Bull Radar

Style Outperformer:
Large-cap Growth (+.35%)

Sector Outperformers:
Semis (+5.10%), Airlines (+4.64%) and Retail (+3.11%)

Stocks Rising on Unusual Volume:
INTU, GYMB, HGIC, PETM, AXYS, IWOV, CPLA, HITT, NCTY, QGEN, NUVA, BIDU, CYBX, ALGT, HMSY, DECK, SHLD, CECO, NVLS, AMZN, KLAC, BKE, MW, GEO and TLT

Stocks With Unusual Call Option Activity:
1) TIF 2) ADBE 3) PRU 4) VMC 5) TGT

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Default protection costs on Japanese corporate bonds rose, matching the record set last month, after the government said exports declined at the fastest pace in almost seven years. The Markit iTraxx Japan index of credit-default swaps traded 35 basis points higher at 330 as of 9:47 a.m. in Tokyo, matching the Oct. 27 record, according to prices from Credit Suisse Group AG. The iTraxx Australia index climbed 27.5 basis points to 345, Citigroup Inc. data show.

- Lead smelters in China, which accounts for about a third of global demand, are idling plants after battery makers slashed purchases, Xinling Refining Co. said. ``Most lead smelters have cut production or totally shut plants,'' He Yonggang, manager at Henan province-based Xinling Refining, said in an interview in Zhengzhou. Xinling has idled 60 percent of its 100,000 metric-tons capacity, he said. ``No one can tell when the market will recover.''

- Crude oil fell for a fifth day, trading near a 22-month low. U.S. fuel use during the past four weeks averaged 19.1 million barrels a day, down 7 percent from a year ago, an Energy Department report said yesterday. U.S. fuel demand fell 5.2 percent in the first 10 months of this year, the biggest drop since 1981, the American Petroleum Institute said in a report yesterday.

- U.S. motorists drove less in September for an 11th consecutive month even as gasoline prices declined, the Federal Highway Administration said. Vehicle-miles traveled fell 4.4 percent from a year earlier, the Washington-based agency said in a report today. The total has fallen by 90 billion since November 2007.

- Goldman Sachs Group Inc.(GS) closed at its lowest price since the firm first sold shares for $53 apiece to the public in 1999, as the profit outlook darkens for a company that set a record for Wall Street earnings last year. The stock fell $6.85, or 11 percent, to $55.18 in New York Stock Exchange composite trading, giving the company a market value of $26 billion. The New York-based firm's value reached a high of $105 billion, or $248 per share, on Oct. 31, 2007.

- Warren Buffett's Berkshire Hathaway Inc.(BRK/A) fell the most in at least 23 years, dropping for the eighth straight day since reporting a 77 percent decline in third- quarter profit. The stock plunged $11,550, or 12 percent, to $84,000 in New York Stock Exchange composite trading and has slipped 41 percent this year. Berkshire shareholders including Mohnish Pabrai, head of Pabrai Investment Funds, have said investors are concerned about losses on the company's $37 billion bet on world equity values more than a decade from now. Buffett sold contracts to undisclosed counterparties for $4.85 billion protecting the buyers against declines in four stock indexes including the S&P 500. Under the agreements, Berkshire will pay as much as $37 billion if, on specific dates beginning in 2019, the indexes are below the point where they were when he made the agreements. By Sept. 30, Berkshire had written down the contracts by $6.73 billion as the S&P declined for a fourth straight quarter. The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, has more than tripled in two months. The swaps jumped to 475 basis points today from 129 points two months ago, according to CMA Datavision.

- Bill Clinton has sent President-elect Barack Obama’s transition team a list of more than 200,000 donors to his foundation, according to a Democrat familiar with the process, the latest sign both sides are trying to clear obstacles to Hillary Clinton’s possible nomination as U.S. secretary of state. The list of contributors ranges from those who gave a few dollars to wealthy foreign leaders and business people who donated multimillion-dollar gifts, the Democrat familiar with the matter said. If Hillary Clinton were to become secretary of state, her husband might decide to unwind his investments as the Clintons promised he would do if she were elected president. These include three Cayman Islands investment entities that Clinton joined through Yucaipa Cos. LLC, a company controlled by California billionaire Ron Burkle. Dubai Investment Group, an investment vehicle of the ruler of Dubai, Sheikh Mohammed bin Rashid al-Maktoum, has been among the partners with Burkle and Clinton in the Cayman Islands. During the primary campaign, Matt McKenna, a spokesman for Bill Clinton, said that, while the former president hadn’t then “severed ties” with Yucaipa, he “is taking steps to ensure” that “there will be an appropriate transition for those relationships” if his wife won the Democratic presidential nomination. Clinton’s office and a spokesman for Yucaipa would not say today if he has withdrawn from his Yucaipa involvement.

