Fed Fund Futures: 90% chance of Quarter Point Cut
Lousy economic data -- Unemployment, revised Q3 GDP, and Consumer Confidence -- along with positive comments by two Fed Governors, suggest the rate cutting cycle is not yet over. The odds strongly favor a Fed easing of 25 basis points at their December meeting. Though a 50 basis point move is not out of the question, it remains less likely -- about a 30% chance, at least acciording to Fed Futures. Commentators are much less sanguine about a cut in January, though some -- 14 out of 23 economists -- remain hopeful.

Markets Have Best Month Since April
Indexes have recorded their biggest monthly advance since April, leaving them somewhat vulnerable to profit taking and retracement. The Nasdaq Composite Index was up 14 percent this month, the S&P500 rallied 7.5 percent. CNBC reported the Dow -- which gained 8.6 percent -- had its best November since 1962.

Closing Summary

Index	Last	Change	% Change
Dow Jones Industrial Avg.	9851.6	+22.20	+0.23%
S&P 500	1139.45	-0.75	-0.07%
Nasdaq Comp	1930.5	-2.70	-0.14%
Russell 2000 Index	460.78	-2.55	-0.55%

Enron (ENE) Declares Bankruptcy
Not surprisingly, Enron filed for Bankruptcy Sunday. They also filed a $10 Billion lawsuit against their former acquirer, Dynergy (DYN).

Some Silver Lining:
Durable Goods and Home Sales Not as Good as They Look
Amongst all the economic gloom last week, U.S. orders for durable goods rose more in October than any other month in the past nine years while new home sales unexpectedly increased. This led some to suggest that the economy may soon recover from nine months of recession.

The 12.8 percent rise in durable orders followed a 9.2 percent September decrease and was led by increased bookings for weapons, ships, jet fighters and cars. These are not exactly sustainable trends which can be expected to power the economy going forward. The interest free loans driving most car sales are essentially "borrowing revenues" from next year's sales. Its the automotive equivalent of channel stuffing.

More encouraging were the sales of new homes, which rose 0.2 percent to an annual rate of 880,000 houses, the fastest in four months. Low interest rates have allowed housing sales to remain "aggressive." One economist noted that "the report suggests that things will get worse before they get better."

- F Ford Motor is expected cut benefits for white-collar employees and lay off hundreds of hourly workers in a bid to save the hundreds of millions of dollars.

-SUNW Sun Microsystems COO says economic recovery isn't right around the corner. "I think 2002 hopefully will be better than 2001. It has to be."

-INTC Intel may raise expectations for Q4 revs to the high end of its range, according to Lehman Brothers analyst Dan Niles. He recommends lightening up on shares given the stock's pricey valuation.

-CSCO Cisco Systems will have its analyst meeting this week. On Friday, the firm's CFO said he's bullish longer term but that "visibility" remained limited to one quarter.

-HD Home Depot's CEO expects slower growth for the company as it scales back on store openings and pursues sales beyond its traditional base.

-LU Call of the Week

File this one under "Equal Time." As promised after last week's Blodget bashing, its time to look at the house of Morgan. The following tidbit (culled from Bloomberg) caught our eye: "Morgan Stanley's Shah Cuts Lucent, Finally."

To quote: "Morgan Stanley Dean Witter & Co. analyst Alkesh Shah says it's a good time to sell shares of Lucent Technologies Inc. after their 47 percent rally the past two months. That's small consolation to the investors who had heeded Shah's "outperform'' rating and bought or held the shares, even as the largest telecommunications-equipment maker's stock slumped to $5.31 from $31 in October 2000.

Some investors say Shah's downgrade to "neutral'' today came too late. "You barely saw the problem, and now we're talking nuances of a couple dollars?'' said Robert Morris, chief investment officer for Lord, Abbett & Co. in Jersey City, New Jersey. "Here's a stock that's down from $80 to $8.''

Thus, we are reminded of the classic cliche about (all too many) fundamental analysts: "You don't need 'em in a Bull market, and you don't want 'em in a Bear market . . . "

Market Stats

Market	NYSE	Nasdaq
Total Volume	1345.88m	1807.73m
Up Volume	609.11m	827.96m
Down Volume	710.16m	960.70m
Advancers	1549	1772
Decliners	1580	1887
New Highs	78	86
New Lows	32	40

Things That Warrant Attention On The Charts

How sustainable is the recent rally's rate of ascent?

