Stocks Finish Mostly Higher, Boosted by Commodity, Airline, Utility, Telecom, Wireless and Defense Shares

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Stocks Mixed into Final Hour on Another Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Financial longs and Technology longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mixed as the advance/decline line is about even, 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 2.14% and is very high at 35.76. The ISE Sentiment Index is about average at 142.0 and the total put/call is slightly below average at .75. Finally, the NYSE Arms has been running high most of the day, hitting 1.45 at its intraday peak, and is currently 1.29. The Euro Financial Sector Credit Default Swap Index is falling another .55% today to 144.66 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 3.87% to 164.65 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 3.33% to 86 basis points. The TED spread is now down 377 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 1.78% to 57.25 basis points. The Libor-OIS spread is falling 3.52% to 79 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 8 basis points to 1.40%, which is down 124 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 up 3 basis points today. The broad market is consolidating recent gains again today ahead of next week’s bank stress test results and market-moving economic releases. However, select sectors and stock are powering higher again today. REITs, Homebuilders and Education Stocks are the only real areas of weakness today. One of my longs, (MS), is breaking up through its 200-day moving average, rising almost 10%. I suspect the stock will build on today’s gains next week. It is noteworthy that the 10-year TIPS spread has declined 15 basis points from yesterday’s high and gold continues to weaken, despite the jump in most commodities. The S&P 500 continues to encounter resistance at the 875-880 level. I expect it to break convincingly above this level be next week’s end. Nikkei futures indicate an +93 open in Japan and DAX futures indicate an +29 open in Germany next week. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering and diminishing credit market angst.

Today's Headlines

Bloomberg:

- The London interbank offered rate that financial companies charge each other for three-month dollar loans fell to within a basis point of 1 percent as central banks and governments unlock credit markets. Libor declined one basis point to 1.01 percent today, according to the British Bankers’ Association. The Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed to 81 basis points, the lowest level since Sept. 4. Libor hasn’t been at 1 percent since June 2003.

- Conditions are falling into place for the U.S. economy to begin growing again in the second half of 2009, according to economists at JPMorgan Chase & Co. and Barclays Capital Inc. “We’re probably hitting the bottom around now,” Larry Kantor, head of research at Barclays, said in an interview today. “The second quarter is going to be a transitional quarter,” Bruce Kasman, chief economist at JPMorgan, told Bloomberg Radio on April 21. Gains in consumer confidence and better credit conditions will lead to a pickup in spending, and an improving housing market and a boost from federal spending “is kind of where you get your recovery,” said Kasman. Kasman and Kantor forecast the economy will contract at an annualized pace of 2 percent in the current quarter. Kasman projects the U.S. will then grow at a 1 percent rate in the last half of 2009, while Barclays looks for acceleration from 1 percent growth in the third quarter to 2 percent in the last three months of the year. Lakshman Achuthan, managing director at the Economic Cycle Research Institute in New York, said leading economic indicators are giving positive signals compared with past recoveries. “They are on track,” said Achuthan, who forecasts the start of an economic expansion by September. “You’re starting to get a positive feedback loop in the drivers of the economy,” he said. Barclays’s Kantor said the risk to his bullish outlook “is now decidedly on the upside.” That’s contrary to the consensus forecast of other economists, he said, “although consensus seems to be heading our way.”

- The Standard & Poor’s 500 Index may jump 20 percent to 1,050 over the next six to 12 months as investors buy stocks trading at low valuations, said Abby Joseph Cohen, Goldman Sachs Group Inc.’s senior investment strategist. “You could see the market sustain at these levels,” Cohen, 57, said in a Bloomberg Radio interview. “We’re going to set a new trading range much higher than the trading range in February and March.” Cohen said the Federal Reserve’s delay in releasing stress tests on the biggest U.S. banks isn’t worrisome.

- Crude oil rose to a four-week high as U.S. consumer confidence improved and manufacturing shrank at the slowest pace in seven months, signaling that the recession will end later this year.

- Former Cuban President Fidel Castro said that while he is still studying President Barack Obama’s administration, the U.S. is making demands that would turn the island country into “slaves.” “Today they are prepared to pardon us if we resign ourselves to return to the fold as slaves, who after knowing freedom, accept anew the whip and yoke,” Castro said in a “reflection” dated yesterday and published on the Web site of the government newspaper Granma.

- The Federal Reserve and U.S. banking regulators will reveal the results of the stress tests on the country’s 19 largest banks on May 7 after financial markets close, according to a government official. The government will unveil both aggregate information about the capital buffer required to absorb losses if the recession worsens and firm-specific details, the official said on condition of anonymity.

