Today's Headlines

Bloomberg:
- Investors in the $591 billion high- yield, high-risk loan market are accusing Goldman Sachs Group Inc.(GS) of naked short selling to profit from record price declines. At least two fund managers complained verbally to officials of the Loan Syndications and Trading Association, saying they believe Goldman helped drive down prices by using the technique, according to people with knowledge of the objections. New York- based Goldman is acting against its clients by trying to profit at their expense, the investors said.

- Hedge-fund manager David Tepper entered the third quarter with $3.1 billion of U.S. stocks and exited with $648 million, selling most holdings to reduce risk and raise cash as carnage spread across the financial markets. ``We moved a lot out early because we didn't want to lose money,'' said Tepper, 51, president of Appaloosa Management LP in Chatham, New Jersey. The firm, which switched some money to bonds, has between 30 percent and 40 percent of assets in cash. The story at Appaloosa, whose returns have dropped more than 20 percent this year, was repeated across the hedge-fund world in the quarter as managers were hit by client withdrawals, tumbling financial markets and tighter credit.

- Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank should provide emergency lending programs only to financial institutions that create credit and handle payments.

- Peter Beutel, president of energy consultant Cameron Hanover Inc., sees likelihood of $35-$40 crude oil. (video)

- Commodities will be under pressure for as long as 18 months, with UBS AG predicting lower prices next year for all but four of the 28 raw materials it forecasts following a collapse in credit for industry. A slump in consumption of steel, a benchmark for industrial demand of raw materials, is feeding through to markets including iron ore and shipping, UBS wrote.

- Citigroup Inc.(C), the U.S. bank with the most employees, plans to eliminate more than 50,000 jobs and cut expenses by 20 percent from their peak as the global economy contracts.

- Stocks are in the midst of an “Era of Fear” that might end soon, according to Donald G.M. Coxe, a global strategist at BMO Capital Markets.

Wall Street Journal:

- General Motors(GM) is a once-great company caught in a web of relationships designed for another era. It should not be fed while still caught, because that will leave it trapped until we get tired of feeding it. Then it will die. The only possibility of saving it is to take the risk of cutting it free.

- Venezuela's President Hugo Chavez said late Sunday his government could build a nuclear reactor in the state of Zulia with help from Russia.

NY Times:
- After a rocky beginning, the nonprofit group One Laptop Per Child thinks an advertising campaign will give a lift to the organization’s effort to place low-cost laptops in the hands of children in developing nations.

- President-elect Barack Obama’s advisers have begun reviewing former President Bill Clinton’s finances and activities to see whether they would preclude the appointment of his wife, Hillary Rodham Clinton, as secretary of state, Democrats close to the situation said Sunday.

Boston Globe:

- Device Tells if It’s Time to Take a Pill. It’s time to take your medicine. Cambridge start-up says its high-tech gadget can help save lives, cut healthcare costs, boost pharmacies’ business.

Rigzone.com

- Petrobras'(PBR) average oil production in Brazil reached the mark of 1,872,970 barrels in October, an 8.3% increase over a year ago. The natural gas production, also in the domestic fields, topped-out at 53.711 million cubic meters/day, 26% more than the 42.589 million cubic meters produced in October 2007.

Wealth Bulletin:

- Man Group, the hedge fund manager whose share price has fallen by 60% this year, is planning to double the size of its flagship AHL fund despite analyst concerns it is too reliant on the computer-driven product.

Dallas Morning News:

- The U.S. Securities and Exchange Commission charged Mark Cuban on Monday with insider trading stemming from a 2004 sale of stock in an Internet company. The complaint alleges that Mr. Cuban avoided losses in excess of $750,000 by selling 600,000 shares he learned would be diluted by a new stock offering. The company, Mamma.com, told Mr. Cuban about the offering on the condition that he keep the information confidential. Mr. Cuban, the owner of the Dallas Mavericks, owned a 6.3 percent stake in the company, now known as Copernic Inc. “Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all of his shares,” said Scott W. Friestad, the SEC’s deputy director of enforcement. “It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market.”

