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Monday Watch

Weekend Headlines
Bloomberg:
- China ordered banks to put aside more reserves for the ninth time this year to cool an economy that expanded 11.5% in the third quarter and to damp speculation in stocks and real estate.
- Canada’s dollar fell, snapping its longest streak of weekly gains in 10 years, as Canadian officials said they were concerned over the currency’s climb to a record high.
- President Bush said Pakistan’s President Pervez Musharraf has assured the US he will take the “positive steps” of relinquishing his post as head of the army and holding parliamentary elections.
- Boeing Co.(BA) won an order for 12 of its 777 aircraft valued at $3.2 billion from Emirates as the biggest Arab airline expands long-haul routes.
- Democratic presidential candidate Barack Obama said he would raise the cap on Social Security payroll taxes to fix what he called the single most important social program in the US. Obama said he would be reluctant to back any plans for keeping Social Security solvent by cutting benefits or raising the retirement age.
- Pakistan’s President Pervez Musharraf said general elections will be held by Jan. 9 and emergency rule will continue in order to help fight terrorism after a deadly bomb attack on his opposition last month.
- Spanish King Tells Venezuela’s Chavez to ‘Shut Up’.

Wall Street Journal:
- Honeywell Intl.(HON) is developing technology that lets computers monitor the brainwaves of analysts viewing US surveillance images.
- Saudi Aramco is on track to raise crude oil output to 12 million barrels per day by 2009.
- Intel(INTC) Shifts From Silicon To Lift Chip Performance.

NY Times:
- The Federal Communications Commission has determined the cable industry has grown too large and plans to impose new regulations to open the market for independent programmers and video services.
- US Banks Agree on Credit Backup Fund.
- Giving to Charity, Through Real Estate. A way to help a cause, save on taxes and maybe still get a monthly check.

MarketWatch.com:
- Investors who believe that China’s soaring stock market is due for crash now have a new tool to put their money where their mouth is.

IBD:
- Clinical Trial Firms Pass Test on Wall Street.

Washington Post:
- High oil prices are fueling one of the biggest transfers of wealth in history. Oil consumers are paying $4 billion to $5 billion more for crude oil every day than they did just five years ago, pumping more than $2 trillion into the coffers of oil companies and oil-producing nations this year alone.
- The Newest Bubble: Oil. The fact is that supply of known reserves is 1.4 trillion barrels, which is larger than it has been at any time in the last 30 years. And thanks to improved technology, the recovery rate from reservoirs has already increased from 20 to 35%, on is way to 50%. According to industry estimates, demand actually fell in the United States last year and is growing globally by less than 1%. Since the summer, open crude oil futures contracts held by financial players are up 50%.

Time:
- The Human Barometer. Sam Zell, chairman of Equity International. The key to housing is the employment rate, said Zell. As long as unemployment stays basically full – say, under 5.5% - I see no major crisis in the housing market. Yes, we have subprime issues. Yes, we have a lot of investors who got hung out, but I don’t see the crisis the way the media portray it. If you had to pick the next cycle change, logic would say it would be sometime in 2009 because of a new presidency and because of the various factors in the market. And that's a probability. But I don't see it as 1990 or 1974 or any of those periods where we had a real serious downturn, Zell said.

USA Today:
- China confirms toxic ‘date-rape’ substance on toys.

CNNMoney.com:
- Eni SpA(E) CEO Paolo Scaroni said he believes the oil price is more likely to fall than rise further, adding much of the recent price hikes are due to speculative pressure. ‘For each real physical barrel of oil demand, there are a hundred on paper,’ he said referring to futures market activity that is driven by investment funds.

ABCNews.com:
- Another Question Planted by Clinton Campaign. Illinois Minister Tells ABC News That Clinton Staffer Asked Him to Pose a War Question.

