Stocks Lower into Final Hour on Higher Energy Prices, Weakness in Financials

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs and Networking longs. I added to my (EEM) short and added to my (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 50% net long. The overall tone of the market is slightly positive today as the advance/decline line is about even, most sectors are rising and volume is about average. Investor anxiety is above average. Today’s overall market action is bearish. The US dollar-based 3-month LIBOR rate is falling another 5 basis points to 5.06% today and is down 67 basis points from September highs. The average 30-year jumbo mortgage rate is falling 11 basis points today to 6.72% and is down 61 basis points from September highs. As well, the 30-day asset backed commercial paper yield is falling 15 basis points today to 6.01%, down 32 basis points from September highs. The substantial rise in oil today is a big negative. Despite a firmer dollar, decelerating global demand and rising supply oil continues to rise. According to the Energy Intelligence Group, global oil production is now 86.9 million barrels per day and global demand is 85.2 million barrels per day. Oil bulls have said for several years that global production was capped at 85 million barrels per day. The decline in financial shares is also a big negative today, given the news. I suspect today’s reversal in stocks will lead to losses in Asia tonight. I expect US stocks to trade mixed-to-lower into the close from current levels on rising energy prices and profit-taking.

Today's Headlines

Bloomberg:
- Mortgage applications in the US rose for the second consecutive week to the highest level since July 2005, boosted by gains in refinancing and purchases.
- Treasury’s Steel Says Bush’s Housing Relief Plan May ‘Evolve.’
- Oil is rising above $93/bbl. on speculation a decision by central banks to provide cash to financial institutions will spur economic growth.
- Copper is falling the most in a week on worries over rising global stockpiles.
- Microchip Tech(MCHP), the maker of semiconductors for toasters and garage-door openers, rose the most in almost eight months in Nasdaq Stock Market trading after announcing plans to buy back up to 14.3 million shares.
- 3M Co.(MMM), the maker of 50,000 products from Post-it Notes to electronic road signs, forecast 2008 profit of $5.44 to $5.47 a share, above analysts’ estimates.

Wall Street Journal:
- In the latest sign of growing appetite for environment-related investment tools, New York Mercantile Exchange parent Nymex Holdings and a group of Wall Street trading houses plan to launch an exchange for trading carbon emissions and other environmental products.
- Several House Judiciary Committee members have agreed on a piece of housing legislation that would give bankruptcy-court judges more flexibility to alter the terms of certain mortgages.
- Fed Sifts Options As Rate Cut Fails to Cheer Market.

NY Times:
- The SEC plans to delay for another year the requirement that small companies report on the state of their internal financial controls, the agency’s chairman, Christopher Cox, is expected to tell lawmakers on Wednesday.
- Ten months ago, Senator Hillary Rodham Clinton went to East High School here on her first trip to Iowa as a presidential candidate and laid out a case for her candidacy to a cheering crowd in a packed gym. Mrs. Clinton returned to East High late last week. But the crowd was much smaller and more sedate.

USA Today:
- Teachers’ qualifications improve in the past decade.

Financial Times:
- The Fed is set to announce as early as on today a fundamental overhaul of the way it provides liquidity in financial markets in a bid to tackle head-on severe strains in the interbank money market.

Finanz und Wirtschaft:
- UBS AG Chairman Marcel Ospel said “the worst is behind” for the Swiss bank.

Bear Radar

Style Underperformer:

Mid-cap Value (-.17%)

Sector Underperformers:

Airlines (-2.67%), Banks (-2.1%) and Restaurants (-.74%)

Stocks Falling on Unusual Volume:

SLM, COO, NWK, WM, SGP, ALO, CIX, CYNO, UNTD, LTRE, IPSU, NUAN, OMPI, HOKU, TWTC, SAIA, DMND, MBLX, C and WB

Trade Deficit Widens Slightly, Import Prices Jump on Imported Energy

- The Trade Deficit for October came in at -$57.8 billion versus estimates of -$57.4 billion and -$57.1 billion in September.

- The Import Price Index for November rose 2.7% versus estimates of 2.0% and a downwardly revised 1.4% in October.

BOTTOM LINE: The US trade deficit widened in October as the value of imported crude oil rose to a record, Bloomberg said. Excluding petroleum, the trade deficit was the smallest since 2004. US exports rose .9%, led by commercial aircraft and industrial engine orders, hitting another record high. The narrowing of the trade deficit contributed 1.37 percentage points to the 4.9% gain in third quarter US GDP growth, the most since 1996. The US trade deficit should continue to shrink over the intermediate-term, which will help boost overall US economic growth, as energy prices fall and exports continue to make new records.

Prices of goods imported into the US rose in November, propelled by record oil prices, Bloomberg reported. Prices excluding petroleum rose .7%. Food prices actually fell .2% during the month. Excluding all fuels, prices rose .5% during the month and 3% over the last 12 months. Prices of imported automobiles, parts and engines rose .3% for a second month. Cost for imported consumer products excluding autos rose .2%. Import prices increases have now likely peaked for the intermediate-term and should begin to decelerate next month. The 10-year TIPS spread, a gauge of inflation expectations, is currently 2.31%, which is down from 2.48% less than two weeks ago.

Bull Radar

Style Outperformer:

Small-cap Growth (+1.94%)

Sector Outperformers:

Telecom (+3.71%), Energy (+3.21%) and Computer Networking (+2.85%)

Stocks Rising on Unusual Volume:

PIV, KNM, CIX, EN, MPG, IJS, NEXT, FSIN, EMKR, SWIM, STBA, ALTU, MELI, RSTI, DIOD, ACAD, SNCR, GLBC, OXPS, BIDZ, ANDE, CSIQ, NICE, MCHP, WRNC, HURN, PBR, VSL, HES, BTM, HRS, MMM, RICK and ZQK

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