Stocks Surging into Final Hour on Less Economic Fear, Short-Covering, Technical Buying, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs, Biotech longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is substantially higher, most sectors are rising and volume is heavy. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is rising 1.84% and is high at 23.85. The ISE Sentiment Index is above average at 192.0 and the total put/call is below average at .65. Finally, the NYSE Arms has been running below average most of the day, hitting .48 at its intraday trough, and is currently .89. The Euro Financial Sector Credit Default Swap Index is falling 5.68% today to 70.33 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 plunging 6.29% to 100.0 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 3 basis points to 20 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 4.08% to 33.81 basis points. The Libor-OIS spread is unch. at 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 4 basis points to 1.88%, which is down 79 basis points since July 7th. The 3-month T-Bill is yielding .09%, which is down 3 basis points today. Small-cap shares are outperforming today, with the Russell 2000 gaining 1.6%. Market leading stocks are very strong. Moreover, a number of sectors are posting sharp gains. REIT, Homebuilding, Insurance, Bank, Computer Service, Internet, Steel, Oil Service, Energy and Coal shares are all jumping 2%+ on the day. (IYR), which remains the main focus of the many bears, continues to blow higher, rising another 3.4% today. The Euro Financial Sector Credit Default Swap Index is falling to the lowest level since June 18^th 2008, which is a large positive. As well, the US sovereign debt credit default swap index is falling 2 basis points to another new low of 20.0 basis points, which is also a big positive. I am seeing numerous technical breakouts in key US stocks. Considering the recent gains in equities, it is very constructive for the broad market to see oil and long-term rates’ muted increases. I expect to see overseas shares rise again tonight/tomorrow morning. Nikkei futures indicate an +115 open in Japan and DAX futures indicate an +18 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing economic fear, short-covering, declining healthcare reform worries, less financial sector pessimism, technical buying and investment manager performance anxiety.

Today's Headlines

Bloomberg:

- The cost of protecting corporate bonds in the U.S. from default fell to the lowest level in 16 months as investor confidence in an economic recovery increased. An index of credit-default swaps tied to U.S. investment- grade bonds fell below 100 basis points for the first time since May 20, 2008, while contracts tied to high-yield debt in Europe declined for a 10th straight day. A decrease typically signals an improvement in the perception of credit quality. Federal Reserve Chairman Ben S. Bernanke said yesterday that “the recession is very likely over,” and billionaire investor Warren Buffett said he’s buying equities because the economy is responding to government stimulus measures. Inflation remains subdued in the U.S. and the housing market is improving, data due later today is forecast to show. “There is clear evidence that credit market conditions have improved significantly,” London-based BNP Paribas SA credit analysts led by Rajeev Shah wrote in a note to investors. “From a year on after the Lehman collapse, credit market conditions have largely normalized.” Credit swaps on the Markit CDX North America Investment- Grade Index, used to speculate on the creditworthiness of 125 companies in the U.S. and Canada or to protect against losses on their debt, declined 4 basis points to 100 basis points as of 11:24 a.m. in New York after earlier falling to as low as 99 basis points, according to broker Phoenix Partners Group. That’s the lowest since the index was at 93.4 basis points on May 20, 2008, according to CMA DataVision.

- Confidence among U.S. homebuilders rose in September for the third straight month, another sign the industry is past its worst point and is starting to recover. The National Association of Home Builders/Wells Fargo confidence index climbed to 19, the highest level since May 2008, from 18 in August, the Washington-based group said today. “Virtually all the data on housing has taken on a better tone,” Michael Larson, a housing analyst at Weiss Research in Jupiter, Florida, said before the report. “That’s giving builders more reason for optimism. The turn is largely being driven by the fact that housing is a bargain again.” The gain was led by a gauge that tracks current sales, which rose two points to 18, while a measure of prospective buyer traffic rose one point to 17. A measure of expectations for single-family housing sales over the next six months fell one point to 29, in part because the Obama administration’s $8,000 tax credit for first-time home buyers expires Dec. 1, the report said. Confidence increased in all four regions of the U.S., led by a three-point jump in the Midwest to 19. “We are fairly well convinced that the bottom has been turned and therefore we are not increasing incentives or lowering prices anywhere,” Toll Brothers Inc. Chief Executive Officer Robert Toll said Aug. 27 on a conference call with investors and analysts.

