BETWEEN THE HEDGES

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Retail longs and Financial 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, almost every sector is rising and volume is slightly below average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling -1.28% and is above average at 22.44. The ISE Sentiment Index is around average at 142.0 and the total put/call is slightly above average at .88. Finally, the NYSE Arms has been running low most of the day, hitting .37 at its intraday trough, and is currently .54. The Euro Financial Sector Credit Default Swap Index is rising +6.62% to 99.24 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 +.78% to 100.18 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is unch. at 16 basis points. The TED spread is now down 447 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is rising +1.37% to 29.40 basis points. The Libor-OIS spread is unch. at 10 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.25%, which is down -40 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .09%, which is unch. today. Healthcare-related shares are relatively weak. Natural gas continues to trade poorly given record winter weather in much of the country and improving economic data. The Euro financial sector cds index and Western Europe sovereign debt cds are not confirming recent global equity strength. The euro is finally rising meaningfully from its technically oversold state on short-covering most likely. I suspect its downtrend will resume over the coming weeks. On the positive side, REITs, Banks, Semis, Computer, Gold, Energy, Oil Tanker and Coal shares are especially strong, rising 2.50%+. Market leading stocks are also outperforming again. (XLF) and (IYR) have traded well throughout the day. The market continues to take recent bad news in stride, which is a large positive. I would expect to see a broad-based move lower in credit default swaps from current levels for this equity rally to gain real traction. Nikkei futures indicate an +150 open in Japan and DAX futures indicate an +3 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting, less economic fear, diminishing financial sector pessimism, lower long-term rates and technical buying.

Bloomberg:

- Simon Property Group Inc.(SPG) offered to buy General Growth Properties Inc. out of bankruptcy for more than $10 billion and combine the two biggest U.S. mall owners. About $9 billion of the bid is in cash, Indianapolis-based Simon said in a statement today. General Growth shareholders would get about $9 a share, including $6 in cash, the statement said. Unsecured creditors would be repaid in full for about $7 billion, according to Simon, which said it made its offer public after receiving “no substantive” response from General Growth. “Simon’s offer provides the best possible outcome for all General Growth stakeholders,” David Simon, Simon’s chairman and chief executive officer, said in the statement. General Growth shares rallied 22 percent to $11.46 in over the counter trading at 12:20 p.m. New York time, signaling investors are expecting a higher offer.

- Confidence among U.S. homebuilders rose in February to a three-month high, a sign that the housing market is stabilizing amid government support. The National Association of Home Builders/Wells Fargo index of builder confidence increased to 17, higher than anticipated, from 15 the prior month, the Washington-based group said today.

- Crude oil rose the most in more than four months as the dollar declined against the euro, bolstering the appeal of commodities as an alternative investment. Oil climbed as much as 4.3 percent as the euro rebounded from the lowest level against the dollar in nine months yesterday.

- Options traders are making the most bets in 14 months that Russian stocks will drop on concern demand for commodities from China and Europe will weaken. The open interest, or number of existing contracts, for options speculating on a retreat in the Market Vectors Russia exchange-traded fund rose 65 percent last week to 60,608, or 2.42 times the number of bullish wagers, according to data compiled by Bloomberg. The most-popular options bet pays in the event of a 17 percent decline to $25 by May in the ETF, which holds shares of Russian companies and trades on U.S. exchanges. “There’s definitely an inordinate amount of interest in the May $25 puts and we’re seeing steady open interest increases,” Noah Warsaw, an exchange-traded fund options trader at Group One Trading in Chicago. “These are mostly commodities companies and they rely on European demand so any worries about Europe would certainly affect Russia.”

- Iran’s Foreign Minister Manouchehr Mottaki said recent criticisms by the US were “naïve” and “immature.” US Secretary of State Hillary Clinton said yesterday that Iran is turning into a “military dictatorship.”

