Stocks Finish Lower, Weighed Down by Commodity, Financial, REIT and Homebuilding Shares

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Stocks Lower into Final Hour on Profit-taking, More Shorting and Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs, Medical longs and Financial longs. I added to my (IWM)/(QQQQ) hedges, added to my (EEM) short this morning and then covered them, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is declining and volume is below average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising 12.6% and is very high at 46.21. The ISE Sentiment Index is slightly below average at 137.0 and the total put/call is high at 1.17. Finally, the NYSE Arms has been running extraordinarily high most of the day, hitting 8.77 at its intraday peak, and is currently 3.63. The Euro Financial Sector Credit Default Swap Index is rising 5.82% today to 173.33 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 rising 5.65% to 191.73 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is falling .68% to 109 basis points. The TED spread is now down 354 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising .23% to 55.25 basis points. The Libor-OIS spread is rising .82% to 99 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 6 basis points to 1.37%, which is down 127 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 .13%, which is up 1 basis point today. Volume is below average with high investor angst today, which usually indicates the bears are running low on firepower. As well, some market-leading stocks have diverged from the broad market this afternoon and are cutting losses into the close. If CNBC is any indication, the herd is overweight commodities. I continue to believe that it is too soon to enter the “reflation” trade. I still favor stocks that can grow earnings at a relatively healthy rate notwithstanding weak global economic activity. As, well, the US dollar still trades well, which is a headwind for commodities. The Citi US Economic Surprise Index is up to -6.60, while the European Economic Surprise Index is still -82.70. Nikkei futures indicate a -116 open in Japan and DAX futures indicate a -8 open in Germany tomorrow. I expect US stocks to trade higher into the close from current levels on short-covering, bargain-hunting and lower energy prices.

Today's Headlines

Bloomberg:

- General Motors Corp.(GM) debt tumbled after the Obama administration said bondholders will have to reduce their claims by more than originally proposed and bankruptcy may be the best option for the automaker. GM’s $1.5 billion of 7.2 percent notes due in 2011 fell 4.5 cents to 22 cents on the dollar as of 9:32 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields about 126 percent. “There’s no acceptable way out for most of the stakeholders,” said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. “The best forum for resolving differences is in the bankruptcy courts. It’s highly likely that GM will end up there fairly soon.”

- Ireland had its AAA credit rating removed by Standard & Poor’s in the fourth downgrade of a euro- region government this year as the global financial turmoil fueled borrowing costs and swelled the budget deficit. The rating was lowered one step to AA+ with a “negative” outlook, S&P said in a statement today from London, indicating the rating company is more likely to lower the classification again than raise it or leave it unchanged. Ireland received the top rating in October 2001. “The deterioration of Ireland’s public finances will likely require a number of years of sustained effort to repair, on a scale greater than factored into the government’s current plans,” Trevor Cullinan and Frank Gill, analysts at S&P in London, wrote in a report today.

- Barack Obama learns this week whether his rock-star allure for Europeans translates into tangible support for U.S. foreign-policy goals. At an April 3-4 North Atlantic Treaty Organization summit along the French-German border, the president will seek to line up more allied manpower and money from allies reluctant to commit more combat troops for Obama’s new plan to step up the fight against the Taliban and al-Qaeda in Afghanistan. He will also try to forge consensus on deterring Iran’s nuclear ambitions and put relations with Russia on a smoother course.

- Russia’s economy will probably shrink 4.5 percent this year after oil prices slumped and global contagion spread, driving up unemployment and pushing more people into poverty, the World Bank forecast.

- Doctors eased high blood pressure with devices that use electricity to zap nerves around arteries and radio waves to burn off cells in the kidneys, in studies offering hope for millions of people not helped by medication. The research on novel treatments for heart problems was released today at the American College of Cardiology’s conference in Orlando, Florida. In another trial, researchers safely injected a gel made by Jerusalem-based BioLineRx into heart attack victims to help rebuild their heart muscles. In another, doctors sending electrical signals to nerves in the neck improved the pumping power of patients with severe congestive heart failure.

- Crude oil fell below $50 a barrel as tumbling equity markets signaled that the recession in major energy-consuming countries may deepen, curbing fuel demand. Oil fell as much as 6.2 percent after President Barack Obama said that General Motors Corp. and Chrysler LLC have one last, limited chance to “fundamentally restructure.” The dollar strengthened to its highest level against the euro in more than a week, limiting the appeal of commodities as an alternative investment. U.S. crude oil stockpiles surged 3.3 million barrels to 356.6 million barrels in the week ended March 20, the highest since July 1993 and 13 percent more than average for this time of year, according to an Energy Department report on March 25. Supplies probably rose 3 million barrels last week, according to the median of six responses in a Bloomberg News survey. “It’s hard to be bullish with these extremely high inventories,” Bentz said. “We are testing the $50 breakout area today and will soon know whether it is truly support or that the recent rally was a mirage.” Hedge-fund managers and other large speculators increased their net-long positions in New York crude-oil futures in the week ended March 24, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 17,637 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 4,130 contracts, or 31 percent, from a week earlier.

