Stocks Finish Lower, Weighed Down by Financial, Airline, Gold and Agriculture Shares

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Stocks Falling into Final Hour on Rising Financial Sector Pessimism, Economic Fears, More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs, Biotech longs and Financial longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is substantially lower, most sectors are declining and volume is below average. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising +9.06% and is high at 22.40. The ISE Sentiment Index is around average at 150.0 and the total put/call is above average at .92. Finally, the NYSE Arms has been running very high most of the day, hitting 6.81 at its intraday peak, and is currently 2.57. The Euro Financial Sector Credit Default Swap Index is rising +5.12% to 71.58 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 +1.22% to 91.44 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is up +1 basis point to 22 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling -2.97% to 34.75 basis points. The Libor-OIS spread is up +1 basis point to 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down -5 basis points to 2.26%, which is down -39 basis points since July 7th. The 3-month T-Bill is yielding .04%, which is up +1 basis point today. Oil Service, Energy, Gaming, Restaurant, REIT, Utility, Computer Hardware and Disk Drive share are substantially outperforming today. The S&P 500 is holding around near-term support at 1,100. The NYSE Arms is very high again on below average volume. On the negative side, (XLF) has been heavy throughout the day. Credit default swaps are rising across the board, with the US sovereign debt cds jumping 19.4% to 42 basis points. Small-cap and cyclical shares are also displaying relative weakness. I am seeing some interesting divergences such as (IYR) trading near session highs with (XLF) at session lows. Asia will likely come under pressure again tonight, which could lead to more weakness here on the open. Nikkei futures indicate an -3 open in Japan and DAX futures indicate a -10 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on financial sector pessimism, emerging market worries, more shorting and economic fears.

Today's Headlines

Bloomberg:

- Stocks are the US dollar may rise in tandem over the next two years after tending to move in opposite directions following the collapse of Lehman Brothers Holdings Inc., according to Bijal Shah at ICAP Plc. In 2010 and 2011, both the S&P 500 and dollar may be boosted by an expanding economy and corporate earnings, prompting investors to choose other currencies to finance acquisitions of more-risky assets, the strategist said. “If Fed funds start going up, it is positive for the dollar and not negative for equities because per-share earnings are rising very rapidly and economic activity is very strong,” said Shah, who forecasts the S&P 500 may rise 13% through 2010 from the close on Dec. 15, and an additional 20% in 2011. “There is far less risk of dollar weakness and far greater reward over coming months from dollar strength,” he said.

- Manufacturing in the Philadelphia region expanded in December at the fastest pace in more than four years as sales and employment grew. The Federal Reserve Bank of Philadelphia’s general economic index climbed to 20.4, higher than forecast, from 16.7 in November. Readings greater than zero signal growth and this month’s level was the highest since April 2005. “The general state of manufacturing reflects improving inventory levels, business sentiment and capital expenditure outlays and very decent demand for exports,” said John Herrmann, chief economist at Herrmann Forecasting in Summit, New Jersey. “The economic recovery and the manufacturing recovery remain on track, with significant improvements expected for next year.” Other reports today showed the index on leading indicators increased for an eight consecutive month and jobless claims unexpectedly rose. The gauge of the economy’s outlook over the next three to six months climbed 0.9 percent in November, capping the longest series of gains since 2003-2004, the Conference Board, a New York-based private research group said. The Philadelphia Fed’s employment index rose to 6.3, the highest level October 2007, from minus 0.5. The shipments index fell to 15.3 from a two-year high of 15.7 in November. The index of prices paid jumped to 33.8 from 14.9. Prices received fell to minus 1.8 from minus 1.5. The gauge of expectations for the next six months eased to 24.4 from 36.8 in November.

- The cost of insuring sovereign debt against default rose in Europe after Greece’s downgrade by Standard & Poor’s fueled concern countries with deteriorating public finances may struggle to fund their commitments. Credit-default swaps on Greek government bonds surged 24 basis points to 263, the highest since March, according to CMA DataVision. The Markit iTraxx SovX Western Europe index of swaps on 15 countries rose 2 basis points to 67.5, close to the highest level since the gauge was created in September.

