Tuesday Watch

Late-Night Headlines
Bloomberg:

- Heart attacks and stroke deaths dropped by a third in 2006 from 1999 as more people stopped smoking, ate better and used medications such as Bristol-Myers Squibb Co.’s Plavix to keep blood flowing freely within arteries. Heart disease accounted for 1 in 3 U.S. deaths in 2006, the latest year for which data is available, the Dallas-based American Heart Association said in a statement today. Drugs including cholesterol-lowering statins such as Pfizer Inc.’s Lipitor and the Plavix blood-thinner joined with better heart- attack treatment to lower the mortality rate, the health advocacy group said.

- Venezuela’s debt rating was lowered by Fitch Ratings on the “increased risk of financial and economic crisis” as a result of the nation’s policies.

- Ken Heinz, president of Hedge Fund Research sees hedge funds shift out of emerging markets. Heinz also discusses the investigation into Bernard Madoff’s alleged $50 billion Ponzi scheme. (video)

- Sugar fell for a second straight session in New York after Brazil, the world’s largest producer, said next year’s cane harvest will be its largest ever. The cane crop, used to make refined sugar and ethanol, will rise 11 percent in 2009, Alexandre Strapasson, sugar-cane director at Conab, Brazil’s Agriculture Ministry crop- forecasting agency, said at a news conference in Brasilia.

- Tremont Group Holdings Inc., a hedge- fund firm owned by OppenheimerFunds Inc., had $3.3 billion invested with Bernard Madoff, according to a person familiar with the matter. Tremont’s Rye Investment Management unit had $3.1 billion, virtually all of its assets, invested with Madoff, said the person, who declined to be identified because the information is private. Tremont had another $200 million invested through its fund of funds group, Tremont Capital Management. “We believe Tremont exercised appropriate due diligence in connection with the Madoff investments,” the company said in a statement. Tremont, which manages a total of $5.8 billion, is the second hedge fund company to report that more than half its assets were invested with Madoff, who was arrested Dec. 11 after he allegedly confessed to running a “giant Ponzi scheme” that may have bilked investors out of $50 billion. Fairfield Greenwich Group said on Friday it had placed $7.5 billion of its $14.1 billion in total assets with the Madoff.

- China’s spending on factories and real estate rose at a slower pace as property sales fell and export growth collapsed because of the global recession.

- The U.S. Treasury may adopt a plan that would let a car czar or the Treasury Secretary force General Motors Corp. and Chrysler LLC into bankruptcy if the automakers don’t show they can survive without government aid, a U.S. senator said. GM and Chrysler would be required to submit viability plans by March 31 or lose any further U.S. support, Carl Levin, a Democrat from Michigan, told reporters in Detroit yesterday. The Treasury plan would resemble a measure passed by the U.S. House last week that was rejected by the Senate. “I expect that the terms would be similar to the ones that were in the House bill,” Levin said. “The power rests in the hands of either the czar or the Secretary of the Treasury to force bankruptcy by March 31.”

Wall Street Journal:

- When U.S. Attorney Patrick Fitzgerald announced the arrest of Illinois Gov. Rod Blagojevich Tuesday, he suggested that he needed to act urgently because "we were in the middle of a corruption crime spree." But some members of Mr. Fitzgerald's team actually wanted the alleged scheme to sell President-elect Barack Obama's Senate seat to advance for a little longer, according to some people close to Mr. Fitzgerald's office. Had the plot unfolded, prosecutors might have gotten a rare opportunity to catch the sale of a Senate seat on tape, including the sellers and the buyers.

- President-elect Barack Obama's transition team said it had completed an internal review of contacts with Illinois Gov. Rod Blagojevich -- but wouldn't release its findings until Christmas week, at the request of federal investigators. The move comes as Mr. Obama tries to keep the news of his home state's disgraced governor from overshadowing his transition, and highlights the challenges of dispensing with the controversy in the face of a live investigation involving Mr. Obama's Senate seat.

- Illinois Gov. Rod Blagojevich was preparing to issue an executive order prior to his arrest last week that would have allowed union organizing of home-care workers that could have benefited a labor union with close ties to the governor. The existence of this executive order, though never signed, illustrates the close ties between the embattled governor and the powerful Service Employees International Union, the nation's fastest growing labor organization.