Reuters:
- The consumer chiefs of the European Union and the United States called on China on Monday to crack down on unsafe products, especially toys, ahead of Christmas. More than 20 million Chinese-made toys were recalled worldwide in 2007 due to unsafe features such as excessive levels of lead paint. Beijing has faced the wrath of EU and U.S. lawmakers over other risky products ranging from milk and seafood to toothpaste and furniture.

Market News International:

- European Central Bank council member Nout Wellink said the euro-zone economy is cooling rapidly and inflation is less of a worry.

Bear Radar

Style Underperformer:
Mid-cap Growth (-.59%)

Sector Underperformers:
Insurance (-3.22%), I-Banks (-3.1%) and Banks (-2.81%)

Stocks Falling on Unusual Volume:
BIDU, ADS, UTHR, ISRG and ANF

Stocks With Unusual Put Option Activity:
1) UTHR 2) M 3) BC 4) SPG 5) BIDU

Bull Radar

Style Outperformer:
Small-cap Value (-1.15%)

Sector Outperformers:
Hospitals (+.63%), Restaurants (+.55%) and Biotech (-.19%)

Stocks Rising on Unusual Volume:
LOW, APEI, PPDI, WBMD, GXDX, ENSG, ICFI, MTSC, GMCR and CPL

Stocks With Unusual Call Option Activity:
1) BBT 2) VSEA 3) CRM 4) NSM 5) MFE

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Monday Watch

Weekend Headlines
Bloomberg:

- Leaders from the biggest developed and emerging nations agreed to further steps to shore up a global economy sliding into recession, and laid out regulatory proposals to prevent a recurrence of the financial crisis. The Group of 20 yesterday urged a ``broader policy response,'' citing the potential for additional interest-rate cuts and fiscal stimulus, in a statement after meeting in Washington. The group set a March deadline for recommendations on strengthening accounting standards, derivatives markets and oversight of hedge funds and debt-rating companies.

- New York Representative Charles Rangel said he's revising his tax overhaul proposal to reduce U.S. corporate tax rates to 28 percent, down from the current rate of 35 percent.

- Citigroup Inc.(C) Chief Executive Officer Vikram Pandit sought to reassure employees after the stock tumbled this week, saying in a memo that the bank's revenue is ``strong and stable'' and its capital ``plentiful.'' Pandit, 51, said he'd hold a ``town hall meeting'' at 8 a.m. on Nov. 17 in New York to discuss ``our accomplishments over the last 11 months and why despite the major challenges currently facing our industry and the economy I continue to be optimistic about the future.''

- President-elect Barack Obama said the government needs to provide help to U.S. automakers on condition that management, labor and lenders come up with a plan to make the industry ``sustainable.''

- Hartford Financial Services Group Inc.(HIG), Genworth Financial Inc.(GNW) and Lincoln National Corp.(LNC) plan to buy lenders, a move that may entitle the three insurers to billions of dollars from the Treasury's bank rescue fund.

- Boeing Co.(BA) and union leaders agreed on a contract offer that if approved would give engineers an average 5 percent raise and Boeing the labor peace it needs to get production of the new 787 and 747 jumbo jet back on track.

- House Speaker Nancy Pelosi said U.S. automobile manufacturers need to restructure ``to ensure their long-term economic viability.''

- Iraq's cabinet endorsed a security agreement with the U.S. that would allow an American military presence in the nation until 2011, a government spokesman said. The Status of Forces Agreement was approved today by 27 of the cabinet's 37 ministers and now will be referred to parliament, spokesman Ali al-Dabbagh said in a televised press conference in Baghdad.

- Chinese banks face rising bad loans and narrowing profit margins as the central bank cuts interest rates to boost expansion in the world's fourth-largest economy, the banking regulator said. ``Bad loans are already showing an upward trend, especially in the property market where the mortgage default risk is growing at an accelerating pace,'' Jiang said, without elaborating. ``We can't take this light-heartedly.''

- Contract iron ore prices, at a record after six years of gains, may decline 25% next year amid cuts in steel production and a slump in cash prices, RBC Capital Markets said.

