Monday Watch

Weekend Headlines
Bloomberg:
- The decline in US stocks is “way overdone” and the Dow Jones Industrial Average may rally 1,000 points, investor Barton Biggs said.
- Treasury Secretary Henry Paulson, defending the bailout of Bear Stearns(BSC), said policy makers will do whatever is needed to prevent disruptions in financial market from hurting the economy. “The government is prepared to do what it takes to maintain the stability of our financial system,” Paulson told the “Fox News Sunday” television program.
- Declines have left companies in the S&P 500 trading at 13.4 times forecast earnings, the cheapest level in more than 18 years, while valuations versus 10-year Treasuries are the lowest in at least two decades.
- Bear Stearns’(BSC) cash short fall began March 11 after rumors spread that the second-biggest underwriter of US mortgage bonds lacked sufficient access to capital, and lenders and clients began withdrawing funds. “Beginning on that day” and then “increasingly throughout the week, lenders and customers began to remove funds from the firm, despite its stable capital cushion,” the SEC said. Bear Stearns(BSC) CEO Alan Schwartz blamed “market rumors” for triggering the 85-year-old company’s liquidity crisis.
- John McCain arrived in Iraq today for his first trip to the country since clinching the Republican presidential nomination.
- Soybeans fell 3.6%, the maximum allowed by the Chicago Board of Trade, after investors sold commodities to raise cash as banks demand more money to back leveraged positions in stocks and bonds.
- Sugar Falls on Global Surplus, Oil-Led Decline in Commodities. Global production will exceed demand by 7.49 million metric tons, said analysts led by John Ireland, head of sugar research for broker ED&F Man in London.
- The Reverend Jeremiah Wright Jr., whose remarks on Aids and the Sept.11 terrorist attacks have sparked controversy, is no longer formally tied to Democratic presidential candidate Barack Obama’s campaign, an Obama spokesman said.
- ‘Kristen,’ Linked to Spitzer, Becomes Pop Star on Web.
- Microsoft(MSFT) may have opened the door to price negotiations with Yahoo!(YHOO) after the two companies met this week, making a deal more likely.
- Asian currencies fell this week, led by South Korea’s won and the Indonesian rupiah, as overseas investors sold the region’s equities.
- UBS AG said it isn’t selling its Paine Webber brokerage unit, denying a CNBC report saying the division might be for sales.
- VIX Closes at Highest Since March 2003.
- China has room to increase interest rates and banks’ reserve requirements to cool the world’s fastest-growing major economy, central bank Governor Zhou Xiaochuan said.
- Ahmadinejad’s Nuclear Mandate Strengthened After Iran Election.

Wall Street Journal:
- JPMorgan Rescues Bear Stearns(BSC). US Pushed Deal To Avert Crisis; A Fire-Sale Price.
- In an extraordinary weekend move, the Federal Reserve announced the most dramatic expansion yet of its lending, promising to lend for up to six months to securities dealers under terms normally reserved only for tightly regulated banks. The Fed also cut the rate on such direct loans by a quarter of a percentage point, just two days before it is likely to slash interest rates more broadly.

MarketWatch.com:
- Full text of Federal Reserve statement on 25 basis points discount rate cut.
- Go for the growth. As market decline, growth stocks hold up better than value.

NY Times:
- A growing dispute in the Democratic Party over possible new primaries in Michigan and Florida has prompted some supporters of Senator Hillary Clinton to threaten donation boycotts.
- With a history of using alternative fuels vehicles long before it became chic, White Plains now is the Northeast hub – and one of three cities nationwide – for a model program designed to put hydrogen-powered cars in consumers’ hands.

TheStreet.com:
- Short interest in REIT stocks is nearing an all-time high, which has some long-term investors in the sector saying the group may be setting itself up for a technical bounce.

EE Times:
- A semiconductor market starts getting serious attention when it can be measured in the billions of dollars. The market for semiconductors that enable Internet Protocol connectivity in consumer electronics will soon cross that threshold.

Chicago Tribune:
- Democratic presidential candidate Barack Obama said voters should view his real-estate transactions with indicted Chicago businessman Antoin “Tony” Rezko as a “mistake.”

Boston Globe:
- The head of Boston’s Federal Reserve Bank has written to subprime borrowers across New England urging them to renegotiate their current loans if their payments are too high.
- As oil prices charge past $110 a barrel, analysts say government-run investment funds from oil-rich nations may be adding speculative heat to an already red-hot market. By placing bets in futures markets, these sovereign-wealth funds are no different than hedge funds, pension funds and other institutional investors, with one exception: at the same time they profit by trading “paper” barrels, their governments also reap huge sums pumping black gold for consumers worldwide. Some analysts estimate that the stampede by investment banks, hedge funds and other institutional investors into oil futures has lifted the price by as much as $30/bbl. Sovereign wealth funds may also bet on oil prices indirectly, by providing capital to hedge funds. There are at least 600 energy-related hedge funds and another 200-pluls that focus on commodities. Hedge funds have “raised billions” in Gulf states such as Dubai. Antoine Halff, a commodities analyst for Newedge, the brokerage arm of Societe Generale, said supply and demand fundamentals don’t justify the record price levels. US oil demand is declining and gasoline inventories are at their highest levels in 15 years, he said. While Persian Gulf sovereign funds would be taking a risk since oil prices could decline, “it isn’t the worst investment idea you could have,” said Kevin Book, a senior energy analyst at Freidman Billings Ramsey, “if you control the oil supply.”

Business Week:
- China cuts off access to YouTube after videos of Tibet protests are posted.

