Today's Headlines

Bloomberg:
- Natural gas is falling in NY as speculators trim bets amid record inventories and forecasts for a milder-than-normal winter.
- US Treasury Secretary Henry Paulson said a thicket of accounting and governance rules may pose a risk to the US economy and he plans to host a conference early next year to sort through the issue.
- Evraz Group SA, a steelmaker partly owned by billionaire Roman Abramovich, agreed to buy Oregon Steel Mills(OS) for $2.3 billion, the biggest-ever purchase in the US by a Russian company.
- Boston Properties(BXP), the real estate trust run by billionaire Mortimer Zuckerman, agreed to sell 5 Times Square for about $1.28 billion, a record price for a NYC office tower.
- Bank of America(BAC) will buy US Trust, the private-banking unit of Charles Schwab(SCHW), for $3.3 billion in cash to better compete for wealthy clients against Citigroup(C) and JPMorgan(JPM).
- Nasdaq Stocks Market(NDAQ) renewed its bid for London Stock Exchange Group Plc, sweetening an unsolicited offer that values Europe’s biggest equity market at about $5.1 billion.
- The price of zinc, used to galvanize steel, may fall 14% by 2008 as the market moves into “significant” surplus on rising production, Canaccord Adams said.
- Blackstone Alternative Asset Management will begin seeding hedge funds next year.

Wall Street Journal:
- US Airways Group is seeking to gain backing for its $8.67 billion hostile takeover for bankrupt rival Delta Air Lines from bondholders and other creditors who don’t belong to Delta’s creditors committee.
- Shareholder motions at US company annual meetings aimed at limiting executive pay could double in 2007 from this year.
- Walt Disney(DIS) and Mattel(MAT) are among companies facing toy shortages this holiday season because of stronger-than-expected US consumer demand and labor problems in Chinese toy factories.

NY Times:
- Yahoo! and seven US newspaper groups representing 176 publications have agreed to share content, advertising and technology.

AP:
- Iran has invited Iraqi President Jalal Talabani and his Syrian counterpart, Bashar al-Assad, to a meeting this weekend in Tehran with Iranian President Mahmoud Ahmadinejad to discuss how to stabilize Iraq.

Aftenposten:
- Statoil ASA, Norway’s largest oil company, will double the number of exploration wells it drills this year to about 40 as it hunts for new oil and gas reserves, the company’s CEO said.

La Tribune:
- The French population is ready to accept overhauls in the labor market and the education and pension systems, citing an Ipsos poll.

al-Awsat:
- Saudi Arabia and the UAE are among Arab Gulf states that want Iran to confirm it’s not enriching uranium to develop nuclear weapons.

Corriere della Sera:
- Egyptian President Hosni Mubarak said the sudden withdrawal of foreign troops from Iraq would aggravate tensions in the Middle East.

Leading Indicators Project Accelerating US Growth

- Leading Indicators for October rose .2% versus estimates of a .2% increase and an upwardly revised .4% gain in September.

BOTTOM LINE: An index of leading US economic indicators rose in October, driven by growing optimism among consumers and gains in stock prices, Bloomberg said. Consumer expectations jumped to a 15-month high in the latest Univ. of Mich. Consumer Confidence report and the S&P 500 has surged 15.6% from June lows. I expect 4Q US GDP growth to rise more than estimates of 2.5% as the deflator subtracts less from growth than most expect. Growth of around 3% is likely.

Links of Interest

Market Snapshot
Detailed Market Summary
Quick Summary
Economic Commentary
Movers & Shakers
Today in IBD
NYSE OrderTrac
I-Watch Sector Overview
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Option Dragon
Real-time Intraday Chart/Quote

Monday Watch

Weekend Headlines
Bloomberg:
- Democratic Representative Charles Rangel said he will again introduce legislation to revive a US military draft when his party takes control of Congress in January. Military leaders spoke out against reinstating the draft when Rangel introduced such legislation in January 2003.
- The global economy will keep expanding at a “solid pace,” central bankers and finance ministers from the world’s 20 largest economies said.
- China National Offshore Oil Corp., the nation’s third-largest oil company, will “actively pursue clean energy” alternatives to crude oil and natural gas. China, the world’s second-biggest energy consumer, plans to spend $186 billion in the next 15 years to boost the use of renewable resources and reduce pollution.
- Crude oil is falling again in NY as mild temperatures and ample supplies reduce speculation.
- President Bush prodded Chinese President Hu Jintao to unleash the spending power of Chinese consumers to help boost American exports to the world’s largest developing economy.
- Freeport-McMoRan Copper & Gold Inc.(FCX) agreed to buy Phelps Dodge(PD) for $25.9 billion in cash and stock to form the world’s largest publicly traded copper company.
- European Central Bank President Jean-Claude Trichet said he and his Group of 10 colleagues must be “strongly vigilant” about the risk of inflation because of dynamic global growth.

