Thursday Watch

Late-Night Headlines
Bloomberg:
- Commodity derivatives held by companies in the so-called over-the-counter market rose 56% during the first half to a record $13.2 trillion, according to the Bank for International Settlements. Commodities as measured by the S&P GSCI Index surged 41% in the period before slumping 55% since the start of the second half of the year. Commodities forwards and swaps, non-standardized types of derivatives, grew 49% to $7.56 trillion, according to the BIS.

- Barack Obama's transition team named leaders for the groups that will review the Departments of Treasury, State and Defense to give the president-elect guidance on policy, budget and personnel decisions before taking office. Among those named is Tom Donilon, a former executive vice president at Fannie Mae(FNM) who will lead the State Department agency review team. John White, chairman of Harvard University's Kennedy School Middle East Initiative, will lead the Defense Department agency review team. White serves on several boards, including L-3 Communications Holdings Inc.(LLL), which makes intelligence and surveillance equipment and sells systems to the U.S. military. As he did when he set up his transition advisory board, Obama welcomed some of his top fundraisers to the review teams. Donald Gips, co-chairman of the agency review group and a vice president of Broomfield, Colorado-based Level 3 Communications Inc., raised more than $500,000 for Obama's campaign. Tom Wheeler, a managing director of Core Capital Partners, an investment firm, raised between $200,000 and $500,000. Wheeler will help review the science, technology, space and arts agencies. Former Federal Communications Chairman Reed Hundt, named as a member of the team responsible for international trade and economics agencies, raised between $50,000 and $100,000.

- Intel Corp.(INTC), the largest computer- chip maker, lowered its fourth-quarter sales forecast by about $1 billion amid ``significantly weaker'' demand across its entire product line. The shares dropped 6.8 percent in late trading. Revenue will be $9 billion, plus or minus $300 million, and profit margins will be short of projections, Intel said today in a statement. The Santa Clara, California-based company originally predicted sales of between $10.1 billion and $10.9 billion.

- Michigan Representative John Dingell is citing past praise from President-elect Barack Obama in his campaign to retain the chairmanship of the Energy and Commerce Committee against a challenge by California Democrat Henry Waxman. Dingell supporters today sent a letter to House Democrats that included a June 15 comment from Obama saying Dingell ``has done more for working people than just about anybody in the history of the House.'' The letter also noted that in 2005 House Speaker Nancy Pelosi called Dingell ``a leader, fighting for the American values we cherish.''

- Applied Materials Inc.(AMAT), the largest maker of chip-production machinery, reported a 45 percent drop in fourth-quarter profit and said it will cut 1,800 jobs as the financial crisis deepens an industrywide slump in orders.

- China's industrial production grew at the slowest pace in seven years, adding to evidence that the world's fastest-growing major economy risks a deeper slowdown as exports cool. Output rose 8.2 percent in October from a year earlier, the statistics bureau said today, after gaining 11.4 percent in September. None of 18 economists surveyed by Bloomberg News had predicted such a small increase. The economy may expand 5.8 percent this quarter, the weakest pace in at least 15 years, according to Credit Suisse AG. Output of crude steel fell 17 percent from a year earlier. Declines also included: pig iron (16.8 percent), steel products (12.4 percent) and automobiles (0.7 percent). Electricity output slipped 4 percent. Crude-oil production rose 3.9 percent. Cement and raw-coal output grew at a slower pace than in September. ``Industrial-production growth should continue to decline as China's export-oriented industries scale back their operations due to lower demand from the U.S. and Europe,'' said Jing Ulrich, chairwoman of China equities at JPMorgan Chase & Co. in Hong Kong.

Wall Street Journal:
- Advocates on both sides of the aisle are racing to sway a runoff in Georgia that will help determine whether Democrats gain a supermajority in the Senate. The contest between incumbent Republican Sen. Saxby Chambliss and Democrat Jim Martin -- neither of whom won more than 50% of the vote on Election Day -- is key to Democrats' bid for the 60 votes needed to overcome procedural tactics that could complicate President-elect Barack Obama's legislative agenda. Two other races, in Alaska and Minnesota, also remain undecided. "We are trying to get the message out to Republicans that the difference between a 57-seat majority and a 58-seat majority is huge," said Rebecca Fisher, a spokeswoman for the campaign arm of Senate Republicans. "This needs to be something that not just Georgians pay attention to."

