Stocks Higher into Final Hour on Less Economic Fear, Short-Covering, Technical Buying

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 17.34 -.63%
  
• ISE Sentiment Index 139.0 +5.30%.
  
• Total Put/Call .79 -10.23%
  
• NYSE Arms .71 +44.09%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 83.51 bps -2.08%
  
• European Financial Sector CDS Index 72.02 bps -2.12%
  
• Western Europe Sovereign Debt CDS Index 78.67 bps n/a
  
• Emerging Market CDS Index 213.62 bps -3.58%
  
• 2-Year Swap Spread 16.0 bps unch.
  
• TED Spread 13.0 -1 basis point
  

Economic Gauges:

• 3-Month T-Bill Yield .16% +1 basis point
  
• Yield Curve 282.0 bps +1 bp
  
• China Import Iron Ore Spot $156.30/Metric Tonne n/a
  
• Citi US Economic Surprise Index +40.10 n/a
  
• 10-Year TIPS Spread 2.30% +3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +71 open in Japan
• DAX Futures: Indicating -6 open in Germany

Portfolio:

• Higher: On gains in my Retail, Financial, Biotech and Tech long positions
  
• Disclosed Trades: Covered all (IWM)/(QQQQ) hedges and some of my (EEM) short
  
• Market Exposure: Moved to 100% Net Long

BOTTOM LINE: Today's overall market action is bullish as stocks trade near session highs, breaking out of the recent trading range, despite higher energy prices and long-term rates. On the positive side, Gaming, Semi, Oil Tanker, REIT, Networking, Steel and Oil Service stocks are especially strong, rising 1.75%+. CDS are mostly lower again. Cyclicals and small-caps are outperforming. On the negative side, Airline, Drug, Medical and Ag shares are lower on the day. Oil is breaking out of its intermediate-term trading range, despite euro weakness. Despite recent cyclical strength, transportation shares continue to underperform. Stocks are overdue for a pullback and investor angst is too subdued, but a meaningful correction will likely come from higher levels. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, technical buying and less economic fear.

Today's Headlines

Bloomberg:

• Brown Says Global Bank Levy Agreement Getting Closer, FT Reports. U.K. Prime Minister Gordon Brown said yesterday that the governments of the world’s leading economies are nearing agreement on a “global responsibility levy” on banks, the Financial Times reported. Brown told the newspaper that Britain, Germany and France are in broad agreement and he hopes the U.S. will join them.
• Bond Buyers Demand Record Downgrade Protection: Credit Markets. Bonds with built-in protection against rating cuts are making up a record share of debt issues as investors hedge against a slowdown in the economic recovery. Sales surged to $37.3 billion in March, or 12.4 percent of all debt issued, according to data compiled by Bloomberg. Most of the notes are sold in the U.S., where almost half of bonds rated as so-called junk or on the cusp of non-investment grade include the protection. Investors are concerned that debt-laden companies are at increasing risk of being downgraded this year, even as the global economy emerges from the deepest recession since the 1930s and credit markets rally. Reductions in corporate ratings and credit outlooks outpaced increases by 150 percent in the first quarter, according to Moody’s Investors Service.
• Bulls Increase With Buybacks Signaled by Profit Surge. U.S. companies are sitting on a record pile of cash after spending the lowest proportion of their profits on stock buybacks since 2003, a sign that repurchases may propel the equities rally as earnings recover. Buybacks by companies in the Standard & Poor’s 500 Index totaled $137.6 billion last year, or 28 percent of operating profit, according to S&P. The last time the ratio dropped to that level, the S&P 500 subsequently climbed for four years. U.S. firms will almost double their spending on stock repurchases to $235 billion in 2010 as earnings surge, according to Mizuho Financial Group Inc.
• New York Budget 'Shell Game' Hides Deficits and Cash Squeeze. The state of New York’s history of budget manipulation is contributing to its chronic deficits and cash squeeze, Comptroller Thomas DiNapoli said. “New York needs to stop playing games with the deficit,” DiNapoli said in a statement. By shifting money between accounts in a “fiscal shell game” state officials and lawmakers “cover cash shortfalls and avoid making the difficult decisions needed to align spending with revenues,” DiNapoli said. In the year ended March 31 the state used $6.4 billion of funds shifted and borrowed between accounts, and rolled $3 billion of payments into the current year that began April 1, the report said. Lawmakers haven’t agreed on a plan to close a deficit of more than $9 billion this year in a $135.2 billion budget proposed by Governor David Paterson.
• U.S. Economy: Services Expand at Fastest Pace Since May 2006. Service industries expanded in March at the fastest pace since May 2006, indicating the U.S. recovery is spreading beyond manufacturing and starting to create jobs. The Institute for Supply Management’s index of non- manufacturing businesses that make up almost 90 percent of the economy rose to 55.4, higher than anticipated, from 53 in the prior month. Today’s report showed the non-manufacturing gauge of new orders rose to 62.3, the highest since August 2005, from 55 the prior month, and unfilled orders increased to 55.5, the highest since August 2007. The index of employment increased to 49.8 from 48.6. While it still showed more companies reduced payrolls than added to them, the gauge was the highest since April 2008. The measure of new export orders jumped in March to the highest level since June 2007, while the index of prices paid rose to 62.9 from 60.4.
• U.S. 10-Year Yield Hits 4% for First Time Since June.
  

