Stocks Finish Slightly Lower, Weighed Down by REIT, Semi, Commodity and Rail Shares

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Stocks Slightly Lower into Final Hour on Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Financial longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling .46% and is very high at 34.37. The ISE Sentiment Index is slightly above average at 165.0 and the total put/call is slightly below average at .71. Finally, the NYSE Arms has been running below average most of the day, hitting .34 at its intraday trough, and is currently .67. The Euro Financial Sector Credit Default Swap Index is falling 2.19% today to 142.23 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 2.01% to 156.69 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling another 3.35% to 80 basis points. The TED spread is now down 383 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is plunging 13.66% to 51.38 basis points. The Libor-OIS spread is falling 1.15% to 78 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 1 basis point to 1.44%, which is down 120 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 .19%, which is up 1 basis point today. Gauges of credit market angst continue to meaningfully improve. The 2-year swap spread is at the lowest level since early January and appears headed for a technical breakdown, which is a major positive. Weekly retail sales rose .5% this week, which was the fourth consecutive weekly gain. Weekly retail sales have averaged a +.6% gain over the last 4 weeks versus a -1.1% average decline the prior 4 weeks. Many market leading stocks are rising again today. As well, Gaming, Airline, HMO and Hospital stocks are surging 4%+ today. Goldman Sachs said, “US banks are attractive” this afternoon. The firm also raised its rating on (BAC) and (COF) credit to Outperform. The (XLF) is cutting losses. Overall, today’s broad market action appears like a healthy consolidation before another push higher. Nikkei futures indicate an +328 open in Japan and DAX futures indicate an +16 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, technical buying, investment manager performance anxiety and diminishing credit market angst.

Today's Headlines

Bloomberg:

- The London interbank offered rate that banks charge for three-month dollar loans fell below 1 percent for the first time as credit markets showed signs of thawing. Libor declined two basis points to 0.99 percent today, according to the British Bankers’ Association. The previous all- time low was 1 percent, reached in June 2003. The Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed today to the lowest level since Sept. 1. “Confidence is returning to the market, so I would say so far so good,” said Brian Delany, a money-market trader on the dollar desk at Bank of Ireland Plc in Dublin. “There has been a decrease in credit concerns about banks due to better-than-expected first-quarter results,” Piyush Goyal, a fixed-income strategist at Barclays Capital Inc. in New York, wrote today in a note to clients “All this bodes well for Libor and it will likely drift lower.” Accelerated declines in interbank rates led JPMorgan Chase & Co. to lower its forecasts last week. The three-month Libor will drop to 0.75 percent by mid-year and the Libor-OIS spread will narrow to 50 basis points, down from previous expectations of 1 percent and 75 basis points, respectively, the bank said. “We are seeing signs of sustainable improvement,” said Thomas Herrmann, a global economist at Credit Suisse Group AG in Zurich. “We will not see a strong boom, but we have averted a more severe outcome, such as a depression-like scenario.”

- U.S. service industries contracted less than forecast in April as home purchases and retail sales rose, another signal that the economic slump is abating. The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 43.7 from 40.8 the prior month, according to the Tempe, Arizona-based group. The economy has “moved beyond the worst period of decline,” David Resler, chief economist at Nomura Securities International Inc. in New York, said in an interview with Bloomberg Television. “Businesses are starting to see an improvement in order flows. It’s changing and improving the outlook.” The ISM non-manufacturing industries index of employment rose to 37 from 32.3 the prior month, and its gauge of new orders climbed to 47, the highest level since September, from 38.8 in March. A measure of prices paid increased to 40 from 39.1. The measure of new export orders jumped to 48.5 from 39.

- So Michele Bachmann’s version of history is “from another planet.” Bobby Jindal, the Republican governor of Louisiana, is “chronically stupid.” And Eric Cantor of Virginia, the second-ranking Republican in the House, is “busy lying constantly.” That at least is according to posts on three left-leaning blogs. Writers who are not pro-Barack Obama are suffering character assassination as well. George Will of the Washington Post, the nation’s senior conservative columnist, has been so assaulted by bloggers that his editor, Fred Hiatt, recently wrote, “I would think folks would be eager to engage in the debate, given how sure they are of their case, rather than trying to shut him down.” The disconcerting thing isn’t that the bloggers or their guests did this slamming. We’re used to such vitriol in campaign time. What is surprising is that the attacks are continuing after an election. In the past, politicians and policy thinkers tended to be magnanimous in victory. They and their friends focused, post- victory, on policy and strategy -- not on trashing individuals.

