Stocks Finish Slightly Lower, Weighed Down by REIT, Airline, Financial and Hospital Shares

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Stocks Lower into Final Hour on Rising Energy Prices, Higher Long-term Rates, More Shorting

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Financial longs, Technology longs and Retail longs. I added (IWM)/(QQQQ) hedges and added (EEM) short today, thus leaving the Portfolio 75% 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 3.04% and is high at 29.13. The ISE Sentiment Index is below average at 115.0 and the total put/call is about average at .87. Finally, the NYSE Arms has been running about average most of the day, hitting 1.26 at its intraday peak, and is currently 1.19. The Euro Financial Sector Credit Default Swap Index is falling 1.13% today to 102.33 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 .75% to 123.98 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 1.83% to 47 basis points. The TED spread is now down 416 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is declining 5.16% to 47.13 basis points. The Libor-OIS spread is falling 2.43% to 41 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 9 basis points to 2.09%, which is down 55 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. The rises in oil and long-term rates are pressuring the broad market. I continue to believe near-term equity gains are capped until we see these stabilize. However, the major averages are holding up well considering the rises in these two. A number of market leading stocks are just slightly lower or even higher on the day. The 10-year yield hit 4% today and has since pulled back 6 basis points. I suspect bonds will find some buyers around current levels. I will be monitoring tomorrow’s Treasury auction closely again. Nikkei futures indicate an -71 open in Japan and DAX futures indicate a -21 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, higher energy prices, rising long-term rates, financial sector pessimism and profit-taking.

Today's Headlines

Bloomberg:

- The Baltic Dry Index posted a fifth straight loss amid signs Chinese demand for iron ore may be slowing. The index tracking transport costs on international trade routes fell 66 points , or 1.9%, to 3,452 points. “We are seeing less orders in the market,” Kjetil Sjuve, a broker at Lorentzen & Stemoco A/S in Oslo, said, adding congestion at the nation’s ports is also clearing. “The market should head downwards and continue the slide but we’ve been surprised so many times this spring.” The index has probably already peaked this year, Martin Stopford, a director at Clarkson Plc, the world’s largest shipbroker, said today.

- The Federal Reserve said the U.S. downturn may be slowing in almost half of its regions, with the outlook at some companies improving while “stringent” loan conditions and a “weak” labor market persist. “Economic conditions remained weak or deteriorated further” from mid-April through May, while five of 12 Fed districts “noted that the downward trend is showing signs of moderating,” the Fed said today in its Beige Book business survey, published two weeks before officials issue their next monetary policy decision.

- Treasuries fell, pushing 10-year yields to the highest level since October, as the government sold $19 billion of the securities and Russia said it may switch some reserves from U.S. debt. The notes drew a yield of 3.99 percent, the highest since August 2008. The auction was the second of three sales this week that will raise $65 billion, part of the government’s record borrowing program. A Russian central bank official said the nation may buy International Monetary Fund bonds.

- Lawmakers are pushing to revive legislation in the Senate that would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers. Senator Johnny Isakson, a Georgia Republican, plans to introduce a bill today that increases the tax credit to $15,000 and removes income and other restrictions on who can qualify for the credit, according to his spokesman, Sheridan Watson.

- Two U.S. auto-parts supplier trade groups asked the Treasury to provide as much as $10 billion in new aid as the industry struggles with cuts in car production.

- The U.S. budget deficit, already approaching $1 trillion so far this fiscal year, widened in May from a year earlier as the recession subtracted from revenue and the government spent more to rejuvenate the economy. The excess of spending over revenue climbed to $189.7 billion, a record for the month and compared with a gap of $165.9 billion a year earlier, the Treasury said today in Washington. Spending rose 5.8 percent to $306.9 billion and revenue fell 5.7 percent to $117.2 billion. For the fiscal year to date, the shortfall totaled a record $991.9 billion.

Wall Street Journal:

- A White House bid to push a $108 billion contribution to the International Monetary Fund through Congress is in danger of unraveling because of an unlikely coalition of Republicans, liberal Democrats and anti-globalization activists. A defeat would be a blow to the Obama administration's efforts to shape the global response to the financial crisis and continue its leadership at the IMF. The U.S. pressed hard at an April summit of the Group of 20 industrialized and developing nations to boost the IMF's lending coffers by about $500 billion. If the U.S. is unable to deliver on its share, that is bound to slow pledges from other nations.

- A government lawyer labeled him a terrorist. A top adviser to Chrysler LLC called him ridiculous. As the Obama administration pushed Chrysler through bankruptcy court in record time, no one caused it more angst than Thomas Lauria. The White & Case bankruptcy lawyer won a stay from Supreme Court Justice Ruth Bader Ginsburg on Monday that temporarily threw Chrysler's proposed alliance with Italian auto maker Fiat SpA into limbo. Late Tuesday, the court turned down the attorney's 11th-hour appeal on behalf of some Indiana pension funds. But Mr. Lauria, whom friends and foes alike say is tenacious to a fault, is likely to remain a thorn in the side of the administration's automotive task force. A hodgepodge of General Motors Corp. bondholders have asked him to represent them in a challenge to GM's bankruptcy filing.

- Iran's Organization of Petroleum Exporting Countries governor said Wednesday the group could consider increasing crude output if there is both a jump in oil prices and a reduction in OECD oil stocks.

