Stocks Soaring on Heavy Volume into Final Hour on Less Extreme Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Computer longs, Retail longs, Internet longs, Semi longs and Biotech longs. I covered all my (IWM)/(QQQQ) hedges, added to my (WMS)/(PWR) longs and covered some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The overall tone of the market is very positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Investor anxiety is above average, despite today’s gains. Today’s overall market action is very bullish. The VIX is falling 5.0% today, but remains high at 26.0. The total put/call hit an above average 1.14 and the ISE Sentiment Index hit a depressed 72.0 today. Moreover, the 3-month T-Bill yield is plunging 21 basis points to 1.94%, the lowest since October 2004. Short interest on the S&P 500 is at the highest level since January 2002. I still suspect a very large percentage of the investors are watching the long side from the sidelines, convinced that a complete retest of the lows or new lows are a certainty. Gartner Group said today that (AAPL) would get over 12% of the US PC market by 2011. I think that is a conservative estimate. The 30-day asset backed commercial paper yield is dropping another 22 basis points today to 3.22%, the lowest since June 2005. The 10-year/TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 2.33% today, down from 2.48% in November, despite the huge stimuli that will hit the economy over the next year. The JPMorgan Emerging Market Bond Index has risen .32% over the last five days and the Bear Stearns High Yield Index has surged 1.9% over that period. Fed fund futures imply a 74% chance for another 50 basis point rate at the March 18 meeting. In my opinion, the Fed is now “ahead of the curve.” Nikkei futures indicate an +100 open in Japan and DAX futures indicate an +100 open in Germany. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic pessimism, lower energy prices and bargain-hunting.

Today's Headlines

Bloomberg:
- U.S. stocks rose, sparing the Standard & Poor's 500 Index from its worst January ever, after the nation's largest bond insurer said it expects to keep its AAA credit rating.
- The Bush administration is looking for “additional measures” to limit foreclosures.
- President Bush said the Senate should quickly pass the $146 billion economic stimulus plan already approved by the House so there is no delay in the effort to boost a slowing US economy.
- Google Inc.(GOOG) succeeded in its push to force the winner of airwaves being sold by the US government to open its network to any mobile device.
- The series of rate cuts by the Fed will benefit companies that rely on debt based on LIBOR, including leveraged loan borrowers, according to analysts at Merrill Lynch(MER).
- Copper is rising 2.5% on speculation lower US borrowing costs will bolster economic growth.
- An Islamic Web site has announced the death of Abu Laith al-Libi, a senior al-Qaeda commander in Afghanistan.
- MasterCard Inc.(MA), the second-biggest payment-card network, said fourth-quarter profit climbed senvenfold as US consumers spent more. The shares are soaring 14.4% on the news.
- Concur Technologies(CNQR) rose the most in almost seven years on the Nasdaq after boosting its forecast as business travel exceeded its expectations.
- Sony Corp.(SNE), the world’s second-largest maker of consumer electronics, reported record quarterly earnings after the PlayStation 3 unit turned profitable.

Wall Street Journal:
- Multitouch Interface Is Starting to Spread Among New Devices.
- New research analyzing more than 22,000 US cases of aortic aneurysm repair is likely to hasten the trend toward more procedures being done with a device called a stent-graft instead of the typical surgery that requires up to eight weeks of recovery.

NY Times:
- Bill Clinton’s Ties to Kazakhstan Deal Examined.

CNNMoney.com:
- MBIA(MBI) Confident In Ability To Maintain AAA Rating. CEO Dunton mounted a spirited defense on a conference call against “fear mongering” and “distortions” by short-sellers that he said have contributed to last year’s dramatic stock-price decline. He also said that MBIA’s capital plan currently exceeds all stated rating agency requirements. The stock is soaring from morning lows on the news.

Briefing.com:
- MBIA(MBI) management again says very clearly that there is no scenario that they can identify that would result in MBI becoming insolvent, having a liquidity event, becoming intervened with, or having a default of any kind.