- Consumer prices rose 0.4 percent in August, underscoring the Federal Reserve’s view that inflation will be contained. Compared with a year earlier, prices were down 1.5 percent. For the core index, prices were up 1.4 percent from a year earlier, the smallest gain since February 2004. A lack of inflation will probably give Fed policy makers leeway to keep interest rates near zero in the foreseeable future to secure a recovery. “What we’re seeing is a gradual disinflation that reflects the persistent slack in our economy,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, who accurately forecast the monthly increase in overall prices. “This is providing the Fed with lots of patience in reversing monetary policy.”

- Comerica Inc., Marshall & Ilsley Corp. and Regions Financial Corp. led bank stocks to their best gains in two months after Warren Buffett said the economy “hit a plateau at the bottom.” Marshall & Ilsley, the biggest bank in Wisconsin, and Alabama’s Regions jumped as much as 11 percent. Comerica advanced more than 10 percent and Zions Bancorporation, the largest based in Utah, gained as much as 12 percent. Buffett, the billionaire who runs Berkshire Hathaway Inc., said the residential real estate slump may be easing. That helped lenders held by Berkshire including Bank of America Corp. and Wells Fargo & Co., which both told an investor conference in New York this week they’re expecting more losses on home loans. “We’re a lot better off than we were a year ago,” Buffett said today on CNBC. “Some of the toxic assets have been flushed through. There’s been capital raised.”

- JPMorgan Chase & Co.(JPM), the second- biggest U.S. bank, sold $2.53 billion of bonds backed by credit- card payments, according a person familiar with the transaction. The top-rated securities, which will mature in a little less than one year, priced to yield 45 basis points more than the one-month London interbank offered rate, said the person, who declined to be identified because terms aren’t public. The sale was increased from $2 billion and was offered without the aid of a Federal Reserve program to encourage lending. The issue provides evidence of growing appetite for bonds backed by consumer loans after the market was shuttered last year when the credit crisis sapped demand. The finance arm of General Electric Co. also sold bonds backed by credit-card payments this week outside of the Fed’s Term Asset-Backed Securities Loan Facility.

- Simon Property Group Inc.(SPG), the largest mall owner in the U.S., said retailers may see pent-up demand this holiday season after paring inventory to cope with a plunge in consumer spending. “It could be a little bit better than what the retailers are anticipating,” David Simon, chairman and chief executive officer of Indianapolis-based Simon Property, said yesterday in an interview in New York. Sales at U.S. retailers surged in August by the most in three years, the Commerce Department said yesterday. Some have been too conservative in their inventory reductions, he said. “We’ve heard this every recession: ‘The consumer’s never going to come back,’” Simon said. “I just don’t buy it.”

- US companies are destined to “reverse the purge” that has brought down capital spending, business inventories and employment, according to James W. Paulsen, chief investment strategist at Wells Capital Management. “In the last year, businesses have been preparing to survive a second coming of the Great Depression,” Paulsen wrote. Now that the US economy has started to recover, he added, most companies “find themselves understaffed without any goods on the shelf.” Paulsen estimated that gross domestic product will increase at a 4% annual rate during the next 18 months.

- Discord over trade agreements between labor unions and companies including Chevron Corp., FedEx Corp. and Campbell Soup Co. will test President Barack Obama’s bid for “credibility” on expanding global commerce. Ratifying accords with Colombia and South Korea would “send a strong message for future trade and investment agreements and promote major new economic opportunities,” Chevron Vice President Lisa Barry said in a filing submitted to the U.S. Trade Representative’s office before a deadline yesterday for public comment. Five Democratic House members, including Louise Slaughter of New York, said in a letter to the office that they and labor groups are “adamantly opposed” to any accord with Colombia until attacks on that nation’s labor leaders end.

- Jones Lang LaSalle Inc.(JLL), the second-biggest publicly traded commercial property broker, is joining with Real Estate Disposition Corp. to start an online auction service to sell commercial property and loans. “In a stagnant sales market where interested investors are limited, using an auction opens up a property to a viable buyer marketplace,” Jay Koster, president of Chicago-based Jones Lang LaSalle’s capital markets practice, said today in a statement.

- Diverting overseas aid from economic development to fight global warming may threaten the lives of at least 4.5 million children in the poorest nations, the anti-poverty group Oxfam said.

- Investor sentiment deteriorated from Tokyo to Paris and New York on speculation a six-month rally in stocks has outstripped the prospects for earnings as indexes trade at the most expensive valuations since 2003. Optimism for equities fell in seven of 10 countries in the Bloomberg Professional Confidence Survey. Users expect stocks to drop during the next six months in the U.S., Japan and Spain, while investors in Brazil and the U.K. were the most bullish. Sentiment had improved in all 10 nations in August.

