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Monday Watch

Weekend Headlines
Bloomberg:

- Cash at 18-year High Makes Equitie4s Irresistible for Leuthold. There’s more cash available to buy shares than at any time in almost two decades, a sign to some of the most successful investors that equities will rebound. The $8.85 trillion held in cash, bank deposits and money-market funds is equal to 74% of the market value of US companies, the highest ratio since 1990, according to Federal Reserve data compiled by Leuthold Group and Bloomberg. Leuthold, Invesco Aim Advisors Inc., Hennessy Advisors Inc. and BlackRock Inc., which together oversee almost $1.7 trillion, say that’s a sign the S&P 500 will rise. The eight previous times that cash peaked compared with the market’s capitalization the S&P 500 rose an average 24% in six months, data compiled by Bloomberg show. “There is a store of cash out there that is able to take the market higher,” said Eric Bjorgen, who helps oversee $3.4 billion at Leuthold in Minneapolis. Leuthold Group, whose Grizzly Short Fund returned 83% in 2008 thanks to bets against equities, said in its December bulletin to investors that stocks offer “one of the great buying opportunities of your lifetime.” The ratio of cash on hand to US market capitalization jumped 86% in the first 11 months of the year, the biggest increase since the Fed began keeping records in 1959. This year’s slump has left the S&P 500 companies valued at an average of 12.6 times operating profit, the cheapest since at least 1998, Bloomberg data show. Cash holdings peaked one month before equities began to recover during the two longest recessions since WWII. In July 1982, money of zero maturity as a percentage of the US stock market’s value rose to 95% before a 20-month bear market ended and the S&P 500 began a six-month 36% advance. Cash on hand reached $604.5 billion in September 1974, representing a record 1.21 times US stock capitalization. That preceded a 31% gain in equities between October 1974 and March 1975, Bloomberg data show. “If history tends to repeat itself, we’re in the exact same scenario,” said Neil Hennessy, who oversees $650 million as president of Hennessy Advisors in Novato, California. “Once the money starts to come back into the market, buying is going to beget more buying. People don’t want to be left behind.” Hennessy’s Focus 30 Fund beat 96% of its peers this year. Robert Doll, the chief investment officer of global equities at BlackRock, has been buying stocks anticipating the S&P 500 may rise as much as 20% next year. The firm oversees $1.3 trillion. “It’s a mountain of cash,” Doll said on Bloomberg radio. “Somebody’s just got to find the match and light it.”

- General Motors Corp.(GM), poised to get at least $9.4 billion in U.S. aid, gained 13 percent in New York trading after the Federal Reserve approved lender GMAC LLC’s bid to become a bank holding company. GMAC’s shift to a bank eases the threat of a default that threatened to dry up credit for GM dealers who used the company to finance about three-quarters of their inventory. GMAC also handled loans for about 35 percent of GM’s 2007 retail buyers. “This is the huge missing piece,” Kimberly Rodriguez, principal of consulting firm Grant Thornton LLP, said today in a Bloomberg Television interview. “It should allow for some additional purchases by individual car buyers as well as dealers.”

- Investors looking to recoup some of the $50 billion they lost in Bernard Madoff’s alleged Ponzi scheme may get a better idea what the New York financial adviser has left when he is forced to reveal his assets to regulators. Madoff, 70, must provide a detailed list of all investments, loans, lines of credit, business interests, brokerage accounts and other holdings to the Securities and Exchange Commission by New Year’s Eve, a federal judge ruled. Madoff’s foreign business units were given until Jan. 26 to provide a similar accounting.

- Pakistani President Asif Ali Zardari sought to ease tensions with India after a standoff over last month’s terrorist attack on Mumbai raised the prospect of war between the nuclear-armed neighbors. “The solution to the problem of the region, the solution to the problem of Pakistan, is politics, is dialogue,” Zardari said live on Geo Television Network at a memorial service for his late wife, former Prime Minister Shaheed Benazir Bhutto.

