Stocks Finish Sharply Lower, Weighed Down by Commodity, Transportation, Construction, Healthcare and REIT Shares

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Stocks Sharply Lower into Final Hour on More Shorting, Profit-Taking, Rising Economic Fear, Increasing Financial Sector Pessimism

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Technology longs and Financial longs. I added to my (IWM/QQQQ) hedges, added to my (EEM) short and took profits in my (MS) long this morning, thus leaving the Portfolio 50% net long. The tone of the market is very negative as the advance/decline line is substantially lower, every sector is declining and volume is below average. Investor anxiety is high. Today’s overall market action is very bearish. The VIX is rising 6.56% and is high at 27.94. The ISE Sentiment Index is high at 162.0 and the total put/call is above average at 1.04. Finally, the NYSE Arms has been running high most of the day, hitting 2.48 at its intraday peak, and is currently 2.40. The Euro Financial Sector Credit Default Swap Index is rising .80% today to 105.60 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 jumping 5.76% to 137.0 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising .27% to 43 basis points. The TED spread is now down 421 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 4.20% to 41.38 basis points. The Libor-OIS spread is rising 1.38% to 37 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 8 basis points to 1.66%, which is down 98 basis points since July 7th. The 3-month T-Bill is yielding .15%, which is down 2 basis points today. REIT, Healthcare and Commodity shares have been under significant pressure throughout the day. The (XLF) has weakened slowly throughout the day and is now trading at session lows. The AAII % Bulls rose to 37.84% this week, while the % Bears fell to 44.59%, which is a mild negative. A number of sectors are being turned back right near their 200-day moving averages. It is also a negative that the ISE Sentiment Index has been high throughout the day. On the positive side, a number of tech leaders are relatively firm and the SOX Index is just slightly lower. As well, the NYSE Arms has been running very high on low volume, which is a positive. Nikkei futures indicate a -136 open in Japan and DAX futures indicate an +5 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, increasing economic worries and rising financial sector pessimism.

Today's Headlines

Bloomberg:

- U.S. Senator Mark Warner expressed concern that President Barack Obama’s proposed Consumer Financial Protection Agency, centerpiece of a rules overhaul, is “divorced” from markets and would be a “gotcha” enforcer. “Is this going to be some kind of poor cousin, located across town, that will always be struggling to have the resources, personnel and expertise?” Warner, a Democrat on the Senate Banking Committee, said yesterday in an interview with Bloomberg News. Another concern is that the agency, “divorced from the reality of the market and the reality of the financial institution, becomes so focused on a gotcha mentality that it overdoes,” Warner said.

- Senator Edward Kennedy’s health committee released a new health-care overhaul plan that would cover almost all Americans, in part by assessing fees on companies that don’t offer insurance, and cost almost $400 billion less than an earlier proposal. The plan, which includes a government-run insurance program as an alternative to private coverage, drew praise from President Barack Obama. Kennedy, a Massachusetts Democrat, and Senator Chris Dodd, a Connecticut Democrat, said in a letter to committee members the plan would cost $611.4 billion over 10 years, according to an analysis by the non-partisan Congressional Budget Office.

- Foreign direct investment in China faces “unprecedented difficulties” after falling for eight months, the longest stretch of declines this decade, Vice Commerce Minister Chen Jian said. The government will announce policies to stabilize investment “soon,” Chen pledged at a briefing in Beijing today. Multinationals have reduced spending as they grapple with the global crisis, adding to drags on growth in the world’s third-biggest economy after exports collapsed. Direct investment in China slid 17.8 percent to $6.38 billion in May from a year earlier. Foreign-invested businesses account for 30 percent of industrial output, 55 percent of trade and 11 percent of urban jobs, according to the commerce ministry.

- Grosvenor Group Ltd., the real-estate company of Britain’s third-wealthiest man, said commercial- property prices in Spain need to fall by as much as 40 percent before it will consider investing there again.

