Stocks Finish at Session Highs, Boosted by REIT, Insurance, Financial, Technology and Alt Energy Shares

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Stocks Surging into Final Hour on Less Financial Sector Pessimism, Short-Covering, Falling Energy Prices, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Defense longs, Medical longs and Biotech longs. I covered all my (IWM)(QQQQ) hedges and some of my (EEM) short this morning, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is below average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 8.86% and is high at 26.45. The ISE Sentiment Index is below average at 117.0 and the total put/call is about average at .85. Finally, the NYSE Arms has been running below average most of the day, hitting .56 at its intraday trough, and is currently .73. The Euro Financial Sector Credit Default Swap Index is rising 1.25% today to 112.35 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling .41% to 144.40 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising .4% to 34 basis points. The TED spread is now down 432 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 10.89% to 42.63 basis points. The Libor-OIS spread is rising 1.09% to 31 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 2 basis points to 1.53%, which is down 111 basis points since July 7th. The 3-month T-Bill is yielding .17%, which is unch. today. (XLF) is leading the way today, jumping 5.3% to session highs on above-average volume. (XLF) is now slightly above its 200-day moving average. Today’s action is even more impressive considering the (CIT) news. Oil is unable to even bounce, despite today’s equity rally, lower US dollar and recent weakness in the commodity. Natural gas is making another new low. Bonds trade pretty well today given stock market gains, which is a big positive. With the odds of draconian healthcare/cap and trade measures diminishing, energy prices falling, likely better-than-expected earnings reports imminent, long-term rates remaining subdued, short interest increasing and bearish US stock sentiment high, further US stock gains are likely in the near-term. Nikkei futures indicate an +275 open in Japan and DAX futures indicate an +19 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, lower energy prices, short-covering and less financial sector pessimism.

Today's Headlines

Bloomberg:

- Four of the world’s biggest drugmakers are likely to compete for Pfizer Inc. and Merck & Co. animal-health products as revenue for flea medicine, canine cancer treatments, and cattle vaccines outpaces human drugs. Novartis AG, Eli Lilly & Co., Bayer AG and Boehringer Ingelheim GmbH may seek to buy animal-health businesses from Merck and Schering-Plough Corp. with a combined $4.27 billion in sales last year, said Bill Kridel, managing director for New York-based Ferghana Partners Group, which advises companies on mergers and acquisitions. Pfizer’s animal products with as much as $400 million in sales will also draw interest, he said.

- Construction spending on offices, retail centers and hotels is likely to fall 16 percent this year and 12 percent in 2010, more than previously forecast, the American Institute of Architects said.

- Crude oil was little changed near an eight-week low on speculation the global recession will sap demand for fuel and increase stockpiles. Oil and fuel inventories in the members of Organization for Economic Cooperation and Development rose in May to about 7 percent more than last year, the International Energy Agency said July 10. “It’s been a dose of reality,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “There’s been a lot of concern stemming from the rising gasoline stockpiles over there in the States, which doesn’t bode well for the demand side of things.” U.S. gasoline demand usually peaks in June through August as motorists take to the roads for the summer holidays. Motor fuel consumption over the past four weeks was down 1.4 percent from the same period last year, the Energy Department said on July 8. “The U.S. summer driving season has been a non-event for two years in a row now,” Purvin & Gertz’s Shum said. “The path of least resistance is still down for oil prices.”

- BusinessWeek, the McGraw-Hill Cos. magazine that lost 30 percent of its advertising revenue in the second quarter, is up for sale, according to a person close to the situation.

- Russia’s economy may shrink between 8 percent and 8.5 percent this year after companies depleted stockpiles and exports plummeted during the global slowdown, the Economy Ministry said. Gross domestic product probably contracted 10.2 percent in the first six months and may slump 6.8 percent in the second half, the Moscow-based ministry said in its draft economic forecast for the next three years, which will be discussed at the government’s meeting today.

- Meredith Whitney gave Goldman Sachs Group Inc. her only “buy” recommendation among the eight banks she covers, saying the shares may climb 30 percent.

- Netflix Inc.(NFLX) shares gained and bullish options trading jumped to the highest in 11 weeks on speculation that Amazon.com Inc. may acquire the largest U.S. mail-order movie service, according to WhatsTrading.com. “There’s heavy call buying and the stock is up on renewed takeover talk, with Amazon being mentioned specifically,” said Fred Ruffy, the senior options strategist at WhatsTrading.com, a New York-based provider of options market analysis.

