Stocks Finish Higher, Boosted by Airline, Financial, Restaurant, HMO, Hospital and Defense Stocks

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Stocks Higher into Final Hour on Short-Covering, Less Economic Fear, Lower Energy Prices

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Biotech longs. I added (IWM)/(QQQQ) hedges this morning and then covered them, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is higher, sector performance is mixed and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is rising .89% and is very high at 43.36. The ISE Sentiment Index is below average at 121.0 and the total put/call is around average at .81. Finally, the NYSE Arms has been running high most of the day, hitting 2.77 at its intraday peak, and is currently 1.69. The Euro Financial Sector Credit Default Swap Index is rising .73% today to 162.50 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 3.18% to 181.39 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising 2.41% to 104 basis points. The TED spread is now down 359 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 3.28% to 59.0 basis points. The Libor-OIS spread is falling 1.28% to 98 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 4 basis points to 1.40%, which is down 124 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 .18%, which is down 3 basis points today. The Bears were unable to gain meaningful traction, despite severe weakness in (IYR) mid-day. (IYR) finished 1.4% higher on a high volume reversal into the close. The 2-year swap spread is continuing to trend lower, which is a large positive. I suspect US stocks will build on today’s late afternoon surge before week’s end. Nikkei futures indicate a -9 open in Japan and DAX futures indicate a -32 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, lower energy prices and declining economic fear.

Today's Headlines

Bloomberg:

- The collapse in U.S. inventories indicates the economy is laying the foundation for a return to growth this year. Stockpiles of long-lasting factory goods declined 0.9 percent in February after falling 1.1 percent in January, the biggest two-month slide since 2003, the Commerce Department reported today in Washington. The decrease brought the ratio of inventories to sales down for the first time in seven months. “There is hope,” Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, said in a note to clients. “This is exactly the progression that needs to happen, so today’s data represents an important step on the road to recovery.”

- Mortgage applications in the U.S. rose for a third consecutive week as a drop in borrowing costs helped spur a wave of refinancing and encouraged purchases. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan soared 32 percent to 1,159.4 in the week ended March 20 from 876.9 the prior week. The group’s refinancing gauge surged 42 percent and its purchase index gained 4.2 percent. The interest rate on a 30-year fixed loan plunged to a record low last week, the group said, prompting homeowners to refinance mortgages to trim monthly payments. The average rate on a 30-year fixed-rate loan fell to 4.63 percent, the lowest level since the Mortgage Bankers group began records in 1990, from 4.89 percent the prior week.

- Orders for U.S. durable goods unexpectedly rose in February on a rebound in demand for machinery, computers and defense equipment. The 3.4 percent increase, the biggest gain in more than a year and the first in seven months, followed a 7.3 percent decrease in January that was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders gained 3.9 percent, the most since August 2005. Combined with reports showing improvements in retail sales, residential construction and home resales, the figures indicate the economy is stabilizing after shrinking last quarter at the fastest pace in a quarter century. “It’s not going to be downhill forever,” said Stephen Gallagher, chief U.S. economist at Societe Generale in New York, who had forecast no change in durable goods orders. “Once businesses achieve a reduction in their inventories they will pick up their new orders and production.” Gallagher expects the economy to resume growth in the third quarter. “I’m feeling better about that with this type of news. After some horrific data, we’re seeing some stability.” Demand for non-defense capital goods excluding aircraft, a proxy for future business investment, climbed 6.6 percent after falling 11.3 percent the prior month, a decline that was almost twice as large as previously estimated. Shipments of those items, used in calculating gross domestic product, increased 0.6 percent last month.

- Purchases of new homes in the U.S. unexpectedly rose in February from a record low as plummeting prices and cheaper mortgage rates lured some buyers. Sales increased 4.7 percent to an annual pace of 337,000 after a 322,000 rate in January, the Commerce Department said today in Washington. “It’s a step in the right direction,” said Jonathan Basile, an economist at Credit Suisse Holdings USA in New York, who had forecast sales would rise. “Lower prices and mortgage rates are starting to get buyers back. We still have a lot of supply to absorb before things get back to normal.” Inventories decreased. The number of homes for sale dropped to a seasonally adjusted 330,000, and the supply of homes at the current sales rate fell to 12.2 months’ worth from 12.9 months.

