Thursday Watch

Late-Night Headlines
Bloomberg:
- The U.S. Securities and Exchange Commission, responding to a market rout this week, may require hedge funds to disclose their short-sale positions and plans to subpoena the funds for their communication records. Hedge funds and other investors that manage more than $100 million in stocks would be ``required to promptly begin public reporting of their daily short positions,'' SEC Chairman Christopher Cox said in a statement today. The agency's enforcement division will obtain ``disclosure from significant hedge funds'' regarding their ``past trading positions in specific securities,'' Cox said. The SEC rule requiring hedge funds to disclose short positions must be approved by the full commission to become binding.
- Brazilian and Mexican homebuilders tumbled on Latin American stock exchanges on concern that the global financial crisis will raise the cost of capital while slowing growth and accelerating inflation slow demand for homes.
- Morgan Stanley(MS) is losing hedge-fund clients who are concerned that a record drop in the New York- based investment bank's stock threatens its finances, investors and industry executives said.
- Bonds from Argentina, Ecuador and Venezuela, the highest-yielding government debt in emerging markets, tumbled as investors shunned all but the safest securities as the credit crisis worsened.
- The cost to protect against a default by Morgan Stanley(MS) and Goldman Sachs(GS) Group Inc. rose to a record amid the credit-market seizure triggered by the collapse of Lehman Brothers Holdings Inc.
- Morgan Stanley(MS) is weighing a merger with Wachovia Corp.(WB) and several other banks as the securities firm seeks to regain investor confidence after its shares sank 42 percent this week, people familiar with the matter said.
- The People’s Bank of China must strictly control money supply as the nation still faces “serious” inflationary pressure, said Wu Xiaoling, the central bank’s former deputy governor.
- Central bankers may need to take a more global approach to stabilizing financial markets with actions that include making it easier for banks to borrow across borders.

Wall Street Journal:
- French state-run power company Électricité de France SA is considering raising its stake or even taking over U.S. joint-venture partner Constellation Energy Group Inc., which risks becoming another casualty of the radiating credit crisis, people familiar with the situation said Wednesday. The electricity company has lost more than half of its market value since Sept. 10 as concerns have grown over the liquidity needs of the company's commodities-trading business.

NY Times:
- The New York Times Company(NYT) announced an agreement on Wednesday with Breakingviews.com, an independent financial publication, to provide opinion columns for the weekday issues and online versions of The New York Times and The International Herald Tribune starting on Tuesday.
- The global credit crisis and the collapse of Lehman Brothers have punished all manner of hedge funds. But in London, where a number have already been closed, the retreat has a particular resonance. The failure of Lehman Brothers, which had deep relationships with some of the largest hedge funds in the world, has unsettled an already jittery market, inciting fears that some hedge fund assets might be frozen here and thus unavailable for sale if investors want to redeem them. The list of hedge fund implosions in 2008 is growing here. It began with the precipitous fall of Peloton Partners this spring and has included others like Pentagon Capital Management. More recently, the troubles have extended to funds caught short when commodity prices began to plummet, including RAB Capital and Red Kite Capital. Worries were only compounded after Lehman’s collapse as investors tried to determine GLG’s exposure. The crux of the issue is that Lehman, as a dominant provider of both complex derivative assets to funds and a prominent insurer of credit default swaps, was an essential conduit for hedge funds investing in these esoteric areas. To the extent that such assets remain at Lehman, in the hands of administrators, large funds will have trouble gaining access to them in the event that investors choose to take out their money.
- Microsoft Corp.(MSFT), starting a new phase of a $300 million advertising campaign, will end a series of commercials featuring comedian Jerry Seinfeld.

CNBC.com:
- Morgan Stanley(MS) is in talks to possibly be acquired by China's CITIC, sources in the U.S. and China have told CNBC.

CNNMoney.com:
- Morgan battles short-sellers.

Reuters:
- Washington Mutual Inc (WM), the giant U.S. savings and loan beleaguered by mortgage losses, has put itself up for sale, sources familiar with the matter said on Wednesday.
- The chairman of the No. 2 U.S. mortgage bank said on Wednesday that his company was "buying with both hands" and, given the distressed state of financial assets, he felt "like a kid in a candy store." Wells Fargo (WFC) Chairman Richard Kovacevich declined to comment to Reuters at a conference in Beverly Hills, California, on whether the company is interested in buying Washington Mutual Inc (WM) or Wachovia Corp (WB) but indicated he was interested in buying other banks in distress.

