Stocks Finish Slightly Lower, Weighed Down by Commodity, Construction, Homebuilding and REIT Shares

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Stocks Slightly Lower into Final Hour on Profit-Taking, More Shorting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Biotech longs and Medical longs. I added (ESI) long and took profits in another long this morning, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is slightly lower, sector performance is mixed and volume is above average. Investor anxiety is high. Today’s overall market action is mildly bullish. The VIX is falling .75% and is high at 23.74. The ISE Sentiment Index is around average at 153.0 and the total put/call is around average at .82. Finally, the NYSE Arms has been running around average most of the day, hitting 1.43 at its intraday peak, and is currently .71. The Euro Financial Sector Credit Default Swap Index is rising 1.43% today to 72.50 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 8.33% to 95.49 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is down 1 basis point to 20 basis points. The TED spread is now down 443 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.96% to 36.88 basis points. The Libor-OIS spread is up 1 basis point to 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.81%, which is down 86 basis points since July 7th. The 3-month T-Bill is yielding .09%, which is up 1 basis point today. Despite weakness in select sectors and overseas shares, the bears have been unable to gain any meaningful traction again today. The heavily-shorted education stocks are soaring on volume today. As well, airline shares continue to soar. Finally, healthcare-related shares are also strong today. One of my longs, (QSII), is breaking to a new ALL-TIME high today on above-average volume. I still think this stock has further room to run meaningfully higher over the intermediate and long-term. Nikkei futures indicate an +50 open in Japan and DAX futures indicate an +15 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on diminishing economic fear, short-covering, lower energy prices, declining healthcare reform worries, technical buying and investment manager performance anxiety.

Today's Headlines

Bloomberg:

- Never before have U.S. companies piled up cash faster compared with interest costs than they are now, setting the stage for a surge in mergers and acquisitions. As the economy emerges from the worst recession in 70 years, cash flow may rise from the $1.5 trillion reported by the Commerce Department for the year ended in June, according to data compiled by Credit Suisse Group AG and Bloomberg. The amount reached a record in the past 12 months amid the biggest wave of firings since World War II and central bank interest rates near zero percent. Cash relative to share prices will climb to the highest in at least two decades next year compared with yields on corporate bonds, the data show. The previous high in 2005 preceded the two busiest years ever for takeovers.

- The U.S. economy will add jobs by the end of this year, said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. The unemployment rate will “peak slightly below 10 percent,” Maki said today in an interview on Bloomberg Radio. “We don’t think there’s a lot left to go.” In August, the rate reached a quarter-century high of 9.7 percent. After losing jobs every month since December 2007, “payroll growth turns positive” within three months, Maki said. September, however, will show another net loss in non- farm payrolls, he said. After expanding at a 3.5 percent annual rate this quarter, the economy will grow at a 4 percent pace in the fourth quarter and at a 5 percent rate at the start of 2010, Maki wrote in a research report issued Sept. 17. Maki previously forecast a 3 percent growth rate at the start of 2010. “Housing has turned in a durable way in our view” and “consumer spending is actually coming in stronger than we expected,” he said. In housing, “affordability has improved so dramatically” and “housing prices have fallen faster than incomes.”

- The best outcome for an international agreement on climate change this year won’t include specific emissions targets for greenhouse gases, European Commission President Jose Manuel Barroso said. There’s too little time to narrow the differences between countries before a December deadline to complete a global warming accord in Copenhagen, Barroso said. Even an interim agreement that spells out basic principles of a deal will require stepped-up efforts, he told reporters today in New York.

- Dell Inc.(DELL) agreed to buy Perot Systems Corp.(PER) for $3.9 billion, undertaking its biggest purchase to compete with International Business Machines Corp. and Hewlett-Packard Co. in computer services. Dell, the second-biggest maker of personal computers, offered $30 a share in cash, about 68 percent more than Perot’s closing price Sept. 18. The acquisition probably will boost profit in fiscal 2012, Round Rock, Texas-based Dell said in a statement today.