- The Afghan Taliban’s top military commander, Mullah Abdul Ghani Baradar, was captured by U.S.-led forces in what may be the most significant blow to the eight- year insurgency. Baradar, who has directed daily operations as deputy to Mullah Omar, was seized last week, two Taliban officials said. They disputed a report by the New York Times earlier today that he was nabbed in Karachi by Pakistani and U.S. intelligence teams. Baradar is undergoing joint interrogation, the Times said, citing unnamed American government officials. The capture of Baradar, whom various reports say is about 40 years old, comes as U.S., British and Afghan soldiers advance into Southern Afghanistan in the biggest offensive against the Taliban since the beginning of the war in 2001. His detention could hamper insurgent operations for months, said Waheed Mujda, an Afghan analyst and former Taliban official. “He is very important, the mastermind of their operations,” Mujda said in a phone interview from Kabul.

- Bank of England Governor Mervyn King said the “temporary” jump in the inflation rate will ebb as slack in the economy persists, and reiterated that policy makers may make more bond purchases if needed.

- Manufacturing in the New York region expanded in February at the fastest pace in four months as employment accelerated and sales expanded. The Federal Reserve Bank of New York’s general economic index rose to 24.9 this month, higher than anticipated, from 15.9 in January.

- International demand for long-term U.S. financial assets grew in December at a slower pace than a month earlier, as China sold U.S. government securities, a U.S. Treasury Department report showed.

- Federal Reserve Bank of Kansas City President Thomas Hoenig said the U.S. must take “difficult” steps to reduce spending and increase revenue so the central bank isn’t pressured to fund the “unsustainable” federal debt. “It is a fact that the current outlook for fiscal policy poses a threat to the Federal Reserve’s ability to achieve its dual objectives of price stability and maximum sustainable long- term growth, and therefore is a threat to its independence as well,” Hoenig said today in a speech in Washington. The Obama administration estimates budget deficits will total $4.3 trillion during the next five years and hit a record $1.6 trillion in the year ending Sept. 30. The U.S. must be “willing to disappoint a host of special interests” and tackle the debt, or it risks “its own next crisis,” Hoenig said. “A government faced with rising debt levels must provide a credible long-term plan to re-establish fiscal balance,” Hoenig said in prepared remarks for a policy forum hosted by the Peterson-Pew Commission on Budget Reform. Hoenig said the plan should include “controlling budget earmarks, trimming subsidies to numerous economic sectors, and resolving our banking problems and the perception that Wall Street is favored over Main Street, all of which would otherwise foster mistrust and cynicism among the public.”

Wall Street Journal:

- Iran's president and foreign minister lashed back Tuesday at recent harsh criticism by U.S. Secretary of State Hillary Clinton, vowing to continue the higher-grade enrichment that has spooked Western powers unless they provide nuclear fuel for a medical reactor on Iran's terms. President Mahmoud Ahmadinejad said Western powers would "regret" any sanctions move against the country.

- It's easy to pile on Joe Biden. Vice presidents, after all, acquire reputations in Washington they never really shake. Dick Cheney was Darth Vader, and now Joe Biden is the embarrassing uncle you try to keep away from the microphone. Neither is entirely fair. Still, when Mr. Biden claims success for a victory won by a surge he and Barack Obama opposed, you wonder what he's up to. When this same genius is then dispatched to counter Mr. Cheney on the weekend talk shows, you wonder what the administration is up to.

CNBC:

- A bomb exploded outside the JP Morgan(JPM) offices in Athens on Tuesday, causing minor damage to the building, police said. There were no immediate reports of injuries.

- The economic rebound is likely to speed up in the US this year, but in Europe things are not as good, Bob Diamond, Barclays president, told CNBC Tuesday. "There are mixed signals, for sure, but we are at the positive end, particularly in the US," Diamond told "Squawk Box Europe."

Washington Post:

- As the U.S. housing market boomed in the past decade and fueled a bull market in mortgage investments, Norway's government-owned fund went along for the ride -- and the fall. After that fund recorded its worst-ever year in 2008, managers cited investments backed by U.S. mortgages as a key culprit and began to cut back. Now, U.S. officials are looking to foreign government funds again. The Federal Reserve is scheduled at the end of March to halt its purchases of mortgage-backed securities, a move that could drive up the low interest rates that have helped the housing market show new signs of life. The Fed is gambling that private investors will step in to buy the securities, helping to keep rates from spiking. Senior officials in the Obama administration and at the Fed say they are counting in part on foreigners to keep the housing market funded.

