Monday Watch

Weekend Headlines
Bloomberg:

- Iran says it is testing an air defense system this week in the largest military exercises it has conducted to assess the country’s ability to protect its nuclear plants. The new anti-aircraft defense system will be tested in an operation called “Aseman-e-Valayat 2,” state-run Press TV cited Defense Minister Ahmad Vahidi as saying in Tehran late yesterday after the drills began. The operation will last five days and cover about 600,000 square kilometers (231,660 square miles) in the northwest, west, south and southwest, Brigadier General Ahmad Miqani, commander of the air defense headquarters, told Press TV. The area used for the exercises totals more than a third of Iranian territory.

- Higher-income Americans should be taxed to pay for more troops sent to Afghanistan and NATO should provide half of the new soldiers, said Carl Levin, chairman of the Senate Armed Services Committee. An “additional income tax to the upper brackets, folks earning more than $200,000 or $250,000” a year, could fund more troops, Levin, a Michigan Democrat, said in an interview for Bloomberg Television’s “Political Capital With Al Hunt,” airing this weekend.

- Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum has consolidated his hold on the debt-laden emirate, downgrading powerful figures behind the city-state’s boom that turned to a bust. Sheikh Mohammed on Nov. 20 sacked the governor of the Dubai International Financial Centre, Omar Bin Sulaiman, who had led efforts to transform Dubai into a Middle East finance hub. A day earlier, he dropped Mohammad al-Gergawi, Sultan Ahmed Bin Sulayem and Mohammed Ali Alabbar from the board of Dubai’s main holding company, the Investment Corporation of Dubai. The three were at the forefront of a construction drive that began in 2002 and collapsed last year after the global financial turmoil engulfed Dubai. The moves herald greater consolidation of so-called Dubai Inc., the web of competing, state-owned companies that Sheikh Mohammed used to accelerate diversification of the second- largest member of the United Arab Emirates away from oil. Dubai is struggling under $80 billion of debt amassed in the process.

- China is risking a Japan-style bubble unless the country’s regulators tighten liquidity conditions, BNP Paribas said. “We’re entering a phase where China could experience similar asset bubble that we saw in Japan in the 1980s,” said Erwin Sanft, head of China and Hong Kong equities research at BNP Paribas. “If China continues its loose fiscal and monetary policy that could be those problems.” China implemented a stimulus package, encouraged record lending and cut interest rates five times since September 2008 to boost growth as the global recession curbed demand for the country’s exports. The bursting of a bubble in Japan’s stock and real-estate markets in 1990 led to what the Japanese call the “lost decade” of little or no growth. China is among the emerging markets facing risks of property and commodity market bubbles, central bank adviser Fan Gang said Nov. 18, joining Liu Mingkang, the country’s top banking regulator in expressing concern about surging asset prices.

Wall Street Journal:

- Bank of America Corp.(BAC) Chief Executive Kenneth Lewis has said he would consider postponing his retirement if directors need more time to find a successor or smooth the transition to the next CEO, according to a person close to him.

- A more assertive Environmental Protection Agency is demanding that Texas tighten its pollution rules, drawing the ire of companies and some of the state's political leaders. At the heart of the dispute is an EPA threat to void some of the state's air-quality regulations, which it says break federal law. The agency also is studying whether oil refineries -- of which Texas has many -- emit dangerous amounts of toxins. The EPA has emerged as one of the most aggressive regulatory agencies in the Obama administration. It has moved to regulate carbon-dioxide emissions, announced plans to set tougher limits on mercury emissions from coal- or oil-burning power plants and held up dozens of permit applications for coal-mining projects in Central Appalachia, citing concerns about water quality. Business groups, including the U.S. Chamber of Commerce and the National Mining Association, say the agency also is saddling companies with costly mandates and could drive jobs outside the U.S.

- For the second year, The Wall Street Journal invited top CEOs and policy makers to come up with ideas for dealing with four of the most crucial issues confronting the world today. Inside, you'll find the debates they had, the arguments they made—and what they agreed needs to be done. This year, with the economy showing hints of recovery, the CEOs had something else on their minds—concerns about too much government. During a day and a half of deliberations, the group adopted as their top priority a call for "sustainable job creation." But they made clear that they weren't talking about public employment, a jobs tax credit or any other sort of quick fix. Rather, they called on the White House to evaluate all its regulatory policies—including the sweeping changes being contemplated in health, finance, energy and taxes—with an eye on how those changes would affect private-sector employment. The implication was that many of those policies, as now envisioned, could discourage job growth. The CEOs were visited by a parade of top Obama administration officials, all of whom vowed that they were listening to business concerns. Yet in their questions and comments, as well as in their hallway conversations, the CEOs expressed continued concern that the current U.S. government, more than any in recent decades, was not attuned to the needs of the businesses that create the lion's share of employment in this country.