Wall Street Journal:
- Executives at Yahoo!(YHOO) are examining proposals to revamp the company’s business that include staff cuts of as much as 20%.
- The Blackstone Group LP will announce a $20 billion takeover bid for Equity Office Properties Trust(EOP), the largest US office-building owner and manager.

Dow Jones:
- AT&T(T) is unlikely to offer more concessions to the FCC to win approval of its $80 billion purchase of BellSouth Corp.(BLS) and expects it to be completed this year, citing an AT&T executive.

NY Times:
- Farmers in Iowa and other states in the US Upper Midwest are abandoning corn and soybeans and turning to growing wine grapes to take advantage of the far more lucrative economic returns.

Cambridge Energy Research:
- In contrast to a widely discussed theory, "peak oil", that world oil production will soon reach a peak and go into sharp decline, a new analysis of the subject by Cambridge Energy Research Associates (CERA) finds that the remaining global oil resource base is actually 3.74 trillion barrels -- three times as large as the 1.2 trillion barrels estimated by the theory’s proponents -- and that the “peak oil” argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future.

Washington Post:
- An increasing number of private Russian companies founded after the fall of the Soviet Union are now under state control or are consolidated and led by businessmen with strong ties to President Putin’s government.
- Opponents of Venezuelan President Hugo Chavez are mounting a strong challenge to unseat him in the Dec.3 presidential election.

San Francisco Chronicle:
- EBay’s(EBAY) Skype Internet phone service complements PayPal’s payment system by allowing buyers and sellers to talk on EBay’s Web-based auction site, CEO Whitman said.

AP:
- House Democrats plan to consider repealing billions of dollars in oil company tax breaks early next year and hold off on proposals to increase alternative energy sources and conservation. Democrats specifically want to repeal tax breaks for refinery expansion, geological studies to further oil exploration, and a measure that gives companies credit for drilling in the US rather than in other countries.

c/net News.com:
- Personal navigation systems could become the next must-have gadgets.

Financial Times:
- US Treasury Paulson will map out steps that the country’s regulatory system must take to fight competition from financial centers in London and Asia.

Sunday Times:
- Amvescap Plc, the owner of Aim and Invesco mutual funds, has emerged as a leading candidate to buy Putnam Investments, the money management group Marsh & McLennan cos. is selling.

Aksam:
- Iraq and Turkey signed an agreement to carry Iraqi natural gas through a pipeline to Europe.

Weekend Recommendations
Barron's:
- Made positive comments on (CCE) and (DD).
- Made negative comments on (MTG).

CSFB:
- Reiterated Outperform on (SEPR), raised target to $65.

Night Trading
Asian indices are -1.25% to -.25% on average.
S&P 500 indicated -.13%
NASDAQ 100 indicated -.19%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule

Earnings of Note
Company/Estimate
- (ATVI)/-.10
- (ACS)/.81
- (CAR)/.47
- (CPB)/.61
- (DY)/.25
- (FMCN)/.49
- (JAS)/-.07
- (LOW)/.43
- (MDT)/.56
- (JWN)/.51
- (PVH)/.84

Upcoming Splits
- (STLD) 2-for-1

Economic Releases
10:00 am EST
- Leading Indicators for October rose .2% versus a .1% increase in September.

BOTTOM LINE: Asian Indices are lower, weighed down by technology and automaker shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for The Week Ahead by Reuters

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

Economic reports for the week include:

Mon. - Leading Indicators

Tues. - None of note

Wed. - Initial Jobless Claims, Univ. of Mich. Consumer Confidence

Thur. - US markets closed for Thanksgiving

Fri. - US markets close 1 pm EST

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

Mon. - Activision(ATVI), Affiliate Computer Services(ACS), Avis Budget Group(CAR), Campbell Soup(CPB), Jo-Ann Stores(JAS), Lowe’s(LOW), Medtronic(MDT), Nordstrom(JWN), Phillips-Van Heusen(PVH)

