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- None of note

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Federal Reserve Bank of Chicago President Charles L. Evans, in his first speech on the economic outlook as a policy maker, said central bankers must guard against “high cost” events such as a worsening housing slump. Economic growth will be “soft” in coming months and recover later next year, moving closer to its potential rate of above 2.5%, Evans said.
- Newcrest Mining Ltd., Australia’s largest gold mining company, increased fiscal first-quarter gold output 18% at its mines in Australia and Indonesia to take advantage of soaring prices for the precious metal.
- Japanese technology stocks rose after Fujitsu Ltd. reported earnings that exceeded the company’s forecast and the Nikkei newspaper said Hitachi Ltd. will exit the personal-computer business, boosting speculation reduced competition will aid profits for other computer makers.
- Pakistan said it is enjoying its best relations with India since independence from Britain 60 years ago and their peace process won’t be delayed by Pakistani unrest or political deadlock within the Indian government.
- BHP Billiton(BHP), the world’s largest mining company, increased first-quarter copper and iron ore production.

Wall Street Journal:
- China’s Hand For Bear(BSC). Citic Pact Could Buoy The Wall Street Firm.

New York Times:
- Privacy Lost: These Phones Can Find You.

MarketWatch.com:
- Wal-Mart may benefit from slower US store growth, analysts say.

Reuters:
- Apple results top targets, Mac sales strong.

Financial Times:
- ICICI Bank Ltd. has received a branch license from the US Federal Reserve, becoming the first Indian bank in five years to obtain approval to open an outlet there.
- GM takes Toyota sales crown.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (GOOG), target $775.

Deutsche Bank:
- Upgraded (AUO) to Buy.

Night Trading
Asian Indices are -.25% to +2.75% on average.
S&P 500 futures +.47%.
NASDAQ 100 futures +.77%.

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Earnings of Note
Company/EPS Estimate
- (ARW)/.79
- (BIIB)/.64
- (EAT)/.40
- (BNI)/1.36
- (COH)/.40
- (JCI)/.78
- (LXK)/.13
- (LMT)/1.63
- (OMC)/.61
- (PCP)/1.63
- (SHW)/1.50
- (SII)/.83
- (TROW)/.62
- (AMTD)/.32
- (UAUA)/1.87
- (UIS)/.05
- (XTO)/1.07
- (DD)/.54
- (WHR)/2.11
- (TLAB)/.01
- (UPS)/1.02
- (T)/.71
- (AVY)/.90
- (ALTR)/.21
- (AFL)/.82
- (AMZN)/.17
- (BRCM)/.27
- (CTX)/-5.51
- (CAKE)/.27
- (CB)/1.44
- (BCR)/.92
- (ILMN)/.18
- (JNPR)/.21
- (MCHP)/.36
- (NBR)/.75
- (PNRA)/.36
- (RJF)/.51
- (RVBD)/.17
- (CEC)/.48
- (F)/-.46
- (NVLS)/.38
- (PNR)/.50
- (QLGC)/.18
- (RDN)/-1.38
- (USG)/.31

Upcoming Splits
- (ARD) 2-for-1
- (CSNT) 2-for-1

Economic Releases
- None of note

Other Potential Market Movers
- The weekly retail sales reports, Richmond Fed Manufacturing Index, (BSX) analyst meeting, (WMT) fall analyst meeting and (FBN) analyst conference could also impact trading today.

BOTTOM LINE: Asian indices are 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 100% net long heading into the day.

Stocks Finish at Session Highs on Lower Energy Prices, Short-Covering

Indices
S&P 500 1,506.33 +.38%
DJIA 13,566.97 +.33%
NASDAQ 2,753.93 +1.06%
Russell 2000 810.08 +1.41%
Wilshire 5000 15,175.10 +.46%
Russell 1000 Growth 617.48 +.48%
Russell 1000 Value 832.52 +.31%
Morgan Stanley Consumer 729.54 +.14%
Morgan Stanley Cyclical 1,037.05 -.15%
Morgan Stanley Technology 671.93 +1.0%
Transports 4,845.27 +.91%
Utilities 501.86 +.64%
MSCI Emerging Markets 152.09 -1.36%

Sentiment/Internals
Total Put/Call 1.01 -10.62%
NYSE Arms .79 -77.65%
Volatility(VIX) 21.64 -5.75%
ISE Sentiment 108.0 +6.93%

Futures Spot Prices
Crude Oil $87.56 -1.17%
Reformulated Gasoline 212.65 -1.95%
Natural Gas 6.88 -2.22%
Heating Oil 230.87 -.94%
Gold 758.0 -1.35%
Base Metals 245.22 -2.94%
Copper 350.20 -1.39%

Economy
10-year US Treasury Yield 4.41% +2 basis points
US Dollar 78.0 +.77%
CRB Index 336.35 -1.11%

Leading Sectors
Homebuilders +3.59%
Retail +2.11%
Computer Hardware +2.01%

Lagging Sectors
Energy -1.14%
Gold -2.37%
Oil Tankers -3.49%

Evening Review
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Afternoon Recommendations
Bear Stearns:
- Rated (AMAG) Outperform.

