Stocks Lower into Final Hour on Earnings Worries, More Shorting and Global Growth Concerns

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Computer longs and Medical longs. I added (IWM)/(QQQQ) hedges today and then took profits in them, thus leaving the Portfolio 100% net long. The tone of the market is bearish as the advance/decline line is sharply lower, almost every sector is declining and volume is about average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is rising 3.16% and is very elevated at 61.72. The ISE Sentiment Index is around average at 159.0 and the total put/call is above average at 1.01. Finally, the NYSE Arms has been running very high most of the day, hitting 2.69 at its intraday peak, and is currently .91. The Euro Financial Sector Credit Default Swap Index is unch. today at 107.67 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 199.87 basis points. The TED spread is rising 7.0% to 210 basis points. The TED spread is now down 254 basis points in just over four weeks. The 2-year swap spread is rising 2.15% to 112.75 basis points. The Libor-OIS spread is rising 5.45% to 172 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 6 basis points to .78%, which is down 184 basis points in just over four months and at the lowest level since January 1999. Volume during this morning’s sell-off was below average with a very high NYSE Arms reading, which indicated the bears were running low on firepower. As well, this afternoon’s surge was on above-average volume. Considering we are still 860 Dow points off of yesterday’s low, today’s mild sell-off isn’t concerning. I suspect, given Asia’s relatively muted upside performance last night in response to our sharp rally yesterday and US stocks’ display of resilience today, we could see some upside fireworks in Asia on Monday. As well, I am hearing a number of funds are shorting ahead of what they perceive will be G-20 inaction. Thus, we could see some more short-covering here on Monday that could lead to further upside. Nikkei futures indicate an +300 open in Japan and DAX futures indicate an +100 open in Germany tomorrow. I expect US stocks to trade higher into the close from current levels on short-covering, bargain-hunting, less financial sector pessimism, less forced selling, lower energy prices and seasonal strength.

Today's Headlines

Bloomberg:
- President-elect Barack Obama and his election rival John McCain will meet Nov. 17 in Chicago to discuss ways they can cooperate on some of the most urgent issues that will confront the next administration. ``It's well known that they share an important belief that Americans want and deserve a more effective and efficient government,'' Stephanie Cutter, a spokeswoman for Obama's presidential transition, said in a statement. They ``will discuss ways to work together to make that a reality.''

- Kenneth Heebner, the fund manager who beat all peers last year by buying energy stocks and selling financials, reversed course in the third quarter, snapping up Citigroup Inc., Wells Fargo & Co. and Bank of America Corp. Heebner's Capital Growth Management LP, based in Boston, bought 15.4 million shares of Wells Fargo, 27 million shares of Citigroup and 15.6 million shares of Bank of America in the three months ended Sept. 30, according to a regulatory filing today. The combined stakes equal about 15 percent of the U.S.- listed stocks reported in the filing. The firm sold all its shares of Schlumberger Ltd., along with those of Freeport-McMoran Copper & Gold Inc., Peabody Energy Corp., and Consol Energy Inc. The four companies were four of the money manager's top five holdings as of June 30, Bloomberg data show.

- Federal Reserve Chairman Ben S. Bernanke said central bankers worldwide are prepared to take additional actions as needed to unfreeze credit markets, citing continued strains even amid ``tentative improvements.'' ``The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain,'' Bernanke said today at a panel discussion hosted by the European Central Bank in Frankfurt. ``For this reason, policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.''

- New Star Asset Management Group Ltd. and RAB Capital Plc, U.K. firms that went public on the backs of star money managers, are shrinking because of client defections. RAB, founded in 1999 by Philip Richards, said today that assets under management may slump as much as 73 percent this year as it closes at least six funds to focus on resource and energy investments. New Star, set up in 2000 by John Duffield, said in a separate statement it will cut 20 million pounds ($30 million) in costs after assets slumped 28 percent since June 30.

