Stocks Finish Lower, Weighed Down by Financial, Commodity and Insurance Shares

Evening Review
Market Summary
Top 20 Biz Stories
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Futures
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Real-Time Stock Bid/Ask
After-hours Stock Quote
After-hours Stock Chart
In Play

Stocks Falling into Final Hour on Profit-Taking, Rising Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Biotech longs, Technology longs, Medical longs and Commodity/Emerging Market 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 heavy. Investor anxiety is above average. Today’s overall market action is mildly bearish. The VIX is rising 1.34% and is very high at 32.48. The ISE Sentiment Index is slightly above average at 155.0 and the total put/call is above average at .94. Finally, the NYSE Arms has been running high most of the day, hitting 4.19 at its intraday peak, and is currently 1.64. The Euro Financial Sector Credit Default Swap Index is rising 2.70% today to 120.79 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 2.82% to 147.94 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling .17% to 76 basis points. The TED spread is now down 387 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising .54% to 46.75 basis points. The Libor-OIS spread is falling 2.63% to 72 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 1.52%, which is down 112 basis points since July 7th. The 3-month T-Bill is yielding .16%, which is down 1 basis point today. Today’s losers are mainly concentrated in shares that saw the sharpest gains last week, which is a large positive. This is the type of action that is necessary to keep the recent uptrend in tact. The MS Tech Index is unch. on the day, with gains seen in Software, Semi, Telecom and Computer Service shares. As well, Education, Gaming, Hospital and Biotech stocks are all rising on the day, despite losses in the major averages. Many other “growth” stocks are also rising today. I suspect retail and technology shares could lead the major averages higher later this week. Nikkei futures indicate a -96 open in Japan and DAX futures indicate an +6 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investment manager performance anxiety and lower long-term rates.

Today's Headlines

Bloomberg:

- Goldman Sachs Group Inc.(GS) agreed to a multimillion dollar settlement with the state of Massachusetts related to the packaging of subprime mortgage securities at the root of the collapse of the U.S. housing market. Goldman Sachs will provide $50 million to homeowners and pay $10 million to the state, the AP said. The bundling of the riskiest type of mortgages into securities turned the U.S. housing slump into a global recession as foreclosures deflated bond values and toppled Wall Street firms such as Lehman Brothers Holdings Inc. The Massachusetts attorney general has investigated Fremont Investment & Loan, now defunct, and H&R Block Inc., owner of Option One Mortgage Corp., for making the types of mortgages that Goldman securitized. Goldman Sachs’ mortgage business is part of its fixed- income, currencies and commodities unit, the largest source of revenue for the firm. The division produced a record $16.2 billion in revenue in 2007 and helped the securities firm set a Wall Street pay record. Chief Executive Officer Lloyd Blankfein was awarded $68.5 million in pay for 2007 and each of his two co-presidents also received more than $65 million that year. A $60 million settlement is about one and a half day’s revenue for Goldman Sachs’s fixed-income, currencies and commodities division in 2006, when it made $14.3 billion and about one and one-third day’s revenue in 2007. Goldman Sachs, the world’s largest securities firm before it became a bank holding company last year, used the ABX Index and credit default swaps to hedge its subprime holdings, Chief Accounting Officer Sarah Smith wrote in an Oct. 30 letter to the Securities and Exchange Commission made public Jan. 14. “During most of 2007 we maintained a net short subprime position with the use of derivatives and therefore stood to benefit from declining prices in the mortgage market,” she wrote.

- Yields on top-rated bonds backed by credit-card payments and auto loans fell relative to benchmark interest rates as the Federal Reserve’s program to spur consumer lending had its highest volume since starting in March. The gap, or spread, on AAA rated securities backed by credit cards and maturing in two years narrowed 50 basis points to 180 basis points more than the one-month London interbank offered rate during the week ended May 7, according to JPMorgan Chase & Co. data. Spreads on similar debt backed by auto loans fell 30 basis points to 150 basis points more than Libor, the data show. “Any questions about whether TALF 1.0 is a success or failure have been emphatically answered,” JPMorgan analysts led by Chris Flanagan in New York wrote in a May 8 report. “In aggregate, TALF couldn’t be working much better.” The Fed will start making TALF loans to investors to purchase newly issued commercial mortgage-backed securities next month. Top-rated bonds backed by commercial real estate are trading at a spread of about 7.25 percentage points more than benchmark interest rates, compared with a record 15.3 percentage points on Nov. 20, according to Bank of America Corp. data.