- Facebook Inc.’s employees that plan to sell their stock under an agreement with Digital Sky Technologies will receive $14.77 a share, putting the company’s value at $6.5 billion, according to a person familiar with the matter.

Wall Street Journal:

- The recession, plunging travel demand and a tough lending environment are battering U.S. airlines, raising the prospect of a liquidity squeeze that could lead to bankruptcy filings by winter if conditions don't improve.

- In the years after the Internet-stock bubble burst, new market regulations and consolidation among investment banks left many small companies struggling to go public in the U.S. Although the expense associated with complying with Sarbanes-Oxley regulations hasn't disappeared, bankers have shown a new burst of enthusiasm for smaller-sized initial public offerings. That's partly a function of the market: With only 11 IPOs completed this year, banks can't be too picky about heft. And, with many of this year's new issues coming from growth-oriented technology companies, smaller deals tend to be the rule.

- Judge Sonia Sotomayor faced receptive Democrats and skeptical Republicans Monday on the first day of her Supreme Court confirmation hearings before the Senate Judiciary Committee.

- President Barack Obama named Alabama family physician Regina Benjamin as his surgeon general, elevating a black woman well-known in her field to one of the nation's top public-health posts.

CNBC:

- The Coming Carbon Bubble.

Barron’s:
- DirecTV (DTV) has unveiled plans to launch an Apple (AAPL) iPhone app that will allow subscribers to its Sunday Ticket Superfan service to watch NFL games via both 3G and WiFi.

The Detroit News:

- The drive to simplify product lines at Ford Motor Co.(F) and General Motors Co. may result in a modest downsizing of both manufacturers' full-sized sedans as they move these vehicles to global platforms. Ford is just now launching a redesigned version of its Taurus flagship, but the Dearborn automaker is already thinking about moving it to a smaller platform at the end of the current product cycle, according to sources familiar with the company's plan.

FINalternatives:

- Hedge fund assets are unlikely to return to their peak over the next four years, according to a new report. Despite some signs that investors are returning to the asset class, hedge fund assets under management have further to fall, according to a new report from the McKinsey Global Institute. Hedge fund, which managed $1.2 trillion at the end of last year, will manage just about $1 trillion by the end of this year. The McKinsey report also shows just how dramatically leverage has declined. Total investible hedge fund assets have fallen to $2.4 trillion, just over a third of the $6.6 trillion they invested one year ago. Total investible assets add borrowing and leverage through derivatives to assets under management. Private equity funds are doing substantially better in terms of assets under management, although the McKinsey report also indicates that the p.e. industry has been battered by losses. P.E. funds have raised $1.25 trillion over the five years to the end of 2008, up from $900 billion over the same period to 2007. Buyout funds also boast some $535 billion in dry powder. But McKinsey also estimates that the economic crisis has taken a serious toll on p.e. funds. Its study suggests that the $1.25 trillion raised over the last five years is worth just $900 billion today.

Rassmussen:

- The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 28% of the nation's voters now Strongly Approve of the way that Barack Obama is performing his role as President. Thirty-six percent (36%) Strongly Disapprove giving Obama a Presidential Approval Index rating of –8 (see trends).

- Forty-nine percent (49%) of U.S. voters now at least somewhat oppose the health care reform plan proposed by President Obama and congressional Democrats, while 46% at least somewhat favor it, according to a new Rasmussen Reports national telephone survey. This marks the first time that more voters lean against the plan than support it. Just two weeks ago, 50% were for the reform plan, and 45% were opposed.

Politico:

- The Holy Grail for climate change advocates is creation of a cap-and-trade system to reduce carbon dioxide and other harmful gas emissions. But to secure that coveted prize, proponents must answer two questions: Will consumers suffer from the costs, and is the system doable? With House passage of the legislation last month, opponents are intensifying their efforts in the Senate and dividing their energies around those two attack lines. Republican lawmakers are hollering about an “energy tax” that will plague consumers, while industry lobbyists are wielding charts and studies that suggest the legislation sets emissions reductions that are not just hard but pretty much impossible to meet without killing industries.

Washington Times:

- Democratic candidates across the country are similarly hoping to harness some of the Obama spark that drew record crowds before the presidential election, and Mr. Obama is in top demand as state parties push him to be campaigner in chief. The Washington Times has learned that when Mr. Obama is in the Garden State on Thursday, Vice President Joseph R. Biden Jr. will head south to Richmond for a fundraiser with state Sen. R. Creigh Deeds, the Democrats' gubernatorial candidate in Virginia. Mr. Biden already has held a rally with Mr. Corzine, and Mr. Obama has promised to campaign for Mr. Deeds as well.

Federal Reserve Bank of New York:

- The Federal Reserve Bank of New York welcomes today’s publication of a cross-jurisdictional analysis of legal and regulatory issues facing credit default swap central counterparties (CDS CCPs) with respect to customer access to central clearing platforms. The analysis describes the present environment for protection of customer initial margin and portability of CDS positions in the event of a CCP clearing member default.

USA Today:

- New research from a Chicago civic group takes direct aim at the city's "abysmal" public high school performance — and puts a new spin on the academic gains made during the seven years that Arne Duncan led the Chicago schools before he was named U.S. Education secretary. The Civic Committee of The Commercial Club of Chicago, a supporter of Duncan and Chicago Mayor Richard M. Daley's push for more control of city schools, issued the report June 30. It says city schools have made little progress since 2003. Its key findings stand in stark contrast to assertions President Obama made in December when he nominated Duncan as Education secretary.

Reuters:
- Global climate talks are progressing too slowly and too many countries are demanding action from others rather than acting by themselves, Sweden's Environment Minister Andreas Carlgren said on Monday in Beijing. Sweden holds the rotating presidency of the European Union for the rest of the year, during which time global climate talks, culminating in a conference in Copenhagen in December, are supposed to agree on a successor to the Kyoto Protocol.

- The new H1N1 influenza virus bears a disturbing resemblance to the virus strain that caused the 1918 flu pandemic, with a greater ability to infect the lungs than common seasonal flu viruses, researchers reported on Monday.

- CIT Group Inc(CIT) stock and bond prices tumbled Monday as the company sought to bolster liquidity and U.S. Treasury Secretary Tim Geithner said he was keeping close watch on the lender to small and mid-sized businesses. CIT said it was talking to regulators about how to boost its finances if it fails to win access to the government's Temporary Liquidity Guarantee Program. The delay in getting approval to enter the federal program has driven New York-based CIT into a liquidity crunch.

- A U.S. future economic growth gauge edged higher in the latest week, sending its yearly growth rate to a two-year high that suggests a near-term end to the recession, a research group said on Friday. The index's annualized growth rate plowed further into positive territory to a two-year high of 5.4 percent, from 3.9 percent the week prior, which was revised lower from 4.0 percent. It was the highest annual growth rate the gauge has seen since the week to July 20, 2007, when it read 5.7 percent. ECRI Managing Director Lakshman Achuthan has previously said that recovery is likely before the year's end, echoing hopes that economic data will continue weakening at a slower pace. "It is increasingly evident that, despite widespread misgivings based on backward-looking economic data, the end of recession is at hand," said Achuthan.

Tagesspiegel:

- The risk of a German credit crunch is increasing as banks are making it harder for companies to obtain loans, Dieter Hundt, head of the country’s BDA employers’ federation. Long-term loans are getting more expensive even after the European Central Bank cut official interest rates to a record low.

Financial Post:

- Well, it finally happened. After plenty of speculation that potash prices could drop significantly this year, reports have surfaced that Russian fertilizer firm OAO Silvinit has settled with India at a price of US$460 a ton, down from US$625 a ton last year. Now the rest of the world will be pressured to follow suit. This has obvious negative implications for home-grown producers Agrium Inc.(AGU) and Potash Corp.(POT) of Saskatchewan Inc. Analyst Jacob Bout of CIBC World Markets lowered his 2009 and 2010 pricing forecasts to US$490 a ton and US$475 a ton respectively (he was previously assuming prices above US$600 both years).

Bear Radar

Style Underperformer:
Mid-cap Growth (+1.13%)

Sector Underperformers:
Oil Tankers (-.77%), Homebuilders (-.40%) and Hospitals (-.09%)

Stocks Falling on Unusual Volume:
CMP, EXPD, KB, CEDC, PWRD and FUQI

Stocks With Unusual Put Option Activity:
1) DAL 2) HAL 3) IR 4) CIT 5) FAST

Bull Radar

Style Outperformer:
Large-cap Value (+1.04%)

Sector Outperformers:
Banks (+3.15%), Insurance (+2.77%) and REITs (+1.50%)

Stocks Rising on Unusual Volume:
AIG, PHG, BAC, GE, WFC, GSK, CRZO, CGV, TOT, CLB, OSIP, SGMS, MKSI, RNOW, SCBT, SNDK, GOOG, FORM, SNX, VVI and TRN

Stocks With Unusual Call Option Activity:
1) XRX 2) SYMC 3) NFLX 4) NTAP 5) BMC

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