Stocks Lower into Final Hour on Global Growth Worries, Financial Sector Pessimism and More Forced Selling

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Internet longs. I covered all my (IWM)/(QQQQ) hedges and some of my (EEM) short today and then added them back this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is bearish as the advance/decline line is lower, most sectors are falling and volume is about average. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising 2.05% and is very elevated at 61.27. The ISE Sentiment Index is low at 107.0 and the total put/call is very high at 1.20. Finally, the NYSE Arms has been running very high most of the day, hitting 2.85 at its intraday peak, and is currently 1.84. The Euro Financial Sector Credit Default Swap Index is rising 1.7% today to 106.66 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 unch. at 186.25 basis points. The TED spread is falling 13.95% to 175 basis points. The TED spread is now down 289 basis points in just over four weeks. The 2-year swap spread is rising 2.07% to 104.75 basis points. The Libor-OIS spread is falling 2.49% to 170 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at .95%, which is down 167 basis points in about four months and at the lowest level since January 1999. The ongoing improvement in the credit markets and falling energy prices remain large positives, however the continued forced selling by funds is overwhelming any bullish developments right now. I still expect a strong rally to materialize before week's end. Nikkei futures indicate a -179 open in Japan and DAX futures indicate an +100 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on falling energy prices, improving credit markets, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:
- Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance chiefs, said the risk of inflation in the region has vanished. “I would like to think that we could have another cut in the interest rates,” Juncker said, when asked if the ECB may move as soon as next month. The central bank “isn’t blind” to the financial situation and the economic slowdown and “is drawing the same conclusions from these observations.”

- Blackstone Group LP(BX) Chairman Stephen Schwarzman said a global recession isn’t necessarily bad news for leveraged buyouts. “We’re quite optimistic about our new prospects,” Scharzman said. “We are in extremely strong financial position.” Schwarzman said the biggest profits for private-equity investors come during the worst economic times, pointing to recession in the early 1990s and 2001, when investors earned average annual returns of around 30%.

- The cost of shipping Middle East crude to Asia, the world’s busiest route for supertankers, may drop for a fourth day, amid signs that weakening oil demand and reduced OPEC output are curtailing cargoes. Refineries may hire 100 very large crude carriers, or VLCCs, to collect cargoes from Persian Gulf ports in November, compared with a monthly average of about 105, Charlie Fowle, a director at London-based shipbroker Galbraith’s Ltd., wrote.

- Russia's ruble fell the most in two months and stocks tumbled as the central bank scaled back its defense of the currency amid the country's worst financial crisis since the 1998 devaluation. Bank Rossii widened its target range for the ruble against a basket of dollars and euros by 30 kopeks (1 cent) to increase the currency's ``flexibility,'' according to a statement posted on its Web site after the market closed today. The Micex Index plunged 13 percent, the biggest decline worldwide today, and won't open tomorrow, spokeswoman Anna Cheryomushkina said.

- Copper, after a 42% slump this year, is still high enough for three-quarters of mining capacity to avoid losing money, making closures that would boost prices less likely, Goldman Sachs said. New mining projects and expansions by companies including Anglo American Plc and Xstrata Plc are unlikely to be constrained either, Goldman said.

- Former Sumitomo Corp. copper trader Tetsu Emori, who now runs the Astmax Commodity Global Macro Fund for Japan’s biggest commodity manager, says crude oil may fall below $50/bbl. (video)

- The slump in shipping has at least two more years to go as the global fleet expands and a slowing world economy saps demand for everything from iron ore to consumer goods, the largest shipping hedge fund group said. Rental income from commodity carriers and container ships is unlikely to earn owners much more than running costs for the next two to five years, Tufton Oceanic Ltd. research director Andreas Vergottis said in an interview today. Rates for oil tankers will drop to similar levels ``within three months,'' he said.

- Crude oil fell below $59 a barrel in New York for the first time since March 2007, and gasoline tumbled, on speculation the International Energy Agency will cut its 2009 oil-demand forecast because of slowing economic growth. Pump prices are following futures lower. Regular gasoline, averaged nationwide, declined 2 cents to $2.22 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. The fuel has tumbled 46 percent from the record $4.114 a gallon reached on July 17. ``This is a tough time for OPEC because of the demand picture,'' Mueller said. ``Every time they cut production they are building up spare capacity. There's also a risk that they may make cuts and prices still won't rebound.''

