Stocks Rebounding into Final Hour on Less Extreme Financial Sector Pessimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Education longs, Biotech longs, Medical longs, Computer longs and Emerging Market/Commodity/Index shorts. I covered some of my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, sector performance is mostly negative and volume is heavy. Investor anxiety is high. Today’s overall market action is bullish. Nikkei futures indicate a -46 open in Japan and DAX futures indicate an +41 open in Germany on Monday. I expect US stocks to trade higher into the close from current levels on less financial sector pessimism, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:

- Senate Banking Committee Chairman Christopher Dodd said it may be necessary to nationalize some banks for a short time as Citigroup Inc. and Bank of America Corp. tumbled today on concern the U.S. may take over both banks. “I don’t welcome that at all, but I could see how it’s possible it may happen,” Dodd said in an interview on Bloomberg Television’s “Political Capital with Al Hunt” to be broadcast later today. “I’m concerned that we may end up having to do that, at least for a short time.”

- Warren Buffett’s Berkshire Hathaway Inc.(BRK/A) fell to its lowest price in five years in New York trading amid concern about possible losses on bets the billionaire chairman has taken on world stock markets. Berkshire Class A shares, the most expensive on the New York Stock Exchange, fell $3,200, or 4.1 percent, to $75,400 at 11:57 a.m. in composite trading, the lowest since October 2003. The stock of the Omaha, Nebraska-based firm has declined for six straight days and plunged 48 percent in the past 12 months.

- A California law banning sales of violent video games to minors is unconstitutional, a federal appeals court ruled.

- General Electric Co.(GE) headed for its lowest close since 1995 and became the fifth Dow Jones Industrial Average stock to slip below $10 after Sanford C. Bernstein & Co. forecast an unprecedented profit drop at its finance unit. Operating profit at GE’s subsidiaries will fall 80 percent, driven mostly by a decline in finance earnings, Bernstein analyst Steven Winoker wrote in a note. He cut his 2009 income estimate by 3.3 percent to $1.18 a share, below the $1.28 average of 14 analysts in a Bloomberg survey.

- President Barack Obama’s plans to limit greenhouse-gas emissions may be stymied by the specter of an international trade war. U.S. Steel Corp., American Electric Power Co. and the AFL- CIO, the largest U.S. federation of labor unions, are all pressing lawmakers for protection against imports from countries that won’t have to bear the costs of any new measures to curb global warming. The companies say fees might be needed to prevent price- undercutting by manufacturers in countries that won’t match U.S. climate-change standards. Lobbying groups for exporters such as Microsoft Corp. counter that imposing penalties on imports may violate World Trade Organization rules and spark retaliation by China and other nations. “Climate change is going to be the big issue of the next year, and no one has really grappled with the trade aspects,” said Jake Colvin, vice president at the Washington-based National Foreign Trade Council, whose members include Caterpillar Inc., Exxon Mobil Corp. and Microsoft. The idea of assessing fees on imports is “alarming,” he said.

- Oil lost as much as 6.5 percent as the MSCI World Index of stocks headed toward its biggest weekly drop since November. Crude is heading for its first weekly gain in four weeks. Prices are down 14 percent this year. Fuel demand during the past four weeks averaged 20 million barrels a day, down 0.1 percent from the average over the same period last year, the Energy Department said yesterday. U.S. motorists reduced driving by the most in 66 years in 2008, the Federal Highway Administration said yesterday in a report. Vehicle-miles traveled last year fell by 107.9 billion, or 3.6 percent.

- China may review its 8 percent economic-growth target for this year as the global financial crisis deepens, Deputy Commerce Minister Zhong Shan said. Falling export demand because of recessions in the U.S., Europe and Japan has slowed China’s growth to the weakest pace in seven years and cost the jobs of 20 million migrant workers, adding to the risk of social instability. Premier Wen Jiabao acknowledged last month that meeting the 8 percent target will be “a tall order.” Falling export demand because of recessions in the U.S., Europe and Japan has slowed China’s growth to the weakest pace in seven years and cost the jobs of 20 million migrant workers, adding to the risk of social instability. Premier Wen Jiabao acknowledged last month that meeting the 8 percent target will be “a tall order.” China “strongly opposes” protectionism, Zhong said, urging the U.S., the nation’s second-biggest export market, to be “very cautious in this area.”

