Stocks Finish Slightly Lower, Weighed Down by Retail and Technology Shares

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Stocks Mostly Lower into Final Hour on Dollar Weakness, Profit-Taking

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs and Gaming longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is mildly bearish as the advance/decline line is slightly lower, most sectors are declining and volume is above average. Investor anxiety is slightly above average. Today’s overall market action is mildly bearish. The VIX is rising 1.7% and remains above average at 20.6. The ISE Sentiment Index is around average at 155.0 and the total put/call is below average at .82. Finally, the NYSE Arms has been running high most of the day and is currently 1.22. Fed fund futures currently imply a 78.7% chance for no rate cut and a 20.6% chance for a 25 basis point cut at the June 25 meeting. Investors initial negative reaction to today’s 25 basis point fed funds rate cut and less-hawkish-than-expected FOMC commentary seems overdone to me. The Fed did and said what was necessary to prepare the markets for an end to the long string of rate cuts, which should help strengthen the US dollar further and pressure commodities over the coming weeks. I suspect comments from Fed speakers over the next two months will become increasingly more hawkish as the June meeting approaches. Nikkei futures indicate an +51 open in Japan and DAX futures indicate an +13 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and less economic pessimism.

Today's Headlines

Bloomberg:
- The cost to protect US corporate bonds from default fell to an almost four-month low after the Fed cut its benchmark interest rate for the seventh time since the global credit turmoil began last year. Credit-default swaps on the Markit CDX North America Investment Grade Index of 125 companies in the US and Canada dropped 4 basis points to 90 basis points as of 2:22 pm in NY, according to Phoenix Partners Group.
- The Fed lowered its main interest rate by a quarter of a percentage point to 2%, the seventh cut since the onset of a global credit squeeze that’s eroded economic growth.
- General Motors(GM), the world’s largest automaker, posted a smaller first-quarter loss than analysts estimated. The stock is surging 12% on the report.
- AMR’s(AMR) American Airlines and British Airways may expand their marketing alliance and include Continental Airlines(CAL) as the carriers seek to boost sales without a merger.
- Chinese banks may risk higher bad loans after posting record profits in 2007, due to tighter credit controls and a slowing economy, the nation’s banking regulator said.

Wall Street Journal:
- Iraq Oil Revenue May Top Outlook. Report Urges Nation To Spend More Cash On Reconstruction.
- Getting to Know John McCain.
- This summer Starbucks(SBUX) is adding a line of smoothie-like drinks.

NY Times:
- Now short sellers are drawing fire once again. Across the world, these market bears are being accused of spreading rumors, persecuting companies and unsettling entire economies. Even on Wall Street, where money is seen as the ultimate measure of success, some wonder whether the shorts have gone too far. Some Wall Street executives question whether unscrupulous short sellers caused the collapse of the investment bank Bear Stearns(BSC). Others complain that shorts have been telling lies about other major firms in an attempt to sink stock prices. “This does beyond rumors,” Senator Chris Dodd said. “This is about collusion.” Concern about short sellers’ growing power gained new urgency last week when the SEC accused a former short seller of spreading false rumors about a big takeover and then profiting from the ploy. On the NYSE, short selling is running near record levels. Just over 4% of all the shares on the Big Board were sold short as of March. That figure excludes many rapid trades made every day. In all, short selling probably accounts for 25% or more of all trading.
- Three rival teams of computer researchers are working on new types of software needed to better use computer chips that can process many tasks at the same time.

TimesOnline:
- Homeowners in the UK will bear the brunt of a City slowdown as Britain takes the biggest hit of the global credit crisis, the chief economist at Goldman Sachs predicted today.

Business Report:
- While rising food prices are causing concern globally, South Africans can expect some relief as local farmers boost production. The crop estimates committee put the crop at 11 million tons, 55% higher than last year’s 7.1 million tons, when drought and lower prices produced only a modest crop. The wheat planting season was also under way in Argentina and Australia, which last year was seriously affected by drought. Expectations of improved supply as the year progresses are reflected in the difference between international spot wheat prices and prices for December.

Xinhua:
- China’s biggest trade fair received fewer buyers from developed economies and triggered fewer orders because of weak consumer demand in export markets, citing Xu Bing, a spokesman for the organizers. Visits from Japanese buyers plunged 28%.

Azzaman:
- Iraq’s Kirkuk crude oil exports to the Turkish Mediterranean port of Ceyhan climbed to 430,000 barrels a day in April. Iraq built its Ceyhan crude stocks to 4.5 million barrels because there were no attacks against the pipeline or major disruptions this month. Iraq exported 323,000 barrels a day of Kirkuk crude in March.

Ynet News:
- Speaking at a conference in Gaza, Mahmoud al-Zahar warns Israel Hamas has 200,000 suicide bombers waiting to attack.

Bear Radar

Style Underperformer:

Mid-cap Value +.07%

Sector Underperformers:

Papers (-1.58%), Tobacco (-.79%) and Construction (-.73%)

Stocks Falling on Unusual Volume:

SOHU, CBI, SGY, BDE, RAI, SVVS, HTCH, RSTI, VPRT, SWIR, GRMN, FEIC, ADVS, HSII, ELON, HW, JLL, CL and TNB

Stocks With Unusual Put Option Activity:

1) JBHT 2) OTEX 3) JCG 4) RDC 5) AEO

1Q GDP Rises, 1Q Inflation Decelerates, Chicago PMI Rises, ADP Employment Unexpectedly Increases

- Advance 1Q GDP rose .6% versus estimates of a .5% gain and a .6% increase in 4Q.

