Stocks Lower into Final Hour on Profit-taking, More Shorting

BOTTOM LINE: The Portfolio is mixed into the final hour as gains in my Medical longs and Financial longs offset losses in my Biotech longs and Semi longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is about average. Investor anxiety is about average. Today’s overall market action is neutral. The VIX is falling 1.78% and is very high at 42.46. The ISE Sentiment Index is below average at 128.0 and the total put/call is slightly below average at .73. Finally, the NYSE Arms has been running high most of the day, hitting 9.79 at its intraday peak, and is currently 1.40. The Euro Financial Sector Credit Default Swap Index is down 1.28% today to 159.33 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 2.32% to 187.35 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is falling 1.37% 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 .82% to 60.75 basis points. The Libor-OIS spread is falling .30% to 99 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 6 basis points to 1.36%, which is down 128 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 up 1 basis point today. Today’s action appears to be another healthy consolidation of recent gains rather than the start of another decline. Market leading stocks are firm. As well, Education, Road & Rail, Medical, Disk Drive, Computer, Paper, Steel and Defense stocks are all higher on the day. Breadth isn’t too bad today considering the losses in the major averages. REITs and Banks are today’s biggest losers, but they are maintaining most of yesterday’s huge gains. The US sovereign debt credit default swap is falling another 13.2% today to 72.0, which is a big positive again. One of my longs, (QSII) is hitting a new record high today on above-average volume. While it is extended near-term, I still think this stock has significant upside from current levels longer-term. Nikkei futures indicate a -38 open in Japan and DAX futures indicate an +11 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, diminishing credit market angst, bargain-hunting and declining economic fear.

Today's Headlines

Bloomberg:

- The S&P 500 is 8.6% below its “fair value” based on expected profits, said Abby Joseph Cohen, a senior investment strategist at Goldman Sachs(GS). A year from now the S&P 500 should be higher than 1,000, she said.

- The S&P 500’s 10-day rally since March 9 signaled more gains ahead, as rising stocks exceeded falling ones to a degree seen only seven other times since 1930, Bespoke Investment Group said. Advancing stocks outnumbered decliners by an average of 36% of the number of equities listed on the NYSE. The main index for American equities has posted additional gains in the week, month and quarter following six of the seven other 10-day rallies in which breadth averaged more than 35%, Bespoke said.

- Deutsche Bank AG and Credit Suisse Group AG, two of Europe’s biggest banks, said 2009 started well after they posted losses last year and cut the compensation of their chief executive officers by about 90 percent. Deutsche Bank CEO Josef Ackermann said Germany’s biggest bank may return to profit in 2009 after a “good start” to the year. Credit Suisse, Switzerland’s second-biggest bank by assets, is positioned “to prosper when markets recover,” the Zurich-based company said in its annual report, published today. Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. said this month that they were profitable in the first two months of the year, lifting the Bloomberg Europe Banks and Financial Services Index by 36 percent in the past two weeks.

- Saudi Aramco will invest 100 billion riyals ($27 billion) in building the Ras Tanura petrochemical project with Dow Chemical Co. as the world’s biggest state oil company maintains spending to expand production amid the global credit crunch. Saudi Arabia, the world’s largest oil supplier, “still holds on to its long-term investments in expanding its oil and gas sectors,” Aramco’s Chief Executive Officer Khalid A. Al- Falih said in an e-mailed statement received late yesterday. The kingdom plans to increase crude output capacity to 12.5 million barrels a day, a move that it says will help allay market volatility and concern about adequate supply. Aramco plans to implement 144 projects in the next five years, of which eight are “giant,” to help reach its output targets. Oil producing countries should use the economic crisis to “formulate future investment strategies and prepare for the coming economic expansion periods,” Al-Falih said in the statement. Saudi Arbaia is funneling about $90 billion of its oil wealth back into production and refining in the next five years in an effort to retain its status as the world’s largest oil exporter.

- China, the world’s second-biggest energy users, raised fuel prices for the first time this year to reflect the gain in global oil prices. The gasoline price will be increased by $42 a metric ton, starting tomorrow, citing the National Development and Reform Commission, China’s top economic planner.

- Wall Street bond trading is heading back to the 1980s, when private partnerships and independent firms dominated the market. Jon Bass, who traded debt five seats from Salomon Brothers Inc. Chairman John Gutfreund and later helped run fixed income at UBS AG, joined equity broker BTIG LLC to help start its credit operation last month. BTIG, with a pool table and gym adjoining its seventh-floor midtown Manhattan trading room, is one of more than 50 credit dealers seeking to take advantage of the widening gap at which securities are bought and sold. Smaller firms are emerging from the wreckage of the world’s largest financial companies, which are conserving capital following more than $1.2 trillion of writedowns and credit losses since the start of 2007. They’re luring traders with a shot at $500,000 commissions for two days’ work as banks that accepted federal bailouts retrench and slash bonuses.

