News of possible economic tightening in China competed against solid manufacturing reports in the U.S., and the markets ended mixed on the day. A much-anticipated first draft of regulations to overhaul the financial system was also released today. The Dow finished higher by 17 points, with 17 of its 30 components up on the day; the S&P 500 gained just under 1 point; and the Nasdaq fell 5. Decliners led advancers by three to two on the NYSE and the Nasdaq. The prices of Treasuries were mixed. Gold futures rose $3.70 to close at $1,105.40 an ounce, while a stronger dollar brought down the price of crude oil, which fell $1.44 to settle at $79.80 a barrel.

In Other Business News

- Industrial production in February increased for the eighth consecutive month, according to the Federal Reserve. The 0.1% rise in production at the nation's factories, mines, and utilities was unexpected, given that the auto industry was hurt by bad weather and problems at Toyota. Computers and communications equipment made up the difference.

- Manufacturing increased in the New York region as well, according to the Fed Bank of New York. The Empire State Index showed that manufacturing activity in the region continued to expand for the eighth straight month as well, although the rate of growth slowed. In February, the index fell from 24.9 to 22.9, with any reading above zero signaling growth.

- Boston Scientific indefinitely suspended sales of implantable cardiac defibrillators after it risked becoming non-compliant with the FDA due to a documentation error. The ICDs, implantable devices that monitor and regulate heart rhythms, accounted for 22% of Boston Scientifics' 2009 revenue. Its shares (BSX) plummeted 12% on news of the suspension.

- Senator Dodd, Chairman of the Senate Banking Committee, announced his proposed plan for overhauling the U.S. financial system. The plan would expand the power of the Federal Reserve to regulate investment banks, commercial banks, and insurance companies, including the powers to ban certain types of trading. Among other changes, hedge funds would have to be registered; derivatives would be regulated; a consumer regulatory agency would enforce rules on any financial products sold to consumers; and there would be an orderly way to wind down troubled financial institutions that were previously considered "too large to fail." The bill also includes the Volcker Rule, which would limit proprietary trading by banks.

- PepsiCo Inc. today announced authorization to buy back $15 billion of its shares by 2013. The worldwide beverage giant also plans to raise its dividend 7%. PepsiCo joins a growing number of companies that are loosening their defensive grip on cash. PepsiCo's shares (PEP) gained 1%.

*****

A seven-month old, 65-pound puppy has somehow taken up residence in my house (possibly related to the fact that I brought a dog home five months ago, although this couldn't possibly be the same dog). The first problem is that he refuses to stop growing. This amplifies the second problem: he's developed such a ravenous hunger for furniture that I'm beginning to suspect my couch was upholstered with bacon. So, how best to change this behavior? Negative reinforcement and shouts of "bad dog!" or kindness and positive rewards? Does kindness lead to better behavior?

I've always been part of the kindness camp – at least when I'm not thinking of the gnawed remains of my end table – on the theory that kindness is contagious. New research by political scientist James Fowler and medical sociologist Nicolas Christakis published in Proceedings of the National Academy of the Sciences confirmed the contagiousness of kindness: a kind act performed by one person reverberates through the web of interactions they have with other people, making those people more likely to perform kind acts. In the experiment, groups of four people were given money, and told to secretly put some of the money in a common fund for the whole group to share and to keep some for themselves. The money in the common fund would be multiplied by 2/5s then divided equally among the group. At the end of the game, players would find out what the other players did, and then they'd be randomly divided up into different groups of four people. Given that participants didn't know what other players would do, the most rational strategy would be for each individual to give nothing, since they'd still be the beneficiary of what other people gave to the common fund. But that's not what happened: some people were just more generous than others, and people who came from groups that had generous people in it tended to be more generous in the next rounds of the game. There was no real reason for it beyond the emulation of behavior they had just witnessed.

The researchers concluded that our behavior is often driven by copying what others do, and that assuming we're rational actors always trying to maximize our rewards misses much of the story of how we operate (and here the stock market comes to mind). On the downside, both good and bad acts are contagious. Think of someone's smile brightening up a room, or a curmudgeon ruining the day of everyone in his path by sheer force of negative feelings alone. Although to be fair to the curmudgeon, his dog probably destroyed his carpet.

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