Stocks Finish Lower, Weighed Down by Commodity, REIT, Homebuilding, Financial and Construction Shares

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Stocks Falling into Final Hour on Financial Sector, Economic Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Financial longs and Computer longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is bearish as the advance/decline line is substantially lower, most sectors are declining and volume is light. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising 7.85% and is elevated at 46.17. The ISE Sentiment Index is low at 100.0 and the total put/call is high at 1.11. Finally, the NYSE Arms has been running very high most of the day, hitting 2.89 at its intraday peak, and is currently 1.62. The Euro Financial Sector Credit Default Swap Index is rising 6.06% today to 102.0 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is rising 3.2% to 206.67 basis points. The TED spread is down 9.15% to 109 basis points. The TED spread is now down 357 basis points in just over three months. The 2-year swap spread is falling 3.23% to 52.50 basis points. The Libor-OIS spread is falling 8.91% to 98 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at .58%, which is down 217 basis points in just over six months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .06%, which is unch. today. Volume is light again on today’s sell-off with a high NYSE Arms reading. However, the stock and bond market’s reactions to today’s news are negatives again. The most economically sensitive, emerging market and financial shares are under the most selling pressure. The conditions are right for a sharp snapback rally to materialize at any time, but a positive catalyst must materialize. Nikkei futures indicate a -290 open in Japan and DAX futures indicate a -26 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, financial sector pessimism and economic pessimism.

Today's Headlines

Bloomberg:

- The cost of borrowing in dollars for three months in London fell the most in almost four weeks as central banks drenched money markets with cash to spur lending. The London interbank offered rate, or Libor, for such loans slid 10 basis points to 1.16 percent today, the steepest decline since Dec. 17, British Bankers’ Association data showed. The drop sent the Libor-OIS spread, a measure of money-market stress favored by former Federal Reserve Chairman Alan Greenspan, to the least since the September failure of Lehman Brothers Holdings Inc. The Libor-OIS spread, the difference between the three-month Libor for dollars and the overnight indexed swap rate, dropped to 98 basis points today, from a peak of 364 basis points on Oct. 10. The last time it ended the day at less than 100 basis points was Sept. 12, the last working day before Lehman filed for bankruptcy.

- Abbott Laboratories(ABT) will pay $1.36 billion for Advanced Medical Optics, a maker of eye-surgery equipment, expanding the drugmaker’s stake in medical devices.

- Russia’s ruble slid to the weakest level in almost six years against the dollar after the central bank devalued the currency for a second day as declining oil prices threaten to deepen the country’s economic crisis. The ruble fell 1.9 percent to 31.1252 per dollar by 12 p.m. in Moscow, from 30.5312 yesterday, extending its decline to 25 percent since August.

- China’s passenger-car sales fell 8 percent in December, capping the slowest annual increase in at least nine years, as a cooling economy damped demand for new vehicles. Chinese car sales have fallen in four of the past five months as the country’s slowing exports lead to job losses and reduced consumer confidence. Car sales in India also tumbled 7 percent last month, as the global recession spreads into Asia.

- China, the world’s largest metal consumer, discarded a plan to buy copper to support domestic smelters because producers are still profitable and inventories aren’t high, government and company officials said. The government also deemed it risky to buy the metal now from overseas as prices could fall, said the three officials.

- Gold trading climbed 20 percent last year as the global economic slowdown increased the metal’s appeal as an investment haven, said International Financial Services London. “The traditional ‘safe-haven’ appeal of precious metals has attracted many investors to this asset class,” Maslakovic said in a separate report that he wrote. Increased investment in exchange-traded funds also helped boost trading volumes, according to Maslakovic.

- Crude oil fell below $40 a barrel in New York on concern output cuts by the Organization of Petroleum Exporting Countries will fail to counter a slump in demand. Goldman Sachs Group Inc. said that “weak underlying economic fundamentals” will dominate the oil market. The bank maintained its forecast that oil will fall to $30 a barrel this quarter, in a report dated Jan. 9. OPEC may trim production further should crude prices continue to decline, Iran’s OPEC governor, Mohammad Ali Khatabi, said yesterday. Inventories at Cushing, Oklahoma, the delivery point for crude oil traded at Nymex, climbed to 32.2 million barrels, the highest since the Energy Department started tracking the supplies in 2004. Oil prices also fell on speculation that OAO Gazprom, Russia’s natural-gas exporter, will resume fuel shipments to Europe. The European Union said Russia and Ukraine signed a natural-gas monitoring deal that may pave the way for the resumption of flows “by tomorrow morning.”