Financial Times:
- The Russian government was facing one of the biggest tests of its market economy on Wednesday after it was forced to close its two main stock exchanges to halt a market rout that has led to the steepest declines since the August 1998 crisis. The move came after shares began to tumble again as investors faced a new wave of forced equity sales on margin calls and a dearth of cash. One senior investment banker said a mid-sized commercial bank began to fail to make payments on Wednesday morning, causing the government to pull the plug on the stock exchanges.

Jiji Press:
- Toshiba Corp. is considering bidding for SanDisk Corp.(SNDK) to counter a hostile takeover approach from Samsung Electronics Co.

The Economic Times:
- The crisis in the US financial market will hit the Indian real estate sector hard. The sector was already reeling under tremendous pressure as RBI increased the interest rates to contain inflation, besides restricting the fund flow in it. The financial crisis in the global market will affect the availability of fund for the domestic realty sector. As RBI has already put restriction on Indian banks to finance real estate companies in the country, they are depended on foreign funds through FDI route for their fund requirements. But, a senior consultant said following the development in US, many of the private equity funds are returning back to their mother countries. The source said that many of these private equity funds were launched by investment banks. But, now as the fate of these investment banks is uncertain, their capability to raise funds in their country is doubtful. This will put severe constraint on availability of funds in India. At the same time, the crisis in the global market has affected the demand for the real estate space in India. The development in US has affected the global economy, which has forced many of the global majors to either postpone or cut the expansion plan. Global consultancy firm now predict with the cancellation and postponement of the expansion plan of companies, many of the regions like NCR, Bangalore and Pune will face the situation of oversupply in the office space. The rentals in these areas are projected to fall by 25 to 30% in the next 12 months.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (RIMM), target $160.

Thomas Weisel:
- Rated (EYE) Overweight, target $30.

Night Trading
Asian Indices are -4.0% to -3.0% on average.
S&P 500 futures +.19%.
NASDAQ 100 futures unch.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
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Before the Bell CNBC Video(bottom right)
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Today in IBD
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Bond Ticker
Economic Preview/Calendar
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Earnings of Note
Company/EPS Estimate
- (PIR)/-.23
- (CAG)/.24
- (FDX)/1.23
- (PALM)/-.19
- (ORCL)/.27
- (CTAS)/.52
- (CCL)/1.58

Economic Releases
8:30 am EST
- Initial Jobless Claims for last week are estimated to fall to 440K versus 445K the prior week.
- Continuing Claims are estimated at 3525K versus 3525K prior.

10:00 am EST
- Philly Fed for September is estimated to rise to -10.0 from -12.7 in August.
- Leading Indicators for August are estimated to fall .2% versus a .7% decline in July.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly EIA natural gas inventory report, DA Davidson Engineering/Construction Conference, Calyon Airline Conference, CSFB Chemical Conference, Merrill Lynch Global Real Estate Conference and the Goldman Communications Conference 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 equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Sharply Lower into Final Hour on Rising Credit Angst, Financial Sector Pessimism, Higher Commodity Prices

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs, Internet longs and Gaming longs. I added (IWM)/(QQQQ) hedges, added to my (EEM) short this morning and covered some of these positions this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is sharply lower, most sectors are falling and volume is heavy. Investor anxiety is very high. Today’s overall market action is very bearish. The VIX is rising 14.5% and is very high at 34.66. The ISE Sentiment Index is very low at 89.0 and the total put/call is very high at 1.42. Finally, the NYSE Arms has been running around average most of the day, after peaking at 3.96 this morning, and is currently .84. The Euro Financial Sector Credit Default Swap Index is +5.02% today to 150.17 basis points. This index is up from a low of 52.66 on May 5th and at a new high. The North American Investment Grade Credit Default Swap Index is +5.87% to 205.76 basis points. The TED spread is rising 38.3% to 3.02 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down another 2 basis point to 1.61%, which is down 101 basis points in about eight weeks and at the lowest level since January 2003, when deflation was the concern. The fact that credit angst is surging to records today, despite the AIG news, is a large negative. The (XLF) is breaking down through its recent trading range, which is also a negative. Many gauges of stock market angst are at levels normally associate with meaningful market bottoms, however the NYSE Arms has been unusually low after its initial opening spike. I am seeing many instances of "capitulation" selling in individual equities and I suspect some stocks are making their lows today. Nikkei futures indicate a -305 open in Japan and DAX futures indicate an +2 open in Germany tomorrow. I expect US stocks to trade modestly lower into the close from current levels on more shorting, forced selling, higher commodity prices, rising financial sector pessimism and global growth worries.