- Ireland had its top credit rating lowered one step by Moody’s Investors Service, which cited the country’s rising debt burden and a “sudden and brutal economic and financial adjustment.”

- The Treasury will hold four auctions next week for the first time to sell $73 billion of notes, bonds and inflation-protected securities as the U.S. accelerates debt sales to finance a record budget deficit. The auctions represent the first time the government will sell three so-called coupon issues and a TIPS maturity in a single week since the Treasury started issuing securities regularly in 1976.

- Boeing Co.(BA), which indefinitely delayed its new 787 Dreamliner last week to reinforce the wing section, said it lost orders for 73 of the jets this year after Qantas Airways Ltd. dropped 15 planned purchases last week.

- North Korea fired four short-range missiles off its eastern coast today in defiance of United Nations sanctions imposed after a nuclear test, South Korea’s military and a U.S. official said. The communist state launched the devices from South Hamgyong province at 5:20 p.m., 6 p.m., 7:50 p.m. and 9:20 p.m. local time, said an official at South Korea’s Joint Chiefs of Staff who declined to be identified for security reasons.

- Security officials raised the terror threat in Germany amid concerns terrorists may seek to influence the outcome of Sept. 27 national elections, Deputy Interior Minister August Hanning said. Islamist terrorists may target Germany because of its contribution to NATO operations against Taliban insurgents in Afghanistan, Hanning told reporters in Berlin today.

- Och-Ziff Capital Management Group LLC lost about 3.7 percent of the money it manages in June because of investor withdrawals from its hedge funds. Assets under management declined $800 million in the month to $20.7 billion, the New York-based company said today in a filing with the U.S. Securities and Exchange Commission. Investors had withdrawn a record $5.1 billion in the first quarter, when rival hedge funds restricted redemptions.

- PVM Oil Futures Ltd., a unit of the world’s biggest broker of over-the-counter oil derivatives, said a rogue trader lost almost $10 million. The trades may have caused London oil prices to jump almost $2 a barrel to an eight-month high in the early hours of June 30, according to exchange data. “Commodities trading, together with futures and options, is under quite a lot of scrutiny,” Jones said. “We would expect the regulated exchanges, including ICE, to have adequate systems and controls” against possible rogue trading.

- Mortgage rates in the U.S. fell this week, easing concern that a Federal Reserve plan to lower the cost of home loans had lost momentum. The average 30-year rate dropped to 5.32 percent from 5.42 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement. The 15-year rate was 4.77 percent. “We’re back to where we were a month ago,” said Donald Rissmiller, chief economist at New York-based Strategas Research Partners.

- The cost of delivering Middle East crude to Asia, the world’s busiest route for supertankers, fell for a sixth session in London amid a lack of demand for vessels. “Owners are struggling to maintain rates,” Nikos Varvaropoulos, an official at Optima Shipbrokers Ltd. in Athens, said today. “Unless we see some cargoes, I do not think that rates can be maintained.”

- A benchmark gauge of corporate credit risk in the U.S. rose for the first time in four days after a government report showed employers cut more jobs last month than economists were estimating. Credit-default swaps on the Markit CDX North America Investment-Grade Index, linked to 125 companies in the U.S. and Canada, increased 7.5 basis points to a mid-price of 138 basis points as of 11:25 a.m. in New York, according to Barclays Capital.

