deadline to report earnings as it considers putting itself up for sale. Sino-Forest won’t make a $9.78 million interest payment on its 2016 convertible notes that’s due Dec. 15, the Hong Kong-and Mississauga, Ontario-based company said yesterday in a statement. There’s no assurance if or when the earnings results will be released, it said.
• Cash Crunch Driving ICICI Risk Up By Most in Asia: India Credit. Costs to protect the bonds of Indian banks against default are rising at the fastest pace among Asian lenders as a worsening cash crunch threatens profits. Five-year credit-default swaps on Mumbai-based ICICI Bank Ltd., the nation's largest private lender, jumped 87 basis points in the past month to 482 basis points, the biggest advance in the region.
  

Wall Street Journal:

• Markets Doubt Europe Deal. Investors and Ratings Firms Skeptical of Fiscal Unity Pact; Euro Falls Sharply. Investors and Ratings Firms Skeptical of Fiscal Unity Pact; Euro Falls Sharply.
• Europe's Banks Retreat From the East. Dozens of euro-zone banks flocked to Eastern Europe in recent years, hoping to harness the region's fast-growing economies and relatively untapped banking markets. Amid Europe's banking crisis, the situation has suddenly been thrown into reverse. Banks are beating hasty retreats from the region, scrambling to conserve limited resources and facing pressure to concentrate on their domestic markets. The withdrawal is fanning fears that the economies of Eastern Europe, which so far have held up reasonably well despite the crisis to the west, could fall victim to a downturn.
• China To Withhold Aid To EU Until It Meets Certain Conditions - Scholar. China will withhold aid to the European Union until the region meets certain conditions, including the "conferral of market-economy status" on China, a Chinese scholar said in a commentary published in the state-run China Daily on Tuesday. Yao Yang, director of the China Center for Economic Research at Peking University, said a failed euro hurts China, as it would weigh on China's export and leave the U.S. dollar as the single international reserve currency. However, he said China won't provide substantial financial assistance without the EU's "ironclad guarantee" of the investment.
• Sen. Grassley: Hedge Funds May Have Gotten ‘Special Treatment’ From Medicare Administrator. Sen. Chuck Grassley sent a letter on Monday to the Centers for Medicare and Medicaid Services, saying he believes the organization may have given special treatment to information requests from hedge funds and political intelligence brokers “who seek to profit from government information.”
• Wall Street Group Puts Up Defense of High-Frequency Trading. Wall Street's largest trade group wants to broaden the discussion surrounding high-frequency trading and its ramifications on investors and broader market structure. High-frequency trading represents a growing, albeit contentious, part of the investing community. These traders use powerful computers to rapidly move in and out of stocks and other securities in fractions of a second. Critics say this practice has been one of the contributors to the stock market's heightened volatility.
• A Rare Apple(AAPL) Compromise. Facing challenges winning over customers for its iAd mobile advertising service, Apple is softening its approach as it loses ground to Google Inc.(GOOG) in the fast-growing mobile-ad market.
• Christians Face Murky Future After Egypt Polls. When Victor Anis goes to the polls Wednesday to vote in the second round of Egypt's parliamentary elections, he plans to cast his ballot for the Egyptian Bloc, a list of liberal politicians who represent the strongest answer to the rise of hardline Islamists. "What's happening now is turning voting into religion," said Mr. Anis, 60 years old. Egypt's religious ideologies and organizations, he complains, all appear to be using the ballot box to orchestrate a kind of power grab. All of them, that is, except the institution that represents his own faith, the Coptic Orthodox Church.
• Congress's Phony Insider-Trading Reform. The denizens of Capitol Hill are remarkable investors. A new law meant to curb abuses would only make their shenanigans easier.
  

MarketWatch:

• Moody's May Downgrade Spanish Banks. Moody's on Monday placed eight Spanish banks and two holding companies on review for possible downgrades due to expectations of increased losses stemming from their commercial real estate exposure. The move was prompted by Moody's reassessment of all Spanish banks which indicated a projected decline in earnings generation capacity due to a weaker growth outlook for the Spanish economy.