- President-elect Barack Obama is pushing to give U.S. energy policy a California-style makeover, choosing for key energy and environmental posts people who advocate more aggressive steps against climate change. Mr. Obama's picks add to the growing number of Californians poised to influence U.S. energy policy. That group includes House Speaker Nancy Pelosi, who has made addressing global warming a priority; Senate Environment Committee Chairman Barbara Boxer; and Rep. Henry Waxman, who last month defeated Rep. John Dingell (D., Mich.) for the chairmanship of the House Energy and Commerce Committee, after arguing he was better qualified to push climate-change legislation than Mr. Dingell, a longtime ally of his home state's auto makers. Mr. Obama declined to say Monday whether he would seek to resurrect a recently ended federal ban on drilling for oil and natural gas in many areas of the outer continental shelf.

CNBC.com:
- How Short-Sellers Almost Destroyed US Banking. Forget Bernard Madoff’s $50 billion fraud. The SEC, and the press, should be focused on short-sellers’ attempts to destroy the U.S. banking system, Cramer said. Don’t believe him? Here are the hard numbers, courtesy of a source inside the New York Stock Exchange: Just in the 12 days leading up to the Nov. 24 Citigroup(C) bailout, short selling accounted for over 49% of the total trading volume in that company’s stock. For JPMorgan Chase(JPM), it was 41%. Bank of America(BAC): 35%. Goldman Sachs(GS): 40%. Morgan Stanley(MS): 37%. Wachovia(WB): 42%. Wells Fargo(WFC): 42%. As a result, these stocks tumbled anywhere between 69% and 27% over that time period – all because of huge volumes of short selling.

- The Federal Reserve is expected to cut interest rates to close to zero on Tuesday and may point to further unconventional steps to battle a year-old recession. Economists expect the US central bank to lower its target for benchmark overnight rates by at least a half-percentage point to 0.5 percent and clearly state it will deploy so-called quantitative easing measures to restore growth.

- Goldman Sachs(GS) Earnings Preview:

NY Times:
- Dell(DELL) Needs Acquisitions in Software, Servers, Storage.

Forbes.com:

- There’s Gold In Bluetooth Chips. Even in a weak phone market, rising acceptance of connectivity technology should benefit semiconductor suppliers.

USA Today.com:

- A federal judge on Monday threw a lifesaver to investors who may have been duped in one of Wall Street's biggest alleged frauds, saying they need the protection of a special government reserve fund set up to help investors at failed brokerage firms. U.S. District Judge Louis L. Stanton ordered that clients of Bernard Madoff's private investment business seek relief under a federal statute created to rescue cheated investors. Stanton also ordered that business be liquidated under the jurisdiction of a bankruptcy court and named attorney Irvin H. Picard as trustee to oversee that process. Stanton signed the order after the Securities Investor Protection Corporation asked that steps be taken to protect investors in the scheme, which has ensnared several major banks and prominent figures as victims and could result in as much as $50 billion in losses.

- Hope builds for stock recovery in new year? Pros share predictions.

Reuters:

- Brazil’s Deputy Finance Minister Nelson Barbosa said the economy may shrink 1% in the fourth quarter. Barbosa also said it’s possible that Brazil’s gross domestic product will fall again in the first quarter.

- The Bush administration could act as early as Wednesday to approve an automaker bailout from its bank rescue fund, with conditions likely to reflect at least those approved by the U.S. House of Representatives last week, key lawmakers and other sources said on Monday.

- Sweetened terms on GMAC LLC's bond exchange offer makes it more likely the finance company will gain the support it needs to convert to a bank and gain access to government support needed to keep the company alive.

- Japan's Toshiba Corp said on Tuesday it would cut its NAND flash memory production by 30 percent from January as the global slowdown hits demand for the memory chips used in digital cameras and portable music players.

- Toyota Motor Corp plans to ask Nippon Steel Corp and other steel makers for a price cut of about 30 percent amid slower steel and vehicle demand, the Nikkei business daily reported on Tuesday.