- Asustek Computer Inc., which pioneered the market for sub-$500 laptops, may install Google Inc.’s free Android operating system on its low-cost notebooks, challenging the dominance of Microsoft Corp.’s Windows software.

- Brazil’s unemployment rate jumped the most in seven years last month as companies trimmed payrolls to weather the first global recession since World War II. Unemployment in Brazil’s six largest metropolitan areas rose to 8.2 percent in January from 6.8 percent in December, the national statistic agency said in a report distributed today in Rio de Janeiro. The rate was higher than the 7.8 percent median forecast of 24 economists surveyed by Bloomberg.

- Natural gas fell below $4 per million British thermal units for the first time in more than six years as the worsening recession curbs demand for the factory and power-plant fuel.

Wall Street Journal:

- Ford Motor Co.(F), which hasn't taken a dime of government bailout loans, is benefiting from the troubles of its two cross-town competitors in Detroit, General Motors Corp. and Chrysler LLC. GM and Chrysler are required to seek cost concessions from the United Auto Workers union under the terms of their federal loans. That allowed Ford to open parallel talks with the UAW, which has a history of working out the same conditions at each company. This week, Ford and the UAW reached an agreement to cut pay for laid-off workers, ease work rules and eliminate wage increases tied to the cost of living -- two days before GM and Chrysler reached the same deal.

- Virtualization, a technology used primarily to squeeze more processing power from servers, is coming to corporate desktops and laptops, a development that could open up new revenue streams for pioneers like VMware Inc. (VMW) and Citrix Systems Inc. (CTXS).

The Detroit News:

- GMAC Financial Services, whose Motor City roots date back 90 years, is considering changing its headquarters from Detroit to Charlotte, N.C., but would keep its auto financing arm here.

Washington Post:

- A senior Republican lawmaker pressed the Securities and Exchange Commission yesterday about whether it had properly investigated warnings about possible insider trading at the failed investment bank Lehman Brothers. Sen. Charles E. Grassley (Iowa), the ranking Republican on the Senate Finance Committee, said in a letter to the SEC that it was unclear whether the agency was seriously examining the allegations raised by a whistleblower at the firm.

NJ.com:

- With his budget-cutting options dwindling, Gov. Jon Corzine is preparing plans to severely curtail or eliminate New Jersey's popular property tax rebates for the coming year, multiple sources close to the governor said today.

Boston Globe:

- After months of private rumination and public mixed signals, Governor Deval Patrick will propose a 19 cent increase in the state's gasoline tax today, in an attempt to solve the increasingly complex maze of problems confronting the state's aging and debt-ridden transportation system. Patrick's plan would give Massachusetts one of the highest gas taxes in the nation, but it may avert an unpopular increase that would have raised the cash toll at the airport tunnels to $7, according to two administration officials who spoke on condition of anonymity.

USAToday:

- Gov. Pat Quinn of Illinois is holding a press conference right now and said: "I would ask my good friend Sen. Roland Burris .. to step aside and resign from the office." The press conference can be watched here.

Reuters:
- German Foreign Minister Frank-Walter Steinmeier said that a process is under way to determine how economically stronger members of the euro region could help weaker members, citing comments made by the minister in Berlin today. “An economy like Germany’s obviously relies on the economy of its neighboring states and neighboring markets not suffering too much,” Steinmeier said. “This process has just started” and it “cannot yet be said to what extent measures can be taken.”

