Monday Watch

Weekend Headlines
Bloomberg:
- The US Treasury may slash its proposed debt sales this quarter by almost 50% because of soaring tax revenue. A decrease might provide a further lift to government bonds, which rallied for the second week in a row last week. A 27% surge in corporate tax receipts to the US government helped shrink the budget deficit to under 2% of GDP.
- Iraq will invite China National Petroleum Corp. and other overseas companies to invest in oil fields to double daily production to 6 million barrels within five years, the country’s oil minister Hussain al-Shahristani said.
- Tribune(TRB) received competing initial takeover offers from buyout firms Bain Capital LLC and Thomas H. Lee Partners LP.
- Jeff Weaver scattered four hits over eight innings and David Eckstein drove in two runs as the St. Louis Cardinals beat the Detroit Tigers 4-2 to win their first World Series title in 24 years.
- Wal-Mart Stores(WMT) said October sales at US stores open at least a year rose about .5%, the smallest gain since August 2004 when it reported a similar increase.
- US Treasuries rose for a second straight week after the Fed left interest rates unchanged and reports showed economic growth and inflation are moderating.
- President Bush urged Americans to vote Republican next month or face higher taxes and a sluggish economy under a Democratic-held Congress. Tax cuts on incomes, for married couples and on dividends have fueled wage growth and the creation of 6.6 million jobs in the US since 2003, Bush said in his weekly radio address. The Republican-backed tax breaks will expire unless Congress extends them.
- Australian Prime Minister John Howard said today Australia will keep its troops in Iraq to assist US and British forces in restoring security in the country. “You can’t go until you are satisfied that the Iraqis can look after the situation,” Howard said. “If it is all right for Australia to go, it’s all right for Britain and America to go, and if we all go Iraq will certainly descend into greater bloodshed and chaos.”
- The US unemployment rate held at a five-year low in October and employers added more than twice as many jobs as a month earlier, according to a survey of economists. Job growth will help recharge the economy, economists said. A separate report tomorrow is forecast to show consumer spending quickened as the third quarter drew to a close.
- Merrill Lynch, Dresdner Kleinwort Group and Deutsche Bank AG economists have been wrong all year in calling for the US dollar to tumble against the Japanese yen.
- Newcrest Mining Ltd., Australia’s largest gold mining company, produced 13% more bullion in the first-quarter because of higher output from its Telfer mine.

Investment Dealers’ Digest:
- McDonalds(MCD), Apple Computer(AAPL) and Boeing(BA) may to be typical buyout targets at market caps of $50 billion, $63 billion and $65 billion, respectively, but they’re no longer too large to escape a firm’s crosshairs.

Miami Herald:
- US officials are investigating if Venezuelan President Hugo Chavez, who constantly makes defamatory comments about President Bush, controls Smartmatic Corp., whose affiliate runs voting machines in 17 US states. The probe questions Smartmatic’s 2005 purchase of California-based Sequoia Voting Systems and their relationship with Bizta, which is 28% owned by the Venezuelan government. Sequoia owns the voting machines in question.

NY Times:
- Upstate New York’s attempt to build a high-tech center to increase manufacturing won’t work unless the state encourages innovation, citing AnnaLee Saxenian of the Univ. of California, Berkeley.
- Mattel’s(MAT) sales overseas of toys represents 45% of revenue compared with 31% five years ago, citing the CEO.
- Kouta Matsuda, founder of Koots Green Tea, opened his first US store in Washington state to challenge the hometown coffee-shop advantage of Starbucks(SBUX).
- Russia led the world last year in selling $7 billion in weapons to developing countries, followed by France at $6.2 billion. Russia’s sales included $700 million worth of surface-to-air missiles to Iran.

Newsweek:
- Osama bin Laden may release a taped video message to try and influence the US mid-term elections, citing two counterterrorism officials and private security expert Evan Kohlmann.

dailyii:
- For the first time, the average compensation for hedge fund managers with more than a decade of experience has topped $1.5 million a year, according to the just-released 2007 Hedge Fund Compensation Report, which is published by Glocap, Institutional Investor News and Lipper HedgeWorld.

