Wednesday Watch

Late-Night Headlines
Bloomberg:

- Federal Deposit Insurance Corp. Chairman Sheila Bair said credit markets are showing signs that liquidity is returning, and banks are starting to make money as government rescue programs begin working. “I’m starting to get more optimism,” Bair said today in an interview on Bloomberg Television. “I think we are seeing some signs of thawing, some signs of improvement. Many banks are making money.” U.S. efforts to end the worst financial crisis in more than seven decades, including $700 billion to rescue financial firms, are “starting to work,” Bair said. (video)

- Bets against U.S. stocks reached the highest since September, according to short-selling data released by the New York Stock Exchange. More than 16.1 billion shares were sold short on the NYSE as of March 13, the exchange said today. That’s the most since 17.1 billion on Sept. 15, the day Lehman Brothers Holdings Inc. filed for bankruptcy.

- The cost of protecting Japanese corporate4 bonds from default declined, according to traders of credit-default swaps. The Markit iTraxx Japan index fell 10 basis points to 380 at 9:44 am in Tokyo, BNP Paribas SA prices show. Contracts on the debt of Sony Corp., the world’s second-largest consumer electronics maker, fell 10 basis points to 185, according to BNP.

- Investment demand for gold will rise to an all-time high of 52.3 million ounces this year, NY-based commodity-researcher CPM said today in its annual outlook report. That compares with 43.3 million ounces in 2008. Demand for gold to maker jewelry will drop 7.1% to 56.5 million ounces as consumer spending weakens, the group said. Supplies of gold, including mine outputs and recycling, will rise 3.3% to 118.6 million ounces this year, CPM said. Mine production will advance 3.4% to 57.2 million ounces this year from 55.3 million in 2008, the company said.

- The Federal Reserve will start purchasing long-term Treasuries tomorrow, aiming to bring down borrowing costs by employing tools last used in the 1960s. The first operation in the $300 billion effort is aimed at notes maturing from February 2016 to February 2019, the New York Fed Bank said in a statement today. In the coming nine days, the central bank plans to buy debt maturing between March 2011 and February 2039, according to the tentative schedule. The Fed joins central banks in the U.K. and Japan in extraordinary purchases of government debt, broadening efforts to unfreeze credit and end the recession after cutting the benchmark interest rate close to zero.

- Senator Arlen Specter, a Pennsylvania Republican, said he opposes the “card-check” union organizing measure, dealing a setback to U.S. labor’s top legislative goal. Specter said that he is likely to be the “decisive vote,” to block the Democratic-backed bill that would make it easier to form unions. “The problem with the recession makes this a particularly bad time,” Specter said on the Senate floor today. Employers fear the measure “will result in further job losses,” he said. Wal-Mart Stores Inc., Starbucks Corp., and Burger King Holdings Inc. are among companies that oppose the bill, which is backed by most Senate Democrats and President Barack Obama. Senate Majority Leader Harry Reid, a Nevada Democrat, held out hope for the measure, saying Specter “is not the only Republican who has indicated a willingness” to support it. Specter’s decision may doom the proposal, said William B. Gould, a former head of the National Labor Relations Board. “This is going to make it extremely difficult to get this bill passed,” Gould said. The bill would let workers chose to form a union when a majority of company employees sign a card requesting one, rather than permitting their employer to require a secret-ballot election run by the National Labor Relations Board.

- Billionaire Warren Buffett’s Berkshire Hathaway Inc. may lose its AAA credit rating from Standard & Poor’s because values have fallen in its equity portfolio and capital has shrunk at the insurance operations. The rating could be cut in the next 12 months, S&P said in a statement today about the Omaha, Nebraska-based insurance and investing firm. An S&P downgrade would be the second for Berkshire after Fitch Ratings stripped its AAA rating on March 12. S&P said any downgrade probably would be a one-notch cut.

- Japan’s exports plunged by a record in February as deepening recessions in the U.S. and Europe sapped demand for the country’s cars and electronics. Overseas shipments fell 49.4 percent from a year earlier, the sharpest decline since at least 1980, when the government started to keep comparable data, the Finance Ministry said today in Tokyo. Economists predicted a 47.6 percent drop.

