Wednesday Watch

Evening Headlines
Bloomberg:

• Ireland Long-Term Sovereign Rating Lowered by Standard & Poor's. Ireland’s debt rating was lowered two steps by Standard & Poor’s, with a negative outlook, as the nation’s bailout of its banking system is set to escalate the government’s borrowing needs. “The Irish government looks set to borrow over and above our previous projections to fund further bank capital injections into Ireland’s troubled banking system,” S&P said in a statement. Putting the rating on “CreditWatch with negative implications” reflects risk of a further downgrade if talks on a European Union-led rescue fail to stanch capital flight, it said.
• Portuguese Strike as Debt Contagion Spreads to Lisbon Streets: Euro Credit. Portuguese Prime Minister Jose Socrates is bracing for the country’s biggest strike in 22 years as fallout from Europe’s debt crisis spreads from bond markets to the streets. Workers are walking off the job today to protest government austerity measures as concern about Socrates’s ability to tame the euro-region’s fourth-biggest budget deficit pushed the cost of insuring Portugal’s debt against default to a record high. Credit default swaps climbed 23 basis points yesterday to 482.2, while the yield premium demanded to hold the country’s 10-year bonds over German bunds rose 28 basis points to 435. The backlash against wage cuts and tax increases to trim euro-region deficits is fueling political turmoil and undermining investor confidence.
• Default Swaps Soar on 'Sacrosanct' Senior Europe Bank Debt: Credit Markets. The cost of protecting against defaults on senior notes of European banks is soaring on speculation bondholders will be forced to take losses as governments try to share the burden of taxpayer-funded bailouts. The Markit iTraxx Financial Index of credit-default swaps on senior debt increased 12 basis points, or 0.12 percentage point, to 152.9 basis points, the most since May. Contracts on Portugal’s Banco Espirito Santo SA are at a record, and Spain’s Banco Santander SA are at the highest level in five months. Europe’s debt crisis has spread to Ireland from Greece, and bond investors bet that Portugal and Spain may be next in line for a bailout from the European Union and International Monetary Fund. “Senior bondholders will most likely find themselves as potential burden-sharers, which is in stark contrast with the rules of engagement of the market,” said Roberto Henriques, a fixed-income analyst at JPMorgan Chase & Co. in London. “Even at the worst point of the current crisis, it was generally a given that senior debt was sacrosanct.” Subordinated bonds have largely borne the brunt of losses because they stop paying before senior bonds in case of a default or debt restructuring. Should banks be unable to pay senior bondholders, they may find it more difficult and expensive to raise money. Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of similar maturity government debt rose 3 basis points to 169 basis points, the highest since Oct. 20, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, increased 4.25 basis points to a mid-price of 95.25 basis points as of 5:49 p.m. in New York, the highest since Oct. 22, according to index administrator Markit Group Ltd. In London, the Markit iTraxx Europe Index of 125 companies with investment-grade ratings gained 2 basis points to 104.9. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 5 basis points to 114 as of 8:05 a.m. in Singapore, according to Credit Agricole CIB prices. Credit-default swaps on the senior debt of Ireland’s biggest lenders approached records highs. Contracts on Allied Irish Banks Plc climbed 103 to 954.5 while Bank of Ireland Plc jumped 89.9 to 735.7, according to CMA. The cost of insuring Ireland’s government debt climbed 47.5 to 574.85, while Portugal surged 28.6 to a record 486 and Spain was up 19 to an all-time high of 301.3, CMA prices show. That helped drive the Markit iTraxx SovX Western Europe Index of contracts on 15 governments to a record-high 182 basis points, shrinking the difference with the Markit iTraxx Financial Index to 29 basis points. The 750-billion-euro European Financial Stability Facility, created in May to support the region’s most indebted governments, won’t be big enough to rescue Spain, Citigroup’s Buiter said. A rise in Spanish bank risk could be the “tipping point” for the financial credit swaps gauge, according to JPMorgan. Credit-default swaps on Lisbon-based Banco Espirito Santo have climbed almost 300 basis points this month to 699, according to CMA. Contracts on Banco Santander are up about 80 to 232.
• North Korean Attack Aimed at Restarting Nuclear Talks With U.S. North Korea’s attack on a South Korean island, along with its disclosure of nuclear advances, is part of a strategy to draw the U.S. back to the negotiating table, analysts in the U.S. and Asia say. It isn’t likely to succeed, and the result could be increased tension between the U.S. and China, North Korea’s closest ally, said the analysts, including Bruce Klingner, a former chief of the Central Intelligence Agency’s Korea branch. “If anything, it’s likely to have the reverse effect, in that Washington and Seoul are likely to be more determined to resist” North Korean tactics, said Klingner, now a senior fellow at the Heritage Foundation, a Washington research group.
• China and Russia will drop the U.S. dollar for bilateral trade and use their own currencies for settlement, citing Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin.
• Junk Bond Issuers Forced to Pull Deals as Ireland, Korea Roil Debt Markets. Junk bond issuers are canceling offerings and investors are demanding stronger protections as credit markets weaken amid growing concern over Europe’s debt crisis and increasing tensions on the Korean peninsula.

