Stocks Finish Higher, Boosted by Airline, Gaming, REIT, HMO, Hospital, Medical, Networking and Disk Drive Shares

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Stocks Higher into Final Hour on Diminishing Economic Fear, Less Financial Sector Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs, Biotech longs and Medical 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 higher, most sectors are rising and volume is heavy. Investor anxiety is very high. Today’s overall market action is bullish. The VIX is falling 3.9% and is high at 24.62. The ISE Sentiment Index is below average at 125.0 and the total put/call is around average at .85. Finally, the NYSE Arms has been running high most of the day, hitting 1.64 at its intraday peak, and is currently 1.35. The Euro Financial Sector Credit Default Swap Index is falling 4.15% today to 79.33 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 falling 2.17% to 114.62 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 10.22% to 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is up .56% to 33.44 basis points. The Libor-OIS spread is falling 2.20% to 13 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.84%, which is down 83 basis points since July 7th. The 3-month T-Bill is yielding .14%, which is up 2 basis points today. Small-cap and cyclical shares are substantially outperforming today. Gaming, hospital, networking, disk drive and HMO shares are especially strong, rising 1.75%+. The Euro financial sector credit default swap index is down meaningfully again today, which is a big positive. Redbook weekly retail sales fell 2.4% this week versus a 4.3% decline the prior week. This is the best showing for this report since the week of June 2^nd and up from a 5.7% decline the week of July 28^th. Weekly retail sales are one of the best lead indicators for an uptick in real economic activity. It is noteworthy that despite US dollar weakness and equity strength, oil, gold and copper are all lower on the day. The S&P 500 has had trouble closing above the 1,035 level several times over the last few weeks. If it is able to close convincingly above this level over the next few days, which I expect, another surge higher is likely on short-covering, technical buying, momentum chasing and performance anxiety. Nikkei futures indicate an +128 open in Japan and DAX futures indicate a -12 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing economic fear, short-covering, less financial sector pessimism and investment manager performance anxiety.

Today's Headlines

Bloomberg:

- The U.S. economy will start to pull out of a recession by yearend, helped by “remarkable growth” in productivity and a depletion of inventories, former Federal Reserve Chairman Alan Greenspan said. “A lot of pieces are falling into place for recovery,” Greenspan said today in a speech in New York. He predicted “a fairly pronounced recovery not only in the U.S.,” but globally. “Surprises are on the upside.”

- Billionaire investor Michael Price said the U.S. stock market resembles 1975-1982, when the Standard & Poor’s 500 Index doubled, and he’s finding value in small banks. “We made very good returns from ‘75 to ‘82,” Price, who managed some of the best-performing mutual funds during the 1980s and 1990s and now runs New York-based MFP Investors LLC, said in an interview broadcast on Bloomberg Radio and Television. “Pick your spots, pick your stocks, do your work, and somebody’s going to be selling something too cheaply.”

- Apple Inc.(AAPL) Chief Executive Officer Steve Jobs made his first public appearance since having a liver transplant, taking the stage to introduce new models of the iPod in San Francisco.

- The Federal Reserve said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August, adding anecdotal evidence that the worst U.S. recession in seven decades is over. Five districts, including San Francisco, home to the biggest regional economy, “mentioned signs of improvement,” the Fed said today in its Beige Book business survey, published two weeks before officials meet to set monetary policy. The exception was the St. Louis district, which said the contraction’s pace “appeared to be moderating.”

- Credit funds run by Blackstone Group LP and Sankaty Advisors LLC are among investments that had “spectacular returns” this year from a record rally for collateralized loan obligations, according to Citigroup Inc. “The past six months have been good for credit overall, but it has been hard to beat the performance of CLO debt,” Citigroup analysts Ratul Roy and Eduard Trampolsky wrote in a report yesterday. “It is becoming steadily clear that the outlook for defaults in the near future is less harsh than originally feared.”

- Treasuries remained lower after stronger-than-forecast demand at a $20 billion offering of 10- year notes, the second of three note and bond sales this week totaling $70 billion.

- Starbucks Corp.(SBUX), the world’s largest coffee shop operator, is removing 30 U.S. stores from a list of locations it planned to close after sales and profits improved. “We’re largely through the store-closing program now,” Chief Financial Officer Troy Alstead said at the Goldman Sachs Group Inc. Retail Conference in New York. “We’ve gotten underneath the problem and we’re closing the right stores.” Starbucks had planned to close about 800 U.S. stores and about 160 international cafes in an effort to save $550 million in costs as cash-strapped consumers curbed purchases of lattes and cappuccinos. The company has also stemmed decreases in U.S. sales and improved customer satisfaction scores, Alstead said.

- Australia, the world’s fourth- largest wheat exporter, may produce its biggest crop in four years after recent rain eased concern for eastern growing areas.

- A rise in the S&P 500’s five-month moving average above its 15-month moving average for the first time since 2003 signals stocks are in the early stages of a bull market, said Alexander Associates LLP. The five-month moving average rose above the 15-month line three other times in the past two decades: March 1991, October 1994 and July 2003. Each cross foreshadowed returns of at least 16% during the following 18 months.

- Iran’s nuclear work is approaching a “dangerous and destabilizing” point at which the Persian Gulf country could build a bomb, the U.S. envoy to the United Nations International Atomic Energy Agency said. “Iran is now either very near or in possession already of sufficient low-enriched uranium to produce one nuclear weapon, if the decision were made to further enrich it to weapons grade,” Ambassador Glyn Davies said today in a statement prepared for the IAEA’s 35-member board of governors, which is meeting for a third day in Vienna.

- U.S. taxpayers are unlikely to recover their $81 billion investment in General Motors Co. and Chrysler Group LLC and were “left in the dark” on specifics of a decision to aid automakers, a congressional panel said. The Treasury Department should consider placing its GM and Chrysler ownership stakes into an independent trust to prevent “political pressure and government interference,” the Congressional Oversight Panel said in a report today. “Even if no direct conflict exists, a trust could prevent the use or appearance of political influence in the government’s ownership,” the panel concluded.

Wall Street Journal:

- The Emerging Axis of Iran and Venezuela. The prospect of Iranian missiles in South America should not be dismissed.

- For months, General Electric has been absent from the big deal rumor mill. Now, as the company emerges from hibernation with about $50 billion of cash on hand, there are plenty of ideas and rumors for businesses it could sell or buy.

- PricewaterhouseCoopers is ramping up its hiring of M.B.A.s, with plans to recruit 75 to 100 business-school graduates in 2010. The Big Four accounting firm planned to bring on 60 to 90 graduates from master's degree in business programs in 2009, up from 40 last year. "We've found that we have excellent return value from M.B.A. hires," said Margaret Burke, human-resources leader for the advisory practice based in New York. "They are able to make an impact quickly."

- Iberdrola SA, the Spanish renewable-energy giant, says it will spend $2 billion it raised Tuesday in a bond issue to keep growing in the U.S. The company is already the second-largest wind-farm operator in the U.S., after Florida-based FPL Group Inc.'s NextEra Energy. The cash will strengthen Iberdrola's push to build more wind farms in the U.S., the world's largest market for wind power.

- President Barack Obama, in a high-stakes speech Wednesday to Congress and the nation, will press for a government-run insurance option in a proposed overhaul of the U.S. health-care system that has divided lawmakers and voters for months. White House officials say the president will detail what he wants in the health-care overhaul, as well as say he is open to better ideas on a government plan if lawmakers have them. Democratic plans call for requiring most Americans to carry health insurance. Failure to comply could cost families as much as $3,800 a year, according to a new Senate proposal. The president is likely to say that a government-run insurance plan, known as the "public option," will not provide a level of subsidies that give it an unfair advantage over private insurers, according to aides familiar with the speech preparations.

etfexpress:
- EasyETF has added to its credit toolbox with a third tracker on the European credit derivative market, named the EasyETF iTraxx Europe Main. Its target is to follow the performance of the iTraxx Europe Main TR index as closely as possible, whether it moves upwards or downwards. The iTraxx Europe index consists of 125 credit derivates evenly weighted in investment grade European companies with a rating higher than BBB- (Standard & Poor's) or Baa3 (Moody's).