Financial Times:
- Super-SIV clear to sign more banks.
- Daimler and Ford to pursue fuel cell venture. The two carmakers have given the partnership momentum by buying Ballard Power Systems’ troubled automotive fuel cell business, including numerous patents and 150 employees.
- China enjoys banner year in gold production.
- US strike on Iran ‘not being prepared.’
- New Citi chief to get free hand on strategy.

Sunday Telegraph:
- Former US President Bill Clinton will travel to London for a fundraiser for his wife Hillary’s campaign next week. The fundraiser is targeted at Americans living in the UK capital. Guests will be asked to donate more than $2,090 each.

Sunday Business Post:
- Former President Bill Clinton will raise as much as $300,000 for his wife, Democratic presidential candidate Hillary Rodham Clinton, by addressing a fundraising dinner in Dublin, Ireland.

Reuters:
- There is no fundamental justification for oil at $100 a barrel and OPEC member Nigeria is assuming that prices will not last at this level, oil minister Odein Ajumogobia said on Saturday. Ajumogobia said that no-one in the oil exporters’ group would be surprised if the price fell to $80 in the next few weeks.

AFP:
- Saudi Arabia and Kuwait will discuss an increase in oil production if more output is needed to ease rising prices, citing the countries’ oil ministers. OPEC will “not hesitate to shoulder its responsibilities,” Kuwait’s acting Oil Minister Mohammed al-Aleem said.

Finanz & Wirtschaft:
- Toyota Motor’s(TM) auto-financing business in the US has a default rate of less than 1%, citing an interview with Executive VP Mitsuo Kinoshita. The US credit crisis isn’t a problem to Toyota, he said.

EFE:
- Brazilian President Luis Inacio Lula da Silva wants his country to join OPEC following a 5- to 8-billion-barrel oil discovery.

Xinhua News Agency:
- More than two-thirds of Chinese enterprises said the country has either some or serious excess capacity in their industry, citing a survey by the Development Research Center of the State Council. Textiles, pharmaceuticals and general equipment manufacturing were among the highest rates in terms of overcapacity.

Nihon Keizai:
- Walt Disney(DIS) will begin mobile phone services in Japan by next spring, leasing a network from Softbank Mobile.

China Daily:
- China is building a database of 20,000 overseas journalists who will be allowed to work in the nation next year when Beijing hosts the Olympics, citing the head of the country’s press regulator.

Haaretz:
- Israeli government officials believe that the country’s sovereign credit rating may be raised for the first time since 1995 as the nation’s ratio of debt to gross domestic product falls.

Weekend Recommendations
Barron's:
- Made positive comments on (C), (CVD), (PPDI) and (QCOM).

Citigroup:
- Upgraded (ALTR) to Buy, target $25.
- Reiterated Buy on (MON), target $114.
- Downgraded (ETFC) to Sell, target $7.50.
- Reiterated Buy on (CF), target $108.

Morgan Stanley:
- Reiterated Overweight on (MMM).

Night Trading
Asian indices are -3.25% to -1.25% on avg.
S&P 500 futures -.09%.
NASDAQ 100 futures -.43%

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Earnings of Note
Company/Estimate
- (BX)/.30
- (TSN)/.09
- (HEW)/.36
- (BOBE)/.39

Upcoming Splits
- (MPR) 4-for-3
- (TNP) 2-for-1
- (CRS) 2-for-1
- (APAGF) 4-for-1

Economic Data
- None of note

Other Potential Market Movers
- The (CWST) analyst day, (TSN) analyst meeting, (TSS) investor presentation, (SIMG) analyst meeting, (UFI) investor meeting, Citigroup Biotech Conference, Oppenheimer Digital Media Conference, Deutsche Bank Gaming Forum and Piper Jaffray Industrial Growth & Business Services Symposium could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by technology and financial 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 Wall St. Week Ahead by Reuters.

Click here for Stocks in Focus for Monday by MarketWatch.com.