- Crude oil fell and gasoline slipped to a five-week low on a report showing the U.S. unemployment rate rose last month, a signal that fuel demand in the world’s largest energy-consuming country will be slow to rebound. Oil dropped more than $2 a barrel after the Labor Department said that employers cut 467,000 jobs in June. The jobless rate jumped to 9.5 percent, the highest since 1983, from 9.4 percent. U.S. fuel supplies increased last week by more than analysts forecast. Kuwaiti Oil Minister Sheikh Ahmed al-Sabah said oil prices above $100 would fuel another recession, and he hopes prices won’t increase to that level this year. The group increased output for a third month in June, a Bloomberg News survey showed. Members pumped an average 28.23 million barrels a day last month, up 55,000 from May. U.S. gasoline stockpiles increased 2.33 million barrels to 211.2 million in the week ended June 26, the Energy Department said in a report yesterday. Inventories of distillate fuel, a category that includes diesel and heating oil, climbed 2.9 million barrels to 155 million, the highest since 1987. Total U.S. daily fuel demand in the four weeks ended June 26 was down 5.8 percent from a year earlier, the Energy Department said. Distillate-fuel demand over the period fell 9.4 percent to 3.4 million barrels a day.

- The euro fell against the dollar after the European Central Bank kept its benchmark interest rate at a record low. ECB President Jean-Claude Trichet will discuss the decision at a press conference at 2.30 p.m. in Luxembourg. The dollar was also buoyed after a Chinese Foreign Ministry official said he was “not aware” of a plan to discuss a new reserve currency at next week’s Group of Eight meeting. Unemployment in the 16-member euro region rose to the highest in a decade in May, the European Union statistics office in Luxembourg said today. Spanish unemployment rose to 18.7 percent, the highest in the EU, the report showed.

- Soybeans fell for the fifth time in six sessions on speculation that demand from oilseed processors is dropping. Corn futures also declined, heading for the biggest weekly drop in seven months. “During the first half of the week, corn was hammered by the acreage report and the last half by the reversal in crude prices,” Holaday said. “Oil’s made major reversals, and that’s going to weigh on corn.

- U.S. consumers made 675,351 bankruptcy filings in the first half, a 36.5 percent increase from a year ago, according to the American Bankruptcy Institute. June filings by consumers totaled 116,365, up 40.6 percent from the same period in 2008, the ABI said in a release. The monthly rate of consumer filings slowed, however, declining by 6.8 percent from May 2009.

- The Federal Deposit Insurance Corp. recommended private-equity firms that buy failed banks hold the lenders for three years, double the length imposed in the latest transaction, aiming to prevent from “flipping” the investment for a short-term profit. The new rule was among a half-dozen guidelines announced by the FDIC in Washington today to address congressional concern over the role played by buyout firms such as Blackstone Group LP and Carlyle Group in the banking industry. The changes would include requiring buyers to be well-capitalized for three years and to maintain a Tier 1 capital ratio of at least 15 percent.

- Barclays Capital recommended clients sell gasoline futures after prices broke below a “bearish continuation flag” pattern. Gasoline “looks particularly vulnerable” and “could well overshoot conventional downside targets in the weeks ahead,” Barclays analysts including NY-based MacNeil Curry said today.

Wall Street Journal:

- The board of the Federal Reserve Bank of New York is packed with powerful executives. But the selection process leading up to January's promotion of William Dudley to president underscored the lack of clout among the Fed's regional directors as the central bank navigated the crisis. Mr. Dudley, a 56-year-old former Goldman Sachs Group Inc. economist who ran the New York Fed's markets division, got the top job after a two-month search, succeeding new Treasury Secretary Timothy Geithner. Behind the scenes, the hiring process triggered concerns with some New York Fed directors, including General Electric Co. Chief Executive Jeff Immelt and PepsiCo Inc. CEO Indra Nooyi, according to people familiar with the situation. One reason: Mr. Geithner took an active role in recommending his successor, lobbying hard for Mr. Dudley and against other candidates, attendees said. It isn't unusual for outgoing Fed presidents to provide such input. But Mr. Dudley's case is different, some observers said, because Mr. Geithner was a political nominee at the time. Injecting a White House appointee's views into the process, they suggested, may have meddled. "The right thing for the Treasury secretary to do is to allow the central bank to be independent and not have a say in who gets chosen," said Allan Meltzer, a Fed historian.

