Stocks Finish Sharply Higher, Boosted by Airline, Gaming, REIT, Insurance, Financial, Steel and Alternative Energy Shares

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Stocks Soaring into Final Hour on Financial/Tech Sector Optimism, Less Economic Fear, Short-Covering, Lower Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Financial longs, Retail longs and Technology longs. I added to my (ISRG) long this morning and took profits in another long, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is gaining and volume is about average. Investor anxiety is high. Today’s overall market action is very bullish. The VIX is falling 4.25% and is very high at 37.19. The ISE Sentiment Index is slightly below average at 132.0 and the total put/call is about average at .85. Finally, the NYSE Arms has been running low most of the day, hitting .33 at its intraday trough, and is currently .66. The Euro Financial Sector Credit Default Swap Index is falling 2.55% today to 155.02 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 3.34% to 182.35 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is falling .78% 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 down .44% to 56.75 basis points. The Libor-OIS spread is falling .93% to 93 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 2 basis points to 1.35%, which is down 129 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 unch. today. The AAII % Bulls fell to 35.71%, while the % Bears jumped to 44.29% this week, which is a positive. The VIX is breaking down technically and the US sovereign debt credit default swap is dropping another 10.5% today, which are also big positives. Given hedge funds’ poor performance in March and the fact that many managers are out of the office today, I suspect we will see further significant short-covering next week. (WFC), which is soaring almost 30% today, had 156M shares of its stock sold short as of yesterday. With the (XLF) gapping higher, many shorts are likely feeling trapped in these shares and are hoping for some negative catalyst to materialize to save them. This should put a bid under these stocks for awhile. I also believe we are about to see a more meaningful improvement in consumer spending than almost anyone is forecasting over the next few months. Nikkei futures indicate an +235 open in Japan and DAX futures indicate an +15 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, declining credit market angst, tech/financial sector optimism, deal speculation and less economic fear.

Today's Headlines

Bloomberg:

- Wells Fargo & Co.(WFC), the second- biggest U.S. home lender, reported a record first-quarter profit that beat the most optimistic Wall Street estimates, sparking a rally in bank shares on speculation that the industry’s slump has ended. Net income rose about 50 percent from $2 billion a year earlier, the San Francisco-based lender said today in a preliminary statement. Per-share profit equaled about 55 cents, more than double the average estimate of analysts surveyed by Bloomberg. Wells Fargo rose $3.22, or 22 percent, to $18.11 a share at 11:27 a.m. in New York Stock Exchange composite trading after advancing as much as 34 percent. Bank of America, the largest U.S. lender, gained as much as 21 percent, while JPMorgan Chase increased as much as 15 percent and Citigroup 12 percent. Wells Fargo’s biggest shareholder is Warren Buffett’s Berkshire Hathaway Inc.

- Howard Atkins, CFO of Wells Fargo(WFC), says Wells is gaining in mortgage market. (video)

- Federal Reserve Bank of Minneapolis President Gary Stern said that while “appreciable strains” remain in credit markets, the resumption of U.S. economic growth “should not be too far off.”

- March sales at clothing chains including Limited Brands Inc. and Gap Inc. fell less than analysts anticipated as spring promotions lured shoppers looking for fashion deals. Sales at Limited stores open at least a year fell 9 percent, less than the 12 percent average decline estimated by analysts in a survey by Retail Metrics Inc.

- The cost to protect against a default on U.S. corporate bonds dropped after a report that all 19 banks being stress-tested by the Treasury will “pass” the reviews. Credit-default swaps linked to Morgan Stanley and Goldman Sachs Group Inc. dropped to the lowest in seven weeks. Swaps on Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. fell to the lowest in more than two weeks, and a benchmark credit-default swaps index linked to North American companies also fell. Contracts linked to Textron Inc. plunged on a report a United Arab Emirates consortium is preparing to buy the maker of Cessna aircraft and Bell helicopters. Swaps on the Markit CDX North America Investment-Grade Index Series 12, linked to the bonds of 125 companies in the U.S. and Canada, fell 7 basis points to a mid-price of 182 basis points as of 10:15 a.m. in New York, according to broker Phoenix Partners Group. ive-year contracts on Morgan Stanley fell 4 basis points to 329 basis points, and swaps on Goldman Sachs declined 5 basis points to 242 basis points, according to CMA DataVision. Contracts on Charlotte, North Carolina-based Bank of America fell 24 basis points to 296 basis points, New York-based JPMorgan dropped 5 basis points to 177 and Wells Fargo fell 24 basis points to 262. Contracts on New York-based Citigroup Inc. fell 9 basis points to 606 basis points, CMA data show.

