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Friday Watch

Late-Night Headlines
Bloomberg:
- Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the U.S. government, will suspend foreclosures and evictions over the holidays. The six-week halt will begin Nov. 26, a day before the U.S. Thanksgiving holiday, and last through Jan. 9, the companies said in separate statements today. The hiatus is designed to give servicers more time to implement a streamlined loan modification program for struggling borrowers. “It’s a giant time out,” Paul Miller, an analyst at FBR Capital Markets in Arlington, Virginia, said today in a Bloomberg Television interview. “I wouldn’t be surprised to see this across the board.”

- Emerging market corporate profits will probably decline in 2009 as the global economy slips into recession and lower commodities prices hurt earnings in the region, UBS AG said, citing a survey of UBS analysts' forecasts. UBS analysts now expect earnings of emerging-market companies to drop 6 percent in 2009, compared with a previous estimate of 13 percent growth.

- The Markit iTraxx Japan index traded 54 basis points higher at 380, according to prices from Credit Suisse Group AG. The Markit iTraxx Australia index was quoted 40 basis points higher at 395 in Sydney, Citigroup Inc. data show.

- Komatsu Ltd., the world's second- largest maker of earthmoving equipment, dropped in Tokyo trading after Nomura Securities Co. said demand is ``slightly weaker'' than the company's estimate on a slowdown in emerging nations. Middle East customers ``it appears'' have been cancelling some orders due to financial difficulties, analyst Katsushi Saitou at Nomura said in a report dated yesterday. Falling prices for crude oil and iron ore and other resources might have further slowed demand, he said.

- Powerchip Semiconductor Corp., Taiwan’s largest maker of computer-memory chips, forecast industry supply of DRAM chips will fall as much as 30% in the next two months amid production cuts.

- Dell Inc.(DELL) posted profit that beat analysts' estimates, overcoming a decline in revenue as the computer maker cut jobs and switched to cheaper production methods.

- Gap Inc.(GPS), the largest U.S. clothing retailer, said third-quarter profit climbed 3.4 percent as the retailer reduced markdowns of sweaters, jeans and khaki pants.

- Argentina’s stock market is fading as the state seizure of the nation’s biggest shareholders undermines investor confidence and threatens an equity sell-off. The Argentine Senate last night approved President Cristina Fernandez de Kirchner’s plan to nationalize about $24 billion in private pensions, a move opposition parties called a cash grab and the government said is a way to protect retirees from the worst financial crisis since the Great Depression.

- The Federal Reserve has limited room to cut its target interest rate and may shift the focus of monetary policy more to increasing liquidity, said James Bullard, president of the Federal Reserve Bank of St. Louis. ``At least over the near term, any additional influence through interest rate reductions will be limited, and the focus of monetary policy may turn to quantity measures,'' Bullard said today in a speech in Evansville, Indiana.

Wall Street Journal:

- As the economic signs grow ever more grim, the opportunities for the Obama administration to drive through its agenda actually are getting better. The thing about a crisis -- and crisis doesn't seem too strong a word for the economic mess right now -- is that it creates a sense of urgency. Actions that once appeared optional suddenly seem essential. Moves that might have been made at a leisurely pace are desired instantly. This opportunity isn't lost on the new president and his team. "You never want a serious crisis to go to waste," Rahm Emanuel, Mr. Obama's new chief of staff, told a Wall Street Journal conference of top corporate chief executives this week. He elaborated: "Things that we had postponed for too long, that were long-term, are now immediate and must be dealt with. This crisis provides the opportunity for us to do things that you could not do before."

- The Big Three are on their own for now. Congressional efforts to rescue Detroit's auto makers collapsed Thursday, with lawmakers saying the industry lacked credible plans to return to profitability.

MarketWatch.com:
- Treasury Secretary Henry Paulson on Thursday said he wants to see more hedge fund regulation as part of his proposal for creation of a new systemic risk regulator.

