Friday Watch

Late-Night Headlines
Bloomberg:

- As Sony Corp.’s(SNE) e-book devices vie with the Kindle to win over readers, the real showdown may come later: when a shift to electronic textbooks at schools threatens to eclipse the current market for the products. Sony and Amazon.com Inc.’s(AMZN) Kindle are both expanding into the academic world. Students at Blyth Academy in Toronto do all their reading on Sony devices, and five U.S. universities are testing the Kindle. The days of students lugging around heavy textbooks may be numbered, said Sony executive Steve Haber.

- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Chinese growth is likely to be hurt by an absence of consumer demand from trading partners such as the U.S. “The Chinese, I suspect, will have a bubble of their own to confront,” Gross said in a Bloomberg Television interview yesterday from Pimco’s headquarters in Newport Beach, California. “It’s gearing up for export that doesn’t find an end consumer, that’s the real problem in China.” The “systemic risk” of new asset bubbles in global economies and markets is rising with the Federal Reserve keeping interest rates at record lows, Gross wrote in his December investment outlook posted on Pimco’s Web site yesterday. The “heavy lifting” will likely be done first by other central banks such as those in Australia and Norway that have already begun to increase interest rates, Gross wrote. “China may abandon its dollar peg within six months’ time and with it, its own easy monetary policy that has fostered more significant mini-bubbles of lending and asset appreciation on the Chinese mainland,” he added.

- Japanese government ministers increased pressure on the central bank to tackle falling prices in the world’s second-largest economy. “My understanding is that Japan is in a deflationary state,” Deputy Prime Minister Naoto Kan told reporters today in Tokyo. The government will tell the central bank that “monetary policy plays a significant role” in fighting deflation, he said.

- A former Pequot Capital Management Inc. employee now at the center of a U.S. insider-trading probe told his psychologist that the hedge-fund firm fired him in 2001 after he stopped delivering secret information on Microsoft Corp., the therapist said in a deposition. David Zilkha, who had previously worked at Microsoft, said he was supervised by Pequot founder Arthur Samberg, who pressed him for insider information, psychologist Peggy Thomson testified in an Oct. 15 proceeding tied to Zilkha’s divorce, according to a transcript obtained by Bloomberg.

- Dell Inc.(DELL), the world’s third-largest maker of personal computers, reported earnings that missed analysts’ estimates after it lost market share and higher PC component costs cut into profit.

Wall Street Journal:

- Chances of business supporting the Obama administration's health overhaul are fading fast, after Senate Majority Leader Harry Reid's bill took a liberal turn. The Obama administration has courted small businesses from the start, and at times executives have shown favor toward Democratic plans such as the bill passed by the Senate Finance Committee last month. But when Mr. Reid decided to include a new public health-insurance plan in his bill and added a Medicare payroll tax increase for high earners, business groups said enough was enough. "We're disappointed," said Bruce Josten, an executive vice president at the U.S. Chamber of Commerce, of the Senate health bill. "If it ends up in that form, I can't imagine the business community supporting it." Several industry groups are banding together to ask Congress to scrap the current bills and start from scratch on a health overhaul. They are stepping up television advertising against Democrats' proposals.

- For General Electric Co.(GE), the timing looks right to change the channel. A deal for GE to merge NBC Universal with Comcast Corp.'s cable channels in a joint venture that would be 51%-controlled by Comcast could be announced next week, according to people familiar with the matter.

- Deadly Labor Wars Hinder India’s Rise.

- TARP Inspector General Neil Barofsky keeps committing flagrant acts of political transparency, which if nothing else ought to inform the debate going forward over financial reform. In his latest bombshell, the IG discloses that the New York Federal Reserve did not believe that AIG's credit-default swap (CDS) counterparties posed a systemic financial risk. Hello? For the last year, the entire Beltway theory of the financial panic has been based on the claim that the "opaque," unregulated CDS market had forced the Fed to take over AIG and pay off its counterparties, lest the system collapse. Yet we now learn from Mr. Barofsky that saving the counterparties was not the reason for the bailout. In the fall of 2008 the New York Fed drove a baby-soft bargain with AIG's credit-default-swap counterparties. The Fed's taxpayer-funded vehicle, Maiden Lane III, bought out the counterparties' mortgage-backed securities at 100 cents on the dollar, effectively canceling out the CDS contracts. This was miles above what those assets could have fetched in the market at that time, if they could have been sold at all. The New York Fed president at the time was none other than Timothy Geithner, the current Treasury Secretary, and Mr. Geithner now tells Mr. Barofsky that in deciding to make the counterparties whole, "the financial condition of the counterparties was not a relevant factor." This is startling. In April we noted in these columns that Goldman Sachs, a major AIG counterparty, would certainly have suffered from an AIG failure. And in his latest report, Mr. Barofsky comes to the same conclusion. But if Mr. Geithner now says the AIG bailout wasn't driven by a need to rescue CDS counterparties, then what was the point? Why pay Goldman and even foreign banks like Societe Generale billions of tax dollars to make them whole?

