Stocks Finish at Session Highs, Boosted by REIT, Financial, Homebuilding, Airline and Paper Shares

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Stocks Mostly Higher into Final Hour on Less Financial Sector Pessimism, Diminishing Economic Fear, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Biotechnology longs. I covered all of my (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, sector performance is mixed and volume is about average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling 1.96% and is very high at 36.94. The ISE Sentiment Index is about average at 142.0 and the total put/call is slightly above average at .93. Finally, the NYSE Arms has been running high most of the day, hitting 1.78 at its intraday peak, and is currently 1.15. The Euro Financial Sector Credit Default Swap Index is rising 2.48% today to 151.0 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 2.30% to 180.61 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 1.13% to 98 basis points. The TED spread is now down 365 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is down 3.90% to 55.50 basis points. The Libor-OIS spread is falling .96% to 92 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 1 basis point to 1.32%, which is down 132 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 .14%, which is down 1 basis point today. The Bloomberg Professional Global Confidence Index jumped to 21.2 in April to an 11-month high. I suspect some of the many hedge funds that appeared to be positioned net short or market neutral in March, based on their performances, will cover shorts this month. Huge gains in REITs, Homebuilders and some Banks today are a big positive. I suspect the weakness in tech shares today is mainly a function of healthy profit-taking before another push higher. The US dollar has traded very well of late considering the improvement in global equities. The Citi US Economic Surprise Index is now up to +14.60 versus a -73.60 reading in the eurozone. I suspect China will “find a way” to beat their 6.3% 1Q GDP estimate, released tonight, which could help boost cyclical shares tomorrow. Nikkei futures indicate an +153 open in Japan and DAX futures indicate an +30 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, less economic fear and less financial sector pessimism.

Today's Headlines

Bloomberg:

- Yields over benchmark rates on high-yield bonds narrowed to the least since October, prompting HCA Inc. and Seagate Technology to offer debt, amid speculation the worst of the recession may be over. The gap between yields on high-yield bonds and U.S. Treasuries narrowed 31 basis points yesterday to 15.85 percentage points, according to Merrill Lynch & Co. index data. With Treasury yields near record lows, the thinner spread cut company borrowing costs to the lowest in six months. “There is good fundamental value” in speculative-grade debt, New York-based Fridson said in an interview. “Imagine what’ll happen when all the institutions that have indicated they are earmarking some money for credit markets and for high yield specifically all decide to pull the trigger.”

- Manufacturing in the New York region contracted this month the least since September and the outlook for the next six months improved for a second time. The Federal Reserve Bank of New York’s general economic index rose to minus 14.7, better than forecast, from minus 38.2 the prior month when it reached its lowest level since data began in 2001, the bank said today. The New York Fed’s measure of new orders increased to minus 3.9 and a gauge of shipments rose to minus 1.8 from minus 26.7. The index of inventories decreased to minus 36 from minus 27. The index of prices paid was unchanged at minus 14.6, and the gauge of prices received increased to minus 18 from minus 23.6. A measure of employment rose to minus 28.1 from minus 38.2.

- The California Public Employees’ Retirement System said it plans to buy assets of Citigroup Inc. and other financial companies under the U.S. government’s $700 billion Troubled Asset Relief Program. Calpers, as the largest U.S. public pension manager is known, is setting aside “billions of dollars” and is ready for more investments, Henry Jones, a Calpers board of administration member, said in a speech in Seoul. The fund may buy “assets of these financial companies such as Citi and the others, assets that they’re trying to get off their balance sheets,” Jones said in an interview after the speech.

- Consumer prices posted their first annual decline since 1955 and unused American manufacturing capacity reached a record, alleviating concern that Federal Reserve actions will cause inflation to soar.

- Russia’s banks face an “avalanche” of bad loans this year with 20 percent of the debt likely to be in or close to default by year-end, according to UniCredit SpA. “Plunging asset quality is the main threat to the Russian banking industry and in fact to the economy as a whole,” UniCredit banking analyst Rustam Botashev wrote in a research note. He previously forecast non-performing loans would reach 9.5 percent.

- The expiration of options that allow the right to sell crude at $45 a barrel may drag prices toward that level, consultant Petromatrix GmbH said. There are 16,349 outstanding contracts to sell May oil futures on the NY Merc at $45 a barrel, the second most widely-held “put” option for the month after contracts at $40, exchange data shows.

