Thursday Watch

Late-Night Headlines

Wall Street Journal:

- Moody's Investors Service(MCO) stripped several Aaa ratings from Berkshire Hathaway Inc.(BRK/A) and its insurance units, as losses pile up amid the severe declines in equity markets and the broader economy. The ratings firm, which itself is a minority-owned affiliate of Berkshire, knocked the investment company's long-term issuer rating down two notches to Aa2. In addition, the insurance financial strength ratings on the company's National Indemnity Co. unit and other major insurance units fell a notch to Aa1.

- With the U.S. now coming to the aid of life insurers, it is worth revisiting some of the remarks made last week by former Federal Reserve Governor William Poole. Poole stepped down from his post as head of the Federal Reserve Bank of St. Louis in March 2008. Below are excerpts of his remarks delivered to attendees of the Tulane University Corporate Law Institute in a talk titled “Exit Strategy from Too Big to Fail.”

- The U.S. steel industry filed an antidumping suit against China, covering $2.7 billion of imports, alleging that steelmakers there unfairly dumped specific types of tubular and pipe steel onto the U.S. market last year. The case, one of the biggest ever filed by the U.S. against China, is likely the beginning of a string of steel-dumping cases against China, say attorneys representing steel workers and manufacturers.

NY Times:

- For the last eight weeks, nearly 200 federal examiners have labored inside some of the nation’s biggest banks to determine how those institutions would hold up if the recession deepened. What they are discovering may come as a relief to both the financial industry and the public: the banking industry, broadly speaking, seems to be in better shape than many people think, officials involved in the examinations say.

- While acknowledging that the recession makes the political battle more difficult, President Obama plans to begin addressing the country’s immigration system this year, including looking for a path for illegal immigrants to become legal, a senior administration official said on Wednesday. Mr. Obama will frame the new effort — likely to rouse passions on all sides of the highly divisive issue — as “policy reform that controls immigration and makes it an orderly system,” said the official, Cecilia Muñoz, deputy assistant to the president and director of intergovernmental affairs in the White House. Mr. Obama plans to speak publicly about the issue in May, administration officials said, and over the summer he will convene working groups, including lawmakers from both parties and a range of immigration groups, to begin discussing possible legislation for as early as this fall. Some White House officials said that immigration would not take precedence over the health care and energy proposals that Mr. Obama has identified as priorities. But the timetable is consistent with pledges Mr. Obama made to Hispanic groups in last year’s campaign. He said then that comprehensive immigration legislation, including a plan to make legal status possible for an estimated 12 million illegal immigrants, would be a priority in his first year in office. Latino voters turned out strongly for Mr. Obama in the election.

Reuters:

- California Pizza Kitchen Inc (CPKI) raised its first-quarter outlook because of the effects of cost-cutting, sending the pizza chain's shares up as much as 8 percent. The company said it now expects a profit of 9 cents to 10 cents a share, up from its prior outlook for a profit of 3 cents to 5 cents a share.

Financial Times:
- As the recession dramatic­ally alters where and how Americans spend their money, there is an emerging consensus on the likely profile of the “new” US consumer who will emerge on the other side of the crisis. A Citigroup report, for example, argues that US consumers are shifting towards “conscientious consumption”, embracing a “thriftiness” focused on value and quality, not quantity.

Shanghai Securities News:

- Chinese industries face “great difficulty” even amid signs that the economy is improving, citing Ou Xinqian, vice minister of Industry and Information Technology.

Nikkei:

- North Korea may have transferred enriched uranium to Iran.

DigiTimes:

- Apple Inc.(AAPL) ordered 100 million flash-memory chips from Samsung Electronics Co. as part of its inventory builup for new consumer electronics in the second half of the year. Apple’s order for so-called 8-gigabit Nand flash chips has tightened supply for the semiconductor.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (SPLS), target $23..

Night Trading
Asian Indices are +.75% to +2.75% on average.
S&P 500 futures +.79%.
NASDAQ 100 futures +.71%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Global Commentary
WSJ Intl Markets Performance
Commodity Futures
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (PBY)/-.39

Economic Releases

8:30 am EST

- The Trade Deficit for February is estimated at -$36.0B versus -$36.0B in January.

- Initial Jobless Claims for last week are estimated to fall to 660K versus 669K the prior week.

- Continuing Claims are estimated to rise to 5800K versus 5728K prior.

- ICSC Chain Store Sales for March are estimated to fall .8% versus a .1% decline in February.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Stern speaking, the Fed’s Hoenig speaking, (LCAV) shareholders meeting and (AHS) shareholders meeting could also impact trading today.