Washington Post:
- Google(GOOG) is expanding its web reach to Madison Avenue.

Financial Times:
- Fund managers wrote to SEC Chairman Cox urging the regulator to make it easier for shareholders to elect or fire company directors.
- Concern is growing in Japan that the yen could appreciate markedly should investors lose their appetite for so-called carry trades, where they borrow in the currency to invest in countries with higher interest rates.
- The European Union “must aim to substantially increase, over time, the amount of zero or low-carbon energy” it uses, citing European Commission President Jose Manuel Barroso.
- A global regulator may be needed to help resolve policy disputes between financial regulators should issues arise in the wake of consolidation among exchanges, citing an interview with Democratic US Representative Barney Frank.
- Oracle’s(ORCL) decision to distribute a copied version of the Linux operating system offered by Red Hat(RHAT) will “have a damaging and divisive effect” on the market, citing an interview with IBM Chief Technology Officer Kristof.

Sunday Times:
- Jules Kroll may buy back his Kroll Inc. investigating company from Marsh & McLennan Cos.(MMC) for $1.9 billion.

Sun-Herald:
- Australia’s top Muslim cleric, Cheik Taj Din al-Hilali, said he may resign if the nation’s Muslim leaders prove that a sermon he gave last month was offensive and aimed at degrading women. Al-Hilali last month in a sermon drew an analogy between women who fail to wear the Islamic headscarf and discarded meat that falls prey to animals. Prime Minister John Howard has told the Muslim community it risked lasting damage if it didn’t deal with the sheik. In response to reporters’ questions on whether he would resign, al-Hilali said, “after we clean the world of the White House first.”

Press Trust:
- Steel Authority of India Ltd. expects alloy prices to fall in 2007 as China reduces imports and increases exports, citing company Chairman S.K. Roongta.
- Hewlett-Packard(HPQ) has dropped plans to build a special economic zone for information technology companies near Bangalore, citing officials.

Sunday Telegraph:
- Morgan Stanley(MS) may announce $700 million of investments in hedge funds this week. NY-based Morgan Stanley has bought FrontPoint Partners for $400 million and 20% of Avenue Capital Group for $300 million.

Guardian:
- Shiites, Sunnis, Kurds and Christians shared living quarters for a month in the latest reality television show to reach Iraqi screens.

Le Figaro:
- Two buses and 25 cars were burned in suburbs north of Paris on the first anniversary of rioting in suburban ghettos.

Cinco Dias:
- Union Fenosa SA, Spain’s third-largest power company, and Enel SpA plan to accelerate investment in their renewable energy joint venture.

El Universal:
- Peruvian authorities are probing allegations that the presidential campaign of Ollanta Humala received money from Venezuelan President Hugo Chavez, which would be a violation of election laws.

China Daily:
- Proposed legislation in China would ban citizens under 18 from entering Internet cafes as part of the government’s efforts to “combat juvenile Internet addiction,” citing Yang Jingyu, chairman of the National People’s Congress’s law committee.

Weekend Recommendations
Barron's:
- Made positive comments on (TLAB), (MFE), (SYMC), (KLAC), (ASML), (CYMI), (STX) and (DELL).

Morgan Stanley:
- Reiterated Overweight on (ATE), Top Pick.

Night Trading
Asian indices are -1.0% to unch. on average.
S&P 500 indicated -.14%
NASDAQ 100 indicated -.19%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (ADPT)/-.01
- (ASH)/.54
- (BEAV)/.24
- (NILE)/.10
- (CCU)/.37
- (DBD)/.42
- (HUM)/.97
- (MET)/1.17
- (RACK)/.20
- (SKYW)/.63
- (PCU)/1.91
- (SBL)/.12
- (SYY)/.36
- (VZ)/.66
- (VMC)/1.52
- (WMS)/.21

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Personal Income for September is estimated to rise .3% versus a .3% gain in August.
- Personal Spending for September is estimated to rise .2% versus a .1% gain in August.
- The PCE Core for September is estimated to rise .2% versus a .2% gain in August.