- Apple Inc.(AAPL), maker of the iPhone and iPod Touch media player, filed a patent application for software that lets users control computers and phones using swipes of their fingers. Apple’s system would allow users to insert spaces, line breaks and uppercase characters by swiping the screen rather than pressing keys, according to the application, which was made public by the U.S. Patent and Trademark Office yesterday. The swipe gesture could be used with desktop computers, notebooks, personal digital assistants, media players and so- called tablet computers, which are portable machines with large touch-sensitive displays, according to the filing.

- Venezuela, the biggest oil exporter in the Western Hemisphere, will deal with falling oil income without cutting social spending, President Hugo Chavez said. “We haven’t been touched this year” by “the worst crisis in the history of the world,” he said today on state television. That will change in 2009 as oil customers keep suffering, he said. He called for increased production of non-oil exports such as gold, cocoa and coffee as well as an increase in tourism. Venezuela is facing a steep drop in income because 92 percent of the country’s export revenue comes from oil.

- Israel’s deadly air strikes on Hamas targets in the Gaza Strip, which killed more than 200 people, mark the first phase of a new effort to convince Islamic militants they have more to lose than gain by launching rocket and other attacks across the border.

- Israel’s cabinet agreed to call up as many as 7,000 army reservists, signaling that two days of air raids on the Hamas-controlled Gaza Strip may be followed by a ground invasion to halt rocket attacks.

- Kuwait canceled the purchase of a 50 percent stake in Dow Chemical Co.’s(DOW) plastics making unit, depriving Dow of $9 billion it planned to use for the acquisition of Rohm & Haas Co.

- Elpida Memory Inc., Japan’s largest computer-memory chipmaker, rose the most in more than seven weeks in Tokyo trading after the company said it began merger talks with Powerchip Semiconductor Corp. and two other Taiwanese semiconductor companies to counter a glut that’s widening industry losses.

Wall Street Journal:

- JPMorgan Chase(JPM) was the No. 1 firm in advising on mergers and acquisitions this year, beating longtime leader Goldman Sachs Group Inc.(GS), citing preliminary data from Dealogic. JPMorgan was an adviser on 350 deals with a value of $818.2 billion, while Goldman was second with 295 transactions worth $755.6 billion.

- Investigators probing the Bernard Madoff investment scandal are beginning to turn their attentions to the middlemen who attracted billions of investment dollars to Mr. Madoff's funds, said a person familiar with the government effort. Authorities are interested in what the middlemen told clients about how their money was being invested, said this person, and whether they disclosed Mr. Madoff's involvement in managing client funds. There are no allegations that these go-betweens, or feeders, knew anything about Mr. Madoff's scheme.

- Strong holiday box-office results at the movies bucked the recession, giving a solid boost to two studios with a lot riding on expensive new films. The four-day weekend's top slot went to 20th Century Fox's "Marley & Me," with $51.7 million in U.S. ticket sales.

- President-elect Barack Obama helped enact an Illinois good-government reform measure while serving as a state senator in 2003 that appeared to inadvertently have aided Gov. Rod Blagojevich in an alleged corruption scheme involving hospital construction.

MarketWatch.com:

- 10 investment ideas for 2009.

CNBC.com:
- Pros Say: Web Retail, Mortgage Refi Surge = Great ’09 Omens.

IBD:
- Pasta Maker’s New Leadership Cooks Up Profit Growth After Scandal.

NY Times:

- The financial crisis is a result of many bad decisions, but one of them hasn’t received enough attention: the 1998 bailout of the Long-Term Capital Management hedge fund. If regulators had been less concerned with protecting the fund’s creditors, our current problems might not be quite so bad.

- IndyMac Bancorp, one of the largest banks to fail as a result of the subprime mortgage crisis, is close to being sold to a consortium of private equity and hedge fund firms, people briefed on the matter told DealBook.

- The Illinois House committee considering the removal of Gov. Rod R. Blagojevich has rejected a request from the governor’s lawyer to subpoena two top advisers to President-elect Barack Obama, the committee’s chairwoman said Saturday.

