Stocks Finish Mostly Lower, Weighed Down by Homebuilding, Hospital and Gold Shares

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Stocks Mostly Lower into Final Hour on Low Volume Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Medical longs, Financial longs, Internet longs and Education longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is below average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is rising .76% and is very high at 43.70. The ISE Sentiment Index is about average at 144.0 and the total put/call is below average at .66. Finally, the NYSE Arms has been running around average most of the day, hitting 1.04 at its intraday peak, and is currently .83. The Euro Financial Sector Credit Default Swap Index is falling 2.41% today to 107.66 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 falling 3.66% to 186.40 basis points. The TED spread is falling 1.88% to 95 basis points. The TED spread is now down 372 basis points in under four months. The 2-year swap spread is falling 5.22% to 59.0 basis points. The Libor-OIS spread is falling 2.48% to 95 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 18 basis points to 1.38%, which is down 132 basis points in under seven months. 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 .28%, which is up 1 basis point today. Given last week’s big stock gains, today’s low volume consolidation is a positive. Market-leading stocks are very strong again today, substantially outperforming the broad market. There still appears to me to be a large consensus among hedge fund managers that stocks will see a “sell the news” reaction to any stimulus passage and Geithner’s new financial rescue plan. I still suspect any short-term weakness in US stocks will be relatively mild and short-lived. The North American Investment Grade Credit Default Swap Index is now at the lowest level since November 5^th of last year. It is also noteworthy that gold is falling 2% today despite a weaker US dollar and rising inflation expectations. A fraction of the “fear premium” in gold is likely dissipating. As well, oil continues to trade very poorly given recent potential positive catalysts. Nikkei futures indicate an +215 open in Japan and DAX futures indicate a -6 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, diminishing financial sector pessimism, falling credit market angst and less extreme economic pessimism.

Today's Headlines

Bloomberg:

- The biggest bears in U.S. stocks are losing their conviction after the steepest decline in the Standard & Poor’s 500 Index since the Great Depression. The number of shares borrowed and sold short on the New York Stock Exchange fell 28 percent last month from the peak in July. Companies in the S&P 500 trade at the lowest multiples of earnings in 18 years.

- Amazon.com Inc.(AMZN), the world’s largest Internet retailer, introduced a faster and thinner version of the Kindle, the electronic book reader that has sold out two years in a row. The Kindle 2 has seven times more storage than the previous model, a battery that will last up to two weeks, and a feature to read books aloud. It will sell for $359, the same price as the original Kindle, and deliveries will start Feb. 24, the Seattle-based company said today in a statement.

- The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages. The $9.7 trillion in pledges would be enough to send a $1,430 check to every man, woman and child alive in the world. It’s 13 times what the U.S. has spent so far on wars in Iraq and Afghanistan, according to Congressional Budget Office data, and is almost enough to pay off every home mortgage loan in the U.S., calculated at $10.5 trillion by the Federal Reserve.

- Russia may have its credit rating reduced again in the next six months as the country’s defense of the ruble drains reserves and companies default on their debt, according to Commerzbank AG. Fitch and S&P may cut their ratings to BBB- over the next six months, said Luis Costa, an emerging markets debt strategist for Commerzbank in London.

- The cost to protect corporate bonds from default fell for a second day and reached a three-month low. Credit-default swaps on the CDX North America Investment- Grade Index, tied to the bonds of 125 companies in the U.S. and Canada, fell 7.5 basis points to 186 basis points as of 11:04 a.m. in New York, according to broker Phoenix Partners Group. In London, contracts on the Markit iTraxx Europe index of 125 companies with investment-grade ratings fell 5.5 basis points to 143.5 basis points, JPMorgan Chase & Co. prices show. Contracts on Citigroup, the New York-based bank that received $45 billion in government aid and last month announced plans to split itself into two companies, fell 10 basis points to 270 basis points, Phoenix prices show. Swaps on Bank of America declined 10 basis points to 170, according to Phoenix. Contracts on JPMorgan narrowed 1 basis point to 112 basis points, Phoenix prices show. Morgan Stanley swaps fell four basis points to 324 basis points, according to CMA DataVision.

- US home prices will reach bottom by the end of the year, concluding a slide that will have cut values 36%, Moody’s Economy.com said. “Notwithstanding the intensifying economic gloom, the bottom of the housing downturn is within sight,” chief economist Mark Zandi said today.

- Gold fell for the first time in four sessions on expectations the U.S. Congress will pass a smaller- than-expected stimulus package to revive the economy, easing the risk of accelerating inflation. Gold had climbed on speculation that government spending will spark inflation. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, rose to a record 867.2 metric tons on Feb. 5. Speculative long positions, or bets prices will rise, outnumbered short positions by 155,306 contracts on the Comex in the week ended Feb. 3, Commodity Futures Trading Commission data showed on Feb. 6. Net-long positions rose by 14,192 contracts, or 10 percent, from a week earlier.

