House OKs Stimulus Without Any Votes From Republicans

BY DAVID HOGBERG

INVESTOR'S BUSINESS DAILY

Posted 1/28/2009

President Obama's first big initiative, the $819 billion stimulus package, passed the House with little difficulty by 244-188.

But no GOP lawmakers voted for it, despite Obama's efforts to create a bipartisan atmosphere. Also, more economists are arguing that the measure would be ineffective.

Even some Democrats expressed doubts.

"I am going to support the package. There's a lot of good in it for future economic growth," said Rep. Dan Boren, D-Okla. "But it's not the bill I would have written. I would've spent far more money on infrastructure and shovel-ready projects, not funding for the National Endowment for the Arts and other extraneous parts. I also don't think we should be giving tax cuts to people who don't pay taxes."

Rep. Jeff Fortenberry, R-Neb., voted no. "I fear in the name of stimulus we are on an unsustainable path of spending that will be very difficult to reverse in the future."

Nevertheless, he too had some mixed feelings. "The alternative energy plan, health information technology, and modernizing the electric grid are bold, new ideas and standing alone, I probably would have voted for them."

Too Much, Too Late?

House Republicans balked at the stimulus package as they regain their small-government voice.

"Instead of injecting new life into the economy, we're seeing a massive expansion of government," Rep. Darrel Issa, R-Calif., wrote in an op-ed.

Calling the bill "perfectly awful," Rep. John Campbell, R-Calif., said the "stimulus package is nothing more than a political grab bag of spending."

But Small Business Committee Chairwoman Nydia Velazquez, D-Calif., said the bill would "drive growth within the small business community . . . $30 billion in targeted tax measures will allow struggling startups to stay afloat."

Republicans say spending delays would limit the near-term impact.

A Congressional Budget Office report says just $93 billion in new outlays would occur in the rest of fiscal 2009, which ends in Sept. 30. Another $225 billion would be spent in 2010. All told, that's about half of the bill's eventual spending.

The Senate's stimulus bill is expected to include more tax cuts to Republicans' liking. That could win over more GOP support there.

No Bipartisan Spirit Here

One GOP aide cited partisanship as a reason for low House Republican support: "For all the president's calls to find an 'American' solution, Speaker Pelosi refused to allow any Republican input."

House Majority Leader Steny Hoyer blamed Republicans. He cited Democrat cooperation with President Bush last year on economic plans and past GOP opposition to Clinton economic plans.

Fortenberry, while noting that the GOP was largely shut out by House Democrats, held out hope for long-term cooperation with Obama.

"President Obama came to see us Tuesday," he said. "It was a very cordial, gracious meeting in which there was honest and fair dialogue about areas of common ground regarding concern for the economy."

Common ground may be harder to find as more prominent economists oppose the stimulus package.

The libertarian Cato Institute on Tuesday ran a full-page ad in prominent papers, including the New York Times. Signed by 200 economists, including Nobel laureates Vernon Smith, James Buchanan and Edward Prescott, it stated that they "do not believe that more government spending is a way to improve economic performance."

"The package will simply put future generations of Americans $800 billion further in debt," said Chris Edwards, director of tax policy studies at Cato. "We already have a deficit at a historic high and we cannot afford spending more."

But the bill has plenty of backers.

"We have to worry about budget deficits, but not anytime soon," said Dean Baker, co-director of the liberal Center for Economic and Policy Research. "The economy is in free fall. Spending money and running a large deficit will both get the economy on track and improve efficiency."

Copyright 2000-2009 Investor's Business Daily, Inc.

BofA Bailout Fails To Stanch Bleeding In Financial Stocks

BY SCOTT STODDARD

INVESTOR'S BUSINESS DAILY

Posted 1/16/2009

The government threw a lifeline to ailing Bank of America (BAC) on Friday, but shares of the financial giant and many peers continued to sink.

The Treasury said it would inject $20 billion of new capital into BofA after the top U.S. bank said it lost $1.79 billion in the fourth quarter, its first loss in 17 years. That excludes $15.3 billion in red ink at Merrill Lynch, which it bought Jan. 1.

Washington also agreed to put up $118 billion in guarantees to help BofA absorb Merrill.

The plan follows the model used to aid Citigroup (C) last November.

Meanwhile, Citi lost $8.3 billion, bringing losses over the past five quarters to more than $28 billion.

Citi will split into one unit focused on its healthy commercial and retail banking operations and another dealing with riskier assets.

Financials Still Slide

Stocks seesawed Friday before finishing in the black. The Dow and S&P 500 rose 0.8% and the Nasdaq 1.2% despite ongoing concerns about the banking sector.