Mediaweek:
- News Corp.’s(NWS/A) Fox may get as much as $260 million in ad revenue for its Super Bowl programming on Feb. 3, including the broadcast of the game and the four-hour pre-game show.

Financial Times:
- OPEC policies set to ensure oil prices stay on the boil. Iran and Venezuela have injected anti-US and radical positions on to the OPEC agenda.

globeandmail:
- Kerviel made millions from mortgage meltdown.

Incomes/Spending Rise More Than Estimates, Inflation Gauge Muted, Jobless Claims Rise, Chicago PMI Falls From 6-Month High

- Personal Income for December rose .5% versus estimates of a .4% increase and a .4% gain in November.

- Personal Spending for December rose .2% versus estimates of a .1% gain and a 1.0% increase in November.

- The PCE Core for December rose .2% versus estimates of a .2% gain and a .2% increase in November.

- Initial Jobless Claims for this week rose to 375K versus estimates of 319K and 306K the prior week.

- Continuing Claims rose to 2716K versus estimates of 2685K and 2669K prior.

- The 4Q Employment Cost Index rose .8% versus estimates of a .8% gain and a .8% increase in 3Q.

- The Chicago Purchasing Manager for January fell to 51.5 versus estimates of 52.0 and a reading of 56.4 in December.

- The Help Wanted Index for December rose to 22 versus estimates of 20 and a reading of 21 in November.

BOTTOM LINE: Personal spending and income growth exceeded estimates in December, Bloomberg reported. The PCE Core, the Fed’s favorite inflation gauge, rose 2.2% year-over-year in December, the same as November. For all of 2007, spending rose 5.5%. Personal income growth of .5% is right at the 20-year average. Personal spending rose less than the long-term average, but over the last four months it is .5%, slightly above the long-term average. I expect personal spending to pick up, income growth to remain healthy and inflation to decelerate over the intermediate-term.

The number of Americans filing first-time claims for unemployment benefits rose more than forecast this week, Bloomberg reported. This week’s report was distorted by difficulties adjusting for the Martin Luther King holiday, a Labor Department spokesman said. The four-week moving average of jobless claims rose to 325,750 from 315,500 the prior week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, remained at a historically low 2.0%. Today’s report showed 50 states and territories reported a decrease in new claims, while three had an increase. The Employment Cost Index for December rose .8%, below the long-term average of .9%. Economists have increased their consensus forecast for tomorrow’s jobs report to +70,000. I suspect we will come in around or above that estimate, despite today’s jobless claims report. I expect jobless claims to fall next week and the labor market to remain healthy over the intermediate-term without generating substantial unit labor cost increases.

A measure of US business activity fell this month from a six-month high, Bloomberg said. The New Orders component of the index fell to 44.7 from 56.7 the prior month. The Prices Paid component rose to 81.7 from 67.4. The Employment component fell to 47 from 49.3. The Inventories component rose to 51.1 from 44.3. I expect the Chicago PMI to bounce higher next month on inventory rebuilding as exports continue to boom.

Bear Radar

Style Underperformer:

Mid-cap Growth (+.29%)

Sector Underperformers:

Gold (-2.15%), Oil Service (-1.63%) and Energy (-1.07%)

Stocks Falling on Unusual Volume:

CDNS, MRX, DCP, DYS, CVD, HSTX, BPHX, BLOG, SBNY, RNOW, NEWP, AWBC, LAVA, SNPS, GSOL and CAM

Bull Radar

Style Outperformer:

Small-cap Value (+1.63%)

Sector Outperformers:

Retail (+4.22%), Airlines (+2.14%) and Banks (+1.88%)

Stocks Rising on Unusual Volume:

IAT, MBR, OI, IVC, ADS, SNA, CCK, WCC, ADBL, CNQR, ODFL, TSCO, AMAG, EXPO, MLNX, WBSN, WPPGY, GMCR, ALGT, EMKR, PCCC, ININ, HINT, UFPI, RDWR, INFA, RSTI, HURC, MA, CCRT, SHLD, MI, JCP, WSBC, TLK, RTP, FCX, BZP, SFG, HP, ESV, GOLD and BP

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