- U.S. manufacturing and consumer confidence last month unexpectedly jumped to their highest levels since the credit crisis intensified in September, indicating the economy is on the mend. The Institute for Supply Management’s factory index rose to 40.1 from 36.3 in March. “The recession’s end may be drawing closer,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Companies cut stockpiles last quarter at the fastest pace on record, bringing forward the day when production and employment stabilize and help right the world’s largest economy. The ISM’s gauge of new orders climbed to 47.2, the highest level since August, from 41.2 the prior month, and the measure of export orders improved to 44 from 39. The production gauge increased to 40.4 from 36.4. “This is the first report we’ve seen in quite some time we can call very encouraging,” Norbert Ore, chairman of the ISM factory survey, said in a conference call from Atlanta. “It certainly looks like the worst is over.” The group’s employment index rose to 34.4 from 28.1. The consumer sentiment gauge rose from 57.3 in March, posting the biggest gain since October 2006.

- Municipal bonds posted their biggest April gains in two decades as the advent of federally subsidized taxable offerings from state and local governments reduced new tax-exempt debt issues by about 29 percent from last year. The Municipal Master Index, a gauge of total investment return compiled by Bank of America Corp.’s Merrill Lynch & Co., rose 2.5 percent last month, the best since the April 1989 gain of 3.3 percent.

Wall Street Journal:

- Verizon Communications Inc.(VZ) is preparing to offer free Wi-Fi access at hotspots to subscribers to its home broadband services, according to people familiar with the matter. The phone giant will partner with Boingo, a startup that counts former EarthLink founder Sky Dayton as chairman, to deliver the access. Discussions are fluid, and Verizon is uncertain about particulars like whether users would have free access only in their regions or nationwide. The service may launch as soon as the summer, according to a person familiar with the situation.

- The Chrysler creditors at least represent teachers, pensioners and retirees, among others. The Administration is advancing its own social and political agenda through its ever-deeper entanglement with Chrysler and General Motors. That explains why the government is giving 55% of the new Chrysler to the UAW's retiree-benefit trust, a junior creditor, while those ahead of the trust in line get a mere 30 cents on the dollar.

CNBC:

- Peter A. Weinberg and Joseph R. Perella are part of a band of Wall Street renegades — “a small group of speculators,” President Obama called them Thursday — who helped bankrupt Chrysler. That, anyway, is the Washington line. In fact, Mr. Weinberg and Mr. Perella, with sparkling Wall Street pedigrees, are the epitome of white-shoe investment bankers. And their boutique investment bank, a latecomer to Chrysler, played only a small role in the slow-motion wreck of the Detroit carmaker. But now the two men, along with a handful of other financiers, are being blamed for precipitating the bankruptcy of an American icon. As Chrysler’s fate hung in the balance Wednesday night, this group refused to bend to the Obama administration and accept steep losses on their investments while more junior investors, including the United Automobile Workers union, were offered favorable terms. OppenheimerFunds, in a statement, said: “Our holdings in secured Chrysler debt are entitled to priority in long-established U.S. bankruptcy law, and we are obligated to our fund shareholders to support agreements that respect these laws.” But now that Chrysler has tipped into bankruptcy, some industry executives worry the administration will try to turn this episode to its political advantage. Washington, these people contend, needed some political cover for the mess in Detroit — and Wall Street provided a handy scapegoat. JPMorgan Chase(JPM) and other large banks involved in the negotiations are, to greater and lesser degrees, beholden to Washington. Many have received billions of taxpayer dollars, as well as other generous subsidies. For the banks, defying the administration was never a serious option, according to people close to the talks with lenders, who asked not to be identified because they had signed confidentiality agreements. The other creditors, who sought to distinguish themselves from those who have received bailout money, believed they had a stronger hand. Many of them bought Chrysler debt for about 30 cents on the dollar, long after it became clear that the company was in trouble. Most of this debt is secured by Chrysler assets — factories, equipment, real estate and the like. The thinking was that in the worst case, these assets could be sold at a profit if Chrysler were liquidated. The dissident creditors said they had a fiduciary responsibility to seek the best possible returns for their own investors — which, the group said, include teachers’ unions, pension funds and endowments. “The government has risked overturning the rule of law and practices that have governed our world-leading bankruptcy code for decades,” the group said in a statement Thursday. The creditors suggested banks that had received bailout money were being strong-armed by the administration, a view some of the bankers privately said they shared.

MarketWatch:
- Dubai’s construction woes expose U.A.E myths. Commentary: As economy slides, leaders look the other way.

