Stocks Finish Lower, Weighed Down by Gold, Technology, Hospital, Road & Rail and Airline Shares

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Stocks Lower into Final Hour on Rising Credit Market Angst, Increasing Energy Prices, More Shorting, Tax Hike Worries

BOTTOM LINE: The Portfolio is mixed into the final hour as losses in my Technology longs and Biotech longs offset gains in my Index hedges, Emerging Market shorts and Medical longs. I added to my (IWM)/(QQQQ) hedges and added to my (EEM) short this morning, thus leaving the Portfolio 50% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is below average. Investor anxiety is about average. Today’s overall market action is bearish. The VIX is falling .10% and is elevated at 49.37. The ISE Sentiment Index is high at 213.0 and the total put/call is below average at .73. Finally, the NYSE Arms has been running low most of the day, hitting .29 at its intraday trough, and is currently .43. The Euro Financial Sector Credit Default Swap Index is rising 4.06% today to 205.0 basis points. This index is making another new record high. The North American Investment Grade Credit Default Swap Index is rising 3.75% to 257.22 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising 1.36% to 111 basis points. The TED spread is now down 352 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 1.91% to 80.0 basis points. The Libor-OIS spread is rising 1.94% to 105.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to .85%, which is down 179 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 up 1 basis point today. Market-leading stocks are under pressure again today. I continue to hear rumors of forced selling. Some gauges of investor angst still remain stubbornly low given the carnage that has recently taking place. Retail options traders appear to being betting on a rally in a meaningful way, which is a broad market negative. A low NYSE Arms reading, combined with below average volume, is a negative. As well, the VIX remains relatively subdued compared to prior market lows. The meaningful increase in gauges of credit angst is also a big negative. I think the possibility of the relaxation of the mark-to-market rule is the best hope for a significant upside catalyst. Nikkei futures indicate a -110 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 more economic pessimism, more shorting, higher energy prices, increasing credit market angst and tax hike worries.

Today's Headlines

Bloomberg:

- The spread between the rate to exchange floating for fixed interest payments and Treasury yields for two years reached its widest this year as global stocks slide and concern regarding the stability of banks rose. The difference between the two-year swap rate and the similar maturity Treasury note yield, known as the swap spread, widened to as much as 82.88 basis points from 77.25 basis points on March 6. The spread, which had narrowed to 49.88 basis points on Jan. 12, is a gauge of investor perceptions of credit risk and is based on expectations for the London interbank offered rate, or Libor.

- ‘Manchurian Candidate’ Starts War on Business. Back in the 1960s, Lyndon Johnson gave us the War on Poverty. In the 1970s, Richard Nixon launched the War on Drugs. Now that we have seen President Barack Obama’s first-year legislative agenda, we know what kind of a war he intends to wage. It is no wonder that markets are imploding around us. Obama is giving us the War on Business. Imagine that some hypothetical enemy state spent years preparing a “Manchurian Candidate” to destroy the U.S. economy once elected. What policies might that leader pursue?

- The cost of protecting European corporate bonds from default rose, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increased 20 basis points to 1,170, according to JPMorgan Chase & Co. prices at 9:32 a.m. in London. The Markit iTraxx Financial index of credit- default swaps linked to the senior debt of 25 banks and insurers jumped 7 basis points to a record 208. The subordinated debt index climbed 10 to 385 basis points.

- The US dollar may extend gains to a record 52.50 Indian rupees after it climbed beyond so-called resistance at the December high of 50.60, Standard Chartered Bank said, citing trading patterns.

- HSBC Holdings Plc plunged the most in at least 23 years in Hong Kong, driven to a 13-year low by last-minute trades and concern about deepening loan losses at its U.S. business. The shares fell 24 percent to HK$33 at the 4 p.m. close, the lowest since May 1995. HSBC, Europe’s largest bank, has lost 42 percent since announcing on March 2 that it will raise 12.5 billion pounds ($17.3 billion) in a rights offer at the equivalent of HK$28 apiece.

- Latvia faces “bankruptcy” in three months if it fails to deliver budget cuts required by the International Monetary Fund and the next installment of its bailout is delayed, Premier-designate Valdis Dombrovskis said.

- Canada’s currency weakened to the lowest level since September 2004, breaking through C$1.30 for the first time in four months, as concern that the global economy will worsen led investors to sell riskier assets and take refuge in the U.S. dollar.

Wall Street Journal:

- Lean Factories Find It Hard to Cut Jobs Even in a Slump.

- Some Myths About Banks. Nationalization would undermine confidence in the financial system. I would like to provide some clarity on a few key claims that have been repeated so often they are now taken to be fact. They are not.

- The chief executive of Las Vegas Sands Corp.(lvs) is worried that an apparent attempt to foment anti-American sentiment by a prominent Chinese rival could hurt his company's operations in Macau, China's gambling enclave. In several addresses to business groups last month, casino operator and political figure Stanley Ho urged Macau to "unite against" the Venetian, the towering casino that Sands has built in Macau, according to several Chinese newspaper accounts. "We are Chinese. We should unite against foreign capital. We cannot keep silent. If not, the foreign capital will bully us," Mr. Ho said in a Feb. 9 speech.

- The Tide Goes Out for Hedge Fund Fees.

- Agriculture Secretary Tom Vilsack said the government should move quickly to increase the amount of ethanol allowed in gasoline. Ethanol producers asked the Environmental Protection Agency last week to increase the amount of ethanol that refiners can blend with gasoline from a maximum of 10% to 15 percent, which could boost the demand for the renewable fuel additive by as much as 6 billion gallons a year.

