Today's Headlines

Bloomberg:
- Bond investors from Tokyo to New York are pushing 30-year Treasury yields to record lows in a bet that the financial market meltdown will turn inflation into deflation. Frankfurt-Trust Investment GmbH's global debt fund is buying so-called long bonds. Mizuho Asset Management Co., part of Japan's second-largest bank, sold shorter-maturity notes and purchased longer-term debt last week. BlackRock Inc.(BLK), which oversees $1.4 trillion, says the trade may be a winner next year.

- Money-market rates in London fell after the U.S. joined the U.K., Germany and France in offering to buy stakes in banks to restore confidence in the global financial system. The London interbank offered rate, or Libor, that banks charge each other for three-month dollar loans slid 12 basis points to 4.64 percent today, the biggest drop since March 17, according to the British Bankers' Association. It was at 4.82 percent on Oct. 10, the highest level since December. The three- month euro rate fell 7 basis points to 5.23 percent, the largest decline since Dec. 28.

- Lord West, a U.K. lawmaker and former head of the Royal Navy, said British authorities are investigating a serious terror plot, Sky News reported. ``There is another great plot building up again and we are monitoring this,'' he said today in a debate on the Counter Terrorism Bill in the House of Lords, the broadcaster reported.

- Hedge fund managers, after enduring the industry's worst month in a decade, are seeking to explain to investors what went wrong and what they are doing about it. ``We clearly underestimated several things, most importantly the tsunami of redemptions that are being delivered to hedge funds as investors line up to get out of these funds as well as record outflows from equity mutual funds,'' Jeffrey Gendell, who runs Greenwich, Connecticut-based Tontine Associates LLC, wrote in an Oct. 1 letter to clients.

- Bank bonds soared and the cost of protecting their debt against default plunged as the U.S. government prepared to invest about $125 billion into financial companies and guarantee their newly issued debt. Credit-default swaps protecting against a Morgan Stanley default plunged to the lowest in four weeks and its bonds rose from distressed levels. Credit-swaps on Goldman Sachs Group Inc. and Citigroup Inc. also declined, indicating an improvement in investor confidence. Credit-default swaps on Morgan Stanley plunged 414 basis points to 403 basis points, and have dropped the equivalent of 898 basis points since Oct. 10, according to CMA Datavision. Contracts on Goldman fell 192 basis points to 195 basis points. Citigroup dropped 85 basis points to 137 basis points, the lowest since July. The Markit CDX North America Investment Grade index, a benchmark gauge of credit risk linked to the bonds of 125 companies in the U.S. and Canada, fell 42 basis points from Oct. 10 to 178, according to broker Phoenix Partners Group, as of 11:46 a.m. in New York.

- Energy companies, banks and hedge funds are turning to exchanges instead of over-the-counter markets to minimize risks in energy trading, speakers at an energy derivatives conference in London said. Traders are opting for exchanges where settlement is guaranteed on concern over completion and payment for trades after Lehman Brothers Holdings Inc. filed for bankruptcy last month and Fortis was rescued by Belgium, the Netherlands and Luxembourg. Some smaller energy and commodity companies will struggle to survive if banks continue to restrict credit, which also affects funds that invest in those companies, he said. ``Some exploration and production companies can't get funding, it's game over,'' he said. ``Some funds in Canada are closing shop. It's the same with junior mining companies.''

- The US government’s plan to inject cash into financial institutions, coupled with similar actions by countries around the world, may jumpstart a stalled global financial system, Blackstone Group LP(BX) CEO Schwarzman said. “We’re looking today at an absolute sea change in the global financial system in terms of liquidity,” Schwarzman said. “This could be the time that breaks the back of the credit crisis.”

- Codelco, the world's biggest copper producer, will invest $1.8 billion next year, maintaining record spending even as weaker U.S. and European economies lead to the first global surplus of the metal since 2003.

- China Loss Is Alabama Gain as Sleeping-Bag Firm Adds US Jobs.

- Aisling's $2 billion Merchant Commodity Fund, run by Michael Coleman and Doug King, former Cargill Inc. traders, trounced hedge funds in September. The fund gained 12 percent as energy and agricultural prices slumped, according to two people with knowledge of its performance. ``Is this the end of the commodities bull super-cycle? It doesn't look good: there's no light at the end of the tunnel'' in the next year, O'Malley told an audience of cotton traders and textile producers.

- Iceland's benchmark stock index plunged 77 percent, the biggest decline on record, as trading resumed after a three-day suspension and the nationalization of the country's largest banks. Investors demanded a higher premium to hold Icelandic government bonds, while the price of the country's currency remained ``undetermined,'' according to TD Securities.

