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Wednesday Watch

Late-Night Headlines
Bloomberg:
- U.S. commodity regulators may require Wall Street banks to regularly disclose their energy futures positions connected to the unregulated swaps market, according to people familiar with the discussions. The Commodity Futures Trading Commission has used special authority to collect trade data from firms amid political pressure to ensure that oil markets are not being manipulated. Congress has targeted oil speculators, including those offsetting swap trades, as driving up prices, though no legislation has emerged to deal with the complex energy market.
- Crude oil fell to a five-month low in New York as the Saudi Arabian and Venezuelan oil ministers signaled OPEC will maintain production levels at a meeting in Vienna, and as Hurricane Ike may bypass U.S. oil regions. Brent crude oil for October settlement declined $3.10, or 3 percent, to settle at $100.34 a barrel on London's ICE Futures Europe, the lowest settlement price since April 1. Futures touched $99.04, the lowest intraday price since March 25. The contract has dropped nine straight days, the longest stretch since 1988. OPEC raised quotas at a meeting in Jakarta in November 1997, just before Asian economies faltered. A combination of increased supply and falling demand sent prices tumbling to $10 a barrel the following year. Ramirez called for stricter compliance with production quotas to counter a potential gain in stockpiles in the first quarter next year. ``History has shown that if inventories rise above normal levels, we will have a price collapse,'' he said. ``The last thing OPEC wants is to see economies crater around the world,'' said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. ``They want to see strong demand growth.''
- Texas Instruments Inc.(TXN), the second- largest U.S. semiconductor maker, maintained its sales forecast, defying predictions that slowing demand for mobile phones would crimp orders further. The shares jumped as much as 7.4 percent in after-hours trading.
- FedEx Corp.(FDX), the largest air-parcel shipper, said it will report a profit of $1.23 a share for the quarter ended Aug. 31, beating its forecast as fuel costs fell. The stock rose as much as 8.5 percent after regular trading.
- The U.K. economy is contracting for the first time in at least a decade, the National Institute for Economic and Social Research said.
- Brazil's benchmark stock index fell the most in six months, led by energy and metal producers, after commodity prices slumped and Finance Minister Guido Mantega said the nation's currency needs to weaken further to bolster exports. The ``dominant investment thesis of the past year'' of buying commodities and short-selling financial companies is over, wrote UBS chief economist Larry Hatheway and global equity strategist Jeffrey Palma in a research report, cutting energy producers to ``underweight.'' ``The drop in the trade surplus, the increase in the current account deficit and the scarcity of capital in international markets has decreased the inflows of capital to Brazil,'' Mantega said late yesterday to celebrate the 200th anniversary of the finance ministry.
- Friedman Billings cut its 2009 global steel demand growth forecast 37% to 3.8%.
- Salesforce.com Inc.(CRM) and Fastenal Co. will replace Fannie Mae and Freddie Mac (FAST)in the Standard & Poor's 500 Index after shares of the biggest providers of U.S. mortgage financing fell below $1 apiece.
- The Australian dollar dropped below 80 U.S. cents for the first time since August 2007 as prices tumbled for commodities the nation exports. The New Zealand dollar also fell.
- House Minority Leader John Boehner said Representative Charles Rangel should step down as chairman of the House Ways and Means Committee until Congress can investigate his ``ethical lapses.'' Rangel, a New York Democrat, failed to disclose more than $75,000 in rental income from his vacation villa in the Dominican Republic to the Clerk of the House of Representatives and tax authorities, his lawyer said last week. The lawyer, Lanny Davis, said Rangel also discovered he received an interest-free loan from the resort developer two years after he bought his three- bedroom casita in 1988.

Wall Street Journal:
- Sen. John McCain's choice of Sarah Palin as his running mate has shaken up the presidential race, lifting enthusiasm among his once-subdued supporters and boosting the ticket's appeal with women, rural voters and Southerners.
- Retailers have a new tool to turn up the heat on their salespeople: computer programs that dictate which employees should work when, and for how long.

MarketWatch.com:
- Both Meg Whitman the former chief executive of eBay Inc. (EBAY) and Carly Fiorina, the former CEO of Hewlett-Packard Co.(HPQ) were on the top 20 list as possible vice-presidential candidates for McCain. So did the choice of the Alaska governor hurt the future political careers of these other Republican women? Probably not.
- False bankruptcy report shows risks of online news.