Consider the following: From September 21st to November 27th (intraday lows to highs), the Nasdaq gained a blistering 43%; Both the Dow and the S&P 500 were up around 23%.

Based upon historical comparisons, this ascent shouldn't continue for much longer. But if the Indexes were to continue gaining at recent speeds -- an admittedly unlikely scenario -- how long would it be before they hit their prior highs?

At the growth rates of the past eight weeks, the Nasdaq would revisit its former 2000 highs by mid-May 2002, the Dow would reach its old highs some time in early February, and the S&P by late March.

Sustainable Rate of Advance ?

Index	September Lows	November Highs	Gain %	2000 Highs	Hypothetical Revisit of Prior Highs
DJ Industrials	8,062	9,992	23.93%	11,750	February 2002
S&P 500	944	1,163	23.19%	1,553	March 2002
Nasdaq Comp	1,387	1,965	41.67%	5,132	May 2002

Its all but impossible to imagine that occurring. A sideways, base building period is a more likely scenario than a continuation of the recent advances. If the markets do manage to break out of the present trading range -- above 10,200 on the Dow, and 2100 on the Nasdaq -- I would be looking for a period of extended, range bound trading, primarily characterized by sector rotation and "backing and filling."

This laid out in more detail here. (Source: Barry Ritholtz)

ADLAC : Adelphia Communications continues to behave well. Shorter term traders are looking for 27, while those of you who can hold a stock for six months should see low 30s.

It's The Most Wonderful Time of the Year
Jeffrey Hirsch of the Stock Trader's Almanac said December has been the best-performing month for the S&P since 1950, with an average return of 1.8 percent. It's been the second-best month for the Dow, with a return of 1.8 percent as well. And December has been the second-best month for the Nasdaq over the past 30 years.

"Habit rules the unreflecting herd."

William Wordsworth

Anticipate Preannouncements and Act Accordingly

OK, the end of November is here, and that means that many companies have a pretty good idea if they are on track to meet their quarterly numbers. The past few Qs have seen companies get viciously spanked when they preannounce. After our recent bounce, it would be bad form to give too much back due to a warning.

Do you know exactly when the companies you hold have earnings coming out? How about their preannouncement track record? Have any of your firms developed a track record for preannouncing early or is their quarter back end loaded -- like EMC and Oracle.

What about competitors? Are any of them liekly candidates for a pre-A? Do some research into the Pre-A history of your stocks. Prepare a plan of action.

The Marines Have Landed -- Again
By David H. Hackworth, DefenseWatch November 28, 2001

EXCERPT:
The first non-Special Ops unit deployed to Afghanistan is the U.S. Marines Corps -- no big surprise to this old Army doggie.

In World War II's South Pacific, Marines were "the firstus with the mostus" into the Solomons, and they led the way into Vietnam. In Korea, they landed second, but unlike the Army units initially deployed there, Gen. Edward Craig's Marine brigade hit the beach ready to fight. And without their skill, sacrifice and courage, the beleaguered Eighth Army would've been pushed into the sea during the early months of the conflict. A similar scenario occurred during the early stages of Desert Storm, in which Marine units came in ready to fight while the first Army troops -- the 82nd Airborne Division, with its insufficient anti-tank capability -- were a potential speed bump waiting to be flattened.

The Corps, which has never lost sight that its primary mission is to fight, remains superbly trained and disciplined -- true to its time-honored slogan "We don't promise you a rose garden." When, under Clinton, the Army lowered its standards to Boy Scout summer-camp level in order to increase enlistment, the Corps responded by making boot training longer and tougher. Now under USMC Commandant James Jones, that training has gotten even meaner for the young Marine wannabes waiting in line to join up, as well as for Leathernecks already serving in regular and reserve units.

Unlike U.S. Army conventional units -- their new slogan, "An Army of One," says it all -- the U.S. Marine Corps remains a highly mobile, fierce fighting team that has never forgotten: "The more sweat on the training field, the less blood on the battlefield."

The Marines are flexible, agile, ready and deadly, while the Army remains configured to fight the Soviets -- who disappeared off the Order of Battle charts a decade ago. For example, right after Sept. 11, the two Army heavy divisions in Germany -- with their 68-ton tanks that can crush almost every bridge they cross -- deployed to Poland for war games.

--Barry Ritholtz
December 3, 2001

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