Job Market Still Healthy

- Initial Jobless Claims for this week fell to 317K versus estimates of 325K and 330K the prior week.

- Continuing Claims fell to 2579K versus estimates of 2560K and 2583K prior.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits fell more than forecast, suggesting the job market remains resilient, Bloomberg said. The four-week moving average of jobless claims rose to 329,750 versus 327,750 the prior week. The unemployment rate among those eligible to collect benefits held steady at a historically low 1.9%. I continue to believe the job market will remain healthy over the intermediate-term without generating substantial unit labor cost increases.

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Thursday Watch

Late-Night Headlines
Bloomberg:
- First Solar(FSLR), a Phoenix-based power-module maker, said third-quarter profit soared 10-fold on rising demand for its thin-film technology. First Solar gained as much as 24% in after-market trading.
- Copper fell to an eight-week low on concern that rising inventories are signaling weaker demand for the metal used in pipes and wires.
- China, the world’s second-largest energy users, plans to increase natural gas production by 50% from last year’s levels by 2010.
- Washington Mutual(WM), the largest US savings and loan, fell the most in 20 years after Democratic NY Attorney General Andrew Cuomo said he found a “pattern of collusion” on mortgage appraisals linked to the company.
- Morgan Stanley(MS) said its subprime mortgages and related securities lost $3.7 billion in the past two months, after prices sank further than the firm’s traders expected.

Wall Street Journal:
- More than four million Chinese-made toys sold in the US as Aqua Dots are being recalled after reports that children became seriously ill after swallowing beads containing a chemical that causes a reaction in the body that mimics a date-rape drug’s effect.

MarketWatch.com:
- Tax bill has small businesses seeing red. The House’s top tax-writer claims that small business owners would enjoy “overwhelming” relief under a major reform bill he recently introduced. So why are small business advocates underwhelmed – and in many cases downright worried?

BusinessWeek:
- As Oil Nears $100, Look Out Below. Analysts say that if speculators flee the market en masse, prices could drop even more quickly than they’ve risen. Speculators have played a growing role in the oil market in recent years. There are 595 hedge funds that engage in at least some energy trading now, more than triple the 180 funds involved just three years ago. The assets involved in such trading total more than $200 billion, up more than 60% from the beginning of the year.

Reuters:
- Fed officials hint at potential for lower rates.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MHS), target $112.
- Upgraded (FWLT) to Buy, target raised to $197.
- Reiterated Buy on (UTHR), raised target to $130.
- Reiterated Buy on (RL), target $85.

Night Trading
Asian Indices are -3.0% to -2.50% on average.
S&P 500 futures -.90%.
NASDAQ 100 futures -1.48%.

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Earnings of Note
Company/EPS Estimate
- (BRL)/.72
- (DF)/.15
- (LAMR)/.14
- (URBN)/.24
- (CVC)/-.07
- (CEP)/.46
- (HANS)/.49
- (MMC)/.31
- (GBE)/.08
- (CCU)/.38
- (ENER)/-.07
- (DYN)/.14
- (ROK)/1.06
- (F)/-.47
- (STN)/.41
- (CELL)/.13
- (QCOM)/.53
- (CPKI)/.23
- (HTCH)/.09
- (DIS)/.41
- (CEPH)/.85
- (NVDA)/.36
- (DLB)/.26
- (PCLN)/1.29
- (PSUN)/.13
- (CXW)/.25
- (FORM)/.40

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to fall to 325K versus 327K the prior week.
- Continuing Claims are estimated to fall to 2560K versus 2588K prior.
- The Trade Deficit for September is estimated to widen to -$58.5 billion versus -$57.6 billion in August.
- The Import Price Index for October is estimated to rise 1.2% versus a 1.0% gain in September.

10:00 am EST
- Preliminary Univ. of Mich. Consumer Confidence for November is estimated to fall to 80.0 versus 80.9 in October.

Other Potential Market Movers
- The Fed’s Bernanke speaking, ECB Policy Meeting, (QLTI) analyst day, (BBI) analyst meeting, (MEI) Investor Day, (BRCM) analyst day, (JDSU) analyst meeting, (CY) analyst meeting, (JNJ) analyst meeting, (ATHR) analyst day, (DNR) analyst meeting, Merrill Lynch Global Energy Conference, Goldman Sachs Industrial Conference, Goldman Sachs Capital Goods Conference and Bank of America Investment Conference could also impact trading today.

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

Stocks Finish Sharply Lower on Worries in the Financial Sector

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In Play

Stocks Sharply Lower into Final Hour on Continuing Weakness in Financials

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Biotech longs, Medical longs and Software 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, every sector is falling and volume is above average. Investor anxiety is high. The total put/call is an above-average 1.08. The ISE Sentiment Index is plunging 29%, to a below-average 115. The NYSE Arms is an above-average 1.2. The VIX is spiking 16% to a relatively high 24.9. Toyota Motor (TM), which is heavily dependent on the U.S. consumer, said profit rose 21% in the first half of the year and boosted its forecast for the entire year. The latest Rasmussen consumer survey showed 22% rate their finances as poor, while 75% say they are fair to excellent. Distillate supplies rose again, which is rare for this time of the year. Oil is falling slightly on the news despite the 0.9% decline in the U.S. Dollar Index. The Fed's Mishkin said this morning that the supply of credit to small businesses remains healthy and that the recent market turmoil has had a limited effect on them. He also said that the lower dollar's effect on inflation is limited and that the vast majority of U.S. banks are well-capitalized. Other statements he made left the door open for further rate cuts if necessary. Fed fund futures now imply a 64% chance for another 25-basis-point cut at the December meeting, up from 62% yesterday and 42% one week ago. Greenspan said today that he still thinks the odds the U.S. falls into recession next year are less than 50%. Growth stocks are once again outperforming value stocks. Growth leaders are especially strong. I am seeing some signs of stabilization in the financials. Tech leaders Research In Motion (RIMM) and Google (GOOG) are back near session highs. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting and short-covering.

Productivity Hit 4-Year High, Unit Labor Costs Fall, Wholesale Sales Jump

- Preliminary 3Q Non-farm Productivity rose 4.9% versus estimates of a 3.2% gain and a downwardly revised 2.2% increase in 2Q.

- Preliminary 3Q Unit Labor Costs fell .2% versus estimates of a 1.0% increase and an upwardly revised 2.2% in 2Q.

- Wholesale Inventories for September rose .8% versus estimates of a .2% gain and an upwardly revised .7% increase in August.

BOTTOM LINE: Worker productivity in the US accelerated more than forecast in the third quarter, leading to a decline in labor costs, Bloomberg reported. Productivity rose the most in four years at a 4.9% annual pace. The decline in unit labor costs was the first in more than a year. Productivity at non-financial corporations, a gauge watched closely by Greenspan, climbed at a 3.8% rate in the second quarter, versus a .7% gain the prior three months. I continue to believe unit labor costs, which make up about two-thirds of inflation, will remain muted over the intermediate-term.

Inventories at US wholesalers rose more than forecast in September, while a bigger increase in sales pointed to production gains in the fourth quarter, Bloomberg reported. Sales jumped 1.3% versus a .8% gain the prior month. The amount of inventory on hand is now down to a new record low of 1.1 months’ supply. Auto sales surged 4.1% during the month. Given the upward revision to August inventories and September’s gain, I suspect 3Q US GDP growth will be revised higher to above 4% from 3.9%. Record low inventories also bode well for increased production this quarter. I still think inventory rebuilding, strong exports and decelerating inflation will continue to more than offset the drag from housing over the intermediate-term, which should result in modestly below trend growth of around 2-2.5%.