Thursday Watch

Late-Night Headlines
Bloomberg:

- The House Agriculture Committee today approved a provision that would restrict the Commodity Futures Trading Commission’s power to set position limits for derivatives dealers. The amendment was approved by voice vote during debate over a broader measure to regulate over-the-counter derivatives. The provision would require the CFTC to develop position limits for “all economically equivalent contracts on all trading venues concurrently” and to impose those limits “with the intention to mitigate” the loss of trading on U.S. exchanges.

- Iran said it is ready to accept a deal under which Russia would supply it with enriched uranium for a research reactor, improving the prospects for broader talks aimed at allaying Western concerns that the Persian GulfIran, the U.S., France and Russia on providing Iran with the fuel for the Tehran reactor during talks today in Vienna. Iran said Oct. 19 it would begin work to increase the level of enrichment in its uranium program to produce fuel for the reactor unless other countries supplied it with the material. Iran currently produces low-enriched uranium, which it says is needed for power plants, while the U.S. and some allies say it is working to make highly enriched uranium for a bomb. country seeks an atomic bomb. The United Nations nuclear agency circulated a compromise between

- A successful recovery for General Motors Co. and Chrysler Group LLC is “far from assured” and will take time, the former head of the federal government’s auto task force said. The comments by Steven Rattner today may add pressure on GM and Chrysler to redouble restructuring efforts after the companies emerged from bankruptcy. For GM, “the over-arching question mark is whether without an infusion of new blood its management team can implement the massive cultural change that is needed,” Rattner said. Chrysler’s biggest challenge is its need to regenerate its product lineup and manage a “significantly leveraged” balance sheet, he said. Rattner’s speech follows a first-person account posted on Fortune magazine’s Web site today in which he says he “was shocked by the stunningly poor management that we found, particularly at GM,” when the U.S. bailed out the automakers. Former GM Chief Executive Rick Wagoner “set a tone of friendly arrogance that seemed to permeate the organization.”

- General Electric Co.(GE), the world’s biggest maker of medical imaging equipment, will enter more joint ventures and buy more stakes in life-science, diagnostics and health-care information technology companies, Chief Executive Officer Jeffrey Immelt said. Forming ventures doesn’t preclude doing “big deals” in the industry, Immelt said in an interview in New York following a presentation on the Fairfield, Connecticut-based company’s “Healthymagination” initiative announced in May.

- Repeat after me: Goldman Sachs(GS) is not too big to fail. Goldman Sachs is not too big to fail. Goldman Sachs is not too big to fail. Are you laughing yet? This might be funny, except that Goldman Sachs Group Inc. wants us to believe it’s true.

- Gold sales in India, the world’s biggest consumer, have been “poor” over the holiday season amid record prices, according to Anjani Sinha, president of the Indian Bullion Market Association.

- The dollar rebounded from a 14-month low against the euro after China’s third-quarter production figures disappointed some investors, paring demand for riskier assets.

Wall Street Journal:

- Federal authorities charged a Massachusetts pharmacy-school graduate with participating in conspiracies to attack a U.S. shopping mall and assassinate federal officials. The 27-year-old suspect, Tarek Mehanna, was arrested at his family's home in Sudbury, Mass., early Wednesday. Michael Loucks, the acting U.S. attorney in Boston, said the mall plot was abandoned because the conspirators couldn't obtain automatic weapons. Mr. Mehanna, a dual U.S.-Egyptian citizen who received a doctorate from the Massachusetts College of Pharmacy and Health Sciences last year, was first arrested last November and charged in January for allegedly lying to the Federal Bureau of Investigation about the whereabouts of Daniel Maldonado. Mr. Maldonado is a former New Hampshire man now serving a 10-year prison sentence in the U.S. for training with terrorists in Somalia to overthrow the Somali government.

- Apple’s(AAPL) New iMac, MacBook Grow Better, Brighter by Walt Mossberg.

