Tuesday Watch

Late-Night Headlines
Bloomberg:

- China’s consumer prices fell for the first time since 2002 after commodity costs declined, stoking concern that deflation will undermine efforts to revive the world’s third-biggest economy. Consumer prices dropped 1.6 percent in February from a year earlier, the statistics bureau said today, after gaining 1 percent in January. The median estimate in a Bloomberg News survey of 10 economists was for a 1 percent decline. Producer prices fell 4.5 percent, the most in a decade, after a 3.3 percent decline. The drop in prices raises the risk that deflation will become entrenched, squeezing company margins, prompting wage cuts and eroding consumer demand.

- China should let the yuan rise 3 percent against the dollar in 2009 to deter capital outflows and help the country make overseas acquisitions, said Wang Jian, a researcher affiliated with the nation’s top planning agency. People’s Bank of China Governor Zhou Xiaochuan pledged last week to maintain yuan stability as investors pull money out of emerging- market assets because of slowing global economic growth. “A weaker currency will prompt massive amounts of foreign capital to flee the country,” said Wang, secretary general of the China Society of Macroeconomics, a Beijing-based research institute under the National Development and Reform Commission that advises the government. “It won’t help exports. Foreign consumers still won’t have enough money to buy.”

- Texas Instruments Inc.(TXN), the second- largest U.S. chipmaker, predicted first-quarter sales that met analysts’ estimates after demand improved for wireless-equipment chips in China.

- International Business Machines Corp.(IBM) expects to prosper through the economic crisis by developing money-saving computer services and expanding deeper into the developing world, Chief Executive Officer Sam Palmisano said.

- Mexico’s peso, the worst performer among the world’s most-traded currencies in the past six months, will weaken another 14 percent by year-end as the nation’s twin deficits swell, said Rogelio Ramirez de la O, the economist who predicted the 1994 devaluation. The peso will slide to 18.2 per dollar from 15.5667 today, said Ramirez, the partner at Mexico City-based economic research firm Ecanal and former chief economic adviser to 2006 presidential candidate Andres Manuel Lopez Obrador. The peso tumbled 32 percent in the past six months as the recession in the U.S., the buyer of 80 percent of Mexican exports, deepened.

- South Korea’s economy may contract 4.5% this year, and growth will recover later and more gradually than previously expected, Goldman Sachs(GS) said. The brokerage had earlier forecast gross domestic product to shrink 1% in 2009, according to a report today.

- The cost of protecting investors in Asia-Pacific bonds from default rose on concern financial services companies will be hit by more losses after the World Bank predicted a global economic contraction. The Markit iTraxx Japan index of credit-default swaps jumped 22.5 basis points to 552.5 at 10:21 am in Tokyo, Barclays Capital prices show. The benchmark reached a record 554 basis points on Feb. 17, CMA DataVision prices show. The Markit iTraxx Australia index rose 7.5 basis points to a record 450 at 12:05 pm in Sydney, according to Citigroup Inc. Contracts on the subordinated debt of Macquarie Group Ltd., Australia’s largest investment bank, jumped 50 basis points to 1,200 while swaps on the subordinated debt of Suncorp Metway Ltd., Australia’s third-largest general insurer, rose 25 basis points to 700, Citigroup prices show.

- China’s slowing appetite for iron ore threatens plans to develop more than $6.4 billion of low-grade iron ore projects in Australia, the nation’s commodity forecaster said.

- Posco, Asia’s third-biggest steelmaker, has settled the first pulverized coal contracts for 2009 at $90 a metric ton with several Australian producers, Macquarie Group Ltd. said, citing a Platts report. That is a 63 percent cut from fiscal 2008 prices which were between $240 a ton and $245 a ton, Macquarie analysts including Jim Lennon and Adam Rowley wrote in an investor note yesterday, citing Platts.

Wall Street Journal:

- Key Senate Democrats are wavering in their support of legislation that would give more power to labor unions, dealing a setback to labor's top priority as businesses warn of the damage the bill would cause. The battle over the "Employee Free Choice Act" -- expected to be introduced Tuesday -- is seen as a power struggle among labor unions and businesses, as well as a test of whether moderate Democrats and Republicans will push back on Democratic congressional leaders and the Obama administration. At least six Senators who have voted to move forward with the so-called card-check proposal, including one Republican, now say they are opposed or not sure -- an indication that Senate Democratic leaders are short of the 60 votes they need for approval.

- Some hedge funds are using a trading strategy called “latency arbitrage” to take advantage of differences in the speed of price quotations at U.S. exchanges and dark pools — a practice that reminds some investors of past abuses such as mutual-fund market timing. “High frequency” quantitative hedge funds at firms such as Citadel Group, D.E. Shaw Group and Renaissance Technologies have direct feeds to U.S. exchanges. These feeds cut the delay on quotes down to milliseconds. During the last two years, many funds have paid for “proximity hosting,” the installation of their servers in the same data centers as the exchanges, to shave more “microseconds,” or millionths of a second, off that latency. Latency, in electronic trading, is the amount of time a quote or an order spends in the ether, and it’s where many funds are eyeing an edge. “The fastest one wins,” said a technology officer at a major hedge fund who was sounding out exchanges with an eye to setting up a latency-arbitrage strategy. He said the first step is to maximize the speed of market-data software and exchange connections, and the second is to find the “golden egg” - a venue or counterparty whose information is slower. The only risk, he said, was that “everybody’s getting faster.”

- About 35% of US companies in China expect sales in the country to drop this year, more than double the year earlier figure, citing an American Chamber of Commerce in China survey. Of the respondents, 37% are delaying China investments and 21% expect to shrink their local workforce, the report said.

