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Thursday Watch

Late-Night Headlines
Bloomberg:
- U.S. Treasury Secretary Henry Paulson said his plan to inject $250 billion into banks is aimed at instilling confidence in financial markets and denied he forced the nation's biggest lenders to accept the money.

- US dollar money-market rates fell after the European Central Bank, Bank of England and Swiss National Bank offered lenders unlimited U.S. currency for the first time in a coordinated effort to unlock credit markets.

- NYC Comptroller William C. Thompson said the city is considering alternatives to the equity market for investments from its $110 billion pension fund. Thompson, who spoke in an interview on CNBC today, said the city plans to expand its holdings in options such as hedge-fund investments.

- JPMorgan Chase & Co.(JPM) increased prime-brokerage assets by about 25 percent as hedge funds pulled accounts from securities firms, Chief Executive Officer Jamie Dimon said.

- Citadel Investment Group Inc.'s biggest hedge fund fell as much as 30 percent this year, because of losses on convertible bonds, stocks and corporate bonds, said two people familiar with the Chicago-based firm.

- The U.S. Securities and Exchange Commission extended a rule forcing hedge funds to tell the agency about short-sale positions amid concerns investors bet against companies after spreading false rumors they will fail. Investment managers who oversee more than $100 million must to disclose to the SEC the stocks they've bet will fall in price until Aug. 1, the agency said in a statement on its Web site today.

- Copper and zinc plunged by the exchange-imposed daily limit for a second day in Shanghai, tracking losses in London prices on concern a global recession may slash commodity demand as the credit crisis intensifies.

- Crude oil fell for a third day, taking its decline from the July record to more than 50 percent, after a global stock plunge heightened concern bank bailouts won't prevent a recession. OPEC, supplier of more than 40 percent of the world's oil, cut its forecast yesterday for oil demand next year by 450,000 barrels a day, or 0.5 percent, to 87.21 million barrels a day.

- South Korea's won slumped as much as 11 percent, the most since the International Monetary Fund bailed the nation out in 1997, after Standard & Poor's said it may cut credit ratings for Kookmin Bank and six other companies.

- Latin America's plunging commodities and fleeing investors are putting an end to the fastest period of economic growth in the region in more than three decades.

Wall Street Journal:
- The U.K.'s $697 billion financial-rescue plan -- hailed as a model for other countries trying to stem the banking crisis -- is starting to show some cracks. Some banks are pushing back with complaints that the conditions are too harsh, especially after seeing the more generous terms of the U.S. bailout. As details emerge, U.K. banks are concerned the price the government plans to charge them to guarantee their debt is too high -- in some cases more than the banks earn on their existing loans. "It's going to become another hit on earnings," says a Citigroup analyst.

- Oil giant BP PLC(BP) is exploring a potential deal to buy natural-gas properties from once highflying Chesapeake Energy Corp.(CHK), according to people close to the British company's thinking.

- Sens. John McCain and Barack Obama confronted one another over the increasingly bitter tone of their presidential race, with each man blaming the other during sharp exchanges Wednesday in their third and final televised debate.

CNBC.com:

- The stock market has hit a low and will end the year higher than it is today, a top market watcher told CNBC Monday. Byron Wien, Pequot Capital Management's Chief Investment Strategist, said "we've made a low, we're going to rally and then retest it." Wien is optimistic enough about the market to see "opportunities in every sector," including financials, which will benefit from an "enormous number of policy moves."

- The US Treasury is considering taking an equity stake in bond-insurance companies including Ambac Financial Group Inc., MBIA Inc. and PMI Group Inc.

MarketWatch.com:
- Whatever else you might say about corporate insiders, they sure have the courage of their convictions. Not only have they, on balance, behaved bullishly over the last year, they have become even more bullish as the stock market has declined.

Financial Times:
- Investors pulled at least $43bn from US hedge funds in September as market turmoil led to unprecedented withdrawals, an analysis by a leading research house shows.

- A group of the largest US hedge funds has called on the Bank of England to intervene to free an estimated $65bn (£38bn) in assets frozen in London in the collapse of Lehman Brothers, warning that delays “could be disastrous for UK plc”. The funds, through the Managed Funds Association, said the scale of the problem was so great that it could undermine bank rescue plans as tens of billions of dollars would be kept out of the market. It was also likely to lead to the failure of some fund managers, said Richard Baker, chief executive of the MFA.

Philstar.com:

- The Philippine government expects the country’s exports to slow down next year, with growth seen between negative two percent and four percent due to a global financial crisis.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CCK), target $32.

Night Trading
Asian Indices are -7.25% to -3.50% on average.
S&P 500 futures -.86%.
NASDAQ 100 futures -.59%.