- President Barack Obama said a proposed emissions-trading plan aimed at tackling climate change and moving the U.S. toward a new energy economy must take into account regional differences and “huge spikes” in costs. Obama, speaking in a White House news conference tonight, defended the “cap-and-trade” plan outlined in his federal budget. He has proposed auctioning all permits to raise at least $646 billion from 2012 to 2019. Some companies such as General Electric Co.(GE) that have supported a cap-and-trade system in the past and lawmakers from both parties say the plan would amount to a tax increase. The cost would fall most heavily on consumers whose power comes from coal, the most polluting power source.

- Senate Democrats are making a “major re-evaluation” of a proposal to heavily tax bonuses paid by American International Group Inc., in part because of President Barack Obama’s concerns, the Senate Finance Committee chairman said. Panel chairman Max Baucus said legislation he introduced last week is opposed by some senators who believe it is arbitrary and others who don’t like the idea of using taxation to force return of the bonuses. Obama said last weekend the U.S. shouldn’t “govern out of anger” on the issue. House Democratic Leader Steny Hoyer today said Congress may not need to act at all if AIG employees continue to return the payments. Republican opposition to the proposal in the Senate is more uniform than it was in the House, where party members split almost evenly in the vote on the chamber’s bonus-tax bill last week, said the party’s top Senate vote counter, Jon Kyl of Arizona. While Republicans are in the minority in the Senate, they can more easily block legislation with procedural hurdles. If Reid “wants this bill, he’s going to have significant opposition,” Kyl told reporters yesterday. He also said he was surprised to find calls from constituents running six to one against the measure.

- Pfizer Inc.(PFE), the world’s largest drugmaker, won approval from European regulators to sell a treatment for women with weak bones and said it will seek a partner to market the drug. The treatment, Fablyn, was approved by the European Commission for women who face a higher risk of fractures, said Pfizer and San Diego-based Ligand Pharmaceuticals Inc., which developed the therapy.

- Allergan Inc.(AGN), the wrinkle remedy company that surged the most in at least 20 years today on takeover speculation, is shopping for acquisitions of its own, Chief Executive Officer David Pyott said in an interview. Pyott declined to say whether another drugmaker had offered to buy Allergan, based in Irvine, California. He didn’t rule out a sale. “Somebody would have to come out with a very compelling proposition,” Pyott said in a telephone interview.

- A decline in the cost of protecting South Korea and Indonesian bonds from default probably won’t last as both countries face “short-term issues” in paying their debts, according to Fortis Investments. Credit-default swaps for South Korea, rated A2 by Moody’s Investors Service, cost almost the same as the Philippines, which has a non-investment grade rating of B1. Indonesia, rated one level higher at Ba3, trade at almost double the cost. “I don’t think the Korea credit-default swap is mispriced,” said Cian O’Carroll, global head of credit and hybrids in Paris at the unit of the Belgian financial services company, which oversees the equivalent of $261 billion of funds globally. “The rating is under pressure.”

- President Barack Obama said the dollar is “extraordinarily strong” because investors are confident in the ability of the U.S. to lead a worldwide recovery and rejected calls for a new global currency. “There is a great deal of confidence that ultimately, although we are going through a rough patch, that the prospects for the world economy are very, very strong.” Chinese central bank Governor Zhou Xiaochuan this week urged the International Monetary Fund to create a “super- sovereign reserve currency.” Obama said tonight he saw “no need” for a new global currency.

Wall Street Journal:

- President Obama used a prime-time news conference to defend his $3.6 trillion budget plan and beat back criticism of his program one day before the plan begins to move in Congress.

- FedEx Corp.(FDX) is threatening to cancel the purchase of billions of dollars worth of new Boeing Co. cargo planes if Congress passes a law that would make it easier for unions to organize at the package-delivery company. A company spokesman said Tuesday that FedEx may cancel plans to buy as many as 30 new Boeing planes should Congress pass a bill that would remove truck drivers, couriers and other employees at FedEx's Express unit from the jurisdiction of the federal Railway Labor Act of 1926, the law which today also governs labor organizing at U.S. airlines. FedEx's actions raise the stakes in an increasingly bitter battle involving chief rival, United Parcel Service Inc.(UPS), and the Teamsters union, which has been trying for years to organize FedEx. "It is exceedingly unlikely that we would purchase those airplanes" should Congress change the law, said FedEx spokesman Maury Lane. The legislation could cripple the company and eliminate the need for the extra planes, Mr. Lane said.