- Treasury Secretary Henry Paulson officially abandoned his original plan to buy troubled assets from financial institutions. While the government will continue to invest in those firms, he said, it would also now focus on the nation's struggling consumers. In detailing the next phase of Treasury's $700 billion Troubled Asset Relief Program, Mr. Paulson indicated the government would continue flooding financial institutions with cash, but would also try to increase the availability of student loans, auto loans and credit cards. He said he's also examining ways to help prevent foreclosures.

- Dubai’s six-year property boom appears to be over, with asking prices for some homes falling as much as 19% in October from the previous month, according to a closely followed survey. The property market here isn't important just to buyers, sellers and lenders. The government, through a handful of big developers, is the largest player in the sector. A sharp slowdown could crimp its financing as worry grows about its ballooning foreign debt.

MarketWatch.com:
- Russia's financial crisis is looking bleaker every day. As if tumbling oil and equity prices, capital flight, bank troubles and political risk weren't enough, the Russian markets now face the increasing risk of large ruble devaluation. In Moscow on Wednesday, dollar-denominated equities extended their precipitous slide, falling 12.5% and forcing the RTS stock exchange to halt trading once again. Over the last two days, the RTS index has plunged 22%. It is down a whopping 72% year-to-date, making it the worst performer among major global emerging markets.

NY Times:
- Hedge fund managers usually shun the spotlight. But five of them, billionaires all, are about to come under the glare on Capitol Hill. The money managers — Philip Falcone, Kenneth C. Griffin, John Paulson, James Simons and George Soros — have been called by a House panel to discuss some of their trade secrets at a hearing on Thursday. The topics are likely to range from the managers’ use of leverage — the borrowed money that fuels investment returns on the way up but can be devastating on the way down; their funds’ bets in the markets; and the managers’ pay.

- Google(GOOG) announced on Wednesday that it would begin selling space on YouTube search-results pages to advertisers, part of its effort to turn its expensive acquisition into a major revenue producer.

- Momentum is building in Washington for a rescue package for the auto industry to head off a possible bankruptcy filing by General Motors(GM), which is rapidly running low on cash. But not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.

- Michelle Rhee, the hard-charging chancellor of the Washington public schools, thinks teacher tenure may be great for adults, those who go into teaching to get summer vacations and great health insurance, for instance. But it hurts children, she says, by making incompetent instructors harder to fire. So Ms. Rhee has proposed spectacular raises of as much as $40,000, financed by private foundations, for teachers willing to give up tenure. Policy makers and educators nationwide are watching to see what happens to Ms. Rhee’s bold proposal. The 4,000-member Washington Teachers’ Union has divided over whether to embrace it, with many union members calling tenure a crucial protection against arbitrary firing.

CNNMoney.com:
- Billionaire oilman T. Boone Pickens is delaying his massive Texas wind project, citing a drop in natural gas prices and the tightening credit market. "With natural gas prices where they are, you can't kick off a wind project, you're not economical." Pickens said Tuesday at a news conference in Arizona.

USA Today.com:

- Delta Air Lines, (DAL) whose merger with Northwest Airlines closed two weeks ago, will soon become the USA's No. 1 airline between the East Coast and Asia. Delta said Wednesday that next summer it will add three new non-stop flights from the U.S. to Tokyo's Narita airport, Northwest's Asia hub, from which Northwest flies to 13 other Asian cities.

- Gasoline is expected to remain a relative bargain through 2009, with prices averaging $2.37 a gallon, and home heating costs will likely be flat this winter under sharply lower U.S. forecasts released Wednesday. The brutal economy will push down total U.S. petroleum demand this year by 1.1 million barrels a day, or 5.4%, the first time since 1980 that total consumption is expected to fall by more than 1 million barrels a day. "World demand growth may be negative for the first time in years, which is a shock to a lot of the bulls who never thought this could happen," says Phil Flynn, oil analyst at Alaron Trading.

