Tuesday Watch

Late-Night Headlines
Bloomberg:
- U.S. stocks posted the biggest two- day rally since 1987 after the government guaranteed $306 billion of troubled Citigroup Inc. assets and lawmakers pledged to pass another economic stimulus package.

- The cost of protecting Japanese and Australian corporate bonds from default declined, according to traders of credit-default swaps. The Markit iTraxx Japan index was quoted 55 basis points lower at 300 as of 9:59 am in Tokyo, according to prices from CSFB. The iTraxx Australia fell 20 basis points to 300.

- Hewlett-Packard Co.(HPQ), the world’s biggest personal-computer maker, reported a 10 percent increase in PC sales last quarter, beating some estimates, as demand for laptops offset declining printer sales in a slowing economy. PC revenue climbed to $11.2 billion, the Palo Alto, California-based company said today in a statement. Toni Sacconaghi, an analyst with Sanford C. Bernstein & Co. in New York, projected that PC sales would rise to $11 billion.

- Oil shipping costs may extend this year's 76 percent rout as shrinking energy demand and a global recession eclipse disruptions caused by pirates off east Africa capturing their largest-ever freighter. Tanker rates next month are about 7 percent lower than yesterday's level on the Persian Gulf to Japan route, according to derivative contracts called Forward Freight Agreements that trade privately among banks, brokers, hedge funds and shipping companies.

- James Paulsen, chief investment strategist at Wells Capital Management Inc. says worst of crisis may be over. (video)

- Venezuelan President Hugo Chavez suffered his second electoral setback in two years as the urban poor defected from his socialist party to help elect opposition candidates in Caracas and the three biggest states. Chavez’s Venezuelan United Socialist Party, or PSUV, lost races for governor in five states yesterday, according to the National Elections Board, and in the country’s two biggest cities.

- Genentech Inc.(DNA) and Roche Holding AG’s Avastin combined with the most commonly used chemotherapies helped women with breast cancer live longer without their disease worsening, a finding that could bolster use of the medicine.

- Citigroup Inc.(C) has no need to sell assets to shore up capital, CFO Gary Crittenden said. Citigroup’s capital ratios are in the “top tier” among large US banks, Crittenden said. The lender has no need to sell assets “from a capital standpoint,” he said.

- Google Inc.(GOOG), owner of the most popular Internet search engine, is adding fewer employees and focusing on controlling expenses amid the global economic slump, Chief Executive Officer Eric Schmidt said. “We have slowed our hiring, but we’re still hiring,” Schmidt said in an interview. Schmidt said that while the overall ad market may be shrinking, Google benefits from its ability to target specific users. The company’s business hasn’t changed significantly in the past two weeks, he said. “Google is in a good position,” said Schmidt, 53. “We’ve always said we take a long-term view.”

Wall Street Journal:

- Kohlberg Kravis Roberts will soon launch marketing efforts for its next war chest, but the fund’s target won’t be anywhere near the $17.6 billion its predecessor vehicle raised. KKR has indicated to prospective investors that it will aim to raise $8 billion to $10 billion for KKR 2009 Fund LP, according to people familiar with the effort.

- New Jersey’s Hedge-Fund Foray Draws Heat. State Helped to Bail Out Its ‘Alternative’ Investors, but Officials Say Nothing Was Improper. New Jersey's pension fund, already in the spotlight thanks to losing investments this year in large banks, is under fire again, this time over a series of controversial hedge-fund investments that initially swept below the public radar. New Jersey made the investments last month, to funds run by BlackRock Inc., Canyon Capital Advisors LLC and GoldenTree Asset Management LP, as they were "facing the equivalent of margin calls," William Clark, director of the New Jersey Division of Investment, said in an interview Monday.

- President-elect Barack Obama suggested he would package much of his campaign spending proposals as economic stimulus and try to push them quickly through Congress to combat a deepening downturn.

MarketWatch.com:
- Jana Partners LLC is offering investors incentives to stick with the activist hedge-fund firm, rather than imposing a strict limit on the amount of money that can be redeemed. Jana, run by Barry Rosenstein, wrote in a letter to investors last week that year-end investor redemptions may exceed 20% of assets under management.