- Advance 1Q Personal Consumption rose 1.0% versus estimates of a .7% increase and a 2.3% gain in 4Q.

- Advance 1Q GDP Price Index rose 2.6% versus estimates of a 3.0% gain and a 2.4% increase in 4Q.

- Advance 1Q Core PCE rose 2.2% versus estimates of a 2.2% increase and a 2.5% gain in 4Q.

- The 1Q Employment Cost Index rose .7% versus estimates of a .8% gain and a .8% increase in 4Q.

- The Chicago Purchasing Manager Index for April rose to 48.3 versus estimates of 47.5 and a reading of 48.2 in March.

- The ADP Employment Change for April was +10K versus estimates of -60K and +3K in March.

BOTTOM LINE: The US economy expanded at a .6% annual pace in the first quarter, Bloomberg reported. The Fed’s preferred inflation gauge, the core pce, rose at a 2.2% pace, down from 2.5% in 4Q. Investment in residential construction projects fell at an annual rate of 27% during the quarter, the most since 1981. The decline subtracted 1.23 percentage points from GDP. Housing has subtracted from growth since 1Q of 2006. Companies built back depleted inventories slightly at a $1.8 billion annual rate during 1Q, after an annualized decline of $18.3 billion in 4Q. Inventory re-building added .8 percentage point to growth last quarter. The trade deficit narrowed to an annual pace of $495.9 billion last quarter from $503.2 billion during 4Q. The smaller gap added .2 percent to growth. The ADP Employment report, also released today, showed companies unexpectedly added 10,000 jobs this month. Estimates ranged from a drop of 115,000 to a decline of 20,000. The ADP report only takes into account private employment and does not factor in government hiring. The report showed service providers added 64,000 workers, while construction jobs fell by 28,000. Employment at financial institutions surprisingly rose by 2,000. Small companies added 42,000 workers, while large ones pared their workforces by 18,000. According to Intrade.com, the odds the US enters recession this year are plunging to 31% today from 79% last month. I expect Friday’s jobs report to also exceed estimates of -75K. Many of the bears that currently dominate investor/media psychology in today’s “US negativity bubble” have been saying for over two years the US economy was plunging into a very bad recession and bear market. The DJIA is now only 7.4% from its all-time high. I still expect fiscal/monetary stimuli, a stronger US dollar, lower energy/food prices, decelerating inflation, better consumer sentiment, an improving job market, rising stock prices, less housing-related fear, an end to the credit market turmoil, relatively low interest rates, an end to the election uncertainty and an end to the American Axle strike to boost the economy further over the coming months.

The Chicago PMI, a measure of US business activity, rose slightly and came in above economists’ estimates in April, Bloomberg reported. The Employment component of the index fell to 35.3 from 44.6 the prior month. The New Orders component fell to 53.0 from 53.9 the prior month. The Inventories component rose to 51.9 from 42.0 the prior month. The Prices Paid component fell to 82.9 from 83.9 in March. Carmakers have been at the center of the decline in manufacturing. The American Axle strike has resulted in GM(GM) partially idling or temporarily closing 30 plants in North America. I expect the Chicago PMI to begin showing expansion again over the coming months on improving demand, an end to the strike and further inventory re-building as companies gain more confidence that the economy is not tipping into recession.

Bull Radar

Style Outperformer:

Mid-cap Growth (+.75%)

Sector Outperformers:

Airlines (+2.96%), Steel (+1.66%) and Internet (+1.47%)

Stocks Rising on Unusual Volume:

CYBS, EQ, CMC, LNC, IMO, OIS, IMMR, OMCL, CGV, ALY, BWLD, ESMK, STAR, REXX, MPWR, PNRA, SIMO, ALGN, DBTK, NETL, MDAS, BMRN, TRLG, GMKT, KNOT, AMED, FSLR, OTEX, MNTA, PLT, TKR, DWA and CMI

Stocks With Unusual Call Option Activity:

1) CBI 2) TLM 3) ALU 4) BMRN 5) CMCSA

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Wednesday Watch

Late-Night Headlines
Bloomberg:
- Government of Singapore Investment Corp. may add more bank assets to its $18 billion of investments in UBS AG(UBS) and Citigroup(C) as it chases stable returns over periods as long as 30 years, Minister Mentor Lee Kuan Yew said.
- Matsushita Electric Industrial Co., the world’s largest maker of consumer electronics, rose 11%, the most in more than eight years in Tokyo trading after the company’s profit and earnings forecast beat analysts’ estimates.
- Merrill Lynch(MER), Goldman Sachs(GS) and UBS AG(UB S) are among seven securities firms that helped design an index for investors to make creditworthiness bets in the $2.5 trillion municipal bond market.
- Gold fell to the lowest in more than three months as the US dollar climbed against the euro, eroding the appeal of precious metals and commodities as alternative investments.
- Japan Factory Output Falls More-Than-Expected 3.1%.
- Citigroup Inc.(C) is selling $3 billion of stock two weeks after reporting its second straight quarterly loss.
- The Bank of England need to take “aggressive action” and cut interest rates soon to avert a recession, policy maker David Blanchflower said.
- Argentine bonds show growing speculation that the country will default for the second time this decade as inflation and anti-government protests swell. The nation’s $10.8 billion of floating-rate dollar bonds due in 2012 yield 7.52 percentage points more than Treasuries of similar maturity. That implies an almost 20% chance of Argentina halting payments in the next two years, according to CSFB.

