The Wall Street Journal’s “Tinkering Makes Comeback Amid Crisis” stirred my thoughts on the limits of America’s dependence on a knowledge-based economy. The article focused on engineering students at prestige universities wanting to actually create physical things. Students are migrating from the virtual world of software science to hobby-ing with computer controlled milling machines in their dorm rooms, school workshops and membership machine shop clubs.

The Journal’s “Obama to Warn Asia Against Relying on U.S. Consumers” reports that the President is reiterating his call for the US to get back to making things for itself and the rest of the world. In “Larry Summers and Jeff Immelt Preparing for Post-Consumer Economy” and "US Needs to Convert from a Consumer to an Industrial Economy", I highlighted that companies such as Eaton (ETN), Ingersoll-Rand (IR), Parker Hannifin (PH) and Rockwell Automation (ROK) could be the beneficiaries. Now it appears that both the President and these companies are developing a young following.

ETFs have been overshadowing their close relative, the ETN. Investors could be missing out on this nifty alternative investment vehicle.

At the end of September, U.S.-listed ETNs held $6.9 billion in assets, compared with the $697 billion held in ETFs, writes Matt Hougan for IndexUniverse.

Smart grid plays are one of the green energy plays currently being boosted by stimulus grants. The difference between smart grid systems and other renewable energy plays is that the former are already easily implemented as compared to solar and wind, which currently have large technological and distribution barriers to overcome. Tuesday, President Obama named the utilities that will benefit from $3.4 billion in stimulus grants to implement smart grid systems.

We’ve been more and more amazed at the strength of the rally.

You have to listen to and respect the market. Sometimes the market just wants to go up.

4:10 PM, Oct 19, 2009 --

• NYSE up 88.3 (1.2%) to 7,222.21.
• DJIA up 96.28 (1%) to 10,092.
• S&P 500 up 10.23 (0.9%) to 1,098.
• Nasdaq up 19.5 (0.9%) to 2,176.