- Struggling dairy farmers will receive a $350 million infusion of cash from the government, but some worry the additional aid won't be enough to pull them through the dairy industry's worst economic storm in three decades. President Barack Obama on Wednesday signed legislation granting the emergency aid to farmers, who are facing a price-depressing glut of milk combined with a slowdown in exports. Milk prices have dropped to about $11 for every hundred pounds of milk this year, down from $19 last year. While consumers have benefited some in the form of lower retail milk prices, many dairy farmers are flailing. Farmers have already sent to slaughter hundreds of thousands of cows in the hope that removing the animals from the market would reduce milk supply and boost prices. The dairy aid was included in an agriculture appropriations bill, under an amendment sponsored by Sen. Bernard Sanders, a Vermont independent. Of the $350 million, $60 million will be used to purchase cheese and other dairy products for food banks and nutrition programs.

- Facebook Inc. plans to expand the sorts of goods users can buy with its virtual currency to include music and other virtual gifts, according to people familiar with the matter.

- Breaking up is hard to do. But it could help form a much sounder banking system. One of the biggest political and economic questions of our time is what to do with banks that are too big to fail. Bank of England governor Mervyn King created a stir this week by giving support to the idea of separating banks from their riskier securities businesses. President Obama's economic adviser Paul Volcker has advocated keeping insured banks out of risky activities. So far, the Obama administration has shown no sign of taking up this idea in its financial-overhaul proposals. But as those proposals appear to stall, it may be time to take the separation idea seriously. After all, quarterly bank earnings released in recent days highlighted how dependent lenders are on securities operations, at least now. J.P. Morgan Chase's investment bank accounted for nearly 60% of the bank's total profits in the first nine months of the year. Given their volatility, profits in securities businesses could just as easily turn into losses, which would present problems for an entire bank. So while the government right now backs traditional banking operations through deposit insurance, it effectively stands behind the securities activities as well. Dispensing with the investment bank removes that risk.

- Embattled hedge-fund giant Galleon Group will close, collapsing amid an insider-trading case that investigators say had its roots in a 2005 job search by a California hedge-fund manager facing a financial squeeze. In a letter to employees and investors Wednesday, Galleon co-founder Raj Rajaratnam said the firm, bombarded with withdrawal requests from investors, will "conduct an orderly wind down" of its funds as it explores "various alternatives for our business." Mr. Rajaratnam is free on $100 million bail as he fights criminal securities-fraud charges and civil charges of insider trading. The informant who touched off the insider-trading case is identified by a Securities and Exchange Commission complaint as "Tipper A" and by prosecutors as "CW," for cooperating witness. According to people familiar with the matter, the informant is Roomy Khan, a hedge-fund manager who briefly worked for Galleon in the late 1990s. The informant sought to rejoin Mr. Rajaratnam in late 2005 when facing financial difficulties, according to the SEC complaint. Mr. Rajaratnam asked if the applicant had inside information about any public companies, the complaint alleges, adding that she said she could get access to inside information regarding Polycom Inc., a San Jose, Calif., maker of audio and data-conferencing products. Investigators say the informant and Mr. Rajaratnam both traded shares of Polycom multiple times, as well as shares of two other companies where the informant got inside information: Hilton Hotels and Google Inc.

- The Chinese government is ratcheting up its cyberspying operations against the U.S., a congressional advisory panel found, citing an example of a carefully orchestrated campaign against one U.S. company that appears to have been sponsored by Beijing.

- The Senate on Wednesday voted down a measure that would have permanently prevented Medicare payment cuts to doctors, with a split in the Democratic vote showing there remains room for disagreement on the health-care front within the party. Meanwhile, congressional Democrats moved to stiffen antitrust laws on insurance companies. The two actions could influence whether the broader health-overhaul legislation Democrats are pushing in Congress wins support from doctors and insurers.

- In an interview with CNN's John King on Sunday, White House Chief of Staff Rahm Emanuel said President Obama is now asking tough questions about Afghanistan "that have never been asked on the civilian side, the political side, the military side and the strategic side." It was a not so subtle dig at Mr. Obama's predecessor and was meant to distract from the White House's mishandling of the war. The Bush administration did in fact conduct a top-to-bottom strategic review of Afghanistan in 2008.

