Monday Watch

Weekend Headlines
Bloomberg:

- Investors outside the US are purchasing companies in the S&P 500 Index as the cheapest valuations on record, their buying power boosted by a seven-month decline in the dollar. The S&P 500 is priced at 19.9 times earnings, the biggest discount to the MSCI World Index of 23 developed countries since May 2003, according to monthly data compiled by Bloomberg. For euro-based money managers, currency translations push the cost of U.S. stocks down to 13.6 times profits, the lowest level ever relative to global equities and a discount that dollar-based investors have never enjoyed, data compiled by Bloomberg show. The last time US stocks were this inexpensive, in 2003, the S&P 500 began a four-year, 62% advance.

- Wondering what the next bubble might be? How about a merger boom? All the signs are that the global capital markets are gearing up for the next big thing: a wave of mergers and takeover bids.

- Senator John McCain, the top Republican on the Armed Services Committee, said it will take at least 40,000 additional U.S. troops to win in Afghanistan and cautioned the Obama administration against a “half-measure.” “The great danger now is not an American pullout,” McCain, who was his party’s 2008 presidential nominee, said on CNN’s “State of the Union” program today. “The great danger is a half-measure” that tries to “please all ends of the political spectrum.”

- CVS Caremark Corp.(CVS) and Walgreen Co.(WAG), the two largest U.S. drugstore chains, are experiencing spot shortages of seasonal-flu vaccines because of increased demand. CVS MinuteClinics in Austin, Texas, and New York ran out of the seasonal-flu vaccine within the past week before restocking, according to calls to 13 stores by Bloomberg News. Calls to eight Walgreen stores in Manhattan on Oct. 5 determined none had it at the time. There are also shortages in the South and Southeast, said James Cohn, a Walgreen spokesman.

- California Governor Arnold Schwarzenegger will know within a month whether a $1.1 billion drop in revenue collections is part of a growing budget shortfall or an isolated event, his budget spokesman said. Revenue in the three months ended Sept. 30 was 5.3 percent less than assumed in the $85 billion annual budget, state controller John Chiang reported yesterday. Income tax receipts led the gap, as unemployment reached 12.2 percent in August. “The culprit here appears to be estimated quarterly personal income tax statements,” H.D. Palmer, the governor’s budget spokesman, said yesterday.

- President Barack Obama risks triggering violence unless he follows through on his promises to promote Middle East peace, according to Prince Turki al-Faisal, a former Saudi ambassador to the U.S. Obama’s Nobel Peace Prize awarded two days ago is a call on the U.S. president to step up efforts to facilitate a peace agreement between the Israelis and the Arabs by pressing Israel to make compromises, Turki, 64, said in an interview yesterday in Riyadh. “I hope that by the end of his term, he will have come to deserve it.”

- The average price of regular gasoline at U.S. filling stations slipped to $2.48 a gallon as inventories of gasoline and distillate fuel increased. Gasoline lost 4.5 cents in the two weeks ended Oct. 9, according to a survey of 5,000 filling stations nationwide by Trilby Lundberg, an independent gasoline analyst in Camarillo, California. Motor-fuel inventories in the week ended Oct. 2 increased 1.4 percent to 214.4 million barrels, the highest since July 17, the Energy Department said Oct. 7. Production rose 3.5 percent to the highest since August 2008. Imports averaged 1.01 million barrels a day. Prices tumbled 6.3 percent in the past 9 weeks and may have farther to fall as foreign refiners shift excess gasoline supplies to U.S. ports and the end of daylight savings in the U.S. next month heralds another dip in demand, Lundberg said. “It’s a bleak gasoline market,” she said. Stockpiles of distillates, including heating oil and diesel, rose 679,000 barrels to 171.8 million last week. Supplies are the highest since Jan. 14, 1983, and 30 percent above the five-year average for the period. Demand over the past four weeks was 9.5 percent below a year earlier.

Wall Street Journal:

- Now may be the short-lived sweet spot for investing in initial public offerings. IPOs last week had their biggest haul of the year, with more than $10 billion raised, accounting for more than half of 2009's $18 billion total. This past week's multibillion-dollar deals for Banco Santander Brasil SA, the world's largest public offering this year, and Verisk Analytics Inc. will be followed this year by IPOs for Hyatt Corp., Dollar General Corp. and Dole Food Co. Because companies that go public in hard economic times tend to be a relatively strong bunch, the 2009 field has a good chance of doing well over the long-term. "This year, you get the best and the brightest," says Bill Buhr, IPO strategist at research firm Morningstar Inc.

