Stocks Finish Lower on Below-Average Volume

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Stocks Lower into Final Hour on Profit-Taking

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is negative today as the advance/decline line is lower, most sectors are declining and volume is around average. Intuitive Surgical (ISRG) is surging after Oppenheimer raised its target to $270. I think that is doable before year-end. EchoStar Communications (DISH), which has recently been the subject of buyout speculation, is surging on volume on no news. The dollar is notably strong against the yen of late. The CurrencyShares Japanese Yen Trust (FXY) is breaking down technically. Many market-leading stocks are rising again today, despite mild losses in the major averages. According to Brad Cole, of Cole Partners, commodity hedge fund investments have surged 293% over the last two years and 83% in just the last year, to $55 billion. As well, the number of commodity hedge funds have risen from 134 to 400 over the last two years. This doesn't even take into account all the other investment funds that now allocate a portion of their capital to commodity speculation. In my opinion, speculation by these types of funds is mainly responsible for the huge surge in prices of the underlying commodities over the last couple of years rather than supply/demand fundamentals. I continue to believe the next meaningful global slowdown will result in massive drops in most commodities as many of these funds unwind their long positions and go short. This will likely result in a significant drop in all inflation gauges and talk of disinflation or deflation once again. I still think that the secular trend of disinflation remains firmly in tact. I took profits on my iShares Lehman 20+ Year Treasury Bond (TLT) long awhile back, but I plan to build it back up on any significant rise in yields from current levels. I expect US stocks to trade mixed into the close from current levels less economic pessimism offsets profit-taking.

Today's Headlines

Bloomberg:
- Investment in commodity funds has swollen to about $55 billion, from about $30 billion last year and $14 billion two years ago, said Brad Cole, founder of Chicago-based Cole Partners Asset Management, which invests in such funds. There are about 400 commodity hedge funds now, up from 203 in 2006 and 134 the prior year.
- Corn is falling for a fourth straight session on signs output from a US record crop will exceed demand and signals that speculators are unwinding bets on higher prices.
- Democratic Senator Charles Schumer said he would introduce legislation to raise taxes on executives at private-equity firms and a broad range of other partnerships.
- Former Fed Chairman Greenspan said the worst of the credit turmoil was over and that US growth should bottom early next year.

Wall Street Journal:
- Wal-Mart(WMT) Influence on Retail Industry Starts to Wane.
- Toyota Tries to Sell Priuses Where Tractors Are Sexy.

NY Times:
- Philip Morris(MO) and Reynolds American(RAI) have begun test marketing snus, a smokeless tobacco that is popular in Sweden.

NY Post:
- Spitzer Popularity Plunges in Quinnipiac Poll.

Financial Times:
- The IAEA is telling Iran that it must answer questions on its uranium enrichment program before the end of 2007 or face new sanctions.

Arab News:
- Saudi Arabia’s most senior Islamic cleric called on the kingdom’s young men to stop waging jihad in Iraq because it damages Islam, citing a speech by Grand Mufti Sheikh Abdul Aziz al-Asheikh.

Service Sector Still Expanding, Job Component Rises

- ISM Non-Manufacturing for September fell to 54.8 versus estimates of 54.6 and 55.8 in August.

BOTTOM LINE: US service industries continued to grow in September, easing concerns that the housing slump will end the six-year expansion, Bloomberg reported. The New Orders component of the index fell to 53.4 from 57 the prior month. The Inventories component fell to 50 from 57. The Prices Paid component rose to 66.1 from 58.6 in August. The Employment component rose to 52.7 from 47.9 the prior month. As well, Challenger reported job cuts fell 28.5% during September and ADP reported 58,000 new jobs were created during the month. I expect the service sector to remain healthy over the intermediate-term as Americans’ net worth makes new record highs, interest rates remain low, inflation decelerates further, housing fears subside, stocks continue making record highs, wages continue to substantially outpace inflation and unemployment remains historically low.

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