Stocks Finish Higher Boosted By Commodity, Construction, HMO and Technology Shares

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Stocks Surging into Final Hour on Less Economic Pessimism, Diminishing Financial Sector Worries, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Technology longs, Retail longs and Biotech longs. I covered all of my (IWM)/(QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, sector performance is mostly positive and volume is above average. Investor anxiety is also above average. Today’s overall market action is bullish. The VIX is falling 10.15% and is elevated at 45.77. The ISE Sentiment Index is low at 95.0 and the total put/call is high at 1.02. Finally, the NYSE Arms has been running high most of the day, hitting 1.64 at its intraday peak, and is currently 1.42. The Euro Financial Sector Credit Default Swap Index is falling 4.66% today to 156.33 basis points. This index is still below its all-time high of 164.0 on Feb. 24^th. The North American Investment Grade Credit Default Swap Index is rising .94% to 243.0 basis points. This index is still well below its Dec. 5^th record high of 285.99. The TED spread is rising .73% to 103 basis points. The TED spread is now down 360 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 3.97% to 72.0 basis points. The Libor-OIS spread is falling .01% to 102.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis point to .95%, which is down 169 basis points since July 7th. 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 .25%, which is down 2 basis points today. Stocks globally are rising on optimism over the possibility of a rebound in the Chinese economy. As well, a few minutes ago Reuters reported that the House Financial Services Sub-committee is holding a hearing on March 12^th related to mark-to-market accounting. I have said in the past that revising this rule would result in a large financial sector rally. I am surprised the stocks aren’t up more on the news. If the rule isn’t revised, today’s gains will likely evaporate over the coming weeks. For today’s rally to have staying power, financials must at least participate. Nikkei futures indicate an +200 open in Japan and DAX futures indicate a +29 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic pessimism, more shorting, diminishing financial sector worries, bargain-hunting and short-covering.

Today's Headlines

Bloomberg:

- The proposed tax increase on stocks and derivatives trading that is intended to help pay for the Wall Street bailout would have a “severe impact” on investors, NYSE Euronext Chief Executive Officer Duncan Niederauer said. “It would decimate liquidity in the market in an unprecedented way,” he said late yesterday at the Museum of American Finance in New York. “That would be about the worst thing that could happen, but I don’t believe it will get any traction.” Representative Peter DeFazio, an Oregon Democrat, introduced legislation last month that would require exchanges to collect a tax equal to 0.25 percent of a trade’s value. The proposal, backed by seven other Democratic representatives, could raise $150 billion a year to mitigate the costs of the U.S. Treasury’s rescue plan for banks and brokerages, according to the Feb. 13 draft of the legislation.

- The Obama administration set loan modification guidelines for its $75 billion homeowner rescue plan, agreeing to pay lenders for altering troubled mortgages while reducing borrowers’ interest rates to as low as 2 percent. The voluntary initiative, announced on Feb. 18, would require applicants to fully document their income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to documents released by the U.S. Treasury in Washington today. The second, larger part of the plan relies on government-run Fannie Mae and Freddie Mac to refinance loans.

- Steve Leuthold, whose Grizzly Short Fund returned 74 percent last year betting against U.S. stocks, said now is the time to buy equities because investors are too fearful about the economy. “These comparisons people make with the Great Depression are totally out of touch with reality, and pretty stupid,” he told Bloomberg Television in an interview today. “We’ve been in much worse, much more panicked and more scary situations in the U.S.” The economy isn’t as bad as it was in 1974, when stocks began rebounding, said Minneapolis-based Leuthold. He predicted the Standard & Poor’s 500 Index will surge to at least 1,000 in 2009, representing a gain of 44 percent from yesterday’s 12-year low of 696.33. Because a rally is likely, Leuthold said investors shouldn’t buy his Grizzly Short Fund. It has returned 26 percent in 2009. The Leuthold Core Investment Fund, which bets on stock gains, is most concentrated in biotechnology companies, automotive retailers and education providers, he said. (video)

- General Electric Co.(GE) shares dropped below $6 for the first time since December 1991, plunging as much as 18 percent in its fourth straight day of declines on investor concerns its finance unit may require more capital. GE fell 41 cents, or 5.8 percent, to $6.60 at 11:07 a.m. in New York Stock Exchange composite trading. Earlier the shares traded as low as $5.73. The shares are being driven down by selling by sovereign wealth funds anticipating a downgrade of the company’s AAA credit rating, and that’s also pushing its credit-defaults swaps higher, Pacific Investment Management Co.’s Bill Gross said in an interview on CNBC.