- Venture-capital firms had their quietest six months since the turn of the millennium as they struggled to sell or list their European portfolio companies. There have been no initial public offerings of venture capital-backed European companies since the third quarter of last year, according to preliminary data from Dow Jones VentureSource.

- Many American supporters of Israel who voted for Barack Obama now suspect they may have been victims of a bait and switch. Jewish Americans voted overwhelmingly for Mr. Obama over John McCain in part because the Obama campaign went to great lengths to assure these voters that a President Obama would be supportive of Israel. This despite his friendships with rabidly anti-Israel characters like Rev. Jeremiah Wright and historian Rashid Khalidi.

- General Motors can survive bankruptcy far more easily than it can survive President Barack Obama's ambitious fuel economy standards, which mandate that all new vehicles average 35.5 miles per gallon by 2016. The actual Corporate Average Fuel Economy (CAFE) results will depend on the mixture of fuel-thrifty and fuel-thirsty vehicles consumers choose to buy from each manufacturer -- not on what producers hope to sell. That means only those companies most successful in selling the smallest cars with the smallest engines will, in the future, be allowed to sell the more profitable larger pickups and SUVs and more powerful luxury and sports cars.

CNBC:

- California's controller will start paying many of the state's bills with IOUs as soon as Thursday after lawmakers failed to close the state's worsening budget deficit, adding a new measure of indignity to a state sinking deeper into dysfunction.

- The oil market is over-supplied, said Joe Petrowski, the CEO of Gulf Oil on Thursday. As oil stocks approach a 29-year high, the fundamental supply-side of the market has never been more bearish, he said. "It will be almost impossible for gasoline prices to go up," he said.

NY Times:

- Manhattan apartment prices fell sharply during the second quarter of 2009, as the limited number of deals struck during the darkest months of the economic downturn began to close, according to a series of market reports released Wednesday. The number of closings fell more than 50 percent, and prices in some categories were reported down as much as 25 percent, compared with the same quarter in 2008. Sale prices were also down from those reported in the first quarter of 2009. One report, by Brown Harris Stevens and Halstead Property, put the average price of a Manhattan apartment in the second quarter at $1.26 million, a decline of 24 percent from the same period in 2008, and 16 percent below the previous quarter. It put the median sale price at $795,000, 19 percent below the figure in the first quarter of 2008.

Business Insider:

- Ron Insana’s New Newsletter Has Some Shady Numbers.

Rassmussen:

- The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 33% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-five percent (35%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -2. This is the third straight day the Approval Index has been below zero (see trends).

Politico:

- Washington Post publisher Katharine Weymouth said today she was cancelling plans for an exclusive "salon" at her home where for as much as $250,000, the Post offered lobbyists and association executives off-the-record access to "those powerful few" — Obama administration officials, members of Congress, and even the paper’s own reporters and editors. The astonishing offer was detailed in a flier circulated Wednesday to a health care lobbyist, who provided it to a reporter because the lobbyist said he felt it was a conflict for the paper to charge for access to, as the flier says, its “health care reporting and editorial staff."

eFinancialCareers:

- Hedge funds are suddenly doing ok: returns are up, redemptions are down and they’ve had the best start to the year in a decade. Unfortunately this does not mean that they will be paying large bonuses. Following closely on from last year’s disastrous performance, many hedge funds are still below the high water mark at which they can charge the 20% performance fees that become bonuses. Deprived of these, they’re having to make do with 2% management fees, which are themselves being compressed to 1.5%. None of this is good news for people hoping to get rich at established funds. “A lot of people are just deciding to give up and sit on beaches,” says John Godden at hedge fund consultancy IGS Group. Examples of such behavior apparently include Julian Barnett, who left hedge fund Polar Capital earlier this year for ‘family reasons.’ Instead of hanging on until the high water mark is reached and performance fees are available again, junior traders are leaving established funds and joining new set-ups without high watermark issues. “Some managers are calculating that it could take 1-2 years to recover and they’re therefore better off jumping ship and setting up at a new fund that can afford to pay them,” says Christopher Miller, chief executive of Allenbridge HedgeInfo.