- Copper, the worst-performing metal since the commodities market crashed in July, may plunge to less than $1 a pound next year as global inventories swell, according to David Threlkeld, president of metals trader Resolved Inc. China is “sitting on a tremendous unsold inventory,” Threlkeld said today in a Bloomberg TV interview. The trader first got the world’s attention in 1996 when he showed that copper hoarding by Sumitomo Corp.’s Yasuo Hamanaka would lead to a collapse4, and he’s studied the market for 40 years. Copper production exceeded demand by 26,800 metric tons this year through September, the World Bureau of Metal Statistics said yesterday. Inventories monitored by the LME have more than doubled in the past six months and are at the highest since March 2004.

- The US Fed will probably cut interest rates to zero percent over the next two months to staunch deflation, according to JPMorgan Chase. The Fed will lower borrowing costs by 50 basis points at each of the next two policy meetings on Dec. 16 and Jan. 28, JPMorgan economist Michael Feroli wrote.

Wall Street Journal:
- As Detroit's auto makers seek a government bailout, the resilience of their foreign rivals could vault the South to the forefront of the U.S. car industry. Foreign makers have been lured to South Carolina, Alabama and other Southern states over the past decade by generous tax benefits and laws that make it easier to build a largely nonunion work force. Michigan and Ohio are still dominant centers of U.S. vehicle making, producing more than 38% of all cars and trucks in 2007, but Southern states are making gains as foreign car makers add more plants in that part of the country. Four Southern states were responsible for 24% of U.S. production last year, according to Automotive News, a trade publication.

- The effort to overhaul the nation's health system will begin next year with one clear advantage over previous attempts: A wide variety of interest groups are rooting for it to succeed rather than plotting to kill it. That is a stark contrast to the last big health-care initiative in the early 1990s, when many of the same groups helped block any major change. In addition, Barack Obama's choice of Tom Daschle, a former Senate Majority Leader, as Secretary of Health and Human Services, puts a skilled navigator of Capitol Hill in charge of the president-elect's bid to establish universal health care, which he has made a top priority.

MarketWatch.com:
- The federal government announced plans Wednesday to modify a program to make it easier for troubled homeowners to exchange problematic mortgages for more inexpensive ones. The new expedited regulations will expand on the Housing and Urban Development Department's Hope for Homeowners program.

The changes will give lenders a greater incentive to participate, by allowing them to write off less of the loan value than under the previous rules.

BusinessWeek:

- Auto Bailout: Seeking Signs of Sacrifice. House members push for workers to give up some pay and benefits, and ask why executives still don’t seem to get the need for change.

USA Today.com:

- Ford Motor(F) will announce Wednesday that it plans to beat Toyota (TM) at its own game when it comes to hybrids. It's the latest example of U.S. automakers trying to "out-hybrid" Japanese brands that had a head start with the gas savers. Also today, South Korea's Hyundai is expected to announce that in two years it will market its first U.S. hybrids. They will use a revolutionary lithium polymer battery that the company boasts will hold 20 times the charge in half the size of rivals' present hybrid batteries.

Reuters:

- Merck & Co Inc (MRK) expects competitive earnings growth from 2010 through 2013 despite challenges facing its products and looming patent expirations of important medicines, Chief Executive Richard Clark said on Wednesday. Clark said he is interested in acquiring late-stage products next year, which could be more affordable as biotechnology companies face a cash crunch from the weak economy. He also expressed confidence in medicines being developed internally.

- After decades of solid economic growth, China is battling an unknown as falling demand for its products triggers factory closures, sparks protests and raises fears of popular unrest.