- The first public fault line between Israel and the Obama administration has emerged after U.S. Secretary of State Hillary Clinton criticized plans to demolish 88 Palestinian homes in Jerusalem that Israel says were built without permits.

- Who Pays for Cap and Trade? Hint: They were promised a tax cut during the Obama campaign. Cap and trade is the tax that dare not speak its name, and Democrats are hoping in particular that no one notices who would pay for their climate ambitions. With President Obama depending on vast new carbon revenues in his budget and Congress promising a bill by May, perhaps Americans would like to know the deeply unequal ways that climate costs would be distributed across regions and income groups.

MarketWatch:
- Mariner Investment Group, a big Harrison, N.Y.-based hedge fund firm, has raised a so-called gate this week on one of its funds to limit redemptions, becoming the latest firm in the industry to lock up nervous investors.

- Merck & Co.(MRK) and Schering-Plough Corp.(SGP) said Monday they plan to merge in a deal worth more than $41 billion as part of an effort to create a pharmaceutical giant that is less dependent on U.S. sales as well as on specific blockbuster products.

NY Times:

- A Search Engine for Seekers of Venture Capital. On Monday, a company called Angelsoft unveiled an search engine for locating investors. Angelsoft makes software for investors to manage their deal flow and runs a Web site for entrepreneurs and investors.

AppleInsider:

- The Chinese-language Commercial Times is reporting Monday that a well-known touch-panel supplier will begin delivering displays for an Apple 'netbook' sometime later this year. According to the report, which was relayed by DigiTimes, Taiwan-based Wintek will start shipping the panels to the Cupertino-based Mac maker sometime during the third quarter of the year for an official launch at an unknown date.

Seeking Alpha:

- The Mark-to-Market Bank Trade This Week. Should these regulations be relaxed there could be a MASSIVE rally in the bank stocks. All the shorts in these stocks would want to get out and short rallies are usually very fast and powerful. Also, all those that have bought the CDSs on these banks will sell them as the stocks are rising which lowers the debt to equity ratio and increases the chances these banks will make good on their debts. (very good article)

Washington Post:

- The percentage of Americans who call themselves Christians has dropped dramatically over the past two decades, and those who do are increasingly identifying themselves without traditional denomination labels, according to a major study of U.S. religion being released today.

Chicago Sun-Times:

- Americans are managing their credit better as the recession deepens -- possibly a sign that the new era of responsibility that President Obama has been talking about is taking shape. The number of people three months behind on bankcard payments fell 11 percent in the fourth quarter of 2008 from a year ago. Consumers restrained spending during the holidays, adding less than 2 percent to their balances, according to consumer credit tracking agency TransUnion. The percentage of consumers behind 90 days or more on payments for their bankcards -- MasterCard, Visa, American Express and Discover -- fell to 1.21 percent in the fourth quarter, from 1.36 percent a year ago. More on-time payments came even in the face of worsening job losses and home foreclosures.

Daily News:

- It's not all doom and gloom out there for NYC's retailers - Fifth Ave. is booming.

USA Today:

- Tens of thousands of jobs created by the economic stimulus law could end up filled by illegal immigrants, particularly in big states such as California where undocumented workers are heavily represented in construction, experts on both sides of the issue say. Studies by two conservative think tanks estimate immigrants in the United States illegally could take 300,000 construction jobs, or 15% of the 2 million jobs that new taxpayer-financed projects are predicted to create. They fault Congress for failing to require that employers certify legal immigration status of workers before hiring by using a Department of Homeland Security program called E-Verify. The program allows employers to check the validity of Social Security numbers provided by new hires. It is available to employers on a voluntary basis.

Gulf News:
- High prices and the economic downturn have battered Abu Dhabi's gold market, cutting retail sales by over 70 per cent on the year in February, the Gulf emirate's gold and jewelry group chairman said on Sunday. Investors have used gold as a shelter from the impact of the deteriorating economy on other assets, pushing the price up and making jewelry expensive for consumers with shrinking disposable income. "It is going from bad to worse. It has not picked up," Tushar Patni told Reuters. "The price is still high. Buyers are staying away and the gloom in the market continues."

Al-Hayat:

- Saudi Arabia wants OPEC to comply with its existing output ceiling and opposes a further production cut. Iran and Venezuela were still producing above their quotas in January. Iraq is allowed to produce at will.

Bear Radar

Style Underperformer:
Small-cap Growth (-.74%)

Sector Underperformers:
Telecom (-3.0%), Hospitals (-2.69%) and Internet (-2.67%)

Stocks Falling on Unusual Volume:
FO, HBC, SNP, MRK, BW, FSYS, CYBS, IBKR, ACGL, ASA and CS

Stocks With Unusual Put Option Activity:
1) AN 2) PBR 3) ETN 4) JCI 5) XTO

Bull Radar

Style Outperformer:
Large-cap Value (+.49%)

Sector Outperformers:
Banks (+5.64%), Oil Service (+3.48%) and Construction (+2.83%)

Stocks Rising on Unusual Volume:
ALJ, MDR, SU, COP, DB, JPM, RATE, ADS, OGE, EIX, LINC, GYMB, PENN, ALGT, AMZN, CCMP, ACIW, EBIX, ASIA, JOYG, ODFL, FRLI, FWLT, GENZ, CERN, SGP, BGH, ROH, WPC and CMN

Stocks With Unusual Call Option Activity:
1) GD 2) IP 3) DISH 4) NSM 5) NOK

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