- The Baltic Dry Index, a measure of shipping costs for commodities, advanced for a third consecutive day in London. The Baltic Index has advanced 2.8% in the last three sessions.

- The ruble dropped the most this week for more than two months after Russia's central bank let the currency weaken against its dollar-euro basket amid an exodus of foreign capital. Urals crude, Russia's export oil blend, slid for a second week and the Micex stock index lost 18 percent as Bank Rossii allowed the ruble to fall 1 percent Nov. 11 and raised interest rates. The currency move was ``clumsy,'' said Renaissance Capital. Alfa Bank said it was a ``mistake.'' Moscow's Trust Investment Bank estimates policy makers sold as much as $15 billion this week to curb its decline.

- Crude oil fell more than $2 a barrel as the global economic slowdown cut demand in the largest energy- consuming countries. China Petroleum & Chemical Corp., supplier of more than half the fuel to the Asian nation, is slashing processing rates by 10 percent from July’s record. The Organization of Petroleum Exporting Countries, supplier of 40 percent of the world’s oil, is “very likely” to recommend a production cut at the end of this month, Iran’s OPEC governor, Mohammad Ali Khatibi, told the country’s state-run Mehr news agency.

- Oil tanker demand is being buoyed by traders seeking to store unwanted crude, potentially bolstering hire rates that have plunged 71 percent since July. Frontline Ltd., the largest owner of supertankers, got about 10 enquiries from oil companies seeking vessels for storage this week, Jens Martin Jensen, interim chief executive officer of the management unit, said by phone today. Royal Dutch Shell Plc, Europe's largest oil company, booked the carrier Leander, Paris- based shipbroker Barry Rogliano Salles said this week.

- Twenty nations including Japan, Italy and Australia may be releasing more greenhouse-gas pollution than they agreed to under the Kyoto treaty to curb global warming. They're failing to rein in carbon-dioxide output enough to meet their pledges signed in 1997 in Kyoto, Japan, according to reports by individual countries. As a penalty for missing their goals under the treaty, the nations are required to buy permits for every excess ton of the heat-trapping gas released through 2012. That will total 2.3 billion permits for 20 nations, New Carbon Finance, a research firm in London, has estimated. The potential penalty, 36 billion euros ($46 billion) for the group based on current permit prices, and the fact that only a minority of 37 Kyoto signatory nations may meet their pledges bodes poorly for international efforts to limit global warming.

Wall Street Journal:

- Banks across the U.S. are engaged in a heated competition for deposits as the battered industry tries to shore up its funding sources. From giant Citigroup Inc. to tiny S&T Bancorp Inc. -- which is based in Indiana, Pa. and has just 55 branches -- banks are responding to uncertain times by sharply increasing the interest rates paid on deposits. The result is a boon for consumers hungry for higher returns as the stock market lurches.

AppleInsider:

- A single listing on the Apple's(AAPL) career pages suggests the company has pledged itself to releasing the iPhone in China, one of its most elusive markets. The posting made Thursday for an iPhone Quality Assurance Engineer in Beijing doesn't try to mask its likely role. Apple is looking to "to focus on international releases of our iPhone and iPod touch products for Beijing," it reads.

- Google(GOOG) as early as today is expected to introduce a free application for the iPhone that lets you search for information, directions, or virtually anything else by speaking into the handset, eliminating need for the keyboard entirely. "The service can be used to get restaurant recommendations and driving directions, look up contacts in the iPhone’s address book or just settle arguments in bars," wrote the New York Times' John Markoff, who profiled Google's broad speech-recognition efforts while breaking word of the new offering.

Reuters:
- Top U.S. financial regulators and agencies agreed on Friday to cooperate on developing a central clearing infrastructure for credit default swaps to try to bring transparency to the $55 trillion market, blamed for worsening the financial crisis. The group is reviewing proposals from several potential providers of counterparty services. Previously, the SEC had informed several industry firms of its CDS clearing house plans, including IntercontinentalExchange Inc (ICE), CME Group Inc (CME), NYSE Euronext (NYX) and Eurex.

