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Thursday Watch

Late-Night Headlines
Bloomberg:
- Clarium Capital Management LLC, the hedge-fund firm run by PayPal co-founder Peter Thiel, slumped 18% in October, its biggest monthly decline, because of losses on bonds. The firm’s Clarium LP fund reported a year-to-date loss of about 4%, wiping out the 58% gain it made in the first half, according to estimates given to investors. Clarium had 81% of its money in positions used by investors when they expect a widening spread, or gap, between bond yields, such as for 10-year Treasury notes and 30-year bonds. Instead, yield spreads narrowed in October. Clarium borrowed $4.40 for ever $1 in equity capital invested as of Oct. 31, compared with $3.90 for every $1 a week earlier.

- Investors pulled a record 14.3 billion reais from Brazilian hedge funds in October as the worst month for the country’s stocks in a decade stalled returns. That brings withdrawals from hedge funds to $48.9 billion reais this year.

- Prices for power-station coal may fall further because of potential over-supply and as rates return to being driven by demand, currency and cost factors rather than by speculative investors, The McCloskey Group said. Record prices seen earlier this year were driven by ``speculative play by the banks and hedge funds'' rather than by the fundamentals, which are ``weak,'' Gerard McCloskey, founder of the consulting firm, said today in a presentation released in advance of a conference in Sydney. Prices for thermal coal exported from Australia's Newcastle port, the world's biggest export harbor for the fuel, were at $100.83 a ton in the week ended Oct. 31, down from a record $194.79 in July, according to the globalCOAL NEWC Index. The International Monetary Fund predicts the world's advanced economies will grow next year at the slowest pace since 1982.

- Russian President Dmitry Medvedev wasted little time in laying down his first challenge to Barack Obama. Hours after Obama won the U.S. presidential election, Medvedev said yesterday he'd put short-range Iskander missiles in Kaliningrad, a region wedged between Poland and Lithuania, to ``neutralize'' a planned U.S. missile-defense system. A radio- jamming installation there will also be aimed at elements of the U.S. system in Poland and the Czech Republic, he said.

- Cisco Systems Inc.(CSCO), the world's largest maker of networking equipment, said first-quarter sales rose at the slowest pace in three years and revenue this quarter will drop as the slumping economy crimps customers' budgets. Second-quarter sales will decline as much as 10 percent from a year earlier, Chief Executive Officer John Chambers said today on a conference call. The shares sank 5.6% in late trading.

- Wells Fargo & Co.(WFC), the biggest bank on the U.S. West Coast, plans to sell $10 billion in stock to fund the purchase of Wachovia Corp. and said losses from the acquisition will be less than previously expected.

- News Corp.(NWS/a), the media company controlled by Rupert Murdoch, cut its fiscal 2009 forecast, saying profit will decline at least 13 percent because of tumbling advertising sales.

- Whole Foods Market Inc.(WFMI), the largest U.S. natural-foods grocer, received a $425 million equity investment from Leonard Green & Partners LP after reporting its eighth straight drop in profit and lowering its 2009 sales forecast. The shares surged 22 percent in late U.S. trading after the Austin, Texas-based retailer said it will sell preferred stock equal to a 17 percent stake in the company. The initial conversion price of $14.50 a share is 41 percent more than where the stock closed today.

- The U.S. Energy Department said today it has set the interim rules for how automakers can apply for as much as $25 billion in federal loans to help cover the costs of producing more energy-efficient vehicles.

- The euro fell for a second day against the dollar on speculation the European Central Bank will follow an expected interest-rate cut today with further reductions to revive the region's shrinking economy.

- One day after a narrow majority of Californians voted to outlaw gay marriages, the cities of San Francisco and Los Angeles and the American Civil Liberties Union asked the state's high court to invalidate the ballot measure. California's Proposition 8, which won in yesterday's election with 52 percent of the vote, amends the state constitution to allow marriage only between a man and a woman. About 18,000 same-sex couples have married since June.

