Stocks Finish Lower, Weighed Down by Airline, REIT, Bank and Commodity Shares

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Stocks Lower into Final Hour on Swine Flu Fears, Profit-taking, More Shorting

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Medical longs, Computer longs and Emerging Market/Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising 5.02% and is very high at 38.70. The ISE Sentiment Index is low at 89.0 and the total put/call is slightly below average at .79. Finally, the NYSE Arms has been running high most of the day, hitting 1.54 at its intraday peak, and is currently 1.51. The Euro Financial Sector Credit Default Swap Index is rising 1.13% today to 154.0 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 falling .81% to 176.01 basis points. This index is also well below its Dec. 5th record high of 285.99. The TED spread is falling 1.30% to 96 basis points. The TED spread is now down 367 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 3.64% to 59.50 basis points. The Libor-OIS spread is falling 2.47% to 86 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 3 basis points to 1.47%, which is down 117 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 .09%, which is unch. today. Market-leading stocks are outperforming the major averages substantially again today. Many are actually rising. Defense, utility, semi, wireless, medical equipment, biotech, hospital, drug and hmo shares are all higher on the day. Considering the declines in bank/real estate shares and rising economic fear related to the swine flu, today’s mild headline losses are a big positive. I still expect US stocks to rise later this week. Nikkei futures indicate an +60 open in Japan and DAX futures indicate a -15 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking and rising economic fear.

Today's Headlines

Bloomberg:

- Technology companies are piling up cash and cutting debt faster than any other industry, a signal to investors that they will rally even as evidence mounts that the stock market’s fastest advance since 1938 is in jeopardy. Cisco Systems Inc., Salesforce.com Inc. and Cognizant Technology Solutions Corp. have driven technology shares in the Standard & Poor’s 500 Index to a 16 percent gain in 2009, the best start since 1998 and the most among the 10 industries in the measure. Money managers are betting the cash reserves, rising profits and cheapest valuations on record will send U.S. technology stocks up 24 percent this year, compared with an increase of less than 1 percent for the S&P 500, according to analyst price forecasts and data compiled by Bloomberg. “If you are putting money into the market, that’s the first place to look,” said James Swanson, Boston-based chief investment strategist at MFS, which oversees $134 billion. “They have cash on their balance sheets, they don’t have a lot of requirements to pay back debt, and valuations on the stocks are amazingly low. It’s a winner.”

- The three-month London interbank offered rate, or Libor, for dollars fell to the lowest level in almost six years, the British Bankers’ Assoc. said. The rate slipped two basis points to 1.05% today, the lowest level since June 25, 2003, the BBA said. The Libor-OIS spread, a gauge of the reluctance of banks to lend, declined two basis points to 86 basis points.

- General Motors Corp.(GM), working to stave off a June 1 U.S.-backed bankruptcy, stepped up dealer shutdowns and job cuts and offered equity to bondholders under a plan to reduce liabilities by $44 billion. GM will shrink the number of dealers 42 percent to 3,600 and drop more union and salaried positions by the end of 2010, according to a regulatory filing today. Holders of $27.5 billion in bonds would receive 225 shares of stock for each $1,000 in principal. The shares soared the most since November. Chief Executive Officer Fritz Henderson needs the debt reduction and savings so the largest U.S. automaker can restructure outside of court and avoid being forced into bankruptcy protection in 35 days. He is still seeking an agreement to trim obligations to a union health-care trust.

- U.S. banks that received results of their federal stress tests last week were given three options if they need additional capital to withstand the recession. The reality is they may only have one. Getting federal aid or selling shares -- two of the choices offered to the 19 lenders being tested -- aren’t practical politically or financially, according to analysts, including Jeff Davis, the research director at Howe Barnes Hoefer & Arnett Inc. in Chicago. Lawmakers have opposed adding more to the $700 billion that the government already committed and investors have balked at buying shares of financial firms after a two-year drop. That leaves the third option presented by Treasury Secretary Timothy Geithner: changing the preferred stock held by the U.S. Troubled Asset Relief Program into common shares. Doing so would prop up capital under accounting rules and dilute the value of shareholdings for current investors.

- Investors should lower their holdings of Indian stocks on concern the nation’s ongoing elections may prove a “sharp disappointment,” Credit Suisse Group said. Shares appear to have priced in a victory for a “market- friendly, stable government” without factoring the possibility of other outcomes, the brokerage said.

- A pro-Taliban group in northwestern Pakistan said it suspended peace talks with the government to protest an assault by troops that left 46 militants dead and forced local residents to flee.