- USA Today, long the country's largest newspaper by weekday circulation, said Friday it had experienced a circulation decline, which is likely to knock it down to No. 2 when the next audited circulation figures are released on Oct. 26. The Wall Street Journal, owned by News Corp., has recently been the nation's second-largest newspaper by circulation. Last year it reported circulation of just over two million weekday copies, based on the average for the six-month period ended September 2008. After USA Today's memo, the Journal said it is now the largest U.S. newspaper by weekday circulation.

- Some hedge-fund managers are getting their heads above high water. For many managers, trying to recapture so-called high-water marks, or the hurdle that money-losing funds must clear to resume collecting performance fees, was a major concern after a tough 2008.

- Chinese leaders are concerned that their nation's enormous economic expansion is becoming an excuse for foreign suppliers to inflate commodity costs. So, they hope to use their three futures exchanges to fight back.Government officials say the country is positioning its futures markets to be major players in setting world prices for metal, energy and farm commodities. By letting the world know how much its companies and investors think goods are worth, China hopes to be less at the mercy of markets elsewhere.

MarketWatch.com:

- U.S. banks are reducing their lending at the fastest rate on record, tightening the credit squeeze and threatening to leave many otherwise viable businesses unable to borrow money to expand their businesses, meet their payroll or refinance their maturing debts. According to weekly figures provided by the Federal Reserve, total loans at commercial banks have fallen at a 19% annual rate over the past three months, while loans to businesses have dropped at a 28% annualized pace.

- Congress could be receptive to President Barack Obama's pledge to end a 16-year-old policy banning gay people from serving openly in the military, a top Democratic lawmaker said. The Pentagon also signaled openness to a change. Speaking at a human-rights dinner in Washington Saturday, Mr. Obama pledged to end the "don't ask, don't tell" policy, which allows homosexuals to serve in the military as long as they don't disclose their sexual orientation or act on it. The president, who made a similar pledge during the campaign, didn't provide a timetable for reversing the policy.

- Intel Corp.(INTC) and Advanced Micro Devices(AMD) will kick off the technology earnings season next week as more signs point to a chip industry that is emerging from one of the most severe downturns in its history.

- Alarmed by the rising jobless rate, Democrats are scrambling to "do something" to create jobs. You may have thought that was supposed to be the point of February's $780 billion stimulus plan, and indeed it was. White House economists Christina Romer and Jared Bernstein estimated at the time that the spending blowout would keep the jobless rate below 8%.

CNBC.com:
- If you’re planning to put your home on the market, it’s not your manners that need polishing. Try your silver, among other improvements. Now, more than ever, getting a signed contract in hand is all about price and quality. Here's a few tips to selling your house in a tough market.

- There may not be as much slack in the U.S. economy as many forecasters believe, which means medium-term inflation risks could be higher, a Federal Reserve official said on Sunday. In excerpts of remarks prepared for delivery at an economics conference, St. Louis Federal Reserve President James Bullard said it was hard to accurately measure the gap between what the economy is producing and its full potential.

NY Times:

- A new technique that tapped previously inaccessible supplies of natural gas in the United States is spreading to the rest of the world, raising hopes of a huge expansion in global reserves of the cleanest fossil fuel.

- Mullah Omar leads an insurgency that has gained steady ground in much of Afghanistan against much better equipped American and NATO forces. Far from a historical footnote, he represents a vexing security challenge for the Obama administration, one that has consumed the president’s advisers, divided Democrats and left many Americans frustrated. “This is an amazing story,” said Bruce Riedel, a former Central Intelligence Agency officer who coordinated the Obama administration’s initial review of AfghanistanAfghanistan will never again become a haven for Al Qaeda? policy in the spring. “He’s a semiliterate individual who has met with no more than a handful of non-Muslims in his entire life. And he’s staged one of the most remarkable military comebacks in modern history.” American officials are weighing the significance of this comeback: Is Mullah Omar the brains behind shrewd shifts of Taliban tactics and propaganda in recent years, or does he have help from Pakistani intelligence? Might the Taliban be amenable to negotiations, as Mullah Omar hinted in a Sept. 19 statement, or can his network be divided and weakened in some other way?