Wall Street Journal:
- Barack Obama angrily broke with his longtime former pastor Tuesday and, more broadly, with the minister’s discordant views of race in America, as the persistent controversy threatened to derail his bid for the presidency.
- Bush Prods Lawmakers on Economy, Energy Prices.

CNBC.com:
- Smart Money Leaving Commodities for Tech?

BusinessWeek.com:
- McCain’s Health-Care Proposal. The idea: More competition among insurers, spurred by a tax credit that helps consumers buy their own insurance, would lead to universal coverage.

Forbes.com:
- Hedge Fund Women.

Washington Post:
- The latest global financial bubble is in commodities – everything from oil and natural gas to gold, copper, wheat and rice. Like the credit bubble, this speculative bubble in commodities has badly distorted the workings of key markets and sectors of the global economy. And as with the other, this bubble is creating vast new wealth for some, including brokers, traders and investment houses who have gorged on fees and trading profits. What turned a bull market into a bubble was the sudden arrival of large numbers of new investors and an array of new investment vehicles, many of them involving derivative instruments traded outside the confines of regulated markets. Many of these were the same hedge funds and hot-money investors who had gorged on sovereign debt of developing countries, tech and telecom stocks, subprime mortgages and commercial real estate and now needed a new thing to focus on. But perhaps the biggest push came from pension funds, foundations and university endowments whose managers had all gone to the same conferences and read the same academic papers, suggesting that a basket of commodity futures would provide a good hedge against stock and bond market declines. To meet the needs of these investors, Wall Street and Chicago’s commodities houses came up with all sorts of new vehicles, including ETFs, index funds and structured investment vehicles – the commodities equivalent of mortgage pools and asset-backed securities. Perhaps the best proof of all that there’s a speculative bubble in commodities that may be about to burst: ConAgra(CAG), the 147 year-old food processor, last month sold its commodity trading division to a hedge fund for $2.1 billion. Cash. The only people who don’t believe speculation is driving a commodities bubble are the big commodity traders and the commodities exchanges, which are profiting handsomely from the soaring prices and trading volumes, and the regulators at the CFTC.

CNNMoney.com:
- Fed could burst oil’s bubble. “If the dollar appreciates, then that will give crude leeway to move downward and drive a stick into this bubble,” said Stephen Schork, publisher of the Schork Report. OPEC president said on Monday that if the US dollar begins to gain back some significant group, crude prices may fall off a cliff. “If the dollar strengthens 10%, there is a good bet that oil prices will fall by $40,” said Khelil.
- When the 3G iPhone is introduced this summer, AT&T(T), the exclusive US iPhone sales partner with Apple(AAPL), will cut the price by as much as $200. AT&T is preparing to subsidize $200 of the cost of a new iPhone, bringing the price down to $199 for customers who sign two-year contracts.
- 20 most profitable tech companies.
- Paying for gasoline easily tops the list of economic woes facing families in the US, according to a survey on how changes in the economy have affected people’s lives. In a distant fourth place was difficulty paying rent or mortgages.

SmartMoney:
- Shifting Gears at Ford(F). CEO Alan Mulally is ushering in big changes – which could bring long-term growth.

Portfolio.com:
- Masters of the Universe, Ranked. Private Equity International releases its annual ranking of the 50 top firms, according to capital raised over the last five years. Here is the list, followed by each firm’s rank last year in parentheses.
- This is entirely anecdotal, but there’s no doubt what the single most popular laptop is at the Milken Global Conference: the MacBook Air.

USA Today.com:
- Oil prices fell more than $3 a barrel Tuesday as the market absorbed data showing that demand is falling even as supplies are rising. A monthly Energy Dept. report said demand for finished petroleum products dropped 8.5% in February from January, and demand for gasoline fell 6.2%. “That’s a dramatic drop,” said Linda Rafield, senior oil analyst at Platts, an energy research arm. “The two combined(rising supplies and falling demand) do not bode well for $120 oil,” Rafield said.

Reuters:
- The Weather Channel may get bids of $3.5 billion to $4 billion from CBS Corp.(CBS) and NBC Universal.

Financial Times:
- US retailers are waging a promotional battle to win a share of the billions of dollars in tax rebates destined for US households as part of the $170 billion federal stimulus package.
- In more than 2,000 meters of water off the coast of Brazil, Petrobras(PBR), the Brazilian national oil company, is drilling what could become one of the most important oil wells of recent years.
- A $683 million fund headed by Al Gore to invest in young environmental companies is now closed to investors. The Climate Solutions Fund is one of the biggest in the environmental investing field and may grow to $5 billion in two years. The fund will invest in small companies in four industries: renewable energy; energy efficient technologies; energy from biofuels and biomass; and carbon trading.

Xinhua:
- China will become the world’s largest gold producer this year, overtaking South Africa, citing Hou Huimin, vice chairman of the China Gold Assoc. Production may reach 300 metric tons this year, up from 270.5 tons in 2007, citing data from the assoc. China added 650 tons of proven underground gold deposits in 2006, and has established five big gold mines since 2007.
- China needs to strengthen and improve macroeconomic controls and stabilize prices, citing President Hu Jintao.

