Tuesday Watch

Late-Night Headlines
Bloomberg:

- Medicare cuts will halve earnings growth over the next decade for UnitedHealth Group Inc.(UNH), the largest U.S. insurer, and wipe them out completely for Humana Inc.(HUM) if the health-care bill approved by a Senate panel last week becomes law, a Goldman Sachs Group Inc. analysis said. Cigna Inc. will be least affected among the five largest insurers, given its low numbers in Medicare and commercial policies where profit margins are likely to drop, said Matthew Borsch, a Goldman analyst, in a note to clients today. Overall, the three companies, along with WellPoint Inc. and Aetna Inc. will see earnings growth cut in half, to 5 percent, under the plan passed by the Senate Finance Committee Oct. 14, he said. Insurer shares, measured by the Standard & Poor’s index of managed-care companies, have dropped 15 percent since committee Chairman Max Baucus, a Montana Democrat, introduced the bill Sept. 16. The bill doesn’t include a government-run insurer to compete with the private sector, a goal of President Barack Obama and other Democrats. Goldman’s analysis assumes that doesn’t change. The finance bill would halve profit margins on individual and small-business policies to about 3 percent over 10 years, while doubling enrollment in those groups to 20 million, Borsch said. Lawmakers also plan to cut funding for insurer- administered Medicare Advantage plans by more than $100 billion. Those categories will account for 79 percent of earnings this year for Louisville, Kentucky-based Humana a third for Minnetonka, Minnesota-based UnitedHealth and only 2 percent for Cigna, Borsch said. Under Baucus’s bill, Humana will see earnings per share fall 2 percent a year over the next decade, compared with an 11- percent annual increase if Congress does nothing, Borsch said.

- Migrating U.S. taxpayers expanded income bases in Florida, Texas and North Carolina last year, while draining those in New York, California and Michigan, according to Bank of America Merrill Lynch research. New YorkFlorida gained $4.4 billion from 31 others, according to the report today from Phil Fischer, municipal strategist in New York. Texas, whose tax base grew by $2.8 billion, gained funds from 43 of its peers, while Michigan lost $2.4 billion to the rest of the country, the report shows. Losing states were typically those with “high tax” burdens such as New York, California and New Jersey or “economically distressed,” such as Michigan, Ohio and Rhode Island, Fischer said.New York and New Jersey sustained net losses to their tax bases each year since 1993, and California’s only positive year during that span was the dot-com boom of 2001, according to the IRS data. Texas, which weakened around 2003, strengthened since then and now gains from more other states than Florida and Nevada, Merrill said. lost $3.9 billion in income base to 42 other jurisdictions, while

- Royal Dutch Shell Plc gained conditional approval from the U.S. Interior Department’s Minerals Management Service of a plan to explore for oil and gas in Alaska’s Beaufort Sea. The plan calls for Shell to drill exploration wells in two areas in the sea north of Alaska, the agency said in an e-mailed statement today. Shell is required to halt activities during a seasonal hunt of bowhead whales by native Alaskans. The company also must get a permit to drill.

- Brazil will impose taxes on purchases by foreign investors of real-denominated, fixed-income securities and on purchases of stocks, Finance Minister Guido Mantega said. The measures are being taken “to avoid an excess speculation in the stock market and in capital markets,” Mantega told reporters in Sao Paulo. The real has gained 35 percent since the beginning of the year, the best performer amid the 16 most traded currencies tracked by Bloomberg. The currency has gained 5.3 percent in the past month. The central bank started purchasing dollars on May 8 in a bid to temper the real gains. The currency weakened 0.5 percent to 1.7177 per U.S. dollar at 4:28 p.m. New York time. Earlier today, the Brazilian real was cut to “underweight” from “overweight” in RBC Capital Markets’ model portfolio on concern the government would impose new taxes.

- Google Inc.’s(GOOG) YouTube, the world’s most popular video-sharing site, will stream a live U2 concert on Oct. 25 from the Rose Bowl in Pasadena, California. The concert will be the first full-length concert shown on YouTube live, Chris Maxcy, director of partner development, said on a conference call with journalists. The concert, which can be accessed at youtube.com/u2, will be available in 16 countries, including the U.S., France and Canada.

- European Central Bank President Jean-Claude Trichet said officials in the euro area take seriously the U.S. commitment to prevent the dollar from depreciating too much. “We all note with considerable attention the statements made by American authorities as regards their support in favor of a strong dollar,” Trichet told reporters in Luxembourg late yesterday after a meeting of European finance ministers. He also echoed the Group of Seven statement that “excessive volatility and disorganized developments in the exchange market was bad for economic development.” The euro has gained almost 20 percent against the dollar since February, making the region’s exports more expensive to overseas buyers and threatening the recovery from the worst recession since World War II.