"To ensure the market stability regulator can fulfill its role, large, systemically-important institutions, including hedge funds, should be required to have a charter that would permit some type of oversight," Paulson said.

CNBC.com:
- Senior officials at Citigroup(C) concede that they have to make a strategic change in the firm's direction, including finding a possible merger partner or raising cash in the coming days to arrest a sharp slide in the firm's stock price, senior officials told CNBC.

NY Times:
- Duff Capital Advisors has recently laid off dozens of its employees and is holding off on its plans to raise as much as $1.5 billion just eight months after the hedge fund firm began business, according to people briefed on the actions. The Greenwich, Conn.-based firm was started in March by Philip N. Duff, a former chief financial officer of Morgan Stanley, with $500 million of capital from the New York private equity firm Lindsay Goldberg. At the time, Duff Capital said then that it was in discussions with several financial institutions to provide seed money for its investment strategies, beginning in the past spring.

- Citigroup(C) urged the Securities and Exchange Commission to reinstate the agency’s expired ban on short selling of financial stocks, The Wall Street Journal and Bloomberg News report, citing people familiar with the matter. Citigroup also is urging lawmakers to reinstate the so-called uptick rule, The Journal reports. Earlier Thursday, a prominent corporate law firm, Wachtell, Lipton, Rosen & Katz, repeated its call for the reinstatement of the uptick rule.

- Google(GOOG) is set on Thursday to significantly change the way some people use its search engine. The company is introducing a new feature called SearchWiki that will allow people to modify and save their results for specific Google searches.

BusinessWeek:

- Facebook’s Land Grab in the Face of a Downturn. The social-networking site is moving aggressively to sign up more users around the world while much of Silicon Valley hunkers down.

Financial Week:

- Hobbled hedge funds fleeing trophy buildings.

IBD:

- DeVry(DV): For-Profit Education Company Works To Upgrade Its Offerings.

Reuters:

- Citigroup Inc (C) lost more than one-quarter of its market value on growing worries over whether it has enough capital to withstand billions of dollars of potential losses and despite new support from its largest individual investor. Saudi Prince Alwaleed bin Talal said he plans to increase his stake in Citigroup, the No. 2 U.S. bank by assets, to 5 percent from less than 4 percent, calling its shares "dramatically undervalued."

Financial Times:
- Support is building for an anti-foreclosure plan proposed by Sheila Bair, the head of the Federal Deposit Insurance Corporation, in spite of resistance from the Bush administration that appointed Ms Bair to office. Ms Bair told Reuters on Thursday she expects her agency to be able to "very quickly" obtain money from the $700bn troubled asset relief program (Tarp), although she was still in talks with Hank Paulson, Treasury secretary.

Folha de S. Paulo:

- Cia. Vale do Rio Doce(RIO), the world’s biggest iron-ore producer, laid off 400 workers because of a drop in purchases from Chinese customers. Vale cut the jobs at its copper unit in the state of Para, at its railway unit in Minas Gerais and at it pellet processor in Espirito Santo.

Hindustan Times:

- In a precursor to possible large-scale retrenchment in the construction sector, ACC Concrete Ltd, a subsidiary ACC Ltd, has laid off 190 of its permanent employees, 25 per cent of its total work force, across various locations in India. ACC Ltd, India’s largest cement maker, is a subsidiary of Switzerland’s Holcim, the world’s second-largest cement producer.

Late Buy/Sell Recommendations
Citigroup:
- Upgrading (MYGN) to Buy, target raised to $72.

- Upgrading (BMRN) to Buy, target $22.

- Reiterated Buy on (AMGN), target $66, added to Top Picks Live list.

- Upgraded (LTD) to Buy, target $9.50.

- Reiterated Buy on (LRCX), target $35.

- Upgraded (GPS) to Buy, target $12.

Night Trading
Asian Indices are -2.5% to +3.0% on average.
S&P 500 futures +2.11%.
NASDAQ 100 futures +1.88%.