- There's a light at the end of this tunnel we're now in -- and it's not a train coming at us. No, Virginia, it's falling oil prices. Since midyear, the drop in gasoline prices alone has put over $200 billion into people's pockets. When added to the $150 billion in rebate checks that the government put in the mail during the summer, this has boosted our collective buying power by more than 4% in the last four months alone.

NY Times:
- One Half of ‘Hannity & Colmes’ Is Leaving.

- US Airlines, Travel Firms Cut Prices to Spur Sales.

CNNMoney.com:
- Gasoline prices - already below the $2- a-gallon mark - dropped for the 68th straight day in a national survey Monday. The national average fell 2.1 cents to $1.908 per gallon of regular gasoline, according to the daily survey conducted for AAA, a motorist group. Over the last 68 days gas prices have decreased $1.947, or 50.5%.

Reuters:

- Global securities regulators launched three task forces to study abusive short selling, unregulated financial products and unregulated financial entities such as hedge funds, the U.S. Securities and Exchange Commission said on Monday. Securities regulators are "taking urgent action to coordinate global regulatory measures aimed at abusive short selling, including reporting requirements for short positions and trading activity," SEC Chairman Christopher Cox said in a statement. The SEC said a second working group will examine ways to "introduce greater transparency" and supervision to unregulated markets, such as the over-the-counter markets for derivatives, which have been blamed for worsening the financial crisis. The third task force will examine unregulated entities such as hedge funds and develop recommendations to mitigate risks associated with their trading and secretive nature, the SEC said.

Financial Times:
- The downturn sweeping Indian business has become so severe that even one of the country's industrial stalwarts - the Ambassador car - is feeling the pinch. The country's oldest carmaker, Hindustan Motors, which makes the "Amby", a bowler-hat-shaped saloon modelled on the UK's 1948 Morris Oxford, has sold about 27 per cent fewer of the vehicles in recent months compared to last year.

LiveNews:

- US charity guilty of funding terrorism. A Muslim charity and five of its former leaders have been convicted on all 108 charges in the retrial of the largest terrorism financing case since the September 11, 2001, attacks. US Judge Jorge A Solice announced the verdicts on the eighth day of deliberations in the retrial of the Holy Land Foundation for Relief and Development, once the largest US Muslim charity.

Xinhua News:

- Xi Guohua, a vice-minister at China’s Ministry of Industry and Information Technology, said “the time is ripe” for the government to issue licenses for third-generation mobile-phone services.

- China discovered a coal field with possible reserves of 23 billion metric tons in northwestern China’s Xinjiang province, citing the local government.

The Financial Express:

- The Indian housing sector, which accounts for about 65% of cement consumption, is witnessing a slowdown. Dearer home loans and high real estate prices are leading to a decline in housing affordability. With the key user sector experiencing a slump, an oversupply situation in the cement industry is on the horizon. This would lead to a further decline in cement prices declining, which in turn affect the profitability of cement companies.

Shenzhen Daily:

- Some 340,000 square meters of new homes were sold in Shenzhen at an average of 12,706 yuan (US$1,860) per square meter in October. And while that space volume was similar to September’s sales, the average price was down nearly 30 percent over last October, Shenzhen’s housing authorities said in their latest report released Sunday.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (ETP), target $47.

- Reiterated Buy on (KEY), target $12.

Night Trading
Asian Indices are +1.0% to +3.50% on average.
S&P 500 futures -.25%.
NASDAQ 100 futures -.48%.

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Earnings of Note
Company/EPS Estimate
- (BWS)/.17

- (DLTR)/.44

- (ZLC)/-.95

- (AEO)/.30

- (TLB)/-.20

- (TECD)/.63

- (CHS)/-.02

- (DHI)/-2.04

- (HRL)/.48

- (EV)/.32

- (BGP)/-.49

- (JCG)/.26

- (GCO)/.44

Economic Releases
8:30 am EST

- Preliminary 3Q GDP is estimated at -.5% versus prior estimates of a -.3% decline.

- Preliminary 3Q Personal Consumption is estimated at -3.2% versus prior estimates of a -3.1% decline.

- Preliminary 3Q GDP Price Index is estimated to rise 4.2% versus prior estimates of a 4.2% gain.

- Preliminary 3Q Core PCE is estimated to rise 2.9% versus prior estimates of a 2.9% gain.

