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Thursday Watch

Late-Night Headlines
Bloomberg:
- US Treasury Secretary Henry Paulson says US will use all ‘authorities’ in crisis. (video)

- Central banks in South Korea, Taiwan and Hong Kong cut interest rates a day after their colleagues in the U.S. and Europe coordinated monetary easing to stem the damage of the global financial crisis.

- European Central Bank President Jean- Claude Trichet is opening up the floodgates as the credit crisis threatens to cripple the region's banking system. Traditionally slower than its global counterparts to shift policy, the ECB yesterday cut interest rates for the first time in five years, joining in a global round of reductions. Trichet declined to rule out further steps and said he will offer banks unlimited cash to help them cope with frozen money markets. ``This is a regime change,'' said Robin Marshall, director of international fixed income at NCL Smith & Williamson, who oversees about $20 billion in assets. ``This is a significant day in which they've gotten real about the financial crisis.''

- Former Bank of England policy maker Christopher Allsopp said the U.K. central bank may follow its half-point interest rate cut with another reduction if the financial crisis doesn't abate. ``It depends on the news, but if things are going on anything like they're going on now then yes, we'd see another big one,'' Allsopp, who voted on the bank's last emergency decision seven years ago, said in an interview yesterday.

- Pessimism about US stocks jumped to the highest level in almost 14 years. The bearish proportion of newsletter writers surveyed by Investors Intelligence rose 5.8 points to 53% in the week ended yesterday. Bullish stock advisers fell 8.4 points to 25.3%.

- Citadel Investment Group LLC, the $17 billion investment firm run by Ken Griffin, had the credit outlook for two of its hedge funds lowered by Standard & Poor’s. The rating firm revised its outlook for Chicago-based Citadel’s Kensington Global Strategies Fund Ltd. and Citadel Wellington LLC to “negative” from “stable.” S&P said it likely would downgrade its rating if “ongoing poor performance is accompanied by outsized redemption requests.”

- The spread between the rate on 10- year interest-rate swaps and Treasury yields collapsed to the least since before credit markets began to seize last year after coordinated central bank rate cuts. The spread narrowed to as low as 44.94 basis points, the smallest since Feb. 6, 2007. ``The movement in the 10-year swap spread is signaling a break in the upward trend in credit spreads,'' said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York. The movement ``is probably hinting at a drop in the two-year swap spread, which if it occurs would strongly signal an easing of pressures in the inter-bank market.''

- Russian regulators closed the Micex Stock Exchange for two days as a new $36 billion injection into the banking system by President Dmitry Medvedev failed to halt the country's biggest stock collapse since 1998. The Micex Index plunged for a sixth day, falling 14 percent to 637.87, the lowest level in more than three years, before trading was halted at 11:05 a.m. in Moscow. The bourse won't open until Oct. 10 unless regulators say otherwise, Micex Chief Executive Officer Alexei Rybnikov said in an interview.

- The risk of companies and governments in the Asia-Pacific region defaulting on their debt fell after unprecedented coordinated interest rate cuts by central banks in North America, Europe and Asia. The Markit iTraxx Japan index was 4 basis points lower at 200 at 9:22 a.m. in Tokyo, according to prices from Credit Suisse Group. The Markit iTraxx Australia index declined 17 basis points to 227 at 11:45 a.m. in Sydney, Citigroup Inc. prices show.

- Steel mills in China, the world's biggest makers, are reducing demand for iron ore and asking miners to postpone deliveries because of tightening credit facilities, said Mt. Gibson Iron Ltd., an Australian producer. ``Customer and iron ore sector analysis indicates a slowdown in demand for iron ore in China due to current economic uncertainty and the tightening of credit facilities,'' the Perth- based company said today in a statement to the Australian stock exchange. Mt. Gibson said it received requests to delay shipments until the second quarter of the financial year. Chinese mills have slowed production, sending cash iron ore prices down 17 percent in the last week of September.

- The Baltic Dry Index, a measure of shipping costs for commodities, fell to its lowest since June 2006 as slowing economic growth curbed demand for raw materials and led to a surplus of vessels for hire. The Index tracking transport costs on international trade routes retreated 158 points, or 5.4%, to 2,764 points, according to the Baltic Exchange in London. It’s 77% lower than the record on May 20.
- Zinc futures fell by the exchange- imposed daily limit in Shanghai amid concerns that a slowdown in the global economy will curb demand for the industrial metal. Zinc for December delivery fell by 515 yuan, or 4 percent, from the previous settlement price, to 12,285 yuan ($1,799) a ton and traded at that level at 9:16 a.m. local time.