- Europe's drive for an early and far-reaching revamp of global financial regulation, drawing on lessons from the credit crisis, faces at best a lukewarm reception at this weekend's summit of top economies.

- A default or bankruptcy of General Motors would have little impact on credit markets because the risk of failure by the automaker is already priced into the market, a Citigroup director said on Friday. In contrast to Lehman Brothers, which collapsed practically overnight, the troubles at GM, the largest U.S. automaker, have been years in the making. Investors and dealers already have priced in the risk of any failure based on trading of GM bonds and credit default swaps, said Marc Heimowitz, a director at Citigroup Global Markets.

- The White House has been in talks with Congress about finding a way to accelerate loans to automakers under a $25 billion program already appropriated for the troubled industry, spokeswoman Dana Perino said on Friday.

Dagens Industri:

- Volvo Cars, the Swedish automobile maker owned by Ford Motor Co., wants to accelerate development of electrical hybrid cars, citing CEO Stephen Odell. The company will likely make a final decision in a few months’ time and aims to eventually take a large slice of the market for more exclusive electrical hybrid cars.

Bear Radar

Style Underperformer:
Small-cap Value (-5.63%)

Sector Underperformers:
REITs (-7.38%), Retail (-6.69%) and Coal (-6.66%)

Stocks Falling on Unusual Volume:
GBCI, PETS, INT, HTX, DCO, DCI and KEX

Stocks With Unusual Put Option Activity:
1) JAVA 2) CYPB 3) LNC 4) ATML 5) LOW

Bull Radar

Style Outperformer:
Large-cap Value (-3.13%)

Sector Outperformers:
HMOs (-1.60%), Medical Equipment (-1.61%) and Drugs (-1.80%)

Stocks Rising on Unusual Volume:
PHI, AMAG, ENSG, CPSI, MTSC, CASY, ASEI, OPY, TKG, HEW and UTI

Stocks With Unusual Call Option Activity:
1) LVLT 2) KG 3) SLE 4) JWN 5) XL

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Friday Watch

Late-Night Headlines
Bloomberg:
- The cost of protecting investors in corporate and government bonds in Asia-Pacific region against default declined after U.S. stocks rallied the most in two weeks. The Markit iTraxx Japan index fell 12.5 basis points to 247.5 at 9:07 a.m. in Tokyo, according to prices from Credit Suisse Group AG. The Markit iTraxx Australia index was quoted 20 basis points lower at 255 as of 12:02 p.m. in Sydney, Citigroup Inc. data show. The Asia index of 50 investment-grade borrowers outside Japan was 10 lower at 365 basis points at 9:00 a.m. in Hong Kong, while the region's high-yield benchmark fell 50 basis points to 1,200, Barclays Capital prices show.

- Mitsui O.S.K. Lines Ltd., Japan's most profitable shipping line, may mothball some of its largest vessels for the first time in over two decades as charter rates have fallen 98 percent over the last five months. The world's largest merchant fleet operator may also scrap seven of its capesize ships, used for transporting iron-ore and coal, from a fleet of about 100, Masafumi Yasuoka, senior executive officer at the shipping line, said in an interview in Tokyo yesterday.

- The price of palm oil may average 32% lower next year, CLSA Asia-Pacific Markets said.

- Qatar Investment Authority, the country's $60 billion sovereign wealth fund, plans to make more real estate acquisitions in 2009 as global prices decline and investors sell assets. ``We are looking for prime properties in major cities at distressed prices,'' said Navid Chamdia, the authority's head of real estate, in an interview at the Real Estate Investment World conference in Tokyo. ``We will continue to invest in attractive assets we are comfortable with.''

- U.S. corporate bonds issued in October are rallying in a sign that credit markets may be recovering after the worst month for investment-grade debt in more than 28 years. Prices on bonds sold by International Business Machines Corp., PepsiCo Inc., Diageo Plc and Verizon Communications Inc. climbed as much as 9.6 percent since they were issued in October, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.

