Stocks Finish at Session Lows, Weighed Down by Financial, Airline, REIT, HMO and Commodity Shares

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Stocks Sharply Lower into Final Hour on Rising Financial Sector Worries, Increasing Economic Pessimism, Surging Credit Market Angst, More Shorting

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Retail longs and Biotech longs. I added (IWM)/(QQQQ) hedges, added to my (EEM) short and exited by (GME) long this morning, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is about average. Investor anxiety is above average. Today’s overall market action is very bearish. The VIX is rising 6.0% and is elevated at 50.39. The ISE Sentiment Index is below average at 107.0 and the total put/call is above average at 1.00. Finally, the NYSE Arms has been running low most of the day, hitting .49 at its intraday trough, and is currently .63. The Euro Financial Sector Credit Default Swap Index is soaring 17.25% today to 187.33 basis points. This index is making a new record high at 187.33. The North American Investment Grade Credit Default Swap Index is rising 3.44% to 251.35 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising 5.14% to 108 basis points. The TED spread is now down 355 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 4.18% to 74.75 basis points. The Libor-OIS spread is rising .79% to 104.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is dropping 7 basis points to .88%, which is down 176 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 .20%, which is down 5 basis points today. Many gauges of investor angst still remain stubbornly low given the carnage that is taking place. The 10-year TIPS spread is rolling over again. I suspect another meaningful surge higher in long-term US govt. treasuries is underway given how bearish the crowd is on these securities. Barney Frank reiterated again today that Congress shouldn’t do away with the market-to-market rule. Asia will likely come under significant pressure tonight. On the positive side, the AAII % Bulls fell to 18.92% and the % Bears jumped to 70.27% this week. The % Bears is now at a new record high, eclipsing the 67.1% seen the week of Oct. 18^th 1990. Some market leading stocks are holding up relatively well today. Nikkei futures indicate a -260 open in Japan and DAX futures indicate a -8 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more economic pessimism, more shorting, rising financial sector pessimism and tax hike worries.

Today's Headlines

Bloomberg:

- General Electric Co.(GE) Chief Financial Officer Keith Sherin said investors’ speculation about risk at GE Capital is “overdone” and that the finance arm will be profitable in the first quarter.

- Intercontinental Exchange Inc.’s(ICE) bid to become the top U.S. guarantor of credit-default swap trades moved a step closer after the Federal Reserve approved its proposal, leaving the Securities and Exchange Commission as the futures market’s final regulatory hurdle.

- The cost of protecting against default on bonds sold by European banks and insurers rose to a record, according to traders of credit-default swaps. The Markit iTraxx Senior Financial index roses 14 basis points to 175, according to JPMorgan Chase & Co. prices at 9:26 a.m. in London. The index for subordinated financial debt soared 47 basis points to 345.

- Steven Leuthold, whose Grizzly Short Fund makes money for investors by betting companies will fail, says he wouldn’t invest in his own fund now because the U.S. stock market is close to its bottom. Leuthold, who helps manage $3.2 billion as founder of Minneapolis-based Leuthold Weeden Capital Management, told investors to keep money out of the Grizzly fund yesterday after it rose 74 percent in 2008. He joined Bill Fleckenstein, who shut a 13-year-old bearish fund in December, and Marc Faber, who covered bets against U.S. stocks.

- Subic Bay in the Philippines is the busiest it’s been since the U.S. Navy moved out 16 years ago. The traffic surge is coming from ships all carrying the same cargo --nothing. Last week, 19 vessels were anchored in the mountain-lined bay awaiting charters near an empty container terminal. The authorities at the port, 110 kilometers west of Manila, were expecting another eight this week.

- Goldman Sachs Group Inc. predicted a deeper global recession than it previously anticipated and said the slump could yet worsen. Goldman Sachs now expects worldwide gross domestic product to shrink 0.6 percent in 2009 compared to a previous forecast for a 0.2 percent contraction, London-based economist Binit Patel said today in a report to clients.