- Regulating hedge funds is one thing. Shackling them is another. It’s difficult to tell which one is the ultimate objective of authorities in the U.S. and Europe as they push for greater oversight of these alternative investment managers. There are reasons to worry officials will opt for whips and chains.

- Confidence among US CEOs climbed in April to the highest level in three years as more company leaders believed the recession will ease, a private survey found. The Business Council’s confidence gauge jumped to 50.0, the highest level since early 2006, from 25.9 in a survey taken in January, a report from the group showed.

- General Electric Co., Harley-Davidson Inc., Volkswagen AG and Honda Motor Co. lead companies selling about $10.9 billion in debt for the third round of the Federal Reserve’s program aimed at jump-starting lending. Mitsubishi Motors Corp. sold $209 million of bonds backed by automobile debt eligible for the Fed’s Term Asset-Backed Securities Loan Facility, according to a person familiar with the transaction. Bank of America Corp. is underwriting the sale, the person said.

- Oil traders who have been keeping as much as 100 million barrels of crude on tankers to profit from forward prices are likely to start selling the cargoes as the incentive to store wanes, consultant JBC Energy said today. “Oil should soon start to return to the market as contango structures appear to be narrowing, especially in the U.S.,” Vienna-based JBC said in an e-mailed research note today. JBC estimates that as of end-April, 40 million barrels were being stored in the U.S. Gulf Coast while as many as 24 million barrels were anchored off the U.K. and West Africa. Traders are storing 100 million barrels of oil at sea, enough to supply Europe for five days, Frontline Ltd., the world’s largest supertanker operator, said April 23.

- Crude oil fell from a five-month high on speculation a government report will show that U.S. supplies climbed to the highest level in 18 years. An Energy Department report tomorrow will probably show that crude-oil inventories increased 2.5 million barrels last week, according to a Bloomberg News survey. “The market keeps rising on a rather shaky foundation,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “You are still sitting on a lot of inventory.”

- U.S. regulators filed their first insider-trading case focusing on credit-default swaps, suing a Deutsche Bank AG salesman who allegedly tipped a hedge-fund portfolio manager to a bond sale in 2006. Jon-Paul Rorech, 36, a bond and credit-default swap salesman at Deutsche Bank Securities, passed information on the pending sale to former Millennium Partners LP money manager Renato Negrin, 45, who then bought swaps to reap a $1.2 million profit when the deal was announced, the Securities and Exchange Commission said in a statement today.

- China is at risk of a stock market “bubble” that may burst as investor confidence in the nation’s economic recovery weakens and bank lending slows, according to China Galaxy Securities Co., the nation’s largest brokerage. The gains have driven valuations on the index to 27.2 times earnings, the highest in a year and Asia’s third most expensive. These levels are “signs of a bubble,” Galaxy Securities strategists led by Teng Tai wrote in a report. “China’s economy has bottomed but the recovery may be weaker than forecast,” the analysts said today. “Bank lending will have to slow down. This will cap the growth in money supply and affect the supply of funds for the stock market.” New loans dwindled to 400 billion yuan last month, Caijing magazine reported yesterday. Earnings have yet to recover. Net income at the 1,624 companies listed on the Shanghai and Shenzhen stock exchanges fell 26 percent in the first quarter from a year earlier, the Shanghai Securities News reported May 4.

- The US dollar rose against the euro for the first time in three days as Federal Reserve Chairman Ben S. Bernanke said the U.S. economic contraction may be easing and a report showed services industries shrank at a slower pace. “Bernanke sounded positive on housing,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto.

- House Energy and Commerce Committee Chairman Henry Waxman said panel members have agreed to go forward with legislation to give consumers incentives to trade in old cars for newer, more efficient models.

Wall Street Journal:

- The ranking Republican on the Senate Banking Committee called it "deeply disturbing" that Stephen Friedman, who is chairman of the Federal Reserve Bank of New York and a director of Goldman Sachs Group Inc.(GS), bought Goldman shares in December and January. Sen. Richard Shelby (R., Ala.) said the purchases heightened his intention to increase oversight of the Fed's 12 regional banks. Mr. Friedman was placed in an unusual position in September, when Goldman was allowed by the Fed to become a regulated bank-holding holding company to help halt its market slide. That put Mr. Friedman in violation of Fed rules that bar regional Fed bank board chairmen -- who are chosen to represent the public -- from owning bank shares or serving as directors or officers of banks. At the request of the New York Fed, the Fed in Washington granted him a waiver from the rule in January. He said last week he would step down from the New York Fed board at the end of this year. In December, before the waiver was granted, and again in January, after it was granted, Mr. Friedman bought additional Goldman shares.

