Stocks Lower into Final Hour on Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Financial longs. I added (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 75% 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 mildly bearish. The VIX is falling .32% and is very high at 37.69. The ISE Sentiment Index is above average at 196.0 and the total put/call is slightly below average at .74. Finally, the NYSE Arms has been running low most of the day, hitting .20 at its intraday trough, and is currently .84. The Euro Financial Sector Credit Default Swap Index is falling 6.99% today to 146.67 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 2.16% to 176.55 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising .61% to 97 basis points. The TED spread is now down 366 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down .86% to 56.75 basis points. The Libor-OIS spread is rising .50% to 94 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 4 basis points to 1.31%, which is down 133 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 .15%, which is down 3 basis points today. The ongoing decline in gauges of credit market angst remains a major broad market positive. Moreover, the US sovereign credit default swap index is plunging another -9.8% today to 46.0 basis points, which is another big positive. Breadth isn’t that bad considering the losses in the major averages. As well, an unusual number of stocks are rising on volume today. Education, Hospital, Medical Equipment, Semi and Energy-related stocks are all gaining on the day. “Growth” stocks are once again significantly outperforming “value” shares. Mid-cap growth stocks are now +4.40% higher for the year, while small-cap value shares are -12.23% lower. I continue to expect this trend to remain in tact throughout the year. Shares of (GS) are under pressure today, but the stock has had a massive run off the lows and profit-taking on their earnings report should have been expected. I still expect US stocks to finish the week on a more positive note. Nikkei futures indicate an +53 open in Japan and DAX futures indicate a -26 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and declining credit market angst.

Today's Headlines

Bloomberg:

- As OPEC nations make their biggest oil production cuts on record, Brazil, Russia and the U.S. are pumping more, threatening to send crude back below $50 a barrel as demand slows. U.S. imports from the Organization of Petroleum Exporting Countries fell 818,000 barrels a day, or 14 percent, to 5.02 million in January from a year earlier, according to the latest monthly report from the Energy Department. At the same time, imports from Brazil more than doubled to 397,000 and Russia’s increased almost 10-fold to 157,000, a trend that continued in February and March, according to data from each country. The fastest-growing options contract on the New York Mercantile Exchange is for prices to fall below $40 a barrel by May 14. “OPEC has done a good job keeping oil in the $50 area, but they will have to cut substantially more, maybe more than they are capable of, if they want higher prices,” said John Kilduff, senior vice president of energy at MF Global Inc. in New York. The U.S. used an average of 18.9 million barrels a day in the four weeks ended April 3, down 4.4 percent from a year earlier, according to the Energy Department, the lowest level since October. Inventories climbed 1.65 million barrels in the week ended April 3, the highest since July 1993, U.S. government data show. Supplies are 12 percent above the five-year average for the period and are the equivalent of 25.4 days of consumption, up from 22.1 days a year ago. Open interest, or the number of outstanding contracts, on the June put option for oil to fall to $40 a barrel rose by 20 percent to 24,503 contracts in the five trading days from April 3 to April 9. Russia also lowered export duties this month to $15 a barrel from $15.70 in March to boost exports, the IEA said in the April 10 report. Brazilian production will rise 7.2 percent in 2009 to 2.54 million barrels a day, the IEA said. “They want to capture as much of the U.S. market as they can, as fast as they can,” Robert Ebel, chairman of the energy and national security program at the Center for Strategic and International Studies in Washington, said of the non-OPEC producers. “As long as they can make some money at it, they will ship their oil here.” Petroleo Brasileiro SA, the state-controlled energy company, said in January that it plans to invest $174.4 billion through 2013 to boost production oil and gas production to the equivalent of 4.63 million barrels a day by 2015 from 2.40 million in 2008. “Brazil is interesting both in the near term and long term,” said Rachel Ziemba, an analyst at RGE Monitor, an economic research company in New York. “In the near term there’s been a lot of production brought online. In the longer term Petrobras has one of the most aggressive investment programs in the industry.”

