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Monday Watch

Weekend Headlines
Bloomberg:
- Credit-default swaps capped their biggest three-week drop ever after the Federal Reserve’s moves to prevent bank failures deflated concerns of a deeper credit crisis and forced investors braced for the worst to capitulate. Credit-default saps on the Markit CDX North America Investment Grade Index, linked to the debt of 125 companies in the US and Canada, dropped 33 basis points this week to 109 basis points, according to CMA Datavision. The index has plunged 83 basis points since March 14, the day the Fed intervened to prevent a bankruptcy by Bear Stearns(BSC). The indexes, which soared by the most ever in March, have plunged as banks, hedge funds and other investors pare bearish bets and take off hedges against losses tied to the credit-market squeeze. Investors were using the indexes, which typically rise when perceptions of company creditworthiness worsen, to hedge against losses on everything from stocks to collaterialized debt obligations and got caught on the wrong side of the trade as the market recovered. The Fed burst the hedging bubble when it agreed to back the sale of Bear Stearns(BSC). Investors were using credit-default swap indexes “as a proxy for macro hedges, and they all got badly burned,” said Andrea Cicione, a credit analyst at BNP Paribas SA in London.
- Former President Bill Clinton has earned $15.4 million from billionaire Ron Burkle’s Yucaipa Cos. investment firm since 2003, according to tax documents released by his wife. The earnings represent 20% of the approximately $75 million Bill Clinton earned during the same period. “Most people who make that much money work for it,” said Yale University tax law professor Michael Graetz, a former Treasury Dept. official. “What are they being paid for, and if it’s the Sheikh of Dubai paying the husband of somebody who might be the next president of the US, what do they think they’re paying for?”
- European finance ministers will press their counterparts from the G-7 nations for greater coordination in battling the credit squeeze that threatens global economic growth.
- The US dollar rose the most against he yen since November and advanced versus the euro on speculation global banks will withstand what the IMF has called the worst credit crisis since the Great Depression.
- US stocks posted the biggest weekly rally in two months after Lehman Brothers(LEH), Merrill Lynch(MER) and UBS AG(UBS) triggered speculation that banks will weather mortgage-related losses.
- Microsoft Corp.(MSFT), whose $44.6 billion takeover offer was spurned by Yahoo! Inc.(YHOO), said the Internet company’s directors risk facing a proxy battle and a lower bid if they fail to agree to terms in three weeks.
- Dell Inc.(DELL) is getting bids for its consumer-lending unit after putting the business up for sale, CEO Michael Dell said.
- The proposed Gulf single currency will be pegged to the US dollar, and the greenback’s depreciation won’t change that, Qatar Central Bank Governor Abdullah Bin Saud al-Thani said.
- Republican US presidential candidate John McCain issued a call for bipartisan cooperation as he ended a weeklong “Service to America” tour that highlighted his life and public career.

Wall Street Journal:
- American Axle CEO Richard Dauch and UAW President Ron Gettelfinger are to meet tomorrow. The meeting is a possible sign both sides want to start talks aimed at ending a strike by about 3,650 American Axle workers that has lasted more than a month. The strike forced General Motors(GM) to idle all or part of 30 factories.
- Recession? Think Stocks for Recovery. Many say the future might be brightest for one of the worst-performing sectors this year (technology) and one of the best (energy). And despite election-year uncertainty, they are finding things to like among health-care stocks. There is a common theme here: In a slow economy, investors are willing to pay for earnings growth, and they see it in these stocks.

Dow Jones:
- A rise in initial margins would cut the speculative bubble that is diving the commodity markets and prevent a financial crisis worse than that caused by the collapse of the subprime mortgage market, according to David Threlkeld, president of Arizona-based metals trading company Resolved Inc. Threlkeld was the first person to publicly allege in 1991 that Japanese copper trader Yasuo Hamanaka was corning the market. “Commodities are way too high based on fundamentals; the price is being driven by speculation,” he said.

CNBC.com:
- What Recession? Investors Go Shopping for Bargains.

MarketWatch.com:
- Now’s the time to buy airline stocks, at least one contrarian says.