- Barrett Wissman, a Dallas hedge fund manager, pleaded guilty to securities fraud as part of an investigation of corruption at New York’s $122 billion pension fund, state officials said. Wissman, an executive of HFV Asset Management LP, also agreed to a $12 million settlement as part of the probe of hedge funds and private-equity companies that won investments from the pension fund, according to New York Attorney General Andrew Cuomo, who today announced charges against former New York State Liberal Party Chairman Ray Harding as part of the probe.

- Fairfax Financial Holdings Ltd., the best-performing stock last year on the 77-member Bloomberg World Insurance Index, says gains from credit-default swaps are “history.” “The big money’s already been made,” Chief Executive Officer Prem Watsa told investors at Fairfax’s annual meeting today in Toronto. Watsa has been betting against financial companies since 2003, when Fairfax first invested in credit-default swaps. As a result, the company recorded investment gains of $2.72 billion last year.

- Copper rose in New York for a fifth time in six sessions as declines in inventories signaled demand is rising for the metal used in pipes and wires. Stockpiles monitored by the London Metal Exchange tumbled 2.4 percent to 480,400 metric tons. That’s the biggest one-day drop since Oct. 21.

- Crude oil futures fell after a U.S. government report showed a bigger-than-forecast increase in inventories. Supplies rose 5.67 million barrels to 366.7 million in the week ended April 10, the Energy Department said today in a weekly report. Inventories were forecast to increase by 1.75 million barrels, according to the median of analyst estimates in a Bloomberg News survey.

- The Organization of Petroleum Exporting Countries cut its forecast for oil demand this year for an eighth successive month as the economic slowdown in the world’s biggest oil consumers worsens. The estimate for 2009 global demand was lowered by 430,000 barrels a day to 84.18 million barrels a day, the producer group said. Demand will contract by 1.37 million barrels a day this year, or 1.6 percent. That’s slightly more than North Africa’s biggest oil supplier Algeria produces. OPEC forecast a decline of 1.2 percent last month. “The world economic recession continues to erode oil demand growth, particularly in the U.S., Japan and China,” the group’s secretariat said in its monthly oil market report today. Demand in industrialized countries will fall this year and developing economies are “likely to see only minor growth.” Three-quarters of the downward revision to oil demand came from developed economies, which will see demand fall to 46 million barrels a day. Consumption in those countries will decline 1.5 million barrels a day in 2009, OPEC forecasts, a drop of 3.2 percent compared with 2008. Demand for OPEC’s crude in 2009 will contract by 2.07 million barrels a day to 28.74 million barrels a day, the group said, calculating that figure using its world demand and non- OPEC supply forecasts. That’s about 330,000 barrels a day less than it predicted last month.

- The cost of delivering Middle East crude to Asia, at the lowest in at least 11 years, may decline further as newly built tankers joining the global fleet trade at a discount to existing vessels. The fleet of very large crude carriers, or VLCCs, will expand by 11 percent this year, Drewry Shipping Consultants Ltd. said in a report today. The London-based Baltic Exchange’s benchmark rate for Saudi Arabian oil shipments to Japan fell 5.1 percent to 25.81 Worldscale points yesterday. That’s the lowest since at least 1998 and equates to $7,490 a day. Frontline Ltd., the largest owner of the vessels, said Feb. 26 it needs $32,100 a day to break even on each of its supertankers. There are 40 percent more VLCCs for hire over the next 30 days than there are cargoes, according to the median estimate of two owners, five brokers, one derivatives broker and one trader surveyed by Bloomberg yesterday. The oversupply was 30 percent on April 6.

- Goldman Sachs Group Inc. ended its recommendation to be “long” on China’s A shares as the benchmark Shanghai Composite Index is nearing the target set when the bank initiated the strategy in December.
- OPEC is producing 722,000 barrels a day more than its output quota as implementation of the group’s record supply cuts stalls. Iran and Venezuela exceeded their quotas the most last month.

- Charles Schwab Corp.(SCHW), the largest independent brokerage by client assets, rose to a four-month high after reporting first-quarter profit that beat analysts’ estimates because of stronger-than-forecast trading.

- Southern California house and condominium sales soared 52% in March from a year earlier as buyers took advantage of prices 35% lower than the same period in 2008, MDA DataQuick said.