- The cost of protecting corporate bonds from default tumbled on speculation Treasury Secretary Timothy Geithner’s $1 trillion toxic-asset plan will ease the global credit crisis. The Markit iTraxx Crossover Index of credit-default swaps on 45 companies with mostly high-risk, high-yield credit ratings dropped 20 basis points to 885, according to JPMorgan Chase & Co. at 10:34 a.m. in London. “This really could be the sale of the century,” Gary Jenkins, head of fixed income research at Evolution Securities, wrote in a note to investors. “It’s not every day an investor gets the opportunity to bid on an asset where they only have to put in 1/14 of the total price but receive 50 percent of the profits.” The plan calls for investors to inject 7.14 percent, or 1/14, of the purchase price into a fund. The government will match the investment and subsidize the remaining 85.7 percent with a Federal Deposit Insurance Corp.-guaranteed loan. The Markit iTraxx Financial Index tied to 25 European banks and insurers dropped 2 to 158 and the subordinated index decreased 8 to 297. The new program “should support asset values and liquidity,” Deutsche Bank AG Sydney-based analysts Gus Medeiros, Colin Tan and Ken Crompton said in a note to clients today. The new mechanism for asset purchases removes some uncertainty and “may prevent banks from hoarding assets to avoid writedowns.”

- Crude oil fell from the highest close in almost four months as a stronger dollar reduced the appeal of commodities to investors, and on speculation that a government report will show U.S. inventories gained. Oil fell as much as 1.7 percent after the U.S. currency rebounded against the euro. A stronger dollar makes commodities less attractive as a hedge against inflation. U.S. crude oil supplies probably rose last week, according to a Bloomberg News survey before an Energy Department report tomorrow. “The fundamentals of supply and demand don’t justify oil going to $55 or $60,” said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. “The supply of oil in the United States definitely doesn’t justify the rally. I think we will go down into the high $40s.” “OPEC countries can do very little to push prices up,” former Saudi Arabian Oil Minister Sheikh Ahmad Zaki Yamani said today at a seminar organized by the London-based Centre for Global Energy Studies. Crude-oil demand is set to “collapse” in the second quarter as refiners trim imports for seasonal maintenance, Edward Morse, head of economic research at LCM Commodities LLC, said at the CGES conference. U.S. government measures to resolve the financial crisis have helped prices stabilize and will likely prevent a drop toward $30 a barrel, he said. “Oil-market fundamentals remain weak, they don’t justify $50 a barrel; $75 is wishful thinking,” Morse said.

- Gold fell the most in almost a week on speculation that a U.S. government plan to rid banks of toxic assets will revive lending and the economy, eroding the appeal of the precious metal. Silver also declined. Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, dropped from a record yesterday for the first time since March 6. “Let’s not forget that gold is one of the best barometers of pessimism still out there,” said Jon Nadler, an analyst at Kitco Inc. in Montreal. Gold gained this year as investors bought the metal as a store of value against financial turmoil, analysts said. “Gold prices will face pressure from the stock market’s favorable reception of the Treasury’s plan to remove toxic assets from banks’ balance sheets,” said Tom Pawlicki, an analyst at MF Global Ltd. in Chicago. “The strength could cause timid investment in gold to flow toward equities.”

- The U.S. Senate may delay considering a tax increase on employee bonuses like those paid by American International Group Inc. after President Barack Obama signaled reservations and Republican opposition hardened.

- China’s call for a new international reserve currency may signal its concern at the dollar’s weakness and ambitions for a leadership role at next week’s Group of 20 summit, economists said. Central bank Governor Zhou Xiaochuan yesterday urged the International Monetary Fund to create a “super-sovereign reserve currency.”

- Richard Bernstein, chief investment strategist, and David Rosenberg, the chief North American economist, plan to leave Bank of America Corp. within two months, a company spokeswoman said. Bernstein, 50, will start his own money management company after leaving on April 15, and Rosenberg, a native of Canada who plans to leave on May 11, will join Gluskin Sheff & Associates in Toronto, said a person familiar with the decisions.

- The yen fell to a five-month low against the euro as U.S. plans to help banks dispose of toxic assets spurred investor appetite for higher-yielding currencies.

- China carried out more executions than the rest of the world put together last year, Amnesty International said today as it pushed for nations to abolish capital punishment. Of 2,390 recorded executions in 25 nations, 72 percent, or at least 1,718, were in China, the London-based human rights group said in a report.

- Allergan Inc.(AGN), maker of the Botox wrinkle treatment, rose to the highest value in five months in New York trading on speculation the company might be bought. Allergan surged $4.07, or 9.4 percent, to $47.24 at 11:22 a.m. in New York Stock Exchange composite trading. Earlier the shares rose to $50.25, the highest since Oct. 2.