- The leading candidate to run the Treasury Department's $700 billion bailout program has withdrawn his name from consideration, according to people familiar with the matter. Frank Brosens, a hedge-fund manager and big Democratic donor, was considered the top contender to run the Treasury's Troubled Asset Relief Program. Treasury Secretary Timothy Geithner is now considering several other candidates, including Herb Allison, who currently heads mortgage titan Fannie Mae.

- Finance executives expressed anger and betrayal at Washington's latest anti-Wall Street rhetoric during Tuesday's sessions of the Future of Finance Initiative, a conference hosted by The Wall Street Journal. The conflict suggested that the lines of communication between government and the private sector remain limited just as government is hoping to expand cooperation with private investors. Those tensions flared over the last week, as the U.S. House passed a bill taxing bonuses by 90% for banks and other companies receiving large government capital injections. "Washington and Wall Street are the equivalent of Gettysburg and Antietam right now," said Glenn Hutchins, co-chief executive of private-equity firm Silver Lake. "To point the finger at one group means, No. 1, you're not understanding the problem, two, you're stretching our social fabric thinly, and you're throwing the baby out with the bathwater," Mr. Hutchins noted. "Trust goes both ways."

- In the marketing battle between telephone and cable companies, both sides have found a surprisingly simple weapon: local-television offerings such as community news, traffic alerts and weather. This summer, Verizon Communications Inc. plans to launch its own local TV channel in New York City, according to people familiar with the matter.

- The White House said it would launch a search for new tax revenues, as Congressional leaders moved to scale back proposed spending increases and tax cuts in President Barack Obama's ambitious budget. The Obama administration plans to create a task force to consider elimination of corporate loopholes and corporate welfare, tougher enforcement against tax avoidance and tax simplification, White House Budget Director Peter Orszag said late Tuesday. Mr. Obama's budget proposal began the process of addressing problems such as the tax gap, the difference between taxes owed and taxes collected. "The question is whether we can be even more aggressive" in those areas, Mr. Orszag said in an interview Tuesday. The task force will be run through a White House advisory board being headed by former Federal Reserve Chairman Paul Volcker, Mr. Orszag said.

MarketWatch.com:
- In the liquefied natural-gas industry, former Fed Chairman Alan Greenspan is a bit of a hero, since he helped highlight the need for more infrastructure to import the supercooled fuel. But as in any commodity business, the timing can be a bit tricky. That's certainly the case as LNG from around the world is poised to flood the United States through a batch of brand-new terminals, designed to turn the energy-rich liquid from minus-260 degrees Fahrenheit back into a gas and feed it into the nation's pipelines. "As the technology of LNG liquefaction and shipping has improved, and as safety considerations have lessened, a major expansion of U.S. import capability appears to be under way," Greenspan said in a 2003 speech amid rising energy prices. "These movements bode well for widespread natural-gas availability in North America in the years ahead." Fast-forward to 2009, and a massive amount of LNG from big overseas producers such as Algeria, Australia, Indonesia, Nigeria, Oman, Qatar and Russia, as well as Trinidad and Tobago may flood the United States as multiyear energy projects finally reach fruition. Just this past week, U.S. natural-gas supplies stood at 1,651 billion cubic feet, some 326 billion cubic feet higher than last year at this time and 228 billion cubic feet above the five-year average.

CNBC.com:
- Oil and cash are Saudi Arabia's two biggest exports. Now at a time when global coffers are strapped, the Kingdom is going on a spending spree, putting $400 billion dollars to work. Saudi Arabia's domestic development efforts could provide a much-needed financial boost to firms outside of the Kingdom, according to the Governor of Saudi Arabia General Investment Authority H.E. Amr al-Dabbagh. That's why al-Dabbagh is visiting the U.S. this week to meet with the chief executives of American firms who may be interested in bidding for some of that sizeable payout.