BOTTOM LINE: Asian Indices are lower, weighed down by technology shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

There are several economic reports of note and a number of significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. - Personal Income, Personal Spending, PCE Core

Tues. - 3Q Employment Cost Index, Consumer Confidence, Chicago Purchasing Manager

Wed. - MBA Mortgage Applications, ADP Employment Change, Construction Spending, ISM Manufacturing, ISM Prices Paid, Pending Home Sales, Total Vehicle Sales

Thur. - 3Q Preliminary Non-farm Productivity, 3Q Preliminary Unit Labor Costs, Initial Jobless Claims, Factory Orders

Fri. - Change in Non-farm Payrolls, Unemployment Rate, Average Hourly Earnings, ISM Non-Manufacturing

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. - BE Aerospace(BEAV), Blue Nile(NILE), Clear Channel(CCU), Diebold(DBD), Humana(HUM), Post Properties(PPS), Rackable Systems(RACK), Skywest(SKYW), Southern Copper(PCU), Symbol Tech(SBL), Verizon(VZ)

Tues. - Archer-Daniels-Midland(ADM), ADP(ADP), Baidu.com(BIDU), Biogen(BIIB), BJ Services(BJS), Checkpoint Systems(CKP), Chipotle Mexican Grill(CMG), CNA Financial(CNA), Cummins(CMI), DreamWorks(DWA), Eastman Kodak(EK), Gartner Inc.(IT), Hilton(HLT), IAC/InterActive(IACI), Krispy Kreme(KKD), Loews(LTR), Martha Stewart(MSO), McKesson(MCK), Perot Systems(PER), P&G(PG), Qwest(Q), Royal Caribbean(RCL), St Joe(JOE), Under Armour(UARM), Valero(VLO), Vornado(VNO)

Wed. - Allergan(AGN), Cigna(CI), Electronic Data(EDS), Garmin(GRMN), Infospace(INSP), Las Vegas Sandsa(LVS), Mastercard(MA), Maxim Integrated(MXIM), Newmont Mining(NEM), Papa John’s(PZZA), Ruth’s Chris(RUTH), Time Warner(TWX)

Thur. - AmerisourceBergen(ABC), Caremark(CMX), Cephalon(CEPH), Computer Science(CSC), CVS Corp.(CVS), Electronic Arts(ERTS), JDS Uniphase(JDSU), MGM Mirage(MGM), Qualcomm(QCOM), Sina Corp.(SINA), Transocean(RIG), Univision(UVN), Western Digital(WDC), Whole Foods(WFMI)

Fri. - Clorox(CLX), Duke Energy(DUK), Medco Health(MHS), OM Group(OMG), THQ Inc.(THQI), Wynn Resorts(WYNN)

Other events that have market-moving potential this week include:

Mon. - CE Unterberg Towbin Emerging Health Care Conference, Fed’s Lacker speaking, Fed’s Moskow speaking

Tue. - CE Unterberg Towbin Emerging Health Care Conference

Wed. - Goldman Sachs Global Capital Goods Conference, Merrill Lynch Global Energy Conference, Susquehanna Emerging Trends Conference, Fed’s Bernanke speaking

Thur. - Goldman Sachs Global Capital Goods Conference, Oppenheimer Digital Media Conference, Merrill Lynch Global Energy Conference, Monthly Retail Same-store-sales, Fed’s Fisher speaking, Fed’s Bies speaking

Fri. - Fed’s Kohn speaking

BOTTOM LINE: I expect US stocks to finish the week modestly lower as political uncertainty and profit-taking more than offsets mostly positive economic data, strong corporate profits and lower energy prices. My trading indicators are still giving bullish signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,377.34 +.64%*