But the SPDR Financial ETF fell for a third straight day, sinking 3%.

BofA plunged 14%, Citi dived 9%, Wells Fargo (WFC) sank 7%. JPMorgan (JPM), which fell 6% Thursday despite reporting an unexpected profit, sank 6% on Friday.

Barclays (BCS) tumbled as much as 32%, paring those losses to 14% after the U.K. banking giant said it expected to top quarterly views.

Bad debts will keep mounting despite herculean government efforts to flood the financial system with cash to help banks rebuild their capital cushions, analysts said.

"I don't think the worst is behind us," said Michael Carlson, a partner in the finance and restructuring group of law firm Faegre & Benson. "The so-called toxic assets that financial institutions have are still kind of a black hole — nobody knows really how to value them, and until there is some method of removing those from the balance sheets of banks I think we're going to continue to see more rough times for banks."

Support For 'Toxic' Bank

FDIC Chairman Sheila Bair told CNBC on Friday that setting up a government-backed bank to remove bad debt from lenders' books might have "some merit."

Treasury Secretary Henry Paulson, who leaves office Wednesday, also signaled support for the idea.

Federal Reserve Chairman Ben Bernanke had previously cited a toxic assets bank as an option.

President-elect Obama's team is also reportedly mulling such sweeping rescue plans.

Bank of America agreed to stricter limits on executive compensation as part of its deal. It will also slash its quarterly dividend to a penny a share from 32 cents.

The government will receive preferred shares for its $20 billion investment in BofA. Along with prior injections of $25 billion into that bank and Merrill, the Treasury will become BofA's top shareholder with about a 6% stake.

"The banks of today are effectively nationalized by the U.S. government, whether we want to admit it or not," said Doug Roberts, chief investment strategist for ChannelCapitalResearch.com.

The Senate voted Thursday to release the second half of the $700 billion in TARP funds set aside to stabilize the financial industry.

Citi said Friday that it plans to sell its CitiFinancial consumer lending business and its Primerica Financial life insurance unit as it dismantles a decade-long strategy of acquisitions to provide a wide range of financial services to firms and consumers.

Earlier in the week, Citi announced plans to sell control of its Smith Barney brokerage to Morgan Stanley (MS) to raise badly needed capital.

"My No. 1 priority is to return this company back to profitability," Citi CEO Vikram Pandit said Friday.

Meanwhile, the government's $118 billion backstop for BofA is meant primarily to help it absorb Merrill.

BofA threatened last month to abandon the Merrill deal, CEO Kenneth Lewis said. But the government, fearing systemic collapse, promised assistance, he said.

The aid deal calls on BofA to absorb the first $10 billion in losses. But the government will cover 90% of up to $108 billion in further losses.

Yet Moody's and Fitch cut BofA's debt ratings on concerns that Merrill's losses would continue to grow.

Copyright 2000-2009 Investor's Business Daily, Inc.

Tax Rates Differ For ETF Asset Classes

BY TRANG HO

INVESTOR'S BUSINESS DAILY

Posted 12/15/2008

Depending on whether they hold stocks, metals and futures, as with inverse and leveraged ETFs, ETF asset classes are taxed differently.

Some are taxed as ordinary income, some as capital gains and some as collectibles, with tax rates ranging from 15% to 35%.

So it behooves tax-sensitive investors to be aware of how gains in various asset classes are treated by the tax man.

Robert Green, CEO of GreenTraderTax.com and author of "The Tax Guide for Traders" and the forthcoming "Green's 2009 Trader Tax Guide," says investors can apply the rules to their advantage.

IBD: How are different asset classes among ETFs taxed?

Green: ETFs based on securities are taxed like securities. Short-term capital gains are taxed up to the ordinary income tax rate, which rises to the highest level of 35%. And long-term capital gains are taxed up to 15%. So if you hold an ETF security for over 12 months, you'll get the lower 15% rate. If you sell it before 12 months, it's short term, and you pay up to the highest rate of 35%.

ETFs based on precious metals like gold or silver, such as SPDR Gold Trust (GLD), are subject to the collectibles tax rate, which is currently as high as 28% on a long-term capital gain and 35% on a short-term capital gain.

If you trade an ETF based on a future other than precious metals, you will get 60-40. And 60-40 means whether you hold it for a day or over a year, you pay a blended rate for short-term and long-term capital gains: 60% is long-term, taxed up to 15%; 40% is short-term, taxed up to 35%.

Due to the math, the highest blended rate is 23%, which is 12% less than the short-term rate on securities of 35%.

What about options on ETFs? The IRS has not issued tax guidance for that, so it's not clear. An industry practice is to treat options on ETFs as futures for the more beneficial, lower 60-40 tax rate. Usually you don't hold an option for over a year, so you're not looking for the long-term rate.

