Today's Headlines

Bloomberg:
- Saks Inc.(SKS) may be acquired by a private-equity firm because of the luxury retailer’s global brand recognition, according to Citi Investment Research.
- State Street(STT) said earnings will rise more than 15% this year, beating its forecast, after completing the acquisition of Investors Financial Services and weathering a rout in the credit markets.
- Crude oil rose above $88 a barrel for the first time in NY on concern Turkey may attack Kurdish militants in Iraq and disrupt oil shipments.

Wall Street Journal:
- As Burgers Boom in Russia, McDonald’s Touts Discipline.
- US Plans Alternate Route For Iraq Supplies Amid Turkish Turmoil. Relations between Washington and Ankara have been strained by Turkey’s preparations to invade northern Iraq to rout out Kurdish rebels at the same time as US lawmakers consider a resolution accusing Turkey of genocide against Armenians following WWI.

NY Times:
- Dow Jones Drops CNBC Ads From Web Sites in Favor of Fox Links.

BusinessWeek.com:
- Apple will release a software-development kit for the iPhone is early 2008, enabling programmers to create games, business-productivity tools, and countless other applications for the device.

TheStreet.com:
- AT&T(T) has hired Goldman Sachs(GS) to explore the acquisition of EchoStar(DISH).

Newsday.com:
- Record NYC building boom, spurred by commercial construction.

Reuters:
- Angola’s crude oil production is expected to rise above 2 million barrels per day for the first time in December as new fields come online and others ramp up output, trade sources said.

TIC Flows Decline on Credit Turmoil, Industrial Production Decelerates on GM Strike

- Net Long-term TIC Flows for August fell to -$69.3 Billion versus estimates of $60.0 Billion and $19.5 Billion in July.

- Industrial Production for September rose .1% versus estimates of a .1% gain and a downwardly revised 0.0% in August.

- Capacity Utilization for September was 82.1% versus estimates of 82.1% and 82.1% in August.

BOTTOM LINE: International investors sold a net $69.3 billion of US securities in August during the peak of the credit market turmoil, Bloomberg reported. The last decline was seen in 1998 during the Russian debt crisis in 1998. International demand for Treasuries fell by $2.6 billion, compared with a $9.4 billion drop the prior month. International holdings of US stocks fell a net $40.6 billion, compared to net purchases of $21.2 billion in July. I think this report was an aberration and expect to see a significant uptick in demand for US assets in September and October.

Industrial production in the US rose .1% in September, Bloomberg reported. The GM strike helped to production last month. Motor vehicle and parts production declined 3.3% versus a 1.6% decline the prior month. Manufacturing excluding vehicles and parts rose .3%. Production of computers and peripheral equipment increased .9%. Capacity Utilization is just slightly above the long-term average of 81.1. I expect industrial production to show acceleration this month.

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Tuesday Watch

Late-Night Headlines
Bloomberg:
- Fed Chairman Bernanke said the housing slump will be a “significant drag” on US growth into next year, though evidence of a broader impact on spending is limited.
- Bankers fro Kohlberg Kravis Roberts met with investors today to revive bond sales for Energy Future Holdings, formerly TXU Corp., and First Data Corp.(FDC), seizing on signs of life in the high-yield debt market.
- China Citic Group, an investment arm of the nation’s cabinet, is bidding for a stake in Bear Stearns(BSC), a senior government official said.
- Contact Energy Ltd., New Zealand’s biggest publicly traded energy company, may spend as much as $1.5 billion building the nation’s largest wind farm to help reduce its reliance on gas-fired generation.

Wall Street Journal:
- Americans Win Nobel Prize in Economics.

MarketWatch.com:
- China craze continues, nervously. Some warning signs may be beginning to emerge.

NY Times:
- Video Chat Services Aims to Follow YouTube’s Path.
- 1,200 Marketers Can’t Be Wrong: The Future Is in Consumer Behavior.

CNNMoney.com:
- Investor Corner: Don’t Let Bad News Scare You Off Market.
- Inside Fox Business News.