- Crude oil rose more than $2 a barrel as equities gained, signaling that some investors expect economies to stabilize, bolstering energy demand. U.S. crude oil supplies increased 1.65 million barrels to 361.1 million last week, the highest since July 1993, the report yesterday from the U.S. Energy Department showed. The industry- funded American Petroleum Institute said April 7 that stockpiles jumped by 6.94 million barrels to the highest since 1990. “People were a little bit shocked yesterday that the crude number was so different than the API number,” said Ray Carbone, president of Paramount Options Inc. in New York and a trader at the New York Mercantile Exchange. “We’re just in a range between $47.25 and $53 and nothing has broken us out of that range.” Global oil demand falls to an annual low during the second quarter as refineries close to perform maintenance after winter in the Northern Hemisphere. “If prices stay where they are, at about $50, or even drop a little, it will be a good thing because we should not forget that the global economy is shrinking,” Algerian Oil Minister Chakib Khelil told the state-run Algerie Presse Service yesterday. Total daily fuel demand averaged over the past four weeks was 18.9 million barrels, down 4.4 percent from a year earlier, the Energy Department said. It was the lowest consumption for a four-week period since October.

- Government stress tests of U.S. banks’ ability to withstand a deeper recession are likely indicate that most don’t need more taxpayer money, Federal Reserve Bank of Kansas City President Thomas Hoenig said. “I would point out, first, that although the United States has several thousand banks, only 19 have more than $100 billion of assets, and that after supervisory authorities evaluate their condition, it is likely that few would require further government intervention,” Hoenig said in the text of a speech in Tulsa, Oklahoma.

- Sony Corp.’s(SNE) entertainment division said it is in talks to post movies on Google Inc.(GOOG)’s YouTube video-sharing Web site. “YouTube can help promote their videos,” Jeremiah Owyang, an analyst at Cambridge, Massachusetts-based Forrester Research Inc., said in an interview. YouTube wants “more high-quality content,” Owyang said. “They really want to up their game.”

- Seven steel manufacturers, including U.S. Steel Corp., filed a petition with U.S. trade agencies accusing China of illegally dumping pipes used to extract oil and gas. The steelmakers, in a petition to the U.S. Department of Commerce and the U.S. International Trade Commission, argue that Chinese mills benefit from subsidies for so-called oil-country tubular goods which are sold in the U.S., according to a statement yesterday by the United Steelworkers, a union representing staff at the companies.

- India’s industrial production fell the most in more than 14 years and inflation slowed to the weakest in at least two decades, increasing pressure for more interest-rate cuts to revive economic growth. Output at factories, utilities and mines declined 1.2 percent in February from a year earlier after a revised 0.4 percent gain in January, the statistics agency said in New Delhi today. The benchmark wholesale-price index rose 0.26 percent in the week to March 28, according to a separate report.

- Russian banks’ bad loans will quadruple to $70 billion this year, deepening the country’s worst financial crisis since the government’s 1998 debt default, a Bloomberg survey shows. Non-performing loans will increase to 12.8 percent of the 18.4 trillion rubles ($549 billion) owed by Russian companies and individuals by the end of this year, from 3.2 percent in March, according to the mean estimate of 17 banking analysts polled by Bloomberg in the past week. HSBC Holdings Plc, Europe’s biggest bank, expects delinquencies to reach 23 percent, Europe’s highest rate after Hungary at 25 percent.

- Buy ‘Cyclical’ Stocks as Worst Is Past, Goldman Says.

- European Central Bank council member Ewald Nowotny said cutting the benchmark rate below 1 percent is still open for debate and it would be “sensible” for the bank to buy corporate debt.

- Industrial production in Germany, Europe’s largest economy, dropped for a sixth month in February as the global recession sapped demand for goods at home and abroad. Output fell a seasonally adjusted 2.9 percent from January, when it slumped 6.1 percent, the most since data for a reunified Germany began in 1991, the Economy Ministry in Berlin said today.