CNBC:
- Apple Inc.(AAPL) is “faring reasonably well” in the weak economic environment, CEO Steve Jobs said in an interview. He also addressed recent concerns about his health. “People have finally looked at the Mac and said this is a viable alternative to Windows,” Jobs said. In an off-camera interview, Jobs also blamed recent concerns about his health on unnamed hedge funds that may have been betting that Apple’s stock would fall.
- Former Federal Reserve Chairman Alan Greenspan welcomed the recent takeover of Fannie Mae and Freddie Mac, telling CNBC that the government needed "to remove the ambiguity" over whether US would back up the two mortgage giants.
- In recent weeks, Lehman Brothers(LEH) has received interest from private equity firms for a potential purchase of the troubled brokerage house, but top officials said the company wasn't for sale, people close to the matter say.

USA Today.com:
- Georgia clash makes investors in Russia nervous.
- A drop in mortgage rates that's accelerated since the government said it would take over Fannie Mae and Freddie Mac has raised hopes that more buyers might be drawn into the housing market and help reverse the worst slump in decades. The average rate on a 30-year fixed-rate mortgage fell to 5.88% on Tuesday, according to Bankrate.com.

US News:
- Comcast Corp. and Time Warner Cable Inc., the nation's two largest cable operators, see an opportunity to sign up potentially millions of customers as the nation switches to digital-only broadcasting.

BusinessWeek.com:
- The US Closes the Mobile Innovation Gap. After lagging in wireless for years, the US has caught up with Western Europe and is now trying to take the innovation lead.

Financial Times:
- The Bill Gross-managed Pimco Total Return fund reaped a $1.7bn payday following the US government takeover of home loan giants Fannie Mae (NYSE:FNM) and Freddie Mac.While shareholders in Fannie and Freddie suffered deep losses, the world's biggest bond fund saw its highest ever one-day rise against its benchmark index on Monday, benefiting from the bet made by Mr Gross on mortgage bonds issued by the agencies. Mr Gross had made a big shift out of US Treasuries and corporate bonds over the past year and into agency bonds, betting that the government would support Fannie and Freddie Mac. By May this year, more than 60 per cent of his $132bn fund was in mortgage debt.

Globe and Mail:
- Lehman Brothers Holdings Inc.(LEH) will roll out plans on Wednesday to shore up the embattled investment bank's balance sheet and face down investor concern that it's running out of options to raise badly needed capital. The fourth-largest securities firm in the United States, whose shares fell by nearly half Tuesday to a decade low, is said to be ironing out a deal to sell or spin off its prized investment management business. Lehman is also looking to raise cash through the sale of devalued mortgage assets. Any such deal would provide Lehman with a new infusion of capital to offset an expected multibillion loss expected to be taken during the third quarter. The company will provide details about its performance during the quarter at 7:30 a.m. (ET), a week ahead of when it originally planned to release results.

South China Morning Post:
- Beijing censors financial websites. First it was fund houses, then brokerages. Now, the cyber world is the target of a Beijing clampdown amid fears that pessimistic comments and bitter complaints about the mainland's slumping stock markets may lead to social disunity....

Inquirer.net:
- Philippine Rice Inventory Up 41% in August.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ERTS), target $64.
- Downgraded (GFIG) to Sell, target $7.

Oppenheimer:
- Rated (ENZN) Outperform, target $14.

Morgan Keegan:
- Rated (CERN) Outperform.
- Maintained Outperform on (CPSI).

Night Trading
Asian Indices are -2.0% to unch. on average.
S&P 500 futures +.33%.
NASDAQ 100 futures +.49%.

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Earnings of Note
Company/EPS Estimate
- None of note

Economic Releases
10:35 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory drawdown of -3,500,000 barrels versus a -1,898,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -4,500,000 barrels versus a -1,037,000 barrel decline the prior week. Distillate inventories are expected to fall by -2,100,000 barrels versus a -413,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall by -8.7% versus a 1.4% rise the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly MBA mortgage applications report, (ZLC) investor day, (PNR) investor day, (COV) analyst meeting, Lehman Financial Services Conference, Morgan Stanley Industrials Conference, Keybanc Basic Materials Conference, BB&T Conference, BMO Capital Back to School Conference, Cowen Clean Energy Conference, Deutsche Bank Tech Conference, Jeffries Tech Conference and Robert W. Baird Small-cap Healthcare Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by commodity and shipping shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish at Session Lows, Weighed Down by Homebuilding, Construction, Commodity, Rail and I-Banking Shares

