Stocks Higher into Final Hour on Lower Long-Term Rates, Short-Covering, Investor Performance Angst, Homebuilding/Heatlhcare Sector Strength

Broad Equity Market Tone:

• Advance/Decline Line: Higher
  

• Sector Performance: Mixed
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.54 -1.95%

• Euro/Yen Carry Return Index 143.31 -.03%

• Emerging Markets Currency Volatility(VXY) 8.64 +.58%

• S&P 500 Implied Correlation 53.87 -2.53%

• ISE Sentiment Index 146.0 +1.39%

• Total Put/Call .75 -2.60%

• NYSE Arms 1.17 +11.45% 

Credit Investor Angst:

• North American Investment Grade CDS Index 68.34 +.52%

• European Financial Sector CDS Index 96.54 -2.67%

• Western Europe Sovereign Debt CDS Index 60.0 -3.23%

• Emerging Market CDS Index 291.88 +.28%

• 2-Year Swap Spread 8.25 -1.25 basis points

• TED Spread 17.0 -.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -2.75 -1.5 basis points

Economic Gauges:

• 3-Month T-Bill Yield .07% +1 basis point

• Yield Curve 241.0 -4 basis points

• China Import Iron Ore Spot $135.90/Metric Tonne -.44%

• Citi US Economic Surprise Index 3.20 -1.5 points

• Citi Emerging Markets Economic Surprise Index -15.70 -.5 point

• 10-Year TIPS Spread 2.17 -2 basis points

Overseas Futures:

• Nikkei Futures: Indicating -70 open in Japan

• DAX Futures: Indicating +16 open in Germany

Portfolio: 

• Slightly Higher: On gains in my tech/biotech/retail/medical sector longs

• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 50% Net Long

Today's Headlines

Bloomberg:

• U.S. Sent B-52s Over Disputed China Air Zone, Official Says. The U.S. flew two B-52 bombers into an air-defense zone that China has claimed and Japan rejects, according to a U.S. defense official who said China wasn’t notified in advance. The pair of unarmed bombers flew from Guam and spent less than an hour in the Chinese zone as part of an annual training exercise, said the official, who asked not to be identified discussing the bomber deployment.

• Growth-Price Slowdown Raises Southern Debt Risks: Euro Credit. As Greece, Italy and Portugal strive to push through deficit-cutting measures and so trim their debt piles, the euro area's combination of slowing economic growth and inflation is working against them. With some countries in the euro area carrying debt above 100% of gdp, a sputtering recovery in the 17-nation bloc is threatening to increase debt in the southern European nations and raise the cost of servicing their debt. The cost of insuring against deflation in the area over the next two years approached this year's highest level last week.   

• European Stocks Decline as Remy Cointreau, Pernod Retreat. European stocks dropped, erasing a two-day gain, as Remy Cointreau SA (RCO) and Pernod Ricard SA dragged food-and-beverage companies lower. Remy sank the most since January 2009 after forecasting that annual profit will decline by at least 10 percent. Repsol SA advanced the most in 13 months as the governments of Spain and Argentina reached a preliminary agreement to compensate the Madrid-based oil company for its stake in YPF SA. Algeta ASA posted its biggest rally in more than two years after saying that Bayer AG has started talks to buy the Norwegian company. The Stoxx Europe 600 Index slipped 0.6 percent to 322.24 at the close of trading.

• Iron Ore Seen Slumping From Westpac to Goldman on Supply. Iron ore will probably drop 19 percent by the end of the year as demand slows and supply increases, Westpac Banking Corp. (WBC) said, joining Goldman Sachs Group Inc. in forecasting declining prices. Ore may fall to $110 a ton by the end of the year, Justin Smirk, the second-most-accurate industrial metals forecaster tracked by Bloomberg over the past eight quarters, said in a report today. 