Late Buy/Sell Recommendations
Citigroup:
- Commodity strength driven by global infrastructure growth theme. The demands of developing economies primarily in Asia, Latin America and the Middle East have been key factors in commodity price strength as the supply response has been more limited thus far. Yet, one should be concerned about the effect of the US slowdown’s lagged impact on production trends, not to mention weakening economic data in Europe and Japan. The week dollar has contributed to the commodities story too. Any reversal in the greenback’s fortunes also could roil the generally bullish commodity price outlooks that we see around the investment community, with energy and agricultural products being the areas with the most dedicated investors/supporters. Certain commodities have slipped in a somewhat stealth-like manner. While the broad picture for commodity prices still shows upward trajectory, a few commodities such as milk, cotton, gold and wheat have been slipping. Yet, this has been offset by oil strength alongside powerful rice and stainless steel prices. The infrastructure/global growth theme marks about 30% of the stock market’s value. In the latter 70s, the Energy sector soared to more than 30% of the S&P 500 total market capitalization and the same thing happened in the Information Technology sector in the late 1990s. Moreover, some investors were worried in the 2005-06 period when Financials got to more than 20% of the S&P 500’s market cap. Yet, global growth theme is bordering on 30% now and few seem to be concerned, which raises our anxiety levels. The ag stocks strength, in particular, is reminiscent of the Internet craze. Investors have become so thoroughly fascinated by the rising agricultural commodity prices, given the reactive nature of farmers looking to cash in on the associated profit potential. There are some scary similarities to the stock price activity of fertilizer and seed stocks relative to dot.com names back in the late 1990s. We remain very worried about these incredibly “crowded trades” that could unwind quickly.
- Reiterated Buy on (MHP), target $51.

Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 futures +.23%.
NASDAQ 100 futures +.28%.

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Earnings of Note
Company/EPS Estimate
- (SPW)/.99
- (OMX)/.69
- (ADVNA)/.10
- (TWX)/.23
- (JNY)/.36
- (STRA)/1.58
- (IACI)/.31
- (IP)/.51
- (GRMN)/.74
- (FPL)/.80
- (BEC)/.686
- (DF)/.18
- (COCO)/.15
- (HES)/2.01
- (CL)/.88
- (CMI)/.89
- (IR)/.73
- (PG)/.82
- (TRW)/.61
- (KFT)/.41
- (GM)/-1.52
- (SO)/.42
- (K)/.77
- (FSLR)/.49
- (ITRI)/.69
- (MCRS)/.33
- (AVB)/.60
- (CTX)/-2.78
- (JDSU)/.13
- (PRU)/1.82
- (OI)/.79
- (OMTR)/.08
- (SBUX)/.16
- (PSYS)/.43
- (LVS)/.34
- (EQR)/.08
- (MUR)/1.89
- (BCO)/.79
- (SEE)/.39
- (SYMC)/.34
- (AKAM)/./39
- (WCG)/1.61

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- ADP Employment Change for April is estimated at -60K versus +8K in March.
- Advance 1Q GDP is estimated to rise .5% versus a .6% gain in 4Q.
- Advance 1Q Personal Consumption is estimated to rise .7% versus a 2.3% increase in 4Q.
- Advance 1Q GDP Price Index is estimated to rise 3.0% versus a 2.4% gain in 4Q.
- Advance 1Q Core PCE is estimated to rise 2.2% versus a 2.5% gain in 4Q.
- The 1Q Employment Cost Index is estimated to rise .8% versus a .8% gain in 4Q.

9:45 am EST
- Chicago Purchasing Manager for April is estimated to fall to 47.5 from 48.2 in March.

10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of 950,000 barrels versus a 2,421,000 barrel build the prior week. Gasoline supplies are expected to fall by -1,000,000 barrels versus a -3,179,000 barrel decline the prior week. Distillate inventories are estimated to fall by -400,000 barrels versus a -1,377,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise .25% versus a 4.22% increase the prior week.

2:15 pm EST
- The FOMC is expected to reduce the benchmark fed funds rate 25 basis points to 2.0% from 2.25%.

Other Potential Market Movers
- The weekly MBA Mortgage Applications report, NAPM-Milwaukee report, Morgan Stanley Global Healthcare Conference and Lehman Brothers Retail Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Mixed as Strength in Airline, HMO and Technology Shares Offets Weakness in Commodity and Construction Stocks

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In Play

Stocks Mixed into Final Hour as Profit-taking Offsets Lower Energy Prices Ahead of Tomorrow's Fed Announcement

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Computer longs, Internet longs and Commodity shorts. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is neutral as the advance/decline line is slightly lower, most sectors are rising and volume is below average. Investor anxiety is slightly above average. Today’s overall market action is mildly bullish. The VIX is rising 1.4% and remains above average at 19.9. The ISE Sentiment Index is around average at 160.0 and the total put/call is above average at 1.06. Finally, the NYSE Arms has been running about average most of the day and is currently .99. The US dollar continues to trade as if, at the very least, an intermediate-term bottom is in place and quite possibly a major bottom. The EIA said today that US oil demand fell 7% in February. This is a substantial decline. Global energy demand destruction remains much greater than perceived as the bubble in commodities grows ever larger. True “growth” stock leaders are especially strong today with many substantially outperforming the broad market. Fed fund futures currently imply an 80% chance for a 25 basis point rate cut and a 20% chance for no rate cut tomorrow. While a 25 basis point cut is still likely, I believe the odds of no cut are higher than the market currently perceives. The TED spread is falling 12 basis points today to 141 basis points, which is the lowest since April 8^th. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 4 basis points today to 2.28% on the decline in commodity prices. This spread is down 40 basis points from a high of 2.68% on March 13^th. Weekly retail sales rose 1.7% this week. Weekly retail sales averaged a gain of 1.7% during the entire month of April, up from a .6% average weekly gain during February and a .9% average weekly gain during March. I suspect tomorrow’s 1Q GDP growth will come in below estimates of a .5% gain as the deflator subtracts more from growth than expected, which could pressure stocks modestly in the morning. I still believe two consecutive quarters of US GDP contraction, the technical definition of a recession, are unlikely and expect GDP to grow slightly this quarter before a more meaningful acceleration towards year-end. Nikkei futures indicate an +56 open in Japan and DAX futures indicate an +65 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as lower energy prices, less earnings pessimism and diminishing credit market angst offset profit-taking and commodity stock weakness.

