Today's Headlines

Bloomberg:
- European Central Bank President Jean- Claude Trichet indicated the bank is poised to cut interest rates for the first time in more than five years as the credit crunch hurts the economy and damps inflation. Investors are betting the ECB will lower borrowing costs as soon as next month after Trichet told a press conference in Frankfurt that policy makers discussed a rate reduction today. While leaving the benchmark at a seven-year high of 4.25 percent, Trichet said financial-market turmoil is damping economic growth and inflation risks ``have diminished.''

- The US dollar rose against the euro, approaching a one-year high, as the U.S. Senate began voting on a $700 billion bill that would allow the government to buy troubled assets from banks.

- Crude oil, gold and corn led commodities lower as the dollar reached a one-year high against the euro and on concern that consumption will drop because of slower economic growth. Energy, metals and grains have tumbled this week as the euro dropped against the U.S. currency amid signs that Europe's economy is slowing. The Reuters/Jefferies CRB Index of 19 commodities tumbled to the lowest in almost a year. The CRB fell as much as 13.44 to 329.80, the weakest since Oct. 11, 2007. The index has slumped 30 percent from a record on July 3. The euro dropped after European Central Bank President Jean- Claude Trichet indicated the bank is poised to cut interest rates for the first time in more than five years as the credit crunch hurts the economy and damps inflation. U.S. fuel consumption over the past four weeks averaged 19 million barrels a day, the lowest since October 2001, an Energy Department report showed yesterday. Crude-oil and gasoline inventories increased last week, the department said.

- Former Federal Reserve Chairman Alan Greenspan said financial markets and the economy will recover ``sooner rather than later'' from the worst turmoil in seven decades. ``Trust will eventually reemerge as investors dip hesitantly back into the marketplace,'' Greenspan said today in a speech at Georgetown University's law school in Washington. ``From that point, history tells us, financial and economic revival sets in. I suspect it will be sooner rather than later.'' ``We are living through the type of wrenching financial crisis that comes along only once in a century,'' Greenspan said today. ``Financial markets freeze up as an excess of fear displaces a protracted period of what some might call irrational exuberance. Eventually the market freeze will thaw as frightened investors take tentative steps towards reengagement with risk.''

- U.K. house prices had the biggest annual drop since at least 1991 in September as the financial crisis intensified, Nationwide Building Society said. The average cost of a home plunged 12.4 percent from a year earlier to 161,797 pounds ($287,658), the largest decline since the survey started 17 years ago, the Swindon, England-based mortgage lender said in an e-mailed statement today. Prices fell 1.7 percent from August, the 11th monthly drop.

- Crude-oil prices may fall as low as $50 a barrel next year, about half current levels, in the ``unlikely'' event of a global recession, weighing on shares of petroleum producers, Merrill Lynch & Co. said. Merrill cut its 2009 average price estimate for West Texas Intermediate, the U.S. benchmark oil grade, by 16 percent to $90, citing falling demand and the start of new fields in Organization of Petroleum Exporting Countries. U.S. oil use is declining faster than expected, while European consumption is falling ``rapidly,'' and OPEC production capacity is ``just about to soar,'' Merrill said. ``Notionally it is conceivable that in a worst-case scenario global oil demand actually contracts in the near-term as it did back in the 1980s post the Iranian Revolution.'' Oil demand growth in China and India, the world's fastest- expanding major economies, may slow down in 2009, Merrill said. A ``string'' of fields in Saudi Arabia, Qatar and elsewhere within OPEC is set to increase capacity within the exporting group by about 3 million barrels a day in the next 18 months.

- Bayerische Motoren Werke AG, Ford Motor Co. and France's Renault SA said a slump in car sales may be more prolonged than manufacturers have anticipated. Auto markets won't recover until at least the middle of next year, BMW Chief Executive Officer Norbert Reithofer said today at the Paris Motor Show. The world's largest luxury-car maker may deepen production cuts if people continue to delay purchases. Ford CEO Alan Mulally said a recovery won't begin before 2010 and Renault boss Carlos Ghosn said the slowdown may last two years.

- Russia will hold its largest air force exercises since the 1991 collapse of the Soviet Union next week, while a naval convoy on its way to Venezuela stages a show of strength in the Mediterranean.

- UBS AG, the largest Swiss bank, will close its energy and soft-commodity trading operations as part of an effort to cut costs.

Wall Street Journal:

- In the third quarter, global deal volume in dollar terms rose 1% to $968 billion from a year earlier. The U.S. was particularly strong, jumping 27% to $368.2 billion.

Interfax:
- Russia’s central bank may raise its inflation forecast to “about” 12%, citing the bank’s First Deputy Chairman Alexei Ulyukayev.recast to "

The Economic Times:

- For many companies, this could turn out to be the longest weekend of their life. To tide over the next five days — after which they hope the cash crunch could ease a little — several non-banking financial companies (NBFCs) have borrowed at rates the Mumbai money market has never seen before. Desperation has driven these firms to raise money at an unbelievable 1,000-1,800 basis points (bps) above Mibor (Mumbai inter-bank offer rate) — the benchmark rate for overnight lending, which is fixed by polling call money rates from leading banks and bond houses. On Wednesday, Mibor was quoting at 17%. This means an interest cost of 27-35% for the borrowers. “There have been some deals at even 2,000 bps over Mibor... I have not heard of such rates,” said a dealer with a large institution.