- Russia’s efforts to extract more money from Ukraine by cutting off natural gas supplies sent the fuel to a three-year high in Europe, and set up prices for a steeper decline. OAO Gazprom, Russia’s state-run gas export monopoly, today said Ukraine had agreed to an accord on monitoring gas flows, which will pave the way for resuming shipments through Ukraine to Europe. The global recession is reducing demand just as new liquefied natural gas terminals open, increasing the capacity for imports. The post-winter thaw usually drives spot prices lower, and the cost of most European gas is tied to months-old oil prices, which have plunged 74 percent since July. Natural gas “will drop like a stone,” said Thierry Bros, an analyst at Societe Generale, France’s second-largest bank, in an interview from Paris.

- E-mails between New Jersey Governor Jon Corzine and a labor leader he once dated need not be made public, a state appellate court ruled. Corzine’s exchanges with former Communications Workers of America Local 1034 President Carla Katz during union negotiations in 2007 are covered under executive privilege, according to the decision released today. At the time, Katz led the largest union local representing state workers. “The governor properly asserted executive privilege and plaintiff did not articulate or identify a sufficient reason to overcome the privilege,” Judge Mary Catherine Cuff wrote in the three-judge panel’s 37-page decision.

- Bernard Madoff will remain free on a $10 million bond, a federal judge ruled, denying a request by U.S. prosecutors that he be jailed while awaiting trial on a federal securities fraud charge. U.S. Magistrate Judge Ronald Ellis in Manhattan today said Madoff, arrested last month for running an alleged $50 billion Ponzi scheme, may continue to live under house arrest in his Manhattan apartment on the Upper East Side.

- Spain’s top AAA long-term sovereign ratings may be cut by Standard & Poor’s, putting the country at risk of its first downgrade from the agency as it suffers its first recession in 15 years. Standard & Poor’s cited “significant challenges” facing the Spanish economy and said it would probably decide on the rating this month. Credit-default swaps linked to Spanish government debt rose 11 basis points to 106, according to CMA Datavision, in the biggest one-day move since Oct 23.

Wall Street Journal:

- Why Russia Stokes Mideast Mayhem by Garry Kasparov. Petrodictators have a permanent interest in instability. There are those who will incite a new crisis to escape or distract from the current one. This is the scenario looming in Russia as the Kremlin faces increasing pressure on multiple fronts. Russia and its fellow petrodictatorships are in dire need of a way to ratchet up global tensions to inflate the sagging price of oil. Petrodictators, after all, need petrodollars to stay in power. The war in Gaza and the otherwise inexplicable skirmish with Ukraine over natural gas have helped the Kremlin in this regard, but $50 a barrel isn't going to be nearly enough. It will have to reach at least $100 and it will have to happen soon. There persists a very damaging myth in the West, spouted by politicians and the press, that says Russia's assistance is needed with Iran and other rogue states. In fact, the Kremlin has been stirring this pot for years and has a vested interest in further increasing turmoil in the region. The futile pursuit of balance and neutrality by Western leaders and the media has become nothing more than a cover-up for the gravest of crimes. No doubt they would have judiciously considered the "legitimate grievances" of Stalin, Hitler and bin Laden. The time to stand up to such monsters is before they have achieved their horrific goals, not after. (very good article)

- Mutual-fund firms aren't known for their elan, preferring to launch funds in good times when small investors' confidence is high. That isn't the tactic T. Rowe Price Group Inc. has chosen. The Baltimore-based money manager's latest fund offering, Strategic Income, will focus on some of the market's riskiest areas, including junk bonds, loans, mortgage-backed securities and emerging markets debt.

- Seeking a bigger slice of the online video space, CBS Corp.'s television site TV.com is bolstering its programming with more than a thousand full episodes of shows ranging from "Starsky & Hutch" to "Dexter."

- The transition team for President-elect Barack Obama, hoping to make a swift break in Bush administration policies at the Centers for Disease Control and Prevention and the Food and Drug Administration, is moving toward naming new heads to two of the most important federal health agencies.

- While Apple Inc.'s(AAPL) iPhone kicked off the craze for touch-sensing screens on mobile phones, Microsoft Corp.(MSFT) is pushing a similar technology for personal-computer screens that could eventually replace the computer mouse.