GLOBAL SENTIMENT

Q3 2009 Earnings Call

October 19, 2009 10:00 am ET

• CME weighs its CBOE options. CME Group (CME) - the largest futures market in the world - is reportedly in early talks to fold Chicago Board Options Exchange (CBOE) into its empire. Sources say a deal could be worth up to $5B, or a 50% premium to CBOE’s current worth, and would give CME the biggest share of trading in listed U.S. options – a market growing at lightening speed. Analysts say any deal could still be months off, however, due to issues over how CBOE's membership interests would be divided.
• C'mon, Ben! Barron's magazine's Andrew Bary urged Ben Bernanke to hike interest rates to a "more normal" 2%, or risk fostering another financial bubble. Barron's says with the economy recovering, the dollar falling, and commodities on the rise, keeping rates near zero will only fuel speculation and anger America's economic partners and foreign creditors - and potentially stoke inflation. Bary worries the Fed is failing to distinguish between normal accommodative monetary policy and crisis accommodative policy.
• Earnings rule the day. Markets will be closely watching a fresh battery of earnings this week - including consumer-related companies such as Apple (AAPL), McDonald’s (MCD), Whirlpool (WHR) and Hasbro (HAS) - looking to see just how healthy the consumer is, and by extension the economic recovery. Last week Bank of America (BAC), Citigroup (C), and General Electric (GE) disappointed, reporting heavy consumer-related losses, which stomped out a rally kindled earlier in the week.
• Citigroup might lose Mexican unit. Citigroup (C) could be forced to sell its highly-prized Mexican subsidiary, Banamex. A case being decided by Mexico's Supreme Court this week will rule on whether the Citigroup arm is in breach of Mexican law that bans foreign governments from owning a stake in domestic banks; some claim an earlier ruling allowing the "transitory" stake was unconstitutional. Banamex accounts for about 15% of Citi's global profits, and has an estimated worth of about $20B. Other banks with Mexican operations that could be affected by the ruling include AIG (AIG), Bank of America (BAC) and Bank of New York Mellon (BK).
• Vivendi to GE: pay up. GE (GE) and Vivendi are at odds to the tune of about $500M over what Vivendi should get for its 20% stake in NBC Universal. The sale is critical to a deal that GE has reportedly been negotiating with Comcast (CMCSA). GE, which owns 80% of NBC Universal, and Comcast are in the midst of due diligence. Vivendi wants to be paid at least book value for its stake, or about $6.3B. sources say. If Vivendi and GE reach an agreement, a deal on the Comcast-NBC Universal transaction could come as soon as next month.
• Drug companies to benefit from healthcare bill. Some healthcare industry executives believe drug companies stand to profit more handsomely than insurance companies from the government’s healthcare overhaul, as coverage extends to some 29M more Americans. Senate Democrats meet this week to write the bill they plan to bring to the floor. With a surge in coverage, drug companies, pharmacies and hospitals would be protected from carrying the cost of customers who can’t afford to pay up. In contrast, insurance companies would no longer be able to reject those with pre-existing illnesses – which could prove costly.
• CIT throws sop to bondholders. Hoping to crank up bondholder support for its debt exchange plan, CIT Group (CIT) said late Friday night that it sweetened terms of the proposed deal. Some junior bondholders will get more stock in exchange for their bonds and higher interest on new debt. The pool of eligible exchange participants will also be enlarged. CIT, one of the largest lenders to small and mid-sized companies, is looking to slash its $31B in bonds by at least $5.7B and to extend debt maturities. Bondholders will have to choose between the exchange offer and a possible prepackaged bankruptcy plan.
• Wall Street insider crackdown coming. The arrest of billionaire hedge-fund chief Raj Rajaratnam late last week could be the tip a much larger sting operation about to strike Wall Street, sources say. The Fed crackdown, brewing for two years, targets large institutional investors such as hedge-fund managers, lawyers and other Wall Street players. Rajaratnam's ring, extending to the likes of IBM (IBM) executive Robert Moffat, a close confidant of IBM's CEO, allegedly reaped some $20M in profits from trading on insider information.
• U.S. customers: beware of UBS mail. U.S. clients of Swiss investment bank UBS (UBS) could be nailed for tax evasion simply by opening their mail. UBS is reportedly warning U.S. clients, via registered mail, that their account details are being sent to U.S. tax authorities. This could give U.S. authorities an early leg up in tracing customers on their tax evasion hit list – well before such details are due to be shared under a U.S.-Swiss double taxation agreement – and in potential violation of Swiss secrecy laws, sources say. In August, Switzerland handed over details of 4,450 U.S. accounts at UBS to settle the tax evasion furor.
• Stagecoach gallops to National's rescue. Just days after being abandoned by CVC Capital, Britain's National Express Group said Stagecoach Group has stepped forward with a preliminary all-share bid valued at £1.7B ($2.8B). The U.K. rail operator said it was considering a share sale over the next few weeks to reduce debt after CVC dropped its £765M bid.

Earnings: Mon. Before Open

• BB&T (BBT): Q3 EPS of $0.23 beats by $0.01. Revenue +16.1%. Provision for credit losses almost doubled to $709M. "Our earnings continue to be negatively affected by a significant provision for credit losses and other costs related to the credit environment." Shares -2.1% premarket. (PR)
• Eaton (ETN): Q3 EPS of $1.21 beats by $0.29. Revenue of $3.03B vs. $3.13B. Sees Q4 EPS of $1.15-1.25 vs. $1.06. (PR)
• Hasbro (HAS): Q3 EPS of $0.99 beats by $0.06. Revenue of $1.28B (-1.8%) in-line. “We believe we can grow revenues in 2009 if our consumer retail takeaway continues to improve in line with recent fourth quarter trends." (PR)
• Weatherford International (WFT): Q3 EPS of $0.13 in-line. Revenue of $2.15B (-15.4%) in-line. North America rig count -52%; international rig count -11%. Shares +1.4% premarket. (PR)

Today's Markets

Asia markets posted strong gains to kick off the week. Europe stocks are higher at midday, and futures look poised to carry solid gains into the open.

By Jeff St. John

Echelon (ELON) has a new partner to bridge the gap between its smart meters and home energy controls – Eaton Corp. (ETN).

A growing number are eager to buy plug-in hybrids from Toyota (TM), Chevy, Ford (F), Fisker, and others that are completing new manufacturing for 2010 orders and look to be serious competition in 2011. Oil prices have doubled from their low this year. People are planning to save on fuel for years, by using more inexpensive electricity and less gasoline.