- As Obama bets on Asia, regional players hedge.

The Business Insider:

- Chart of the Day: The Historical Comparison That Says Stocks Are About To Explode Higher.

- Raymond James strategist Jeff Saut has been on top of his market-timing game, calling both the runup and the recent dip. So you might want to pay attention to the fact that he's licking his chops again, at least per his latest weekly call:

- Here's a fascinating little table found in a recent presentation from Korean steelmaker Posco. Two things really stand out. One is that compared to 2009, the US is experiencing the fastest growth in the world (though total demand is expected to be less than what it was during construction-crazy 2008). But here's what really stands out. Chinese steel demand in 2009 was more than twice US, EU, Japan, and India combined, and in 2010 it's almost twice as much. In other words, China is not just a major player in the steel market. It IS the steel market, and you can't not focus on China if you're interested in global markets.

CNNMoney.com:

- Interview With Paul Volcker. Volcker sees need for financial company ‘euthanasia.’

Techcrunch:

- Facebook Launches Zero, A Text-Only Mobile Site For Carriers.

Forbes:

- America’s European Dream. Pundits unwisely want the US to emulate the Old Continent. The evolving Greek fiscal tragedy represents more than an isolated case of a particularly poorly run government. It reflects a deeper and potentially irreversible malaise that threatens the entire European continent. The issues at the heart of the Greek crisis--huge public debt, slow population growth, expansive welfare system and weakening economic fundamentals--extend to a wider range of European countries--most notably in weaker fringe nations like Portugal, Italy, Ireland, Greece and Spain (the so-called PIIGS). These problems also pervade many E.U. countries still outside the Eurozone in both the Baltics and the Balkans. But things are also dicey in some of the core European powers, notably Great Britain, which has soaring debt, high unemployment and very slow growth. Even solvent economies like France, the Netherlands and the continental superpower , Germany, have fallen short of expectations and are expected to experience meager growth for the rest of the year. Europe's poor performance undermines the widespread view held by left-leaning American pundits, policy wonks and academics about Europe's supposedly superior model.

Seeking Alpha:

- While many accounts have been written about the extremely 'shady' dealings which Goldman Sachs (GS) has/had with AIG (AIG) – which led directly to AIG's $180 billion bail-out – unless I've missed it, one of the key issues has been soft-pedaled and another has been ignored altogether. These two topics which I intend to discuss are a) that Goldman Sachs used AIG as its financial 'toilet'; and b) that Goldman Sachs had begun openly and deliberately misrepresenting assets/investments to investors starting in 2006 or 2007 – at a time when all the other banker-oligarchs were continuing to assert their “mark to model” valuations both publicly and privately.

Politico:

- Hawaii Democratic Sen. Daniel Inouye has long been a powerful booster of defense industry giants like Lockheed Martin, repeatedly helping out the $40 billion company throughout his long career in Congress. But the relationship has been far from a one-way street. A lobbyist for Lockheed Martin has bundled scores of smaller donations, directing tens of thousands of dollars into Inouye’s campaign war chest, according to his latest campaign finance reports. Inouye’s situation is hardly unique. Even as President Barack Obama vows to take on special interests, lobbyists continue to bundle millions in donations for lawmakers, often when they have a direct stake in the lawmakers’ policy portfolio.

- Plenty of Democrats viewed the Massachusetts Senate upset as a message to move cautiously. But some are convinced Scott Brown’s victory sent just the opposite message, which means the sort of intraparty power struggle that got nasty during the health care debate isn’t likely to go away anytime soon. This week, progressive groups that ran ads pushing Democratic moderates to embrace sweeping reform efforts are expected to launch a new round of ads that are likely to target the party’s already vulnerable incumbents. They won’t disclose many details such as who the targets will be, or the size of the buys, but they do say they will release new polling that shows support for including a government-run insurance plan, the so-called public option, in health care reform — an idea left for dead in Congress some months ago. “There is a real danger that some are taking away the wrong lesson from Massachusetts: to give up on health care reform and embrace a Republican-lite agenda,” said Justin Ruben, executive director of MoveOn.org.