Wall Street Journal:

• Economic Pickup: Truck Sales Show Rebound. Tucked inside auto industry's strong U.S. sales report for March last week was a little-noticed portent for the broader economy: Full-sized pickup trucks outperformed the overall automotive industry, according to Autodata Corp.
• Commercial Bankruptcies Increase. The total number of companies filing for bankruptcy in the U.S. jumped by more than 20% in March over the previous month, as business failures in the first quarter outpaced last year's total.The total number of commercial bankruptcy filings hit 8,208 in March, a sharp rise from February's total of 6,655, according to new data from Automated Access to Court Electronic Records. March's total brings the total number of commercial bankruptcies to 21,453 so far this year, almost 1,000 more than the total for the first quarter of 2009, a breakout year for business filings.

CNBC:

• Apple(AAPL) to Preview New iPhone Software. Apple is set to host an event on Thursday to show off the newest operating system software for the iPhone, as the company prepares for a widely expected launch of its next-generation smartphone later this year.

NY Post:

• Huge 25% Tax Hike for Small Businesses Kills New York Jobs. America's jobs growth engine is being choked to death. A record 25 percent increase in the taxes against US small businesses -- from costs associated with new health care law, to an increased Medicare tax, increased capital gains taxes and higher state and city taxes -- is repealing any ability of these entrepreneurs to add jobs to their payroll. And the numbers for New York's small- to medium-sized business are just as harrowing. By one estimate, the effective tax rate on the 26 million small businesses across the country -- which in the past have accounted for more than half of the job growth in the US -- has jumped to 50 percent from 40 percent, sucking valuable cash from the businesses. These dollars could have been used to add to payrolls or make capital improvements -- but instead will be siphoned off by Uncle Sam, state and municipal governments. A survey of 200 small businesses across the US by the economist found 51.5 percent of business owners in March were concerned about the viability of their businesses -- up from 49.5 percent in February. More than eight million jobs have been lost during the current 28-month recession.While a healthy 162,000 jobs were added in March, it was accomplished with the help of heavy government stimulus. Meanwhile, the average length of joblessness rose to 31 weeks and hourly earnings were down, albeit slightly. In New York, interviews with more than a dozen small business owners by The Post found a group of owners hurting under the weight of the new taxes.

Business Insider:

• Why Greece Will Default For Sure. Wolfgang Münchau, of Eurointelligence, shows how it's obvious Greece will default, based its current course. It doesn't take rocket science to do the math.

zerohedge:

• On The Inevitable Surge Of Tax Rates. For all who doubt the Obama administration will raise tax rates into the stratosphere in the very near future, here is a chart created by dshort.com which compares the total level of debt to GDP with Federal tax brackets over the past century.
  

Rolling Stone:

• Looting Main Street. How the nation's biggest banks are ripping off American cities with the same predatory deals that brought down Greece.

San Francisco Chronicle:

• National Debt Seen Heading for Crisis Level. Lost amid last month's passage of the new health care law, the Congressional Budget Office issued a report showing that within this decade, President Obama's own budget sends the U.S. government to a potential tipping point where the debt reaches 90 percent of gross domestic product. Economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University have recently shown that a 90 percent debt-to-GDP ratio usually touches off a crisis. This year, the debt will reach 63 percent of GDP, a ratio that has ignited crises in smaller wealthy nations. Fiscal crises gripped Canada, Denmark, Sweden, Finland and Ireland when their debts were below where the United States is shortly headed. Japan's debt is much higher, but most of it is held domestically, and Japan's economy has been weak for 20 years. "I really don't think we want to be like Japan," said UC Berkeley economist Alan Auerbach. The Obama budget will add $10 trillion to the national debt in the next decade and will not stabilize the deficit, the CBO found. Deficits are expected to dip as the recovery takes hold, but never below $724 billion a year. Interest costs alone will consume $5.6 trillion this decade. A balanced budget has been widely ruled out as unattainable. "The real problem is not just current deficits but where we're heading," Auerbach said. The polling firm Democracy Corps recently warned Democrats that the deficit now tops unemployment as a voter concern. But it also found voters "unenthusiastic" about the options to close the deficit. Voters overwhelmingly prefer spending cuts to tax hikes but reject cutting specific programs. Democrats are already picking off low-hanging, deficit-reduction fruit to increase spending instead. Led by Rep. George Miller, D-Martinez, Democrats approved $61 billion in savings last week by cutting banks out of student lending - and used it to expand aid to students and colleges. Democrats often give the impression that taxes on the rich can fix everything. But the center-left Tax Policy Center ran simulations showing that Obama's budget would have to raise $775 billion in new taxes every year to stabilize deficits at 2 percent of GDP. That means that if Obama keeps his promise not to raise taxes on the middle class, the rich would pay 90 percent of their income in taxes, the center said. $10 trillion Amount the Obama budget will add to the national debt in the next decade. $5.6 trillion Amount interest costs alone will consume this decade. 63% Debt-to-gross domestic product ratio this year. 90% Debt-to-gross domestic product ratio anticipated within this decade.

Pensions & Investments:

• Derivatives Exemption Sought for Defined Benefit Plans. Pension lobbyists are urging Congress to exempt defined benefit plans that use swaps and other derivatives from being required to set aside cash for margin requirements and to settle some swaps trades through central clearinghouses. The proposals would require major users of swaps to meet capital requirements, maintain margin levels and settle many of their swaps trades through a central clearinghouse. Currently, most swaps trading takes place in largely unregulated, over-the-counter markets without central clearing requirements. The Massachusetts Pension Reserves Investment Management Board, Boston, reported total notional value of derivatives and swaps of $8.047 billion as of June 30, 20.6% of the fund's total assets of $38.947 billion at the time.