The Oracle of Omaha Warren Buffett is generally viewed as the most respected and successful investor in history, and many of our value-oriented readers follow the movements and purchases of Buffett rather closely and for good reason. Berkshire Hathaway (BRK.A), a conglomerate holding company, which Buffett built from a textile company into a major corporation, has averaged a 20.3% compounded annual gain in per-share book value from 1965-2008. There is no doubt about the success Buffett has achieved over the years, and there has even been a recent study done that shows an investor could have earned over 14% returns a year had they purchased each Buffett stock, a month after his investment company disclosed ownership.

We thought it would be an interesting story to show how Buffett’s holdings would rank according to The Applied Finance Group’s (AFG’s) valuation model and Economic Margin Methodology. The companies we believe look the most attractive and that investors should pay the most attention to when searching for long investment opportunities are the companies that have both an attractive default AFG valuation and are expected to improve their Economic Margins at a greater rate than their sector peers.

The Applied Finance Group (AFG) has a disciplined approach for identifying companies that are expected to outperform and underperform the market by using proprietary metrics and measurements that have been tested and proven through time. Because AFG’s research is fundamentally derived, AFG’s quantitative analysis spans across growth and value stocks, all sectors, industries, and market caps with over 20,000 covered securities globally. Using AFG’s proprietary criteria, AFG publishes a monthly buy/sell list to provide clients with a refined focused list as a starting point for potential investments. AFG clients can then use Value Expectations to further analyze the expectations embedded in a security’s price and to build out their own model to refine an intrinsic value of a company based on their own expectations.

When searching for Large-Cap ideas, AFG’s Buy/Sell list is a good starting place as it has proven to create a significant spread in performance between companies that come up on AFG’s buy list and those on the sell list. Further focusing on companies based on AFG’s proprietary screening criteria (Economic Margin, valuation, quality of earnings, and management’s ability to create shareholder wealth) will save investors time in their research process. The result is a target group of stocks that can help you outperform as well as identify potential torpedoes to avoid in your portfolios.

The leveraged oil ETN closure has many baffled about why it would liquidate due to imposed limits and regulations with NYMEX, when it doesn’t actually hold anything but is instead a debt note. Read on for answers!

Deutsche Bank is liquidating the PowerShares DB Crude Oil Double Long ETN (DXO) today. There are two reasons the note is closing down:

Deutsche Bank (DB) announced yesterday that it will redeem all outstanding shares of the PowerShares DB Crude Oil Double Long (DXO). In a statement, Deutsche Bank said that limitations imposed by the exchange on which the exposure of the notes is managed have resulted in a “regulatory event,” leading to the redemptions.

No other ETNs are impacted by the announcement. No ETFs offered by Deutsche Bank are affected. The bank said it will redeem all shares on Sept. 9, and it will determine the “repurchase value” .

Warren Buffett’s Stock Portfolio: Part 1 | Part 2

Following on from the first part of Berkshire’s Stock Portfolio covering the first 10 stocks, let’s go through the next 10.

With so much financial news being reported these days, it can be tough to spy the stories that really matter – stories that suggest a big payday awaits shareholders of certain firms. When it comes to alternative energy, EnergyTechStocks.com has found that nobody is better at spying stories that matter than Mike Millikin of the web site Green Car Congress.

EnergyTechStocks.com asked Millikin to take a second look at stories he posted over the last couple of weeks, looking for important developments and the companies that could benefit from them.

ETFs have gotten so popular that they’re increasingly appearing in more and more exotic incarnations. Investors should understand how they work before diving in sight unseen, though.

ETFs have morphed into several exotic forms, covering a number of market niches in nearly every way possible. Don Dion for TheStreet explains that these newer “non-traditional” ETFs area newer generation and that they do add some level of risk that more traditional ETFs don’t have:

• March 31 holdings
• June 30 holdings

Added

A sugar ETN may prove to be really sweet, as global futures prices for the commodity have risen so sharply that some food manufacturers have issued warnings.

The world is facing sugar shortage so alarming that the Agriculture Department has been asked to ease quotas on imports. Since the price of sugar has gone up substantially, manufacturers are warning that run-up could impact grocery shelves, reports Jerry Hrisch for The LA Times.