- Senators Charles Schumer and Christopher Dodd offered conflicting opinions on the fate of the auto-rescue plan, with Schumer saying legislation would likely succeed with some Republican support and Dodd indicating the measure may not have the votes to pass.

- Exports from Asia's developing economies may decline 20 percent over the next year as a deepening global slowdown hurts demand for the region's products, Nomura International (HK) Ltd. said. Exports from Asia's emerging economies have held up until recently, as shipments to other destinations made up for weaker sales to the U.S. That's changing as the economic downturn becomes ``global and synchronized,'' and a slump in commodity prices erodes incomes in oil-producing nations, Subbaraman said.

Wall Street Journal:
- Congress is about to meet in a lame duck session to try and help the economy by spending some extra money. John Dingell, the Dem who chairs the powerful House Energy and Commerce Committee, held a hearing today to share his ideas. Namely: Shell out some extra cash for Medicaid and NIH.

- The U.S. economy is in the midst of the worst part of the recession, but growth may return by the second half of next year, according to economists in the latest Wall Street Journal forecasting survey.

- Mild-mannered Federal Reserve Chairman Ben Bernanke will go down as one of the most controversial central bank chiefs in American history, but economists have an early message for President-elect Barack Obama: Don't dump him. By a ratio of 3-to-1, the 54 private economists surveyed by The Wall Street Journal said Mr. Bernanke should be reappointed by Mr. Obama when the Fed chairman's term comes up in January 2010.

- Bank of America(BAC) Lures Merrill Brokers With Bonuses.

- For the first time in recent memory, luxury-goods makers are cutting prices on designer apparel, shoes and handbags in the U.S. market.

- Vladimir Putin's Olympic dream has run into tough sledding. As this Soviet-era Black Sea resort town prepares to host the 2014 Winter Games, the global credit crisis is casting a chill on some of the biggest private investors in the Olympics infrastructure.

- The auto industry's quest to launch a new generation of electric cars may get a big boost from a sector with much to gain from getting advanced vehicles on the road: U.S. electric utilities.

CNBC.com:
- Hedge fund investor William Ackman has taken a 33.1 million share stake in American International Group as of Sept. 30, a regulatory filing filed by his investment vehicle Pershing Square Capital Management showed. The stake gives Ackman a 1.2 percent ownership in AIG(AIG), apart from the new 407,000 call options he also reported. Ackman also divested his 873,000 put option positions in bond insurer MBIA(MBI), a company he has sharply criticized in the past.

CNNMoney.com:
- Jittery investors began taking money out of stock-based mutual funds again this week, after a brief letup last week. Investors pulled $31.8 billion out of equity-based mutual funds during the week ended Nov. 12, compared with an inflow of $2.2 billion the prior week, according to TrimTabs Investment Research.

- Gasoline prices fell to their lowest level in 21 months Thursday, sinking below the $2.20-a-gallon mark, according to a survey for a motorist group. The average price of unleaded regular gas dropped 2.4 cents to $2.178 a gallon from $2.202 the day before, according to the survey from motorist group AAA. The last time gas was this low was Feb. 5, 2007, when the AAA reported the price at $2.177 a gallon. Gas has fallen 57 straight days in the AAA survey, since just after Hurricanes Gustav and Ike battered the Gulf Coast in September. Prices have dropped 47.06%, or $1.936, from their record high of $4.114 a gallon set July 17, according to AAA.

USA Today.com:

- It is last call for investors to ask for their money back from poorly performing hedge funds. Whether that is a bullish or bearish sign for battered stocks is anyone's guess. Wall Street hopes the passing of the Nov. 15 deadline — the last day for many investors to make a request to redeem hedge fund shares payable at year's end — could mark the beginning of the end of "forced selling" by funds to raise cash. If the selling recedes, it could help lift some of the downside pressure on stocks. Forced selling has been blamed for sharp stock price swings and plunging asset values in the financial crisis. Investors have redeemed an estimated $85 billion from hedge funds through the end of the third quarter, says Charles Gradante, co-founder of hedge fund adviser Hennessee Group.
- About 100 proposed coal-fired power plants in the USA may be required to limit their greenhouse gas emissions after the Environmental Protection Agency was blocked Thursday from issuing a permit for a proposed Utah plant without addressing the issue of global warming.