- The Obama administration is in advanced talks with its North Atlantic Treaty Organization allies for a coordinated rollout of a new Afghan war strategy, which U.S. officials hope will include a commitment by European allies to send several thousand additional troops. U.S. and European estimates of the new troops they may get from NATO allies vary from 3,000 to 7,000. Those would complement the additional U.S. forces Mr. Obama is considering; those options range from 10,000 to 40,000, but U.S. officials have said a combination of combat troops and training forces totaling 35,000 has gained the most momentum.

- The picture that emerges of prominent climate-change scientists from the more than 3,000 documents and emails accessed by hackers and put on the Internet this week is one of professional backbiting and questionable scientific practices. It could undermine the idea that the science of man-made global warming is entirely settled just weeks before a crucial climate-change summit. Researchers at the Climatic Research Unit at the University of East Anglia, England, were victims of a cyberattack by hackers sometime Thursday. A collection of emails dating back to the mid-1990s as well as scientific documents were splashed across the Internet. The publicly posted material includes years of correspondence among leading climate researchers, most of whom participate in the preparation of climate-change reports for the Intergovernmental Panel on Climate Change, the authoritative summaries of global climate science that influence policy makers around the world.The release of the documents comes just weeks before a big climate-change summit in Copenhagen, Denmark, meant to lay the groundwork for a new global treaty to curb greenhouse-gas emissions and fight climate change. Momentum for an agreement has been undermined by the economic slump, which has put environmental issues on the back burner in most countries, and by a 10-year cooling trend in global temperatures that runs contrary to many of the dire predictions in climate models such as the IPCC's. A partial review of the emails shows that in many cases, climate scientists revealed that their own research wasn't always conclusive. In others, they discussed ways to paper over differences among themselves in order to present a "unified" view on climate change. On at least one occasion, climate scientists were asked to "beef up" conclusions about climate change and extreme weather events because environmental officials in one country were planning a "big public splash." The release of the documents has given ammunition to many skeptics of man-made global warming, who for years have argued that the scientific "consensus" was less robust than the official IPCC summaries indicated and that climate researchers systematically ostracized other scientists who presented findings that differed from orthodox views. Since the hacking, many Web sites catering to climate skeptics have pored over the material and concluded that it shows a concerted effort to distort climate science. More recent messages showed climate scientists were increasingly concerned about blog postings and articles on leading skeptical Web sites. Much of the internal discussion over scientific papers centered on how to pre-empt attacks from prominent skeptics, for example. Fellow scientists who disagreed with orthodox views on climate change were variously referred to as "prats" and "utter prats." In other exchanges, one climate researcher said he was "very tempted" to "beat the crap out of" a prominent, skeptical U.S. climate scientist. In several of the emails, climate researchers discussed how to arrange for favorable reviewers for papers they planned to publish in scientific journals. At the same time, climate researchers at times appeared to pressure scientific journals not to publish research by other scientists whose findings they disagreed with.

- Federal Reserve Bank of St. Louis President James Bullard would prefer to keep the central bank's asset buying program active beyond its current cut off date to give policy makers more flexibility as they seek to shepherd the economy toward recovery. In an interview with Dow Jones Sunday, the official said he wants to see the central bank effort to buy mortgage backed securities maintained beyond the first quarter 2010 end.

- Chieftain Capital Management Inc., an iconoclastic investment firm with a strong two-decade track record, is splitting up following personality conflicts among its leaders, according to people familiar with the matter. Co-founder Glenn Greenberg, who came into the headlines last year for his campaign against management at cable company Comcast Corp., plans to stay at the firm, according to a letter that he, co-founder John Shapiro and two partners sent to investors. Mr. Greenberg's firm will be renamed Brave Warrior Advisors, according to a person familiar with the matter.

