Today's Headlines

Bloomberg:
- Goldman Sachs Group Inc.(GS), one of the top five U.S. municipal bond underwriters, is angering politicians and public-finance officials in New Jersey, Wisconsin, California and Florida by recommending that investors purchase credit-default swaps to bet against 11 states’ debt. It’s “disturbing” to advise investors to bet against the financial health of a state whose bonds Goldman helps sell, Assemblyman Gary S. Schaer, a Democrat who chairs the Financial Institutions and Insurance Committee, said last week in a letter to Chief Executive Officer Lloyd C. Blankfein. “New Jersey needs to maximize its presence in the credit markets, not to see its presence undermined.” Schaer wrote.

- Bill Gross, manager of the world’s biggest bond fund, said the U.S. Treasury market is overvalued, with sectors such as bills taking on “bubble” like characteristics. “Treasuries have some bubble characteristics, certainly the Treasury bill does,” Pacific Investment Management Co.’s Gross said in a Bloomberg Television interview from Newport Beach, California. “A Treasury bill at zero percent is overvalued. Who could argue with that in terms of the return relative to the risk? There is no return.”

- Illinois Governor’s Arrest May Hurt Obama Transition.

- East Asian economies will probably expand at the slowest pace in eight years in 2009 as easing export demand and declining investment and consumer spending portend “hard times” for the region, the World Bank said.

- The economy of Russia, the world’s biggest energy exporter, will contract in the first three quarters of next year as oil prices decline and the global credit freeze crimps investment, Barclays Capital said in a report. The economy will grow 0.9 percent overall in 2009, with “negative growth rates” in the first three quarters, the report forecast. Barclays is the first bank to predict that Russia will slide into a recession. The Economy Ministry lowered its forecast for growth to between 6.8 percent and 7 percent on Nov. 24 and the World Bank expects 3 percent.

- Yields on Fannie Mae and Freddie Mac corporate debt fell relative to benchmarks, sending spreads on some maturities to the lowest in almost two months against a measure of expected interbank lending rates. Yields on Fannie’s two-year notes fell to 8.2 basis points below two-year interest-rate swaps, the lowest since Oct. 12, as of 9:30 a.m. in New York, data complied by Bloomberg show. Yields fell below swap rates yesterday for the first time since October, after reaching a record 86.1 basis points on Nov. 20.

- Agrium Inc.(AGU), North America’s third- largest fertilizer producer by market value, will reduce production at plants in North America because of a “significant” increase in inventories. “The late North American harvest, coupled with credit restrictions from international buyers and continued market uncertainties arising from reductions in global crop and nutrient prices, has” reduced nutrient use, Agrium Chief Executive Officer Mike Wilson said in the statement.

- Crude oil climbed more than 2 percent, leading a gain across commodities, on speculation that the economy and energy demand will recover as U.S. lawmakers hammer out a $15 billion bailout of automakers.

Wall Street Journal:

- Governments in the euro area failed to use the recent period of economic growth to clean up their public finances and many of them will post deficits between 5% and 7% of GDP next year, European Central Bank Executive Board member Juergen Stark wrote. Public debt may rise by between 10 and 20 percentage points, he said. European Union rules limit deficits to less than 3% of GDP and set out a target of 60% for the debt-to-GDP ratio.

- Is Walt Disney Co.(DIS) preparing a bid for Electronic Arts Inc.? Disney Chief Financial Officer Tom Staggs appeared to leave the door open Tuesday.

MarketWatch.com:

- For the holiday season through December 7, $15.63 billion has been spent online, essentially the same level compared to the corresponding days last year. During the first week since Cyber Monday (December 1 - December 7), sales totaled $4.45 billion, up 7 percent versus year ago.

Chicago Tribune:

- Barack Obama plans to reach out to Muslim world. Barack Obama says his presidency is an opportunity for the U.S. to renovate its relations with the Muslim world, starting the day of his inauguration and continuing with a speech he plans to deliver in an Islamic capital.