Bear Radar

Style Underperformer:
Mid-cap Growth (-3.97%)

Sector Underperformers:
Gold (-12.37%), Road&Rail (-11.28%) and Construction (-9.11%)

Stocks Falling on Unusual Volume:
ALY, CLF, RIO, PBR, GE, SBAC, TESO, TITN, ZOLL, GNTX, ITRI, PYZ, KRG, MON, MOS, POT, SYT, CNW, CCH, CMP and WFT

Stocks With Unusual Put Option Activity:
1) SPLS 2) KO 3) CBS 4) TLM 5) SBAC

Bull Radar

Style Outperformer:
Large-cap Value (-1.06%)

Sector Outperformers:
Telecom (+.15%), Drugs (+.12%) and Medical Equipment (-.61%)

Stocks Rising on Unusual Volume:
AMWD, BLUD, SUNH, DRYS and SQNM

Stocks With Unusual Call Option Activity:
1) LSI 2) SOV 3) NSM 4) SLM 5) CL

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Thursday Watch

Late-Night Headlines
Bloomberg:
- The U.S. Securities and Exchange Commission will extend a ban on short-sales of financial stocks, leaving in place the prohibition on bets companies' shares will fall until Congress approves a $700 billion economic bailout. The restriction will expire three days after lawmakers give Treasury Secretary Henry Paulson authority to buy illiquid assets that are burdening banks and other financial firms, the SEC said today in a statement. The short-sale prohibition will end no later than Oct. 17 if Congress rejects the legislation. ``There are circumstances in which short selling can be used as a tool to mislead the market,'' the SEC said in its statement announcing the extension. It can be used as a ``downward manipulation'' in which traders spread ``lies about a company's negative prospects.'' The SEC handed hedge funds a victory by dropping a separate rule requiring investors who manage more than $100 million to publicly disclose their short positions. The SEC is now requiring funds to only reveal short positions to the agency. That requirement may be in place indefinitely, the agency said. In addition, the regulator continued its crackdown on so- called naked shorting by adopting two regulations that pressure traders and brokers to actually deliver borrowed shares to buyers. A third rule extension makes it a securities fraud when sellers deceive brokers about delivering borrowed shares.

- Asian money market rates declined as the U.S. Senate passed a $700 billion banking rescue bill, easing concern that more financial companies will fail. Overnight dollar borrowing rates for banks outside the U.S. fell 1.35 percentage points to 2.25 percent as of 10:20 a.m. in Tokyo. The rate dropped 2.82 percentage points yesterday, when it touched as high as 7.3 percent.

- The US dollar rose against the euro, approaching a one-year high, as the U.S. Senate began voting on a $700 billion bill that would allow the government to buy troubled assets from banks. The euro may fall for a fourth day against the dollar before today's meeting of the European Central Bank at which policy makers led by Jean-Claude Trichet are forecast to keep the main refinancing rate at 4.25 percent. ``I don't think the euro can get a lot of traction out of Trichet,'' said Jeremy Stretch, a strategist in London at Rabobank International, the third-largest Dutch bank. ``If he is seen to be hawkish, the euro will fall, and if he is seen to open the gates, I think the euro will slide on that basis.''

- New Zealand's commodity export price index fell by the most in 21 years in September, led by dairy, aluminum and beef, ANZ National Bank Ltd. said.

- The U.S. approved the release of as much as 900,000 barrels of oil from the Strategic Petroleum Reserve to two unidentified refiners, after a request for more supplies to ease fuel shortages in the Southeast.

Wall Street Journal:
- The Senate handily passed a controversial financial rescue package Wednesday, giving the bill its first legislative victory but adding provisions that could complicate efforts to push the $700 billion plan through the House of Representatives.

- Lilly(LLY) Emerges as ImClone’s(IMCL) Secret Admirer.

- For all the speculation over how Sarah Palin will fare in the vice-presidential debate Thursday night, her Democratic opponent, Joe Biden, faces a challenge of his own: taking on the Alaska governor without coming across as sexist or a bully.

- Having come face-to-face with their own mortality, Wall Street rivals Goldman Sachs Group Inc.(GS) and Morgan Stanley(MS) are doing things they wouldn't have imagined just months ago. They have diluted existing shareholders, pushed for rules that are an anathema to many free-market champions and rewritten their corporate charters to become commercial banks -- a business they had regarded as beneath their pedigrees. Morgan Stanley is even considering adding automated teller machines inside its brokerage locations, say people close to the firm.

MarketWatch.com:
- It's unlikely the European Central Bank will cut interest rates when the Governing Council meets Thursday, but a rapidly deteriorating economic outlook and intense financial turmoil might be enough to convince ECB President Jean-Claude Trichet to lay the groundwork to move sooner rather than later, economists said.