- Steel prices continued to fall this month and may drop further as demand from automakers and builders has yet to rebound, Goldman Sachs said. “Although we have entered the seasonally strong spring period, all signs indicate that demand and prices have deteriorated in March, and further weakness cannot be ruled out,” Goldman Sachs analysts led by Sal Tharani said today. Steel prices have plunged by more than half from a record $1,068 a ton in July. The average price of hot-rolled steel sheet, the benchmark product used in cars and appliances, dropped to $499 a ton in February from $514 in January, Purchasing Magazine said last month.

- The cost to protect North American corporate debt from default using a benchmark credit-default swaps index fell for a third day after reports showed unexpected increases in new home sales and durable goods orders. Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 12, linked to 125 companies in the U.S. and Canada, dropped 4.5 basis points to 181 basis points as of 11:56 a.m. in New York, according to broker Phoenix Partners Group.

- Corn and soybean prices declined on speculation that the deteriorating global economy will erode demand for the crops used in food and livestock feed.

- Crude oil fell after a government report showed that U.S. inventories climbed to the highest since 1993 because of falling demand. Supplies rose 3.3 million barrels to 356.6 million in the week ended March 20, the Energy Department said today. Inventories were forecast to rise by 1.1 million barrels, according to the median of 13 analyst estimates in a Bloomberg News survey. “There’s more crude than we need,” said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $9 billion natural-resource-company bond portfolio. “Until demand starts to move higher I don’t see this market moving higher.” Supplies of gasoline and distillate fuel, a category that includes heating oil and diesel, dropped as refineries cut utilization rates, the report showed. “We have to face the reality that supplies are ample and demand is weak,” said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. “The news about Total cutting back production and that Japanese imports are down shows just how weak demand is.”

- President Barack Obama’s auto task force will indicate support for additional aid to U.S. automakers within a week, Senator Carl Levin said. “It’s clear that there will be more support and it will be with some conditionalities, which will be made clear within a week,” Levin, a Michigan Democrat, told reporters at the U.S. Capitol today in Washington.

- North Korea is placing a Taepodong rocket on its east coast launch pad in preparation for launching a communications satellite, a U.S. counterproliferation official said.

- Treasuries fell for a fifth day after an auction of $34 billion in five-year notes drew a higher-than-forecast yield, spurring concern record sales of U.S. debt are overwhelming demand.

- The surge in financial shares won’t last because the Treasury hasn’t shown how it will convince investors to help banks get toxic assets off their books, Goldman Sachs Group Inc. said. Financials will retreat in the coming weeks unless the government addresses the uncertainty surrounding the bad-asset plan, Noah Weisberger, Goldman Sach’s New York-based trading strategist, wrote in a report today. “With concerns still swirling, and in light of sharp market moves recently, we think that the financials rally will likely fade,” he wrote in a report. The strategist said he has “no faith” in the advance.

- The Chinese military is continuing to develop “disruptive” capabilities, including cyber and space warfare technologies, that are changing military balances in Asia, the Pentagon reported. “China’s ability to sustain military power at a distance remains limited, but its armed forces continue to develop and field disruptive military technologies” such as missiles that would hinder adversaries from entering a battle zone, the Defense Department said in a summary of an annual report to Congress obtained by Bloomberg News before its release today.

- The dollar fell the most in almost a week against the euro on concern Treasury Secretary Timothy Geithner supported a Chinese plan to blunt demand among global central banks for the greenback. The U.S. currency pared losses after Geithner clarified his comments on the International Monetary Fund’s special drawing rights and said the dollar will remain the world’s primary reserve currency “for a long period of time.”