- Japan's economy, the world's second largest, contracted more than economists expected in the third quarter, confirming it entered its first recession since 2001 as companies cut back spending.

Wall Street Journal:

- The Meltdown That Wasn’t. A primer on credit default swaps, the latest Beltway scapegoat.

- Advice to Obama: A Hedge Fund Manager Speaks. So what should President-elect Obama do first to handle the financial crisis? Here is what we heard.

1. A “really good” Treasury secretary who is a man of action, like Hank Paulson, but receptive to ideas.

2. A chairman for the Securities and Exchange Commission who is sympathetic to short-sellers.

3. Fix the Fannie/Freddie restructuring.

- The news for investors continues to be uniformly grim, but among individual stocks, a growing number of long-term opportunities may be beckoning. The sell-off of the past two months has sent scores of stocks to prices below where they changed hands at the end of the last bear market in 2002. About one-third of the stocks in the Standard & Poor's 500-stock index are now valued at less than they were a decade ago.

- Convertible-Bond Arbitrage Losses Its Shirt. Deprived of Leverage, Hedge-Fund Strategy Set For Its Worst Year.

- Oil fell for a second day in New York on signs the global slowdown is limiting demand in China and Japan, the world's second- and third-largest crude users. ``There doesn't seem to be much out there to stop the fall in prices,'' said Toby Hassall, research analyst at Commodity Warrants Pty in Sydney. ``Weak demand and a pretty bleak demand outlook'' may push oil prices as low as $50 this week, he said. The slowdown in demand because of the credit crisis caused stockpiles in the country to increase ``significantly,'' China National Petroleum said in a statement on its Web site. ``As the impact of the financial crisis on China's economy deepens, the company's operations have also been affected adversely,'' the statement said.

Barron’s:

- Our open letter to Barack Obama outlines eight steps he should take to restore order to financial markets and bolster the economy.

1. Back a Bold Stimulus Package

2. Support Aid for Ford, GM

3. Help Homeowners

4. Delay Tax Increases

5. Don't Impede Free Trade

6. Improve Financial Regulation

7. Change Fuel-Efficiency Rules

8. Keep Union Ballots Secret

NY Times:

- Obama Transition Group Includes Former Lobbyists.

- Market Bottom? For Some Investors, It’s Close Enough.

IBD:
- Lululemon(LULU): Retailer Of Yoga Clothing Stretches For Profits In Tough Economy.

Business Week:
- Business School Rankings.

- The Retailers Poised to Survive, Then Thrive.

- Fall of the Funds of Funds. Funds of funds were supposed to be the safe choice for wealthy investors and big institutions. But they were leveraged beyond the max.

CNNMoney.com:

- Gas price drop: 60 days straight. National average price for gallon of gasoline falls to $2.105. Peak was $4.114 in July. There are now 16 states where the average price has fallen below $2. Missouri had the cheapest gas in the nation, at $1.816 a gallon.

Time:

- Congress Loves Hedge Funds. So much for the Waxman Witch Trial, as Dealbreaker had billed it. This was more like a love-in. Some members of the House Committee on Oversight and Government Reform did razz the five multi-billionaire hedge fund managers assembled before them about the taxation of carried interest (performance fees that are taxed at capital gains rates). But two of the five--George Soros and Renaissance Technologies' Jim Simons--agreed that carried interest should be taxed as ordinary income. Paulson didn't, Philip Falcone of Harbinger Capital and Ken Griffin of Citadel were opposed with some caveats. But that discussion remained civil.

AP:

- Iran will ask OPEC to cut oil output by 1 million to 1.5 million barrels a day when the group meets later this month in Cairo.

- The head of OPEC says oil output reductions aren't likely this month because the cartel hasn't yet fully enforced previous quotas or collected all current production data. The OPEC head told reporters Sunday that "currently, the market doesn't take us seriously" because some members haven't fully enforced quotas.

Reuters:

- Life and mortgage insurer Genworth Financial Inc (GNW) said on Sunday it applied for capital under a U.S. government program, after reaching a deal to buy a bank, bringing it under federal regulation.

