Stocks Finish at Session Lows, Weighed Down by REIT, HMO, Hospital, Drug, Biotech, Medical and Oil Tanker Shares

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Stocks Reversing Lower into Final Hour on Tax Hike Worries, Rising Economic Pessimism, More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Biotech longs. I added (QQQQ)/(IWM) hedges and added to 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, most sectors are declining and volume is above average. Investor anxiety is also above average. Today’s overall market action is very bearish. The VIX is falling .09% and is very high at 44.66. The ISE Sentiment Index is about average at 151.0 and the total put/call is low at .66. Finally, the NYSE Arms has been running below average most of the day, hitting .25 at its intraday trough, and is currently 1.0. The Euro Financial Sector Credit Default Swap Index is falling 4.88% today to 143.55 basis points. This index is still below its high of 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is falling 2.71% to 212.88 basis points. The TED spread is rising .99% to 99 basis points. The TED spread is now down 368 basis points in about four months. The 2-year swap spread is falling 2.92% to 62.25 basis points. The Libor-OIS spread is falling .05% to 100.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 2 basis points to .98%, which is down 173 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 .27%, which is down 2 basis points today. This morning’s very low put/call and high ISE readings were negative tells. As well, sector breadth was poor, overall breadth was mediocre and there were an unusual number of stocks falling on volume given morning gains. Education, REIT, HMO, Hospital, Biotech, Medical and Oil Tanker shares are under significant pressure today. President Obama’s budget seems to be more damaging to many companies than investors had already anticipated. Asia will likely come under pressure tonight. On the positive side, the AAII % Bulls is still very low at 24.3%, while the % Bears is still very high at 55.14%. Construction, Insurance, Bank, Telecom, Computer Service, Oil Service and Energy Shares are still higher on the day despite the afternoon swoon. Nikkei futures indicate a -52 open in Japan and DAX futures indicate an -62 open in Germany tomorrow. I expect US stocks to trade modestly lower into the close from current levels on rising economic pessimism, more shorting, higher energy prices and tax hike worries.

Today's Headlines

Bloomberg:

- President Barack Obama proposed almost $1 trillion in higher taxes on the 2.6 million highest- earning Americans, Wall Street financiers, U.S.-based multinational corporations, and oil companies to pay for permanent tax breaks for lower earners. Obama’s 2010 budget proposal, released today, would reinstate the top two Clinton-era tax rates of 36 percent and 39.6 percent in 2011, up from the 33 percent and 35 percent the richest Americans now pay. It would raise taxes on capital gains and dividends to 20 percent for top earners, up from the 15 percent set by former President George W. Bush in 2003.

- Copper may fall to $3,000 a metric ton in the second quarter as an economic recovery is delayed, Standard Chartered Plc said. The metal, used in plumbing and electrical wiring, will average $3,155 a ton in the third quarter, 9.9 percent below a previous forecast of $3,500 a ton, Dan Smith, an analyst at Standard Chartered in London, wrote in a report dated Feb. 24. Copper demand will decline 4 percent in 2009, Standard Chartered estimated, its first forecast for this year, Smith said by phone today.

- Crude oil rose to the highest level in a month and gasoline surged more than 6 percent as equities advanced and U.S. stockpiles of the motor fuel dropped.

- American International Group Inc.(AIG) may get a backstop from the U.S. to protect against further losses on credit-default swaps, according to a person familiar with the matter. The federal guarantees may be included in New York-based AIG’s restructured bailout, which the company plans to disclose next week with fourth-quarter results, according to the person, who declined to be identified because the talks are private.

- General Motors Corp.(GM) reported a $30.9 billion annual loss, the second-biggest in its 100-year history, as Chief Executive Officer Rick Wagoner asked the Treasury for more cash to survive through 2009. GM’s cumulative deficit ballooned to $82 billion since the end of 2004, when it last had an annual profit. Full-year sales fell 17 percent, damped by a recession that ravaged new-car demand, GM said today.

- President Barack Obama’s budget plan assumes $78.7 billion in revenue in 2012 from the sale of greenhouse-gas emission permits to polluters, putting new pressure on Congress to pass such legislation by early next year. A “cap-and-trade” program would generate a total of $645.7 billion by 2019, according to the budget blueprint Obama sent to Congress today. Initial funds would be used to invest in “clean” energy, help finance Obama’s tax credit for workers and offset higher energy costs for low- and middle-income people and clean up costs for small businesses. The budget calls for the Environmental Protection Agency to get $19 million to begin setting up an inventory of greenhouse- gas emissions that most scientists say are causing rising temperatures and sea levels.

- Former Federal Reserve Chairman Paul Volcker called on Congress to ensure financial-market stability through regulatory changes including “strong restrictions” on hedge funds, private equity and proprietary trading.

- SLM Corp.(SLM), the largest U.S. student lender, fell as much as 37 percent after President Barack Obama’s first budget called for an end to loan subsidies. Shares of SLM, known as Sallie Mae, fell 36 percent to $5.36 at 11:29 a.m. in New York Stock Exchange composite trading.

