Wednesday Watch

Evening Headlines
Bloomberg:

• Democratic Party, Helped by Wall Street, Outraising Republicans. Democratic Party committees entered April with $22 million more to help their congressional candidates than Republicans, a reversal of four years ago. The Democratic National Committee and the party’s Senate and House fundraising arms had $58 million to spend as of March 31, compared with $36 million for the corresponding Republican groups. Wall Street helped give a fundraising edge to Democratic committees and candidates. Employees in the securities and investment industry made $34.3 million in donations last year, about the same as in 2007, with 62 percent going to Democrats, the party’s largest share in a non-election year in the 20 years of data compiled by the Center for Responsive Politics, a Washington-based research group. One reason for the increased Democratic share is that investors aren’t unanimously opposed to proposed financial regulations making their way through Congress, said Joe Keefe, president and chief executive officer of Portsmouth, New Hampshire-based Pax World Management LLC, which manages $2.4 billion.
• Goldman(GS) Director Gupta Dines With Obama, Deals With Rajaratnam. Goldman Sachs Group Inc.’s November 2006 announcement of Rajat Kumar Gupta’s election to its board brimmed with the India native’s achievements: worldwide managing director of McKinsey & Co.; special adviser to the Secretary- General of the United Nations on management reform, co-chairman of the American India Foundation charity, whose honorary chair is former President Bill Clinton. Goldman Sachs Chairman Lloyd Blankfein said at the time: “Our shareholders will be fortunate to have his strategic and operational expertise and judgment.” Now, with his term ending next month, Gupta is leaving the board. On March 19, without explanation, the firm announced his decision, thanking him for his service. Three days later, prosecutors said they were examining trades in Goldman Sachs shares by Raj Rajaratnam, the central figure in the largest U.S. insider-trading case ever and a onetime Gupta business partner.
  
• BHP(BHP) Finds Possible Corruption as SEC Investigates. BHP Billiton Ltd., the world’s largest mining company, said it uncovered evidence of possible violations of anti-corruption laws after the U.S. Securities and Exchange Commission requested information for an investigation. BHP “has disclosed to relevant authorities evidence that it has uncovered regarding possible violations of applicable anti-corruption laws involving interactions with government officials,” Melbourne-based BHP said today in a statement. The probe concerns the termination of minerals exploration projects and doesn’t involve the company’s business in China, it said.
• Intel(INTC) Looking for Acquisitions in Push Beyond PCs. Intel Corp., the world’s biggest maker of chips for computers, is considering acquisitions that would help get its processors into smartphones and consumer electronics.
• Cantor Film-Futures Market Plan Advances on U.S. Vote. Cantor Fitzgerald LP won U.S. approval for a box-office futures market, the second trading proposal cleared over objections of Hollywood studios that said the exchanges may open films to manipulation. The Commodity Futures Trading Commission voted 5-0 today in favor of a market that Cantor described as a way for movie industry participants “to create liquidity and hedge their daily business activities.” Cantor also must gain approval for the contracts before trading starts, the agency said. Cantor becomes the second box-office futures market after the commission on April 16 cleared a Veriana Networks Inc. unit to let traders bet on a film’s opening weekend ticket sales, without approving specific contracts. Cantor, the New York-based bond trader, said its market would let retail investors bet through the film’s fourth weekend of release. “I continue to have serious concerns” about trading media contracts, Republican Commissioner Scott O’Malia said in an e- mailed statement. “I support a very thorough review of all of these first-of-a-kind products to ensure they will provide a useful commercial hedging tool and are free from fraud and manipulation.”
• AIG(AIG) Said to Insure Goldman Sachs's Board Against Investor Suits. American International Group Inc., the financial firm rescued by the U.S., is the lead insurer of Goldman Sachs Group Inc.’s board against shareholder lawsuits, said a person with knowledge of the policy.
• Deutsche Bank Replaces Lippmann as ABS Head Trader. Deutsche Bank AG named Pius Sprenger as head of trading for asset-backed securities and collateralized debt obligations, replacing Greg Lippmann, whose bets against subprime mortgages helped the firm weather the financial crisis. Lippmann, 41, is joining an investment firm being started by Fred Brettschneider, Deutsche Bank’s outgoing head of global markets in the Americas. Lippmann helped create the market for betting against subprime mortgage bonds in 2005 and then profited along with hedge funds when home prices declined and defaults soared to records two years later, sparking the worst financial crisis since the 1930s.
• Goldman Sachs(GS) SEC Fraud Lawsuit Makes My Eyes Burn: Ben Stein. Now for a few words about Goldman Sachs Group Inc. and the Securities and Exchange Commission complaint that accuses the firm and one of its young guns of fraud for constructing a synthetic housing-market bond that was sure to fail, selling it to a valued customer who specifically didn’t want that type of bond, conspiring with a short seller of bonds to create a vehicle for his firm to make money off of the security and tricking a rating firm into approving it. If these allegations are true, and maybe they aren’t, this is simply the worst behavior in finance by a large firm I have ever seen. But the story of how this Abacus deal happened raises some desperately important questions:
• L.A. Mayor Axes Firefighters, Clerks to Cover Budget. Los Angeles Mayor Antonio Villaraigosa called for eliminating more than 3,500 city jobs including 61 firefighters and 443 typists to help curb a deficit estimated to reach $485 million in the coming fiscal year. The mayor today unveiled his budget for the 12 months that begin July 1. Spending from the general fund will drop to $4.34 billion, about 1.3 percent less than set aside for the current fiscal year. The mayor’s proposal next goes to the City Council for review. If all the cuts are approved, it will shorten the payroll by about 9.3 percent. “This is a budget that reflects economic realities and addresses the structural deficit,” said Matt Szabo, the mayor’s deputy chief of staff.
• Chinese Bank Watchdog Orders Quarterly Tests on Property Loans. China’s banking regulator told larger banks to conduct quarterly stress tests on property loans and ensure the risks attached to such lending is strictly controlled after the government tightened credit rules to crack down on real-estate speculation. Financial institutions must implement the central government’s property controls and use mortgage loan policies to “strictly” limit housing speculation, Liu Mingkang, head of the China Banking Regulatory Commission, said in a statement posted on the agency’s Web site yesterday.
• Wynn Says Obama, Economy Damping Outlook for Vegas. Billionaire Steve Wynn, on the eve of opening a second resort in Macau, said his home market of Las Vegas remains in a slump and isn’t suitable for expansion. “I don’t think the Las Vegas market at the moment beckons a large investment,” Wynn, chairman of Wynn Resorts Ltd., said in an interview televised today. “The economic outlook in the United States, the policies of this administration, which do not favor job formation, do not encourage investment at all.” “The governmental policies in the United States of America are a damper, a wet blanket,” Wynn said in Macau. “They retard investment, they retard job formation, they retard the creation of a better life for the citizens in spite of the rhetoric of the president.”