- Crude oil traded little changed in New York amid doubts a $780 billion stimulus plan in the U.S. will lead to a rapid recovery in global energy demand. Senate and Congress lawmakers due to vote on the plan today and tomorrow are more than “90 percent” agreed on its contents, Lawrence Summers, director of the National Economic Council, said yesterday. U.S. crude inventories have climbed in 17 of the past 19 weeks, leaving them 15 percent higher than the five-year average for the period, the Energy Department said. The prospect of further production cuts by the Organization of Petroleum Exporting Countries and strike action in Nigeria, the fifth-largest supplier of oil to the U.S., failed to push crude beyond its recent trading band. Saudi Aramco, the world’s biggest state oil company, will reduce crude supplies to Japan in March for a fourth month, refinery officials said. New York oil futures have fallen 10 percent this year and are down 73 percent from the record $147.27 reached July 11. Speculative long positions, or bets prices will rise, outnumbered short positions by 29,276 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report.

- ITC Holdings Corp.(ITC) said it wants to build the world’s largest renewable-energy transmission system, a $12 billion project to bring electricity from wind farms in the Dakotas to Chicago. The Michigan power transmission company’s proposal, known as the Green Power Express, calls for about 3,000 miles of new lines that could move 12,000 megawatts of power from the upper Midwest to cities where there’s demand for the electricity. The project, announced today, would cross portions of North and South Dakota, Minnesota, Iowa, Wisconsin, Illinois and Indiana, according to the company.

- China said it was “seriously concerned” at Indian barriers to its exports, highlighting global trade tensions as the worst financial crisis since World War II sends demand plummeting. India’s use of sanctions may have “a serious impact on bilateral trade relations,” Ministry of Commerce spokesman Yao Jian said in a statement on the ministry’s Web site today. India imposed a six-month ban on imports of Chinese toys last month. “Buy American” provisions in a U.S. economic stimulus package were watered down last week after warnings from President Barack Obama and foreign leaders that they risked triggering a trade war. British Prime Minister Gordon Brown described “a retreat into protectionism” as the biggest danger facing the world economy.

- Barclays Plc reported second-half profit that exceeded analysts’ estimates, and President Robert Diamond said the investment bank had an “extremely strong” start to 2009 after buying Lehman Brothers Holdings Inc. assets. Barclays, the third-biggest U.K. bank by assets, rose 11 percent in London trading after saying writedowns this year will be less than last year’s 8.1 billion pounds.

- Hartford Financial Services Group Inc.(HIG), the Connecticut-based insurer that lost $2.75 billion last year, rose in New York trading on speculation the government and regulators will provide financial relief. Hartford advanced $2.66, or 21 percent, to $15.34 at 10:34 a.m. in New York Stock Exchange composite trading. Life insurers including Hartford may be approved for capital injections from the Treasury as soon as today, Reuters reported on Feb. 7, citing unidentified people. The firm may be allowed by its state regulator to reduce reserves to bolster finances, a person familiar with the matter said on Feb. 6.

- Lawmakers are “killing” hotels that rely on corporate events by forcing companies that get federal money to scale back on employee trips, said James Tisch, the chief executive officer of Loews Corp.(L) “Congress has done a great job of killing the resort hotel business with the way they’ve criticized a number of financial firms for having conferences,” Tisch told analysts today. “I just heard this morning of another investor conference that was canceled by another major investment firm because of fear of being criticized by members of Congress.”

Wall Street Journal:

- A substantial increase in the amount of electricity produced from renewable energy would require building a transmission system that would carry a price tag of up to $100 billion, according to a new study. The new system would be needed because the existing eastern grid couldn't handle the volume of power coming from the wind-producing states. In addition, the new grid would need to be able to handle the fluctuating nature of wind power, which can surge at some moments and drop sharply at others. There is strong political and public support for increasing production of renewable energy, and Congress is considering enacting a nationwide standard that would require utilities to garner more of their power from renewable sources. However, there is only an emerging understanding of how new standards would affect the country's existing electricity infrastructure.

- The European Central Bank has room to cut interest rates further as the euro area suffers its worst recession since WWII, Spanish Finance Minister Pedro Solbes said in an opinion piece in the Wall Street Journal.

- Last summer, gasoline prices soared, the economy soured, and Americans began driving less and driving slower. None of this felt good at the time, but nevertheless something good happened. Two separate studies of fatal auto accident statistics released recently indicate that traffic deaths fell significantly in 2008, possibly by as much as 10%. Moreover, the preliminary data on 2008 highway deaths suggests that fatal accidents declined faster than vehicle miles traveled – in other words, the decline in fatalities may not simply be the result of fewer people driving.