Bear Radar

Style Underperformer:
Small-cap Value (-5.0%)

Sector Underperformers:
Airlines (-12.48%), I-Banks (-11.30%) and Steel (-7.52%)

Stocks Falling on Unusual Volume:
ROS, UBS, IRE, AIB, VIP, C, PTR, SNP, CLF, AWC, SYUT, CEDC, IBKR, NTRS, YRCW, ROS, MS, GS, CEG, RNE, ETE, BCE, TEI, WF, EEP, GHI and DRS

Stocks With Unusual Put Option Activity:
1) BK 2) BUD 3) RCL 4) M 5) NIHD

Bull Radar

Style Outperformer:
Mid-cap Growth (-2.51%)

Sector Outperformers:
Disk Drives (+1.78%), Drugs (-.59%) and Restaurants (-.77%)

Stocks Rising on Unusual Volume:
SNDK, SA, SSRI, CALM, KTC, BCS, REP, PAAS, GOLD, IRBT, RGLD, DRYS, PRGO, SMTS, SHLD, JOSB, NTRI, PNRA, ADBE, IPCM, LIHR, CALM, AMSC, CEG and LYG

Stocks With Unusual Call Option Activity:
1) BUD 2) HANS 3) JDSU 4) NT 5) M

Stocks Finish at Session Lows, Weighed Down by Financial, Airline, Steel and Gaming Shares

Evening Review
Market Summary
Top 20 Biz Stories
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Real-Time Stock Bid/Ask
After-hours Stock Quote
After-hours Stock Chart
In Play

Wednesday Watch

Late-Night Headlines
Bloomberg:
- The cost of default protection on Australian corporate bonds fell from a record high, credit- default swaps show. It also fell in Japan. The Markit iTraxx Australia Series 9 Index was about 23 basis points lower at 185 at 9:54 a.m. in Sydney after earlier trading at 195 basis points, ABN Amro Holding NV prices show. The Markit iTraxx Japan index fell 21 basis points to 159 as of 9:05 a.m. in Tokyo, according to prices from Morgan Stanley.
- Samsung Electronics Co., the world's second-largest chipmaker, made a $5.85 billion hostile bid for SanDisk Corp.(SNDK) to widen its lead in the market for semiconductors that store pictures and music in cameras and mobile phones. Samsung offered $26 in cash for each SanDisk share, the Suwon, South Korea-based company said today in a statement. That's 73 percent more than SanDisk's latest closing price, leading the stock to jump 56 percent in after-hours trading.
- Morgan Stanley’s(MS) third-quarter profit fell less than estimated as revenue from stock trading and an asset sale cushioned a drop in the firm's investment banking and fixed-income businesses. ``We are very convinced and confident in the broker-dealer model,'' Morgan Stanley Chief Financial Officer Colm Kelleher said in a telephone interview. ``The market unfortunately is based on rumor and fear.'' On a conference call with analysts, he said Morgan Stanley's risk of losses from Lehman and AIG were ``not material.''
- Barclays Plc, the U.K.'s third- biggest bank, will acquire the North American investment-banking business of bankrupt Lehman Brothers Holdings Inc. for $1.75 billion, two days after abandoning plans to buy the entire firm. Barclays is paying $250 million in cash for the Lehman businesses and $1.5 billion for the securities firm's New York headquarters and two data centers, the London-based bank said in a statement on its Web site today. The operations employ about 10,000 people.
- Emerging-market stocks plunged the most in 11 years, currencies fell and the cost of insuring developing-nation bonds surged as rising lending rates and tumbling commodities prompted investors to sell riskier assets. The MSCI Emerging Markets Index fell 4.7 percent to 786.99 at 4:17 p.m. New York time, the lowest level since October 2006. The measure earlier tumbled 6.3 percent for the biggest drop since October 1997. The measure lost 34 percent in 2008 before today, compared with a 19 percent decline for the Standard & Poor's 500 Index.
- Gold fell as investors sold commodities to raise cash and cover losses in other markets. Silver fell to a two-year low and platinum dropped the most since at least 1986. Platinum futures for October delivery plummeted $107.70, or 9.2 percent, to $1,068.50 an ounce in New York.

Wall Street Journal:
- The U.S. government announced an emergency rescue of American International Group Inc.(AIG) -- one of the world's biggest insurers -- signaling the intensity of its concerns about the danger a collapse could pose to the financial system.

