Today's Headlines

Bloomberg:
- Venezuela said it plans to seize as many as 50 of the country’s large farming estates this year as part of a land redistribution plan.
- Sprint Nextel CEO Forsee told CNBC the wireless carrier is now combining the networks of Sprint and Nextel and is expected to be finished by 2008.
- Sandy Berger, the US national security adviser under President Clinton, was arrested again two days after being sentenced for taking classified documents from the National Archives, violating his probation.
- The two-year rally in oil prices and stocks such as BP Plc is over for now as surging energy costs hurt demand, said Neil McMahon, an analyst at Sanford C. Bernstein.
- GE said third quarter profit rose to the high end of its forecast.
- The euro is rising the most since January 2004 against the dollar after the European Central Bank President Jean-Claude Trichet said the bank is prepared to raise interest rates for the first time since 2000.
- Crude oil is tumbling to a 2-month low and gasoline slid for a sixth session as US fuel imports surged and demand fell.

Wall Street Journal:
- Gains this year for emerging market debt may be coming to an end, according to “market watchers.”
- The Jewish Family Services and other community assistance and refugee organizations are starting to step in to help provide assistance to victims of Hurricane Katrina.
- US House Committee on Resources Chairman Richard Pombo and Florida Governor Jeb Bush are close to an agreement to exempt some states from federal restrictions on offshore drilling for natural gas on federal land.
- AT&T and MCI Inc. will intensify their longstanding rivalry for business customers after they are separately acquired by Verizon Communications and SBC Communications.

NY Times:
- As much as 80% of operations at the Port of New Orleans remain closed a month after Hurricane Katrina came ashore.
- Video companies are turning directly to the Internet to lure viewers instead of trying to work with movie studios and television networks as a way to gain TV audiences.
Washington Post:
- The FDA may soon clear for human consumption milk from cloned animals and meat from their naturally reproduced offspring.
- France, for the first time in history, is distilling some of its fine wines into fuel because of a worldwide wine glut.

Boston Globe:
- The Massachusetts Senate will vote today on a bill that would allow as many as 2,000 slot machines at the state’s four racetracks.

Financial Times:
- The International Organization of Securities Commissions, a global body for financial market regulators, has begun investigating hedge funds’ increasing influence.

Kauppalehti:
- Nokia Oyj’s handheld device for e-mail messaging and Internet browsing will be delayed by a few weeks because it took longer than expected to complete the device’s software.

Kyodo:
- Japanese Prime Minister Junichiro Koizumi asked his ruling Liberal Democratic Party to devise a plan to slash the number of central and local government workers by 20% over a 10-year period.

Hurricane Rita Spurs Another Surge in Jobless Claims

- Initial Jobless Claims for last week rose to 390K versus estimates of 350K and an upwardly revised 369K the prior week.
- Continuing Claims rose to 2905K versus estimates of 2819K and a downwardly revised 2787K prior.

BOTTOM LINE: The number of Americans filing first-time claims for jobless benefits rose unexpectedly last week as workers displaced by Hurricane Rita joined Katrina’s victims, Bloomberg reported. About 70,000 claims were related to Katrina. The four-week moving-average of claims rose to 404,500 from 388,750 the prior week. The insured employment rate, which tracks the US unemployment rate rose to 2.3% from 2.2% the prior week and 2.0% before the hurricanes. Rita’s effects appear to be larger than most expected. I still expect jobless claims to begin heading lower again next week. Tomorrow’s jobs report will be ugly, but is likely factored in at this point.

Links of Interest

Market Snapshot
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Real-time Intraday Chart/Quote

Thursday Watch

Late-Night Headlines
Bloomberg:
- Toyota Motor’s purchase of a stake in Fuji Heavy Industries, the maker of Subaru cars, may help Japan’s biggest automaker gain expertise in hybrid systems and all-wheel-drive vehicles.
- Crude oil is falling for a fifth day on expectations surging fuel imports will help compensate for reduced production caused by hurricanes in the Gulf of Mexico.

International Oil Daily:
- World oil consumption fell to 82.62 million barrels a day in September, down .12% from a year earlier. Demand in industrialized countries fell .6% from a year earlier last month, while demand growth in developing countries slowed to .6%. Revisions to oil consumption data for July and August imply that demand plunged after oil surpassed $50/bbl. September demand should be revised even lower.

Financial Times:
- Morgan Stanley may win approval from Chinese regulators to become the first overseas investment bank to hold stakes in two local brokerages.

Late Buy/Sell Recommendations
Goldman Sachs:
- Reiterated Outperform on SBUX, CL and YHOO.
- Reiterated Outperform on GOOG, raised earnings estimates and price target to $356-$396 from $333.
- Reiterated Underperform on ESRX.

Night Trading
Asian Indices are -2.0% to -1.25% on average.
S&P 500 indicated +.02%.
NASDAQ 100 indicated +.09%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
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Earnings of Note
Company/EPS Estimate
ACN/.36
STZ/.41
COST/.64
SCHN/.85

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 350K versus 356K the prior week.
- Continuing Claims are estimated to rise to 2819K versus 2802K prior.

BOTTOM LINE: Asian indices are lower, dragged down by commodity-related companies in the region on worries over falling global demand. I expect US equities to open lower and rise modestly later in the day. The Portfolio is 25% net long heading into the day.