- China’s six-year interest-rate swaps dropped to the lowest in more than a month after the government said deflation accelerated in April, prompting traders to pare expectations for the pace of the economy’s recovery. China’s consumer prices dropped 1.5 percent from a year earlier, the statistics bureau said in Beijing today. That compared with the median estimate of a 1.4 percent decline in a Bloomberg News survey of 21 economists and the March decline of 1.2 percent. Producer prices fell 6.6 percent. “More interest-rate swap traders became bearish,” said Fan Xiulan, a Beijing-based fixed-income analyst at BOC International Holdings, the investment-banking arm of Bank of China Ltd. “The economy may show less-than-expected recovery this quarter after initial signs of a rebound last quarter lifted people’s expectations.” “Traders are skeptical about domestic demand being strong enough right now to sustain a V-shape recovery, and are betting that growth in new loans and the rebound in industrial production will slow,” said Shi Lei, an analyst in Beijing at Bank of China Ltd., the third-largest bank by market value.

- Mexican companies may face a credit- rating “correction” amid mounting losses from wrong-way bets on currency-derivative contracts, a slumping economy and refinancing difficulties, said Claudio Loser, a former International Monetary Fund Western Hemisphere director. “A ratings correction from an overstated investment grade may well be overdue for Mexico at this juncture,” Loser, who now is the Latin American president of strategic advisory firm Centennial Group Inc., said at an Emerging-Market Traders Association conference in New York. “Ratings agencies do not seem to have captured these trends, at best lagging in the response to the crisis, and at worst failing to measure existing risk.”

- President Barack Obama proposed raising money to pay for his health-care overhaul by imposing $58 billion in new taxes on securities dealers, life insurance products and Americans with valuable estates. The eight new proposals, outlined in budget documents released today, are in addition to more than $1 trillion in tax increases over the next decade the president wants to impose beginning in 2011. Those would include higher rates for top earners and restrictions on tax-avoidance techniques commonly used by U.S.-based multinational corporations. Obama also would raise $24.2 billion over the decade by adjusting rules for valuing assets in estate planning.

- A measure of U.S. job prospects in April showed the smallest decline in almost a year, indicating firings may be abating, a private report showed. The Conference Board’s Employment Trends Index last month decreased 0.7 percent to 89.5, the smallest decrease since June 2008, from 90.1 in March, the New York-based research group said today. The index was down 22 percent from a year earlier.

- Capital One Financial Corp.(COF), U.S. Bancorp(USB) and BB&T Corp.(BBT) will sell shares to repay government bailout funds after stress tests showed the companies can weather a worsening recession without additional aid.

- A group of mutual and pension funds that invest in social causes is urging Congress to support legislation that would make it easier for workers to join unions. The 26 funds, led by Domini Social Investments, Progressive Asset Management Inc. and Merseyside Pension Fund, sent a letter to lawmakers saying that business opposition has damaged the prospects for the Employee Free Choice Act, known as the card- check bill. The group of investors says they represent $372 billion in assets.

- When last week’s employment report came in a tad better than expected, it sent a chill through the hearts of Washington’s Democrats. If the recession ends, then the bailout frenzy will end, and it will be much harder to hand out taxpayers’ cash to political allies. With time running out on the crisis atmosphere, our hard-working public servants put in overtime last week to introduce to the public the next bailout candidate: the liberal newspapers. Former Los Angeles Times columnist Rosa Brooks captured the mood well in her final column before joining the Obama administration. “It’s time for a government bailout of journalism,” she wrote, citing such possible steps as tax credits for newspaper subscriptions and more funding for public broadcasting. The parent company of the Times, by the way, is already in bankruptcy. Senator John Kerry, Democrat of Massachusetts, held hearings last week to lay the foundation for a newspaper bailout. He is anxious about the fate of the Boston Globe, which is projected to lose $85 million this year, and he has argued for relaxing antitrust legislation that limits ownership of local media outlets.

- Crude oil fell from a six-month high on speculation last week’s 10 percent advance won’t be sustained as global output increases. Exports from Iraq’s Kurdistan region will begin June 1 after the state oil ministry agreed to “expedite” shipments, the provincial government said on its Web site yesterday. U.S. crude oil inventories rose to 375.3 million barrels during the week ended May 1, the highest since 1990, according to a May 6 report from the Energy Department. “With the strong pricing that we’re seeing, the producer - - whether OPEC or non-OPEC -- will certainly supply customers, whether they are above their quotas or not,” said Victor Shum, a senior principal at Purvin & Gertz Inc. in Singapore. “Oil at $58 or $60 is really an excessively strong price, given the fundamental picture.” China’s new lending cooled in April, easing concern that banks are taking on too much risk in a credit boom after the government dropped restrictions on loans in November. This may point to problems with the country’s economic recovery as most loans are concentrated on government projects while small businesses lack cash.