Wall Street Journal:

- One Way to Stop Bear Raids. In all the uproar over AIG, the most important lesson has been ignored. AIG failed because it sold large amounts of credit default swaps (CDS) without properly offsetting or covering their positions. What we must take away from this is that CDS are toxic instruments whose use ought to be strictly regulated: Only those who own the underlying bonds ought to be allowed to buy them. Instituting this rule would tame a destructive force and cut the price of the swaps. It would also save the U.S. Treasury a lot of money by reducing the loss on AIG's outstanding positions without abrogating any contracts. CDS came into existence as a way of providing insurance on bonds against default. Since they are tradable instruments, they became bear-market warrants for speculating on deteriorating conditions in a company or country. What makes them toxic is that such speculation can be self-validating. Going short on bonds by buying a CDS contract carries limited risk but almost unlimited profit potential. By contrast, selling CDS offers limited profits but practically unlimited risks. This asymmetry encourages speculating on the short side, which in turn exerts a downward pressure on the underlying bonds. The negative effect is reinforced by the fact that CDS are tradable and therefore tend to be priced as warrants, which can be sold at anytime, not as options, which would require an actual default to be cashed in. People buy them not because they expect an eventual default, but because they expect the CDS to appreciate in response to adverse developments. It's clear that AIG, Bear Stearns, Lehman Brothers and others were destroyed by bear raids in which the shorting of stocks and buying CDS mutually amplified and reinforced each other. The unlimited shorting of stocks was made possible by the abolition of the uptick rule, which would have hindered bear raids by allowing short selling only when prices were rising. The unlimited shorting of bonds was facilitated by the CDS market. The two made a lethal combination. Many argue now that CDS ought to be traded on regulated exchanges. I believe that they are toxic and should only be allowed to be used by those who own the bonds, not by others who want to speculate against countries or companies. Under this rule -- which would require international agreement and federal legislation -- the buying pressure on CDS would greatly diminish, and all outstanding CDS would drop in price. As a collateral benefit, the U.S. Treasury would save a great deal of money on its exposure to AIG.

- A senior fund manager from BlackRock Inc.(BLK) praised the latest details of the government's bank rescue program Monday and said the plan will help stabilize credit markets and offer investment opportunities. Curtis Arledge, co-head of U.S. Fixed Income in BlackRock's Fixed Income Portfolio Management Group, said the company plans to apply as an investment manager with the Treasury's public-private investment program, which is aimed at helping banks remove toxic assets from their balance sheets. BlackRock rival Pacific Investment Management Co. has also said it plans to apply for an investment management slot.

- The biggest peril hedge-fund investors see in the months ahead isn’t the credit-market paralysis that has spawned a rising number of government spending programs, nor is it the expected performance of funds chastened by the industry’s worst year on record in 2008. No, the biggest concern among hedge-fund investors in 2009 is hedge-fund investors themselves. In a shrinking fund universe that soon could control just half the assets it did a year ago, hedge-fund clients are eying each other. Withdrawals of money top the list of biggest challenges fund managers face in the next 12 months, according to the 2009 Alternative Investment Survey out today from Deutsche Bank. The very question of survival for hedge funds rests most solidly on the issue of how much money investors will pull, versus how much they will keep in place to ride out the financial storm, the seventh annual report shows.

CNBC:

- PIMCO portfolio manager Paul McCulley expects collaterialized debt obligations to be part of the US government’s plan to purchase toxic assets to revive the world’s largest economy. “When you said ‘toxic assets,’ that includes a lot of things,” McCulley said. “I think ultimately CDOs will be involved in this process.”

- The growing inventory of distressed homes on the market may be sending shock waves through the economy, but it’s also giving investors a wider window of opportunity.

- An email from the head of a controversial unit at AIG suggests employees who gave up their bonuses did not do so voluntarily, but feared their names would be released if they did not. The email, obtained by CNBC, states the following: “Please be aware that we have received assurances from Attorney General Cuomo that no names will be released by his office before he completes a security review which is expected to take at least a week. To the extent that we meet certain participation targets, it is not expected that the names would be released, at all.”

FHFA:
- U.S. home prices rose 1.7 percent on a seasonally-adjusted basis from December to January versus consensus estimates of a .9% decline, according to the Federal Housing Finance Agency's monthly House Price Index. December's previously reported 0.1 percent increase was revised to a 0.2 percent decline. For the 12 months ending in January, U.S. prices fell 6.3 percent. The U.S. index is 9.6 percent below its April 2007 peak.

ForexTV.com:

- Manufacturing activity in the U.S. Mid-Atlantic states picked up in March, according to a report from the Richmond Federal Reserve on Tuesday.The headline manufacturing index surged to a reading of -20 in March, beating expectations for a -51 reading. In February, the index stood at -51. Shipments catapulted to a reading of -15 in March from -56, while the new orders component rose to -20 from a prior reading of -54. The employment index rose to -28 from -41. Capacity utilization climbed two points to -14 from -44 in February, while the orders backlog rose to -37 from -51. The monthly Richmond Fed Manufacturing Index is a gauge of broad activity of manufacturers based in the Carolinas, the District of Columbia, Maryland, Virginia and West Virginia. It is a composite index representing a weighted average of the shipments, new orders and employment indexes.