- Nanya Technology Corp., Taiwan’s biggest maker of computer-memory chips, said it plans to raise prices by as much as 20 percent in the first half of October because of a shortage. “Some of our clients complained that our prices are too high, however, we really can’t fulfill all the orders because of the current short supply,” Pai Pei-lin, vice president at the Taoyuan-based company, said by phone today. “We will negotiate with whoever can accept the price.” The chipmaker plans to raise prices 10 percent to 20 percent in the first half of October after increasing prices twice this month, Pai said. Contract prices of the benchmark dynamic random access memory chip rose an average of 8.5 percent to $1.53 in the first half of September, according to Dramexchange Technology Inc., a Taipei-based clearinghouse that compiles memory-chip prices.

- Oil traders are paying more than ever in the options market to protect against a plunge in crude prices. The gap between prices of options betting on a decline and those that would profit from a rise in oil widened to a record 10 percentage points, according to five years of data compiled by Banc of America Securities-Merrill Lynch. Oil inventories totaled about 2.8 billion barrels at the end of July within the 30 nations of the Organization for Economic Cooperation and Development, according to the IEA. The total is equal to 62 days of demand, and 4.6 percent more than the same time last year. Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures 38 percent in the week ended Sept. 15 to 45,557 contracts, according to U.S. Commodity Futures Trading Commission data.

- Amaranth Advisors LLC, the hedge fund that lost $6.6 billion in September 2006, sued Paul Touradji and his employees, seeking at least $350 million for claims including breach of contract and misappropriation of trade secrets. Amaranth says Touradji breached two contracts agreed to in September 2008 regarding the transfer and purchase of Amaranth’s base-metals portfolio, according to a complaint filed Sept. 18 in New York State Supreme Court in Manhattan. Touradji and employees at Touradji Capital Management LP used the information “to recover profits obtained by defendants through improper trading practices and misuse of plaintiffs’ proprietary and confidential information,” according to the document.

- Natural gas futures, which jumped 28% last week, may revisit seven-year lows after surging into an “overbought” area of resistance between $3.58 and $3.87 per million British thermal units, according to a technical analysis by Barclays Capital.

- Iranian Supreme Leader Ayatollah Ali Khamenei’s comments that a “cancer of Zionism” is eating away at the Muslim world are “profoundly shocking,” the French Foreign Ministry said. Khamenei’s comments about the “deadly cancer spreading through the invading hands of the occupiers and arrogant powers” was made during an Eid sermon yesterday in Tehran, Agence France-Presse reported. Khamenei also described Israel as a “counterfeit government.” The comments followed President Mahmoud Ahmadinejad last week reiterating his view that the Nazi Holocaust is “a myth.” “These statements are profoundly shocking and we condemn them with the greatest firmness,” French Foreign Ministry spokeswoman Christine Fages said in an e-mailed response to questions.

- Ford Motor Co.(F) said it’s researching a voice-to-text system for use by motorists, after endorsing a proposed U.S. ban on texting while driving. “A voice-recognition approach is better than bringing in a piece of paper and unfolding a map or looking down at a mobile device,” Jim Buczkowski, Ford’s director of electronics, said after a press conference today in Dearborn, Michigan. “We’re looking at various combinations of accomplishing that task because it’s being asked for by consumers.”

Wall Street Journal:

- Federal Communications Commission Chairman Julius Genachowski Monday outlined his plan for requiring Internet-service providers to keep their networks open to legal content and external devices. The plan, which is a top priority of Internet advocates who aggressively supported President Barack Obama in his run for the White House, would put into law the FCC's principles to treat all Web traffic equally, a concept known as "net neutrality."