- The world’s biggest investors are increasing bets that Federal Reserve Chairman Ben S. Bernanke will boost purchases of Treasuries as the steepest losses on government debt since 1994 send mortgage rates above 5 percent. The slump in Treasuries the past seven weeks pushed yields on longer-maturity bonds up by more than half a percentage point and sent average rates on 30-year mortgages to the highest since the start of April, according to North Palm Beach, Florida-based Bankrate.com. Policy makers said March 18 they were committing “greater support to mortgage lending and housing markets” when they pledged to buy as much as $300 billion of Treasuries and stepped up purchases of bonds backed by home loans.

- The longest US recession since the Great Depression may have ended last month, according to Barry Knapp, a strategist at Barclays Capital. “We appear to be in the sweet spot of a recovery,” Knapp wrote. Spending on services rose 1.5% in each of the past two quarters after a .1% decline in last year’s third quarter, the first decline since 1991. “Service-sector employers expected sharp drops in demand, and may have overshot in terms of cutting back” on workers, he wrote.

Wall Street Journal:

- Brazilian state-run energy giant Petroleo Brasileiro SA (PBR) scored its sixth oil or natural gas find in the Espirito Santo Basin over the past month, with a wildcat well in the BT-ES-15 block testing positive. Last week, Petrobras said it found traces of oil in two other Espirito Santo blocks. A wildcat well drilled in the ES-T-364 block tested well after a previous well at the inland block also showed signs of oil in mid-April.

- The current series of the LevX senior index of European leveraged loan credit default swaps rallied to new highs Monday, as market participants' optimism increases that the bottom of the market has been reached.

- Amazon.com Inc. (AMZN) on Monday launched a new version of its Kindle bookstore that is optimized for Apple Inc.'s (AAPL) iPhone, suggesting the Internet retailer could be moving toward a multi-platform electronic book strategy.

CNBC:

- The federal stimulus package passed in February may help some IT companies climb the stock charts. The law provides $19 billion to replace the ubiquitous paper chart on a clipboard with electronic medical records. While some traditional technology names will benefit from this portion of the American Recovery and Reinvestment Act of 2009, it’s the healthcare IT companies that will see the biggest boost and represent the biggest opportunities for investors.

- Oil prices have jumped more than 70% since February on expectations of an improving economy, but traders say crude isn't likely to head back up to $100 a barrel anytime soon.

FINalternatives:

- New York hedge fund Satellite Asset Management is closing its doors six months after suspending redemptions. The $2.8 billion firm has begun returning money to investors in its three funds, Bloomberg News reports. The firm, founded by a trio of Soros Fund Management veterans a decade ago, managed as much as $7 billion as recently as the end of 2007. It lost some 35% last year, and was forced to halt withdrawals in November.

TheStreet.com:

- China looks set to be the next frontier in Apple's(AAPL) push for world domination, and there are signs that the consumer tech giant is ramping up its efforts to launch the iPhone into the world's largest mobile phone market.

Washington Times:

- The president of a maritime workers union - a labor organization dogged for years by declining membership and a federal racketeering lawsuit - reported receiving $1.2 million in compensation last year but abruptly gave back much of the money in April after his big payout was disclosed to the government, according to federal documents and interviews. Even after giving back more than half his compensation, Richard J. Hughes Jr. of the International Longshoreman's Association still earned $494,635 in salary and expenses in 2008, putting him among the top two dozen highest-salaried labor executives outside of professional sports, according to public records. The longshoreman's union filed a report with the government in March showing that Mr. Hughes was paid $739,729 in 2008 from the union's "retirement equalization" plan, on top of his nearly half-million dollars in salary and expenses, according to interviews and records. But on tax day, April 15, Mr. Hughes returned the money to the union, officials said.

Washington Post:

- After a long hiatus, the Syrian pipeline operated by the organization al-Qaeda in Iraq is back in business. The revival of a transit route that officials had declared all but closed comes as the Obama administration is exploring a new diplomatic dialogue with Syria. At the same time, Washington remains concerned by Syrian activities -- including ongoing support for the militant groups Hezbollah and Hamas, as well as activities involving Iraq.

NY Post:

- The family that controls The New York Times(NYT) empire has lost more than 86 percent of its fortune and may have to sell their controlling stake to get out of debt. The Ochs-Sulzberger family, which has run the venerable paper since 1896, may also face unusual pressure from about two dozen descendants to cash out and restore their comfortable lifestyles snatched away suddenly by hard times. Until this year, the family had been living on wealth valued as high as $425 million. But today the family is down in their Times' annual income to a paltry $4.5 million, which could shrink even more in the recession. Soaring losses amid a devastating media slump have drained much of the corporate cash, pushed the company deeper into debt of $1.3 billion and beckoned a stock vulture to its door -- Mexican billionaire Carlos Slim, who this year bailed out the Times with a high-interest $250 million loan that also threatens family control.

