Stocks Mixed into Final Hour as Short-Covering, Less Economic Fear, Diminishing Healthcare Reform Worries Offset Profit-Taking, Earnings Shortfalls

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Biotech longs and Technology longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is about even, most sectors are rising and volume is above average. Investor anxiety is very high. Today’s overall market action is mildly bullish. The VIX is falling .68% and is high at 23.27. The ISE Sentiment Index is below average at 116.0 and the total put/call is slightly above average at .93. Finally, the NYSE Arms has been running around average most of the day, hitting 1.43 at its intraday peak, and is currently .88. The Euro Financial Sector Credit Default Swap Index is dropping another 5.44% today to 79.99 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising 1.86% to 121.35 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .58% to 32 basis points. The TED spread is now down 434 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is unch. at 43.50 basis points. The Libor-OIS spread is rising .04% to 31 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 4 basis points to 1.88%, which is down 76 basis points since July 7th. The 3-month T-Bill is yielding .18%, which is unch. today. The Euro Financial Sector Credit Default Swap Index is continuing its recent plunge, falling to the lowest level since August 19^th, 2008, which remains a large positive. The market’s resilience today (especially the Naz) is very impressive given the disappointments from (MSFT), (AMZN) and (BRCM). Many sectors are higher, with healthcare-related, airline, insurance and alternative energy shares especially strong. As well, the MS Cyclical Index is rising another 1.1%. Many heavily-shorted stocks have experienced stunning advances over the last couple of weeks, which has likely left many shorts trigger-happy. I expect further healthy consolidating broad market action next week before another push higher commences. Nikkei futures indicate an +150 open in Japan and DAX futures indicate an +25 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety, technical buying, diminishing government healthcare reform worries and less economic fear.

Today's Headlines

Bloomberg:

- U.S. House Democratic leaders, faced with a rebellion by some party members over health-care legislation, threatened to bypass a deadlocked committee to bring the bill to a vote next week. The chairman of the Energy and Commerce Committee said he would agree to a vote by the full House without prior action by his panel if House leaders are unable to negotiate a compromise with the dissenters. Chairman Henry Waxman doesn’t have the votes to pass legislation in his committee without the support of seven self described fiscally conservative Democrats, known as Blue Dogs. “I won’t allow them to turn over the control of the committee to the Republicans, which is what they’ve threatened to do,” Waxman said. “We’ve got to get moving on this legislation. I hope we don’t come to that conclusion.” Representative Mike Ross of Arkansas, a leader of the Blue Dogs, said it would be a mistake for Speaker Nancy Pelosi to bring the measure to the floor before the recess. Democratic leaders in both chambers are struggling to get momentum behind the bill. Senate Majority Leader Harry Reid said yesterday a Senate vote will be postponed until September. Rangel said to help build support for the House measure, leaders will include in it language calling for two studies by a new federal commission of issues that have divided Democrats. The first would examine geographic disparities in Medicare rates; the second would examine how Medicare reimbursement would work under a newly established government-run insurance program, which would provide coverage to a portion of the nation’s 46 million uninsured.

- Leveraged-loan prices rose this week to the highest in 2009 amid signs of improving credit quality and better-than-expected earnings from U.S. companies including Ford Motor Co. The S&P/LSTA U.S. Leveraged Loan 100 Index, which tracks the most actively traded high-yield, high-risk loans, climbed to 80.50 cents on the dollar yesterday. It was 61.97 cents on the dollar Dec. 31 and ended last week at 79.71.

- Microsoft Corp.(MSFT), the world’s largest software maker, offered to include rival Web browsers on the Windows operating system to settle a European Union antitrust case, the EU said.
- Fannie Mae and Freddie Mac grew to the point where they posed “enormous risk” to the financial system, an error that will shape how policy makers restructure the companies, Treasury Secretary Timothy Geithner said. “It would have been good had we figured out a way to avoid that out earlier,” Geithner told the House Financial Services Committee today. “That mistake should underpin much of what we do in thinking about how to create a more stable system.” The Obama administration has yet to figure out what to do with Fannie Mae and Freddie Mac, which regulators seized in September as the mortgage-finance companies’ losses threatened to further disrupt the housing market.

- United States Natural Gas Fund, the world’s largest fund in the commodity, has changed its investment strategy, buying a $250 million bilateral swap that isn’t subject to regulatory position limits. It’s the first time the fund has used an off-market trade to mimic price changes in the fuel. The shift comes as regulators debate new limits on how many futures and swaps that such funds can hold. The fund grew 11- fold since the start of the year to 347.4 million shares before it ran out of new shares on July 7. It is awaiting permission from the Securities and Exchange Commission to sell 1 billion more.