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

Stocks Finish Near Session Highs, Boosted by Technology, Airline and Insurance Shares

Evening Review
Market Summary
Top 20 Biz Stories
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Futures
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Real-Time Stock Bid/Ask
After-hours Stock Quote
After-hours Stock Chart
In Play

Stocks Higher into Final Hour on Tech Sector Optimism, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs and Technology longs. I covered by (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are gaining and volume is below average. Investor anxiety is above average. Today’s overall market action is bullish. The VIX is falling 2.2% and is very high at 39.51. The ISE Sentiment Index is slightly below average at 131.0 and the total put/call is slightly below average at .80. Finally, the NYSE Arms has been running above average most of the day, hitting 1.53 at its intraday peak, and is currently 1.26. The Euro Financial Sector Credit Default Swap Index is rising .48% today to 159.17 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 1.73% to 191.97 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is rising .27% to 96 basis points. The TED spread is now down 367 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 4.18% to 57.25 basis points. The Libor-OIS spread is falling .81% to 93 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 3 basis points to 1.33%, which is down 131 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 1 basis point today. Considering the weakness in banks today, the broad market is holding recent gains very well. Many market-leading stocks are substantially outperforming the major averages. Small-caps and “growth” shares are also showing relative strength. Financials still appear to be consolidating recent gains. Any renewed strength in these shares should ignite another surge in the broad market. Nikkei futures indicate an +120 open in Japan and DAX futures indicate a -2.0 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, tech sector optimism and bargain-hunting.

Today's Headlines

Bloomberg:

- Pulte Homes Inc.(PHM) agreed to buy Centex Corp.(CTX) for $1.3 billion in an all-stock deal that creates the largest U.S. homebuilder by revenue and throws each of them a lifeline in the worst housing slump since the 1930s. Pulte agreed to pay 0.975 of a share for each Centex share, valuing Centex at $10.50, or 38 percent more than yesterday’s closing price, the Bloomfield Hills, Michigan-based company said today in a statement.

- Federal Reserve officials feared the U.S. economy might fall into a self-reinforcing cycle of rising unemployment and slumping business and consumer spending, making credit tighter in a weak financial system, minutes of the Federal Reserve’s March meeting show.

- Sales at U.S. wholesalers rose in February for the first time in eight months, contributing to a record drop in inventories that indicates distributors are well on the way to eliminating the glut in stockpiles. Sales rose 0.6 percent, the first increase since June, the Commerce Department said today in Washington. The 1.5 percent decrease in the value of stockpiles was the biggest since records started in 1992. At the current sales pace, it would take 1.31 months for distributors to deplete the amount of goods on hand, the lowest since November, compared with 1.34 months in January. Smaller inventories mean any stabilization in demand will translate into a pick up in orders and production. “Excess supply conditions don’t look as bad as they were,” said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York. “This is encouraging because it’s not just happening in wholesaling, it’s happening in the factory sector, too.”

- The Federal Reserve may offer investors longer-term loans at higher interest rates to buy commercial mortgage-backed securities, aiming to protect the central bank’s balance sheet while acceding to an industry plea. Lobbyists in the commercial mortgage-backed securities industry say the Fed needs to provide loans of at least five years, rather than the current three-year limit, to avert a meltdown in the market. Fed officials, wary of granting the request outright, are considering a compromise in altering terms of its $1 trillion emergency-lending program.

- U.S. retailers’ online sales rose 11 percent on average in the first three months of the year, according to a survey by Forrester Research and Shop.org. Of 80 companies, 58 percent reported their sales increased during the first quarter from the same period a year ago, said Sucharita Mulpuru, an analyst at Cambridge, Massachusetts-based Forrester. “It seems that consumer confidence is getting better,” Mulpuru said yesterday in a telephone interview. “There is so much price competition out there that you can find great deals. Hopefully the worst is behind us.”

- Petroleos Mexicanos, the state oil company, may recover an extra 3 billion barrels from its Cantarell field, or 20 percent more than planned, by using a technology that extracts hard-to-reach crude.

- Crude oil rose for the first time in four days after a U.S. government report showed a smaller U.S. inventory gain than an industry report. Supplies gained 1.65 million barrels to 361.1 million last week, the highest since July 1993, the Energy Department said today. Stockpiles were forecast to climb by 1.5 million barrels, according to a Bloomberg News survey. The industry-funded American Petroleum Institute said late yesterday that stockpiles jumped 6.94 million barrels to the highest since 1990. “The inventory build today wasn’t anywhere near as large as in the API report, which is giving the market support,” said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. “It’s hard to be too bullish with inventories approaching a record.”