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was bullish as the Dow Jones Industrial Average made another new all-time high. The advance/decline line rose, most sectors gained and volume was above average on the week. Measures of investor anxiety were mostly higher. The AAII percentage of bulls fell to 52.17% this week from 54.20% the prior week. This reading is still above average levels. The AAII percentage of bears rose to 30.43% this week from 29.77% the prior week. This reading is still slightly above average levels. The 10-week moving average of the percentage of bears is currently 34.3%, an above-average level. The 10-week moving-average of the percentage of bears was 43.0% at the major bear market lows during 2002. I continue to believe steadfastly high bearish sentiment is mind-boggling considering the recent rally and the fact that the DJIA is making new all-time highs. Bears still remain stunningly complacent, in my opinion.

As well, there are many other indicators registering high levels of investor skepticism regarding recent stock market gains. The NYSE Arms reading has been at above-average levels quite frequently of late. The 50-day moving-average of the ISE Sentiment Index is still near all-time lows. Nasdaq and NYSE short interest made record highs again this month. Moreover, public short interest continues to soar to records. U.S. stock mutual funds have seen outflows for months, according to AMG Data Services. Finally, investment blogger sentiment is still bearish. There is still a very high wall of worry for stocks to climb substantially from current levels.

I continue to believe this is a direct result of the strong belief by the herd that the U.S. is in a long-term trading range or secular bear environment. I strongly disagree with this assessment. There is overwhelming evidence that investor sentiment regarding U.S. stocks has never been this poor in history with the DJIA registering all-time highs. Due to an extraordinarily divisive political climate and explosion of absolute return strategies, there has likely never been a time in US history when more market participants perceived they directly benefited from a stagnant or declining US economy and stock market.

The bears' abuse of George Soros' Theory of Reflexivity(the theory basically states that the future outcome of an event can be altered by changing current perceptions regarding such an event) during the last few years has left most investors substantially underexposed to US equities, specifically growth stocks, and many traders heavily leaning the wrong way. I still expect the herd to finally embrace the current bull market next year which should result in another meaningful move higher in the major averages as the S&P 500 breaks out to an all-time high to join the DJIA and Russell 2000.

The average 30-year mortgage rate rose 4 basis points to 6.40%, which is 40 basis points below July highs. I still believe housing is in the process of stabilizing at relatively high levels. Former Fed Chairman Alan Greenspan reiterated his belief this week that the “worst may well be over” for the housing slowdown. Mortgage applications have turned higher recently with the decline in mortgage rates. As well, Housing inventories have been falling. The Case-Shiller housing futures are still projecting a 5% decline in the average home price over the next 7 months. Considering the median house has appreciated over 50% during the last few years with record high US home ownership, this would be considered a “soft landing.” The overall negative effects of housing on the US economy are currently being exaggerated by the bears, in my opinion. Housing and home equity extractions have been slowing substantially for well over a year and have been mostly offset by many other very positive aspects of the economy.

Americans’ median net worth is still very close to or at record high levels, energy prices have plunged, consumer spending remains healthy, unemployment is low by historic standards, interest rates are low, stocks are rising and most measures of income growth are more than twice the inflation rate, just to name a few. Consumer spending is still above long-term average levels and looks poised to strengthen into the holiday shopping season.

The Consumer Price Index for September rose 2.1% year-over-year, the smallest increase since early 2004 and down from 4.7% in September of 2005. This is substantially below the long-term average of around 3%. Moreover, the CPI has only been lower during 4 other periods since the mid-1960s. It was lower during 1986, late 1998-early 1999, late 2001-late 2002 and late 2003-early 2004. Many other measures of inflation have recently shown substantial deceleration.