- India’s iron-ore exports in March will slump as China, the world’s largest consumer of the steel- making raw material, reduces purchasing after stockpiles rose. “Demand has dried up since the last week of February,” Rahul Baldota, president of the Federation of Indian Mineral Industries, said in a telephone interview today. Indian iron ore prices have fallen by $15 from $85 a ton in February, he said.

- Crude oil rose for a second day on speculation China will broaden efforts to boost economic growth, bolstering fuel demand in the world’s third-largest economy.

- Bridgewater Associates Inc., run by Ray Dalio, overtook JPMorgan Chase & Co. to become the biggest U.S. manager of hedge-fund assets, according to a survey. Bridgewater managed $38.6 billion on Jan. 1, according to Absolute Return magazine. JPMorgan ranked second after losing $11.8 billion in hedge fund assets in the second half of 2008, leaving the New York-based bank with $32.9 billion. Paulson & Co. rose to third place from fourth even as the New York-based firm’s assets declined to $29 billion from $34.4 billion, according to the magazine. The total value of U.S. hedge funds that managed at least $1 billion each fell 32.3 percent in the second half to $1.1 trillion, according to Absolute Return, which is published by London-based HedgeFund Intelligence.

- China’s exporters are calling on the government to weaken the yuan after the biggest slump in overseas sales in more than a decade, putting them on a collision course with the central bank’s intent on keeping the currency stable. “A 2 to 3 percent depreciation in the yuan against the dollar would help as we are on the line between life and death,” Wang Hanmin, a sales manager at Yixing Bochangyuan Garments Co. in Jiangsu province, said at the East China Trade Fair in Shanghai this week.

Wall Street Journal:

- Amazon.com Inc.(AMZN) plans to release a program Wednesday for reading electronic books on Apple Inc.'s(AAPL) iPhone, extending Amazon's sales of digital books to devices beyond its Kindle e-book reader. Amazon's software application, which can be downloaded free of charge, allows iPhone and iPod Touch users to read books or periodicals purchased on the Web or through their dedicated Kindle device, usually for $9.99.

- President Barack Obama told AFL-CIO union leaders Tuesday in a videotaped address that the controversial Employee Free Choice Act will pass, signaling his full backing for legislation that makes union organizing easier. "We will pass the Employee Free Choice Act," President Obama told more than 100 top labor officials in a closed-door meeting at the labor federation's winter gathering in Miami, according to people at the meeting. The bill would make it easier for unions to recruit workers because it would let them join unions simply by signing cards rather than through secret-ballot elections in which companies can campaign against the union. The U.S. Chamber of Commerce and other business organizations have been campaigning against the legislation.

- The Wall Street stages of grief go something like this: Anger, bargaining, acceptance, tell-all biography. Deal Journal exclusively brings you two detailed excerpts from House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan, to be published in March, 2009 by Doubleday, a division of Random House, Inc. Cohan brings lively quotes about the tensions surrounding the death of Bear Stearns.

NY Times:

- The A.F.L.-C.I.O.’s executive council will call on the Obama administration on Wednesday to speed the nationalization of problem banks to stimulate lending and lift the sagging economy. The labor federation, a lobbying powerhouse that represents 10 million workers, will thus become one of the first groups — and certainly the most powerful — to call for moving more aggressively on nationalization, both to counter Republican and business cries against it and to press the Obama administration not to vacillate over such a move.

