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Thursday Watch

Late-Night Headlines
Bloomberg:

- SAP AG(SAP), the world’s biggest maker of business-management software, said customers continue to buy its products amid the economic slowdown. The company is closing deals this quarter, though some of the contracts are smaller, John Schwarz, chief executive officer of SAP’s Business Objects unit, told analysts. “We are hoping we’ll see that persist through the end of the quarter, which will let us plan next year in a normal manner,” Schwarz said.

- D.E. Shaw & Co. LP, the investment firm run by David Shaw, and Farallon Capital Management LLC limited withdrawals by clients, joining more than 80 hedge-fund managers to impose restrictions in the past two months. D.E. Shaw, which oversees $36 billion, capped redemptions from its Composite and Oculus funds, said two people familiar with the New York-based company. Farallon, a $30 billion firm based in San Francisco, did the same with its biggest fund after investors asked to get back more than 25 percent of their money.

- Aluminum demand growth in China, the world’s biggest producer and consumer, may more than halve in 2009 as the country’s real estate decline and the global credit crisis reduce consumption, an industry researchers said. Growth may slow to 3% next year from 8.5% this year, Wang Feihong, chief aluminum analyst at Beijing Antaike Information Development Co., said at a conference in Sanya, Hainan province today.

- Copper, aluminum and zinc prices on the Shanghai Futures Exchange plunged by the exchange-imposed daily limits as rising inventories increased concerns about weakening global demand for industrial metals. London Metal Exchange warehouse stockpiles are near a five- year high for copper, at the highest in more than 14 years for aluminum, and more than doubled since the start January for zinc.

- Crude oil fell for a fifth day after a report showed a continued decline in U.S. fuel demand. The average amount of fuel products such as gasoline and diesel supplied by refiners for the past four weeks was 7.9 percent less than the same time last year, a report from the U.S. Energy Department showed yesterday. Refinery operating rates in the world's largest energy-consuming nation declined as the falling demand lowered processing profits. Supplies at Cushing, Oklahoma, where New York-traded West Texas Intermediate oil is stored, climbed 2.35 million barrels to 22.9 million last week. The increase left inventories at their highest since June 2007. Refineries operated at 84.3 percent of capacity, down 1.8 percentage points from the week before. It was the biggest one- week drop since September, when hurricanes Gustav and Ike struck the Gulf Coast.

- General Motors Corp.(GM) and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout, said a person familiar with internal discussions.

- General Motors Corp.(GM) and Ford Motor Co.(F) bonds rose on optimism that the U.S. government will bail out the auto industry after the companies promised to cut costs and asked Congress for $27 billion in aid. Bonds of GM due in 2028 rose 23 percent today to a five-week high of 20 cents on the dollar after falling to less than 10 cents on the dollar last week, according to Trace, the Financial Industry Regulatory Authority’s bond-pricing service. Ford Motor Credit Corp.’s 7.25 percent notes due in 2011 have rallied 27 percent since Nov. 24, including an 8 percent jump today to 49 cents on the dollar.

- The euro traded near a two-week low against the dollar and the yen on speculation the European Central Bank will cut interest rates by half a percentage point today, reducing the appeal of assets denominated in the currency. The British pound was near the lowest in almost three weeks versus the greenback as economists forecast the Bank of England will lower borrowing costs by 1 percentage point. New Zealand’s central bank earlier reduced its benchmark rate by a record 1.5 percentage points to 5 percent and signaled more to come as it attempts to steer the economy out of recession. “Selling the euro and the pound will remain in vogue for some time to come,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The ECB and the BOE are likely to cut rates into next year. This will increase downward pressure on their currencies.”

- Russia is wasting its cash reserves by propping up the ruble as lower oil prices drive away investors from commodity-led economies, according to Brown Brothers Harriman & Co. “The pressure on the ruble will remain and Russia shouldn’t try to resist it by depleting its reserves,” said Win Thin, a currency strategist at Brown Brothers Harriman in New York. “Oil producers are really struggling in terms of trade shock.”

Wall Street Journal:

- The Treasury Department is considering a plan to revitalize the U.S. home market that would push down mortgage rates for home loans, according to people familiar with the matter. The plan, which is in the development stage, would temporarily use the clout of mortgage giants Fannie Mae and Freddie Mac to encourage banks to lend at rates as low as 4.5%, more than a full percentage point lower than prevailing rates for a standard 30-year fixed-rate mortgage.