Seeking Alpha:

- The iPhone now accounts for 50 percent of mobile Web traffic from smartphones in the U.S., according to an AdMob Mobile Metrics report released Tuesday morning. Over the past six months, the iPhone has taken share from Blackberry and Windows Mobile. In August 2008, the iPhone made up only 10 percent of mobile Web traffic from smartphones. During the same time, Blackberry’s share has gone from 32 percent to 21 percent (with the Curve and the Pearl coming in stronger than the Storm), while Windows Mobile has taken an even bigger hit, declining from 30 percent to 13 percent. Palm is also down to 7 percent from 19 percent six months ago. The only other smartphone operating system that is showing gains in mobile Web usage is Android, which has captured a strong 5 percent share just three months after launch. And that is up from 3 percent in January. The gains shown by the iPhone and Android show what is possible when phones are built with fully capable browsers and support a rich array of Web apps.

Scientific American:

- Research showing an El Nino event in 1918 was far stronger than previously thought is challenging the notion climate change is making El Nino episodes more intense, a U.S. scientist said on Tuesday. El Nino causes global climate chaos such as droughts and floods. The events of 1982/83 and 1997/98 were the strongest of the 20th Century, causing loss of life and economic havoc through lost crops and damage to infrastructure.

Boston Globe:

- President Barack Obama's aunt, a Kenyan immigrant who ignited controversy last year for living in the United States illegally, has returned to her quiet apartment in a Boston public housing project to prepare for an April 1 deportation hearing that will be closed to the public. She had been living in the country illegally since she was ordered deported in 2004. Now the woman Obama called "Auntie Zeituni" and described as a kindly woman who kissed him on both cheeks and guided him during his trip to Kenya 20 years ago, is in a national spotlight, where her case is seen as a test of the Obama administration's commitment to enforcing immigration laws. Critics, outraged that she is living in taxpayer-funded public housing while thousands of citizens and legal immigrants are on waiting lists, are scrutinizing the case for political favoritism. Others caution that she may have legitimate grounds to stay in the United States.

- The health care costs of Alzheimer's disease patients are more than triple those of other older people, and that doesn't even include the billions of hours of unpaid care from family members, a new report suggests. Compared with people aged 65 and older without Alzheimer's, those with the mind-destroying disease are much more often hospitalized and treated in skilled-nursing centers. Their medical costs also often include nursing home care and Medicare-covered home health visits. That all adds up to at least $33,007 in annual costs per patient, compared with $10,603 for an older person without Alzheimer's, according to a report issued Tuesday by the Alzheimer's Association.

Detroit Free Press:

- More than three in five Americans -- 61% -- oppose more government loans to General Motors Corp. and Chrysler LLC, according to a R.L. Polk survey released Monday that is consistent with other recent opinion research. The Polk results came one day after President Barack Obama told CBS "60 Minutes" interviewer Steve Kroft that "the only thing less popular than putting money into banks is putting money into the auto industry." In the Great Lakes region, where auto manufacturing is more prevalent, 16% "strongly agreed" when asked by Polk if they supported loans for GM and Chrysler. That compares with only 4% in the New England region.

NetworkWorld:

- A regional China Unicom Web site posted pictures and specs of the iPhone 3G and the Google Android-based G1 as rumors built that the mobile carrier could offer the iPhone 3G in China. The information (in Chinese), which listed smartphones supported by the 3G network China Unicom is building, appeared only on the Web site of the company's Shanghai branch and did not say whether the products would be offered in China. The site's changes follow media reports that a China Unicom delegation visiting Apple last week made a breakthrough in talks over offering the iPhone 3G on its network.

FINalternatives:

- Amidst the populist uproar about taxpayer-funded bonuses at insurer American International Group, here’s a tidbit bound to bring a smile to the faces of schadenfreudicts: Hedge funders made a lot less money last year. The average total compensation for hedge fund professionals fell 15.5% in 2008, and the average cash bonus fell 24%, according to Alpha magazine. Alpha’s third-annual hedge fund compensation report found that the average total compensation for all hedge fund professionals fell from $940,000 in 2007 to $794,000 last year. Worse still for hedgies, a quick rebound seems altogether unlikely. “A third of this industry is going away and not coming back,” John Pierson, CEO of search firm 10X Partners, said.

Market Folly:

- Pequot Capital March Commentary(Byron Wien).