- The cost to protect against a default by U.S. and European banks fell after a $1.81 billion first-quarter profit by Goldman Sachs Group Inc. bolstered speculation that bank earnings rebounded last quarter. Credit-default swaps on Citigroup Inc., which reports earnings this week, dropped to a three-week low. Contracts on Bank of America Corp., which reports next week, also fell, and swaps on Goldman Sachs dropped for a second day in early trading, reaching the lowest in six months before paring the decline. A benchmark index tied to European banks and insurers reached a one-month low. “The perception that there may be some light at the end of the tunnel was supported by better than expected Goldman Sachs Group net results,” Maureen Schuller, a credit strategist at ING Groep NV in Amsterdam, wrote in a note to investors. “This seems to be the beginning of what may become a good week for financials.” Credit-default swaps on Goldman Sachs, the sixth-biggest U.S. bank by assets, declined 5 basis points to 205 basis points earlier today before climbing back to a mid-price of 210 basis points, according to broker Phoenix Partners Group. The contracts have dropped 60 basis points since April 3 and are trading at the lowest since Oct. 14, prices from CMA DataVision show. Swaps on the Markit iTraxx Financial Index of 25 European banks and insurers declined 6 basis points to 151 basis points, the lowest since March 2, and the subordinated index dropped 10 basis points to 255 basis points, the lowest since Feb. 20, according to JPMorgan Chase & Co. Contracts on Citigroup fell 40 basis points to 550 basis points, Phoenix prices show. Swaps on Charlotte, North Carolina- based Bank of America fell 14 basis points to 265 basis points, according to CMA, and Morgan Stanley contracts fell 13 basis points to 304.

- North Korea vowed to end all talks on dismantling its atomic weapons program and may build nuclear reactors after the United Nations condemned last week’s missile test, prompting China to urge restraint. Kim Jong Il’s regime will restore nuclear facilities disabled under previous accords and “actively review” building a light-water reactor, the Foreign Ministry said today in a statement carried by the official Korea Central News Agency. North Korea has “no choice” but to strengthen its nuclear deterrent in light of “additional military threats by hostile forces,” the ministry said. “This is not bluster,” said Kenneth Quinones, former U.S. State Department director of North Korean affairs and a professor at Akita International University in northern Japan. “It’s pretty clear the North Korean generals are firmly in the saddle and have convinced Kim Jong Il that his best option is to first play his military card.”

- Federal prosecutors announced securities fraud charges against five senior managers of Jadis Capital Inc., an investment firm in Uniondale, NY, related to a $10 million fraud.

- Lehman Brothers Holdings Inc. is sitting on enough uranium cake to make a nuclear bomb as it waits for prices of the commodity to rebound, according to traders and nuclear experts. Lehman, once the fourth-largest investment bank, has an estimated $200 billion in unsecured liabilities left to pay. The uranium, which may be as much as 500,000 pounds, might fetch $20 million at today’s prices of about $40.50 per pound, said traders who asked not to be named because of the confidential nature of the data.

- Since MTV started in 1981 with “Video Killed the Radio Star,” record labels have treated videos as a marketing expense. Now, with album sales plummeting, music companies aim to make them a source of profit. That’s the goal of Universal Music Group’s venture with Google Inc.’s YouTube. Vevo.com, a new site announced last week, will stream videos from artists such as U2, Beck and the Rolling Stones. YouTube will then split advertising revenue with Universal, the world’s largest music company.

- Honda Motor Co.’s Fit, Daimler AG’s Smart ForTwo and Toyota Motor Corp.’s Yaris small cars performed poorly in head-on collisions with mid-size models from the same manufacturers, an insurer-funded group found.

- China’s stock market rally could soon run out of steam as gains made valuations “relatively high” and as more companies post profit declines, according to BNP Paribas’s China fund venture. “The outlook for corporate profitability in the first half remains not optimistic,” Shanghai-based SYWG BNP Paribas Asset Management Co., which oversees about $1.5 billion in assets, said in an e-mail. “Bad first-quarter corporate results and relatively high valuations will limit the room for further gains in the stock market.” Profits of companies on the CSI 300 Index, measuring so- called A shares listed in Shanghai and Shenzhen, will tumble an average 15.4 percent in 2009, Morgan Stanley said last month. The surge in March bank loans and money supply is “cause for worry” as it means the increase in liquidity behind this year’s stock rally will likely weaken, UBS AG said yesterday. “We still haven’t seen very convincing evidence of a recovery in corporate earnings,” said Wu Kan, a fund manager in Shanghai at Dazhong Insurance Co., which manages about $285 million.