- U.S. President Barack Obama has failed to appoint advisers and regulators who understand the complexity of financial systems, Nassim Taleb, author of “The Black Swan,” told a group of business people in Toronto. “I want my vote back,” Taleb, who said he voted for Obama, told the group. The U.S. has three times the debt, relative to the country’s economic output, as it had in the 1980s, Taleb said.

Wall Street Journal:

- Chief financial officers are growing more optimistic about the U.S. economy and their own companies' prospects, according to a new survey. But they still worry about weak consumer demand and tight credit, and 43% expect their companies to shed jobs in the next 12 months. Nearly 60% of the 657 U.S. finance executives surveyed this month by Duke University's Fuqua School of Business and CFO Magazine said they are more optimistic about the U.S. economy than they were in May, and nearly 50% said they are more optimistic about their companies' prospects.
- Transfield Services Ltd. (TSE.AU) Chief Executive Peter Goode said Tuesday the company has seen "life" returning to the U.S. consumer in the past three months given a pick-up in maintenance activity at the companies it services. The Australian engineering and asset management company said its North American unit, US Maintenance, is benefiting from the return of U.S. consumers to big-box stores. Transfield provides services to retailers that include gardening, parking lot management, painting and maintenance to chains such as Kmart, owned by Sears Holding Corp. (SHLD) and Home Depot (HD).

- Senate Finance Committee Chairman Max Baucus formally unveiled a 10-year, $856 billion bill that would extend health insurance to tens of millions of Americans not now covered, moving an important step forward on President Barack Obama's top domestic priority. "This is a good bill. This is a balanced bill. It can pass the Senate," Mr. Baucus said at an afternoon news conference at which he provided details on the plan. The sweeping measure is designed to steer a more moderate course on health policy than other major bills moving through Capitol Hill, and it doesn't propose to create a new government insurance plan to compete with private insurers, as proposed in rival House legislation and favored by many liberal lawmakers. Instead, the Montana Democrat is proposing to expand coverage by creating a network of nonprofit health-insurance cooperatives. The cooperatives would be seeded with $6 billion in federal money, enough to cover start-up costs and meet insurance solvency requirements.

- The stimulus bill's Buy American provisions -- meant to give U.S. companies a leg up on foreign competition -- are causing Aquarius and other U.S. companies a lot of grief with both suppliers and clients in Canada. Now that grief has boiled over into a major diplomatic row with the largest U.S. trading partner. Canadian communities angered by perceived American chauvinism have started a Buy Canadian campaign to exclude U.S. bidders from municipal contracts. "If that sticks, well, there goes 25% of my business," said Mr. Pokorsky. "To me, Ontario may as well be Indiana."

- 3D technology is coming one step closer to home with the development of a new set-top box system that will allow consumers to browse through and access 3D offerings from their cable or satellite TV company.

- The mortgage-interest deduction claimed by millions of homeowners every year may prove to be a useful window for the IRS to peek into taxpayers' income situation -- and potentially reap millions of dollars in unpaid taxes.

- In the last few days, the Census Bureau has severed ties with the advocacy group Acorn, and the Senate has voted to deny it access to federal housing funds. That's the good news. The not-so-good news is that it took this long and hidden-camera video footage of Acorn workers apparently advising others to commit crimes before federal officials would act. Allegations of fraud have dogged Acorn for years, sometimes resulting in convictions. Last week in Florida, authorities arrested 11 Acorn workers and charged them with submitting fake voter registration papers.

CNBC:

- The Federal Reserve is involved a broad review of commercial real estate exposures at the nation's largest regional banks, which Fed sources say is both the result of concern in that area but part of the "new normal" for how they will be supervising banks.

NY Post:

- State Attorney General Andrew Cuomo yesterday launched an investigation into pork-barrel grants given to ACORN by state lawmakers, as City Council Speaker Christine Quinn froze all city funding earmarked for the scandal-scared community-activism organization. The actions by the Democratic officials followed release of a shocking undercover video that showed employees at a Brooklyn ACORN office giving illicit financial advice to activists posing as a pimp and prostitute who wanted to start a brothel. The agency was among several ACORN affiliates, including offices in Baltimore, Washington and San Bernardino, Calif., exposed in the hidden-camera sting. On Monday, the US Senate voted overwhelmingly to block federal funding to the community group, while Brooklyn District Attorney Charles Hynes opened an investigation into the local office in response to a report in The Post.

