Bull Radar

Style Outperformer:
Mid-cap Growth (+1.22%)

Sector Outperformers:
Insurance (+2.13%), Steel (+1.90%) and Construction (+1.77%)

Stocks Rising on Unusual Volume:
UBS, CNA, MRK, ENL, SCHS, AXYS, NNDS, ACET, ROCM, OTEX and IGM

Stocks With Unusual Call Option Activity:
1) SBUX 2) VMW 3) MRK 4) BSX 5) PNC

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Tuesday Watch

Late-Night Headlines
Bloomberg:

- Red Hat Inc.’s(RHT) quarterly profit and forecast beat analysts’ estimates after the company’s Linux software attracted budget-conscious buyers, sending the shares up 6.5 percent in late trading.

- HFA Holdings Ltd., an Australian hedge-fund manager with $5.8 billion in assets, plunged by a record in Sydney trading after the company halted redemptions from three of its funds. HFA shares tumbled 5 cents, or 49 percent, to 5 cents at 11:25 a.m. on the Australian stock exchange, their biggest decline since listing in April 2006. The stock has dropped 97 percent this year, cutting its market value to A$22 million ($15 million).

- Japanese crude-oil imports tumbled 17 percent to 3.71 million barrels a day last month, the country’s finance ministry said yesterday. South Korea’s oil demand declined 12 percent in November from a year earlier, Korea National Oil Corp. said. “We just had the Korean and Japanese figures come out and those just put another nail on the oil coffin,” said Mark Pervan at Australia & New Zealand Banking Group Ltd. in Melbourne.

- General Motors Corp. and Ford Motor Co., the two largest U.S. automakers, had their debt cut further below investment status by Standard & Poor’s and Moody’s Investors Service. GM’s unsecured debt was trimmed one level to C, or 11 grades below investment quality, by S&P. Moody’s lowered its rating on $26 billion in Ford debt by two grades to Caa3, or nine below investment quality.

- Senator Edward M. Kennedy, battling a deadly brain tumor, is pushing ahead on a plan to overhaul the U.S. health-care system, ordering meetings with interest groups and negotiating with colleagues to ready a proposal that Barack Obama can act on after taking office. Kennedy, 76, had surgery for his cancer in June, and has since been treated with chemotherapy and radiation. While the type of tumor Kennedy has can sometimes be fatal within 18 months, the Massachusetts Democratic and his staff are pushing ahead in their efforts to secure approval of an idea championed by Kennedy for 46 years: medical insurance for all Americans. “This has been the cause of Kennedy’s life, and it’s clear he sees this as a great opportunity,” said Adam Clymer, the author of a Kennedy biography, in a telephone interview.

- The risk of bankruptcy remains high for U.S. automakers even with the almost $21 billion in emergency loans announced by the U.S. and Canadian governments, Standard & Poor’s said in a release.

- Tremont Group Holdings Inc., a hedge-fund firm owned by Massachusetts Mutual Life Insurance Co., was sued for investing with money manager Bernard Madoff who confessed to a $50 billion Ponzi scheme. Investors Arthur E. Lange and Arthur C. Lange sued Tremont, its parent and its units for investing with Madoff and ignoring numerous “red flags.” The Langes, in a complaint filed today in federal court in Manhattan, seek class-action, or group, status on behalf of other investors whom they say lost $3.1 billion. Tremont “did not act as a reasonably prudent investor would have,” according to the complaint, which cites the fund’s decision to put “all of the class’s eggs in one basket.”

- China’s stocks fell to the lowest in three weeks, led by financial companies, on concern an interest- rate cut wasn’t deep enough to keep the world’s fourth-largest economy from weakening.

Wall Street Journal:

- Accounting watchdogs are fast-tracking an effort to provide a small dose of "mark-to-market" relief for financial firms, as banks and life insurers continue grappling with deteriorating investment holdings. The Financial Accounting Standards Board last week began steps to loosen a rule regarding when financial firms must book losses on a narrowly defined subset of lower-rated mortgage-backed securities, commercial-backed securities and certain other structured securities. Late Friday, FASB asked for public comment on the proposal, a sign that it is under serious consideration.

- Credit Suisse Group (CS) is winding down its U.S. power and emissions trading operations as part of the company's strategy of exiting volatile businesses, a person close to the matter said.

- CME Group Inc. (CME) is in advanced discussions with six dealers to take equity stakes in its credit-default swap trading and clearing platform, as it lines up against a rival backed by nine of the market's largest participants.

- Colorado's Oil and Gas Conservation Commission is asserting control over the state's booming energy industry with its approval of the most far-reaching drilling restrictions in the nation. Regulations laid out this month in a 177-page document immediately drew fire from the industry and from some lawmakers, who say the restrictions will drive energy companies out of the state at a time when Colorado needs more high-paying oil and gas jobs.

Fox News:

- The White House is pushing back hard against a New York Times article that essentially blamed President Bush for the sub-prime mortgage mess and the Wall Street collapse by linking those crises to a policy goal he stated more than six years ago. That goal? "We want more people owning their own home," as Bush said in December 2003.

