Friday Watch

Late-Night Headlines
Bloomberg:
- Platinum Grove Asset Management LP, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29 percent in the first half of October. The decline left Platinum Grove Contingent Master fund with a 38 percent loss this year through Oct. 15, according to investors.

- Carl Icahn is putting more money into his $6.6 billion of hedge funds as losses mount and outside clients abandon the activist investor. Investors plan to withdraw about 15 percent of the fund's total assets at year-end, according to regulatory filing yesterday by Icahn's New York-based holding company.

- Before Barack Obama takes the oath, he should read ``The Great Inflation and Its Aftermath,'' Robert J. Samuelson's timely history of how good political intentions stoked an inflationary hell in the 1970s -- and how only bold, painful action smothered the flames. The Great Inflation refers to the period when U.S. inflation rose from negligible levels in the mid-1960s to double digits in the early 1980s. Though the episode scarred a generation, our memory of the fire has faded, says Samuelson, an award-winning columnist for Newsweek and the Washington Post.

- Independent Senator Joe Lieberman's backing of the Republican presidential ticket raises ``serious concerns'' about his status in the Democratic caucus, Senate Majority Leader Harry Reid said.

- Eliot Spitzer, who quit as governor of New York in March, won't face criminal charges for patronizing a ring of high-priced prostitutes, federal prosecutors said.

- Rio Tinto Group(RTP), the world's third- largest mining company, had its rating outlook cut by Moody's Investor Services because of global market turmoil, falling metal prices and slow progress in asset sales.

- Investors should sell Australia’s currency against the US dollar because it may lose 29% as it slumps toward a record amid a global recession, Morgan Stanley said.

- Global ship orders tumbled 90 percent last month as the credit crunch damped world trade and made it harder for shipping lines to borrow money, according to Lloyd's Registers Group.

- Microsoft Corp.(MSFT), which previously offered as much as $47.5 billion for Yahoo! Inc.(YHOO), may have partnership deals with the Internet company and isn't planning to make another bid, Chief Executive Officer Steve Ballmer said.

Wall Street Journal:
- House Speaker Nancy Pelosi called for a two-stage effort to boost the shaky U.S. economy: a $60 billion-to-$100 billion stimulus package this month, followed early next year by a companion measure that would include a "permanent tax cut."

- President-elect Barack Obama's choice of Rep. Rahm Emanuel as chief of staff drew fire Thursday from Republicans, and a few Democrats, who noted that a candidate elected on a call for change had turned to a veteran partisan pugilist for his first appointment. The Republican National Committee called the choice Mr. Obama's first "broken promise." "This is an ironic choice for a president-elect who has promised to change Washington, make politics more civil, and govern from the center," said House Minority Leader John Boehner (R., Ohio). Some Democratic aides on Capitol Hill were similarly struck by the partisan nature of the appointment -- and even more so by the extended rollout.

- Hedge funds are selling billions of dollars of securities to meet demands for cash from their investors and their lenders, contributing to the stock market's nearly 10% drop over the past two days. One of the biggest funds, $16 billion Citadel Investment Group, is being asked by several major banks to post additional collateral to cover big losses on its investments, according to people familiar with the situation. Citadel, which is run by Kenneth Griffin, was until recently considered a possible savior for troubled Wall Street firms. But his biggest hedge fund has fallen nearly 40% this year.

CNBC.com:

- This is a stunner for Apple(AAPL) and its iPhone, and just goes to show why Research in Motion and its BlackBerry have a little more to worry about: JD Power and Associates ranked the iPhone highest in customer satisfaction, not for everyday consumers as you might expect. But for "business wireless smartphone users."

NY Times:
- Once Sizzling, China’s Economy Shows Rapid Signs of Fizzling.

USA Today.com:

- Mortgage rates dropped this week, providing a dose of welcome news to prospective home buyers. Freddie Mac, the mortgage giant, reported Thursday that rates on 30-year, fixed-rate mortgages averaged 6.20% for the week ending Nov. 6. That was down sharply from 6.46% last week.

Reuters:

- Al Gore's Alliance for Climate Protection has some environmental advice for the incoming Obama administration: focus on energy efficiency and renewable resources, and create a unified U.S. power grid. On Thursday, the group Gore founded rolled out a new media campaign to push for immediate investments in three energy areas it maintains would help meet Gore's previously announced challenge to produce 100 percent clean electricity in the United States in a decade. Pegged to Obama's election victory on Tuesday, the Gore group's ads on television, in newspapers and online, pose the question, "Now what?"