Wall Street Journal:

• Paulson Aims to Reassure Investors. John Paulson hasn't been accused of any wrongdoing. But the hedge-fund billionaire has gone on the offensive to reassure investors that his huge firm will emerge unscathed from a case that has drawn him into a political and legal vortex. The steps, including a conference call with about 100 investors late Monday, come amid indications from some clients that they might withdraw money from his firm after a lawsuit brought by the government against Goldman Sachs Group Inc. related to an investment created at his firm's request. Investors have indicated they are concerned that scrutiny over the firm's deals may spread, including to overseas regulators. They said they wanted to protect themselves in case new information emerges that could damage the hedge fund, they say. Another issue, they say: The legal case could simply prove a distraction for Mr. Paulson. "Some of the callers asked pointed questions, almost like a court inquisition, but most people were supportive," said Brad Alford, who runs Alpha Capital Management. Even if a number of investors ask out, the firm likely will be able to sell investments without crippling their holdings, investors say. Some traders have been examining Mr. Paulson's top holdings and positions in which filings indicate he has been a substantial holder since the news, they say. When the news of the lawsuit broke on Friday, some of these stocks, including Conseco Inc., Cheniere Energy Inc. and AngloGold Ashanti Ltd., fell sharply. The hedge-fund firm has a deadline next Friday for investors who want to withdraw money on June 30. Paulson allows most investors to pull out four times a year, but they need to give at least 60 days notice.
• Son of Sarbox. Republicans Can Oppose the Dodd Bill - and the Big Banks. Senator Chris Dodd's bill looks to us like a souped-up version of the Sarbanes-Oxley bill of 2002—that is, a collection of ill-understood reforms whose main achievement will be to make Wall Street even more the vassal of Washington, raise costs across the economy, and do little to reduce financial risks. The rush to pass it even before the Financial Crisis Inquiry Commission finishes its work is about claiming one more legislative victory before Democrats find their majorities reduced or gone in November.
• Goldman(GS) Hires Former White House Counsel; Charged Employee Deregistered. Goldman Sachs Group Inc. retained one of Washington's most prominent Democratic lawyers as it gears up to defend itself from civil charges of defrauding investors. At the same time, the company deregistered the employee charged in the case. Greg Craig was White House counsel under President Barack Obama until January, serving as the president's top lawyer and a key player in the administration's efforts to close the Guantanamo Bay prison for terror detainees. Mr. Craig, a former aide to late Sen. Edward Kennedy, was a prominent corporate attorney at Williams & Connolly, a Washington law firm, before joining the Obama campaign. President Bill Clinton tapped him in 1998 to lead his defense during congressional impeachment proceedings. His work for Goldman was first reported by Politico.
• Underlying Concerns in CMBS. Defaults on commercial mortgages bundled into securities are climbing to records, threatening bondholders with steeper losses and putting pressure on property owners and lenders to restructure their loans. According to Fitch Ratings, more than 11% of some $536 billion of loans packaged into commercial-mortgage-backed securities are expected to be at least 60 days past due by year's end. The late-payment rate now is about 7% and has skyrocketed in the past year because of squeezed rent payments, making it hard for property owners to continue servicing their debt and the near-paralyzed market for new commercial-mortgage-backed securities.

