Stocks Slightly Lower into Final Hour on Healthcare Reform Concerns, Profit-Taking, China Bubble Worries, More Shorting

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Financial longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is slightly above average. Investor anxiety is high. Today’s overall market action is slightly bearish. The VIX is rising .61% and is high at 24.82. The ISE Sentiment Index is below average at 127.0 and the total put/call is slightly below average at 77. Finally, the NYSE Arms has been running low most of the day, hitting .33 at its intraday trough, and is currently .53. The Euro Financial Sector Credit Default Swap Index is falling 4.11% today to 80.0 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 1.03% to 114.96 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.73% to 21 basis points. The TED spread is now down 445 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is unch. at 35.19 basis points. The Libor-OIS spread is falling another 3.19% to 17 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 2 basis points to 1.71%, which is down 95 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is down 1 basis point today. Alt Energy, Financial, Technology, Steel, REIT and Road/Rail shares are substantially outperforming today, rising .75%+. Once again, the bears were unable to gain any real traction after a morning sell-off. Over the last week, the S&P 500 has been in a very tight, but volatile range, which is frustrating both the bulls and the bears. I tend to believe the next tradable move is higher, but the market’s mixed reaction to recent positive news events is a bit troublesome. As well, Chinese shares remain “heavy”. Chinese Iron Ore prices fell 10.71% this week, which is noteworthy. Nikkei futures indicate an +40 open in Japan and DAX futures indicate an +1 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, technical buying, less economic fear, diminishing financial sector pessimism and subdued long-term rates.

Today's Headlines

Bloomberg:

- Intel Corp.(INTC), the world’s biggest chipmaker, raised its sales forecast for this quarter, adding to evidence that personal-computer demand is recovering. Third-quarter sales will be at least $8.8 billion, Intel said in a statement today. That compares with at least $8.1 billion the company projected last month. The company also increased its gross-margin forecast for the period. “Consumers are driving the strength and the relative strength in PCs,” said Kreher, who recommends buying the shares and doesn’t own any. “We do have an expectation that 2010 will bring renewed demand from the corporate sector as well.”

- Copper rose to the highest price in almost 11 months on speculation that a revival of economic growth will spur demand for metal. Lead jumped to a one-year high. U.S. consumer spending rose in July, the third straight monthly gain, the Commerce Department said today. European confidence in the economic outlook increased this month to the highest since October, the European Commission said. Copper prices are headed for a seventh straight week of gains, the longest such rally since April 2007. Copper futures for December delivery rose 10.2 cents, or 3.6 percent, to $2.974 a pound at 11:07 a.m. on the New York Mercantile Exchange’s Comex division.

- The U.K. Financial Services Authority was dragged into a second political controversy in as many weeks after its chairman championed a global tax on financial transactions based on a 40-year-old theory. FSA Chairman Adair Turner proposed a “Tobin Tax” on banking deals in a Prospect magazine interview. This would redistribute bank profits to the poor and to “public goods” like fighting climate change. The remarks grabbed the attention of lawmakers and bankers who say the regulator might have a short political future. “It will now be a race as to who will sack him first,” said Simon Gleeson, a regulatory lawyer at London-based Clifford Chance LLP. “To be brutally honest, if he expected to continue in his position next year, he would not be saying this at all. He must have known this would annoy his political masters.”

- Banks are increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the credit-market debacle began in 2007. Credit Suisse Group AG and Scotia Capital, a unit of Canada’s third-largest bank, said they’re offering credit to investors who want to purchase loans. SunTrust Banks Inc., which left the business last year, is “reaching out to clients” to provide financing, said Michael McCoy, a spokesman for the Atlanta-based bank. JPMorgan Chase & Co. and Citigroup Inc. are doing the same for loans and mortgage-backed securities, said people familiar with the situation.

- U.S. Securities and Exchange Commission Chairman Mary Schapiro said it’s “critical” for regulators to gain more access to information on derivative transactions in order to police market abuses. Regulators need “information that allows us to construct an audit trail, so that we can find insider trading, manipulation and other concerns that can reverberate through the entire marketplace,” Schapiro said in an interview for Bloomberg Television’s “Conversations with Judy Woodruff” airing tonight. That ability “is really going to be critical.”

- The Federal Reserve will reduce the size of two auctions of cash to banks to $75 billion each in September from $100 billion this month in a sign of waning demand for the emergency loan program.

- US stocks are behaving like Japanese equities in the 1990s, meaning they S&P 500 may return 40% in the next year, according to Bank of America Corp. A “melt-up” rally in the US may be triggered by central bankers keeping interest rates near record lows, an economic recovery and an undervalued dollar, Bank of America strategists wrote. “Even in economies overcoming credit booms, rallies can be powerful and last much longer than you think,” Bank of America’s Sadiq Currimbhoy, Arik Reiss and Jacky Tang wrote.