Wall Street Journal:

- Synaptics Inc.(SYNA) is putting more focus on smart phones. The Santa Clara, Calif., company, which designs the touch pads that control the mouse cursor on laptops and the modules that enable touch-screen phones, has long dominated the notebook computer market. Analysts estimate it holds more than half the market share for touch-pad technology. But as PC sales slow in this tough economy, Synaptics is focusing more on high-end smart phones, a market that has seen demand soar because of Apple Inc.'s iPhone. That shift has helped Synaptics' shares jump about 60% in the past 12 months and could drive further growth as the trend toward smart phones continues to grow.

CNBC:

- Somali pirates vowed to hunt down American ships and kill their sailors Wednesday and French forces detained 11 other hijackers in a high-seas raid, raising tensions a day after an abortive attack on a U.S. freighter loaded with food aid. Pirates fired grenades and automatic weapons at the Liberty Sun, but its American crew successfully blockaded themselves inside the engine room. The ship was damaged in Tuesday's attack but escaped and was heading to Kenya under U.S. Navy guard.

NY Times:

- Public Pension Managers Rethink Hedge Fund Ties. From New York to California, public pension funds staked billions in good times on the highest of Wall Street high rollers: hedge fund managers and corporate buyout specialists. But for many of these pension funds — and the millions of people who are relying on them for their retirements — that gamble is not paying off as hoped. Even before state and federal regulators began investigating whether several prominent investment firms had made improper payments to gain business from New York’s state pension fund, public pension funds were backing away. These private investments were supposed to outpace the stock market but, in many cases, lost value instead. Public pension funds that embraced these ventures — which range from real estate to commodities to private equity funds — have grown uneasy over the costs and secrecy typically associated with them, as well as with their inability to withdraw their money quickly if needed.

MarketWatch:
- With mortgage rates near all-time lows and a home buyer tax credit in place, U.S. home builders were much more optimistic about the housing market in April than they were in March, but they are still a long way from feeling good about their business, according to a monthly survey released Wednesday by a trade group.

The National Association of Home Builders said its home builders' index rose to 14 in April from 9 in March. It's the first time the index has been in double digits since October, when it was also at 14. It was the largest one-month increase in the index in more than five years, but it still shows that only about one in seven builders thinks business is good or fair. "This is a very encouraging sign that we are at or near the bottom of the current housing depression," said NAHB chief economist David Crowe. "If you're a potential buyer who's been sitting on the fence waiting for a sign that now is the time to act, this is it," said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla.

- American Airlines parent company AMR Corp.(AMR) reported a wider first-quarter loss Wednesday due to falling passenger demand and lower ticket prices. Shares of AMR leapt 15.4% to $4.87 in recent trading.

Boston Globe:

- In the wreckage of the credit markets, investors are starting to look for opportunities. Count the state of Massachusetts pension fund among them. The $36 billion retirement fund for state workers is nearly tripling its potential exposure to distressed debt investments this year - mainly in beaten-up corporate debt - to $800 million. That's a small slice of the total portfolio, at 2 percent. But it's a sign that large investors are looking for places where money can be made, after a crushing year in virtually every realm of the market.

CNN:

- Nationwide ‘tea party’ protests blast bailout. Conservatives are showing they know their way around the Internet just as well as liberals, as more than 300 organized "tea party" protests raged across the nation Wednesday. The protests are a backlash against President Obama's bailout policies. Heralded on videos and blogs, the movement also appears, in part, a reflection of a general anger among people who contend the government takes too much from their pocketbooks. "TEA" stands for "Taxed Enough Already," according to teapartyday.com, which lists organizers and their phone numbers. Want to find a tea party? Text "teaparty" to 69302. Or get on Twitter or Facebook. As many Americans rush to file their 1040 forms on national tax day, cheering crowds across the country are heaving huge coolers with "Tea" painted on the side into bodies of water, harkening back to the pre-Revolutionary War protests in Boston, Massachusetts. At one protest Wednesday morning a sign read, "I read as much of the stimulus bill as my Congresswoman." Another read, "You can't put lipstick on socialism." Borrowing an often-quoted phrase that Republican Sen. John McCain has used, another protester held up her statement: "Stop generational theft."

FreedomWorks:

- Tea Party HQ and Map.