- A U.S.-Iranian journalist detained by Iran and sentenced to eight years in jail on espionage charges is “very frail” amid a hunger strike she started a week ago, her father said.

- Corning Inc.(GLW), the biggest maker of glass for flat-panel televisions, posted first-quarter profit that beat analysts’ estimates and doubled its unit-growth forecast for liquid-display TVs as demand began to rebound.

Wall Street Journal:

- Harbinger Capital Partners founder Philip Falcone is pressing forward with a multibillion-dollar plan to build an international satellite-cellphone business, even as he tries to battle back from steep losses in his hedge funds. It is an unusually bold project given the conservative mood on Wall Street, where investors are shying away from big, risky bets. But Mr. Falcone is a strong believer in the technology, which would add satellite capabilities into cellphones, providing coverage in dead spots and eventually allowing business travelers to use their devices globally.

- The U.S. pork industry shifted into rapid-response mode following the news of an outbreak of swine flu in humans, trying to quell disease fears and protect an already weak pork market. Although there appears to be no evidence yet tying the flu to human contact with pigs, Russia banned meat imports from Mexico, several U.S. states and nine Latin American nations. In a news release Sunday, the National Pork Producers Council said, "Pork is safe to eat." The producers council, citing the Centers for Disease Control, said "preliminary investigations have determined that none of the people infected with the hybrid flu had contact with hogs."

- Foreign businesses are beginning to warn against rising protectionism in China, saying that the country's massive stimulus program plus a raft of new regulations are discriminating against non-Chinese companies. On Monday, the American Chamber of Commerce in China became the latest group to sound the alarm, saying protectionism was one of its major concerns this year. In its 2009 White Paper, AmCham said the problem ranged from regional leaders trying to channel stimulus money locally to national policies that favor Chinese companies.

- The number of people confirmed to have had a new strain of swine flu in the U.S. has doubled to 40, the World Health Organization said Monday.

CNBC:

- Aspects of a planned European Commission directive to regulate hedge funds do not go far enough and must change to protect investors, French Economy Minister Christine Lagarde said in remarks published on Monday. The commission is due to publish its draft directive on governing hedge funds on Wednesday, against a backdrop of growing political pressure for increased regulation of institutions seen as posing systemic risks.

- Conde Nast said Monday they will cease publication of its Portfolio business magazine and Web site. The closure of Portfolio will be effective with its May issue, while Portfolio.com will close in the second quarter of the year.

NY Times:

- General Electric(GE) says it has achieved a breakthrough in digital storage technology that will allow standard-size discs to hold the equivalent of 100 DVDs.

MarketWatch:
- Legendary asset manager Wilbur Ross has signed up for the Treasury Department's Public-Private Investment Program Monday, saying he will lead a group investing $1 billion in the government's attempt to relieve banks of toxic assets.

- Now it's official. Britain has as good as announced its decision on whether to join Europe's economic and monetary union. The answer is implicit in the truly dreadful arithmetic of the Labour government's 2009-10 budget plans announced last week. And it is the same as when former Prime Minister Margaret Thatcher, shortly before she bowed out in November 1990, made her celebrated statement to the House of Commons on giving up the pound: "No, No, No."

Washington Post:

- Gail Johnson doesn't think of herself as wealthy. The former pediatric nurse has spent 20 years building a chain of preschools and after-school programs that accommodate sick children so working parents can keep their jobs. But, like most small-business owners, Johnson reports her profit on her personal tax return. In a typical year, she and her husband make more than $500,000, according to her accountant, a figure that throws them squarely into the ranks of the richest Americans -- and makes them a prime target for the Obama administration's tax policy. Since last year's campaign, President Obama has vowed repeatedly not to increase taxes for families making less than $250,000 a year. That pledge, while politically popular, has left him with just two primary sources of funding for his ambitious social agenda: about 3 million high-earning families and the nation's businesses. Johnson, with her company, falls into both categories. If Obama's tax plans are enacted, her accountant estimates that her federal tax bill -- typically, around $120,000 a year -- would rise by at least $23,000, a 19 percent increase. "You hear 'tax the rich,' and you think, 'I don't make that much money,' " said Johnson, whose Rainbow Station programs are headquartered near Richmond. "But then you realize: 'Oh, if I put my business income with my wages, then, suddenly, I'm there.' "

24/7 Wall St:

- Monday is looking like a SWINE FLU speculative flu stock stock bonanza, and we want to caution about some of the lessons of scares in the past of SARS, bird flu, Mad Cow, and even hoof & mouth as similar references. The two approved drug treatments, not vaccines, which are being released are Tamiflu made by Roche (OTC: RHHBY) and Relenza made by GlaxoSmithkline (NYSE: GSK). Gilead Sciences, Inc. (GILD) gets royalties from Roche for Tamiflu, and its shares are indicated north of $48.00 after a $45.80 close on Friday. There are also waves of tier-two and tier-three stocks which could move on this news, but be advised that we have seen these pops in the past from SARS and Bird Flu which were followed ultimately by lower share prices and many of the speculative players disappeared.