NY Times:

- THE advertising industry has been hit hard by the recession, but there are some hopeful signs beginning to appear along Madison Avenue. A case in point: the growth plans of an independent Midwestern agency, Laughlin/Constable. The agency is expanding to New York City, considered to be the toughest ad market to crack regardless of economic conditions. Laughlin/Constable will announce on Wednesday a merger with Partners & Jeary, an independent agency opened three years ago by Michael Jeary, a longtime New York advertising executive. Partners & Jeary will become the New York office of Laughlin/Constable, which has its headquarters in Milwaukee along with an office in Chicago.

- The A.F.L.-C.I.O., the nation’s largest labor organization, has often been criticized for being “male, pale and stale” — dominated by cigar-chomping, golf-playing chieftains. But as Richard L. Trumka assumes the group’s presidency on Wednesday, he says he is determined to improve labor’s image and woo a younger generation that either thinks of unions as irrelevant, or does not think of them at all. Mr. Trumka — a burly former coal miner who comes out of one of the nation’s oldest unions, the United Mine Workers, and looks like Mike Ditka — acknowledges that reversing labor’s seemingly inexorable slide will be a challenge.

- European leaders are set to endorse a call for more government control over bank pay ahead of the G-20 summit meeting next week in Pittsburgh.

Washington Post:

- The Obama administration has for the first time set out its views on the controversial USA Patriot Act, telling lawmakers this week that legal approval of government surveillance methods scheduled to expire in December should be renewed, but leaving room to tweak the law to protect Americans' privacy. In a letter from Justice Department officials to key members of the Senate Judiciary Committee, the administration recommended that Congress move swiftly with legislation that would protect the government's ability to collect a variety of business and credit card records and to monitor terrorism suspects with roving wiretaps.

Washington Times:

- The White House is collecting and storing comments and videos placed on its social-networking sites such as Facebook, Twitter and YouTube without notifying or asking the consent of the site users, a failure that appears to run counter to President Obama's promise of a transparent government and his pledge to protect privacy on the Internet. Marc Rotenberg, president of the Electronic Privacy Information Center, said the White House signaled that it would insist on open dealings with Internet users and, in fact, should feel obliged to disclose that it is collecting such information.

Seeking Alpha:

- We've got two portfolio adjustments to cover regarding the holdings of quant focused D.E. Shaw & Co. Firstly, in a 13G filed with the SEC, David E. Shaw's hedge fund firm has disclosed a 5.1% ownership stake in Priceline.com (PCLN). Shaw now owns 2,096,755 shares and the filing was made due to activity on August 31st, 2009. The fund has boosted its stake in this name because as of June 30th, 2009 (Shaw's 13F filing), it owned 336,302 shares of common stock as well as 411,100 shares represented by Calls in options markets. Additionally, Shaw also owned 202,000 shares worth of Puts on PCLN. So, in the last 3 months, the hedge fund has certainly boosted its holdings and has acquired a sizable stake. This is interesting to see mainly because numerous other prominent hedge funds we track have entered large positions in Priceline. Secondly, we see that D.E. Shaw & Co has filed a 13G on Spectrum Brands (SPC) as well. The hedge fund now shows a 14% ownership stake with 4,201,138 shares.

Blogging Stocks:

- "The smart move in today's market is to stick with companies that are growing right through the recession, such as WMS Industries (NYSE: WMS)," says Mark Skousen.

OCRegister:

- U.S. housing prices apparently have hit bottom, the UCLA Anderson Forecast for September says. And new home construction is likely to pick up in the next two years — in Orange County and in the state and nation as a whole — after falling to the lowest level in more than 60 years. “Now that prices have adjusted to levels which make existing homes more affordable, sales are increasing and conditions are becoming ripe for new residential construction,” wrote Jerry Nickelsburg, a senior economist with the Anderson Forecast and the author of the California economic outlook.

Rassmussen:

- One week after President Obama’s speech to Congress, opposition to his health care reform plan has reached a new high of 55%. The latest Rasmussen Reports daily tracking poll shows that just 42% now support the plan, matching the low first reached in August. A week ago, 44% supported the proposal and 53% were opposed. Following the speech last Wednesday night intended to relaunch the health care initiative, support for the president’s effort bounced as high as 51% (see day-by-day numbers).

- Twelve percent (12%) of voters nationwide believe that most opponents of President Obama’s health care reform plan are racist. The latest Rasmussen Reports national telephone survey finds that 67% of voters disagree.