- For those of us who have tracked Islamic militancy in Europe, Maj. Nidal Malik Hasan's actions are not extraordinary. Since Muslim militants first tried to blow a French high-speed train off its rails in 1995, European intelligence and internal-security services have increasingly monitored European Muslim radicals. Whether it's anti-Muslim bigotry, the large numbers of immigrant and native-born Muslims in Europe, an appreciation of how hard it is to become European, or just an understanding of how dangerous Islamic radicalism is, most Europeans are far less circumspect and politically correct when discussing their Muslim compatriots than are Americans. A concern for not giving offense to Muslims would never prevent the French internal-security service, the Direction de la Surveillance du Territoire (DST), which deploys a large number of Muslim officers, from aggressively trying to pre-empt terrorism. As Maj. Hasan's case shows, this is not true in the United States. The American military and especially the Federal Bureau of Investigation were in great part inattentive because they were too sensitive.

CNBC.com:
- Newspaper circulation may be worse than it looks.

IBD:
- What looked like an investment gone sour for Orthofix International (OFIX) now appears to have big potential. And it's helped shares recover from a steep slide that bottomed out a year ago.

NY Times:

- Janet Tavakoli, an expert in derivatives at Tavakoli Structured Finance, a consulting firm. “On Sept. 16, 2008, David Viniar, Goldman’s chief financial officer, said that whatever the outcome at A.I.G., the direct impact of Goldman’s credit exposure would be immaterial,” she said. “That was false. The report states that if the New York Fed had negotiated concessions, Goldman would have suffered a loss.” The report says that Goldman would have had difficulty collecting on the hedges it used to insulate itself from an A.I.G. default because everyone’s wallets would have been closing in a panic. “The prices of the collateralized debt obligations against which Goldman bought protection from A.I.G. were in sickening free fall, and the cost of replacing A.I.G.’s protection would have been sky-high,” she said. “Goldman must have known this, because it underwrote some of those value-destroying C.D.O.’s.” Ms. Tavakoli argues that Goldman should refund the money it received in the bailout and take back the toxic C.D.O.’s now residing on the Fed’s books — and to do so before it begins showering bonuses on its taxpayer-protected employees.

The Business Insider:
- Saturday Night Live Rips Obama Over China Trip, Spending, And The Deficit. (video)

- Here's the latest in the FHA's ongoing parade of horrors. (In case you missed it, the agency tasked with keeping the housing bubble alive has been undewriting subrpime-quality loans, and helping broke dudes by apartment buildings in San Francisco.) Now they're subsidizing hedge fund profits. As the NYT reports, hedge funds are buying up big pools of distressed mortgages, modifying the loans with the homeowners, and then wrapping them in FHA insurance, so they can flip them for a higher price. For instance, a fund might offer to pay $40 million for a $100 million block of mortgages from a bank in distress. Then the fund could arrange to have some of those loans refinanced into mortgages backed by an agency like the F.H.A and then sold to an agency like Ginnie Mae. The trick is to persuade the homeowners to refinance those mortgages, by offering to reduce the amounts the homeowners owe. The profit comes when the refinancings reach more than the $40 million that the fund paid for the block of loans. So it's good for the homeowner, and great for the hedge fund, but the taxpayer bears the burden. Why? We suppose you could think of the hedge fund as merely a service provider in this case -- and certainly finding proper loans to modify and doing so costs money. There's the risk that they won't be able to modify and get FHA insurance on enough of the loans to make a profit. But however you boil it down, it's still a case of the public taking a risk, and the private sector collecting a profit. But then, how's that new at all?

- Charts Of The Week: Yahoo’s(YHOO) Search Business Is Toast.

CNNMoney.com:

- Broadpoint AmTech's Brian Marshall, who has replaced Piper Jaffray's Gene Munster as the most bullish of the mainstream Apple analysts, made several assertions of fact in an Bloomberg TV interview Friday that — if true — struck me as newsworthy. Chief among them:

Business Week:
- These Men Could Kill SarbOx. Two tenacious Washington lawyers have the Sarbanes-Oxley Act in their sights-and they just might take it down.

NJ.com:

- Former New Jersey Gov. Thomas Kean, who served as co-chairman of the 9/11 Commission, believes the Obama administration is making a mistake to try Khalid Sheikh Mohammed in federal district court in Manhattan. Below is an edited transcript of a conversation he had with Editorial Page Editor Tom Moran. Q. I understand you oppose the decision to try Khalid Sheikh Mohammed in criminal court in New York City. Why is that? A. It’s an unfortunate decision. First, it’s what he wants. He requested it. He’s wanted to be on the world stage for a long time, and this gives him that opportunity. Second, it gives him a chance for a propaganda win. The eyes of the world will be on that trial, and he’ll use it to criticize us for our support of Israel, to appeal to the Arab world and make himself out to be a martyr.

