Wednesday Watch

Late-Night Headlines
Bloomberg:

- Yields on Fannie Mae and Freddie Mac mortgage securities fell to the lowest in more than six months, signaling that borrowing costs will decline as the Federal Reserve continues to buy $1.25 trillion of so-called agency home-loan bonds. Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds tumbled 0.09 percentage point to 3.99 percent as of 2:59 p.m. in New York, the lowest since May 20, according to data compiled by Bloomberg. The declines exceeded drops in benchmark Treasury yields, which fell after a record $42 billion sale of five-year government debt drew the strongest demand in more than two years. Yield premiums tightened to a new 17-year low even as the Fed’s acquisitions meant to bolster the housing market slow, with the central bank purchasing a net $16 billion of mortgage bonds in the latest week, compared with an average of $22.2 billion. The average rate on a typical 30-year fixed-rate mortgage dropped to 4.83 percent in the latest week ended Nov. 19, according to McLean, Virginia-based Freddie Mac.

- Bank of America Corp.(BAC) shares are poised to surge -- just as soon as the lender finds someone to take the top job.

- Technology stocks may keep outperforming the broader U.S. market into next year as corporate spending rebounds, the head of T. Rowe Price Group Inc.’s technology fund said. Microsoft Corp.’s Windows 7 operating system may prompt businesses to boost investment, said Ken Allen, manager of T. Rowe’s Science and Technology Fund. Innovations including cloud computing may drive customer growth at companies such as Salesforce.com Inc. and Red Hat Inc. The fund favors companies with large market capitalizations such as Accenture Plc and International Business Machines Corp., Allen said. “The fourth quarter is likely to have year-over-year revenue growth” for the first time since the recession started, Allen said today at a news conference in New York. “Even in the downturn there has been a ton of innovation.” The biggest winners in any corporate spending rebound are likely to be Microsoft and Intel Corp., the world’s largest software and semiconductor companies, Allen said. Allen’s $2.56 billion fund has gained 60 percent this year, a better performance than 79 percent of comparable funds, according to data compiled by Bloomberg.

- Microsoft Corp.(MSFT), the world’s largest software maker, said Chief Financial Officer Chris Liddell is departing and will be replaced by Peter Klein, finance chief of the company’s business software division.

- J.Crew Group Inc.(JCG), the U.S. clothing retailer, rose 7.7 percent after the close of New York trading after reporting that third-quarter profit more than doubled. Net income advanced to $43.9 million, or 67 cents a share, from $19 million, or 30 cents, a year earlier, the New York- based company said today in a statement. Revenue climbed 14 percent to $414.1 million. Profit and sales beat analysts’ estimates. Analysts predicted profit of 59 cents and revenue of $409.9 million, the average of estimates compiled by Bloomberg. J.Crew said fourth-quarter earnings per share will be 37 cents to 42 cents a share. Analysts predict 41 cents, on average.

- Federal Reserve officials trimmed their forecasts earlier this month for the U.S. jobless rate in 2010 and 2011 as the economy rebounded while keeping their outlooks “broadly similar” to previous projections. Fed governors and regional-bank presidents predicted the unemployment rate will range from 9.3 percent to 9.7 percent in next year’s fourth quarter, down from the June projection of 9.5 percent to 9.8 percent, according to minutes of the Federal Open Market Committee’s Nov. 3-4 meeting released today.

