Stocks Finish Sharply Higher, Boosted by Financial, REIT, Road & Rail and Oil Service Shares

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Stocks Soaring into Final Hour on Less Economic Fear, Diminishing Credit Market Angst, Falling Financial Sector Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Technology longs, Financial longs, Biotech longs and Retail longs. I covered all of my (IWM)/(QQQQ) hedges, took profits in a trading long and added to my (MS) 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, every sector is rising and volume is about average. Investor anxiety is about average. Today’s overall market action is very bullish. The VIX is falling 6.65% and is very high at 42.91. The ISE Sentiment Index is above average at 182.0 and the total put/call is slightly below average at .74. Finally, the NYSE Arms has been running very low most of the day, hitting .17 at its intraday trough, and is currently .36. The Euro Financial Sector Credit Default Swap Index is plunging 9.09% today to 157.50 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 dropping 3.38% to 191.79 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising .24% to 102 basis points. The TED spread is now down 361 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 6.67% at 59.50 basis points. The Libor-OIS spread is falling 1.66% to 99 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 5 basis points to 1.30%, which is down 134 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 unch. today. The 2-year swap spread is rolling over again and has dropped 24 basis points in 11 days. As well, the euro financial sector credit default swap index has plunged 51 basis points in 10 days, which is a huge positive, as well. It is also a big positive to see the US sovereign debt credit default swap index down to 83.0 from 100.5 on February 25^th. Cyclical stocks are especially strong today, with the MS Cyclical Index soaring 7.51%. Banks, REITs and Homebuilders are all seeing double-digit percentage gains. I suspect US stocks will digest today’s gains in an orderly fashion for a couple of days before surging again towards week’s end. US stocks continue to trade in a fashion that indicates at the very least a tradable rally, and quite possibly a major low, is now in place. Nikkei futures indicate an +165 open in Japan and DAX futures indicate an +16 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less financial sector pessimism, diminishing credit market angst, bargain-hunting and declining economic fear.

Today's Headlines

Bloomberg:

- U.S. Sales of previously owned homes unexpectedly climbed in February as record foreclosures brought bargain hunters into the market to take advantage of lower prices. Purchases increased 5.1 percent to an annual rate of 4.72 million from 4.49 million in January, the National Association of Realtors said today in Washington. “The decline in home prices and presence of deeply discounted foreclosures has increased affordability and enticed bargain hunters,” Michelle Meyer, an economist at Barclays Capital Inc. in New York, said before the report. The median listing price rose in California last month for the first time in three years, said Lawrence Yun, the real- estate agents group’s chief economist. Resales of single-family homes increased 4.4 percent to an annual rate of 4.23 million. Sales of condos and co-ops climbed 11.4 percent to a 490,000 rate. All four regions showed and increase in sales last month, led by a 15.6 percent gain in the Northeast. The drop in prices and declining mortgage rates have made buying a home more attractive. The National Association of Realtors affordability index reached a record high in January. Buyer traffic was up 5 percent last month, said Charles McMillan, NAR’s president and an agent in the Dallas-Fort Worth area. “It appears most of the increase in buyer traffic occurred in the latter part of the month after the $8,000 first- time buyer tax credit was put in place,” he said in a statement. “We expect to see sales picking up” around the middle of the year, he said.

- The Obama administration has found “considerable” investor interest in its plan to purge toxic assets from banks’ balance sheets, National Economic Council Director Lawrence Summers said. “Some of the major firms have suggested a willingness, and perhaps even an eagerness, to take part,” Summers said today in an interview on Bloomberg Television. “There’s considerable investor interest from a number of different quarters.” Treasury Secretary Timothy Geithner unveiled a program today that aims to use government financing to spur the purchase of $500 billion to $1 trillion in frozen assets. The effort relies on federal partnerships with hedge funds, private equity firms and other investors to buy the securities. Summers also said that investors in the Public-Private Investment Program won’t be subject to the compensation limits applied to major banks rescued by the government.

