“Financial markets will find & exploit hidden flaws, particularly in untested new innovation — and do so at a time that will inflict the most damage to the most people” — Raymond F. DeVoe

1. White House outlines tax accord — President Obama announced yesterday evening a ‘framework’ agreement with Republicans that includes a two-year extension on Bush-era tax cuts, keeps the dividend and capital gains tax at 15%, temporarily cuts payroll and Social Security taxes, and extends unemployment benefits. However, despite earlier reports that the deal was ‘all but done,’ Democratic lawmakers object to parts of the plan and will discuss the matter today. The downside here is lost revenue to the government, which would total at least $450B in 2011 and could climb to $600B, depending on the strength of the economy over the next two years.
2. China may hike rates this weekend — The Chinese central bank may increase its interest rates this weekend to signal its shift to a “prudent” monetary policy amid rising inflationary pressures, a published Chinese media report said Tuesday. Chinese inflation figure is scheduled for release this Saturday.
3. US Delivers More Subpoenas in Insider Trading Probe — Federal authorities have expanded an investigation into insider trading on Wall Street, bringing to more than one dozen the number of subpoenas sent to hedge funds and other investment firms over the past two weeks, people familiar with the inquiry said.
4. China exports, imports surge in November — China’s exports jumped 34.9% in November from the year-ago period, accelerating from October’s 22.9% growth and surpassing the 22.4% increase expected by economists surveyed by Dow Jones Newswires. Imports grew at an even faster pace, 37.7%, ahead of October’s 25.3% increase and expectations for a 24.5% expansion.
China ups reserve requirements to cool inflation; The People’s Bank of China Friday raised lenders’ reserve requirement by half a percentage point in a move designed to take liquidity out of the banking system and cool inflationary pressures in the country. The hike is the sixth such increase in bank reserve requirements by the central bank this year. It takes effect on Dec. 20.
5. EU banks reportedly face further stress tests — The European Union will begin a fresh round of stress tests on its major banks in February, including an increased focus on the immediate access that lenders have to liquid assets, according to media reports. Olli Rehn, European commissioner for economic and monetary affairs, said late Tuesday that the next round of tests will be more rigorous and will include a liquidity assessment, rather than solely focusing on banks’ capital levels, according to the reports.
6. U.S. trade deficit narrows to $38.7 billion – — The U.S. trade deficit narrowed sharply in October, surprising economists and suggesting that the trade sector may make a positive contribution to growth in the fourth quarter for the first time since the final three months of 2009.

The week ahead — Economic data from Econoday.com:

“There are two kinds of people who lose money: those who know nothing and those who know everything” — Henry Kaufman

1. Europe OKs $112.53 billion Ireland bailout — European financial leaders on Sunday approved an 85-billion-euro, or $112.53 billion, aid package for debt-crisis-stricken Ireland.
2. Euro Crisis Spreads To Spain, Portugal, Italy As Yields Swell — The euro zone’s debt crisis worsened Tuesday, as yield spreads for Portugal, Spain, Italy and even Belgium widened amid mounting fears of defaults or even a breakup of the single-currency area. The euro hit a 10-week low, falling 1.43 cents to $1.2978. It tumbled nearly 10 cents in November. Shares of European banks, the biggest holders of euro zone debt, continued to sell off.
3. ECB extends liquidity, bond buys ‘ongoing’ — The European Central Bank will continue to provide as much short-term liquidity as euro-zone banks demand through at least the first quarter of next year, but ECB President Jean-Claude Trichet offered no hint Thursday on the size of additional purchases of troubled European sovereign bonds.
4. China Announces Shift to ‘Prudent’ Monetary Policy — China will switch to a prudent monetary policy from a moderately loose stance, the Communist Party’s top leaders decided on Friday, a change that could pave the way for more interest rate increases and lending controls, the state Xinhua news agency reported on Friday.
5. White House Offers $150 Billion Deal To Extend Tax Cuts — The White House has signaled its price for yielding to GOP demands to extend upper-income tax cuts: $150 billion to pay for a year of emergency jobless benefits and a batch of expiring tax credits.
6. Bullish Sentiment Rises, Still Below 50% — The latest poll from the American Association of Individual Investors (AAII) was released this morning and showed that bullish sentiment increased modestly to 49.66% from 47.4% last week. While a bullish sentiment level of 49.66% is on the high side, it’s still well off the multi-year high we saw in early November when the S&P 500 was trading at bull market highs.