USA Today.com:
- Santa, take note: Computers top wish lists.

Financial Times:
- Google(GOOG) on Monday sought to take back some of the moral high ground in its tussle with traditional media companies as it claimed to have made significant progress with a new technology designed to block copyrighted video from its YouTube subsidiary.

China Daily:
- The growth of nuclear power in China and India over the next two decades will outpace other countries, a senior International Atomic Energy Agency(IAEA) official said Monday. “In China, in India, you have very definite plans for increasing the nuclear capacity six to ten times for 20 years, this is really fast growth.”

Late Buy/Sell Recommendations
Citigroup:
- Maintain Buy on (T) and (DISH). 65% chance T buys DISH within 12 months. See $65 per share for DISH on acquisition.

Morgan Stanley:
- Reiterated Overweight on (GILD), target raised to $56.

Night Trading
Asian Indices are -.75% to +.75% on average.
S&P 500 futures -.04%.
NASDAQ 100 futures +.01%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (DAL)/.41
- (DPZ)/.23
- (FRX)/.79
- (JNJ)/.99
- (KEY)/.73
- (PII)/1.02
- (RF)/.69
- (STT)/.93
- (USB)/.66
- (WFC)/.69
- (CSX)/.62
- (INTC)/.30
- (IBM)/1.68
- (LLTC)/.39
- (STX)/.64
- (YHOO)/.08
- (ILMN)/.19

Upcoming Splits
- (DKS) 2-for-1

Economic Releases
9:00 am EST
- Net Long-term TIC Flows for August are estimated to rise to $60.0 billion versus $19.2 billion in July.

9:15 am EST
- Industrial Production for September is estimated to rise .1% versus a .2% gain in August.
- Capacity Utilization for September is estimated to fall to 82.1% versus 82.2% in August.

1:00 pm EST
- The NAHB Housing Market Index for October is estimated to fall to 19 versus 20 in September.

Other Potential Market Movers
- The weekly retail sales reports, (TESO) analyst meeting, (VQ) analyst meeting and Wachovia Consumer Growth Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower on Profit-taking, Higher Energy Prices

Indices
S&P 500 1,548.71 -.84%
DJIA 13,984.80 -.77%
NASDAQ 2,780.05 -.91%
Russell 2000 829.36 -1.40%
Wilshire 5000 15,583.58 -.87%
Russell 1000 Growth 630.06 -.88%
Russell 1000 Value 861.87 -.78%
Morgan Stanley Consumer 745.48 -1.18%
Morgan Stanley Cyclical 1,078.60 -.95%
Morgan Stanley Technology 682.05 -.99%
Transports 4,888.99 -1.05%
Utilities 514.08 -1.02%
MSCI Emerging Markets 158.13 -.06%

Sentiment/Internals
Total Put/Call .80 +5.26%
NYSE Arms 1.18 +114.55%
Volatility(VIX) 19.25 +10.25%
ISE Sentiment 153.0 -6.71%

Futures Spot Prices
Crude Oil $86.29 +3.09%
Reformulated Gasoline 216.30 +3.74%
Natural Gas 7.46 +7.0%
Heating Oil 231.26 +2.95%
Gold 764.30 +1.39%
Base Metals 258.53 +1.76%
Copper 368.25 +.82%

Economy
10-year US Treasury Yield 4.68% unch.
US Dollar 78.08 -.17%%
CRB Index 338.15 +1.39%

Leading Sectors
Energy +1.0%
Biotech +.62%
Construction +.43%

Lagging Sectors
I-Banks -1.72%
REITs -2.14%
Homebuilders -2.75%

Evening Review
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Afternoon Recommendations
Oppenheimer:
- Rated (SXCI) Outperform, target $18.