- The Small Business Administration, after enduring a backlash from lenders and business appraisers, plans Oct. 1 to modify a restriction it had placed on loans used to finance acquisitions of small companies. In March, the SBA, capped the guarantee it was willing to extend on "goodwill" financing, which is the amount of a loan used to purchase an existing business's intangible assets, such as an established name, brand or customer base. The market price of a small business is based partly on its tangible assets, such as property, equipment and inventory, but often primarily on its goodwill. For some firms for sale, such as professional practices, Internet companies and service firms, the value of intangible assets can range between 55% and 95%. For years, lenders were free to administer SBA-guaranteed loans with any amount of goodwill financing. But in March, the SBA changed its rules so that guarantees for goodwill financing would be capped at $250,000, or 50% of the loan amount, whichever was lower. The rules were designed in part to prevent sellers from inflating companies' intangible assets. SBA-guaranteed loans are a small proportion of small-business loans. But the move didn't help in a market already taking a beating, business-acquisition specialists said. In March, closed business sales were 33% below the levels seen a year earlier, according to BizBuySell.com, an online marketplace for business acquisitions based in San Francisco. "It was the antistimulus," said Ronald Feldman, chief executive of Siegel Financial Group, a consultancy firm for small-to-midsize business acquisitions in Bala Cynwyd, Pa. Starting in October, the SBA is raising the cap on its guarantee of goodwill financing to $500,000.

- Despite a deep recession, rising competition and sluggish stock prices, AT&T Inc. (T) and Verizon Communications Inc. (VZ) continue to pour billions of dollars into their networks in anticipation of a bigger payoff down the line. Given the worst U.S. slump in decades and a stock market 31% off its record high, AT&T and Verizon normally would have been expected to slash capital investments. Instead, they plan to spend as much as $35 billion combined in 2009, similar to what they spent the year before.

- In the near future, consumers will be playing videogames without controllers, giving directions to lifelike avatars and waving files from screen to screen a la “Minority Report,” according to Microsoft.

- Human Genome Sciences Inc.'s (HGSI) chief executive believes a small, specialized sales force, built with its partner GlaxoSmithKline PLC (GSK), can comfortably bring in annual sales exceeding $1 billion for its experimental lupus drug, Benlysta.

MarketWatch.com:
- American International Group shares jumped 10% Monday amid hope the government may ease the terms of its bailout of the giant insurer again. Rep. Edolphus Towns, D-N.Y., chairman of the House Oversight and Government Reform Committee, has told the panel's staff to review a proposal put forward by former AIG Chief Executive Maurice "Hank" Greenberg to restructure the insurer's government rescue package, Bloomberg News reported Monday on its Web site.

- The U.S. recession is bottoming out and a recovery is near, economists for the Conference Board said Monday after reporting that the index of leading economic indicators rose 0.6% in August, the fifth straight increase.

NY Times:

- The research arm of Congress reported on Monday that the American International Group’s financial condition had stabilized but said it was not clear whether the giant insurance group would ever be able to restructure and repay its federal rescue package.

- Netflix(NFLX), the movie rental company, has decided its million-dollar-prize competition was such a good investment that it is planning another one.

Washington Post:

- The top U.S. and NATO commander in Afghanistan warns in an urgent, confidential assessment of the war that he needs more forces within the next year and bluntly states that without them, the eight-year conflict "will likely result in failure," according to a copy of the 66-page document obtained by The Washington Post. Gen. Stanley A. McChrystal says emphatically: "Failure to gain the initiative and reverse insurgent momentum in the near-term (next 12 months) -- while Afghan security capacity matures -- risks an outcome where defeating the insurgency is no longer possible." His assessment was sent to Defense Secretary Robert M. Gates on Aug. 30 and is now being reviewed by President Obama and his national security team. McChrystal concludes the document's five-page Commander's Summary on a note of muted optimism: "While the situation is serious, success is still achievable." But he repeatedly warns that without more forces and the rapid implementation of a genuine counterinsurgency strategy, defeat is likely.