IBD: Some ETFs hold stocks overseas. Does that subject you to the tax structure of the host country?

Green: No. Generally, when you buy and sell securities, financial instruments, it's not considered income in the country in which you're trading.

So if nonresident aliens open a brokerage account and trade U.S. stocks, they're not taxed on capital gains as a nonresident alien, unless they're here for more than 183 days.

When an American trades in a foreign country or with a foreign broker or buys foreign instruments from a U.S. broker, there is no foreign tax.

If your foreign account has more than $10,000, you need to file a TDF 90-22.1, a foreign bank account reporting form. The Treasury is really busting taxpayers big time with severe penalties if they don't file those forms.

IBD: What can investors do at year-end to control tax consequences?

Green: There's a lot of specialized tax planning. Those who trade as a business have special challenges for year-end planning. They may want to have wash sales (sales that lock in losses, followed by buys within one month to regain exposure; typically not allowed by the IRS for tax purposes) if they've already exceeded the capital-loss limitation, and they may also want to have unrealized losses rather than realize them. Why? Because the unrealized losses and the wash losses can be turned into ordinary business losses in the following year.

If you're not a business trader this year, but you're going to be a business trader next year, you may want to save some of your year-end purchases of equipment (for) next year or startup expenses. If you are a business trader this year, then you want to load up on them because you just get more business deductions.

For example, if a trader does not rise to the level of trader tax status or didn't use Section 475 in '08, they're stuck with capital-loss treatment and they may have a capital loss which is well beyond the $3,000 capital-loss limitation.

It would be a mistake for them to generate more capital losses with tax-loss selling because they couldn't get the benefit; they're already into the capital-loss carryover situation.

And wash sales, which are generally considered bad by the mainstream financial media, can actually be helpful to the business trader because they can reduce capital-loss carryovers and instead get wash-sale-loss carryover. And the wash-sale-loss carryover can be turned into an ordinary loss in the subsequent year with a Section 475 mark-to-market accounting election. So the trader does the reverse of what they generally hear.

Copyright 2000-2008 Investor's Business Daily, Inc.

GM, Chrysler To Get $17.4 Bil In Loans To Sputter Into '09

BY SEAN HIGGINS

INVESTOR'S BUSINESS DAILY

Posted 12/19/2008

The White House prevented the auto industry from going on cinder blocks and perhaps being sold for parts Friday by announcing a package of $17.4 billion in loans to sustain it through early next year.

The loans would go to General Motors (GM) and Chrysler, which have both said they face bankruptcy in weeks without assistance.

Ford (F), the other member of Detroit's Big Three, is not as cash-strapped as the other two and has opted not to take these loans.

GM shares rose 23% on the announcement. Ford climbed 4%. Stocks overall were mixed.

The funds will come from the Troubled Assets Relief Program, a move the White House had previously resisted until Dec. 12.

President Bush said his preference would have been to allow the automakers to go into bankruptcy "but these are not ordinary circumstances."

"There is too great a risk that bankruptcy now would lead to a disorderly liquidation of American auto companies," Bush said. "My economic advisors believe that such a collapse would deal an unacceptably painful blow to hardworking Americans far beyond the auto industry."

The Bush administration attached a number of conditions to the aid, but doesn't require truly fundamental reforms in terms of labor costs or debt restructuring that could make GM and Chrysler more viable.

The announcement effectively punts any long-term decisions about how the federal government should be involved in efforts to revitalize the domestic car industry to the incoming Obama administration.

"They just made sure that nothing happens before Bush leaves office," said Daniel Clifton, Washington policy analyst for Strategas Research Partners. "The last thing George Bush wants is the bankruptcy of GM around the holidays as the last major event of his presidency."

Obama called Bush's loan plan "a necessary step" to save the industry. An Obama official told Reuters the president-elect was informed of the Bush administration's deliberations on the loan package but did not take part.

The Big Three cheered the plan.

"We again thank the administration for this important support of our industry at this challenging time, and we look forward to proving what American ingenuity will achieve," GM said in an official statement.

Business lobbies like the Chamber of Commerce and the National Association of Manufacturers offered similar praise.

United Auto Workers President Ron Gettelfinger applauded it but signaled he would fight any effort to get the union to renegotiate its contracts with the automakers.

Democrats offered tepid applause. Senate Majority Leader Harry Reid, D-Nev., said he was "pleased" that the administration's plan included most of a Democratic-backed bill.

Republicans and conservatives lamented that the deal didn't do more to force the Big Three to restructure.

