Stocks Finish Near Session Highs, Boosted by Financial, REIT, Homebuilding, Technology and Steel Shares

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Stocks Rising into Final Hour on Lower Long-term Rates, Less Financial Sector Pessimism, Diminshing Economic Fear, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Retail longs and Biotech longs. I added (MS) long and took profits in another long this morning, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is heavy. Investor anxiety is about average. Today’s overall market action is very bullish. The VIX is falling 1.85% and is very high at 40.09. The ISE Sentiment Index is slightly above average at 164.0 and the total put/call is below average at .66. Finally, the NYSE Arms has been running low most of the day, hitting .21 at its intraday trough, and is currently .35. The Euro Financial Sector Credit Default Swap Index is falling 1.05% today to 183.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling .56% to 238.15 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising .88% 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 down 3.49% at 65.63 basis points. The Libor-OIS spread is rising .2% to 106.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 9 basis points to 1.25%, which is down 139 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 .21%, which is down 1 basis point today. The Fed’s decision to buy up to $300 billion worth of longer-term US government debt over the next six months and expand purchases of mortgage-related debt is a “game changer,” in my opinion. Another significant drop in mortgage rates should put a floor under home prices in many cities. I am surprised the market isn’t up more on the news, but we are technically extended short-term and some large funds are likely using the recent surge to take profits. I expect any near-term profit-taking to be relatively mild and short-lived. Nikkei futures indicate an +103 open in Japan and DAX futures indicate an +83 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less economic fear, lower interest rates, less credit market angst and diminishing financial sector pessimism.

Today's Headlines

Bloomberg:

- Treasuries surged after Federal Reserve policy makers said they’ll expand asset purchases to include U.S. government debt as part of a plan to drive consumer borrowing costs lower and lift the economy from recession. Bonds gained for the first time in four days as the central bank said it will buy as much as $300 billion in long-term Treasuries.

- Sun Microsystems Inc.(JAVA) surged the most in more than 20 years in Nasdaq trading after the Wall Street Journal said International Business Machines Corp.(IBM) may buy the computer-server maker for at least $6.5 billion. The offer would value Sun at close to double the $4.97 closing price yesterday, the newspaper said, citing people familiar with the plan. The companies are in talks and may not reach a deal, the Journal said.

- Goldman Sachs Group Inc.(GS) and Morgan Stanley(MS) are benefitting from higher prices and volume in securities trading and sales following the collapse of rival firms and retrenchment by others, said Richard Bove, a bank analyst at Rochdale Securities. “This should actually be a very good quarter for both those companies,” Bove said today in a Bloomberg Television interview. Goldman and Morgan Stanley “should have very decent earnings throughout the year,” he said. (video)

- A group of five Russian companies may lease as many as 15 oil blocks, representing 15,440 square miles, for exploration in Cuba’s portion of the Gulf of Mexico, Reuters reported, citing a Cuban energy official. The Russians are studying the waters off the island nation’s northwest coast for possible oil reserves before choosing which they’d like to lease, Reuters reported, citing Manuel Marrero Faz, an official at Cuba’s Ministry of Basic Industry. China National Petroleum Corp. and Angola’s national oil company are also considering leasing blocks in Cuban waters, Reuters reported, citing Marrero. Cuba, whose 60,000 barrels a day of oil production comes exclusively from onshore wells, says it may have 20 billion barrels offshore, Reuters reported.

- Hedge-fund liquidations rose to an all-time high last year, with about 15 percent of the industry’s offerings disappearing as managers posted record losses, according to Hedge Fund Research Inc. About 1,471 funds shut down, data compiled by the Chicago- based research firm show. The closures exceeded by 70 percent the previous record of 848 set in 2005, the company said. In the fourth quarter, about 778 funds closed as investors withdrew $150 billion, Hedge Fund Research said.

- Mortgage applications in the U.S. increased last week as lower borrowing costs led to a surge in refinancing. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan rose 21 percent to 876.9 in the week ended March 13, the highest in two months, from 723.4 the prior week. The group’s refinancing gauge jumped 30 percent and its purchase index gained 1.5 percent. The lowest interest rates on record are enticing homeowners looking to lower their mortgage payments as the labor market deteriorates.