Business Insider:

• Everything You Need To Know About Federal Debt And Deficits In One Graphic.
• 15 Awesome New Gadgets To Get For The Holidays.
• Canada Will Pull Out Of The Kyoto Protocol On Climate Change. Reuters reports that Canada will pull out of the Kyoto agreement to tackle climate change, according to a Canadian government official. While the official said Canada is in agreement with a new pact to control greenhouse emissions, saying the country objects to the fact that India, China, and other nations do not have to follow the agreement.

Zero Hedge:

• The Ghost Of The Bundesbank Haunting The Halls Of Brussels.
• Six Tail Scenarios That Deutsche Bank Are Watching For Next Year.

LA Times:

• FCC's Michael Copps Worried About Media Landscape.

USA Today:

• Household Electricity Bills Skyrocket. Electric bills have skyrocketed in the last five years, a sharp reversal from a quarter-century when Americans enjoyed stable power bills even as they used more electricity. Households paid a record $1,419 on average for electricity in 2010, the fifth consecutive yearly increase above the inflation rate, a USA TODAY analysis of government data found. The jump has added about $300 a year to what households pay for electricity. That's the largest sustained increase since a run-up in electricity prices during the 1970s. Electricty is consuming a greater share of Americans' after-tax income than at any time since 1996 — about $1.50 of every $100 in income at a time when income growth has stagnated, a USA TODAY analysis of Bureau of Economic Analysis data found.

Reuters:

• Chicago Traders Revolt At Change In CME Rules. Chicago pit traders are up in arms against a CME Group plan to use electronic trading to set grain and livestock closing prices, a move they fear will drive another nail in the coffin of open-outcry dealing.
• Italy cannot mould policy only to suit markets - formin. Italy is sensitive to financial market movements, but it cannot adjust policy every time there is a negative reaction among investors, Foreign Minister Giulio Terzi said on Monday.

Hong Kong Economic Times:

• UBS Analyst Sees Hong Kong Home Prices Falling 15-20% in 2013. Prices for new properties in the city are expected to fall on government plans to increase land supply, citing UBS analyst Eva Lee. Office rents in the city's Central district may decline 25-30% next year on unfavorable economic conditions, Lee says.

The Standard:

• Cathay Braces for Carbon Tax to Bite. Cathay Pacific Airways (0293) admitted that demand for passenger flights to Europe will be hurt by fare hikes stemming from a tax on carbon dioxide emissions which is effective next month. "We have to pass the additional cost to our passengers, with each single ticket to the [EU] bloc at about HK$50," chief executive John Slosar said yesterday. "It might be more expensive later." The charge will amount to about 0.5 percent on a ticket from Hong Kong to Frankfurt airport, which costs HK$9,240. "Passengers might be put off by additional fees," Slosar said.

China Daily:

• Researcher Sees Risk of China's Slowdown Accelerating. China faces risks of accelerating slowdown in economic growth, Ba Shusong, a researcher at the State Council's Development Research Center, wrote in a commentary. China's exports growth may see an "obvious" slowdown. The country should allow fiscal policy to play a more proactive role while maintaining tightness in monetary policy to curb inflation.

Financial News:

• The country's consumer price increases will stay at a high level, the Financial News said in a commentary. The causes for China's price increases are systematic issues, including financing mechanisms that fail to meet market demand for funds, a system that easily leads to unbalanced government investment, and exchange rate mechanisms that lacks flexibility.

China Securities Journal:

• China may be on track to resume the development of its nuclear power industry after March next year, citing Zhang Guobao, former head of the National Energy Administration.
• China's Oil Import Growth May Slow in 2012. Import growth may slow as oil prices become volatile, citing a research report by the Chinese Academy of Social Sciences. Global oil prices may fluctuate between $70 and $90 a barrel in 2012, citing the research report.
  

Evening Recommendations
Jefferies:

• Rated (SBUX) Buy, target $50.
• Rated (BAGL) Buy, target $17.
• Rated (PNRA) Buy, target $165.
• Rated (PEET) Buy, target $68.
• Rated (DNKN) Buy, target $30.
  

Night Trading

• Asian equity indices are -1.75% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 206.0 +12.5 basis points.
  
