Stocks Finish Slightly Higher, Boosted by Financial, Eduction, Hospital, Restaurant and Homebuilding Shares

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

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Retail longs and Financial longs. I have not traded 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 rising and volume is above average. Investor anxiety is above average. Today’s overall market action is bullish. The VIX is falling 5.34% and is high at 33.88. The ISE Sentiment Index is below average at 124.0 and the total put/call is slightly below average at .77. Finally, the NYSE Arms has been running high most of the day, hitting 2.26 at its intraday peak, and is currently 1.25. The Euro Financial Sector Credit Default Swap Index is rising 4.35% today to 150.0 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 1.51% to 177.83 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 1.54% 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 rising 5.33% to 59.25 basis points. The Libor-OIS spread is falling .38% to 91 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 1.28%, which is down 136 basis points since July 7th. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .13%, which is unch. today. Financial, REIT and Homebuilding stocks are powering today’s afternoon rally. Cyclical shares are also outperforming. Recent broad market action is very healthy. Many stocks from many sectors are now breaking out technically. As well, the US Dollar Index looks poised to break above its 50-day moving average at 86.22 next week. The Citi US Economic Surprise Index is now up to +24.80, while its eurozone counterpart is at -63.90. The Smart Money Flow Index continues to trend higher and is now at an 8-month high. Most news continues to be interpreted in a positive light and far too many investors remain underexposed to equities, which bodes well for further US stock gains. Nikkei futures indicate an +128 open in Japan and DAX futures indicate an +11 open in Germany on Monday. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less economic fear, portfolio manager performance anxiety and less financial sector pessimism.

Today's Headlines

Bloomberg:

- The Standard & Poor’s 500 Index is in the middle of a rally that will drive it as much as 70 percent above its March lows, billionaire Kenneth Fisher said. “Bear market rallies are not that big,” Fisher, 58, who oversees $28 billion as chairman of Woodside, California-based Fisher Investments Inc., said in a telephone interview yesterday. He is the world’s 647th richest person, according to a tally by Forbes magazine in March. “Stocks are cheaper compared to long-term interest rates than they have been in anyone’s life,” he added. Fisher said the S&P 500 may extend the rally that began on March 9 to between 60 percent and 70 percent by March 2010. That would drive the index to as high as 1,150, or 33 percent more than yesterday’s close of 865.30.

- Financial companies are the best performers in the Standard & Poor’s 500 Index this quarter, a ranking that has eluded them for more than a decade and a half. The industry hasn’t finished in the top spot among the S&P 500’s 10 main groups since the third quarter of 1993, according to data compiled by Bloomberg. Every other group has been first at least one quarter in this decade.

- American International Group Inc.(AIG) Chief Executive Officer Edward Liddy should sell his $3.3 million stake in Goldman Sachs Group Inc.(GS) because it represents a conflict of interest, members of Congress said. The AIG chief, who is paid $1 a year plus an undisclosed stock grant by the New York-based insurer, owns 27,129 Goldman Sachs shares, the bank said in a regulatory filing last year. Liddy acquired most of the shares as a Goldman Sachs board member for five years. AIG, recipient of a $182.5 billion government bailout, the largest in U.S. history, paid Goldman Sachs $12.9 billion after receiving the funds. The payments helped settle credit-default swaps or other transactions backed by AIG. Goldman Sachs is the biggest recipient of AIG payments from the bailout funds. “It turns out that he has a personal multimillion-dollar stake in what turns out to be the biggest counterparty of AIG and the company that has received the largest amount of the bailout money given to AIG, namely Goldman Sachs,” U.S. Representative Alan Grayson, a Florida Democrat and a member of the House Financial Services Committee, said yesterday in a phone interview.

- Credit-default swaps traders set an initial value of 3.75 cents on the dollar for bonds of an AbitibiBowater Inc. unit to settle derivatives linked to the newsprint maker that’s now in bankruptcy protection. The price means sellers of credit swaps guaranteeing as much as $1.1 billion against a default by the Abitibi- Consolidated unit would pay 96.25 cents on the dollar to settle the contracts. A final price is scheduled to be released at 2 p.m. in New York after a second round of the auction, which is being administered by Markit Group Ltd. and broker Creditex Group Inc. Eleven dealers, including JPMorgan Chase & Co., Barclays Plc and Morgan Stanley, are bidding.

