Today's Headlines

Bloomberg:

- U.S. stocks will rally “for another couple of years” while producing gains that will be less broad- based than in the rebound since March, Laszlo Birinyi said.

- Billionaire investors Sam Zell says home affordability is "going up" and sees the market stabilizing this summer. (video)

- Crude oil rose to a six-month high after OPEC decided today to leave production quotas unchanged and a report showed that U.S. inventories declined.

- General Motors Corp.(GM), the world’s largest automaker until its 77-year reign ended in 2008, plans to file for bankruptcy protection on June 1 and sell most of its assets to a new company, people familiar with the matter said.

- The yen fell the most in eight weeks against the dollar after a report showed demand for overseas assets among Japanese investors is growing and U.S. data added to evidence the global recession is moderating.

- Martin Whitman’s Third Avenue Management LLC increased its stake in Forest City Enterprises Inc., the property developer whose shares have tumbled 83 percent in the past year, and is investing in distressed debt while avoiding most stocks.

- The Federal Reserve may step up asset purchases to prevent its balance sheet from contracting until policy makers are convinced an economic recovery has taken hold, Fed officials and analysts said.

- European retail sales declined at a faster pace in May as rising unemployment prompted consumers to hold back spending, the Bloomberg purchasing managers index showed.

- Malaysia’s government said the economy may shrink as much as 5 percent this year, slashing its forecast as the nation nears the first recession in a decade.

- Visa Inc.(V) and First Solar Inc.(FSLR) are among the five likely candidates to replace General Motors Corp. should the automaker be dropped from the Standard & Poor’s 500 Index, Goldman Sachs Group Inc. said.

Wall Street Journal:

- Tucker Carlson announced plans to launch DailyCaller.com, a conservative-leaning news site that will aim to be an answer to the Huffington Post. Mr. Carlson told reporters and bloggers at the Heritage Foundation in Washington, D.C., that the site would focus on coverage of President Barack Obama’s administration. “There just aren’t enough people covering this administration and telling the people what’s going on,” he said. The site will take on the form of a general interest newspaper, he said, and will even attempt to be faster than the popular and speedy Drudge Report.

- While there were reports that the Time Warner board was meeting today to approve the spinoff of its AOL online unit, it actually gave the move an “enthusiastic endorsement” last night, according to sources.

- Nuclear power proponents are ratcheting up their rhetoric. Tennessee Sen. Lamar Alexander yesterday repeated his call for the U.S. to build 100 new nuclear plants by 2030, a proposal he says he’ll take to the Senate floor next week. It’s not the first time the Republican senator has argued for a big nuclear buildup; he’s been talking about 100 new reactors all spring. Last month he drew a lot of attention by contrasting France’s embrace of nuclear power with the U.S.

- U.S. Treasury Secretary Timothy Geithner heads to Beijing this weekend to urge Chinese leaders to fundamentally alter the export-oriented economy that has created years of trans-Pacific trade tensions.

- California's median price for existing homes rose 1.4% in April from March, marking the second-consecutive monthly increase and prompting some industry officials to declare the state's long swoon in housing values could be at or near the bottom.

- They're back. We refer to the global investors once known as the bond vigilantes, who demanded higher Treasury bond yields from the late 1970s through the 1990s whenever inflation fears popped up, and as a result disciplined U.S. policy makers. The vigilantes vanished earlier this decade amid the credit mania, but they appear to be returning with a vengeance now that Congress and the Federal Reserve have flooded the world with dollars to beat the recession.

NY Times:

- In the rarefied world of hedge funds, he is one of the greats — a stock-picker who managed to make money, bull market or bear, for more than two decades. But on Wednesday, Arthur J. Samberg told his investors that his long, successful run was over. Mr. Samberg, 68, said he had reached a “painful conclusion” to wind down his $3 billion investment firm, Pequot Capital Management, because a long-simmering investigation into insider trading at the fund was heating up once again.

- The stock market is again taking its cues from the bond market. Stocks turned higher Thursday after solid demand at a Treasury auction eased fears that demand for United States debt would dry up and force the government to pay higher interest rates to entice buyers. Higher rates could choke the economy’s recovery by making loans on everything from homes to cars more expensive.

NY Post:

- As Steve Rattner races to jumpstart the ailing automotive sector, the car czar's connection to a hedge fund heavily invested in the car business is raising eyebrows as a potential conflict of interest. According to sources familiar with the matter, Rattner has financial ties to Monarch Alternative Capital, a hedge fund that has made distressed investments in the auto industry, including car-parts manufacturer Delphi. A person familiar with the matter told The Post that Rattner made "a good-faith effort" to resolve his ties to Monarch before joining President Barack Obama's auto task force in February, but that he has not given up those ties thus far. The stake in question is in the form of deferred compensation that sources described as non-transferable and difficult to unwind because of the potential tax hit to Rattner as well as the difficulties Monarch has in valuing Rattner's compensation. Rattner, who has a net worth reported to be as much as $600 million, could have worked out a fix for the deferred comp issue but wanted to arrange one that didn't slam him with taxes, one source noted.