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In Play

Stocks Falling into Final Hour on Hedge Fund Concerns, Global Growth Worries, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Alternative Energy longs and Computer longs. I added (IWM)/(QQQQ) hedges, added to my (EEM) short, sold my (AMSC)/(PWR) longs and took profits in some of my Commodity/Emerging Market shorts this morning, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is lower and volume is above average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising 10.82% and is high at 25.10. The ISE Sentiment Index is very low at 84.0 and the total put/call is high at 1.13. Finally, the NYSE Arms has been running high most of the day, hitting a peak of 1.50, and is currently 1.03. The Euro Financial Sector Credit Default Swap Index is rising 6.03% today to 92.33 basis points. This index is up from a low of 52.66 on May 5^th, but down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is +2.7% to 143.16 basis points. The TED spread is rising 4.65% to 1.17 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 6 basis points to 1.93%, which is down 69 basis points in just over seven weeks and at the lowest level since August 2003. The Goldman Sachs Hedge Fund VIP Index(49 of the most common hedge fund long positions) is falling another 5% today. However, the selling in the broad market looks a bit more rational today. The commodity/emerging market bubble stocks remain under severe pressure, but are getting extremely oversold and are due for a bounce. I have an unusual number of stocks on my monitor pages that are higher today, given broad market damage. Even Russian stocks, which fell another 7.4% today, are due for a bounce. The BankRate.com average 30-year fixed rate mortgage has plunged 27 basis points in two days to 5.88%, which is a large positive. Nikkei futures indicate a -200 open in Japan and DAX futures indicate a -45 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as lower commodity prices and bargain-hunting offset global growth worries, financial sector pessimism and more shorting.

Today's Headlines

Bloomberg:
- Russia's RTS Index fell the most in more than two years, led by oil producers after crude sank to a five-month low and Energy Minister Alexei Kudrin said oil companies shouldn't expect further tax relief. The dollar-denominated RTS posted the largest fluctuation among national markets included in global benchmarks, tumbling 7.5 percent to 1,395.11.
- Copper fell to a 7 1/2-month low in London, leading declines in industrial metals, after a gain in stockpiles signaled weaker demand. Copper stockpiles monitored by the London Metal Exchange rose 1,300 metric tons, or 0.7 percent, to 202,125 tons, the highest since March 2007. Inventories have jumped 65 percent this quarter. Copper, aluminum and zinc may drop further because of slowing global economic growth, Anil Agarwal, the billionaire who controls Vedanta Resources Plc, said today. ``Further stock builds could see copper plumb new depths,'' said John Reade, head of metals strategy at UBS AG in London. ``We are seeing no signs of strong demand from bargain hunters,'' he wrote today in a report.
- Posco(PKX), Asia's largest maker of stainless steel, plans to extend an output cut this month on weak demand following similar reductions in July and August. Chinese makers said last month demand in China, the world's largest producer, will remain weak in September amid concerns that economic growth is faltering. The slowdown may deter stainless producers from buying more nickel, used to make the rust-resistant metal, and hurt prices that have dropped 28 percent this year. The South Korean government is considering measures, including lower taxes, to boost the domestic property market, which is struggling with the highest number of unsold homes in more than 10 years.
- Crude oil fell to a five-month low, leading commodities lower, after Saudi Arabia's oil minister said supplies are sufficient to meet demand. The oil market is ``well-balanced'' and inventories are ``healthy,'' Saudi Oil Minister Ali Al-Naimi said today in Vienna, suggesting the Organization of Petroleum Exporting Countries will maintain output. Oil is down 29 percent from a record in July. ``When you see oil lose close to a third of its value in a pretty short time, it shows you that commodities aren't worth what people once thought,'' said Ron Goodis, a futures trading director at Equidex Brokerage Group in Closter, New Jersey. ``Many markets are coming back to reality.'' ``Commodity charts speak for themselves -- not much hope for the bulls,'' said Ralph Preston, an analyst at Heritage West Futures Inc. in San Diego. ``Look for pension funds and endowments to sell on any bounces.''
- U.K. manufacturing production declined in July to the lowest level in 1 1/2 years as oil rose to a record, dragging on economic growth. Factory output fell 0.2 percent from June, the Office for National Statistics said today in London, declining for a fifth month.
- McDonald's Corp.(MCD), the world's largest restaurant company, reported August sales that rose more than some analysts estimated as consumers battered by higher gasoline and grocery bills bought $1 sodas in the U.S. and snack-sized chicken wraps in France.
- Lehman Brothers Holdings Inc.(LEH) fell as much as 43 percent in New York trading after talks about a capital infusion from Korea Development Bank ended. The Wall Street firm is continuing to negotiate with other potential investors, a person briefed on the matter said.
- Apple Inc.(AAPL) Chief Executive Officer Steve Jobs introduced thinner iPod media players that can hold twice as many songs, showing off new designs to entice consumers during the holiday shopping season.

Wall Street Journal:
- Momentum is building in Congress to increase funding for public transportation as transit agencies struggle to accommodate increased demand from Americans seeking to escape high gas prices.
- The next U.S. president should put more emphasis on countering biological threats as part of a rethinking of national security strategy, according to early assessments from the leaders of a commission investigating the threat from weapons of mass destruction.