Rasmussen Reports:

• 54% Still Favor Repeal of Health Care Law. Now that his health care initiative has passed, President Barack Obama has hit the campaign trail to sell it to voters. Early indications are that despite all the spin from both sides, hardly anybody is changing their mind. Currently, two weeks after passage, 54% of the nation's likely voters still favor repealing the new law. The latest Rasmussen Reports national telephone survey shows that 42% oppose repeal. They include 43% who Strongly Favor repeal and 32% who Strongly Oppose it. Repeal is favored by 80% of Republicans and 57% of unaffiliated voters. Sixty-eight percent (68%) of Democrats oppose repeal.

Politico:

• More than a quarter of Americans count themselves as supporters of the tea party movement, according to a new Gallup Poll out Monday. The survey of 1,033 adults polled nationwide shows that 28 percent said they are a “supporter” of the movement, while 26 percent said they are an “opponent” of tea party activists. Thirty-eight percent said they neither back nor oppose the movement. Forty-three percent of the independents surveyed said they support the tea party.
• Poll: Whitman, Boxer Lead. Republican former eBay CEO Meg Whitman is leading in the California governor's race and Democratic Sen. Barbara Boxer is under 50 percent in her battle for reelection, according to a Los Angeles Times/USC poll released Monday. Whitman leads Democratic Attorney General Jerry Brown by three points, 44 percent to 41 percent, in a general election match-up.
• If 'Too Big' Banks Fail, Directors Must Share Pain. To prevent another economic disaster, we need financial regulations that hold a financial institution’s owners, directors and executives accountable. We must also have the option to break up companies whose very size could pose a systemic risk if they fail. Unfortunately, the new bill proposed by Sen. Chris Dodd (D-Conn.) does none of this. It skirts accountability and ignores the inherent threat of size.
  

Reuters:

• China Economist Sees "Room for Talk" on Currency Row. A Chinese government economist said on Monday that the U.S. decision to delay a contentious currency report did not mean Beijing will change the value of its currency any time soon.
• CEO PAY - CEOs of Bailed-Out U.S. Regional Banks Get Raises. As 2009 came to a close, Fifth Third Bancorp (FITB) was preparing to report its sixth loss in seven quarters. The Cincinnati-based regional bank had received $3.4 billion of TARP funds with no immediate plan to repay. And its Midwestern market was still struggling with a shrunken auto sector and high mortgage foreclosure rates. Nonetheless, the board of Fifth Third, the nation's 17th-biggest bank, decided to increase the compensation of Chief Executive Kevin Kabat by 56 percent, to $5.2 million -- even though the bank was barred from paying him a bonus because of the bailout rules.
• Greece Blames Germany for "Racial Approach" on Aid. Germany's hard line on aid for Greece has been based on a "moral, racial approach" and the prejudice that Greeks don't work enough, Greek Deputy Prime Minister Theodoros Pangalos told a Portuguese newspaper. Polls show Germans are overwhelmingly against a financial bailout for Greece and Chancellor Angela Merkel ensured at a summit in Brussels last month that tough conditions were attached to any such aid.
• Natural Gas Boom Brings Riches to a Rural US Town.
  

Financial Times:

• US Banks in $2.5bn 'Christmas Capital' Gain on Discounted Assets. US banks earned $2.5bn (£1.63bn) last year from an accounting rule that enables them to book gains - known as "Christmas capital" - by buying assets at a discount, a study shows. More than half of all acquisitions of failed banks last year resulted in such gains, according to SNL Financial, which compiled the data. For some banks, the gains contributed to the lion's share of their income for the year. It emerged last week that leading bank regulators were discussing guidelines to limit how much of a bank's capital can be comprised of such gains, according to people familiar with the situation. "Regulators are trying to get their hands around what is real capital and what is accounting capital," said one person who has worked on some of these transactions.
• Decline of US Commercial Property Slows. Occupancy at US office buildings fell to the lowest level since 1994 in the first quarter of this year, but there are signs that the worst could be over for the stricken commercial property market. New figures from Reis, a commercial real estate research company, showed that the vacancy rate in the US office sector climbed to 17.2 per cent during the first three months of the year. It stood at 15.2 per cent in the same quarter of 2009, but the pace of deterioration has slowed as the labour market has stabilised. Reis notes that commercial real estate, like unemployment, tends to lag behind economic recoveries and that it could be another year to 18 months before the trends of rising vacancies and falling rents are reversed. “We expect less of a bloodbath in fundamentals in 2010 versus 2009, but rents will still decline and vacancies will still continue to rise,” said Victor Calanog, director of research at Reis. “Before employers lease new space, they need to hire more people.”

TimesOnline:

• George Soros Backs Oxford to Refresh Economics. George Soros is to create a new economics institute at Oxford University. It is part of an attempt to steer the discipline away from the champions of the free market and deregulation who, the billionaire financier believes, share the blame for the global economic crisis. The institute, as yet unnamed, is being funded by the New York-based Institute for New Economic Thinking (Inet), a think-tank and educational and grant-giving organisation founded last October with a $50 million pledge from Mr Soros to stimulate debate about the role of government regulation in the economy and financial markets. A broader, interdisciplinary approach to economics, taking in history, psychology, natural science — to deal with issues such as climate change — and even literature was now needed, Mr Johnson suggested. Mr Soros has donated $5 million to Oxford’s James Martin 21st Century School, which is putting in another $5 million, to create the new institute, which will be headed by Professor Sir David Hendry, a fellow of Nuffield College. It is the first of a dozen or so that Mr Soros hopes to set up at leading universities worldwide. Inet is talking to Cambridge as well as higher education universities in Germany, France, China, Italy and the United States, where there have been discussions under way with Princeton, Columbia and New York University. Oxford was chosen for the first institute because Mr Soros believed that Britain was more open to broadening the economic debate than the US, Mr Johnson said. We want to go to a climate where the minds are open. We find the climate in the UK to be much more conducive to change. “Part of what the 21st Century School is trying to do is to broaden the debate and get a plurality of voices and think of different ways of modelling.”