- President George W. Bush talked with three European leaders about the importance of ``not letting up'' in the drive to revive global financial markets.

- Apple Inc.(AAPL) plans to offer its first Macintosh notebook priced at less than $1,000 this holiday shopping season in a bid to attract budget-conscious consumers stung by the global economic crisis. Chief Executive Officer Steve Jobs cut the price on the current MacBook models to $999 today at Apple's headquarters in Cupertino, California. He also introduced an aluminum-clad version with a glass display that will sell for $1,299 and updated the MacBook Pro line with thinner models.

- European Central Bank President Jean- Claude Trichet called for a global approach to solve the financial market crisis.

- Treasury Secretary Henry Paulson urged banks getting $250 billion of taxpayer funds to channel the money to customers quickly to halt a credit freeze that's threatening to bankrupt companies and hammer the job market. ``Leaving businesses and consumers without access to financing is totally unacceptable,'' Paulson said in Washington.

- Investors willing to buy stocks at their current depressed prices stand to make a lot of money, according to Tim Bond, Head of global asset allocation at Barclays Capital in London. “Global equity markets are starting to offer a long-term buying opportunity that is typically only seen once in a generation,” Bond wrote. “Returns from equities purchased during this interval may very well be extremely high over the next 12 months and could, if history is any guide, average double-digit long-run returns over the next decade.”

Wall Street Journal:

- US mutual funds are facing a sharp drop in fee income as investors sell stocks and switch to cash and other investments. Stock funds have been hit by investors pulling $92 billion since Sept. 1, with almost $50 billion of the withdrawals taking place in the first 10 days of October, citing data from TrimTabs Investment Research. As of Friday, the market decline had shaved $2 trillion in assets from U.S. and international stock mutual funds since Sept. 1 -- almost 36% of total assets under management, according to TrimTabs Investment Research. The loss is on pace to smash the largest two-month asset decline in percentage terms of 18%, set in June-July 2002, TrimTabs said.

- We’re Laying the Groundwork for Recovery by Fed Chairman Bernanke.

- After being severely constricted for weeks, the commercial paper market showed tentative signs of recovery on Tuesday after global leaders aimed a number of initiatives at stabilizing financial markets.

Financial Times:
- Hedge funds investing in Russia are having trouble valuing their assets, with surprise market closures and a lack of liquidity prompting some to suspend valuations - and withdrawals - altogether.

Valor Economico:

- Brazilian companies may have lost a combined $24 billion in the derivatives market after the local currency tumbled, Banco Itau Holding Financeira SA Executive Director Sergio Werlang said.

Les Echos:
- Shipping companies will go bankrupt because of the global economic slowdown which has led to falling freight transport prices, citing Philippe Louis-Dreyfus, CEO of Louis Dreyfus Group. Overcapacity in the shipping industry will also be a problem in the coming months and will lead to the cancellation of a third of all orders to shipyards, he said.

Tehran Times:

- Iran seeks to complete energy agreements with Russian gas monopoly OAO Gazprom during a visit by National Iranian Oil Co.’s Managing Director Seifollah Jashnsaz to Russia today. Iran expects to reach an agreement to form a joint venture to develop energy projects and build a pipeline to transport oil from the Caspian Sea to the Sea of Oman, citing the Oil Ministry.

Etemaad:

- Iran will face a budget deficit if crude oil prices decline to $70 a barrel, citing a former Iranian oil minister. “Previous governments sought to decrease Iran’s dependence on oil revenue but these efforts were not pursued by the current government,” said Bijan Namdar Zanganeh. Iran “cannot live with oil at $70 a barrel,” said Namdar Zanganeh, who was oil minister for eight years until 2005.

Bear Radar

Style Underperformer:
Large-cap Growth (-1.37%)

Sector Underperformers:
REITs (-6.29%), Software (-3.78%) and Internet (-3.24%)

Stocks Falling on Unusual Volume:
PNC, STD, SFG, NXY, PEP, KO, ADTN, FOSL, ITRI, AMZN and ASML

Stocks With Unusual Put Option Activity:
1) ETFC 2) ADTN 3) SIRI 4) BCE 5) ATVI

Bull Radar

Style Outperformer:
Large-cap Value (+1.33%)

Sector Outperformers:
Banks (+6.98%), HMOs (+2.13%) and Computer Services (+2.0%)

Stocks Rising on Unusual Volume:
GEL, BACK, VRUS, NBL, LGCY, TKC, JDAS, FEIC, FSLR, LAYN, QSII, ISRG, OMRI, LPHI, ATPG, VARI, DRYS, IMCL, FISV, AMRI, NICE, FITB, CTBK, SBAC, DWSN, AKO/A and PII

Stocks With Unusual Call Option Activity:
1) XL 2) SGR 3) BP 4) BX 5) KG

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- The Bush administration will invest about $125 billion in nine of the biggest U.S. banks, including Citigroup Inc. and Goldman Sachs Group Inc., in the government's latest attempt to shore up confidence in the financial system. The cash injections in exchange for preferred shares are part of a $700 billion rescue approved by Congress and follow similar moves by European leaders to unfreeze global credit markets by helping beleaguered banks. The other companies are Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., Morgan Stanley, State Street Corp. and Bank of New York Mellon Corp., said people briefed on the plan.