- Siemens AG plans to announce today that it will open a $50 million facility in Hutchinson, Kan., to make wind-turbine parts for the North American market. Siemens, the No. 3 turbine producer in North America with a 9% market share of installed megawatts, plans to break ground on the facilities this summer and expects to have 400 workers producing the wind-turbine drive trains, known as nacelles, at the 300,000 square foot facility by the end of 2010.

- Mobile gamers, the jig is up–now we know what you were really up to during that conference call. In a survey of 1,100 AT&T wireless customers, 57% said that they play games on their mobile devices, and half those gamers admitted to playing during work hours. The reason? More than 50% of people who said they were games reported that they did it as “a distraction from life issues,” while 40% chalked it up to “relaxation and stress relief.”

- Bristol-Myers Squibb Co. (BMY) is looking to acquire either privately held biotechnology companies or those worth about $1 billion following initial public stock offerings, the drug maker's leader said Tuesday.

- The U.S. recession appears to be losing steam, with growth likely to resume later this year on the back of firmer household spending, a bottoming housing market and an end to inventory liquidation, U.S. Federal Reserve Chairman Ben Bernanke said Tuesday.

CNBC:

- A bank in Texas is bulldozing four brand new homes and twelve nearly finished homes in Victorville city, California, about 85 miles northeast of Los Angeles. Guaranty Bank of Austin acquired the homes in foreclosure and is destroying them, reportedly, to provide a "safe environment" for the neighbors.

- Wilbur Ross, chairman & CEO WL Ross & Co., says President Obama's proposed tax changes that target U.S.-based global companies, will be a huge mistake, as they will hurt U.S. corporations dependent on overseas growth and sales.

NY Times:

- I CAN imagine the Treasury secretary’s face turning pale as he is told by the attorney general that one of the financial institutions on government life support has been indicted by a grand jury. Worse, I can imagine the attorney general facing not too subtle pressure from the president’s economic team to go easy on such companies.

MarketWatch:
- Securities and Exchange Commission officials, corporations and private investors on Tuesday debated five different agency proposals introduced last month for reinstating the uptick rule, a provision that would limit short selling.

Clusterstock:

- Hedge Funds Outraged At Obama Bullying But Also Cowering In Fear. I run an approximately twenty billion dollar money management firm that offers hedge funds as well as public mutual funds and unhedged traditional investments. My company is not involved in the Chrysler situation, but I am still aghast at the President's comments. Furthermore, for some reason I was not born with the common sense to keep it to myself, though my title should more accurately be called "Not Afraid Enough" as I am indeed fearful writing this...

Reuters:
- U.S. economic recovery is likely not "too far off" given aggressive policy actions, but the initial stages of the turnaround will likely be slow and credit strains persist, a top Federal Reserve policy-maker said on Tuesday.

- A Spanish judge moved closer on Tuesday to investigating former Bush administration officials over torture at Guantanamo Bay, raising the possibility that two Spanish probes could focus on activities at the U.S. base. In a ruling, Judge Eloy Velasco asked U.S. authorities to confirm if an investigation already exists in the United States into accusations of complicity with torture against six men including former U.S. Attorney General Alberto Gonzales.

- U.S. regulators are working with the top 19 banks on Tuesday to put the final touches on the results of regulatory stress tests, which are expected to reveal about half the banks need more capital but face manageable losses. The results -- due to be unveiled on Thursday -- will likely show that the largest U.S. banks do not need dramatic new government interventions, which could further drive the recovery of banks' stock prices and signal an exit strategy for the government's intimate involvement in the sector. Federal Reserve Chairman Ben Bernanke told lawmakers on Tuesday that those banks needing to raise more capital can do so through the private sector.

- A Chrysler lenders group objected on Tuesday to the automaker's plans for a quick sale of most of its assets in U.S. Bankruptcy Court, saying it is structured to achieve political goals, rather than economic ones. Chrysler, which filed for bankruptcy in Manhattan on Thursday, has asked for court permission for a quick sale of most of its assets to a new company held initially by Italy's Fiat SpA, a United Auto Workers union-aligned healthcare trust and the U.S. and Canadian governments.

- Automatic Data Processing Inc (ADP), the world's largest payroll processing company, expects new business sales to improve next fiscal year, its chief financial officer said on Tuesday, as the global economy recovers from the worst recession in decades.