PajamasMedia:

- The people are speaking. We are seeing a defiance of bureaucrats, officials, government propaganda, and funded climate catastrophe researchers. A scary scientific paradigm of human-induced climate change is collapsing because the cake has been over iced. The average voter has had enough of being talked down to by arrogant scientists with vested interests who present scenarios that defy that rare commodity called common sense.It was only a short time ago that climate rationalists were told they were factually wrong, that their skepticism was evil, their views were akin to Holocaust denial, and that they should be tried for crimes against humanity. However, Climategate emails show that the coterie of two dozen leading climate comrades shared this skepticism in private — yet denounced skeptics in public. Various cap-and-trade systems have been shown to be an extra tax, which may end up being distributed by the sticky fingers of the UN. Even more disturbingly, Climategate emails show two decades of systematic willful fraud. Since then, there has been the farce of Copenhagen, which the UK Taxpayers’ Alliance found cost the GDP of Malawi.

PRNewswire:

- Sequenom, Inc. (SQNM) today announced the launch of the SensiGene™ Fetal(XY) (Fetal Sex Determination) test by Sequenom's CAP accredited and CLIA-certified laboratory, Sequenom Center for Molecular Medicine (Sequenom CMM). This is the company's second laboratory developed test powered by its SEQureDx™ technology. The benefits of the SensiGene Fetal(XY) Fetal Sex Determination test include:

Reuters:

- Capella Education Co (CPLA), a provider of online post-secondary education, posted better-than-expected quarterly results, helped by strong enrollment growth, and forecast first-quarter revenue above market estimates. The company forecast first-quarter revenue up 28 percent to 30 percent, or $97.8 million to $99.3 million, compared with the same period last year. Analysts were looking for revenue of $93.6 million in the first quarter, according to Thomson Reuters I/B/E/S.

- Boutique investment bank Pali Capital said on Tuesday it plans to close after failing to find a buyer. Pali, which tried and failed to sell itself to mortgage boutique Braver Stern Securities Corp, will keep a small staff to oversee the winding down of its operations, the firm said in a statement.

- Anadarko Petroleum Corp (APC) signed Mitsui E&P USA LLC as its joint-venture partner in a $1.4 billion deal to explore for natural gas in the Marcellus Shale in Pennsylvania. In recent years, there have been a number of joint-venture deals between U.S. independents and foreign companies seeking the acreage and expertise needed to develop North America's vast shale formations.

Telegraph:

- The yields on 10-year British Gilts have risen to 4.06pc, compared to 4.05pc and 4.01pc for Spain. So if international bond markets are turning wary of Club Med sovereign bonds, they seem even more distrustful of British bonds. Eurosceptics should resist any Schadenfreude over the unfolding EMU drama in Greece. (Not to mention the huge exposure of British banks to Club Med). The Greek crisis is a dress rehearsal for attacks on any sovereign state with public accounts in disarray. While Britain went in to this crisis with a much lower public debt than Greece or Italy (though higher total debt than either), it now has the highest budget deficit in the OECD rich club — and perhaps the world — at 13pc of GDP. I have a very nasty feeling that markets are about to pounce on Britain. All they are waiting for is a trigger, perhaps a poll prediction of a hung-Parliament or further hints that Tories dare not confront the beneficiaries of state spending.

- European credit markets are flashing the most serious warnings signs in a year as the yields on risker bonds rise sharply and a string of companies cancel share floatations, raising fears that the recovery may falter in coming months. Jitters over Chinese credit tightening and default risks in Greece and Dubai are causing bond vigilantes to batten down the hatches across the world, bringing the most dramatic credit rally for a century to a shuddering halt. The Markit iTraxx Crossover index measuring yields on lower-grade debt has jumped by almost 130 basis points since mid-January to 514, while the main index of investment grade bonds has jumped by a third to 93. "This is the biggest move since the financial crisis in early 2009, said Gavan Nolan, Markit's credit analyst. "The index is a leading indicator so it is a warning signal. This is being driven by volatility in sovereign debt, with Greece being the biggest issue at the moment but tightening in China could be a bigger negative catalyst in the long-term," he said.

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Tuesday, February 16, 2010

Stocks Finish at Session Highs, Boosted by REIT, Bank and Commodity Shares

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

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