- Former Senator Tom Daschle and Kansas Governor Kathleen Sebelius are contenders for U.S. health secretary under Barack Obama. Their names were cited by people in contact with the president-elect's health-care advisers. Obama has promised to cut medical costs and make affordable insurance available to everyone. The chief of the Health and Human Services Department may play a key role in overhauling the health-care system.

Wall Street Journal:
- Congressional Democrats signaled plans to use their momentum from Tuesday's electoral victory to quickly pursue big plans to tackle economic woes, including doubling planned aid to U.S. auto makers and redrawing the regulation of financial companies.

- Organized labor sees a historic opportunity with Tuesday's election and is counting on the incoming Obama administration to back its agenda in what promises to be a landmark battle with business.

FINalternatives:
- Barack Obama, who enjoyed the substantial financial backing of the hedge fund industry and many of its top players, has taken a bellicose tone with the industry on the campaign trail.

Reuters:

- Goldman Sachs Group Inc (GS) notified roughly 3,200 employees this week that they have been laid off, part of previously reported plans to slash 10 percent of the firm's global work force amid slumping markets, people familiar with the situation said Wednesday.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (WW), target $57.

- Upgraded (SOV) to Buy, target $4.70.

Night Trading
Asian Indices are -5.75% to -2.0% on average.
S&P 500 futures -.87%.
NASDAQ 100 futures -1.89%.

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Earnings of Note
Company/EPS Estimate
- (GBE)/.04

- (MIC)/.48

- (WMB)/.63

- (WRC)/.74

- (DYN)/.12

- (WEN)/.05

- (FTO)/.70

- (QCOM)/.57

- (DIS)/.49

- (VRSN)/.26

- (IRF)/-.05

- (CBG)/.23

- (GNW)/.53

- (FLR)/.91

- (BBI)/-.15

- (AN)/.28

- (CXW)/.31

- (CVC)/.12

- (ONXX)/.02

- (NVDA)/.11

- (PSA)/1.28

- (BUD)/1.06

- (BRL)/.71

- (BX)/.05

- (PCLN)/2.09

- (EP)/.34

- (DTV)/.34

- (BE)/-.12

- (CEG)/.90

Economic Releases
8:30 am EST

- Preliminary 3Q Non-farm Productivity is estimated to rise .7% versus a 4.3% gain in 2Q.

- Preliminary 3Q Unit Labor Costs are estimated to rise 3.0% versus a -.5% decline in 2Q.

- Initial Jobless Claims for last week are estimated to fall to 477K versus 479K the prior week.

- Continuing Claims are estimated to rise to 3743K versus 3715K prior.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Warsh speaking, ICSC Chain Store Sales, weekly EIA natural gas inventory report, (CTV) financial analyst conference, (ILMN) analyst day and (SRP) analyst meeting could also impact trading today.

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

Stocks Finish Substantially Lower, Weighed Down by Commodity, REIT, Construction and Financial Shares

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In Play

Stocks Substantially Lower into Final Hour on Profit-taking, Global Growth Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Internet longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is very bearish as the advance/decline line is substantially lower, every sector is falling and volume is below average. Investor anxiety is high. Today’s overall market action is very bearish. The VIX is rising 11.8% and is very elevated at 53.50. The ISE Sentiment Index is below average at 115.0 and the total put/call is about average at .91. Finally, the NYSE Arms has been running very high most of the day, hitting 2.98 at its intraday peak, and is currently 2.98. The Euro Financial Sector Credit Default Swap Index is rising 1.79% today to 95.0 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 falling 3.36% to 181.03 basis points. The TED spread is falling another 5.33% to 211 basis points. The TED spread is now down 253 basis points in about three weeks. The 2-year swap spread is rising .72% to 105.50 basis points. The Libor-OIS spread is falling 9.01% to 193 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 3 basis points to .94%, which is down 169 basis points in about four months and at the lowest level since January 1999. Today’s action is very disappointing. Losses aren’t that surprising given how much we had rallied, but the magnitude of the losses is. Financials are especially weak, which is always a large negative. On the positive side, a very high NYSE Arms reading, combined with below average volume, usually indicates the bears are running low on firepower. As well, credit angst indicators continue their rapid improvement. Given how much Asia has rebounded of late, I suspect severe losses could occur there tonight, as well. Nikkei futures indicate a -300 open in Japan and DAX futures indicate a -106 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking and global growth worries.