Financial News:

- European institutional investors have turned their backs on quantitative strategies since the financial crisis, and most of the largest investors in the region favour a more qualitative approach, according to research published today.

USA Today:

- The fleet of new cars and trucks sold to U.S. consumers averaged 21 miles per gallon in the 2008 model year, a modest increase over the previous year, the Environmental Protection Agency reported Friday. New vehicle fuel efficiency improved 2% in 2008 from 20.6 mpg for the 2007 model year. The government projected it will improve slightly to 21.1 mpg in the 2009 model year.

Politico:

- Confusing new recommendations on mammograms and pap smears are playing into public fears about the increased role the federal government would play in health care if President Barack Obama’s health care reform efforts are successful. Even some supporters of health care reform legislation, which faces a critical test vote in the Senate Saturday, say the recent spate of stories is damaging to the drive for an overhaul of the system. “It is a framing issue and, boy, is it ever big,” said George Lakoff, a Berkeley linguistics professor who advises Democratic candidates on communications techniques. “What that does is open up the ‘death panels’ thing again… It gives the conservatives ammunition.” “You do want the background trust to remain solid with respect to serious public health challenges. You don’t want to fritter that away,” said Dr. Arthur Caplan, a professor of bioethics at the University of Pennsylvania. “What matters is the public trust in agencies like HHS, CDC and FDA. If they get skeptical or the messaging is confusing, it is bound to make health reform harder.” Republicans quickly jumped on the recommendations against mammograms for women in their 40s, portraying the pronouncement as a first step towards government limits on health care services. “One of the real dangers, I think, that we are talking about with this health care proposal that the Democrats have put before us is the concern about rationing,” said Alaska Sen. Lisa Murkowski (R) on Friday, calling the mammograms recommendations “a peek under the curtain, if you will, of what we can anticipate with a government-run program.” "This is how rationing begins,” Rep. Marsha Blackburn (R-Tenn.) said Tuesday. “This is the little toe in the edge of the water. And this is where we start getting a bureaucrat between you and your physician. As we have gone through this health care debate over the past several months, this is what we have warned about.”

- Senate Majority Leader Harry Reid eked out 60 votes on a procedural motion to start the health care debate Saturday night – but there’s no guarantee he can pass a bill on the merits. And as he struggles, the reasons are clear: deep divides among Democrats on a public insurance plan, abortion, tax hikes and cost-cutting. Liberals want the plan to be generous enough. Moderates fear a budget-buster. And everyone is trying to avoid angering seniors. Even in the blush of Saturday’s victory, Reid (D-Nev.) is far from having the votes to move his $848 billion package to final passage. At least four centrists have pledged to oppose it in its current form, largely over the public option. Reid is in a bind. Stay to the left, and moderates vote no. Move a tad to the right, and Reid faces insurrection from the left, as liberals in his own caucus and in the House vow not to compromise any further on their signature issue. As one of the Senate most liberal members, Bernie Sanders (I-Vt.), told POLITICO’s The Arena: “I have made it clear to the administration and Democratic leadership that my vote for the final bill is by no means guaranteed.”

Washington Post:

- In the months before the deadly shootings at Fort Hood, Army Maj. Nidal M. Hasan intensified his communications with a radical Yemeni American cleric and began to discuss surreptitious financial transfers and other steps that could translate his thoughts into action, according to two sources briefed on a collection of secret e-mails between the two. The e-mails were obtained by an FBI-led task force in San Diego between late last year and June but were not forwarded to the military, according to government and congressional sources. Some were sent to the FBI's Washington field office, triggering an assessment into whether they raised national security concerns, but those intercepted later were not, the sources said. Hasan's contacts with extremist imam Anwar al-Aulaqi began as religious queries but took on a more specific and concrete tone before he moved to Texas, where he allegedly unleashed the Nov. 5 attack that killed 13 people and wounded nearly three dozen, said the sources who were briefed on the e-mails, speaking on the condition of anonymity because the case is sensitive and unfolding. One of those sources said the two discussed in "cryptic and coded exchanges" the transfer of money overseas in ways that would not attract law enforcement attention. "It became very clear toward the end of those e-mails he was interested in taking action." Senate Armed Services Committee Chairman Carl M. Levin (D-Mich.) said Friday that he would investigate the handling of the e-mails -- 18 or 19 in all -- and why military officials were not aware of them before the deadly attack. Levin told reporters after a briefing from Pentagon staff members that "there are some who are reluctant to call it terrorism, but there is significant evidence that it is."

