Today's Headlines

Bloomberg:
- The government is planning to buy stakes in a wide range of banks within weeks as the credit freeze increasingly threatens to tip the U.S. economy into a deep recession. Treasury Secretary Henry Paulson and top aides are still considering options on how the purchases would work, including having the government acquire preferred stock, two officials informed of the matter said.

- Overnight borrowing costs for companies fell a day after six central banks lowered interest rates to unlock credit markets and prevent a prolonged global recession.

- Crude oil fell more than $1 a barrel in New York on concern that the coordinated cut of interest rates by central banks yesterday may be insufficient to prevent a prolonged global recession. ``We held at important support around $86 yesterday,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``If we are able to break through, prices are going to fall to the lower $80s and maybe the high $70s.'' The Organization of Petroleum Exporting Countries will hold an emergency meeting in Vienna on Nov. 18 to tackle the drop in prices. ``Some OPEC members would like to cut production, but I think it would be suicide,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``I don't think they will make a cut unless things improve dramatically on the economic front.'' U.S. fuel demand averaged about 18.7 million barrels a day during the past four weeks, the lowest since June 1999, according to an Energy Department report yesterday. The figure is down 8.6 percent from the year-earlier period, the department said.

- Nickel production may outpace demand by 110,000 tons in 2009 as usage by stainless steel makers is slow to recover, the International Nickel Study Group said.

- Goldman Sachs(GS) cut its 2009 steel price forecast 29% and reduced recommendations on some steelmakers as stalling US and European economic growth and a slowdown in emerging markets curbs demand. “We have heard from the majority of steel traders and service centers that steel buying globally has almost ground to a halt and prices are coming down hard and fast,” Tharani wrote. “Demand is the weakest we have observed in a long time.”

- U.K. house prices fell by the most in 25 years as the global financial crisis discouraged buyers and prompted banks to stop lending, HBOS Plc said.

- Morgan Stanley(MS) declined as much as 25 percent in New York Stock Exchange composite trading as a ban on short selling expired and concern escalated that the company may be unable to weather the credit crisis. The stock fell $2.73 to $14.07 at 12:46 p.m. after dropping as low as $12.59 earlier today. The New York-based company has lost 73 percent of its value this year.

Wall Street Journal:

- Sharp Declines in Commodities Hammer Funds. Until earlier this year, commodity-focused mutual funds were red hot. Now, they're burning through the value of investors' portfolios. Over the past three months through Tuesday, these funds and other commodity-linked investments such as exchange-traded notes, are down on average 26% to 44%, according to Lipper Inc., thanks to a broad selloff in several commodities since mid-July.

- As if hedge-fund managers haven't felt enough pain lately, now Uncle Sam is cracking down on them. Tucked away inside the recent $700 billion U.S. plan to buy toxic mortgage assets are unrelated changes to the tax code -- effectively eliminating a favorite tax-deferral dodge of hedgies.

Crain’s NY Business:

- New York state ranked nearly worst for business taxes. An annual report from the Tax Foundation's 2009 Business Tax Climate Index put New York state at No. 49 for its hardly business-friendly tax policies. Only New Jersey was beneath New York in the latest ranking by the nonprofit and nonpartisan foundation. California, Ohio and Rhode Island rounded out the bottom five. Wyoming ranked first, followed by South Dakota, Nevada, Alaska and Florida.

Economist:

- Hedge funds. Collateral damage. An industry suffers, and regulators have not helped.

Lloyd’s List:

- Container ships will be idled because there are too many of them and US demand is slowing, citing a spokesman for Mitsui OSK Lines Ltd. and other shipowner officials that it didn’t identify. It will be the first time ships have been idled since the downturn in the industry began.

International Herald Tribune:
- The technical term for it is "negative feedback loop." The rest of us just call it a panic. How else to explain yet another plunge this week in global stock markets - particularly in the absence of another nasty surprise? If the market is indeed close to the bottom, history suggests that any rally in the next few weeks will probably be big. Stovall, the S&P strategist, estimates that since World War II, stocks have recouped about a third of their bear market losses in the first 40 days after the market hits bottom.

Il Sole 24 Ore:
- European Central Bank Board member Lorenzo Bini Smaghi said the bank’s forecasts for European growth of 1.2% in 2009 will be “reviewed downwards” because of the turmoil in financial markets.

Cinco Dias:

- Spain will pass a ruling obliging automobile fuels to include a minimum content of 3.4% biofuel by 2009 and 3.9% by 2010, citing Energy Secretary Pedro Marin. Marin hopes to surpass the government’s goal of having 5.8% of automobile fuel produced from renewable sources such as plants by 2010.

O Estado de S. Paulo:

- Honda Motor Co., Elgin SA and other home appliance and motorcycle manufacturers will cut production in northern Brazil and send employees on vacation after the Brazilian real’s decline. Manufacturers with factories in the so-called Zona Franca region in the Amazon city of Manaus have been hit by the falling currency because they use imported parts and have dollar-denominated debt.

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Xinhua:

- China's business climate index, a key gauge of corporate performance, slid year on year in the third quarter, said the National Bureau of Statistics (NBS) on Thursday. The index, based on a survey of 19,500 Chinese firms, fell to 128.6 points in the third quarter, down 16.1 points from the same period last year. In the second quarter the index dropped 8.8 points from 137.4 points. It was the first time China's business climate index fell below130 points since the outbreak of the Severe Acute Respiratory Syndrome (SARS) epidemic in early 2003. The 100-point mark is seen as a definition between depression and prosperity.

Bear Radar

Style Underperformer:
Small-cap Value (-3.56%)

Sector Underperformers:
Banks (-4.27%), Insurance (-4.13%) and HMOs (-4.18%)

Stocks Falling on Unusual Volume:
LNC, PL, WFC, NVS, OMRI, SBAC, MDVN, FTEK, PRU, MS, STU and SOR

Stocks With Unusual Put Option Activity:
1) MGA 2) MYL 3) CMA 4) AET 5) ICO

Bull Radar

Style Outperformer:
Large-cap Growth (+.49%)

Sector Outperformers:
Airlines (+3.73%), Construction (+2.75%) and Oil Service (+1.76%)

Stocks Rising on Unusual Volume:
QSFT, MOS, MWE, MON, SY, CIB, PUK, LGCY, JPM, PBR, IVGN, SPTN, TSCO, AAWW, AAPL, SIAL, RIMM, GOOG, GEOY, NIHD, DECK, CME, FSLR, GMXR, NNDS, AAUK, GYMB, ISRG, ITRI, BCA, MET, HEP, MTR, KMR, HGT, WPC and KMP

Stocks With Unusual Call Option Activity:
1) AGN 2) STJ 3) MYL 4) BAX 5) NSM

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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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