CNBC.com:
- Government action to shore up the economy and improve the housing climate probably will send mortgage rates to 4.5 percent, Bill Gross, co-CEO at the Pimco bond fund, said Monday. In addition to driving down mortgage rates and stimulating home-buying, the government's efforts also could include a move to cap Treasurys rates to encourage investors to take more risk, Gross said during a live interview on CNBC.

- OPEC is willing to cut oil output further at a meeting in March, the group's secretary-general said on Monday, adding he would like to see full compliance with existing curbs first. Abdullah al-Badri also told reporters in a briefing that OPEC's compliance with existing oil supply curbs of 4.2 million barrels per day (bpd) was about 80 percent, based on preliminary data, higher than some estimates.

- McDonald’s(MCD) said Monday that worldwide sales at its restaurants open at least 13 months rose 7.1 percent in January, driven by strength at home and abroad. The world's largest hamburger chain, whose shares were up slightly in early trading, said January same-store sales rose 5.4 percent in the United States due to demand for McDonald's core menu and breakfast items.

NY Times:

- MLB.TV Adds High-Definition Video, Custom Replays. Most media companies these days are desperately searching for ways to get people to pay for their content on the Web. Major League Baseball is not one of them.

- Would you trust a Web site created by anonymous individuals to give you better advice on stocks than professional advisers? Wikinvest hopes so.

Financial News:

- Wealthy US investors are pulling out of hedge funds at an unprecedented rate and will not return for a generation, according to the founder of Tiger 21, the networking group for high net worth and ultra-high net worth investors.

TechWhack:

- Apple(AAPL) working on a HDTV with iTunes and Apple TV built in? Gene Munster of Piper Jaffray has predicted that Apple is soon going to launch their own Apple branded television sets that would feature DVR functionality in addition to inbuilt support for Apple TV and iTunes. He said in a report: We expect Apple to design a connected television over the next two years (launching in 2011) with DVR functionality built in. These recorded shows could then sync with Macs, iPhones and iPods over a wireless network.

Reuters:
- US Treasury Secretary Tim Geithner will testify at 2:30 pm EST tomorrow before the Senate Banking Committee on the Troubled Asset Relief Program.

- U.S. bank shares rose on Monday, boosted by hopes that a government bailout plan due on Tuesday will spare shareholders and help troubled financial institutions rid their balance sheets of toxic assets. The KBW Banks Index .BKX was up 2.57 percent.

Financial Times:
- The brokerage arm of UBS has launched an aggressive hiring spree in the US, offering financial advisers large pay packages to lure them away from rivals such as Merrill Lynch, Morgan Stanley and Citigroup. The bank, which has suffered big credit-related losses and received a capital injection from the Swiss government, promised some brokers compensation equal to almost three times their yearly profits, according to documents seen by the Financial Times. UBS Financial Services has added more than 400 brokers to its 8,000-strong network in the past few months, insiders say. The moves have enraged rivals, who claim the Swiss group’s big pay offers have triggered a costly price war for brokers when most banks, including UBS, are struggling to cope with losses. Merrill Lynch is believed to have lost more than 100 brokers to the group.

Handelsblatt:

- Dailmler AG may reintroduce the four-seat version of its Smart small car to counter high gasoline prices and falling sales of its larger automobiles.

Aktualne:

- Czech Foreign Affairs Minister Karel Schwarzenberg said the plan for a US anti-missile shield in Europe may be delayed five years because of the global financial crisis.

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Xinhua:
- Beijing house prices may fall as much as 20% this year, citing Chen Xikang, a researcher at the Academy of Mathematics & Systems Science. Other major cities may experience similar declines, citing Chen, who’s also a World Bank consultant. Chinese house prices far exceed the actual incomes of the general public, citing Chen. The real-estate market is unlikely to recover quickly like it did in 1997 and 1998, when China used favorable policies to boost the market following the Asian financial crisis, citing Zhang Qi, a professor at Beijing Normal University.

Bear Radar

Style Underperformer:
Small-cap Growth (-.77%)

Sector Underperformers:
Hospitals (-2.56%), Gold (-2.48%) and Medical Equipment (-1.29%)

Stocks Falling on Unusual Volume:
MMSI, HMY, CTRP, ITRI, NRT and MCY

Stocks With Unusual Put Option Activity:
1) MOT 2) GFI 3) BAX 4) WMI 5) PTEN

Bull Radar

Style Outperformer:
Mid-cap Value (+1.07%)

Sector Outperformers:
Oil Service (+3.27%), Banks (+2.83%) and Construction (+2.61%)

Stocks Rising on Unusual Volume:
GE, GMXR, PXD, MDR, NOV, DB, LUK, AU, MICC, BVN, BTH, APA, EZCH, SOHU, EXBD, ENER, JRJC, AMRI, UEPS, NICE, BIDU, QGEN, SINA, VOLC, WHG, GNI, HAS and HEW

Stocks With Unusual Call Option Activity:
1) NTAP 2) SOHU 3) CEPH 4) FITB 5) JCP

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