• WTI Crude Falls on Forecast for 10th Weekly Supply Gain. WTI crude for January delivery slipped 13 cents to $93.96 a barrel at 1:50 p.m. on the New York Mercantile Exchange. The volume of all futures traded was 46 percent below the 100-day average. Prices are up 2.3 percent this year.

• NSA Spying Risks $35 Billion in U.S. Technology Sales. International anger over the National Security Agency’s Internet surveillance is hurting global sales by American technology companies and setting back U.S. efforts to promote Internet freedom.

• High-Frequency Traders Meet Nightmare on Elm Street With Nanex. The nemesis of Wall Street’s high- frequency traders operates out of an apartment-sized office above the Bliss Salon -- manicure/pedicure $45 -- on Elm Street in the Chicago suburb of Winnetka. Staring at four computer monitors, Eric Scott Hunsader, the founder of market-data provider Nanex LLC, looks for hints of illicit trading hidden in psychedelic images of triangles dancing with dots that represent quotes to buy and sell U.S. stocks broken down by the millisecond. 

• Tiffany(TIF) Profit Tops Estimates as Jeweler Raises Prices. Tiffany & Co. (TIF) posted third-quarter profit that topped analysts’ estimates and boosted its annual earnings forecast as the rising U.S. stock market gave wealthy consumers the confidence to snap up higher-priced merchandise.

Wall Street Journal:

• Why Are Takeover Prices Plummeting? Mergers and acquisitions have been dominated by cheapskates this year. U.S. companies are paying just 19% more, on average, than their acquisition target’s trading price one week before the deal was announced. That’s the lowest takeover premium since at least 1995, as far back as records go at Dealogic, which analyzed the data for The Wall Street Journal. Historically, the premiums have averaged 30%.

• Men's Wearhouse(MW) Counters with $1.5 Billion Offer for Jos. A. Bank(JOSB).

• ObamaCare wreaks havoc on health care, the economy, American freedom and Obama's presidency. Polls show an increasing majority of Americans dislike President Obama's health-care law and disapprove of the job the president is doing. Perhaps more disconcerting for Mr. Obama is a recent Quinnipiac University poll that finds, for the first time in his presidency, a majority (54%) of registered voters feel he is not honest and trustworthy.

• Obama Administration Proposes New Curbs on Campaigning by Tax-Exempt Groups. The Obama administration Tuesday proposed a crackdown on the widespread use of tax-exempt organizations for political campaigning, seeking to reduce the influential role that the secretive groups have played in recent elections. The new "guidance" issued Tuesday by the Treasury Department and the Internal Revenue Service would curtail a broad array of these tax-exempt entities' activities, including campaign advertising, voter registration, get-out-the-vote efforts, and distribution of voter guides and campaign materials.

• The Next ObamaCare Mirage. The new line is that the health-care law will save money. That's also not true. Supporters of President Obama are working overtime to backtrack from his promise that "If you like your health-care insurance, you can keep it. Period." While the president has conceded that this statement was inaccurate, the administration doesn't seem to have learned its lesson. The damage control plan is to spread another falsehood about the Affordable Care Act. The claim this time is that the health-care "cost curve is bending, and the ACA is a significant part of the reason."

CNBC: 

• Robert Shiller on housing: Don't trust momentum. (video) "We can't trust momentum in the housing market anymore," Nobel Prize-winning economist Robert Shiller said on CNBC's "Squawk Box." Why not? Investors, and specifically, institutional investors with vast sums of cash.

Zero Hedge: 

• China Bond Yields Soar To 9 Year Highs As It Launches Crackdown On "Off Balance Sheet" Credit.

• Housing Permits Print At Highest Since June 2008 Entirely On Surge In Rental Units. (graph)

• RealtyTrac: "Institutional Investor Housing Purchases Plummet Nationwide". (graph)

• Consumer Confidence Misses (Again), Tumbles To Lowest In 7 Months. (graph)

• Something Is Wrong With This Chart: US Jewelry Imports Drop By Most On Record. (graph)

• So Much For A European Recovery: SocGen Predicts Europe's Lost Decade Will Last Until 2018.