Tues. - Borders Group(BGP), Brown Shoe(BWS), CBRL Group(CBRL), Coldwater Creek(CWTR), Deere & Co(DE), Dollar Tree(DLTR), Eaton Vance(EV), Gamestop(GME), J Crew(JCG), Jack in the Box(JBX), Payless Shoesource(PSS), Perry Ellis(PERY), Tech Data(TECD), United Natural Foods(UNFI)

Wed. - Dell Inc.(DELL), Dollar General(DG), Fred’s(FRED), Genesco(GCO), Hormel Foods(HRL), OSI Restaurant(OSI), Patterson Cos.(PDCO)

Thur. - US markets closed for Thanksgiving

Fri. - US markets close 1 pm EST

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

Mon. - Treasury’s Paulson speaking, Fed’s Fisher speaking

Tue. - Fed’s Lacker speaking

Wed. - None of note

Thur. - US markets closed for Thanksgiving

Fri. - US equity markets close 1 pm EST

BOTTOM LINE: I expect US stocks to finish the week modestly higher on diminishing inflation worries, rising consumer spending optimism, lower energy prices, seasonal strength, strong corporate profits, investment manager performance anxiety and short-covering. My trading indicators are still giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,401.20 +1.47%



Click here for the Weekly Wrap by Briefing.com.

BOTTOM LINE: Overall, last week's market performance was bullish as the Dow Jones Industrial Average hit another all-time high. The advance/decline line rose, most sectors gained and volume was slightly above average on the week. Measures of investor anxiety were mixed. The AAII percentage of bulls fell to 46.56% this week from 50.60% the prior week. This reading is now only slightly above average levels. The AAII percentage of bears rose to 30.53% this week from 26.51% the prior week. This reading is now slightly above average levels. The 10-week moving average of the percentage of bears is currently 34.4%, an above-average level. The 10-week moving-average of the percentage of bears was 43.0% at the major bear market lows during 2002. Moreover, the 50-week moving-average of the percentage of bears is 35.26%, a very high level seen during only two other periods in U.S. history.

I continue to believe steadfastly high bearish sentiment in many quarters is mind-boggling considering the S&P 500's 15.4% rise in just over five months, one of the best August/September/October runs in U.S. history and the fact that the DJIA is at an all-time high. The bears still remain stunningly complacent, in my opinion, notwithstanding recent gains. Every pullback is seen as a major top and every move higher is just another shorting/selling opportunity.

As well, there are many other indicators registering high levels of investor skepticism regarding recent stock market gains. The NYSE Arms reading has been at above-average levels frequently of late. The 50-day moving-average of the ISE Sentiment Index is just off all-time lows and still well below average levels. Nasdaq and NYSE short interest made record highs again recently. Moreover, public short interest continues to soar to record highs and U.S. stock mutual funds have seen outflows for months, according to AMG Data Services. Finally, investment blogger sentiment is still very bearish with bulls recently making a new low. In my opinion, the market's exceptional performance through the seasonally weak months and significant political uncertainty illustrates its underlying strength. There is still a high wall of worry for stocks to climb substantially from current levels as the public remains very skeptical of recent gains.

I continue to believe this is a direct result of the strong belief by the herd that the major U.S. averages are in a long-term trading range or secular bear. There is overwhelming evidence that investment sentiment by the general public regarding U.S. stocks has never been this poor in history, with the DJIA registering all-time highs almost daily. I still expect the herd to finally embrace the current bull market next year, which should result in another meaningful move higher in the major averages as the S&P 500 breaks out to an all-time high to join the DJIA and Russell 2000. I continue to believe the coming bullish shift in long-term sentiment, with respect to U.S. stocks, will result in the "mother of all short-covering rallies."

The average 30-year mortgage rate fell 9 basis points to 6.24%, which is 56 basis points below July highs. I still believe housing is in the process of stabilizing at relatively high levels. Former Fed Chairman Alan Greenspan and several current Fed members reiterated there belief recently that the “worst may well be over” for the housing slowdown. Mortgage applications have begun trending higher with the decline in mortgage rates. As well, Housing inventories have been falling. The Case-Shiller housing futures have improved recently and are now projecting a 4.8% decline in the average home price over the next 7 months. Considering the median house has appreciated over 50% during the last few years with record high US home ownership, this would be considered a “soft landing.” The overall negative effects of housing on the US economy are still being exaggerated by the bears, in my opinion. Housing and home equity extractions have been slowing substantially for well over a year and have been mostly offset by many other very positive aspects of the economy.