Financial Times:
- Blackstone's(BX) GSO Capital Partners and GoldenTree Asset Management, two of the biggest hedge funds investing in debt, have turned to investors for more capital in the face of markdowns on their holdings and margin calls from their lenders. GSO, which manages $24.6bn, solidified its role as a leading force in the lending markets in recent months when it bought loans with a face value of $12bn that had been used to finance private equity deals.

China Daily:

- Premier Wen Joabao said that the effect of the global economic crisis on China “is worse than expected,” citing National Bureau of Statistics Director Ma Jiantang. The report didn’t elaborate.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (NSM), target $17.

Night Trading
Asian Indices are -5.25% to -1.50% on average.
S&P 500 futures -.83%.
NASDAQ 100 futures -1.35%.

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Company/EPS Estimate
- (DPS)/.51

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- (KSS)/.51

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- (PAAS)/.16

Economic Releases
8:30 am EST

- The Trade Deficit for September is estimated to shrink to -$57.0 billion versus -$59.1 billion in August.

- Initial Jobless Claims for last week are estimated to fall to 480K versus 481K the prior week.

- Continuing Claims are estimated to fall to 3825K versus 3843K prior.

11:00 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of 1,000,000 barrels versus a 1,787,000 barrel increase the prior week. Gasoline supplies are expected to rise by 100,000 barrels versus a 1,123,000 barrel increase the prior week. Distillate inventories are expected to rise by 900,000 barrels versus a 1,206,000 barrel increase the prior week. Finally, Refinery Utilization is expected to rise by .2% versus a -.06% decline the prior week.

2:00 pm EST

- The monthly budget deficit for October is estimated to widen to -$200.0 billion versus -$456.8 billion in September.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly MBA mortgage applications report, (QCOM) Analyst Meeting, (BRY) Investor Day, (IWOV) Analyst Day, (SYMM) Analyst Meeting, (TLAB) Investor Conference, (GPRO) Analyst Day, (ULBI) Analyst Meeting, (AMD) Analyst Day, Bank of America Energy Conference, BMO Capital Interactive Entertainment Conference, Merrill Banking/Financial Services Conference, CSFB Healthcare Conference and Needham Telecom Conference 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 lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Finish at Session Lows, Weighed Down by Commodity, Airline, Homebuilding and Alternative Energy Shares

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In Play

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

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Computer longs and Internet longs. I added to my (IWM)/(QQQQ) hedges and to my (EEM) short today, 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 elevated. Today’s overall market action is very bearish. The VIX is rising 7.89% and is very elevated at 66.30. The ISE Sentiment Index is depressed at 59.0 and the total put/call is high at 1.13. Finally, the NYSE Arms has been running very high most of the day, hitting 2.63 at its intraday peak, and is currently 1.60. The Euro Financial Sector Credit Default Swap Index is rising 3.35% today to 109.66 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 up 5.8% to 201.0 basis points. The TED spread is rising 13.2% to 198 basis points. The TED spread is now down 266 basis points in just over four weeks. The 2-year swap spread is falling .12% to 104.63 basis points. The Libor-OIS spread is falling 3.42% to 164 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 6 basis points to .89%, which is down 173 basis points in just over four months and at the lowest level since January 1999. I am seeing panicky type action again in a number of stocks. Action in the financial sector is a large negative. Tomorrow’s grilling of hedge fund managers will dominate the airwaves and likely be another negative for sentiment in the very near-term. I plan to maintain my current positions into the close with an eye towards lifting some hedges tomorrow. Nikkei futures indicate a -480 open in Japan and DAX futures indicate a -1 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on global growth concerns, forced selling, more shorting and financial sector pessimism.

Today's Headlines

Bloomberg:
- The cost of shipping Middle East oil to Asia, the world’s busiest route for supertankers, may drop because of slowing demand. Refineries hired 84 very large crude carriers, or VLCCs, to load in November, according to a report today from Paris-based shipbroker Barry Rogliano Salles. They had booked 101 for October loadings by this time last month and the average so far this year has been more than 104 a month.