The week ahead — Economic data from Econoday.com:

“It is not how right or how wrong you are that matters, but how much money you make when right and how much you do not lose when wrong” — George Soros

1. GDP rate revised to 2.5% — the economy grew at a 2.5% annualized pace in the quarter, revised up from the initial estimate of 2.0%, the government said in its second estimate of quarterly gross domestic product. Growth in gross domestic product was 1.7% during the second quarter.
2. North Korea fires rockets at South Korea — North Korea fired artillery rockets at the South Korean island of Yeonpyeong, killing two soldiers, and wounding 16 soldiers and three civilians.
3. Irish PM to dissolve government — Irish Prime Minister Brian Cowen said he would dissolve the government after the country passes its crucial 2011 budget in early December, paving the way for new elections that will almost certainly see Cowen voted out. The announcement came just a day after Ireland agreed to seek an estimated €80B ($110M) bailout from the EU and IMF, and adds the threat of political instability to the eurozone’s financial crisis.
4. S&P cuts Ireland’s sovereign credit rating — Standard & Poor’s Ratings Services late Tuesday cut its long-term sovereign credit rating on Ireland to A from AA-, and its short-term rating to A-1 from A-1+. The new ratings reflect the agency’s view that the Irish government appears likely to borrow “over and above” the agency’s previous projections to fund further bank capital injections into Ireland’s banking system.
5. Portugal passes budget, denies bailout talk — Portugal’s parliament passed its 2011 budget plan, as expected, adding to controversial austerity measures. The epicenter of Europe’s sovereign-debt crisis shifted from Ireland to the Iberian peninsula on Friday, with European Union, Portuguese and Spanish officials scrambling to head off speculation that Lisbon or Madrid could soon be forced to seek help to meet their borrowing needs.

The week ahead — Economic data from Econoday.com:

1. GM sees high demand in IPO — General Motors (GM) priced its initial public offering at $33 and sold around 478M common shares as well as $4.35B in preferred shares; if underwriters exercise options to cover overallotment, GM’s IPO could reach $18.1B, the second-largest in U.S. history.
2. Irish bail-out talks begin — talks between the Irish government and EU and IMF officials are set to begin today over Ireland’s troubled banks and the possible need for an aid package.
3. Fed orders new stress tests — the Federal Reserve plans to do another round of stress tests on top U.S. banks, and requested the top 19 banks submit capital plans by early next year showing their ability to withstand losses under ‘adverse’ circumstances.
4. China lifts banks’ reserve requirements 0.5% — The People’s Bank of China announced late Friday it will raise the reserve requirement ratio for banks by 0.5%, as the nation steps up efforts to combat inflationary pressures. The move marks the third such liquidity-draining hike since September.
5. Bullish Sentiment Sees Largest Drop in Nearly Two Years — weekly survey of bullish sentiment from the American Association of Individual Investors (AAII) at its lowest point since early September when the S&P 500 was struggling to get over 1,100. This is a drastic change from last week ‘shigh of 57.6% .
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The week ahead — Economic data from Econoday.com:

1. Fed details bond buying schedule — the Federal Reserve announced its tentative Permanent Open Market Operations schedule, consisting of around $105B in government bond purchases over the next month.
2. Moody’s upgrades China — Moody’s upgraded China’s sovereign debt rating this morning to Aa3 from A1 and maintained a positive outlook.
3. Ireland on the brink as budget crunch looms — after promising a 15 billion euro ($20.7 billion) austerity package of spending cuts and tax hikes, Ireland’s government may be facing its last chance to avoid a bailout by persuading markets that the country can repay its debts.
4. Portugal, Ireland, Spain CDS spreads hit records — fears surrounding sovereign-debt problems on the periphery of the euro zone drove the cost of protecting the debt of Ireland, Portugal and Spain to record highs on Thursday, according to data provider Markit. The spread on five-year Portuguese credit-default swaps widened to 505 basis points from around 491 on Wednesday, topping the 500-level for the first time.