- President Barack Obama lifted all travel limits for Cuban-Americans visiting family in Cuba as part of an administration push to promote “freedom” in the communist country. The president yesterday also ended restrictions on how much money Cuban-Americans can send relatives there and eased the U.S. embargo against Cuba by allowing U.S. telecommunications companies such as AT&T Inc. to get licenses to operate in the island nation, administration officials said yesterday.

- European Central Bank council member Athanasios Orphanides signaled the bank may have to continue easing monetary policy beyond next month to quell deflation risks in the euro area.

- The London interbank offered rate for three-month dollar loans is dropping at the fastest pace since January as bankers gain confidence that the worst of the financial crisis is over. Debt strategists at Credit Suisse Group AG, Societe Generale SA and Royal Bank of Canada, three of the 16 banks that provide the data that sets Libor each day, say the declines will continue. Momentum may be building as signs of economic stability emerge, according to Federal Reserve Chairman Ben S. Bernanke.

- Steve Leuthold, whose Grizzly Short Fund returned 74 percent last year betting against U.S. stocks, said the Standard & Poor’s 500 Index will surge to 1,100 after valuations got to the cheapest levels of his career in March. “This market was about as cheap as I’ve seen in my 45 years in this business,” Leuthold said in a Bloomberg Television interview today. “We’re probably going to see the economy start turning upward, not now but toward the end of the year. The market is a lead economic indicator, so the time clock is about right for the market to turn up.´ Leuthold also said that financial shares won’t be the stock market’s leaders. He favors technology and biotechnology companies and advised investors to avoid “defensive” consumer shares and utilities.

- “Only mergers between peers” may lift shares of the world’s largest oil companies any time soon, according to Fadel Gheit, Oppenheimer’s managing director of oil and gas research. These stocks failed to benefit from an oil-price rebound dufing the past five months. The Amex Oil Index fell 5.8% from Dec. 19, when crude oil reach last year’s low of $32.40 a barrel in NY trading, through yesterday. Crude jumped 48% in the same period. Gheit cut ratings on five of the index’s 13 stocks – BP Plc(BP), Chevron Corp.(CVX), ConocoPhillips(COP), Exxon Mobil(XOM) and Royal Dutch Shell Plc(RDS/A) – to “perform” from “outperform” today.

Wall Street Journal:

- As the hedge-fund industry shrinks in size, some of its players are turning to mutual-fund investors for new money. Permal Group, one of the largest and oldest hedge funds of funds, will launch its first mutual fund on Tuesday. Permal is a unit of Legg Mason Inc., which has a longstanding mutual-fund lineup. This is the second high-profile mutual-fund launch from the hedge-fund world this year. In January, Clifford Asness's AQR Capital Management LLC introduced its first of a series of planned mutual funds.

- Climate czar Carol Browner said she wants Congress to establish a broad U.S. greenhouse-gas policy before global climate-change talks near the end of the year. Speaking at a conference Monday at the Massachusetts Institute of Technology, Ms. Browner said she is confident Congress can move forward on a climate-change policy, citing hearings scheduled for next week on sweeping legislation proposed by Rep. Henry Waxman (D., Calif.) and Rep. Ed Markey (D., Mass). As early as this month, the Environmental Protection Agency could declare that carbon dioxide is a danger to the public, triggering regulation of emissions under the Clean Air Act. Such a regulatory move is widely seen as part of the Obama administration's strategy to pressure reluctant lawmakers into action.

- Federal Reserve Chairman Ben Bernanke said Tuesday that he sees “tentative signs” that the steep contraction in U.S. economic activity may be waning, and that he is confident in the economy’s long term prospects. In remarks prepared for delivery later today in Atlanta, Bernanke cited recent figures on housing, consumer spending and new vehicle sales as some of those signs that the recession is slowing. Here’s the full text:

- Former Illinois Gov. Rod Blagojevich pleaded not guilty to broad federal racketeering and fraud charges Tuesday in a packed federal courtroom here, telling reporters he would defend himself with "the truth." Appearing before U.S. District Judge James Zagel, Mr. Blagojevich, 52 years old, vowed to clear his name in the face of charges that among other things he schemed to sell or trade President Barack Obama's U.S. Senate seat.

- Pirates attacked two more cargo ships Tuesday off the Horn of Africa, continuing a spate of attacks despite recent U.S. and French military action against hijackers in those waters.