- Crude oil fell for a second day as the global economic crisis curbed demand and after the U.S. government reported a bigger-than-expected gain in crude and gasoline inventories. Oil supplies rose 8.12 million barrels to 302.6 million barrels in the week ended Oct. 3, as imports and output resumed after halting last month for hurricanes, the Energy Department said yesterday. The agency on Oct. 7 cut its 2008 oil demand forecast by 340,000 barrels to 86.14 million barrels a day. U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999. The figure is down 8.6 percent from the year-earlier period, the department said. U.S. gasoline demand dropped 9.5 percent last week, the biggest decline in more than three years, as the slowing economy curtailed driving, a MasterCard Inc. report showed Oct. 7. Supplies of gasoline rose 7.18 million barrels, or 4 percent, to 186.8 million barrels as refinery capacity climbed 8.7 percentage points to 80.9 percent. It was the biggest increase in refinery utilization in records that go back to 1989. Gasoline inventories had the biggest gain in seven years. ``They may have a meeting but in the face of a global economic deceleration I just can't imagine the Saudis will agree to a production cut,'' said Purvin & Gertz's Shum. ``Politically it would be very unacceptable.''

- The New York Federal Reserve Bank said it is in discussions with Pacific Investment Management Co. to help manage the unit the central bank is setting up to buy commercial paper.

- International Business Machines Corp.(IBM), the largest computer-services company, reported third-quarter earnings that beat analysts' estimates and reiterated its annual forecast. The shares advanced 6 percent in extended trading.

- Latin American currencies extended losses, many hitting record lows, as the global financial crisis weakened commodity prices and demand for emerging-market assets.

- Boeing Co.(BA) and its machinists union agreed to return to the bargaining table in an effort to end a strike that has kept production shut down at the world's second- largest planemaker since Sept. 6.

Wall Street Journal:
- John Mack made his name at Morgan Stanley(MS) as a hard-charging bond salesman and aggressive deal maker. Now those skills are being put to the ultimate test as Mr. Mack, who took over as chief executive of the Wall Street firm in 2005, tries to convince shareholders, trading partners and employees not to believe the latest round of doom scenarios swirling around the firm.

MarketWatch.com:
- Walgreen Co.(WAG) late Wednesday pulled its proposal to buy Longs Drug Stores(LDG) for $75 a share in cash, leaving the door open for CVS Caremark Corp.(CVS) to proceed with its lower bid.

NY Times:
- Citigroup(C) and Wells Fargo(WFC), the two banks vying for control of the Wachovia Corporation(WB), are negotiating a compromise that would hand the bulk of the troubled bank to Wells Fargo, according to people close to the situation.

- Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.

Kontan:

- Indonesia’s domestic vehicle sales may miss this year’s target of 600,000 because of higher auto loan rates, citing an official at the nation’s automotive association. Sales may reach up to 560,000 units, the report said. About 75% of Indonesian vehicle purchases are made with loans.

Late Buy/Sell Recommendations

- None of note

Night Trading
Asian Indices are -.50% to +2.50% on average.
S&P 500 futures +.92%.
NASDAQ 100 futures +.85%.

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Earnings of Note
Company/EPS Estimate
- (RPM)/.54

- (ISCA)/.71

- (TSS)/.33

- (RBN)/.70

Economic Releases
8:30 am EST

- Initial Jobless Claims for last week are estimated to fall to 475K versus 497K the prior week.

- Continuing Claims are estimated to rise to 3608K versus 3591K prior.

10:00 am EST

- Wholesale Inventories for August are estimated to rise .4% versus a 1.4% increase in July.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly EIA natural gas inventory report, ICSC Chain Store Sales report and Platts Cellulosic Ethanol/Biofuels Conference could also impact trading today.