Wall Street Journal:

• Trading Inquiry Widens to Big Firms. Federal authorities, intensifying an insider-trading investigation, are demanding trading and other information from some of the nation's most powerful investment firms. Hedge-fund giants SAC Capital Advisors and Citadel LLC, big mutual-fund company Janus Capital Group Inc. and Wellington Management Co., one of the nation's biggest institutional-investment firms, have received subpoenas from the Manhattan U.S. Attorney's office seeking trading, communications and other data as part of a broad criminal investigation, according to people familiar with the matter. The Federal Bureau of Investigation also recently questioned an account manager at Primary Global Research LLC, a California company that provides "expert-network" services to hedge funds and mutual funds, people familiar with the matter say. Such expert-network firms set up meetings and arrange calls between traders seeking an investing edge and current and former managers from hundreds of companies. The FBI is seeking information about a Primary Global consultant and his hedge-fund clients, these people say.
• Fears of Domino Effect Pervade Europe. Loss of Confidence Extends From Ireland to Spain, Portugal; Bond Spreads Widen as Euro Tumbles. "People that are betting on contagion are probably making the right bet here," said David Gilmore, a strategist at Foreign Exchange Analytics. "There's not really anything to stop the markets from pushing the next domino over."
• North Sparks Korea Crisis. Seoul, U.S. Ponder Response to Pyongyang's Deadly Artillery Barrage on Island.
• Some Former RIM(RIMM) Enterprise Sales Staff Now Call Apple(AAPL) Home. Apple Inc. (AAPL) is not only poaching corporate customers from BlackBerry maker Research In Motion Ltd. (RIMM), it's poaching members of RIM's enterprise sales team. In the past 18 months, at least five members of RIM's enterprise-sales team have left the company to join Apple. This includes Geoff Perfect, who served as Head of Strategic Sales at RIM for nearly five years before leaving in April 2009 and joining Apple a month later as Head of Enterprise iPhone Sales, according to LinkedIn, the online networking service for professionals.
• Dynegy(DYN) Buyout Rejected by Holders. Power producer Dynegy Inc. said it will restart efforts to sell itself following major shareholders' apparent rejection Tuesday of a buyout offer from private-equity firm Blackstone Group LP worth $605 million. The defeat came at the hands of activist investor Carl Icahn and hedge fund Seneca Capital LP, which recently bought a combined 22% stake in the Houston energy company and urged others to reject Blackstone's offer.
• Axa, UBS Marketing a Synthetic Collaterialized Debt Obligation. In a sign that part of the securitization market may be thawing out, UBS is marketing a collateralized debt obligation backed by credit derivatives that are mostly tied to investment-grade corporate bonds.
• Pentagon Warns House, Senate Defense Panels of More WikiLeaks Documents. The Pentagon warned Senate and House defense lawmakers that the website WikiLeaks could disclose a “tranche” of classified U.S. State Department cables as early as Nov. 26. The documents “touch on an enormous range of very sensitive foreign policy issues,” Assistant Secretary for Legislative Affairs Elizabeth King said in an e-mail today to the Senate and House Armed Services Committees. “We anticipate that the release could negatively impact U.S. foreign relations,” King wrote, telling committee staff, “we will brief you once we have a better understanding of what documents the WikiLeaks publication contains.” King said The New York Times, the U.K.’s The Guardian and Der Spiegel of Germany “are each currently working with WikiLeaks to coordinate the release of these State Department documents.”
• Kucinich Calls QE2 Hearing. Rep. Dennis Kucinich, a consistant critic of the Federal Reserve, has scheduled a hearing next week to investigate the central bank’s latest round of debt buying, giving the Ohio Democrat an official forum to assail a policy backed by President Barack Obama.
• Why We're Always Fooled by North Korea. The analysts who predicted North Korea's latest nuclear breakthrough were denigrated and ignored.

Bloomberg Businessweek:

• ECB's Nowotny Says Makes Sense That Bondholders Also Contribute. European Central Bank Governing Council member Ewald Nowotny said that it would make sense for bondholders to contribute in case a state needs a bailout. While care must be taken not to “emotionally irritate” financial markets, “I believe that in principle everyone should contribute in some way in cases of very large disruptions,” Nowotny said in an interview broadcast live on Austrian state television ORF. This “only can happen in extreme cases and at the same time a safety net must be set up so the country can continue to function,” he said.

CNBC:

• Seoul Threatens Retaliation in Event of Further Attacks. South Korea warned North Korea of "enormous retaliation" if it took more aggressive steps after Pyongyang fired scores of artillery shells a South Korean island in one of the heaviest attacks on its neighbour since the Korean War ended in 1953. And a senior finance official told an emergency meeting that South Korea's economy, Asia's fourth largest, could withstand any shock linked to the attack. Measures would be taken if needed, Vice-Finance Minister Yim jong-yong said.

Marketwatch.com:

• Big China Banks Face Tougher Capital Rules: Report. China's seven largest banks will be subject to stricter capital requirements in the coming years, the state-run Shanghai Securities News reported Wednesday, citing unnamed sources.

Business Insider:

• How Google(GOOG) Plans to Turn Apps Into Its Next Big Business.

Zero Hedge:

• Goldman(GS) Gets Roped Into Diamondback Insider Trading Probe, Gasparino Reports.