CNSNews:

- Deficit spending and government debt are reaching a level that could culminate in another economic crisis as big as the one that hit the United States last year, Minnesota’s Republican Governor Tim Pawlenty told CNSNews.com. “One of the main things I’m very worried about is this administration and the Democratically-controlled Congress running on a pathway to bankruptcy,” Pawlenty said. “I mean, we have a reckless amount of deficit and debt in this country. The Obama administration and this Congress are exponentially growing that.” The $787 billion stimulus package pushed by the Obama administration and congressional Democrats was supposed to salvage the tanking economy, but that measure – along with the $700 billion bailout of the financial industry pushed by the Bush administration and supported by Obama – will boost the nation’s debt by $9 trillion to a total of $14.5 trillion by 2019, according to the non-partisan Congressional Budget Office. It took the United States 232 years accumulate $5.8 trillion in debt under Obama’s 43 predecessors, according to a report by the Republican staff of the Senate Budget Committee earlier this year. “It’s going to massively burden our children and our grandchildren,” Pawlenty told CNSNews.com. “I think we’re going to have government debt equivalent to the subprime mortgage meltdown in the not too distant future. And for those of us who can see that coming, we need to stand up. We need to shout that that is reckless, that is irresponsible, and we can’t allow that to continue.”

cnet:

- Some analysts believe that the Apple(AAPL)-branded chip in the iPhone is a fairly unique design and that Apple is simply using Samsung as a chip "foundry" or manufacturer. That would mean Apple is already competing with Intel's Atom, not to mention the host of ARM chip suppliers such as Texas Instruments and Qualcomm.

Bespoke Investment Group:

- US stock markets rose about 2.5% last week, but the biggest news came in the credit markets where default risk had its biggest weekly decline since the March equity market lows. Below is a one-year chart of a credit default swap (CDS) index that measures default risk for 125 North American investment grade entities. We also overlay a chart of the S&P 500.

Rassmussen:

- Voters have mixed feelings about President Obama’s decision to halt the deployment of a proposed anti-missile shield in Eastern Europe, but many worry that it will hurt America’s relationship with its European allies. A new Rasmussen Reports national telephone survey finds that 31% of voters agree with the decision to stop the shield, but 38% disagree.

Politico:

- The cap-and-trade movement, spooked by the pounding health care reform took over the August break, is scrambling to persuade nervous Democrats they won’t suffer politically for taking another tough vote this year. “When you get your butt kicked, like we did [after the House energy vote], it focuses the mind,” said Steve Cochran, director of the Environmental Defense Fund’s National Climate Campaign. “We found out that this is not something to hide from but something to lean on — even in places where coal is king and Blue Dogs were perceived to be running for cover.” Climate bill supporters say they have spent the summer building precisely the kind of grass-roots network that health care didn’t have, with grass-roots operations in more than 20 states. A “climate war room” — funded by more than 60 labor, business, faith, agriculture and environmental groups — has been set up to coordinate ad dollars and communications.

- Blue Dogs and other conservative Democrats — uneasy with a key element of President Barack Obama’s plan to regulate Wall Street — are rallying around an alternative proposal that scraps the consumer financial protection agency the president has been pushing. Rep. Walt Minnick, a freshman Democrat from Idaho, has floated the new plan. Instead of creating a new federal agency to protect consumers from predatory financial firms and shoddy products, Minnick’s plan would have existing state and federal regulators work together in a “consumer financial protection council.” “We’re trying to come up with something that will achieve the objectives of what the White House is asking us to do without creating a new stand-alone federal regulator,” Minnick told POLITICO.

- The Democrat-versus-Democrat battle over Senate Finance Chairman Max Baucus’s health care proposal is more than just political posturing: It’s the latest sign that Senate Democrats so far lack a clear public leader on the issue at a crucial time in the debate. Part of the problem facing Senate Democrats is institutional; unlike the House, the Senate is a body that gives each member great power to influence the legislative process — significantly limiting the power of leaders. Another part of the problem is the sweeping nature of the issue: Health care reform falls into the jurisdiction of several House and Senate committees, putting far more cooks in the kitchen than on most other matters on Capitol Hill.

