Tuesday Watch

Late-Night Headlines
Bloomberg:

- Former Federal Reserve Chairman Alan Greenspan said a rebound in stocks is “re-liquifying” the U.S. economy and housing prices are showing early indications of ending their decline. “We have been very fortunate that the stock markets moved back” and are “re-liquifying the whole process,” Greenspan said at an event in Edmonton, Alberta, presented by Abu Dhabi National Energy Co., the state-controlled energy producer known as Taqa. He said a rebound in house prices might help avert another wave of foreclosures. “It may be too soon, but all the relevant price indexes are turning,” Greenspan, 83, said. “Now whether or not that is temporary is very difficult to tell, because we have never been through anything like this.” Greenspan said inventories are being drawn down as the economy recovers. Manufacturers will need to rev up production lines to prevent stockpiles from being depleted, he said. “An ever-increasing part of your consumption must be met by industrial production,” rather than from inventories, he said, adding that this phase may extend into the second quarter of 2010. After that, the economic outlook “is going to depend to a very significant extent on what stock prices do.” Through stocks comes a “wealth effect” from realized capital gains, he said. Greenspan said the U.S. needs to address the country’s budget deficit. “Our capacity to sell U.S. Treasury issues was never in doubt because we had a very significant cushion between federal debt on the one hand and the capacity to borrow on the other.” With budget shortfalls projected, “that cushion is narrowing,” he said. “We are in a position where we have got to reign in” the national debt.

- More than 40 House Democrats signed a letter to House Speaker Nancy Pelosi vowing to vote against a final health overhaul measure if it includes abortion restrictions contained in legislation approved Nov. 7, said Representative Diana DeGette. The letter circulating among lawmakers calls “unprecedented and unacceptable” language approved by the chamber that would limit access to the procedure for people who use an insurance-purchasing exchange that would be created in pending U.S. health-care legislation. “We will not vote for a conference report that contains language that restricts women’s right to choose any further than current law,” says the letter, released by Democratic Representatives Louise Slaughter of New York and DeGette of Colorado. The two lead a caucus of lawmakers who favor abortion rights. Stupak’s amendment bars the government plan from covering abortions. It also prohibits federal funds from being used to help people purchase private insurance sold on the on-line exchange that covers abortion. Women could use their own money to purchase a separate abortion rider. After the vote, Stupak said that pro-choice lawmakers rejected a compromise that wouldn’t have been as restrictive. The deal fell apart because “some groups overreached and can’t count” votes, he told reporters early Nov. 8, referring to pro- choice lawmakers and abortion-rights advocates.

- American International Group Inc.(AIG), the insurer bailed out by the U.S., will be able to repay its Federal Reserve credit line and “much or all” of the Treasury Department’s investment if financial markets stabilize, Moody’s Investors Service said today. “The slower approach to restructuring could help AIG to generate more favorable values from its business portfolio than would be the case under rushed asset sales,” Moody’s said. A decline in the value of AIG’s assets could impair the company’s ability to repay obligations and lead to downgrades, Moody’s said.

- Priceline.com Inc.(PCLN), the online travel agency, jumped 8.6 percent in extended trading after reporting third-quarter sales and profit that topped analysts’ estimates, buoyed by the summer travel season.

- U.S. lawmakers want to know whether the shooting rampage at an Army base in Texas last week was an unforeseeable, aberrant act or a lesson on missed red flags. The Senate Homeland Security and Governmental Affairs Committee will investigate what motivated the suspect, Major Nidal Malik Hasan, Senator Joseph Lieberman said yesterday. Thirteen people were killed and 30 injured in the Nov. 5 attack at Fort Hood. “We don’t know enough to say now, but there are very, very strong warning signs” that Hasan, an Army psychiatrist, “had become an Islamist extremist and, therefore, that this was a terrorist act,” Lieberman said on “Fox News Sunday.” Those signs might have been enough to have prompted the Army to discharge Hasan, said Lieberman, the chairman of the Senate homeland security panel. Lieberman cited alleged past statements by Hasan justifying suicide bombings, along with witness reports at Fort Hood that he shouted “Allahu Akbar,” or “God is great,” while firing. Senator Susan Collins of Maine, the senior Republican on the homeland security committee, said today a witness list is being drawn up for a hearing that might take place as early as next week.

Wall Street Journal:

- A Conservative Party government in the U.K. would seek to speed up a transformation of the North Atlantic Treaty Organization, encourage a harder Western line against Russia and Iran and reach out to Turkey, the party's top defense official said in an interview. With a general election that must be called by June, and the Conservatives firmly ahead in most polls, the party's views on issues such as foreign policy are drawing more attention and scrutiny.