• Asia Pacific Sovereign CDS Index 155.0 +2.0 basis points.
• FTSE-100 futures -.10%.
  
• S&P 500 futures +.02%.
  
• NASDAQ 100 futures +.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FDS)/1.00
• (BBY)/.51
• (ABM)/.36

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for November is estimated to rise to 91.5 versus 90.2 in October.
  

8:30 am EST

• Advance Retail Sales for November are estimated to rise +.6% versus a +.5% gain in October.
• Retail Sales Less Autos for November are estimated to rise +.4% versus a +.6% gain in October.
• Retail Sales Ex Auto & Gas for November are estimated to rise +.4% versus a +.7% gain in October.

10:00 am EST

• Business Inventories for October are estimated to rise +.8% versus unch. in September.

2:15 pm EST

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

Upcoming Splits

• (ROST) 2-for-1
  

Other Potential Market Movers

• The Bundesbank's President Weidmann speaking, weekly retail sales reports, Raymond James IT Supply Chain Conference, Oppenheimer Healthcare Conference, RBC Silver Conference and the (ESIO) analyst conference could also impact trading today.
  

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

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fear, Earnings Jitters, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 27.18 +3.03%
  
• ISE Sentiment Index 88.0 -42.48%
  
• Total Put/Call .88 -26.05%
  
• NYSE Arms 2.66 +407.97%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 126.02 +2.79%
  
• European Financial Sector CDS Index 305.84 +8.4%
  
• Western Europe Sovereign Debt CDS Index 381.17 +3.76%
  
• Emerging Market CDS Index 304.43 +3.49%
  
• 2-Year Swap Spread 45.0 +2 bps
  
• TED Spread 54.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -127.75 -2.25 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 179.0 -4 bps
  
• China Import Iron Ore Spot $138.30/Metric Tonne -.86%
  
• Citi US Economic Surprise Index 77.80 -.2 point
  
• 10-Year TIPS Spread 2.05 +2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -125 open in Japan
• DAX Futures: Indicating -1 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 rolls over again near its 200-day moving average on rising Eurozone debt angst, rising global growth fears, some earnings jitters, technical selling, profit-taking, more shorting and high energy prices. On the positive side, Restaurant shares are just slightly lower on the day. Oil is falling -1.8% and gold is down -2.7%. On the negative side, Coal, Alt Energy, Oil Tankers, Energy, Oil Service, Steel, Semi, Networking, Bank, I-Banking and Construction shares are under substantial pressure, falling more than -3.0%. (XLF) has traded poorly throughout the day. Cyclical and small-cap shares are underperforming. Copper is falling -2.94% and Lumber is dropping -4.2%. The 10-year yield is falling -4 bps to 2.02%. The Italy sovereign cds is rising +5.6% to 564.0 bps, the France sovereign cds is jumping +9.54% to 229.17 bps, the German sovereign cds is gaining +4.96% to 103.83 bps, the Spain sovereign cds is surging +6.2% to 448.67 bps, the Russia sovereign cds is gaining +5.8% to 277.67 bps, the Belgium sovereign cds is climbing +5.33% to 333.33 bps and the UK sovereign cds gaining +4.68% to 101.0 bps. The Western Europe Sovereign CDS Index made a new all-time high today. The TED spread continues to trend higher and is at the highest since June 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is falling -4.4% to -127.75 bps(back to late-Nov. levels). The Libor-OIS spread is very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -27.9% since February 16th and -23.6% since Sept. 7th. The Citi Asia-Pacific Economic Surprise Index fell -8.5 points today to -25.30, which is the worst since April 2009. Asian equities continue to trade very poorly. India shares fell -2.1% and are now down -22.6% ytd. The Shanghai Composite broke down to the lowest level since March 2009 overnight and is now down -18.4% ytd. Major European equities fell 2-3.75% today, led lower by Italian shares which plunged -3.8% and are now down -26.2% ytd. European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand. Equity index volume remains light and trading has an overall complacent feel given the action overseas, which is likely related to year-end window-dressing. The short-term rally I had expected on the perceived Eurozone "solution" may now occur from lower levels. I still remain very cautious on the intermediate-term. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, seasonality and investor performance angst.