Interesting video from a well-respected Fund manager Jeremy Grantham regarding stocks valuation — from CNBC.

The week ahead — Economic data from Econoday.com:

1. Australia’s unexpected rate hike — the Reserve Bank of Australia unexpectedly raised its benchmark interest rate by a quarter percentage point to 4.75%, strengthening its currency toward parity with the U.S. dollar.
2. India also raised its benchmark rates — The Reserve Bank of India raised the repurchase rate by 25 bps to 6.25%, and raised the reverse repurchase rate by a similar margin to 5.25%. It’s India’s sixth rate hike this year as the country tries to pull inflation under control.
3. Mortgage insurer Ambac may declare bankruptcy by the end of the year — the bond insurer decided to skip an interest payment on senior notes due in 2023.
4. Republicans win House, Democrats keep Senate — The Republican Party took control of the House of Representatives in Tuesday’s election, but Democrats narrowly clung to a majority in the Senate.
5. FOMC rolls out QE2 — the Fed launched a second round of quantitative easing via $600B in purchases of longer-term Treasurys by the end of June, at the rate of around $75B/month. Continued POMO reinvestments could total $250B-300B during the same period, and the Fed reserved the right to take more action if growth and inflation don’t pick up.
6. GM files for IPO — General Motors filed its long-awaited IPO, and will offer 365M shares at $26-29 each. The move will cut the Treasury’s stake in the carmaker to 43% from 61%. GM also plans to sell around $3B of preferred shares that would convert to common shares under mandatory provision.
7. New chief for Fannie, Freddie — Spencer Bachus, the Republican expected to take over chairmanship of the House Financial Services Committee, said yesterday that mortgage giants Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) should be in liquidation, not conservatorship.

The week ahead — Economic data from Econoday.com:

“The crowd is most enthusiastic and optimistic when it should be cautious and prudent; and is most fearful when it should be bold.” Humphrey Bancroft Neill

1. U.K. GDP grows twice as fast as expected — Britain’s economy grew twice as fast as economists had expected in Q3, posting 0.8% growth on the back of a sustained recovery in services and construction.
2. Q3 Earnings Season Statistics — courtesy from Bespoke Investment Group, below are charts highlighting the current and historical earnings season “beat rate,” which is the percentage of companies that beat earnings per share estimates. The first chart shows how the beat rate has progressed since the third quarter reporting period started on October 7th. The beat rate moved above 70% last Friday, hit a high of 76.6% yesterday, and dropped to 74.1% after all of this morning’s numbers came out.

The second chart highlights the quarterly earnings beat rate going back to 1999.

3. New 52-Week Highs by Sector — another article from Bespoke Investment Group highlights the new 52-Week Highs broken down by Sector.

4. Foreclosure ‘epidemic’ spreads — the foreclosure crisis is intensifying across a majority of large U.S. metropolitan areas, according to a report by RealtyTrac. Though California, Nevada, Florida and Arizona are still the states hardest-hit by foreclosures, cities like Chicago and Seattle saw a sharp increase in foreclosure warnings this summer. RealtyTrac’s Rick Sharga characterized the trend by saying “the epidemic is spreading from the states at the ground zero of the foreclosure problems out into areas that hadn’t been previously affected.”
5. BoJ holds rate steady — the Bank of Japan held its key overnight call rate unchanged, as expected, and cut its growth outlook. Economic growth for the fiscal year through March 2011 is now expected to come in at +2.1%, down from the +2.6% forecast issued three months ago. The bank also moved its next policy meeting to Nov. 4-5 from a previously scheduled Nov. 15-16, setting up the meeting to immediately follow an expected QE2 announcement from the U.S. Fed on Nov. 3.
6. Bullish Sentiment Hits 2.5 Year High — The latest AAII sentiment survey showed a 2.5 year high in bullish sentiment at 51.6%. This is the highest reading since May 8th, 2008 and just shy of the all-time high in the S&P 500.