NY Times:
- Thousands of tourists, lured by the high price of gold, are traveling to California, Arizona, Colorado and Alaska to pan for the precious metal. “Gold fever is a real thing,” Gary Hawley of the 140-member Gold Prospectors of the Rockies said. People will find a speck of gold, and “before you know it, you can end up with $7,000, $8,000 worth of equipment but still no gold.” The Gold Prospectors Association of America membership has grown nearly 40% from 2006 to 45,000 members and mining supply stores are struggling to keep up with demand.
- Democratic presidential candidate Hillary Clinton’s story about a woman’s death, told to illustrate failures in the US health-care system, was disputed by the Ohio hospital where she was treated.
- BMW Turns to the Web to Advertise Its 1-Series.
- DirecTV Deal Will Subsidize ‘Friday Night Lights.’

Denverpost.com:
- City fleets prove biodiesel’s reliability. I want to call attention to something most Colorado residents probably took for granted this winter – the fact that snowplows, fire engines, and thousands of other city vehicles and equipment in both Denver and Colorado Springs operated reliably and problem-free during the coldest months. What many people may not realize is that these vehicles run on cleaner-burning biodiesel blends.

Star-Ledger:
- New Jersey residents supported state debt of $30.2 billion last year, third among the states behind California and New York, citing Moody’s Investors Service survey of public borrowing. The debt equals 7.5% of residents’ total income or $3,478 for every man, woman and child in the state, an increase of $4161 compared to last year’s debt load and more than twice the national average of 3.2%, citing the annual State Debt Medians report.

Ann Arbor News:
- Pessimism will become a self-fulfilling prophecy if we’re not careful. “The sky is falling.” – Chicken Little. “This bear market will never end.” – consensus view, October 2002. “The last one out of Michigan, turn out the lights.” – popular media characterization, 1981-82. These were all widely held beliefs that didn’t pan out, and people who acted on them by bailing out usually regretted it. The drumbeat of daily news today would lead us to believe all of the following: The US economy is in the tank. The stock markets are in dire straits. Housing values will never recover. Credit makers are in chaos. The dollar is sinking forever...and on and on. Fear and doom and gloom gets more attention than boring facts or balanced presentations. We as individuals can choose to help the process of recovery. If you have a job that isn’t threatened, if your retirement situation is secure, or if you have a stash of discretionary funds, go out to dinner with friends. Buy that car you really need. Do the remodeling project you planned until the stock market went down. Another way we may be able to help both ourselves and the economy and stock market is to buy while equities are “on sale.”

USA Today:
- Smaller, less-thirsty, cheaper cars enjoy big sales boom.

Forbes:
- I’m getting a lot of hate e-mail these days. This onslaught is not entirely a bad thing. It reassures me that my bet against the crowd is a wise one. I’m bullish and have been steadily since the July 8, 2002 issue. Gloat for now, but please note that 2008 isn’t over. Gloomy people are saying that we are in the worst financial crisis since the 1930s. They said the same thing in 1998. Bullish!

CNNMoney.com:
- House Financial Services Committee Chairman Barney Frank has asked the SEC to scrutinize trading in all large investment banks in the days before the collapse of Bear Stearns(BSC), citing “strong indications” of manipulative short sales. “Depending on what the Commission finds, this may lead to a broader inquiry into short selling by the SEC and Congress,” Frank said. Frank said there are “strong indications of similar market activity in the stocks of other investment banks,” and allegations by some of a coordinated effort by market participants who spread rumors that the banks were in trouble in an effort to drive down share prices.
- A couple of new surveys gauging employers’ entry-level hiring plans show that jobs for new grads are plentiful. In fact, 22% of US companies intend to hire more new grads this year than they did in 2007. About half will hire roughly the same number and only 12% of US companies are cutting back, according to Challenger, Grey & Christmas. Meanwhile, the results of CollegeGrad.com’s annual survey were even more upbeat: It found 60% of companies anticipate recruiting more new grads than last year, 21% will hire the same, and just 19% will bring fewer on board. The big surprise: College recruitment may actually be benefiting from the current slowdown.