Today's Headlines

Bloomberg:
- GLG Partners Inc. said it will suspend redemptions from two of its hedge funds because of ``adverse economic'' conditions after they lost about a third of their value this year. GLG will stop investors from making withdrawals from the GLG Market Neutral Fund and GLG Credit Fund, it said in a statement today. The Credit Fund dropped 35 percent and Market Neutral 29 percent through Sept. 30, and they suffered further losses in October as convertible bonds and loans slumped.

- The cost of borrowing dollars in London for three months fell to the lowest level in almost four years as central bank cash injections helped ease the global credit drought. The London interbank offered rate, or Libor, that banks say they charge each other for such loans declined 20 basis points to 2.51 percent today, the lowest level since December 2004, the British Bankers' Association said. The overnight rate slid about 6 basis points to 0.32 percent, a record low for a fifth day.

- Interest rates on U.S. commercial paper dropped to the lowest in about four and a half years as companies issued less of the debt to the Federal Reserve. Interest rates on the highest-ranked 30-day commercial paper fell 0.52 percentage point to 1.22 percent, the lowest since June 2004, according to yields offered by companies and compiled by Bloomberg. Yields on 90-day paper fell 0.41 percentage point to 2.21 percent, 0.34 percentage point below the Fed's rate.

- The cost of protecting Japanese and Australian corporate bonds from default declined as bank borrowing costs fell and shares advanced. The Markit iTraxx Japan index of credit-default swaps fell 15 basis points to 205 as of 12:56 p.m. in Tokyo, according to prices from Morgan Stanley. The iTraxx Australia declined 17.5 basis points to 212.5, Citigroup Inc. data show.

- Asia's leaders, led by an ascendant China, say they hope Barack Obama didn't really mean those campaign promises to protect American trade. And if he did, they are in better shape to object than ever before. To Asian ears, Obama's calls for tougher labor and environmental rules and steps to reduce the U.S. trade deficit sound like thinly veiled protectionism, just as a global financial crisis makes exports more crucial than ever.

- Funding Drought Slams Chinese Plans as Banks Shun Plea to Lend.

- Barack Obama's top priority will be appointing a Treasury secretary and White House chief of staff. The leading candidates: two Clinton administration stalwarts, Lawrence Summers and Representative Rahm Emanuel.

- Crude oil fell more than $4 a barrel after an Energy Department report showed an unexpected increase in gasoline inventories. Gasoline supplies rose 1.12 million barrels to 196.1 million barrels last week, the report showed. A 650,000-barrel drop was forecast, according to the median of 14 analysts surveyed by Bloomberg News. Stockpiles of crude oil and distillate fuel, a category that includes heating oil and diesel, also climbed. ``There is plenty of inventory, given how weak demand is,'' said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. ``The report was mildly bearish because of the product numbers.'' U.S. fuel demand during the past four weeks averaged 19.1 million barrels a day, down 6.7 percent from a year ago, the report showed. Gasoline consumption over the period was down 2.3 percent at 9 million barrels a day.

- Yahoo! Inc.(YHOO) Chief Executive Officer Jerry Yang will probably have to go back to the negotiating table with Microsoft Corp.(MSFT) Yang's options are dwindling after Google Inc.(GOOG) scrapped an agreement today to place ads on Yahoo's Web pages. Yahoo's track record of declining market share and stagnant cash flow suggest Yang can't go it alone, said Mark Mahaney, an analyst at Citigroup Inc. in San Francisco.