- US consumers are regaining confidence, setting the stage for a rebound in spending later this year, according to Larry Miller, an RBC Capital Markets analyst. RBC’s CASH Index, short for Consumer Attitudes and Spending by Household, showed the first year-over-year increase in April since August 2007. The gauge, which was released today, rose to 38.3 from 29.5 last April. “We’re near an inflection point in consumer spending,” Miller wrote today. Spending typically recovers six months after confidence hits bottom. Forty-four percent of consumers plan to sp end more on dining out and other forms of “everyday entertainment” once the economy improves, the survey found. Only travel and vacations, at 48%, was more popular among six categories included in the survey.

- The benchmark index for U.S. stock options slumped to a six-month low as bank stocks rallied on a Wells Fargo & Co. profit report that beat the most optimistic analyst estimates. The VIX, as the Chicago Board Options Exchange Volatility Index is known, decreased a third day, slipping 3.3 percent to 37.56 at 12:15 p.m. in New York and fell as low as 36.96.

- Pirates off the coast of Somalia held the captain of an American-flagged container ship while a U.S. destroyer kept watch from a “safe distance,” the vessel’s owners said. The captain, identified as Richard Phillips, “remains hostage but is unharmed,” Kevin Speers, a spokesman for Maersk Lines Ltd., said in a televised statement from Norfolk, Virginia, the ship’s home port. FBI negotiators are assisting the Navy to try to end the standoff, a bureau spokesman said.

- President Mahmoud Ahmadinejad inaugurated Iran’s first nuclear fuel plant a day after he insisted that the Persian Gulf country doesn’t aim to develop atomic weapons. Ahmadinejad cut the ribbon at the facility in the central province of Isfahan during a ceremony marking National Nuclear Technology Day, the state-run Islamic Republic News Agency said.

- Textron Inc.(TXT) rose the most in at least 28 years after Kuwait’s Al-Watan newspaper reported that a United Arab Emirates group is preparing to buy the maker of Cessna aircraft and Bell helicopters for $21 a share. Providence, Rhode Island-based Textron surged $4.62, or 51 percent, to $13.73 at 1:10 p.m. in New York Stock Exchange composite trading after earlier gaining 58 percent in the biggest intraday increase since at least July 28, 1980.

- DealReporter says Oracle(ORCL) may be interested in acquiring (DOX) according to sources.

- Google(GOOG) should exceed Q1 consensus estimates, says Piper Jaffray. Piper believes Google will exceed the Q1 consensus EPS estimate of $4.95 and expects revenue to be down 3-4% quarter-over-quarter, better than the Street’s expectation of down 5%. Piper reiterated its Buy on the stock.

Wall Street Journal:

- Yahoo Inc. (YHOO) could lose up to 15% of its search traffic over the next 12-to-18 months after failing to renew deals with two computer makers, blows likely to hamper the Internet giant's efforts to remain a viable competitor in search advertising. Failure to extend the deals - which would have kept Yahoo as the default search tool on new Hewlett-Packard Co. (HPQ) and Acer Inc. (ACEIY) computers - could cost the company as much as three percentage points of U.S. search market share.

- The two main hedge funds managed by Ken Griffin's Citadel Investment Group rose 3% in March and were up 11% in the first quarter of the year, according to a person familiar with the matter.

CNBC:

- Robert Doll, global chief investment officer at BlackRock Inc.(BLK), said he is advising investors to shift money from safer assets such as US Treasuries into buying equities. “The worst of the recession is in the rear-view mirror,” Doll said.

- You've heard all the gloom and doom about this recession. Now here's some good news: the economic recovery could happen much sooner—and be much stronger—than anyone thought possible. Suddenly, a small but growing group of private-sector economists is disputing the idea that the recession will drag on for months and that the rebound will be as weak as those following the the 1991 and 2001 downturns.

MarketWatch:
- Tata Motors Ltd. shares rallied more than 23% in early trades Thursday in New York on a report that the Indian company's Nano minicar is seeing a surge in interest on its first day for bookings in its home market.

- Barclays PLC said Thursday that will sell its iShares exchange-traded fund business to private-equity group CVC Capital Partners for $4.4 billion, divesting itself of the world's largest and most successful ETF firm as it works to repair its balance sheet to recover from the economic crisis.

- At a time when most retailers are paring back on store openings and lowering capital spending, Shawn Score said he felt good about the leases he just signed for two stand-alone Best Buy(BBY) Mobile locations.

LA Times:

- LA starts buying up foreclosed homes with federal aid.