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Earnings of Note
Company/EPS Estimate
- (ANN)/.01

- (CSIQ)/.54

- (HNZ)/.76

- (SJM)/1.01

Economic Releases
- None of note

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Evans speaking, Fed’s Plosser speaking, Fed’s Lacker speaking, (DUK) Analyst Meeting, (MHS) Analyst Day, (NSTC) Analyst Day, (ALGN) Analyst Meeting and Bank of America Credit Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial stocks in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 50% net long heading into the day.

Stocks Finish at Session Lows, Weighed Down by Commodity, Hospital, Financial, Insurance, HMO and Alternative Energy Shares

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In Play

Stocks Falling into Final Hour on Financial Sector Pessimism, Auto Bailout Worries, Forced Selling and Global Growth Concerns

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Biotech long, Computer longs and Medical longs. I covered some of my (IWM)/(QQQQ) hedges this morning and then added them back, thus leaving the Portfolio 50% net long. The tone of the market is very bearish as the advance/decline line is substantially lower, almost every sector is declining and volume is heavy. Investor anxiety is extraordinarily high. Today’s overall market action is very bearish. The VIX is rising 4.87% and is historically elevated at 77.88. The ISE Sentiment Index is low at 105.0.0 and the total put/call is very high at 1.29. Finally, the NYSE Arms has been running high most of the day, hitting 1.8 at its intraday peak, and is currently .86. The Euro Financial Sector Credit Default Swap Index is rising 2.71% today to 125.41 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is up 11.4% to 264.20 basis points. The TED spread is rising 1.24% to 214 basis points. The TED spread is now down 250 basis points in about five weeks. The 2-year swap spread is down 3.54% to 102.25 basis points. The Libor-OIS spread is rising .88% to 173 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is plunging 35 basis points to .01%, which is down 261 basis points in under five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is now yielding .01%. The market is continuing to price in a meaningful bout of deflation. Today’s downside move has volume behind it. I am hearing another large hedge fund is blowing out of positions in size today. I am seeing the type of capitulatory type action I would expect to see near another tradable low. This will likely occur by no later than Tues. Nikkei futures indicate a -203 open in Japan and DAX futures indicate a -70 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on financial sector pessimism, forced selling, more shorting and global growth worries.

Today's Headlines

Bloomberg:
- The cost of protecting corporate bonds from default surged to records around the world as the prospect of U.S. automakers filing for bankruptcy protection fueled concern of more bank losses and a deeper recession.

- Representative Henry Waxman, an advocate for pollution controls, won the chairmanship of the House Energy and Commerce Committee, ousting auto-industry ally John Dingell of Michigan. “The champion of the environment has replaced the champion of the automotive industry,” said Daniel Becker, an environmental lawyer and director of the Safe Climate Campaign. House Democrats voted 137-122 for Waxman in a secret ballot, lawmakers said. The Energy and Commerce Committee has jurisdiction over energy, health care and telecommunications and will have a central role in passing several of Obama’s highest legislative priorities when Congress reconvenes next year.

- Democratic Leaders Balk at Auto Rescue Compromise, Aide Says.

- Democratic congressional leaders said they will delay action at least until next month on a compromise plan to help cash-strapped domestic automakers. “Unless they can show us the plan, we can’t show them the money,” House Speaker Nancy Pelosi said. “They have a bipartisan agreement, but it’s their agreement,” Reid said. Congress is in a stalemate over how to pay for the $25 billion the Big Three automakers are seeking. Republicans and the Bush administration want to use money already approved by Congress that is intended to help carmakers develop fuel-efficient vehicles.

- U.S. Senator Barbara Boxer said today she will introduce President-elect Barack Obama’s 10-year $150 billion plan to curb climate change early in the new Congress next year. There will be two bills, with one seeking to authorize a $150 billion grant program for technologies that promote energy efficiency or harness the wind and sun. The second is a scaled- back version of a climate bill she attempted to pass in the Senate last summer, the California Democrat told reporters at a news conference today in Washington.