- Default-protection costs on Japanese and Australian corporate bonds declined on anticipation the Bush administration will announce plans to invest in nine U.S. banks including JPMorgan Chase & Co. and Goldman Sachs Group Inc. The Markit iTraxx Japan index of credit-default swaps fell 45 basis points to 180 at 8:33 a.m. in Tokyo, according to prices from Morgan Stanley. The decline exceeds the 42-basis- point drop on March 21 after the rescue of Bear Stearns Cos., CMA data show. The iTraxx Australia declined 30 basis points to 185, Citigroup Inc. prices show.

- Honda Motor Co., the world’s largest motorcycle maker, and manufacturers of industrial goods and electronics in Brazil plan to trim output as demand slows and a plunge in the value of the local currency boosts costs, a union official said. “We expect other companies to make similar decisions,” Sena said. “I haven’t seen anything like this in at least seven years.” The Brazilian real has lost 27% against the US dollar since the start of August, the biggest loser among the 16 most-traded currencies tracked by Bloomberg. Consumer demand will probably cool in coming months as the weaker currency hurts confidence, said Roberto Padovani, chief economist at Banco WestLB do Brasil in Sao Paulo.

- Boeing Co.(BA) and its machinists union failed to settle a strike over job security and ended a new round of talks that began over the weekend, keeping aircraft factories idle for a fifth week. The work stoppage is costing Chicago-based Boeing more than $100 million in lost revenue a day since the company usually gets paid upon delivery, analysts say. The strike is also further delaying the new 787 Dreamliner, which is already at least 15 months behind schedule and was supposed to fly for the first time next month.

- North Korea will resume shutting down its Yongbyon nuclear reactor today and allow United Nations inspectors to monitor the process, the International Atomic Energy Agency said.

- Japan may halt sales of government- held shares to help protect financial markets from the global credit crisis, Finance Minister Shoichi Nakagawa said. Japan will also take steps to tighten restrictions on short- selling while relaxing regulations on share buybacks, Nakagawa said. The government will require exchanges to disclose short- sales on individual stocks and industries daily as opposed to monthly, according to the Financial Services Agency statement.

- U.K. home sales fell in September to the lowest level in at least three decades, led by London, as the financial crisis prompted price drops across the nation, the Royal Institution of Chartered Surveyors said.

Wall Street Journal:
- The Rich Support McCain, the Super-Rich Support Obama. More than three quarters of those worth $1 million to $10 million plan to vote for Sen. McCain. Only 15% plan to vote for Sen. Obama (the rest are undecided). Of those worth more than $30 million, two-thirds support Sen. Obama, while one third support Sen. McCain. The reason? Taxes. Some say the super-rich can afford to minimize taxes, since they have plenty of money even after the government takes its share. Others say the ultra-rich have better tax attorneys so they don’t care as much about tax rates.

- Steven Cohen, who heads hedge fund SAC Capital Advisors, is among other investors who have moved mostly out of stocks and into cash equivalents. Cohen has ended most of his fund’s bets on stocks by moving about $7 billion of his company’s $14 billion in capital into money-market and other short-term investments. Hedge funds have put as much as $400 billion into cash equivalents recently, citing David Kostin, an analyst at Goldman Sachs Group Inc.(GS). Goldman's Mr. Kostin says some hedge funds are being forced to sell to meet investor redemptions. For their part, Messrs. Cohen and Englander have moved to cash because of extreme market chaos and investor panic, according to people familiar with their thinking. An email from from Richard Fuld Jr., Lehman Brothers Holdings Inc.'s chief executive to Lehman General Counsel Thomas Russo on April 12, 2008, shows why hedge funds are so worried. In the email, Mr. Fuld, summarizing the points from a dinner with Treasury Secretary Henry Paulson, said Mr. Paulson wants to "kill the bad HFnds + heavily regulate the rest." A large part of the selling by some hedge-fund managers has come since the beginning of October, helping to fuel the sharp selloff in stocks this month. Mr. Cohen, for instance, sold near half of his stock holdings last week, closing out the positions of roughly 50 managers who work for him because he felt they "weren't seeing the ball," says a person familiar with the situation. Mr. Cohen could conceivably jump back into the market quickly. Managers in cash Monday missed out on the Dow's biggest one-day point gain ever.