Valor Economico:

• U.S. officials asked the Brazilian government to delay the adoption of retaliatory measures in a trade dispute over cotton subsidies to allow time for talks. Brazil will raise import tariffs on 102 U.S. goods, including wheat, cars and boats, starting April 7 if talks over the U.S. subsides fail.
  

Bear Radar

Style Underperformer:

• Large-Cap Value (+.54%)

Sector Underperformers:

• Airlines (-1.77%), Agriculture (-.34%) and Drugs (-.27%)

Stocks Falling on Unusual Volume:

• CAL, BA, PFE, TSO, APL, SCHL, RIMM and INDB
  

Stocks With Unusual Put Option Activity:

• 1) WU 2) SD 3) KBH 4) PNC 5) NE
  

Bull Radar

Style Outperformer:

• Small-Cap Growth (+1.44%)

Sector Outperformers:

• Gaming (+2.72%), Homebuilders (+1.99%) and Steel (+1.95%)

Stocks Rising on Unusual Volume:

• CREE, ME, ARD, VECO, AIXG, NIHD, CBEH, GEOI, RBCN, OSTK, KMGB, GPOR, AUXL, HWCC, HOLI, RDEA, ISSI, LQDT, PNRA, WPRT, BOFI, EVVV, CNQR, FINL, BW, WPO, RS, VHI, AGM and TDG
  

Stocks With Unusual Call Option Activity:

• 1) IGT 2) CVA 3) PNRA 4) COST 5) CREE
  

Monday Watch

Weekend Headlines
Bloomberg:

• U.S. Companies See 'Diminishing' Access in China. U.S. companies in China are being constrained by a host of new regulations restricting their market access, a survey by the American Chamber of Commerce in China shows. For the first time in the survey’s 12-year history, U.S. firms reported that their biggest challenge was “inconsistent regulatory interpretation” on the part of China’s government, such as new rules mandating purchases of home-grown technology and irregular enforcement of laws. In past years personnel issues, such as hiring experienced managers, were top concerns. “These policies appear to be diminishing the ability of foreign companies to access the Chinese domestic market, right at the time China shifts from being an export-led economy to a more domestic-consumption-led economy,” John Watkins, Amcham’s chairman, said in a preface to today’s report.
• China's Central Bank Sees New Asset Bubbles Emerging. China’s central bank said asset bubbles are emerging in parts of the world and in certain industries that may burst unless supported by real economic recovery. Rapid asset price increases in major markets since 2009 have been pushed by “ultra-loose” monetary policies by governments around the world and “don’t mean real economies have recovered or will recover strongly,” the People’s Bank of China said in a report posted on its Web site today. Such gains “unless they receive sufficient support from macroeconomic fundamentals, may lead to a new round of asset bubbles that may burst,” the Beijing-based bank said. Governments worldwide have spent more than $2 trillion in fiscal stimulus to spur growth and may face difficulty coordinating exit strategies because of the “unbalanced global recovery,” the central bank said. The withdrawal of support, together with the threat of inflation and the risks surrounding the sovereign debt of some economies complicate the process, the PBOC said. The PBOC’s comments today echo those of other international central bank officials. Donald Tsang, Hong Kong’s chief executive, said Nov. 13 that he was “scared” that money flowing into Asia because of low interest rates in the U.S. could lead to another crisis in the region. World Bank President Robert Zoellick told Australian Financial Review on Jan. 13 that a liquidity-driven world recovery faces the risk of asset price inflation.
• Japan's $15 Trillion Not Enough to Make It a Buy: William Pesek. Every few years, investors get all enthusiastic about Japan. This time the recovery is for real, they argue. This time real change is afoot. This time buy yen-denominated assets and don’t look back, they conclude. The end result tends to be disappointment. This latest episode of euphoria is likely to be more of the same.
• Goldman Sachs(GS) Fund Buys Stake in Ganek's $4 Billion Hedge Fund. A Goldman Sachs Group Inc. buyout firm bought a minority stake in David Ganek’s $4 billion Level Global Investors LP, adding a hedge fund that can bet on rising as well as falling stock prices globally.
• Oil Climbs to 17-Month High on Speculation Demand Recovering. U.S. crude oil stockpiles have posted nine straight weekly increases and held 354.2 million barrels on March 26, 6.5 percent above the five-year average for the period, the Energy Department said last week. The Organization of Petroleum Exporting Countries pumps about 40 percent of the world’s oil and slashed output in January 2009 to prevent a glut. The group left its production targets unchanged when ministers met in Vienna on March 17.
• JPMorgan(JPM), Citigroup(C) Resist Nuns' Proposal on Swaps Disclosure. Goldman Sachs Group Inc. and JPMorgan Chase & Co. aren’t doing “God’s work” when it comes to derivatives, according to investor groups of nuns and priests. Shareholders will vote starting this month on proposals sponsored by the Sisters of Charity of Saint Elizabeth and 14 other religious organizations, asking Goldman Sachs, JPMorgan, Citigroup Inc. and Bank of America Corp. to give more information on the collateral used in their derivatives trading. It’s the first time the four banks, among the largest U.S. swaps dealers, will put to a nonbinding vote a call to explain how collateral of derivatives customers is used and to keep it from other accounts.
• Prozac Pilots May Fly as FAA Drops Ban on Medicines. Pilots taking Prozac will be permitted to fly as U.S. regulators drop a decades-old ban on four antidepressants including the Eli Lilly(LLY) drug.
• Apple(AAPL) May Sell 7.1 Million iPads in 2010, ISuppli Predicts. Apple Inc. may sell 7.1 million iPads globally this year, driven by “early adopters” and users attracted by its “touch-screen-based interface,” said El Segundo, California-based researcher iSuppli Corp.
• Putin Signs Accords With Chavez in Venezuela Trip. Russian Prime Minister Vladimir Putin signed billions of dollars in energy, agriculture and commercial accords with Venezuelan President Hugo Chavez today in Caracas during his first visit to the OPEC nation. Under the agreements, a group of Russian energy companies including OAO Gazprom and OAO Lukoil will work with Petroleos de Venezuela SA in an $18 billion project to develop an oil field that will eventually produce 450,000 barrels per day, Oil Minister Rafael Ramirez told reporters on March 31.
• Verizon(VZ) Joins AT&T(T) in Booking Costs From Health-Care. Verizon Communications Inc., the second-largest U.S. phone company, became the latest company to record a cost related to the U.S. health-care overhaul, saying it will incur a $970 million expense. Verizon follows AT&T Inc., the biggest U.S. carrier, Deere & Co., Caterpillar Inc. and other companies in disclosing similar expenses after losing a tax benefit for retiree plans. The costs may reduce corporate profits by as much as $14 billion as companies account for the impact of the health-care reforms, according to benefits consulting firm Towers Watson. “While it is a non-cash charge, it does reflect real value destruction, based on expected cash flows over the life of the company,” said Jonathan Schildkraut, an analyst at Jefferies & Co. in New York. The almost $1 trillion program is meant to provide medical coverage to uninsured Americans and force insurance companies to lift restrictions, such as denying coverage based on pre- existing conditions. The federal government pays a subsidy to companies that provide retiree prescription drug coverage. Under prior law, those subsidies were tax-exempt. The new law eliminates the tax break starting in 2013. Verizon said in February that it had about 213,000 retirees at the end of last year. “This is having an impact on the bottom line and that can cut jobs,” said Chetan Sharma, an independent wireless analyst in Issaquah, Washington. “I am not sure the final story has been told on this” because most companies still don’t know exactly how the new law will affect them, he said. In a note to employees after the law was passed, Verizon said that the law would make the federal subsidy to provide retiree benefits less valuable to employers and so “may have significant implications for both retirees and employers.” Craig Mathias, founder of wireless consultant Farpoint Group, said consumer prices for communications services may climb in about a year as the economy recovers. “The money is going to come from somewhere,” Mathias said. “Guess where it’s going to come from? Us customers.”
• Silicon Valley Gears Up for Acquisitions as Economy Improves. Silicon Valley companies looking to put their cash to work may drive a wave of mergers this year, bankers and venture capitalists say.
• Geithner Counts on Delay to Let China Strengthen Yuan. Treasury Secretary Timothy F. Geithner, by delaying a report on global currency policies, is betting international diplomacy will work better than U.S. pressure to get China to strengthen the yuan. In an April 3 statement, Geithner announced the delay of the report, scheduled for April 15, and urged China to move toward a more flexible currency. He said a series of meetings over the next three months will be “critical” to bringing policy changes that lead to a stronger, “more balanced” global economy. The decision came days after Chinese President Hu Jintao announced plans to visit Washington for a nuclear summit April 12-13.

Wall Street Journal:

• Iran Nuclear Ring Probed. Western Authorities Investigate China Connection in Export of French Valves. An Iranian firm closely linked to Tehran's nuclear program acquired special hardware for enriching uranium, despite sanctions intended to keep such equipment out of Iran, according to officials with knowledge of the matter. In recent weeks, the officials said, an Iranian procurement firm obtained critical valves and vacuum gauges made by a French company that until December was owned by U.S. industrial conglomerate Tyco International(TYC).
• Federal Prosecutors Leaning Against Charges in AIG(AIG) Probe. Federal prosecutors, after a two-year investigation, may soon decide not to charge American International Group Inc. executives for their role surrounding financial contracts that nearly brought down the company, according to people familiar with the matter. Recently obtained evidence has prosecutors leaning against pursuing charges, though no final decision has been made by Justice Department prosecutors in Washington, these people said. A Justice Department spokeswoman declined to comment.
• SandRidge to Acquire Arena Resources. Oil and gas exploration firm SandRidge Energy is acquiring west Texas rival Arena Resources Inc. for $1.6 billion, a deal that shifts SandRidge further into conventional oil-field assets amid a continued fall in natural-gas prices. SandRidge will pay Arena shareholders $2.50 in cash and 4.77 shares of stock for each Arena share, which values Arena at $40 per share. That is a 17% premium from its Friday close of $34.26.
• Iran Sanctions Yield Little.
• SEC Lawyer One Day, Opponent the Next. The revolving door can turn swiftly at the Securities and Exchange Commission. Steven Richards left the SEC in July 2008 as a top accountant in the enforcement division to join the global business advisory firm FTI Consulting. Five days later, he signed on to represent a client involved in a "nonpublic investigation" by his old division. In August 2008, Andrew Dunbar left his job as an enforcement lawyer in the SEC's Los Angeles office to take a job with the law firm Sidley Austin. Eleven days later, he was tapped to help a client answer an "informal request for information" from the same office.
• Unserious About Iran. Obama is Acting as if He Believes a Nuclear Tehran is Inevitable. 'Our aim is not incremental sanctions, but sanctions that will bite." Thus did Secretary of State Hillary Clinton seek to reassure the crowd at the American Israel Public Affairs Committee two weeks ago about the Obama Administration's resolve on Iran. Three days later, this newspaper reported on its front page that "the U.S. has backed away from pursuing a number of tough measures against Iran" in order to win Russian and Chinese support for one more U.N. sanctions resolution. This fits the pattern we have seen across the 14 months of the Obama Presidency.