Politico:

- Supporters of legislation to address climate change expected last week’s rollout of a cap-and-trade energy plan — complete with Earth Day events and an Al Gore appearance on Capitol Hill — would boost their efforts. Instead, what they got was an earful from a group of moderate Democratic lawmakers, many of whom represent competitive seats, who said the policy would set their already-economically hard-hit districts even further back. “What I’ve seen so far is nowhere near where it needs to be for me to support it,” Rep. Jason Altmire (D-Pa.) told POLITICO. “Any way you do it, it hurts Pennsylvania, especially western Pennsylvania.” “I think cap and trade is bad policy,” said Altmire.

USAToday:

- Climate change has become a boon to lobbyists on all sides of the issue, despite Obama's attempt to lessen the influence of special interests. A Center for Public Integrity analysis shows interest groups involved with climate change hired 2,430 lobbyists in the past year, up 300% from five years ago.

- Faced with a bearish job market, many soon-to-graduate MBAs have dismissed the idea of making their marks — and big bucks — at Wall Street investment banks. Instead, a bevy of B-schoolers are launching fledgling firms. Among the planned ventures: food companies, technology firms and real estate development. "We have seen an increase in students wanting to take the entrepreneurial route," says Roxanne Hori, director of career management at Kellogg School of Management at Northwestern University. "More students have come forward and said, 'I think I'm going to start my own thing.' "

Reuters:
- Whirlpool Corp (WHR) reported a surprise quarterly profit on Monday as cost-cutting efforts helped the world's biggest appliance maker weather a slump in global sales, and its shares rose as much as 17 percent.

- Details of the Federal Reserve Bank of Dallas' Texas monthly manufacturing outlook survey released on Monday.

- The share of U.S. homes privately owned but empty fell to levels last seen in mid-2007, a government report on Monday showed, in a positive sign for the listless housing sector. In the first quarter, the vacancy rate fell to 2.7 percent from 2.9 percent in the last quarter of 2008, the Commerce Department reported.

Digitimes:

- The supply of up-stream parts and components for netbooks has become increasingly tight recently as white-box netbook vendors in China are ramping up output to meet anticipated demand from China's 3G operators, according sources at DRAMeXchange. Support from Intel and VIA Technologies for development of the netbook market in China has also resulted in a proliferation of netbook products, triggering the shortage, said other market watchers. Current supplies of up-stream netbook parts and components are barely enough to meet 50-70% of market demand, with CPUs, LED parts and network ICs in severe shortage, said DRAMeXchange. IC distributors reportedly plan to hike the prices of Intel's Atom, as well as VIA's C7-M CPUs by 5-10%, and prices of DRAM modules by 20-30% in May, the Chinese-language Commercial Times quoted market sources as indicating.

Bear Radar

Style Underperformer:
Small-cap Value (-1.21%)

Sector Underperformers:
Airlines (-8.98%), REITs (-6.26%) and Oil Tankers (-4.79%)

Stocks Falling on Unusual Volume:
XNPT, PSMT, AMX, MBT, BEAV, CHKP, PCLN, SONC, ASR, PAC, TKR, CPA, MTA, RCL and CUK

Stocks With Unusual Put Option Activity:
1) MCO 2) UTHR 3) WHR 4) TSN 5) CL

Bull Radar

Style Outperformer:
Large-cap Growth (+.29%)

Sector Outperformers:
Hospitals (+2.96%), Homebuilders (+1.96%) and Semis (+1.79%)

Stocks Rising on Unusual Volume:
VIVO, IMA, QCOM, GSK, ACL, GLW, WMT, DELL, EPD, DFG, BP, CRXL, SYNT, BLUD, ATLS, DNDN, QGEN, STAR, COLM, NFLX, ICLR, LRCX, GILD, VRTX, BMRN, DGIT, WPPGY, PVTB, BEAT, TKG, IXJ, HUM, IM and WHR

Stocks With Unusual Call Option Activity:
1) IPI 2) ONXX 3) MHK 4) GM 5) DHI

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