Reuters:

• SAP(SAP) to Pay Oracle(ORCL) $1.3 Billion in Landmark Decision. SAP AG must pay Oracle Corp $1.3 billion for software theft in a jury verdict that could be the largest-ever for copyright infringement.
• U.S. Online Holiday Sales Growth Seen Up Again - comScore. U.S. online spending this holiday is now expected to rise by 11 percent over last year, comScore said on Tuesday, marking the second time the analytics firm has raised its closely watched view.
• Guess(GES) Beats in Quarter, Sees Full-Year Above View. Apparel company Guess Inc reported a quarterly profit on Tuesday that far exceeded Wall Street expectations helped by robust expansion overseas, sending its shares up 8 percent.

Financial Times:

• OPEC Warns on OTC Trading. The oil market risks “chaos” and global supplies could be disrupted unless tighter regulation is imposed on the trade in oil-based financial instruments, according to Opec’s secretary-general. In an interview with the Financial Times, Abdalla El-Badri said that rapid swings in oil prices had been exacerbated by the private, bilateral over-the-counter derivatives market which, he said, often exerted greater power than the physical realities of supply and demand.
• US Group Gives China Details of Nuclear Technology. Westinghouse Electric has handed over more than 75,000 documents to its Chinese customers as the initial part of a technology transfer agreement that it hopes will secure the company’s place in the world’s fastest-growing nuclear market. The documents relate to the construction of the four third-generation AP1000 reactors that Westinghouse, a US nuclear company controlled by Toshiba of Japan, is building in China.

Der Spiegel:

• Chancellor Merkel Faces Tough Sell on Irish Bailout. For the second time in just a few months, Angela Merkel will have to explain to voters why Germany must bail out a fellow euro-zone member state. Skepticism is growing -- amongst voters, in the media and within her party. Many want to see Dublin raise its low corporate tax.

China Business News:

• China's price control measures can't curb consumer price increases in the long term because inflation is being caused by excess money supply, citing Liu Yuhui, a researcher at the Chinese Academy of Social Sciences. Inflationary pressure may continue for a long time, Liu said.

Evening Recommendations
Citigroup:

• Reiterated Buy on (AMZN), target $190.
• Rated (TOWR) Buy, target $21.

Night Trading

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 114.0 +10.5 basis points.
  
• Asia Pacific Sovereign CDS Index 110.25 +10.75 basis points.
  
• S&P 500 futures +.51%
  
• NASDAQ 100 futures +.38%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TIF)/.36
• (DE)/.97
• (GMCR)/.20

Economic Releases
8:30 am EST

• Durable Goods Orders for October are estimated to rise +.1% versus a +3.3% gain in September.
• Durables Ex Transports for October are estimated to rise +.6% versus a -.8% decline in September.
• Personal Income for October is estimated to rise +.4% versus a -.1% decline in September.
• Personal Spending for October is estimated to rise +.5% versus a +.2% gain in September.
• PCE Core for October is estimated unch. versus unch. in September.
• Initial Jobless Claims for last week are estimated to fall to 435K versus 439K the prior week.
• Continuing Claims are estimated to fall to 4275K versus 4295K prior.
  

9:55 am EST

• Final Univ. of Mich. Consumer Confidence for November is estimated to rise to 69.5 versus a prior estimate of 69.3.

10:00 am EST

• The House Price Index for September is estimated unch. versus a +.4% gain in August.
• New Home Sales for October are estimated to rise to 312K versus 307K in September.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -2,000,000 barrels versus a -7,286,000 barrel decline the prior week. Gasoline supplies are expected to fall by -1,250,000 barrels versus a -2,657,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,500,000 barrels versus a -1,110,000 barrel fall the prior week. Finally, Refinery Utilization is estimated to rise by +.4% versus a +1.6% gain the prior week.

Upcoming Splits

• (MGA) 2-for-1
  

Other Potential Market Movers

• The weekly MBA mortgage applications report and $29 Billion 7-Year Treasury Notes Auction could also impact trading today.
  

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

Stocks Lower into Final Hour on Rising Euro Sovereign Debt Fear, Korean Peninsula Tensions, China Inflation Concerns, Insider Trading Scandals

Broad Market Tone:

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

Equity Investor Angst:

• VIX 20.91 +13.83%
  
• ISE Sentiment Index 127.0 +18.69%
  
• Total Put/Call .93 +17.72%
  
• NYSE Arms 2.42 +54.05%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.72 bps +1.97%
  
• European Financial Sector CDS Index 144.37 bps +21.36%
  
• Western Europe Sovereign Debt CDS Index 174.0 bps +3.37%
  
• Emerging Market CDS Index 228.47 bps +3.78%
  
• 2-Year Swap Spread 19.0 +1 bp
  
• TED Spread 16.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .12% unch.
  