Bear Radar

Style Underperformer:
Small-cap Value (-3.05%)

Sector Underperformers:
Airlines (-7.60%), Banks (-6.96%) and Insurance (-4.24%)

Stocks Falling on Unusual Volume:
TSO, IBOC, WNR, SU, DB, JPM, PHG, APA, WMGI, AMSG, SHPGY, ONXX, LPNT, MORN, ADBE, DOM, MTR, HXM, TDG, CRT, YPF, SBR and AXA

Stocks With Unusual Put Option Activity:
1) KSS 2) INTU 3) JWN 4) DFS 5) CBS

Bull Radar

Style Outperformer:
Large-cap Growth (-.23%)

Sector Outperformers:
Education (+4.38%), Telecom (+1.66%) and Semis (+1.17%)

Stocks Rising on Unusual Volume:
CECO, COCO, NILE, NEM, SA, SWY, FRME, LOPE, RRGB, INTU, WOOF, WBMD, HMSY, HGIC, POOL, BUCY, OSIP, TRAK, UEIC, STRA, WYNN, DLTR, CALM, ODSY, KND, THI, MYL and GTU

Stocks With Unusual Call Option Activity:
1) TSM 2) CECO 3) NFX 4) UNH 5) HBC

Links of Interest

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Friday Watch

Late-Night Headlines
Bloomberg:

- President Barack Obama and Canada’s Prime Minister Stephen Harper pledged to take concerted efforts to counter the global recession and begin a new effort to develop clean-energy technology. Obama also said he raised with Harper the idea of strengthening labor and environmental provisions in the North American Free Trade Agreement. Harper said Nafta has been “nothing but beneficial” to both countries. He said there may be ways to address Obama’s concerns without “opening the whole Nafta” accord.

- Russians Retrench as Crisis Evokes Memories of 1998 ‘Nightmare.’

- North American orders for semiconductor equipment dropped to their lowest level since 1991 as chipmakers gave up on plans to expand production in a global recession. Orders dropped to $285.6 million last month from $1.14 billion in January 2008, the trade group Semiconductor Equipment & Materials International said today in a statement. Orders dropped 51 percent from December.

- New Zealand grape growers are cutting output of all varieties including Sauvignon Blanc, the country’s biggest wine export, to maintain quality and avoid a glut as demand slows.

- European Central Bank policy makers are at a loss for what additional steps to take as record low interest rates fail to stem the deepening recession. Officials are hemmed in by European Union rules that forbid the ECB from buying bonds directly from governments and any decision to buy debt in the open market may spark a dispute over which country’s securities to purchase. Options are also limited by the lack of a single euro-region Treasury that would underwrite central bank losses incurred from any new measures. “The problem is that they don’t know themselves what they’ll exactly have to do in the future,” said Juergen Michels, chief euro-area economist at Citigroup Inc. in London. “They are probably very divided on the range of measures available to them.”

- The euro headed for the biggest weekly decline in a month against the US dollar on speculation European Central Bank President Jean-Claude Trichet will signal in a speech today that he may cut interest rates to spur growth. The 16-nation currency is set for its seventh weekly decline in eight weeks after ECB council member Erkki Liikanen flagged the possibility of using unorthodox monetary policy to deal with a deepening recession and the financial system’s meltdown. The yen headed for a fourth weekly drop versus the dollar, the longest losing stretch since December 2007, on speculation demand for the currency as a haven will wane. “The outlook for a narrowing interest-rate differential is negative for the euro,” said Akio Yoshino, chief economist at Societe Generale Asset Management Ltd. in Tokyo. “The euro may fall to below $1.25 in the near future.”

- U.S. Secretary of State Hillary Clinton said ties with North Korea won’t improve as long as it continues its “provocative and unhelpful” verbal attacks on South Korea, and reiterated her call for the communist state to abandon its nuclear weapons program. “North Korea is not going to get a different relationship with the United States while insulting” the South, Clinton said at a press conference in Seoul today with South Korean Foreign Minister Yu Myung Hwan. “We cannot accept a nuclear North Korea under any circumstances, and we reaffirmed our position to pursue a complete and verifiable denuclearization,” Yu said.