Reuters:

- Four top Citigroup Inc (C) executives, including Chief Executive Vikram Pandit, on Thursday bought 1.3 million of the bank's common shares, a person familiar with the matter said, as the stock's price fell to a 13-year low. Pandit bought 750,000 common shares and 100,000 preferred shares, while institutional clients chief John Havens bought 250,000 shares, the person said. Two other executives bought a total of 300,000 common shares, the person said.

- The chief executive of MBIA Inc (MBI) bought 100,000 of the bond insurer's shares, according to a regulatory filing on Thursday. The purchase raised CEO Jay Brown's ownership to 2.7 million shares, according to the U.S. Securities and Exchange Commission filing.

- A bid by global leaders to push forward plans this weekend to erect a firewall against future financial crises like the one now threatening the world economy will quickly run into tough political realities that will limit progress.

- Kohl's Corp (KSS) and Nordstrom Inc (JWN), two large U.S. retailers, reported sharply lower quarterly profits on Thursday and warned of worse-than-expected results for the rest of the year, just weeks before the critical holiday shopping season gets under way.

Financial Times:
- Emaar Properties, one of the world's largest property developers, is preparing to cut jobs to help it steer through the biggest crisis in its 11-year history amid a sharp fall on Dubai's stock markets and a cooling of the Gulf state's property sector. The company, which accounts for about 10 per cent of the Dubai stock market, on Thursday said it was reviewing its 5,000-strong workforce in light of the weakening Dubai property market, which is declining for the first time since foreigners were allowed to buy property in 2002.

BBC:

- Up to 2,000 extra British troops are likely to be sent to Afghanistan next year, the BBC has learned.

The Independent:

- The five best-paid hedge fund managers – who between them made $12.6bn last year, even as the financial world began to crumble around them – were hauled before the US Congress yesterday and assailed over their huge salaries, their tax perks and their contribution to the credit crisis that has engulfed the globe.

Shanghai Securities News:

- The impact of China’s $586 billion stimulus package will be felt in 2010 at the earliest, citing Fan Gang, a central bank adviser.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (FORM), target $28.

- Reiterated Buy on (URBN), target $26.

RBC Capital:

- Investors should buy the US dollar and sell the Swiss franc as the pair trades independently of equity markets and the Swiss National Bank has expressed concern about the strength of its currency. The dollar-franc is one of eight major currency pairs “that is not currently taking its cues from global equity markets, with short-term correlations close to zero,” wrote London-based Adam Cole, head of global currency strategy at RBC. “This is one of the few ways of playing our fundamentally US dollar-positive view, whilst at the same time avoiding exposure to short-term equity market volatility.”

Night Trading
Asian Indices are +.25% to +2.75% on average.
S&P 500 futures -1.34%.
NASDAQ 100 futures -.91%.

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Earnings of Note
Company/EPS Estimate
- (ANF)/.71

- (A)/.59

- (HEW)/.50

- (JCP)/.53

- (JOBS)/.11

Economic Releases
8:30 am EST

- The Import Price Index for October is estimated to fall 4.4% versus a 3.0% decline in September.

- Advance Retail Sales for October are estimated to fall 2.1% versus a 1.2% decline in September.

- Retail Sales Less Autos for October are estimated to fall 1.2% versus a .6% decline in September.

10:00 am EST

- Preliminary Univ. of Mich. Consumer Confidence for November is estimated to fall to 56.2 from 57.6 in October.

- Business Inventories for September are estimated to fall .1% versus a .3% rise in August.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly EIA natural gas inventory data report and CSFB Healthcare Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology stocks in the region. I expect US equities to open mostly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.