BusinessWeek:

- OPEC’s Dysfunctional Message Fed the Oil-Price Plunge. BW’s Stanley Reed says the cartel doesn’t know how much oil Venezuela and Iran are producing – and thus how much production should be cut.

- Marcial: L-3(LLL), a Stellar Pick in Security Tech.

- As sales plunge, Indian auto plants are slashing production, cutting shifts, and putting joint ventures on hold.

- Venture Capital’s Favorite Startups.

Forbes.com:

- After the forced selling spree of the last several months, there are now trillions upon trillions of dollars in cash, or cash equivalents, on the sidelines. Two forces will converge to push this money into green-tech investments like solar power, biofuels and hydrogen filling stations. Lots of people are going to make a killing on mortgage-backed securities, including the "toxic" subprime variety. There are entire generations of consumers without the habit of saving. They will spend again; they simply don't know how not to. After bottoming in the first quarter of 2009, US equities will be in for a broad rally. Expect a bull market by the third quarter of 2009. Now is the time to get ready for it.

MacDailyNews:

- ChangeWave: Apple(AAPL) iPhone’s ‘very satisfied’ rating more than double that of RIM’s BlackBerry Storm.

Reuters:

- The U.S. Navy is expected to award a $14 billion contract to General Dynamics Corp (GD) and Northrop Grumman Corp (NOC) on Monday for eight Virginia-class submarines.

- Mobile teleconsulting is a feasible way to evaluate remotely located patients who have just had a stroke, according to a report in the current issue of the journal Stroke. Although researchers found that hospital-based, land-line systems still provide better quality communication.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MAN), target $40.

- Reiterated Buy on (RATE), target $43.

- Reiterated Buy on (PCLN), target $83.

Night Trading
Asian Indices are -2.75% to -.50% on average.
S&P 500 futures -.11%.
NASDAQ 100 futures -.21%.

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Earnings of Note
Company/EPS Estimate
- (MU)/-.44

- (AM)/.52

Economic Releases
8:30 am EST

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

- Final 3Q Personal Consumption is estimated at -3.7% versus prior estimates of a -3.7% decline.

- Final 3Q GDP Price Index is estimated at 4.2% versus prior estimates of a 4.2% gain.

10:00 am EST

- Final December Univ. of Mich. Consumer Confidence is estimated to fall to 58.8 versus a prior estimate of 59.1.

- New Home Sales for November are estimated to fall to 415K versus 433K in October.

- Existing Home Sales for November are estimated to fall to 4.93M versus 4.98M in October.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, house price index report, Richmond Fed Manufacturing report, (GW) special shareholders meeting, (PNC) special shareholders meeting and (WTBA) shareholders meeting could also impact trading today.

BOTTOM LINE: Asian indices are 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 75% net long heading into the day.

Stocks Finish Lower, Weighed Down by Commodity, Financial, Insurance, Construction and Homebuilding Shares

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In Play

Stocks Falling into Final Hour on Forced Selling, Global Growth Concerns and More Shorting

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Retail longs and Computer longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is very bearish as the advance/decline line is substantially lower, every sector is declining and volume is light. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is rising .5% and is elevated at 45.19. The ISE Sentiment Index is below average at 113.0 and the total put/call is below average at .72. Finally, the NYSE Arms has been running very high most of the day, hitting 3.03 at its intraday peak, and is currently 2.75. The Euro Financial Sector Credit Default Swap Index is falling 5.82% today to 115.10 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 falling 2.21% to 213.50 basis points. The TED spread is falling 2.07% to 148 basis points. The TED spread is now down 318 basis points in just over two months. The 2-year swap spread is down 6.34% to 77.50 basis points. The Libor-OIS spread is dropping 2.89% to 125 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 2 basis points to .08%, which is down 253 basis points in just 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 yielding .00%, which is unch. today. 1-month US Dollar-based Libor is dropping another basis point to .46% today. It has declined 414 basis points since October 10^th. Today’s action has many characteristics associated with “forced selling.” After failing to meaningfully break above their 50-day moving averages, many stocks are now rolling over. On the positive side, volume is very light and the NYSE Arms is very high, which usually indicates a sharp snapback rally will materialize over the next few days. As well, credit angst gauges continue to improve significantly. Nikkei futures indicate a -175 open in Japan and DAX futures indicate a -29 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on lower energy prices, diminishing credit market angst, short-covering and bargain-hunting.

Today's Headlines

Bloomberg:
- Magnetar Capital LLC, the $8 billion hedge-fund firm co-run by former Citadel Investment Group LLC trader Alec Litowitz, limited withdrawals from its biggest fund after it lost 30 percent this year through November, according to two people familiar with the fund. The restrictions, known as gates, were triggered after clients sought to pull more than 15 percent of their money from the firm’s $4.8 billion multistrategy fund, said the people, who asked not to be identified because the information is private.

- The TED spread, a gauge of banks’ reluctance to lend, slipped below 150 basis points for the first time since before the collapse of Lehman Brothers Holdings Inc. amid speculation U.S. borrowing costs near zero and promises of further government cash will help unfreeze credit.