USA Today:
- China’s private firms set sights on rest of world.

Forbes:
- Merck(MRK) is using a new technique that it believes could turn genetic information into new drugs, a key bottleneck for the pharmaceutical industry as it struggles to invent new medicines. “There’s a heck of a lot that’s going on between the change in DNA and the onset of the disease,” says Eric Schadt, the Merck researcher who masterminded the work. If Schadt’s approach becomes popular among drug firms, it could be a boon to Illumina(ILMN) and Affymetrix(AFFX), the biotechnology companies which make the DNA chips used both for finding genetic misspellings and for examining which genes are accessed in different tissues.

CNNMoney.com:
- Why Warren Buffett is buying railroads. Improved technology and fuel efficiency have made the rails a perfect industry for the 21^st century.

Financial Times:
- A surprise fall in inflation last month on Friday offered a glimmer of hope that price pressures could be softening in the face of economic weakness, giving the Federal Reserve greater scope to cut US interest rates.

TimesOnline:
- Crude oil prices last week rocketed to a record highs of more than $111 a barrel. T. Boone Pickens’ gamble that oil prices would fall has lost his $4 billion fund $560 million. A new breed of speculation in hedge funds and investment banks is being blamed for pushing prices too high. “If you talk strictly about the fundamentals of supply and demand, the oil price should be about $80/bbl.,” said Ruchir Kadakia from Cambridge Energy Research Assoc. While there are only 87 million barrels of oil produced each day by the world’s refineries, there are contracts over about 2 billion barrels changing hands in the financial markets. These best on the future price of oil are worth more than $220 billion at today’s prices. Goldman Sachs(GS) and Morgan Stanley(MS) have bought and sold more oil than any other party in the market for more than 20 years. Hedge funds account for almost 10% of the world’s oil trade. “I would estimate that about 70% of the new money that has come into oil trading has come from big, passive, old-fashioned investors who are just looking to diversify away from equities and have ended up crowding out the oil price,” said Philippe Bonnefoy at Cedar Partners, a hedge fund in Geneva.

Daily Telegraph:
- Goldman Sachs(GS) will announce asset writedowns of about $3 billion this week, partly based on the declining value of its stake in Industrial & Commercial Bank of China Ltd. The investment bank may report a decline in first-quarter earnings of about 50%. Goldman will write down about $1.6 billion from its leveraged loans business and a further $1.1 billion from assets owned by the bank’s private equity arm. Shares of ICBC, which is held separately on Goldman’s balance sheet, have fallen by 12% in Hong Kong so far this year.
- Perhaps the most obvious contrarian investment is the US itself.

Folha de S. Paulo:
- Cia. Vale do Rio Doce, the world’s biggest iron-ore producer, may say it agreed to acquire Xstrata Plc for $90 billion as early as today.

El Pais:
- Merrill Lynch(MER) CEO John Thain said the investment bank doesn’t need to raise more capital to offset losses from credit markets, citing an interview with him. Merrill Lynch has more capital than it needs to compensate for possible losses, he said.

Nikkei:
- Japan’s government will lower its assessment of the economy for a second straight month in its March economic report. The report will say high prices for oil and raw materials are sapping economic growth.
- Almost 24% of the presidents and chairman of Japanese companies contacted by the Nikkei newspaper this month said the nation’s economy was deteriorating. In a December survey, 7.5% gave the same answer.

Sydney Morning Herald:
- Australian troops could be in Afghanistan for at least another five years after the Defense Minister, Joel Fitzgibbon, signaled qualified supported for a US timetable for the war.

Gulfnews.com:
- The Abu Dhami Investment Authority is the world’s largest sovereign wealth fun with $900 billion worth of assets under management, Deutsche Bank research shows.

Weekend Recommendations
Barron's:
- Made positive comments on (GIII) and (PERY).
- Made negative comments on (MCD).

Citigroup:
- Reiterated Buy on (AET), target $55.

Night Trading
Asian indices are -4.25% to -2.0% on avg.
S&P 500 futures -2.74%.
NASDAQ 100 futures -2.75%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (CNO)/.21
- (BSC)/.90
- (AES)/.27

Upcoming Splits
- None of note

Economic Data
8:30 am EST
- The 4Q Current Account Deficit is estimated to widen to -$183.8 billion versus -$178.5 billion in 3Q.
- Empire Manufacturing for March is estimated to rise to -7.4 versus -11.7 in February.

9:00 am EST
- Net Long-term TIC Flows for January are estimated to rise to $60.0 billion versus $56.5 billion in December.

9:15 am EST
- Industrial Production for February is estimated to fall .1% versus a .1% gain in January.
- Capacity Utilization for February is estimated to fall to 81.2% versus 81.5% in January.

1:00 pm EST
- The NAHB Housing Market Index for March is estimated at 20 versus 20 in February.

Other Potential Market Movers
- The Cowen Health Care Conference and Citi Small/Mid-cap Emerging Growth Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by financial and real estate shares in the region. I expect US stocks to open sharply lower and to rally into the afternoon, finishing modestly lower. The 10-year swap spread is dropping 6.82 basis points to 65.25 basis points over treasuries, which is the lowest since February 8th. The TED spread is rising slightly to 161 basis points. The 10-year yield is down 13 basis points to 3.33%. The US Dollar Index is down 1.1% to 70.85. The 10-year TIPS spread is dropping 13 basis points to 2.33%. Fed fund futures now imply a 56.0% chance for a 100 basis point fed fund rate cut and 44.0% for a 75 basis point rate cut on Tuesday. The Portfolio is 75% net long heading into the week.