NY Post:

- Though we're only 10 days into the month, sources said a drop in the value of leveraged loans might further pinch Griffin's Chicago-based hedge fund, whose Kensington and Wellington flagships have shed $10 billion year-to-date - nearly half their value.

New York Magazine:

- The Catastrophe Capitalist. In the bleakest stock market of the past 70 years, when hedge funds and 401(k)s alike have cratered, few people are smiling. But short-seller Jim Chanos, whose fund is up 50%, is having the time of his life. He now manages some $7 billion. Trader Monthly estimated his paycheck in 2007 at over $300 million, and he’s on track to earn a similar payout this December. While many Wall Street refugees are liquidating their art collections and listing their trophy houses on the market, Chanos is buying. This summer, he closed on a new $20 million triplex on 75th Street, off Fifth Avenue. He sees China as the next domino to fall in the global meltdown. In recent months, Chanos has loaded up short positions on the infrastructure companies that have rushed to build China’s new highways, bridges, and tunnels. Now he is waiting for their share prices to tank.

MacDailyNews:

- Carton reports, "Overall, one-in-three respondents (33%) plan to buy an Apple laptop over the next 90 days - up 4-pts since September - while 27% plan to buy an Apple desktop, a 1-pt increase." "Moreover, the uptick for Apple is occurring in the context of a rapidly shrinking PC market," Carton reports. "Nonetheless it's not easy to increase market share right during the worst spending environment in years. Thanks to their refreshed line of MacBooks, Apple is doing just that."

Interfax:
- Russia’s inflation rate in the year through Dec. 8 reached 12.7%.

China Daily:

- People from China are visiting the US to buy houses because the mortgage crisis and recession has made real estate cheap, citing specialist Web site Soufun.com.

- China’s port traffic grew at the slowest pace in 10 years in November as the global economic recession curbed trade of consumer goods and commodities, citing the Ministry of Commerce. Traffic expanded .5% from a year earlier to 460 million tons last month. Overseas shipments declined, it said. Imported iron ore fell 21% to 30 million tons.

Bear Radar

Style Underperformer:
Large-cap Value (+1.0%)

Sector Underperformers:
Banks (-2.14%), Telecom (-2.0%) and Insurance (-1.49%)

Stocks Falling on Unusual Volume:
FDX, NKE, ERTS, AXYS, FLIR and MOH

Stocks With Unusual Put Option Activity:
1) ERTS 2) EWY 3) XOMA 4) BUCY 5) ATVI

Bull Radar

Style Outperformer:
Small-cap Growth (+2.52%)

Sector Outperformers:
Oil Service (+5.05%), Steel (+5.0%) and Construction (+4.0%)

Stocks Rising on Unusual Volume:
RTP, CLF, CEO, EAC, MBT, PBR, KTC, HMC, CLMT, TM, AVAV, PSMT, APEI, DRYS, POWL, ALOG, STRL, FMBI, CREE, WMGI, BUCY, PFCB, CHCO, JRCC, WABC, FORR, COCO, FWLT, AXR, ANL, IGW, CHA, DSX, DB and DOM

Stocks With Unusual Call Option Activity:
1) ERTS 2) SYMC 3) MRVL 4) PNRA 5) GRMN

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Wednesday Watch

Late-Night Headlines
Bloomberg:

- The yen fell against the euro after Asian stocks rose, encouraging investors to increase holdings of higher-yielding assets funded with Japan’s currency.

- Toyota Motor Corp., Hyundai Motor Co., and Honda Motor Co., led gains by Asian automakers after the Bush administration agreed with congressional Democrats on the broad outlines of legislation to give General Motors Corp. and Chrysler LLC federal loans to keep operating. Hyundai, South Korea's largest carmaker, jumped as much as 7.5 percent in Seoul trading Honda rose as much as 6.5 percent and Toyota added 2.6 percent on the Tokyo Stock Exchange.