• What Currency Is Even More Hated Than Gold? (graph)

ValueWalk:

• China’s ‘Mr. Market’: Inequality Creating A Social ‘Time Bomb’. China embarks on its reform drive, one of the country’s most prominent economists says the case for change has rarely been more pressing, with the yawning wealth gap creating a social ‘time bomb.’

Business Insider: 

• The Winter Storm Has Hit The World's Busiest Airport, And The Delays Are Starting To Pile Up.

• The Disastrous Launch Of Obamacare Has Caused A Remarkable Collapse In Democratic Poll Numbers.

Washington Post:

• Among American workers, poll finds unprecedented anxiety about jobs, economy. More than six in 10 workers in a recent Washington Post-Miller Center poll worry that they will lose their jobs to the economy, surpassing concerns in more than a dozen surveys dating to the 1970s. Nearly one in three, 32 percent, say they worry “a lot” about losing their jobs, also a record high, according to the joint survey, which explores Americans’ changing definition of success and their confidence in the country’s future.

Breitbart.com:

• Michelle Obama in 2008: Barack Will Make Us 'Sacrifice' for Health Care. (video) Mrs. Obama says: It's going to cost us something as a society to say, 'We can't tolerate millions of people uninsured. We can't tolerate it.' But in order for all of us to get a little bit more, a whole bunch of us are going to have to give up a little something that we have. And that's not, sort of, what we've been taught…

Reuters:

• Italy president says confidence vote will test govt's majority.

• JPMorgan(JPM), mortgages drag down 3rd-quarter U.S. bank profits. Huge legal costs at JPMorgan Chase & Co and slowing demand for mortgages as interest rates rose caused the first decline in bank profits since 2009, a third-quarter regulatory update said on Tuesday. Higher interest rates lowered the value of fixed income assets and sapped demand for mortgage refinancing, the Federal Deposit Insurance Corporation said.

• EMERGING MARKETS-Brazil stocks extend losses as Petrobras tumbles.

Bear Radar

Style Underperformer:

• Mid-Cap Value -.25%

Sector Underperformers:

• 1) Gold & Silver -2.15% 2) Steel -1.85% 3) Airlines -1.05%

Stocks Falling on Unusual Volume:

• SFM, NUAN, VNET, CNP, OGE, MOV, OME, DSW, ROYT, AMWD, BITA, TLK, BKS, FONR, CBRL, DL, MZOR, MEOH, SRE, IQNT, RFM, CUK, BIP, GIB, WPC, GMCR and DLLR

Stocks With Unusual Put Option Activity:

• 1) YUM 2) TIF 3) KBH 4) IACI 5) MMM
  

Stocks With Most Negative News Mentions:

• 1) BKS 2) CME 3) RIG 4) ANR 5) FCX
  

Charts:

• ETFs Falling on Unusual Volume

• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Growth +.26%

Sector Outperformers:

• 1) Homebuilders +2.77% 2) Semis +.46% 3) Hospitals +.45%
  

Stocks Rising on Unusual Volume:

• JOSB, MW, WDAY, TIF, YPF, PANW, HRL, TTS and SRPT

Stocks With Unusual Call Option Activity:

• 1) SYY 2) WDAY 3) OC 4) VRNG 5) TIF

Stocks With Most Positive News Mentions:

• 1) TIF 2) PNC 3) KO 4) ARO 5) JOSB
  

Charts:

• ETFs Rising on Unusual Volume 

• Stocks Rising on Unusual Volume

Tuesday Watch

Evening Headlines 
Bloomberg:

• China Said to Plan Crackdown on Banks’ Evasion of Lending Limits. China has drafted rules banning banks from evading lending limits by structuring loans to other financial institutions so that they can be recorded as asset sales, two people with knowledge of the matter said. The rules drafted by the China Banking Regulatory Commission ban borrowers from using resale or repurchase agreements to move assets off their balance sheets, said the people, who asked not to be identified because they aren’t authorized to discuss the rules publicly. 