- China, home to the best-performing stock market this year, faces an “asset bubble” if credit growth is not matched by an increase in investment opportunities, China International Capital Corp. said. “The country’s strong liquidity supply could diverge from its economic fundamentals if its monetary policies are too loose,” Ha Jiming, chief economist at China International Capital, said in an e-mailed note today. “If a large amount of funds flows into its capital market due to a lack of investment- worthy projects in the real economy, it will likely bring an asset price bubble in an economic downturn.”

- International Business Machines Corp.(IBM) jumped as much as 5 percent in New York trading after reaffirming its profit forecast for this year, signaling the computer- services provider will withstand the deepening recession. Profit will increase to at least $9.20 a share, IBM said in a regulatory filing today. Analysts on average project $9.08, excluding some items, according to a Bloomberg survey. The company also predicted “strong double-digit growth” in long- term contracts.

Wall Street Journal:

- Top executives of Chrysler LLC met Wednesday with President Barack Obama's auto task force in Washington, where they discussed the company's troubled finances, its proposed alliance with Fiat SpA and fuel-efficient vehicle development, said a person familiar with the session. The meeting came about a week after the car maker asked the federal government for up to $5 billion in additional loans to keep it afloat.

- In the tug-of-war for stock-exchange listings, the Nasdaq Stock Market's growing arsenal of weapons is helping it gain ground. With promises of big-screen appearances in Times Square and detailed intelligence on share trading, Nasdaq attracted companies with $80 billion of market capitalization to switch from the New York Stock Exchange in 2008. The milestone nearly matched the Big Board's own record in snatching Nasdaq companies, back in 2000.

- The government should make it a lot more expensive for Americans to drive and should install devices in cars that levy a fee for every mile traveled, according to a report being released Thursday by a congressionally chartered commission. The report lands in the middle of debate over how to pay for roads and other transportation projects and recommends an array of potentially controversial increases in the cost of driving. Among the proposals: raising the 18.4 cents-a-gallon federal gasoline tax by 10 cents, or 54%, and then indexing future increases to inflation. The study estimates that would cost American households about $9 more a month. The plan also calls for adding 15 cents a gallon to the 24.4 cents-a-gallon tax on diesel fuel.

CNBC.com:
- When the NCAA men's basketball tournament comes to Detroit for the Final Four in early April, don't expect to see General Motors(GM) executives, dealers or clients in the suites that they've purchased. CNBC has learned that despite the fact that Pontiac is the official car of the NCAA and the final games are being played in the city of GM's headquarters, the car company is not inviting anyone to watch the action from the luxury suites at The Palace at Auburn Hills.

- The government's "stress-test" of the nation's largest banks could end up discouraging lending as banks hoard cash to appear healthier to regulators, banking analysts say.

- Poll: Do You ‘Win’ or ‘Lose’ with The Obama Budget?

NY Times:

- Carl Icahn has shown a resurgent interest in movie studios, steadily increasing his stake in Lions Gate to 14.5 percent. Now, Nikki Finke of the Deadline Hollywood Daily blog reports that Mr. Icahn is showing interest in another movie studio with a lion in its logo: MGM.

Boston Globe:

- President Barack Obama may be in familiar company when he sits down for his first White House meeting with the Congressional Black Caucus, but it won't be a clubby reunion. Members of the liberal, all-Democratic caucus that just last year counted Obama as one of its own say they plan to press him on their priorities.

The Detroit News:

- The Treasury Department is seriously considering offering government help to auto suppliers seeking to restructure, people briefed on the matter said Wednesday. Suppliers are being squeezed as automakers pull back on production in the face of the worst market for auto sales in decades, raising fears that more suppliers will have to file for bankruptcy.

USA Today:

- Just one-fourth of Americans think the government should continue lending money to Detroit automakers, according to a new USA TODAY/Gallup Poll, even though the manufacturers say they'll go out of business without federal help. That's a huge, and fast, change of heart. In December, before the government approved emergency auto loans, the poll found that 61% favored some kind of government help. "The more people understand what's wrong with General Motors, (GM) the less willing they are to support it," says Porter Stansberry, head of Stansberry & Associates Investment Research.

- The Pentagon has decided to reverse Bush administration policy and allow some media coverage of returning war dead, with family approval, the Associated Press reports.

AP:

- President Barack Obama unveiled a multi-trillion-dollar spending plan Thursday that would boost taxes on the wealthy, curtail Medicare, lay the groundwork for universal health care and leave a string of deficits dwarfing any in the nation's history. In addition to sending Congress his $3.55 trillion budget plan for 2010, Obama proposed more immediate changes that would push spending to $3.94 trillion in the current year. That would result in a record deficit Obama projects will hit $1.75 trillion, reflecting the massive spending being undertaken to battle a severe recession and the worst financial crisis in seven decades.