Barron's:

• Greece Hedgies Chase Final Yield Spurt as IMF Looms. As the European Central Bank today warned its members that Greece’s financial needs were becoming more dire, Greek paper Banking News was reporting that hedge funds are playing a “waiting game” with Greek debt, on the expectation Greece is poised to ask the International Monetary Fund for formal assistance. Hedge funds that have been speculating on Greek debt expect to have 10 to 12 days to play Greek sovereigns while a request from the country for assistance is formally processed by the IMF. The hedge funds, the paper speculates, are hoping uncertainty over Greece’s situation keeps the spread between Greek bonds and German bunds widening. Today the ten-year Greek treasury bill was at 475 basis points above the yield on comparable German bunds, as the Financial Times’s Kerin Hope reports in Athens. Hedge funds and others shorting Greek debt are hoping that spread might widen to as much as 500 to 600 basis points before the IMF steps in, whereupon the funds will have to relinquish their speculative bets, the paper asserts.

CNBC:

• Apple(AAPL) Earnings, Sales Easily Top Street's Expectations. Apple turned in a quarter that blew past analyst forecasts as sales of iPods, iPhones and Macs each exceeded expectations. The company's shares were up more than 5 percent in extended trading.
• SEC Looking Into Accounting at 19 Biggest Banks. The Securities and Exchange Commission is examining whether any of the 19 largest U.S. banks are using an accounting trick that a bankruptcy examiner has said led to the collapse of Lehman Brothers, SEC Chairman Mary Schapiro said Tuesday.

Fox News:

• SEC Probe Shouldn't Stop With Goldman Sachs(GS). You might think the breaking scandal swirling around Goldman Sachs gives Democrats one more talking point in their push for regulatory reform. However, if we look just below the surface of the scandal there are explosive revelations that implicate some of the central players who support the legislation being pushed by Senate Banking Committee Chairman Chris Dodd – who is retiring in disgrace over his connection to the earlier Countrywide scandal. It looks like hedgefund billionaire John Paulson may have helped engineer the housing collapse that made him a fortune. Paulson, along with other notorious subprime kingpins Herb and Marion Sandler, funded a North Carolina-based outfit called the Center for Responsible Lending (CRL) to the tune of $15 million, to shake down and harass banks into making bad loans to unqualified borrowers. CRL then turned around and lobbied for legislation to undermine the burgeoning subprime market they had helped create. Meanwhile, Paulson paid Goldman Sachs another $15 million to design collateralized-debt obligations comprised of specific subprime mortgages that he selected. This bucket of investments may have included loans that he knew were unsound and were made only because banks were strong-armed by the CRL. It also may have included loans that he knew would be undermined by the CRL’s extensive lobbying activities. Until there is a full investigation, we won’t know for sure, but it appears Paulson’s $30 million – split between the CRL and Goldman Sachs – financed a scheme that netted his fund a cool $1 billion dollars.
• Hedge Funder Chanos Sees 'Perp Walks' in Lehman Collapse. Hedge fund manager Jim Chanos believes the government is handling any number of disgraced Wall Street titans with “kid gloves.” But that might be about to change, according to Chanos, the president and founder of Kynikos Associates. In an exclusive interview on the FOX Business Network, Chanos predicted "perp walks" for some executives at the now-defunct firm Lehman Brothers. Chanos, whose firm specializes in short selling, or investing in stocks or sectors poised to lose value, believes acts of “rank criminality” permeated areas of the banking sector as the nation veered toward the recent financial crisis. Nevertheless, few of the top executives at the helm of the big banks where fraud is believed to have occurred have been held accountable, he said. At Lehman, for instance, Chanos noted that losses at the once-venerable bank were twice those of Enron, the notorious energy trading company whose top executives were prosecuted criminally a decade ago. Chanos questioned why so much government energy was expended on Enron, but the same hasn't been true for Lehman.