- FACTB OX – Where has the US bailout money gone?

Financial Times:

- "This quarter raises major questions for the industry," says a fund of hedge fund manager. The money flowing out of the industry "will be the highest it has ever seen. We are watching the tidal wave that helped hedge fund managers build their businesses fast over the past 10 years suddenly turn back even faster. The industry could halve in six months." George Soros told US Congress this week the industry could shrink by up to 75 per cent next year. Additional pressure is now coming from funds of hedge funds, which are reckoned to own as much as a third of single-manager hedge funds. Many are expected to put in redemption requests in anticipation of high levels of withdrawals from their own investors in coming months.

- Investors who placed summer bets that oil prices would fall below $100 a barrel are set to make huge profits on Monday, with some speculators reaping a return of more than 2,000 per cent in less than six months.

Dagens Nyheter:

- Senior Swedish lawmakers want to ban the use of gas-powered cars by 2025 to reduce emissions blamed for global warming, citing a letter by four Centre Party ministers. Sweden will in the interim start taxing cars based on fuel consumption and carbon-dioxide emissions.

O Estado de S. Paulo:

- Brazilian manufacturers are reducing output as the global financial crisis lowers product demand. Across the country factory utilization fell to 85% of installed capacity in October, down .7 percentage point from July. Furniture makers are the hardest hit, cutting production to 80% of capacity in October, from 86% in July. Producers of chemicals, textiles and industrial machinery are also idling capacitiy.

Daily Telegraph:

- The pioneering Australian scientist who discovered the cure for cervical cancer is on the verge of creating the world's first vaccine for skin cancer. Professor Ian Frazer, former Australian of the Year, has revealed the vaccine could be ready within the next five to 10 years.

Xinhua News:
- In the eight months, China sold 3.71 million tons of cement to Africa, up 29.3 percent, 3.28 million tons to the European Union, down 56.4 percent, and 1.82 million tons to the United States, down 52.1 percent.

ShanghaiDaily.com:

- Prices for car registration plates in Shanghai have declined sharply, hitting an eight-month low. Analysts said consumer enthusiasm for buying cars was fading as the global financial crisis prompted more caution on big ticket item spending like vehicles. Vehicle sales in China posted year-on-year declines in August and September for the first time in three years.

China Times:

- Chunghwa Telecom Co. will order around 100,000 iPhone handsets from Apple Inc.(AAPL). Chunghwa, Taiwan’s largest phone operator, will begin selling the third-generation version of the iPhone by the end of this year, vice president Shih Mu-piao said.

The Peninsula:

- Goldman Sachs(GS) bets against California. Goldman Sachs & Co urged some of its big clients to place investment bets against California bonds in 2008, despite having collected millions of dollars in fees to help the state sell some of those same bonds. The giant investment company did not inform the office of California Treasurer Bill Lockyer that it was proposing a way for investment clients to profit from the state’s deepening financial misery. In Sacramento, officials said they were concerned that Goldman’s strategy could raise the interest rate the state would have to pay to borrow money, thus harming taxpayers.

Weekend Recommendations
Barron's:
- Made positive comments on (GOOG), (RIMM), (AXP), (SCHW), (CL) and (TTWO).

Citigroup:

- Rated (AZO) Buy, target $146.

- Rated (AAP) Buy, target $35.

- We are lowering estimates on (GS), (MS), (TROW), (SCHW) and (BLK) to reflect the current market environment.

Night Trading
Asian indices are -1.75% to -.25% on avg.
S&P 500 futures -.45%.
NASDAQ 100 futures -.54%.

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Earnings of Note
Company/Estimate
- (COV)/.68

- (TGT)/.48

- (LOW)/.28

Upcoming Splits

- None of note

Economic Releases

8:30 am EST

- Empire Manufacturing for November is estimated to fall to -26.0 versus -24.6 in October.

9:15 am EST

- Industrial Production for October is estimated to rise .2% versus a -2.8% decline in September.