- For the second holiday shopping season in a row, Amazon.com Inc.'s(AMZN) Kindle e-book reader is out of stock, and more of the devices won't be available until mid-February, at the earliest. Amazon thought it had plenty in stock, but then the most powerful person in book publishing intervened. In late October, Oprah Winfrey described it as her "favorite new gadget" on her TV show. And just as Ms. Winfrey's reading selections turn no-name books into best sellers, the demand for Kindles soon overwhelmed Amazon.

NY Times:
- After years of being blamed for job losses in America and elsewhere, India’s high-tech companies and outsourcing firms are going through a downturn of their own. The global slowdown is forcing them to reduce hiring, freeze salaries, postpone new investments and lay off thousands of software programmers and call center operators.

- Fortress, the Hedge Fund, Is Crumbling. When Wesley R. Edens and his partners founded their investment firm a decade ago, they chose a name that evoked unshakeable bastions: Fortress. But now their stronghold is under siege — and some of its investors are running for cover.

- A Rush Into Refinancing as Mortgage Rates Fall. The jump in refinancing activity showed that there was an appetite that could be whetted by lower rates. The Mortgage Bankers Association said its refinance index, which measures refinancing activity, tripled to 3,802.8 last week from the week before. The index was also 37.7 percent higher than in the same week a year ago. It was the largest increase in refinance applications in the survey’s 18-year history, though it does not measure how many applications become loans.

Washingtonpost.com:

- Capital One(COF), a leading credit card company and bank, is expected to announce tomorrow that it will buy Chevy Chase Bank, a landmark Washington financial firm with branches throughout the region, according to sources familiar with the matter. Capital One will pay $520 million in cash and stock, the sources said, and the transaction is expected to close in the first three months of next year. The company will recognize a loss of $1.75 billion largely on the value of risky mortgage loans it will acquire with Chevy Chase, the sources said.

The New York Observer:

- Media Mob has learned that former New York governor Eliot Spitzer will write a new column for Slate beginning tomorrow. The column will appear every other week and it'll be about government, regulation and finance.

Daily Globe:

- Democrat Al Franken's lawyer says his campaign is withdrawing 633 of its ballot challenges in Minnesota's Senate race recount. Attorney Marc Elias says the campaign is reviewing more challenges, and probably will withdraw many more challenges.

Financial Times:
- Goldman Sachs (GS) ' plans to expand its wealth management operations have been dealt a potential setback by a dramatic decline in the value of another of its funds. Goldman Sachs Liquidity Partners 2007, which received $1.8bn in initial funding during the summer of 2007 to invest in the credit markets, is down 55.3 per cent this year through the end of October, according to investors. Fund management has become a key area of opportunity for Goldman since it responded to the credit crisis by becoming a bank holding company. As part of the move, it has been seeking to reduce its dependence on high-risk proprietary trading and increase revenues from fee-earning businesses such as wealth management. However, this strategy has arguably been endangered by continuing difficulties of funds under Goldman Sachs Asset Management. Last year, for example, its flagship Global Alpha Fund lost 40 per cent of its value.

AFP:

- The European Union decided on Wednesday to ban imports of Chinese food for infants and young children containing soya after the recent discovery of melamine-tainted products. Imports of all other feed and food products containing soya from China would have to be tested and only products containing less that 2.5 milligrams of melamine per kilogram would be allowed into the EU, the commission said.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded (AMAT) to Buy, target $14.

Night Trading
Asian Indices are -1.50% to +1.0% on average.
S&P 500 futures -1.16%.
NASDAQ 100 futures -1.17%.

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Earnings of Note
Company/EPS Estimate
- (GRB)/.12

- (SAFM)/-.68

- (WSM)/-.12

- (TOL)/-.43

- (JTX)/-.73

- (NOVL)/.06

- (GES)/.63

- (CMTL)/.56

- (WIND)/.09

- (NX)/.32

Economic Releases
8:30 am EST

- Initial Jobless Claims for last week are estimated to rise to 540K versus 529K the prior week.

- Continuing Claims are estimated to rise to 4030K versus 3962K prior.

10:00 am EST

- Factory Orders for October are estimated to fall 4.5% versus a 2.5% decline in September.

