Friday Watch

Late-Night Headlines
Bloomberg:
- Federal Reserve Chairman Ben S. Bernanke’s plans to resolve the subprime-mortgage crisis are “significant,” said civil-rights leader Jesse Jackson, who called on the central bank chief to organize a banking summit.
- Amaranth Advisors LLC’s bid to halt federal energy regulators from proceeding with a proposed $291 fine was rejected by a federal judge in NY.
- The House Ways and Means Committee approved a plan to raise taxes on executives of hedge funds and private-equity firms by $49.5 billion over the next decade to prevent a separate tax increase on middle-income families this year.
- Paulson & Co. scaled back bets against subprime-mortgage securities, recording investment profits that helped the NY-based hedge fund manager double assets to $24 billion this year. Paulson cut bets against securities linked to subprime home loans by 86% across its eight funds. Paulson’s $5 billion Credit Opportunities Fund has soared more than 500% this year.
- Copper tumbled 3.2%, the most in 11 weeks, after stockpiles monitored by the London Metal Exchange rose 8.3% this week to the highest level since April. Supplies surged 28% in October, according to the LME.
- Republican former House Speaker Newt Gingrich, who a month ago said Senator Hillary Clinton had an 80% chance of being the next US president, now says recent stumbles may costs her the White House.
- Democratic lawmakers, ignoring a veto threat, will try to force President Bush to approve an increase in domestic spending by combining it with legislation funding military construction and veterans’ programs.
- General Motors(GM) and Japanese automakers led the US auto industry to its first monthly sales gain since May, while Ford Motor(F) and Chrysler LLC slipped.

Wall Street Journal:
- IRS Steps Up Tax Probe Of Hedge, Buyout Firms.

Wired:
- Google(GOOG) Aims to Break Open the Closed World of Social Networking.

USA Today.com:
- Mortgage rates drop to the lowest level in 5 months.
- Emerging markets have rocked, so now it’s time to roll.

Reuters:
- Top-20 selling vehicles in US through October.

Financial Times:
- The US is to offer Turkey a package of measures to dissuade Ankara from mounting a large-scale military incursion into Iraq to attack PKK Kurdish guerrillas, who have killed scores of Turkish soldiers in recent weeks.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -2.0% to -1.0% on average.
S&P 500 futures +.05%.
NASDAQ 100 futures +.09%.

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Earnings of Note
Company/EPS Estimate
- (NYX)/.73
- (B)/.44
- (VIA/B)/.59
- (IP)/.57
- (MSO)/-.12
- (OMG)/1.17
- (PDX)/.80
- (TE)/.35
- (CI)/.94
- (DUK)/.39
- (BRK/A)/1401.87
- (CVX)/2.07

Upcoming Splits
- (ATU) 2-for-1

Economic Releases
8:30 am EST
- The Change in Non-farm Payrolls for October is estimated at 85K versus 110K in September.
- The Unemployment Rate for October is estimated at 4.7% versus 4.7% in September.
- Average Hourly Earnings for October are estimated to rise .3% versus a .4% gain in September.

10:00 am EST
- Factory Orders for September are estimated to fall .7% versus a 3.3% decline in August.

Other Potential Market Movers
- The (FFIV) analyst meeting, (PKI) analyst meeting and (WSH) investor day could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by automaker and 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 at Session Lows on Worries in the Financial Sector

BOTTOM LINE: The Portfolio finished lower today on losses in my Computer longs, Retail longs and Biotech longs. I added to my (EEM) short and added (IWM)/(QQQQ) hedges in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was very negative today as the advance/decline line finished substantially lower, every sector fell and volume was above average. Measures of investor anxiety were elevated into the close. Today's overall market action was bearish. I speculated a couple of years ago that growth stocks were poised to embark on a period of multiyear outperformance over value stocks. I most recently made the case at the beginning of the month. Considering that the overwhelming majority of managers, especially hedge fund managers, are value investors, this could help explain some of the extreme pessimism towards U.S. stocks. Here is a look at how the two styles are performing over the last 12 months:

Style	12-Month Return
Russell 1000 Growth	+18.1%
Russell 1000 Value	+ 6.8%
Russell Midcap Growth	+ 19.0%
Russell Midcap Value	+ 6.5%
Russell 2000 Growth	+16.1%
Russell 2000 Value	-1.0%

As far as Barton Biggs being wrong about his year-end bull stampede call after just one day, let's not forget that he was one of the few that timed the bottom perfectly back on August 16 right when many others were calling for crashes, bear markets and depressions beginning. The S&P 500 is 110% higher since the October 2002 major bear market lows and is only 3.5% off a record high despite calls by many for a new bear market beginning all the way up every few months.