• Yield Curve 231.0 -2 bps
  
• China Import Iron Ore Spot $164.90/Metric Tonne +.30%
  
• Citi US Economic Surprise Index +30.40 +.7 point
  
• 10-Year TIPS Spread 2.10% -3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating -250 open in Japan
• DAX Futures: Indicating +27 open in Germany

Portfolio:

• Lower: On losses in my Medical, Biotech and Technology long positions
  
• Disclosed Trades: Added (IWM)/(QQQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades meaningfully lower on China inflation concerns, rising Korean Peninsula tensions and increasing euro sovereign debt angst. On the positive side, Retail, REIT, Telecom and Defense shares are holding up relatively well, falling less than 1.0%. Small-cap shares are outperforming again. The 10-year yield is falling -5 bps to 2.75%. The S&P GSCI Ag Spot Index is rising +.79%. Weekly retail sales rose +2.6% this week versus a +2.7% gain the prior week. On the negative side, Homebuilding, Coal, Gaming, Oil Tanker, Paper, Oil Service and Steel shares are under significant pressure, falling more than 2.5%. Copper is falling -1.4% and Gold is gaining +.68%. The Greece sovereign cds is gaining +2.86% to 1,047.47 bps, the Russia sovereign cds is rising +6.66% to 153.56 bps, the Hungary sovereign cds is gaining +4.24% to 320.48 bps, the Portugal sovereign cds is surging +6.14% to 481.11 bps, the Spain sovereign cds is climbing +6.45% to 300.42 bps, the UK sovereign cds is rising +4.97% to 65.65 bps and the Ireland sovereign cds is gaining +9.23% to 571.35 bps. The huge jump in the euro financial sector cds index remains very troubling. This index is now breaking out of the range it has been in since early July. Given the jump in eurozone debt angst, recent equity gains, China inflation fears, insider trading scandals, Korean peninsula tensions and financial sector Basel III concerns, the broad market is still holding up better than I would have expected, which is a big positive. Market leaders remain relatively firm. However, these concerns appear to be beginning to take their toll and further weakness could materialize tomorrow before the Thanksgiving holiday. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, seasonal strength and short-covering.

Today's Headlines

Bloomberg:

• North Korea Attack on South Kills Two, Setting Homes Ablaze. North Korea lobbed artillery shells at a South Korean island near the disputed border between the two countries, killing two soldiers and setting houses ablaze in the worst attack on its neighbor in at least eight months. South Korea returned fire with 80 shells and scrambled fighter jets as President Lee Myung Bak vowed to respond “sternly.” Local television channel YTN showed smoke billowing from Yeonpyeong island off South Korea’s northwest coast and said residents took cover in bomb shelters.
• Euro in 'Exceptionally Serious' Situation Amid Irish Bailout, Merkel Says. German Chancellor Angela Merkel said the euro is in an “exceptionally serious” situation after Ireland became the second European country to need a rescue after Greece. “I don’t want to paint a dramatic picture, but I just want to say that a year ago we couldn’t imagine the debate we had in the spring and the measures we had to take” over Greece, Merkel said in a speech to Germany’s BDA employers’ group in Berlin today. “We are facing an exceptionally serious situation as far as the euro’s situation is concerned.”
• Ireland Said to Need 85 Billion Euros for Rescue. European Union officials estimate that a rescue package for Ireland may amount to about 85 billion euros ($114 billion), according to two officials familiar with the talks. The European Commission cited the figure as a preliminary estimate on a conference call of euro-region finance ministers on Nov. 21, said the people, who spoke on condition of anonymity because the talks were private. Of the total, 35 billion euros would be earmarked for banks and 50 billion euros to help finance the Irish government. Contagion is spreading through the euro region as Ireland hammers out an aid package with the EU and the International Monetary Fund to rescue its banking system. Spanish bonds tumbled, pushing the extra yield that investors demand to hold its 10-year debt over German bunds to a euro-era record of 236 basis points. Irish bonds also dropped today. “The markets currently have virtually zero confidence that the bailout in Ireland will solve the European crisis,” Charles Diebel and David Page, fixed-income strategists at Lloyds TSB Corporate Markets in London, wrote in a note today. “With markets effectively in a position to dictate policy, the risk is that the credibility crisis shifts to more sizeable EU countries and thereby poses a greater risk to the system as a whole.”
• Corporate Bond Risk Rises in Europe, Credit-Default Swaps Show. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 18 basis points to 480, according to JPMorgan Chase & Co. at 3 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 4 basis points to 107 basis points, JPMorgan prices show. The Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers increased 12.5 basis points to 152 and the subordinated index rose 23 to 260.5.
• Payrolls Grow as Employers Gain Confidence in Recovery. Payrolls increased in 41 U.S. states in October, led by Texas and New York, indicating the labor market is stabilizing across the world’s largest economy. Employers in Texas added 47,900 jobs last month, figures from the Labor Department showed today in Washington.
• Japan Consumer Lending Falls by Record. Japan’s consumer loans fell by a record in September because of tougher regulations that took effect in June, the Nikkei newspaper reported. The revision of the money-lending business law cut rates and limited loans to one-third of a borrower’s annual income, according to the Nikkei. Consumer loans at Japan’s 62 moneylenders declined by 47 percent to 263 billion yen ($3.2 billion) in September from a year earlier, according to the website of the Japan Financial Services Association, which didn’t provide a reason for the decrease.
• Obama's Administration Buys One in Four Hybrids as Consumer Market Slumps. President Barack Obama’s administration has bought almost a fourth of the Ford Motor Co. and General Motors Co. hybrid vehicles sold since he took office, accelerating federal purchases as consumer demand wanes. The U.S. General Services Administration, which runs the government fleet, bought at least 14,584 hybrid vehicles in the past two fiscal years, or about 10 percent of 145,473 vehicles the agency purchased in that period, according to sales data obtained by Bloomberg under a Freedom of Information Act request.
• Christie's Job-Approval Rating Survives New Jersey Budget Cuts, Poll Shows. New Jersey Governor Chris Christie still wins approval from almost half of the state’s voters even as he cuts budgets, according to a Fairleigh Dickinson University poll. Christie’s job performance was supported by 49 percent of registered voters surveyed by the university’s PublicMind Poll, compared with 39 percent who disapprove, the school said today.
• Gilead(GILD) Pill Helps Prevent HIV in 'Breakthrough' Study. A daily pill helped protect gay and bisexual men from HIV for the first time in a landmark study. Gilead Sciences Inc.’s Truvada, sold to subdue the AIDS- causing virus in those already infected, cut the risk of contracting HIV by 44 percent, according to findings published today in the New England Journal of Medicine. The drug reduced new infections as much as 73 percent in those who used it most.
• U.S. Existing Home Sales Dropped 2.2% in October: Video.
• 10 Held in 3 Countries in Belgian Terror Probe. Ten suspects were detained in Belgium, the Netherlands and Germany following an investigation of a possible terror attack in Belgium by an international group of jihad fighters, prosecutors said. The detainees have Belgian, Dutch, Moroccan and Russian nationalities and will appear before an investigating judge later today, the Belgian federal prosecutor’s office said in a statement. The suspected terror group was predominantly based in the Belgian city of Antwerp, the prosecutors said.