- China’s stocks fell, with the Shanghai Composite Index completing a fourth weekly decline, on concern government measures to curb lending and production in industries including steel and cement will slow economic growth.

- An Obama administration plan to cut Medicare payments to heart and cancer doctors by $1.4 billion next year is generating a backlash that’s undermining the president’s health-care overhaul. While President Barack Obama and members of Congress have spent August debating health insurance and medical costs at public forums, specialists are waging what one advocate calls a “tooth and nail” fight against a separate initiative to boost the pay of family doctors, and cut fees for cardiologists and oncologists. The specialists, in newspaper columns and meetings with lawmakers, say patients will lose access to life-saving care, from pacemakers to chemotherapy.

- Steelmakers are resuming production at mills from China to Russia and the U.S. as the industry pulls out of its worst slump since World War II.

- Aeropostale Inc.(ARO), the U.S. teen retailer with more than 900 stores, said a strategy of planning discounts ahead of time has helped it outperform competitors in the recession.

- Hewlett-Packard(HPQ), Apple Inc.(AAPL), Dell Inc.(DELL) and other computer makers reduced their stockpiles of products to record low levels in the second quarter, setting the stage for Intel Corp.(INTC) to boost its sales forecast today. Days of inventory for companies in the PC industry fell to 13.4 in the second quarter, down from 17.3 at the end of last year, according to Crag Berger, an analyst at Friedman Billings Ramsey in NY. “Robust emerging market unit demand and all-time low PC supply chain inventories are combining to drive meaningful near-term strength for chip firms, and PC-chip firms in particular,” Berger wrote.

- Apple Inc.’s(AAPL) iPhone will go on sale in China in the fourth quarter, entering a market that has more wireless subscribers than the combined populations of the U.S. and the 16 nations that use the euro. China Unicom (Hong Kong) Ltd., the country’s second-biggest provider of mobile-phone service, will sell the iPhone 3G and the 3GS models, Chairman Chang Xiaobing told reporters in Hong Kong today. The deal isn’t exclusive, Apple said. That means other carriers will be able to offer the iPhone in China.

Wall Street Journal:

- A politically charged case involving Chinese tire imports will soon force the hand of an Obama administration that has yet to articulate a clear trade policy to anxious global trading partners. President Barack Obama has until Sept. 17 to rule on a U.S. International Trade Commission recommendation that the White House put a 55% tariff on low-grade car tires imported from China. The ITC's finding followed a complaint by the United Steelworkers that a flood of cheap Chinese tires in recent years had cost more than 5,000 union jobs.

MarketWatch:
- Stupid Investment of the Week. Ultra-short bond funds are long on failure.

Washington Post:

- When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation's leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system. Today, the biggest of those banks are even bigger. The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit. J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show. A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected.

- CIA Director Leon Panetta decided Thursday that the agency will ensure legal representation for case officers who become caught up in investigations of alleged interrogation abuses of detainees at overseas locations, a senior intelligence official said. Panetta's decision follows Attorney General Eric H. Holder Jr.'s appointment of a special prosecutor earlier this week to conduct a preliminary review of whether federal laws were violated during the interrogations. When working on controversial assignments, many CIA officers take out personal liability insurance, which sometimes reimburses legal fees if they face lawsuits or criminal charges, but others do not. "Panetta will do everything he can to ensure that anyone who needs legal representation has it, whether they have liability insurance or not," said the senior intelligence official, who spoke on the condition of anonymity because he was not authorized to speak before the decision is publicly announced. "It's a question of fairness. People who did tough jobs for the country won't be left by the side of the road."

hedgeweek:

- The Lyxor Global Hedge Fund index, an investable index based on Lyxor's hedge fund platform, has risen 3.24 per cent since the beginning of 2009.

Chicago Daily Herald:

- Motorola Inc.(MOT), whose phone business has lost more than $4 billion since 2007, is devoting most of its investment in smart-phone software to Google Inc.'s Android, aiming for a larger share of the market for Web-surfing devices. 'We're doing an entire business based around this platform," Christy Wyatt, Motorola's vice president in charge of software platforms, said in an interview yesterday. 'If you talk about the mid- to high-tier portfolio, the only platform-level investment we're making at this point is in Android." The company, which hasn't released a bestseller since its Razr handset five years ago, said it will unveil the Android devices on Sept. 10 and expects to have two phones ready for the holiday season. Its Android line may account for half of handset revenue next year, predicts Matt Thornton, an analyst at Avian Securities LLC in Boston.