- With a Digital Stereo, Cisco Systems(CSCO) Is Starting a Push Into Home Electronics.

Forbes.com:

- Slow start to OPEC cuts. The United Arab Emirates said loud and clear Friday that it was deepening its cut of oil production, which seemed to highlight the deafening silence from some of the cartel's other members in complying with an OPEC agreement to reduce oil output by a record amount earlier this month.

TheStreet.com:

- The Tech Investor’s Guide to 2009.

NJ.com:

- With a projected revenue shortfall of $1.2 billion by the time the current budget year ends June 30, New Jersey Senate Republicans want to know exactly where Gov. Jon Corzine plans on trimming spending -- and they said today they're prepared to go to court to find out.

Business Week:
- The Hottest Tech Developments of 2009. Watch for Microsoft’s(MSFT) Windows 7; Apple’s(AAPL) Snow Leopard; and Motorola(MOT) and other smartphones running Google’s(GOOG) Android software.

- One of those companies is Discovery Communications(DISCA), a collection of cable channels that includes TLC, Animal Planet, and, yes, Discovery. In recent years, the company has become known for such shows as American Chopper, Dirty Jobs, and Deadliest Catch. But Discovery has a mother lode of educational video—100,000 hours dating back nearly 25 years—fully digitized and stored in a vast room of servers in Evanston, Ill. Instead of letting the archive remain idle, the company is digging into it for videos about science, nature, and culture to sell to schools around the U.S.

LA Times:

- One of the world’s largest oil reserves is trapped beneath the Rocky Mountains and the methods needed to extract it will pit oil companies against water-preserving locals. At stake is a trove of oil shale under the Rockies holding an estimated 800 billion barrels, about three times the oil reserves of Saudi Arabia.

USA Today:

- Here is one word about an up-and-coming innovation in plastics: cornfields. Bioplastics — most of which are now made from corn — are poised to grab a bigger share of the plastics market as concerns about the environment and U.S. dependence on foreign oil promote alternatives to products made from petrochemicals.

- Southwest Airlines(LUV) adds cities, courts business travelers.

MacRumors.com:

- Apple's(AAPL) new iPod Touch appears to have been a huge hit this holiday season with evidence that the high end iPod has seen massive gains in marketshare. The graph shows real time browser marketshare data for the iPod Touch which showed a massive spike on Christmas day. While there is a slight increase in the iPhone graph, the majority of the Christmas growth appears to be with the iPod Touch. This trend, of course, reflects the difficulties in gifting an iPhone vs an iPod touch. Apple has been marketing the iPod Touch as more than just an MP3 player with a specific focus on gaming. If these trends are true, than some of the boost in App Store downloads should be sustained as it reflects actual marketshare growth rather than just increased spending surrounding the holidays.

CNNMoney.com:

- Gas prices fell for the ninth consecutive day, according to a survey of credit card swipes at service stations across the nation released on Sunday. The national average price dropped for its ninth consecutive day to $1.627 a gallon, down 0.3 cents from the previous day, according to the motorist group AAA.

MSNBC:

- Interest rates for 30-year fixed mortgages dropped nationally for the eighth week to reach 5.14 percent, the lowest on record since Freddie Mac (the Federal Home Loan Mortgage Corp.) began a weekly rate survey in 1971. So loans are being written. "I think these low rates are getting a lot of people off the fence," said Stephanie Hanna, a loan officer with Platinum First Mortgage of Reno. "We definitely have seen it pick up in December and we've got good momentum going into the new year."

Reuters:

- The kind of ratings used for films could be applied to Web sites in a bid to better police the Internet and protect children from harmful and offensive material, Britain's minister for culture has said. Andy Burnham told The Daily Telegraph newspaper, published on Saturday, that the government was planning to negotiate with the administration of U.S. President-elect Barack Obama to draw up new international rules for English language Web sites.

