Stocks Higher into Final Hour on Less Economic Pessimism, Falling Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Semi longs, Software longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly positive today as the advance/decline line is slightly higher, most sectors are rising and volume is below average. Investor anxiety is about average. Today’s overall market action is bullish, considering recent gains. Fed fund futures now imply a 26% chance for a 50 basis point fed funds rate cut at tomorrow’s meeting, which is down from a 40% chance one week ago. While a 25 basis point fed funds rate cut seems likely now, given recent events, I suspect the odds of a 50 basis point cut are higher than the market perceives. Moreover, I believe a 50 basis point cut in the discount rate is likely. (LTD) saw notable insider buying over the last week. The Yale Crash Confidence Index for Individuals(the lower the index goes the more worried individuals are about a crash) just hit a record low last month, taking out the low seen in November 2002, which came right near the major bear market bottom in October 2002. This gauge of investor fear goes back to October 1989. This is just more evidence of the current “US negativity bubble,” in my opinion. Corporate insider activity remains exceptionally bullish. I expect US stocks to trade mixed into the close from current levels as less economic pessimism and lower energy prices offsets profit-taking and declining odds for a 50 basis point rate cut tomorrow.

Today's Headlines

Bloomberg:
- MBIA Inc.(MBI) will receive as much as $1 billion from private equity firm Warburg Pincus LLC. Shares of MBIA, the world’s largest bond insurer, soared as much as 27% after the company said it will sell as much as $500 million of common stock to Warburg Pincus.
- Thornburg Mortgage(TMA), the lender forced to halt loans earlier this year, was removed from “creditwatch” by S&P’s Rating Services, saying the company has “sufficient funding for current business volumes.” The change “reflects the success of Thornburg’s ongoing efforts to stabilize its funding and liquidity,” S&P said.
- The risk of companies defaulting on their debt fell as UBS AG’s plan to sell stakes to investors in Singapore and the Middle East lifted optimism that financial companies will weather the subprime turmoil.
- US banks and insurers make “attractive” investments after a mortgage market slump depressed their shares, an official at Qatar’s $60 billion sovereign wealth fund said.
- Energy and metals prices may fall by as much as 20% next year as a slowing US economy curbs demand for oil and industrial metals, said Tiberius Asset Management AG, which manages $1.4 billion in commodities. Demand from speculators accounts for about $15 to $20 of the oil price, Tiberius said.
- Crude oil is falling another $.64/bbl. to $87.64/bbl. and is down almost $12/bbl. from recent highs on worries over slowing global demand and a firmer US dollar.
- Nickel fell the most in a week on concern that demand in China and Japan, the world’s largest consumers of the stainless-steel ingredient, may take months to recover.
- Higher US food prices have little to do with the ethanol boom, according to a study by Informa Economics. Food costs, which the US government says will rise 3%-4% in 2008, are affected more by rising energy prices and traditional supply and demand influences such as weather and exports.
- Treasuries are falling again as concern eased that subprime mortgage losses will deepen, reducing demand for the safety of US government debt.
- Harvard University will cut costs by one-third to one-half, depending on income, for families of students making between $120,000 and $180,000 a year.
- Michael Pickens, son of billionaire investor Boone Pickens, was sentenced to probation and continued drug and alcohol treatment for using fake stock tips to dupe investors out of $1.2 million.
- Democratic NY Governor Eliot Spitzer’s approval rating dropped to the lowest ever as a majority of members of his own party said they wouldn’t vote to re-elect him in 2010, a new poll by the Siena Research Institute found.
- McDonald’s(MCD), the world’s largest restaurant company, said November sales rose 8.2% as an increase in burgers and chicken sandwiches in Europe bolstered revenue more than analysts estimated.
- Bankrate Inc.(RATE), the online provider of personal financial services, forecast 2008 revenue to exceed analysts’ estimates, sending its shares up as much as 18% in Nasdaq trading.

Wall Street Journal:
- Caterpillar(CAT) Takes to Road in China for Publicity.
- Race Is on for the Next Blood Thinner.
- Failed talks between striking screenwriters and film and television producers may shut down much of the entertainment industry and result in sweeping change in the TV business.

NY Times:
- The New York Philharmonic plans to perform in North Korea in February, the first major cultural visit by Americans to the country.
- Slot Machines Attract Younger Players.
- Yahoo! Inc.(YHOO) plans to start an online service for investors next month to report on technology stocks and offer some live coverage of news, daily streaming-video segments and blog postings, citing Brian Nelson, a Yahoo spokesman.

Business Daily:
- Starbucks Corp.(SBUX) will double its coffee imports from east Africa by 2009.

WashingtonPost.com:
- Even as Democratic House Majority Leader Steny H. Hoyer has joined in steps to clean up pork-barrel spending, the Maryland congressman has tucked $96 million worth of pet projects into next year’s federal budget, including $450,000 for a campaign donor’s foundation.
- Citi subprime ills could spark takeover by JPMorgan: analysts.

USA Today:
- Housing market is stabilizing, optimistic Realtors say.

Forbes.com:
- The Next Bubble? Where to find the next market meltdown? Perhaps half a world away. Some fund managers believe that emerging market stocks, which have provided great returns are perilously overvalued.

Portfolio.com:
- LinkedIn, an Internet social network for professionals, will open up its services on Monday to outside software developers, starting with BusinessWeek magazine, to transform itself from an online contracts and referral database into an indispensable daily tool for business users.

Reuters:
- European Central Bank Governing Council member John Hurley said euro-area inflation may slow to below the bank’s 2% ceiling in 2009.

Pacific Epoch:
- Apple(AAPL), Shenzhen in Talks For iPhone Deal.

La Repubblica:
- Assicurazioni Generali SpA plans to make cash acquisitions in the US, taking advantage of the euro’s strength against the dollar, Co-CEO Giovanni Perissinotto said. “We aim to go shopping, but not in Europe where the prices are too high and the future prospects for earnings are limited,” Perissinotto said.

Bear Radar

Style Underperformer:

Small-cap Value (+.59%)

Sector Underperformers:

Papers (-1.28%), Retail (-.49%) and Telecom (-.48%)

Stocks Falling on Unusual Volume:

MYE, GAP, MTN, CELG, LTRE, PHRM, ARTC, CAVM and MVSN

Bull Radar

Style Outperformer:

Small-cap Growth (+1.18%)

Sector Outperformers:

Banks (+3.14%), I-Banks (+2.58%) and Homebuilders (+2.51%)

Stocks Rising on Unusual Volume:

KIE, DCP, CBD, ABK, MBI, CUK, AKH, MOGN, ARXT, PLTE, SOLF, PMTI, DCOM, RATE, PLAB, ARII, MELI, GLBC, CHNR, CSIQ, SHFL, HOKU, MRTN, ITWO, NICE, VLCCF, GIGM, PMI, JPM, BBL, MLNM and EZPW

Pending Home Sales Rise Again

- Pending Home Sales for October rose .6% versus estimates of a 1.0% decline and an upwardly revised 1.4% gain in September.

BOTTOM LINE: The number of Americans signing contracts to buy previously owned homes unexpectedly rose for a second month in October, suggesting the slump in housing may become less severe, Bloomberg said. The National Association of Realtors forecast 5.697 million homes will be sold in 2008, an upward revision from last month’s estimate. Moreover, the median price of an existing home is forecast to rise .3% in 2008. Pending home sales rose 16% in the Northeast and 8.4% in the West. Purchases fell 7.8% in the South and 1.4% in the Midwest. The fact that pending home sales rose again despite recent credit turmoil is a big positive. I continue to believe home sales are stabilizing at lower, but high by historic standards, levels.

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