NY Times:
- Iraq's Shiite-led government took command Wednesday of thousands of U.S-backed mostly Sunni fighters who turned against al-Qaida, pledging to integrate them into public life in recognition of their help in quelling violence. About 100,000 fighters, known as Sons of Iraq or Awakening Councils, had been under U.S. military supervision and were paid by the Americans for the last two years. They are now being transferred to Iraqi military control.

- For some hedge funds, Lehman Brothers(LEH) has become the Roach Motel of Wall Street: They checked in, but they can’t check out. Two weeks after Lehman spiraled into bankruptcy, hedge funds that did business with the Wall Street bank are still fighting to get their money out of the firm. For some, it has become a life-or-death struggle. Big funds like GLG, Harbinger, Amber Capital and Elliott Associates have varying degrees of exposure to Lehman Brothers.

Forbes.com:
- What Buffett’s Bet Says About GE(GE).

USA Today.com:

- A Securities and Exchange Commission investigation into whether traders spread misinformation in a bid to drive down shares of financial firms focuses in part on a series of midsummer Wall Street rumors, according to an SEC subpoena.

Reuters:

- The Pfizer Inc.(PFE) AIDS drug maraviroc helps thwart the HIV virus in nearly half of people who have developed resistance to other treatments, according to two related studies published on Wednesday.

- Sony Corp's(SNE) PlayStation 3 video game console and its portable cousin, the PSP, are selling faster than expected and are poised to meet full-year sales targets even if the current economic crisis hurts holiday demand, Sony said on Wednesday.

- Japan's Mitsubishi Motors said on Wednesday it will begin testing its electric cars in Europe next month as it aims to beat rivals to the uncharted market and promote itself as the pioneer of the zero-emission vehicles.
- North American fertilizer company Mosaic Co (MOS) said on Wednesday its fiscal first- quarter profit almost tripled, driven by a boom in the global agricultural sector and the soaring price of potash- and phosphate-based crop nutrients. But the company's shares plummeted more than 17 percent to $55.45 in trading after the closing bell as earnings fell short of Wall Street's expectations. The company warned it plans to sharply reduce phosphate production over the next several months, due to high inventory levels. "Momentum has slowed in the phosphates business near-term due to the combined effects of soft seasonal demand, higher customer inventory levels and falling raw material costs," said Prokopanko.

- Investors poured a record $12.39 billion into U.S. money market funds in the week to Sept. 30, the Money Fund Report said on Wednesday.

Financial Times:
- AIG, the troubled US insurer, is set to kick-start a sale of assets likely to attract interest from potential buyers including sovereign wealth funds, private equity groups and US and European insurers.

- Guy Wyser-Pratte has blocked withdrawals from his hedge fund after the veteran New York arbitrageur and activist warned that the “calamitous” market conditions were the worst since he started trading in the 1960s. Wyser-Pratte Eurovalue, a $500m fund campaigning for change at mid-sized companies across Europe, suspended withdrawals on Tuesday after some clients asked for their money back.

Independent:

- Anthony Bolton, who ran the Fidelity Special Situations fund for many years, believes the UK stock market has reached rock-bottom and he is using his own money to start betting on a recovery. Bolton said that he’d started to feel optimistic “for the first time in a couple of years” and that “the markets of the past two or three days have all the signs of a low.” During the past weeks, we have looked into the abyss and stepped back. Mr Bolton's view, which is shared by other fund managers at Fidelity, is based partly on his contrarian instincts, but also on the current depressed valuations of many companies. Mr Bolton said that investor sentiment indicators were now so depressed that there was no further for confidence to fall and that he had also identified several sectors of the market which offered better value than at any time for a generation. Mr Bolton said sectors such as financials, which began falling before the rest of the market, were likely to lead the recovery, with banking consolidation in the UK, for example, working in favour of many companies. He warned that areas such as commodities that have only begun falling in recent months would take longer to recover. "I wouldn't rush back into natural resources," he said.

Economic Daily News:

- Taipei metropolitan home prices fell about 10% last month from August, citing figures from property agency Yungching Rehouse Ltd. The number of units changing hands declined 20%.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.75% to +.25% on average.
S&P 500 futures -.97%.
NASDAQ 100 futures -.97%.

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Earnings of Note
Company/EPS Estimate
- (MAR)/.32

- (STZ)/.44

- (RECN)/.26

- (GPN)/.60

Economic Releases
8:30 am EST

- Initial Jobless Claims for last week are estimated to fall to 475K versus 493K the prior week.

- Continuing Claims are estimated to rise to 3550K versus 35442K prior.

10:00 am EST

- Factory Orders for August are estimated to fall 3.0% versus a 1.3% gain in July.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly EIA natural gas inventory report, Cowen Therapeutics Conference, (SFE) analyst day, (OKS) analyst meeting and (ENER) investor day 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 modestly higher. The Portfolio is 75% net long heading into the day.