Marketfolly:

- Ken Griffin’s Citadel Portfolio: Hedge Fund 13F Filing.

Washington Post:

- In this new era of frugality, well-to-do shoppers have gone into hiding and stowed away their splashy logos. But they may hold the key to a consumer recovery. Affluent shoppers are the most important segment of consumer spending, which in turn drives the national economy. The top 20 percent of the nation's households -- with income of at least $150,000 -- account for 40 percent of all spending, according to government data. That makes them a crucial spoke to any turnaround. "Unless these people turn up, a lot of companies won't turn up," said Milton Pedraza, founder of the Luxury Institute, a consulting firm. "When they are not spending, it definitely impacts all of us in a negative way."

Rassmussen:

- A Review of Public Opinion on Health Care Reform Prior to the President’s Speech.

Politico:

- Nancy Pelosi finally has a trump card. Tired of watching helplessly as House bills are carved up to win support from conservative Democrats and moderate Republicans in the Senate, the speaker has a message for President Barack Obama and Senate Majority Leader Harry Reid: Take the public option out of health care reform, and you may not have a bill at all. “Every time we have had a negotiation, Reid and [White House chief of staff] Rahm [Emanuel] say you have to accept this or that because we need the 60 votes [for cloture],” says a senior Democratic aide in the House. “That’s true this time. The difference now is that Pelosi can turn right back at them and say, ‘I can’t pass this in the House without the progressives.’ And that will be true, too.”

Washington Times:

- While the Obama administration and its Democratic allies in Congress press to allow private-sector workers to unionize by signing authorization cards instead of voting by secret ballot, the government's legal-aid program for the poor has declared the so-called "card check" strategy "unreliable" and rejected an effort by some of its own workers to organize that way. The Legal Services Corp., a congressionally chartered, taxpayer-funded entity, even hired a law firm to rebuff the efforts of workers in its oversight offices to gain union representation by the International Federation of Professional and Technical Engineers (IFPTE), forcing the workers to conduct a vote by secret ballot later this week. The LSC's decision has prompted concerns on Capitol Hill that the government may be trying to impose a solution on private businesses that its own agencies and panels are reluctant to follow.

USA Today:

- Ten Maryland nuns — almost an entire religious community — converted from the Episcopal Church to Catholicism on Thursday, saying their former denomination had become too liberal in its acceptance of homosexuality.

Financial Times:
- Anders Fogh Rasmussen, Nato’s new secretary-general, will warn on Wednesday that a rush to withdraw from Afghanistan is not an option for the US-led alliance, in spite of growing signs that western public opinion is tiring of the war. With German opinion polls showing a sharp rise in support for a party that opposes the Nato operation, Mr Rasmussen will say in a speech in the US he is concerned that the public debate on Afghanistan “has started to go in the wrong direction”. But while allegations of fraud during the Afghan presidential elections have been “disturbing”, he will add: “We must stay in Afghanistan as long as necessary, and we will stay as long as necessary. Let no one think that a run for the exits is an option. It is not.”

TimesOnline:

- Art Keller, a blond, blue-eyed CIA agent, sits inside a decrepit building deep inside al-Qaeda territory, staring at his computer screen. He is forbidden by his Pakistani minders from venturing out into the badlands of Waziristan to help to find and kill the world’s most wanted man. He is sick and exhausted, and suffering from food poisoning. Back home in the US his father is dying of cancer. The plumbing is basic, the heat intense — the generator has failed again. He pores over cables looking for any scrap of information — an intercepted phone call, an aerial photograph — that might finally end the hunt for Osama bin Laden. The fruitless search has essentially been outsourced by the US to a network of Pashtun spies run by the Pakistani intelligence services. Mr Keller was one of an estimated 50 to 100 CIA agents and special operations officers whose mission for the past eight years has been to find and kill bin Laden and other top al-Qaeda leaders in the hostile and forbidding Pakistani border region, where he is believed to be hiding.

Handelsblatt:

- The German economy, Europe’s biggest, may shrink less this year than the government has forecast, the Handelsblatt-Barclays quarterly indicator showed. The economy may contract by 4.9% in 2009 compared with 6% expected by the government. In the current third quarter the economy will probably expand .9% compared with the second, it said.

O Estado de S. Paulo:

- Brazil’s recoverable oil reserves may exceed 14 billion barrels, Petroleo Brasileiro SA’s Director of Exploration and Production Guilherme Estrella said. It is “not unlikely” that the so-called pre-salt offshore deposits may contain more than 100 billion barrels of oil and gas, Estrella said in response to speculation the area could hold that amount. Oil reserves in Brazil’s Santos Basin will surpass the reserves in the country’s Campos Basin in ten years, citing Estrella.

Xinhua:

- China's banking regulator will step up financial risk control by increasing attention on banks' governance, capital adequacy ratio, risk management of loan concentration, provision coverage ratio, and information transparency, a senior official said Tuesday. Concern should go to issues including long-term loans and concentration of credit, Wang Huaqing, disciplinary secretary of the China Banking Regulatory Commission, said at a press conference in Beijing jointly held by the China Banking Association and PricewaterhouseCoopers. He called on Chinese banks to stick to the management principal of "rationality, steadiness and prudence" as there are still uncertainties in the global economy. Wang's comment came amid the recent concern that a surge in bank loans in the country, boosted by the moderately loose monetary policy, might pose a risk to the nation's lenders, which might damage the stability of the financial system.

Digitimes:

- Large-scale China-based makers of solar-grade crystalline silicon wafers plan to expand their annual production capacities by an estimated total of 3GWp (gigawatt-peak) in 2010 in anticipation of rebounding demand, according to industry sources in Taiwan. Demand is already rising in European and the US markets as well as the domestic market due to the China government's offering of incentives for installation of photovoltaic (PV) systems, the sources said.

Haaretz.com:

- Three days after the U.S. administration criticized the decision of Prime Minister Benjamin Netanyahu to authorize the construction of hundreds of new housing units in settlements, the Israel Lands Administration published tenders for the construction of 486 apartments in the neighborhood of Pisgat Ze'ev in East Jerusalem. The new construction project is designated for the outer edge of the northeastern municipal boundary of Jerusalem, and will narrow the distance between the homes on the edge of the neighborhood and the nearby Palestinian communities. Bids have been solicited for construction on an overall area of 138 dunams (about 34 acres), which was subdivided into 25 smaller tenders. The Obama administration has made it clear on a number of occasions that it is demanding that Israel freeze settlement construction in the territories, including in East Jerusalem.

Bear Radar

Style Underperformer:
Large-Cap Value (+.54%)

Sector Underperformers:
Gold (-3.16%), Restaurants (-.89%) and Oil Service (-.62%)

Stocks Falling on Unusual Volume:
AVAV, ABX, GG, EHTH, UNFI, PALM, EAC and LAZ

Stocks With Unusual Put Option Activity:
1) NE 2) APA 3) SFD 4) PAAS 5) ABX

Bull Radar

Style Outperformer:
Small-Cap Growth (+1.06%)

Sector Outperformers:
Disk Drives (+3.44%), Gaming (+2.15%) and Hospitals (+2.15%)

Stocks Rising on Unusual Volume:
AIG, ZOLL, NUVA, AIXG, ABB, REP, TOT, MFN, SBUX, MCK, BVN, VVUS, HITK, TITN, JAZZ, ATPG, FSLR, JNPR, CASY, ININ, STAR, ADPI, CPHD, STEC, GOLD, SNDK, NFLX, HOGS, CMED, FORM, URBN, RRD, HSY, SIG, HGT, CTR and KFY

Stocks With Unusual Call Option Activity:
1) HSY 2) CAH 3) ACI 4) SYK 5) URBN

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