NY Times:

- The financial crisis may have turned much of Wall Street’s wealth into dross, but a select group of hedge fund managers has managed to maintain a golden touch that might make King Midas blush. As major markets and economies careened downward last year, 25 top managers reaped a total of $11.6 billion in pay by trading above the pain in the markets, according to an annual ranking of top hedge fund earners by Institutional Investor’s Alpha magazine, which comes out Wednesday. James H. Simons, a former math professor who has made billions year after year for the hedge fund Renaissance Technologies, earned $2.5 billion running computer-driven trading strategies. John A. Paulson, who rode to riches by betting against the housing market, came in second with reported gains of $2 billion. And George Soros, also a perennial name on the rich list of secretive moneymakers, pulled in $1.1 billion.

- As its peers in the United States, Britain and Japan crank up monetary printing presses in a bid to prop up their economies, the European bank is resisting the rush to adopt those banking policies. The European approach, to many outsiders and even some politicians like Nicolas Sarkozy, the president of France, is hopelessly myopic and likely to leave Europe struggling long after others have resumed growth.

BusinessWeek:

- Google(GOOG) just announced two new refinements to its search engine today, continuing to leave little room for competitors to get a foothold. The tweaks, announced in a Google blog post this morning, generally aim to produce better results for search queries with lots of keywords in them:

IBD:

- For active duty soldiers, the price can't be beat. American Public Education's (APEI) courses are free to military personnel, thanks to government tuition benefits.

Upstream:

- BHP Billiton Ltd.(BHP) began production at its Shenzi oil and gas field in the deep waters of the Gulf of Mexico, citing Michael Yeager, CEO of the company’s petroleum business. The project, estimated to cost about $4.4 billion through 2015, will have a capacity to produce as much as 100,000 barrels a day of oil and 50 million cubic feet a day of gas, the newsletter said.

Forbes.com:

- China is turning away from capitalism just when it needs it most, China scholar Yasheng Huang of MIT said Monday. Halfway around the world from Wall Street, there is an unfortunate side effect of the current global economic crisis: Communist Party leaders have begun to question capitalism.

Reuters:

- News that Goldman Sachs Group Inc (GS) might quickly pay back taxpayer money could pressure able rivals to do the same. The Treasury Department's $700 billion Troubled Asset Relief Program was intended to provide lenders with more capital to spur lending and improve the economy. Hundreds of companies have taken TARP money, ranging from $45 billion accepted by both Citigroup Inc (C) and Bank of America Corp (BAC) to $541,000 by The Victory Bank of Limerick, Pennsylvania. But with TARP now seen more as an albatross, expectations are growing that more banks will repay their money as soon as they can. That would also free banks from dividend payouts, typically 5 percent a year. as well as Congress' demonstrated willingness to change the rules of engagement.

- U.S. financial services firms and business groups want even more guidance and leeway from accounting rulemakers on a controversial mark-to-market accounting standard blamed for billions of dollars in bank writedowns, the groups said on Tuesday. Under threat from Congress, the Financial Accounting Standards Board (FASB) issued two proposals giving financial services firms more flexibility to account for toxic assets. FASB members are due to meet April 2 to discuss the proposals. If the board approves the proposals, the guidance would be effective for interim and annual periods ending after March 15. Although groups such as the U.S. Chamber of Commerce and the American Council of Life Insurers voiced support for FASB's actions, they said "more work needs to be done."

- Short interest on the New York Stock Exchange rose 10.8 percent in mid-March, the exchange said on Tuesday, suggesting an increase in bearish sentiment in the stock market. Biggest changes in NYSE short interest:

- Biggest changes in Nasdaq short interest.

- More hedge funds and private equity firms are likely to trim or shut their Asian operations as the widening financial crisis forces a retreat to core Western markets, two industry experts said on Tuesday. Both hedge funds and private equity firms rushed into Asia in recent years to cash in on the region's booming economies and surging stock markets. But the global financial crisis has sapped demand for deals and appetite for risk. "This is just the beginning," Wang said, adding that many firms could end up with a "token presence" in the region. "Asia became very stylish and I'd say even fashionable starting in 2005," Timothee Bousser, managing director at Societe Generale in Hong Kong, told the Reuters Summit. "Today we are suffering from this excess."