CNBC:

- Byron Wien, an investment strategist at hedge fund Pequot Capital, said US stocks have hit their lows of the bear market, housing will start to rebound by the end of 2009 and the nation’s gross domestic product will increase in the fourth quarter. (video)

- The federal government says gasoline prices are expected to stay relatively low. The Energy Information Administration on Tuesday projected regular-grade gasoline to average $2.23 a gallon during the April through September driving season. The monthly average is likely to peak at $2.30 a gallon. That's still a bargain compared to last summer, when gasoline cost an average of $3.81 a gallon and soared for a time past $4.

MarketWatch:
- Charting similarities to the Nasdaq’s 2003 low.

- Singapore's economy contracted significantly more than expected in the first quarter of 2009, the government said Tuesday, prompting plans for a de-facto weakening of the nation's currency. Advanced estimates for the Singapore economy showed economic activity slowed "sharply" in the first quarter, according to a report from the Ministry of Trade and Industry. Real gross domestic product fell by 19.7% on an annualized, seasonally adjusted basis, from the previous quarter. The result compared with a market expectation for a 7.5% annualized contraction, according to a survey reported by Dow Jones Newswires, and with a 16.4% drop in the fourth quarter.

The Washington Times:

- The Obama administration is unlikely to attend an upcoming U.N. conference on racism after U.S. diplomats tried but failed to change language offensive to Israel and other countries, a senior U.S. official said Friday.

NY Post:

- Behind Eliot Spitzer's flaccid attempt at re-erecting his public persona is a plan to run for state attorney general in 2010, sources told Page Six.

HedgeFund.Net:

- Alson Capital Partners is reportedly closing shop after its energy stocks nosedived as oil prices fell. The New York-based long-short hedge fund firm’s assets under management shrunk to $800 million from a high of $3.5 billion in 2008, according to The Wall Street Journal. The fund was down 20% and had to deal with a wave of investor redemptions, The Journal said.

The Business Insider:

- The banks are taking a beating today, but Citigroup (C) -- arguably the weakest of the bunch -- is up strongly. What gives? It has to do with a shorts queeze that's been going on for several weeks, ever since the last bailout was announce.

USAToday:

- Texas continues to blow away the competition, but Iowa can now generate more wind power than California, according to a new industry report released Monday. The Lone Star state's 7,118 megawatts dwarfs Iowa's 2,791 megawatts and California's 2,517 megawatts, but wind power has grown into a key part of the energy infrastructure in Minnesota and Iowa, where each state generates more than 7% of their electricity from turbines, the American Wind Energy Association study said.

Reuters:
- Iran's president, Mahmoud Ahmadinejad, will attend next week's United Nations conference on racism in Geneva, a U.N. spokeswoman said on Tuesday. Marie Heuze told a news briefing that Ahmadinejad, who has in the past questioned whether the Holocaust took place, was one of four heads of state who had confirmed they would attend. Ahmadinejad is due to give a news conference on April 23 at the U.N.'s European headquarters where the conference is being held from April 22-26. Also present will be Ekmeleddin Ihsanoglu, secretary- general of the 56-nation Organization of the Islamic Conference (OIC), which has sought to have Israeli policy toward Palestinians denounced in the U.N. as racist.

- An experimental medicine from Dendreon Corp improved survival in men with advanced forms of prostate cancer, the company said on Tuesday, bolstering chances of it becoming the first approved therapeutic vaccine for any type of cancer. Shares of Dendreon (DNDN) more than tripled in heavy morning trading to as high as $22.10 as the study results suggested a revolutionary form of therapy is on the horizon for one of the most common cancers. Unlike traditional vaccines that prevent disease, the company's Provenge medicine treats it.

- The chairman of the U.S. House Financial Services Committee, Rep. Barney Frank, said on Tuesday he welcomed Goldman Sachs Group Inc's (GS) plan to repay government bailout funds.

- Goldman Sachs Group Inc (GS) said its daily risk in commodities grew just 5 percent in the first quarter while earnings from the sector, combined with fixed income and credit, hit record highs.

Financial Times:
- Goldman Sachs(GS) has amassed a warchest of $164bn in cash and liquid assets that could be used to buy distressed securities and loans as its rivals clear their balance sheets of such holdings, Goldman’s chief financial officer said on Tuesday. “Capital markets activity is really starting to pick up and if the equity markets hold, given the need many companies have for equity, I think you will see a pretty big pickup in capital markets activity”, he said. In an interview with the Financial Times, Mr Viniar said Goldman wanted to pay back the $10bn in Tarp funds as soon as possible so it could pay bankers, invest money abroad and hire foreign workers without generating criticism that it was using taxpayer money for such purposes. “It’s important to run our business the way it ought to be run,” he said.