• U.S. to Continue Flights in Defense Zone Claimed by China. The U.S. won’t change its flight operations to comply with China’s newly claimed air defense zone in the East China Sea, a Pentagon spokesman said today. “We will not in any way change how we conduct our operations,” Army Colonel Steve Warren told reporters at the Pentagon. U.S. pilots won’t register their flight plans or identify their transponder or frequency, Warren said.

• Are Hong Kong Property Prices Poised to Fall? (video)

• India Office Boom Turns Glut With Vacancies: Real Estate. India’s slowing economy has left its big cities with a glut of office space, pushing up vacancy rates, freezing development and prompting some builders to convert commercial projects into housing. Vacancy rates in the financial center of Mumbai and capital New Delhi topped 20 percent in the third quarter, the highest in Asia after Chengdu, China, where 32 percent of offices are empty, according to broker Cushman & Wakefield Inc. Six Indian cities are among the 10 office markets with the worst vacancies in the region, according to Cushman. 

• India Growth Seen Below 5% for Longest Spell Since 2005: Economy. India’s economic growth probably held below 5 percent for a fourth straight quarter, the longest stretch in data going back to 2005, as Prime Minister Manmohan Singh struggles to boost investment and tame elevated inflation. Gross domestic product rose 4.6 percent in July through September from a year earlier, compared with 4.4 percent in the prior quarter, according to the median of 25 estimates in a Bloomberg News survey ahead of a report due on Nov. 29.

• Most Asia Stocks Fall as Valuations Approach 6-Month High. Most Asian stocks fell, dragging the regional benchmark index lower for the first time in three days, after valuations climbed to near the highest level in six months. Honda Motor Co. (7267) slid 0.9 percent as the yen strengthened against the dollar, weakening the earnings prospects for Japanese carmakers. Doosan Engineering & Construction Co. (011160) slumped 15 percent after the Korea Economic Daily said the Seoul-based provider of civil engineering and architectural services will sell redeemable convertible preferred shares. Perseus Mining Ltd. rose 5.5 percent in Sydney, leading a rebound in gold producers after the precious metal climbed. The MSCI Asia Pacific Index slid 0.1 percent to 141.68 as of 11:01 a.m. in Hong Kong, with about four shares falling for every three that advanced.

• Rubber Drops to Two-Week Low After Forecast Surplus May Widen. Rubber declined to a two-week low after a forecast that the global surplus of the commodity will widen through 2015 as production increases. Futures for delivery in April on the Tokyo Commodity Exchange lost as much as 1.8 percent to 256 yen a kilogram ($2,523 a metric ton), matching the intraday low on Nov. 12. Futures traded at 257.3 yen at 11:42 a.m. local time, extending losses for this year to 15 percent. 

• Rebar Rises in Shanghai on More Signs Output Will Fall in Hebei. Steel reinforcement-bar futures in Shanghai climbed on further signs that output will decline in Hebei province, the largest producing region in China. Rebar for May delivery, the most-active contract on the Shanghai Futures Exchange, rose as much as 0.6 percent to 3,657 yuan ($600) a metric ton, the highest price since Nov. 13. Futures traded at 3,653 yuan at 10:32 a.m. local time. 

• Rio(RIO) Reviewing Alumina Refinery As Market Conditions Worsen. Rio Tinto Group (RIO), the world’s second-biggest mining company, dropped a plan to convert its loss-making Gove alumina refinery to a cheaper fuel source because prices and exchange rates have worsened.

• Paris Office Market Wilts to 10-Year Low as Taxes Crimp Spending. The office take-up in and around Paris is set to fall by 30 percent this year to a 10-year low of 1.8 million square meters, according to broker DTZ. That’s less than in 2009, when the French economy contracted the most since World War II. A tax burden that’s reached a record high under President Francois Hollande and an economy in its second year of stagnation amid the European debt crisis are weighing on spending decisions.