Financial Times:
- Oil companies and traders are storing at least 50m barrels of oil in supertankers in a clear sign of supply outstripping demand as the global economy slows. The surge in floating storage, – enough to meet France’s oil imports for a month and the biggest since late 2001–, is likely to push the Opec oil cartel, which is due to meet on Wednesday in Oran, Algeria, to make a deeper production cut to reduce stocks. Storing oil in tankers is unusual as it is significantly more expensive than inland. Abdullah al-Badri, Opec’s secretary general, said on Monday:“Stocks are very high. We have to act. We see a very sizeable reduction [in production].” Several Opec officials have suggested a 2m barrels-a-day cut, the biggest in recent history, and were also hoping to persuade Russia – the world’s largest oil producer outside the cartel – to make a reduction. But with Russia’s oil output already declining because of a lack of investment, any commitment is likely to be seen as a political gesture rather than an actual reduction. Whatever the size of Opec’s cut, the floating storage surge is a clear sign the cartel is losing its battle to cut supplies more quickly than demand falls. Opec ministers said in November they intended to reduce developed countries’ oil stocks from the equivalent of 56 days of demand to 52. But the surge in floating storage indicates that tanks are brimming, in spite of Opec’s having announced 2m b/d in cuts. Indeed, inventories have risen to almost 57 days’ demand.

TimesOnline:
- Violent unrest may be sparked around the world by a prolonged global slump unless governments act with greater urgency to jump-start stalled economies, the head of the International Monetary Fund said on Monday. Dominique Strauss-Kahn sounded a stark warning over the consequences of what he argued was weak and uncertain government reaction to the economic crisis. He used a hard-hitting speech in Madrid to single out eurozone nations over what he attacked as an inadequate response.

The Independent:

- The Madoff situation is, at a time of mass redemptions and dwindling returns, what hedge funds needed least. A spectacular scandal causing huge losses that undermines trust in the industry.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -1.25% to +.75% on average.
S&P 500 futures -.16%.
NASDAQ 100 futures -.19%.

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

Earnings of Note
Company/EPS Estimate
- (FDS)/.63

- (BBY)/.23

- (GS)/-3.72

- (PAY)/.19

- (ADBE)/.57

- (HOV)/-1.71

Economic Releases
8:30 am EST

- The Consumer Price Index for November is estimated to fall 1.3% versus a 1.0% decline in October.

- The CPI Ex Food & Energy for November is estimated to rise .1% versus a .1% decline in October.

- Housing Starts for November are estimated to fall to 736K versus 791K in October.

- Building Permits for November are estimated to fall to 700K versus 730K in October

2:15 pm EST

- The FOMC is expected to drop the benchmark fed funds rate 50 basis points to .50%.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, (GE) Outlook Meeting, (AVT) Analyst Day, (BEC) Business Review, (HLF) Investor Day, (V) Special Meeting, (INTU) Shareholders Meeting, (HANS) Mid-Quarter Business Update, (ETP) Shareholders Meeting and (GMR) Shareholders Meeting could also impact trading today.

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

Stocks Finish Lower, Weighed Down by Alternative Energy, REIT, Financial and Homebuilding Shares

Evening Review
Market Summary
Top 20 Biz Stories
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Real-Time Stock Bid/Ask
After-hours Stock Quote
After-hours Stock Chart
In Play

Stocks Lower into Final Hour on Madoff Fraud Concerns, Shorting and Financial Sector Pessimism

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Internet longs and Computer longs. I added (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 75% net long. The tone of the market is very bearish as the advance/decline line is substantially lower, almost every sector is falling and volume is light. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is rising 7.55% and is very elevated at 58.32. The ISE Sentiment Index is below average at 111.0 and the total put/call is above average at 1.02. Finally, the NYSE Arms has been running above average most of the day, hitting 1.34 at its intraday peak, and is currently 1.19. The Euro Financial Sector Credit Default Swap Index is rising 4.48% today to 142.81 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 rising 2.24% to 266.84 basis points. The TED spread is falling 2.62% to 186 basis points. The TED spread is now down 280 basis points in just over two months. The 2-year swap spread is down .95% to 103.75 basis points. The Libor-OIS spread is falling 4.79% to 162 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 4 basis points to .11%, which is down 251 basis points in about 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 3-month T-Bill is yielding .01%, which is unch. today. Today’s action is disappointing, but volume is light ahead of a number of market-moving events. Much of today’s weakness is likely related to disclosures over the weekend about the extent of the Madoff fraud. Goldman Sachs(GS) seems late to the party on their downgrade of (AAPL) to Neutral. I still think intermediate/long-term investors selling the stock around current levels are making a big mistake. Nikkei futures indicate an +6 open in Japan and DAX futures indicate a -15 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, lower energy prices and diminishing credit market angst.