- Smart-money investors are betting that the Obama administration will start leaning more on Fannie Mae and Freddie Mac to kick-start the housing market by giving them the OK to buy mortgages worth up to $1 million. Current law prohibits the two government-run mortgage giants from buying home loans valued at more than $417,000 nationally, or up to $729,000 in areas where home prices are high. But some mortgage traders and analysts think that could soon change.

Economist:

- “LUCK”, James Simons, the founder of Renaissance Technologies, a hedge fund, once said, “plays a meaningful role in everyone’s lives.” Mr Simons, a 71-year-old former university professor and a celebrated mathematician, has been blessed with the stuff. His flagship fund, Medallion, has had average annual gains of more than 35% for 20 years. Last year he was named the best-paid hedge-fund manager in America by Alpha, a hedge-fund magazine, reportedly earning $2.5 billion. Medallion gained 80% last year, and this year is up a further 12%. But Medallion is 98% employee owned and has not accepted new money for 15 years. So to cater to outside investors, Renaissance has since 2005 marketed another “mega fund” known as the Renaissance Institutional Equities Fund (RIEF). The problem is that this has not proved anything like as successful as Medallion. Before its launch a small army of Renaissance PhDs—there are more than 70 on the payroll—back-tested RIEF’s performance with a simulated portfolio of $100 billion. From 1992 to 2005, its theoretical return was more than double that of the S&P 500, with less than two-thirds of the volatility. Investors queued up like Trekkies waiting for tickets to the new film. In the first two years RIEF raised more than $1 billion a month. With new money coming in faster than it could be invested, monthly contributions were capped at $1.5 billion. By August 2007 the fund was managing almost $28 billion. But in 2008 RIEF lost 16% and investors withdrew $12 billion from Renaissance, which was the largest prime-brokerage client of both Bear Stearns and Lehman Brothers, two investment banks that failed. The downward spiral has continued this year, with RIEF losing 17% so far. It now has less than $10 billion of assets under management. Though investors may think they are seduced by the wizardry of Renaissance’s computer-driven models, what they are really betting on is the magic touch of the man himself.

LA Times:

- The FBI and Justice Department plan to significantly expand their role in global counter-terrorism operations, part of a U.S. policy shift that will replace a CIA-dominated system of clandestine detentions and interrogations with one built around transparent investigations and prosecutions. Under the "global justice" initiative, which has been in the works for several months, FBI agents will have a central role in overseas counter-terrorism cases. They will expand their questioning of suspects and evidence-gathering to try to ensure that criminal prosecutions are an option, officials familiar with the effort said. The approach effectively reverses a mainstay of the Bush administration's war on terrorism, in which global counter-terrorism was treated primarily as an intelligence and military problem, not a law enforcement one. Behind the scenes, some intelligence officials are resisting a broader criminal justice role overseas for the FBI, contending that it could inhibit the flow of intelligence if their own agents, or foreign governments, believe top-secret sources and methods might be disclosed during criminal prosecutions.

USAToday:

- Federal tax revenue plunged $138 billion, or 34%, in April vs. a year ago — the biggest April drop since 1981, a study released Tuesday by the American Institute for Economic Research says.

Politico:

- President Obama exhorted his supporters on a conference call Thursday to help lobby for his health care plan, warning, “If we don’t get it done this year we’re not going to get it done.”

webmonkey:

- Google(GOOG) has set out to re-wire the e-mail inbox with a new product called Wave. Wave is a web-based application that marries multiple forms of communication and collaboration, including chat, mail and wikis, into a unified interface. Everything inside Wave happens in real time — you can even see a comment being made as the person is typing it, character-by-character. Google Wave, which was demonstrated Thursday at the Google I/O developer conference taking place here this week, is now live as a private developer preview. Conference attendees can start playing with it now, but Google has its eye on a public beta launch within a few months.

Reuters:
- Hedge fund manager David Einhorn, who questioned the health of Lehman Brothers four months before its collapse, is betting that shares of Moody's Corp (MCO) will fall because he believes the market no longer gives its ratings any credit. Einhorn, whose Greenlight Capital managed $5 billion, said on Wednesday the parent of Moody's Investors Service squandered the value of its business after giving perfect AAA ratings to now-fallen giants like struggling insurer AIG (AIG), nationalized mortgage banker Fannie Mae (FNM) and bond insurer MBIA Inc (MBI). Moody's largest shareholder, Warren Buffett of Berkshire Hathaway Inc, has said he does not rely on credit ratings, Einhorn said. Yet Einhorn noted equity investors still believe in the agencies. Moody's shares trade at 19 times estimated earnings, he said, though he said the company has a negative net worth of $900 million.

- Bill Gross, the manager of top bond fund Pimco, said he expects 1 percent to 2 percent growth in the U.S. economy in the next few years, and at the moment he only saw "green shoots, but not much more" of a recovery.

Financial Times:
- Best Buy(BBY), the largest US consumer electronics retailer, will launch an investment fund managed by former and current News Corp internet veterans that will focus on digital media as it seeks to expand beyond brick and mortar stores. The retailer, which invested $2.1bn to launch a joint venture with the UK’s Carphone Warehouse last year, purchased the Napster online music subscription service in 2008 for $121m and aims to invest deeper into the music, video, games and “personal media management” businesses.