- Laurence Fink said BlackRock Inc.(BLK), the biggest publicly traded U.S. asset manager, will participate in the U.S. Treasury’s programs to purchase troubled securities from banks. BlackRock will take part in programs outlined today by the Treasury that will purchase loans and set up funds to buy mortgage-backed securities, Fink, chief executive officer of New York-based BlackRock, said today in an interview. “This is not a panacea; it is not a silver bullet,” Fink said. “But this will take some of the overhang out of the marketplace. It is incrementally a really good thing.”

- The cost to protect corporate bonds from default fell as the U.S. Treasury announced a plan to finance as much as $1 trillion in asset purchases to help repair banks’ balance sheets and end the crisis in credit markets. Credit-default swaps on banks including Citigroup Inc. and Bank of America Corp. fell for the first time in four days amid optimism that the plan announced today will allow banks to purge devalued assets that have led to more than $1.25 trillion in losses and writedowns globally by financial institutions. Contracts on benchmark credit-default swaps indexes in North America and Europe also fell, typically a signal of improving investor confidence. Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 12, linked to the debt of 125 companies in the U.S. and Canada, fell 6.5 basis points to 192 basis points as of 11:32 a.m. in New York, according to broker Phoenix Partners Group. In London, the Markit iTraxx Europe index of 125 companies with investment-grade ratings fell 6.5 basis points to 165 basis points, JPMorgan Chase & Co. prices show. Five-year contracts protecting against a default by New York-based Citigroup fell 27 basis points to 533 basis points, according to CMA DataVision in London. Swaps tied to Charlotte, North Carolina-based Bank of America declined 13 basis points to 298 basis points, and Wells Fargo & Co. contracts dropped 17 to 205. Swaps on Morgan Stanley fell 14 to 360, Goldman Sachs Group Inc. contracts decreased 19 to 259, and JPMorgan fell 19 to 168, CMA data show.

- Ford Motor Co.(F) CEO Mulally said the second-largest US automaker can survive without taking federal aid even if the economy worsens. Ford is the only US automaker to forgo government assistance.

- Stock exchanges around the world should set up systems for compiling data on short-selling to make such trades more transparent and dispel myths surrounding them, said the head of a task force studying the issue. The Alternative Investment Management Association, a London trade group for hedge funds, backed the regulators’ statement that short-selling is a legitimate practice, and the call for a consistent approach around the world. “We also agree that there should be appropriate reporting regimes for disclosing short positions to national regulators, although we believe that any reporting of short positions to the market should be in aggregate form only,” AIMA CEO Andrew Baker said in a statement.

- Crude oil rose to the highest in almost four months as the U.S. stock market advanced, signaling that fuel use in the world’s biggest energy-consuming country will rebound.

- Gold fell for a second straight session as equities rallied worldwide, eroding the appeal of the precious metal as an alternative asset. Silver also declined. “The gold market is moving simply as a measure of fear,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “As the stock market moves higher, some of the fear factor comes out of gold.” Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, rose to a record 1,115 metric tons last week. The fund has grown 43 percent this year.

- The yen fell against all of its 16 most actively traded counterparts on speculation additional U.S. government steps to help banks dispose of toxic assets will reduce demand for the Japanese currency’s safety.