10:00 am EST

- Consumer Confidence for November is estimated at 38.0 versus 38.0 in October.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, Richmond Fed Manufacturing Index, S&P/CaseShiller Home Price Index and (JEC) presentation to financial analysts could also impact trading today.

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

Stocks Finish Near Session Highs, Boosted by Financial, Commodity, Gaming, Construction, Homebuilding and REIT Shares

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In Play

Stocks Soaring into Final Hour on Less Financial Sector Pessimism, Short-Covering and Bargin-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Biotech longs, Semi longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very bullish as the advance/decline line is substantially higher, every sector is gaining and volume is above average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 13.2% and is very elevated at 63.04. The ISE Sentiment Index is below average at 124.0 and the total put/call is slightly below average at .75. Finally, the NYSE Arms has been running low most of the day, hitting .31 at its intraday trough, and is currently .45. The Euro Financial Sector Credit Default Swap Index is falling 2.78% today to 113.17 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 down 8.7% to 254.86 basis points. The TED spread is rising .5% to 215 basis points. The TED spread is now down 249 basis points in under six weeks. The 2-year swap spread is up 3.73% to 113.38 basis points. The Libor-OIS spread is falling .9% to 168 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 22 basis points to .23%, which is down 239 basis points in under five months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is still yielding .01%. Many market-leading stocks are substantially outperforming the major indices today. As well, the 16.2% spike in the (XLF) in response to the (C) news is a huge positive. I am getting a technical sell signal on the VIX Index for the first time in almost five months today, which is also a positive. I haven’t added back to my (GOOG) long yet, but longer-term investors selling around current levels are making a big mistake, in my opinion. The stock has become absurdly cheap given future growth opportunities. I expect Asian equities to play catch-up to US/European stocks tonight, which could provide another boost here in the morning. While we are getting extended very short-term, I still see substantial upside to stocks from current levels by year-end. Nikkei futures indicate an +610 open in Japan and DAX futures indicate a +30 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on less financial sector pessimism, diminished forced selling, short-covering, bargain-hunting, technical buying and seasonal strength.

Today's Headlines

Bloomberg:
- Citigroup Inc.(C) received a U.S. government rescue package that shields the bank from losses on toxic assets and injects $20 billion of capital, bolstering the stock after its 60 percent plunge last week. The second-biggest U.S. bank by assets surged more than 70 percent in New York trading after the Treasury, Federal Reserve and Federal Deposit Insurance Corp. announced the aid plan in a joint statement. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.

- Citigroup Inc.(C) led a decline in the cost of protecting bonds sold by Wall Street banks from default after the U.S. government guaranteed $306 billion of the lender’s troubled mortgages and toxic assets. Credit-default swaps on Citigroup fell 250 basis points to 250, according to Phoenix Partners Group prices as of 10:30 a.m. in New York. Contracts on Goldman Sachs dropped 73 basis points to 311 and Morgan Stanley fell 55 to 463, CMA Datavision prices show. JPMorgan declined 18 to 172, Merrill Lynch slid 18 to 270 and Bank of America Corp. decreased 16 to 178. Credit-default swaps on the Markit CDX North America Investment Grade Index of 125 companies in the U.S. and Canada dropped 14 basis points to 252, according to Phoenix prices.

- The cost of protecting European corporate bonds from default fell, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings dropped 33 basis points to 880, according to JPMorgan Chase & Co. prices at 7:16 a.m. in London.
- The risk of default on top-rated commercial-mortgage bonds fell after the government said it will guarantee $306 billion of troubled Citigroup Inc. assets. The cost to protect AAA securities backed by commercial mortgages from default on Markit Group’s CMBX credit-default swap index fell 153 basis points to 490 basis points at 12:14 pm in NY, according to a Bank of America Corp. note to clients.

- The ruble may weaken as much as 30% against the central bank’s dollar-euro basket in coming months as the currency undergoes an “inevitable” depreciation, said Eveny Gavrilenkov, Troika Dialog’s chief economist. Moscow-based Troika Dialog is Russia’s oldest investment bank.

- Mark Pervan, a senior commodity strategist at Australia and New Zealand Banking Group Ltd., says oil may fall below $40 in early 2009. (video)

- Crude oil, copper and corn rose as a U.S. rescue of Citigroup Inc. shored up investor confidence and a weaker dollar enhanced the appeal of commodities.

