Stocks Finish Lower, Weighed Down by Financial, Technology, Education, REIT, Homebuilding and Gold Shares

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Stocks Lower into Final Hour on Bank Nationalization Fears, Tech Sector Earnings Worries and Higher Energy Prices

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Internet longs, Education longs and Computer longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mostly negative and volume is below average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is falling 3.78% and is very high at 46.62. The ISE Sentiment Index is extremely low at 49.0 and the total put/call is above average at 1.07. Finally, the NYSE Arms has been running above average most of the day, hitting 1.51 at its intraday peak, and is currently 1.05. The Euro Financial Sector Credit Default Swap Index is falling .83% today to 136.0 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 falling 3.69% to 206.42 basis points. The TED spread is rising .36% to 95 basis points. The TED spread is now down 372 basis points in about four months. The 2-year swap spread is falling 3.96% to 63.63 basis points. The Libor-OIS spread is rising 2.27% to 100.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.16%, which is down 154 basis points in about 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 .30%, which is down 2 basis points today. Worries over impending financial sector nationalizations are high again today and, as I said earlier in the week, the longer the new administration waits to release its new rescue plan details the more likely that scenario becomes. The broad market is weaker than the major averages suggest today. Homebuilding, education, insurance, bank, semi, computer and gold stocks are all falling more than 3%. On the positive side, the ISE Sentiment Index is hitting the lowest level since November 12^th today and the total put/call ratio is above average again. Credit angst is lower today. One of my longs, (GME), is 7% higher today after boosting its earnings forecast. This retailer is relatively insulated from many of the headwinds affecting the sector. I still see significant upside in the stock from current levels. Nikkei futures indicate an +8 open in Japan and DAX futures indicate a -35 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on rising financial sector pessimism, higher energy prices and more shorting.

Today's Headlines

Bloomberg:

- Iran may agree to hold face-to-face talks with Barack Obama’s administration, providing there is a concrete change in U.S. policy, Agence France-Presse cited Foreign Minister Manouchehr Mottaki as saying. “We are considering this offer,” Mottaki was quoted as saying today by AFP. “We need to wait to see differences in Barack Obama’s policy compared to that of George Bush.”

- The effect of the Obama administration’s housing plan on home-loan bonds and borrowers will be limited by restrictions on which mortgages are eligible, according to Bank of America analysts. Only about 50% to 60% of securitized prime jumbo or Alt-A loans meet the loan-modification standards requiring borrowers to live in mortgaged properties and owe no more than Fannie and Freddie’s loan limits, according to a report by Bank of America strategists including Akiva Dickstein and Vipul Jain. The refinancing plan will be limited by a standard preventing homeowners from qualifying if they owe more than 105% of their homes’ value, they said. Jumbo loans are larger than Fannie and Freddie, the government-chartered mortgage companies under federal control, can buy or guarantee, currently $417,000 in most areas and as much as $729,000.

- Eastern European currency hedges gone bad may prove to be the catalyst for a resumption in the euro’s slide, according to Kathy Lien, director of currency research at GFT, an online currency trading firm. “As troubles continue to brew in eastern Europe, additional losses on foreign-exchange derivative contracts will increase the risk of eastern European borrowers defaulting on their loans,” said Lien, who is based in NY. “This would create a domino effect which will most certainly hit Western Europe. That could lead to an exodus out of euros.” The euro will decline to a two-year low of $1.233 as a result of the exposure of western European economies to falling growth and banking losses in eastern Europe, Lien said.

- The average U.S. rate on a 30-year fixed mortgage fell this week as President Barack Obama signed an economic stimulus measure into law and pledged $275 billion to reduce foreclosures. The rate fell to 5.04 percent from 5.16 percent a week earlier, Freddie Mac, the McLean, Virginia-based mortgage buyer, said today. Mortgage rates are falling as the Federal Reserve buys mortgage-backed securities to encourage lenders to lower rates.

- Venezuela plans to boost oil output at least 12 percent in a joint venture with foreign investors that will cost more than twice what the government previously estimated, a confidential document shows. The project would increase Venezuela’s daily output of 3 million barrels a day by 400,000 barrels a day within seven years, according to the document, which was obtained by Bloomberg News.

