Stocks Finish Slightly Higher, Boosted by Financial, REIT and Homebuilding Shares

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Stocks Higher into Final Hour on Less Financial Sector Pessimism, Short-Covering, Lower Energy Prices

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Medical longs, Education longs and Commodity shorts. I covered some of my (IWM/QQQQ) hedges and some of my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is mildly positive as the advance/decline line is slightly higher, most sectors are gaining and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling 3.81% and is very high at 44.85. The ISE Sentiment Index is below average at 119.0 and the total put/call is about average at .91. Finally, the NYSE Arms has been running around average most of the day, hitting .97 at its intraday peak, and is currently .71. The Euro Financial Sector Credit Default Swap Index is rising .59% today to 111.67 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 rising .64% to 192.73 basis points. The TED spread is rising 2.27% to 93 basis points. The TED spread is now down 374 basis points in under four months. The 2-year swap spread is falling 1.17% to 63.25 basis points. The Libor-OIS spread is rising .72% to 96 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 12 basis points to 1.12%, which is down 158 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 .30%, which is down 1 basis point today. The bears are unable to gain any traction today and the financial sector is recouping some of yesterday’s steep losses. Last night, Senator Dodd said that adjusting mark-to-market accounting rules eventually 'may be' part of the Obama administration's plan to stabilize financial markets. I think this would help financials a great deal and would be a large broad market positive. The most heavily shorted sectors are up the most. Tech, Commodity and Transportation shares are lower on the day. While I am not long (RIMM), investor reaction to its lowered guidance appears overdone and is a broad market negative. Any market rally without tech participating is likely unsustainable. Nikkei futures indicate a -120 open in Japan and DAX futures indicate a -3 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices and less financial sector pessimism.

Today's Headlines

Bloomberg:

- Near-zero inflation will end a global bond rout and “protect” government securities amid record supply, analysts at Goldman Sachs(GS) said. “Very depressed inflation should protect bonds against supply concessions,” Michael Vaknin, a fixed-income strategist in London at Goldman, wrote. “Expectations of both policy rates and inflation have more room to fall.” Inflation among the Group of Seven economies may slow to .3% by the end of 2010, allowing policy makers to keep benchmark borrowing costs lower, Goldman said. Vaknin said US Treasury yields may behave as Japanese bond yields did during the late 1990s, when they fell even as government spending rose.

- Most Expensive Gasoline Fetches $4.899 in New Jersey for Exxon(XOM).

- Copper fell in London on speculation that China, the world’s biggest user of the metal, will import less of the metal. Chinese imports of copper and copper products dropped 19 percent in January from a 20-month high in December, the Beijing- based customs office said today. LME copper stockpiles jumped 2,025 tons to 516,450 tons, the most since Oct. 31, 2003, according to the exchange today. They have climbed 52 percent this year.

- Treasury Secretary Timothy Geithner told Congress he needs time to work out the details of his strategy to shore up the financial industry, a day after stock traders punished the initial outline.

- European Central Bank policy makers signaled they are likely to lower interest rates further next month to combat the region’s worst recession since World War II.

“It’s very probable that in the next session we will cut,” ECB council member Miguel Angel Fernandez Ordonez said today in Zaragoza, Spain. “Given the prospects of significantly deteriorating activity and low inflation, I am absolutely ready” to reduce rates again, council member Guy Quaden said in Brussels. Their comments were echoed by ECB Executive Board member Jose Manuel Gonzalez Paramo.

- OpenTable Defies Technology Turmoil in Plan for $40 Million IPO. OpenTable’s sales rose 41 percent to $41.3 million in the first nine months of 2008, according to regulatory filings. While the San Francisco-based company posted a net loss of $149,000 because of costs to expand into Europe, its U.S. operating profit more than doubled to $6.77 million.

- Unions Win Fast Under Obama, Target Financial, Organizing Rules. After contributing more than $100 million to Obama and congressional Democrats for their 2008 election campaigns, unions appear determined to cash in their chips, and are laying plans to go after their top goal: legislation that would make it easier for workers to organize.

- Nike, VF May Accelerate Acquisitions in Recession.