Upcoming Splits
- None of note

Other Potential Market Movers
- The ICSC Chain Store Sales, (NUS) Investor Day, (SBUX) Analyst Conference, (AMSC) Analyst Day, (JTX) Analysts’ Day, (PRU) Investor Day, (ATHN) Investor Summit, (PMI) Investor Conference, (NCR) Analyst Meeting, (SWY) Investor Conference, (OSIP) Analyst Day, JPMorgan Small-Mid Cap Conference, Bank of America Software Services Mini Conference and CSFB Tech Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and commodity 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 Sharply Higher, Boosted by REIT, Homebuilding, Financial and Technology Shares

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In Play

Stocks Higher into Final Hour on Lower Energy Prices, Less Financial Sector Pessimism and Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Biotech longs, Computer longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is above average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 1.27% and is very elevated at 62.22. The ISE Sentiment Index is below average at 137.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running high most of the day, hitting 1.50 at its intraday peak, and is currently .82. The Euro Financial Sector Credit Default Swap Index is rising 10.72% today to 134.85 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 .99% to 263.08 basis points. The TED spread is rising 1.47% to 219 basis points. The TED spread is now down 245 basis points in about seven weeks. The 2-year swap spread is up 1.86% to 109.75 basis points. The Libor-OIS spread is rising 1.54% to 186 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 12 basis points to .52%, which is down 210 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 now yielding .01%, which is down 4 basis points today. Considering today’s news, stock gains are more impressive. I am seeing a number of stocks that had very bad news today that have reversed substantially higher from morning lows on strong volume. Market leading stocks are substantially outperforming the major averages. I wouldn’t be surprised if the bears overreached again on the afternoon pullback and may have to cover some shorts into the close. The huge decline in mortgage rates and commodity prices are massive positives that investors are mostly ignoring, in my opinion. I suspect an awful jobs report on Friday is already priced into the market and we could see further gains on the news. Nikkei futures indicate an +111 open in Japan and DAX futures indicate a +10 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on less financial sector pessimism, short-covering, bargain-hunting, lower energy prices and seasonal strength.

Today's Headlines

Bloomberg:
- General Motors Corp.(GM), Ford Motor Co.(F) and Chrysler LLC, struggling for support in Congress for aid, won money-saving union agreements to delay contributions to medical funds and suspend a program that pays laid-off workers. Today’s move by the United Auto Workers gives GM, Ford and Chrysler a boost as their chief executive officers prepare to testify tomorrow and Dec. 5 on their requests for $34 billion in financial help.

- The U.S. economy weakened across all regions since the middle of October as it became tougher to get loans and demand for credit shrank, the Federal Reserve said in its regional economic survey.

- President-elect Barack Obama said Bill Richardson will be an “economic diplomat” for the U.S. as commerce secretary and a key member of a team that lays the groundwork for renewed growth.

- Hedge funds and index funds that helped drive copper to a record in July have “dropped out” in the last several weeks, leaving “almost traditional” factors such as inventories more influential, according to Bloomsbury Minerals Economics Ltd. in London.

- Fortress Investment Group LLC(FIG), the private equity and asset manager, halted redemptions from its Drawbridge Global Macro hedge fund after investors asked to withdraw $3.51 billion by year-end. The withdrawal requests include $1.5 billion in notices disclosed last month, the New York-based company said today in a filing with the U.S. Securities and Exchange Commission. Fortress didn’t say when it would resume allowing investors to get their money back.

- Oil traders are increasing bets that crude will fall below $30 a barrel in the first quarter of 2009, following a price drop of more than $100 a barrel in less than six months. January $30 puts rose 4 cents to 7 cents a barrel, or $70 a contract, according to data compiled by Bloomberg as of 1:58 pm on the New York Mercantile Exchange. It was the third-most active contract on the exchange, trading 334 lots, up from 47 yesterday.

- Harvard University’s endowment decreased 22 percent, or $8 billion, in the first four months of fiscal 2009, putting the fund on course to have its worst performance in at least four decades. The endowment, the biggest U.S. education fund, had totaled $36.9 billion on June 30 after gaining 8.6 percent in fiscal 2008. The worst annual return that Harvard, in Cambridge, Massachusetts, has recorded in at least 40 years was a negative 12.2 percent in 1974.

Wall Street Journal:

- In the latest evidence of how Wall Street is seeking to broaden its sources of funds, Goldman Sachs Group Inc.(GS) is weighing whether to launch an Internet banking operation, according to people familiar with the situation.

MarketWatch.com:

- Mortgage applications filed last week rose a seasonally adjusted 112.1%, compared with the week before, as borrowers rushed to lock in lower rates, according to the Mortgage Bankers Association's weekly survey, released on Wednesday.

