Tuesday Watch

Late-Night Headlines
Bloomberg:
- Boeing Co.(BA) signed a $5.5 billion contract to provide state-owned Iraqi Airways with 40 new aircraft, including 787 Dreamliners and 737s, Thomson Financial reported. Iraq also has an option to buy 15 more planes.
- Schering-Plough Corp. CEO Fred Hassan said he stands behind Vytorin, its cholesterol drug that a study presented at the American College of Cardiology said is no more effective than some generic counterparts. “We stand behind the science,” Hassan said. “We stand behind our product.” Hassan criticized the study, saying it wasn’t an “open scientific discourse.”
- IBM(IBM) announced today that it has learned that it has been temporarily suspended from participating in new business with US Federal government agencies.
- Defaults on bonds and loans in Asia may rise as much as $20 billion over the next two to three years, creating opportunities for investors in distressed assets, said the chief investment officer of Tribridge Investment Partners Ltd.
- Thornburg Mortgage(TMA) Raises $1.35 Billion Through Private Placement.
- The cost to exchange fixed for floating interest-rate payments will decline as the turmoil in credit markets begins to subside and the Treasury boosts note sales, Barclays Capital Inc. and UBS Securities LLC said. “The worst essentially is over” for the financial markets, said Michael Pond, an interest-rate strategist at Barclays in NY.
- MF Global’s Meir Says Oil May Fall to ‘Mid-80’s’ By June. (video)
- Wheat plunged the maximum allowed on the Chicago Board of Trade after the government said US farmers, the world’s largest exporters, will plant more to capitalize on record prices and diminished global inventories.
- Confidence among Japan’s largest manufacturers fell to a four-year low as Toyota Motor and Canon Inc. struggle with the yen’s rise and a US slump.
- Lehman(LEH) to sell $3 billion of shares to raise capital and squash speculation about a cash shortage. Lehman will offer 3 million convertible shares. Demand for the shares was already three times greater than the amount offered as of 6:30 pm in NY. “We still maintain that we don’t need capital, but we’ve realized that perception is the dominant issue in today’s markets,” CFO Erin Callan said. “This is an endorsement of our balance sheet by investors.”
- The Bill & Melinda Gates Foundation, the world’s biggest charitable fund, is offering $100 million to support development of “bold and unconventional” ways to combat infections and other diseases.
- General Motors(GM) shut its plant in Toledo, Ohio, for a second time in four weeks, bringing to 30 the number of factories idled or partially closed by a strike at supplier American Axle.
- Australian stocks fell the most in 20 years during the first quarter after rising interest rates cut demand for bank shares and slowed the economy’s 17^th year of expansion.

Wall Street Journal:
- With their stock prices reeling, Schering-Plough(SGP) and Merck(MRK) mounted an aggressive campaign to defend their $5 billion-a-year franchise for cholesterol drugs Vytorin and Zetia against calls from leading cardiologists to curtail the drugs’ use.
- Western Union Co., hoping to boost its share of the money-transfer market, is teaming up with RadioShack Corp. and a small wireless company to offer a service that lets people send money through their cellphones.
- No Mouth-to-Mouth Is Needed With CPR, Heart Association Says.

MarketWatch.com:
- The US and Australia on Monday inked an open skies aviation agreement eliminating restrictions on air travel between the two allies that would lead to lower fares, officials said.

BusinessWeek.com:
- Google’s(GOOG) Gamble. As investors fear falling ad revenue, the search giant pushes ahead with its bid to boost quality clicks.

IBD:
- Polysilicon Powers MEMC’s(WFR) Growth.

Forbes.com:
- Chinese shares are expected to extend their first-quarter slump into the second quarter, as Beijing’s policy tightening and higher consumer prices weigh on corporate earnings, analyst and economists said.
- Hungering for the kind of revenue needed to field top teams, a wave of stadium construction is sweeping through sports. But not just any stadiums. Super-stadiums.

FOXBusiness:
- Paulson’s Plan Puts Hedge Funds Under Watch. Hedge funds – often described as ‘secretive’, with their pools of cash invested in everything from soybeans to mortgages – may soon find themselves under the watchful eye of the SEC.

CNNMoney.com:
- Congress is set to grill oil executives over tax breaks Tuesday. But with record gas prices and company profits, the public has more on its mind than just IRS policy.
- Analyst: How Apple(AAPL) sells 45 million iPhones in 2009.