FINalternatives:

- Three of the five hedge fund strategies published by Dow Jones Hedge Fund Indexes posted negative returns last month. Distressed securities “led” the way, dropping 4.39% in March (down 9.31% year-to-date), followed by equity long/short, which was down 1.31% (down 0.62% YTD) and equity market neutral, down 0.78% (up 1.90% YTD).

- The hedge fund industry yesterday rallied to defend short-selling after the Securities and Exchange Commission proposed new restrictions on the controversial practice. A pair of lobbying groups issued statements opposing the regulator’s move. The SEC yesterday proposed five possible rules covering short-selling, including several different versions of the uptick rule is abolished two years ago. But Richard Baker, the former congressman who heads the Managed Funds Association, said that short-selling is a “legitimate, vital investment strategy that adds liquidity to the markets and facilitates fair price discovery.” “We do not want to see new policy turn into a back-door ban on short-selling.” Meanwhile, Kynikos Associates’ James Chanos, the head of the Coalition of Private Investment Companies, blasted the proposed rules as “ill-conceived.” The SEC’s temporary ban on short sales of financial stocks last year was blamed in part for the huge losses the industry suffered in the fourth quarter.

Business Wire:

- Nuance Communications, Inc. (NUAN), a leading supplier of speech solutions, today announced results from a new study that shows how Nuance's Dragon Medical software, the healthcare industry's most widely used real-time speech recognition software, can significantly accelerate the transition to, and utilization of electronic health records (EHRs).

Reuters:
- A body set up to monitor standards of conduct among Britain's under-fire hedge funds aims to double the tally of industry players signed up to its code of practice by the end of 2009 following a dressing-down from lawmakers. The Hedge Fund Standards Board, which sets industry norms on disclosure and governance, came in for heavy criticism from politicians in January over its slow take-up rate. The fund's chairman, Antonio Borges, told Reuters on Thursday the body wants to have on board around 100 signatories from among the UK's 400-450 hedge funds by the end of the year. It currently has 46 after firms including Odey, Jupiter and The Children's Investment fund recently joined. The HFSB was formed following a report in January 2008 from the Hedge Fund Working Group, an industry initiative designed to respond to concerns over systemic risks posed by the industry. Hedge funds have become a prime target for criticism during the credit crisis for the controversial practice of short-selling bank stocks, while some politicians want more regulation to prevent a repeat of the financial turmoil that followed the 1998 collapse of U.S. fund Long Term Capital Management.

- The U.S. economy will end its "free-fall" within a few months as government stimulus and rescue efforts take hold and inventory cycles return to normal, White House economic adviser Lawrence Summers said on Thursday.

- A growing number of U.S. banks are paying back or planning to pay back the bailout money they received from the government as they seek to escape the restrictions that come along with the funds. Some banks have also said they believe repayment of the funds signals the managements' confidence in their capital levels.

- White House economic adviser Lawrence Summers said on Thursday that the United States benefits from the fact that the U.S. dollar is regarded as a safe currency and should protect its status. Answering questions after an address at the Economic Club, Summers said the dollar and the strength of U.S. debt securities were "a source of strength" for the United States and that must be recognized.

Financial Times:
- Hedge funds failed to take advantage of the sharp rally in equities in March as their generally defensive stance meant the average fund across all investment strategies gained less than 2 per cent even as the benchmark S&P 500 index rallied by more than 8 per cent. Some hedge fund strategies completely missed the upside of the equity markets in what many analysts were describing as a bear market rally. Many hedge funds have taken a step back from directional bets on the stock markets against the backdrop of the heightened volatility that has accompanied the financial crisis. Many are under pressure for funding and have been subject to a wave of redemptions by investors. Some have invested large amounts in cash, while many multi-strategy funds have focused on opportunities beyond the equity markets, particularly in distressed debt and special situations. According to figures from Hedge Fund Research, a weighted composite of hedge fund strategies rose 1.8 per cent in March. The S&P 500 rose 8.5 per cent over the same period while the Nasdaq Composite index rallied almost 11 per cent. Many hedge funds posted negative returns for the month. For example, the HFR macro hedge fund index was down 1.2 per cent for the month. Long/short equity managers, the largest strategy group in the hedge fund business, displayed a wide dispersion in performance as many were defensively positioned going into the rally. Their overall performance of 2.3 per cent was low as a result compared with the broader equity markets. Not surprisingly, the HFR dedicated short bias index was down 4.9 per cent for the month, after staging two strong months in January and February.