Reuters:

- Kraft Foods Inc may raise its offer for British chocolatier Cadbury Plc or offer more cash in its bid if rival takeover offers emerge, a source familiar with the situation said on Sunday.

Financial Times:

- John Horseman has lost his faith in markets. “The market asks questions of us. You can either believe or leave,” said the co-founder of London hedge fund group Horseman Capital, announcing his decision to step down from running his once-popular long/short equity fund. While markets around the globe took off in March, the 51-year-old executive remained focused on economic obstacles large enough to derail the recovery train. As a result, he stayed short in his flagship $3.5bn (£2.1bn, €2.3bn) Horseman Global Fund, which is known for making directional bets. Buffeted by logic-defying gains in markets, his fund lost 23 per cent during the January-October stretch.

- Foreign companies could be sued more easily in US courts under legislation working through Congress that has led to concerns in the European Commission. The Investor Protection Act (IPA), approved by the House financial services committee this month, contains a provision to make it easier for investors to sue public companies in the US even if they are based abroad and listed on overseas exchanges. “If this legislation passes, there will be greater opportunity for foreign companies to be hauled into US courts,” said David Onorato, litigation partner at Freshfields and former director of litigation for Bank of America. Charlie McCreevy, the EU commissioner for internal markets, has expressed concerns over the provision, according to one person involved in Washington, who added that it could yet be changed.

WirtschaftsWoche:

- BMW AG plans to offer hybrid versions in the next generation of its 3 and 5 series models, citing CEO Norbert Reithofer. These versions will be so-called full hybrids, which allow the vehicles to drive short distances solely on electric power.

The China Post:

- China Unicom, the nation's second largest cell phone carrier, said it expects nearly 10 percent of the third generation (3G) users in the country to switch to Apple Inc.'s iPhone in the next couple of years. Tian Wenke, general manager of corporate business department of China Unicom, told China Daily that the smartphone has already evoked good interest from business users. “We expect nearly 10 percent of China's 3G users to buy iPhones,” Tian said at an industry forum in Hangzhou last week.The number of 3G users in the country is expected to reach 16.2 million by the end of next year, according to figures from research firm Wireless Intelligence. Li Yizhong, minister of the industry and information technology, had earlier said China plans to have around 240 million 3G users by 2012. On Tuesday China Unicom Chairman Chang Xiaobing said he expects iPhone to become China's best-selling smartphone.

Weekend Recommendations
Barron's:
- Made positive comments on (DISCA), (CREE), (T), (BBT) and (TLVT).

- Made negative comments on (VRX).

Citigroup:

- Reiterated Buy on (OPEN), target $35.

- Reiterated Buy on (DRE), target $13.50.

- Rated (RA) Buy, target $16.

- Reiterated Buy on (TEVA), target $60.

- Upgraded (DHI) to Hold.

Night Trading
Asian indices are -.25% to +.50% on avg.

Asia Ex-Japan Inv Grade CDS Index 110.0 +1.0 basis point.
S&P 500 futures +.34%.
NASDAQ 100 futures +.37%.

Morning Preview
BNO Breaking Global News of Note

Google Top Stories

Bloomberg Breaking News

Yahoo Most Popular Biz Stories

MarketWatch News Viewer

Asian Financial News

European Financial News

Latin American Financial News

MarketWatch Pre-market Commentary

U.S. Equity Preview

TradeTheNews Morning Report

Briefing.com In Play

SeekingAlpha Market Currents

Briefing.com Bond Ticker

US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Stock Quote/Chart
WSJ Intl Markets Performance
Commodity Futures
IBD New America
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades

Politico Headlines
Rasmussen Reports Polling

Earnings of Note
Company/Estimate
- (TECD)/.71

- (TSN)/.27

- (ADI)/.26

- (HPQ)/1.12

- (BRCD)/.13

- (NUAN)/.29

- (DY)/.17

- (BJS)/.02

- (CPB)/.81

Upcoming Splits

- None of note

Economic Releases

10:00 am EST

- Existing Home Sales for October are estimated to rise to 5.7M versus 5.57M in September.

Other Potential Market Movers
- The Chicago Fed Nat Activity Index, Treasury’s 2-Year Note Auction and the (UL) investor meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and commodity stocks in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.