- General Electric Co.(GE) became the first major U.S. company to sell an Islamic bond, paving the way for other Western firms to tap religiously minded investors in the Middle East and elsewhere. On Thursday, the company's GE Capital unit sold a five-year, $500 million Islamic bond, or sukuk, and suggested more was to come.

- U.S. gasoline demand, hammered by the recession, will never return to 2007's peak, as greater use of biofuels and increased engine efficiency cut consumption of the fossil fuel, BP PLC (BP) Chief Executive Tony Hayward said Thursday. "We will never sell more gasoline in the U.S. than we sold in 2007," Hayward said in an interview with Dow Jones and The Wall Street Journal. U.S. Department of Energy data show consumption of motor gasoline fell 3.2% in 2008, from a peak average of 9.3 million barrels a day in 2007, though a slight uptick from 2008 is expected this year. In 2007, BP sold an average of 1.57 million barrels a day of its gasoline products worldwide, with sales slipping 4.6% in 2008, according to the company's annual reports. Hayward's comments reinforce a widely held view that demand for gasoline in rich countries has entered a secular state of decline, even as overall gasoline consumption is expected to grow as middle classes in China, India and Brazil, among developing countries, buy more cars. The use of fossil fuels to power vehicles has been declining in the U.S. as a result of the economic downturn, greater engine efficiency, increased use of gasoline-electric hybrids, and requirements to include larger amounts of ethanol and other biofuels. As fossil fuel's share of the mix diminishes over time, "we're going to be in the biofuels business," Hayward said. The London-based energy giant is working on developing biobutanol, a plant-derived fuel with higher energy content than ethanol, as well as cellulosic ethanol, which is made from non-food plants. BP and enzyme developer Verenium Corp. (VRNM) have a joint venture called Vercipia that plans to build an ethanol facility in Florida to produce 36 million gallons a year of cellulosic ethanol. Verenium already operates a 1.4 million-gallons-a-year plant in Louisiana, one of the largest U.S. demonstration projects. "We believe we'll figure out how to make that commercial within the next five years," Hayward said.

MarketWatch:

- The dark side of the BRICs.

CNBC.com:

- Banks that are considered too large to fail should be dismantled rather than "coddled," Dallas Federal Reserve Bank President Richard Fisher said on Thursday. Large-scale government bailouts of institutions like insurer American International Group(AIG)have generated widespread controversy following last year's global financial meltdown. Fisher suggested the only way of ensuring that such financial giants do not pose recurrent problems is by making them smaller." This means finding ways not to live with 'em and getting on with developing the least disruptive way to have them divest those parts of the 'franchise,' such as proprietary trading, that place the deposit and lending function at risk and otherwise present conflicts of interest," Fisher said in prepared remarks to the Cato Institute, a libertarian think tank. It was one of the strongest calls to date from a sitting Fed official for an actual breaking up of large financial institutions. Fisher also said the too-big-to-fail problem hinders the effectiveness of monetary policy, perverting incentives and contributing to financial volatility.

IBD:

- Pharmacy benefit management is a controversial industry. Yes, the industry saves health insurers on drug costs. But the giant pharmacy benefit managers, called PBMs, have also been the targets of multiple lawsuits claiming these middlemen earn outsize profits through opaque business practices. That's why it's paid off for SXC Health Solutions (SXCI) of Lisle, Ill., to be relatively small and transparent.

CNNMoney.com:

- Here's a new way to think about the U.S. government's epic borrowing: More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest. More than half. In fact, $4.8 trillion. If that's hard to grasp, here's another way to look at why that's a problem. In 2015 alone, the estimated interest due - $533 billion - is equal to a third of the federal income taxes expected to be paid that year, said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group.