The Detroit News:

- General Motors Corp.(GM) is reviewing the location of its corporate headquarters at the Renaissance Center in Detroit. But the automaker has no current plans to move, chief executive Fritz Henderson said today. "We're looking at frankly everything within our business, but it is not like we have that queued up as the top of our list," Henderson said of moving the headquarters. "As we look at the structure, look at the business, we're looking at everything, particularly as we slim down." GM is in the midst of further restructuring its business to comply with the government's request for more additional aid. Moving the company's headquarters out of Detroit would be devastating for the city.

Politico:

- For Democrats pushing an investigation into potential criminal wrongdoing in the war on terrorism, the GOP now has a two-word response: Nancy Pelosi. Republicans say new revelations about a CIA briefing Pelosi received in 2002 have given them their best shot yet at blocking a sprawling probe into Bush administration interrogation techniques by allowing them to insist that its targets would include the speaker of the House. “If someone is going to schedule hearings, I believe that the first witness should be Nancy Pelosi,” Rep. Pete Hoekstra, the ranking member on the House intelligence committee, told POLITICO. “Clearly, she was involved in policy formulation.”

Reuters:
- The White House on Monday increased its forecast for the U.S. budget deficit for this year by $89 billion, reflecting the recession, a raft of new unemployment claims and corporate bailouts. A fresh estimate of the deficit showed it coming in at $1.84 trillion -- representing a massive 12.9 percent of gross domestic product -- in the current 2009 fiscal year that ends on September 30. The report may add to the political challenges facing President Barack Obama as he seeks to push through a new healthcare plan and other big domestic initiatives.

Financial Times:
- The economic downturn in the US has hurt the pharmaceuticals industry worse than any other export sector in the Indian economy. Indian exports of pharmaceuticals products to the US fell almost 40 per cent in the five months between October last year and the end of February, a study by the Federation of Indian Chambers of Commerce and Industry has shown. The second-worst performer was the gems and jewelry sector, which had expanded almost without check for 20 years. The trend is likely to disappoint analysts. India’s pharmaceuticals industry was touted as a sector that could weather the global financial crisis and attract foreign investors.

Globe and Mail:

- Ottawa is set to push ahead with a plan to dramatically increase the use of grain-based ethanol, despite growing controversy over the greenhouse gas emissions that result from agricultural practices used to grow the feedstock grains. Environment Minister Jim Prentice has won cabinet approval to proceed with regulations requiring refiners to include at least 5 per cent ethanol in their gasoline by September, 2010, sources say.

La Vanguardia:

- Electricity demand in Spain fell 13% in April as industrial consumers used less power, citing an interview with Albertao Carbajo, head of operations at Red Electrica Corp., the operator of Spain’s power grid. Demand has fallen for seven months in a row, probably a first since the 1930s.

Qilu Evening News:
- Home Depot Inc.(HD) shut a store in the eastern Chinese coastal city of Qingdao, citing customers and service staff. They didn’t identify why the store was shut. Home Depot has 12 stores in six cities in China.

Bear Radar

Style Underperformer:
Large-cap Value (-2.46%)

Sector Underperformers:
Oil Tankers (-6.76%), Coal (-4.70%) and Insurance (-4.63%)

Stocks Falling on Unusual Volume:
PRU, COF, SFY, SNP, SWSI, CRZO, TNDM, CATY, CTCM, KSP, AMN and AXR

Stocks With Unusual Put Option Activity:
1) TSL 2) ETFC 3) VMED 4) HBAN 5) CENX

Bull Radar

Style Outperformer:
Large-cap Growth (-.57%)

Sector Outperformers:
Education (+3.36%), Hospitals (+1.51%) and Computer Services (+1.23%)

Stocks Rising on Unusual Volume:
XNPT, ESI, PEGA, DV, SYMC, IBM, WMT, IOC, TI, CTL, NGLS, HWCC, PETS, DISH, FSYS, NVTL, PCLN, HMIN, STAR, PBCT, SRCL, MYGN, HANS, WRLD, AMSC, ORA, NRT and AZN

Stocks With Unusual Call Option Activity:
1) SAP 2) SLG 3) ABK 4) SPLS 5) JASO

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
Chart Toppers
Real-Time Intraday Quote/Chart
HFR Global Hedge Fund Indices