IBD:

• Ugg Brand's Staying Power Drives Growth For Footwear Maker. Legg bought her first pair of Ugg boots, made by Deckers Outdoor (DECK), when she moved to Chicago four years ago. She was so impressed with the boots, she's since bought four pairs of Ugg clogs and Ugg flip-flops.

NY Times:

• Criticism of Chavez Stifled by Arrests. When Judge María Lourdes Afiuni issued a ruling in December that irked President Hugo Chávez, he did little to contain his outrage. The president, contending on national television that she would have been put before a firing squad in earlier times, sent his secret intelligence police to arrest her. Then the agents took her to the overcrowded women’s prison in this city of slums near Caracas. They put her in a cell near more than 20 inmates whom Judge Afiuni had sentenced on charges like murder and drug smuggling. “I’ve received threats from inmates telling me they will burn me alive because they see me as a symbol of the system that put them in prison,” said Judge Afiuni, 46, in her prison cell. “I’m in this hell because I had the temerity to do my job as a judge in a way that didn’t please Chávez.” Since Judge Afiuni’s imprisonment, a dizzying sequence of other high-profile arrests has taken place, pointing to Mr. Chávez’s recent use of his security and intelligence apparatus to quash challenges to his grip on the country’s political institutions.
• Sharp Increase in March in Personal Bankruptcies. More Americans filed for bankruptcy protection in March than during any month since the federal personal bankruptcy law was tightened in October 2005, a new report says, a result of high unemployment and the housing crash. Federal courts reported over 158,000 bankruptcy filings in March, or 6,900 a day, a rise of 35 percent from February, according to a report to be released on Friday by Automated Access to Court Electronic Records, a data collection company known as Aacer. Filings were up 19 percent over March 2009. The previous record over the last five years was 133,000 in October.
• How Washington Abetted the Bank Job. A FEW weeks ago, two Republican House members asked Ben Bernanke, the chairman of the Federal Reserve, whether the Fed knew — before Lehman’s bankruptcy examiner revealed it — about the bookkeeping scam at Lehman known as “Repo 105.” This scam allowed Lehman to disguise how much debt it was carrying, right up until it collapsed. Lehman got new loans to pay off old loans, pretended the new loans were “sales,” and through a complicated series of steps made both the old and new loans disappear just in time for its quarterly reports.

NY Post:

• Dimon Mulls JPMorgan Chase(JPM) Succession Plan. One of Wall Street's kings is preparing his succession plan. According to people familiar with the matter, JPMorgan Chase CEO Jamie Dimon will be borrowing a page from the military's playbook and shuffling the roles of his key lieutenants in order to set the stage for his eventual successor. Among those likely to see their jobs change in the next few months is CFO Michael Cavanagh; Charlie Scharf, CEO of the bank's massive retail-services unit; and Samuel "Todd" Maclin, CEO of commercial banking. All three are considered potential successors to Dimon and could be asked to either swap roles or take on fresh assignments at the bank to develop their "leadership skills."
  

Business Insider:

• Rick Bookstaber: Want To Know Where The Next Crisis Is Brewing? Check Out The Muni Market. On his personal blog he lays out where to look next for a serious crisis, and his answer is the municipal debt market. But first, he lays out six preconditions for a serious crisis:
• Markets No Longer Buying Europe's Bailout Talk On Greece, Bond Yields Now Rising Again.
• 600,000-700,000 iPads Sold On First Day, Says Munster, Who Called Stores.
  

zerohedge:

• Goldman(GS) Joins JPMorgan(JPM) On The PR Offensive Against The US Middle Class, As Americans Find A Surprise Champion In The Face Of Fed's Tom Hoenig. The campaign by the big banks against the people of the US is getting louder by the day. First, it was JP Morgan' Jamie Dimon, who segued into the Goldman "god' banker" refrain that all megabanks are not just critical but need to get even bigger in the form a 36-page lament to shareholders (in which among other things he repeats that even though JPM was bailed out, and even though it was handed Bear with Maiden Lane I left to pick up all the crap he did not want, none of those activities by the US taxpayers were necessary), and today it is none other than Goldman Sachs, which after prudently keeping a low public profile for a few months, is about to remind everyone who runs the world. And with the US public comprised of phlegmatic sheep, or morts as Michael Lewis put it very graphically, it appears that nobody is willing to stand up to those who run not just the markets, the economy and the administration, than the Fed's contrarian Tom Hoenig.

Seeking Alpha:

• Jobs Increase by 136,000; Unemployment Rate Holds at 9.7%; BLS Refuses to Address My Question on Seasonality.