- Sounding taken aback himself, Senate Finance Chairman Max Baucus recently declared that the public option is "alive." A better term might be undead: This new government-run health insurance program akin to Medicare for the middle class continues to stagger forward, zombie-like, despite what were thought to be fatal blasts earlier this fall from Senate centrists and the House Blue Dogs—that is, from Mr. Baucus's fellow Democrats.

- As the region continues to recover from the financial crisis, bank lending to Asian companies, other than those in China and Japan, won't grow at "meaningful" levels for around two years, although local currency-loan markets have been developing as a source of funding, said Citigroup Inc.'s (C) most senior investment banker in Asia. Syndicated loans arranged in Asia-- excluding Japan but with China included--had dropped nearly 45% to US$107.20 billion in the period between Friday and the start of the year, from US$194.84 billion in the same period last year

CNBC.com:

- China's economic growth picked up as expected last quarter as a potent cocktail of breakneck investment and buoyant bank lending more than made up for a slump in exports, the government said on Thursday.

NY Times:

- As the Dollar Sinks, Oil Skyrockets.

- Responding to the furor over executive pay at companies bailed out with taxpayer money, the Obama administration will order the firms that received the most aid to slash compensation to their highest-paid employees, an official involved in the decision said on Wednesday. The plan, for the 25 top earners at seven companies that received exceptional help, will on average cut total compensation this year by about 50 percent. The companies are Citigroup, Bank of America, American International Group, General Motors, Chrysler and the financing arms of the two automakers. It would have no direct impact on firms that did not receive government bailouts or that have already repaid loans they received from Washington. Therefore, it is unclear how much effect, if any, the plan will have on the broader issues relating to executive compensation, income inequality and the populist animosity toward Wall Street and corporate America. Wall Street is facing criticism and anger over the large year-end bonuses at many firms. Firms like Goldman Sachs(GS), JPMorgan Chase(JPM) and Morgan Stanley(MS) received tens of billions of dollars in loans and loan guarantees from the government but because they have returned the loans, they are no longer under any pay restrictions. With the financial markets and their profits recovering after the huge government assistance program last year, the three are expected to make huge payouts this year even as unemployment continues to rise.

CNNMoney.com:

- Demand for computers from large companies is likely to pick up by as soon as mid-2010 as a result of Microsoft's launch this week of its Windows 7 operating system, a senior Dell executive said on Wednesday.

- The $700 billion bailout will ultimately cost taxpayers billions of dollars, but the government stands to lose much more than the money it's pouring into companies. Neil Barofsky, special inspector general for Treasury's financial sector rescue, wrote in a report released Wednesday that the bailout has several hidden costs. One is the hard cost of borrowing money to fund the rescues of banks and other companies. The others are, according to Barofsky, less tangible but no less important: The danger that comes with rewarding companies that took excessive risk, and the loss of the government's credibility with taxpayers.

- Is anybody out there hiring? Seriously. I'm not looking for a job but I'd like to know if any major corporations are actually looking to boost their headcount anytime soon. Do I hear crickets? Investors are continuing to celebrate healthy third-quarter earnings reports in what's turning out to be a far less scary October than usual for stocks. But a lot of the better-than-expected profits are coming thanks to job cuts. And there still doesn't appear to be much evidence of an improvement in the labor markets coming anytime soon.

Politico:

- President Obama's job approval numbers dropped approximately nine percentage points between his second......and third quarters in office, according to Gallup. Gallup: "In fact, the 9-point drop in the most recent quarter is the largest Gallup has ever measured for an elected president between the second and third quarters of his term, dating back to 1953. One president who was not elected to his first term -- Harry Truman -- had a 13-point drop between his second and third quarters in office in 1945 and 1946."

- President Obama is working systematically to marginalize the most powerful forces behind the Republican Party, setting loose top White House officials to undermine conservatives in the media, business and lobbying worlds. With a series of private meetings and public taunts, the White House has targeted the U.S. Chamber of Commerce, the biggest-spending pro-business lobbying group in the country; Rush Limbaugh, the country’s most-listened-to conservative commentator; and now, with a new volley of combative rhetoric in recent days, the insurance industry, Wall Street executives and Fox News. Obama aides are using their powerful White House platform, combined with techniques honed in the 2008 campaign, to cast some of the most powerful adversaries as out of the mainstream and their criticism as unworthy of serious discussion.