- Money-market rates in London fell as central banks injected cash into the financial system to counter a collapse in lending. The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars slid 6 basis points to 2.18 percent today, the 22nd consecutive decline and the lowest level since Oct. 29, 2004, according to British Bankers' Association data. The comparable euro rate fell 7 basis points to 4.32 percent, the lowest level since Jan. 24.

CNBC.com:
- Goldman Sachs(GS): Has Firm Lost Its Midas Touch?

CNNMoney.com:
- As the lights fade across the hedge fund universe, SAC Capital Advisors had been one of the few funds unbowed by the rout that has forced countless rivals to close or suspend redemptions. But now, some wrong-way bets at SAC - notably on the disastrous Volkswagen-Porsche trade that hammered many hedge funds last month - are forcing fund founder and general partner Steve Cohen to dismiss staff in the wake of double-digit losses. While Cohen has hardly been shy about reducing his exposure to equity markets and "going to cash," SAC - with $16 billion in assets - was still whipsawed in October's ugly markets, booking an 11% loss for the month and 18% for the year to date.

Washington Times:

- A behind-the-scenes battle to take the reins of the Republican National Committee is taking off between former House Speaker Newt Gingrich and former Maryland Lt. Gov. Michael S. Steele.

LA Times:

- Goldman, Sachs & Co.(GS) urged some of its big clients to place investment bets against California bonds this year despite having collected millions of dollars in fees to help the state sell some of those same bonds. The giant investment firm did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from California's deepening financial misery. In Sacramento, officials said they were concerned that Goldman's strategy could raise the interest rate the state would have to pay to borrow money, thus harming taxpayers.

Philly.com

- Obama chief of staff-designate Rahm Emanuel, who's been an Illinois congressman, Democratic Party House leader,Wall Street investment banker (Wasserstein Perella), Clinton aide, and director of the failed mortgage-lending giant Freddie Mac, which overdosed on subprime loans and had to be bailed out by the federal government, is also a loyal ally of the troubled, highly-paid hedge fund industry, and has worked to keep taxes on their fat fees low, writes HedgeWeek admiringly. Emanuel "was the top House recipient in the House of Representatives of campaign contributions from hedge funds, private equity firms and the wider securities and investment industry during the 2008 election cycle. He played a part in derailing efforts last year to have carried interest taxed as income rather than capital gains, going so far as to write a memo offering several options on how essentially to preserve the tax advantage. However, he also sponsored a bill that would have prevented hedge fund managers from deferring taxes on offshore compensation. "The appointment of Emanuel suggests that Obama's presumed hostility to the hedge fund industry may have been exaggerated and that the sector will get a fair hearing as the new administration begins the process of reforming US financial sector regulation. At a time when hedge fund managers feel particularly friendless, it cannot hurt to have someone who understands their business in the heart of the White House."

The Institute for Luxury Home Marketing:

- Graphs: ILHM National Luxury Home Market.

paidContent.org:

- This one is a shocker: Vivian Schiller, the longtime head of NYTimes.com’s digital efforts, has left the company, and has joined National Public Radio as its new CEO. She succeeds Dennis Haarsager, who has served as interim CEO since March, after Ken Stern left abruptly after internal discord. Also recently, Kinsey Wilson, the executive editor of USA Today and previously the editor of USAToday.com, left the paper and joined NPR as its digital head. With two digital vets at NPR, its already formidable online presence and reputation should grow, if only they can prevent getting mired in all the politics at the company and its member stations.

Globe and Mail:

- Lawrence Asset Management Inc. has temporarily halted redemption orders in its flagship hedge fund after it plunged 65 per cent for the first 10 months of this year. The firm “believes it is in the best interests of all shareholders to suspend redemptions for 60 days” on the Lawrence Partners Fund, its president Ravi Sood told investors in a letter on Monday. The Lawrence Partners Fund, which invests in smaller-capitalization Canadian stocks and has private equity holdings, saw its stellar track record unravel in September when it took a 48-per-cent haircut.

Interfax:
- OAO VSMPO-Avisma, the world’s biggest titanium producer, said orders may fall as much as 50% if business from Boeing Co.(BA) and Airbus SAS declines.

Eesti Paeevaleht:

- George Soros said the global credit crisis has “apparently” reached its peak and the financial system is already healing itself, citing an interview.

Frankfurter Allgemeine Zeitung:

- Microsoft Corp.’s(MSFT) Xbox game console doubled its market share in many European countries following price cuts, citing Microsoft’s entertainment division President Robbie Bach.

recast to "

The Economic Times:
- India’s largest real estate developer, DLF, has put on hold construction of one of the most high-profile mall projects, ‘Mall of India’, at Gurgaon, as retail rentals fall and cash becomes precious. The proposed venture was set to be the country’s largest mall, with around 4.5-million sqft space.

