Initial Jobless Claims Around Estimates, Leading Indicators Rise, Philly Fed Falls

- Initial Jobless Claims this week rose to 372K versus estimates of 375K and 355K the prior week.

- Continuing Claims rose to 2984K versus estimates of 2950K and 2958K prior.

- Leading Indicators for March rose .1% versus estimates of a .1% rise and a .3% decline in February.

- The Philly Fed for April fell to -24.9 versus estimates of -15.0 and a reading of -17.4 in March.

BOTTOM LINE: Initial Jobless Claims for this week came in around economists’ estimates, Bloomberg reported. The four-week moving-average of jobless claims fell to 376,000 from 376,750 the prior week. The unemployment rate among those eligible to collect benefits held steady at a historically low 2.2%. I expect jobless claims to trend around current levels for a bit longer before moving lower later this quarter.

The index of leading US economic indicators rose in March for the first time in six months as cash poured into the banking system and the Federal Reserve lowered the benchmark interest rate, Bloomberg reported. The improvement is an indication that the economy may not weaken further in the second half of the year. The rise in the index last month brings the decline for the last six months to a 3.3% annual pace. A drop of 4.5% or more over six months usually correlates with a recession, according to the Conference Board. A jump in the money supply, slower supplier deliveries and a steeper yield curve were the main contributors to last month’s gain. A bounce higher in consumer sentiment and higher stock prices should help contribute to another gain in the Leading Indicators this month. I continue to believe GDP growth was slightly negative in 1Q, but will rebound this quarter into positive territory and accelerate modestly into year-end.

Manufacturing in the Philly region contracted more than forecast in April, Bloomberg reported. The New Orders component fell to -18.8 form -9.3 the prior month. The Unfilled Orders component rose to -16.8 versus -18.7 the prior month. The Inventories component fell to -26.2 versus -13.5 the prior month. The Employment component fell to -11.1 versus -4.7 the prior month. The Prices Paid component fell to 51.6 from 54.4 the prior month. The Philly Fed region is more vulnerable to auto production cutbacks than the NY Fed region, which showed a strong rebound yesterday. The Philly Fed index should bounce back next month and improve meaningfully on an end to the American Axle(AXL) strike. The 10-year yield is unch. on today’s reports and the US dollar index is rising .2%. There is now a 78% chance for a 25 basis point rate cut at the upcoming April 30^th meeting, up from 58.0% one week ago, according to fed fund futures. The odds for a 50 basis point cut have decline to 22.0% from 42.0% one week ago.

Bull Radar

Style Outperformer:

Large-cap Value (+.37%)

Sector Outperformers:

Computer Services (+1.43%), Insurance (+.70%) and Steel (+.46%)

Stocks Rising on Unusual Volume:

MTG, ARGN, IBM, DELL, BRP, CMVT, BTM, AVCT, PHTN, ESEA, TCBI, ENOC, BOKF, UTEK, ALTR, UMPQ, BOLT, CAVM, ISIS, CROX, ASMI, VISN, ISRG, NUAN, NFLX, CPHD, CAJ, CCK, CY, MMR and WSO

Stocks With Unusual Call Option Activity:

1) ABH 2) HCBK 3) MEDX 4) CCK 5) STAR

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Thursday Watch

Late-Night Headlines
Bloomberg:
- Greg Salvaggio, vice president of capital markets at Tempus Consulting, says the US dollar is near a “bottom.” (video)
- Mark Mobius, executive chairman of Templeton Asset Management, said the global credit-market crisis that has caused billions of dollars in losses at banks and brokerages worldwide is “near the end.” “Most of the bad news is already in the market,” the 71-year-old fund manager, who overseas $47 billion in equities, said.
- LG Electronics, the best-performing stock among the world’s major mobile-phone makers, rose the most in almost three weeks in Seoul trading as record handset sales led to earnings that beat analysts’ estimates.
- Brazil’s central bank raised its benchmark interest rate more than expected to 11.75%, the first increase in three years, as quickening economic growth threatens to stock inflation.
- IBM(IBM) posted first-quarter profit that topped analysts’ estimates and said earnings this year will exceed its previous goals, pushing the stock up 2.4% in extended trading.
- General Electric(GE), less than a week after reporting an unexpected 12% drop in profit, sold $8.5 billion of bonds in the largest US corporate offering since 2002.
- JPMorgan(JPM), hours after saying the credit-market crisis is almost over, made plans to raise $6 billion in its biggest offering of perpetual preferred stock.