- BYD Co. plans to start selling China’s first mass-produced electric car next month, citing Chairman Wang Chuanfu. The F3DM may be priced at about $22,000 each and capable of traveling as far as 68 miles on a fully charged battery, Wang said. BYD’s electric car was a key reason why billionaire Warren Buffett’s Berkshire Hathaway Inc. paid $230 million for a 10% stake in the company.

NY Times:
- Merger talks are continuing between General Motors(GM) and Chrysler as the companies study possible financial terms of a deal that would combine two of the traditional Big Three automakers.

- Both Sides of the Aisle Say More Regulation, and Not Just of Banks.

- The American Bankers Association asked the Securities and Exchange Commission on Monday to override accounting rule makers’ new guidelines on mark-to-market accounting, saying they still relied too heavily on distressed asset values.

CNNMoney.com:
- What the MacBook means to Apple(AAPL). In terms of future growth, the MacBooks are particularly well positioned. The Macintosh’s domestic market share, by contrast, is still only 8.4%, according to Gartner, despite recent gains. Its worldwide market share is even smaller: about 3.4%. The upside potential is huge. And the best thing about Apple’s market share is that it’s mostly in the high end, where the profit margins are sweetest. Consider the following chart, issued Monday in a report to clients by Sanford Bernstein’s Toni Sacconaghi:

WealthBulletin:

- It may be premature to write the epitaph for funds of hedge funds, but industry practitioners are giving them a less than glowing prognosis after losing 11% this year. Fund of hedge funds managers have historically decided who gets 40% of the industry’s $1.9 trillion assets to manage, ideally differentiating between good hedge funds and also-rans.

Reuters:

- U.S. President George W. Bush signed into law on Monday a bill that would stiffen penalties on movie and music piracy at the federal level. The law creates an intellectual property czar who will report directly to the president on how to better protect copyrights both domestically and internationally.

- Saudi Basic Industries Corp's 2010.SE metals group said on Monday it will more than triple steel production capacity to 17 million tons by 2020 through acquisitions and the building of new plants.

- Union Bancaire Privee has cut its exposure to hedge funds and industry performance has disappointed, while other assets look more attractively-priced, a top executive said. Christophe Bernard, the Swiss-based firm's head of asset management, also told the Reuters Wealth Management Summit that the industry, estimated at $2.6 trillion, could shrink by one-third over the coming quarters as investors withdraw assets.

Financial Times:
- Investor fears over the risk of many emerging market countries' defaulting on their debt has risen sharply as Iceland's financial collapse has hit sentiment, discouraging funds from investing in these economies. The market is pricing the risk of default for countries such as Pakistan, Argentina, Ukraine and Iceland at 80 per cent or higher as the banking systems of these countries come under increasing pressure due to the credit crisis.

Handelsblatt:

- Abu Dhabi continues to be interested in investing in Europe and the US in spite of the current financial crisis, citing Khaldoon Al Mubarak, head of Mubadala, an investment arm of Abu Dhabi. Abu Dhabi is also still interested in possibly investing in the banks of the regions, citing Mubarak.

China Daily:

- China’s luxury goods market has not been spared the financial crisis, a consumer fair has shown. Spending patterns at a luxury goods fair in Shanghai this year have shown that buyers are tightening purse strings and not paying for astronomically priced luxury items as readily as before, vendors have said.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ATVI), target $22.50.

Night Trading
Asian Indices are +3.0% to +6.0% on average.
S&P 500 futures +2.44%.
NASDAQ 100 futures +2.02%.

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Earnings of Note
Company/EPS Estimate
- (SVU)/.69

- (PEP)/1.08

- (PII)/1.09

- (GWW)/1.53

- (JNJ)/1.11

- (ALTR)/.30

- (INTC)/.34

- (CSX)/.93

- (LLTC)/.45

- (DNA)/.88

- (ADTN)/.35

- (DPZ)/.21

Economic Releases
2:00 pm EST

- The Monthly Budget Surplus for September is estimated to fall to $45.0 billion versus $112.9 billion in August.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, Lazard Alternative Energy Conference, Wachovia Consumer Growth Conference, IBD/TIPP economic optimism index and (JCI) analyst presentation could also impact trading today.

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

Stocks Finish Sharply Higher, Boosted by Airline, Gaming, Construction, Insurance, Commodity, HMO, Biotech, Utility, Medical and Technology Shares

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