IBD:

• Internet Answers To Medical Questions Draw Plenty of Eyeballs. WebMD (WBMD) is one of the beneficiaries.

Business Insider:

• Google(GOOG) In Talks to Buy Huge Flight Search Engine ITA for ~$1 Billion.

zerohedge:

• ABC Consumer Comfort Index Drops Back to 2010 Low, 92% Say the Economy is in "Bad Shape". The April 19 Consumer Comfort Index number dropped back to -50, a 2010 low, just 4 points from its all-time low in 24 years of weekly polls, -54 in January 2009 and December 2008. 92% of those polled said the national economy’s in bad shape.

ABC News:

• Largest Hedge Fund Political Donations Go to Democrats. 5 Largest Hedge Fund Donors All Lean Toward Democrats; GOP Also Gets Donations. While hedge fund managers might be presumed to be eager to help the GOP beat back Wall Street reform, the reality is that the biggest of the big-time spenders funneled their donations primarily to Democrats, the party that holds Congress and the White House. According to an analysis done by the Center for Responsive Politics for ABC News, the five biggest hedge fund donors all gave almost all their donations to Democrats. So which hedge fund managers are making the most political contributions, and to whom are they giving? The CRP ran some numbers to help ABCNews.com find out. Curiously, George Soros, among the highest-earning managers of 2009 and a well-known Obama supporter, did not make the Top 10 list. Here's a rundown of who did make the list: *With $94,100 in contributions over the past year, Jim Simons is the single largest political donor among hedge fund managers. The founder of quantitative hedge fund powerhouse Renaissance Technologies gave almost all of that total to Democrats, including Senators Harry Reid of Nevada, Chris Dodd of Connecticut and New York's Charles Schumer. Dodd is in charge of the committee working on a financial reform bill. *Former Goldman Sachs star trader Eric Mindich, who a few years ago pulled off one of the largest hedge funds startups in history, doled out $89,600, all to Democrats, including Reid, Dodd and Sen. Kirsten Gillibrand of New York. *Michael Sacks, CEO of Grosvenor Capital Management and a big Obama supporter, donated $76,425, all to Democrats, including $1,000 to House Speaker Nancy Pelosi of California and $2,300 to Sen. Al Franken of Minnesota. *Henry Laufer, who works for Simons' Renaissance, gave $73,600, all to Democrats. Among the recipients was HILLPAC, the PAC started by Hillary Clinton to support Democratic candidates. *Scott Nathan of Boston-based hedge fund Baupost gave $73,050, all to Democratic causes, including a maximum gift of $4,800 to Alan Khazei, who ran unsuccessfully to fill the Senate seat vacated by the late Ted Kennedy.

Rasmussen Reports:

• 58% Doubt Social Security Will Pay All Their Benefits. Voters remain concerned about Social Security and whether the system can deliver what the government has promised. A new Rasmussen Reports national telephone survey finds that only 39% of U.S. voters are even somewhat confident that the Social Security system will pay them all of their promised benefits. Fifty-eight percent (58%) lack such confidence.
• 59% Say Scientists Disagree 'Significantly' Over Global Warming. Fifty-nine percent (59%) of Americans now believe there is a significant disagreement within the scientific community over global warming, up seven points from early December just after the so-called “Climategate” scandal involving doctored or deliberately undisclosed scientific evidence first broke. A new Rasmussen Reports national telephone survey finds that a quarter of adults (25%) think scientists do agree on global warming, showing no change from the earlier survey.

Politico:

• Barack Obama Woos Scott Brown on Immigration. President Barack Obama called Sen. Scott Brown (R-Mass.) on Tuesday to gauge his support for a comprehensive immigration reform bill, a sign the White House is serious about pushing the issue in Congress this year. Obama’s outreach to Brown is part of a quickly hatched, coordinated effort with congressional leaders to thrust the volatile immigration debate back to the front burner. At a joint House and Senate leadership meeting late Tuesday, Senate Majority Leader Harry Reid promised to House leaders that he would put an immigration bill on the floor this year. House Speaker Nancy Pelosi, also in the Tuesday evening meeting, said the House would prioritize immigration reform, according to a Democratic leadership source with knowledge of the meeting.