AP:

- Iran's president said Monday he is proud to stoke international outrage with his latest remarks denying the Holocaust as he heads for the United Nations this week — showing he is as defiant as ever while his country comes under greater pressure to curtail its nuclear program. Mahmoud Ahmadinejad takes the world stage with a speech Wednesday to the U.N. General Assembly. He appears intent on showing he has not been weakened by three months of turmoil at home, where the pro-reform opposition has staged dramatic protests claiming Ahmadinejad's victory in June presidential elections was fraudulent.

USA Today:

- Ex-lawmakers working as lobbyists or advisers to those seeking to influence federal policy are pumping leftover campaign funds into the accounts of their former congressional colleagues — including colleagues who oversee the industries the ex-lawmakers now represent, a USA TODAY review of campaign-finance records shows. The donations are legal. Federal law allows former members of Congress to keep campaign accounts active and dole out the money to candidates, political parties and charities. However, critics of the practice, such as Meredith McGehee of the non-profit Campaign Legal Center, call the accounts "political slush funds," that are tapped to curry favor with lawmakers. "Being able to give money is a huge advantage in establishing yourself as a lobbyist," McGehee said. "Money buys you face time. But this isn't money that's coming from their pockets. This is money other people have given them that they are using to set up their next careers."

Reuters:
- Chinese oil demand in August slid 5.4% from July, arresting a month-on-month climb seen since March this year, as the world's second largest oil consumer reined in oil imports as well as crude throughput rates at domestic refineries, according to a data analysis just released by Platts. China's implied oil demand totaled 33.02 million metric tons in August versus 34.92 million metric tons in July, a Platts analysis showed September 21. The country had ratcheted up crude imports as well as refining rates to an all-time high in July, which is said to have left state-owned refiners Sinopec and PetroChina with swollen refined product inventories in the face of lackluster demand. August seems to have brought a reality check for refiners in China," said Vandana Hari, Asia news director at Platts. "Domestic fuel demand has clearly been lagging their high processing rates, and storage space is finite.

Refined product stockpiles held by Sinopec and PetroChina at the end of July

were some 30% higher than the corresponding period of 2008 and had crept up 7%

from a month ago, Chinese media reported earlier. At the same time, July oil

products sales in China fell about 6% from a year ago and shrank 10% from

June. Refiners responded by cutting collective crude throughput in August by 1.7%

from July to 32.56 million metric tons or 7.7 million barrels per day -- the

first monthly reduction since February 2009. Crude imports were cut by 5.9%

from July to 18.48 million metric tons or 4.38 million barrels per day in

August. Chinese companies also slashed August refined product imports by 28% from July and boosted exports of their own output by nearly 10%, which sent net products imports plunging to 460,000 metric tons, a level not seen in many years.

The Independent:

- Stephen King: Obama must resist the siren call of protectionism ahead of the G20.

Bear Radar

Style Underperformer:
Small-Cap Value (-.92%)

Sector Underperformers:
Gold (-1.86%), Construction (-1.43%) and Homebuilders (-1.40%)

Stocks Falling on Unusual Volume:
CVD, ONB, IRE, AMSC, MEOH, CVLT, STEC, JACK, DOM, AMN and ZN

Stocks With Unusual Put Option Activity:
1) EL 2) ODP 3) IPI 4) FWLT 5) ATVI

Bull Radar

Style Outperformer:
Large-Cap Growth (-.04%)

Sector Outperformers:
Education (+2.58%), Airlines (+1.64%) and Biotech (+.96%)

Stocks Rising on Unusual Volume:
PER, OREX, MNKD, AIG, TKLC, DLTR, SHLD, ORH, KONG, USMO, CBEY, UPL, FFBC, ELOS, MSTR, VRUS, BLKB, HAIN, LNCR, OREX, OGXI, MOLX, DLTR, CERN, CELG, VLCM, OMCL, CMED, AFAM, SXCI and BCA

Stocks With Unusual Call Option Activity:
1) JBLU 2) ODP 3) TLAB 4) ESRX 5) DAL

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