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Earnings of Note
Company/EPS Estimate
- (LUV)/.07

- (CAL)/-1.48

- (MER)/-5.19

- (PNC)/.96

- (UTX)/1.31

- (UNH)/.73

- (C)/-.70

- (BAX)/.82

- (HSY)/.64

- (CIT)/.18

- (HOG)/.78

- (BK)/.69

- (TXT)/.87

- (DHR)/1.13

- (PH)/1.38

- (BBT)/.66

- (ITW)/.86

- (SYK)/.67

- (SHW)/1.27

- (NUE)/2.19

- (GILD)/.52

- (COF)/.92

- (AMD)/-.39

- (IBM)/2.00

- (BTU)/.87

- (PPG)/1.30

- (GOOG)/4.78

- (ISRG)/1.27

Economic Releases
8:30 am EST

- The Consumer Price Index for September is estimated to rise .1% versus a .1% decline in August.

- The CPI Ex Food & Energy for September is estimated to rise .2% versus a .2% gain in August.

- Initial Jobless Claims for last week are estimated to fall to 470K versus 478K the prior week.

- Continuing Claims are estimated to rise to 3670K versus 3659K prior.

9:00 am EST

- Net Long-term TIC Flows for August are estimated to rise to $30.0 billion versus $6.1 billion in July.

9:15 am EST

- Industrial Production for September is estimated to fall .8% versus a 1.1% decline in August.

- Capacity Utilization for September is estimated to fall to 77.9% versus 78.7% in August.

10:00 am EST

- Philly Fed for October is estimated at -10.0 versus 3.8 in September.

1:00 pm EST

- The NAHB Housing Market Index for October is estimated at 17 versus 18 in September.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly EIA energy inventory report, (CHK) analyst meeting and (UMH) investor presentation forum could also impact trading today.

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

Stocks Finish Sharply Lower, Weighed Down by Commodity, Financial, Construction and Technology Shares

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In Play

Stocks Sharply Lower into Final Hour on Global Growth Worries, Financial Sector Pessimism, More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Medical longs and Biotech longs. I added to my (IWM)/(QQQQ) hedges this morning and then covered them, covered some of my EEM short and covered some of my commodity shorts this afternoon, 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 declining and volume is above average. Investor anxiety is still very elevated. Today’s overall market action is bearish. The VIX is rising 14.98% and is still historically elevated at 63.45. The ISE Sentiment Index is below average at 116.0 and the total put/call is above average at 1.07. Finally, the NYSE Arms has been running very high most of the day, hitting 3.17 at its intraday peak, and is currently 2.05. The Euro Financial Sector Credit Default Swap Index is rising 9.7% today to 95.4 basis points. This index is up from a low of 52.66 on May 5^th, but down significantly from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is rising 5.2% to 185.18 basis points. The TED spread is falling .3% to 435 basis points. The 2-year swap spread is rising 11.5% to 139.5 basis points. The Libor-OIS spread is dropping .5% to 342 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 4 basis point to .99%, which is down 164 basis points in just over three months and at the lowest level since February 1999. The steep decline in the (XLF), given recent government action, is a big negative. I suspect we could see more weakness here in the morning after another weak night in Asia, however another sharp rally in US shares is likely very close. Nikkei futures indicate a -800 open in Japan and DAX futures indicate a -31 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- Federal Reserve Chairman Ben S. Bernanke said government efforts to calm financial markets and stem the credit crisis probably won't result in an immediate economic rebound.

- The U.S. Securities and Exchange Commission agreed to back an effort by banks that may delay writedowns on some securities tied to losses that have cost companies more than $640 billion. Banks in certain cases may account for perpetual preferred securities as debt, allowing them to postpone writing down their value, SEC Chief Accountant Conrad Hewitt wrote in a letter yesterday to Financial Accounting Standards Board Chairman Robert Herz.

- Tumbling prices for energy, metals and grains led commodities lower as the prospect of a global recession dimmed the outlook for raw-material demand. Crude oil, down as much as 5.2 percent, dipped below $75 a barrel for the first time in more than a year. Copper fell more than 8 percent, soybeans reached a 13-month low and cotton neared the lowest price since May 2007.

- Brazilian stocks dropped, halting their biggest rally this decade, on concern slowing global growth will hurt demand for raw materials and reduce the earnings of the nation's biggest commodity producers.

- Cement producers in Russia are cutting back plans for new plants as the financial crisis derails construction projects and imports may more than double, an industry group said.