Wall Street Journal:

- Gary Kelly is navigating Southwest Airlines Co. through one of the industry's most turbulent periods by expanding into new markets and tinkering with the carrier's low-cost service. The airline's chief executive is adding flights to heavily trafficked domestic airports and seeking cross-border alliances with foreign carriers. He's also considering adding on-board Internet surfing and more-extensive wine and coffee service.

LA Times:
- Bank of America Corp.(BAC) Chief Executive Kenneth D. Lewis said Tuesday that he wanted to start repaying $45 billion in federal bailout funds next month, after the government's "stress test" of his bank, and to give back the remainder as soon as the nation's wobbly financial system is stabilized. In interviews at The Times, Lewis defended Bank of America's much-criticized acquisitions of Countrywide Financial Corp. and Merrill Lynch & Co. as strategically sound in the long run. And he said a cluster of financial indicators -- higher stock prices, slowing of home price declines and improvements in certain consumer delinquency gauges -- "leads me to think we're starting to see the bottom" of the recession.

NY Times:

- The following is a letter sent on Tuesday by Jake DeSantis, an executive vice president of the American International Group’s financial products unit, to Edward M. Liddy, the chief executive of A.I.G. DEAR Mr. Liddy, It is with deep regret that I submit my notice of resignation from A.I.G. Financial Products. I hope you take the time to read this entire letter. Before describing the details of my decision, I want to offer some context:

- Leading Iranian Official Ridicules Obama’s Overture. Ali Larijani, the speaker of Iran’s Parliament, on Wednesday criticized the United States in harsher terms than any other leading Iranian figure has done since President Obama extended his videotaped olive branch to Iran last week. The president’s video took the form of congratulations on the Iranian New Year. “Our problem with America is not an emotional problem that could be solved by sending congratulations,” Mr. Larijani said. “The problems will not be solved by them altering the words or selecting the terms they use,” Mr. Larijani said, apparently a reference to Mr. Obama’s praise of Iran’s culture and history.

Washington Times:

- The Democratic Senatorial Campaign Committee, which received $100,000 in campaign contributions from disgraced financier Bernard Madoff, has yet to rid itself of the tainted funds that other Washington politicos have rushed to shed since the collapse of Mr. Madoff's $64 billion Ponzi scheme in December. Mr. Madoff made four separate $25,000 donations to the DSCC since 2005. The most recent donation was made in September, according to campaign finance records. An analysis conducted by the Center for Responsive Politics found that Madoff and his wife, Ruth, gave the bulk of their campaign contributions to Democrats. The couple donated $238,200 to federal candidates, parties and committees since 1991, and Democrats received 88 percent of those donations.

Houston Chronicle:

- The U.S. Border Patrol plans to poison the plant life along a 1.1-mile stretch of the Rio Grande riverbank as soon as Wednesday to get rid of the hiding places used by smugglers, robbers and illegal immigrants. If successful, the $2.1 million pilot project could later be duplicated along as many as 130 miles of river in the patrol’s Laredo Sector, as well as other parts of the U.S.-Mexico border. Although Border Patrol and U.S. Environmental Protection Agency officials say the chemical is safe for animals, detractors say the experiment is reminiscent of the Vietnam War-era Agent Orange chemical program and raises questions about long-term effects.

NY Post:

- Last year, Chieftain Capital Management tried to oust Comcast(CMCSK) CEO Brian Roberts, saying his leadership was a "Comcatastrophe." Now the hedge fund says that's all "water under the bridge." That's because Roberts' penny-pinching ways long a sore spot for investors in the cable provider have likely made Comcast one of corporate America's few companies about to get a debt-rating upgrade by Moody's Investors Service.

- Senate banking-committee Chairman Christopher Dodd who has received $280,000 in campaign contributions from AIG isn't the only person in his family to benefit from a relationship with the embattled insurance behemoth. His wife, Jackie Clegg Dodd, worked as an outside "director" for a Bermuda-based company affiliated with AIG, according to a report.

LA Times:

- Even the car of the future needs old-fashioned sales technology. Irvine-based Fisker Automotive said Tuesday that it had signed up 32 new-car dealers in North America to sell its plug-in hybrid sedan, which begins production late this year.