- Citigroup Inc.(C), Goldman Sachs Group Inc.(GS) and the biggest U.S. banks tumbled in New York trading on concern the nation's deepening recession will generate more losses and weaken demand for financial services. Citi, which lost a quarter of its market value yesterday, dropped a further 21 percent even after Saudi billionaire Prince Alwaleed bin Talal said he would boost his stake in the New York- based bank. Goldman Sachs Group Inc., once the biggest U.S. securities firm, fell below its initial public offering price of $53, wiping out 10 years of gains.

- Japan is sliding back into deflation as slumping global demand cuts exports, prompting companies to cut jobs and reduce spending, said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo. ``Japan will go back to deflation'' that plagued the country for 10 years until 2007, Morita said in an interview. ``The global financial crisis is forcing companies to cut jobs and keep a lid on investment.''

- Crude oil fell to the lowest since May 2005 as a recession in the U.S., Europe and Japan cut global energy demand. Oil has dropped nearly $100 from its July record as the world economic crisis reduced global demand growth to its weakest in 23 years. “Oil at $147 was purely a speculative bubble,” Gareth Lewis-Davies, an analyst at Dresdner Kleinwort Group Ltd. in London, said before prices breached $50. “It was cheap money chasing opportunities that were evaporating in other asset classes. What would bring it down further is any indication of demand growth being weaker than already dampened expectations.” Prices may fall as low as $40 a barrel by April, Deutsche Bank AG said in a report yesterday. The Organization of Petroleum Exporting Countries potentially needs to cut production by 2.5 million barrels a day to reduce output in an oversupplied market, the note said. OPEC, supplier of more than 40 percent of the world’s crude, has lost $700 billion in revenue because of falling prices, the British Broadcasting Corp. reported, citing Chakib Khelil, the group’s president.

Wall Street Journal:

- Would Buffett Find Berkshire a Value?

MarketWatch.com:

- Investors withdrew $40 billion from hedge funds in October as the industry suffers record losses, Hedge Fund Research said Thursday. Funds of hedge funds, which allocate money to a range of underlying managers, saw the most redemptions at $22 billion last month, HFR reported.

NY Times:
- As shares of Citigroup(C), Blackstone(BX) and other heavyweights of the finance industry slumped to new lows on Thursday, a prominent law firm passionately repeated its call for the reinstatement of the “uptick rule.”

FINAlternatives:

- Perry Capital’s difficulties mounted in October, as the firm’s flagship shed another 13.6%, leaving it down in excess of 20% for the year. The US$10 billion fund suffered from both the short-selling bans and concurrent deleveraging, according to Financial News. It is down about 21% year-to-date.

AP:

- Despite the bad economy, U.S. Internet advertising revenue rose in the third quarter, according to an analysis released Thursday. The report from the Interactive Advertising Bureau and PricewaterhouseCoopers LLP said that online advertising revenue totaled almost $5.9 billion in the third quarter, up 11 percent from the same period last year. It marked a 2 percent rise from the second quarter.

- With weekly jobless claims benefits at a 16-year high, the White House said Thursday that President George W. Bush would quickly sign legislation pending in Congress to provide further unemployment benefits.

Reuters:
- Citigroup Inc (C), JPMorgan Chase & Co (JPM) and Capital One Financial Corp (COF) are among the final bidders for Chevy Chase Bank, a Bethesda, Maryland, lender, sources familiar with the matter said.

Financial Times:
- Emerging market currencies in Asia came under renewed pressure on Thursday, with the South Korean won and the Indonesian rupiah falling to their lowest levels since the Asian financial crisis of 1998. Analysts said that fears over a sharp slowdown in global growth prompted a renewed downward shift in risk appetite. This drove wary foreign investors into repatriating funds from the region, piling pressure on local currencies.

Financial Times Deutschland:
- General Electric Co.(GE) is talking to sovereign wealth funds in Singapore and China to win them as investors, citing an interview with GE International head Ferdinando Beccalli-Falco. The funds include Temasek and GIC of Singapore as well as CIC Safe of China.