The benchmark 10-year T-note yield fell 12 basis points on the week as several inflation measures showed meaningful deceleration and economic slowdown fears persist. In my opinion, investors’ continuing fears over an economic “hard landing” are misplaced. Consumer spending is very important to the health of the US economy. Weekly retail sales rose an above-average 3.4% for the week. Spending is poised to remain strong on plunging energy prices, low long-term interest rates, a rising stock market, healthy job market, decelerating inflation and more optimism. The CRB Commodities Index, the main source of inflation fears, has now declined 3.4% over the last 12 months and is down 14.5% from May highs. The average commodity hedge fund is down 13.8% for the year. I continue to believe inflation fears have peaked for this cycle as global economic growth moderates to around average levels, unit labor costs remain subdued and the mania for commodities continues to reverse course.

The EIA reported this week that gasoline supplies fell more than expectations as refinery utilization dropped again. U.S. gasoline supplies are still at extraordinarily high levels for this time of the year. Unleaded Gasoline futures rose for the week, but are still 46.55% below September 2005 highs even as refinery utilization remains below normal as a result of the hurricanes last year, some Gulf of Mexico oil production remains shut-in and fears over future production disruptions persist. Gasoline demand is estimated to rise .8% this year versus a 20-year average of 1.7% demand growth. Moreover, distillate stocks are 16% above the five-year average for this time of the year as we enter the winter heating season. The still elevated level of gas prices related to crude oil production disruption speculation by investment funds will further dampen global fuel demand, which will send gas prices still lower over the intermediate-term.

US oil inventories are near 7-year highs. Since December 2003, global oil demand is only up 1.5%, while global supplies have increased 5.9%, according to the Energy Intelligence Group. Moreover, worldwide inventories are poised to begin increasing at an accelerated rate over the next year. I continue to believe oil is priced at extremely elevated levels on fear and record speculation by investment funds, not fundamentals. The Amaranth Advisors hedge fund blow-up is a prime example of the extent to which many investment funds have been speculating on ever higher energy prices through futures contracts, thus driving the price of the underlying commodity to absurd levels. Amaranth, a multi-strategy hedge fund, lost about $6.5 billion of its $9.5 billion under management in less than two months speculating mostly on higher natural gas prices. I suspect a number of other funds will experience similar fates over the coming months, which will further pressure energy prices as these funds unwind their leveraged long positions to meet investor redemptions.

Oil has clearly broken its uptrend and is now in its seasonally weak period. A major top in oil is likely already in place as global crude oil storage capacity utilization is running around 95%. Recent OPEC production cuts will likely result in a complete technical breakdown in crude over the coming weeks. Demand destruction is already pervasive globally. Moreover, many Americans feel as though they are helping fund terrorism or hurting the environment every time they fill up their gas tanks. I do not believe we will ever again see the demand for gas-guzzling vehicles that we saw in recent years, even if gas prices continue to plunge. An OPEC production cut with oil at still very high levels and weakening global growth only further deepens resentment towards the cartel and will result in even greater long-term demand destruction. Finally, as the fear premium in oil dissipates back to more reasonable levels, global growth slows and supplies continue to rise, crude oil should continue heading meaningfully lower over the intermediate-term, notwithstanding OPEC production cuts. I suspect oil will eventually trade at levels that most investors deemed unimaginable just a few months ago during the next meaningful global economic downturn.

Natural gas inventories rose less than expectations this week, however prices for the commodity fell as another bout of record speculation subsided. Supplies are now 10.0% above the 5-year average and at record high levels for this time of year, even as some daily Gulf of Mexico production remains shut-in. Natural gas prices have collapsed 50.44% since December 2005 highs. Natural gas futures will enter their seasonally weak period over the next few weeks. I suspect natural gas made another meaningful top this week.

Gold rose on the week on US dollar weakness. The US dollar fell on declining inflation worries, growth concerns and mixed comments from the Fed. I continue to believe there is very little chance of another Fed rate hike anytime soon. An eventual cut is more likely next year as inflation continues to decelerate.