SmartMoney.com:
- The Recession Boogeyman. It’s you who are being unrealistic if you think we’re in a recession. In fact, if you think this is a recession, then you’ve never really lived through a recession.
- Developers Help Home Buyers Fix Their Credit.

Reuters:
- Citigroup(C) on Friday sold $4.5 billion of debt, taking advantage of improved demand for US corporate bonds after Federal Reserve liquidity measures relieved worries about financial meltdowns.
- Short interest on the NYSE rose another .8% in late march, the exchange said on Friday, hitting a fresh all-time high. Short interest soared 22% in shares of Lehman Brothers(LEH) from mid-March to month’s end. About 56.6 million of the company’s shares were held short at month’s end. Short interest in shares of GAP Inc.(GPS) surged 25% during the same period. About 28.9 million of the company’s shares were held short at the end of March.
- The Five Biggest Increases/Decreases in Short Interest on the NYSE. Short interest in shares of General Electric(GE) rose by 13,036,920 shares to 57,930,098 shares.

Financial Times:
- Delta Air Lines(DAL) and Northwest Airlines have restarted merger negotiations that stalled in February when their pilot unions weren’t able to reconcile seniority issues. Delta’s board members met last week and agreed to continue talks, which are now intensifying. Both sides are to meet again this week.
- Comparisons between the US today and Japan in the 1990s are misleading and could lead to the wrong conclusions for economic policy, Richard Fisher, the president of the Federal Reserve Bank of Dallas, said.
- The Fed is blameless on the property bubble by Alan Greenspan.
- Yahoo’s(YHOO) directors were in discussions late on Sunday about Microsoft’s(MSFT) latest gambit in its unsolicited takeover approach, amid signs that the embattled internet company was preparing to dig in deeper against its suitor. “The offer still undervalues us,” said one person close to Yahoo.
- The US Fed’s intervention in the fate of Bear Stearns(BSC), the Wall Street investment bank, might have been a “turning point” in the latest financial market turmoil, according to Stanley Fischer, the governor of the Bank of Israel. Mr. Fischer, who as first deputy managing director of the IMF played a central role in tackling the Asian and Russian financial crises in the late 1990s, said that the Fed’s action had calmed the panic in the financial markets.
- A foolish overreaction to climate change. Over the past five years I have become increasingly concerned at the scaremongering of the climate alarmists, which as led the governments of Europe to commit themselves to a drastic reduction in carbon emissions, regardless of the economic cost of doing so.

TimesOnline:
- Recession unlikely if US economy gets through next two crucial months. I am probably the only economist in the world who still believes that a US recession is likely to be avoided. (very good article)

Independent:
- Newspapers in the US have revealed that John McCain’s 19-year-old son, Jimmy, has been serving in Iraq, prompting a furious response from the Republican presidential contender’s aides after months of effort to keep his son out of the public spotlight.

Finanz & Wirtschaft:
- The “worst of the storm” is over for financial markets, citing an interview with Blackrock, Inc.(BLK) CEO Fink.

Capital:
- The Bundesbank still expects the German economy to grow 1.6% this year, spokesman Christian Burckhardt said. Recent financial turbulence, the US slowdown and faster inflation will cool German growth, citing Bundesbank Vice President Franz-Christoph Zeitler,

Spiegel:
- Intel Corp.(INTC) hasn’t experienced changes in demand for its products stemming from the current financial-market turmoil, citing CEO Otellini. “As of now, we’re not experiencing dramatic changes in demand for our products globally, not even in the US,” Otellini said. As investments in information technology boost productivity, companies spend even more in “more difficult” times, he said.

Sonntag:
- UBS AG(UBS) will prepare its investment banking business for a possible sale in two to three years’ time.

tutor2u:
- Chart of the Day: Global Hedge Fund Investments.

The Australian:
- Short selling must be banned. It is irresolvably incompatible with the fundamental integrity of the market. I refer to real- or so-called “naked” – short selling. Now the ASX has called for public consultation on the issue of short selling.
- Copper hunters race for new deposits.