Forbes:

- Google(GOOG) Aims To Remake Computers.

paidContent.org:

- Harbinger Capital Partners continues to slice its stake of the New York Times (NYT). Co., selling its second batch of stock in two months. The activist hedge fund that spent more than a half-billion accumulating nearly 20 percent of the publishing company’s stock in 2007 now owns less than 15 percent —14.64 percent, to be exact, based on the number of shares outstanding on Oct. 30. According to SEC filings today (here and here), the fund sold 2.5 million shares of its then-16.4 percent on Nov. 17 at $9 a share; that comes out to $22.5 million.

SmartMoney:

- It’s been dubbed the apology with a half-billion-dollar gift attached. In an attention-grabbing move this week, Goldman Sachs (GS) said it would launch a $500 million initiative to help small businesses with Warren Buffett as a key adviser, an announcement that coincided by hours with a public mea culpa from CEO Lloyd Blankfein for mistakes in the financial crisis. But it turns out Goldman’s program includes its own discount — the kind that only an investment banker could love. According to a review of Goldman’s program by SmartMoney in consultation with corporate tax experts, the ultimate price tag of the initiative could be far less than the heavily publicized $500 million. A big chunk of the money is destined for charitable institutions, creating potentially sizable tax deductions for Goldman, while other portions are being made as loans that Goldman confirms it expects to be repaid with interest. All in all, tax experts say, the ultimate cost to Goldman could total roughly $136 million to $150 million—70% or more below the half-billion figure that helped generate so much publicity for the firm this week. Interest income from the loans could lower the final bill even more.

Politico:

- He doesn’t have the votes — yet — but Senate Majority Leader Harry Reid and fellow Democrats projected confidence they could clear the first hurdle for health reform, a rare Saturday vote to open debate on the sweeping measure. Reid also got one piece of good news as Republicans at least tentatively dropped their plans to force a reading of the 2,074-page bill, in exchange for a daylong debate, starting in the morning and culminating with a vote at about 8 p.m. Saturday. But reminders of how tough it will be to pass health reform in the end popped up Thursday, as well, as a second member of the Democratic Caucus — Nebraska Sen. Ben Nelson — threatened to launch a filibuster to block a final vote, if language restricting federal funds for abortion was not strengthened. “There are a lot of other things that could keep me from supporting it in the end,” Nelson said. He joins Sen. Joe Lieberman (I-Conn.), who said he will vote with Democrats on Saturday, but again on Thursday ruled out supporting a bill with any variation of the public insurance option down the road, even if it means killing the legislation. “I hope it doesn’t happen; I pray it doesn’t happen,” Lieberman said. “But incidentally, I don’t think I would be the only one.”

Rasmussen:

- While the Senate is now preparing to debate Democratic Leader Harry Reid's 2000-plus-page version of the health care reform plan, 47% of Americans still believe the private sector rather than the federal government has the best chance of keeping health care costs down and the quality of medical care up. But a new Rasmussen Reports national telephone survey shows that 33% of adults think the federal government would do a better job of reducing costs and maintaining quality of care.

The Business Insider:

- Chart Of The Day: The Wall Street Journal Has The Richest Readership Among Print Pubs.

USA Today.com:

- Newspaper advertising revenue in the U.S. plunged 28% in the third quarter to $6.4 billion. The figures released Thursday by the Newspaper Association of America leave little doubt newspapers will likely have to manage through the fourth year of a slump that has already killed some publications and wiped out thousands of jobs.

AP:

- Army officials plan to prevent media from covering Sarah Palin's appearance at Fort Bragg on Monday, saying they fear the event will turn into political grandstanding against President Barack Obama. Fort Bragg spokesman Tom McCollum told The Associated Press on Thursday that Army officials had decided to keep media away from Palin's book promotion at the North Carolina base. Other members of the public would be permitted to attend, however. McCollum said the Army did not want the event to become a platform for Palin supporters to express political opinions "directed against the commander in chief." The former Alaska governor and Republican vice presidential candidate began a promotional tour this week for the memoir "Going Rogue."

Reuters:

- Dell (DELL), the world's No.3 PC seller, said on Friday that demand for its PCs picked up "quite substantially" following the launch of Microsoft's (MSFT) new Windows 7 operating system in October. Dell also expected its Asia business to return to revenue growth in the near future, Steve Felice, Dell's president of small and medium business, said in a teleconference, without being giving details.