Politico:

- The California insurer Anthem Blue Cross -- a subsidiary of the insurance giant WellPoint -- today blasted out an email to its customers, attacking the Democrats' health reform plans and asking customers to help fight them. The email says legislation "does not meet our definition of responsible and sustainable reform and "would likely have a significant negative impact on our partners and customers." The email warns the plan could wind up:

Techcrunch:

- A group of well known venture capital and large private equity firms are pooling resources to make a bid to acquire eBay-owned Skype, according to a source close to the deal.

Newsweek:

- It’s Good to Be a Pig by Barton Biggs. This market rally still has time to run. Suddenly the conventional wisdom is that the powerful rally in stock markets around the world is unjustified and has gone too far, too fast. Stocks are no longer cheap, the bears say, and the global financial system remains on its sickbed. Most economists and investors believe that while the world economy may rebound in the next few months, it's a bounce engineered by stimulus programs like Cash for Clunkers, and, as the steroids wear off, there will be another dip in 2010. I think the bears are wrong on both counts.

Reuters:
- China’s banking regulator ordered some lenders not to ramp up loans at the end of August.

- The "pay czar" tasked by the U.S. government with ruling on the eye-popping compensation of some of Wall Street's top earners is far from a stranger to big paychecks and the trappings of wealth. Kenneth Feinberg made $5.76 million last year as a partner in his Washington law firm, Feinberg Rozen LLP, according to a government ethics filing obtained by Reuters. And his assets, which include a stake in his law firm, two homes and dozens of investments, are worth anywhere from $11 million to $37 million, according to the filing, which places assets in broad value categories. His homes are a $1.66 million house in Bethesda, Maryland, near Washington, and a $1.96 million vacation home in West Tisbury, Massachusetts, on Martha's Vineyard.

- Tiffany & Co (TIF) posted higher-than-expected quarterly earnings on cost cuts and slightly recovering demand for jewelry, and raised its full-year outlook, sending its shares up 8.7 percent.

- A weekly measure of future U.S. economic growth slipped in the latest week, though its yearly growth rate surged to a 38-year high that suggests chances of a double-dip recession are slim. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index for the week to August 21 fell to 124.4 from a downwardly revised 124.9 the prior week, which was originally reported at 125.0. But the index's annualized growth rate soared to a 38-year high of 19.6 percent from a downwardly revised 17.4 percent the prior week, a number which was originally 17.5 percent. It was the WLI's highest yearly growth rate reading since the week to May 28, 1971, when it stood at 20.5 percent. "With WLI growth continuing to surge through late summer, a double dip back into recession in the fourth quarter is simply out of the question," said ECRI Managing Director Lakshman Achuthan, reinstating the group's recent warning to ignore negative analyst projections. Achuthan has recently projected that the recovery is moving at a stronger pace than any the United States has seen since the early 1980s.

Financial Times:
- The United Arab Emirates has seized a ship secretly carrying embargoed North Korean arms to Iran, say diplomats. The interception comes at a sensitive time. North Korea has invited the US for bilateral talks on nuclear issues and the UN Security Council’s western members are pressing for greater Iranian co-operation over its nuclear program.

cnmn.com.cn:

- China’s nonferrous metals output should rebound in the last five months of this year as producers return to profitability, according to an industry forecast. Output of all the metals may reach the same level as last year with the possible exception of aluminum, according to the Nonferrous Metal Industry Association.

Bear Radar

Style Underperformer:
Large-Cap Value (-.34%)

Sector Underperformers:
HMOs (-2.17%), Restaurants (-1.48%) and Oil Tankers (-1.40%)

Stocks Falling on Unusual Volume:
SNP, BLX, BNS, BMY, SNN and SNA

Stocks With Unusual Put Option Activity:
1) ALTH 2) DNDN 3) IMMU 4) ODP 5) GG

Bull Radar

Style Outperformer:
Mid-Cap Value (+.32%)

Sector Outperformers:
Semis (+2.01%), Computer Hardware (+1.47%) and I-Banks (+.87%)

Stocks Rising on Unusual Volume:
ELON, AIG, OVTI, QLGC, NVTL, NOK, VRSN, FCX, ZION, CHU, IRE, CHA, DELL, SLAB, DLLR, MRVL, ISIL, INTC, NVDA, RYAAY, ANDE, STEC, VLTR, AAPL, SIVB, JCG, TIF, WHI and CHU

Stocks With Unusual Call Option Activity:
1) TWM 2) JCG 3) TIF 4) AMD 5) QLGC

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