- Invesco Ltd., manager of the Aim and PowerShares funds, agreed to buy Morgan Stanley’s retail investment management business, including the Van Kampen unit, for $1.5 billion in stock and cash. Invesco will gain about $119 billion in client money, bringing its assets under management to about $536 billion, the Atlanta-based firm said today in a statement. The purchase price includes $500 million in cash and $1 billion in stock, which will make Morgan Stanley Invesco’s largest shareholder with a 9.4 percent stake.

- Texas Instruments Inc.(TXN), the second- largest U.S. chipmaker, forecast fourth-quarter profit and sales that beat analysts’ estimates, indicating demand for electronic components is recovering further.52 at 4 p.m. on the New York Stock Exchange. Earnings will be 42 cents to 50 cents a share this quarter on sales of $2.78 billion to $3.02 billion, the Dallas-based company said today in a statement. Analysts predicted profit of 40 cents a share on revenue of $2.79 billion, based on the average of estimates compiled by Bloomberg. Texas Instruments gained 3.9 percent to $24.43 in extended trading after rising 77 cents to $23.

Wall Street Journal:

- Health care data company IMS Health Inc.(RX) is in advanced discussions with private-equity firms to sell itself, said people familiar with the matter, the latest sign that the leveraged-buyout business is waking from a two-year slumber. The Norwalk, Conn., company, which compiles such information as the value of prescriptions filled, received bids late last week and its board of directors must determine if the offers justify taking the 55-year-old firm private, these people said. The offers are expected to give IMS stockholders a 30% premium on their shares, said these people, valuing the company at about $3.5 billion.

- Book critics may be digging R. Crumb’s illustrated tome “The Book of Genesis,” which was released today, but several religious organizations have unsurprisingly taken offense to the comic artist’s titillating take on the Bible. (The cover of Crumb’s literal interpretation of the good book — primarily a mash-up of the Robert Alter and King James versions of the bible — states “adult supervision recommended for minors.”) According to the Telegraph, even the Church of England has weighed in, with a spokesperson noting: “I haven’t seen the book but I think trying to sell something by emphasizing the sexual nature of some of the scenes doesn’t seem to be a good way to pass on the message of the Bible.”

- A new electronic book reader is expected Tuesday from book seller Barnes & Noble Inc.(BKS) that will challenge readers from Amazon.com Inc. and Sony Corp. with a color touch-screen and $259 price, according to a planned ad for the device.

- Hedge-fund giant Galleon Group, facing heavy investor withdrawal requests after Friday's arrest of co-founder Raj Rajaratnam, moved to unload some of its technology stocks and other holdings to raise cash. Investors have sought to withdraw about $1.3 billion of the $3.7 billion in assets Galleon manages, traders say. Moreover, two of the brokerage firms Galleon normally deals with, Bank of America Merrill Lynch and Barclays PLC, have told Galleon they will no longer trade securities positions with the fund firm, according to a person close to the situation. Traders at Galleon said they believed competitors were seeking to profit from its troubles by selling stocks in the companies that Galleon also holds, believing they will decline as the hedge fund firm sells them. A blog posting on Friday listed what it said were Galleon's top holdings. The fund's largest, most easily traded stocks, including Apple Inc. and Google Inc., weren't hurt in Monday's rising stock market.Colgate University, and so-called funds-of-funds, which place money in various hedge funds. Most of Galleon's hedge funds allow investors to withdraw money only quarterly, although the technology fund run by Mr. Rajaratnam allows monthly redemptions. There is a 45-day notice period, so Galleon doesn't need to hand back any money until Jan. 1. Galleon's investors include university endowments, such as

- Human rights “interfere” with President Obama’s campaign against climate change.

- Health Costs and History.

CNBC.com:

- Apple(AAPL) shares leaped to an all-time high in late trading Monday as the company reported a profit and sales that rose from last year and blew past analysts' forecasts. Apple's sales of the iPhone and Mac hit quarterly records. Sales of Apple's Mac computers jumped 17 percent from a year earlier to 3.05 million in the September quarter, above analysts' average forecast of roughly 2.8 million. Apple sold 7.4 million iPhones, up from 6.9 million a year ago, and just shy of expectations of 7.5 million units. Some analysts had thought the company was having a tough time making enough iPhones to meet demand. "These are huge numbers tonight. Apple is probably the best growth story in tech, maybe one of the best growth stocks in the market. I bet this stock can go to $250 in six to nine months," said Jane Snorek, analyst at First American Funds. "Usually Christmas and back-to-school are correlated and Apple usually has a gigantic Christmas quarter. This makes me think Apple will have a great Christmas." "This isn't just a one-quarter phenomenon, there's something bigger going on. There's a paradigm shift from a cell phone, a computer in your pocket. Apple's going to run away with that and ultimately, the numbers are going to be inching up as we go forward into 2010," Gene Munster, senior research analyst at Piper Jaffray, told CNBC. "These are phenomenal results—and use that word. You know, it proves that even in a challenging economy people are willing to pay for what they perceive to be high quality product and a good value product," said Cross Research Analyst Shannon Cross. "It's fantastic earnings for this economy, actually, it's great number for any economy. It just shows the strength of Apple. It reaffirms that Apple is the leading consumer electronics company." "While we knew they were gaining share in those categories—PCs and phones—it's still surprising to see this degree of outperformance,'' said Daniel Ernst, an analyst with Hudson Square Research. "But that's just part of the Apple story: they're gaining share with premium-priced products.''