Telegraph:

- EU warns China over increasing steel exports. A simmering trade conflict between Europe and China is nearing the boil as state-supported Chinese steel companies ramp up capacity despite drastic cuts by the rest of the world.

Guardian:

- Counterterrorism officials believe an alleged al-Qaida terror plot against the UK, designed to cause mass casualties, was due to be carried out within days, the Guardian has learned. A total of 12 people were arrested across northern England on Wednesday as police carried out a string of raids to thwart an alleged terrorist cell with overseas links. Peter Fahy, the chief constable of Greater Manchester police, today confirmed that 11 of those arrested were Pakistani nationals. A secret briefing note accidentally shown to the media yesterday outside Downing Street by the UK's former top counter-terrorist officer Bob Quick, said 10 of those targeted in the operation were on student visas. Sources with knowledge of the investigation - in which arrests were rushed forward after Quick's mistake, which today cost him his job - say the execution of an "al-Qaida driven" plot was "imminent".

Kommersant:

- OAO Mobile TeleSystems plans to start sales of two BlackBerry phone models to retail customers across Russia this month, citing Mikhail Shamolin, CEO of the mobile operator.

National Post:

- Canadian National Railway Co. has developed a transformative strategy it calls the "Pipeline on Rail" that can move oil-sands production quickly and cheaply to markets in North America or Asia.

Folha de S. Paulo:

- Iraqi Planning Minister Ali Ghalib Baban proposed that Petroleo Brazileiro SA, Brazil’s state-owned oil company, build a refinery in the Middle Eastern country. Iraq needs to increase its refining capacity by 500,000 barrels of oil a day and a partnership with Petrobras would allow it to raise capacity by a minimum of 200,000 barrels a day, citing Baban. Petrobras is “seriously” studying the offer, Baban said.

China Economic Net:

- US software giant IBM Corp(IBM) said yesterday that China's planned 850-billion yuan healthcare system overhaul will generate at least $1.5 billion in new spending in software, providing great opportunities for technology companies that have taken a beating in the current global economic downturn. Matt Wang, vice-president of IBM's China Development Lab, said he expected at least 1,000 Chinese hospitals to invest a minimum of $1.5 million each on software and related services in the coming years, encouraged by the government's investment plan.

- Telecom equipment makers cashing in on 3G issuance.

Straits Times:

- Singapore’s economy will probably contract more than currently forecast as exports slump amid the global recession, citing Prime Minister Lee Hsien Loong. The government will have to cut its current estimate that the economy will contract in a range of 2% to 5% this year, Lee said. Still, the decline is likely to be less than 10%, he said.

Arab News:
- Jeddah: The 11-member terror cell dismantled recently was made up of “veteran” radicals, said an Interior Ministry official, adding the arrests showed that Al-Qaeda was finding it increasingly difficult to recruit fresh blood. “The group’s ability to delude and recruit young members in the Kingdom is diminishing and Al-Qaeda is losing ground,” said Interior Ministry spokesman Maj. Gen. Mansour Al-Turki. Al-Turki added that the average age of the terror suspects is 36, which is considerably higher than of those held earlier.

Bear Radar

Style Underperformer:
Large-cap Growth (+1.92%)

Sector Underperformers:
Education (-2.62%), Utilities (-.89%) and Drugs (-.62%)

Stocks Falling on Unusual Volume:
TU, WMT, ASIA, HOTT, EQY, SGR, HPT and ANF

Stocks With Unusual Put Option Activity:
1) TXT 2) TCK 3) PCAR 4) LDK 5) SGR

Bull Radar

Style Outperformer:
Small-cap Value (+4.90%)

Sector Outperformers:
Banks (+10.87%), Steel (+5.67%) and REITs (+5.25%)

Stocks Rising on Unusual Volume:
TXT, WFC, STI, COF, JPM, DOV, PCZ, VRUS, JCP, TGT, NVEC, JOSB, GYMB, PLCE, MXIM, CBEY, CHIC, ONXX, CRMT, TITN, FWRD, RRGB, SCSC, PSMT, CHDN, HMIN, SNDK, SNDA, BCSI, TOWN, WF, RZG, PWO, IGW, JKK, DBD, LNN, TNS and CSH

Stocks With Unusual Call Option Activity:
1) TXT 2) ZMH 3) SGR 4) PHM 5) ADI

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