- Treasury Secretary Henry Paulson, less than a week after indicating he would let the Obama administration decide how to use the second half of the $700 billion financial fund, is considering asking for the money. Paulson may ask Congress for the remaining $350 billion from the Troubled Asset Relief Program as he puts together plans to boost consumer credit. Treasury and Federal Reserve officials are working on an effort to buttress the market for securities backed by auto, student and credit-card loans, Paulson said last week. He’s also assembling an office to address mortgage foreclosures.

- Apple Inc.(AAPL) gained the most this month after JPMorgan Chase & Co. lifted its 2009 and 2010 profit estimates for the maker of Macintosh computers and iPhones, saying sales growth for notebook computers is accelerating. Apple’s opportunity to increase its market share in portable computers “warrants increasing attention,” Mark Moskowitz, a San Francisco-based analyst at JPMorgan, wrote in a report distributed to clients today.

- Barack Obama today unveiled an economic team steeped in fighting crises and likely to push for an unprecedented government role in reviving growth and stabilizing the financial system.

- Germany’s DAX gained 426.92, or 10 percent, to 4,554.33, the steepest one-day advance since Oct. 28. DAX futures expiring next month rose 11 percent as of 5:45 p.m. in Frankfurt. The broader HDAX Index climbed 9.9 percent.

Wall Street Journal:

- Two days after Lehman Brothers Holdings Inc. sought bankruptcy protection, an explosive rumor spread that another big Wall Street firm, Morgan Stanley, was on the brink of failure. The chatter on trading desks that Sept. 17 was that Deutsche Bank AG had yanked a $25 billion credit line to the firm. That wasn't true, but it helped trigger a cascade of bearish bets against Morgan Stanley. Chief Executive Officer John Mack complained bitterly that profit-hungry traders were sowing panic.

- With sports fans still getting used to their high-definition television sets, the National Football League is already thinking ahead to the next potential upgrade: 3-D. Next week, a game between the San Diego Chargers and the Oakland Raiders will be broadcast live in 3-D to theaters in Los Angeles, New York and Boston. It is a preliminary step on what is likely a long road to any regular 3-D broadcasts of football games.

- Are you ready for some dot-com? The gridiron match-up for Super Bowl XLIII may still be up in the air, but the ad battle between the country's two leading online job sites is already joined. After sitting it out for the past four years, Monster Worldwide is returning to the Super Bowl. Its Monster.com will be going up against rival CareerBuilder.com, which will air two ads on game day, Feb. 1.

MarketWatch.com:

- Counterparty credit risk in the derivatives market fell sharply Monday after the U.S. government bailed out Citigroup Inc.

NY Times:
- States Flirting With Higher Gas Taxes.

DigiTimes:

- HTC Raises Shipment Forecast for Google Phone. High Tech Computer (HTC) expects cumulative shipments of the T-Mobile G1 to reach one million units by the end of 2008, according to company CEO Peter Chou on November 21. The company also expects to ship three million Touch Diamond models by year's end. Both forecast are higher than the company's original projections.

SmartMoney:

- Finally, Berkshire(BRK/A) Looks Undervalued.

Portfolio.com:

- In the next few months, thousands of hedge funds will go out of business. What the world will look like for the survivors.

TechCrunch:

- Google(GOOG) Relies On Akamai(AKAM) To Stream YouTube Live.

USA Today:

- Agents along the Canada and Mexico borders are using a controversial new machine that can "read" the personal information contained in some government-issued ID cards — such as passports and driver's licenses — as travelers approach a checkpoint.

Reuters:
- Global hedge funds hard hit by the credit crisis are becoming more open to offering lower fees to institutional investors amid diminishing returns and assets under management, investment consultant Watson Wyatt said on Monday.

