Stocks Finish Lower, Weighed Down by Airline, Hospital, Biotech, Alt Energy and Homebuilding Shares

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Stocks Lower into Final Hour on Healthcare Reform Worries, Profit-Taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising 4.26% and is very high at 25.96. The ISE Sentiment Index is below average at 135.0 and the total put/call is above average at .93. Finally, the NYSE Arms has been running low most of the day, hitting .31 at its intraday trough, and is currently .58. The Euro Financial Sector Credit Default Swap Index is rising 2.24% today to 81.50 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 falling 1.73% to 111.0 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 1.49% to 30 basis points. The TED spread is now down 436 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 3.95% to 44.44 basis points. The Libor-OIS spread is falling .28% to 27 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 4 basis points to 1.90%, which is down 76 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Today’s action has been pretty sloppy overall. The bears continue to lack conviction. Retail and internet shares are actually higher on the day. One of my longs, (GOOG), continues to trade very well even on market pullbacks, which bodes well for further gains. It is noteworthy that oil is slightly higher today despite US dollar strength, equity weakness and another plunge in nat gas. There have been rumors of large upward revisions to prior months’ job losses. However, I expect the change in non-farm payrolls for July to come in around or better than estimates of 328K. Moreover, I believe the unemployment rate could unexpectedly drop. Nikkei futures indicate an +22 open in Japan and DAX futures indicate a -10 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, investment manager performance anxiety, less economic fear and diminishing commercial real estate pessimism.

Today's Headlines

Bloomberg:

- The cost of protecting U.S. corporate bonds from default dropped to the lowest in more than 13 months, according to traders of credit-default swaps. Contracts on the Markit CDX North America Investment-Grade Index, linked to 125 companies in the U.S. and Canada, fell 1 basis point to 110 basis points at 11:48 a.m. in New York after earlier dropping to as low as 109 basis points, according to Phoenix Partners Group. That’s the lowest since June 17, 2008, according to CMA DataVision. The index is a benchmark for the cost of protecting bonds against default, and a decline signals improving perceptions of credit quality.

- MBIA Inc.(MBI), the largest bond insurer by total guarantees, jumped as much as 26 percent in New York trading after the company said it may recover more than $1 billion on home-equity loans from lenders. The company’s shares rose 77 cents, or 14 percent, to $6.30 at 11:46 a.m. in New York Stock Exchange composite trading, after earlier climbing to $6.95, the biggest percentage gain since Feb. 18.

- Mortgage rates in the U.S. fell for the first time in three weeks, boosting the potential for further stabilization in the housing market. The average 30-year rate dropped to 5.22 percent from 5.25 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. The 15-year rate averaged 4.63 percent for the week ending today.

- The trustee liquidating Bernard Madoff’s investment company won court approval of a $14.7 million bill for four months’ work by his law firm, overcoming challenges from victims. The payment to trustee Irving Picard and his firm, Baker & Hostetler LLP, was approved today by U.S. Bankruptcy Judge Burton Lifland in New York. Some victims argued Picard isn’t paying Madoff clients fast enough and is wasting money that should go to them.

- Nasdaq OMX Group Inc., owner of the second-largest U.S. stock exchange, agreed to stop allowing brokerages to make so-called flash orders that Senator Charles Schumer says give some investors an unfair advantage. Nasdaq will shut down the system on Sept. 1, according to a statement distributed today.

- Maurice “Hank” Greenberg, who led American International Group Inc. for 38 years until his ouster amid state and federal accounting probes in 2005, will pay $15 million to settle U.S. claims he manipulated the insurer’s earnings. Greenberg, 84, and former AIG Chief Financial Officer Howard Smith “directed several different accounting transactions to materially affect AIG’s reported financial results,” the Securities and Exchange Commission said in a lawsuit filed today in federal court in Manhattan. Smith will pay $1.5 million to resolve the suit.

- The arrests of five men charged with planning a suicide attack on an army barracks near Sydney is a wake-up call to the dangers of Islamic radicalization in Australia, a Somali community leader said today. “We are shocked, we are almost numb about it,” Aden Ibrahim, president of the Somali Cultural Association in Melbourne, said of this week’s dawn raids, which police say foiled potentially the most serious terrorist attack on Australian soil.

- President Barack Obama’s approval rating is falling amid concerns about the U.S. economy and his push to revamp the U.S. health-care system, a Quinnipiac University poll shows. Exactly half of the registered voters surveyed from July 27 to Aug. 3 by Quinnipiac said they approve of the job Obama is doing, compared with 42 percent who disapprove. That’s down from 57 percent approval and 33 percent disapproval in a poll taken in late June, according to results released today. Americans are upset about rising unemployment and worried that health-care plans making their way through Congress will add to the U.S. budget deficit, said Peter Brown, assistant director of the Hamden, Connecticut-based polling institute. The combination has helped drive down the president’s ratings. A “willingness to give him the benefit of the doubt is, among some voters, evaporating,” Brown told reporters in Washington yesterday. The poll found that voters disapprove of the way Obama is handling the economy by 49 percent to 45 percent. On his effort to overhaul of the health-care system, 52 percent disapprove of his handling of the issue while 39 percent approve.