Financial Times:
- The administration of Barack Obama on Tuesday stepped up efforts to crack down on guns and money flowing to Mexican drugs cartels in the latest sign that the relationship with Mexico is rocketing up the US political agenda. As two separate crises – drugs-related violence that has claimed more than 7,000 lives in Mexico since the start of 2008 and a $2.4bn trade dispute – threaten to spiral out of control, the administration said it would send more personnel and equipment to the border. Janet Napolitano, homeland security secretary, announced deployments to the south-west border totaling more than 360 agents and involving the doubling of specialized security forces from 95 to 190, together with 100 customs officers to inspect goods leaving the US. Separately, the Bureau of Alcohol, Tobacco, Firearms and Explosives is sending 100 more agents to the border in the next 45 days. “I haven’t seen this big of a mess in the bilateral relationship in at least 25 years, said Jorge Castañeda, Mexico’s foreign minister under the previous administration of Vicente Fox. As a former governor of Texas, George W. Bush was more familiar with Mexico than is his successor as president, who has never yet visited Latin America. Mr Bush came into office promising a new understanding with Mexico, built around immigration reform. Although he failed to achieve these ambitions, he left office having established a modus vivendi between the two countries. That included the Merida Initiative, an agreement that provides military support for Mexico’s battle against the drugs cartels and a compromise on long-standing Mexican demands for access to the US trucking market. Under Mr Obama, the US is shifting position in both areas.

TimesOnline:

- We are ready to lead. Are you ready to join us? By Barack Obama.

The Guardian:
- The biggest "outrage" of the AIG bailout is not the $165m payout to the pseudo-hedge fund's executives. It is the multi-billion-dollar payout to hedge fund managers who used credit default swaps to bet against the subprime mortgage market. AIG took the other end of the wager, figuring that the subprime market would stay strong. We all know who won this bet. Actually, the hedge funds wagered wrong in one respect. When they entered into credit default swaps with AIG, they were not just betting against the mortgage market. They were also betting that AIG would remain solvent so that the insurance giant could make good on its end of the bargain. By all rights, AIG should be bankrupt. But the federal government has intervened to keep it afloat. In doing so, the federal government is making sure that the hedge funds are repaid – even though they miscalculated their counterparty risk. One of these hedge funds, Citadel Investment Group of Chicago, has received $200m in bailout funds that flowed through AIG. Paloma Securities, a branch of a Connecticut hedge fund, has reeled in $200m as well. Total all the bailout payments to these and other hedge funds, and suddenly the $165m to AIG executives looks like chump change.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (OI), target $24.

- Reiterated Buy on (PLCE), target $31.

Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 futures +.37%.
NASDAQ 100 futures +.22%.

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Economic Releases

8:30 am EST

- Durable Goods Orders for February are estimated to fall 2.5% versus a 4.5% decline in January.

- Durables Ex Transports for February are estimated to fall 2.0% versus a 3.0% fall in January.

10:00 am EST

- New Home Sales for February are estimated at 300K versus 309K in January.

10:35 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,100,000 barrels versus a +1,942,000 barrel increase the prior week. Gasoline supplies are expected to fall by -650,000 versus a +3,195,000 barrel increase the prior week. Distillate inventories are estimated to fall by -100,000 barrels versus a +112,000 barrel gain the prior week. Finally, Refinery Utilization is expected unch. versus a -.57% decline the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Pianalto speaking, Fed’s Yellen speaking, weekly MBA mortgage applications report, (ADP) analyst meeting, Howard Weil Energy Conference, (MKC) shareholders meeting, (GLW) investor luncheon, Think Equity ThinkGreen Conference, Lazard Medical Device Tech Conference, (BIIB) R&D Day, (CIEN) shareholders meetingcould also impact trading today.

BOTTOM LINE: Asian indices are mostly 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 modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Lower, Weighed Down by Financial, REIT, Oil Tanker, HMO Shares

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In Play

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