Financial Times:
- Hedge funds slashed their borrowings at the start of this year amid credit crunch worries but remained geared ahead of the rout of the sector in the autumn, according to figures from the UK’s Financial Services Authority. The half of the hedge fund industry covered by the FSA’s biannual survey of hedge funds serviced by prime brokers in London cut borrowings from $754bn in October last year, when they were 1.92 times geared, to $375bn, or 1.45 times, by April, the data show. Since then the industry has cut its leverage to virtually nothing as wild market swings left funds nursing the biggest losses on record, prime brokers say. However, it could be good news for stock markets - battered by hedge funds deleveraging, selling shares to pay off debt - as it suggests there is little more to come. Research by Goldman Sachs last week estimated that hedge funds owned 3.5% of US equities at the end of September, down from 4.5% in June.

- Insight: The bear’s about to roar. By Barton Biggs. Before we all are swept away into total despair, let's take a step back and imagine what could get stocks around the world going up for a while. First, let me point out that by definition the bottom of a bear market has to be the point of maximum bearishness. Thus sentiment becomes a crucial indicator. The systematic work that we do on measuring sentiment (and we monitor about twenty indicators for the US and a dozen or so for other equity markets) show very extreme and in many cases record levels of bearishness. I've never seen capitulation and despair like this. We must be pretty close to maximum bearishness. The 4 per cent dividend return on the S&P 500 exceeds the yield on the ten and thirty year Treasury bonds for the first time in fifty years. History shows that even in enduring, secular bear markets there are not just 20 per cent bounces but usually one 30 to 50 per cent rally. We should be due. In the US average hourly earnings are rising at a 3 per cent annual rate and the CPI is probably declining at a 5 per cent rate thanks to the fall in gasoline, fuel, and food prices, so real average hourly earnings are rising at an 8 per cent pace. The savings rate is rising. The sharp collapse in the price of oil while hurtful to parts of the world, is very beneficial to the US, Europe, and Asia. Hedge fund redemptions are substantial and will continue into next year, but hedge fund liquidity is at a record high and hedge funds' gross exposure and net long is at a record low. Conversely investor liquidity is at a record high. All good contrary indicators. I have no idea when the next bull market starts, but I do think we are setting up for the mother of all bear market rallies.

Guardian:
- The UK coal industry may grow at its fastest pace in 40 years, citing freedom-of-information requests and council records. In the past 18 months, 14 companies have applied to mine nearly 60 million metric tons of coal at 58 new or expanded opencast mines. At least six coal-fired power plants are planned, it said. Expansion is being driven by coal prices that have quadrupled in two years.

Intereconomia Radio:

- European Central Bank Executive Board member Joese Manuel Gonzalez-Paramo said the bank may lower borrowing costs next week.

Die Welt:

- Chancellor Angela Merkel faces growing pressure from members of her Christian Democratic Union Party to reduce taxes to spur the economy. Government spending should be cut 5% across the board to pay for tax cuts, the party says.

National:
- The average hotel room rates in Dubai have fallen as much as 30% as consumers cut leisure spending amid the global economic slowdown, citing Sharaf Travel Holidays. Four-and five-star hotels in the emirate have cut room rates from 10% to 30%, Aloke Dey, the manager of Sharaf said.

Sarmayeh:

- Iran’s annual inflation may accelerate to 50% if a plan to introduce cash payments for the poor is implemented, citing the head of the Iranian Parliament’s Strategic Research Center. Iran’s inflation accelerated to an annual 29.4% in September.

Bear Radar

Style Underperformer:
Small-cap Value (+4.26%)

Sector Underperformers:
Utilities (+.46%), Tobacco (+1.46%) and Foods (+1.75%)

Stocks Falling on Unusual Volume:
PSYS and CASY

Stocks With Unusual Put Option Activity:
1) GCI 2) LAMR 3) ROST 4) DUK 5) NBR

Bull Radar

Style Outperformer:
Large-cap Value (+4.05%)

Sector Outperformers:
I-Banks (+12.10%), Banks (+11.54%) and Homebuilding (+10.44%)

Stocks Rising on Unusual Volume:
BAC, BBL, OMRI, HUGH, CBRL, CASY, LFUS, AXYS, BWLD, GPRO, OYOG, CHCO, HMSY, LIHR, MSCC, SPWRA, SCHS, SHLM, TECD, CETV, AMSC, PTRY, ALO, IGN, DEG, NYC, TPP, IYR, IX, KIE, IT, RDS/A, CHU, WBD and NY

Stocks With Unusual Call Option Activity:
1) ITU 2) WMI 3) HL 4) AIG 5) NUE