United Daily News:
- Taiwan’s new administration will tackle inflation as its key economic priority, citing Vice President-elect Vincent Siew. Siew said he was concerned there was an excessive amount of overseas capital in Taiwan. Foreign funds tend to boost stock and real estate markets and need to be guided into long-term investments.

Caijing.com:
- Economist: The End of the Dollar Crisis.

Gulf Times:
- Islamic bonds dive in Q1, latest credit crisis victims.

Weekend Recommendations
Barron's:
- Made positive comments on (CCL), (F), (WYE) and (DRYS).

Citigroup:
- Reiterated Buy on (UA), target $65.
- Reiterated Buy on (ISIL), target $31.
- Reiterated “Event Buy” on (YHOO), target $34.
- Downgraded (COLM) to Sell, target $41.
- Upgraded (KLAC) to Buy, target $56.
- Maintained Buy on (AMAT), target $26.
- Swapped out of (AMAT) and into (KLAC) in Top Picks Live(Citi’s dynamic list of highest conviction ideas we should be or sell today).
- Reiterated Buy on (MOS), raised estimates and target to $153.

Night Trading
Asian indices are -.25% to +1.0% on avg.
S&P 500 futures +.43%.
NASDAQ 100 futures +.39%.

Morning Preview
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Earnings of Note
Company/Estimate
- (AA)/.53

Upcoming Splits
- None of note

Economic Data
3:00 pm EST
- Consumer Credit for February is estimated to fall to $6.0 billion versus $6.9 billion in January.

Other Potential Market Movers
- The Fed’s Yellen speaking, Fed’s Kohn speaking and Howard Weil Energy Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

Weekly Outlook

Click here for the weekly economic preview by Bloomberg.

Click here for stocks in focus for Monday by MarketWatch.

There are some economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – Consumer Credit

Tues. – Pending Home Sales, IDB/TIPP Economic Optimism Index, Minutes of March 18 FOMC Meeting, weekly retail sales

Wed. – Weekly EIA energy inventory report, weekly MBA Mortgage Applications report, Wholesale Inventories

Thur. – Trade Balance, Initial Jobless Claims, ICSC Chain Store Sales, Monthly Budget Statement

Fri. – Import Price Index, U. of Mich. Consumer Confidence

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Alcoa Inc.(AA)

Tues. – Sealy Corp.(ZZ)

Wed. – Shaw Group(SGR), Christopher & Banks(CBK), Circuit City(CC), Bed Bath & Beyond(BBBY), Progressive Corp.(PGR)

Thur. – Genentech(DNA), Pier 1(PIR), Rite Aid(RAD), VeriFone(PAY), Fastenal(FAST)

Fri. – General Electric(GE)

Other events that have market-moving potential this week include:

Mon. – Fed’s Yellen speaking, Fed’s Kohn speaking, Howard Weil Energy Conference

Tue. – (AWI) analyst meeting, Howard Weil Energy Conference, CSFB Global Real Estate Conference

Wed. – Fed’s Fisher speaking, (WBSN) analyst meeting, (AWI) analyst meeting, CSFB Global Real Estate Conference, Howard Weil Energy Conference

Thur. – (NVDA) analyst day, (EMKR) analyst day, (DNR) analyst meeting, CSFB Global Real Estate Conference, Howard Weil Energy Conference

Fri. – Fed’s Fisher speaking

BOTTOM LINE: I expect US stocks to finish the week modestly higher on a firmer dollar, short-covering, diminishing credit market angst and bargain hunting. My trading indicators are giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,370.40 +4.2%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 1,370.40 +4.2%
DJIA 12,609.42 +3.2%
NASDAQ 2,370.98 +4.9%
Russell 2000 713.73 +4.5%
Wilshire 5000 13,770.24 +4.3%
Russell 1000 Growth 568.13 +4.2%
Russell 1000 Value 748.54 +4.5%
Morgan Stanley Consumer 701.92 +1.7%
Morgan Stanley Cyclical 973.19 +5.7%
Morgan Stanley Technology 554.96 +5.1%
Transports 4,976.39 +4.7%
Utilities 498.29 +5.3%
MSCI Emerging Markets 140.49 +4.4%