"The best solution would have been definite terms, within a finite time period, committed to law, that protected taxpayers," said Sen. Bob Corker, R-Tenn.

Corker led GOP efforts to cut a deal in the Senate, which broke down after the UAW rejected a 2009 date for reworking pay and benefits.

It'll Get Better, Right?

Dave Cole, chairman of the Ann Arbor-based Center for Automotive Research, says that despite the loans, the domestic industry's survival is dependent on whether credit markets and car sales improve.

The loan deal "is a bridge until we get a little stability in the economy," Cole said.

Shikha Dalmia, senior analyst for the free-market Reason Foundation, said that's a problem. There's little evidence that auto sales will revive any time soon.

"I think this is tantamount to throwing good money after bad," Dalmia said. "The auto market right now is so frozen that these companies don't have a prayer of coming back even if they get their cost structures and labor costs in line."

Bush's plan is closely modeled after the proposal that passed the House earlier this month. It would require Chrysler and GM to become financially viable by March 31, or face having the loans revoked. Financial viability is defined in this case as having a "positive net present value."

But if GM and Chrysler aren't viable next spring, they likely wouldn't be able to repay the loan without a forced liquidation, which would be economically devastating and politically unthinkable.

The automakers would have to agree to caps on executive compensation, sell off corporate jets and halt paying dividends.

It would also let the federal government audit them and give it veto power over company transactions of more than $100 million.

The administration's plan proposes but doesn't require automakers to cut their debts by two-thirds via a debt-for-equity swap.

'Unfair' Labor Demands

It also suggests the companies eliminate a jobs bank that pays employees even after they are laid off and make wages and work rules competitive with foreign manufacturers operating in the U.S.

UAW's Gettelfinger bristled at even suggesting this. "(W)e are disappointed that (Bush) has added unfair conditions singling out workers," he said in a statement.

That shouldn't worry Gettelfinger. Reason's Dalmia said another problem with the loan package is that it is "too easily undone" and the Bush administration has only a month left. Barack Obama is not bound by any of the terms so he can simply rewrite them as he sees fit.

"Chances are these companies are going to come back in March and ask for more money. With a Democratic Congress and a sympathetic president, I think they'll get it," Dalmia said.

The once-dominant U.S. auto industry has suffered for decades from loss of market share and high labor costs. The automakers were paying about $70 an hour to cover salaries and benefits, including legacy costs, when the financial crisis hit this fall — making credit harder to obtain and hurting sales.

The Big Three chief executive officers and UAW came to Washington in November to request loans but faced a skeptical, bailout-weary Congress. It didn't help that the CEOs initially flew in on corporate jets to plead poverty and then upped their aid request from $25 billion to $34 billion in a week. Talks stretched into December but no deal was reached, making Bush the Big Three's last hope.

Using TARP to aid automakers will essentially drain the first half of the $700 billion fund. That prompted Treasury Secretary Henry Paulson on Friday to ask Congress to release the other $350 billion.

Copyright 2000-2008 Investor's Business Daily, Inc.

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Indexes Surrender 50-Day, But Most Higher For The Week

Originally Published: Investor's Business Daily

BY ALAN R. ELLIOTT

Posted 12/19/2008

The week wound down to an unremarkable finish, with indexes giving up early gains to end mixed in heavy options-expiration trading.

The Nasdaq ended 0.8% higher and the S&P 500 edged up 0.3%. The NYSE composite was a fraction into the red. The Dow, slipping 0.3% on a quadruple-witching boost from options expirations, logged its third distribution day since the Dec. 2 follow-through.

Still, three of the four major indexes gained ground for the week. The NYSE composite added 1.3% and the Nasdaq 1.5%. The S&P 500 edged 0.9% higher, while the Dow slipped 0.6%.

For the NYSE, Nasdaq and S&P 500 it was the first two-week advance since September. The Dow hasn't managed a two-week gain since May.

In addition, all the major indexes eased in late trading, losing the week's battle to hold above their 50-day moving averages.

No significant economic news is scheduled for release Monday. But Tuesday's releases will include new and existing home sales, GDP data and the University of Michigan's revised Consumer Sentiment index numbers for December.

Drugstore chain Walgreen (WAG) and software maker Red Hat (RHT) are scheduled to report earnings Monday.

4:15 p.m. Update: Indexes Close Mixed After Volatile Session

BY JUAN CARLOS ARANCIBIA

A volatile session ended with mixed results Friday.

The Dow fell 0.4%, weighed down mostly by oil components Exxon Mobil (XOM) and Chevron (CVX), as crude continued sliding.

The NYSE composite edged down a fraction, while the S&P 500 rose 0.2% and the Nasdaq 0.8%, according to early figures.