- Emerging-market stocks in Europe, the Middle East and Africa, which rallied 72 percent in five months, have hit the “top,” Credit Suisse Group AG said, citing six “tactical” indicators. The MSCI EMEA Index’s 200-day moving average as well as the advance-decline ratio, risk appetite, cash levels, fund flows and seasonality of developing-economy stocks have “turned negative,” Alexander Redman, an analyst at Credit Suisse in London, wrote in a client note today. This typically points to a change in market direction, he said.

- China, the world’s biggest carbon- dioxide polluter, is balking at the cost and effectiveness of extracting greenhouse gases from hundreds of coal plants and storing them underground. China can achieve larger emissions cuts instead by spending money improving the energy efficiency of buildings and vehicles and investing in alternative power sources such as wind and solar, said Su Wei, director-general of the climate-change unit at China’s National Development and Reform Commission. “Carbon capture and storage, particularly for China, is not one of the priorities -- the cost is an issue,” Su said in an Aug. 4 telephone interview from Beijing.

- The largest U.S. natural-gas producers may be doing too well at the wellhead for their own good, pumping so much of the heating and power-plant fuel that prices won’t soon recover from last year’s market collapse.

- The National Oceanic and Atmospheric Administration cut the number of Atlantic hurricanes it expects this year to a range of three to six of the storms.

- Ford Motor Co.(F), the only major U.S. automaker to avoid bankruptcy, is accelerating new-model introductions and will replace as much as 90 percent of its North American lineup by 2012 to boost sales.

Wall Street Journal:

- Americans are now seeing the damage that polls and focus groups can inflict on White House decision-making. President Barack Obama is no longer shaping the public dialogue on health-care reform. Instead, he is losing control of his agenda and resorting to rhetorical tricks and evasions. Every administration has to take into account public opinion. Without doing so, Abraham Lincoln said, little can be achieved. But too much polling doesn’t raise presidential vision. It narrows and pulls it down. Substituting a weekly dose of opinion surveys for thoughtful consideration is causing White House aides to find new scapegoats whenever administration policy initiatives get into trouble.

NY Times:

- Your business has prospered. You have a good income and substantial assets (even after the past year). Maybe it’s time to join the heavy hitters and look into hedge funds. Or maybe not.

Forbes:

- America’s Best Colleges.

FINalternatives:

- The economic crisis took an ever bigger toll on hedge funds than previously thought, according to one industry barometer. Assets under administration by hedge funds and funds of hedge funds plummeted an eye-popping 34% in the year ended March 31. That period corresponds nicely with the worst of the hedge fund crisis and the biggest redemptions suffered by most firms. Hedge funds managed $2.5 trillion at the end of the first quarter, according to Carbon360° Research. That’s down a stunning $1.3 trillion from a year earlier. And the industry hasn’t bottomed out just yet: Carbon360° predicts that the hedge fund industry assets will drop a further $300 billion by the end of the year. Funds of hedge funds alone accounted for $400 billion of the decline through March. Funds of funds managed $824 billion on March 31, down 33% from more than $1.2 trillion a year earlier.

Rassmussen:

- As far as the public is concerned, the embattled U.S. news media is on its own. A new Rasmussen Reports national telephone survey shows that just 25% of American adults favor the creation of a White House commission to help save journalism jobs and find ways for struggling news organizations to survive. Fifty-five percent (55%) oppose the creation of a commission such as the one proposed by former CBS newscaster Dan Rather in a speech last week.

Politico:

- Senate Majority Leader Harry Reid (D-Nev.) is trying to downplay any talk of using fast-track budget rules to force the health care bill through the Senate, but he’s leaving the option of reconciliation out there just in case. “We’re not even discussing [it],” Reid told reporters Thursday. “We believe health care should be bipartisan. We believe we have the opportunity to do that.” Reconciliation is a rarely used procedural tool that allows the Senate to push through certain bills on a simple majority. It basically bypasses a filibuster. But when asked whether the option was on the table, as Sen. Chuck Schumer (D-N.Y.) said earlier this week, Reid quipped: “I’ve never known Schumer to say anything wrong.”

- House Speaker Nancy Pelosi moves in a rarefied world of high society and high-level politics — and nothing underscores that fact quite like her plans for the August recess. Pelosi will spend next weekend quietly tending to top party donors and political allies at a series of private events in Northern California. The two-day “issues conference” starts next Friday night with a dinner for roughly 170 guests on the back lawn of Pelosi’s multimillion-dollar home in the fashionable Pacific Heights neighborhood in San Francisco. The following day, Pelosi will shepherd her guests to a Napa Valley winery with buildings designed by world-famous architect Frank Gehry; the speaker and her husband, investor Paul Pelosi, own a nearby vineyard worth between $5 million and $25 million, according to her annual financial disclosure report.