- The European Central Bank cut interest rates to a record low in an attempt to stem the worst recession since World War II. Officials meeting in Frankfurt reduced the benchmark lending rate by half a percentage point to 1.5 percent, as forecast by all 55 economists in a Bloomberg News survey. That’s the lowest since the ECB took control of monetary policy in 1999. The bank may wait until May to cut rates further, another survey of economists shows.

- European banks may need to raise as much as 40 billion euros ($50 billion) of additional capital by 2010 because of loan losses in central and Eastern Europe, JPMorgan Chase & Co. analysts said. Nordic banks including Swedbank AB, SEB AB and Danske Bank A/S may need 8 billion euros for bad loans in the Baltics, while Austrian banks such as Raiffeisen International Bank-Holding AG and Erste Group Bank AG may need 5 billion euros because of non- performing loans in central and eastern Europe, JPMorgan analysts including Paul Formanko said in the note today.

- European Central Bank President Jean- Claude Trichet comments on monetary policy, the economic outlook, inflation and risks. He spoke during a press conference in Frankfurt today after the ECB lowered its key rate by 50 basis points to 1.5 percent.

- Majority Leader Steny Hoyer said House Democrats want to pass a climate-change bill by June and a health-care overhaul by August, and may use procedures aimed at letting the Senate pass the legislation without Republican votes. Hoyer, a Maryland Democrat, said the climate-change legislation may include a cap-and-trade system designed to help rein in carbon dioxide emissions. He said lawmakers may use special “reconciliation” procedures that would make the measures filibuster-proof in the Senate to overcome the need there for 60 votes. Democrats control the Senate with 58 votes.

- U.S. Bancorp and Northern Trust Corp. will return funds from the Treasury’s Troubled Asset Relief Program, according to Representative Barney Frank.

- Treasuries rose, led by 30-year bonds, on speculation the Federal Reserve may buy longer-maturity government securities after the Bank of England said it would buy sovereign and corporate debt. Yields on the bonds fell the most in two weeks, paring losses since the start of the year that have made them the worst- performing government security. The debt has fallen 2.8 percent since Feb. 18, when the minutes of the Fed’s Jan. 27-28 policy meeting suggested officials will wait before buying Treasuries to keep borrowing costs lower.

Wall Street Journal:

- President Barack Obama is meeting strong Democratic Party resistance to his proposal to reduce tax deductions enjoyed by upper-income Americans and could be forced to drop or modify the idea. Mr. Obama in his budget blueprint last week proposed a cap on itemized deductions for mortgage interest and charitable donations to help pay for his health-care overhaul. The plan would cost wealthier taxpayers about $318 billion in new taxes over 10 years, according to government estimates. But after objections from Democratic lawmakers, Treasury Secretary Timothy Geithner appeared to suggest at one point Wednesday that the administration was willing to consider dropping or modifying the proposal. The resistance from Mr. Obama's own party -- focusing on a single element of the president's tax plans -- could foreshadow broader troubles for the rest of his proposed tax increases. Republicans have already taken aim at rate increases planned for higher-income earners, as well as the administration's plans to raise hundreds of billions of dollars through climate-change legislation.

- The Securities and Exchange Commission said it will raise the transaction fees it charges exchanges to $25.70 per $1 million in securities sales from the current level of $5.60.

CNBC.com:
- Paul Ryan, the senior Republican on the US House Budget Committee, told CNBC that President Barack Obama’s budget plan for 2010 will require ‘huge’ tax increases. The spending package was written without regard to the fact “that the US is in recession,” Ryan, from Wisconsin, said. (video)

- Venezuela's top food company Empresas Polar called Thursday for talks with the government after President Hugo Chavez threatened to take it over and nationalized a unit owned by a U.S. food giant Cargill. With the threats and the move against Cargill, Chavez has renewed a two-year nationalization drive just weeks after he won a referendum allowing him to run for re-election.

- Exxon Mobil(XOM) said Thursday it was well-positioned to ride out weak oil prices and that it would hike its capital spending by nearly 12 percent this year. Exxon, the world's largest publicly traded company, said it would spend about $29 billion in 2009, the upper end of its five-year annual spending target of $25 billion to $30 billion per year, as part of its effort to meet long-term growth in world demand.