Volume rose amid options expiration-related trading. The market heads into one of its quietest weeks, shortened by the Christmas holiday.

Automakers and auto-supplier stocks rose after the White House agreed to provide emergency loans to the Big Three.

3:15 p.m. Update: Indexes Hold Gains, But Settle To Lower End of Ranges

BY ALAN R. ELLIOTT

A back-and-forth session held to positive territory, as decliners led advancing issues by healthy margins. But the day's heavy-volume trading bypassed most leading stocks.

The Nasdaq composite held top honors, up 1.3%. The S&P 500 kept 0.9% in the black, while the Dow and NYSE composite clung to 0.4% gains.

Research in Motion (RIMM) and Oracle (ORCL) continued to be heavy upside players on the Nasdaq. Energy and international plays lagged on the NYSE. Small caps continued riding ahead of the mainstream, driving the S&P 600 up better than 2%.

Volume continued to settle toward more normal ranges, but remained 78% higher on the NYSE and up 23% on the Nasdaq.

Oil prices split in late trading. The expiring January contract shed $2.35 to settle at $33.87. The February contract climbed rose 69 cents to $42.36, leaving the front month contract down 8% for the week.

Aaron Rents (RNT) climbed 5%, breaking above a 26.68 buy point on a 13-week, cup-with-handle base. The rent-to-own chain announced Tuesday it would acquire Missouri-based Rosey Rentals, a franchisee operating 35 Aaron's stores in six states in the Southeast with annual revenue of about $45 million.

Quality Systems (QSII) cut losses for a 4% run, but volume was just a shade above average. The maker of health care practice and records management software has jumped 16% so far this week as it works to build the right side of a base.

On the downside, Italian oil & gas heavyweight Eni Spa (E) slipped 7% as oil prices sculpted out multiyear lows. Eni has been in a general uptrend since early October and is holding its own above support at its 10-week moving average.

2:15 p.m. Update: Stocks Rebound In Afternoon Trade

BY VINCENT MAO

The major stock indexes bounced back in afternoon trading Friday but remained off session highs.

The Nasdaq climbed 1.5%, the S&P 500 1.1%, while the Dow and NYSE composite rose 0.6% each.

Volume continued to track sharply higher, but the pace had slowed.

PetMed Express (PETS) rallied 6% and regained its 50-day moving average. The pet pharmacy operator may be forming a base.

Research In Motion (RIMM) rallied 9% in heavy trading. Despite hovering near two-year lows, the stock's Accumulation/Distribution Rating has improved to B from a worst-possible E in October.

On the downside, AeroVironment (AVAV) extended losses to 10% and is off more than 8% from its buy point. The unmanned aircraft systems maker cleared a 36.32 buy point from a base-on-base pattern Thursday.

Tractor Supply (TSCO) dropped 4% and sliced is 10-week and 40-week moving averages. The stock also triggered the 8% sell rule. It passed a 42.85 buy point from a double-bottom base Wednesday. William Blair & Co. warned that deflation may hurt the farming equipment retailer.

Crude oil dropped $1.90 to $34.32 a barrel. Energy stocks were mixed.

1:15 p.m. Update: Indexes Tinker With Mixed Territory; Small Caps Outperform

BY ALAN R. ELLIOTT

Indexes threw in the towel after an early surge spurred by news of a federal bailout for U.S. automakers.

The NYSE composite slipped briefly into the red, then managed a fractional gain. The Dow flattened. The S&P 500 held a 0.5% advance and the Nasdaq composite showed a 0.9% rise.

Financial issues dragged on the Nasdaq, with the exchange's financial index down 1.3%. Computer, telecom and insurance sectors still held better-than-1% gains. On the NYSE, the International 100 index lagged with a 1% decline, and technology stocks tracked close behind. Small caps ran well ahead of the curve, with the S&P 600 up 2%.

Volume eased from its early highs, but remained at extraordinary levels — particularly on the NYSE — because of options expiration trading.

Crude oil prices ground lower, down more than $1 after dipping to midsession lows below $34 a barrel. Gold held the bulk of its early losses, remaining down more than $22 to below $838 an ounce.

Flowers Foods (FLO) cooked up a 4% gain as it tried to notch its first weekly gain in December. Shares are still well below their 50- and 200-day moving averages in a consolidation begun in August.

Onyx Pharmaceuticals (ONXX) swung 5% higher in above-average volume. The biotech drug maker is in its fourth straight week of gains, has topped resistance at its 10-week line and appears ready to take a run at the 40-week level.