Americans’ median net worth is still very close to or at record high levels, energy prices have plunged, consumer spending remains healthy, unemployment is low by historic standards, interest rates are low, stocks are surging and wages are rising, just to name a few. The unemployment rate fell to a historically low 4.4% last month from 4.6% the prior month and 5.1% in September 2005, notwithstanding fewer real estate-related jobs. Consumer spending is still above long-term average levels and looks poised to strengthen into the holiday shopping season.

The Consumer Price Index for October rose 1.3% year-over-year, the smallest increase since June 2002 and down from 4.7% in September of 2005. This is substantially below the long-term average of around 3%. Moreover, the CPI has only been lower during 2 other periods since the mid-1960s. It was lower during late 1986 and early 2002-mid 2002. Many other measures of inflation have recently shown substantial deceleration. The Producer Price Index for October matched the largest decline in US history, falling 1.6% year-over-year. Most measures of Americans’ income growth are now around four times the rate of inflation.

The benchmark 10-year T-note yield was unchanged on the week as a substantial decline in inflation offset better economic data. In my opinion, investors’ continuing fears over an economic “hard landing” are misplaced. The economy has created almost half a million jobs in the last three months. Consumer spending is very important to the health of the US economy. Weekly retail sales rose an above-average 3.4% for the week. Spending is poised to remain strong on plunging energy prices, low long-term interest rates, a rising stock market, healthy job market, decelerating inflation and more optimism. The CRB Commodities Index, the main source of inflation fears, has now declined 2.2% over the last 12 months and is down 16.3% from May highs despite a historic flood of capital into commodity funds and numerous potential upside catalysts. The average commodity hedge fund is down about 14.0% for the year. Oil has declined $20/bbl from July highs. I continue to believe inflation fears have peaked for this cycle as global economic growth stabilizes around average levels, unit labor costs remain subdued and the mania for commodities continues to reverse course.

The EIA reported this week that gasoline supplies fell more than expectations as refinery utilization declined. U.S. gasoline supplies are still at extraordinarily high levels for this time of the year. Unleaded Gasoline futures fell for the week and have plunged 47.2% from September 2005 highs even as some Gulf of Mexico oil production remains shut-in and fears over future production disruptions persist. Gasoline demand is estimated to rise .8% this year versus a 20-year average of 1.7% demand growth. Moreover, distillate stocks are 11.6% above the five-year average for this time of the year. The still elevated level of gas prices, related to crude oil production disruption speculation by investment funds, will further dampen global fuel demand, sending gas prices still lower over the intermediate-term.

US oil inventories are near 7-year highs. Since December 2003, global oil demand is only up 1.5%, despite booming global growth, while global supplies have increased 5.9%, according to the Energy Intelligence Group. Moreover, worldwide oil inventories are poised to begin increasing at an accelerated rate over the next year. I continue to believe oil is priced at extremely elevated levels on fear and record speculation by investment funds, not fundamentals. The Amaranth Advisors hedge fund blow-up is a prime example of the extent to which many investment funds have been speculating on ever higher energy prices through futures contracts, thus driving the price of the underlying commodity to absurd levels. Amaranth, a multi-strategy hedge fund, lost about $6.5 billion of its $9.5 billion under management in less than two months speculating mostly on higher natural gas prices. I suspect a number of other funds will experience similar fates over the coming months, which will further pressure energy prices as these funds unwind their leveraged long positions to meet investor redemptions.

Oil has clearly broken its uptrend, hitting a 17-month low this week. The commodity continues to trade very poorly despite numerous potential catalysts. Recently, Cambridge Energy Research, one of the most respected energy research firms in the world, put out a report that drills gaping holes in the belief by most investors of imminent "peak oil" production. Cambride said that its analysis indicates that the remaining global oil base is actually 3.74 trillion barrels, three times greater than "peak oil" theory proponents say and that the "peak oil" theory is based on faulty analysis. I suspect the contango that currently exists in energy futures, which encourages hoarding, will begin to reverse over the coming months as more investors come to the realization that the "peak oil" theory is hugely flawed, global storage fills, and Chinese demand slows.