- Movie director Steven Spielberg, General Electric Co. chief executive Jeffrey Immelt and CBS News anchor Katie Couric are among more than 300 guests for President Barack Obama’s first state dinner. They will join a group of American and Indian executives, diplomats, public officials and celebrities who will be honoring Indian Prime Minister Manmohan Singh under heated tents on the White House South Lawn. Guests will dine on potato and eggplant salad with arugula from the White House garden; roasted potato dumplings with tomato chutney, chickpeas and okra, or an alternate choice of green curry prawns served with caramelized salsify, smoked collard greens and coconut aged basmati. Pumpkin pie tarts will be served for dessert as a reminder of the American tradition of Thanksgiving this week. The wine is domestic, from vineyards in California, Oregon and Virginia. The guest chef is Marcus Samuelsson of Manhattan’s Aquavit restaurant. Guests will sit at round tables for 10 covered in apple green-colored linens with dark purple flower arrangements as centerpieces. The arrangements are made of hydrangea, garden roses and sweet peas and, according to a White House statement, they pay “homage to the state bird of India, the Indian peacock.” For entertainment the White House is bringing in American singer and actress Jennifer Hudson and Indian composer and musician A.R. Rahman, who wrote some of the music for the movie “Slumdog Millionaire.” Jazz vocalist Kurt Elling, who Michelle Obama called a “hometown Chicago guy,” also will sing. Other guests include Honeywell International Inc. Chief Executive Officer David Cote, venture capitalist John Doerr, PepsiCo Co. Chief Executive Officer Indra Nooyi and Jeffrey Katzenberg, chief executive of Dreamworks Animation SKG Inc. Ratan Tata, chairman of Tata Group, Om Prakash Bhatt, chairman of the State Bank of India, and Senapathy Gopalakrishnan, chief executive officer of Bangalore-based Infosys Technologies Ltd., are among the Indian executives who were invited to the event. Several of Obama’s friends and fundraisers from Chicago are also listed as attendees, including Penny Pritzker, who led his presidential campaign fundraising effort and is chairman of Pritzker Realty Group. Chicago fundraiser John Rogers, chairman of Ariel Investments LLC, is on the list, as are Obama’s best friends Eric Whitaker and Marty Nesbitt, as well as their wives, Cheryl Whitaker and Anita Blanchard. Obama’s former Chicago law firm boss, Judd Miner, was invited, as was Newton Minow, a Chicago lawyer and Obama family friend who served as chairman of the Federal Communications Commission in the administration of President John F. Kennedy. Politicians invited included New Mexico Governor Bill Richardson, Colin Powell, who served as secretary of state under former President George W. Bush, and members of the Senate and House of Representatives.

- Japan’s exports fell at the slowest pace in a year in October as worldwide government spending boosted demand, sustaining the economic recovery.

- Australia’s economy has entered a “new upswing” that will last for several years, helping the nation’s households fund mortgage costs, said Ric Battellino, deputy governor of the central bank. The currency rose as investors increased bets the Reserve Bank will raise interest rates next week for a record third month after Battellino told a conference in Melbourne today that it’s “reasonable to assume we will see this growth extended for a few more years yet.”

Wall Street Journal:

- For some auto makers, the global recession has spelled bankruptcy or near extinction. For Volkswagen AG's Audi unit, it could be the biggest break in decades. Audi, founded a century ago, counts as one of the world's leading luxury brands. Yet it has failed to become a major player in the U.S. Now, the German car maker, based in this small city in Bavaria, is redoubling efforts to break out of its rut in the world's largest car market. Audi has invested heavily in the U.S. this year, a counterintuitive approach at a time when its chief rivals are cutting costs. The car maker increased 2009 marketing spending by 20%, pouring millions of dollars into Super Bowl and other high-impact ads, and has unveiled eight new models in the U.S. this year. The strategy appears to be working.

- The Obama administration's push to solve the nation's energy problems, a massive federal program that rivals the Manhattan Project, is spurring a once-in-a-generation shift in U.S. science. The government's multibillion-dollar push into energy research is reinvigorating 17 giant U.S.-funded research facilities, from the Oak Ridge National Laboratory here to the Lawrence Berkeley National Laboratory in California. After many years of flat budgets, these labs are ramping up to develop new electricity sources, trying to build more-efficient cars and addressing climate change. In fiscal 2009, the Obama administration increased the funding by 18%, to $4.76 billion, to the Department of Energy's Office of Science, which oversees 10 national labs and funds research at another seven. The office will receive $1.6 billion in government stimulus spending, as well, much of which it will also channel to these laboratories.

- The White House is considering a bipartisan commission to tackle the nation's swelling deficit, as it seeks to show resolve on a problem that threatens its broader agenda. Top White House officials, including budget director Peter Orszag, met Tuesday with Senate Budget Committee Chairman Sen. Kent Conrad to discuss establishing such a commission, which has been pushed by Mr. Conrad, a North Dakota Democrat, and his Republican counterpart on the committee, Sen. Judd Gregg of New Hampshire. Senior congressional officials said the idea was gaining traction. Two officials said the White House was likely to make its own proposal for a panel, which could have less power than the proposed Conrad-Gregg commission. White House aides said no final decision had been made.