CNBC.com:
- There is a big chance that the Chinese economy will contract, as exports are falling because of the financial crisis that has gripped Western economies, Hugh Hendry, chief investment officer and partner at hedge fund Eclectica, told CNBC. "The world super-sized itself. The world seemed to be enormous, seemed to be a giant. China built a productive capacity to serve a world that doesn't exist," Hendry said. Figures showing that China's economic growth was relying mainly on domestic development should be taken with a grain of salt, he added. "Asian economic figures are very bad, and Chinese economic figures are particularly bad," Hendry said.

NY Times:

- Toyota Plans to Leapfrog GM With a Plug-In. Toyota plans to introduce its plug-in hybrid electric vehicle late this year, a year earlier than originally planned, and a year ahead of the Chevrolet Volt.

- YouTube is aiming to raise its profile in American politics by helping deliver a glimpse of life on Capitol Hill to its large online audience. On Monday, YouTube, in collaboration with Congress, will unveil two new Web pages, one for the House and one for the Senate, where every lawmaker will be able to create a video channel on the site.

Fox News:

- Alleged Ponzi schemer Bernard Madoff scammed millions from his sister, who is now desperately selling her Florida home, sources told the New York Post. Sondra Wiener, 74, "has nothing," said one of her neighbors in the BallenIsles Country Club, a gated Palm Beach enclave where she and her husband, Marvin, live alongside such celebrities as Serena and Venus Williams. "She lost millions in this whole thing," said a source who estimated her loss at $3 million.

USA Today:

- For the first time since the dawn of the jet age, two consecutive years have passed without a single airline passenger death in a U.S. carrier crash. No passengers died in accidents in 2007 and 2008, a period in which commercial airliners carried 1.5 billion passengers on scheduled airline flights, according to a USA TODAY analysis of federal and industry data.

Politico:

- The Rt. Rev. V. Gene Robinson of New Hampshire, who was elected the Episcopal Church’s first openly gay bishop in 2003, will deliver the invocation for Sunday’s kickoff inaugural event on the steps of the Lincoln Memorial, the Presidential Inaugural Committee said. President-elect Obama is scheduled to attend the afternoon event, which is free and open to the public.

Boston Globe:

- Hedge fund firm GMB Capital Management is shutting down a fund that lost more than $50 million on bad bets that included putting money with accused swindler Bernard Madoff, according to sources familiar with the matter. The Boston-based GMB Low Volatility Fund LP, which had more than $100 million in assets, began liquidating late last year, the sources said.

Reuters:
- South Korea's POSCO (PKX), the world's No. 4 steelmaker, expects its January steel sales to fall by around 27 percent to 1.9 million tons, hit by faltering demand, its chief financial officer said on Tuesday.

- Mohammad Khatami, who won presidential elections in 1997 and 2001 with landslides, gave the strongest signal yet on Monday that he was considering running in this year's race for the Iranian presidency. Khatami worked for political and social change during his eight years in office but hardliners in charge of major levers of power in the Islamic Republic blocked many of his reforms, costing Khatami some key supporters, such as students. If he chooses to run, Khatami can expect to face Mahmoud Ahmadinejad, who came to power in 2005 pledging a return to revolutionary principles and promising to spread Iran's oil wealth more fairly.

O Estado de S. Paulo:

- Brazilian companies may have cut 600,000 jobs in December, double the normal amount for that month, because of the global economic slowdown, citing people close to Labor Minister Carlos Lupi.

Bear Radar

Style Underperformer:
Mid-cap Value (-2.88%)

Sector Underperformers:
Coal (-8.50%), Steel (-6.91%) and Construction (-6.03%)

Stocks Falling on Unusual Volume:
STP, NIHD, TKC, REP, APA, CSKI, CBST, DECK, DRYS and TBSI

Stocks With Unusual Put Option Activity:
1) LEG 2) SGP 3) HK 4) PALM 5) SAY

Bull Radar

Style Outperformer:
Large-cap Growth (-1.15%)

Sector Outperformers:
Computer Services (+1.20%), Restaurants (+.99%) and Medical Equipment (+.49%)

Stocks Rising on Unusual Volume:
MO, ED, KALU, JCOM, DB, HOLX, AFAM, EZPW, UHAL, APOL, MR, SNX and SUR

Stocks With Unusual Call Option Activity:
1) MCRI 2) MU 3) HOG 4) V 5) KLAC

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