- The Obama administration is considering using a new Federal Reserve program designed to spur consumer lending to help remove distressed assets from banks’ balance sheets, according to people familiar with the matter. Officials may meld the Treasury’s plan to set up private investment funds to buy frozen assets with a Fed program originally aimed at spurring consumer loans, the people said. The Federal Deposit Insurance Corp. may also get a wider role, the people said.

- U.S. mergers and acquisitions may stage an unexpected recovery as International Business Machines Corp. and companies with cash prey on rivals struggling with depressed stock prices, bankers and lawyers said. “Clearly this is the time to make an acquisition if you are a company that has the cash,” said Frank Aquila, a partner at Sullivan & Cromwell LLP in New York. “The best returns have come from acquisitions done during an economic downturn.”

- Gold tumbled the most in two months on speculation the economy will recover and erode the appeal of the precious metal as a haven. Silver also slumped. “A general fear component is coming out of the gold market,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “We’re seeing the inflation hedge, the currency premium coming out of the market.” “Stock markets are starting to appear increasingly appealing to speculative funds and even individual investors,” said Jon Nadler, an analyst at Montreal-based Kitco Inc. “Safe- haven survival instincts have partially given way to the good old-fashioned profit motive.” Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, was unchanged yesterday after reaching a record 1,069 metric tons on March 16.

- Currency options suggest traders are the most optimistic about the euro against the dollar this year as speculation that the worst of the global financial crisis may be over reduces the refuge appeal of the greenback. Traders are paying the largest premium this year for one- month call options, which grant the right to buy the euro, relative to puts. BNP Paribas forecasts the euro will depreciate to $1.23 by the end of the second quarter because economic growth remains weak in the region, Galy said.

- China may export 80 percent less steel products this year because of the global recession, leading to rising inventories in the world’s largest producer of the material, the China Iron and Steel Association said today. “The export situation is very severe,” Shan Shanghua, general secretary of the association, said in a statement posted today on its Web site. The group had previously forecast a 50 percent drop in shipments. The prediction indicates Chinese exports will deteriorate further after shipments had plunged by 52 percent in the first two months of the year. Chinese steelmakers are also hurting from a 14 percent decline in domestic benchmark prices since February, with many suffering losses. Steel inventories gained 38 percent to 6.7 million metric tons by the end of February in China’s 20 biggest cities from January, Shan said.

- Natural gas fell to the lowest in more than six years in New York amid weakening fuel demand during the recession. The heating and industrial fuel has tumbled 73 percent since reaching a 2008 high of $13.694 per million British thermal units in July as consumption contracted. “We haven’t built in a floor yet,” said Carl Neill, an energy analyst at Risk Management Inc. in Chicago.

- President Barack Obama said he has “complete confidence” in Treasury Secretary Timothy Geithner and the furor over bonuses paid by American International Group Inc. shows the urgent need to overhaul the financial market regulatory system.

- David Friehling, Bernard Madoff’s accountant, was arrested and charged with securities fraud, the first accused accomplice to be named by authorities in connection with the money manager’s $65 billion Ponzi scheme.

- Komatsu Ltd. expects sales of excavators and other earthmovers to fall 20 percent in the fiscal year from April as the financial crisis hurts global demand everywhere but China, the company’s chief executive said. Komatsu, the world’s second-largest maker of construction machinery, expects to post 2 trillion yen ($20 billion) in total sales in the year ending March 31.

- Mexico will apply tariffs of 10 percent to 45 percent on at least 90 products from the U.S. in retaliation for the U.S. scrapping a test program allowing Mexican trucks to deliver goods beyond a U.S. border zone. Among affected goods are certain fruits and vegetables, wine, juices, sunglasses, toothpaste and coffee, according to a government statement. Most tariffs are 10 percent to 20 percent, with unspecified fresh products subject to a 45 percent charge. The tariffs will apply to $2.4 billion of goods and take effect tomorrow, Economy Minister Gerardo Ruiz Mateos said yesterday. Talks to diffuse the first trade dispute of President Barack Obama’s administration can’t begin until the U.S. has a Commerce Secretary, Ruiz Mateos said.

Wall Street Journal:

- The Federal Reserve said Wednesday it will buy up to $300 billion in longer-term Treasurys and raise the size of lending programs already aimed at reducing mortgage rates by another $750 billion, a forceful reminder that officials still have powerful tools to combat the recession. The Fed, as universally expected, also took no action on its main policy rate, holding it near zero. The commitment to buy Treasury securities and additional mortgage-related debt will almost certainly cheer Wall Street, since the combination should mean lower rates for a variety of business and consumer loans.