Financial Times:
- With stock market volatility running close to all-time highs, trading equity volatility as a separate asset class is becoming more expensive and hedge funds are turning their attention instead to the commodities markets. Derivatives based on commodity indices provide cheaper access to the "long volatility" trade that has been among the most successful equity market strategies of the past two years.

- TPG, the US private equity firm, risks losing a substantial investment in a Chinese leasing venture after a business dispute in which the company's local staff called in police to remove TPG's representatives, people familiar with the matter say. The difficulties that developed between TPG and local managers of Nissin Leasing (China), a subsidiary of Japan's Nissin Group, underscore the risks of investing in China and come at a particularly bad time for the US private equity firm.

Late Buy/Sell Recommendations
- None of Note

Night Trading
Asian Indices are -5.25% to -2.50% on average.
S&P 500 futures -.87%.
NASDAQ 100 futures -.55%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (PDCO)/.45

- (PERY)/.31

- (DKS)/.06

- (BKS)/-.16

- (SSI)/-.20

- (GPS)/.34

- (HIBB)/.27

- (DELL)/.32

- (CRM)/.07

- (ADSK)/.54

- (BKE)/.63

- (GME)/.37

- (FL)/.26

- (HP)/1.18

- (DDS)/-.58

- (PLCE)/.84

Economic Releases
8:30 am EST

- Initial Jobless Claims are estimated to fall to 505K versus 516K the prior week.

- Continuing Claims are estimated to rise to 3900K versus 3897K prior.

10:00 am EST

- Philly Fed for November is estimated to rise to -35.0 versus -37.5 in October.

- Leading Indicators for October are estimated to fall .6% versus a .3% gain in September.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly EIA natural gas inventory report, (AFFY) Analyst Day, (INWK) Investor Day, (AKAM) Analyst Meeting, CSFB Aerospace & Defense Conference, Needham Infectious Disease Conference and the UBS Technology & Services Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and financial stocks in the region. I expect US equities to open lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.

Stocks Sharply Lower into Final Hour on Financial Sector Pessimism and Global Deflation

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs and Medical longs. I added to my (IWM)/(QQQQ) hedges and to my (EEM) short this morning, thus leaving the Portfolio 50% net long. The tone of the market is very bearish as the advance/decline line is substantially lower, every sector is declining and volume is about average. Investor anxiety is extraordinarily high. Today’s overall market action is very bearish. The VIX is rising 8.1% and is historically elevated at 73.20. The ISE Sentiment Index is very low at 73.0 and the total put/call is very high at 1.35. Finally, the NYSE Arms has been running very high most of the day, hitting 3.0 at its intraday peak, and is currently 1.78. The Euro Financial Sector Credit Default Swap Index is up 6.46% today to 123.0 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 up 8.78% to 237.08 basis points. The TED spread is rising .27% to 211 basis points. The TED spread is now down 253 basis points in about five weeks. The 2-year swap spread is down .71% to 104.50 basis points. The Libor-OIS spread is falling 2.47% to 171 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is plunging 19 basis points to .36%, which is down 226 basis points in under five 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 (XLF) trades terribly today and a positive catalyst must materialize very soon to prevent a meaningful break of the broad market lows. Credit spreads are widening significantly. The 3-month T-Bill is now yielding .06%. The market is starting to price in a sustained bout of deflation. Nikkei futures indicate a -318 open in Japan and DAX futures indicate a -4 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on financial sector pessimism, forced selling, more shorting and global growth worries.

Today's Headlines

Bloomberg:
- Federal Reserve policy makers last month predicted the U.S. economy will contract through the middle of 2009, with some prepared to cut interest rates further in response, according to a record of their meeting. ``Some suggested that additional policy easing could well be appropriate at future meetings,'' the Fed said in minutes of the Oct. 28-29 Federal Open Market Committee gathering released today. ``In any event, the Committee agreed to take whatever steps were necessary to support the recovery.''

- Representative Henry Waxman won the first round of voting in his bid to take the chairmanship of the House Energy and Commerce Committee away from Representative John Dingell. The Democratic Steering Committee voted today 25 to 22 for Waxman over Dingell, said Rosa DeLauro, the chairwoman of the steering committee.