The Business Insider:
- The Sign That Tells You Everything You Need To Know About Healthcare Regulation:

- An analyst at credit rating firm Standard & Poor's says Dubai has "insufficient" funds to pay back billions of dollars worth of debt coming due, putting added pressure on the city-state to raise additional cash. Farouk Soussa, S&P's head of Middle East government ratings, said Sunday that the sheikdom has about $4 billion left from a February bond issue, but must find a way to cover as much as $50 billion over the next three years. He says "the notion that the government will be able and/or willing to stand 100 percent by all that debt on an equal basis is wrong."

NY Post:

- The US Attorney's office appears to have the smoking gun that may be the first of a long line of prosecutions resulting from the financial crash of last year. Sources tell The Post the most damning evidence against Bear Stearns' hedge fund managers Ralph Cioffi and Matthew Tannin appears in an e-mail message from Tannin to Cioffi, which states: "The entire subprime market is toast, there is simply no way for us to make money -- ever." By contrast, the two hedgers held an investor conference call soon after and told investors "We're comfortable with exactly where we are."

CNNMoney.com:

- 50 Best Jobs in America.

Business Week:
- Mobile commerce is gaining momentum as consumers get comfortable with ordering all sorts of products by cell phone and companies such as Papa John's watch sales climb.

NJ.com:

- Gov. Jon Corzine has never been burdened by self-doubt, second thoughts or a lack of confidence. It's what fueled his rise, associates say, to the pinnacle of Wall Street and then to the top spot in New Jersey politics. But those same associates say it's also at the heart of Corzine's difficulties in trying to win a second term. He is a leader who trusts his gut -- yet seems to lack an instinct for self-preservation.

LA Times:

- The founder of Vizio envisions a wide-screen, flat-panel TV in every home.

San Francisco Chronicle:

- Michael Hasenstab, manager of the Templeton Global Bond Fund, shares his insights. We are looking for the dollar to depreciate, but not necessarily against the major currencies. Europe has a banking sector that is arguably in worse shape (than ours). Europe has also been printing money and the recovery in Europe is likely to be even slower than in the United States. Japan is facing a similar situation. Longer-term we are negative on the yen and neutral on the euro and British pound.

Politico:

- It's been conventional wisdom forever that health care reform’s brass tacks will be decided in conference committee, where Senate and House negotiators reconcile each chamber's version into one bill. But what if reform could skip conference on the way to the president’s desk? It wasn't a question I’d considered until a former House and Senate leadership aide sent an email sketching out another route to passage. Instead of introducing a Senate bill, Majority Leader Reid could insert the merged health care reform language into a revenue raising House bill already languishing in conference committee. The Senate would pass it and send it to the House whereupon passage, it would go straight to the president’s desk – completely bypassing conference. Do not pass go, do not collect $200. By cutting out conference, this single-bullet scenario eliminates weeks of expected wrangling and would make it possible to pass a bill by the Thanksgiving target so many Democrats are aiming for. The single-bullet scenario raises other questions, namely would the House pass a bill ordered up by the Senate. Maybe, if it has a public option. Long left for dead in the Senate, the public option made a comeback this week with consensus building around a national public option that states could opt out of. And Obama aides are reportedly meeting with senior Democratic staff to discuss how to include a public plan in the bill Reid will bring to the floor. The other factor making the single-bullet scenario a viable alternative, there is currently a House bill in conference that could be used as the vehicle for Reid’s health reform bill.

- Look for this on the Hill as early as Monday: A report commissioned by America's Health Insurance Plans alleging that the Senate Finance Committee legislation would cause health care costs to go up faster than under the current system. The report, which was conducted by PricewaterhouseCoopers, has caused some buzz among Hill GOP aides. It was described to Pulse by a person familiar with the findings. The report will drop ahead of a crucial vote on the bill Tuesday in the Finance Committee, and could figure into the discussion there.

