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Thursday Watch

Late-Night Headlines
Bloomberg:
- John Thain, the former Goldman Sachs Group president who has run the NYSE since 2004, was named CEO of Merrill Lynch, the first outsider to lead the firm in its 93-year history.
- Yen Falls on Speculation Japanese Mutual Funds Buying Overseas Assets.
- Billionaire shareholder activist Carl Icahn increased his stake in Motorola(MOT), becoming the mobile-phone company’s third-largest investor.
- Gold may decline as low as $718 an ounce by February as jewelry demand drops with the close of the festival season in India, the world’s biggest consumer of the precious metal, MF Global Ltd. said. The October-December period is the busiest season in India for jewelry sales, spurred by the wedding season and last week’s Diwali, or the festival of light. Imports by the South Asian nation fell 50% last month from a year earlier after prices surged, according to the Bombay Bullion Assoc. Concern central banks in countries such as Spain and Switzerland could sell bullion may also limit prices. Under the terms of the Central Bank Gold Agreement, European banks agreed to sell 2,500 tons of the metal between 2004 and 2009. MF Global joins UBS AG, Europe’s largest bank by assets, in forecasting lower gold prices.
- Billionaire Edward Lampert’s hedge fund acquired a $485 million stake in Home Depot(HD).
- The White House signaled it will opposes subprime legislation set for a vote in the US House of Representatives, saying the measure would constrict mortgage markets and limit credit to potential homebuyers. “The administration is concerned with these and other provisions that could lead to greater uncertainty and increased litigation, which could cause an undesirable reduction in mortgage credit and a drop in future homeownership,” the White House’s Office of Management and Budget said in the statement.
- China, the world’s biggest steel producer, increased crude-steel output 14% in October from the same month of last year.
- China, the world’s biggest buyer of cotton, cut imports of the fiber 37% in the first ten months of the year, according to preliminary data issued by the Beijing-based customs office.
- China’s industrial production growth slowed in October as the government sought to curb the expansion of factories that are heavy polluters and energy consumers.
- Berkshire Hathaway(BRK/A) boosted its holdings of banks and health insurers and disclosed a stake in CarMax, the biggest US used-car dealer
- Markit Group Ltd. agreed to buy the owners of the iTraxx and CDX credit-default swap indexes, giving it control of the benchmarks for the world’s $45.5 trillion credit-derivatives market.
- Legg Mason’s Bill Miller raised his stakes in Bear Stearns(BSC) and Goldman Sachs(GS) in the third quarter as financial stocks tumbled on losses tied to subprime mortgages.

NY Times:
- Frito-Lay is redesigning a potato-chip factory aiming to reduce the energy it consumers and waste it creates.
- Airlines Vow to Do Better.

MarketWatch.com:
- Gasoline prices rose to an average $3.05 a gallon at the pump last week as consumers cut their demand for gas for the fourth straight week, according to data released Wednesday by SpendingPulse.
- What sound of the other shoe dropping? Wal-Mart(WMT) earnings rebut predictions of a consumer pullback.

BusinessWeek:
- Is GM’s Green Tech Better Than Toyota’s? That’s what Chrysler, Daimler, and BMW seem to think. They’re all using GM’s hybrid technology for their new trucks and SUVs.

CNNMoney.com:
- Google: Half-trillion dollar company by 2010?
- Sony PlayStation sales soar in US after price cut.

CNBC.com:
- Lehman Brothers(LEH) co-Chief Administrative Officer Ian Lowitt said Wednesday the company doesn’t expect substantial write-downs of its most illiquid assets.

The Standard:
- Macau is planning to raise from 18 to 21 the minimum age at which a person can legally gamble, chief executive Edmund Ho Hau-wah told lawmakers yesterday.

Straits Times:
- Singapore banned Microsoft’s(MSFT) “Mass Effect” Xbox 360 video game because it contains a sex scene between a human woman and a female alien, citing the Media Development Authority.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (BX), target $36.
- Upgraded (VCLK) to Buy, target $30..

Night Trading
Asian Indices are -.75% to unch. on average.
S&P 500 futures -.11%.
NASDAQ 100 futures -.61%.

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Earnings of Note
Company/EPS Estimate
- (STP)/.29
- (WSM)/.25
- (TYC)/.56
- (GMCR)/.17
- (NUAN)/.14
- (ZOLL)/.31
- (HB)/.75
- (KLIC)/.33
- (INTU)/-.12
- (VM)/-.21
- (BEAS)/.13
- (CRM)/.03
- (LDK)/.38
- (SBUX)/.21
- (HP)/.87
- (SGR)/.51
- (KSS)/.60
- (A)/.52
- (ADSK)/.47
- (CUB)/.36
- (JCP)/1.00
- (MSCC)/.27