- The love affair between U.S. pension funds and hedge funds is cooling. After helping the hedge fund industry double their assets to $1.7 trillion over the last three years, pensions funds, in their search for plump returns, are reconsidering their commitments. In September, the School Employees System of Ohio, which had planned to invest 10 percent of its $11 billion portfolio in hedge funds, decided to stop investing directly with them for a time, according to fund spokeswoman Laurel Johnson. Florida's government workers, who have already put money into private equity and real-estate investments and are permitted to put money into hedge funds, have shied away. Other pension funds that have already committed money are pulling some cash out, managers familiar with their negotiations have said. Ever since the California Public Employees' Retirement System, the largest U.S. pension fund known as Calpers, picked a handful of hedge funds in 2002 to help invest $1 billion, dozens of funds that manage retirement money for public employees such as teachers, police officers and transit workers have followed suit. With other parts of their portfolios tumbling, some pension funds have exceeded the percentage their trustees permit them to allocate to hedge funds, consultants said.

TimesOnline:
- Blackstone Group(BX) calls bottom after loss of $509M. Blackstone Group posted much wider than expected losses yesterday, but the world’s second-biggest private equity company has called the bottom of the credit crunch.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (BX), target $15.

- Reiterated Buy on (GLBC), target $16.

- Reiterated Buy on (PCLN), target $83.

- Reiterated Buy on (GT), target $21.

Night Trading
Asian Indices are -2.0% to +1.0% on average.
S&P 500 futures +1.63%.
NASDAQ 100 futures +1.57%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (BID)/-.16

- (ED)/1.00

- (GM)/-3.51

- (EIX)/1.54

- (SUP)/-.06

- (S)/.03

- (RRI)/-.06

- (LPNT)/.61

- (F)/-.93

- (DISCA)/.18

- (CEP)/.28

Economic Releases
8:30 am EST

- The Change in Non-farm Payrolls for October is estimated at -200K versus -159K in September.

- The Unemployment Rate for October is estimated to rise to 6.3% versus 6.1% in September.

- Average Hourly Earnings for October are estimated to rise .2% versus a .2% gain in September.

10:00 am EST

- Wholesale Inventories for September are estimated to rise .3% versus a .8% gain in August.

11:30 am EST

- Pending Home Sales for September are estimated to fall 3.4% versus a 7.4% gain in August.

3:00 pm EST

- Consumer Credit for September is estimated to fall to $0.0 billion versus -$7.9 billion in August.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Lockhart speaking could also impact trading today.

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

Stocks Finish at Session Lows, Weighed Down by Commodity, Gaming and Construction Shares

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In Play

Stocks Sharply Lower into Final Hour on Global Growth Worries, Foced Selling and More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs, Computer longs and Internet longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short this morning, thus leaving the Portfolio 50% 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 about average. Investor anxiety is very elevated. Today’s overall market action is very bearish. The VIX is rising 16.57% and is very elevated at 63.44. The ISE Sentiment Index is low at 107.0 and the total put/call is very high at 1.30. Finally, the NYSE Arms has been running very high most of the day, hitting 4.09 at its intraday peak, and is currently 3.35. The Euro Financial Sector Credit Default Swap Index is rising 10.76% today to 106.33 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 3.59% to 191.58 basis points. The TED spread is falling another 1.77% to 208 basis points. The TED spread is now down 256 basis points in about four weeks. The 2-year swap spread is rising 2.39% to 107.25 basis points. The Libor-OIS spread is rising .29% to 184 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 3 basis points to .91%, which is down 171 basis points in about four months and at the lowest level since January 1999. The most economically sensitive companies are getting hit the hardest again today. Tomorrow’s jobs report should come in around estimates of -200K, however I suspect the market is pricing in something worse. Thus, I would expect to see US stocks rise into the afternoon after any initial weakness on the report. I plan to cover some of my hedges into the close today. For the second day in a row the NYSE Arms is very high with mediocre volume. As well, the total put/call is very high. These are positives. Oil continues to trade very poorly and will likely finish next week in the 50s, notwithstanding any significant stock rally. Nikkei futures indicate a -529 open in Japan and DAX futures indicate a -85 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, forced selling and global growth worries.

Today's Headlines

Bloomberg:
- Man Group Plc, the largest publicly traded hedge-fund manager, fell the most in London trading since it went public in 1994 after saying that assets under management declined almost 13 percent since September.