- Congress might be a long way from passing legislation to fight climate change, but the Obama administration appears one step closer to creating its own regime for controlling greenhouse gases. On Monday, the Environmental Protection Agency announced it sent the White House Office of Management and Budget its proposed finding that greenhouse gases endanger human health and welfare. Adoption of that endangerment finding is the legal precursor to regulating such gases under the Clean Air Act. The agency proposed its declaration in April, provoking a furious response from business groups – such as the U.S. Chamber of Commerce – who have questioned the agency’s scientific and legal basis. Environmental groups, naturally, are thrilled with the EPA’s move, hoping it will boost the Obama administration’s efforts to forge a global agreement to curb emissions when representatives of more than 190 countries gather next month in Copenhagen, Denmark for a United Nations conference. “As Copenhagen approaches, this step just reinforces that–one way or another–a significant portion of U.S. emissions will be regulated very, very soon,” says Josh Dorner, spokesman for Clean Energy Works, a Washington-based group that advocates regulation of greenhouse gases.

- St. Jude Medical Inc. (STJ), which makes heart-rhythm implants and other complex devices, has withdrawn its membership from the industry's main trade group in a disagreement over the group's approach to managing a government tax proposal. While a rare move, St. Jude's exit from the Advanced Medical Technology Association highlights the tension facing medical industries as Congress debates health-care changes. The group, known as AdvaMed, and St. Jude each confirmed Monday that the company had recently left. St. Jude also suggested that a larger fracture has occurred within the industry, which features companies making products ranging from gauze pads to implantable defibrillators. AdvaMed thinks taxes should be paid based on product complexity, but such a move would hurt companies like St. Jude, which specializes in high-tech implants like defibrillators and pacemakers. "We feel it is inappropriate for AdvaMed to advocate for a specific policy that economically advantages a portion of its membership at the expense of other members," Daniel J. Starks, St. Jude's chairman and chief executive, said in a Nov. 2 letter to Stephen J. Ubl, AdvaMed's president and chief executive. Starks said the letter was formal notification that he was resigning from AdvaMed's board of directors, and that St. Jude was leaving the trade group as well. St. Jude provided Starks's letter to Dow Jones Newswires.

- The number of people caught illegally entering the U.S. dropped by more than 23% during the past year, continuing a longer trend, federal data shows. The struggling U.S. economy and rising joblessness are major factors behind the decline. But government officials say investment in border security since the terrorist attacks of Sept. 11, 2001, also has deterred illegal immigration.

- A provision in the House health-care bill sets up a stark choice for Democrats between the interests of younger voters and older ones. The bill would limit how much insurers can vary premiums based on the age of the person buying the policy. The narrower the range, the lower the premiums for older people, a help to those who currently pay some of the highest rates for insurance and often need coverage the most. But such a limitation tends to raise premiums for younger folks, who are sometimes reluctant to buy coverage.

- KIRKUK, Iraq -- Arab and Kurdish military commanders here are making efforts at cooperation despite their bitter political differences -- a surprising development that offers some hope that one of Iraq's most difficult ethnic divides may be narrowing.

- It can by now come as no surprise that the Fort Hood massacre yielded an instant flow of exculpatory media meditations on the stresses that must have weighed on the killer who mowed down 13 Americans and wounded 29 others. Still, the intense drive to wrap this clear case in a fog of mystery is eminently worthy of notice. The tide of pronouncements and ruminations pointing to every cause for this event other than the one obvious to everyone in the rational world continues apace. Commentators, reporters, psychologists and, indeed, army spokesmen continue to warn portentously, "We don't yet know the motive for the shootings." What a puzzle this piece of vacuity must be to audiences hearing it, some, no doubt, with outrage. To those not terrorized by fear of offending Muslim sensitivities, Maj. Nidal Malik Hasan's motive was instantly clear: It was an act of terrorism by a man with a record of expressing virulent, anti-American, pro-jihadist sentiments. All were conspicuous signs of danger his Army superiors chose to ignore. What is hard to ignore, now, is the growing derangement on all matters involving terrorism and Muslim sensitivities. Its chief symptoms: a palpitating fear of discomfiting facts and a willingness to discard those facts and embrace the richest possible variety of ludicrous theories as to the motives behind an act of Islamic terrorism. All this we have seen before but never in such naked form. The days following the Fort Hood rampage have told us more than we want to know, perhaps, about the depth and reach of this epidemic.