- India's gold imports are likely to repeat last month's near-zero level in March despite a fall in local spot prices over the last three weeks, a top trade official said Tuesday. "There is no demand for gold. It is unlikely to be there in March," Suresh Hundia, president of the Bombay Bullion Association, told Dow Jones Newswires. "Imports do not seem possible."

- Investors in General Electric Co.(GE) will get a more detailed picture of what the world's largest landlord holds in its commercial real-estate portfolio when GE's finance arm updates investors on its businesses and financials Thursday.

- The battle over a bill that would ease union organizing is zeroing in on lawmakers in three states -- Pennsylvania, Arkansas and Colorado. Business and labor are pressuring three key senators who are up for re-election in 2010, sparing little expense as they ratchet up television and radio ads, and recruit well-connected lobbyists. "This is truly one of those defining votes," said Terry Madonna, a professor of political science at Franklin & Marshall College in Lancaster, Pa. The senators, he said, "run the risk of incurring the wrath of the business community and labor in ways that are not likely to be forgiven." In Arkansas, Wal-Mart Stores Inc., which is bitterly opposed to the bill, has hired a Democratic lobbyist -- and former staffer of Sen. Blanche Lincoln -- to help defeat the bill. Meanwhile, on Monday, the AFL-CIO hosted a candlelight vigil with union members, religious leaders and state politicians outside the Capitol building in Little Rock to urge passage of the bill. In Pennsylvania, the state AFL-CIO has discussed having its members register as Republicans to back Sen. Arlen Specter in a tough primary fight he faces next year -- if he supports the bill. Another target is newly appointed Sen. Michael Bennet of Colorado, who has no track record on the bill but who faces an election in 2010. Andy Stern, president of the Service Employees International Union, visited Sen. Bennet the day the bill was introduced last week to discuss its importance. The SEIU has said a "no" vote on the bill would affect its support for the Democrat in 2010.

- American International Group Inc., bowing to public outcry and harsh criticism from federal officials, has asked some of its employees to give back at least half of the controversial bonuses handed out in recent days.

NY Times:

- Some of the billions of dollars the U.S. government paid to bail out American International Group stand to benefit hedge funds that bet on a falling housing market, The Wall Street Journal said, citing people familiar with the matter and documents it had reviewed. A.I.G. has put in escrow some money for at least one major bank, Deutsche Bank , whose hedge fund clients bet against the housing market, the newspaper said, citing a person familiar with the matter. Investment banks such as Goldman Sachs and Deutsche Bank sold financial instruments to hedge funds letting them bet that mortgage defaults would rise, the paper said, adding that the instruments were credit default swaps — a form of insurance that pays out in the event of a debt default. From mid-September to the end of last year, A.I.G. and the government paid $5.4 billion to Deutsche and $8.1 billion to Goldman under credit default swap contracts the insurer had written, the newspaper said. It is not known which hedge funds made those bets with specific banks, The Journal said, adding several large funds made big, ultimately profitable, wagers that mortgage defaults would increase.

Boston Herald.com:

- Hotel and tourism industry officials are warning about a damaging “AIG effect” on their local businesses. Alarmed at the fall-off in corporate bookings at local hotels, restaurants and other venues, the hospitality types say congressmen need to tone down their anti-business rhetoric. And they specifically said Sen. John Kerry’s plan to crack down on extravagant events organized by Wall Street bailout recipients is sending a bad message to other businesses. “The rhetoric coming from Washington that has turned the meetings and convention industry into red meat for politicians is chilling,” said Pat Moscaritolo, head of the Greater Boston Convention & Visitors Bureau. “Real private-sector jobs are now suddenly in peril unless our elected officials tone down the rhetoric.” Paul Tormey, general manager at the Fairmont Copley Plaza Hotel, said the recession has clearly hit hotels and the entire hospitality industry hard. But he said some corporate meeting planners who work for non-bailout businesses are reluctant to book events, afraid they’ll get criticized.