Today's Headlines

Bloomberg:
- The US dollar strengthened to a three-week high against the euro on speculation the Fed will signal that it’s done lowering interest rates.
- Crude oil fell more than $3 a barrel, the biggest decline in four weeks, after BP Plc restarted a North Sea oil pipeline and the US dollar strengthened, reducing the appeal of commodities to investors. “For the first time in weeks we have some bearish factors in the forefront,” said Peter Beutel, president of energy consultant Cameron Hanover Inc. “We are finally seeing a stop to the buying-with-abandon.”
- President Bush blamed Congress for blocking his initiatives to mitigate rising energy costs by expanding domestic production and said lawmakers also are delaying action on other measures to address higher food costs and the mortgage crisis.
- Bonds, Stocks Show Bernanke Fixing Financial System.
- MasterCard Inc.(MA), the world’s second-biggest credit-card network, said profit more than doubled, earning more than rival Visa Inc.(V). The shares surged as much as14%.
- Apollo Management LP founder Leon Black said investment banks have pared their backlog of debt committed to leveraged buyouts and will resume funding deals this year. “We’re well on our way” to a credit-market recovery, Black said.
- Current credit prices reflect “unprecedented default levels” that can only happen in a deep recession, Man Group Plc, the world’s largest publicly listed hedge fund manager, said. The price levels represent an attractive opportunity for credit managers who are able to buy credit products at deep discounts, it said. “It is advantageous for distressed hedge funds to invest early, as spreads usually tighten quicker than they widen, especially for fundamentally sound companies,” said Man analysts led by Thomas Della Casa in the report. Banks have slashed their backlog of unsold leveraged loans, or lending to finance leveraged buyouts, to $95 billion, from $245 billion in July 2007, S&P said. Distressed assets hedge funds that invested at the November 2002 bottom of the 2001 to 2002 recession could have generated an annualized return of 21.9% over two years, Man said.
- Brazilian output of sugar-cane used to make sweeteners and ethanol will rise as much as 22% from last year’s record because of increased planting and as rains and new technologies boost crop yields, the government said.
- Wheat fell to the lowest price in five months after a US government report showed winter-crop conditions unexpectedly improved, easing concern that global inventories will dwindle.
- Soybeans fell for the fifth consecutive session on speculation a rebound in the US dollar will reduce the appeal of commodities as an inflation hedge.
- President Bush called the farm bill being put together by congressional negotiators a “massive, bloated” piece of legislation that would pay subsidies to “multimillionaire farmers.”
- India’s central bank unexpectedly ordered lenders to set aside more reserves for the second time in less than two weeks to tame runaway inflation.
- Wachovia Corp.(WB) was raised to “buy” for the first time in seven years by Deutsche Bank AG, which said the company may be finished raising capital to offset mortgage losses.
- Rice fell the most in six weeks after a government report showed US planting accelerated last week and grain sales slowed, easing concern of a global food crisis.

Wall Street Journal:
- When Citigroup(C) was launching a pair of hedge funds last year, it didn’t have to look far for investors. Brokers at the firm’s Smith Barney unit drummed up hundreds of millions of dollars from retail clients, including some who were told the fixed-income funds were a safe place to stash money. Since then, the hedge funds, devastated by the credit crunch, have plunged by 75% or more in value.

NY Times:
- It is known simply as the X-room. Set up last November at the Courtyard by Marriott in partnership with the University of Delaware in Newark, it is a test guest room. It is equipped with everything from waterproof mattresses to the experimental technology of wireless electricity to a specially designed Nintendo Wii game console for travelers. There is also a digital door display that lets guests see who is in the corridor.

CNBC.com:
- Millionaires view the US economy as “very weak,” but sense a resumption of growth early next year and expect to buy stocks and real-estate in the latest indication that a recovery may be imminent, according to a study released Tuesday.

Commodity Online:
- Expect biofuel from grass soon! Forget the controversy over fuel from corn, sugarcane and wheat, here comes biofuel from grass to save the world from food crisis. Scientists in many companies and research institutions are tackling the challenges of unlocking energy from cellulose – leaves, stems, stalks or other non-edible parts of plants.

Treasury & Risk:
- The Hedge Fund Sleight of Hand. Not only do funds sometimes control more than a company can see, they often have hedged away risk.

USA Today:
- The call girl linked to the downfall of former NY Governor Eliot Spitzer sued the founder of the “Girls Gone Wild” series on Monday for $10 million.

AppleInsider:
- Reports aiming to predict what Apple’s(AAPL) 3G iPhone will look and feel like continue to pour in this week, with the latest claim coming by way of the Taiwan Economic News, which says the next-generation device will be both lighter and more compact than the first generation model.