Financial Times:

- Record volumes of government bonds from the industrialized nations – intended to reverse what could be the worst recession since the Great Depression – threaten to curb access to credit markets by emerging economies. Analysts warn that emerging market borrowers could be crowded out of the credit markets by $3,000bn of government bonds expected to be issued by the big developed economies in 2009 – three times more than in 2008.

- A generation after the launch of MTV, major record labels are hoping to revive the music video business online by creating a single digital destination for their artists’ output. Plans under discussion include: a partnership with Hulu, the online television and film joint venture between News Corp and NBC Universal; the creation of a premium service on YouTube, Google’s video sharing site; or, a standalone venture between some or all of the four largest recorded music groups.

- A fiscal stimulus plan being prepared by the Obama economic team includes “both government spending and tax cuts”, Lawrence Summers, the designated head of the White House National Economic Council, said on Sunday.

The Observer:

- Global demand for oil in 2009 will fall by the largest amount for 25 years, according to the chief energy economist of Deutsche Bank. Deutsche Bank predicts global demand will contract by 1 per cent, or 1 million barrels a day, three times the fall seen this year and the biggest since 1983.

Kathimerini:

- European Central Bank Vice President Lucas Papademos said the ECB may further cut its benchmark interest rate if risks of higher inflation continue to subside.

Weekend Recommendations
Barron's:
- Made positive comments on (HPQ) and (MICC).

- Made negative comments on (PSYS), (RIMM) and (SYK).

Night Trading
Asian indices are -.75% to +.25% on avg.
S&P 500 futures -.82%.
NASDAQ 100 futures -.93%.

Morning Preview
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Earnings of Note
Company/Estimate
- (CALM)/1.16

- (PNY)/-.12

Upcoming Splits

- None of note

Economic Releases

- None of note

Other Potential Market Movers
- The (FITB) shareholders meeting, (WINS) shareholders meeting and (EPEX) shareholders meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and real estate shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for Wall St. Week Ahead by Reuters.

Click here for stocks in focus for Monday by MarketWatch.

There are some economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – None of note

Tues. – Weekly retail sales reports, S&P/CS Home Price Index, Chicago Purchasing Manager, Consumer Confidence

Wed. – Weekly MBA mortgage applications report, Initial Jobless Claims, NAPM-Milwaukee

Thur. – US markets closed

Fri. – ISM Manufacturing, ISM Prices Paid

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – None of note

Tues. – None of note

Wed. – McGraw-Hill(MHP)

Thur. – US markets closed

Fri. – Finish Line(FINL)

Other events that have market-moving potential this week include:

Mon. – (FITB) shareholders meeting, (WINS) shareholders meeting, (EPEX) shareholders meeting

Tue. – None of note

Wed. – None of note

Thur. – US markets closed

Fri. – None of note

BOTTOM LINE: I expect US stocks to finish the week higher on seasonal strength, diminishing financial sector pessimism, lower mortgage rates, bargain-hunting, short-covering, declining credit market angst and less forced selling. My trading indicators are giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 872.80 -1.41%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 872.80 -1.41%
DJIA 8,515.55 -1.04%
NASDAQ 1,530.24 -1.43%
Russell 2000 476.77 -.50%
Wilshire 5000 8,737.47 -1.32%
Russell 1000 Growth 359.43 -1.13%
Russell 1000 Value 468.91 -1.50%
Morgan Stanley Consumer 535.81 -.87%
Morgan Stanley Cyclical 455.69 -3.29%
Morgan Stanley Technology 330.55 -2.63%
Transports 3,370.19 -.34%
Utilities 359.43 -1.65%
MSCI Emerging Markets 22.93 -6.51%