Pension Pulse:

- Pension managers and mutual fund houses have been among the biggest buyers of the Dow Jones industrial average .DJI in recent weeks, underscoring the growing belief the recession is over, according to an analysis conducted by Thomson Reuters. Between July 14 and July 21, when the Dow gained almost 600 points to 8915, net buying by pension managers and mutual fund managers -- or so-called "long-term" or "big" money managers -- totaled $1.9 billion, said Jeff Shacket, vice president of corporate services at Thomson Reuters, who analyzed settlement records of the Dow components. "There is some momentum lost among pensions and mutual fund investors, but the move is still generally positive," Shacket said on Tuesday. "These buyers are saying that this market is going to go higher -- and not lower any time soon." Hedge funds, which have appeared to miss the huge rally in recent weeks, also are becoming less bearish. The Greenwich Alternative Investments Macro Sentiment Indicator -- which is based on hedge fund investors employing a macro view who collectively manage a total of $30 billion in assets -- showed that 50 percent of those macro managers expect the S&P to continue to move lower. That's down from 60 percent in July. "All of this suggests how investors overreacted to the downside during the first quarter," Shacket said. The case for more upside was made today by Mark Dow, fund manager at Pharo Management, a global macro hedge fund with about $2 billion of assets. Dow believes the market can "continue to grind higher for a while" for a number of reasons:

Memphis Business Journal:

- Allenberg Cotton Co. plans to purchase long-time rival Dunavant Enterprises Inc. Dunavant employees in Memphis were told the news Wednesday. The company's employees will be able to interview for their positions with Allenberg. Dunavant CEO William B. Dunavant III confirmed in a phone interview Thursday that the Memphis-based companies were in negotiations to merge their global cotton operations.

Reuters:
- A new technique has given researchers a "big picture" look at the genome of the AIDS virus, the first time its entire gene map has been decoded. The technique may not only lead to new treatments against the fatal and incurable virus, but for other viruses such as influenza and the bugs that cause the common cold, they said on Wednesday. "We are hopeful that this is going to open up many new opportunities for drug discovery," Kevin Weeks of the University of North Carolina, who led the research, said in a telephone interview. "We have a big list of things we can try."

- Almost half of Afghanistan is at a high risk of attack by the Taliban and other insurgents or is under "enemy control", a secret Afghan government map shows, painting a dire security picture before presidential elections. The threat assessment map, a copy of which was obtained by Reuters, shows 133 of Afghanistan's 356 districts are regarded as high-risk areas with at least 13 under "enemy control". The map, which bears the logos of Afghanistan's Interior Ministry and the army as well as the United Nations Department of Safety and Security, was produced in April 2009, before a dramatic escalation of violence ahead of the Aug. 20 ballot.

- U.S. stocks have entered a new bull market, and the S&P 500 index could rise as much as 10 percent from current levels by the end of this year, Goldman Sachs strategist Abby Joseph Cohen said on CNBC on Thursday. Goldman Sachs sees the benchmark Standard & Poor's 500 index in a range of 1,050-1,100 toward year-end, said Cohen, the firm's senior investment strategist and president of its Global Markets Institute. That range, she said, "is where we should be toward the end of this year. "We do think the new bull market has begun," Cohen said. "It may prove it began in March of this year."

- For many money managers who bet exclusively that securities will fall, July may go down in history as their personal Waterloo. When performance data is announced in the next few days, the numbers will show high single-digit or even double-digit losses at so-called dedicated short-sellers, industry analysts and investors forecast. "Every few years short-sellers have their day in the sun," said Brad Alford, founder of Alpha Capital Management, an advisory firm that invests in hedge funds. "Then things revert to normal where the markets rise and life becomes so difficult for them that many just go out of business," he added.

Financial Times:
- The appetite for risk has returned to derivatives trading, MF Global, the world’s biggest broker of exchange-listed futures and options, said on Thursday as it reported quarterly profits ahead of Wall Street expectations even as they dropped by two-thirds from last year.

Bear Radar

Style Underperformer:
Mid-Cap Growth (-1.45%)

Sector Underperformers:
Hospitals (-4.79%), Airlines (-2.62%) and Biotech (-2.30%)

Stocks Falling on Unusual Volume:
MFC, SLF, AA, PG, TUP, BKE, MED, OSK, TTM, DF, ENOC, STEC, TNDM, KNDL, LEAP, CSTR, ANDE, GRMN, CBST, LAMR, DCP, RHB, EAT, BGC, FCN, VE and KNM

Stocks With Unusual Put Option Activity:
1) VMED 2) CSIQ 3) NRG 4) UAUA 5) HOT

Bull Radar

Style Outperformer:
Mid-Cap Value (+.10%)

Sector Outperformers:
REITs (+1.23%), Retail (+.78%) and Banks (+.77%)

Stocks Rising on Unusual Volume:
AGO, HIG, CHL, CBEY, UN, UL, NSANY, TM, BCS, HBC, CLMT, COLB, SXCI, HMIN, MEND, EPAY, THOR, CSIQ, ANSS, ROCK, CENT, FUQI, ATVI, ZUMZ, CNQR, BBBB, MELI, NILE, JCOM, IART, SWM, ENS, UL, ESS and CXW

Stocks With Unusual Call Option Activity:
1) FRE 2) FNM 3) PCS 4) MBI 5) HIG