Washington Post:

- The Obama administration appears to be backing away from the phrase "global war on terror," a signature rhetorical legacy of its predecessor. In a memo e-mailed this week to Pentagon staff members, the Defense Department's office of security review noted that "this administration prefers to avoid using the term 'Long War' or 'Global War on Terror' [GWOT.] Please use 'Overseas Contingency Operation.' "

AP:

- The president of the European Union slammed President Barack Obama's plans to have the U.S. spend its way out of recession as "a road to hell," underscoring European differences with Washington ahead of a crucial summit next week on fixing the world economy. Topolanek, whose country currently holds the rotating EU presidency, told the European Parliament on Wednesday that Obama's massive stimulus package and banking bailout "will undermine the liquidity of the global financial market." European governments, led by France and Germany, say the focus should be on tighter financial regulation, while the U.S. is pushing for larger economic stimulus plans — but nobody has so far escalated the rhetoric to such strident levels. Topolanek's remarks are the strongest criticism so far from a European leader as the 27-nation bloc sticks to its position that its member countries are already spending enough to stimulate demand. The remark highlights the difficulties leaders may face coming up with a common approach at the April 2 summit in London among leaders of the Group of 20 industrialized and leading developing countries. He slammed the U.S.' widening budget deficit and protectionist trade measures — such as the "Buy America" policies included in the stimulus bill, although Obama has said he opposes protectionism in principle. Topolanek said that "all of these steps, these combinations and permanency is the road to hell."

Financial Times:
- Russia’s economy would benefit from “two, three, five” years of low commodity prices because it would be forced to diversify, Igor Shuvalov, one of the country’s deputy prime ministers, told the FT in an interview. Shuvalov, described by the newspaper as “a leading liberal” in the Russian cabinet, has the backing of Finance Minister Alexei Kudrin and Economy Minister Elvira Nabiullina. Russian history shows that, while the country can invent technologies, implement them and “even sell them,” a bounteous flow of commodity income “completely spoils everybody,” citing Shuvalov.

China Tech News:

- Just days after China Unicom denied rumors of a deal, new reports in Chinese media state China Unicom has finally reached an agreement with Apple to introduce Apple's 3G iPhone into China and the two companies will formally announce the news on May 17, the World Telecommunication Day. Under the agreement, China Unicom will reportedly give a certain amount of subsidies to the users of iPhone and will share the profits from iPhone's value-added services with Apple. In return, Apple will also make some compromises and its iPhone products in China can only be used with China Unicom's SIM cards.

Nikkei:
- Japanese Prime Minister Taro Aso will order the country’s military to shot down any ballistic missile launched by North Korea that threatens to land near Japan.

Bear Radar

Style Underperformer:
Large-cap Growth (+.34%)

Sector Underperformers:
Coal (-2.51%), Computer Hardware (-1.90%) and Oil Service (-1.42%)

Stocks Falling on Unusual Volume:
URBN, ARO, WDC, HAL, BIDU, WTFC, UMPQ, HBC, MICC, SHPGY, HANS, SMTC, TGP, RBN, AMN, SRE, DOM and CHD

Stocks With Unusual Put Option Activity:
1) ACI 2) LEN 3) URBN 4) VMC 5) AGN

Bull Radar

Style Outperformer:
Small-cap Value (+3.73%)

Sector Outperformers:
Homebuilders (+7.14%), Airlines (+4.58%) and Banks (+3.85%)

Stocks Rising on Unusual Volume:
WFC, PTNR, SNP, E, JPM, GSK, TTES, FOSL, WAG, MYGN, CPSI, CRXL, MNTA, SPLS, MELI, PETD, MDRX, APOG, TNDM, AIPC, PZZA, DGIT, RATE, CSKI, KNSY, CONN, SAFT, WFMI, AMB, HSP, BEC, FMS and PVH

Stocks With Unusual Call Option Activity:
1) WFR 2) AMD 3) GRMN 4) LEN 5) RMBS

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