Politico:

- At a time when his Washington honeymoon is turning into a hazing, President Barack Obama and his team are launched on a strategy to sail above the traditional White House press corps by reaching out to liberal commentators, local reporters and ethnic media. The highest-profile moments in the new approach have been well-noted, such as the president giving an interview to progressive radio host Ed Schultz and Obama calling on a reporter from the liberal-leaning Huffington Post at his first news conference. But those moves are only part of a much larger strategy aimed at communicating directly with audiences the White House believes are more sympathetic to the president’s agenda — and one in which much of the work is being done by Obama’s top advisers.

- White House press secretary Robert Gibbs said again Monday that it’s too early to say whether Democrats will use the budget process to ram through the president’s legislative agenda. But Senate Republicans — and even some Democrats — have a message for the Obama administration: Don’t even think about it.

Boston Herald:

- The honeymoon is over, a national poll will signal today as President Obama’s job approval stumbles to about 50 percent over the lack of improvement with the crippled economy. The sobering numbers come as the president backpedals from two prime-time gaffes - one comparing his bowling score to a Special Olympian and another awkwardly laughing about the economy, which prompted Steve Kroft of “60 Minutes” to ask “are you punch-drunk?” Pollster John Zogby said his poll out today will show Americans split on the president’s performance. He said the score factors out to “about 50-50.”

Reuters:
- Here’s another one that you can loosely file under “Government aid to newspapers,” even though there’s no money that taxpayers would fork over to newspapers. Maryland Democratic Senator Benjamin Cardin introduced a bill on Tuesday to allow newspapers to become non-profit organizations to help them survive.

- The U.S. economy should start growing by the end of this year and unemployment, expected to peak at around 9 percent, will begin to decline in 2010, Chicago Fed President Charles Evans said on Tuesday. "I think the U.S. economy will certainly begin to grow by the end of this year. I think the unemployment rate will begin to decline sometime in 2010, though I think it's going to take some time."

- US realtors see some light at end of tunnel.

Financial Times:
- In another small sign of life for the US housing market, the Mortgage Bankers Association said on Tuesday that mortgage demand will swell this year bringing the number of new home loans to the fourth highest total on record. The MBA revised its forecast for new loans upward by $800bn, predicting that aggressive Federal Reserve policies will drive the total loans originated to reach 2,780bn, the most since 2005. The revision was sparked by falling interest rates following last week’s Fed decision to purchase Treasury bonds and mortgage-backed securities which is expected to create a flurry of refinancing activity. “The vast majority of mortgages originated before the latter part of 2008 are probably going to have at least a 50 basis point refinance incentive for at least the next several months, with mortgage rates hitting lows not seen since the early 1950s and late 1940s,” said Jay Brinkmann, MBA’s chief economist. recent monthly figures have shown some bright spots in the stricken housing market. On Tuesday the Federal Housing Finance Agency estimated a better-than-expected 1.7 per cent rise in US home prices in January from the previous month. The annual drop of 6.3 per cent was the smallest in five months as the pace of declines has slowed. On Monday the National Association of Realtors said that home resales rose by 5.1 per cent in February from the month before while the median price of an existing home inched up.

La Tribune:

- Iraq plans to sign contracts by the middle of 2009 for the development of six oil fields and two natural gas fields, citing the country’s Oil Minister Hussain al-Shahristani. Contracts for a further 10 oil fields and one gas field could be concluded by the end of the year.

Chinanews:

- China barred the nation’s state-owned companies from taking part in speculative hedging, citing a government official. Companies that have suffered significant losses must report them within three working days, the report said.

Bear Radar

Style Underperformer:
Small-cap Growth (-1.19%)

Sector Underperformers:
HMOs (-2.82%), Semis (-2.48%) and Gold (-2.09%)

Stocks Falling on Unusual Volume:
MKC, PDA, PVA, BBL, SU, PCZ, AXA, CS, TTES, HUBG, CRXL, ATHN, NITE, CTXS, GBCI, AWR and GTY

Stocks With Unusual Put Option Activity:
1) USG 2) OMC 3) PCAR 4) AAP 5) HRB

Bull Radar

Style Outperformer:
Large-cap Value (-1.50%)

Sector Outperformers:
Papers (+1.27%), Computer Hardware (+.16%) and Education (-.12%)

Stocks Rising on Unusual Volume:
MHP, NOC, MWV, CLF, IOC, GEL, ALDN, CMTL, QSII, NILE, CONN, BIDU, PVH, AGN, NAT, YPF, WSM and HSP

Stocks With Unusual Call Option Activity:
1) LTD 2) WFR 3) TXT 4) SCHW 5) URBN

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Tuesday Watch

Late-Night Headlines
Bloomberg:

- Barton Biggs, the former chief global strategist for Morgan Stanley, said U.S. and emerging- market stocks will rise and that large technology companies are attractive. Biggs, who runs New York-based hedge fund Traxis Partners LP, said the Standard & Poor’s 500 Index may rally between 30 percent and 50 percent from the 12-year low reached on March 9. The index climbed 7.1 percent to 822.91 today, extending its two-week rally to more than 20 percent, meeting the common definition of a bull market. (video)