Wall Street Journal:
- Technology companies from eBay Inc.(EBAY) to EMC Corp.(EMC) are embracing cash more than ever amid fears of an economic downturn.
- Freddie Mac may announce an agreement tomorrow with Wells Fargo(WFC), JPMorgan(JPM) and Citigroup(C), citing Freddie officials.
- Democrats Meet in Feisty Debate. Clinton Attempts to Stir New Doubts About Obama.

CNBC.com:
- Hedge Fund Favorites: Corning(GLW).

NY Times:
- More Steps Urged on Interest Rates in China. Despite repeated denials from government economists, a variety of Western economic studies have suggested that the Chinese government smoothes its economic data – exaggerating performance in weak quarters and understating growth in booms to present an image of stability.
- Despite Downturn, Financing Exists for Small Companies.
- Wilbur L. Ross Jr., the billionaire financier known for buying companies cheaply, has compile a shopping list of small struggling banks that might prove to be good investments.

BusinessWeek.com:
- Apple’s(AAPL) OS Edge Is a Threat to Microsoft(MSFT). A recent upgrade to the Mac operating system moves Apple closer to challenging Microsoft for overall computing dominance, even in the corporate market.

Automotive News:
- American Axle & Manufacturing(AXL) and the United Auto Workers may reach a tentative contract agreement by this weekend. The UAW today called off a protest rally in downtown Detroit because of progress in the talks. The strike has idled or partially closed 27 of General Motors’(GM) North American plants.

SmartMoney:
- Gas Manipulation Probe Marks Shift in Regulation. The Federal Energy Regulatory Commission did something unprecedented for an agency that used to take its marching orders from Enron. Using authority given to it by Congress in the wake of Enron’s failure and related revelations of widespread abuses in energy trading, it initiated proceedings against the Amaranth Advisors hedge fund and ETP, a Dallas-based gas pipeline operator, based on staff findings that Amaranth and ETP had engaged in market manipulation.

USA Today.com:
- 4-way battle among e-mail rivals heats up as Gmail makes gains.
- Entertainment and sports heroes had only a so-so year in 2007 if you look at traditional yardsticks such as sales of tickets and discs. But their appeal as pop culture icons was stronger than ever, judging by sales of clothing, book bags, games, toys, food packaging and other goods emblazoned with licensed names and likenesses.

National Real Estate Investor:
- Does CMBX Reflect Industry Fundamentals? Industry participants allege that the activities of hedge fund speculators are causing spreads to widen to new highs as these speculators bet that industry fundamentals will deteriorate. However, recent spread tightening in the CMBX may serve to ease some industry concerns about the impact of the index on the CMBS sector. A lot of nonprofessional real estate buyers came into the market and started shorting the CMBX. As a result, the CMBX began to reflect this short interest – rather than the fundamentals of the commercial mortgages backing the bonds – and spreads on the CMBX tranches went up to “irrational levels,” according to Ed Adler, co-head of Citigroup’s US CMBS and real estate finance group. Dottie Cunningham, CEO of the Commercial Mortgage Securities Assoc., expressed concern that “in a volatile market, this mark-to-market process becomes a self-fulfilling prophecy, driving prices down based on index trading activity rather than asset fundamentals.” As some market participants rely on “a distorted value,” it perpetuates a cycle of “no issuance, erroneous spread widening and additional mark-to-market writedowns.” (very good article)

Reuters:
- Fear recedes as corporate profits reassure investors.
- IBM(IBM) sees “solid opportunities” for acquisitions: CFO.

Financial Times:
- Banking regulators moved to tighten the screw on the industry on Wednesday with rules aimed at preventing a repeat of the crisis that has rocked the financial system.
- Jack Welch, the former head of General Electric(GE), delivered a blunt rebuke to his handpicked successor on Wednesday, saying the failure of the conglomerate’s earnings to meet market expectations last week was a “screw up” that left Jeffrey Immelt with a “credibility issue”.

TimesOnline:
- Ebay(EBAY) beats expectations with 24% surge in revenues.

Daily Telegraph:
- American hedge fund billionaire John Paulson was his industry’s biggest earner in 2007 thanks to a bet against sub-prime mortgages that netted him $3.7 billion in personal profit. Number two on the list – 77-year-old George Soros also owes his $2.9 billion payday to his bets against the US sub-prime mortgage markets.

The Guardian:
- US recession? It’s hedge fund heaven.