- The world would get a $1 trillion economic stimulus if oil prices stay at around $40 a barrel through 2009, the head of the International Energy Agency told Reuters on Thursday.

Barron’s:

- MANY INVESTORS ARE BEGINNING to think that certain stocks have fallen so far, they have no place to go but up. Taking that viewpoint, managed health-care stocks are beginning to look ripe for the picking. Down 29% since Feb. 23, the AMEX Morgan Stanley Healthcare Payor Index plunged last week, the bulk coming Thursday when President Obama outlined his budget and announced plans to cut payments to private health plans sold to Medicare beneficiaries, called Medicare Advantage. As is often the case, the sector-wide selloff has ensnared some promising stocks now selling at more attractive prices.

Washington Times:

- President Obama's newly named Economic Recovery Advisory Board, the real-world Americans being asked to help solve the nation's financial crisis, includes a union executive who took the Fifth in a federal probe, a billionaire whose failed bank pioneered the subprime mortgage market, and deep-pocket donors who gave or gathered nearly $1.2 million for the president's campaign. In all, 11 of the 16 board members donated or raised money for Democrats in the last election, according to a Washington Times review of campaign finance records. They include the president and chief operating officer of the American arm of UBS Investment Bank, the Swiss-based bank now at the center of a widening tax evasion probe by the Justice Department and the Internal Revenue Service. In announcing the board's creation, Mr. Obama described its members as "distinguished citizens outside the government" who were qualified on the basis of achievement, experience, independence and integrity to "bring a diverse set of perspectives and voices from different parts of the country and different sectors of the economy to bear in the formulation and evaluation of economic policy."

Wealth Bulletin:

- More than one in every four hedge funds stopped reporting performance to a prominent central database last year in a sign of how investment losses and portfolio closures hit the $1.4 trillion industry during its worst year on record.

USA Today:

- A $410 billion bill that would keep the government running through September directs $227 million to pet projects for former lawmakers, including an ex-congressman facing corruption charges, a USA TODAY analysis shows.

Reuters:
- General Motors Corp on Thursday said its auditors had raised "substantial doubt" about its ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash. The "going concern" warning from the struggling U.S. automaker had been expected, but underscored the stakes for GM as it seeks up to $30 billion in U.S. government aid to restructure outside a court-supervised bankruptcy process.

Estado:

- Brazilian Textile Exports Declined 36% in February.

Interfax:

- Russian airlines sold 20% fewer tickets in February compared with the same month last year, citing the Federal Transportation Agency.

RIA Novosti:

-Russian car imports fell 66% in January to 33,600, citing Federal Customs Service Data.

Bear Radar

Style Underperformer:
Mid-cap Value (-6.12%)

Sector Underperformers:
Oil Tankers (-9.39%), Banks (-9.1%) and Airlines (-9.03%)

Stocks Falling on Unusual Volume:
JCP, IBN, ASBC, USM, JPM, KALU, TKC, CLF, SNP, E, GYMB, MATK, VOCS, PETM, URBN, LMDIA, IDCC, YPF, DEP, GME, PEO, EMM, KNM, SUR, POR, KSP, ANF and IYJ

Stocks With Unusual Put Option Activity:
1) NSC 2) ACE 3) ADBE 4) CX 5) CA

Bull Radar

Style Outperformer:
Large-cap Growth (-1.84%)

Sector Outperformers:
Telecom (+.24%), Retail (-.48%) and Computer Services (-.99%)

Stocks Rising on Unusual Volume:
GFI, MO, AEM, WMT, DLTR, VZ, T, SIGM, MIDD, PLCE, NETL, STAR, CPRT, ADBE, SXCI, STRL, FRED, ROST, APOL, LEAP, BIDU, MASI, WTW, BKE, FDO, FIF, GCO and CRN

Stocks With Unusual Call Option Activity:
1) LM 2) FDO 3) F 4) CIEN 5) FL

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