Washington Times:

- In a rare gesture, House intelligence committee Chairman Silvestre Reyes sent a letter this week to all CIA employees suggesting that Congress shared some blame for the CIA interrogation controversy and should play a more robust role in the intelligence policymaking process. The letter, which was sent Wednesday and made available to The Washington Times on Thursday, appeared to undercut remarks by House Speaker Nancy Pelosi that there was little Congress could do about harsh interrogations, including waterboarding. The Times reported last month that members of Congress, including Mrs. Pelosi, California Democrat, had been briefed on numerous occasions about the interrogation program for high-value detainees. "One important lesson to me from the CIA's interrogation operations involves congressional oversight," wrote Mr. Reyes, Texas Democrat.

LATimes:

- The Senate Judiciary Committee began hearings today on the prospects for comprehensive immigration reform as the Department of Homeland Security issued new work-site enforcement protocols, refocusing attention on employers rather than illegal workers. The new federal guidelines instruct immigration agents to look for evidence of money laundering, mistreatment of workers, trafficking, smuggling and identification document fraud. They also direct agents to get indictments, criminal arrest or search warrants before arresting employees.

AFP:

- As expected, the Federal Reserve Board on Friday announced that, starting in June, commercial mortgage-backed securities and securities backed by insurance premium finance loans will be eligible collateral under the Term Asset-Backed Securities Loan Facility. Talk of TALF expansion into CMBS has tightened spreads on super senior tranches of existing CMBS over the past two weeks. “The inclusion of CMBS as eligible collateral for TALF loans will help prevent defaults on economically viable commercial properties, increase the capacity of current holders of maturing mortgages to make additional loans, and facilitate the sale of distressed properties. CMBS accounted for almost half of new commercial mortgage originations in 2007,” the Federal Reserve said in a statement announcing the expansion.

Reuters:
- The U.S. jobless rate will probably not rise to levels reached during the recession of the early 1980s and is likely to crest above 9 percent before declining, St. Louis Federal Reserve President James Bullard said on Friday. "I'm hopeful that we will stay under the peak hit in 1982, 10.8 percent," he told reporters after speaking to the Arkansas Bankers Association. Bullard said the harsh recession is likely moderating and expansion is possible in the second half of 2009 after several quarters of contraction. "We will see a less severe rate of decline in the second quarter and I'm hopeful we'll see some positive growth in the second half of this year," said Bullard, who is not a voter on the Fed's policy-setting panel this year.

Financial Times:
- May Day protesters clashed with riot police in Germany, Turkey and Greece on Friday while thousands angry at the government’s responses to the global financial crisis took to the streets in France. Rising unemployment across Europe and beyond has added intensity to May Day marches as last year’s market crash and banking meltdown rolls into the real economy. Almost one in three young people in Turkey is without a job and the government fears social unrest and increased ethnic tension because of the downturn. France’s headline jobless total rose to almost 2.5m in March, 2.7 per cent up on the previous month. The number of jobseekers under 25 increased 36 per cent year on year. In a sign of how far disillusion has spread, even staff in management positions are expected to take part in the marches.

- Warren Buffett will be under pressure at Saturday’s annual gathering of faithful shareholders to explain his worst year ever, with the usually adoring crowd set to probe the legendary investor on his bargain-hunting strategy, succession plans and views of the crisis. Buffett-watchers say this year’s meeting of shareholders in Berkshire Hathaway, his candies-to-insurance group, will depart from the usual pattern of deferential questions and folksy answers and witness some criticism of the billionaire investor. “The hard questions will be asked this year,” said James Altucher, a hedge fund manager and author of Trade Like Warren Buffett. “There will be people who always stand by him and others who will ask: ‘Have you lost your way?’”.

Bear Radar

Style Underperformer:
Large-cap Growth (+.52%)

Sector Underperformers:
Education (-3.47%), Insurance (-2.14%) and REITs (-2.14%)

Stocks Falling on Unusual Volume:
AOC, SEPR, ITMN, CLI, CBEY, GPRO, BEAT, SCOR, VSEA, GSIC, QLGC, XRAY, PLXS, SGR, MA, DF and AGP

Stocks With Unusual Put Option Activity:
1) OI 2) WY 3) CHRW 4) FRO 5) LAMR

Bull Radar

Style Outperformer:
Large-cap Value (+.46%)

Sector Outperformers:
Steel (+2.07%), Energy (+1.98%) and Airlines (+1.81%)

Stocks Rising on Unusual Volume:
TEG, CLF, IOC, RIO, SU, CIG, TSL, MCRS, NETL, MFE, RIMM, PVR, LLL, AMAG, BGFV, VPRT, JRCC, BGC, MTD, CEC and PKI

Stocks With Unusual Call Option Activity:
1) RSH 2) HIG 3) ILMN 4) SVU 5) BGC

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