Upcoming Splits
- (APAGF) 4-for-1
- (D) 2-for-1

Economic Releases
8:30 am EST
- The Consumer Price Index for October is estimated to rise .3% versus a .3% gain in September.
- The CPI Ex Food & Energy for October is estimated to rise .2% versus a .2% gain in September.
- The Empire Manufacturing index for November is estimated to fall to 19.0 versus 28.8 in October.
- Initial Jobless Claims for this week are estimated to rise to 320K versus 317K the prior week.
- Continuing Claims are estimated to fall to 2575K versus 2579K prior.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of -750,000 barrels versus a -821,000 barrel decline the prior week. Gasoline supplies are expected to fall by -400,000 barrels versus an -819,000 barrel decline the prior week. Distillate inventories are estimated to fall by -250,000 barrels versus a 98K barrel increase the prior week. Finally, Refinery Utilization is estimated to rise by .50% versus a .07% gain the prior week.

12:00 pm EST
- The Philly Fed for November is estimated to fall to 5.0 versus 6.8 in October.

Other Potential Market Movers
- The Fed’s Evans speaking, Fed’s Hoenig speaking, (SCHW) Business Update, (HAS) analyst meeting, (SRDX) analyst meeting, (TLM) analyst meeting, (IWOV) analyst meeting, (IVZ) analyst day, (LYV) analyst day, (TQNT) analyst day, (VPRT) investor day, (ROK) investor day, Stephens Investment Conference, CSFB Healthcare Conference, CSFB Insurance & Asset Management Conference, Morgan Stanley Global Consumer & Retail Conference, UBS Global Tech & Services Conference, Bank of America Energy Conference and Merrill Lynch Banking & Financial Services Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and automaker 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

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Stocks Mixed into Final Hour on Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Retail longs and Biotech longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is slightly positive today as the advance/decline line is neutral, most sectors are rising and volume is above average. Investor anxiety is slightly above-average. Many market leading stocks are strong again today, and many secondary stocks are posting outsized gains. The U.S. Dollar Index is back near unchanged for the day, recouping morning losses. This is something to keep an eye on as a further acceleration in gains would likely begin to pressure commodities. The fact that the bears are unable to gain any downside traction in stocks despite the jump in oil and yesterday's huge gains is a big positive. Overall, I would classify today's action as a healthy consolidation of yesterday's gains. The MBA Mortgage Applications Index surged 5.5%, boosted by a 6.4% jump in refis. The Broker/Dealer Index is 2.5% higher despite another $1.2 billion writedown at Bear Stearns (BSC) and Massachusetts regulators accusing the company of fraud related to its hedge funds. Goldman Sachs (GS) credit default swaps have plunged 23.4% over the last week, which is a big positive. E*Trade (ETFC) is up another 14% on further buyout speculation. Stability in the financials has been a large broad market positive over the last few days. Today, the Rasmussen Investor Confidence Index fell to the lowest since March 20, 2003, which was on the eve of the Iraq war. This is more evidence of the extreme pessimism that currently permeates the investment landscape. I expect US stocks to trade mixed into the close from current levels as profit-taking offsets short-covering.

Producer Prices Decelerate, Retail Sales Above Estimates, Business Sales Rise

- The Producer Price Index for October rose .1% versus estimates of a .3% gain and a 1.1% rise in September.

- The PPI Ex Food & Energy for October was unch. versus estimates of a .2% gain and a .1% rise in September.

- Advance Retail Sales for October rose .2% versus estimates of a .1% increase and an upwardly revised .7% gain in September.

- Retail Sales Less Autos for October rose .2% versus estimates of a .2% increase and a downwardly revised .3% gain in September.

- Business Inventories for September rose .4% versus estimates of a .4% gain and an upwardly revised .3% increase in August.

BOTTOM LINE: Prices paid to US producers rose in October at a slower pace than forecast, suggesting the economy is absorbing the effects of a jump in energy costs, Bloomberg said. Core producer prices are rising at a 2.5% rate over the last 12 months. Prices of light trucks fell 2.7%. Computer prices fell 1.3%. The cost of consumer goods rose .1%. Prices for capital goods fell .1%. While producer prices will likely jump next month on the rise in energy, I still believe inflation has peaked for this cycle and measures will continue to decelerate over the intermediate-term.

Retail Sales in the US increased at a better-than-expected .2% rate in October, Bloomberg reported. Unseasonably warm weather continues to weigh on clothing retailers. Overall retail sales have been modestly below average for awhile. I expect a bounceback to more average rates as cold weather comes and the holidays approach. I expect sales of consumer electronics to be very strong this holiday season.

Inventories at US businesses rose in September as sales surged .6%, Bloomberg reported. Businesses had enough goods on hand at the current sales pace to last only 1.27 months, the same as August. Inventories at retailers rose .1%. Inventory rebuilding and record exports should result in an upward revision to 3Q US GDP to above 4.5%. I continue to expect inventory rebuilding to help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion.

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
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WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
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In Play
NYSE Unusual Volume
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Dow Jones Hedge Fund Indexes