Houston Chronicle:
- By pioneering the science of seasonal hurricane forecasting and teaching 70 graduate students who now populate the National Hurricane Center and other research outposts, William Gray turned a city far from the stormy seas into a hurricane research mecca. As he enters his 25^th year of predicting hurricane season activity, Colorado State Univ. officials say handling media inquiries related to Gray’s forecasting requires too much time and detracts from efforts to promote other professors’ work. But Gray, a highly visible and sometimes acerbic skeptic of climate change, says that’s a “flimsy excuse” for the real motivation – a desire to push him aside because of his global warming criticism.

PIMCO:
- Pimco’s Bill Gross plans to invest in low-quality bonds, banks.

TimesOnline:
- UK House Prices Could Fall 25% Over Next Two Years.

Cinco Dias:
- Apple Inc.(AAPL), which plans to start selling its iPhone in Latin America, is reconsidering a strategy of offering the device only through exclusive franchises. The company may offer the handheld device through various phone companies in the same country.

Der Standard:
- European Central Bank President Jean-Claude Trichet said current interest rates will help to curb inflation, citing an interview. “We believe that our current monetary stance will guarantee price stability over the medium term,” Trichet said. Trichet also said that “strong foreign exchange volatility is of course cause for concern.”

Gulf Times:
- Soaring inflation and high real estate prices are having a negative impact on businesses in Saudi Arabia, where inflation hit a 30-year peak of almost 10% in March.

Bear Radar

Style Underperformer:

Small-cap Growth -.97%

Sector Underperformers:

Coal (-3.54%), Gold (-3.32%) and Oil Service (-2.81%)

Stocks Falling on Unusual Volume:

MRK, NGS, MDR, ARJ, JRJC, PBR, INDM, LDSH, IVAC, GKSR, LCAV, HSII, UCTT, TITN, GFIG, GIL, RBA, ENR, FDP, FIC, DHT, DNA and OLN

Stocks With Unusual Put Option Activity:

1) SINA 2) TXT 3) CMCSK 4) DNA 5) WFMI

Consumer Confidence Falls Less Than Estimates

- Consumer Confidence for April fell to 62.3 versus estimates of 61.0 and an upwardly revised 65.9 in March.

BOTTOM LINE: Consumer Confidence fell less than economists expected this month, Bloomberg reported. The Present Conditions component of the index fell to 80.7 from 90.6 in March. The Expectations component of the index rose to 50.10 from 49.40 the prior month. Those planning to purchase an automobile rose to 5.6% versus 5.4% the prior month. Those planning to purchase a major appliance rose to 31.9% from 30.1% the prior month. Confidence in the northern regions of the country remains extraordinarily depressed, averaging 45.7. Confidence in the remaining regions of the country currently averages 71.7. Consumer Confidence in the Northeast Central Region, which is the lowest in the country, is currently 41.8. Most major media outlets and hedge funds are headquartered in this region. At its very worst during the 2000-2003 technology bubble-bursting bear market, in which the Nasdaq collapsed over 70%, confidence in the Northeast Central Region hit 58.3 during the month of February 2003. The stock market had already made a major low four months earlier in October 2002. The DJIA is currently 8.3% from its all-time high hit in October of last year. While the current “US negativity bubble” shows few signs of bursting, I continue to believe consumer confidence will improve from current levels through year-end as stocks rise, the US dollar strengthens, energy/food prices fall, inflation decelerates, the job market improves, election uncertainty ends, the American Axle strike ends, the effects of fiscal/monetary stimuli take hold, extreme housing fears subside, credit turmoil ends and interest rates remain relatively low.

Bull Radar

Style Outperformer:

Large-cap Value (-.23%)

Sector Outperformers:

Airlines (+3.54%), Gaming (+1.55%) and Networking (+.58%)

Stocks Rising on Unusual Volume:

MA, BYD, RDS/A, LVS, BP, GLW, RACK, ADCT, ABT, ETE, SCOR, TSON, SBCF, CTCM, CGNX, AUTH, TXRH, TECH, GPRO, SONO, JDAS, IPAR, MPWR, MCHP, ALGT, VECO, FELE, RCII, APOG, WIRE, LEA, HGR and WPI

Stocks With Unusual Call Option Activity:

1) JWN 2) MAS 3) BUD 4) DNA 5) BP

Links of Interest

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- The US dollar traded near a two-month high against the yen on speculation the Federal Reserve will signal that it’s close to pausing interest-rate cuts.
- China may revalue the yuan by 10 to 15% in the coming months as policy makers seek to temper inflation close to an 11-year high, according to Frank Gong, head of China research at JPMorgan Chase(JPM). “Given global crude oil prices where they are now and continued rising global resource and commodity prices, the government is weighing the pros and cons of a one-step, large revaluation of renminbi,” wrote Gong.
- Obama’s Pastor Stands by Comments, Defends Church.
- Clinton to Get North Carolina Governor’s Endorsement.
- Visa Inc.(V), the world’s largest credit-card network, said profit rose 28% in the company’s first earnings report since its record $19 billion IPO last month. The shares fell 7% after the results didn’t meet the most optimistic predictions.

Wall Street Journal:
- Coal Producers Could Feel a Chill If Beijing Tries to Ease Price Rises.
- JPMorgan Chase(JPM), Goldman Sachs(GS and Berkshire Hathaway(BRK/A) emerged largely unscathed from the credit crunch that laid low their Wall Street brethren, so their willingness to step up and fund a big deal is a good sign for the financial markets and the economy.
- General Motors(GM) said it will cut production of heavy-duty pickup trucks and sport-utility vehicles by as much as 138,000 at four North American plants in the second half in reaction to declining sales as consumers shift to smaller, more fuel-efficient vehicles.