- Gold holdings in the SPDR Gold Trust(GLD), the biggest exchange-traded fund backed by bullion, advanced to a record, according to figures on the company’s Web site. The fund held 1,028.98 metric tons of bullion as of yesterday, up 0.5 percent from Feb. 18, and a 4.4 percent increase this week. The fund’s holdings are just behind the 1,040 tons held by Switzerland, the sixth-largest stockpile.

- Crude oil fell, paring its largest gain in seven weeks, on concern that OPEC output cuts may not erode supply enough amid weak global demand for fuels. “The bearish picture for crude oil consumption is still in place with the slowing of the global economy,” said Mike Sander, an investment adviser at Sander Capital Advisors Inc. in Seattle. “There are just limited reasons why crude oil should go up in price, unless imports slow even further, which is extremely doubtful due to huge budget imbalances in OPEC and non-OPEC exporting countries.” U.S. imports of crude oil declined 859,000 barrels a day to 8.79 million, the lowest level since September, when ports were shut in the aftermath of hurricanes Gustav and Ike, the report showed.

- Intuit Inc.(INTU), the world’s biggest maker of tax-preparation software, reported second-quarter earnings and forecast full-year profit that topped analysts’ estimates. Intuit rose 5.9 percent in extended trading to $22.53 after falling 61 cents to $21.27 at 4 p.m. New York time on the Nasdaq Stock Market.

Wall Street Journal:

- Federal prosecutors are investigating whether Texas businessman R. Allen Stanford was operating a Ponzi scheme that defrauded investors around the globe, people familiar with the matter said. These people said the Justice Department is investigating Mr. Stanford, who was hit with civil charges Tuesday by the Securities and Exchange Commission in connection with an alleged $8 billion investment fraud. On Thursday, Federal Bureau of Investigation agents served Mr. Stanford with the SEC civil lawsuit in Fredericksburg, Va., the FBI and SEC said. SEC officials had said this week that Mr. Stanford's whereabouts were unknown.

- Defense Secretary Robert Gates Thursday played down Kyrgyzstan's moves to kick the U.S. off a strategic air base and said he was willing to negotiate higher rent to stay. Speaking hours after Kyrgyzstan's Parliament voted 78-1 to evict the U.S. military, Mr. Gates said the Central Asian base -- which sends some 500 tons of supplies to the Afghanistan war each month -- is important. But he said it isn't irreplaceable, and that the former Soviet republic won't put the U.S. over a barrel. "We are prepared to look at the fees and see if there is justification for a somewhat larger payment," Mr. Gates said at a news conference. "But we're not going to be ridiculous about it." Mr. Gates, in Europe for NATO talks, also said the new Obama administration needs more time to decide the fate of a proposed European missile-defense shield that soured the Bush administration's relations with Russia. Part of the system would be based in Poland, and the Polish defense chief pressed Mr. Gates for an answer amid speculation that President Barack Obama could walk away from the deal.

- 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.

- Top cable-television providers and TV networks are exploring a sweeping solution to the threat of online video: putting large numbers of cable shows online, but accessible only to cable subscribers. Comcast Corp. and Time Warner Cable Inc. are discussing with owners of major cable-TV networks ways to give cable subscribers online access to much of the networks' programming, according to people familiar with the situation. The discussions, according to these people, have been continuing in recent months and include network owners Viacom Inc., Time Warner Inc. and General Electric Co.'s NBC Universal, among others.

- Hedge funds, sharply criticized last year after many refused to let investors withdraw their money, are becoming more accepting of a secondary market where fund investors can cash out by selling their stakes.

- Bank of America(BAC) Chairman and Chief Executive Kenneth Lewis was issued a subpoena by New York State Attorney General Andrew Cuomo, who is investigating whether the bank withheld information from investors in violation of state law, according to people familiar with the matter.