Sentiment/Internals
NYSE Cumulative A/D Line 18,260 +5.42%
Bloomberg New Highs-Lows Index -306 +14.04%
Bloomberg Crude Oil % Bulls 36.0 -1.9%
CFTC Oil Large Speculative Longs n/a
Total Put/Call .78 -13.3%
OEX Put/Call .67 -39.64%
ISE Sentiment 139.0 +3.73%
NYSE Arms 1.09 -52.81%
Volatility(VIX) 43.38 -8.36%
G7 Currency Volatility (VXY) 19.33 -12.69%
Smart Money Flow Index 7,095.14 -7.0%
AAII % Bulls 29.0 -27.01%
AAII % Bears 44.0 +22.2%

Futures Spot Prices
Crude Oil 37.71 -10.53%
Reformulated Gasoline 84.40 -14.53%
Natural Gas 5.83 +4.88%
Heating Oil 124.50 -11.29%
Gold 871.20 +2.15%
Base Metals 101.04 -2.25%
Copper 130.35 +.66%
Agriculture 302.17 +3.81%

Economy
10-year US Treasury Yield 2.13% +1 basis point
10-year TIPS Spread .10% -1 basis point
TED Spread 1.48 -3 basis points
N. Amer. Investment Grade Credit Default Swap Index 204.47 -6.34%
Emerging Markets Credit Default Swap Index 734.09 +.11%
Citi US Economic Surprise Index -118.40 +13.01%
Fed Fund Futures imply 84.0% chance of no change, 16.0% chance of 25 basis point cut on 1/28
Iraqi 2028 Govt Bonds 42.05 -1.44%
4-Wk MA of Jobless Claims 558,000 +2.5%
Average 30-year Mortgage Rate 5.14% -5 basis points
Weekly Mortgage Applications 1,245,400 +48.02%
Weekly Retail Sales -1.10%
Nationwide Gas $1.64/gallon -.03/gallon
US Heating Demand Next 7 Days 25.0% below normal
ECRI Weekly Leading Economic Index 106.60 +.38%
US Dollar Index 80.89 +1.79%
Baltic Dry Index 774.0 +6.63%
CRB Index 215.28 -2.18%

Best Performing Style
Small-cap Value +.01%

Worst Performing Style
Large-cap Value -1.50%

Leading Sectors
REITs +3.94%
HMOs +3.35%
Hospitals +.97%
Telecom +.66%
Software +.50%

Lagging Sectors
Steel -3.72%
Banks -4.05%
Construction -4.06%
Coal -4.37%
I-Banks -4.86%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Rising into Final Hour on Less Economic Pessimism, Diminishing Credit Market Angst, Short-Covering and Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly bullish as the advance/decline line is higher, most sectors are gaining and volume is extremely light. Investor anxiety is above average. Today’s overall market action is mildly bullish. The VIX is falling 2.48% and is elevated at 43.69. The ISE Sentiment Index is about average at 141.0 and the total put/call is slightly below average at .79. Finally, the NYSE Arms has been running high most of the day, hitting 1.49 at its intraday peak, and is currently 1.23. The Euro Financial Sector Credit Default Swap Index is unch. today at 109.91 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 1.41% to 204.47 basis points. The TED spread is unch. at 148 basis points. The TED spread is now down 318 basis points in just over ten weeks. The 2-year swap spread is down another 1.86% to 66.0 basis points. The Libor-OIS spread is dropping .64% to 124 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at .10%, which is down 251 basis points in just under six 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 -.01%, which is unch. today. The Libor-OIS spread, Greenspan’s favorite gauge of credit market health, continues to trend lower, which is a big positive. It has declined 240 basis points since October 10. As well, the 30-day asset-backed commercial paper yield is plunging 44 basis points today to .61%. It has declined 401 basis points since its Oct. 13th high. Econoimcally-sensitive shares, especially commodity stocks, are today’s top-performers. I suspect these stocks will continue to rally through year-end as many are very oversold and the US dollar will likely remain range-bound before another surge higher again during 1Q. Healthcare-related stocks, my favorite group for next year, are also strong again today with many posting 2-3% gains. Nikkei futures indicate an +61 open in Japan and DAX futures indicate an +37 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on diminishing credit market angst, bargain-hunting, seasonal strength, less forced selling and short-covering.