- Sen. Lamar Alexander (R-Tenn.) accused the White House on Wednesday of "street-brawling" with opponents, and said the West Wing's strategy of freezing out opponents amounts to a latter-day "enemies list," a reference to an infamous practice of President Richard Nixon. "An 'enemies list' only denigrates the Presidency and the Republic itself," Alexander said on the Senate floor. "These are unusually difficult times, with plenty of forces encouraging us to disagree. Let’s not start calling people out and compiling an enemies list. Let’s push the street-brawling out of the White House and work together on the truly presidential issues: creating jobs, reducing health care costs, reducing the debt, creating clean energy." "According to Politico," Alexander said, "the White House plans to 'neuter the United States Chamber of Commerce," an organization with members in almost every major community in America. The Chamber had supported the president’s stimulus package and some of his early appointments, but has problems with his health care and climate change proposals." Here is the full text of Alexander's prepared remarks:

The Business Insider:

- Commercial Real Estate: Serious, But Not The End Of The World.

AP:

- A Web where Chinese is the dominant language, and connections are so fast that distinctions between audio, video and text are blurred is perhaps just five years away, the head of Google(GOOG) said Wednesday.

Reuters:

- U.S. Secretary of State Hillary Clinton rebuffed North Korean hopes it may be accepted as a nuclear state, saying the United States will never have normal, sanctions-free ties with a nuclear-armed North Korea. Clinton laid down a hard line as the United States weighs whether to engage in bilateral talks with North Korea, a step it hopes will bring Pyongyang back to wider, six-party talks on ending its nuclear programs. The North, which conducted its second nuclear test in May, has said it wished to be treated as a nuclear state.

Financial Times:

- China, like much of the world, is breathing a sigh of relief that economic disaster has been averted. Better-than-expected macro-economic data are driving growing optimism. But government officials and businessmen should not delude themselves: going back to pre-crisis ways would be a serious mistake. While consumer prices are mostly under control, asset price bubbles are growing rapidly because of huge liquidity injections by governments around the world. Globally, there does not seem to be an exit strategy in place to drain this liquidity from the system. Certainly, in China, stock and property bubbles are a concern. While we have avoided the worst recession since the Great Depression, we are probably heading for another asset bubble and more financial turbulence. What can we do? Compared with pouring money into the economy, draining money from the economy is a much tougher job for central banks. The dilemma is this: if we tighten monetary policy, there is a high possibility of a “second dip” next year; and if we continue the loose policy, another asset bubble might be not far away. I do not believe a quick, steep bounce driven by fiscal fixed investment is a good thing for China. Nor is a moderate slowdown anything to be afraid of. Monetary policy must not neglect asset-price movements. Therefore, it is urgent that China shifts from a loose monetary policy stance to a neutral one. I am also worried about the role of governments after the crisis. There are some who say that this is a crisis of the market economy. It is not; nor is it a time to turn our backs on markets. There have been failures of regulation and oversight, particularly in the west. In China we are still developing our regulatory system. It is a time to strengthen oversight, improve governance and push for freer and more efficient markets in China and abroad. However, there is growing concern, especially in China, that the temporary stimulus program might evolve into permanent government control of the economy. The Chinese government should continue to loosen its grip. Prices, especially of energy but including water and food, need to be freed further. The currency needs to be liberalized. Privatization needs to move ahead. China needs freer markets, not more state control. Finally, protectionism is a worry. Recent actions are small in terms of the value of the goods involved. But even imposing symbolic protectionist measures to keep domestic interests happy is a dangerous strategy. Both the US and China must resist domestic pressures to restrict trade or risk igniting a wider trade war. Protectionism poses real threats to the global economy and we must be sensitive to changes in USUS policies will largely define the future of globalization. trade policy, as