- The Federal Reserve Bank of New York said on Monday that it is testing one of its tools for withdrawing cash from the banking system, but stressed this should not be taken to mean that it is about to use it.

IBD:

- "It's who can produce the lowest cost to move a pound or kilo of freight from Hong Kong to L.A. It's as simple as that," said William J. Flynn, chief executive of Atlas Air Worldwide (AAWW).

FINalternatives:

- The son of hedge fund manager Douglas Kass has settled charges that he made unauthorized trades while working at Circle T Partners. Ethan Kass agreed to pay $50,000 to make the Securities and Exchange Commission allegations go away. The son of the Seabreeze Partners Management chief did not admit or deny the charges. According to the SEC, Kass, then a processing clerk at the hedge fund run by the late Seth Tobias, made at least 24 unauthorized trades that cost Circle T $8.5 million. The younger Kass hid the trading by leaving it out of the hedge fund’s handwritten trade blotter and deleting or altering the entries from the firm’s portfolio management system. Kass was fired when the trades came to light.

Politico:

- Senator Majority Leader Harry Reid had assembled his leadership team for a quick strategy session at the Capitol last week when somebody noticed that Sen. Chuck Schumer was absent. “Where’s Chuck?” the person asked. “He’s probably out there talking about me,” Reid quipped. Reid’s remark — conveyed to POLITICO by a person who was in the room — was a reference to Schumer’s appearance the night before Rachel Maddow’s MSNBC show, where the New York Democrat pressured Reid to accept a Schumer-crafted health care proposal that would create a public option plan but allow states to opt out. Reid and Schumer quickly patched things up — “Harry wanted Chuck to be contrite, and Chuck was contrite,” a leadership aide told POLITICO — but the incident revealed the tension that’s now gripping the Senate’s Democratic leadership as it struggles for an endgame compromise on health care reform. The pressure is rising, and relationships are being tested, staffers and senators say.

genomeweb:

- Casework Genetics, a Stafford, Va.-based forensics-technology provider, is validating an array-based technique that it hopes will be adopted by law-enforcement labs seeking a more "precise" and "efficient" way to solve crimes, CEO Kevin McElfresh told BioArray News last week. McElfresh said that Casework hopes to commercialize the technique, which uses the Illumina(ILMN) HumanOmni1-Quad BeadChip, by year end in order to upgrade its own offering and to gain an advantage over rival firms that use older technology.

The Business Insider:

- Apple (AAPL) will begin selling iPhones in China at the end of this month, company executives said during today's Q3 earnings call. Confirming earlier reports, Apple will launch with China Unicom. New details:

- The New York Times (NYT) newsroom is reeling from today's announcement that the company plans to cut the staff by 100. We spoke with a Times reporter, who told us it was the timing of the layoffs that is hitting everyone the hardest. The layoffs will come at the start of December, meaning a jobless Christmas for lots of reporters.

- This post will explain why Steven Levitt and Stephen Dubner have been taking a brutal beating in the press for a chapter in their new book, Superfreakonomics, in which they discuss global warming, and possible engineering solutions to it. By engineering, we mean, the use of technology (like chemicals emitted into the air, or big carbom sinks) that could actually reduce the presence of greenhouse gasses in the atmosphere. But to understand it, first you have to realize why global warming is the perfect global malady from the perspective of the left. You see, global warming is a special problem, and it sits right at the sweet spot of all kinds of politically charged issues. By going after global warming, you're also going after the oil industry, cars, western nations, rural areas, industrialization, the meat industry and huge suburban homes. All those things happen to be politically charged, as it is, and the left has long had them (to varying degrees) in their sights.