Wall Street Journal:

• Massey(MEE) Energy Moves Close to Sale. Massey Energy Co.'s board on Monday took another step toward a potential sale of the company, setting up a committee to explore offers.

CNBC:

• US Growth Revised Up More Than Expected to 2.5%. The U.S. economy grew faster than previously estimated in the third quarter, government data showed on Tuesday, but still not enough to address stubbornly high unemployment. Gross domestic product growth was revised up to an annualized rate of 2.5 percent from 2.0 percent as exports, and consumer and government spending were stronger than initially thought, the Commerce Department said in its second estimate.

Business Insider:

• More Hedge Funds Leave the UK - Now GLG Partners is Going to Tax Haven Switzerland Too. Add GLG Partners to the list of UK-based hedge funds that are exiting the city after it imposed a huge bonus tax on top earners.
• The Feds Are Barking Up The Wrong Tree With These Hedge Fund Raids by Charlie Gasparinon. With the raids on three hedge funds yesterday, the Feds are robustly taking on insider trading. Charlie Gasparino on why this won't do anything to rid Wall Street of miscreants.
  

Zero Hedge:

• FOMC Minutes: All About Killing The Dollar. It turns out the Fed was not only fully aware QE2 would crush the dollar, but welcomed it.

MarketWatch.com:

• SAC Tell Investors it Got Government Subpoena.

New York Post:

• High-Frequency, Prop Traders on Bharara's Radar. Computer-driven trading shops and independent proprietary trading firms may be the next to feel the heat from watchdogs aiming to clean up Wall Street, source tell The Post. Federal agents, who have ratcheted up the heat on insider-trading rings linked to hedge funds and investment firms, are also are targeting firms that purport to offer individual investors specialty trading techniques employed by Wall Street powerhouses like Goldman Sachs, these sources said. These firms, which claim to offer market access that typical investors aren't privy to, are being eyed because they may be helping bad actors conduct flash trades that could be tied to insider-trading activity, sources said.

Boston Globe:

• Massachusetts Pension Funds Hold $65.6 Million in Connecticut Hedge Funds Raided by FBI.

Washington Post:

• Retrained for Green Jobs, But Still Waiting on Work. After losing his way in the old economy, Laurance Anton tried to assure his place in the new one by signing up for green jobs training earlier this year at his local community college. Anton has been out of work since 2008, when his job as a surveyor vanished with Florida's once-sizzling housing market. After a futile search, at age 56 he reluctantly returned to school to learn the kind of job skills the Obama administration is wagering will soon fuel an employment boom: solar installation, sustainable landscape design, recycling and green demolition. Anton said the classes, funded with a $2.9 million federal grant to Ocala's workforce development organization, have taught him a lot. He's learned how to apply Ohm's law, how to solder tiny components on circuit boards and how to disassemble rather than demolish a building. The only problem is that his new skills have not resulted in a single job offer. Officials who run Ocala's green jobs training program say the same is true for three-quarters of their first 100 graduates.

Politico:

• Business: Barack Obama's Outreach Not Enough. After two years of building frustration, the executives say they won’t be won over by another round of private lunches and photo opportunities at the White House. If President Barack Obama has any hope for a truce with corporate America in time for his 2012 reelection campaign, he needs to drop the name-calling, try to see their point of view better and step up with some specific proposals.
  

USA Today:

• Body Scanner Makers Doubled Lobbying Cash Over 5 Years. The companies with multimillion-dollar contracts to supply American airports with body-scanning machines more than doubled their spending on lobbying in the past five years and hired several high-profile former government officials to advance their causes in Washington, government records show. L-3 Communications, which has sold $39.7 million worth of the machines to the federal government, spent $4.3 million trying to influence Congress and federal agencies during the first nine months of this year, up from $2.1 million in 2005, lobbying data compiled by the Center for Responsive Politics show.

Reuters:

• FBI Raids Send Warning to Hedge Funds. FBI raids on hedge funds were a sign that prosecutors feared evidence in a widening insider trading probe could be destroyed, but the dramatic daytime searches may also have been intended to shake up the secretive hedge fund world, legal experts said. Investigators most likely swooped down on the funds Monday in Connecticut and Massachusetts because they had a major concern that subpoenas for information would not be properly obeyed, lawyers and investigators said. The raids served another purpose: warning the broader financial industry that a serious prosecution effort was underway.