- Commanders in Afghanistan say they will devote the majority of the fresh troops expected from the White House to securing the country's troubled south and will especially target this volatile city, the Taliban's main power base. President Barack Obama will announce his revamped war strategy in an address early next week, likely Tuesday. He is widely expected to adopt a plan that sends between 20,000 and 40,000 more troops to bolster a flagging military campaign and the 68,000 U.S. troops now fighting it.

- Two Retailers Bet on Upturn.

NY Times:

- The Washington Post will close its last three remaining national bureaus in a cost-cutting move, Kris Coratti, the paper’s director of communications, said Tuesday. The decision effectively means The Post will cover national stories by traveling from its base in Washington.

Forbes:

- Real Estate Stocks: The Case For David Instead Of Goliath.

Las Vegas Business Press:

- A subsidiary of bank holding firm Goldman Sachs(GS) filed more than 50 lawsuits in Las Vegas courts against individual homeowners during a one-month span this year. Some local observers say the litigation could signal the beginning of a Wall Street backlash against defaulting borrowers. The financial giant's subsidiary, MTGLQ Investors, sued 55 borrowers in Clark County District Court as of press time. Some attorneys are calling the high volume of cases filed unusual and say the legal push may be the start of an investor movement to recoup home-loan losses. Note holders are tired of people walking away from their homes and leaving second-lien holders with no equity in the house to repay the loan, bankruptcy lawyer George Haines said.

FINalternatives:

- Nashville, Tenn.’s public pension plan is preparing to take the plunge into hedge funds. The Metropolitan Government of Nashville and Davidson County Employee Benefit Trust Fund will issue a request for proposals next month for a hedge fund manager. The investment will be Nashville-Davidson’s first-ever in hedge funds, and it looks to be a big one: The pension has allocated up to 10% of its assets to the mandate, which could total $185 million. The mandate will be funded from the pension’s equity portfolio.

Rasmussen:

- Republican candidates have extended their lead over Democrats to seven points, their biggest lead since early September, in the latest edition of the Generic Congressional Ballot. The latest Rasmussen Reports national telephone survey shows that 44% would vote for their district’s Republican congressional candidate while 37% would opt for his or her Democratic opponent.

CBSNews:

- A few days after leaked e-mail messages appeared on the Internet, the U.S. Congress may probe whether prominent scientists who are advocates of global warming theories misrepresented the truth about climate change. Sen. James Inhofe, an Oklahoma Republican, said on Monday the leaked correspondence suggested researchers "cooked the science to make this thing look as if the science was settled, when all the time of course we knew it was not," according to a transcript of a radio interview posted on his Web site. Aides for Rep. Darrell Issa, a California Republican, are also looking into the disclosure. The leaked documents (see our previous coverage) come from the Climatic Research Unit of the University of East Anglia in eastern England. In global warming circles, the CRU wields outsize influence: it claims the world's largest temperature data set, and its work and mathematical models were incorporated into the United Nations Intergovernmental Panel on Climate Change's 2007 report. That report, in turn, is what the Environmental Protection Agency acknowledged it "relies on most heavily" when concluding that carbon dioxide emissions endanger public health and should be regulated. Last week's leaked e-mails range from innocuous to embarrassing and, critics believe, scandalous. They show that some of the field's most prominent scientists were so wedded to theories of man-made global warming that they ridiculed dissenters who asked for copies of their data ("have to respond to more crap criticisms from the idiots"), cheered the deaths of skeptical journalists, and plotted how to keep researchers who reached different conclusions from publishing in peer-reviewed journals. As the leaked messages, and especially the HARRY_READ_ME.txt file, found their way around technical circles, two things happened: first, programmers unaffiliated with East Anglia started taking a close look at the quality of the CRU's code, and second, they began to feel sympathetic for anyone who had to spend three years (including working weekends) trying to make sense of code that appeared to be undocumented and buggy, while representing the core of CRU's climate model. Groups like the free-market Competitive Enterprise Institute, the target of repeated derision in the leaked e-mails, have said: "We have argued for many years that much of the scientific case for global warming alarmism was weak and some of it was phony. It now looks like a lot of it may be phony." ScienceMag.org published an article noting that deleting e-mail messages to hide them from a FOI request is a crime in the United Kingdom. George Monbiot, a U.K. activist and journalist who previously called for dramatic action to deal with global warming, wrote: "It's no use pretending that this isn't a major blow. The emails extracted by a hacker from the climatic research unit at the University of East Anglia could scarcely be more damaging." Complicating matters for congressional Republicans who'd like to hold hearings is that East Anglia, of course, is a U.K. university. The GOP may intend to press the Obama administration for details on how the EPA came to rely on the CRU's predictions, and whether the recent disclosure will change the agency's position.