CNBC.com:
- A number of U.S. banks stand to gain after the government takeover of Fannie Mae and Freddie Mac, as the move, coupled with the Treasury decision to buy mortgage-backed securities, brought much-needed liquidity back into the market, Dick Bove, analyst at Ladenburg Thalman & Co., told CNBC.

CNNMoney.com:
- Started by a stock trading system guy, Brett Markinson, and an artificial intelligence whiz, Ben Goertzel, Quant the News's first product StockMood (stockmood.com) analyzes an aggregated feed of news from hundreds of sources to gauge the mood of coverage for companies and their stocks.

NY Post:
- Frustrated by the market chatter about its health, battered hedge-fund firm Atticus has decided to give the market the silent treatment. The $14 billion fund - which last week quelled rumors that it was liquidating - plans to "suspend indefinitely the reporting of mid-month performance estimates," it said in a Sept. 4 letter to investors.
- Hedge funds - the daredevils of Wall Street - are backing away from risk, fearful of getting beaten up by the market's persistent turbulence. JPMorgan Chase's Highbridge Capital and Phil Falcone's Harbinger Capital are among a growing number of big-name hedge funds that are hunkering down, moving into cash and reducing the use of borrowed money, or "leverage," to inflate returns, sources said. "A lot of smart hedge funds are sitting on cash right now, and that's the position we've taken," said an employee at Highbridge, the $28 billion hedge fund shop in which JPMorgan holds a big stake. The flight to safety reduces the chances of any surprise blowups in the coming months. But it also kills the likelihood that any new stars will be born; fund managers' nerves are too frayed to make the kind of big, directional bets that could reap big rewards. In some cases, hedge funds - especially the poor performers - are being pressured by their lenders, known as prime brokers, to reduce their risk. Goldman Sachs, for example, is "tightening up their risk management and forcing funds to deleverage," said a person familiar with the situation. The flight to safety, whether voluntary or forced, started at the end of July, when one of the few sure-fire bets of 2008 - that oil prices will go higher and financial stocks will fall - suddenly failed.

USA Today:
- A bipartisan group of 16 senators is promoting an energy proposal that includes allowing oil drilling off the coasts of Virginia, North Carolina, South Carolina and Georgia, if their governors and legislatures approve, and spending $20 billion on an effort to move away from gasoline-powered vehicles within 20 years. Four more senators are expected to sign on this week. "Most Americans believe that we ought to put the politics aside and actually try and pass an energy bill that would so something to reduce gas prices." First up on the Senate's agenda will be a bill to increase oversight of energy trading markets by the Commodity Futures Trading Commission to try to prevent companies from engaging in excessive speculation. That legislation could be expanded to other far-reaching energy proposals, said Bill Wicker, spokesman for the Senate Energy and Natural Resources Committee.

Reuters:
- North Korean leader Kim Jong Il may have had a stroke, citing a US intelligence official.
- Cuba increased the price of gasoline and diesel yesterday and will adjust prices quarterly based on changes in the global oil market, citing a note in the Communist Party newspaper Granma. The price of regular gasoline rose 69% and diesel rose 87%. Fuel import costs are stressing the government budget.

Le Figaro:
- European Union Economic and Monetary Affairs Commissioner Joaquin Almunia said the European Commission will cut growth forecasts for the region. “Growth figures will be revised downwards and those for inflation upwards,” Almunia said.

Kommersant:
- Russia is “psychologically” unprepared for lower budget spending in the decades to come as the oil industry’s contribution to the economy drops, citing Finance Minister Alexei Kudrin.
- Accelerating August inflation is a “lesson” for Russia’s government that will keep it focused on ensuring a “civilized macroeconomic policy” next year, citing Finance Minister Alexei Kudrin. Companies are unable to plan long-term investments and secure loans for projects locally when inflation is higher than 7-8%, Kudrin said. Inflation accelerated faster than economists expected in August to an annual 15%.

O Globo:
- Brazil’s main stock index should extend 20% losses this year as a result of the US economic slowdown, director of Columbia University’s Center for Brazilian Studies, said. Trebat, who was the head of Latin American research for Citigroup Inc. until 2005, said that Brazil’s economy should grow no more than 3% next year, dragged down by lower exports to China and higher interest rates.

Bear Radar

Style Underperformer:

Mid-cap Growth (-2.58%)

Sector Underperformers:

I-Banks irlind (-7.20%), Coal (-7.09%) and Steel (-6.45%)

Stocks Falling on Unusual Volume:

TWTC, CRZO, PVA, CLF, MBT, CMC, PBR, STO, ADVS, SSRI, FWLT, JOYG, POWI, PAAS, FSLR, EGLE, VISN, MSB, GNI and TRA

Stocks With Unusual Put Option Activity:

1) TRA 2) FWLT 3) OIH 4) RRC 5) BHP