Telegraph:

• The Bail-Out: Bad for Ireland and Britain, Good for Eurocrats and Bankers.
• Spanish Central Bank Chief Miguel Ordonez Warns of Contagion Risks. Spanish bond yields jumped on Tuesday, reflecting fears of contagion from the Irish debt crisis, while the central bank warned that the path to recovery would be slow and strewn with risks.

Kathimerini:

• European Union and International Monetary Fund officials will tell the Greek government to step up the pace of deficit cuts and structural reforms as government efforts slow. EU and IMF officials will spell out changes which must be made by each ministry so that a fourth payment of loans under the 110 billion-euro package is made in February.

Xinhua:

• China and North Korea signed a cooperation agreement on trade and economy in Pyongyang today.

Bear Radar

Style Underperformer:

• Large-Cap Growth (-1.73%)

Sector Underperformers:

• 1) Steel -2.83% 2) Coal -2.81% 3) Homebuilding -2.64%

Stocks Falling on Unusual Volume:

• ZUMZ, STD, REP, PHG, TKC, TEF, SU, CISG, JACK, HRBN, CBRL, REXX, BRKR, ASML, EWI, ARG and KEP
  

Stocks With Unusual Put Option Activity:

• 1) SPWRA 2) XLY 3) CTXS 4) DYN 5) STD
  

Stocks With Most Negative News Mentions:

• 1) FLO 2) SCHS 3) COP 4) TTC 5) ACI
  

Bull Radar

Style Outperformer:

• Small-Cap Growth (-1.10%)

Sector Outperformers:

• 1) Disk Drives -.67% 2) Telecom -.80% 3) REITs -.87%

Stocks Rising on Unusual Volume:

• JCG, BWS, GCO, SHOO, CMC, NUAN, DAKT, REGN, SNCR, MDAS, PMTI, TSLA, LULU, LORL, NFLX, DECK, CCME, DY, GCO and DSW
  

Stocks With Unusual Call Option Activity:

• 1) ERTS 2) TOL 3) ADI 4) RCL 5) LOW
  

Stocks With Most Positive News Mentions:

• 1) ADI 2) HIBB 3) BDX 4) AMGN 5) BRCM
  

Tuesday Watch

Evening Headlines
Bloomberg:

• Irish Rescue Plan Turns Focus to Southern Europe: Euro Credit. Ireland’s plan to seek a European rescue risks escalating, rather than alleviating, the sovereign debt crisis as investors turn their focus to the high budget- deficit nations of southern Europe. Ireland’s Nov. 21 decision to request emergency aid from the European Union and the International Monetary Fund did little to reverse the jump in borrowing costs. The extra yield investors demand to hold Spanish and Portuguese 10-year debt rather than German bunds rose yesterday. The spread between Spanish and Italian yields also widened, indicating investors see increasing threats for Spain compared with Italy. Even as EU leaders said Ireland’s bailout will stem contagion in the euro region, investors are turning their attention to Portugal, which hasn’t cut government spending and has barely grown for a decade. A rescue of Portugal may increase pressure on its high budget-deficit neighbor Spain, whose gross domestic product is almost twice the size of Portugal, Greece and Ireland combined. After Portugal “the next question would be Spain and then Italy and then France and then the EU,” said Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London. “Spain is bit too big to be bailed out, the size of a rescue required would use up all the funds available and then you have Italy with contagion as well,” prompting “a situation where the euro itself is put into question.”
  
• U.S. Commercial Property Prices Jump Most on Record. U.S. commercial property prices rose 4.3 percent in September from the previous month, the biggest gain in a decade of records, Moody’s Investors Service said. The Moody’s/REAL Commercial Property Price Index climbed 0.3 percent from a year earlier as a small number of high-priced deals drove up values, Moody’s said in a statement today. The measure had fallen to an eight-year low in August. “Each of the summer months this year recorded declines in the 3 percent to 4 percent range, followed by this month’s sizeable uptick,” Nick Levidy, a Moody’s managing director in New York, said in the statement. “The relatively large swings seen in the index recently are due in part to the uncertain macroeconomic environment and the effects of a thin market with low transaction volumes.”
• Medtronic(MDT) to Buy Ardian for $800 Million to Gain Novel Hypertension Device. Medtronic Inc., the world’s largest heart device maker, said it will acquire Ardian Inc., a closely held company developing a hypertension device that destroys nerves near the kidney, for $800 million. Medtronic, based in Minneapolis, said it will pay $800 million in cash plus milestones based on Ardian’s revenue through 2015. Medtronic already owns 11 percent of the Mountain View, California, device company.
• China Inflation May Prove Too Hot for Controls Amid Cash Glut. Standing near his 12-table noodle shop on Beijing’s Yonghegong Avenue, owner Liu Heliang says meat and vegetable prices have climbed 10 percent in a year and staff wages are up 40 percent. “I’m struggling to make ends meet with costs going up like this,” said Liu, a native of Sichuan province who pays his workers as much as 1,800 yuan ($271) a month, or 88 percent more than the Beijing minimum wage, to serve up a staple Chinese meal. “Raising prices is the only way out,” he said, predicting he won’t be able to hold out beyond two months. “They are just not addressing the fundamental problem at all,” said Patrick Chovanec, an associate professor at Beijing’s Tsinghua University. With the expansion of credit and cash in the economy stemming from China’s response to the global crisis, “you’re sitting on a volcano,” said Chovanec.
• China's State-Planned Economy is Doomed to Flop: David Pauly. The biggest obstacle to China becoming the world’s No. 1 economy is China. The communist nation’s determination to keep as tight a rein on its economy as it has on its citizens will lead to failure -- just as it has for other countries that embraced central planning schemes. China is reversing its flirtation with a type of quasi- capitalism that allowed entrepreneurs to thrive and propelled the economy forward at an annual rate of about 10 percent. The Chinese now follow the so-called Beijing consensus, a belief that concentrating more control of industry in government hands will avoid the financial debacles caused by free markets. The nation’s state-owned companies are buying up independent businesses in the auto, steel and energy industries. A government-run company even plans its own Internet search business to compete with Baidu Inc., whose shares trade on stock exchanges.
• China's Rare Earth Exports Dropped 77% in October After Export Quota Cut. Rare earth exports from China, the world’s biggest supplier, dropped 77 percent in October from a month earlier, the General Administration of Customs said.