- The cost of protecting Asia-Pacific bonds from default plunged after the Obama administration announced a $1 trillion plan to help remove toxic assets from U.S. banks’ balance sheets. The Markit iTraxx Japan index of credit-default swaps dropped 40 basis points to 367, the biggest one-day fall since Dec. 12, Credit Suisse Group AG prices show. The Markit iTraxx Australia index fell 15 basis points to 355 as of 11:55 a.m. in Sydney, Citigroup Inc. data show. The new program “should support asset values and liquidity,” Deutsche Bank AG Sydney-based analysts Gus Medeiros, Colin Tan and Ken Crompton said in a note to clients today. The new mechanism for asset purchases removes some uncertainty and “may prevent banks from hoarding assets to avoid writedowns.” The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan was 10 basis points lower at 360 as of 9:10 a.m. in Singapore, Barclays Capital data show. The cost to protect South Korean government debt from default for five years fell 10 basis points to 350. Contracts on the senior debt of Macquarie Group Ltd., Australia’s largest investment bank, fell 50 basis points to 700, according to Citigroup. That’s the swaps’ biggest one-day decline since Jan. 2, according to CMA DataVision prices.

- Juniper Networks(JNPR) and McAfee Inc.(MFE) are among small technology companies that may be acquired because their valuation gap relative to bigger rivals such as Oracle Corp.(ORCL) has narrowed, UBS AG said. The 16 takeover targets, as identified by UBS, have on average an enterprise value 2.3 times their sales, compared with 1.7 times sales for the largest technology companies, according to the brokerage’s data. In November 2007 the ratios were 7.4 and 3.6, respectively. “Given current valuation, we would not be surprised if tech firms use the current dislocation to add growth or scale via M&A,” analyst Nikos Theodosopoulos wrote. Oracle and Cisco Systems may be seeking acquisitions, the analyst said. The following companies were identified by UBS as likely takeover targets: (BSCI), (CHKP), (CTXS), (EPIC), (FFIV), (INFA), (JNPR), (MFE), (NTAP), (NUAN), (QSFT), (RHT), (CRM), (TIBX), (VMW) and (WBSN).

- Goldman Sachs(GS) forecast a recession in Latin America this year as a deepening global slowdown erodes demand for the region’s exports. Latin America’s economy will shrink 1% this year, analysts led by Paulo Leme wrote. The analyst had previously expected zero growth for the region this year. Mexico’s economy will contract by 3% in 2009, compared to a previous forecast of a 1% contraction. Brazil’s gross domestic product will drop by 1%, compared with a previous estimate of zero growth for this year.

- Samsung Electronics, the world’s biggest computer-memory maker, had its share price estimate raised 21% by Deutsche Bank AG, which said cost cuts have improved the company’s earnings outlook. The brokerage reiterated its “buy” recommendation.

- Goldman Sachs Group Inc.(GS) would win investor support for selling a portion of its 4.9 percent stake in the Industrial & Commercial Bank of China Ltd. to raise more than $1 billion, two shareholders said. The New York-based company is mulling a possible sale of the shares, valued at about $7.5 billion, the Wall Street Journal reported yesterday, citing unidentified people familiar with the matter. Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment.

- U.S. Treasury Secretary Timothy Geithner speaks about the need for financial markets to take more risk at a Wall Street Journal conference in Washington. (video)

- Contract iron ore prices will drop for two years, undermined by a “whopping oversupply” of the steelmaking raw material, Citigroup Inc. said. Global demand may decline 7.5 percent this year, while supply rises 7 percent, Citigroup analyst Alan Heap told a conference in Perth, Australia. Contract iron ore prices may drop 30 percent this year and 20 percent in 2010, he said.

- The U.S. plan to relieve banks of real estate debt won initial support from investors, who set aside for now questions about asset pricing and whether they will be demonized for profiting from the financial crisis. “This is not a panacea; it is not a silver bullet,” Laurence Fink, chairman of BlackRock Inc., the largest publicly traded U.S. asset manager, said today in an interview. “But this will take some of the overhang out of the marketplace. It is incrementally a really good thing.”

Wall Street Journal:

- The Obama administration, after months of criticizing Wall Street, has been scrambling to woo top bankers and financiers to back its latest bailout plan. In recent days, in spite of public furor over huge bonuses paid at American International Group Inc., the administration has concluded that it needs the private sector to play a central role in fixing the economy. So over the weekend, the White House worked to tone down its Wall Street bashing and to win support from top bankers for the bailout plan announced Monday, which will rely on public-private investments to soak up toxic assets. But weeks of searing criticism by politicians and the public had left bankers leery of working with the government. After brainstorming about what to do about that problem, the White House resolved to try to take control of the debate, according to several administration officials. In weekend television appearances, President Barack Obama and other administration officials tempered their criticisms of the financial sector. Meanwhile, Treasury Secretary Timothy Geithner and his colleagues worked the phones to try to line up support on Wall Street for the plan announced Monday. They told executives they don't favor using the tax code to retroactively penalize specific individuals who had received bonuses, according to people familiar with the calls. They asked officials to sign on "in pencil, not ink," and to "validate" or "express support" for the plan, these people say. Some bankers say they turned the conversations into complaints about the antibonus crusade consuming Capitol Hill. Some have begun "slow-walking" the information previously sought by Treasury for stress-testing financial institutions, three bankers say, and considered seeking capital from hedge funds and private-equity funds so they could return federal bailout money, thereby escaping federal restrictions.