- Congress ‘Hypocrisy’ on Company Trips Irks US Hotel Industry. The U.S. Senate last month passed a measure limiting “luxury” spending for corporate travel by recipients of federal bailout funds. Two weeks later, about two dozen senators of both parties left town for political meetings on the Florida coast. Hotel-industry leaders are seizing on those trips as ammunition in a campaign to get lawmakers and the Obama administration to tone down the rhetoric against business travel, which they say is adding to their economic difficulties. “It’s just the hypocrisy,” said Frank Fahrenkopf, a former chairman of the Republican National Committee who is president of the Washington-based American Gaming Association, one of the groups urging politicians to moderate the criticism. “We’ve got to have Washington stop beating up on us.” On March 11, hotel executives including Jonathan M. Tisch, chairman of New York-based Loews Corp., which operates a chain of 18 hotels in North America, Bill Marriott, chairman of Bethesda, Maryland-based Marriott International Inc., the biggest U.S. lodging chain, and Jay Rasulo, chairman of Walt Disney Parks and Resorts, a unit of Burbank, California-based Walt Disney Co. that operates its theme parks, met with President Barack Obama and three Democratic senators to express their concern. The executives said the political attacks are having a broad effect on their business -- even though the restrictions are intended to apply only to recipients of federal bailout money -- and cancellations have been increasing as the rhetoric heats up. “We’ve seen companies cancel meetings last minute, leaving 100 percent on the table just to avoid criticism and ridicule,” said Frits van Paasschen, president and chief executive of White Plains, New York-based Starwood Hotels & Resorts Worldwide Inc., the third-largest U.S. lodging company, who attended the White House meeting. “We’ve also seen meeting planners move meetings from resort locations to city locations, at a greater cost to their companies, again, for optics’ sake,” he said. A preliminary survey by the U.S. Travel Association, a Washington trade group, suggests the hotel industry suffered about $1 billion in cancellations in January and February. Las Vegas has been hit especially hard, losing more than $131 million in non-gambling revenue in recent months. Over the weekend of Feb. 27, two weeks after the Senate passed the measure, the Democratic Senatorial Campaign Committee and the National Republican Senatorial Committee, the party fundraising arms for Senate candidates, each held their annual winter meetings in Florida. About a dozen Democrats, including Dodd, 64, gathered at the Marriott-operated Ritz-Carlton resort in Naples, Florida. Donors who gave at least $15,000 were invited and offered a “coastal view” room at the group rate of $469, according to the Democrats’ invitation. At least 11 Republican senators held a similar retreat at The Breakers resort in Palm Beach. Rooms could be had for $475 a night. For another $292, participants could play in a golf tournament. The invitation urged guests to make reservations for the resort’s spa “indulgences.”

- China’s top foreign-exchange official said the nation will keep buying Treasuries and endorsed the dollar’s global role, supporting the U.S. as the Obama administration increases spending to revive growth. Treasuries form “an important element of China’s investment strategy for its foreign-currency reserves,” Hu Xiaolian, director of the State Administration of Foreign Exchange, said at a briefing in Beijing today. “We will continue this practice.” “China’s so heavily invested in U.S. Treasuries that to stop buying now would have a negative impact that would see China’s investments fall in value,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “It’s pretty important for the U.S. that the main buyers keep making purchases.”

- The London interbank offered rate, or Libor, fell for the ninth straight day, according to the British Bankers’ Association. The rate that banks say they charge each other for three- month loans declined to 1.222 percent today, from 1.223 percent, the BBA said.

- Tiffany & Co.(TIF), the world’s second- largest retailer of luxury jewelry, gained the most in more than three months after it reported fourth-quarter profit that beat analysts’ estimates. Tiffany rose $2.98, or 15 percent, to $23.21 at 12:26 p.m. in New York Stock Exchange composite trading, the biggest increase since Dec. 4.

Wall Street Journal:

- The Recession’s Early Winners. The market is challenging conventional wisdom and turning up unexpected winners.

- Financial stocks led a market surge Monday after the government explained in greater detail its plans to take bad credit bets off of banks' hands.

- President Barack Obama expressed doubt about the constitutionality of a House bill that would impose heavy new taxes on certain Wall Street bonuses, clouding the measure's future.

CNBC:

- Poll: Is Treasury Plan Too Risky for Taxpayers?

- Some Real Estate Markets Warming Up.

Harper’s Magazine:
- Hedge Fund Socialism. There’s already much debate about the merits of the administration’s plan to clean up toxic assets, but one person I spoke with—a well-connected Democrat representing a big investment firm — was absolutely crystal-eyed about the fundamentals: Even as details are being worked out, he saw ample opportunities for his firm to make huge profits. Banks, hedge funds and other investors that take part in the plan cannot lose money, thanks to the government’s support and guarantees. Taxpayers, he said with a mix of regret and satisfaction, were getting shafted again. Incidentally, try to imagine if the Bush Administration had floated this plan. Is there anyone from the liberal blogosphere who wouldn’t be denouncing this as a Wall Street giveaway? Particularly given the architects of the Obama administration’s plan?