- Crude oil rose more than 10 percent in New York after a U.S. government report showed an unexpected drop in inventories. Gasoline inventories rose 1.11 million barrels to 218.7 million barrels, the department said. Supplies were forecast to fall by 500,000 barrels, according to the median of responses by 16 analysts in the Bloomberg News survey. Oil also climbed as the euro strengthened against the U.S. currency on speculation that Europe will take steps to address the financial crisis.

- Google Inc.’s(GOOG) Android operating system, after making inroads into the mobile-phone market, may be running on portable computers within the next year, challenging the dominance of Microsoft Corp. Google, which owns the most popular Internet search engine, could use its brand name and community of developers to get the software onto low-cost notebooks, said Ray Valdes, an analyst at Gartner Inc. One chipmaker, Freescale Semiconductor Inc., is already working on designs for an Android computer.

- China’s stock rally this year may falter as a so-called momentum indicator showed the benchmark Shanghai Composite Index crossed a level that some traders use as a trigger to sell shares. The 14-day relative strength index, or RSI, for the Shanghai Composite rose above the 70 threshold this month for the first time since October 2007, when the index peaked. “Getting into the market now is really for the most speculative of investors,” said Fraser Howie, head of structured products at CLSA Singapore Ltd. “People are losing their jobs and export growth is still weak,” he said.

- Taiwan may weaken the local dollar to the lowest level in more than two decades to stimulate economic growth given it has limited room to cut interest rates further, according to HSBC Holdings Plc. Europe’s biggest bank and Goldman Sachs(GS) forecast the currency will drop 3.7% to NT$36 per US dollar by the end of June, a level not seen since 1986. Government reports this month showed Taiwan’s exports, which account for 70% of the economy, fell by a record, while gross domestic product shrank at an unprecedented pace.

- The rising cost to protect buyers of Japan’s sovereign bonds against default signals the yen may start to lose its status as a “haven” currency, said Barclays Capital, the world’s third-largest foreign-exchange trader. Credit-default swaps for Japan surged as high as 120.7 this week, the most in more than four years, on signs the world’s second-largest economy will fare worse than Europe and the U.S. Japan’s gross domestic product shrank the most since 1974 last quarter, a government report showed Feb. 16. Finance Minister Shoichi Nakagawa quit a day later amid accusations he was drunk at a press conference, eroding confidence in the government.

- Technology stocks offer a refuge for investors because the biggest companies in the industry, including Apple Inc.(AAPL) and Cisco Systems Inc.(CSCO), have “strong” balance sheets, according to Jefferies Group Inc.

Wall Street Journal:

- The Financial Industry Regulatory Authority plans to name veteran regulator Richard Ketchum as its new chief executive, succeeding Mary Schapiro, who just became chairman of the Securities and Exchange Commission, according to people familiar with Finra.

- U.S. steelmakers are preparing a raft of complaints against foreign steel imports, a move that could result in stiff tariff increases later this year and escalate trade tensions with China, say people familiar with the matter.

Detroit Free Press:

- Bottom line: US auto industry says it needs $97.4 billion to live.

- As General Motors Corp.(GM) intensifies negotiations to restructure its debt, the automaker is running into resistance from bondholders who are questioning whether the company's viability plan goes far enough to fix the struggling automaker. Despite seeking as much as $30 billion in federal aid, GM already is signaling that it might need additional financial support as soon as four years from now to fully fund its U.S. pension obligations. "It's not clear they've pushed it hard enough," a person familiar with the committee representing the bondholders said Wednesday, a day after GM unveiled the plan. The person noted that bondholders "are very concerned."

paidContent.org:

- Google(GOOG) Maps has overtaken AOL’s MapQuest in terms of unique visitors— with 42.2 million monthly uniques in January, to MapQuest’s 41.5 million—according to the latest stats from comScore.

Rocky Mountain News:

- R. Allen Stanford sure could draw an impressive crowd. During the Democratic National Convention in August, Stanford hosted a high-profile cocktail party in downtown Denver that drew such notables as House Speaker Nancy Pelosi and former Secretary of State Madeleine Albright. The crowd, which numbered several hundred, also included foreign ambassadors and local business bigwigs. "All the players in the Democratic Party were there," said one attendee, who spoke on condition of anonymity because he has ties to one of Stanford's companies. "He also gave a short speech, saying that we were in a period of change, that we have to find new ways to move humanity forward." The cocktail party is one of several ties embattled Texas financier Stanford has with Colorado. On Tuesday, the Securities and Exchange Commission filed a civil lawsuit against Stanford, several companies he controls and two colleagues, claiming they misled investors while selling $8 billion in certificates from an affiliated bank in Antigua.