- U.S. auto-parts maker shares rose after General Motors Corp. and Chrysler LLC said they will start administering $3.5 billion in federal aid aimed at helping their suppliers. GM will get $2 billion under the Treasury programs, which guarantee payments owed to parts suppliers, Dan Flores, a spokesman for the automaker, said today. Chrysler said in a statement that it will receive a $1.5 billion line of credit.

- Russian overdue bank loans are increasing by 20 percent a month, a pace that will bankrupt weak lenders as the financial crisis deepens, OAO Sberbank Chief Executive Officer German Gref said. Businesses and consumers are still struggling to repay loans, more than half a year after the crisis started, paving the way for a new round of problems, Gref, a former economy minister, said at a conference in Moscow today. “The crisis is just beginning for the banking industry,” said Gref, who has run Russia’s largest lender for 18 months. “The crisis will arrive from the real sector of the economy.”

- JPMorgan Chase & Co.(JPM), Goldman Sachs Group Inc.(GS) and the eight other banks that have dominated the credit-default swaps market for a decade are now ceding some power to their clients as regulators push for transparency. Pacific Investment Management Co., Elliott Management Corp. and three other investment firms will join 10 dealers this week on a committee that will make binding decisions for the first time on how contracts are settled. Such decisions have influenced payouts and, at times, had the potential to almost double the amount investors made or lost.

- The Massachusetts state pension system fired Jeremy Grantham’s firm as manager of $230 million in emerging-markets debt after losses from asset-backed securities dragged down returns.

- The U.S. Securities and Exchange Commission is weighing multiple rules to dictate when traders can bet shares will fall, after lawmakers and business groups said short-sellers fueled the financial crisis by targeting banks. One option the SEC staff proposed today is a measure similar to the so-called uptick rule, which House Financial Services Committee Chairman Barney Frank urged the agency to reinstate. The agency will also seek feedback from investors, brokerages and companies on a plan to temporarily ban short- selling of stocks that have fallen at least 10 percent.

- U.S. regulators sued Denver-area investment manager Shawn Merriman and his firm, claiming he ran a 15-year Ponzi scheme and spent proceeds on classic cars, motor homes and artworks by Rembrandt van Rijn.

Wall Street Journal:

- Williams-Sonoma Inc.(WSM), the US gourmet-cookware retailer, is repositioning its Pottery Barn unit to make its products more affordable, citing retail industry consultants and analysts.

- The president's new science adviser said Wednesday that global warming is so dire, the Obama administration is discussing radical technologies to cool Earth's air. John Holdren told the Associated Press in his first interview since being confirmed last month that the idea of geoengineering the climate is being discussed. One such extreme option includes shooting pollution particles into the upper atmosphere to reflect the sun's rays. Mr. Holdren said such an experimental measure would only be used as a last resort. "It's got to be looked at," he said. "We don't have the luxury of taking any approach off the table."

CNBC:

- The 30-year mortgage rate could fall to nearly 4 percent by the end of the year as both the economy and housing market make a slow recovery, Bank of America-Merrill Lynch said. "We expect that disinflationary forces combined with overt quantitative easing from the Federal Reserve will push the 30-year fixed rate mortgage down from the current 4.85% rate to 4.2% by year-end," the firm said in a note from Bank of America-Merrill Lynch economists Gary Bigg and David A. Rosenberg.

MarketWatch:
- Hedge funds gained roughly 1% in March, but lagged a sharp rebound in the stock market as some managers' short positions suffered, according to estimates released Wednesday by firms that track performance in the $1.5 trillion industry. Performance in March lagged the equity market. The Standard & Poor's 500 index surged 8.5% last month. Bonds also outperformed, with the Barclays Aggregate Bond Index advancing 3.3% in March, led by gains in U.S. Treasury bonds and high yield debt. "It was a challenging month for hedge funds," Charles Gradante, co-founder of Hennessee Group, said in a statement. "Equity markets rallied strongly, while the market fundamentals really did not change." Most funds missed out on the market rally because they had "tight net exposures," which means long positions were balanced closely with short positions, or negative bets, he said. "Managers were also hurt as the sectors they have been heavily short, such as financials, consumer discretionary and materials, were the sectors that rallied the strongest," Gradante added.

Chicago Sun-Times:

- A congressional ethics board has launched a preliminary inquiry into U.S. Rep. Jesse Jackson Jr. (D-Ill.), related to President Obama's vacant Senate seat and the corruption investigation of ousted Gov. Rod Blagojevich, the Chicago Sun-Times has learned.