Afternoon/Evening Headlines
Bloomberg:
- Apple Inc.(AAPL) fourth-quarter profit jumped 67%, topping analysts’ estimates, on soaring demand for the Macintosh computer, the iPhone handset and new iPods. The shares surged 6.6% in after-hours trading.
- Gilead Sciences(GILD), the largest maker of HIV drugs in the US, said it plans to buy back as much as $3 billion of its stock.
- Netflix(NFLX), the largest mail-order movie-rental service, said profit rose more than analysts anticipated and raised its subscriber forecast after lowering prices to boost customer demand. The stock soared 14% in extended trading.
- Target Corp.(TGT) cut its October forecast slightly, saying sales at locations open at least a year may rise as much as 4%. The stock was unch. in extended trading.
- Texas Instruments(TXN) said third-quarter earnings rose 11%, boosted by sales of more-profitable chips used in computers, cars and washing machines. The stock fell $1/share in after-hours trading.
- American Express(AXP), the third-largest US credit-card network, said profit climbed 10% as customer spending and merchant fees increased. The stock is rising $1.50/share in extended trading.
- Thornburg Mortgage(TMA) rose the most in more than two months after its CEO Garrett Thornburg said he increased his stake in the company.
- Crude oil fell from a record as concern eased that at Turkish assault on Kurdish militants in northern Iraq was imminent.
- Gold fell the most in two weeks after the US dollar rebounded against the euro, reducing the appeal of the precious metal as an alternative investment.

Wall Street Journal:
- Federal Reserve Bank of St. Louis President William Poole said he’s seeing “evidence of a healing process” in credit markets.

Financial Times:
- US sees more banks leaving Tehran.

BOTTOM LINE: The Portfolio finished higher today on gains in my Computer longs, Retail longs, Semi longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was slightly positive today as the advance/decline line finished mildly higher, most sectors rose and volume was above average. Measures of investor anxiety were slightly above average into the close. Today's overall market action was very bullish, given morning losses. Again today, many stocks posted huge outperformance vs. the averages. Homebuilding stocks led the way today, rising 3.6%. Much of this move may be related to short-covering. For example, according to NYSE data, 99% of Beazer's (BZH) float is now short. It is a big positive to see retail shares posting meaningful gains. Given dramatically lowered expectations and my belief that the holiday shopping season will easily exceed those estimates, the sector should outperform through year-end. The tech sector remains a source of strength, and I continue to expect it to remain so over the intermediate-term. Expectations were high for Apple's (AAPL) report today. The company soundly beat estimates and actually boosted guidance. Any sell-off in the shares near-term on profit-taking will likely remain muted and short term in nature, as I expect a mind-bogglingly good holiday selling season for the company. As well, the stock still has a very reasonable valuation and should continue to experience meaningful multiple expansion as growth stocks remain in high-demand globally. InsiderScore.com is reporting that General Electric (GE) chairman and CEO Jeff Immelt just bought $3.3 million in GE stock. He has been acquiring stock for three years, however, this purchase was unusual. It came with GE's stock just 5% off a multi-year high, which was the most he has ever paid for the shares. As well, the 83,000 shares he bought are the most he has ever acquired during a single quarter. Given GE's exposure to the global economy, I suspect this large purchase says something about Immelt's confidence in the future, while many continue to point to an imminent recession. Bloomberg had an interesting article today that may indicate global portfolio managers are beginning to increase allocations to U.S. stocks. Some of Europe's biggest investors are expecting accelerating earnings growth for U.S. companies next year and decelerating profit growth for European companies. A weak dollar and lower interest rates give U.S. companies an advantage, they say. Moreover, a recent Merrill Lynch survey of investors managing $671 billion found those planning to boost European holdings fell to 11% in October from 20%, while 21% plan to put more assets in U.S. shares. The global "herd" has believed for some time that U.S. equities are the least attractive in the world and the dollar can only fall, in my opinion. Now the U.S. dollar is extremely oversold at a time of falling interest rates in the U.S. A lot of bad news is factored in to most stocks at current levels. At the same time, European policymakers continue to make hawkish statements, while growth appears to be slowing a bit. I am in the camp with those European investors who think this is a recipe for slower European growth and better U.S. growth next year. As well, I suspect a few global portfolio managers perceive the recent dollar decline as excessive. I sense global investors are beginning to warm to U.S. equities as they anticipate a bounce in the U.S. dollar next year and better relative growth in the U.S. compared to Europe. This could significantly boost the demand for U.S. stocks at a time of low supply and near-record short interest, which should help propel the major averages to further outsized gains.