Stocks Falling into Final Hour on Worries in the Financial Sector

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Retail longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is very negative today as the advance/decline line is substantially lower, almost every sector is falling and volume is heavy. Notwithstanding everyone's assumption that the Fed is done cutting rates, fed fund futures now imply a 62% chance for another 25-basis-point cut at the December meeting, up from 42% yesterday. My intraday gauge of investor angst is elevated. Many market-leading stock are holding well. Some, such as Google (GOOG) are higher. Tech stocks, in general, continue to substantially outperform. Despite today's worries, the investment grade credit default swap index is 1.03% lower over the last five days. As well, the speculative grade credit default swap index is 1.5% lower. The Bear Stearns High Yield Index is up .42% over the last week and the JPMorgan Emerging Market Bond Index is .93% higher over that period. The 30-day asset backed commercial paper yield is falling another 6 basis points today to 4.82%, which is down 151 basis points from September highs. Wall Street research downgrades are again running 3-1 over upgrades as the analyst community continues to display historical pessimism with stocks just off record highs. Yesterday, on CNBC's "Fast Money," Barton Biggs said that hedge funds are at their lowest levels of being net long in four years, according to his prime brokerage sources. Biggs' comments correspond with what I am hearing from my sources and the most recent Greenwich Alternative Investments hedge fund survey, which found a record low 8% of hedge fund managers were bullish on U.S. stocks. While it is still too early to tell whether or not it has already begun, I continue to believe the "mother of all short-covering rallies" is inevitable. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting, lower energy prices and short-covering.

Personal Incomes Healthy, Spending Decelerates Slightly, Inflation Contained, Job Market Still Healthy, Manufacturing Slows Slightly

- Personal Income for September rose .4% versus estimates of a .4% gain and an upwardly revised .4% increase in August.

- Personal Spending for September rose .3% versus estimates of a .4% increase and a downwardly revised .5% gain in August.

- The PCE Core for September rose .2% versus estimates of a .2% increase and a .1% gain in August.

- Initial Jobless Claims for this week fell to 327K versus estimates of 330K and 333K the prior week.

- Continuing Claims rose to 2588K versus estimates of 2534K and 2523K prior.

- ISM Manufacturing for October fell to 50.9 versus estimates of 51.5 and a reading of 52.0 in September.

- ISM Prices Paid for October rose to 63.0 versus estimates of 63.0 and a reading of 59.0 in September.

BOTTOM LINE: Consumer spending rose slightly less than forecast in September, Bloomberg reported. The core PCE, the Fed’s favorite inflation gauge rose 1.8% year-over-year, which matched the smallest gain since August 2004 and is within the Fed’s comfort zone. Spending on services, which included utilities, dropped .1%. I expect spending to improve modestly, incomes to remain healthy and inflation to decelerate further over the intermediate-term.

The number of Americans filing first-time claims for unemployment benefits declined last week, Bloomberg said. The four-week moving average of claims rose to 327,000 from 325,250. The unemployment rate among those eligible to collect benefits, which tracks the US unemployment rate, ticked higher to 2% from 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Manufacturing in the US slowed slightly more than expected in October, Bloomberg reported. The New Orders component fell to 52.5 from 53.4 the prior month. The Exports component rose to 57 from 54.5 the prior month. I continue to believe manufacturing will help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and exports remain strong.