A major top in oil is likely already in place as global crude oil storage capacity utilization is running around 97%. Recent OPEC production cuts will likely result in a complete technical breakdown in crude over the coming weeks. Demand destruction is already pervasive globally. Moreover, many Americans feel as though they are helping fund terrorism or hurting the environment every time they fill up their gas tanks. I do not believe we will ever again see the demand for gas-guzzling vehicles that we saw in recent years, even if gas prices continue to plunge. OPEC production cuts, with oil still at very high levels and weakening global growth, only further deepens resentment towards the cartel and will result in even greater long-term demand destruction. Finally, as the fear premium in oil dissipates back to more reasonable levels, global growth slows and supplies continue to rise, crude oil should continue heading meaningfully lower over the intermediate-term, notwithstanding OPEC production cuts. I still believe oil will test $50/bbl. before year-end. I suspect oil will eventually fall to levels that most investors deemed unimaginable just a few months ago during the next significant global economic downturn.

Natural gas inventories rose slightly less than expectations this week. Prices for the commodity rose again as investment fund speculation remains near record highs despite the fact that supplies are now 7.4% above the 5-year average and at all-time high levels for this time of year, even as some daily Gulf of Mexico production remains shut-in. Natural gas prices have collapsed 48.1% since December 2005 highs.

Gold fell slightly on the week on declining inflation, a stronger US dollar and less investment fund speculation. The US dollar rose on short-covering and better economic data. I continue to believe there is very little chance of another Fed rate hike anytime soon. An eventual cut is more likely next year as inflation continues to decelerate substantially.

Airline stocks outperformed for the week on falling oil prices and merger speculation. Commodity stocks underperformed substantially on a firmer US dollar, rising supplies and decelerating demand. S&P 500 profit growth for the third quarter came in around 20% versus a long-term historical average of 7%, according to Thomson Financial. This marks the 17th straight quarter of double-digit profit growth, the best streak since recording keeping began in 1936. Moreover, another double-digit gain is likely in the fourth quarter. Just a few months ago many investors expected profit growth to fall to the low single digits this year. Despite an 88.6% total return(which is equivalent to a 16.6% average annual return) for the S&P 500 since the October 2002 bottom, its forward p/e has contracted relentlessly and now stands at a very reasonable 15.9. The 20-year average p/e for the S&P 500 is 24.4. The S&P 500 is now up 14.1% and the Russell 2000 Index is up 18.3% year-to-date. Historically, if the S&P 500 is up at least 10% going into the final two months of the year, which it was, it continues to climb the last two months 84% of the time.

Current stock prices are still providing longer-term investors very attractive opportunities, in my opinion. In my entire investment career, I have never seen the best “growth” companies in the world priced as cheaply as they are now relative to the broad market. By contrast, “value” stocks are quite expensive in many cases. A recent CSFB report confirmed this view. The report concluded that on a price-to-cash flow basis growth stocks are now cheaper than value stocks for the first time since at least 1977. The entire decline in the S&P 500’s p/e, since the bubble burst in 2000, is attributable to growth stock multiple contraction. I still expect the most overvalued economically sensitive and emerging market stocks to continue underperforming over the intermediate-term as the manias for those shares subside and global growth slows to more average rates. I continue to believe a chain reaction of events has begun that will result in a substantial increase in demand for US stocks.

In my opinion, the market is still factoring in way too much bad news at current levels, notwithstanding recent gains. One of the characteristics of the current “negativity bubble” is that most potential positives are undermined, downplayed or completely ignored, while almost every potential negative is exaggerated, trumpeted and promptly priced in to stock prices. Furthermore, this “irrational pessimism” by investors has resulted in a dramatic decrease in the supply of stock as companies bought back shares, IPOs were pulled and secondary stock offerings canceled. Commodity funds, which have received huge capital infusions this year, will likely see significant outflows at year-end. Some of this capital will likely find its way back to US stocks. I continue to believe there is massive bull firepower available on the sidelines for US equities at a time when the supply of stock has contracted.

An end to the Fed rate hikes, lower commodity prices, seasonal strength, an end to political uncertainty, decelerating inflation readings, a strong holiday shopping season, lower long-term rates, increased consumer/investor confidence, short-covering, investment manager performance anxiety, rising demand for US stocks and the realization that economic growth is only slowing to around average levels should provide the catalysts for another substantial push higher in the major averages through year-end as p/e multiples expand further. I still expect the S&P 500 to return a total of at least 15% for the year. The ECRI Weekly Leading Index rose again this week, very close to cycle highs, and is forecasting a modest acceleration in US economic activity.

*5-day % Change