Steel stocks outperformed for the week on takeover speculation and earnings optimism. Drug stocks underperformed on earnings disappointments and political worries. With more than half of the S&P 500 reporting, profit growth for the third quarter is coming in a booming 17.6% versus a long-term historical average of 7%, according to Thomson Financial. This would mark the 17th straight quarter of double-digit profit growth, the best streak since recording keeping began in 1936. Moreover, another double-digit gain is likely in the fourth quarter. Just a few months ago many investors expected profit growth to fall to the low single digits this quarter. Despite an 85.1% total return(which is equivalent to a 16.3% average annual return) for the S&P 500 since the October 2002 bottom, its forward p/e has contracted relentlessly and now stands at a very reasonable 15.8. The 20-year average p/e for the S&P 500 is 24.4. The S&P 500 is now up 12.0% and the Russell 2000 Index is up 14.8% year-to-date.

Current stock prices are still providing longer-term investors very attractive opportunities, in my opinion. In my entire investment career, I have never seen the best “growth” companies in the world priced as cheaply as they are now relative to the broad market. By contrast, “value” stocks are quite expensive in many cases. A recent CSFB report confirmed this view. The report concluded that on a price-to-cash flow basis growth stocks are now cheaper than value stocks for the first time since at least 1977. The entire decline in the S&P 500’s p/e, since the bubble burst in 2000, is attributable to growth stock multiple contraction. I still expect the most overvalued economically sensitive and emerging market stocks to continue underperforming over the intermediate-term as the manias for those shares subside and global growth slows to more average rates. I continue to believe a chain reaction of events has begun that will result in a substantial increase in demand for US stocks.

In my opinion, the market is still factoring in way too much bad news at current levels, notwithstanding recent gains. One of the characteristics of the current “negativity bubble” is that most potential positives are undermined, downplayed or completely ignored, while almost every potential negative is exaggerated, trumpeted and promptly priced in to stock prices. Furthermore, this “irrational pessimism” by investors has resulted in a dramatic decrease in the supply of stock as companies bought back shares, IPOs were pulled and secondary stock offerings canceled. Commodity funds, which have received huge capital infusions this year, will likely see significant outflows at year-end. Some of this capital will likely find its way back to US stocks. I continue to believe there is massive bull firepower available on the sidelines for US equities at a time when the supply of stock has contracted.

An end to the Fed rate hikes, lower commodity prices, seasonal strength, the November election, decelerating inflation readings, a strong holiday shopping season, lower long-term rates, increased consumer/investor confidence, short-covering, investment manager performance anxiety, rising demand for US stocks and the realization that economic growth is only slowing to around average levels should provide the catalysts for another substantial push higher in the major averages through year-end as p/e multiples expand further. I still expect the S&P 500 to return a total of at least 15% for the year. The ECRI Weekly Leading Index was unchanged this week and is still forecasting healthy US economic activity.

*5-day % Change

Weekly Scoreboard*

Indices
S&P 500 1,377.34 +.64%
DJIA 12,090.26 +.73%
NASDAQ 2,350.62 +.35%
Russell 2000 765.84 4+.49%
Wilshire 5000 13,907.16 +1.58%
S&P Barra Growth 638.63 +.51%
S&P Barra Value 736.65 +.76%
Morgan Stanley Consumer 668.75 +.78%
Morgan Stanley Cyclical 859.13 +1.30%
Morgan Stanley Technology 544.87 +.02%
Transports 4,748.54 +.90%
Utilities 447.48 unch.
MSCI Emerging Markets 102.00 +.20%
S&P 500 Cum A/D Line 8,523 +2.0%
Bloomberg Crude Oil % Bulls 57.0 +99.5%
CFTC Oil Large Speculative Longs 159,629 +4.0%
Put/Call 1.03 +56.06%
NYSE Arms 1.51 +46.60%
Volatility(VIX) 10.80 +1.60%
ISE Sentiment 161.0 +10.3%
AAII % Bulls 52.17 -3.75%
AAII % Bears 30.43 +2.22%
US Dollar 85.56 -.82%
CRB 312.37 +2.17%
ECRI Weekly Leading Index 136.40 unch.