- The International Energy Agency cut its global oil demand forecast for 2009, projecting consumption will decline by 1 million barrels a day as the worldwide recession deepens, the biggest drop since 1982. It’s the agency’s sixth consecutive reduction of its 2009 crude demand estimate, now forecast to shrink 1.1 percent from 2008. The biggest revision was made to the world’s most developed economies in the Organization for Economic Cooperation and Development. The IEA cut demand expectations there 340,000 barrels a day to 46 million barrels a day, implying a contraction of 1.5 million barrels a day, or 3.2 percent. Estimates for oil consumption this year among developing nations were lowered by 230,000 barrels a day to 38.7 million a day, with the outlook for Asia and the former Soviet Union “particularly grim,” it said.

- Russian companies, the biggest emerging-market borrowers during the last three years, are shut out of the international bond market after yields jumped sixfold since August amid plunging energy prices and a weakening ruble. Yields on bonds due next year from Moscow-based Transcapitalbank and JSC AIKB Tatfondbank in the Russian republic of Tatarstan are trading at yields above 80 percent, up from 12 percent in August. “The primary market is dead,” said Stanislav Ponomarenko, a fixed-income analyst at ING Groep NV in Moscow. “I wouldn’t be too surprised if there are no bond deals done by Russian corporates for most of 2009, if not the entire year.”

Wall Street Journal:

- The South Oil Company, an affiliate of the Iraqi Oil Ministry, has issued tenders to drill 40 oil wells in the country's southern fields in a bid to address a sharp fall in southern oil production, the company said on its Web site.

- Eight bank executives told the House Financial Services Committee Wednesday they are lending even in the face of the economic downturn and that government aid has made that possible. "Make no mistake: We are still lending, and we are lending far more because of the TARP program," said Bank of America Corp. Chief Executive Kenneth Lewis at the hearing. Mr. Lewis said Bank of America next week will make its first dividend payment to the Treasury Department of more than $400 million. Over the year, Bank of America will pay the Treasury about $2.8 billion in dividends alone, he added. "The bottom line is that we are lending significantly more with that preferred stock investment than we would be without it," he said. Other CEOs testifying included J.P. Morgan Chase & Co.'s Jamie Dimon, Citigroup Inc.'s Vikram Pandit and Goldman Sachs Group Inc.'s Lloyd Blankfein.

- Congress and the White House have reached a tentative agreement on an economic-recovery package that would have a total cost of $789.5 billion over two years. The sweeping initiative is on track for final votes late this week on Capitol Hill. Details of the plan are still under negotiation, people familiar with the process said.

- For Some, It’s Finally Time to Dive Into Housing Market.

CNBC.com:
- The stock market’s October-November lows may have been the bottom of the current economic cycle, Pequot Ventures investment strategist Byron Wien said. Wien told the financial cable channel that while news may “stay bad” for months, by mid-2009 earnings and stock prices may begin to show rebounds.

- General Electric(GE) has signed a $1 billion contract to supply 40 gas turbines for electric generation in Saudi Arabia, Steve Bolze, senior vp of power generation at GE, said.

NY Times:

- In New Procedure, Artificial Arm Listens to Brain.

- Senior executives at Citigroup’s Alternative Investment division ran up hundreds of millions of dollars in losses last year on their esoteric collection of investments, including real estate funds and private highway construction projects, even as they collected seven-figure salaries and bonuses. Now the Obama administration has turned to that Citigroup division — twice — for high-level advisers. Their shift to the Obama administration from Citigroup has raised questions about the potential for conflicts of interest, and about whether Mr. Obama’s own staff members benefited from the kinds of Wall Street excesses he has criticized. “You sort of have to wonder why it is so smart to put them in charge now, if they helped create the mess that we are in,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. In the first quarter of last year, the Alternative Investment division lost $509 million and for the whole year, it was part of a larger Citigroup division that lost $20 billion, according to Citigroup.

ABCNews:

- Sin City's mayor wants President Barack Obama to apologize for saying companies shouldn't visit Las Vegas on the taxpayer's dime. Las Vegas tourism officials worry that increased scrutiny on business travel will discourage meetings and conventions — business that would be crucial for the city already suffering economically. The number of visitors to Las Vegas was down 4.4 percent in 2008 compared with a year earlier, and visits in December alone declined nearly 11 percent. Late Monday, Goldman Sachs Group Inc.(GS) said it had moved a three-day conference from the Las Vegas Strip to San Francisco amid what the bank called a broad review of its activities. Goldman Sachs has accepted $10 billion in federal bailout funds. Last week, Wells Fargo & Co.(WFC), which received a $25 billion infusion, canceled a planned employee recognition conference in Las Vegas after an AP story reported on the trip and the bank received criticism from Capitol Hill that it was misusing the funds.