- Fairly or not, Countrywide Financial and its top executives would be on most lists of those who share blame for the nation’s economic crisis. After all, the banking behemoth made risky loans to tens of thousands of Americans, helping set off a chain of events that has the economy staggering. So it may come as a surprise that a dozen former top Countrywide executives now stand to make millions from the home mortgage mess.

NJ.com:

- Chris Christie, the leading Republican challenger in the New Jersey November gubernatorial election, leads Gov. Jon Corzine in a head-to-head matchup, with 41 percent favoring Christie and 32 percent for Corzine.

Detroit Free Press:

- On the eve of Fiat CEO Sergio Marchionne’s meeting with the presidential automotive task force to discuss his company’s proposed alliance with Chrysler, the Italian automaker unveiled a new engine technology it says can reduce fuel consumption as much as 25%. The system is expected to be available to all Fiat’s current and future partners, including Chrysler, Fiat powertrain chief Alfredo Altavilla said at Geneva's annual auto show. The first engine using the system goes on sale in the Alfa Romeo MiTo sporty compact in Europe later this year.

electronista:

- Nearly one quarter of US phones are smartphones and are driven by trends the iPhone put in place, findings from the NPD Group show. About 23 percent of phones fit into the advanced category by the end of 2008, or double the share of a year earlier. Exactly half of these were touchscreen devices, a feat which NPD directly credits to Apple popularizing the format through the iPhone and pushing other carriers and phone makers to follow suit.

Vanity Fair:

- The five hotshots who took Fortress Investment Group public were worth billions at first. Today they look like arrogant showboats, and their story helps explain why hedge funds are imploding by the thousands—and why there’s still a truckload of money to be made.

Reuters:
- OPEC's president Angola considers the group should not cut output when it meets on March 15 and instead take more time to assess the impact of record curbs made so far, while for others, it it too soon to tell, OPEC sources said on Wednesday. Although it holds the presidency, Angola has only been a member of OPEC since 2007 and independent observers have said its compliance with output curbs has been less strict than that of core Gulf producers. If prices, which are hovering above $40 a barrel, stay low, one source in the group said the Organization of the Petroleum Exporting Countries would call an extra meeting, rather than cut again in March.

Les Echos:

- France’s public debt may rise to 74% of GDP in 2009 and 77.5% of GDP in 2010, up from 67% last year.

Interfax:

- Russia increased its forecast for unemployment this year and now expects as many as 2.8 million people to be officially registered as jobless, citing Health Minister Tatiana Golikova. The previous forecast was for 2.2 million people to be officially registered as unemployed. The number of unemployed, both registered and unregistered, is currently more than 6.1 million.

Arabian Business.com:

- A Dubai-based developer has reduced the price of its properties by as much as 30 percent as a result of falling property prices across the UAE.

Bear Radar

Style Underperformer:
Small-cap Value (+1.33%)

Sector Underperformers:
Banks (-5.40%), Education (-4.81%) and Gaming (-4.46%)

Stocks Falling on Unusual Volume:
GMXR, IOC, USB, JPM, CECO, DV, POT, AXP, MANT, AFAM, RATE, GYMB, APOL, FAST, WGOV and MMP

Stocks With Unusual Put Option Activity:
1) LEN 2) DTV 3) SCHW 4) JOYG 5) SHW

Bull Radar

Style Outperformer:
Mid-cap Growth (+3.39%)

Sector Outperformers:
Steel (+8.62%), Construction (+7.20%) and Semis (+5.63%)

Stocks Rising on Unusual Volume:
NIHD, ARD, FCX, DNR, USMO, CLF, STO, TOT, NETL, HANS, FMX, APA, JOYG, SHOO, DRIV, GENZ, CBRL, USMO, IDCC, BIDU, PCAR, SOHU, XLNX, WPPGY, SNDA, CMED, ALTR, AIPC, AVAV, NUVA, MGG, IGN, XSD, WBD, BIG, GB, MTZ and MET

Stocks With Unusual Call Option Activity:
1) PMCS 2) CA 3) BX 4) WDC 5) JNPR

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