Rasmussen Reports:

- Americans are much more skeptical of the motivation behind the awarding of the prestigious international Nobel Prizes following President Obama's win Friday of the Noble PeaceA new Rasmussen Reports national telephone survey finds that 58% of American adults now believe that politics plays a role in the awarding of the Nobel Prize. That's an 18-point jump from 40% a year ago. Just 21% of Americans say politics does not play a role in the awarding of the Nobel Prize.

Gigaom:

- The New eBay(EBAY): Bland, But Thriving.

ocregister:

- The chief economist for the California Association of Realtors, has forecast that California home prices will rise for the first time in three years in 2010, but that home sales will decrease slightly. The annual CAR forecast projects that the median house price will increase 3.3% to an annual average of $280,000. But CAR projects that sales will decline 2.3% next year.

USAToday:

- About $270 million in federal stimulus money awarded by the Federal Aviation Administration has gone to more than 90 airport projects that received low-priority ratings by the FAA, according to data by Subsidyscope, an initiative of The Pew Charitable Trusts. The funds make up about a quarter of the $1.1 billion the FAA has granted to airports for shovel-ready projects from March through September this year.

Reuters:

- Billionaire George Soros said on Saturday that he would invest $1 billion in clean energy technology as part of an effort to combat climate change. The Hungarian-born U.S. investor also announced he would form and fund a new climate policy initiative with $10 million a year for 10 years. "Global warming is a political problem," Soros told a meeting of editors in the Danish capital where governments are scheduled to meet in December to try to hammer out a new global climate agreement to replace the 1997 Kyoto Protocol.

- The U.S. economy likely grew at its strongest rate in two years during the third quarter, rebounding from a steep downturn that began in December 2007, according to survey of top economists released on Saturday. Private economists polled October 5-6 for the Blue Chip Economic Indicators October survey said gross domestic product grew at an annualized rate of 3.2 percent in the quarter, up 0.2 percentage point from what they estimated a month earlier.

- Private equity firm Blackstone Group LP is planning to list up to eight companies it owns and sell at least five others, the Financial Times said on Monday. The FT said the move by Blackstone, the world's largest buyout firm, marked a reversal of its pessimistic view of the global economy and financial markets. The newspaper quoted Blackstone founder Steve Schwarzman as telling investors in a letter sent on Friday that the firm saw the world changing once again: "At least for private equity, the worst is behind the industry," it quoted him as saying.

- China's Baoshan Iron and Steel Co Ltd (Baosteel) has cut prices for its major steel products by 9-13 percent for November sales versus the October tag, industry consultancy Umetal said on Saturday.

Financial Times:

- Oil groups will meet Nigerian officials this week for crunch talks on an overhaul of sub-Saharan Africa’s biggest energy industry, in the wake of a Chinese company’s bid for stakes in prime fields. Royal Dutch Shell, Chevron, ExxonMobil and others hope to persuade the government to ease tough new terms in draft legislation. They are also locked in negotiations over leases to oil fields they have held for 40 years, with the government asking for billions of dollars to renew them.

- Pressure from institutional investors is starting to build on Bank of America’s(BAC) board to name an outsider to replace Ken Lewis, who retires as chief executive at the end of the year. Three institutional investors have urged BofA to look beyond internal candidates, according to people familiar with the matter. Two insiders – retail banking chief Brian Moynihan and chief risk officer Greg Curl – have been tipped as the lead candidates among BofA executives. However, individual board members also have expressed interest in two former BofA chief financial officers, Jim Hance and Al de Molina, people familiar with the matter said.

- More poor economic data have put Washington in a nearly impossible fiscal position. The US economy requires more stimulus than provided by the original package passed in March. But the dismal deficit outlook poses a huge longer-term threat. Indeed, it is just a matter of time before global financial markets reject this fiscal trajectory. That could lead to a punishing dollar crisis. To avoid it, America’s leaders should commit now and in detail to implement deficit reduction once the economy has strengthened. Vague promises will not work. America’s fiscal dilemma is unprecedented because the short-term need differs so dramatically from the long-term one. Today, all the data are signaling weakness. Consumer spending, which represents 70 per cent of gross domestic product, and employment are especially downbeat. Joblessness, having hit a 26-year high, will not improve much through 2010. That puts pressure on consumers. The pace of recovery, therefore, will be painfully slow.