Reuters:

- American International Group Inc, the insurer that received billions of dollars in a U.S. bailout, has been authorized by its board to pay Chief Executive Robert Benmosche's $7 million compensation, after it laid to rest concerns that he may quit the post. The approval, which the company announced on Tuesday, means that AIG can pay Benmosche an already agreed annual salary of $3 million in cash and $4 million in fully-vested AIG stock. Benmosche could also be eligible for a performance bonus that would raise his total compensation as high as $10.5 million. As one of the largest recipients of U.S.Washington pay czar Kenneth Feinberg. Once the world's largest insurer, AIG was saved last September by a taxpayer bailout that has grown to as much as $180 billion, including more than $80 billion in loans. The company is around 80 percent-owned by U.S. taxpayers. aid, AIG has to comply with pay regulations imposed on the top 100 executives at companies that have received the largest loans under the U.S. Treasury's Troubled Asset Relief Program. Benmosche's pay package had already been approved by

- Facebook has established a dual-class stock structure to ensure voting control by existing owners, but has no plans to become a public company, it said on Tuesday.

- Short interest on the New York Stock Exchange and Nasdaq edged higher in early November, data from the exchanges showed on Tuesday, signaling that some investors are betting the equity run-up might hit some turbulence as 2009 winds down. The NYSE reported its short interest rose 2.3 percent to about 13.18 billion shares as of Nov. 13 from 12.88 billion shares as of Oct. 30. Short interest was equal to 3.45 percent of total shares outstanding. Short interest on the Nasdaq rose 2.1 percent to about 6.5 billion shares as of Nov. 13, from 6.36 billion shares as of Oct. 30. The Nasdaq said that represented 2.75 days average daily volume, compared to an average of 2.89 days for the previous period. Year-to-date, short-sellers have a negative return of 29.2 percent, which puts 2009 on track to possibly be one of the worst years ever, according to Strunk. "They are probably waiting to see what the holiday numbers look like for consumer confidence," he added.

- It's a crime so profitable that even dead people are in on the act. A U.S. Senate committee revealed last year that public health insurer Medicare had paid as much as $92 million from 2000 to 2007 for medical services or equipment ordered or prescribed by doctors who were dead at the time. Many had died more than five years before the date when they supposedly ordered or authorized the service. Healthcare fraud said to cost U.S.U.S. healthcare system -- especially since President Barack Obama wants to cover some of the cost of reforms by fighting abuse. Yet interviews with several law enforcement and healthcare experts indicate the president may be disappointed. Some fear the focus on fraud may come as too little, too late after years of government complacency and inaction. Experts like the FBI's John Gillies say the problem has been getting worse all the time, as mob figures and violent criminals are lured by fabulously easy money and relatively light prison sentences into fraud targeting Medicare, the federal health insurer for more than 43 million elderly and disabled Americans. "There are so many schemes involved. Take any aspect of the healthcare industry and there's a fraud going on in there right now," Gillies, special agent in charge of the FBI Miami Division, told Reuters in a recent interview.