- Citigroup Inc.(C) had the biggest increase in shares sold short among New York Stock Exchange companies in the second half of November as the world’s biggest financial-services company tumbled 60 percent on concern about toxic assets and a capital shortage. Citigroup short selling increased by 56.1 million shares, or 44 percent, to 182.5 million shares between Nov. 14 and Nov. 28, according to exchange data compiled by Bloomberg. Short selling of Bank of America Corp.(BAC), the nation’s third- largest lender, rose by 18.9 million shares for the second- biggest jump among stocks listed on the NYSE. Borrowed shares of Alcoa Inc.(AA), the largest U.S. aluminum producer, increased 29 percent to 61 million as the industrial metal fell to a three-year low.

- Foreign direct investment in China fell 36.5 percent in November from a year earlier as gains by the yuan stalled and the world’s fourth-biggest economy cooled.

- Rod Blagojevich today followed in the footsteps of his predecessors: He became the fourth of the past seven governors elected in Illinois to be arrested. Residents blame the sad tradition on a culture of patronage. “Government in Illinois isn’t about political ideology or helping people,” said Christopher Mooney, who teaches political science at the University of Illinois-Springfield. “It’s about which idiot brother-in-law are you going to get a job on a road crew because he helped you get into office.” The governor, a Democrat, was charged with trying to sell Barack Obama’s vacated Senate seat, according to a criminal complaint filed by prosecutors. Three previous governors were jailed for receiving bribes: Otto Kerner, governor from 1961 to 1968; Dan Walker, who held the job from 1973 to 1977; and George Ryan, who served from 1999 to 2003.

- President-elect Barack Obama said he was unaware of the criminal investigation into an alleged attempt by Illinois Governor Rod Blagojevich to trade an appointment for Obama’s Senate seat for financial gain. “I had no contact with the governor or his office and so I was not aware of what was happening, ” Obama told reporters today in Chicago. “It’s a sad day for Illinois. Beyond that, I don’t think it’s appropriate to comment.” Federal prosecutor Patrick Fitzgerald said there is “no allegation” that Obama was aware of Blagojevich’s attempt to extract benefits from his authority to appoint Obama’s successor.

- Russia’s credit rating may drop below investment grade for the first time in four years as lower oil prices push the budget into deficit and drain foreign-currency reserves, according to RBC Capital Markets. “The Russian budget assumes an oil price of $70 a barrel so if oil stays around $40 or 445 then economic fundamentals will deteriorate rapidly,” said Nigel Rendell, emerging-market strategist at RBC in London. “There is a severe risk Russia will be downgraded to speculative grade.”

- Short selling of Warren Buffett’s Berkshire Hathaway Inc.(BRK/A) rose to its highest level in six years on speculation that costs tied to derivative contracts will drive down the insurer’s stock price. Short-selling increased by 1,013 shares, or 29 percent, to 4,495 between Nov. 14 and Nov. 28, the most bet on Berkshire’s decline since 2002, according to data compiled by Bloomberg.

- Morgan Stanley(MS) and its gasoline distributor TransMontaigne Inc. are under investigation in Florida for price gouging during Hurricane Ike, state law enforcers said. Florida received thousands of complaints of gasoline stations charging inflated prices after a state of emergency was declared as the storm approached in September, Attorney General Bill McCollum and Consumer Services Commissioner Charles Bronson said in a release today.

- Electronic Arts Inc.(ERTS), the world’s second-largest maker of video games, said fiscal 2009 revenue and profit will be less than forecast because of slow holiday sales in North America and Europe.

- Asian money-market rates declined on expectations the Federal Reserve will cut its key interest rate and after Australian banks raised cash through share and bond sales, easing a year-end funding squeeze.

Wall Street Journal:

- Private equity investors plan to boost their exposure to the asset class despite being fully or even over-allocated, according to research released Wednesday. Plummeting equity and credit markets have left many investors with outsized allocations to private equity, but rather than sell assets the majority of investors plan to maintain or increase target allocations.