- Sports junkies or die-hard fans who have lost the battle for the remote control can see more games live over the Internet than ever -- though often for a premium. Television networks, including ESPN, CBS and the Tennis Channel, are airing more live games on their Web sites and adding features like extended interviews with players. The National Hockey League and Major League Baseball are teaming up to offer "bundled" subscriptions, where fans can see hockey and baseball games for $139.95. They're also giving fans different camera angles and the ability to view multiple games simultaneously. And so far, at least, sports fans appear happy with the growing menu of events available.

- Pilloried for missing credit problems in the nation's mortgage markets, credit-ratings firm Moody's Investors Service is trying to get ahead of corporate bankruptcies. The firm on Tuesday is publishing a list called the Bottom Rung, detailing the companies that Moody's says are most likely to default on their debts. With 283 companies, the list holds nearly every sector of the economy. The dominant industries on this at-risk list include much of the U.S. auto industry, the casino sector, and many retail chains, newspapers and broadcast-TV and radio-station networks. Energy firms, airlines and restaurant chains appear often.

- Apple Inc. (AAPL) is planning to launch a netbook computer with a touch screen monitor as early as the second half of this year, two people close to the situation told Dow Jones Newswires Tuesday.

- Chips called flash memory that have transformed many consumer products are beginning to shake up corporate computer rooms, with Sun Microsystems Inc. emerging as a surprise innovator. The computer maker, though it lags rivals in data-storage hardware, has been pushing a redesign of servers and storage systems to take advantage of flash-memory chips. In its latest gambit, Sun is trying to popularize a tiny circuit board that can squeeze more flash chips, saving money, space and electricity.

CNBC.com:
- Roche is in talks to buy the shares of Genentech(DNA) it does not already own for about $95 each, a source familiar with the situation said Monday.

Houston Chronicle:

- Help wanted: pharmacists, engineers and nurses. Believe it or not, even some banks are hiring, at least for their technology teams. While the recession has claimed 4.4 million jobs, the economy has created others, many of them for highly trained and specialized professionals. More than 2 million jobs openings now exist across a range of industries, according to government data.

Reuters:

- Cisco Systems Inc(CSCO) said it will unveil next week a new strategy to help customers build more efficient data centers, amid expectations for the network equipment maker to announce it will start selling servers.

- Google (GOOG) and Cisco (CSCO) are viewed as top contenders to enter the Dow Jones industrial average (.DJI) now that two constituents are trading below $2, making their status as blue chips tenuous. The Internet companies are among a variety of companies eyed as potential Dow replacements, a diverse list that also includes former investment bank Goldman Sachs (GS) and former Dow star US Steel (X).

Financial Times:
- Credit market indicators – barometers of stress since the financial crisis began 18 months ago – are once more flashing red. Heightened concern over the fate of US carmakers and worries about escalating losses at banks and financial institutions and at General Electric, the largest debt issuer in capital markets, are creating a grim mood. “We are in another round of the credit crunch where the intensity is spreading,” Mary Miller, director of fixed income at T. Rowe Price, says.

- Egypt’s real estate market loses its fizz.

- China will reduce export taxes to zero and give more financial support to exporters as it tries to increase its share of global trade in the current crisis, the country’s commerce minister said on Monday. The collapse in global trade in recent months led to a 17.5 per cent drop in Chinese exports in January and domestic media reports indicate the decline was even larger in February. The ruling Communist party wants to reduce the economy’s reliance on external demand for cheap Chinese exports, but such a rebalancing will take years. “Global trade and demand [are] collapsing and so are the currencies of many of China’s competitors and customers,” said Isaac Meng, economist with BNP Paribas. “This is putting huge pressure on China’s export industries and the government to push all the buttons to boost the economy.”

- European ministers said on Monday they had no plans to add to recent fiscal stimulus packages despite calls from the US for radical expansions in government action to boost ailing economies. Meeting in Brussels, finance ministers from the countries in the eurozone said they wanted first to see the effect of stimulus packages that had been passed. Peer Steinbrück, the German finance minister, said: “We are not debating any additional measures.” Jean-Claude Juncker, chair of the “eurogroup” of ministers, said: “The 16 finance ministers agreed that recent American appeals insisting Europeans make an added budgetary effort were not to our liking.” European ministers are concerned that building up more government debt would threaten the stability of the eurozone and say that they want to assess the effects of spending boosts that have already been passed before considering more. The US Treasury declined to comment on their remarks on Monday. The G20 finance ministers meet near London this weekend amid deepening gloom over the world economy. A new European Union policy paper, due to be approved by finance ministers today, calls the prospects of a return to economic growth next year “highly uncertain”.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (TXN), target $16.

Night Trading
Asian Indices are -.50% to +.75% on average.
S&P 500 futures +.87%.
NASDAQ 100 futures +.79%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Global Commentary
WSJ Intl Markets Performance
Commodity Futures
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (DKS)/.52

- (KR)/.51

- (BF/B)/.80

- (JCG)/-.27

- (HOV)/-1.62

- (APEI)/.23

Economic Releases

10:00 am EST

- Wholesale Inventories for January are estimated to fall 1.0% versus a 1.4% decline in December.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, IDB/TIPP Economic Optimism Index, (ACIW) analyst day, (FIC) analyst meeting, Bernanke speaking on bank regulation, (CVX) analyst meeting, (TEL) meeting of shareholders, (DIS) meeting of shareholders, Raymond James Institutional Investors Conference, JPMorgan Aviation & Transportation Conference, Barclays Healthcare Conference, Deutsche Bank Hospitality & Gaming Conference, (AMAT) meeting of stockholders, (APC) investor conference and the (ADI) shareholder meeting could also impact trading today.

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

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

Evening Review
Market Summary
Top 20 Biz Stories
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Futures
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Real-Time Stock Bid/Ask
After-hours Stock Quote
After-hours Stock Chart
In Play

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