Charlotte Observer:

- Thousands of N.C. jobs and millions in wages created from the federal economic stimulus package could wind up going to illegal immigrants. Congress stripped language from the $789billion package that would have required employers to verify the legal status of workers paid with stimulus money.

USAToday:

- Although President Obama's stimulus package provides about $144 billion directly to state and local governments, a few Republican governors are suggesting they might reject some of the money. No state has yet refused any of the funding from the $787 billion stimulus package, which Obama signed into law on Tuesday. But Republican governors, including those in South Carolina, Texas, Louisiana and Alaska, have said they are looking closely at the strings attached to the federal funding before they decide what to do with it. Two of their concerns: The restrictions on some of the money could further crimp state budgets, and programs created or expanded with stimulus funds may have to be cut once the stimulus funds are depleted. "You get this huge slug of money. It funds programs for a couple of years, and then what?" says South Carolina Gov. Mark Sanford, who heads the Republican Governors Association. "You get it started, you get a constituency established, and then we're supposed to yank the rug out from under people when the federal money runs out?"

Reuters:
- China’s Shanghai Stock Exchange may resume allowing initial public share offerings before July, the bourse’s executive vp Zhou Qinye said.

- U.S. and Canadian labor unions called for changes in agriculture, energy, investment and other provisions of the North American Free Trade Agreement on the eve of a meeting on Thursday between U.S. President Barack Obama and Canadian Prime Minister Stephen Harper. "We need to address the worsening economic crisis in a coordinated manner, reopen and fix the flaws with the North American Free Trade Agreement and move on a range of complementary policies dealing with energy, climate change and green jobs, industrial policy, migration and development," the AFL-CIO labor federation and the Canadian Labour Congress said in a joint letter to the two leaders. Obama, who is making his first foreign trip as president to Canada, promised last year to "fix" NAFTA by adding enforceable labor and environmental provisions to the core of the pact and and by changing an investment measure that critics say gives business too much power to challenge government regulations. Three-way trade between the United States, Mexico and Canada has tripled to nearly $1 trillion since NAFTA went into force in 1994, and together Canada and Mexico buy more than one-third of U.S. exports.

- A top U.S. Senate leader played down prospects on Thursday for a swift improvement in relations with Syria until Damascus curbs support for Islamist militant groups and addresses other U.S. concerns. "Nobody takes words at face value, particularly in this part of the world. We've learned that actions are what speak, and it's going to be important for Syria to show a willingness to do a number of things," John Kerry, chairman of the Senate Foreign Relations Committee, said during a visit to southern Israel. Kerry, a member of U.S. President Barack Obama's Democratic party, met Secretary of State Hillary Clinton before setting out on his Middle East tour.

- Citigroup Inc shares fell to 17-year lows on Thursday, with Bank of America Corp stock also plunging, amid renewed fears that growing losses could lead to government control of troubled U.S. banks, wiping out shareholders.

Bear Radar

Style Underperformer:
Small-cap Value (-1.19%)

Sector Underperformers:
Education (-7.0%), Homebuilders (-5.56%) and Banks (-3.33%)

Stocks Falling on Unusual Volume:
CCJ, HPQ, IM, WFC, BMRN, ITRI, NILE, NTRI, POOL, SHPGY, COCO, APOL, WST, HE, STC, TTC, ESI and ORB

Stocks With Unusual Put Option Activity:
1) JWN 2) MCO 3) AMAT 4) ESI 5) LDK

Bull Radar

Style Outperformer:
Large-cap Value (+.62%)

Sector Outperformers:
Oil Service (+3.43%), Construction (+3.10%) and HMOs (+2.70%)

Stocks Rising on Unusual Volume:
UNFI, PDE, WFT, HRL, SNPS, OMTR, WAG, WFMI, PCLN, ORLY, PDCO, LPHI, CYBX, DBRN, BEAT, BIDU, BJRI, HAYN, ABCO, ENOC, BWLD, TISI, CSTR, AAP, RS, WPI, AGP, HRL and HOS

Stocks With Unusual Call Option Activity:
1) PCLN 2) WFMI 3) AZO 4) GME 5) ADI

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