- U.S. securities regulators need to do more to curb short-selling abuses, a group of academics, business executives and former top regulators said Tuesday. The Securities and Exchange Commission should close loopholes and enforce current rules against "naked" short selling, said Harvey Pitt, former SEC chairman and now chief executive of Kalorama Partners, a Washington, D.C., consulting firm. "The agency has to make it clear that naked short selling in any form is prohibited," Pitt said at a midday press conference.

- American International Group Inc.(AIG) owes Wall Street's biggest firms about $10 billion for speculative trades that have soured, according to people familiar with the matter, underscoring the challenges the insurer faces as it seeks to recover under a U.S. government rescue plan.

NY Times:
- Fannie Mae and Freddie Mac engaged in “an orgy of junk mortgage development” that turned the two mortgage-finance giants into vast repositories of subprime and similarly risky loans, a former Fannie executive testified on Tuesday.

Barron’s:

- Apple(AAPL): How Many iPhones Could Wal-Mart(WMT) Sell?

- HedgeFund.net today released early estimates indicating total hedge fund assets fell an additional 5.2% in November to $2.11 trillion, largely due to investors redeeming a record $130.04 billion during the month. Hedge fund performance losses slowed in November, but remained negative for the sixth month in a row.

Financial Times:
- I think of it as an "oops" moment: the US goes into a recession; Europeans believe this deserved punishment has little to do with them; the European economy slows unexpectedly; the US throws everything at restoring growth; finally, the US recovers, pulling Europe behind it. Yet this is not just a slow-down. It is also a financial crisis. What if the solvency of a eurozone member came into doubt? After all, spreads over rates on German bunds and the prices of credit default swaps have risen already, the most affected countries being Belgium, Greece, Ireland, Italy, Portugal and Spain.

International Herald Tribune:

- The Mumbai police said Tuesday that the 10 men who carried out the terrorist attacks here belonged to a group of 30 recruits of the Lashkar-e-Taiba Pakistani militant organization who had been selected for suicide missions, and that the whereabouts of the other 20 were unknown. It was the first time that that the Indian police had disclosed the larger number of suicide recruits, and while they said there was no reason to believe that the other 20 were in India, they expressed concern about such a possibility.

China Daily:

- China needs to keep its urban unemployment rate below 5% next year to prevent rising joblessness among migrant workers which could spark social unrest, citing a senior legislator. An increase in the urban unemployment rate to more than 5%, from the current 4%, will “lead to a series of negative consequences,” citing Zheng Gongcheng, a member of the National People’s Congress’s Standing Committee.

Late Buy/Sell Recommendations
Citigroup:
- Rated (AXP) Sell, target $19.

Night Trading
Asian Indices are -.50% to +3.0% on average.
S&P 500 futures +1.05%.
NASDAQ 100 futures +.86%.

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

- (KFY)/.29

Economic Releases
10:00 am EST

- Wholesale Inventories for October are estimated to fall .2% versus a .1% decline in September.

10:35 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory increase of 1,300,000 barrels versus a -456,000 barrel decline the prior week. Gasoline supplies are expected to fall by -400,000 barrels versus a -1,534,000 barrel decline the prior week. Distillate inventories are estimated to fall by -1,500,000 barrels versus a -1,721,000 barrel decline the prior week. Finally, Refinery Utilization is expected unch. versus a -1.82% decline the prior week.

2:00 pm EST

- The Monthly Budget Deficit for November is estimated at -$171.0 billion versus -$98.2 billion in October.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly MBA mortgage applications report, Owens & Minor investor day, Parker Hannifin analyst meeting, VistaPrint analyst meeting, Principal Financial Group analyst meeting, Yum! Brands analyst conference, UBS Media/Communications Conference, RBC Healthcare Conference, Goldman Sachs Financial Services Conference and Barclays Tech Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and real estate stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower, Weighed Down by REIT, Transport, Homebuilding, Bank and Alternative Energy Shares

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