CNBC.com:

- U.S. Federal Reserve Governor Daniel Tarullo on Monday endorsed the idea of requiring big banks to hold more capital and renewed his suggestion that direct efforts to limit the size of banks may be worth considering. Fed Chairman Ben Bernanke and other officials have raised the idea of capital surcharge to prevent banks from getting so big that the government is compelled to prop them up in a crisis. The idea "has substantial appeal," Tarullo said in remarks prepared for a speech at New York University.

- It's "risk on" in global markets, a trend traders say could help keep stocks heading higher for now.

NY Times:

- Jeffry M. Picower, a longtime investor in Bernard L. Madoff’s Ponzi scheme who died in his Palm Beach swimming pool last month, left an estate with assets far in excess of $1 billion — and that could be a spot of good news for Mr. Madoff’s victims, The New York Times’s Diana B. Henriques reports. Although Mr. Picower’s will, which is expected to be filed on Tuesday, leaves the bulk of the estate to charity, that amount depends on how much his family pays to settle legal claims brought by the trustee gathering assets for Mr. Madoff’s victims. But the estate is clearly large enough to add at least several billion dollars to the $1.4 billion that the trustee has gathered so far.

CNNMoney.com:

- Touch is already a big business — estimates indicate that sales will be more than $3.66 billion for this year and will catapult 145% to almost $10 billion in the next five years.

- How Jobs turned PCs into objects of lust.

Forbes:

- Movie Stars Becoming More Irrelevant.

- When Goldman Sachs(GS) boss Lloyd Blankfein told The Times of London recently that bankers are "doing God's work," the cautionary tale of another successful businessman with ties to finance, London and the Almighty came quickly to mind. Back in the early 1980s, Roberto Calvi, head of Italy's Banco Ambrosiano, was known as "God's banker," because of his business connections to the Vatican. In 1982, the bank went belly up in the wake of a massive fraud scandal dealing with offshore accounts.

Boston Herald:

- Massachusetts is owed $160 million from the federal government for a little-known Social Security policy that’s been erroneously overlooked for 35 years, according to Gov. Deval Patrick’s top health and human services adviser. At issue is the way the Social Security Administration handles disability claims. Health and Human Services Secretary Bigby said the federal agency often declines applications for disability payouts on an applicant’s first attempt. However, if an applicant appeals the rejection, the state then covers health care costs for that person until the matter is resolved. If the applicant is ultimately approved, the SSA is supposed to reimburse the state for that interim coverage. “We’re one of the first states that brought it to their attention,” Bigby said in a phone interview. “We are pushing for a mechanism to get that money back to the state.”

Politico:

- Federal prosecutors are seeking the harshest prison sentence ever handed out to a member of Congress for former Rep. William Jefferson (D-La.), arguing that his “stunning betrayal of public trust” warrants what could be a life sentence for the long-time lawmaker. The Justice Department is asking a federal judge in Alexandria, Va, to lock up Jefferson, 62, for up to 33 years, according to documents filed by prosecutors on Friday.

Washington Post:

- The House passage of health-care reform Saturday night should be a moment of celebration. In a country as wealthy as America, no one should have to go without medical care. As in other developed nations, everyone should have access to doctors, to medicine, to preventive services. The House bill would take America a giant step closer to that goal. Here is the dilemma: The bill also could take America a step closer to bankruptcy. And for progressives in particular -- for those who believe that government has a mission to help the poor and protect the vulnerable -- that prospect should be alarming. If federal debt continues rising on its present path, hastened by a $1 trillion health-care bill, it is the poor and vulnerable who will be most harmed.

The Business Insider:

- Chart of the Day: Why Google Dropped $750 Million On AdMob.

- Edward Pinto: How Did Paul Krugman Get It So Wrong About Fannie And Freddy?

USA Today.com:

- Chrysler drops three electric vehicles despite having touted them to get billions in government bailout cash. If you believed all the talk from Chrysler about how our tax dollars would help finance its fast-track electric-vehicle future, you're in for a big disappointment. Chrysler has disbanded the engineering team that was trying to bring three electric models to market as a rush job, Automotive News reports today. Chrysler cited its devotion to electric vehicles as one of the key reasons why the Obama administration and Congress needed to give it $12.5 billion in bailout money, the News points out.

Reuters:

- JPMorgan Chase & Co (JPM) is lifting a salary freeze it put in place last year, according to an internal memo, a sign of its growing confidence in the economic recovery after it reported several quarters of improving investment-banking profits. Separately, the bank said it is adding more than 300 staff to its branches to support a $4 billion increase in small business lending.