- Unable to sign up enough new cellphone subscribers, Sprint Nextel Corp.(S) is increasingly trying to use the excess capacity on its wireless network to power other consumer gadgets. Sprint, which has spent billions rolling out a high-speed data network, already handles wireless book downloads for Amazon.com Inc.'s popular Kindle reader, though Sprint's involvement is largely hidden from the public. The Overland Park, Kan., company is now talking with companies like GPS device maker Garmin Ltd., Eastman Kodak Co. and SanDisk Corp., which makes storage devices, about delivering wireless Internet service for their products, according to a person familiar with the matter.

- New York Attorney General Andrew Cuomo said late Monday that 15 of the top 20 recipients of $165 million in retention bonuses from American International Group Inc.'s Financial Products unit have agreed to give back their bonuses -- amounting to in excess of $30 million in cash. Mr. Cuomo's office said, in all, AIG FP employees agreed to return about $50 million in bonuses thus far.

- Big companies including General Electric Co. will likely profit from the billions of federal stimulus dollars going to doctors who buy and use electronic health records. But little-known niche players could be among the biggest winners.

MarketWatch.com:
- An index that tracks subprime mortgage-backed securities on Monday made its biggest one-day jump since early February, rallying after the Treasury Department released details of a plan to encourage investors to buy banks' illiquid assets. The index jumped to 25.29, up more than a percentage point from 24.20 on Friday, said publisher Markit late Monday. The index, known as ABX.HE.AAA, series 7-2, tracks bonds originated in late 2006 and the first half of 2007 that contain subprime mortgages and carry triple-A bond ratings.

- Goldman Sachs(GS) warrants held by Warren Buffett's Berkshire Hathaway are close to becoming a lot more valuable after a sharp rally in the investment bank's shares in recent months. In early October, Berkshire (BRKA) invested $5 billion in Goldman (GS) , getting 50,000 cumulative perpetual preferred shares in the investment bank that pay 10% a year. As a sweetener, the deal also included warrants giving Berkshire the right to buy 43,478,260 shares of Goldman common stock. The warrants expire in 2013 and can be exercised for an aggregate cost of $5 billion, or $115 a share.

CNBC.com:
- President Barack Obama on Monday named a longtime real-estate industry executive to head the Federal Housing Administration, which during the U.S. housing market's bust has become the main provider of loans to borrowers with weak credit. The White House on Monday named David Stevens as assistant secretary at the Department of Housing and Urban Development. Stevens is currently president and chief operating officer of Long and Foster Cos., a Chantilly, Va., based real estate brokerage. He previously worked at Wells Fargo & Co., mortgage finance company Freddie Mac and World Savings Bank, a California-based lender.

- Investors looking for any reason to drive stocks higher found their elixir in the government's bailout plan for toxic assets, and some think it could be only the beginning. The Treasury plan "may be a game-changer, because it's been sprinkled with some better-than-expected economic data," says Tom Sowanick, chief investment officer at Clearbrook Financial in Princeton, N.J. "If the tea leaves all start to line together I think this will be the beginning of a major bull market."

NY Times:

- Goldman Sachs(GS) is planning to give back its TARP money soon. Very soon, actually — ideally within the next month, according to people involved in the process That’s a much quicker timetable than the end-of-year goal previously set out by Lloyd C. Blankfein, Goldman Sachs’s chief executive. Goldman’s sudden urgency to return the money stems, in part, from the uproar over A.I.G.’s bonuses last week, and the criticism of Goldman over revelations that the firm had been the largest recipient of government money as a counterparty of bets placed with A.I.G. It’s also paying a hefty 5 percent interest payment to taxpayers for that money. “It’s just impossible to run our business in this environment,” said one senior Goldman executive who insisted on not being quoted by name for fear of crossing the Treasury Department. Of course, another factor in Goldman’s decision to return the money is that it can: the firm is known to be sitting on a balance sheet with about $100 billion of available cash, so a mere $10 billion should be no problem. If Goldman succeeds in returning our money, it could put pressure on other banks to give their money back, too, lest they appear weak. Goldman would also like to put an end to the whisper campaigns about ties between it and Mr. Paulson (and Timothy F. Geithner, too, for that matter). Paying back the TARP money would probably give Goldman Sachs a bigger lead over its rivals. With a Yankees-like payroll, it will continue to be able to steal the best talent from weaker firms that still have TARP money and are subject to restrictions on pay and the like. Perhaps the only firm besides Goldman that analysts feel confident can give the money back is JPMorgan Chase, which has expressed its own desire to return the cash.