- An armed man fired at a security guard inside the main lobby of the Holocaust Museum here early this afternoon before two other guards returned fire, according to Sgt. David Schlosser, a spokesman for the U.S. Park Police. The shooter, who remains unidentified, and one guard were transported to the George Washington University Hospital, Mr. Schlosser told reporters. Both were apparently shot during the brief gun battle. Their conditions weren't immediately available.

- 'We spent a fortune to elect Barack Obama," declared Andy Stern last month, and the president of the Service Employees International Union wasn't exaggerating. The SEIU and AFL-CIO have been spending so much on politics that they're going deeply into debt.

Forbes:

- CB Richard Ellis Inc stock rose more 13 percent on Wednesday after the world's largest real estate services firm said it agreed to sell 13,440,860 shares to hedge fund Paulson & Co and expected to generate $100 million from the sale.

Boston Globe:

- The New York Times Co.(NYT) has hired an investment bank to manage the possible sale of The Boston Globe, and the company plans to request bids for Boston's major daily in the next couple of weeks, according to two people who say they may make offers on the newspaper.

- A handful of investors made fortunes predicting the current financial crisis, but one Wall Streeter may try to parlay his prescient warnings into a political career. Brokerage executive Peter Schiff, who as early as 2006 predicted the financial market meltdown and current recession, is considering a run for the U.S. Senate as a Republican, challenging incumbent Connecticut Democrat Christopher Dodd.

Miami Herald:

- The chain that claims it's "way better than fast food" did better than its competitors in a new survey. Wendy's has been named the top fast-food chain by restaurant guide publisher Zagat.

Politico:

- Republicans released a long-awaited energy plan on Wednesday that's heavily focused on nuclear energy, offshore and Arctic drilling and development of alternative fuels. Yet their alternative proposals were also designed as a critique of Democratic climate change proposals, which the GOP believes are too expensive and would essentially create a national "energy tax." The Republican plan promises to bring 100 new nuclear reactors online by 2029, permit oil exploration in off-shore and Arctic areas, and speed up the development of alternative fuels, including controversial carbon capture and sequestration technology.

- House Speaker Nancy Pelosi and Majority Leader Steny Hoyer are double-teaming powerful chairmen and rank-and-file members to save health care reform from a repeat of the Democratic Party infighting that helped kill it in 1994.

Dailypress.com:

- The Rev. Jeremiah Wright says he does not feel any regrets over his severed relationship with President Barack Obama, a former member of the Chicago church in which Wright was the longtime pastor. Wright also said that he had not spoken to his former church member since Obama became president, implying that the White House won't allow Obama to talk to him. He did not indicate whether he had tried to reach Obama. Asked if he had spoken to the president, Wright said: "Them Jews aren't going to let him talk to me. I told my baby daughter, that he'll talk to me in five years when he's a lame duck, or in eight years when he's out of office. ... "Ethnic cleansing is going on in Gaza. Ethnic cleansing (by) the Zionist is a sin and a crime against humanity, and they don't want Barack talking like that because that's anti-Israel," Wright said.

Interfax:

- The head of Russia’s nuclear missile forces, Nikolai Solovtsov, said the country’s military contends that the nuclear arsenal shouldn’t be cut below 1,500 warheads.

Yonhap News:

- Kia Motors Corp. will start production at its new US plan in Georgia in January next year as part of Hyundai Motor Group’s plans to increase market share, citing Chairman Chung Mong Koo.

- Russia rejected the UN Security Council’s latest draft of a resolution to punish North Korea for its May 25 nuclear test, citing a South Korean official. Russia objects to new language in the Security Council resolution demanding North Korea desist from “any” launch using a ballistic missile, according to the report.

Haaretz.com:

- The U.S. must create the conditions for the speedy resumption of Israeli-Palestinian peace talks, Washington's envoy to the region said Wednesday in Ramallah, as he assured Palestinians that America would never abandon their "legitimate aspirations." "The only viable solution for this conflict is for the aspirations of both sides to be met in two states," former U.S. senator Mitchell told journalists after meeting Palestinian President Mahmoud Abbas in the West Bank city. "The U.S. has an obligation to create conditions for the prompt resumption and early conclusion of negotiations," he said, adding that "America will not turn our back to the legitimate Palestinians aspirations for dignity, opportunity and a state of their own." Israelis and Palestinians, he said, had to meet their obligations under the international Road Map peace plan.

Bear Radar

Style Underperformer:
Small-cap Value (-1.58%)

Sector Underperformers:
REITs (-3.25%), Road & Rail (-2.76%) and I-Banks (-2.50%)

Stocks Falling on Unusual Volume:
CLF, CLMT, CMC, LHO, AMP, OXPS, EFUT, SINA, PSYS, TNDM, PALM, LHO, PLL, CMO, AXR and UHT

Stocks With Unusual Put Option Activity:
1) LDK 2) SGR 3) CX 4) GGB 5) SLM

Bull Radar

Style Outperformer:
Large-cap Value (+.39%)

Sector Outperformers:
Papers (+1.42%), Utilities (+1.05%) and Energy (+.44%)

Stocks Rising on Unusual Volume:
VIP, RTP, STP, UBS, ZEUS, ISLE, FUQI, VRSN, VPRT, LULU, LOGI, SPWRA, CTRP, NDN, OSG, OXM and GMR

Stocks With Unusual Call Option Activity:
1) WLP 2) DAL 3) CROX 4) SQNM 5) AXL

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