- Farallon Capital Management LLC's biggest hedge fund fell 23.8 percent this year through October, according to two people familiar with the matter, all but ensuring its first annual loss since opening 22 years ago. The firm, which oversees $30 billion, has been selling stocks to meet expected clients withdrawals and invest in distressed debt, said the people, who asked not to be identified because the information is private. The flagship Farallon Capital Partners LP fund increased its cash holdings by 30 percentage points.

- Citigroup’s chief US equity strategist favors financial, retail stocks and would avoid commodities. (video)

- Crude oil fell to a 19-month low on signs that fuel demand will contract as the global economy slows.

- The euro fell against the dollar, yen and pound after European Central Bank President Jean-Claude Trichet said the economy ``weakened significantly'' and the International Monetary Fund cut growth forecasts for the region.

- European Central Bank President Jean- Claude Trichet said he can't rule out a further reduction in interest rates after today's half-point cut because the global financial crisis may lead to an extended economic slump.

Wall Street Journal:

- The weak economy, congressional races that empowered moderates and President-elect Barack Obama's choice of business-friendly advisers suggest Democrats will go slow on controversial labor and regulatory issues. A bill that would make it easier for unions to organize workers, efforts to regulate greenhouse-gas emissions, and a slew of contemplated taxes will likely take a back seat to broader economic issues for now, Democratic operatives say.

- For more than a decade, Mr. Obama has cultivated ties with a growing circle of black power brokers who are poised -- and eager -- to wield greater national influence. Some of these insiders stand to gain new status in an Obama administration, and many more in law firms, big corporations and on Wall Street.

- Swing Voters Don’t Want Big Government. Survey results Barack Obama and the GOP would be wise to heed. Barack Obama and congressional Democrats won big on Tuesday night, but they should not mistake their victory for a big-government mandate. The evidence tells a very different story.

CNBC.com:

- Hedge fund results seen going from bad to worse.

NY Times:
- I.B.M.’s(IBM) chief executive, Samuel J. Palmisano, is proposing a technology-fueled economic recovery plan that calls for public and private investment in more efficient systems for utility grids, traffic management, food distribution, water conservation and health care.

- Small-Business Owners Lobby to Cut Credit Card Fees.

FINalternatives:

- Hedge Funds Hone In On Islamic Investors. Faced with increasingly wary Western investors, hedge funds are setting their sights on untapped capital pools in the Middle East. Wealthy families from the region—as well as sovereign wealth funds flush with petrodollars—are looking for sources of investment returns outside the region, and are growing more receptive to alternative investments like hedge funds.

Medpage Today:
- Eggs and high-fat dairy products are on the menu for eventual heart failure and whole-grain cereals may help ward it off, found a large observational cohort study. Whole-grain foods included oatmeal or grits, whole-grain cold cereal, and whole-grain or dark bread.

Reuters:
- The first touch-screen BlackBerry smartphone will go on sale in Britain on Nov. 14, and thousands of customers have already pre-ordered the device, exclusive UK sales partner Vodafone (VOD) said on Thursday.

Globe and Mail:
- Canadian Prime Minister Stephen Harper is proposing a climate-change pact with US President-elect Barack Obama that would protect Alberta’s oil sands projects from potential new US rules. A deal between the two nations would adopt common emissions standards while promoting the oil sands. Obama has condemned US reliance on so-called “dirty oil,” while his advisers have specifically mentioned the oil sands.

Toronto Star:

- Toronto Home Sale Slump 35% in October.

Bear Radar

Style Underperformer:
Mid-cap Growth (-5.17%)

Sector Underperformers:
Coal (-14.44%), Construction (-10.48%) and Gaming (-10.17%)

Stocks Falling on Unusual Volume:
DB, WFC, OZRK, HURC, CRMT, DRYS, FCN, CRL, SRX, DOX, CXW, TM, GLP and CVC

Stocks With Unusual Put Option Activity:
1) SJM 2) ONXX 3) LVS 4) TM 5) CYPB

Bull Radar

Style Outperformer:
Small-cap Value (-1.42%)

Sector Outperformers:
Hospitals (+.18%), Airlines (-.13%) and Retail (-.55%)

Stocks Rising on Unusual Volume:
WFMI, CEDC, ICFI, CVTX, VOLC, VTIV, CHSI, ANSS, CPLA, IPGP, AFAM, RSTI, YHOO, SHOO, LMIA, NOVN, COST, TWGP, ATVI, OSIR, TKG, WAL and BKE

Stocks With Unusual Call Option Activity:
1) SJM 2) NVDA 3) DIS 4) WFMI 5) PCLN