BusinessWeek.com:
- X Prize: $100 Million for Clean Fuels. In a bid to speed innovation, the foundation plans awards for breathrough in biofuels and other alternative-energy fields.

USA Today.com:
- A Silicon Valley start-up says it has developed technology that can deliver solar power in about a year at prices competitive with coal-fired electricity, a milestone that would leapfrog other more established players and turbocharge the fast-growing industry.

Dow Jones:
- International Business Machines(IBM) will team up with software companies to sell hardware and software to small and medium-sized business over the Web. The online marketplace will be called the Blue Business Platform.

Financial Times:
- Saudis to launch $5.3bn sovereign fund. Saudi Arabia’s Public Investment Fund is in the “final stages” of launching the kingdom’s first sovereign wealth fund. But its early financial commitment will disappoint those hoping for another megafund.
- Macquarie has more of its shares on loan than any other Australian-listed company in a sign that short sellers have taken a big gamble that the investment bank’s share price will tumble.

China Daily:
- Shanghai Stops Outdoor Advertising Approvals.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (ACV), target $30.
- Reiterated Buy on (VECO), target $23.
- Reiterated Buy on (MCHP), target $43.

Night Trading
Asian Indices are -.75% to +.50% on average.
S&P 500 futures +.01%.
NASDAQ 100 futures -.03%.

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Earnings of Note
Company/EPS Estimate
- (MHP)/.24
- (GLW)/.42
- (SPG)/.38
- (ADM)/.69
- (MHS)/.53
- (MSO)/-.08
- (LEA)/.50
- (TIN)/-.04
- (CBS)/.33
- (UA)/.02
- (BYD)/.32
- (BNI)/1.22
- (AG)/.46
- (GGP)/.55
- (CBG)/.22
- (PNRA)/.39
- (HTCH)/.09
- (ESRX)/.67
- (MA)/1.99
- (MAS)/.21
- (VLO)/.26
- (ENR)/1.45
- (X)/1.91
- (ODP)/.22
- (DPZ)/.24
- (LIZ)/.14
- (GLBC)/-1.15
- (BWLD)/.36
- (AVP)/.42
- (FLEX)/.23

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Consumer Confidence for April is estimated to fall to 61.0 versus 64.5 in March.

Other Potential Market Movers
- The FOMC meeting, S&P/CaseShiller Home Price Index, (SUPG) analyst meeting, (FIC) analyst day, (SIX) analyst meeting, weekly retail sales reports and Lehman Brothers Retail Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by shipbuildering and airline shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Mixed as Gains in Airline, Hospital Shares Offset Losses in Construction, Software Stocks

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In Play

Stocks Higher into Final Hour on Diminishing Credit Market Angst, Short-Covering, Less Earnings Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Biotech longs, Computer longs, Internet longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The overall tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is below average. Investor anxiety is slightly above average. Today’s overall market action is bullish. The VIX is falling .7%, but remains above average at 19.4. The ISE Sentiment Index is below average at 125.0 and the total put/call is about average at .91. Finally, the NYSE Arms has been running about average most of the day and is currently 1.0. Oil’s inability to rally today despite a weaker dollar and weekend production declines in the UK and Nigeria related to strikes is noteworthy. I said last week that I believed the bubble in fertilizer stocks would likely burst over the coming months. While it is still too early to tell if that is occurring now, the group trades poorly. The Philippine Stock Exchange Index fell another 1.4% last night to the lowest level since November 2006. The index is now down 29.7% from it high hit during October of last year. I continue to believe developed markets, in general, will substantially outperform emerging market indices over the next five years. According to Intrade.com, the odds of a US recession beginning this year have declined to 46.3% from 79.0% last month. This is the first time since early January that the odds of recession have fallen below 50.0%. The G-7 Currency Volatility Index(VXY) is falling another 3% today to 10.66, which is the lowest since February 28. Finally, the European Financial Sector Credit Default Swap Index is dropping another 6.7% today to a new low of 60.8 basis points, which is also a big positive. The (XLF) is near session highs, rising .6%. Nikkei futures indicate an +131 open in Japan and DAX futures indicate an +47 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less earnings pessimism and diminishing credit market angst.

