Today's Headlines

Bloomberg:
- Yields on Fannie Mae, Freddie Mac and Ginnie Mae mortgage bonds fell as Treasury Secretary Henry Paulson considers a plan to push home-loan rates down to 4.5 percent. Yields on Washington-based Fannie’s current-coupon 30-year fixed-rate mortgage bonds fell seven basis points, or 0.07 percentage points, to 4.27 percent as of 11:15 a.m. in New York, the lowest since 2003, according to Bloomberg data. The difference between the yields and 10-year Treasuries fell six basis points to 162 basis points.

- AT&T Inc.(T) may defy the recession, posting faster subscriber growth this holiday season by tempting shoppers to unclench their wallets for luxury brands like the iPhone even as consumers scrimp elsewhere. AT&T probably will be the lone carrier to show accelerating growth this quarter, gaining 1.5 million contract customers, said Will Power, an analyst at Robert W. Baird & Co. That compares with 1.2 million a year earlier.

- Europe’s central banks cut interest rates as policy makers stepped up their response to the credit crisis that has pushed the region into a recession. The European Central Bank delivered a 75 basis-point reduction in its main refinancing rate, the most in its 10-year history, while the Bank of England cut its benchmark rate to 2 percent, the lowest level since 1951. The Swedish and Danish central banks also lowered their key rates.

- The cost of borrowing in dollars overnight in London plunged, according to the British Bankers' Association. The rate dropped 36 basis points, the largest drop since Oct. 30, to 0.52 percent. That's 48 basis points below the Federal Reserve's 1 percent target rate.

- Federal Reserve Chairman Ben S. Bernanke urged using more taxpayer funds for new efforts to prevent home foreclosures, saying the private sector is incapable of coping with the crisis on its own. The Fed chief outlined four possible options, including buying delinquent mortgages and providing bigger incentives for refinancing loans. He called for addressing the “apparent market failure” where lenders aren’t modifying mortgages even in cases where it’s in their own economic interest to do so.

- Crude oil may dip below $25 a barrel next year, Merrill Lynch said. Global oil demand will contract in 2009 as economic growth slows to its weakest since 1982, Merrill Commodity Strategist Francisco Blanch said today. In October, when oil was around $100 a barrel, the bank predicted that prices may slide to $50. “A temporary drop below $25 a barrel is possible if the global recession extends to China and significant non-OPEC cuts are required,” Blanch said.

- Crude oil fell below $45 a barrel to the lowest since January 2005 as the deepening recession in the U.S., Europe and Japan cuts fuel consumption. Pump prices have followed futures lower. Regular gasoline, averaged nationwide, dropped 1.4 cent to $1.789 a gallon, AAA, the largest U.S. motorist organization, said on its Web site today. It’s the lowest price since January 2005. The fuel has tumbled 57 percent from the record $4.114 a gallon reached on July 17. “There is no sign where it will stop,” said Tom Bentz, senior energy analyst at BNP Paribas in New York.

- Gold demand in China, the world’s second-largest consumer, may stagnate this year as volatile prices dissuade buyers and industrial usage drop because of the economic slowdown, an industry group said.

- Wheat prices fell to the lowest in 18 months as demand for U.S. supplies waned, while the amount of grain available worldwide increased, spurring buyers to seek bargains. U.S. exporters sold 207,576 metric tons in the week ended Nov. 27, a low in the year that began June 1, Department of Agriculture data showed today in a report. As demand falls, supplies are expected to increase. Global production may jump 12 percent to a record 682.4 million tons in the year ending May 31, the USDA has said. Farmers in Australia may collect 20 million tons, up 53 percent from the prior year’s drought-damaged crop, the agency said. Growers in the U.S., the largest exporter of the grain, may increase production 21 percent to 68 million tons, the government said.

- Stephen Schork Says Crude Oil Demand to ‘Deteriorate.’ (video)

- Dubai Speculators Quit as Lending Drought Bursts Desert Bubble. The classified ads in Dubai read like an obituary for a real-estate market that until a few months ago seemed immune from the global credit crisis.

- Toll Brothers Inc.(TOL), the largest U.S. luxury homebuilder, reported its worst annual results since going public more than two decades ago and gave a bleak forecast for next year. The stock is jumping 10% on the news.

- US corporate bonds have benefitted from “risk migration,” and dividend-paying stocks may be next, according to Michael Shaoul and Timothy Brackett, analysts at Oscar Gruss & Sons. “The next stage of ‘risk migration’ would see capital cross asset classes” and move into shares of larger companies that have relatively high dividends and are best positioned to keep paying them, Shaoul and Brackett wrote.

- Measles deaths tumbled 74 percent worldwide from 2000 through 2007, the result of a campaign to vaccinate children in developing countries, world health officials said today.

Wall Street Journal:

- Leveraged-buyout legend Thomas H. Lee, who barreled into hedge funds when the market was booming, is considering shrinking or even shutting down two funds that had $1.5 billion in assets after suffering losses of about 40% this year, people familiar with the situation said.