- China’s equities rally, the second-biggest in the world this year, may falter as record lending by banks in the first quarter won’t be repeated, removing a funding source for stock purchases, Roth Capital Partners LLC said. Stock transactions on the Shanghai and Shenzhen exchanges doubled this year to an average of 20.6 billion trades a day, from 9.5 billion a year earlier. “Some of that money we think may have found its way into the stock market,” John Ma, Shangahi-based director of China research at Roth Capital, said. “Would that likely be repeated? We think it’s almost impossible.” The lending surge is a “cause for worry,” as it means the increase in liquidity behind this year’s stock rally will probably weaken, UBS AG said April 13. China’s banking regulator told lenders yesterday to enhance risk management and monitor threats that may arise from increased lending.

- Nicholas Cosmo may have swindled more than $413 million from twice as many victims as previously believed, based on an examination of overseas investors, a U.S. prosecutor said.

- The euro fell for a fourth day against the US dollar in the longest stretch of declines since October as European Central Bank President Jean-Claude Trichet’s pledge to spur confidence failed to convince investors that policy makers are united in their views. The dollar advanced to the level at which it traded versus the euro on March 18, when the Federal Reserve announced a plan to buy Treasuries to keep interest rates low, a policy known as quantitative easing. The euro declined against the Canadian dollar and South African rand after a report showed yesterday that February factory output in Europe plunged. “When you look at the data flow out of Europe, you could even argue we’ve seen an accelerating downward move,” said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt. “The market was looking for a reason to sell.” The euro will probably fall to $1.20 this year, he said.

- The cost of borrowing in dollars in London fell for a 14th day, the longest stretch of declines since November, as improved earnings at banks signaled a thaw in the global credit freeze. The London interbank offered rate, or Libor, for three- month loans in dollars fell half a basis point to 1.10 percent today, the British Bankers’ Association said, down three basis points in the week. The Libor-OIS spread, a gauge of bank reluctance to lend, narrowed to within one basis point of the least since before the collapse of Lehman Brothers Holdings Inc. Improved bank results are no “one-off,” Barclays Plc President Robert Diamond said in a Bloomberg Television interview on April 15. The declines are “reflecting a reduction in systemic risk,” a team of analysts at Morgan Stanley in London led by Laurence Mutkin wrote in a research note to clients today. Contracts in the forward market show traders are betting the Libor-OIS spread will fall to 79 basis points by December, according to data compiled by Tullett Prebon Plc, the biggest broker of interbank transactions after ICAP Plc. In a further sign the turmoil in the credit markets is easing, the disparity in the dollar rates submitted by the 16 banks to the BBA is decreasing. The difference between the highest and the lowest quotes today was 25 basis points, down from 175 basis points in the aftermath of Lehman’s collapse.

- BB&T Corp.(BBT), the largest U.S. commercial bank by deposits that hasn’t cut its dividend, rose as much as 17 percent in New York trading after it posted a first-quarter profit and the bank’s chief executive officer said loan losses may be moderating.

- Amazon.com Inc.(AMZN), expanding into digital downloads of music and books to boost sales, said demand for the Kindle electronic reader beat its estimates. “Kindle sales have exceeded our most optimistic expectations,” Chief Executive Officer Jeff Bezos said in a letter to shareholders, filed with regulators today.

Wall Street Journal:

- Chrysler LLC will likely get a new chief executive and board of directors appointed by Italy's Fiat SpA and the U. S. government, if Chrysler and Fiat follow through on their plans to form an alliance, Chrysler's current CEO told employees in a letter.