The week ahead — Economic data from Econoday.com:

1. China Hikes Rates To Quell Inflation — China unexpectedly hiked its key lending rate by a quarter-point overnight, giving a clear signal that inflation has replaced economic growth as Beijing’s top concern.

2. China’s growth cools in 3Q — China’s economy grew 9.6% in Q3, the slowest pace in a year and roughly in-line with expectations. Following this week’s surprise rate hike and the moderation of China’s slowdown.
3. Germany sees higher growth — Germany revised higher its estimate for 2010 economic growth, forecasting the country’s GDP will expand 3.4% this year but slow to +1.8% in 2011.
4. Bullish Sentiment Nears 50% — today’s release of weekly sentiment figures from the American Association of Individual Investors (AAII) showed that bullish sentiment rose close to 50%, which is the highest level since early September. Prior to that, you have to go all the way back to the Summer of 2009 to find a bullish reading as high as it is now.

The week ahead — Economic data:

1. Optimism Rises Ahead Of Nov. Election — Consumer confidence hit a five-month high in early October and the six-month outlook shot up ahead of next month’s midterm elections, according to the IBD/TIPP Economic Optimism Index released Tuesday. The overall sentiment gauge rose 1.1 points to 46.4 as optimism rose among Republicans, who expect to make significant gains in the Nov. 2 polls.

2. FOMC suggests QE2 coming soon — The FOMC minutes, released yesterday, supported market speculation that a second round of quantitative easing will be coming soon, as “several” officials said the Fed would need to act soon unless inflation moves back towards a more consistent level. As expected, the committee cut its growth expectations for the rest of this year and next.
3. Consumer sentiment edges lower in October — The preliminary Reuters-University of Michigan consumer sentiment index edged lower in October, falling to 67.9. Economists polled by MarketWatch expected the index to rise to 69.8 in October from 68.2 last month.
4. U.S. retail sales rise 0.6% in September — Monthly increase is third in a row; August sales revised higher. Excluding motor vehicles, retail sales improved by 0.4% in September. August sales minus autos were also revised higher — up 1.0% from the 0.6% increase originally reported.
5. Foreclosure crisis catches up to bank stocks — all the renewed talk about the foreclosure crisis has finally taken a toll on banks’ shares, with U.S. financial stocks posting notable losses yesterday while the broader market was essentially flat. Bank bonds fell and banks’ credit-default swaps widened.
6. Bullish Sentiment Reaching Exuberant Levels — The latest AAII bullish reading came in at 47.1% – a slight decline from last week, however, still well above the historical average.

The week ahead — Economic data from Econoday.com:

1. Bank of Japan cuts interest rate to near zero — the Bank of Japan surprisingly announced a $418 billion monetary easing program while cutting interest rates to virtually zero.
2. Q3 Profits Expected To Rise 24% — Alcoa provided a strong unofficial kickoff to earnings season late Thursday, reporting Q3 profit that more than doubled vs. a year earlier, beating views.

3. Retailers reported stronger-than-expected September sales Thursday, buoyed by a late surge in back-to-school buying.
4. Japan open to further forex intervention — Japanese Finance Minister Yoshihiko Noda said last month’s intervention in currency markets wasn’t a sign that Japan is prepared to conduct large-scale interventions to guide the yen to a specific level. However, he kept the door open to “firm measures, including intervention, when needed.”
5. Moody’s considers China upgrade — Moody’s said this morning it may upgrade its A1 rating on Chinese government debt, citing the nation’s growth outlook, the “determined and effective” stimulus program enacted during the financial crisis, and the “likely containment” of risks associated with 2009’s credit expansion.

The week ahead — Economic data from Econoday.com: