Stocks Finish Higher, Boosted by Disk Drive, Bank, Insurance, Construction, Homebuilding, Gaming and Transportation Shares

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Stocks Jumping on Less Economic Fear, Diminishing Healthcare Reform Worries, Technical Buying, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Gaming longs, Financial longs, Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 4.44% and is high at 24.56. The ISE Sentiment Index is below average at 122.0 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 .53 at its intraday trough, and is currently .90. The Euro Financial Sector Credit Default Swap Index is falling .44% today to 80.31 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 3.77% to 106.81 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 1.72% to 29 basis points. The TED spread is now down 437 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 5.77% to 47.0 basis points. The Libor-OIS spread is falling 1.55% to 26 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 10 basis points to 2.0%, which is down 66 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. Cyclical and Small-cap shares are substantially outperforming the averages today on the better-than-expected jobs report. The transports are blasting 4.2% higher. US dollar strength in the face of this report is a big positive and may indicate another change in trend. On the negative side, the Semis are lower on the day and select market leaders are displaying relative weakness. As well, I am hearing rising worries over the true state of China’s economy. Nikkei futures indicate an +288 open in Japan and DAX futures indicate a -5 open in Germany on Monday. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, more shorting, China worries and rising long-term rates.

Today's Headlines

Bloomberg:

- President Barack Obama may accept nonprofit health-insurance cooperatives in place of a new government-run plan as long as consumers are guaranteed more choice and competition in buying insurance, a top aide said. “We would be interested in that” if those conditions are met, Nancy-Ann DeParle, director of the White House Office of Health Reform, said in an interview with Bloomberg Television’s “Conversations with Judy Woodruff” airing today. DeParle said she expected Congress to pass health-care legislation on a bipartisan vote “around Thanksgiving.” “It is true that the House and Senate have not voted yet on the floor, but we expect that to be happening when they come back,” DeParle said. “We feel like we are in better shape now than we’ve ever been before, and we’re very close to our goal.” Most Republicans and some Democrats oppose the creation of a so-called public option. Robert Gibbs, the White House press secretary, reinforced that view during his briefing yesterday when asked if Obama would sign a bill that didn’t include a public plan. “The president is open to a bill that increases choice and competition,” he said. DeParle distanced herself from House Speaker Nancy Pelosi’s description of the health-insurance industry as “immoral.” “That isn’t the way I would probably describe it,” she said. She said the industry has “worked together constructively” with the White House toward a comprehensive health-care overhaul.

- The pace of U.S. job losses slowed more than forecast last month and the unemployment rate dropped for the first time since April 2008, the clearest signs yet that the worst recession since the Great Depression is easing. Payrolls fell by 247,000, after a 443,000 loss in June, the Labor Department said today in Washington. The jobless rate dropped to 9.4 percent from 9.5 percent.

- The cost of protecting U.S. corporate bonds from default declined to the lowest in more than 14 months after a government report showed the pace of job losses slowed more than expected and the unemployment rate fell last month. A benchmark U.S. credit-default swap index was the lowest since June 2008, while contracts in Europe declined after erasing an earlier rise. Contracts on American International Group Inc. dropped to the lowest in five months after the insurer reported its first profit in seven quarters. “This is the best employment report we’ve seen in the horrific batch of labor reports released this year,” Bank of America Merrill Lynch economists led by Neil Dutta said today in a report. “We expect the remainder of the year will continue to show significant improvement, with job losses averaging just 100,000 in the fourth quarter.” Contracts on the Markit CDX North America Investment-Grade Index, linked to 125 companies in the U.S. and Canada, fell 2 basis points to 108.5 basis points at 10:19 a.m. in New York, according to Phoenix Partners Group. That’s the lowest since June 5, 2008, according to CMA DataVision.

- Apple Inc.(AAPL) may add $1.2 billion to annual sales next year if it releases a tablet computer that resembles a larger version of the iPod Touch, Piper Jaffray & Co. said. The company may be able to sell 2 million tablet computers with a price tag of $600, adding about 3 percent to revenue, said Gene Munster, a Piper Jaffray analyst in Minneapolis. He expects Cupertino, California-based Apple to release the device early next year.

- American International Group Inc.(AIG), the insurer criticized by Congress for handing out retention bonuses after its U.S. bailout, said the awards will cost the company $249 million in the last two quarters of this year. The earmark includes $93 million for the division with AIG’s Financial Products, the unit that sold derivatives blamed for the firm’s near-collapse last year, the company said today in a regulatory filing. AIG said the entire retention program will cost $1.09 billion, including $824 million already incurred through June 30 and $19 million for 2010 and 2011 combined. “The public will perceive this very poorly,” said Frank Glassner, chief executive officer of pay consulting firm Veritas LLC. He said better plans provide more incentive for employees to improve performance and AIG’s approach is “a poorly designed pay program that shareholders and taxpayers will have to bear the brunt of.”

- Citigroup Inc.(C) may give up control of its Phibro LLC energy-trading business to outside investors, a person familiar with the matter said, as the bank faces what may be a $100 million payday for the unit’s chief, Andrew Hall. Billionaire investor Warren Buffett also held talks with New York-based Citigroup about buying the business, and those negotiations have now ended, according to the person, who declined to be identified because the discussions are private. Hall’s payout, which will be determined at the end of this year based on Phibro’s profits, may raise concern among lawmakers and regulators who are scrutinizing Citigroup’s compensation practices after a $45 billion government bailout last year.

- President Barack Obama’s push for wind and solar energy to wean the U.S. from foreign oil carries a hidden cost: overburdening the nation’s electrical grid and increasing the threat of blackouts. The funding Obama devoted to get high-voltage lines ready for handling the additional load of alternative supplies is less than 5 percent of the $130 billion that power users, producers and the U.S. Energy Department say is needed. Without more investment, cities can’t tap much of the renewable energy from remote areas, said Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission.

- The dollar advanced to a seven-week high against the yen and gained versus the euro as employers eliminated fewer jobs in July than economists forecast. “This is monumental,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “It strengthens the argument that not only is the U.S. economic contraction decelerating quicker than other developed nations, things are actually improving -- also dollar-positive. This would mark a sea change in how speculators trade economic data and the overall view of the U.S.” “In the foreign-exchange market, the idea of selling the dollar on strong U.S. data because it is risk-positive is being appropriately challenged,” wrote Alan Ruskin, global head of security strategy at RBS Securities Inc., in a research note today after the payroll report. “There might be massive liquidation of short-dollar positions,” said Sebastien Galy, a currency strategist at BNP Paribas Securities SA in New York. “People had been badly positioned for this dollar move.”

- Legislation requiring new U.S. homes to be more energy-efficient threatens to smother a rebound in the housing market, homebuilders say. Under a measure approved by the House and being considered by the Senate, new homes would be required to have more insulation, more-efficient doors and windows, and heating and cooling systems that consume less energy. The changes would cost $4,000 to $10,000 a home, and price more than 1 million people out of the market, Bill Killmer, a vice president of the National Association of Home Builders, estimated. President Barack Obama’s goals of reviving the economy and saving energy clash in the new standards, according to appliance-maker General Electric Co. and the homebuilders association, whose members include Pulte Homes Inc. and KB Home.

- Auto shoppers may not find their preferred colors or accessories when they visit U.S. showrooms this weekend as the government’s “cash for clunkers” program depletes inventories. Automakers may need four to six weeks to rebuild supplies, said John McEleney, chairman of the National Automobile Dealers Association. General Motors Co. and Chrysler Group LLC dealers may be most affected because those companies slashed production as they went through bankruptcy, he said.

- Crude oil fell from a five-week high as the dollar increased against the euro, reducing the appeal of commodities as an alternative investment. The Dollar Index, which tracks the dollar against currencies including the yen, pound and Swedish krona, rose 1.2 percent to 78.984.

- Chinese officials said they will scrutinize gains in stock prices without capping new lending after a record $1.1 trillion of loans in the first half added to credit risks and threatened to cause asset bubbles. The government wants stock-market stability and is studying share-price rises, Vice Finance Minister Ding Xuedong said at a press briefing in Beijing yesterday. The People’s Bank of China has a range of tools to limit money supply other than controlling the size of lending, Su Ning, a deputy governor of the central bank, told the briefing.

- German exports increased the most in almost three years in June, helping to haul Europe’s largest economy out of its worst recession since World War II. Sales abroad, adjusted for working days and seasonal changes, surged 7 percent from May, when they rose 0.2 percent, the Federal Statistics Office in Wiesbaden said today.

Wall Street Journal:

- If House Speaker Nancy Pelosi were looking ahead—to the endgame on health care, and the election beyond—she’d be thinking hard on Walt Minnick. That she isn’t explains the Democratic Party’s growing woes. Rep. Minnick is one of Mrs. Pelosi’s “majority makers,” and a bit of a miracle at that. This is a guy who last year ousted an Idaho GOP incumbent by 4,000 votes. His district—rural, with a pinch of Boise—went 67% for George W. Bush in 2004, and 61% for John McCain. The last time Idaho sent a Democrat to Washington was the early 1990s. The time before that preceded color TV. Political wonder though he may be, Mr. Minnick is these days being taken for granted. He’s a supercharged example of the mess Mrs. Pelosi has created for dozens of conservative and freshman Democrats with her liberal health-care legislation.

- For all the back and forth about the “public option,” Congressional Budget Office estimates and proposed tax hikes, the fundamentals are really what make health-care reform a hard sell to American voters. As members of Congress head home for the August recess, they should take a close look at some poll numbers before they attempt to pass any new legislation.The most important fundamental is that 68% of American voters have health-insurance coverage they rate good or excellent.

Business Week:

- STEC (STEC), not exactly a prominent tech stock, may become one soon. "STEC's SSDs are apt to become the industry standard," says Graham Tanaka, president of top-performing Tanaka Growth Fund (TGFRX), which owns shares. The stock is up a lot, he says "but this is just the start of a two-to-four-year runup."

Rassmussen:

- The Rasmussen Consumer Index, which measures the economic confidence of consumers on a daily basis, jumped over three points on Friday to 77.9 to the highest level in 11 months. The last time confidence was this high came just before the collapse of Lehman Brothers and the beginning of federal bailouts.

- House Speaker Nancy Pelosi declared last week that health insurance companies are “villains,” and 25% of U.S. voters agree with her. A new Rasmussen Reports national telephone survey finds that 37% disagree with the speaker and don’t believe health insurers are “villains.”

The Washington Times:

- Despite its pledge to better protect federal employees who expose wrongdoing, the Obama administration privately sought to weaken protections for national security whistleblowers under legislation making its way through Congress, according to correspondence obtained by The Washington Times. E-mails that documented the White House's intervention show the White House counsel's office provided its own drafts of the proposed legislation in late June and mid-July. While strengthening protections for some whistleblowers, the drafts weakened protections for FBI employees and reduced access to jury trials for those national security workers who sue for protection from retaliation after blowing the whistle.

- It's official. The U.S. is no longer engaged in a "war on terrorism." Neither is it fighting "jihadists" or in a "global war." President Obama's top homeland security and counterterrorism official took all three terms off the table of acceptable words inside the White House during a speech Thursday at the Center for Strategic and International Studies, a Washington think tank. "The President does not describe this as a 'war on terrorism,'" said John Brennan, head of the White House homeland security office, who outlined a "new way of seeing" the fight against terrorism.

Reuters:
- A measure of future U.S. economic growth crept higher in the latest week, while its

yearly growth rate advanced to another five-year high, reaffirming projections of a strong, near-term recovery, a research group said on Friday. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index rose to 121.8 in the week ended July 31 from a downwardly

revised 119.5 the week prior, which was originally reported at 119.6.

The index's annualized growth rate reached a fresh five-year high of 10.5 percent from 8.8 percent the previous week. It was the highest yearly growth reading since the week ended March 19, 2004, when it stood at 11.0 percent. "With WLI growth soaring into the double-digit range, prospects for U.S. economic growth have brightened significantly," said ECRI Managing Director Lakshman Achuthan. Achuthan told Reuters last week that the recovery is poised to be "stronger than many expect."

- With so-called "flash" orders exploding into public view, investors are wondering if the rapid-fire dissemination of their investing intentions is costing them money.

- American Express Co's (AXP) shares rose on Friday for the eighth straight session to a 10-month high, as concerns eased about credit losses. The stock of the largest U.S. credit card company by sales rose 5.4 percent to $33.00, after touching $33.70, its highest price since last October.

Financial Times:
- The body language will have been instantly comprehensible to any and every Iranian who watched it. At his religious confirmation as Iran’s president on Monday, Mahmoud Ahmadi-Nejad made as if to embrace Ayatollah Ali Khamenei. The supreme leader brushed him aside and the president ended up planting a kiss on his shoulder. It was as if this mercurial and messianic president, eight weeks after the regime convulsed Iran by imposing his re-election on a rebellious people, had been brought to heel.

- China’s central bank has told the heads of the largest state-controlled banks to slow the pace of new lending, say people familiar with the matter, after new loan volume in the first half of the year tripled from same period a year earlier. The pressure from the People’s Bank of China signals an unstated shift in policy and comes as it steps up its open-market operations to control liquidity and slow loan growth.

Guardian:

- The Financial Times is to introduce a full "pay-per-view" model for accessing online articles by next summer and is reviewing whether any content on FT.com will remain free to access.

Handelsblatt:

- Germany may counter any attempts by the US government to favor domestic carmakers in budget allocations, citing comments by Economy Minister Karl-Theodor zu Guttenberg. In a preview, the newspaper said the House of Representatives aims to limit purchases of vehicles in a $33 billion energy and water authority allocation to US-made models. If approved, Germany may react against the step, Guttenberg said.

Beijing Business Today:

- Apple Inc.(AAPL) will start offering its iPhone handset in China this autumn, citing COO Tim Cook. The US company will reach an agreement with China Unicom over distribution by the end of the summer, citing Cook.

Bear Radar

Style Underperformer:
Large-Cap Growth (+1.32%)

Sector Underperformers:
Gold (-1.44%), Semis (-.21%) and Oil Service (+.47%)

Stocks Falling on Unusual Volume:
VE, SIRO, LEAP, LMNX, LPNT, VRSN, CPKI, HURN and KSP

Stocks With Unusual Put Option Activity:
1) CBS 2) HANS 3) BCSI 4) WYN 5) CMA

Bull Radar

Style Outperformer:
Small-Cap Value (+2.83%)

Sector Outperformers:
Road & Rail (+5.05%), Banks (+4.69%) and Homebuilders (+4.56%)

Stocks Rising on Unusual Volume:
AIG, CCOI, AGO, JPM, AZN, NGS, CLF, CLB, IAG, KNOT, ONXX, HANS, TRAK, FSYS, GMCR, RSTI, NVDA, IPCM, WATG, OPLK, ROCK, MFLX, LINE, JST, AIRM, CSIQ, ROVI, SHPGY, THS, CQB, AGO, EBS, RMD, RBA and WNS

Stocks With Unusual Call Option Activity:
1) DHI 2) MBI 3) VRSN 4) WMB 5) MCHP

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