- In a year when investors pulled an estimated $118 billion from hedge funds through November, Paul Tudor Jones was one of at least six managers who decided it was time to turn away cash. BVI Global Fund Ltd., Jones’s biggest, stopped taking new investments after bringing in $1.3 billion from March to July, according to a person with knowledge of the matter. Brookside Capital Partners LP and Woodbine Capital Advisors LP also have closed or restricted inflows, said people familiar with the firms, who asked not to be named because the funds are private.

- Crude oil fell for the first time in three days as the dollar strengthened against the euro, limiting the appeal of commodities as an alternative investment. Oil dropped as much as 2 percent as the dollar rose to a three-month high against the European currency and U.S. equities declined. The Organization of Petroleum Exporting Countries, responsible for about 40 percent of global oil supply, will meet next week in Angola to discuss production. The producer group announced 4.2 million barrels a day of output cuts in 2008. OPEC will boost shipments for a sixth week as Asian buyers snap up the group’s increased output, according to tanker- tracker Oil Movements. Compliance with its 2008 cuts slipped 2 percentage points to 58 percent in November, according to the International Energy Agency. OPEC, led by Saudi Arabia, the world’s largest producer, will ship 22.96 million barrels a day in the four weeks ending Jan. 2, up 0.8 percent from 22.78 million in the four weeks to Dec. 5, Halifax, England-based Oil Movements said in a report.

- The dollar rose to the highest level against the euro in three months as declines in stocks stoked demand for the currency as a refuge amid concern European nations may struggle to pay their debts. “It’s the first time in a year we look at the dollar with the potential to rise over an extended period,” said Steven Englander, chief U.S. currency strategist in New York at Barclays Plc, in a Bloomberg Television interview. “The same safe haven characteristics that helped the dollar in 2008, and hurt it from March through November, is helping it again. The gap in U.S. growth relative to Europe is beginning to widen.”

- New York City seasonally adjusted unemployment drew even with the U.S. rate at 10 percent in November, a 0.3 percentage point drop from the previous month, amid gains in education, health, business and professional services, the state Labor Department reported today. The statewide seasonally adjusted jobless rate fell to 8.6 percent from October’s 9 percent.

Wall Street Journal:

- The Senate Banking Committee voted 16-7 to confirm Fed Chairman Bernanke for a second term. Sen. Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee, voted against the confirmation of Federal Reserve Chairman Ben Bernanke for a second term.

- U.S. Secretary of State Hillary Clinton on Thursday proposed that major economies including the U.S. come up with $100 billion a year over the next decade for developing nations to fight climate change, an eleventh hour effort to break an impasse here on climate-change talks.

- Ford Motor Co.(F) is working to offer drivers a way to upgrade the electronics in their vehicles, much the same way they can add applications to their iPhones and BlackBerrys. The car maker hopes to persuade software developers to tap the Internet service, GPS location-finding capability and digital-music setup already found in its Sync entertainment-and-communications system, which it developed with Microsoft Corp. Such applications, or "apps," might do such things as give directions to every espresso shop along a highway open after 9 p.m., or allow friends to follow one another to a location through a GPS process called "breadcrumbing."

- A senior AT&T Inc.(T) executive dismissed speculation that the telecommunications carrier is planning to change the way it prices data plans for its wireless customers, but said it will give customers incentives to limit their use of its wireless network for surfing the Internet or downloading mobile applications.

- Granted, Brian Moynihan’s ascendancy to the top spot at Bank of America was less than perfect. He was tapped to take over for current CEO Ken Lewis only after the board had exhausted its options for outsider candidates such as BNY Mellon’s Robert Kelly. Kelly’s discussions with BofA fell apart Monday because of differences over his pay and other issues. And according to The Journal’s Dan Fitzpatrick, at least several other outsiders said no or told friends they weren’t interested, including Laurence Fink, chairman and CEO of BlackRock Inc., and Citigroup Inc. directors Eugene McQuade and Michael O’Neill, both former executives at banks acquired by Bank of America. Even so, the crown is now Moynihan’s. Here are a few interesting analyst notes on the coronation:

MarketWatch.com:

- Exxon Mobil Corp.'s(XOM) decision to buy XTO Energy Inc.(XTO) shows it can do something that the government cannot: Help bring energy independence to the U.S.