Fox News:

- North Korea has been moving missile equipment to a launch pad, an indication that the country is taking steps toward conducting a test launch, a news report said Wednesday.

FINalternatives:

- Sometimes there is such a thing as a free lunch in the hedge fund world. HedgeACT has unveiled a new website to improve hedge fund transparency and communication between investors and fund managers by providing investors with free access to hundreds of data points and analytics for more than 7,500 hedge funds. Additionally, hedge funds and hedge fund administrators will have the ability to augment Morningstar Inc.’s data with their own vetted information on fund performance, track record and other important investor criteria. HedgeAct has licensed the data from the Chicago research firm.

Rasmussen Reports:

- The latest Rasmussen Reports national telephone surveys found that the Democrats’ lead is down to just one percentage point. Forty percent (40%) of voters said they would vote for their district’s Democratic candidate while 39% said they would choose the Republican. This marks the lowest level of support for the Democrats in tracking history and is the closest the two parties have been on the generic ballot.

Globe and Mail:
- Environment Minister Jim Prentice hit back yesterday at an environmental campaign pressing Barack Obama to treat Alberta's oil sands as the "world's dirtiest oil," arguing that Canada is only seeking the same treatment that the United States will have to apply to its own coal. Stephen Harper's Conservative government has called for a joint Canada-U.S. pact on greenhouse-gas emissions and energy security, in part to ensure that the oil sands are not hit by punishing U.S. regulations under Mr. Obama's environment-conscious administration. But a campaign by environmental groups urging Mr. Obama to reject "special treatment" for "dirty oil" from the oil sands could serve as a backdrop to the talks when the U.S. President visits Ottawa on Feb. 19. Groups like the Sierra Club and Environmental Defence, working together in a coalition called Obama2Canada, have launched an advertising and lobbying campaign aimed at U.S. policy-makers urging Mr. Obama to stand against the oil sands, which they label "one of the most destructive projects on Earth." "Many people in the United States don't realize that the tar sands are one of the major sources of oil for the United States," said Lisa McCrummen, a Seattle-based co-ordinator for Obama2Canada. "We don't want Harper's climate pact idea of having the tar sands not be part of the emissions equation. The tar sands shouldn't get special treatment."

Emirates News Agency:
- The United Arab Emirates warned of “soaring risks” for its corporate sector because of banks’ reluctance to extend credit amid the global financial crisis. The UAE, the second-largest economy among Arab Gulf states, is suffering from the slump in oil prices and the decline in global demand, WAM cited the central bank and the Federation of Chambers of Commerce and Industry as saying in a joint statement.

Bear Radar

Style Underperformer:
Mid-cap Growth (+.23%)

Sector Underperformers:
Airlines (-3.15%), Oil Service (-1.75%) and Energy (-1.25%)

Stocks Falling on Unusual Volume:
KB, CBST, GXP, RIMM, AYE, EAC, DO, INSU, RIMM, AYE, NRT, WTS and THS

Stocks With Unusual Put Option Activity:
1) UPL 2) AUY 3) GNK 4) DSX 5) RIMM

Bull Radar

Style Outperformer:
Large-cap Value (+.72%)

Sector Outperformers:
Banks (+4.26%), I-Banks (+2.35%) and Homebuilders (+2.03%)

Stocks Rising on Unusual Volume:
STI, BVN, SA, UBS, TKLC, VSAT, HMY, VNUS, NICE, MVSN, HAYN, MICC, LNCE, PAAS, ICLR, CWCO, PEET, SSRI, GOLD, HCSG, VSAT, PNFP, NUAN, DEG, DF, TMB, COO, CCH, DVA, CXW, HGR, CHH and FIS

Stocks With Unusual Call Option Activity:
1) MXIM 2) CDNS 3) NTES 4) TXT 5) LTD

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