Xinhua Financial Network:

- China won’t approve a stabilization fund to help boost the nation’s stock market in the near future.

Bear Radar

Style Underperformer:
Mid-cap Growth (-4.13%)

Sector Underperformers:
Coal (-8.48%), Gaming (-7.24%) and Gold (-6.81%)

Stocks Falling on Unusual Volume:
MBT, VIP, TYC, DB, DRYS, VPHM, DISH, CHA, BAP, XES, RBA, CXW, TLP, FUN, MR and VTR

Stocks With Unusual Put Option Activity:
1) LBTYA 2) MBT 3) TSN 4) FMCN 5) SBUX

Bull Radar

Style Outperformer:
Small-cap Value (-1.65%)

Sector Outperformers:
Biotech (-1.0%), Restaurants (1.19%) and Telecom (-1.56%)

Stocks Rising on Unusual Volume:
VOD, ASEI, NAVG, RAVN, BUCY, OSIR, CWT, DCO and TRK

Stocks With Unusual Call Option Activity:
1) UBS 2) KG 3) TMA 4) UTHR 5) PNRA

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- The cost of protecting investors in Australian corporate bonds from default declined, according to traders of credit-default swaps. The Markit iTraxx Australia index was quoted 5 basis points lower at 230 points as of 9:22 am in Sydney, Citigroup Inc. data show.

- Fannie Mae(FNM), Freddie Mac(FRE) and housing industry officials plan a new mortgage modification program designed to cut payments for hundreds of thousands of homeowners facing foreclosure, according to people briefed on the matter. Under the proposal, mortgage servicers will work with borrowers to reduce monthly payments to 38 percent of their income, a level considered a threshold for affordability, using a combination of lower principals, interest-rate reductions and extensions, the people said.

- China may have more work ahead to revive investors' confidence in the world's worst-performing major stock market after unveiling a 4 trillion yuan ($586 billion) stimulus plan. ``You really need the retail investors to be jumping in with both feet in order to get the market hopping,'' Chamie said. ``I just don't see that materializing over the next year or so as we get increasing reports of jobs losses, factories shutting down and slower growth and export activity.''

- Australia's economy, which cruised through the 1997 Asian financial crisis and the dot-com bust, is facing the prospect of its first recession in almost two decades. Waning global demand for commodities threatens to staunch a five-year flood of export earnings that helped boost Australian incomes by the most in more than 30 years.

- Fannie Mae(FNM) may need more than the $100 billion in funding pledged by the U.S. Treasury to stay afloat after reporting a record $29 billion loss and confronting more difficulty in issuing and refinancing debt.

- The International Energy Agency may cut its 2009 oil demand forecast for a third month as the threat of the worst recession since World War II saps fuel consumption, former IEA analysts said. The Paris-based adviser to 28 oil consuming nations will reduce the estimated growth in global demand from 700,000 barrels a day, or 0.8 percent, in its next monthly report on Nov. 13, said four analysts who used to work at the IEA and are now at banks. ``Given the downward revisions to the IMF data, it is highly likely they will revise demand down,'' said Lawrence Eagles, global head of commodities research at JPMorgan Chase & Co. in New York, who expects demand to shrink 0.4 percent, or 320,000 barrels a day in 2009. ``Anything above zero demand growth now is an optimistic forecast.'' Eagles joined JPMorgan in September after five years at the IEA, where he was editor of the monthly report. ``They have been overly optimistic about demand for the last few years,'' said David Knapp, senior editor of Energy Intelligence Group and a former director of the IEA's Oil Markets Division. Gasoline demand from U.S. motorists declined for 28 consecutive weeks and is 3.9 percent lower than a year ago, according to spending data released by MasterCard Inc. on Nov. 4. Ian Taylor, chief executive officer of closely held commodity trader Vitol Group, said Oct. 28 that crude consumption may decline by 1 million barrels a day next year. U.S. fuel demand in the four weeks ended Oct. 10 sank to 18.6 million barrels a day, the lowest since June 1999, according to the Energy Department. China's gross domestic product may advance 7.5 percent or less next year, the weakest since 1990, according to estimates by Credit Suisse AG, UBS AG and Deutsche Bank AG.