Futures Spot Prices
Crude Oil 60.75 +2.32%
Unleaded Gasoline 155.99 +6.15%
Natural Gas 7.82 -4.20%
Heating Oil 169.44 +.69%
Gold 602.30 +3.29%
Base Metals 248.39 +.56%
Copper 340.70 -1.27%
10-year US Treasury Yield 4.67% -2.5%
Average 30-year Mortgage Rate 6.40% +.63%

Leading Sectors
Steel +3.49%
Gold & Silver +3.28%
HMOs +3.16%
Oil Service +3.02%
Disk Drives +2.04%

Lagging Sectors
Defense -.56%
Gaming -.86%
Hospitals -1.04%
Software -1.65
Drugs -2.10%

One-Week High-Volume Gainers
One-Week High-Volume Losers

*5-Day % Change

Stocks Lower into Final Hour on Profit-taking and Growth Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Retail longs. I added to my (ISRG) long, took some more profits in my (TLT) long, added (EEM), (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are falling and volume is above-average. The major averages and breadth are at session lows on worries over comments from Goldman Sachs that PC motherboard shipments in Asia have fallen off a cliff in October. I suspect this is related to Vista. We appear to be in another period of worries that economic growth is slowing too much. I also believe uncertainty over the election is beginning to weigh on equities. I suspect the major averages will trade mixed-to-lower until after the election on Nov. 7. I expect US stocks to trade mixed into the close from current levels as short-covering and lower long-term rates offsets worries over slowing growth.

Today's Headlines

Bloomberg:
- Merrill Lynch(MER), Goldman Sachs(GS) and Bear Stearns(BSC), three of the five biggest US securities firms, had their long-term credit ratings raised by S&P, which cited improvements in liquidity and risk management.
- US regulators need to examine the $1.3 trillion hedge-fund industry to make sure investors are protected and systemic risks they might pose are known, Treasury Secretary Henry Paulson said.
- General Motors(GM), losing sales to Toyota Motor(TM), will use some of the $9 billion in savings from cost cuts this year to make vehicles that match the Japanese automaker in technology and fuel efficiency.
- US Treasuries are rising after a US government report showed inflation subsided last quarter, fueling speculation the Fed’s next move will be to lower interest rates.
- Investors in hedge funds overseen by George Soros, Louis Bacon and Paul Jones would have made more money this year by buying shares of a stock-index mutual fund. Managers of so-called macro hedge funds have lagged behind market benchmarks such as the S&P 500 after being caught off guard by reversals in stock, bond and commodity prices. Macro funds have risen on average 1.8% this year through Oct. 24 versus a 12% return for the S&P 500, according to Hedge Fund Research.
- Naval forces from the US-led coalition have been sent to protect Saudi Arabia’s Ras Tanura oil terminal after the threat of a terrorist attack from the sea.
- Crude oil was little changed despite threats to facilities in the Middle East amid speculation that ample inventories could meet any supply disruption.

Wall Street Journal:
- US construction spending will fall 1% next year. The anticipated decline will mostly be due to a 5% decline in the building of single-family homes and a 3% fall in the construction of shopping malls and retail outlets.
- Ticketmaster, owned by (IACI), has obtained an exclusive contract to supply tickets to the Beijing Summer Olympics.

NY Times:
- China and North Korea, which exchange oil, coal and electricity and goods, have continued to trade with one another under UN sanctions imposed in response to North Korea’s nuclear test.
- US corporate executives say their companies’ auditors are charging too much money while refusing to provide enough service. The auditors have been able to do so because of changes brought about by the Sarbanes-Oxley Act.
- Democrats are united in criticizing President Bush over the situation in Iraq but divided over how to improve it.

Commercial Mortgage Alert:
- The group proposing to buy Harrah’s Entertainment(HET) received commitments from banks willing to provide $7 billion of mortgage debt to help finance the takeover.

Interfax:
- Alcoa(AL) will spend about $160 million to increase production at its plant in Samara, Russia.

Globe and Mail:
- Canada won’t give amnesty for illegal workers employed in the underground economy.