Financial Times:

- Standard & Poor’s acknowledged on Tuesday that a new ranking of banks’ capital strength, which had sparked concerns over lower-ranked institutions such as UBS(UBS) and Citigroup(C), might have been misleading. The ratings agency published a study this week ranking 45 of the world’s leading financial institutions by a new risk-adjusted capital (RAC) ratio designed to better capture balance sheet strength. The assessment painted a markedly different picture of banks’ relative strength than under the current Basel II rules on capital adequacy, which has unsettled some investors. UBS, for example, which has a ratio of 15 per cent under the standard tier-one measure of capital strength, was given a ratio of just over 2 per cent in the S&P report. Citigroup, the US-based financial services group, was given a ratio of 2.1 per cent. However, because the published assessment was based on banks’ balance sheets as of the end of June, it failed to take into consideration any actions banks have taken since to clean up their books. “The report issued by S&P is not representative of UBS’s capital position in relation to its peers,” the Zurich-based bank said on Tuesday. “Their report shows a RAC as of June 20 2009 which does not take into account two important components of UBS’s capital.” S&P insiders said the agency planned to issue a supplementary statement “in the next few days” clarifying that UBS’s ratio would be 7.1 per cent, instead of 2.2 per cent, if capital actions carried out since June were factored in. Citigroup, which added $64bn in tier-one equity in the third quarter, would have a ratio of 6.1 per cent. It also stressed the point on a conference call with investors.

- Early this year, bookmakers would have given a private equity fund trying a leveraged buyout the same odds as a porcine airshow or an ice storm in July. A few trillion dollars of government bailout spending later and the impossible has become merely complicated as buyout shops and their bankers test the resuscitated leveraged loan market with growing regularity. “Loan issuance has picked up, really just in the last month,” one leveraged finance banker at a global bank told Debtwire. “The window of opportunity is open for the next few weeks and then it will slow down for the back half of December. But most banks are already talking about what deals will be coming in January,” he said. LBO issuance will continue apace if not accelerate in the near term, said multiple banking, private equity and buyside sources. As more new deals hit the market, bank risk appetite will grow as well, as reflected by Goldman’s full backstop for the IMS Health deal and a Barclays-led syndicate’s full backstop of the TASC deal.

Economic Daily News:

- Compal Electronics Inc. forecast fourth-quarter laptop shipments to rise 20% from the previous quarter, from a previous estimate of 10%, citing Compal President Ray Chen. This would boost 2009’s shipment target to 37 million units. The company also expects laptop shipments to rise 20% in 2010.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded (VPRT) to Buy, target $62.

- Reiterated Buy on (JCG), boosted estimates, raised target to $49.

- Reiterated Buy on (AEO), target $19.

- Rated (JDSU) Buy, target $9.50.

Thomas Weisel:

- Rated (FARO) Overweight, target $24.

Morgan Stanley:

- Reiterated Overweight on (DLTR), target $60.

CSFB:

- Reiterated Outperform on (GME), boosted estimates, target $30.

- Reiterated Outperform on (MDT), target $49.

Night Trading
Asian Indices are -.25% to +.50% on average.

Asia Ex-Japan Inv Grade CDS Index 110.0 +4.5 basis points.
S&P 500 futures +.19%.
NASDAQ 100 futures +.17%.

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
- (TIF)/.23

- (DE)/.06

Economic Releases

8:30 am EST

- Personal Income for October is estimated to rise +.1% versus unch. in September.

- Personal Spending for October is estimated to rise +.5% versus a -.5% decline in September.

- PCE Core for October is estimated to rise +.1% versus a +.1% gain in September.

- Durable Goods Orders for October are estimated to rise +.5% versus a +1.4% gain in September.

- Durables Ex Transports for October are estimated to rise +.7% versus a +1.2% gain in September.

- Initial Jobless Claims for last week are estimated to fall to 500K versus 505K the prior week.

- Continuing Claims are estimated to fall to 5565K versus 5611K prior.

10:00 am EST

- Final Univ. of Mich. Consumer Confidence for November is estimated to rise to 67.0 versus 66.0 in October.

- New Home Sales for October are estimated to rise to 404K versus 402K in September.

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil build of +1,500,000 barrels versus a -887,000 barrel decline the prior week. Gasoline inventories are expected to rise by +300,000 barrels versus a -1,755,000 decline the prior week. Distillate supplies are estimated unch. versus a -328,000 barrel decline the prior week. Refinery Utilization is estimated to rise +.33% versus a -.49% decline the prior week. Finally, natural gas inventories are estimated to rise by +5 bcf versus a +20 bcf gain the prior week.

Upcoming Splits
- None of Note

Other Potential Market Movers
- The Treasury’s 7-Year Note Auction, weekly MBA mortgage applications report and the (PBR) analyst meeting could also impact trading today.

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