USA Today.com:
- Utilities jump on board to plan for plug-in cars. In a sign of accelerating progress on plug-in hybrids – the 100 mpg vehicles you can’t yet buy in showrooms – electric utilities quickly are linking with automakers and tech companies to develop “smart-charging” technology that controls when and how fast a vehicle is recharged.

Morningstar.com:
- NY-based activist hedge fund Pardus Capital Management said it’s halting investor redemptions, at a time where many of its holdings are plummeting in value.

Reuters:
- The SEC is probing whether short-sellers are spreading bogus rumors to push down shares of Lehman Brothers Holdings(LEH).

Financial Times:
- Hedge funds are having their worst year on record after March turned into one of the ugliest months for popular strategies and several funds imploded. March was the worst month since 1998 for hedge funds, citing Hedge Fund Research. The average fund was down 2.4% for the month. Large relative-value traders, who bet on price discrepancies, sustained large losses.
- Radical strategies to fight the credit crisis including temporary suspension of capital requirements, taxpayer-funded recapitalization of banks and outright public purchase of mortgage-backed securities are being actively discusses by governments and central banks.
- UBS set for further writedowns.

el universal.com:
- Former Mexican President Vicente Fox said that “there are important and clear signals” that Hugo Chavez “is putting money from Venezuelan oil” in the Colombian guerrilla FARC.

The Economic Times:
- The Indian government is under pressure to shut down futures trading in key farm commodities. Several senior leaders even within the UPA government share the widely held view that speculation in futures may be partly fueling food inflation by raising consumer prices without benefiting farmers.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (DELL), target $27.
- Reiterated Buy on (WW), raised target to $64.
- Reiterated Buy on (IBM), target $146.

Night Trading
Asian Indices are -.75% to +1.50% on average.
S&P 500 futures +.16%.
NASDAQ 100 futures +.04%.

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Earnings of Note
Company/EPS Estimate
- (BLUD)/.22

Upcoming Splits
- (HOLX) 2-for-1

Economic Releases
10:00 am EST
- ISM Manufacturing for March is estimated to fall to 47.5 versus 48.3 in February.
- ISM Prices Paid for March is estimated to fall to 75.0 versus 75.5 in February.
- Construction Spending for February is estimated to fall 1.0% versus a 1.7% decline in January.

Afternoon:
- Total Vehicle Sales for March are estimated to fall to 15.2M versus 15.3M in February.

Other Potential Market Movers
- The weekly retail sales reports, (ALU) analyst meeting, (FST) analyst meeting, CTIA Wireless Forum and Morgan Stanley Banking Conference could also impact trading today.

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

Stocks Finish Higher, Boosted by Retail, I-Banking, Disk Drive and Airline Shares

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In Play

Stocks Higher into Final Hour on Lower Energy Prices, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Biotech longs, Gaming longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 75% net long. The overall tone of the market is mildly bullish as the advance/decline line is higher, most sectors are rising and volume is below average. Investor anxiety is slightly above-average. Today’s overall market action is mildly bullish. The VIX is falling .2% and remains high at 25.7. The ISE Sentiment Index is a below average 135.0 and the total put/call is slightly above average at .98. Finally, the NYSE Arms has been below average most of the day and is currently .78. Considering the losses in Asia overnight, today’s action is more impressive. The Shanghai Composite fell another 3.0% last night and is now down -43.3% from October’s high. As well, India’s Sensex Index fell another 4.4% and is down -26.2% from October highs. The DJIA is down -12.3% from its all-time high set in October of last year. Given how long oil hedge funds are, today’s decline isn’t that surprising as there is probably some quarter-end profit-taking going on. However, a continuation of today’s oil decline over the next few days and a convincing break back below $100/bbl. may indicate the beginning of a more meaningful decline. Psychology for commodities does appear to be changing. Two of my longs, (GILD) and (ILMN), are making new record highs today. I would still be a buyer of both on pullbacks and still see substantial upside in the shares of both companies from current levels. Nikkei futures indicate an +200 open in Japan and DAX futures indicate an +77 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, lower energy prices and bargain-hunting.