Today's Headlines

Bloomberg:
- S&P 500’s Worst Writedowns Signal Rally as Gap Widens.

- The cost of borrowing in dollars for three months in London declined on speculation the Federal Reserve will cut interest rates tomorrow and central banks will keep offering cash to unlock credit. The London interbank offered rate, or Libor, that banks say they charge each other for such loans dropped five basis points to 1.87 percent today, the lowest level since September 2004, according to British Bankers’ Association data. The one-month dollar rate and prices in Asia also slid. “Rates are coming off due to an overall improvement in sentiment,” said Nizam Idris, a currency strategist at UBS AG in Singapore.

- A federal grand jury is investigating how a company that advised Jefferson County, Alabama, on bond deals that threaten to cause the biggest municipal bankruptcy in U.S. history, did similar work in New Mexico after making contributions to Governor Bill Richardson’s political action committees. The grand jury in Albuquerque is looking into Beverly Hills, California-based CDR Financial Products Inc., which received almost $1.5 million in fees from the New Mexico Finance Authority in 2004 after donating $100,000 to Richardson’s efforts to register Hispanic and American Indian voters and pay for expenses at the Democratic National Convention in 2004, people familiar with the matter said.

- The Illinois House of Representatives will consider impeaching Democratic Governor Rod Blagojevich after he was arrested by the FBI for trying to auction President-elect Barack Obama’s vacant Senate seat.

- OPEC should make a “sizable” cut in oil production at this week’s meeting because there are excess global stockpiles, OPEC Secretary-General Abdalla el- Badri said. The group expects Russia to help. Organization of Petroleum Exporting Countries President Chakib Khelil said all the group’s members support an output cut at the meeting in Oran, Algeria, adding that he’s confident Russia, the biggest non-OPEC producer, will act to support the effort to revive prices. Global stockpile levels are at 57 days of forward cover, five days more than the five-year average of 52 days, Khelil said. “Two million barrels below current demand is what you’d need to reduce stockpiles by five days,” said Ronald Smith, chief strategist at Moscow-based Alfa Bank. “Today’s comments point to a larger cut than previously expected.” “Stocks are very high, we have about 100 million barrels of oversupply in the market, we have to take them out,” El- Badri told reporters when he arrived at his hotel in Oran today. OPEC is “very pessimistic about demand” next year, Khelil said. Oil consumption will fall by 200,000 barrels a day in the first quarter of 2009, and a further 1.2 million barrels a day in the second quarter, before rising again in the second half of the year, he said. World oil demand is likely to fall by an average of 500,000 barrels a day next year because of high crude prices and slumping economies, the Centre for Global Energy Studies said in a report today.

- Crude oil fell $1.62 bbl. to $45.03, retreating from $50 a barrel in New York this morning, on speculation that OPEC production cuts may be insufficient to bolster prices as the global recession curbs fuel consumption.

- Russian Prime Minister Vladimir Putin is facing a rising tide of social discontent as the economy heads into recession after a decade-long boom driven by oil prices. Thirty-nine percent of Russians express growing dissatisfaction with the government, according to a November poll released today by the Moscow-based Public Opinion Foundation. In some regions, the level of public discontent is more than 50 percent, it said.

Wall Street Journal:

- Coca-Cola Co.(KO) is expected to launch a drink in the U.S. this week containing a natural, calorie-free sweetener, intensifying a race with PepsiCo Inc. to dominate a new generation of noncarbonated beverages. Coke is pushing ahead even though the Food and Drug Administration as of Sunday hadn't issued a formal blessing of the ingredient.