Stocks Mostly Higher into Final Hour on Lower Energy Prices, Bargain-Hunting, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Semi longs, Medical longs, Retail longs and Commodity shorts. I covered my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is slightly higher, most sectors are rising and volume is above average. Back in August and September, we were told by many pundits that the U.S. economy was plunging into recession. Economists now expect 3.1% third-quarter GDP growth. Many of the same pundits are still predicting imminent recession, as they have for several years, even though there is little evidence of this, in my opinion. The odds of the U.S. entering recession next year have also plunged to 31% from 57% in September, according to Intrade.com. I continue to believe that booming global growth, combined with the drag from U.S. housing, will leave U.S. growth around 2%-2.5% over the intermediate term. The Fed's Kroszner said this morning that the "Fed will act as needed to help markets function" and that the "Fed should consider markets impact on the economy." If the economy were to slow more than I anticipate, the Fed has more than enough ammunition to jumpstart economic growth if needed. The U.S. Dollar Index is jumping 0.84%. The dollar-based three-month LIBOR rate is falling another 6 basis points today, to 5.09%. This is now down 63 basis points from September highs and the lowest since April 2006. As well, the 30-day Asset Backed Commercial Paper Yield Index is falling another 13 basis points today, to 5.04%. This is down 125 basis points from September highs and the lowest since May 2006. Commodities are under pressure on the strength in the U.S. dollar and worries over demand. As well, Dow Jones is reporting that Iraq's President said that the Turkish Kurd rebel group will call a ceasefire on TV today. Oil is falling $1.04 per barrel on the news. I still see substantial downside for oil from current levels before year-end. Fed fund futures now imply an 86% chance for a 25-basis-point cut at the upcoming meeting, up from 70% on Friday and 32.0% one week ago. As well, the 10-year yield is down to 4.40%, which greatly increases rate cut odds, in my opinion. According to Reuters, the blended earnings growth rate for the S&P 500 for the third quarter, which combines reported numbers with estimates for companies yet to report, is -0.1%. Earnings expectations have come down so much that remaining reports may now provide a positive catalyst for stocks. Last week's sharp decline in equities seemed way overdone given the news. This was likely due to market's overbought state, options expiration and the "crash" anniversary. Furthermore, S&P 500 futures traders are still positioned near historically net short levels. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, rising fed rate cut odds, falling energy prices and short-covering.

Today's Headlines

Bloomberg:
- Commodities fell the most in two weeks, led by copper, oil, gold and corn, on concern that slowing economic growth will hurt demand for raw materials.
- Hasbro Inc.(HAS), the world’s second-largest toymaker, said profit jumped 62%, exceeding analysts’ estimates, on sales of Transformers and Spider-Man movie action figures and a tax benefit.
- Royal Caribbean Cruises(RCL), the world’s second-largest cruise-ship operator, said third-quarter profit rose more than analysts estimated and boosted its earnings forecast on higher prices for Caribbean and European voyages.
- SanDisk Corp.(SND) rose as much as 5.7% after JPMorgan added the world’s largest maker of memory chips for digital cameras to its focus list, saying that its shares are undervalued.

Wall Street Journal:
- Nissan Races to Make Smaller, Cheaper Cars.
- Whether or not “Clinton fatigue” plays any role in complicating Hillary Clinton’s bid for the presidency, one things seems clear: Americans are suffering from Clinton book fatigue.

NY Times:
- Buyers Pounce on Deals as Homes Go on the Block.

USAToday.com:
- WellPoint doctors to get Zagat ratings.

Jornal de Negocios:
- European Central Bank governing council member Vitor Constancio said past oil-price movements are temporarily boosting inflation and this effect will wane by April.

Expert:
- The Russian economy’s “number one problem” is low productivity, said former Economy Minister German Gref.