China Daily:
- China will probably spend more on rural development and adopt tax policies designed to narrow the gap between rich and poor, citing Ding Xuedong, the country’s vice-minister of finance. China will increase support for charity and actively encourage “fair” social wealth distribution.
- Spokesman Liu Jianchao said a statement issued by CNN on Tuesday failed to apologize for Jack Cafferty’s remarks, which “maliciously attacked the Chinese people and seriously violated the professional ethics of journalism.” “CNN’s ulterior motive in targeting the Chinese government, continuing to mislead public opinion as well as deceiving the Chinese people will never succeed”, Liu said.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (GILD), raised estimates and boosted target to $60.
- According to IDC’s preliminary report global PC units grew a healthy 14.6% yoy in 1Q08 modestly above our 14% estimate. This largely confirms our checks with Asian ODMs and motherboards mftrs back in early March that suggested normal seasonality in 1CQ.
- We are raising our 2008 global entertainment software industry(ex-hardware) growth estimates to +18% yoy(from +11% prior) and reiterating our positive stance on the entertainment software stocks.
- Reiterated Buy on (ALTR), raised estimates and boosted target to $25.
- Reiterated Buy on (IBM), raised target to $157.

Night Trading
Asian Indices are +.50% to +1.75% on average.
S&P 500 futures -.08%.
NASDAQ 100 futures +.11%.

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Earnings of Note
Company/EPS Estimate
- (MER)/-2.06
- (CAL)/-.91
- (PNC)/1.15
- (CMA)/.81
- (NUE)/1.32
- (PFE)/.66
- (MAR)/.33
- (AMTD)/.31
- (CHKP)/.41
- (PPG)/1.10
- (BAX)/.72
- (UTX)/1.00
- (SPWR)/.35
- (BK)/.73
- (KEY)/.36
- (GPC)/.75
- (IGT)/.34
- (HOG)/.77
- (RS)/1.38
- (GOOG)/4.52
- (SYK)/.69
- (COF)/1.44
- (AMD)/-.49
- (ISRG)/.98
- (MHK)/.91
- (SHW)/.60
- (LUV)/.00
- (SNDK)/.25
- (DOX)/.58

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to rise to 375K versus 357K the prior week.
- Continuing Claims are estimated to rise to 2950K versus 2940K prior.

10:00 am EST
- Leading Indicators for March are estimated to rise .1% versus a -.3% decline in February.
- The Philly Fed for April is estimated to rise to -15.0 versus -17.4 in March.

Other Potential Market Movers
- The Fed’s Lacker speaking, Fed’s Fisher speaking, Fed’s Kohn speaking, EIA weekly natural gas inventory data, (WMT) analyst field trip and Morgan Stanley Commodities & Shipping Conference could also impact trading today.

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

Stocks Finish at Session Highs, Boosted by Technology, Steel, Homebuilding, Road & Rail, REIT and Financial Shares

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In Play

Stocks Soaring into Final Hour on Less Economic Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Alternative Energy longs, Biotech longs, Medical longs and Computer longs. I added to my (AMSC) long and my (NUAN) long today and took profits in another trading long, thus leaving the Portfolio 100% net long. The overall tone of the market is very bullish as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is about average. Today’s overall market action is very bullish. The VIX is falling 7.9% and remains above average at 21.0. The ISE Sentiment Index is a low 110.0 and the total put/call is about average at .94. Finally, the NYSE Arms has been running about average most of the day and is currently .83. I predicted during Friday’s GE-related low-volume market rout that we would get back most of those losses this week. Moreover, this is the first decent volume day in a few weeks, which makes the gains even more impressive. I am seeing many market leading stocks break out on volume, which leads me to conclude this rally has some legs. The US dollar is falling today on a report this morning that European inflation hit a 16-year high. I think the ECB is falling behind the curve in a big way by focusing too much on inflation and will have to ease its stance later this year, which should boost the buck. Vietnam fell another 1.4% last night and is now down -52.3% from its high, while Shanghai fell another 1.7% and is now down -46.3% from its high. It is amazing how the collapse of China’s main stock exchange, which was hyped incessantly last year at the bubble’s peak and which is one of the biggest financial stories of this year, is barely mentioned in the mainstream financial press. Meanwhile, the DJIA is just 10% off its record high, which is a routine correction, and stories of US economic and stock market armageddon are rampant. The bias in the press against reporting anything positive in this country is stunning and symptomatic of the current “US negativity bubble.” However, this bubble is creating the perfect backdrop for a new strong secular US bull run, in my opinion. Nikkei futures indicate an +300 open in Japan and DAX futures indicate an +84 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism and bargain hunting.