Telegraph:

- Rising reserves of unused oil put strain on storage. Record inventories of crude oil are building up around the world threatening to swamp storage space and belying optimism in the markets about an imminent economic recovery. Goldman Sachs estimated last week that global storage capacity could be exhausted by June. Government figures in the US, the world's biggest oil consumer, put reserves at 375m barrels, rising by 4m barrels in one week in April alone. One estimate said that in addition 100m barrels were currently being stored in tankers at sea across the world – some of these are visible in Lyme Bay off the coast of Dorset and Devon. An average of analysts' predictions reckons on a reduction in demand of 1.5m barrels a day for 2009 over last year, while the International Energy Agency is predicting a fall of 2.5m barrels, but an estimate based purely on current economic growth figures would put the overall decline at 3m. He said it was a similar story in other commodities, with companies building up inventories while prices were cheap. "I can't see demand picking up for the rest of this year," he said. "Even if it picks up next year it is going to be from a very weak base." Goldman Sachs set a price target 10pc lower than at present, at about $45, for July, while Peter Voser, chief financial officer for Royal Dutch Shell, told reporters last week that it was "difficult to see an uptick in the oil or gas price" in the next 12 to 18 months.

Folha de S. Paulo:

- Brazil auto sales fell 9.5% in April from a year earlier. Registrations of passenger cars and light commercial vehicles declined to 224,411 units, 14% fewer than in March.

Yonhap News:

- North Korea runs a cyber warfare unit to gather information from US and South Korean military networks, citing an official at South Korea’s intelligence agency. More than 100 people work at the unit, which also spreads viruses to disrupt US and South Korean networks.

China Daily:

- China's power generation is likely to have fallen by 4 percent year-on-year in April, signaling that a recovery in the economy was still some way off, said industry insiders. The country's power generation might have decreased year-on-year last month, and the downward rate might have been larger than that seen in March, said Xue Jing, director of the statistics and information department under the China Electricity Council (CEC). China's power generation, an important barometer of the economy, is still "fluctuating at the bottom level", Xue said. According to sources with State Grid Corp of China (SGCC), the country's main power transmission company, China's power generation in terms of the daily average dropped by 3.9 percent from April 11 to 20, when compared with the same period last year. This was larger than the 3.5 percent drop seen from April 1 to 10, said the sources. "Figures for the last 10 days of April are not optimistic, as there has been no big recovery in industrial power consumption, which accounts for a large part of the total power usage," said a source with SGCC yesterday. From April 11 to 20, power generation in China's eastern coastal regions fell. Power generation in Guangdong fell by 18.5 percent compared with the same period last year; that in Guangxi was down by 25.3 percent, and in Jiangsu, it fell by 10.2 percent. Since October last year China has seen negative growth in power generation.

Haaretz.com:
- As Prime Minister Benjamin Netanyahu's visit to Washington May 17 approaches, the United States is sending strong messages on the establishment of a Palestinian state and Israeli settlement activity. Gen. James Jones, national security adviser to President Barack Obama, told a European foreign minister a week ago that unlike the Bush administration, Obama will be "forceful" with Israel. Meanwhile, White House Chief of Staff Rahm Emanuel told an AIPAC conference last night that two states for two peoples is the only solution the United States is committed to.

Bear Radar

Style Underperformer:
Small-cap Value (-1.29%)

Sector Underperformers:
Oil Tankers (-6.39%), Homebuilders (-3.57%) and REITs (-2.95%)

Stocks Falling on Unusual Volume:
CHK, CBEY, TSL, TSM, HOLX, MYGN, CGNX, EXBD, HAIN, MANT, CMTL, HEP, FMC, LM, TYN, FRO and AVP

Stocks With Unusual Put Option Activity:
1) FST 2) ELN 3) VMC 4) MYGN 5) LVS

Bull Radar

Style Outperformer:
Mid-cap Value (-.37%)

Sector Outperformers:
Gaming (+6.22%), Airlines (+4.17%) and HMOs (+4.05%)

Stocks Rising on Unusual Volume:
LVS, WYNN, HNT, TXRH, AIZ, SA, SSRI, BJRI, BBG, WFR, CRK, TDS, TKLC, IPCM, PEGA, ISLE, IPHS, BEAV, GTLS, CTSH, AAWW, NILE, ARST, WPPGY, CAVM, PTRY, SIRO, ADVS, ASCA, ADP, SFD, MVL, HLF, HLS and TAP

Stocks With Unusual Call Option Activity:
1) Q 2) ICE 3) LM 4) GERN 5) HOLX

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