The Chicago Tribune:

• $20 Million in Loans to Felons. Broadway Bank lending, when Alexi Giannoulias was senior loan officer. The family bank of Democratic Senate candidate Alexi Giannoulias loaned a pair of Chicago crime figures about $20 million during a 14-month period when Giannoulias was a senior loan officer, according to a Tribune examination that provides new details about the bank's relationship with the convicted felons. Broadway Bank had already lent millions to Michael Giorango when he and a new business partner, Demitri Stavropoulos, came to the bank in mid-2004. Although both men were preparing to serve federal prison terms, the bank embarked on a series of loans to them. Alexi Giannoulias took a senior position at the bank at about the same time and used it as a launching pad for his political career. But as he campaigns to step up from state treasurer to the U.S. Senate, he has tried to distance himself from the bank's business with the pair and has been reluctant to detail his role.

Philly.com:

• Pickens: Drilling Isn't the Answer. T. Boone Pickens, the famous Texasoilman, billionaire investor and energy evangelist, listened the other day to President Obama'splan to expand offshore oil and natural-gas drilling. He was not particularly impressed. "It was kind of disappointing," Pickens said Thursday in the office of BPCapital L.P., the hedge fund at the center of his empire. He's fine with offshore drilling. But he said that there were no substantial Atlantic oil reserves where Obama lifted a ban on drilling, and that untapped oil in Alaskawould provide only a fraction of the nation's supplies. Neither would aim the country where Pickens said it needs to go - energy independence from America's "enemies" in OPEC. Pickens told New York listeners he was mystified by the uproar gas drilling had caused in the Marcellus Shale region, where environmentalists oppose hydraulic fracturing (fracking), an extraction technology involving high-pressure injections of sand and drilling fluids into a well. The EPA recently announced it would study fracking. "You've been fracking wells in Texas and Oklahoma for 50 years," Pickens said. "I've never heard anybody complain about your damaging the water. We're just amused that people in Pennsylvania and New York are crying about messing up their water."

Big Government:

• Hedge Fund 'Golden Boys' Bet on Bailouts; Win Big. The world’s top hedge fund managers made hay last year with record pay because their much-maligned sector bet heavily on recovery of the financial sector after it received state aid, a survey showed. The 25 chief executives of global financial heavyweights pocketed a total of 25.33 billion dollars (18.6 billion euros), doubling their earnings from 2008, according to a ranking by industry magazine AR Absolute Return+Alpha. “The world may still be coming out of the Great Recession, but for the richest hedge fund managers, 2009 was the best year ever. And it couldn’t have happened without the carnage of 2008,” the magazine said. Seven hedge fund managers broke the one-billion-dollar mark last year, while the last one on the top-25 list made 350 million dollars. George Soros, the legendary US financier of Hungarian origin who once made a fortune correctly hedging that Britain would leave the European exchange rate mechanism, took the second spot with 3.3 billion dollars. For the record, we have no problem with people, even hedge fund managers, making buckets of money. That’s capitalism. But, the increasing intersection of the financial markets and government is troubling. As we all know, George Soros directs rivers of money into leftist advocacy groups, who promote the very bailout programs that supported his financial bets. John Paulson has given millions to the Center for Responsible Lending, who also advocates for these programs. There is an emerging trend of using leftist public policy groups for private profit. We’ll have more to say on this in the coming weeks.

Pensions & Investments:

• Asset Plunge Hits Top 25 Hedge Fund-of-Funds Firms. Aggregate assets managed by the 25 largest hedge fund-of-funds managers dropped more than one-third in the rocky 18 months ended Dec. 31, according to survey data.

Institutional Investor:

• Investment Bank Fee Frenzy. Investment bank revenues (read: fees) actually rose last year. That’s not surprising, really. Investment banks often do well when markets are distressed, and deals abound for those with money. The fee frenzy in some sectors, however, is remarkable. The real estate sector saw its highest year-on-year increase in fee generation — 46 percent, to roughly $3 billion. Revenues generated by financial institutions (commercial banks, credit unions, insurance companies and the like) hit $22.9 billion, an increase of 1 percent from 2008. Federal home loan banks were the largest payer of fees. (Background: the Federal Home Loan Bank System, more than 8,000 community banks, is a prime source of low-cost funding in the U.S.) Merger and acquisition fee revenue, reflecting a falloff in global deals, declined 41 percent last year, to $12.9 billion from $21.9 billion in 2008. The Asia-Pacific’s share of global revenue increased, to 20 percent from 13 percent. JPMorgan(JPM) was the top-earning bank by far, with $5.46 billion in global net revenue, followed by Bank of America Merrill Lynch ($4.06 billion) and Goldman Sachs ($4.04 ­billion). All of which goes to the common wisdom that banks, not unlike savvy politicians, never let a crisis go to waste.

Forbes:

• Top 10 Sectors Venture Capital Likes Right Now.

Boston Globe:

• Short-Term Customers Boosting Health Costs. Thousands of consumers are gaming Massachusetts’ 2006 health insurance law by buying insurance when they need to cover pricey medical care, such as fertility treatments and knee surgery, and then swiftly dropping coverage, a practice that insurance executives say is driving up costs for other people and small businesses.

LA Times:

• Hyundai to Include an iPad in New Luxury Car. The carmaker, known for its budget wheels, is tapping into the hype over Apple's(AAPL) new tablet computer to add cachet to its Equus sedan.
• Despite Dire Budget Warnings, Los Angeles' Payroll Continued to Grow. The mayor and City Council continued to expand L.A.'s workforce and awarded generous union contracts as they were being warned of the looming recession and the need for cutbacks. Threats this week by Los Angeles' powerful municipal utility to withhold $73 million from the treasury helped reveal a city that has become increasingly dependent on indirect and onetime sources of revenue to pay its bills. Combined with the worst economic decline since the Depression, those dwindling sources of cash have forced city officials to confront a problem they have long tried to ignore -- a steady growth of the city payroll for the last decade. The city's core 35,000-member workforce increased by at least 3,000 between 2000 and 2009. During the same time, Los Angeles' yearly pension contributions more than tripled to $723 million, fueled by investment losses but also by the larger payroll.