- The cost of protecting against a default by Russia soared after the central bank increased the ruble's trading band and lifted its benchmark interest rate to stem record capital outflows. Credit-default swaps on Russian government bonds jumped to 7.82 percent of the amount insured from 6.14 percent yesterday, according to CMA Datavision prices. The yield on its 30-year dollar bonds increased to 10.47 percent from 9.1 percent, according to Bloomberg prices. The central bank's widening of its ruble target against a basket of dollars and euros by 1 percent yesterday ``achieved nothing'' and cost almost $7 billion of the nation's foreign- currency reserves, according to analysts at Renaissance Capital. Russia joins Hungary, Iceland and Pakistan among a handful of central banks raising interest rates to stem currency losses, as the rest of the world cuts the benchmarks to spur lending.

- The cost of hedging against losses on debt sold by Dubai and Abu Dhabi rose on investor concern a worsening real estate market and plunging stock values will make it more expensive for the Gulf emirates to borrow. Credit-default swaps linked to Dubai jumped 100 basis points to 700, according to Standard Chartered Plc, and Abu Dhabi climbed 45 to 230 basis points, CMA Datavision prices show. The prospect of a collapse in Dubai’s real estate market prompted a pledge of support yesterday from Abu Dhabi Commercial Bank Chief Executive Officer Eirvin Knox. Dubai may need help to finance a surge in borrowing that paid for the world’s tallest tower, palm tree-shaped man-made islands and stakes in banks worldwide, Moody’s Investors Service said.

- Secret stashes of aluminum hoarded by speculators and smelters may cripple the chance of a recovery in prices for producers such as Rio Tinto Group and United Co. Rusal for another year, according to Tiberius Asset Management AG. “We have been taken by surprise by the size of surpluses,” Tiberius analyst Thomas Benedix wrote yesterday. “We now suspect that aluminum is a metal which producers and speculators were hoarding in exceptionally large, ‘hidden’ inventories, which are now finding their way back onto the major exchanges.” Tiberius manages about $1 billion in commodity investments.

- Crude oil fell to the lowest since March 2007 on speculation that the International Energy Agency will cut its global demand estimate tomorrow and the U.S. will report that stockpiles gained.

- President-elect Barack Obama will act quickly on climate change upon taking office in January, his environment adviser said, and may also continue with some of the policies initiated by his predecessor, George W. Bush.

- U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

Wall Street Journal:

- US Bancorp(USB), Buoyed By Federal Cash, Thinks Expansion.

NY Times:
- Oklahoma to Debut New Ambulance Siren You Can Feel.

CNNMoney.com:

- Ospraie in a corner. Dwight Anderson built a $9 billion hedge fund empire betting on volatile commodities markets. His world came undone this summer.

The Industry Standard:

- New Regulations Will Soon Swell IT Workloads.

Business Week:

- HedgeFund.net released its Q3 2008 hedge fund asset flow estimates and preliminary October hedge fund performance estimates. HFN estimates total assets in single manager funds fell 16% in Q3 2008 to $2.497 trillion. Performance losses during Q3 accounted for $347.5 billion of the reduction and investor redemptions and liquidations accounted for an additional $128 billion outflow. Investor redemptions alone accounted for an estimated $117.3 billion outflow, by far the largest on record.

ESPN.com

- One person who won't be swayed by President-elect Barack Obama's recent call for an eight-team national college football playoff is Oregon president David Frohnmayer, chair of the BCS Presidential Oversight Committee.

Press TV:

- Iran’s Parliament agreed that next year’s budget should be based on an oil price of $40 to $50 a barrel, citing an official from the Parliament Energy Commission.

Charlotteobserver.com:

- Some of the nation's biggest banks including Wells Fargo & Co.(WFC) are in for a windfall – on top of the $700 billion government bailout – thanks to a new tax policy quietly issued by the Treasury Department. The notice gives big tax breaks to companies that acquire struggling banks hit hard by the mortgage crisis. In some cases, the breaks could exceed the cost of acquiring the banks, according to private tax experts.

Bull Radar

Style Outperformer:
Large-cap Growth (-2.40%)

Sector Outperformers:
Hospitals (-1.0%), Biotech (-2.27%) and Software (-2.36%)

Stocks Rising on Unusual Volume:
ME, CNQR, MELI, HOLX, IPCC, SMG, SHI, NAT and HTX

Stocks With Unusual Call Option Activity:
1) LGF 2) EK 3) UTHR 4) BP 5) AFL

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