- Norsk Hydro ASA, Europe’s second-largest aluminum producer, said as much as 70% of the industry is unprofitable at current prices. “No signs” of improvement in demand have emerged, CEO Svein Richard Brandtzaeg said today. Industry demand has dropped 30% on average and has slid as much as 70% for some products, he added.

- The US dollar shouldn’t be allowed to “weaken too much” in the fight against the global recession, an aide to French President Nicolas Sarkozy said.

- The euro may extend its decline against the dollar should the common currency break through a support levels around $1.31, JPMorgan Chase & Co. said in a report citing trading patterns. A level of $1.3097 represents a 50 percent retracement of the euro’s rally versus the greenback begun on March 4, wrote Niall O’Connor, a foreign-exchange analyst at JPMorgan in New York, referring to a percentage that’s part of the Fibonacci sequence. A subsequent support of $1.3070 represents the point before the euro broke into a new range when the Federal Reserve announced on March 18 its plan to start purchasing Treasuries, he said. “It’s a zone of support,” O’Connor said in an interview today. “If it isn’t able to bounce today, then it’s quite telling that the euro is even more vulnerable.”

- For Edinburgh’s money managers, whose $500 billion is minded in and around the eighteenth century Georgian sandstone houses of the Scottish capital, just about everyone is searching for the next bull market. “I’m not in the bear-market rally camp, I’m in the rally camp,” said David Cumming, head of U.K. stocks at Standard Life Investments as the FTSE 100 Index showed the first monthly gain since December. The MSCI World Index of developed markets had gained 9.8 percent in March, the most since May 1990.

- European confidence fell to the lowest on record in March as the Group of 20 nations prepared to discuss this week how best to fight the deepening global recession, which has prompted job cuts across the continent. An index of executive and consumer sentiment in the euro area declined to 64.6, the lowest since the indicator began in 1985, from 65.3 in February, the European Commission in Brussels said today. Gauges for industry, services and consumer sentiment all reached record lows. A separate report showed that Spanish consumer prices fell from a year earlier for the first time ever, indicating deflationary pressure that may spread.

- U.S. farmers are preparing to plant record amounts of soybeans and demand for corn is falling, driving prices to the lowest levels in more than two years. Just a year after record grain costs sparked riots in Egypt and food shortages in Argentina, U.S. farmers will sow crops on a record 163.7 million acres, according to a Bloomberg News survey of 24 analysts and traders last week. Soybean fields will expand by 4.5 percent. While corn acreage will slip 1.5 percent, the recession will force livestock, dairy and ethanol producers to cut purchases, leaving the highest inventories for March in two decades, the survey shows. “The wheels are already in motion to produce more than the world needs, barring any unusual weather,” said Jim Gerlach, president of A/C Trading Inc., a brokerage in Fowler, Indiana. Corn stockpiles at the beginning of March probably totaled 7.012 billion bushels, up 2.2 percent from a year earlier and the highest for that date since 1988, analysts in the survey said.

- Arab leaders welcomed Barack Obama’s overtures toward Middle Eastern countries and expressed hope that he will push forward peace efforts between Arabs and Israelis. “I suggest that we contact the Obama administration and request that it put pressure on Israel for it to agree to a just peace,” Palestinian Authority President Mahmoud Abbas said. “We notice that the extreme hardliners are gaining strength in Israel.”

- Netflix Inc.(NFLX), the largest U.S. mail-order movie service, plans to raise rental fees for Blu-ray discs by about 20 percent at the end of April as members increasingly choose the high-definition format over conventional DVDs.

Wall Street Journal:

- Executives from some of the world's biggest property investment funds said China's real-estate market remains risky and unattractive for foreign investors despite recent signs of improving conditions. The foreign executives, attending a major real-estate conference last week in Shanghai, said that financing for property deals in China remains nearly impossible to obtain, and that building prices need to fall further to justify new activity. Overall, real estate in the country remains too risky, illiquid and poorly developed to expect significant overseas investment at a time when bargains are emerging in more transparent markets elsewhere, the executives said. "International investors are taking their money home," said Richard Price, regional chief executive officer of ING Real Estate Investment Management. He said well-known complications of doing property deals in China "make people pause" about committing money now. Falling property prices and a collapse in transactions were a major cause of the slowdown in China's economic growth last year. Foreign investors have been a relatively tiny force in the property market, but they tend to have a disproportionate influence on the market and on policymaking. Overall, real estate in the country remains too risky, illiquid and poorly developed to expect significant overseas investment at a time when bargains are emerging in more transparent markets elsewhere, the executives said. "International investors are taking their money home," said Richard Price, regional chief executive officer of ING Real Estate Investment Management. He said well-known complications of doing property deals in China "make people pause" about committing money now. Falling property prices and a collapse in transactions were a major cause of the slowdown in China's economic growth last year. Foreign investors have been a relatively tiny force in the property market, but they tend to have a disproportionate influence on the market and on policymaking. Skepticism was abundant at the two-day Real Estate Investment World China conference, which drew about 280 attendees this year, down from last year's record 400. "Maybe we're seeing the bottom of the market but is it the real bottom or is the government supporting it?" said Song Wei, a senior vice president of Chicago-based Equity International. "I haven't seen a lot of bargains yet." Several attendees said prices haven't fallen enough to reflect market oversupply. Beijing, Shanghai and Guangzhou each have at least 10 million square feet, or 930,000 square meters, of office construction underway, according to a report this month from Colliers International. Shanghai's vacancy rate shot to 10.2% by year-end 2008 from 4.7% at midyear, it said.

- Fixed-rate jumbo loans have been harder to get in recent months. Now, Bank of America(BAC) says it wants to make more jumbo mortgages, so-called because they exceed the conforming limits — $417,000 in most parts of the country, though they can rise as high as $729,750 in some metro areas.

- Goldman Sachs Group(GS) banker Byron Trott is leaving the investment bank, according to a person familiar with the matter, and will start his own merchant-banking firm. Mr. Trott gained renown as a close adviser to Warren Buffett, having assisted Mr. Buffett in a series of merger and acquisitions.

- The Obama administration is putting new curbs on private insurance plans that are popular with seniors in Medicare but have been criticized for marketing abuses and high costs to the government. Administration officials said the changes include winnowing the number of versions of a plan that insurers can offer, discouraging insurers from shifting costs to patients with chronic diseases and banning an occasional practice of charging patients more for brand-name drugs. The new policies reflect an administration effort to put its stamp on private plans in Medicare, which flourished under Republicans but are seen by some Democrats as undermining the traditional program. The plans are offered by major insurers such as UnitedHealth Group Inc.(UNH) and Humana Inc.(HUM)

NY Times:

- The Obama administration has made fortifying the I.M.F. one of its primary goals for the meeting of the Group of 20, which includes leading industrial and developing countries and the European Union. But China, India and other rising powers seem to believe that the made-in-America crisis has curtailed the ability of the United States to set the agenda. They view the Western-dominated fund as a place to begin staking their claim to a greater voice in global economic affairs.

- German Chancellor Angela Merkel won’t give in to US pressure to increase economic stimulus spending, stressing that overspending could plan the seeks for a new crisis, she said in an interview. Merkel, who will meet President Barack Obama this week at three summit meetings in Europe, underlined her focus on controlling debt spending to ensure national budgets won’t be burdened in a recovery, she said.

- Sony says it has signed a $315 million deal to install its digital projectors in all AMC Entertainment theaters. The contract will close the gap between Sony and Texas Instruments in the digital projector market. Texas Instruments has equipped 5,476 screens in North American theaters with its digital light processing projectors. The deal with AMC will increase Sony’s presence to about 5,000 screens.

- With a new Web service called MagCloud, Hewlett-Packard(HPQ) hopes to make it easier and cheaper to crank out a magazine than running photocopies at the local copy shop.

Detroit Free Press:

- Mulally says Ford(F) now has competitive edge. CEO believes key concessions will allow automaker to survive industry’s crisis.

Market Folly:

- Late last week, we posted up the Top 25 Hedge Fund managers of 2008 in terms of compensation, and now its time to check out Alpha's 'Biggest Losers' of 2008. And, there are some pretty prominent names on the list. Here it is:

Chicago BreakingNewsCenter:

- Ford's(F) Chicago assembly plant is in line to produce a new version of the Explorer sport-utility vehicle next year, a big boost for a factory battered last fall by cutbacks at the struggling automaker, Crain's reports.

Washington Times:

- An AIG(AIG) executive sought donations for Senator Chris Dodd’s(D-Conn.) re-election campaign. “As he considers running for president in 2008, Senator Dodd has asked us for our support with his re-election campaign and we have offered to be supportive,” Joseph Cassano, then-CEO of AIG Financial Products, wrote in a Nov. 17, 2006, e-mail. AIG-FP employees and their spouses donated $162,100 to the Dodd campaign within six weeks of the e-mail, citing data form the Center for Responsive Politics and the Federal Election Commission. As banking committee chairman, Dodd would have some influence over AIG's dealings. Earlier this year Dodd — at the behest of the Treasury Department — added wording to the bailout legislation that allowed AIG executives to keep lucrative bonuses paid for with taxpayer money. AIG has received more than $170 billion in federal bailout money and paid at least $218 million in bonuses.