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

Economic reports for the week include:

Mon. – None of note

Tues. – Weekly retail sales reports, IDB/TIPP Economic Optimism Index, Monthly Budget Statement, Pending Home Sales

Wed. – Weekly EIA energy inventory report, weekly MBA Mortgage Applications report, Producer Price Index, Advance Retail Sales, Business Inventories

Thur. – Consumer Price Index, Empire Manufacturing, Initial Jobless Claims, Philly Fed

Fri. – Net Long-term TIC Flows, Industrial Production, Capacity Utilization

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

Mon. – Tyson Foods(TSN), Blackstone Group(BX), Bob Evans Farms(BOBE), Echo Star Communications(DISH)

Tues. – Fossil Inc.(FOSL), Home Depot(HD), Wal-Mart Stores(WMT), Sears Holdings(SHLD), Pilgrim’s Pride(PPC), PEP Boys(PBY), Big Lots(BIG), TJX Cos(TJX)

Wed. – Network Appliance(NTAP), Sina Corp.(SINA), Applied Materials(AMAT), Macy’s Inc.(M), Hilton Hotels(HLT), First Data(FDC), Long Drug Stores(LDG)

Thur. – Tyco International(TYC), Nuance Communications(NUAN), Suntech Power(STP), Williams-Sonoma(WSM), Green Mountain Coffee(GMCR), Hillenbrand Industries(HB), Intuit(INTU), PetSmart(PETM), Autodesk(ADSK), Salesforce.com(CRM), Kohl’s Corp.(KSS), LDK Solar(LDK), Agilent Technologies(A), JC Penney(JCP), Shaw Group(SGR), Starbucks(SBUX), BEA Systems(BEAS)

Fri. – JM Smucker(SJM), AnnTaylor Stores(ANN), Beazer Homes(BZH), Jack in the Box(JBX)

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

Mon. – (CWST) analyst day, (TSN) analyst meeting, (SIMG) analyst meeting, (UFI) investor meeting, Citigroup Biotech Conference, Oppenheimer Digital Media Conference, Deutsche Bank Gaming Forum, Piper Jaffray Industrial Growth/Business Services Symposium

Tue. – (TSS) analyst presentation, (MCD) analyst meeting, (AMP) analyst meeting, (ITT) analyst day, CSFB Healthcare Conference, Piper Jaffary Global Internet Summit, Deutsche Bank Gaming Investment Forum, Morgan Stanley Global Consumer & Retail Conference, Piper Jaffray Industrial Growth/Business Services Symposium, UBS Global Tech and Services Conference, Goldman Sachs Global Shipping Conference, Bear Stearns SMid Cap Conference, Merrill Lynch Banking & Financial Conference

Wed. – (SE) analyst meeting, (SMOD) analyst meeting, (TLM) analyst meeting, (LEG) analyst meeting, (LXK) analyst day, (PCL) analyst day, (QCOM) analyst meeting, (UFI) investor meeting, (SE) analyst meeting, (GWW) analyst meeting, (CSAR) analyst meeting, Morgan Stanley Global Consumer & Retail Conference, CSFB Insurance & Asset Management Conference, Merrill Lynch Banking & Financial Services Investor Conference, CSFB Healthcare Conference, Stephens Investment Conference, Bear Stearns SMid Cap Conference, Piper Jaffray, UBS Global Tech & Services Conference

Thur. – (IWOV) analyst meeting, (SRDX) analyst meeting, (HAS) analyst meeting, (SCHW) business update, Morgan Stanley Global Consumer & Retail Conference, UBS Global Tech & Services Conference, CSFB Insurance & Asset Management Conference, Bank of America Energy Conference, CSFB Healthcare Conference, Merrill Lynch Banking & Financial Services Conference, Stephens Investment Conference

Fri. – Bank of America Energy Conference, CSFB Insurance & Asset Management Conference, (GIB) investor day

BOTTOM LINE: I expect US stocks to finish the week mixed as bargain-hunting and short-covering offset mixed economic data and earnings reports. My trading indicators are giving mostly bearish signals and the Portfolio is 50% net long heading into the week.