Stocks Finish Sharply Lower, Led Down by Commodity Stocks on Increasing Signs of Slowing Demand

Indices
S&P 500 1,196.39 -1.49%
DJIA 10,317.36 -1.19%
NASDAQ 2,103.02 -1.70%
Russell 2000 644.98 -2.84%
DJ Wilshire 5000 11,956.32 -1.66%
S&P Barra Growth 572.28 -1.40%
S&P Barra Value 619.97 -1.57%
Morgan Stanley Consumer 580.90 -1.05%
Morgan Stanley Cyclical 705.44 -1.98%
Morgan Stanley Technology 497.23 -1.25%
Transports 3,623.52 -1.96%
Utilities 415.17 -3.30%
Put/Call 1.01 +29.49%
NYSE Arms 2.18 +60.12%
Volatility(VIX) 14.55 +10.23%
ISE Sentiment 155.00 -34.60%
US Dollar 89.98 -.13%
CRB 328.20 -.46%

Futures Spot Prices
Crude Oil 62.43 -.57%
Unleaded Gasoline 189.35 -.75%
Natural Gas 14.17 -.08%
Heating Oil 200.00 -.73%
Gold 468.10 -.26%
Base Metals 131.84 +1.16%
Copper 178.15 -.28%
10-year US Treasury Yield 4.34% -.45%

Leading Sectors
Restaurants +.11%
Banks -.55%
Insurance -.73%

Lagging Sectors
Oil Service -3.84%
Coal -4.79%
Steel -5.29%

Evening Review
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Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
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Afternoon Recommendations
Goldman Sachs:
- Reiterated Outperform on DHR, GE, MMM, TYC, FDC, NFX and UTX.

Afternoon/Evening Headlines
Bloomberg:
- Crude oil fell after a government report showed that US fuel demand dropped as refinery operating rates plunged because of hurricane Rita.
- Gasoline fell for the fifth straight session on indications that demand is ebbing because of high prices at the pump.
- Apple Computer may introduce a version of the best-selling iPod device that also plays videos.

Financial Times:
- Louisiana will ask the US government for $1 billion to help rebuild its tourism industry as it recovers from damage caused by Hurricane Katrina, citing Angele Davis, the state’s depart of culture, recreation and tourism secretary.

BOTTOM LINE: The Portfolio finished unchanged today as gains in my Energy-related shorts and Steel shorts offset losses in my Semiconductor longs and Medical Information Systems longs. I exited a few of my IWM and QQQQ shorts in the afternoon, thus leaving the Portfolio 25% net long. The tone of the market was very negative today as the advance/decline line finished at session lows, almost every sector fell and volume was above average. Measures of investor anxiety were higher into the close. Overall, today’s market action was negative. I completely disagree with those who say today's sell-off was because of inflation fears. In my opinion, the drop is a result of worries that high commodity prices and a hawkish Fed will greatly hurt the economy. I expect these fears will increase over the coming weeks during earnings pre-announcement season. However, this will set the stage for a very strong year-end rally as commodity prices continue to fall, Fed worries subside and the economy remains healthy.

Stocks Falling Mid-day, Led Lower Again by Commodity Shares

Indices
S&P 500 1,206.18 -.68%
DJIA 10,390.14 -.49%
NASDAQ 2,121.15 -.85%
Russell 2000 652.25 -1.71%
DJ Wilshire 5000 12,060.53 -.80%
S&P Barra Growth 577.26 -.54%
S&P Barra Value 625.58 -.68%
Morgan Stanley Consumer 585.10 -.33%
Morgan Stanley Cyclical 712.47 -1.0%
Morgan Stanley Technology 501.01 -.51%
Transports 3,673.60 -.61%
Utilities 421.99 -1.71%
Put/Call .95 +21.79%
NYSE Arms 1.31 -2.98%
Volatility(VIX) 13.65 +3.41%
ISE Sentiment 174.00 -26.58%
US Dollar 89.95 -.17%
CRB 329.14 -.19%

Futures Spot Prices
Crude Oil 63.45 -.70%
Unleaded Gasoline 195.50 -3.01%
Natural Gas 14.35 +.89%
Heating Oil 202.50 -1.21%
Gold 469.20 -.02%
Base Metals 131.84 +1.16%
Copper 178.65 +1.16%
10-year US Treasury Yield 4.35% -.23%

Leading Sectors %
Restaurants +.65%
Insurance +.14%
Banks +.11%

Lagging Sectors
Energy -2.21%
Coal -3.77%
Steel -4.14%

BOTTOM LINE: The Portfolio is slightly higher mid-day on gains in my Steel shorts and Energy-related shorts. I added to my IWM and QQQQ shorts this morning, thus leaving the Portfolio market neutral. The tone of the market is negative as the advance/decline line is substantially lower, almost every sector is declining and volume is above average. Measures of investor anxiety are mostly higher. Today’s overall market action is negative given the decline in long-term rates and energy prices. Unleaded gas futures are down about 35% from highs seen last month. This is with refinery utilization down to 69.8%. Demand for gasoline is no longer decelerating. It is falling. I expect US stocks to trade mixed-to-lower from current levels into the close as worries over earnings offsets lower energy prices and rates.