Financial Times:

- Energy and commodity groups are bracing themselves for US legislation that would regulate their little-known sideline business of financial derivatives dealing for the first time. The derivatives, such as swaps, allow their clients to buy insurance against volatile commodities prices. While leading banks are the targets of the legislation, the derivatives enterprises in the US of oil companies including BP and Royal Dutch Shell and commodities traders such as Cargill and Koch Supply & Trading would also become subject to strict capital and reporting rules. On top of being leading producers and merchants of physical commodities, these companies also compete with banks such as Goldman Sachs and Morgan Stanley by selling financial derivatives to others seeking protection from price risks. As Washington’s lawmakers target the bank’s commodities businesses, the dual role of some producers and merchants of commodities are also coming into their focus. Cargill, the agribusiness conglomerate, has a risk management arm that deals in a “full spectrum of instruments” in agricultural, energy and metals, according to its website. It also sells swaps and structured products that mimic commodity price swings to hedge funds, pension funds and endowments – the so-called “index trading” that some Commodity Futures Trading Commission (CFTC) leaders worry could artificially inflate prices. The legislation, still pending further debate, makes a distinction between “swap dealers” and “major swap participants” but both would face similar rules if it became law. This would include requiring them to post more money for each trade, hold more capital and adhere to new reporting rules.

- Not all bubbles present a risk to the economy by Frederic Mishkin. There is increasing concern that we may be experiencing another round of asset-price bubbles that could pose great danger to the economy. Does this danger provide a case for the US Federal Reserve to exit from its zero-interest-rate policy sooner rather than later, as many commentators have suggested? The answer is no. Are potential asset-price bubbles always dangerous? Asset-price bubbles can be separated into two categories. The first and dangerous category is one I call “a credit boom bubble”, in which exuberant expectations about economic prospects or structural changes in financial markets lead to a credit boom. The resulting increased demand for some assets raises their price and, in turn, encourages further lending against these assets, increasing demand, and hence their prices, even more, creating a positive feedback loop. This feedback loop involves increasing leverage, further easing of credit standards, then even higher leverage, and the cycle continues. Eventually, the bubble bursts and asset prices collapse, leading to a reversal of the feedback loop. Loans go sour, the deleveraging begins, demand for the assets declines further and prices drop even more. The resulting loan losses and declines in asset prices erode the balance sheets at financial institutions, further diminishing credit and investment across a broad range of assets. The resulting deleveraging depresses business and household spending, which weakens economic activity and increases macroeconomic risk in credit markets. Indeed, this is what the recent crisis has been all about. The second category of bubble, what I call the “pure irrational exuberance bubble”, is far less dangerous because it does not involve the cycle of leveraging against higher asset values. Without a credit boom, the bursting of the bubble does not cause the financial system to seize up and so does much less damage. For example, the bubble in technology stocks in the late 1990s was not fuelled by a feedback loop between bank lending and rising equity values; indeed, the bursting of the tech-stock bubble was not accompanied by a marked deterioration in bank balance sheets. This is one of the key reasons that the bursting of the bubble was followed by a relatively mild recession. Similarly, the bubble that burst in the stock market in 1987 did not put the financial system under great stress and the economy fared well in its aftermath. Because the second category of bubble does not present the same dangers to the economy as a credit boom bubble, the case for tightening monetary policy to restrain a pure irrational exuberance bubble is much weaker.

Yonhap News:

- The navies of South Korea and North Korea clashed in a naval battle off the western coast of the Korean peninsula today, citing an official.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (PCLN), target $200.

- Reiterated Buy on (WU), target $23.

- Reiterated Buy on (DISH), target $22.

Night Trading
Asian Indices are +.25% to +1.25% on average.

Asia Ex-Japan Inv Grade CDS Index 104.50 -10.0 basis points.
S&P 500 futures -.14%.
NASDAQ 100 futures -.16%.

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Earnings of Note
Company/EPS Estimate
- (BZH)/-1.40

- (FOSL)/.42

- (HEW)/.63

- (CLWR)/-.43

- (WTW)/.64

Economic Releases

- None of note

Upcoming Splits
- None of Note

Other Potential Market Movers
- The Fed’s Lockhart speaking, Fed’s Yellen speaking, Fed’s Rosengren speaking, Fed’s Tarullo speaking, Fed’s Fisher speaking, NFIB Small Business Optimism Index, weekly retail sales reports, IBD/TIPP Economic Optimism Index, API energy inventory report, Treasury’s 10-year Note Auction, (CEPH) R&D Day, Robert Baird Industrial Conference, BofA Banking/Financial Services Conference, Piper Internet Summit, Thomas Weisel Alt Energy Conference, (SE) analyst day, (TSO) analyst meeting, Jeffries Healthcare Summit, Raymond James Coal Conference, (ALK) investors day and the ABC Consumer Confidence reading could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by automaker 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 100% net long heading into the day.