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

Stocks Finish Lower, Weighed Down by Airline, Insurance, Financial and Alternative Energy Shares

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In Play

Stocks Mixed into Final Hour as Less Financial Sector Pessimism Offsets Global Growth Concerns

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs, Biotech longs and Medical longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is slightly lower, sector performance is mixed and volume is very heavy. Investor anxiety is very elevated. Today’s overall market action is bullish. The VIX is rising 1.32% and is historically elevated at 54.39. The ISE Sentiment Index is low at 102.0 and the total put/call is high at 1.23. Finally, the NYSE Arms has been running low most of the day, after hitting 3.68 at its morning peak, and is currently .35. The Euro Financial Sector Credit Default Swap Index is falling 6.44% today to 109.0 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is rising 2.6% to 179.70 basis points. The TED spread is rising 8.9% to 3.87 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down another 19 basis points to .98%, which is down 165 basis points in about three months and at the lowest level since January 1999. I said last week that we needed to see a significant global central bank response to the current crisis and we got that today. I am surprised by the market’s muted upside reaction thus far. However, given that the ban on short-selling financials expires tonight and ongoing forced hedge fund selling, a delayed more vigorous upside reaction is likely. Nikkei futures indicate an +227 open in Japan and DAX futures indicate an +137 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting and global growth worries.

Today's Headlines

Bloomberg:
- U.S. stocks rose as investors snapped up technology and commodity companies that are trading at their cheapest levels in at least 13 years and may benefit from unprecedented cuts in global interest rates. Qualcomm Inc., Apple Inc. and Monsanto Co. rallied more than 5 percent after the price-to-earnings ratios of technology and raw-material shares in the Standard & Poor's 500 Index declined to the lowest since Bloomberg began tracking the data in 1995. Bank of New York Mellon Corp. rallied 27 percent and Discover Financial Services jumped 7.5 percent after the Federal Reserve joined its European counterparts in reducing borrowing costs by half a percentage point.

- The Federal Reserve, European Central Bank and four other central banks lowered interest rates in an unprecedented coordinated effort to ease the economic effects of the financial crisis.

- Republican presidential candidate John McCain is proposing the government divert some money set aside for buying mortgage securities and instead purchase home loans. The plan would help homeowners in danger of foreclosure refinance into more affordable mortgages and wouldn't require approval of the loan holder, McCain senior policy adviser Douglas Holtz-Eakin said on a conference call today.

Wall Street Journal:

- One day after J.P. Morgan Chase & Co.(JPM) demanded $5 billion in collateral from a teetering Lehman Brothers Holdings Inc. last month, the big bank made the same demand from Merrill Lynch & Co.

NY Times:
- NYC Schools Test Microsoft(MSFT) Science, Math Video Games.

Google Blogscoped:

- Google(GOOG) released AdSense for Games aka Google In-Game Advertising. This is a way for AdSense ads in text, image or video format to be integrated into web-based Flash games.

Rocky Mountain News:

- It's as if the Denver-area housing market has gone back in time. The number of unsold homes on the market in September dropped to the lowest level since December 2005 and the number of homes placed under contract jumped almost 22 percent from September 2007, the best September for sales in three years.

Reuters:
- OPEC may need to intervene to balance the oil market if prices fall further, Nigeria said on Wednesday, making it the latest country in the exporters' group to float the prospect of supply curbs.

- The credit crisis is providing a rare chance for investors with sufficient cash to get into previously inaccessible hedge funds, according to Swiss-based Partners Group's head of fund manager selection Roberto Cagnati.

Kommersant:
- Russian banks started raising mortgage rates as the global financial crisis worsens. Moscow-based Alfa Bank plans to increase its average annual ruble mortgage rate to more than 20%, and its average annual dollar rate above 16.5%. The current rates are 15.5% for mortgage loans in rubles and 12.5% in dollars. Many Russian banks have stopped giving out mortgage loans.recast to "

Financial Post:

- The credit crisis is spilling over into the grain industry as international buyers find themselves unable to come up with payment, forcing sellers to shoulder often substantial losses.

Bull Radar

Style Outperformer:
Large-cap Growth (-1.25%)

Sector Outperformers:
Semis (+1.53%), Wireless (+.69%) and Networking (+.25%)

Stocks Rising on Unusual Volume:
GOLD, KGC, POT, LOW, SHW, DCM, NTT, FCX, XOM, RDS/A, OMRI, FAST, ASML, AAPL, PSPT, LLTC, RIMM, SYNT, SYNA, SMSC, ISRG, GOLD, BRCM, FDRY, RYAAY, ALTR, CELG, DMND, PLCE and SIAL

Stocks With Unusual Call Option Activity:
1) HERO 2) WFT 3) STLD 4) MU 5) ALTR