Reuters:

• Seagate(STX) Beats Street View, Shares Jump. Seagate Technology plans to add manufacturing capacity to handle increasing demand in the second half of the year and 2011, hoping to ride a recovery in corporate information technology spending. Seagate's shares shot up 3.5 percent in after-hours trading on Tuesday after having gained 5.2 percent since Intel Corp's (INTC) stellar results last week.
• Juniper(JNPR) Beats Estimates But Shares Fall. Juniper Networks Inc's outlook disappointed investors expecting a stronger confirmation of a tech recovery and its shares dropped 7.5 percent after-hours on Tuesday despite strong quarterly results.
• Yahoo(YHOO) Revenue Misses as Search Ad Sales Contract. Yahoo Inc posted slightly lower-than-expected quarterly revenue and indicated that current-quarter sales could again miss Wall Street estimates, as it struggles to compete in Web search against Google Inc (GOOG). Shares of Yahoo fell 3.5 percent in extended trading.
• North American March Chip-Gear Orders Rise 2.7%.
  
• Parents' Obesity, Especially Mom's, Tied to Kids' Risk. Having two obese parents may substantially raise a child's risk of becoming obese, with mom's weight playing a particularly important role, a new study suggests. UK researchers found that among more than 7,000 2- to 15-year-olds in a national study, those who had two obese parents were 12 times more likely to be obese than children with two normal-weight parents. That was with factors such as socioeconomics -- gauged by parents' jobs -- and ethnicity taken into account. Mothers' weight showed a particularly strong association with children's weight, the study found.

Financial Post:

• Mortgage Reform Needed Most of All: Frankel. If global reforms are to be successful in preventing another major financial crisis, there's little question that U.S. policymakers, above all others, will need to play a significant role. Unfortunately, Jeffrey Frankel, the Harvard University economist and member of the National Bureau of Economic Research Business Cycle Dating Committee, thinks the clearest of regulatory changes needed to make a difference, will never see the light of day: mortgage reform. "It wasn't the only thing that caused the crisis, but it is probably the one that economists can most agree is bad policy," Mr. Frankel said during a speaking event in downtown Toronto. "It is also the one policy that will never be changed." Considered more a right than a privilege, home ownership has become something of a sacred cow south of the border, which is limiting greatly the potential to reduce the risk of another subprime bust. The very existence of Fannie Mae and Freddie Mac, the government-sponsored mortgage lenders at the heart of the crisis, supports this view, he said. So, although financial reform is now clearly the number one agenda in Washington, Mr. Frankel remains pessimistic about its impact on the overall stability of the financial system. "[President] Obama will probably get something through. It will probably be an improvement but it will be nowhere close to what we need."

Evening Recommendations
Citigroup:

• Reiterated Buy on (OMC), raised target to $50.
• Reiterated Buy on (ETN), raised target to $88.
• Reiterated Buy on (ALTR), raised target to $34.
• Reiterated Buy on (COH), raised estimates, boosted target to $51.
• Reiterated Buy on (WWW), raised estimates, boosted target to $35.
  

Night Trading

• Asian indices are +.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 92.50 -1.5 basis points.
• S&P 500 futures +.29%.
  
• NASDAQ 100 futures +.69%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (MAN)/-.06
• (DGX)/.98
• (STI)/.57
• (EMC)/.24
• (AMR)/-1.31
• (ABT)/.80
• (LMT)/1.33
• (PJC)/.54
• (MCO)/.44
• (CMA)/-.55
• (MCD)/.96
• (LH)/1.31
• (FCX)/1.92
• (UTX)/.90
• (MO)/.40
• (BA)/.64
• (KEY)/-.29
• (STJ)/.68
• (GENZ)/.34
• (R)/.20
• (WFC)/.43
• (MS)/.57
• (T)/.55
• (QCOM)/.56
• (CMG)/.95
• (NFLX)/.54
• (TER)/.23
• (FFIV)/.54
• (SBUX)/.25
• (AMGN)/1.24
• (KMP)/.42
• (RJF)/.42
• (MEE)/.27
• (SNDK)/.59
• (ADS)/1.36
• (EBAY)/.41
• (NVLS)/.41
• (LRCX)/.82
• (BJS)/.06

Economic Releases
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -750,000 barrels versus a -2,202,000 barrel decline the prior week. Gasoline supplies are expected to rise by +500,000 barrels versus a -1,036,000 barrel decline the prior week. Distillate inventories are estimated to rise by +1,000,000 barrels versus a +1,107,000 barrel rise the prior week. Finally, Refinery Utilization is estimated to rise by +.35% versus a +1.1% gain the prior week.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly MBA mortgage applications report could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by technology and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.