- International Business Machines Corp.(IBM) is hoping to convince corporate customers that they no longer need Microsoft Corp.(MSFT) IBM says it has created a "Microsoft-free" virtual desktop -- a complete suite of applications that run on a backroom server and don't require Microsoft software or costly desktop hardware.

- A bad year for hedge-fund titan Kenneth Griffin got much worse last month. Mr. Griffin's Citadel Investment Group lost about 13% in November, bringing the Chicago hedge fund giant's investment decline this year to 47%, according to investors.

MarketWatch.com:

- Dimon steers JPMorgan(JPM) through financial storm. Tough tactics, focus on risks, helped giant bank pounce as rivals fell.

NY Post:

- Buyout kingpin Stephen Schwarzman finds himself knocking on more doors and pressing more flesh than ever before as the private-equity boom grinds to a halt. Schwarzman has been able to raise some $8 billion for his new fund - $12 billion shy of his targeted amount, sources say. But even as the gilded age of buyout shops seemingly comes to an end, Schwarzman is betting that he can pull off a turnaround. "If you look at the last recession, there were times in the 1990-1 period where it wasn't much fun to be in the private-equity business in terms of one's existing portfolio. But at the end of the day, this fund generated 19 percent returns," he's stated publicly.

- NBC Universal's cost-cutting moves may soon hit its CNBC unit. Sources say that as many as 80 staffers could be getting pink slips as early as today. The expected cuts are said to be across the board but will not affect the familiar on-air faces on the business channel.

Charlotteobserver.com:

- The immediate future will continue to be rough, but the recession should shift to economic recovery sometime next year, the chief executives of three of Charlotte's largest employers and a top Federal Reserve Bank official said Wednesday.

USA Today:

- American combat deaths in Iraq and Afghanistan totaled 11 in November, the lowest combined level since the US started fighting more than five years ago.

Boston Globe:

- Eight years after selling its chain of community newspapers, the Boston mutual fund giant plans a broad revamp of its fidelity.com website to give top billing to business news articles and personal finance columnists from around the Web, plus budgeting tips and other research from outsiders. Investors will still keep the same access to their accounts, but overall the changes previewed by Fidelity executives yesterday show the company's home page will resemble financial portals such as News Corp.'s Marketwatch.com and Yahoo.com's finance section.

StreetInsider.com:

- Citi Adds Advanced Auto Parts(AAP) and Google(GOOG) to Recommended List.

RockyMountainNews:

- Level 3 CEO Jim Crowe is bullish on the future of the U.S. economy and the broadband industry, once the current economy can get the blood flowing again.

Reuters:
- Microsoft Corp (MSFT) is cautiously optimistic about holiday sales of its XBox 360 game console, but even flat sales in 2009 could be remarkable for the video game industry, a senior executive said on Wednesday.

- Blockbuster Inc (BBI), the leading U.S. DVD rental company, said it planned to initiate a 99-cent DVD rental offering for the first time in its history on thousands of titles starting this January.

AFP:
- Iranian President Mahmoud Ahmadinejad said for the first time that his government’s economic projects may be cut as a result of the slide in the price of crude oil. “If we fix the oil price at $30 a barrel in the budget, we will have to abandon many of our economic projects,” Ahmadinejad said. He said “oil prices will be low for some time.” Ahmadinejad said on Nov. 23 that Iran can survive even with an oil price as low as $5 a barrel, and that the economy is “self-reliant.”

AccountancyAge:

- EU is poised to regulate hedge funds following a public consultation launched by Charlie McCreevy.

This Day:
- Nigeria is currently losing 397,697 barrels per day of crude oil as a result of production deferment caused by the crisis in the oil-rich Niger Delta and other operational reasons, according to official statistics by the Department of Petroleum Resources (DPR).

Bear Radar

Style Underperformer:
Mid-Cap Growth (-2.89%)

Sector Underperformers:
Coal (-9.57%), Oil Service (-8.63%) and Energy (-5.75%)

Stocks Falling on Unusual Volume:
JAS, FDO, ARD, PXP, NE, HP, IMO, STO, RTP, BT, BBL, DMND, MSCC, ANGO, CASY, ADBE, IXC and XOP

Stocks With Unusual Put Option Activity:
1) TJX 2) NRG 3) FDO 4) OSIP 5) WHR

Bull Radar

Style Outperformer:
Small-cap Value (+2.05%)

Sector Outperformers:
Homebuilders (+6.92%), REITs (+3.22%) and Retail (+2.84%)

Stocks Rising on Unusual Volume:
TIF, CPRT, JCP, ZION, KIM, STT, PSMT, JPM, DB, VLO, INT, FCX, CLF, TOT, ENB, REP, SNPS, RATE, SAFM, AVAV, UTIW, AMWD, SCSC, AMZN, PLCE, PNRA, IIVI, CBST, CSGS, GYMB, AFAM, HMSY, FSLR, BKE, TBH, MGA, XHB, RXI, PSJ, TOL and ITB

Stocks With Unusual Call Option Activity:
1) YRCW 2) ARO 3) NSM 4) LEN 5) AMR

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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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