Politico:

- Sen. Jay Rockefeller (D-W.Va.) continued his attack on Senate Finance Committee Chairman Max Baucus’ (D-Mont.) health care bill, sharply questioning the chairman’s decision to conduct months of bipartisan talks that failed to win a single Republican backer, while shutting out Democrats on the committee. Hours after Baucus released his sweeping health care plan, Rockefeller said he could not vote for the bill as it stands – and questioned why Baucus allowed the so-called “Gang of Six” talks between three Republicans and three Democrats to progress for months.

AP:

- Americans decidedly oppose the government's efforts to save struggling companies by taking ownership stakes even if failure of the businesses would cost jobs and harm the economy, a new poll shows. The Associated Press-National Constitution Center poll of views on the Constitution found little support for the idea that the government had to save AIG, the world's largest insurer, mortgage giants Fannie Mae and Freddie Mac, and the iconic American company General Motors last year because they were too big to fail. Just 38 percent of Americans favor government intervention — with 60 percent opposed — to keep a company in business to prevent harm to the economy. The number in favor drops to a third when jobs would be lost, without greater damage to the economy. Similarly strong views showed up over whether the president should have more power at the expense of Congress and the courts, if doing so would help the economy. Three-fourths of Americans said no, up from two-thirds last year. "It really does ratify how much Americans are against the federal government taking over private industry," said Paul J. Lavrakas, a research psychologist and AP consultant who analyzed the results of the survey.

- The Senate voted Wednesday to permit passengers on the Amtrak passenger railroad to transport handguns in their checked baggage. The proposal, approved by a 68-30 vote, seeks to give Amtrak riders rights comparable to those enjoyed by airline passengers, who are permitted to transport firearms provided that they declare they are doing so and that the arms are unloaded and in a securely locked container.

Reuters:
- Steel producers were too quick to restart idled capacity as demand remains weak and increased supply is putting downward pressure on steel prices, the chairman of a leading steel association said."Producers around the world very quickly ramped up their production, overfeeding the market," said Mel Wilde, chairman of UK-based International Steel Trade Association (ISTA), which has 85 members, including divisions of steel giants such as ArcelorMittal and Corus.Wilde's comments late on Tuesday came after the chairman of the world's top steel producer ArcelorMittal braced to say that he believes U.S. and European steel markets will not return to pre-crisis levels next year.

- Commercial mortgage backed securities got a lift on Wednesday from new U.S. Internal Revenue Service rules that make it easier to modify securitized mortgages without tax penalties. The rules allow distressed property owners and servicers of mortgage-backed securities to negotiate over modifying the property's loan at any time. The mortgage no longer needs to be in default or imminent default to procure a modification under the rules. The rule change, one of several actions the Treasury has considered to ease financing pressures in the recession-hit commercial real estate sector, applies mainly to borrowers, servicers and investors in loans that are part of trusts called real estate mortgage investment conduits (REMICs). CMBS indexes rallied on Wednesday, especially portions tied to riskier classes of bonds. The CMBX-5 "AJ" index jumped nearly 5 points to a mid-market price of 53.75, according to one dealer. The price has climbed about 15 points in the past month.

Bear Radar

Style Underperformer:
Large-Cap Growth (+1.02%)

Sector Underperformers:
Road & Rail (-1.50%), Telecom (-1.04%) and Education (-.56%)

Stocks Falling on Unusual Volume:
ADBE, CSX, NSC, HOLX, EPIQ, TIN, HITK, FSYS and LH

Stocks With Unusual Put Option Activity:
1) SII 2) ACI 3) OSK 4) UPL 5) HL

Bull Radar

Style Outperformer:
Small-Cap Value (+1.87%)

Sector Outperformers:
Banks (+3.0%), Airlines (+2.83%) and Homebuilders (+2.03%)

Stocks Rising on Unusual Volume:
PL, GNW, CLF, FO, OLN, HBC, DB, CCJ, HES, SU, OMTR, DRIV, THOR, HSU, CNMD, ZOOM, NTCT, CFSG, QGEN, CWEI, LNCR, ELON, ZION, GMXR, MELI, VCLK, LFUS, AMAG, GOLD, ZINC, AMZN, BIDU, NICE, CMS, PII, ROG, FO, APC and USG

Stocks With Unusual Call Option Activity:
1) FLEX 2) ZION 3) NVDA 4) VRSN 5) BUCY

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