Wall Street Journal:

• White House Loses Two Top Economic Advisors. Two more of the Obama administration's top economic advisers are departing, at a time when the White House is facing growing opposition to its economic policies on Capitol Hill. White House National Economic Committee Deputy Director Diana Farrell and Treasury Department Assistant Secretary for financial institutions Michael Barr are both planning to leave within weeks, people familiar with the matter said. Both played central roles in the Obama administration's response to the financial crisis, acting as lead architects of the financial regulation overhaul law that President Barack Obama signed into law in July.
• J&J(JNJ) Recalls 4 Million Packages of Children's Benadryl.
• Assembly Pushes to Oust Iran President. Iran's parliament revealed it planned to impeach President Mahmoud Ahmadinejad but refrained under orders from the Supreme Leader Ayatollah Ali Khamenei, exposing a deepening division within the Iranian regime. Lawmakers also launched a new petition to bring a debate on the president's impeachment, conservative newspapers reported Monday. The reports of impeachment efforts came as a retort to a powerful body of clerics that urged Mr. Khamenei to curb the parliament's authority and give greater clout to the president. In a report released Sunday and discussed in parliament Monday, four prominent lawmakers laid out the most extensive public criticism of Mr. Ahmadinejad to date.
• The Just-in-Time Consumer.
• With New Power, GOP Takes on Consumer Agency. Republican Reps. Spencer Bachus of Alabama, the leading contender to take the reins of the House Financial Services Committee, and Illinois Rep. Judy Biggert, the top Republican on the panel's oversight and investigations subcommittee, sent letters to the inspectors general of both the Treasury Department and the Federal Reserve, directing them to conduct an investigation into the work being done to establish the new bureau. The lawmakers wrote that the agency warrants "rigorous" oversight by the inspectors general because it will play a significant role in credit availability for consumers and small businesses. GOP lawmakers have also sent letters to regulators on the legal bills incurred by former executives of government-controlled mortgage finance giants Fannie Mae and Freddie Mac and the economic impact of the financial-overhaul rules being written by the Securities and Exchange Commission. The letters are the strongest signals yet of how the new House Republican majority plans to use its oversight powers to hobble elements of the Obama agenda.

CNBC:

• Velma Hart, Who Questioned Obama's Policies, Loses Job. Velma Hart, who told President Obama she was "exhausted" of defending him and became the face of disappointed Americans this fall, has lost her job. In another casualty of a weak national economy, Ms. Hart learned late last week that she'd been laid off as chief financial officer of AmVets, a non-profit veterans service organization based outside of Washington, D.C.
• Hewlett-Packard(HPQ) Results Beat Forecasts; Outlook Positive. Hewlett-Packard raised its fiscal 2011 revenue and earnings forecasts after strong computer and storage sales led to stronger-than-expected quarterly results.

Business Insider:

• It's Crazy How Inbred the Hedge Funds in This Huge Insider Trading Scandal Are. Everyone involved in the insider trading scandal that's blowing up the hedge fund world right now seems to have ties to each other - and to Steve Cohen's SAC Capital. Three funds were raided on Monday, and Charlie Gasparino says that up to twelve hedge funds will be named in the huge investigation, so we're anticipating that more will be raided in the days to come. What's happened, it seems, is that the government has discovered a huge "ring" of friends or acquaintances who all know each other. They seem to have found a number of witnesses, one of whom is Nicos Stephanou, who are aware of an advanced networking scheme that the feds suspect amounts to insider trading.
• What to Expect From Tuesday's Fed Minutes and Outlook Revision.
  

NY Times:

• J.Crew(JCG) Nears a Sale to Chairman and Buyout Firms. J. Crew, the trendy clothier of choice for the likes of Michelle Obama, is near a deal to sell itself for about $2.8 billion to the buyout firms TPG Capital and Leonard Green & Partners, people with direct knowledge of the matter told DealBook on Monday. Under the terms of the proposed deal, TPG — a former owner of the retailer — and Leonard Green would work with the company’s chairman and chief executive, Millard S. Drexler, these people said. The buyout firms are expected to pay about $43.75 a share, a 16 percent premium to Monday’s closing price of $37.65.