Market Week in Review

S&P 500 1,453.70 -3.6%*

Click here for the Weekly Wrap by Briefing.com.

Weekly Scoreboard*

Indices
S&P 500 1,453.70 -3.6%
DJIA 13,042.74 -4.01%
NASDAQ 2,627.94 -6.41%
Russell 2000 772.38 -3.34%
Wilshire 5000 14,645.14 -3.59%
Russell 1000 Growth 601.40 -4.38%
Russell 1000 Value 796.58 -2.79%
Morgan Stanley Consumer 729.57 -1.03%
Morgan Stanley Cyclical 995.16 -4.65%
Morgan Stanley Technology 616.64 -8.35%
Transports 4,603.92 -4.01%
Utilities 524.27 -.12%
MSCI Emerging Markets 155.43 -3.28%

Sentiment/Internals
NYSE Cumulative A/D Line 65,194 -5.6%
Bloomberg New Highs-Lows Index -823 -317.77%
Bloomberg Crude Oil % Bulls 36.7 -38.3%
CFTC Oil Large Speculative Longs 251,944 +2.3%
Total Put/Call 1.08 -6.09%
NYSE Arms .86 -22.52%
Volatility(VIX) 28.50 +23.86%
ISE Sentiment 118.0 -13.24%
AAII % Bulls 36.19 -19.06%
AAII % Bears 51.43 +41.02%

Futures Spot Prices
Crude Oil 96.20 +.62%
Reformulated Gasoline 245.60 +.93%
Natural Gas 7.88 -6.31%
Heating Oil 261.25 +1.93%
Gold 834.0 +3.22%
Base Metals 238.19 -3.11%
Copper 314.60 -5.71%

Economy
10-year US Treasury Yield 4.21% -10 basis points
4-Wk MA of Jobless Claims 329,800 +.6%
Average 30-year Mortgage Rate 6.24% -2 basis points
Weekly Mortgage Applications 670.60 -1.63%
Weekly Retail Sales +2.1%
Nationwide Gas $3.08/gallon +.14/gallon
US Heating Demand Next 7 Days 27% below normal
ECRI Weekly Leading Economic Index 140.10 +.5%
US Dollar Index 75.39 -1.23%
CRB Index 354.54 +.27%

Best Performing Style
Small-cap Value -2.34%

Worst Performing Style
Large-cap Growth -4.4%

Leading Sectors
Hospitals +1.93%
HMOs +.43%
Utilities -.29%
Gaming -1.11%
Alternative Energy -1.29%

Lagging Sectors
Networking -7.06%
Internet -8.01%
Software -8.02%
Computer Hardware -9.4%
Airlines -11.7%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Lower into Final Hour Despite Gains in Financial Shares

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Software longs, Internet longs and Computer longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is lower, most sectors are falling and volume is heavy. Investor anxiety is above-average. Money market funds reported net inflows soared by $63.1 billion, bringing assets in the sector to $2.97 trillion. According to Intrade.com, the odds of a U.S. recession next year are down to 41.7% vs. 58.9% in September. Copper is falling another 2% today and has been moving almost straight down for a month. The metal remains at extremely speculative levels due to the explosion in hedge and commodity funds, and its decline does not indicate a recession is forthcoming, in my opinion. Fed fund futures now imply a 96% chance for another 25-basis-point cut at the December meeting vs. 90% yesterday and 68% one week ago. The S&P 500 is back near session highs, boosted by the financials heading into positive territory. The (XLF), which is the second most-heavily shorted security on the AMEX, is now 1.4% higher on the day. There are rumors that HUD may make a statement that would benefit (CFC), and the stock is surging 5.5% to session highs. Nasdaq breadth is -700, which isn't bad at all considering the 35-point loss in the index. I expect the bears to try and bring us back down over the next 20 minutes. If they are unable to gain traction, we should see some broad market short-covering into the close. I expect US stocks to trade modestly higher into the close from current levels on bargain-hunting and short-covering.