Wall Street Journal:

• Stephens: Worse Than Munich. In 1938, Chamberlain bought time to rearm. In 2013, Obama gives Iran time to go nuclear. To adapt Churchill : Never in the field of global diplomacy has so much been given away by so many for so little.

Fox News:

• Deal in hand, will Iran follow path of North Korea? Now that the Obama administration has its nuclear deal with Iran, the big question is can Tehran be trusted to make good on its promises -- or, will it follow the path of North Korea? "I am concerned this agreement could be a dangerous step that degrades our pressure on the Iranian regime without demonstrable actions on Iran's part to end its pursuit of a nuclear weapons capability -- a situation that would be reminiscent of our experience over two decades with North Korea," Sen. John McCain, R-Ariz., said in a statement. Critics of the newly struck deal with Iran cite the United States' bruising experience with North Korea over the past two decades. The rogue nation repeatedly led on the U.S. and other nations, only to renege time after time.

• Almost 80 million with employer health care plans could have coverage canceled, experts predict. Almost 80 million people with employer health plans could find their coverage canceled because they are not compliant with ObamaCare, several experts predicted. Their losses would be in addition to the millions who found their individual coverage cancelled for the same reason. Stan Veuger of the American Enterprise Institute said that in addition to the individual cancellations, "at least half the people on employer plans would by 2014 start losing plans as well." There are approximately 157 million employer health care policy holders.

CNBC:

• Why your tax returns aren't safe with the IRS. Serious security weaknesses in the Internal Revenue Service's data system have left millions of taxpayers' sensitive financial information vulnerable to hackers. 

• China's rich fleeing the country—with their fortunes. (video)

Zero Hedge:

• 70% Of Brooklyn Home Sales Are To Hedge Funds, Investors And International Buyers.

• 10 Clues About 2013 Holiday Spending.

• Paul Krugman's Fallacies.

• Nope, 'Still' No Bubble Here... (graph)

• This Can't Be Good... (graph)

• A Bull Market In $1,000 Faucets As Home Equity Loans Soar.

• Coincidence? Israel Launches Largest Ever Air Force "Exercise" The Day After Iran Deal.

Boston Globe: 

• Obamacare fail isn’t the site — it’s the law.

The Daily Beast:

• World Doubts Obama Will Enforce Red Line on Iran. The Iran gambit has risks and, if a final deal isn’t achieved after six months, the possibility of war rises. World leaders say President Obama’s credibility to enforce the deadline has been badly damaged.

Reuters:

• U.S. diners plan even fewer restaurant visits next year-survey. U.S. diners, who have been cutting back on restaurant visits, plan to eat out even less frequently in 2014, according to a new survey from consultancy AlixPartners. For the first time in the five years that AlixPartners has conducted the survey, participants said the No. 1 reason for dining out less was the desire to eat healthier. That answer just edged out the need to trim personal spending.

MNI:

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

• ECB's Noyer Says Euro Area Recovery Weak, Fragile. European Central Bank governing council member and Bank of France governor Christian Noyer said euro area's recovery is weak and fragile, citing Noyer as speaking today at a forum in Beijing.
  
  The Obama administration will press ahead Friday with tough requirements for new coal-fired power plants, moving to impose for the first time strict limits on the pollution blamed for global warming. The proposal would help reshape where Americans get electricity, away from a coal-dependent past into a future fired by cleaner sources of energy. It's also a key step in President Barack Obama's global warming plans, because it would help end what he called "the limitless dumping of carbon pollution" from power plants.
  Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

Obama takes on coal with first-ever carbon limits
Read more at http://www.philly.com/philly/news/politics/20130919_ap_0f857b20e0c144a5a1e1b9dddc9f9d72.html#YRThyDOhArykUeYy.99

Kyodo:

• Suga Says Japan Can't Be Bound by China Airspace Zone. Japan told its airline operators that they are not bound by the China airspace defense zone, citing remarks by Chief Cabinet Secretary Yoshihide Suga.