IBD:

- That's what the founders of ArcSight (ARST) were told in 2000 when they went around asking chief information officers about their unmet needs. While security software could nab individual attacks, the CIOs wanted the equivalent of an air traffic control tower, a place to monitor the comings and goings and see any suspicious patterns.

Reuters:

- U.S. securities regulators are working on an updated version of the so-called uptick rule to regulate a type of trading blamed for dramatic declines in stocks, three sources familiar with the matter told Reuters on Monday. The updated version of the Depression-era rule is expected to account for changes in the market, including the advent of decimalization, which allows stocks to be traded in much smaller increments, the sources said. The sources also cautioned that the proposal was still in preliminary stages and could change before the April meeting. The proposal must be approved by a majority of the five SEC commissioners before the agency can solicit public comment and move on to the final rule-making stage. The agency is also examining whether there is a need for a circuit breaker on stocks. In such a scenario, if a stock drops by a certain percentage over a certain period of time, investors would be prohibited from shorting that stock for a specified time frame. One circuit breaker option includes setting thresholds for individual stocks -- based on a percentage decline -- beyond which "aggressive" shorting would be banned, said one source familiar with the situation. "There is some political pressure to get something done on the short sale rules so we're trying to come up with something that would satisfy the political pressure, but also not be too onerous on the market participants," the source said. Another source said the SEC is also considering a price test in which investors would only be allowed to short a stock if the bid for the stock was rising.

Financial Times:
- Goldman Sachs(GS) is working on a bid for iShares, the fast-growing asset management business that is being auctioned by Barclays. Bids for the business, which are due by the end of next week, could put a valuation as high as $6.5bn (£4.5bn) on the manager of exchange traded funds – the listed investment vehicles that track a market benchmark, an asset or a basket of shares, according to one person close to the process.

- A Lasting Rescue Rally? If the Treasury’s plan works, we may have seen the market’s bottom. (video)

- Hedge fund investors believe the industry will see even bigger withdrawals this year than last, when record levels of cash were pulled from the sector. A survey of investors by Deutsche Bank found a third expect more than $200bn to be withdrawn, after a net $155bn was taken out last year, according to calculations by Chicago consultancy Hedge Fund Research. Only a quarter of investors expect net inflows into the industry, and 82 per cent of the 1,000 surveyed said redemptions were the biggest issue hedge fund managers face. Deutsche found that most investors expected more than a fifth of hedge funds to go out of business this year, following a record year for closures last year, when performance was its worst on record. However, Sean Capstick, head of capital introductions at Deutsche’s prime brokerage, said the big managers were likely to survive as they could afford the expensive systems and controls investors increasingly demand. The survey, which covered investors with $1,100bn invested in alternative assets, found they were increasingly demanding better transparency and rating risk management as more important than a manager’s pedigree for the first time. As part of this trend managed accounts, where investors have their own account run by a manager, rather than putting money into a fund, are expected to grow sharply. Several big managers who have historically rejected managed accounts have recently begun accepting them.

Business Times:

- Prime office rents in Singapore fell 18% in the first quarter from the fourth quarter of 2008, citing a report by CB Richard Ellis. Average gross monthly rentals for Grade A office space fell to S$12.30 per square foot in the first quarter, citing CBRE’s estimates. Vacancies increased to 2.9% in the first quarter from .9% in the fourth quarter last year. Average monthly rents will probably fall below S$10 in the second-half of this year, citing Moray Armstrong, a CBRE executive director.

Beijing Times:

- China’s inventories of gasoline, diesel and kerosene rose by about 36% at the end of last month from a year earlier, citing a report by the China Petroleum and Chemical Industry Association. Fuel stockpiles reached 14.85 million metric tons at the end of February, an in increase of 11.4% from January, citing “weak” demand.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (AAP), target $45.

- Reiterated Buy on (AZO), target $183.

- Reiterated Buy on (MDCO), target $29

- Reiterated Buy on (NILE), target $36.

Night Trading
Asian Indices are +.75% to +2.0% on average.
S&P 500 futures -.59%.
NASDAQ 100 futures -.52%.

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
- (MKC)/.44

- (CCL)/.18

- (CMC)/.03

- (WSM)/.16

- (JBL)/.12

- (RBN)/.41

Economic Releases

- The House Price Index for January is estimated to fall .9% versus a .1$% gain in December.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Evans speaking, Fed’s Bullard speaking, Geithner/Bernanke Testifying on Rescue of AIG, weekly retail sales reports, Richmond Fed Manufacturing Index, Howard Weil Energy Conference, (SNX) shareholders meeting and the (SIGI) investor day could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by financial and technology stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.