- American Express Co.(AXP) won Federal Reserve approval to convert to a commercial bank, gaining access to funds as credit losses build and sales of asset-backed bonds plummet.

- Las Vegas Sands Corp.(LVS), the casino company controlled by billionaire Sheldon Adelson, is suspending construction in Macau to conserve cash as it works to raise $2.14 billion in capital following a loss in the third quarter.

- Sparx Group Co., Asia's biggest hedge-fund manager with $8.5 billion in assets, posted a first- half loss as slumping stock markets and investor redemptions shrank assets under management by more than a third from a year earlier.

Wall Street Journal:
- In an aggressive move targeting the root cause of the global financial crisis, Citigroup Inc. plans to announce Tuesday that it is offering to modify the terms of as much as $20 billion in mortgages for borrowers who are current on their loan payments but at risk of falling behind.

- President-elect Barack Obama risks a political backlash and legal battles if he tries to reverse moves by President George W. Bush to expand natural-gas drilling in Utah. Mr. Obama must walk a tightrope as he tries to balance the expectations of his environmentalist supporters against broader public concerns over energy prices and his campaign promises to promote energy independence, said Denise Bode, chief executive of the American Clean Skies Foundation, a nonprofit advocacy group backed by the natural-gas industry. Ms. Bode noted that Mr. Obama has talked about the need to develop the nation's natural-gas resources.

CNBC.com:
- Layoffs have dominated the news this past few months, but there are some companies and sectors that are still hiring during this down turn said Monster Worldwide(MWW)CEO Salvatore Iannuzzi.

USA Today.com:

- Gasoline prices fell another 17.6 cents the past week, with average prices in three states dipping below $2 a gallon.

Reuters:

- Some $2.1 trillion of European company and bank debt matures in the next three years, raising "substantial refinancing risk", Standard & Poor's said on Tuesday. With new bond issues at a virtual standstill after the bankruptcy of Lehman Brothers, fears have intensified that companies will be unable to raise fresh debt to pay off maturing bonds, potentially pushing them into default. "Funding pressures in Europe have escalated sharply since September as stress in the global financial system accelerated," S&P analysts said in a note.

- U.S. banking regulators plan to release an interagency statement in the next few days encouraging well-capitalized banks to keep lending to credit-worthy borrowers, the director of the Office of Thrift Supervision said. "There is a concern that healthy institutions are sitting idle and not responding to the needs of credit-worthy borrowers," OTS Director John Reich told Reuters in an interview on Monday.

Financial Times:
- Mexico is taking steps to protect itself from the oil price remaining below $70 a barrel in the clearest sign yet of the concerns of producer countries at the impact of the global economic slowdown on their revenues. The world's sixth biggest oil producer hedged almost all of next years oil exports at prices ranging from $70 to $100 at a cost of about $1.5bn through derivatives contracts, according to bankers familiar with the deal. The cover is far higher than the country - which relies on oil for up to 40 per cent of government revenue - usually seeks. Last year, Mexico hedged 20-30 per cent of its exports.

- China needs a true change of course. The country’s problem is more than a mere global downturn. Its development model is no longer sustainable. China's growth to date has been phenomenal, but it was based on exports and investment, at the expense of consumption. The time for change is now.

Taiwan’s United Daily:

- Chinese commercial airfares have dropped by as much as 80% on some domestic routes because of a slump in travel demand.

Investor Daily Indonesia:

- Indonesia’s carmakers plan to cut their output as demand slows and new car inventories climb, citing officials at PT Honda Prospect Motor and PT Krama Yudha Tiga Berlian.

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

- Rated (NPSP) Buy, target $11.

Night Trading
Asian Indices are -1.75% to -.25% on average.
S&P 500 futures +.42%.
NASDAQ 100 futures +.34%.

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Earnings of Note
Company/EPS Estimate
- (FOSL)/.51

- (TJX)/.55

- (BOBE)/.44

- (CNQR)/.14

- (IPI)/.73

Economic Releases
- None of note

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, IDB/TIPP Economic Optimism Index, (PCL) Analyst Day, (BBX) Reception, (STR) Analyst Meeting, (SPWRA) Analyst Day, (FISV) Investor Conference, (UNM) Analyst Meeting, (VMED) Analyst Meeting, (SNS) Analyst Meeting, Rodman & Renshaw Investment Conference, Robert W. Baird Industrial Conference, DB-Biotech Boston Confab, Merrill Banking/Financial Services Conference, UBS Building Conference and Piper Internet Summit 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 mixed. The Portfolio is 75% net long heading into the day.