Tuesday Watch

Late-Night Headlines
Bloomberg:
- CME Group Inc.(CME), the world’s largest futures exchange, received Dept. of Justice approval for its planned acquisition of the New York Mercantile Exchange.
- Crude oil extended its decline from the record $139.89/bbl. reached in NY yesterday on signs Saudi Arabia will increase production to stabilize prices.
- Samuel Israel, the convicted co-founder of bankrupt hedge fund firm Bayou Group LLC, was declared a fugitive by US authorities who dismissed the possibility that he killed himself by jumping off a bridge.
- Andy Lipow, president of Lipow Oil Associates LLC says oil may fall as much as $30/bbl. on Fed rate hikes.
- The cost of protecting the bonds of Lehman Brothers(LEH) from default fell after the fourth-largest US securities firm cut its mortgage holdings by 20%. The credit-default swaps dropped 5 basis points to 260 basis points, according to broker Phoenix Partners Group.
- Ryan Lentell, an analyst at Morningstar Inc.(MORN), says Lehman(LEH) has a ‘very strong’ balance sheet. (video)
- Citigroup Inc.(C), Bank of America(BAC) and other leading US mortgage lenders agreed to expand efforts to help borrowers avert foreclosures as the Senate prepares to weigh legislation addressing the housing crisis.
- General Motors Corp.(GM) returned to full production today for the first time since a three-month strike at its biggest axle supplier shut or partially idled about 30 North American plants.
- Australia’s central bank said interest-rate increases this year that have taken borrowing costs to a 12-year high may be enough to cool demand that has driven inflation to the highest since 1991.
- Toshiba Corp., Japan’s largest chipmaker, said it will reduce flash-memory chip production at some of its older manufacturing lines by 40% to cut costs.

Wall Street Journal:
- The hedge-fund business – among the most reliable fortune-producing machines in recent years – is going through a brutal shakeout.

MarketWatch.com:
- Toyota executive talks of US recovery at year’s end. "We'll start to see some recovery near the end of the calendar year," he said. "People will start spending money and get the economy fired up again when the tax incentives start kicking in. In a year, we should be back on pace."

CNBC.com:
- Telecommuting Picking Up As Gasoline Prices Soar.

Forbes.com:
- GE(GE) to Release Study on Economic Benefits of Wind Farms; Inform Congressional Debate on Extension of Tax Incentive.

CNNMoney.com:
- Honda hits the hydrogen highway. The FCX Clarity fuel cell car is now available in California.
- America’s 100 fastest-growing small public companies.

USA Today.com:
- John McCain called Monday for lifting a federal moratorium on offshore drilling for oil and gas. States should decide for themselves whether to permit drilling, McCain said, but they should be given the option to combat an “energy crisis.” McCain’s plan represents a shift for the presumptive Republican nominee. A spokesman for Senator McCain said he understands that voters want action to meet new problems. He continues to oppose drilling in some areas, including the Alaskan wilderness. Democrat Barack Obama’s campaign and environmental groups said McCain’s proposal threatens US coastlines and does little to reduce American dependence on foreign oil.

Siliconvalley.com:
- Cisco Systems(CSCO) is projecting a 600% jump in Internet traffic between 2007 and 2012, with online video the biggest driver of global data communications. Cisco predicts that Internet video – which accounted for 5% of data traffic in 2005 – will represent 30% of total data transfers by the end of this year and 50% by 2012. The trend is largely due to the surging popularity of Web sites such as Google’s(GOOG) YouTube, according to the study.

Schaeffersreserach.com:
- RBC's analyst – Mike Abramsky – noted that the recent price cuts, the addition of 3G wireless technology, and plans to start selling the iPhone in 22 countries in July should lead to a "breakout" fourth quarter. Abramsky believes that Apple(AAPL) is set to see the same results with the iPhone as it did with the iPod in the fourth quarter of 2005. During that quarter, 14 million iPods were sold. Abramsky also kept his rating on Apple at "outperform" with a $220-per-share price target.

Reuters:
- Hedge funds attracted $2.6 billion in net new money during the first quarter, marking an 81 percent drop from what they pulled in during the fourth quarter, data released on Monday showed. During the first quarter, the largest hedge fund inflows went to managers betting on big events like mergers or interest rate moves, currency fluctuations and commodity price swings.

Financial Times:
- Goldman Sachs(GS) is close to finalizing a plan to restructure a $7 billion investment vehicle formerly run by London-based hedge fund Cheyne Capital, in a move that could potentially usher in a crucial new phase in the credit turmoil. The US bank’s proposed reorganization of the so-called structured investment vehicle is set to be just the first of a number of deals that could see about $18 billion worth of SIV assets restructured in the coming months.
- Call to tear up ‘offset’ CDS contracts.
- Financial markets are in danger of getting carried away with their expectations for Federal Reserve interest rate increases, some senior Fed officials believe. They do not dispute that the next move in US interest rates is very likely to be up. But they feel the market may be pricing in too much tightening too soon.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (CME) to Buy, target $485.
- Reiterated Buy on (ADBE), target $50.

CSFB:
- Reiterated Outperform on (CME), target $685.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 futures +.01%.
NASDAQ 100 futures -.06%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (BBY)/.37
- (FDS)/.63
- (GS)/3.42

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Current Account Deficit for 1Q is estimated at -$172.5 billion versus -$172.9 billion in 4Q.
- The Producer Price Index for May is estimated to rise 1.0% versus a .2% gain in April.
- The PPI Ex Food & Energy for May is estimated to rise .2% versus a .4% gain in April.
- Housing Starts for May are estimated to fall to 980K versus 1032K in April.
- Building Permits for May are estimated to fall to 960K versus 982K in April.

9:15 am EST
- Industrial Production for May is estimated to rise .1% versus a -.7% decline in April.
- Capacity Utilization for May is estimated at 79.7% versus 79.7% in April.

Other Potential Market Movers
- The weekly retail sales reports, (FSL) analyst meeting, (MAT) analyst conference, (WTM) investor meeting, (ACXM) investor day, CSFB Global Nanotech Conference, William Blair Growth Stock Conference, BIO International Convention, Merrill Lynch Transport Conference, could also impact trading today.

BOTTOM LINE: Asian indices are mixed as gains in mining shares are offsetting losses in steel stocks 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.