- The United Food and Commercial Workers union is ramping up organizing at Wal-Mart Stores Inc.(WMT) after a five-year lull, dovetailing with its efforts to win support in Congress for a bill to make union organizing easier. The Bentonville, Ark., retailer, a leading opponent of the legislation, said managers have seen increased union activity at a number of stores, prompting mandatory meetings to discuss unionization. "We have noticed that the UFCW has been working harder lately in its attempts to get Wal-Mart associates to sign union cards, but we don't think our associates have any reason to be more interested than before," said Wal-Mart spokesman David Tovar.

- Insurance giant Allstate Corp.(ALL) has been asked by the New York Insurance Department to immediately report its participation in "unregulated insurance markets," along with its knowledge of any insurance companies that conducted unregulated writing of credit-default swaps.

CNBC:

- Avenue Capital Group founder Marc Lasry told CNBC that the casino industry offers a “huge amount” of opportunity on the debt side.
- Accounting changes aimed at helping the balance sheets of banks with toxic assets appear to be providing little or no help so far with earnings reports. The accounting rules, known as mark-to-market, were amended so that banks stuck with underperforming assets—particularly mortgage and other credit-related securities—could value them at their future projected worth and not at current value. But the early earnings are showing that the rules probably won't be reflected until second-quarter results are reported. And that has some investors hoping that financial earnings, which have been better-than-expected so far, will do even better once market-to-market accounting takes effect.

- No surprises: GE and Citi report earnings. Shorts have a big problem: bank stocks were supposed to sell off this earnings week, but stronger than expected results is keeping bank stocks moving sideways and the rest of the market up modestly. This is sucking in shorts. According to Reuters, State Street, which tracks buying and selling within the $12 trillion in assets it holds as custodian, said flows into U.S. equities were close to the highest they have been in 12 years.

Barron’s:
- Generic drugs play a big role in President Obama's plans to overhaul health care and efforts by other countries to curb their own rising costs. So it's easy to see why shares of generic-drug makers have soared in recent months, even as health-care stocks suffered a big selloff. As big players in the $78 billion generic-drug industry, Teva Pharmaceutical Industries (ticker: TEVA) and Mylan (MYL) have more gas left in the tank despite stock gains.

NY Times:

- Institutional investors are participating in a broad-based recovery in equities with the United States leading the way and the euro zone lagging, State Street said on Friday. The U.S. financial services firm, which tracks buying and selling within the $12 trillion in assets it holds as custodian, said flows into U.S. equities were close to the highest they have been in 12 years. Specifically, it said, monthly flows into U.S. stocks were in the 98th percentile, meaning they have only been higher in 2 percent of months over the period. “It seems the nightmare may now be ending. Markets have been having quite a party of late,” State Street said in a note. “Institutional investors are backing this rally.”

Salon.com:

- Why credit swaps encourage bankruptcy. Here's how it works: A lender buys the bonds of a company -- let's say General Growth, the huge mall operator that declared bankruptcy this week. But then, hoping to hedge against the risk that General Growth might default on its bond obligations, the lender purchases a credit default swap protecting against that event from another party, in effect buying insurance against the chance that those bonds will go bust. But the kicker is that owning a credit default swap on General Growth bonds turns out to make the lender less willing to cut a deal that would allow General Growth to avoid bankruptcy, because the lender can get paid in full in the event of that bankruptcy by collecting on the insurance policy. So it's better for the lender to force the company to its knees rather than come to a less disastrous arrangement.

Dallas Morning News:

- AT&T Inc.(T) outlined its 2009 wireless and broadband network expansion plans for Texas on Thursday. The Dallas-based company said it will expand its high-speed wireless 3G networks throughout the state, with a focus on rural areas, as well as its U-verse home broadband service. AT&T did not say how much it will spend on this year's upgrades but said it spent more than $6 billion on infrastructure statewide from 2006 to 2008. It said its capital expenditures companywide for 2009 will total between $17 billion and $18 billion.

The Detroit News:

- The Obama auto task force is preparing to loan General Motors Corp. about $5 billion in additional federal short-term aid, and Chrysler LLC $500 million, an Obama administration official familiar with the matter said Thursday.