NHK:

• Chinese embassy prepares for unexpected occurrence. The Chinese embassy in Tokyo is urging Chinese residents in Japan to register their contact details in case of unexpected emergencies. Officials posted the notification online on November 8th. That's about 2 weeks before China announced a new air defense identification zone over the East China Sea. The zone covers the Japan-controlled Senkaku Islands, which are also claimed by China and Taiwan.

Nikkei:

• Japan, U.S. May Deploy Unmanned Plane to East China Sea. Japan, U.S. may deploy Global Hawk unmanned surveillance aircraft to East China Sea after China announced an air defense zone in the region.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 129.75 +.75 basis point.

• Asia Pacific Sovereign CDS Index 101.0 -.75 basis point. 

• FTSE-100 futures -.03%.

• S&P 500 futures +.13%.

• NASDAQ 100 futures +.14%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BKS)/-.03

• (PLCE)/1.85

• (TIF)/.58

• (BWS)/.58

• (CHS)/.24

• (DSW)/.58

• (CBRL)/1.58

• (EV)/.60

• (HPQ)/1.00

• (ADI)/.58

• (ZLC)/-.85

• (FRED)/.20

Economic Releases
8:30 am EST

• Building Permits for October are estimated at 930K.

9:00 am EST

• The S&P/CS 20 City MoM SA for September is estimated to rise +.9% versus a +.93% gain in August.

• The House Price Index for September is estimated to rise +.4% versus a +.3% gain in August.

10:00 am EST

• Consumer Confidence for November is estimated to rise to 72.6 versus 71.2 in October.

• Richmond Fed Manufacturing for November is estimated to rise to 4.0 versus 1.0 in October.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The $35B 5Y T-Note auction, UK nationwide home prices, weekly retail sales reports and the (JEC) analyst day could also impact trading today.

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

Stocks Slightly Lower into Final Hour on Rising Emerging Markets Debt Angst, Technical Selling, Profit-Taking, Commodity/Construction Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: About Even
  

• Sector Performance: Most Sectors Declining
  

• Volume: Below Average

• Market Leading Stocks: Performing In Line

Equity Investor Angst:

• Volatility(VIX) 12.72 +3.75%

• Euro/Yen Carry Return Index 143.13 unch.

• Emerging Markets Currency Volatility(VXY) 8.59 unch.

• S&P 500 Implied Correlation 54.76 +.57%

• ISE Sentiment Index 144.0 unch.

• Total Put/Call .77 -18.09%

• NYSE Arms 1.03 +28.88% 

Credit Investor Angst:

• North American Investment Grade CDS Index 67.95 -.83%

• European Financial Sector CDS Index 99.19 -2.34%

• Western Europe Sovereign Debt CDS Index 62.0 -.80%

• Emerging Market CDS Index 291.28 +.90%

• 2-Year Swap Spread 9.5 -.25 basis point

• TED Spread 17.50 +.5 basis point

• 3-Month EUR/USD Cross-Currency Basis Swap -1.25 unch.

Economic Gauges:

• 3-Month T-Bill Yield .06% -1 basis point

• Yield Curve 245.0 -2 basis points

• China Import Iron Ore Spot $136.50/Metric Tonne unch.

• Citi US Economic Surprise Index 4.70 -2.0 points

• Citi Emerging Markets Economic Surprise Index -15.20 -.9 point

• 10-Year TIPS Spread 2.19 -1 basis point

Overseas Futures:

• Nikkei Futures: Indicating -104 open in Japan

• DAX Futures: Indicating -14 open in Germany

Portfolio: 

• Slightly Higher: On gains in my biotech/retail sector longs and emerging markets shorts

• Disclosed Trades: Added to my (IWM)/(QQQ) hedges

• Market Exposure: Moved to 25% Net Long