- Capacity Utilization for October is estimated to rise to 76.5% versus 76.4% in September.

Other Potential Market Movers
- The (STEC) Analyst Day, (RAI) Analyst Meeting, (IART) Analyst Forum, (ADBE) Meeting, (BBX) Investor Luncheon and Deutsche Bank/Goldman Sachs Gaming Forum could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

Weekly Outlook

Click here for a weekly market preview by MarketWatch.

Click here for stocks in focus for Monday by MarketWatch.

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

Economic reports for the week include:

Mon. – Empire Manufacturing, Industrial Production, Capacity Utilization

Tues. – Producer Price Index, Net Long-term TIC Flows, NAHB Housing Market Index, weekly retail sales

Wed. – Weekly EIA energy inventory data, weekly MBA mortgage applications report, Consumer Price Index, Housing Starts, Building Permits, Minutes of Oct. 28-29 FOMC Meeting

Thur. – Initial Jobless Claims, Philly Fed., Leading Indicators

Fri. – None of note

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

Mon. – Covidien Ltd.(COV), Target Corp.(TGT), Lowe’s Cos.(LOW)

Tues. – Medtronic(MDT), Pacific Sunwear(PSUN), Jack in the Box(JBX), Home Depot(HD), Saks Inc.(SKS)

Wed. – BJ’s Wholesale(BJ), Ross Stores(ROST), Dress Barn(DBRN), Intuit Inc.(INTU), PetSmart Inc.(PETM), Gymboree Corp.(GYMB), Ltd Brands(LTD)

Thur. – Barnes & Noble(BKS), Dick’s Sporting Goods(DKS), Gap Inc.(GPS), Salesforce.com Inc.(CRM), Autodesk(ADSK), Dell Inc.(DELL), Eaton Vance(EV), The Buckle(BKE), Dillard’s(DDS), Gamestop(GME), Children’s Plcace(PLCE), Foot Locker(FL)

Fri. – Ann Taylor(ANN), HJ Heinz(HNZ), JM Smucker(SJM)

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

Mon. – (STEC) Analyst Day, (RAI) Analyst Meeting, (IART) Analyst Forum, (ADBE) Meeting, (BBX) Investor Luncheon, Deutsche Bank/Goldman Sachs Gaming Forum

Tue. – (ALGT) Institutional Investor Day, (FLEX) Investor Meeting, (XIDE) Investor Day, (CF) Investor Day, (HNT) Annual Investor Conference, (SXCI) Analyst Event, (SXL) Analyst Meeting, (PDE) Analyst Day, (OCR) Analyst Day, (ESS) Analyst Day, (BBX) Investor Luncheon, (NFG) Analyst Presentation, (VARI) Investor Luncheon, Bank of America Health Care Conference, Citigroup Transportation Conference, CanaccordAdams Energy Conference, Raymond James IT Supply Chain Conference, Morgan Stanley Retail Conference, CSFB Insurance Conference, Oppenheimer Small-cap Conference

Wed. – (ALGT) Investor Day, (SMOD) Analyst Meeting, (CKP) Investor Day, (HAL) Analyst Meeting, (TKLC) Investor Day, (BBX) Investor Meeting, (GWW) Analyst Meeting, (ROK) Investor Meeting, Cowen Healthcare Conference, Bank of America Credit Conference, CSFB Aerospace & Defense Conference, Lazard Healthcare Conference, Morgan Stanley Retail Conference

Thur. – (AFFY) Analyst Day, (INWK) Investor Day, (AKAM) Analyst Meeting, CSFB Aerospace & Defense Conference, Needham Infectious Disease Conference, UBS Technology & Services Conference

Fri. – (DUK) Analyst Meeting, (MHS) Analyst Day, (NSTC) Analyst Day, (ALGN) Analyst Meeting, Bank of America Credit Conference

BOTTOM LINE: I expect US stocks to finish the week modestly higher on seasonal strength, bargain-hunting, technical buying, diminishing financial sector pessimism, less forced selling and short-covering. My trading indicators are giving neutral signals and the Portfolio is 75% net long heading into the week.