- US fuel demand fell 5.2% in the first 10 months of this year, the biggest drop since 1981, the American Petroleum Institute said. Deliveries of distillate fuel, a category that includes heating oil and diesel, averaged 3.93 million barrels a day during the period, down 6.7%. Jet-fuel consumption average 1.55 million barrels a day, a 4.5% decline. Implied demand for residential fuel averaged 591,000 barrels a day during the 10-month period, down 19% from a year earlier, according to the report. The US produced 4.9 million barrels a day of crude oil through October, down 2.6% from a year earlier. Production for the period was down 49% from the peak of 9.6 million barrels a day in 1970.

Wall Street Journal:

- The exchange-traded-fund industry is stepping up efforts to capture the crown jewel of the mutual-fund business: lucrative 401(k) retirement plans.

NY Times:
- Responding to the economic downturn, Wal-Mart Stores Inc.(WMT) plans to give more than 90 million pounds of fresh food annually to the nation’s largest nonprofit organization addressing hunger, Feeding America.

BBC:

- Opec members have lost about $700bn because of falling crude prices, the oil cartel's president Chakib Khelil said in an interview. Oil prices have fallen 60% from their $147 peak, prompting speculation Opec will cut output again to boost prices. However, speaking to Algerian newspaper El Khabar, Mr Khelil said Opec was unlikely to make a decision this month.

Slate:

- Harvard’s Investment Errors. That’s where America’s greatest university is investing its endowment? The 13-F shows Harvard with some 231 positions worth nearly $2.9 billion, highly concentrated in popped macroeconomic bubble plays. The top 10 holdings, which Bloomberg helpfully breaks out, account for 70 percent of the value of the disclosed holdings. Virtually all of them performed rather poorly in the third quarter, and virtually all of them have slid in the weeks since Sept. 30. The biggest position disclosed—all amounts and dollar values are as of Sept. 30—was $463 million in the iShares MSCI Emerging Market fund. As the six-month chart shows, that fund's off nearly 60 percent from this summer and down by about one-third from the end of September. The top 10 included $232 million in the iShares MSCI Brazil Index Fund, off about 40 percent since the end of September; about $51 million in the iPATH MSCI India Index, off about one-third since the end of September; and $158 million in the iShares FTSE/Xinhua China Index, off about 30 percent since the end of September. For good measure, top 10 holdings also included index funds that were plays on South Africa's commodity-based economy and on the perennially emerging market of Mexico. Even the best, most experienced, and highly regarded long-term investors can get suckered into new-era thinking and make investments that turn out to be highly risky bets. The 13-F shows that the managers running this Harvard portfolio were huge believers in the decoupling theory—i.e., that emerging markets would continue to thrive even as the United States stalled—and in the notion that commodities would keep booming.

Reuters:
- Nigerian Oil Minister Odein Ajumogobia said on Wednesday that Nigeria was not pushing for a further OPEC production cut but that a meeting in Cairo this month would consider all options to address falling prices. "We are in the process of sending our budget to the national assembly based on an (oil) benchmark of $45 ... If you cut the volume then it is going to affect your budget, so obviously we are not advocating for a cut because it is not in our interest," Ajumogobia told Reuters in the capital Abuja.

Interfax:

- Russia’s inflation rate in the year through Nov. 17 reached 12%, citing a government official. The rate is higher than it was in the same period last year, when inflation reached 10%.

CNBC TV-18:
- Steel Authority of India Ltd. has cut prices by as much as 40% from peak levels, citing Chairman S.K. Roongta. The company has cut prices by as much as 20% this month.

Bear Radar

Style Underperformer:
Small-cap Value (-5.37%)

Sector Underperformers:
Coal (-9.40%), Airlines (-8.42%) and I-Banks (-8.40%)

Stocks Falling on Unusual Volume:
LUK, BAC, NUVA, CSGP, NCTY, BIDU, FSLR, FWLT, CTRP, EQIX, GCO, CV, ACE, ARB, NHI, JBX, OPY and SOR

Stocks With Unusual Put Option Activity:
1) BBY 2) SYK 3) SLM 4) ACE 5) LNC