- Banks have increased cash balances by $700 billion in three months, creating a $7 trillion stockpile that may be used for new loans, according to Miller Tabak’s Tony Crescenzi. Lenders have “enough money to propel lending by $7 trillion if banks were willing and able,” Crescenzi said. Bankers in the US put a “disproportionate” amount of assets into buying securities and now are selling some of their investments, “which optimists would hope is a precursor to lending,” Crescenzi said.

- UBS AG, Switzerland’s biggest bank, agreed to sell its agricultural and Canadian energy-commodities units to JPMorgan Chase & Co, and said it may dispose of other commodities operations.

- Crude oil fell on speculation OPEC will be unable to bolster prices as the global recession curbs demand faster than the group can make production cuts. South Korea consumed 12.4 percent fewer oil products in November from a year earlier. The country used 60.3 million barrels of refined products, data from state-run Korea National Oil Corp. showed today. “OPEC may be determined to stabilize oil prices, but with such poor demand it’s hard to see how any supply-driven initiatives can have a positive impact on prices,” said Addison Armstrong, director of market research for Tradition Energy in Stamford, Connecticut.

Wall Street Journal:

- Bankers are seeing a wave of mortgage-loan applications triggered by falling interest rates, and are reassigning scores of workers to handle the crush of would-be borrowers. A large percentage of the applications are for refinancings rather than purchases, and the phenomenon is so new it isn't yet clear how many of the borrowers will actually receive loans. But some bankers say it could be the beginnings of a possible turning point in a battered lending sector and a still-weak housing market.

- General Motors Corp., while holding preliminary discussions now with key constituents, is expected to wait until early January to begin deep talks with the United Auto Workers union, bondholders and the coming Obama administration, in an effort to work out agreements to comply with the terms of the bailout President George W. Bush announced last week.

NY Times:
- Since Bernard L. Madoff was arrested 11 days ago in connection with a $50 billion Ponzi scheme, the Fairfield Greenwich Group has portrayed itself as an unwitting victim of the fraud, the biggest of Mr. Madoff’s many losers. Clients of Fairfield, a secretive hedge fund advisory company based in Connecticut, lost $7.3 billion to Mr. Madoff’s fund. But for Fairfield, working with Mr. Madoff was hugely profitable.

- Clinton Foundation Got Big Lift From Hedge Funds.

LA Times:

- When money manager Bernard L. Madoff was arrested in New York recently for allegedly engineering a massive Ponzi scheme, Wall Street financiers were left slack-jawed at the unmasking of an establishment figure who seemed to be an unlikely fraud. The reaction was similar among many politicians in Washington. For years, Madoff was a generous donor to mostly Democratic causes and maintained a steady lobbying presence through the government relations firm of a former New York congressman. Few of Madoff's political beneficiaries want to talk about the New York money manager for fear of being tied to his legal problems. But one former Democratic fundraiser who asked not to be identified said the political community that knew him was shocked by his arrest because Madoff, a former chairman of Nasdaq, was known for his expertise as well as his deep pockets. Since 1999, Madoff spent at least $540,000 for lobbying by the Lent Scrivner firm. Madoff, his wife and individuals at his company gave $392,900 to federal candidates, parties and committees since 1998, with 89% going to Democrats, according to a Times analysis. Fully $238,200 of that total came from Madoff and his wife alone.
Most of the 13 members of Congress who received funds are New York-area lawmakers or members of committees overseeing financial services. "His profile as a large giver certainly gave him more access," said the former Democratic fundraiser who dealt with Madoff but did not want to be identified because he wants to stay out of the scandal.

Boston Herald:

- State and city or town crews around New England are attacking ice and snow with high-tech engineering and a low-salt diet — changing during the last decade or so from plowing, salting and sanding to spraying liquids that prevent snow and ice from bonding with the road.

USA Today:

- Utah is the nation's fastest growing state, knocking Nevada from its usual top spot.

Dealbreaker:

- It is no secret that quant funds (and a number of what we will call "quasi-quant" funds) as a whole have taken it on the chin the last several months. Funds with heavy quant components of neutral equity market strategies, for instance, have been handed their mud-stomped hats in 2008- many with 40%+ losses in November alone. Some subsets of neutral equity market strategies, fundamental long-short strategies for instance, have performed slightly better, but overall, you would have done better investing in the S&P 500 index for 1 month, 3 month, 6 month, 1 year, 2 year, 3 year and 5 year periods than touching most neutral equity market funds.

Interfax:

- Russia’s economy shrank .7% in November compared to the previous month, citing a government official.

- Russia may resort to external borrowing after 2010 if oil prices stay below $30 a barrel, citing Deputy Finance Minister Dmitry Pankin.

Arab News:

- A majority of Saudi Arabian women suffer financial and economic abuse by their husbands or male siblings, citing a study by Khaled Al-Radihan, an assistant professor at King Saud University. Of 267 women involved in the university study, 67% had their money taken or had loans taken in their names without their consent.