CNBC:

- This should be an intriguing report from Oracle(ORCL) tonight after the bell, and potentially the best argument yet that this sleeper and not-so-gentle-giant is poised for a break-out.

NY Times:

- Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support. These companies, the American International Group, Fannie Mae, Freddie Mac and GMAC, are not only unable to repay the government, they are in need of continuing infusions that make them look increasingly like long-term wards of the state. And the total risk they pose to the taxpayer far exceeds that of the big banks. Fannie and Freddie, in the final days of the year, are even said to be negotiating with the Treasury about greatly expanding the money available to them.

The Business Insider:

- Obama Plunges In Polls Thanks To Wall Street Bailouts And Ballooning Deficits. (video)

- Chart of the Day: iPhone Blows Past Windows Mobile.

CNNMoney.com:

- Gold prices plunged nearly 3% Thursday as the dollar surged against the euro on concerns about the economic health of certain European nations. February gold was down $29, or 2.6%, to $1,107 an ounce after falling to a low of $1,101.6 an ounce earlier in the session.

zerohedge:

- Earlier, Goldman Sachs(GS), which has a propensity for pissing pretty much everyone off these days, got in some hot water with the Teamsters, for allegedly "actively soliciting bond trades for clients and underwriting credit-default swaps to benefit from a failed exchange and resulting bankruptcy." We won't comment on this as we have repeatedly said it is quite farfetched to say that CDS in itself can create the kind of death spirals that those unfamiliar with the product tend to believe occur courtesy of CDS traders. However what did catch our attention was the following claim made by Goldman spokesman Michael DuVally: “Goldman does not have a position in [YRC], nor are we making markets in the company’s bonds or credit-default swaps.” That we will comment on, because it appears to be an outright lie.

TechCrunch:

- While they work that out for themselves we’re off to the next story – the Google Chrome OS Netbook“The Google Chrome OS team is currently working with a number of technology companies to design and build devices that deliver an extraordinary end user experience. Among others, these companies include Acer, Adobe, ASUS, Freescale, Hewlett-Packard, Lenovo, Qualcomm, Texas Instruments, and Toshiba.” (although we think Google has a few surprises left around the Nexus One, too).

HedgeFundBlogger.com:

- 18 Lessons from Shooting Star Hedge Funds.

Rassmussen:

- Public skepticism about the officially promoted cause of global warming has reached an all-time high among Americans. A new Rasmussen Reports national telephone survey finds that 50% of likely voters now believe that global warming is caused primarily by long-term planetary trends. Just 34% say climate change is due primarily to human activity, even as President Obama and other world leaders gather at a UN summit to limit the human activity they blame for global warming.

- Sixty-six percent (66%) of U.S. voters prefer a smaller government with fewer services and lower taxes over a more active government with more services and higher taxes. That's the second highest finding of the year: In August at the height of the congressional town hall controversies over the health care plan, 70% felt that way. A new Rasmussen Reports national telephone survey finds that just 22% prefer a government with more services and higher taxes.

Politico:

- In a stunning reversal of fortune for President Barack Obama, top progressives are attacking the health-reform plan moving through the Senate as “hollow,” “unsupportable” and a sellout to corporate interests. Republicans, after plotting for months to sink the signature legislation of Obama’s first year, suddenly think that Democrats might wind up doing it for them. Most dangerously for White House chances of assembling 60 Senate votes, former Vermont Gov. Howard Dean launched a third day of attacks on the emerging bill, arguing in a Washington Post op-ed that it meets none of his benchmarks for “real reform.” “[A]s it stands, this bill would do more harm than good to the future of America,” Dean wrote, then took to the airwaves to amplify his case. Ed Schultz, an influential liberal radio host, declared on his “Ed Show” on MSNBC: “The base is restless. They are wandering in the wilderness, Mr. President. … They want to know, where are you? … Right now, Mr. President, your base thinks you’re nothing but a sellout — a corporate sellout, out that. … The only people who like this current bill right now, Mr. President, is the insurance industry — they get a bunch of new customers.” Markos Moulitsas, founder of Daily Kos, wrote on his Twitter feed: "Time to kill this monstrosity coming out of the Senate." And "Kos" blogged: "You pass a s——-y program now that further bankrupts our nation, and we won't be talking about 'fixing' it in a few years, but whether it should even exist." With polls showing erosion in both Obama’s popularity and in support for health reform, the White House mobilized to try to tamp down the rebellion from such essential allies.

