Stocks Finish Sharply Higher, Boosted by Technology, Financial, Commodity, Airline, REIT, Homebuilding, Hospital and Construction Shares

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Stocks Soaring into Final Hour on Less Extreme Economic Pessimism, Short-Covering, Bargain-Hunting, Falling Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Retail longs, Medical longs, Financial longs, Internet longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling -2.04% and is very high at 42.85. The ISE Sentiment Index is about average at 153.0 and the total put/call is below average at .71. Finally, the NYSE Arms has been running low most of the day, hitting .22 at its intraday trough, and is currently .52. The Euro Financial Sector Credit Default Swap Index is falling 5.10% today to 109.0 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is falling 2.77% to 193.49 basis points. The TED spread is falling .21% to 97 basis points. The TED spread is now down 370 basis points in under four months. The 2-year swap spread is falling 2.75% to 62.25 basis points. The Libor-OIS spread is rising .97% to 98 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 10 basis points to 1.20%, which is down 150 basis points in under seven months. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .27%, which is unch. today. The large decline in the financial sector credit default swap index is a big positive. The Bank Index is +11.8% today, which is boosting the (XLF) 7.2%. Economically sensitive shares are today’s outstanding performers with the MS Cyclical Index jumping 4.0%. The MS Tech Index is now +8.44% ytd versus a -3.83% loss for the S&P 500. Given recent gains in copper and other economically sensitive commodities, oil’s recent relative weakness is noteworthy. I still view the commodity as significantly overvalued anywhere near current levels. There is a lot of talk this afternoon of a large “sell the news” reaction next week on the details of Geithner’s financial rescue plan and passage of the economic stimulus plan. I suspect many large hedge funds are getting substantially more short into today’s strength. While the broad market is getting a bit extended short-term, I expect any pullback from current levels to be relatively short-lived and mild in nature. The heavily-shorted (XLF) is still well below its 50-day moving average and substantially below its 200-day. These stocks can likely rally longer and further than most investors currently perceive. Nikkei futures indicate a +243 open in Japan and DAX futures indicate an +16 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, diminishing financial sector pessimism, falling credit market angst and less extreme economic pessimism.

Today's Headlines

Bloomberg:

- Bank of America Corp.(BAC), the largest U.S. bank, climbed as much as 25 percent in New York trading after analyst Richard Bove called the bank a “strong buy” because of its positive cash flow and government support. Chief Executive Officer Kenneth Lewis bought 200,000 shares on Feb. 4, and four directors bought a combined 150,000 shares this week. “I have always believed Ken Lewis may be the best operating manager of any bank in the United States,” Bove said in his report. “I continue to think that this company has $5 per share in earnings power.”

- Investors should buy US technology stocks after prices fell near the lows reached after the dot-com crash in 2000, investor Marc Faber said. Cisco Systems(CSCO), Intel Corp.(INTC), Microsoft Corp.(MSFT) and Oracle Corp.(ORCL) shares will outperform US Treasuries over the next five to 10 years, Faber said. “You could make a case that in the US some equities have come down a lot and are inexpensive,” Faber said.

- New York real estate developer Larry Silverstein, who’s leading a $6 billion project to rebuild Manhattan’s World Trade Center site, said he’s ready to buy property now that prices have plummeted. “We certainly are interested in buying,” Silverstein said in a Bloomberg Television interview. “There will be significant opportunities in the marketplace if you have the wherewithal and the capacity and the knowledge to be able to deal.” And like many wealthy New Yorkers, the 77-year-old Silverstein says South Florida looks appealing. “Residential condos clearly are in oversupply in some areas of the country,” Silverstein said. “Where you’ve had extensive over-production, there are opportunities to buy them at much depressed prices.”

- Costs to ship dry-bulk commodities, after doubling this year, are climbing on “meaningful” demand, the Baltic Exchange’s top executive said, cautioning that new vessels may cap gains in the year ahead. “There’s meaningful demand in the short term, and that’s by comparison with the collapse of last year,” Jeremy Penn, chief executive officer of the London-based Baltic Exchange, said in a phone interview yesterday. The market may weaken as new ships are delivered “over the next 12 to 24 months.” “It’s a short-term push for a very depressed” freight market, Michael Gaylard, a London-based strategic director at Freight Investor Services Ltd., said by phone today. “I don’t see that this rally will maintain its momentum and push through the year.” Rates may “steady from here,” he said. New ship deliveries may damp charter rates. If all vessels on order for this year and 2010 take to the water, the fleet would grow 42 percent by deadweight tons, according to Drewry Shipping Consultants Ltd. in London. It cited the order book at end-December.

- Industrial production in Germany, Europe’s largest economy, dropped the most in at least 18 years in December as demand for plant and machinery faltered. Output fell a seasonally adjusted 4.6 percent from November, the biggest decline since records for a reunified Germany began in January 1991, the Economy Ministry in Berlin said today. It was the fourth straight monthly drop and almost twice the 2.5 percent retreat forecast by economists in a Bloomberg survey.

- Britain’s financial regulator said it plans to require investors to disclose short positions on the more than 3,000 shares traded on U.K. exchanges. Expanded disclosure requirements are necessary to ensure that no direct restrictions are placed on short-selling, the Financial Services Authority in London said. The FSA also moved away from suggestions that it ban so-called naked short-selling.

- Oil fell to the lowest in more than two weeks on signs that OPEC’s implementation of its latest supply cuts has stalled as a deepening economic slump in the U.S. threatens demand. The Organization of Petroleum Exporting Countries will keep oil shipments steady at a five-year low in the next four weeks, data from tanker-tracker Oil Movements showed. “The rise in crude oil stocks is already raising doubts about OPEC’s quota discipline,” said Eugen Weinberg, a Commerzbank AG analyst in Frankfurt. “We read every week OPEC commitment is there, but we don’t see it in the data,” said Hannes Loacker, an analyst at Raiffeisen Zentralbank Oesterreich in Vienna.

- The Agriculture Department is in discussions with the Environmental Protection Agency about raising the amount of ethanol blended into the U.S. gasoline supply, Agriculture Secretary Tom Vilsack said. “I do think it’s important for us to look for strategies to make sure the infrastructure of the ethanol industry is preserved, because it is a key component to this new energy future the president’s laid out,” Vilsack, a former Democratic governor of Iowa, said today in an interview with Bloomberg News in Washington.

- President Barack Obama and former Federal Reserve Chairman Paul Volcker today named an advisory board drawn from business, labor groups and former government officials to provide an outside perspective on plans to revive the economy. Obama this morning signed an executive order establishing the Economic Recovery Advisory Board, which will be headed by Volcker. The members include former Securities and Exchange Commission Chairman William Donaldson, former Fed Vice Chairman Roger Ferguson, UBS Americas Chairman and Chief Executive Officer Robert Wolf, General Electric Co. CEO Jeffrey Immelt and Service Employees International Union Secretary-Treasurer Anna Burger, the administration announced.

- William Ackman’s hedge fund that invests solely in Target Corp.(TGT) fell 40.1 percent in January, bringing the loss since inception to 89.5 percent, according to a letter sent to investors. The decline in Pershing Square IV fund was about four times that of Target shares in January because Ackman made his bet using options rather than owning the underlying stock, which tumbled 9.6 percent. Ackman said he will personally add another $25 million to the fund, and employees and board members will put up more cash. “While PSIV and Target stock have declined materially, we still believe our fundamental investment case for Target stock will ultimately be realized, although not within the original timeframe we had initially estimated,” he wrote in the letter dated Feb. 5.

Wall Street Journal:

- Majority Leader Harry Reid said Friday he hoped the Senate would have a final stimulus package to vote on by late Friday afternoon. A group of nearly 20 moderates from both parties have been negotiating in hopes of cutting as much as $100 billion from President Barack Obama's plan, which has ballooned to $935 billion on the Senate floor, with further add-ons possible during a long day of votes Friday.

- The U.N. secretary-general said Friday that provincial elections were an important step toward full democracy but told Iraqis they still have work to do before they can "enjoy genuine freedom and security and prosperity." Ban Ki-moon made his second visit to Iraq as U.N. chief a day after official preliminary results showed Prime Minister Nouri al-Maliki's allies swept to victory in the vote for powerful local councils, an endorsement of his crackdown on extremism and violence. "You have come such a long way, but still you have to go a far way to say that you will fully be able to enjoy genuine freedom and security and prosperity," he said during a meeting in Baghdad with President Jalal Talabani. He also met with Mr. Maliki. U.N. representatives worked closely with the Iraqis in preparing for the balloting, in which voters chose provincial officials in 14 of Iraq's 18 provinces. Mr. Ban said the U.N. would continue to provide technical or political assistance as needed. "I'm very much encouraged by what you have achieved," he said.

- Energy Secretary Steven Chu said Friday that he wants at least half of the roughly $35 billion to $40 billion proposed for Energy Department programs in the economic-stimulus package to be spent within a year. Mr. Chu said he is prepared to overhaul the way the agency operates to quickly direct the money to projects on weatherization, energy efficiency and support for renewable energy. "We've got to do this, and we've got to do it in a way that has not been done at the Department of Energy," Mr. Chu said. "I think this is solvable. And not only solvable -- we've got to do it. Otherwise it's just going to be a bust."

- The U.S. will continue to hand foreign detainees over to other countries for questioning, but only with assurances they will not be tortured, Leon Panetta told a Senate committee considering his confirmation as CIA director. That has long been U.S. policy, but some former prisoners subjected to the process -- known as extraordinary rendition -- during the Bush administration's antiterror war say they were tortured. "I will seek the same kind of assurances that they will not be treated inhumanely," Mr. Panetta said Friday in his second day before the Senate Intelligence Committee. "I intend to use the State Department to be sure those assurances are implemented and stood by, by those countries." Mr. Panetta formally retracted a statement he made Thursday that the Bush administration transferred prisoners for the purpose of torture. "I am not aware of the validity of those claims," he said.

CNBC.com:
- The federal government should concentrate on fixing the banking industry rather than worrying about a stimulus bill in Congress, Jack Welch, a former GE CEO, told CNBC. “If you don’t get the blood flowing in the patient, why are you buying him new shoes and a suit?” Welch said. He criticized the economic stimulus bill being considered now in the US Senate as larded with spending that doesn’t “create jobs.” (video)

- Bank of America(BAC) won't need any more bailout money from the government and hopes to pay back the $45 billion it's already received within three years, CEO Ken Lewis told CNBC. In a live interview, Lewis also dismissed speculation of a possible government nationalization of BofA as "absurd" and said the controversial acquisition of Merrill Lynch last year will "turn out to be a good investment over time." Lewis said BofA is focused on making money and getting TARP money paid back "as soon as humanly possible." "We're going to get on with doing business," he said. "And frankly, we had a pretty good January." When asked about the possibility of a government takeover, Lewis said he's talked to members of Congress, regulators and government officials and that "it's not even a remote possibility and no one has mentioned nationalization."

- Apple’s(AAPL) Not So Quiet Rally And Why It Will Continue.

Barron’s:

- With health-care costs running wild, pharmacy-benefit manager Express Scripts (ESRX) is giving clients some much needed relief. And in doing so, its share price could flirt with new highs in 2009.

Washington Post:

- So much for the president who in his inaugural address two weeks earlier declared "we have chosen hope over fear." Until, that is, you need fear to pass a bill.

PRNewswire:

- iTMP Technology, Inc., a pioneering iPhone hardware and software developer, announces the commercial launch of SMHEART LINK, a highly-anticipated new technology that is poised to bring unparalleled health and fitness capabilities to Apple(AAPL) iPhone and iPod(R) touch users. For the first time ever, a technology is now available that allows the iPhone to double as a heart monitor and fitness tracking system that actually listens to a person's heart. In addition to the iPhone and iPod touch, SMHEART LINK can be compatible with other smartphones, PCs or other Wi-Fi enabled devices.

PollingReport.com:

- Latest polling results on the economic stimulus package.

PCWorld:

- Waiting for the new Amazon(AMZN) Kindle e-book reader is no fun. But if you already have an Apple(AAPL) iPhone or a T-Mobile G1 in your pocket, more than 1.5 million books are now at your fingertips. The Google(GOOG) Book Search project, ever controversial since its introduction, yesterday launched mobile editions of its entire book collection.

Telegraph:
- The Daily Telegraph has learned that the 85-year-old former US secretary of state met President Dmitry Medvedev for secret negotiations in December. According to Western diplomats, during two days of talks the octogenarian courted Russian officials to win their support for Mr Obama's initiative, which could see Russia and the United States each slashing their nuclear warheads to 1,000 warheads.

Bear Radar

Style Underperformer:
Large-cap Growth (+2.30%)

Sector Underperformers:
Education (-.29%), Defense (+.49%) and Insurance (+.54%)

Stocks Falling on Unusual Volume:
SRCL, RATE, HWAY, LMNX, THOR, VLCCF, VRSN, CTRP, SRA, MTD, HIG, OKS and VVI

Stocks With Unusual Put Option Activity:
1) VMC 2) FST 3) AGU 4) EXEL 5) SINA

Bull Radar

Style Outperformer:
Small-cap Value (+2.58%)

Sector Outperformers:
Banks (+10.76%), Homebuilders (+7.95%) and Airlines (+5.81%)

Stocks Rising on Unusual Volume:
STI, STT, WFC, TNE, CLF, JPM, RTP, MBT, SNP, PTR, CNC, HON, ULTI, OMTR, MCRS, DGIT, FEIC, VRTX, NCMI, HIBB, ZION, DLTR, UTHR, CMED, KELYA, DDUP, LOGI, TNDM, VOCS, SQNM, HAIN, AIPC, LUX, IAT, IT, EVR, PHH, XHB, ROP and RMD

Stocks With Unusual Call Option Activity:
1) MBI 2) HIG 3) OI 4) AOC 5) CMA

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