- A coalition of Muslim organizations is asking U.S. Attorney General Eric Holder today to investigate complaints that the FBI is approaching local Muslims and asking them to inform on Islamic congregations in Metro Detroit. Muslim leaders in Michigan and across the country say members of mosques are frequently approached and asked to provide information about activities in their communities.

The Seattle Times:

- Human rights groups and former detainees in U.S. custody expressed disappointment Friday with the decision by President Barack Obama not to prosecute CIA operatives who used interrogation practices described by many as torture. Obama sought to turn a page on what he called "a dark and painful chapter" with his announcement a day earlier. He condemned the aggressive techniques - including waterboarding, shackling and stripping - used on terror suspects while promising not to legally pursue the perpetrators. But the decision left some bitter in the Muslim world, where there was widespread anger over abuse of detained terror suspects. It could tarnish somewhat Obama's growing popularity among Arabs and Muslims, who have cheered his promises to close the Guantanamo Bay detention facilities and withdraw U.S. troops from Iraq. "All of us in Guantanamo never had hope or faith in the American government," said Jomaa al-Dosari, a Saudi who spent six years in Guantanamo before being released last year. "We only ask God for our rights and to demand justice for the wrongs we experience in this life. There will be a time in history when every person who committed a wrong will be punished."

Reuters:
- The Environmental Protection Agency on Friday unveiled a finding that greenhouse gases endanger human health and welfare, opening the door to federal regulation of carbon dioxide as a pollutant. The finding does not "automatically trigger" new carbon rules but could allow the EPA to move forward with limiting greenhouse gas emissions under the federal Clean Air Act. Rising levels of greenhouse gases "are the unambiguous result of human emissions, and are very likely the cause of the observed increase in average temperatures and other climatic changes," the EPA proposal said. Environmentalists applauded the decision, while affected industries expressed concern.

- U.S. consumers have more confidence in the U.S. economy than they have had since the sudden collapse of Lehman Brothers in September, which caused the near-implosion of the global banking system, a survey showed on Friday. The Reuters/University of Michigan Surveys of Consumers said its preliminary April reading of consumer sentiment rose to a level of 61.9, up from 57.3 in March and was the highest since 70.3 recorded in September.

- McDonald's Corp (MCD) has added millions of diners at its restaurants over the past few years, and an improving financial climate should help out consumers, Chief Executive Jim Skinner said on CNBC on Friday. "Everybody's a little skittish right now about the future," Skinner said on CNBC. "It's still a tough environment, but I do see some thawing. If you look at the credit markets and you look at the activities around the financials, I think that bodes well for the future and bodes well for the consumer."

- A weekly measure of U.S. future economic growth slipped, while its annualized growth rate climbed to levels last seen in October 2008, indicating that economic recovery is probable in the coming months, a research group said Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index slipped to 107.2 for the week ending April 10 from 107.4, which was revised lower from 107.9. "With the upturn in Weekly Leading Index growth continuing for over five months now, growth in U.S. economic activity will begin to improve in short order," said Lakshman Achuthan, managing director at ECRI.

Bear Radar

Style Underperformer:
Large-cap Growth (+.14%)

Sector Underperformers:
Gold (-3.31%), Software (-.99%) and Coal (-.47%)

Stocks Falling on Unusual Volume:
GOLD, RTP, ALJ, OFIX, RGLD, PBCT, ANDE, CYT and AOS

Stocks With Unusual Put Option Activity:
1) ALL 2) XTO 3) YGE 4) BSX 5) SLM

Bull Radar

Style Outperformer:
Large-cap Value (+.11%)

Sector Outperformers:
Homebuilders (+2.19%), Road & Rail (+1.24%) and I-Banks (+1.10%)

Stocks Rising on Unusual Volume:
ICUI, CMED, PG, NUS, ABT, BMY, DB, CSKI, ZUMZ, CHIC, ISRG, DNDN, TNDM, GOOG, RVBD, ILMN, PRSP, FTEK, BIDU, AMSC, TPX, VMI and OCR

Stocks With Unusual Call Option Activity:
1) RVBD 2) PPG 3) MAT 4) PDCO 5) ADI

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