NY Times:
- Kia Motors Corp., South Korea's second-largest automaker, said Wednesday that construction of its first U.S. plant in West Point, Georgia is proceeding on schedule and will open as planned late next year.

- The iPod is going to medical school. Officials said Tuesday that an Apple Inc.(AAPL) portable media player will become standard equipment for Ohio State University med students.

Docu-Drama:

- Intuitive Surgical(ISRG), the oh-so-successful Sunnyvale maker of robotic surgery tools, said that its board of directors approved a severance plan that covers its executives in the event of an involuntary separation from service within 12 months after a change in control” of the company.

Silicon Alley Insider:

- Cyber Monday Traffic: Amazon(AMZN) Takes The Prize.

- RIM Blows Q3, But ‘Strong’ Demand For New BlackBerries(RIMM).

Reuters:
- Online spending on the Monday after Thanksgiving reached $846 million, up 15 percent from a year earlier. ComScore said the solid online spending showing for the first Monday after the holiday shopping season officially began was an encouraging sign for retailers.

- U.S. 30-year fixed mortgage rates, pivotal to the fortunes of the crumbling housing market, will fall steeply in reaction to government steps to buy mortgage-related securities, the manager of the world's biggest bond fund said on Wednesday. "We think the 30-year mortgage rate will come down another 50- to 100 basis points" as a result of the government purchases of housing-related securities, said Bill Gross, chief investment officer of Pacific Investment Management Co. or Pimco, speaking on CNBC television.

- Cisco Systems Inc's (CSCO) chief executive stood by his long-term revenue forecast, despite concerns that a deep and prolonged U.S. recession could derail the company's growth plans. CEO John Chambers has targeted revenue growth of 12 percent to 17 percent a year in the long run.

- Financial services company Citigroup Inc (C) said on Wednesday it had teamed its customer loyalty program with global online retailer Amazon.com Inc (AMZN) in what an executive said was the largest-ever rewards program.

- Britain is likely to roll over its ban on short-selling financial stocks when the current rules run out in January, the Alternative Investment Management Association's deputy chief executive (AIMA) told Reuters. Andrew Baker added that the ban, which was introduced in September and expires on January 16, could potentially last for the entire length of the financial crisis.

- Electronic Arts(ERTS) and Gameloft, the world's two largest mobile gaming firms, said on Wednesday the market was doing well, a day after their next biggest rival, Glu Mobile, warned of soft demand.

Financial Times:
- Europe should launch discussions with the US over ways to curb speculative fluctuations in agricultural commodities markets, says a draft report that could be presented by European Union regulators on Wednesday. The paper, produced by the European Commission and seen by the Financial Times, recommends that national governments re-examine shopping hour restrictions, crack down on cartels and improve the functioning of the food supply network. The paper also addresses one of the most controversial issues in the food price spike - the role of hedge funds and other financial players that have moved into commodities markets. The Commission warns that these investors have "increased the risk for speculative bubbles in agricultural commodities future markets" but it stops short of blaming them for last year's price increases.

Financial Times Deutscheland:

- Germany’s cement makers have cut their sales forecast for the current year and 2009 as the crisis on financial markets causes builders to ditch new projects, citing an industry group. Demand for cement should shrink by as much as 4% next year, citing the group VDZ.

recast to "

Folha de Sao Paulo:

- Brazilian auto parts makers plan to cut about 4% of their workforce by year-end as slowing global growth erodes demand for automobiles.

Gazeta Mercantil:
- Brazil’s oil production may exceed Russia’s in 2014, citing Jose Carlos Vidal, a consultant for Brazilian state-controlled oil company Petrobras(PBR). Due to the discovery of offshore pre-salt fields, Brazil’s proven oil reserves may exceed the 79.4 billion barrels recorded for Russia last year.

Valor Economico:
- Brazilian mutual funds faced a record redemption of $35.2 billion between April and November, citing data from local Web site Fortuna.

Bear Radar

Style Underperformer:
Mid-Cap Growth (-.57%)

Sector Underperformers:
Steel (-6.21%), Oil Service (-5.87%) and Coal (-5.41%)

Stocks Falling on Unusual Volume:
FCX, RTP, SII, NXY, HES, UBB, SLB, ITU, RDS/A, XNPT, FLIR, MSCC, IIVI, IDCC, HE, IX and GIL

Stocks With Unusual Put Option Activity:
1) ROH 2) MRVL 3) GENZ 4) NSC 5) NXY