Financial Times:

- Developed countries are preparing to relent on their demand that developing countries agree to long-term cuts in greenhouse gas emissions in a concession that could form the basis of a global deal on climate change. The demand was one of five key elements rich countries wanted for a deal at the international climate change summit in Copenhagen in December. But major emerging economies, led by China and India, refused to sign up to it, worrying it could be used to force large and so far unquantified emission cuts on them in the future. Todd Stern, Mr Obama’s special envoy for climate change, in London on Monday for talks with the world’s 17 biggest emitters, hinted at the softening stance: “Our view at the G8 in July was that there ought to be both a developed country number and a worldwide number – 80 per cent for developed countries, 50 per cent worldwide. We still think that.” But he added: “I don’t know whether that is going to be included or not.” Ed Miliband, the UKChina and India were taking to curb the growth of their emissions, and said these pledges for the next decade were paramount. The biggest remaining problem is over finance, which was the subject of Monday’s discussions in London. Poor countries want aid from rich nations if they are to quantify the actions they will take on emissions in a binding deal. Yvo de Boer, the UN’s top climate change official, told the Financial Times this was “a potential deal-breaker”. He encouraged rich countries to do more. “This has nothing to do with signing blank checks. It’s about building trust and showing that you are serious [about climate change].” secretary of state for climate change, also signaled that the 2050 goal was dispensable. He praised the actions developing countries such as

- Oil prices face further upward pressure as they near $80 a barrel because of heavy trading in options contracts ahead of the year end, brokers and analysts said. A large number of call options – contracts giving holders the right to buy crude oil at a predetermined price – have been struck above $80. If spot oil prices rose above that level, the sellers of the call options will be forced to buy futures to cover their positions, further lifting oil prices. “The options could accelerate prices and put fundamentals considerations to the side,” said Olivier Jakob, head of Swiss-based oil consultancy Petromatrix. Raymond Carbone, president of Paramount Options on the New York Mercantile Exchange floor, added that traders who sold the options, ranging from bearish speculators to Wall Street banks, would have to cover their positions if prices rose further, opening the door to an options-driven rally.

TimesOnline:

- Bob Diamond, the president of Barclays, has turned down the opportunity to try out for one of America’s biggest banking jobs, after he was approached by the board of Bank of America (BoA) to replace Kenneth Lewis, its retiring chief executive. Mr Diamond, 58, was shortlisted by BoA’s recruitment committee and was invited to attend an interview, a bank source said, but declined to take part.

Kyodo News:

- Nippon Oil Corp. and its partners may invest $8 billion in Iraq’s Nasiriyah oil field. The Japanese companies will build an oil plant capable of producing 300,000 barrels a day, citing an Iraqi official.

Nikkei:

- Orders for Advantest Corp.’s chip-testing devices exceeded the company’s forecast by rising about 21% to 14 billion yen ($154.5 million) in the three months ended in September. Advantest’s sales may have increased about 0% to 12 billion yen, besting its forecast.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (ETN), boosted estimates, raised target to $70.

- Reiterated Buy on (AAPL), estimates under review.

- Reiterated Buy on (BAC), raised target to $23.

- Reiterated Buy on (TXN), target $31.

RBC Capital:

- Rated (ATVI) Outperform, target $18.

- Rated (ERTS) Outperform, target $25.

BMO Capital:

- Rated (CRI) Outperform, target $33.

Night Trading
Asian Indices are +.25% to +1.0% on average.

Asia Ex-Japan Inv Grade CDS Index 97.0 -5.50 basis points.
S&P 500 futures +.38%.
NASDAQ 100 futures +.99%.

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
- (BIIB)/1.04

- (KO)/.81

- (RF)/-.26

- (UTX)/1.11

- (EAT)/.15

- (SHW)/1.35

- (LMT)/1.83

- (STT)/1.00

- (COH)/.39

- (FRX)/.86

- (PFE)/.48

- (CSL)/.68

- (UNH)/.76

- (LXK)/.45

- (DGX)/.96

- (BLK)/1.90

- (DD)/.33

- (BK)/.45

- (CAT)/.05

- (ITW)/.52

- (SYK)/.69

- (CREE)/.22

- (ISRG)/1.49

- (GILD)/.72

- (SNDK)/.26

- (MANH)/.16

- (PCP)/1.63

- (YHOO)/.13

- (BTU)/.22

- (UAUA)/-.99

Economic Releases

8:30 am EST

- The Producer Price Index for September is estimated unch. versus a +1.7% gain in August.

- The PPI Ex Food & Energy for September is estimated to rise +.1% versus a +.2% gain in August.

- Housing Starts for September are estimated to rise to 610K versus 598K in August.

- Building Permits for September are estimated to rise to 595K versus 579K in August.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Warsh speaking, Fed’s Plosser speaking, TAF results, weekly retail sales reports, API energy inventory data, (RIGL) analyst briefing, (NDSN) investor day, (HGSI) analyst meeting, (GE) healthcare analyst meeting and the ABC consumer confidence reading could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and commodity shares in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.