Politico:

• Senate Challenges Signal Deep Unrest. How deep does the anti-Washington sentiment run? The number of senators in both parties facing serious primary challenges this year — a figure that has grown in the past six weeks — offers a clue.

Reuters:

• Starbucks(SBUX) Goes Upmarket with Seattle Test Cafe.
• Tesoro(TSO) Refinery Fire Ignited Suddenly: Safety Board. Seven workers at Tesoro Corp's Anacortes, Washington, refinery had no time to escape after a large hydrocarbon vapor release ignited within seconds, the lead investigator for the U.S. Chemical Safety Board said on Sunday.

Financial Times:

• New Fears Over Speed of China's Growth. China Construction Bank Corp. Chairman Guo Shuqing said economic growth of 9.5% would be "very problematic" for the nation. Such rapid economic expansion "will mean more duplication of construction, more excess capacity and higher waste of capital," Guo said in an interview. "We have some problems with oversupply of money and liquidity increased dramatically and we are definitely going to pay some costs for that in the form of asset bubbles or rising inflation," Guo said.

Telegraph:

• Deflation on the Prowl as Bernanke Shuts Down His Printing Press.

BBC:

• South Korea Ship Torpedo 'likely' - Defence Minister. Kim Tae-young said it was a "likely possibility" the Cheonan had been hit by such a missile, but that all possibilities needed to be considered. Mr Kim did not say who would have fired a torpedo or under what circumstances it could have happened. Rescuers are still searching for 46 sailors missing on board the ship.

Les Echos:

• France may cut an extra 100,000 civil service jobs between 2011 and 2013 to reduce state expenditures, citing the head of the ruling UMP party's parliamentary group, Jean-Francois Cope. Cutting public debt should be achieved by reducing public spending and not by increasing taxes for households and companies, Cope said.

Ansa:

• The IMF says the ECB should keep its benchmark interest rate low to help sustain the economic recovery, citing a draft of a report scheduled to be published later this month. "The recovery is still weak, and therefore the outlook for inflation remains low," the IMF said in a draft of its next World Economic Outlook. "It's appropriate to keep interest rates exceptionally low and to act very slowly in abandoning quantitative measures and changing collateral requirements."

EETimes:

• Inside the iPad: Samsung, Broadcom(BRCM) Snag Multiple Wins. Report shows 64-bit memory path, three touch-screen chips. The Apple iPad sports an unusually high processor-to-memory channel, an abundance of touch-screen silicon and a novel case design, according to a teardown report from UBM TechInsights, a sister division of EE Times. The report shows Samsung and Broadcom are among the major silicon suppliers in the system released to much fanfare Saturday (April 3).
• Record Sales Seen for Optoelectronics, Sensors, Discretes. Sales of optoelectronics, sensors/actuators and discrete semiconductors are all expected to reach record highs in 2010 following a down year in 2009, according to market research firm IC Insights Inc. Sales of optoelectronics are projected to increase 27 percent to $23.3 billion, while sensor/actuator revenue is expected to increase 33 percent to $6.8 billion, according to IC Insights' 2010 O-S-D Report. Sales of discrete semiconductors are expected to grow 29 percent to $19.7 billion in 2010, according to the report. Within the sensors/actuators market segment, sales of devices made with microelectromechanical systems (MEMS) technology are projected to grow 34 percent to $5.6 billion in 2010 after declining 5 in 2009 to $4.2 billion, IC Insights (Phoenix) said.

The Australian:

• Finds Fuel Deep-Sea Oil Rush. THREE significant new oil and gas regions have been identified off Australia's coast, raising the potential for a wave of offshore exploration that could create booming new resources hubs around the nation.

Xinhua:

• China wants developed countries to devote public funds and allocate their budgets to finance the global battle to address climate change, citing Assistant Finance Minister Zhu Guangyao. Developed countries must take responsibility for their historic roles in emitting greenhouse gases and stick to their commitments made at the Copenhagen climate change conference, Zhu said. The world needs to raise $100 billion a year to deal with climate change by 2020, citing Zhu.
  

Weekend Recommendations
Barron's:

• Made positive comments on (SONC), (KALU), (DVA), (CVS), (RS), (WPO), (MDR), (GILD), (HRB), (CVE), (LINTA) and (NEM).

Night Trading

• Asian indices are -.25% to +50% on average.
• Asia Ex-Japan Investment Grade CDS Index 94.50 -3.5 basis points.
• S&P 500 futures +.43%.
• NASDAQ 100 futures +.61%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
10:00 AM EST

• The ISM Non-Manufacturing Index for March is estimated to rise to 54.0 versus 53.0 in February.
• Pending Home Sales for February are estimated to fall -1.0% versus a -7.6% decline in January.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Treasury's $8B 10-Year TIPS auction could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity stocks in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the week.

Weekly Outlook

Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Calendar by TradeTheNews.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on tax hike worries, profit-taking, China bubble/trade concerns, increasing energy prices, rising long-term rates and more shorting. My intermediate-term trading indicators are giving mostly bullish signals and the Portfolio is 75% net long heading into the week.