On the downside, advanced ceramic components maker Ceradyne (CRDN) gapped down and surrendered 20% after a downgrade from buy to hold from Stanford Research. The big-volume tumble punched the stock back below support at its 50-day line. It has been trying to build a floor to a consolidation begun in August.

12:15 p.m. Update: Indexes Retreat Near Session's Halftime

BY VINCENT MAO

Stocks pulled back sharply near the halftime of Friday's session. Most major indexes slipped back under their respective 50-day moving averages after regaining them earlier.

The Nasdaq climbed 1.4%, down from an intraday high of 2.6%. The S&P 500 rose 1%, Dow 0.6% and NYSE composite 0.4%.

Volume was again tracking vastly higher across the board due to quadruple expiration and the quarterly rebalancing of S&P indexes.

Tower Group (TWGP) tacked on 9% in heavy trading, its fourth straight advance. The insurance firm is nearing a potential 27.63 buy point from a cup base.

Gentiva Health Services (GTIV) gapped up and gained 3% in brisk trade. After a failed breakout earlier this month, the home health care firm is forming a new handle with a buy point at 28.36.

On the downside, Supertex (SUPX) gapped down and dropped 7% after cutting its sales outlook. The chipmaker now expects revenue in the range of $17 million to $18 million, down from a prior forecast of $21.3 million to $22.3 million. Advanced Micro Devices (AMD), Atmel (ATML), Atheros Communications (ATHR), MEMC Electronic Materials (WFR), Monolithic Power Systems (MPWR) and Xilinx (XLNX) have all slashed their earnings and/or sales guidances.

AeroVironment (AVAV) lost 4% in active trading, slipping below a 36.32 buy point cleared Thursday.

11:15 a.m. Update: Indexes Drive To Solid Gains With Options Expiration Support

BY ALAN R. ELLIOTT

Indexes swept higher in broad-based gains, with advancing issues leading by better than 4-to-1 on the NYSE and by a 3-to-1 margin on the Nasdaq.

The Nasdaq composite scored a 2.5% rise, with Oracle (ORCL), Research In Motion (RIMM) and Comcast (CMCSA) driving the Nasdaq 100.

The S&P 500 flashed a 2% advance, the Dow climbed 1.8% and the NYSE composite rode 1.5% higher.

On the NYSE, energy, financials and health care pulled ahead of other sectors.

NYSE volume erupted in quadruple witching action, up nearly 250%. Nasdaq volume soared 67% above Thursday's below-average volume.

Commodities traded generally mixed as crude futures hovered, holding near a 4-1/2 year low just below $36 a barrel. The dollar strengthened vs. the euro. Gold slumped more than $25 to below $836 an ounce.

S&P 400 component Highwood Properties (HIW) phoned in an 8% jump on more than double its average trading volume. The Southeast/Midwest commercial property REIT sports a best possible 99 EPS Rating from IBD. It appears set to end its second week above its 10-week moving average as it climbs up from a three-month consolidation.

California Water Services (CWT) launched into a 4% gain in heavy trade. The move began what would be a fourth straight day of gains for the multistate public and commercial water utility. Shares are up 14% so far this week, clearing new highs for the first time since 2006 and 8% above a 42.60 buy point on a rebound from the stock's 10-week moving average.

On the downside, heavy construction firm Fluor (FLR) slipped 7% in busy trading. The company, which has strong ties to refining and energy industry construction, has suffered from the fall in oil prices. Shares are down 6% so far for the week, hurting the stock's effort to build a right side to a six-month consolidation.

10:15 a.m. Update: Stocks Pare Gains After Higher Open

BY VINCENT MAO

Stocks charged out of the gate Friday after automakers received their long-awaited bailout, but the major indexes have already shaved a chunk of gains.

The Nasdaq climbed 1.3%, thanks to gains in a number of high-profile tech issues and chip stocks. The Dow rose 0.6% and the S&P 500 0.5%. The NYSE composite was mostly unchanged.

Volume was tracking vastly higher due to quadruple expiration of stock options, stock index options, stock index futures and single stock futures.

Provident Bankshares (PBKS) gapped up and skyrocketed 58% on news that it will be acquired by M & T Bank for $401 million in stock.

Research In Motion (RIMM) rose 5% in fast trade following a round of mixed analysts' actions. Cowen & Co. cut the BlackBerry maker to underperform from neutral, while Raymond James and UBS both cut the stock's price target. TD Bank Financial raised shares to Action List Buy from Buy.

On the downside, AECOM Technology (ACM) fell 3% as it slipped for a second session. That left the government contractor 5% past a 27.30 buy point from a cup-with-handle pattern.

January crude pared losses, but was still down 53 cents to $35.69 a barrel.

