Stocks Lower into Final Hour on Profit-taking, Bounce in Oil

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Software longs and Semi longs. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is negative today as the advance/decline line is lower, sector performance is mostly negative and volume is around average. Investor anxiety is slightly above average. Today’s overall market action is mildly bearish. Given recent gains, a mild down day on only average volume isn’t too surprising. Insider activity remains exceptionally bullish. According to Bloomberg, LTD($12,815,920), PBY($5,655,972), MMR($5,636,862), EPB($4,504,000), EQY($3,266,476), SUSS($2,926,300), UTR($2,795,094), PRVT($2,194,250), BKD($2,189,058), ORNG($1,848,582), DDS($1,751,940), PCX($1,683,562), RES($1,617,140), FBP($1,514,434), FL($1,427,243), EXBX($1,377,000), CAH($1,149,970), MCHX($1,117,000), IRC($1,102,561) and WRI($1,042,784) are companies with significant insider buying over the last week. The investment grade credit default swap index is down 9.2% over the last week, while the speculative grade credit default swap index is 5.1% lower over that period, which is a big positive. As well, the JPMorgan Emerging Market Bond Index is 1.3% higher over the last week and the Bear Stearns High Yield Index is 1.1% higher over that period. Fed fund futures now imply a 40% chance of a 50 basis point rate cut and a 60% chance for a 25 basis point cut at the upcoming meeting. I expect US stocks to trade mixed into the close from current levels as profit-taking offsets short-covering.

Today's Headlines

Bloomberg:
- US Treasury Secretary Henry Paulson said the government and banks will “soon” announce a plan to keep subprime mortgage borrowers “with steady incomes and relatively clean payment histories” from losing their homes.
- Fannie Mae’s(FNM) business of guaranteeing mortgage bonds is going “gangbusters,” CEO Daniel Mudd said today.
- William Ackman, the hedge fund manager who’s been shorting MBIA Inc.(MBI) shares since 2002, said the bond insurer could be bankrupt by February. On Wall Street, his nonstop assault on MBIA is highly controversial, and a number of people speak of him with distaste. Their central point is that MBIA is in a business that depends on the market’s confidence in its ability to insure bonds and that Mr. Ackman’s attacks are an effort to undermine that confidence. MBIA insists that the holding company has only $80 million in corporate debt and $500 million in cash and that it is completely healthy. It says that his bankruptcy prediction “reflects a fundamental misunderstanding of MBIA’s capital structure and financial statements.” When Mr. Ackman used the word bankruptcy, he is tossing gasoline on a fire.
- Agrium Inc., North America’s third-largest fertilizer producer, agreed to buy UAP Holding Corp.(UAPH) for $2.16 billion to double its US retail outlets as demand for crop-protection products rises.
- Crude oil is falling another $.32/bbl. as investment fund speculation continues to subside ahead of OPEC’s December 5^th meeting.
- Google Inc.(GOOG) may bid to lose when the US government auctions off wireless airwaves next month.
- Dollar Bears Poised for Reversal as Deficits Shrink. At a time when everyone from billionaire investors such as Warren Buffett and Bill Gross to celebrities want nothing to do with the dollar, a growing number of strategists say the stage is being set for rally in 2008.
- Venezuelan President Hugo Chavez suffered his first electoral loss in nine years as voters turned down his plan to revamp the nation’s constitution and tighten his grip on power.
- Iran suspended its nuclear weapons program in 2003 and probably hadn’t restarted it as of mid-2007, according to a new report form the US intelligence community.
- Ford Motor(F) said its domestic sales of cars and trucks rose .4% in November, ending 12 straight months of decline.

Wall Street Journal:
- US Presidential candidate Rudy Giuliani said he supports cutting taxes and curbing federal spending in a way that would make government more efficient.
- Li Ka-shing, the billionaire chairman of Hutchinson Whampoa Ltd., may buy a $60 million stake in social-networking site Facebook Inc.

NY Times:
- Small Merchants Gain Large Presence on Web.
- High-Priced Comic Books in Fashion.

USAToday.com:
- US customs officers will begin scanning all 10 fingerprints of foreign visitors under a Homeland Security initiative to identify terrorists, criminals and illegal immigrants.

CNBC.com:
- Warren Buffett’s Berkshire Hathaway bought $2.1 billion of TXU Corp. high-yielding bonds from Goldman Sachs Group.

Bear Radar

Style Underperformer:

Large-cap Value (-.56%)

Sector Underperformers:

Oil Tankers (-3.2%), Coal (-1.34%) and REITs (-.96%)

Stocks Falling on Unusual Volume:

DWA, PODD, NCTY, UNTD and VCBI

Bull Radar

Style Outperformer:

Mid-cap Growth (-.09%)

Sector Outperformers:

Defense (+1.09%), Restaurants (+.92%) and Computer Services (+.83%)

Stocks Rising on Unusual Volume:

KNM, BSI, FMR, NVO, MTR, MTU, ELE, EDU, UAPH, ATVI, SOLF, LTRE, SHEN, BRKR, JAKK, PENX, FSIN, OTEX, CBEY, SNCR, OSIP, BIOD, RATE, JRJC, XMSR, TISI, CORE, KNOT, DISCA, MOS and DLB

Manufacturing Expands Slightly

- The ISM Manufacturing Index for November came in at 50.8 versus estimates of 50.8 and a reading of 50.9 in October.

- ISM Prices Paid for November rose to 67.5 versus estimates of 65.5 and a reading of 63.0 in October.

BOTTOM LINE: Manufacturing in the US during November expanded slightly, Bloomberg reported. The Prices Paid component rose to 67.5 from 63 the prior month. The Inventory Index fell to 46.9 from 47.2 the prior month. The Employment component fell to 47.8 from 52 prior. The Export Orders component jumped to 58.5, the highest since May, from 57 in October. The New Orders component rose to 52.6 from 52.5 the prior month. I continue to believe manufacturing will help boost overall US growth as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories from booming exports.

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