The Lantern:

- ‘Mad Money’ host blasts off on Jon Stewart. He says that Jon Stewart, the popular comedian who revolutionized "fake news," pulled a fast one on him during the March 12 interview on "The Daily Show." "It was a complete and utter ambush," Cramer said in an interview with The Lantern. "He told my staff that it was going to be fun, convivial, no clips, but [it] doesn't matter, he's a comedian, he can do whatever he wants." "Was it a fair fight? No, it wasn't even a fight. I came on with the idea of taking a high road approach and discussing the issues, obviously [Stewart] came on strictly to try to humiliate me," Cramer said. "It was brutal. Was he stand-up? Absolutely not. Did he comport himself as a gentleman? Hardly. It was a deposition; he wants to be a prosecutor."Cramer was also critical of Stewart's conduct off-camera."He had an animus toward me. At the conclusion of the interview, not on the mic, he said, 'I picked the wrong guy, I'm sorry,' but that's not gonna get out there," Cramer said. "He just said it to me as just a throwaway. His goal was just to humiliate and destroy me and probably get me fired, and last I looked, I still have a show."

Politico:

- President Barack Obama and his economic team are changing their tone on the economy. Gone are Obama’s bleak descriptions of crisis and catastrophe. In their place are “glimmers of hope” of a turnaround. The question is: why now?

Reuters:
- The current rally in stock markets may be the start of a new bull market, said hedge fund manager Crispin Odey, founding partner at Odey Asset Management and one of the hedge fund industry's highest profile figures. "Opinion is divided over whether this is a bear market rally or the beginning of a new bull market. I think it has the chance to be a new bull market," Odey said in a note to clients. "In little over a month much has changed", following a sharp rally in stocks led by banks and base materials stocks, he said. Odey, who remains positive on banks, owns shares in banks such as Barclays and said he believed the bull market will extend from the banking sector, "to encompass other industries where capacity has been sufficiently reduced as to allow pricing power to come through". Last year Odey made money betting on falling bank shares, but in February revealed he has been buying into UK banks because he thought they looked so cheap. Odey was one of the few hedge fund managers to make money last year, returning 10.9 percent in his European fund while the industry suffered record performance losses of 19 percent on average, according to Hedge Fund Research. "Everything is about re-establishing profit margins. My banks buy case demands only that net interest margins are rising, not that bad debts are falling," he wrote in the note to investors. "Since on my numbers these banks are trading on between two and three times future earnings, two years out, I am not afraid of the volatility in the share price."

- The U.S. government will release some results of its bank stress tests in May with the goal to stabilize the ailing banking sector, the White House said on Wednesday.

- Fiat SpA's chief executive, facing a two-week deadline to work out a partnership with Chrysler LLC, warned the troubled U.S. carmaker's unions he would ditch the idea unless they agreed to cut labor costs. In a clear message to U.S. and Canadian unions, Sergio Marchionne told Wednesday's Globe and Mail newspaper a deal on the partnership had only a 50-50 chance of succeeding because of lack of progress in talks with union leaders.

- Strong demand for USAA Auto's asset-backed securities offering on Wednesday led the issuer to increase the size of its sale and pay less to attract buyers.

- The U.S. economy continued to weaken in March and early April but the speed of contraction was fading amid scattered signs the country's recession may be nearing an end, the Federal Reserve said on Wednesday. "Five of the 12 districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level," according to the Fed's Beige Book summary of anecdotal reports from its 12 regional banks.

Nikkei English News:

- US inventories for Japan’s top three automakers dropped to 73 days of supply at the end of March, down 20% from a month earlier. Toyota Motor’s inventory was at 64 days, while Nissan Motor’s was at 62 days, citing researcher Autodata Corp. A stockpile of 50-60 days is considered “ideal,” Nikkei said.

Bear Radar

Style Underperformer:
Large-cap Growth (-.43%)

Sector Underperformers:
Coal (-8.36%), Oil Tankers (-3.91%) and Semis (-2.44%)

Stocks Falling on Unusual Volume:
ABT, INFY, CTSH, NCTY, LUFK, SKYW, ISIL, JRCC, KMT and RJF

Stocks With Unusual Put Option Activity:
1) AMR 2) IP 3) DAL 4) PPG 5) INFY

Bull Radar

Style Outperformer:
Small-cap Value (+.12%)

Sector Outperformers:
Homebuilders (+4.78%), Road & Rail (+3.21%) and REITs (+1.23%)

Stocks Rising on Unusual Volume:
CHL, PFE, UL, HCSG, APEI, SNDA, GMKT, SHPGY, BUCY and SCHW

Stocks With Unusual Call Option Activity:
1) MDR 2) MRVL 3) CSX 4) M 5) LEN

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