- At a time when bankers are being pilloried on Capitol Hill as heartless and greedy, Leonard Abess Jr. stands apart. After selling his bank for a fortune last fall, he quietly handed out $60 million in bonuses from his own pocket - and not just to top executives. In all, 471 employees and retirees, including tellers, clerks and secretaries, were rewarded, receiving an average of about $127,000 each."I think everybody was surprised. But knowing Leonard, the type of person he is, I can believe him giving it away," said retiree William Perry, who spent 43 years at City National Bank of Florida, rising from janitor to vice president. Perry, 78, got $50,000, which he is using to help his son pay for law school.

Reuters:
- Cisco Systems Inc (CSCO) Chief Executive John Chambers said the network equipment maker's future acquisitions would likely be small and not involve consumer devices.

Financial Times:
- The rush by retail investors into bullion coins is creating shortages as mints across the world struggle to meet the surge in demand, dealers and mint officials say. The scarcity is lifting coin premiums to as much as 5 per cent above the spot gold price, a level reached briefly after the collapse of Lehman Brothers last September, when coin shortages also surfaced. Bullion coins used to be bought mainly by collectors and gold bugs, but the financial crisis is leading regular retail investors to embrace them, dealers say.

- Iraq has sweetened the terms it is offering international oil companies vying to develop the country’s reserves. Companies such as BP, Royal Dutch Shell, Chevron and Total will now receive stakes of 75 per cent rather than 49 per cent if their bid wins. Iraq has also lowered the production targets it initially demanded companies achieve before they are paid for their work. The change is the first concrete example of the global shift in power beginning to sweep through the oil industry. With the collapse in oil prices, from $147 a barrel last summer to $35, showing no sign of reversal, international oil companies are regaining some of their influence while the clout of oil- and gas-rich countries in which they work has eroded. Iraq’s decision to improve incentives will be followed by others, industry insiders say.

Les Echos:

- US billionaire Wilbur Ross wants to acquire small regional banks weighed down by subprime losses and set up an institution to buy up toxic debt, citing an interview. Ross wants the US government to participate in financing the acquisition of toxic assets and to assume partial responsibility in case of loss. The billionaire will announce a new investment in 60 to 90 days.

Interfax:

- Capital outflows from Russia in January were about $40 billion, citing Finance Minister Alexei Kudrin. Russia’s economy will contract this year even if oil trades at $55 a barrel or higher, citing Kudrin.

National Post:

- Obama’s sneak attack on low taxes. Idea 1 for example is being labeled an attempt to shift tax collection from individuals to corporations. It’s nothing of the kind! Taxes on carbon emissions do not fall on “corporations.” They fall on users of electricity. Idea 2 amounts to a concealed attempt to push the top rate of tax past the 39.6% that prevailed in the 1990s. It’s a violation of Obama’s campaign promise to return to Clinton rates, but no higher. In an attempt to raise taxes without acknowledging the fact, both ideas introduce costly new complexity into American economic life. Cap and trade is a worse idea than a carbon tax. Less lucrative too. The only merit of cap and trade is that it enables the government to collect revenue without admitting that a new tax has been imposed. Likewise, the roll back of deductions empowers accountants and tax-shelter specialists – creating costs to society likely to dwarf the revenues collected, again only in order to enable the government to deny that it has raised tax rates.

Gulf News:
- Dubai house rents may fall as much as 50% by the end of this year as the emirate’s real-estate market cools, citing Marwan Bin Ghalita, the head of Dubai’s Real Estate Regulatory Authority. A quarter of current real-estate projects in Dubai may be completed on time, while the rest may be put on hold, rescheduled or merged with other developments, Ghalita said.

Bear Radar

Style Underperformer:
Large-cap Growth (-.38%)

Sector Underperformers:
HMOs (-10.05%), Education (-6.21%) and Hospitals (-5.56%)

Stocks Falling on Unusual Volume:
NIHD, GDP, ANW, IBN, HUM, NUVA, AET, ANSS, AMAG, MDVN, SYK, MANT, MRK, PSYS, COGT, MDAS, TRLG, STRA, CECO, CPLA, COCO, LOPE, ESRX, LHCG, AMED, APOL, STU, TEG, OCR, SWY, DCI, EME and UHS

Stocks With Unusual Put Option Activity:
1) SLM 2) AET 3) CI 4) FITB 5) CY

Bull Radar

Style Outperformer:
Large-cap Value (+2.34%)

Sector Outperformers:
Banks (+10.57%), Oil Service (-5.62%) and Semis (+4.20%)

Stocks Rising on Unusual Volume:
STI, ZION, UBS, USB, SU, NXY, CNQ, TI, AMT, AFL, VRUS, TMK, SGP, APA, SAFM, ACIW, SHLD, SIGM, XLNX, BOKF, YHOO, DLTR, ALXN, TNDM, WYNN, GBCI, PACW, CEPH, LEAP, ALTR, IBOC, FWLT, ZN, TYL, EQY, CRT and FLS

Stocks With Unusual Call Option Activity:
1) LCC 2) CSX 3) CMA 4) UNH 5) AET

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