- The storm that swept through the hedge fund universe with the collapse of Lehman Brothers in September 2008 may have mostly blown over, but not without an aftermath. Faced with mounting redemptions and drooping portfolios, some hedge funds suspended valuations while others froze redemptions or staggered withdrawals over time. A few funds implemented simpler measures like prolonging notice periods. Portfolios were also revamped via “side pockets”, special purpose vehicles and the like. Much of the industry’s discussion so far has centered around whether these “restructuring” methods were a legitimate tool or a ploy to hold assets and collect fees. Karim Leguel, investment chief of Swiss advisory firm Rasini & Co in New York, says equity funds definitely did the wrong thing by slamming their doors and straying from their mandate of liquidity. Global macro funds are in the same camp because they offered attractive liquidity and should have managed their portfolio accordingly. Multi-strategy funds, in his view, have fared the worst since they moved a significant portion of their books into less liquid trades where their exit was dependent on other hedge funds or leveraged structures. However, for most funds, restructuring was not a choice but a necessity, says independent fund director Don Seymour of DMS Management of the Cayman Islands. Following Lehman’s collapse, the market had come to a complete standstill and no one could sell anything at any price, notwithstanding the quality of the asset. So when investors began redeeming, “as a practical matter, that couldn’t be achieved”, Mr Seymour says. Yet, pinning the liquidity woes on Lehman alone would be overly simplistic, some industry practitioners say. For one thing, numerous funds were offering better liquidity terms than their portfolios could support. Their investments, meanwhile, were becoming increasingly esoteric and private equity-like, altering the balance between assets and liabilities. Additionally, the severity of the market crisis caught some managers and investors off guard. Valuations became tricky as managers struggled to assess what their assets were worth. Some investors became concerned with the timing when markdowns were booked. Some reckon that managers collected higher fees by delaying the timing of asset haircuts. The market recovery of 2009 has helped many hedge funds turn a corner. Since May, many funds have largely wrapped up the restructuring and freed up more cash than they previously expected.

Telegraph:

- Goldman Sachs(GS) is set to unveil huge profits this week, putting the Wall Street bank on track to award as much as $22bn (£13.7bn) in pay and bonuses at the end of the year.

Toronto Star:

- GUANTANAMO BAY, CUBA–An apparent snub by the Canadian government has dismayed officials on the Obama administration's task force who are working to resettle dozens of detainees here and close the prison, a high-ranking administration source told the Star. The official, who has intimate knowledge of the negotiations and who spoke to the Star on the condition he not be named, said Canada abruptly stopped talks earlier this year. He said the task force was surprised to learn of Canada's decision through a press release. "I just found it puzzling," there were no phone calls or diplomatic meetings, the official said. "A public rejection was odd." Toronto-born Omar Khadr, accused by the Pentagon of throwing a grenade that killed a U.S. soldier in Afghanistan in 2002, is the only Western detainee left in Guantanamo. He appeared at a hearing here Wednesday alongside two new Washington attorneys. U.S. prosecutor John Murphy said Khadr's fate – whether he will be tried by a military commission or before a Washington civilian court – would be announced within the next six weeks.

Globe and Mail:

- Idled drilling rigs in Alberta. Half-empty planes. Hundreds of anchored cargo ships. As Canada's economy pulls out of the recession, it is hardly full steam ahead. A troubling gap between supply and demand is keeping the recovery at bay.

Weekend Recommendations
Barron's:
- Made positive comments on (GS), (EBAY), (NYX), (F), (MHP), (AN), (GPI) and (AES).

- Made negative comments on (X) and (ENR).

Night Trading
Asian indices are -.25% to +.50% on avg.

Asia Ex-Japan Inv Grade CDS Index 106.0 +2.50 basis points.
S&P 500 futures -.03%.
NASDAQ 100 futures -.06%.

Morning Preview
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MarketWatch News Viewer

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MarketWatch Pre-market Commentary

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TradeTheNews Morning Report

Briefing.com In Play

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Who’s Speaking?
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Politico Headlines
Rasmussen Reports Polling

Earnings of Note
Company/Estimate
- (FAST)/.33

Upcoming Splits

- None of note

Economic Releases

- None of note

Other Potential Market Movers
- The White House’s Summers speaking, Treasury’s Krueger speaking and the (NVE) investor meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial stocks 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 week.