- California, Arizona, Florida Move to Ban Gay Weddings.

MediaWeek:
- ABC led this Election Night Tuesday, with coverage of the Presidential race at an average 9.3 rating/13 share in the overnights from 8-11 p.m., according to Nielsen Media Research data. Election coverage finished second overall on NBC (8.5/12 from 8-11 p.m.), followed by CBS (4.7/ 7 from 8-11 p.m.), which took a significant hit minus its regularly scheduled Tuesday line-up (NCIS, in particular), and Fox (4.0/ 5 from 8-10 p.m.). Four years earlier, coverage of the 2004 Presidential election (on Tuesday, Nov. 2, 2004) totaled a 26.9 rating/37 share in the overnights in prime time, with NBC first (11.1/15), followed by ABC (9.5/13) and CBS (6.3/ 9). Comparably, last night’s results were down across the board as follows:

Big 3 Networks: -16 percent
ABC: - 2
CBS: -25
NBC: -24

Fox was actually up last night, with a 14 percent increase over the 3.5/ 5 in the overnights on Nov. 2, 2004.

Globe and Mail:
- Forget blaming the global recession on dubious mortgage practices in the United States - blame high oil instead, says Jeff Rubin, chief economist at CIBC World Markets. “The recent spike in oil prices doesn't seem to get any credit for what's happening to the world economy now,” he says in an analysis released Monday. “That's odd, because it should.” High oil prices, on the other hand, have been responsible for four of the last five global recessions, he points out. This time around, oil prices, in real terms, have risen more than 500 per cent – that's twice the climb seen in the recessions of 1974 and the early 1980s. “If oil shocks half the size of the recent one caused the worst recessions in the last 50 years, they're a pretty obvious explanation for the recessions in oil-dependent Japan and Euroland earlier in the year,” Mr. Rubin says. High oil prices have meant a massive transfer of income from U.S. consumers to oil-producing countries, where savings rates are typically high, he argues. In the last five years, Mr. Rubin says, the annual fuel bill in the advanced countries belonging to the Organization for Economic Cooperation and Development, has grown by $700-billion (U.S.), of which $400-billion a year goes to OPEC producers. “If triple-digit oil prices are what started the recession, then $60 oil prices are what will end it,” he says.

Interfax:

- Russia will maintain an oil production policy that’s independence from OPEC, Deputy Prime Minister Igor Sechin said. Russia should not lose money on crude production and will “cooperate with all players in the oil and gas sphere in the world,” said Sechin.

Folha de S. Paulo

- Brazilian Planning Minister Paulo Bernardo said the government cut its forecast for gross domestic product expansion in 2009 to 3.7% from 4.5% because of the global financial crisis. The government expects revenue next year to be $7.2 billion less than previously forecast and 5% inflation, compared with the central bank’s 4.5% target, citing Bernardo.

Deseret News:

- Iraqi officials said Wednesday they don't expect Barack Obama to withdraw U.S. troops hastily from Iraq because he told them last summer that he wouldn't make a decision without consulting them and U.S. commanders on the ground. With violence down and the economy No. 1 on American voters' minds, the Iraqis said they believe the new president will take his time before fulfilling his promise to end the war in Iraq. Exit polls Tuesday showed that only one in 10 American voters considered Iraq their main concern in choosing a president, suggesting that Obama will focus more on the economy when he takes office Jan. 20.

Bear Radar

Style Underperformer:
Large-cap Value (-3.32%)

Sector Underperformers:
Coal (-8.54%), Alternative Energy (-6.33%) and Steel (-5.95%)

Stocks Falling on Unusual Volume:
ITWO, NILE, SPWRA, PZZA, FSLR, NSR, KRO, SAM, PWR, REV and PXD

Stocks With Unusual Put Option Activity:
1) KMP 2) XRX 3) PXD 4) PG 5) RL