Wall Street Journal:

- By his own account, Mr. Obama wrote a letter to the Treasury Secretary, allegedly putting himself on record that subprime loans were dangerous and had to be dealt with. This is revealing; if true, it indicates Sen. Obama knew there was a problem with subprime lending -- but was unwilling to confront his own party by pressing for legislation to control it. As a demonstration of character and leadership capacity, it bears a strong resemblance to something else in Sen. Obama's past: voting present.

- Chesapeake Energy Corp.(CHK), this year’s worst-performing independent petroleum producer in the S&P 500, is in talks to sell some natural-gas assets to BP Plc(BP).

CNBC.com:
- Emerging markets suffer as foreigners withdraw. The Institute of International Finance, a consortium of global financial services firms based in Washington D.C., estimates that private sector capital flows to 30 emerging market nations across the world will fall by nearly a third from last year to $619 billion this year. Next year, they predict the sum will fall by another $60 billion. Chakraborty said he doubts the boom years will be back anytime soon.We are, he said, entering an era of slower growth, which will be reflected in lower stock market valuations."The fundamentals have changed," he said.

Philly.com:

- In a small office in West Conshohocken, a legendary stock market bottom feeder has been having a feast. John B. Neff, who racked up record gains as manager of Vanguard's Windsor Fund over three decades, is buying stocks again. And while the actions of one person may mean little in a multitrillion-dollar market, Neff's renewed romance with stocks signals that, to him, the worst is over.

Chicago Tribune:

- A federal appeals court ordered Ohio's top elections official to set up a system by Friday to verify the eligibility of newly registered voters and make the information available to the state's 88 county election boards. The full 6th U.S. Circuit Court of Appeals in Cincinnati on Tuesday upheld a lower court ruling that Secretary of State Jennifer Brunner must use other government records to check thousands of new voters for registration fraud.

- For the first time since oil prices began their meteoric rise this year, airlines are slashing fuel surcharges on a major international route: most flights between the U.S. and Europe.

- American troops acting on a tip killed the No. 2 leader of al-Qaida in Iraq — a Moroccan known for his ability to recruit and motivate foreign fighters — in a raid in the northern city of Mosul, the U.S. military said Wednesday.

Reuters:
- Commodity funds are struggling to regain a footing after a record fall in futures prices last week suggested to many that more liquidation could be in store for a sector that lost up to $60 billion (34 billion pounds) in the last quarter. Goldman Sachs (GS), the Wall Street powerhouse that made its name by predicting almost every commodities rally over the last six years, said Monday it had "underestimated" the impact of the current credit crisis on commodities' demand.Goldman earlier this year put a high of $200 on a barrel of crude oil by 2010 when the market was trending near $150. On Tuesday, U.S. crude fell more than 3 percent to close at $78.63 a barrel -- sharply off July's record high above $147."Should the financial and evolving economic crisis cut deeper into demand, the market could fall as low as $50, which we believe to be the industry's cash cost and shut in level," Goldman said in Monday's note.

Financial Times:
- Tom Albanese, Rio Tinto’s(RTP) chief executive, on Wednesday warned about the health of China and said the slowdown in one of the world’s fastest growing economies had led the mining company to revise its capital spending plans. Mr Albanese said there had been a marked reduction in Chinese commodity demand from the overheated levels of 2007 and added that the “vast majority of Chinese aluminium producers are now making operating losses.”

Kommersant:

- Russian banks are starting to limit customer withdrawals in a bid to avoid a run on deposits.

Valor Economico:

- Poultry farmers in Santa Catarina state, Brazil’s second-largest producer, should cut output by 5% because the global financial turmoil is reducing demand, an industry leader said. “We don’t know what’s going to happen, but we know that all the companies were ready to fulfill strong demand that may not exist,” said Ricardo Gouvea, the director of the state’s poultry producers’ association and of the meat packers association. Brazil is the world’s largest poultry exporter.

Press TV:

- Iran expects OPEC to cut production at its extraordinary meeting in Vienna on Nov. 18, saying such a step would be the “best decision.”

Etemaad:

- Iranian President Mahmoud Ahmadinejad said the next US president needs to improve ties with the Persian Gulf country.

Bear Radar

Style Underperformer:
Mid-cap Growth (-6.28%)

Sector Underperformers:
Oil Service (-12.81%), Steel (-12.52%) and Construction (-10.96%)

Stocks Falling on Unusual Volume:
CHK, RIO, PBR, TLK, LLTC, ICLR, MCHP, CENX, ISRG, EBAY, ISIL, AAUK, AMZN, OC, JNY, PUK, PHG, MTA, RGS, WBD, NRT, MTX, SI and PKX

Stocks With Unusual Put Option Activity:
1) LLTC 2) DHR 3) MAS 4) SWN 5) DO