Rasmussen Reports:

• Two-Thirds Favor Cutting Federal Payroll by 10%. Sixty-six percent (66%) of voters nationwide favor a proposal to cut the federal payroll by 10% over the coming decade. A new Rasmussen Reports telephone survey found that just 22% are opposed and 12% are not sure.

Reuters:

• EU's Barnier Vows to Apply Bank Pay Curbs in Full. No member state will escape the European Union's stringent curbs on excessive bank pay, the bloc's financial services chief said on Monday.
• Best Buy(BBY) Sees Better Black Friday Sales. U.S. consumer electronics chain Best Buy Co Inc anticipates higher sales on "Black Friday," the kick-off to the all-important holiday selling season, a top executive said. The news boosted its shares by about 2 percent. "There is pent-up demand out there," Shari Ballard, executive vice president of Best Buy, told Reuters in an interview on Monday, adding that the retailer is planning for better holiday sales this year versus 2009. "We are actually enormously excited about the holidays," Ballard said, adding: "From a year perspective, it has been a little bit lumpy in terms of customer demand."
• BP's(BP) $20 Billion Compensation Fund Should be Enough - FT. A $20 billion fund for the economic victims of the BP Plc Gulf oil spill should be enough to compensate those affected, the Financial Times reported, citing the lawyer administering claims. Fund administrator Kenneth Feinberg, appointed by the Obama administration to handle the compensation, told the newspaper he had paid $2 billion to 125,000 people, but had approved fewer than half of the claims made. "Based on what I've seen so far I'm cautiously optimistic that $20 billion is more than enough," the newspaper quoted Feinberg as saying.
  
• Ireland Set for Nervy Two Weeks Until Budget Vote. Ireland begins two nervous weeks of political manoeuvring on Tuesday as the government dares the opposition to block an austerity budget on which a multi-billion euro EU/IMF bailout is riding. Irish Prime Minister Brian Cowen defied mounting pressure to quit on Monday, saying he would stay in office until parliament passed the budget, then call an early election.
• Analog Devices(ADI) Sees Revenue Growth Resuming in Q2. Microchip maker Analog Devices Inc forecast a sequential revenue drop in the first quarter, but expects growth to resume in the second quarter on helped by the industrial segment. "Typically second quarter is very strong for us. Usually the industrial business has its strongest sequential improvement in the second quarter," Chief Financial Officer Dave Zinsner told Reuters. Analogue Devices expects its industrial segment -- the company's biggest unit -- to "grow nicely" in 2011 and beyond, driven by growth in the Asian markets.
• Raided Hedge Funds Slammed by Departures, Outflows. The three hedge funds raided by U.S. authorities on Monday have faced investor outflows or seen some high profile staff departures in the past year.
• U.S. Truck Tonnage Up .8% in October - ATA. An index that tracks the tonnage hauled by U.S. trucks rose in October, its second gain in two months and a sign of a strengthening economy. The American Trucking Association's advance seasonally adjusted For-Hire Truck Tonnage Index rose 0.8 percent in October, after rising a revised 1.8 percent in September. Year-on-year, tonnage hauled climbed a seasonally adjusted 6 percent, well above the 5.3 percent gain in September. October tonnage levels were the highest in three months, even after seasonal changes were accounted for, according to the ATA. "This is a pleasant surprise. It shows the economy has legs, even if it's not strong yet," said Bob Costello, ATA's chief economist.

China Business News:

• Chinese banks still face "severe" risks because of the "difficult" global economic recovery and the "arduous" task of domestic structural adjustments, citing a circular that the China Banking Regulatory Commission issued to its local branches and banks.

Evening Recommendations
Susquehanna:

• Rated (TGT) Positive, target $67.
• Rated (WMT) Positive, target $66.
  

Night Trading

• Asian equity indices are -1.75% to -.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 103.50 +1.5 basis points.
  
• Asia Pacific Sovereign CDS Index 99.50 -.75 basis point.
  
• S&P 500 futures -.39%
  
• NASDAQ 100 futures -.30%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BWS)/.38
• (CPB)/.82
• (CBRL)/.92
• (PDCO)/.45
• (EV)/.39
• (MDT)/.81
• (DSW)/.75
• (GES)/.59
• (JCG)/.54
• (FRED)/.17
• (PPC)/.06
  

Economic Releases
8:30 am EST

• Preliminary 3Q GDP is estimated to rise +2.4% versus a prior estimate of a +2.0% gain.
• Preliminary 3Q Personal Consumption is estimated to rise +2.5% versus a prior estimate of a +2.6% gain.
• Preliminary 3Q GDP Price Index is estimated to rise +2.3% versus a prior estimate of a +2.3% increase.
• Preliminary Core PCE is estimated to rise +.8% versus a prior estimate of a +.8% gain.

10:00 am EST

• Existing Home Sales for October are estimated to fall to 4.48M versus 4.53M in September.

2:00 pm EST

• Release of Nov.2-3 FOMC minutes.

Upcoming Splits

• (MGA) 2-for-1
  

Other Potential Market Movers

• The Treasury's Geithner speaking, $35 Billion 5-Year Treasury Notes Auction, Richmond Fed Manufacturing Index, weekly retail sales reports, weekly ABC consumer confidence report, (JEC) analyst day, (PRE) investor day and the (SLF) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by real estate and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.