- Republican lawmakers are increasingly angry about a recent glut of closed and classified briefings on everything from the shootings at Fort Hood to deployments in Afghanistan, saying the administration has doled out inconsequential information in secret to Congress, while stifling open debate on key issues of national security. Lately, the administration has served up closed briefings on the transfer of alleged Sept. 11 mastermind Khalid Sheikh Mohammed and the November shootings at Fort Hood. A hearing Wednesday on the proposed transfer of detainees from Guantanamo Bay, Cuba, to the Thomson Correctional Center in Illinois was classified "secret." And a recent classified briefing on Afghanistan, lawmakers said, barely scratched the surface. Republicans contend that many of the briefings could and should have been open to the public, particularly in keeping with the Obama administration’s pledge for greater transparency in government.

marketfolly:

- Lee Ainslie’s Maverick Capital Bet Big On Technology Stocks.

Reuters:

- The Obama administration on Thursday began the award of $2 billion in grants and loans over the next 75 days as part of a plan to dramatically expand Americans' broadband Internet access and create jobs. The $2 billion is part of an overall $7.2 billion set aside in President Barack Obama's $787 billion economic recovery package to bring broadband access to unserved or underserved U.S. communities.

Telegraph:

- Climategate Goes SERIAL: Now The Russians Confirm That UK Climate Scientists Manipulated Data to Exaggerate Global Warming. Climategate just got much, much bigger. And all thanks to the Russians who, with perfect timing, dropped this bombshell just as the world’s leaders are gathering in Copenhagen to discuss ways of carbon-taxing us all back to the dark ages. Feast your eyes on this news release from Rionovosta, via the Ria Novosti agency, posted on Icecap. (Hat Tip: Richard North)

Kommersant:

- Digital Sky Technologies, party owned by Russian billionaire Alisher Usmanov, raised its stake in Facebook Inc. to 5%, citing a personal at an investment fund close to Facebook. DST has spent at least $400 million on investment in Facebook this year. Separately, DST is in early talks with AOL Inc. about buying the company’s ICQ instant-messaging business.

Digitimes:

- Recent supplies of LCD monitors are facing a shortage due to monitor makers and brand vendors having lower-than-usual panel inventory levels, according to sources from panel players. Panel makers reduced their output for the monitor segment after entering into the fourth-quarter low season. But seeing panel prices drop below cost levels, monitor clients have started increasing orders with the panel makers, resulting in tight supply, the sources said.

Haaretz.com:

- U.S. President Barack Obama has warned his Chinese counterpart that the United States would not be able to keep Israel from attacking Iranian nuclear installations for much longer, senior officials in Jerusalem told Haaretz.

Bear Radar

Style Underperformer:
Small-Cap Growth (-1.18%)

Sector Underperformers:
Gold (-5.04%), Airlines (-2.54%) and Agriculture (-2.41%)

Stocks Falling on Unusual Volume:

GEOY, BCS, TSU, DB, EZCH, OSIP, NANO, LIHR, UTIW, FDX and AEM

Stocks With Unusual Put Option Activity:
1) LDK 2) MT 3) IBN 4) AONE 5) FDX

Bull Radar

Style Outperformer:
Small-Cap Value (-.42%)

Sector Outperformers:
Disk Drives (+.58%), Gaming (+.01%) and Banks (-.09%)

Stocks Rising on Unusual Volume:
WGO, THO, DHR, PLL, ESRX, BBY, TLK, TIE, BCE, WFC, HITK, AONE, APWR, SNIC, UTHR, ODFL, ABFS, IPSU, SSYS, FUN, JAH and GIS

Stocks With Unusual Call Option Activity:
1) SPLS 2) ATI 3) ESRX 4) BSX 5) AMP

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