Fox News:

- Rep. Murtha Dogged By Questions About Earmark Use. Not since the FBI caught him on videotape in the Abscam corruption probe nearly three decades ago has Rep. John Murtha faced so many questions about his ethics. Rep. John Murtha celebrated his 35th anniversary as a congressman by getting an early start on his next campaign, staging an invitation-only fundraising luncheon for dozens of lobbyists and defense contractors at the private Army-Navy Country Club in Arlington, Va. But last month's event, with tickets starting at $1,400, was missing one longtime friend: Paul Magliocchetti, the founder of a lobbying firm that over the past two decades has been one of Murtha's biggest sources of campaign donations. Magliocchetti was absent because of what had happened three months earlier. At 7:30 one evening shortly after Thanksgiving, the FBI raided his lobbying firm, carting off records of the firm's political action committee and files of some of its lobbyists. The work of those lobbyists took them often to Murtha's Capitol Hill office, as well as those of fellow Democrats Peter Visclosky of Indiana, Jim Moran of Virginia and others on the defense appropriations subcommittee that Murtha chairs. The FBI says the investigation is continuing, highlighting the close tie between special-interest spending provisions known as earmarks and the raising of campaign cash.

All Things Digital:

- Comscore Finds A Glimmer of Hope: February e-Commerce Up. Has Consumer Spending Bottomed Out? Add February’s numbers to January’s data, which showed thesame 2% growth rate, and you can make the case that we’re seeing “marginal growth” in online sales, Fulgoni said this morning at the OMMA Global Hollywood.

The Boy Genius Report:

- AT&T: New iPhone will be hot, son. We can’t tell you where or who, but pretty high up in AT&T’s food chain, the following was reported to be said:

Washington Post:

- U.S. firms are not the only ones hoping to cash in on the $787 billion stimulus program. Foreign nations and companies are stepping up their lobbying efforts in Washington and in state capitals, hoping to gain vital business in hard times. Hundreds of foreign-owned companies, many of them with significant operations in the United States, are selling their expertise in clean energy, high-speed transit and other technologies that undergird key aspects of President Obama's stimulus efforts.

Lloyd’s List:

- The price of ships designed to haul coal, ore and grains will drop further as a slump persists Philippe Louis-Dreyfus, chairman of Louis Dreyfus Armateurs, said.

- Pacific panamax rates have slumped and are showing little chance of a quick revival as few cargoes enter the market and the tonnage list gets longer by the day. “It’s carnage,” said one Hong Kong-based broker who preferred to remain nameless. “Current Pacific panamax rates are barely covering operating costs and with a dearth of cargos and more and more ships coming available, rates are bound to fall further”. “It’s the age old problem – too few cargoes chasing too many ships,” he added. A Shanghai-based broker who preferred anonymity, said: “April cargoes have all but dried up. Whether charterers anticipated the market and were holding back cargoes waiting for rates to drop or whether there are simply no cargoes will be something we’ll know shortly.’’ “Even if there is a flurry of fixing, the oversupply of tonnage means the new business is unlikely to lift rates,” he added.

Digitimes:

- Intel Corp.(INTC) plans to increase the price of an Atom chip it sells in China as demand for the semiconductor outstrips supply.

- Taiwan Semiconductor Manufacturing Company (TSMC) has returned to almost full production, buoyed by a surge in short lead time orders for handset chips, telecom products and graphics processors, according to industry sources. The foundry has seen orders for the second quarter increase 10-30% sequentially. Handset chipmakers Texas Instruments (TI) and Qualcomm have increased their second-quarter orders by 10-15%, the sources said. Meanwhile, Altera has placed 10% more orders for the coming quarter, as demand for field-programmable gate arrays (FPGAs) is rising amid China's deployment of 3G networks. North America's switch to digital TV broadcasting has led to a substantial number of orders for network solutions, the sources noted. The foundry service provider also secured 30% more graphics chip orders from Nvidia for the quarter. Rival United Microelectronics Corporation (UMC) has also restored production at its fabs, having received better-than-expected orders from IC design houses for the second quarter, indicated the sources. Both top-two contract chipmakers have reportedly already brought back all employees to their 12-inch production lines, and further shortened or ended compulsory unpaid leave.