Washington Times:

- U.S. missile defenses are prepared to try to knock down the last stage of a Taepodong-2 missile that North Korea is expected soon to launch if sensors detect the weapon threatens U.S. territory, the commander of the U.S. Northern Command told The Washington Times.

Financial Times:
- Mr Trichet was cautious about eurozone growth prospects, saying activity would “remain weak” for the rest of this year even if the rate of decline had slowed since the start of the year. But he warned of a “stronger or more protracted negative feedback loop between the real economy and the turmoil in financial markets”. Although the ECB sees current negative eurozone inflation rates as temporary, it expects price pressures to remain “dampened”. Concern has intensified about the threat to the eurozone’s economic recovery of a weakened banking system, with industrial lobby groups urging more forceful measures to help businesses – including the purchase of corporate debt.

ET Now:

- India’s inflation for the week ended June 20 was seen at -1.4%.

Emirates Business 24/7:
- UAE banks have exposure of more than $3 billion (Dh11bn) through syndicated and bilateral transactions to the two embattled Saudi groups – Saad and Algosaibi – and their banking outfits, according to people involved in these deals. The Saudi groups have raised finance through at least eight syndications in the past four years – three by Saad Group, two each by Awal Bank and Algosaibi Group and one by The International Banking Corporation (TIBC), they said. Other financial institutions with exposure through syndicated and bilateral financing deals include Arab and global lenders. "I think many banks may not have bothered to verify their aggregate exposure built up to these groups over the past few years," said a banking analyst.

- Dubai Investments Real Estate Company (DIRC), the real estate arm of Dubai Investments, is giving a 100-per cent refund to its investors on the Mirdiff Hills project, which it has put on hold due to unavailability of mortgage financing. The Mirdiff Hills project, located in Mirdif, is a Dh2 billion mixed-use development comprising 680 apartments, 380 offices and 129 retail outlets. The project was launched in July last year with completion scheduled for 2010. "We have put the Mirdiff Hills project on hold because of a lack of availability of mortgage financing on the project. Investors have got back to us saying they cannot pay up for their units," Khaled Kalban, Managing Director and CEO, Dubai Investments, told Emirates Business in an exclusive interview.

Haaretz.com:

- The U.S. administration has not been successful in securing commitments from Arab countries to take steps toward normalizing relations with Israel, a senior source in Jerusalem said Wednesday. The source said U.S. President Barack Obama's recent meeting with King Abdullah of Saudi Arabia did not produce a commitment to encourage the other Arab states to begin normalization. "In such a situation, the Americans can't continue demanding gestures only from Israel, such as the demand that Israel freeze settlement construction," the source said.

Bear Radar

Style Underperformer:
Small-cap Value (-3.18%)

Sector Underperformers:
REITs (-4.30%), Oil Service (-4.16%) and HMOs (-3.72%)

Stocks Falling on Unusual Volume:
MANH, MBT, HES, TSO, GSK, ILMN, EZCH, UBNK, SEPR, GXDX, AFAM, FUQI, PLCE, VSAT, BOOM, BCPC, BIIB, USTR, GKSR, FWRD, CSGP, HRBN, TOWN, CYBX, NJ, NRG, KYN, IEZ, AYI, ASI and RPV

Stocks With Unusual Put Option Activity:
1) USU 2) MOT 3) FTO 4) HOT 5) ETN

Bull Radar

Style Outperformer:
Large-cap Growth (-2.0%)

Sector Outperformers:
Semis (-.52%), Banks (-.80%) and Education (-.94%)

Stocks Rising on Unusual Volume:
POT, QSFT, ADTN, IPCR, ENER, OSK, MSM and VAR

Stocks With Unusual Call Option Activity:
1) SEPR 2) AU 3) MI 4) HOT 5) ELN

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