NY Post:

- The stress tests the government are about to conduct on some of the nation's largest banks is being blasted by insiders at Sheila Bair's Federal Deposit Insurance Corp., who say it's a pointless exercise that's more sizzle than steak. The FDIC's basic beef with the stress test is that it is not a credible way to assess how much additional cash beaten-down banks will need to weather what many Wall Street experts predict will be more losses in the coming months. The tests are conducted by the Treasury Department and the Federal Reserve on the nation's 19 biggest banks, including behemoths Citigroup, Bank of America and JPMorgan Chase. "It's a sham," one source told The Post, describing the test as an "open-book, take-home exam" that doesn't actually work.

The Business Insider:

- Lights At The End Of The Economy Tunnel. There are indeed some signs that the worst might be over for the economy. Which is why the violent rally in the stock market isn't obviously a sucker's rally.

MoneyControl.com

- Mary Ann Bartels, Chief Market and Technical Analyst of Merrill Lynch, said hedge funds are facing redemption pressure as investors prefer cash. According to her, there is a need to watch Q2CY09 to get clear picture of redemptions in 2009. She further stated that not all hedge funds are facing net loss and some are receiving funds. There has been recent buying in S&P futures to hedge shorts in financial sector, she added. She said gold is overowned and may see deeper fall if hedge funds book profits.

Seeking Alpha:

- Short Sellers Get the Squeeze. Part of this article in the Wall Street Journal is about the steps taken to "take back" land from the short sellers; that is not the part I am concerned with. What I simply hate(d) as an investor in mid cap and some small cap stocks was the complete lack of attention the SEC paid to naked short selling. Short selling on its own is a positive; but naked short selling (selling shares that don't even exist) is essentially a fraud. The reality is many of the big players whose prime broker were the Merrill Lynchs (MER), Goldman Sachs (GS), Lehman Brothers of the world - engaged in this. When pressed on this, the brokerages (and their institutional buddies) insisted its an overblown issue... certainly very rarely did a hedgie sit day after day shooting against a defenseless small cap stock as its personal plaything. Nope - all in your imagination folks.

Reuters:
- Any further output cuts by OPEC, coupled with an expected increase in vessels in 2009, may dampen the oil tanker companies' ability to hold on to higher freight rates, denting their earnings potential in the coming quarters. OPEC (Organization of the Petroleum Exporting Countries) oil supply fell in March, for the seventh consecutive month, but remained above its target as some members pumped more than agreed levels, a recent Reuters survey showed.

Financial Times:
- China's planned Rmb850bn ($124bn) revamp of its ailing healthcare system will generate software spending worth at least $1.5bn, according to IBM's Chinese development laboratory. The US computer group said it expected that at least 1,000 hospitals would spend at least $1.5m each to set up electronic medical records under the plan, which is expected to be set out in detail by Chinese government officials today. "This will trigger $1.5bn in software spending from hospitals," said Matt Wang, vice-president of IBM's China Development Lab. "That is a low ballpark figure. I expect it will be much more than that."

- The oil price in gold terms has been stable over history but not recently – from the top of the oil bubble last year until the start of gold’s correction a few weeks ago, oil fell by some 77 per cent relative to gold. Platinum, a precious metal that should have a lot in common with gold, dropped 55 per cent in gold terms from its recent peak, while copper, an industrial metal, fell 66 per cent. All remain significantly cheaper in gold terms than they were at the outset of the financial crisis almost two years ago. This suggests that the gold price had raced ahead of itself as investors looked for insurance during the crisis and also suggests that the correction could go further.

Bear Radar

Style Underperformer:
Large-cap Value (+.58%)

Sector Underperformers:
Banks (-2.20%), Education (-1.62%) and Hospitals (-1.56%)

Stocks Falling on Unusual Volume:
OMTR, ITG, SCSC, ABV, TNDM, SIVB and R

Stocks With Unusual Put Option Activity:
1) TXT 2) CHRW 3) DNDN 4) TWX 5) S

Bull Radar

Style Outperformer:
Small-cap Value (+1.39%)

Sector Outperformers:
Networking (+4.18%), Insurance (+3.71%) and Airlines (+2.79%)

Stocks Rising on Unusual Volume:
PFG, WBSN, JNPR, PEGA, PRU, TM, BBBY, JOSB, FFIV, BLUD, WMGI, CSTR, PEGA, OSIP, SEPR, SAFM, NTAP, NVEC, CHTT, RRGB, BIIB, RIMM, PSMT, ROK, HIG, PFG and FDO

Stocks With Unusual Call Option Activity:
1) BBBY 2) OSIP 3) PHM 4) ALL 5) NTAP