9:15 a.m. Update: Stocks Poised For Higher Start As Automakers Get Bailed Out

BY VINCENT MAO

Stock futures signaled a higher open Friday after the While House announced help for U.S. automakers.

Nasdaq futures rose 12 points vs. fair value, S&P 500 futures rallied 9 points and Dow futures gained 112 points.

General Motors (GM) and Chrysler will split $13.4 billion in loans to help them stave off bankruptcy. They'll split another $4 billion in February and must show "financial viability" by March.

GM shares rose 7% in the pre-market. Ford (F), which has said it doesn't need bailout money, rose 5%.

Standard & Poor's Ratings Services cut ratings on a slew of major U.S. and European banks, citing rising risks amid the worsening recession. The list of downgraded firms includes Bank of America (BAC), Barclays (BCS), Citigroup (C), Credit Suisse Group (CS), Deutsche Bank (DB), Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS), Royal Bank of Scotland Group (RBS), UBS (UBS) and Wells Fargo (WFC).

S&P also lowered HSBC's (HBC) outlook to negative. The U.K. bank fell 3% in the pre-market.

On the upside, Oracle (ORCL) gained nearly 4% in the pre-open on its bright fiscal Q3 outlook. Amid a weak tech spending environment, the database software maker sees current quarter sales growing 8% to 11% vs. views of 8%. Earnings are pegged at 34 cents to 36 cents a share vs. views of 34 cents.

Intrepid Potash (IPI) cut its Q4 sales outlook, while fellow fertilizer maker Potash Corp. Of Saskatchewan (POT) cut its full-year profit guidance. Intrepid fell 14% in the pre-market, while Potash Corp. shed 3%.

Elsewhere, Panasonic offered to buy rival Sanyo for $9 billion.

Crude oil rebounded slightly after touching its lowest level in nearly five years. The expiring January contract fell $1.42 to $34.08 a barrel. Earlier, it hit $33.44, the lowest since February 2004.

Copyright 2000-2008 Investor's Business Daily, Inc

Hedge Fund's Capital Needs Could Derail CSX

Originally Published: WWW.TheStreet.com

By Robert Holmes

An activist hedge fund that's been waging war against the board of CSX(CSX Quote - Cramer on CSX - Stock Picks) may be forced into retreat by the demands of its own investors.

After acquiring enough CSX shares to earn voting rights in a proxy dispute last year, The Children's Investment Fund Management, or TCI, could find itself in the awkward position of having to dump the railroad company's stock because of its own need for capital.

The result could be a blow to CSX's market value that is driven by insider shareholders rather than the company's fundamental performance -- exactly the opposite of what TCI set out to do.

London-based TCI partnered in 2007 with New York's 3G Capital Partners to wage war on CSX, arguing that the Jacksonville, Fla., railroad operator's board was too entrenched and had not served shareholders well. Between the two, TCI and 3G Capital have amassed more than 35 million shares of CSX, nearly 9% of the outstanding shares -- enough to secure four of the company's 12 board seats.

Now massive hedge fund redemptions and selling may derail TCI's plans. As pressure to maintain adequate capital grows, the fund could be forced to pare or abandon its position in CSX.

CSX is TCI's third-largest equity position and one of the best performers in its portfolio, making the stock a good candidate for liquidation if the fund needs to raise capital.

TCI purchased its entire stake in CSX -- nearly 18 million CSX shares worth about $558 million -- in the first quarter of 2007, according to regulatory filings. In the worst case scenario, TCI is down somewhere near 10% on its investment, though depending on the exact date it bought shares, the investment could be up slightly. The fund did not report its exact purchase date.

Some of TCI's other big equity positions have performed worse. The fund's biggest investment is in Union Pacific (UNP Quote - Cramer on UNP - Stock Picks), with a total of 24 million shares for a value of $1 billion. TCI first bought Union Pacific stock in the first quarter of 2007 and has added to its stake nearly every quarter since. According to regulatory filings from the second quarter, TCI doubled its position in the railroad company at a time when shares traded above $60. Shares have fallen 23% since that time to roughly $48 a share.

TCI's second-largest holding is 6 million shares of MasterCard (MA Quote - Cramer on MA - Stock Picks), which carries an equity value of $828 million. TCI initially invested in MasterCard in the first quarter of this year and has added to its position in the second and third quarters. That stock is down 31% so far this year and nearly 50% over the last six months.

From a fundamental point of view, CSX looks solid. The company exceeded third-quarter estimates in October; BB&T Capital Markets analyst John Barnes said his "bullish thesis remains very much intact"; and Deutsche Bank analyst Marcelo Choi noted that "rails have proven in the past that they can generate firm pricing despite soft volume."