- An enforcement case 16 years ago gave the Securities and Exchange Commission its first shot at figuring out how Bernard Madoff could rack up favorable returns with such uncanny consistency. After that, it received repeated warnings from outside whistle-blowers and at least twice looked into Mr. Madoff's brokerage itself. Each time, it blew its chance. It was only last week, when Mr. Madoff allegedly confessed to his sons that he was running what amounted to a "giant Ponzi scheme," that the apparent $50 billion fraud came to light.

- In a tough year for General Electric Co.(GE), its energy-infrastructure unit has been a bright spot. Through September, revenue at the unit, which makes power-generation equipment, was up 28% from a year earlier, and operating profit was up 35%. But the recession, credit crisis and the plunging price of oil threaten that success. That will put the energy unit in the spotlight Tuesday when GE Chairman and Chief Executive Jeffrey Immelt takes to the stage used by "Saturday Night Live" at NBC headquarters in New York to brief investors on GE's outlook for 2009.

NY Times:
- Politico, the upstart news source from Washington, and Reuters, the venerable wire service, have joined forces to offer articles to newspapers and sell advertising on the papers’ Web sites, the latest step in the rising competition among electronic news media to fill the void left by the shrinking print business.

- The epicenter of what may be the largest Ponzi scheme in history was the 17th floor of the Lipstick Building, an oval red-granite building rising 34 floors above Third Avenue in Midtown Manhattan. A busy stock-trading operation occupied the 19th floor, and the computers and paperwork of Bernard L. Madoff Investment Securities filled the 18th floor. But the 17th floor was Bernie Madoff’s sanctum, occupied by fewer than two dozen staff members and rarely visited by other employees. It was called the “hedge fund” floor, but federal prosecutors now say the work Mr. Madoff did there was actually a fraud scheme whose losses Mr. Madoff himself estimates at $50 billion.

LA Times:

- LA, Long Beach ports push projects despite rocky economy. The expansion would cut pollution, create jobs and prepare the complex for a shipping rebound, officials say.

The Detroit News:

- Ford Motor Co.(F) still hasn't launched the first V-6 version of its promised EcoBoost engine, but sources say the automaker already is putting the finishing touches on a 2.0-liter four-cylinder version of the economical motor, which they say is likely to debut on the Ford Fusion.

NY Post:

- Morgan Stanley's(MS) expected to ring up losses of about $1 billion when it reports its fiscal fourth-quarter earnings Wednesday.

USA Today:

- A growing number of homeowners are trying to make falling property values work for them by asking the government for a tax break.

Vedomosti:

- Moscow housing prices may fall 60% next year.

recast to "

Press Trust of India:
- Toyota Motor Corp.’s Indian unit has cut production by 30% this month as demand has declined, citing Hiroshi Nakagawa, the local unit’s managing director. Toyota’s sales in India fell 48.5% in November to 2,087 vehicles from 4,056 a year ago.

Xinhua News:

- Companies owned by China’s central government have reported a combined 26% decline in net profit for the first 11 months on rising inventories and an increasing number of idled businesses.

The Jerusalem Post:

- The Jewish nonprofit world has been rocked by the securities fraud of Bernard Madoff, and the worst may be yet to come.

Bear Radar

Style Underperformer:
Small-cap Value (-3.38%)

Sector Underperformers:
Airlines (-3.93%), Homebuilders (-3.86%) and Banks (-3.68%)

Stocks Falling on Unusual Volume:
TSU, SNP, RYAAY, PLCM, BEC and SKY

Stocks With Unusual Put Option Activity:
1) MI 2) HUN 3) BJ 4) HERO 5) TSO

Bull Radar

Style Outperformer:
Large-cap Growth (-1.13%)

Sector Outperformers:
Oil Service (+3.41%), Gaming (+1.38%) and Steel (+1.00%)

Stocks Rising on Unusual Volume:
AEM, PAAS, BHP, BBL, CGV, CLB, PBR, TM, HMC, TLK, TSRA, BCE, RMBS, LMDIA, DRYS, SQNM, CYBX, IPCM, LPHI, GET, HON and ICB

Stocks With Unusual Call Option Activity:
1) HUN 2) MGM 3) TSM 4) AKS 5) HON