Telegraph:

- Buried in one of the papers published as part of this month's G20 summit is a suggestion that their access to credit should be more tightly controlled. That could hit hedge funds, traders working inside banks and the next generation of oligarchs during the next upswing. The bigger threat comes in a separate paper from the Financial Stability Forum, which has been tasked by the G20 with finalising details of a new global regulatory regime. The FSF says countries should think about enforcing minimum "haircuts" for over-the-counter derivatives and securities financing transactions. The idea is to reduce leverage during an upswing. The FSF also wants these haircuts to be relatively stable over the economic cycle - so they are not increased in times of stress. The paper doesn't single out hedge funds for treatment. Indeed, the suggested regime does not identify any specific investor class but would apply to prop traders and other speculators, breakingviews has learned. But hedge funds would be among those particularly affected.

The National:
- Home rents in Abu Dhabi dropped by up to a fifth in the first quarter of 2009, providing a reprieve after more than a year of rapid rise, according to data published yesterday. Commercial property rents have also fallen, in some districts by more than 20 per cent. The Muroor area and Defence Street saw rents fall by 27 per cent, Passport Road levels dropped by 25 per cent and the Tourist Club by 23 per cent. Property prices in Abu Dhabi, down 30 per cent since their peak, are forecast to fall further, by between 10 and 15 per cent, EFG-Hermes Holding said in a report last month.

The Peninsula:

- It is still too soon for OPEC to react to a sharp revision in the forecast for global oil demand from the Paris-based International Energy Agency (IEA), the Deputy Premier and Minister of Energy and Industry H E Abdullah bin Hamad Al Attiya said yesterday. US crude fell $1.57 a barrel to $50.671 yesterday after the IEA said on Friday that oil demand in 2009 would fall one million barrels per day (bpd) more than it previously forecast due to the global economic slowdown. The IEA expects demand to fall by 2.4 million bpd in 2009, the sharpest fall since the early 1980s. Core Gulf OPEC members have said that $50 is a reasonable price level given the state of the economy, even though they would like more money for their oil. Abdullah bin Hamad reiterated that yesterday. “I think what we are saying is that $40-$50 is more pragmatic for the economic crisis,” Attiyah said. “We cannot do more than that.”

Chart of Interest

Johnson Redbook Weekly Retail Sales Year-Over-Year
(5-Year Graph)


(click on image to enlarge)

Bottom Line: Johnson Redbook Weekly Retail Sales(Y-O-Y) jumped .9% this week versus a -.8% decline the prior week. This was the best showing for weekly retail sales since the week of Oct. 7th, 2008 and the first positive reading since the week of Nov. 4th, 2008. Moreover, this is a significant improvement from the -2.3% decline seen the week of Feb. 3rd. This is one of the better leading economic indicators, in my opinion. I still belive consumer spending will meaningfully improve over the coming months on higher stock prices, less fear, pent-up demand, better access to credit, a stabilizing job market and extremely low inflation. I expect overall US GDP growth to turn positive during 3Q.

Bear Radar

Style Underperformer:
Small-cap Value (-3.42%)

Sector Underperformers:
REITs (-5.98%), Banks (-5.92%) and Airlines (-4.86%)

Stocks Falling on Unusual Volume:
CBSH, JCOM, FAST, SXL, GS, MTA and NYM

Stocks With Unusual Put Option Activity:
1) DNDN 2) FST 3) PTEN 4) SNDA 5) FMCN

Bull Radar

Style Outperformer:
Mid-cap Growth (+.06%)

Sector Outperformers:
Education (+3.0%), Hospitals (+2.90%) and Oil Service (+2.47%)

Stocks Rising on Unusual Volume:
UBS, PXD, MWE, PTEN, PCU, RTP, LAZ, NTT, DNDN, OZRK, JRJR, DBRN, VRTX, OTEX, LRCX, ISRG, LPNT, ESRX, JBHT, CHKP, GYMB, WYNN, NVEC, CETV, IBOC, BOOM, CREE, JOSB, GWW and SHI

Stocks With Unusual Call Option Activity:
1) VRTX 2) TIF 3) DNDN 4) GWW 5) HBAN

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