Financial Times:

- Leading US retailers are this year expanding their Christmas sales drive by targeting smartphone users through the new generation of mobile devices such as the Apple(AAPL) iPhone, the Palm Pre and BlackBerry’s Storm. Retailers that have started selling online via smartphones this year include mass discounters Walmart(WMT) and Kmart(KMT), lingerie retailer Victoria’s Secret, home goods store Crate & Barrel, and youth clothing chains American Eagle(AEO) and Urban Outfitters(URBN). Others, including JC Penney(JCP), Target(TGT), Gap(GPS) and Toys R Us have launched smartphone applications, or apps, that promote deals alongside services such as helping customers locate physical stores or check the availability of items. Raul Vazquez, chief executive of Walmart.com, said the group’s new iPhone app, which was released in November and is linked to its home electronics sales, had so far been downloaded more than 300,000 times. “We expect by the end of the year to get that number up to 1m,” he said of the app, which includes a feature that allows shoppers to fit a profile of a proposed TV purchase on to a photo of a wall or room. Jason Taylor, head of mobile products at Usablenet, which adapts websites to make them easily navigable by mobile devices, said his company had this month launched “around a dozen” new mobile sites for leading retailers, including office-supplies retailer Staples(SPLS) and cosmetics company Aveda. Outdoor goods store REI, and OfficeMax(OMX), another office supplies retailer, are also planning to open mobile commerce sites. “I see a real rush by retailers to have proper mobile channels,” said Mr Taylor.

- Goldman Sachs(GS)’ program for US small businesses could help it meet some of its duties under a law aimed at aiding low-income communities – a sign of the demands created by its conversion to a bank holding company last year. Goldman’s decision to earmark $500m to help 10,000 small companies, which was revealed this week, has been seen as an attempt to defuse the public controversy about its huge profits and its plans to pay large bonuses. But people close to the situation said some of the funds could be used to fulfill the requirements of the Community Reinvestment Act, a 1977 law designed to prevent banks from discriminating against minorities and poorer neighborhoods. Goldman said the small business plan had not been “driven by CRA”, adding that the bank had already set aside funds to meet its CRA needs for 2009. But executives noted that parts of the initiative, which runs for five years, could help it satisfy its CRA requirements in the future. Regulators periodically assess banks’ commitments under CRA and can constrain their activities if they fail to meet goals. This is the first year that Goldman will be scrutinized for its CRA activities. Under CRA, banks must each year devote a portion of their assets, which can range between 0.8 per cent and 1 per cent of US-based deposits, to “meet the credit needs” of low- and moderate-income communities.

- European Union leaders on Thursday night awarded two of its top jobs to politicians relatively unknown on the international stage, after almost a decade of wrangling over how to project Europe’s global presence. At a Brussels summit the EU picked consensus builders rather than star names, choosing Herman Van Rompuy, Belgium’s centre-right prime minister, over Tony Blair as the EU’s first full-time president. Britain secured the position of foreign policy supremo for Lady Ashton, the EU trade commissioner, who has never held publicly elected office and has only been in her post for a year.

Nikkei:

- Tokyo Electron Ltd., which makes semiconductor-manufacturing equipment, may post an operating profit for the January-March period for the first time in six quarters. The company expects improved earnings because semiconductor producers in Taiwan, South Korea and elsewhere are increasing investments, citing an interview with President Hiroshi Takenaka.

Late Buy/Sell Recommendations
Citigroup:

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

- Reiterated Buy on (PLCE), target $40.

- Reiterated Buy on (PCLN) and (EXPE)..

- Reiterated Buy on (PVH), target $54.

- Upgraded (LINTA) to Buy, target $13.25.

- Downgraded (D) to Sell, target $32.

- Reiterated Buy on (CLF), target $51.

- Reiterated Buy on (GLW), target $20.50.

BMO Capital Markets:

- Rated (INTC) Outperform, target $26.

- Rated (TXN) Outperform, target $33.

- Rated (MRVL) Outperform, target $23.

- Rated (BRCM) Outperform, target $37.

Night Trading
Asian Indices are -1.0% to unch. on average.

Asia Ex-Japan Inv Grade CDS Index 100.5 -4.5 basis points.
S&P 500 futures -.01%.
NASDAQ 100 futures +.13%.

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
- (ANN)/.07

- (DHI)/-.24

- (SJM)/1.04

- (CRMT)/.442

Economic Releases

10:00 am EST

- Existing Home Sales for October are estimated to rise to 5.70M versus 5.57M in September.

Upcoming Splits
- None of Note

Other Potential Market Movers
- The Chicago Fed Nat Activity Index, (MHS) analyst day, Morgan Stanley Consumer/Retail Conference, (CI) analyst meeting, Sidoti Emerging Growth Forum and the Citi Small/Mid-Cap Conference could also impact trading today.

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