- President Barack Obama’s national security adviser said today enough progress has been achieved on the security front in Iraq to enable American businesses to invest there. “Now is the time for the private sector to do what it does best,” retired General James Jones told the U.S. Chamber of Commerce in Washington. It must build businesses, create jobs and “create opportunities,” he said. “We need to develop private-sector interactions,” Jones added. The Chamber will sponsor an investment conference in Washington Oct. 20-21 for American business executives to explore investment opportunities in Iraq.

- Iraq’s oil potential is larger than earlier understood, President Barack Obama’s national security adviser said today. “They have discovered more reserves and it looks like the aggregate possibilities are even bigger than we previously thought,” James Jones said in a brief interview after a speech at the U.S. Chamber of Commerce in Washington. Jones, who formerly headed the Chamber’s Institute for Energy, said exploration is “yielding more reserves” as it becomes easier to move around Iraq.

Wall Street Journal:

- U.S. health officials said H1N1 virus could strike up to 40% of Americans over the next two years and as many as several hundred thousand could die if a vaccine campaign and other measures aren't successful. Those estimates from the Centers for Disease Control and Prevention mean about twice the number of people who usually get sick in a normal flu season would be struck by swine flu. Officials said those projections would drop if a new vaccine is ready and widely available, as U.S. officials expect.

- The party of the left owns the White House, a filibuster-proof Senate, and a 70-seat House majority. As one House Republican aide quipped: “We could have every GOP congressman and their parents vote against a Democratic bill, and still not stop it.” All Democrats have to do is agree on something.

CNBC:

- A federal minimum wage increase that takes effect Friday could prolong the recession, some economists say, by forcing small businesses to lay off the same workers that the pay hike passed in better times was meant to help.

- Through the noise a peak in jobless claims is apparent—a classic sign of a recession’s end.

New York Post:

- A multiracial group of police officers stood with the white officer who arrested a black Harvard scholar and asked President Barack Obama and Gov. Deval Patrick apologize for comments union leaders called insulting. Officers said they "deeply resent" any implication that race played a role in Sgt. James Crowley's arrest of Henry Louis Gates Jr. at his home near Harvard University last week. At a news conference Friday, union leaders said Crowley "acted appropriately" when he arrested the scholar for disorderly conduct. Police say Gates flew into a race when officers responding to a report of a burglary asked Gates to show identification.

MarketWatch:
- The world's top two memory-chip makers -- South Korea's Samsung Electronics Co. and Hynix Semiconductor Inc. -- posted sharply improved second-quarter results Friday, hinting at a recovery in the global chip market.

- All too often in investing, running with the herd will get you trampled. But if you are an investor in money-market funds, heading for the exits with the masses is probably a smart idea right now, because investing in money funds is the Stupid Investment of the Week. Some $15 billion moved out of money funds during the week ended July 21, according to iMoneyNet, a Westborough, Mass. research firm. That brought the out-the-door total to $248 billion since Jan.13, when assets reached an all-time peak. Still, there's $3.6 trillion in money-market mutual funds, with just under $950 billion of that belonging to retail investors. And yet, the Crane 100 Money Fund Index, which tracks the yields on the top money funds, currently stands at 0.17%.

Detroit Free Press:

- Detroit is in danger of running out of cash if the city doesn’t take steps to eliminate a $20-million to $25-million budget shortfall before Oct. 1, Mayor Dave Bing told the Free Press on Thursday. After spending most of his first two months in office poring over Detroit’s financial books and organizational structure, Bing said the city is so deeply in the red that the following measures must be taken to avoid bankruptcy:

Rassmussen:

- The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 30% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-eight percent (38%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -8 (see trends). Overall, 49% of voters say they at least somewhat approve of the President's performance. Today marks the first time his overall approval rating has ever fallen below 50% among Likely Voters nationwide. Fifty-one percent (51%) disapprove.

Politico:

- The negotiations between House Energy and Commerce Chairman Henry Waxman (D-Calif.) and seven conservative Democrats on his panel fell apart Friday afternoon after the chairman told reporters he could move the bill to the floor without a committee vote. Arkansas Rep. Mike Ross, the top negotiator for conservative Democrats in the Blue Dog Coalition, told reporters Friday that the negotiations "pretty much fell apart this afternoon." In a meeting with Blue Dogs Friday, Waxman rescinded two previous concessions to help cut health care costs over time and ensure the government-sponsored health care won't impede on the private market. Asked how this leaves the negotiations, Ross said it "leaves the chairman with not enough votes to get it out of committee."