Sentiment/Internals
NYSE Cumulative A/D Line 56,681 +5.6%
Bloomberg New Highs-Lows Index -201
Bloomberg Crude Oil % Bulls 29.0 -21.2%
CFTC Oil Large Speculative Longs 225,434 -.4%
Total Put/Call 1.2 +4.3%
OEX Put/Call 1.53 +64.5%
ISE Sentiment 124.0 +12.7%
NYSE Arms 1.20 -26.38%
Volatility(VIX) 22.45 -12.68%
G7 Currency Volatility (VXY) 11.67 -6.2%
Smart Money Flow Index 8,675.33 +1.8%
AAII % Bulls 36.7 -11.8%
AAII % Bears 39.4 +17.1%

Futures Spot Prices
Crude Oil 106.23 +1.2%
Reformulated Gasoline 275.74 +1.8%
Natural Gas 9.32 -5.0%
Heating Oil 299.15 +.4%
Gold 917.90 -2.4%
Base Metals 257.17 -1.5%
Copper 395.25 +3.2%
Agriculture 434.09 +1.2%

Economy
10-year US Treasury Yield 3.47% +3 basis points
10-year TIPS Spread 2.30% -5 basis points
TED Spread 1.36 +3 basis points
N. Amer. Investment Grade Credit Default Swap Index 109.2 -20.0%
Emerging Markets Credit Default Swap Index 244.76 +8.2%
Citi US Economic Surprise Index -83.80 +14.9%
Fed Fund Futures 60.0% chance of 25 cut, 40.0% chance of 50 cut on 4/30
Iraqi 2028 Govt Bonds 69.75 -1.6%
4-Wk MA of Jobless Claims 374,500 +4.4%
Average 30-year Mortgage Rate 5.88% +2 basis points
Weekly Mortgage Applications 688,300 -28.7%
Weekly Retail Sales +1.1%
Nationwide Gas $3.30/gallon +.02/gallon.
US Heating Demand Next 7 Days 11.0% below normal
ECRI Weekly Leading Economic Index 129.90 -1.4%
US Dollar Index 71.96 +.5%
Baltic Dry Index 7,690 -2.5%
CRB Index 395.09 +.1%

Best Performing Style
Mid-cap Growth +5.9%

Worst Performing Style
Small-cap Value +4.1%

Leading Sectors
Homebuilders +10.0%
I-Banks +9.7%
Semis +8.8%
Steel +8.3%
Retail +7.2%

Lagging Sectors
Drugs +2.3%
HMOs +1.8%
Computer Services +1.6%
Gold +.74%
Tobacco +.73%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Mostly Higher into Final Hour on Bargain Hunting, Diminishing Credit Angst, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Biotech longs, Internet longs, Retail longs and Alternative Energy longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly bullish as the advance/decline line is higher, sector performance is mostly positive and volume is below average. Investor anxiety is slightly above average, despite today’s gains. Today’s overall market action is very bullish considering recent gains, the employment report and the rise in energy prices. The VIX is falling 4.2%, but remains above average at 22.2. The ISE Sentiment Index is a below average 140.0 and the total put/call is high at 1.17. Finally, the NYSE Arms has been running above average most of the day and is currently 1.12. Nikkei futures indicate an +127 open in Japan and DAX futures indicate an +74 open in Germany on Monday. Despite the weaker employment report today, the North American Investment Grade Credit Default Swap Index is dropping another 10.5 basis points today. This index has plunged 47% since March 10^th. Credit default swaps had been the source of much angst, implying corporate default rates much higher than the fundamentals suggested. This is a huge positive. The 10-year TIPS spread, a good gauge of inflation expectations, is falling another 5 basis points today to 2.29%. This is down from 2.68% on March 13^th. Growth stocks are substantially outperforming value stocks, with leaders especially strong. With more signs that global growth is slowing, I suspect investors are warming to these stocks again as valuations are extraordinarily compelling at current levels. I expect US stocks to trade modestly higher into the close from current levels on short-covering, diminishing credit market angst and bargain-hunting.