Afternoon/Evening Headlines
Bloomberg:
-Saks Inc.(SKS) rose 3.7% after Women’s Wear Daily reported the luxury retailer was approached by at least one suitor in the past two weeks and may consider accepting an offer.
- Wilbur Ross, billionaire who specializes in resurrecting failed companies, is betting the US mortgage market will rise from the dead.
- Crude oil rose above $86/bbl. for the first time in NY on concern Turkish forces may pursue Kurdish militants in Iraq.
- Warren Buffett’s Berkshire Hathaway(BRK/A), which has built a 17% stake in railroad Burlington Northern Santa Fe Corp.(BNI), lowered its holding of carriers Union Pacific(UNP) and Norfolk Southern(NSC).
- Genentech Inc.(DNA) said profit climbed 21%, fueled by sales of the cancer drugs Avastin and Rituxan. The stock declined $.81/share in extended trading to $76.69.

Wall Street Journal:
- Shareholder lawsuits have been filed in the US against LDK Solar Co., which has been scrambling to protect its reputation since a former employee last month accused the Chinese solar-power company of accounting fraud.

BOTTOM LINE: The Portfolio finished lower today on losses in my Internet longs, Software longs and Biotech longs. I did not trade in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished substantially lower, sector performance was mostly negative and volume was about average. Measures of investor anxiety were above average into the close. Today's overall market action was bearish. Briefing.com is reporting that rumors have surfaced that Google (GOOG) could take a stake in Baidu (BIDU). This could account for the weakness in Google shares today. Baidu rebounded a bit on the news. Recent reports suggest that Google is making meaningful inroads against Baidu in China. As well, Baidu's valuation is in the stratosphere. I suspect this will remain nothing more than a rumor. Sectors related to housing or the consumer underperformed substantially today. However, the SOX was just slightly lower, with a number of semis rising. This is noteworthy considering their underperformance relative to other areas of tech this year. Broadcom (BRCM) has been incredibly strong of late, and it remains my favorite in the group. Given the headline losses in the major averages, I would have liked to have seen a bit more anxiety. The VIX did rise 9%, but the total put/call and ISE were showing some complacency by retail options traders regarding today's decline. Volatility is likely to remain somewhat elevated near term as earnings continue rolling in.

Stocks Lower into Final Hour on Higher Energy Prices, Profit-taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Medical longs and Software longs. I added back (IWM)/(QQQQ) hedges and added to my (EEM) short. I also was stopped out of my (USO) short and took profits in a trading long today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is substantially lower, most sectors are falling and volume is about average. Thompson Financial now expects third-quarter S&P 500 earnings growth to come in slightly negative. I will be very surprised if earnings growth doesn't handily beat that expectation. The S&P 500 is now 11.7% higher year-to-date and technically overbought near term. I still expect a total return of about 17% for the S&P 500 by year-end. As well, the Russell 1000 Growth Index is 15.8% higher year-to-date, and I still expect it to return a total of about 25% this year. Fed fund futures now imply a 32% chance for a 25-basis-point cut at the upcoming meeting. This is down from 40% on Friday and 48% one week ago. I anticipate Fed commentary this week to continue to be somewhat more hawkish to lower expectations for a cut further. This should provide support for the much-hated U.S. dollar. According to Intrade.com, the percentage chance of the U.S. heading into recession next year has fallen to 35.5%. This is down from 58.9% just last month. As I said back when recession fears were peaking, I continue to believe that an imminent recession is highly unlikely. The drag from U.S. housing problems, combined with booming global growth, will continue to result in modestly below-trend U.S. growth over the intermediate term, in my opinion. I think this is one of the main reasons for recent growth stock multiple expansion. Overall, I still see housing as a net positive for all U.S. stocks. Without housing, investors would have faced above-average inflation, higher long-term rates and multiple Fed rate hikes, which would have greatly increased the odds of a hard landing. That said, given housing, long-term rates should remain relatively low, inflation should stay below average rates, and the Fed is, at the very least, on hold indefinitely and may even cut again. The macro backdrop for investing in U.S. stocks is still very good. I expect US stocks to trade mixed into the close from current levels as higher energy prices and profit-taking offset less economic pessimism.