Today's Headlines

Bloomberg:
- Federal Reserve Chairman Ben S. Bernanke has so far shouldered most of the burden of saving the global economy and financial markets. He may be about to get more help. With the credit crisis entering its ninth month, Bank of England Governor Mervyn King and European Central Bank President Jean-Claude Trichet are on the verge of new steps to spur lending and increase liquidity, say economists at Lloyds TSB Group Plc and Royal Bank of Scotland Group Plc.
- Russia’s economy is “overheating,” said Finance Minister Alexei Kudrin.
- Emerging-market bonds fell, led by declines in Turkish debt, on speculation a deepening global credit crisis will prompt investors to cut holdings of higher-yielding assets. The yield premium investors demand to own emerging-market bonds over Treasuries widened 6 basis points to 3.08 percentage points, the biggest since March 20, according to JPMorgan’s EMBI Plus Index.
- Soybeans fell the maximum allowed by the Chicago Board of Trade after the US government said farmers will boost planting by 18%, more than analysts forecast, to take advantage of record prices.
- Crude oil is falling more than $5 a barrel in NY, the biggest decline since December 2004, on signs that slowing economic growth will bolster stockpiles and curb demand.
- Treasury Secretary Henry Paulson proposed the broadest overhaul of US financial regulation since the Great Depression, saying American capitalism needs to be better prepared for “inevitable market disruptions.”
- Merck(MRK), Schering(SGP) Plunge as Doctors Discourage Vytorin.

Wall Street Journal:
- The best solution to the current crisis is to stop the flight from the US dollar.
- The Treasury Dept.’s blueprint for overhauling the regulation of financial markets would significantly alter the landscape for exchanges where stocks, investment funds and derivative products trade.
- CDC Data Show Rise in HIV Cases, Reflecting More Accurate Tracking.

NY Times:
- Chinese Nationalism Fuels Tibet Crackdown.

CNBC:
- The Fed will stop cutting its target rate for overnight lending between banks once it reaches 1.5%, Paul McCulley, a portfolio manager at PIMCO, said.

Washington Post:
- Former Vice President Al Gore will launch a three-year, $300 million campaign April 2 to encourage Americans to mobilize a fight against greenhouse gas emissions.

CNNMoney.com:
- The last days of Bear Stearns. Bear’s fall hastened by lack of Goldman support. It took only a few days, a rising sense of panic – and a critical e-mail – to spell the end of the 85-year-old investment back.

BloggingStocks:
- Did hedge funds push and profit from Bear Stearns’s collapse? And while this Wall Street insider’s story does not constitute an open and shut case that hedge funds pushed and profited from Bear’s collapse, it certainly suggests that it would be a useful area for regulators to investigate. After all, $29 billion worth of taxpayer’s money was lent to make the JPMorgan deal go through.

Financial Times:
- Lawrence Summers, a former US Treasury Secretary, said measures to overcome paralysis in the credit markets give grounds for hope that in the US, at least, the financial crisis is abating. While the prices of many assets are discounting a severe recession or worse, a combination of monetary and fiscal stimulus, together with rising exports may limit the slowdown, he said.

Frankfurter Allgemeine Zeitung:
- Unemployment in Germany that has fallen steadily since mid-2005 may soon show a net gain as companies fire more staff than they hire.

Euromoney Institutional Investor Online Network:
- 38.6% of all hedge funds are no more than 2 years old. Only 2.45% have been around 15 years or longer. There were three times as many hedge funds in 2007 as there were in 2000.

Bear Radar

Style Underperformer:

Mid-cap Growth +.59%

Sector Underperformers:

Gold (-3.36%), Coal (-2.2%) and Steel (-1.2%)

Stocks Falling on Unusual Volume:

SGP, MRK, ACOR, CALM, ANSS, JOSB, LOJN and PLL

Stocks With Unusual Put Option Activity:

1) WLT 2) SGP 3) UPL 4) MRK 5) CECO

Chicago PMI Jumps

- The Chicago Purchasing Manager for March rose to 48.2 versus estimates of 46.0 and a reading of 44.5 in February.

BOTTOM LINE: Exports spurred new orders and production as US business activity rose in March, Bloomberg reported. The Production component rose to 50.4 from 46.5. The Employment component jumped to 44.6 from 33.5. The Prices Paid component rose to 83.9 from 79.4 the prior month. The New Orders component surged to 53.9 from 48.8 in February. The Inventories component fell to 42.0 from 46.0 the prior month. Overall, this gauge showed meaningful improvement, especially considering the ongoing American Axle strike, and bodes well for other manufacturing readings showing improvement going forward.