USA Today:

- Lobbyists and businesses that employ them donated $5.8 million last year to foundations affiliated with congressional groups, a USA TODAY analysis of federal lobbying data shows. Nearly all of it — $5.7 million — went to non-profit groups connected to the Congressional Black Caucus and the Congressional Hispanic Caucus Institute, according to the analysis. Under congressional rules, the caucuses face limits on how much public money they can use to support their activities. They also are barred from using private funds to operate. However, nothing stops lobbyists from writing big checks to the non-profits connected to caucuses. Giving to a caucus-related group is a way to earn favor with a large number of lawmakers, said Sheila Krumholz, of the non-partisan Center for Responsive Politics. Lobbyists "get to rub shoulders with lawmakers and their families in a relaxed comfortable atmosphere," she added. "It's all conducive to building cordial relationships that you can later cash in on."

Reuters:
- A gauge of future U.S. economic growth edged higher in the latest week, while its

measure of annual growth continued to stride at five-year highs, feeding hopes that a smooth recovery is due this year, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 118.4 in the week to July 17 from 118.1 the previous

week. The index's annualized growth rate jumped to a fresh five-year high of 7.7 percent from 7.0 percent one week ago. It was the index's highest yearly growth rate reading since the week ended May 7, 2004, when it stood at 7.8 percent. "With WLI growth climbing to a new five-year high, it is reaffirming that the end of recession is at hand and that the U.S. economy is poised for recovery in short order," said

Lakshman Achuthan, managing director at ECRI.

- China National Petroleum Corp(CNPC) is to take the majority stake from BP (BP) in a project to develop the Rumaila oilfield in Iraq, industry sources said on Friday. The sources said BP will remain part the project, which was awarded to develop the 17-billion-barrel southern Rumaila field in a bidding round at the end of June, but not with the majority stake under its initial bid made in partnership with CNPC.

- U.S. gasoline prices have probably peaked for 2009 and could face increasing downward pressure as seasonally higher summer driving demand fades into the rear-view mirror. Motor fuel inventories have climbed for six straight weeks, gaining even around the Fourth of July holiday, traditionally the peak of demand in the United States. "This year is unusual because inventories are high and gasoline demand is very poor. So far we haven't seen much of a driving season," said Antoine Halff, vice president of research at Newedge Group, who expects prices to fall. Meanwhile, inventories of distillate fuels, which include diesel and heating oil, have swelled to the highest level in nearly 25 years.

- Warren Buffett said he has no plans to soon exercise Berkshire Hathaway Inc's warrants to buy $5 billion of Goldman Sachs Group Inc stock, although he could make a big profit by doing so. Berkshire got the warrants in September when it also bought $5 billion of Goldman preferred shares, which throw off a $500 million annual dividend. The warrants let Omaha, Nebraska-based Berkshire buy Goldman common shares at $115 each at any time until October 1, 2013. With Goldman's stock having closed at $165.45 on Thursday, those warrants are worth well over $2 billion.

- The percentage of empty privately-owned U.S. homes fell in the second quarter to levels last seen in mid-2006, a government report on Friday showed. The vacancy rate fell to 2.5 percent from 2.7 percent in the first quarter of 2009, the Commerce Department reported.

Bear Radar

Style Underperformer:
Large-cap Growth (-.71%)

Sector Underperformers:
Software (-3.89%), Education (-1.34%) and Road & Rail (-.95%)

Stocks Falling on Unusual Volume:
RVBD, RIGL, IRBT, WFR, MSFT, AMZN, BRCM, INFA, NOC, NUVA, DECK, HITT, NFLX, STAR, CAKE, BUCY, ACO and WAB

Stocks With Unusual Put Option Activity:
1) CTX 2) RSH 3) USU 4) UAUA 5) ETFC

Bull Radar

Style Outperformer:
Large-cap Value (-.40%)

Sector Outperformers:
Alt Energy (+.87%), Hospitals (+.80%) and Airlines (+.67%)

Stocks Rising on Unusual Volume:
UTL, STP, ABT, BMY, CVS, CA, FSLR, CSIQ, SPWRA, SEPR, HWAY, ALGN, CYBS, AVCT, BIDU, CISG, AMSG, ENER, SIVB, SGEN, OXPS, IBKR, CPSI, OMCL, ITRI, HSII, CNW, BDK, GPN, EMN, EVY, COF and CB

Stocks With Unusual Call Option Activity:
1) RIGL 2) SPWRA 3) IR 4) RSH 5) TOL

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