The Washington Post:

- President Barack Obama’s advisers are lobbying lawmakers to use a legislative shortcut so Republican support wouldn’t be needed to pass his energy and health care proposals. The procedure would allow the initiatives to be folded into a measure that would require only 51 votes to end debate rather than the usual 60. Advocating the strategy conflicts with Obama’s stated goal of trying to foster bipartisanship. Republicans have protested the government expanding healthcare programs and taxing greenhouse gas emissions without their input.

USAToday:

- Rep. Connie Mack, R-Fla., called today for Treasury Secretary Tim Geithner to resign or be fired. His spokeswoman, Stephanie DuBois, says that "to the best of my knowledge" Mack is the first member of Congress to do so. "This week’s news on the AIG bonus scandal is but the latest fiasco under his watch and he has lost the confidence of the American people," Mack said in a statement this morning. "Quite simply, the Timothy Geithner experience has been a disaster ... Timothy Geithner should either resign or be fired for the good of the country."

Politico:

- Barack Obama’s Big Bang Theory of Governance is starting to face its first big test among the new president’s fellow Democrats. At the White House Tuesday morning, Obama began the day with a sharp push-back against the idea that his uncommonly ambitious agenda on health care, energy and other initiatives is too much, too soon.
As Obama’s remarks echoed on Capitol Hill, it soon became clear that the skeptics are not just Republicans. There is rising doubt among Democrats — particularly moderates already concerned about the big costs and deficits called for in Obama’s budget — that either Obama or Washington have enough bandwidth this year to stimulate the economy, overhaul the failed financial sector and move on to a far-reaching domestic agenda.

AP:

- Guaranteeing health insurance for all Americans may cost about $1.5 trillion over the next decade, health experts say. That's more than double the $634 billion 'down payment' President Barack Obama set aside for health reform in his budget, raising the prospect of sticker shock at a time of record federal spending. Administration officials have pointedly avoided providing a ballpark estimate, saying it depends on details to be worked out with Congress. The White House had no immediate response to questions Tuesday.

Financial Times:
- Goldman Sachs(GS) is looking to raise potentially several billion dollars from external investors for a new global fund that will invest in the debt of troubled companies. The fund, which will invest in stressed and distressed debt, will be headed by Richard Friedman, Goldman’s head of merchant banking and run under the PIA group, the bank’s private equity arm.

Financial Times Deutschland:

- Luxembourg Prime Minister Jean-Claude Juncker, who also leads a group of euro-region finance ministers, said the idea that a euro country could default on its debt is “pure theory,” citing an interview. Still, any bailout of troubled euro nations will be linked to “conditions,” Juncker said. The policy maker rejected any involvement by the International Monetary Fund in the single currency bloc, “as it would damage the euro area’s reputation if a euro member would have to go to the IMF.

Manager Magazin:

- Bill Gross, manager of Pacific Investment Co.’s $138 billion Total Return Fund, said the European Central Bank should turn its focus to the dangers of deflation, “the true enemy of the economy,” citing an interview. The fund manager said he expects a muted recovery in global economic growth in 2010 at the earliest.

The Australian:

- The latest bubble to burst is Barack Obama's. He deserved everyone's best wishes as he started out trying to govern the US out of the mess he found it in, but in more than two months he has taken ownership of the financial crisis, and the days of blaming the last administration are over. The President's political capital is now on the line, and his poll numbers have started to slip.

Bear Radar

Style Underperformer:
Large-cap Growth (-.56%)

Sector Underperformers:
Gold (-4.18%), Road & Rail (-3.62%) and Construction (-1.73%)

Stocks Falling on Unusual Volume:
HBC, GIS, RTP, FTO, WBD, SU, HES, EOG, HMY, SOHU, ASIA, SIGM, BCH and SSS

Stocks With Unusual Put Option Activity:
1) JAVA 2) SOHU 3) LBTYA 4) GIS 5) AIG

Bull Radar

Style Outperformer:
Small-cap Growth (-.37%)

Sector Outperformers:
Computer Hardware (+6.63%), Banks (+2.29%) and Restaurants (+1.57%)

Stocks Rising on Unusual Volume:
DRI, CAKE, SNDK, OLN, GEOY, SMTS, TLEO, BOBE, ADBE, NTAP, CBRL, PFCB, CERN, ALXN, GES and AIR

Stocks With Unusual Call Option Activity:
1) WDC 2) GES 3) LRCX 4) GIS 5) BK

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