Nonetheless, other hedge funds have begun dumping entire stakes in the company.

More than 18 funds sold their entire positions in CSX some time in the third quarter, including Seneca Capital Advisors, Matrix Capital Management, JGD Management and TPG-Axon Capital, according to regulatory filings. And while Deutsche Bank (DB Quote - Cramer on DB - Stock Picks) is the fifth-largest holder of CSX shares, it halved its stake in the previous quarter, selling more than 15.6 million shares. Taconic Capital Advisors, which held positions in both CSX and Union Pacific, has since sold off both completely.

Could these other hedge funds, smelling blood in the water, be exiting their positions in CSX and Union Pacific, exacerbating TCI's troubles?

"Hedge funds are very opportunistic," said Joel Schwab, managing director at HedgeFund.net. "There is a wide swath of hedge funds looking for any signs of weakness with public equities. The fact that one hedge fund is involved would really mean nothing to them about putting on a long or a short position to the other fund's detriment."

Schwab says that a wide group of hedge funds generally play follow the leader. Because many are experiencing redemptions right now, it may be forcing them to liquidate positions, he says.

"TCI is a very prominent fund, so it's possible that some hedge funds may have followed them into CSX," said Schwab. "But with the wave of hedge fund redemptions, it would certainly be within the way hedge funds operate for them to move on, regardless of TCI's interest. They'll look down their portfolio and they'll determine what's the best investment to jettison."

Even CSX's CEO Michael Ward sold nearly his entire holding in early November, at roughly $46 a share. In the regulatory filing for the transaction, Ward cited his wife as the reason for the sale, presumably due to a divorce settlement. Since that time, the stock has fallen 25% to its lowest level in two years. CSX did not return a request for comment.

So far, there are no regulatory filings showing any sales of CSX stock by TCI or 3G Capital. Should that change, it will have to be reported right away because of disclosure rules for the fund's representatives on the CSX board. That's little consolation, though, for those shareholders who have seen shares fall from their 52-week high of $70.70 in May to $35.74.

Neither TCI nor 3G Capital were available for comment.

Of course, not every fund is selling. In the third quarter, Citigroup(C Quote - Cramer on C - Stock Picks), Barclays Global, Tiger Global Management and Janus Capital Management(JNS Quote - Cramer on JNS - Stock Picks) were among those that increased their stake in CSX. Citigroup is currently the largest holder of CSX shares with a total of 21.1 million, Barclays ranks second with 18.6 million shares, and both Tiger Global and Janus are in the top 15 holders by amount held.

But if hedge funds are indeed trying to break TCI, they picked an easy mark. TCI was launched in January 2004 by Christopher Hohn, who donates a significant portion of all fees earned to a charitable trust and is known to have an activist bent. For example, TCI amassed a large share of German stock exchange Deutsche Boerse and forced the resignation of its CEO after he refused to abandon his plan to takeover the London Stock Exchange.

One criticism of the fund is that it is particularly vulnerable to market declines because Hohn focuses on very concentrated bets in a handful of companies, abandoning the traditional hedging technique. Those bets certainly paid off in the past, with TCI returning 42% on an annualized basis from its launch in 2004 through last year.

However, the implosion of other hedge funds is spreading fear, likely affecting TCI and its own returns. The fund faced a significant setback after it sold its entire stake in the Japanese company Electric Power Development, known as J-Power, after the Japanese government intervened, citing national security. TCI had been attempting since 2005 to force the company to increase its dividend before selling its 9.9% stake back to the company at a loss of $130 million.

The public battle with CSX has only made matters worse for Hohn, who is reported to be publicity-shy and prefers to maintain a low profile. In May, TCI's founder was grilled in a New York court regarding his fund's investment in CSX. In September, after seeing four of his five picks finally seated on CSX's board, Hohn told Alpha Magazine that he was rethinking his aggressive activist strategy.

"It has been very profitable for us, but it is unpredictable and expensive," Hohn said in the interview. "Just look at CSX. We've already spent over a year trying to effect change and paid out more than $10 million in legal fees on the proxy fight."

As part of the discovery process related to the court case, emails between Hohn and TCI co-founder Patrick Degorce showed that Hohn was contemplating the need for more capital, but ultimately decided that the move "may damage [TCI's] long-term franchise."

The CSX saga became more expensive for TCI on Wednesday, after CSX announced that it joined a settlement with all parties to a civil action brought by Deborah Donoghue, a shareholder of CSX. Donoghue had sought to recover so-called "short-swing" profits alleged to have been realized by TCI and 3G Capital in connection with their alleged purchases and sales of CSX securities. The settlement, subject to approval by the court, will cost TCI another $10 million.