- John Meriwether, the hedge fund manager and arbitrageur behind Long-Term Capital Management, is in the process of setting up a new hedge fund – his third. The move comes barely three months after Mr Meriwether decided to close his second fund manager, JWM Partners, which was wound down after clients saw the value of their investments fall by more than 44 per cent over the course of the financial crisis. JWM Partners was set up soon after the collapse in 1998 of Mr Meriwether’s first – and most infamous – fund, LTCM, which triggered a wave of panic across the world’s markets and prompted the US Federal Reserve to take the then-unprecedented step of orchestrating a multi-billion dollar bail-out. Mr Meriwether’s new venture, named JM Advisors Management, will, like both of his previous hedge fund management companies, be based in Greenwich, Connecticut. The fund is expected use the same strategy as both LTCM and JWM to make money: so-called relative value arbitrage, a quantitative investment strategy Mr Meriwether pioneered when he led the hugely successful bond arbitrage group at Salomon Brothers in the 1980s. The strategy typically has a high “blow-up” risk because of the large amounts of leverage it uses to profit from often tiny pricing anomalies. At its peak, LTCM borrowed 25 times more than it had in investor’s capital in order to ratchet-up its returns. JWM boasted a more conservative 10 times leverage ratio. The hedge fund industry average is estimated at between two and three times.

- Goldman(GS) should be allowed to fail.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded .

- Reiterated Sell on (AMB), target $18.

- Reiterated Buy on (APD), target $89.

- Reiterated Sell on (ATI), target $25.

- Reiterated Buy on (MAC), target $34.

- Reiterated Buy on (LHO), target $24.

Night Trading
Asian Indices are -1.50% to -.25% on average.

Asia Ex-Japan Inv Grade CDS Index 107.50 +2.0 basis points.
S&P 500 futures -.26%.
NASDAQ 100 futures -.44%.

Morning Preview

BNO Breaking Global News of Note

Google Top Stories

Bloomberg Breaking News

Yahoo Most Popular Biz Stories

MarketWatch News Viewer

Asian Financial News

European Financial News

Latin American Financial News

MarketWatch Pre-market Commentary

U.S. Equity Preview

TradeTheNews Morning Report

Briefing.com In Play

SeekingAlpha Market Currents

Briefing.com Bond Ticker

US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Stock Quote/Chart
WSJ Intl Markets Performance
Commodity Futures
IBD New America
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades

Politico Headlines
Rasmussen Reports Polling

Earnings of Note
Company/EPS Estimate
- (MCD)/1.11

- (HSY)/.67

- (PNC)/.28

- (ESI)/1.98

- (GR)/1.03

- (STI)/-.63

- (HOT)/.10

- (CNX)/.66

- (ALXN)/.21

- (SGP)/.40

- (DOW)/.10

- (PM)/.91

- (RTN)/1.16

- (ZMH)/.85

- (UPS)/.52

- (R)/.45

- (T)/.50

- (TRV)/1.29

- (BNI)/1.28

- (CA)/.40

- (NFLX)/.45

- (CAKE)/.24

- (BUCY)/.85

- (CB)/1.26

- (AXP)/.37

- (JNPR)/.21

- (BRCM)/.33

- (WDC)/.94

- (DECK)/2.25

- (WYE)/.88

- (BDK)/.91

- (CELG)/.54

- (KMB)/1.15

- (MRK)/.82

- (AMZN)/.33

- (MMM)/1.18

- (BMY)/.51

- (DAL)/-.06

- (DO)/2.29

Economic Releases

8:30 am EST

- Initial Jobless Claims for last week are estimated to rise to 515K versus 514K the prior week.

- Continuing Claims are estimated to fall to 5970K versus 5992K prior.

10:00 am EST

- Leading Indicators for September are estimated to rise +.8% versus a +.6% gain in August.

- The Housing Price Index for August is estimated to rise +.3% versus a +.3% gain in July.

Upcoming Splits
- None of Note

Other Potential Market Movers
- The Fed’s Rosengren speaking, Fed’s Lockhart speaking, Fed’s Dudley speaking, Fed’s Evans speaking, weekly EIA natural gas inventory report, (WMT) investment community day 2, Fed Consumer Advisory Council Meeting, (ERF) investor presentation and the (TPX) investor meeting could also impact trading today.

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