- Energy Secretary Steven Chu -- whose agency has long taken the lead on global oil-market policy -- said Thursday he doesn't know what the Obama administration would urge the Organization of Petroleum Exporting Countries to do at its meeting next month. "I'm not the administration," Mr. Chu said during a meeting with reporters Thursday. OPEC members are scheduled to meet March 15 to discuss the possibility of production cuts to respond to slumping prices. "I will be speaking and learning more about this in order to figure out what the U.S. position should be and what the president's position is," Mr. Chu said. Mr. Chu said he would "do what I can to encourage stability" in oil prices, but he added that his time would be better focused "on the issues that I have control over," such as increasing U.S. funding of alternative energy technologies. On Wednesday, when approached by reporters after a speech to a group of utility regulators, Mr. Chu declined to offer an opinion on whether OPEC should cut production, saying the issue was "not in my domain." He later told reporters on a conference call that his response to the question reflected "more of my naiveté than anything else." Mr. Chu said Thursday he feels "like I've been dumped into the deep end of the pool" in confronting questions about oil policy, such as whether the administration would consider delaying scheduled deliveries of oil this spring to the nation's strategic petroleum reserves. Mr. Chu's predecessors traditionally used the bully pulpit of their office to lobby oil-rich foreign governments to open their spigots in the interest of keeping energy prices low.

CNBC.com:
- The ghost of Lehman Brothers will forever haunt Tiny Tim Geithner, Cramer said Thursday. The Treasury secretary’s decision to let that investment bank fail will be a black mark on his credibility. In fact, it’s the whole reason he can’t garner popular support for his latest rescue plan. (video)

- Poll: Would You Join Rick Santelli’s “Chicago Tea Party?”

NY Times:

- Since last fall, many of the leading figures in the nation’s long-running health care debate have been meeting secretly in a Senate hearing room. Now, with the blessing of the Senate’s leading proponent of universal health insurance, Edward M. Kennedy, they appear to be inching toward a consensus that could reshape the debate. Many of the parties, from big insurance companies to lobbyists for consumers, doctors, hospitals and pharmaceutical companies, are embracing the idea that comprehensive health care legislation should include a requirement that every American carry insurance. While not all industry groups are in complete agreement, there is enough of a consensus, according to people who have attended the meetings, that they have begun to tackle the next steps: how to enforce the requirement for everyone to have health insurance; how to make insurance affordable to the uninsured; and whether to require employers to help buy coverage for their employees.

CNNMoney.com:
- Palm's (PALM) Pre smartphone -- due before the end of June -- is the most anticipated new Sprint phone. But the company is still working with Google (GOOG) on an Android-based phone, Sprint CEO Dan Hesse assured us today in an interview.

- One advantage of selling gazillions of MP3 players — most of them stuffed with flash memory — is that it gives you a lot of leverage in the chip market. Apple (AAPL) is using that leverage to full advantage as it prepares to launch its next generation iPhone, according to a report published Wednesday in AppleInsider. The company is “inhaling” supplies of memory components, the report says, causing spot shortages and raising the price of flash memory for everyone else.

IBD:

- For Inverness Medical Innovations (IMA), it's all about simplicity and speed.

The diagnostic tests developed and marketed by Inverness reduce the time it takes to diagnose and monitor the progress of a broad range of diseases.

Forbes:

- Where In The US Homes Are Most Affordable.

Reuters:

- The Oscars have lost some of their luster this year -- at least when it comes to advertising. ABC has dropped prices for 30-second advertisements and scrambled to replace two of the key sponsors for its Sunday broadcast of the Academy Awards, when Hollywood pays tribute to the best actors, directors, producers and movies of the year.

- Career Education Corp. (CECO): The private education company reported fourth quarter profits of 43 cents a share, excluding some items, topping the average analyst estimate by 78 percent. The shares rose 12.5% in after-hours trading.

- Shares of General Electric Co (GE) fell briefly below $10 on Thursday, their lowest point since late 1995, amid a broad sell-off in U.S. stocks. The U.S. conglomerate's shares closed at $10.06, down 49 cents or 4.6 percent, after earlier notching a low of $9.95 cents. They have been as high as $38.52 in the last 52 weeks. GE shares have lost almost 70 percent of their value over the past year amid investor concerns over the effect of the credit crunch on GE Capital, GE's financial unit.