Portfolio.com:

- How the CDS Market is Going to Improve. A Credit Trader has a great post on what he calls "risky annuity risk", an artifact of the CDS market which will go away when all credit default swaps start trading on a fixed coupon. If you like to geek out with the arcana of the CDS market, you'll love this.

Politico:

- A trickle of defections has Democratic House leaders wondering how long they can hold off calls for an investigation into the PMA Group and its ties to Pennsylvania Rep. John P. Murtha.

- The Obama administration's harsh treatment of the auto industry is backfiring with some auto state politicians despite a concerted effort to build support for the federal crackdown on General Motors and Chrysler.

paidContent.org:

- The Walt Disney Company and Google (GOOG) are close to one programming deal for video portal YouTube, and are in discussions about another—also involving YouTube—that would preclude a deal with Hulu, paidContent has learned. Disney (DIS) and YouTube are in the final stages of negotiations to put clips from ESPN, ABC and other Disney assets on YouTube, according to sources familiar with the situation. The two companies would share revenue, with Disney controlling the ad inventory; YouTube and Google could get some inventory to sell. As important, YouTube would refer back to ESPN.com, ABC.com and the other Disney sites.

AP:

- An influential government-appointed medical panel is urging doctors to routinely screen all American teens for depression — a bold step that acknowledges that nearly 2 million teens are affected by this debilitating condition. Most are undiagnosed and untreated, said the panel, the U.S. Preventive Services Task Force, which sets guidelines for doctors on a host of health issues. The task force recommendations appear in April's issue of the journal Pediatrics. And they go farther than the American Academy of Pediatrics' own guidance for teen depression screening.

Reuters:
- Google Inc(GOOG) is hiring to fill about 360 jobs, even after it announced plans this week to lay off almost 200 sales and marketing employees in its third round of job cuts this year. The openings listed on Google's website range from software engineers to sales and marketing positions, to one opening for a Foodservices Supply Chain Manager at Google's Mountain View, California headquarters.

- Mexico will cooperate with the United States in sharing intelligence to fight drug trafficking but does not plan joint patrols with U.S. forces, President Felipe Calderon said Monday. "We do have to work together but that does not imply the joint participation in military operations or even a joint participation of law enforcement agents," Calderon said at a press conference during a state visit to London.

- The world's largest gold-backed exchange-traded fund, the

SPDR Gold Trust (GLD), said holdings rose 2.45 tons to a

record 1,127.44 tons on March 29.

la Repubblica:

- Crude oil may stabilize at between $50 and $55 a barrel this year, former Saudi Arabian Oil Minister Sheikh Ahmad Zaki Yamani said in an interview. “It will settle near current prices and stay there for the year,” he said.

CBC:

- British Columbia and Alberta are on track to post huge drops in car sales for the first two months of 2009 with Canada expected to see auto purchases fall by 16 per cent for the entire year, according to a new report released Monday.

Australian Financial Review:
- Australian Treasurer Wayne Swan said there would be “further slowing” in the nation’s economic growth. Swan said the forecasts contained in the government’s Updated Economic and Fiscal Outlook, which was released in February, will “be updated.” “We’d expect there to be further slowing of growth and a further impact on employment, therefore unemployment will be higher and also further impact on revenue which means that revenue downgrades will get higher.”

Bear Radar

Style Underperformer:
Mid-cap Value (-4.88%)

Sector Underperformers:
Oil Tankers (-9.05%), Coal (-8.56%) and Banks (-8.0%)

Stocks Falling on Unusual Volume:
SJR, PHG, PTR, CTRP, LAYN, ZEUS, DWSN, FSYS, ENER, PGJ, TMB, TGP, NRT, TSL, TKG, RPV, EWD and STP

Stocks With Unusual Put Option Activity:
1) ARNA 2) AZN 3) LNC 4) FST 5) ACH

Bull Radar

Style Outperformer:
Large-cap Growth (-2.89%)

Sector Outperformers:
Education (+.77%), Drugs (-.82%) and Computer Service (-1.61%)

Stocks Rising on Unusual Volume:
SA, BTI, APOL, GXDX, IDCC, TOD and AZN

Stocks With Unusual Call Option Activity:
1) SWKS 2) ARNA 3) MXIM 4) LNC 5) BBBY

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