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
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Hot Spots
Option Dragon
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Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Thursday Watch

Late-Night Headlines
Bloomberg:
- China unexpectedly increased fuel prices by as much as 10% in an “’urgent step” to help the nation’s oil refiners cover surging costs. To “guarantee domestic refined oil supply and promote energy conservation,” gasoline, diesel and jet fuel prices will rise $67 a metric ton starting today, the National Development and Reform Commission said.
- The dollar snapped seven days of losses against the euro on speculation the currency’s 1.6% decline over the past month was too fast as the Federal Reserve signaled it may be done with cutting interest rates.
- The US has destroyed as much as 80% of the al-Qaeda in Iraq group’s propaganda network since the deployment of additional American troops in the country, a spokesman for coalition forces said.
- Australia’s retail sales increased more than expected in September as higher wages and job gains boosted spending on furniture, electronics and food.
- A team of US nuclear inspectors travels to North Korea today to witness the communist nation start dismantling its nuclear program, Assistant Secretary of State Christopher Hill said.

Wall Street Journal:
- A report on the competitiveness of economies around the world released yesterday puts the US out front and highlights the growing potential of energy-producing countries awash in oil and natural gas revenue.

TheStreet.com:
- Barton Biggs, of hedge fund Traxis Partners, said last night on CNBC’s “Fast Money” that the Fed did what it should have done and the market is being set up for a big surge higher. He also mentioned that he is hearing from the prime brokers that hedge funds are at their lowest levels of being net long in 4 years. He expects a stampede into year end in big cap multinationals, tech, Asia and emerging markets.

BusinessWeek.com:
- Why Delta Should Buy Northwest. With a new CEO and a clean balance sheet, Delta is pondering expansion. Here’s why Northwest is the logical choice.

Financial Times:
- Google(GOOG) plans network to rival Facebook.
- Goldman(GS) shares at new highs.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (IACI) to Buy, target $37.
- We believe conservative expectations are appropriately factored into current retail stock prices & retailers could deliver upside to our +1% comp est. driving the stocks higher given 1) pent-up demand from weak Fall sales, 2) cooler weather, 3) easier comparisons, 4) negative investor sentiment, and 5) the end of tax loss selling(Oct.31). Our top picks for Holiday sales are 1) GPS and 2) TJX, as we believe both retailers are best positioned to deliver upside to current 4Q sales and EPS expectations given conservative inventory management and cost reductions.

CSFB:
- Reiterated Outperform on (MA), raised estimates and boosted target to $160.

Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 futures -.18%.
NASDAQ 100 futures -.02%.

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
- (BBI)/-.18
- (CLI)/.26
- (PTEN)/.55
- (RDN)/.38
- (D)/1.68
- (ATK)/.39
- (CVS)/.44
- (RDC)/1.14
- (NMX)/.64
- (BDX)/.97
- (PDE)/.80
- (MHS)/.69
- (ED)/1.06
- (ABC)/.64
- (TBL)/.49
- (AMSC)/.13
- (ASF)/.43
- (KBR)/.31
- (S)/.22
- (EK)/.28
- (VCLK)/.16
- (GGC)/.15
- (OII)/.85
- (EDS)/.41
- (FLS)/.92
- (CLF)/1.51
- (PSYS)/.38
- (ERTS)/.20
- (LVS)/.29
- (CA)/.26
- (VRSN)/.27
- (XOM)/1.74
- (IGT)/.38
- (OMX)/.63
- (TSO)/.84
- (SINA)/.27

Upcoming Splits
- (ATU) 2-for-1

Economic Releases
8:30 am EST
- Personal Income for September is estimated to rise .4% versus a .3% gain in August.
- Personal Spending for September is estimated to rise .4% versus a .6% gain in August.
- The PCE Core for September is estimated to rise .2% versus a .1% gain in August.
- Initial Jobless Claims for this week are estimated to fall to 330K versus 331K the prior week.
- Continuing Claims are estimated to rise to 2534K versus 2530K prior.

10:00 am EST
- ISM Manufacturing for October is estimated to fall to 51.5 versus 52.0 in September.
- ISM Prices Paid for October is estimated to rise to 63.0 versus a reading of 59.0 in September.

Afternoon:
- Total Vehicle Sales for October is estimated to fall to 16.0M versus 16.2M in September.

Other Potential Market Movers
- The Challenger Job Cuts report, weekly EIA natural gas inventory report and Oppenheimer Restaurant Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.