Today's Headlines

Bloomberg:
- Wall Street Grain Hoarding Brings Farmers, Consumers Near Ruin. As farmers confront mounting costs and riots erupt from Haiti to Egypt over food, Garry Niemeyer is paying the price for Wall Street’s speculation in grain markets. Commodity-index funds control a record 4.51 billion bushels of corn, wheat and soybeans through Chicago Board of Trade futures, equal to half the amount held in US silos on March 1. The holdings jumped 29% in the past year as investors bought grain contracts seeking better returns than stocks or bonds. The buying sent crop prices and volatility to records and boosted the cost for growers and processors to manage risk. Index-fund investment in CBOT corn, soybeans and wheat has increased 66% to the equivalent of 902,105 futures contracts, a record, since January 2006, when the government began collecting the data. Investments in grain and livestock futures have more than doubled to about $65 billion from $25 billion in November, according to consultant AgResource Co. in Chicago. The divergence between CBOT futures and the underlying commodity is so great that some grain merchants have stopped bidding for new crops.
- Global copper production will outpace demand this year and next as consumption growth slows, the International Copper Study Group said. The surplus will be 85,000 metric tons this year and 429,000 tons in 2009. Supply fell 37,000 tons short of demand lat year, the ICSG said. Copper usage in China, the world’s largest buyer, will expand more slowly than last year’s 36%. Combined with a decline in consumption in the US, world usage will gain 2% this year, down from growth of 6.4% last year. Mine production will rise 6%, faster than last year’s 3%. In 2009, output will rise 9%.
- HBOS Plc led a decline in the cost of protecting bank debt from default to the lowest in 14 weeks on reports it will sell stock to shore up capital amid subprime-related writedowns. Credit default swaps on the benchmark Markit iTraxx European Financial Sector Index of 25 European banks and insurers dropped 5 basis points to 60, from a peak of 160 last month.
- The risk of US companies defaulting fell again, according to traders of credit-default swaps. Contracts on the Markit CDX North America Investment Grade Index of 125 companies in the US and Canada fell 3 basis points to 96.5 in NY, according to broker Phoenix Partners Group.
- Monsanto Company(MON) and Mendel Biotechnology today announced a collaborative agreement to enhance the development of Mendel’s BioEnergy Seeds & Fedstocks business. The two companies will apply Monsanto’s expertise in crop testing, breeding and seed production to perennial grass seed varieties Mendel is developing for use in biofuels and other commercial applications.
- Adverse weather and speculators are helping to buoy food prices and the European Union is taking steps to boost supply, said Mariann Fischer Boel, the EU’s Commissioner for Agriculture and Rural Development.
- Mars Inc., backed by billionaire Warren Buffett, agreed to buy Wm. Wrigley Jr. Co.(WWY)$23 billion to create the world’s biggest candy maker.
- Investor Kirk Kerkorian said he bought 100 million Ford Motor(F) shares, or 4.7%, and intends to buy more in a vote of support for CEO Alan Mulally. Ford rose 12% in NY trading.
- US newspapers reported that circulation losses accelerated in the six months through March as more readers turned to the Internet and publishers cut promotions to lower expenses.
- Rates on Eurodollar deposits compiled by the Federal Reserve suggest the cost for dollar loans at the London interbank offered rate, or Libor, are about to stabilize.
- US companies armed with more than half a trillion dollars in cash are stepping up efforts to take over rivals weakened by depressed stock valuations.
- Lehman Brothers(LEH) strategist Ian Scott, who advised investors to buy global stocks before the past month’s rebound, said better-than-expected earnings will pave the way for a bigger rally.

Wall Street Journal:
- A New Face of Hedge Funds Isn’t Shy.

NY Times:
- Senator Barack Obama is making subtle changes in his campaign style and message in an effort to strengthen his appeal to blue-collar voters and to avoid a defeat in Indiana that aides fear could give Democratic Party leaders further pause about his viability in a general election.
- Golden Years of Television Find New Life on the Web.
- Some parents reacted with outrage over the weekend when the television program “Entertainment Tonight” began showing commercials promoting a scoop: Miley Cyrus, the star of the wholesome Disney Channel blockbuster “Hannah Montana,” had posed topless, albeit with her chest covered, for the Vanity Fair photographer, Annie Leibovitz.

Financial News:
- Two groups of banks are seeking to start their own interdealer brokerages to cut the cost of trading interest-rate and credit derivatives.

LA Times:
- Pushing to fast-track its takeover of wounded home-loan goliath Countrywide Financial, Bank of America(BAC) will promise today to help 265,000 troubled borrowers keep their homes over the next two years by refinancing or modifying at least $40 billion in mortgages.

Power Online:
- Money Doesn’t Grow On Trees, But Gasoline Might. While it may be five to 10 years before green gasoline arrives at the pump or finds its way into a fighter jet, these breakthroughs have bypassed significant hurdles to bringing green gasoline biofuels to market. “Green gasoline is an attractive alternative to bioethanol since it can be used in existing engines and does not incur the 30% gas mileage penalty of ethanol-based flex fuel.” “In theory it requires much less energy to make than ethanol, giving it a small carbon footprint and making it cheaper to produce.”

NY Post:
- Fresh off his legal victory over Liberty Media, IAC/InterActiveCorp(IACI) boss Barry Diller is expected to meet with his board this week to restart the process of breaking up his company into five separate pieces.

FINalternatives:
- A decade after his Long-Term Capital Management imploded, John Meriwether has once again become the bearer of bad news. Meriwether’s JWM Partners has seen both of its hedge funds bleed red ink this year, leading the firm to offer investors an early exit.

AppleInsider:
- Long-time iPod manufacturer and current iPhone builder Foxconn Electronics has been selected by Apple to assemble the company’s upcoming 3G iPhone handset, with volume shipments expected to begin this June.

Reuters:
- United Airlines, a unit of UAL Corp.(UAUA) and US Airways Group(LCC) are in “very advanced” merger talks.

Austrian state broadcaster ORF:
- European Central Bank President Jean-Claude Trichet reiterated that he’s concerned about a surge in the euro against the dollar. “We had observed sharp fluctuations in the recent period of time and I have concerns about the repercussions of these sharp fluctuations on financial stability,” Trichet said.

Punch:
- Nigeria’s daily crude oil production has fallen to less than 1 million barrels a day after shutdowns. Strikes have closed all 860,000 barrels a day of output at an ExxonMobil facility while Shell has closed 169,000 barrels a day of exports. The combined losses are 1.03 million barrels a day out of 2.02 million barrels a day of production. Nigeria is losing $103 million a day because of the shutdowns, based on an average price of $100 a barrel.

Saudi Press Agency:
- Saudi Arabian annual inflation accelerated to a record 9.6% in March from 8.7% in February. Food costs increased 14.2%, while fuel and water prices and rents climbed 15.8%.