NY Post:

- AIG's toxic $165 million bonus package, which has sparked a nationwide fury over Wall Street pay practices and moved Congress to pass a law that will tax the cash payments at a staggering 90 percent clip, could have actually saved US taxpayers as much as $1.6 trillion. The crippled financial services firm had written into its $1.6 trillion book of derivatives a clause that would have put most every one of its mortgage-backed securities and CDS in technical default if the company reneged on making any payout greater than $25 million, according a white paper AIG filed with Washington on March 13.

Reuters:
- Bill Gross, the manager of the world's largest bond fund, gave the Obama administration's financial stability effort a much-needed endorsement on Monday, saying Pimco will participate in the public-private plan. "This is perhaps the first win/win/win policy to be put on the table and it should be welcomed enthusiastically," the co-chief investment officer of Pimco told Reuters. "From PIMCO's perspective, we are intrigued by the potential double-digit returns as well as the opportunity to share them with not only clients but the American taxpayer," Gross said. Gross's endorsement is important after the lack of big investor interest in the debut of the Federal Reserve's consumer lending program last week.

- According to Mark Kary, chief executive of Polar Capital, the hedge fund industry never really deserved to have grown to the best part of $3 trillion in the first place. He told today’s Reuters Hedge Fund and Private Equity Summit in London that while hedge funds had become a “fashion item” in the good times, when it comes down to it there simply isn’t enough talent to support an industry of $3 trillion. “This went from a $400 billion business to a $3 trillion business in the space of seven years and I just don’t think there’s enough talent around to be able to do that,” he said. “The idea that you can have 10,000 hedge funds all with a short book, all with a long book, all risk managing and all doing it supremely well is … absolute nonsense. It’s a skill set that only a very small number of people can execute properly.”

- A key derivatives index pegged to risky mortgage securities shot higher on Monday after U.S. Treasury Secretary Timothy Geithner unveiled a plan to boost trading in the illiquid assets, but later gave back some gains as market participants sought more answers. "The reaction to the plan has been positive for the markets. The ABX and CMBX indexes are higher on expectations for the program," said Mike Kagawa, portfolio manager at Payden & Rygel in Los Angeles. The top "AAA" slices of the subprime mortgage ABX index traded 1-1/2 points higher after initially jumping by as much as 3 points earlier as investors unwound bearish bets, traders said.

- Following are five facts about Canada's oil sands:

- Regulators launched a public consultation on Monday to forge a global approach to regulating naked short selling, a practice critics have blamed for exacerbating slides in bank shares.

Bear Radar

Style Underperformer:
Large-cap Growth (+3.49%)

Sector Underperformers:
Tobacco (-.12%), Foods (+1.19%) and Airlines (+1.19%)

Stocks Falling on Unusual Volume:
HRB, CGX, SIGM, TFX, NYM and HRS

Stocks With Unusual Put Option Activity:
1) RHT 2) AVB 3) ACH 4) VNO 5) CAH

Bull Radar

Style Outperformer:
Small-cap Value (+4.52%)

Sector Outperformers:
Banks (+10.29%), Oil Service (+7.61%) and Homebuilders (+7.54%)

Stocks Rising on Unusual Volume:
PCZ, RTP, HBC, JPM, CHK, CLF, PTR, TLK, CGX, ANDE, WAG, APA, GXDX, CNQR, CETV, SSRI, SOHU, ASIA, TNDM, CME, CHSI, IBKC, STBA, JNPR, CHCO, WIRE, MBFI, NEOG, PCLN, VSEA, TIF, IYZ, GNI, GLW, ALV, KIE and PHI

Stocks With Unusual Call Option Activity:
1) NVLS 2) GCI 3) AGN 4) ERIC 5) CCL

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