MarketWatch.com:
- Offshore oil and gas exploration gets newfound attention from both parties.

NY Times:
- There is a tiny shred of good news for Lehman Brothers(LEH), the beleaguered investment bank: one of the investments of its Healthcare Venture Capital arm, a biotech company called Fluidigm, is set to go public this week. That is, if the markets cooperate.

CNBC.com:
- Morgan Stanley(MS) officials are weighing whether the firm should remain independent or merge with a bank given the recent turbulence in the company's stock, CNBC has learned.

USA Today.com:
- Officials in North Carolina, Texas and Florida are investigating claims of price gouging as gasoline prices soared across large swaths of the nation in the wake of Hurricane Ike.

Daily Herald:
- Home Depot(HD) plans price cuts to bring back shoppers.

Reuters:
- The U.S. House of Representatives passed legislation on Tuesday lifting a longstanding congressional moratorium on offshore drilling.

Financial Times:
- Russia authorities halted trading on the country's stock exchange on Tuesday after it plunged 17 per cent in a broad-based sell-off. "This is a good old-fashioned panic", said Steven Dashevsky, head of research at Unicredit in Moscow. "It doesn't feel like there is anyone domestically that can put the brakes on." Margin calls on local investors who have used stocks as collateral for loans continued to drive sales, as emerging market funds faced growing redemptions.
- The growth prospects of the global hedge fund market – worth almost $2,000bn (£1,400bn) – are in doubt. Funds are being forced to de-lever and sit on large cash balances as the prime brokers they largely depend on for financing face severe pressure. The collapse of Bear Stearns and Lehman Brothers has forced hundreds of hedge funds that used the banks as their prime brokers to look elsewhere for their funding and support. It has also put pressure on funds to rein in the amount of leverage they employ, limiting their ability to outperform broader indices and causing investors to question the fees they charge. About 100 hedge funds that used Lehman as their prime broker had positions held via the bank frozen on Monday as administrators took charge of the London business and the US holding company filed for bankruptcy.

Guardian:
- Google(GOOG) shows first Android phone in London.

The Independent:
- Britain’s Alistair Darling stopped short of calling for an outright ban on shorting bank shares yesterday, as news emerged that the US government was preparing plans to crack down on the practice. This came on the day that the Liberal Democrat Treasury spokesman, Vince Cable, called for the regulators to outlaw the shorting of banks to stop hedge funds "betting against the taxpayer".

AFP:
- The US government approved $250 million in sales of food products and agricultural equipment to Cuba to help it recover from Hurricanes Ike and Gustav, bypassing an embargo on the country.

The West Australian:
- BHP Billiton(BHP) has warned that its profits are exposed to any economic slowdown in China. The warning was contained in the group’s US annual report and breaks with the habit of the past five years of talking up the strength of Chinese demand.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ADBE), target $50.

Piper Jaffray:
- Rated (CKEC) Buy, target $6.
- Rated (NCMI) Buy, target $14.

Night Trading
Asian Indices are -.25% to +2.0% on average.
S&P 500 futures +.57%.
NASDAQ 100 futures +.53%.

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
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (GIS)/.88
- (DBRN)/.29
- (CKR)/.19
- (MLHR)/.55

Economic Releases
8:30 am EST
- The Current Account Deficit for 2Q is estimated to widen to -$180.0 billion versus -$176.4 billion in 1Q.
- Housing starts for August are estimated to fall to 950K versus 965K in July.
- Building Permits for August are estimated to fall to 928K versus 937K in July.

10:35 am EST
- Bloomberg consensus estimates call for a weekly crude oil drawdown of -3,500,000 barrels versus a -5,828,000 barrel decline the prior week. Gasoline inventories are expected to fall by -3,500,000 barrels versus a -6,462,000 barrel decrease the prior week. Distillate supplies are estimated to fall by -1,900,000 barrels versus a -1,252,000 barrel fall the prior week. Finally, Refinery Utilization is expected to fall by -2.0% versus a -10.41% decline the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly MBA mortgage applications report, (BRCD) analyst meeting, Goldman Sachs Communications Conference, UBS Global Paper/Forest Products Conference, Jeffries Shipping/Logistics/Offshore Services Conference, CSFB Chemical Conference, Bank of America Investment Conference, Merrill Lynch Global Real Estate Conference, RBC Financial Institutions Conference and the BMO Capital Markets Real Estate Conference could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and financial shares in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.