- Citigroup Inc (C) shares fell to almost 18-year lows on Thursday, with Bank of America Corp (BAC) stock also plunging, amid renewed fears that growing losses could lead to government control of troubled U.S. banks, wiping out shareholders. In addition, insurance companies' stocks plummeted -- led by Hartford Financial Services Group (HIG) -- as declining stock and bond market values added to concerns about weakening investment portfolios and capital positions. "When you talk about nationalization you hear the names Citi and Bank of America as the top two names burning out," said Walter Todd, a portfolio manager at Greenwood Capital Associates, which holds shares of Bank of America.

- Citadel Investment Group LLC trader Misha Malyshev, who helped two of the firm's hedge funds gain about 40 percent last year, has resigned, Bloomberg News said on Thursday, citing a person familiar with the firm. Malyshev was head of "high-frequency" trading, a computer-dependent strategy used by two of the firm's hedge funds, and left this week with two members of his team, the report said, citing the person.

Financial Times:
- The New York Times(NYT) Company has suspended its dividend entirely, three months after cutting the pay-out by almost three-quarters to preserve cash at the indebted newspaper publisher. The suspension had not been widely expected, as the NYT had been seen to buy itself breathing space in January by borrowing $250m at a 14 per cent interest rate from Carlos Slim, the Mexican billionaire. The company said then it would use the proceeds to get it through a May deadline to refinance a $400m credit facility that had concerned investors. Debt worries have cut the group’s share value by more than half since the start of 2009. News of the dividend cut came on Thursday as the New York Times settled a $27m defamation suit brought in December by Vicki Iseman, a Washington lobbyist mentioned in a NYT story about John McCain, the former presidential candidate. The newspaper agreed to publish a statement that it had not intended to suggest an improper relationship between Ms Iseman and Senator McCain.

- Iran has built up a stockpile of enough enriched uranium for one nuclear bomb, United Nations officials acknowledged on Thursday. In a development that comes as the Obama administration is drawing up its policy on negotiations with Tehran over its nuclear program, UN officials said Iran had produced more nuclear material than previously thought. “It appears that Iran has walked right up to the threshold of having enough low enriched uranium to provide enough raw material for a single bomb,” said Peter Zimmerman, a former chief scientist of the US Arms Control and Disarmament Agency. The new figures come in a report from the International Atomic Energy Agency, the UN’s nuclear watchdog, released on Thursday. This revealed that Iran’s production of low enriched uranium had previously been underestimated. Iran’s success in reaching such a “breakout capacity” – a stage that would allow it to produce enough fissile material for a bomb in a matter of months – crosses a “red line” that for years Israel has said it would not accept.

Economic Daily News:

- Taiwan Semiconductor Manufacturing executives believe the chip industry has hit bottom. The chipmaker has order visibility until the end of April, with customers not ruling out a replenishment of inventory in May or June. Taiwan Semi, the world’s largest customer chipmaker, on Jan. 22 forecast it would post its first quarterly loss since 1990 as overall chip industry sales are projected to decline 30% this year.

Philstar.com:

- Benedicto Clark T. Miranda, director and head of Capital Markets and Investments for the Philippine office of Jones Lang LaSalle, said the Grade A office market is in for a rough ride as corporates cut back on spending amid an increasingly difficult business environment. Miranda said developers or owners of prime office buildings are lowering rental rates by 15 to 20 percent to seek more tenants and woo clients back.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (WBMD) to Buy, target $25.

Night Trading
Asian Indices are -2.50% to -1.0% on average.
S&P 500 futures -.83%.
NASDAQ 100 futures -.66%.

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Earnings of Note
Company/EPS Estimate
- (ABX)/.30

- (HMSY)/.24

- (JCP)/.92

- (LOW)/.12

Economic Releases

8:30 am EST

- The Consumer Price Index for January is estimated to rise .3% versus a -.8% decline in December.

- The CPI Ex Food & Energy for January is estimated to rise .1% versus unch. in December.

Upcoming Splits
- None of note

Other Potential Market Movers
- The (BEAV) Investor Meeting could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by automaker and financial stocks in the region. I expect US equities to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.