Today's Headlines

Bloomberg:
- Senate Republicans thwarted Democratic-supported legislation that would increase windfall-profit taxes on oil companies such as Exxon Mobil(XOM). Democrats fell nine votes short of the 60 needed to proceed to debate. The bill “will undercut US energy security and decrease US energy production, thus exacerbating market tightness and increasing energy prices,” said the White House statement.
- The US dollar rose to a three-month high against the yen and climbed versus the euro after Fed Reserve Chairman Ben S. Bernanke said economic risks have faded, spurring traders to boost wagers interest rates will rise.
- Crude oil fell more than $3/bbl. as the dollar climbed against the euro and yen, curbing the appeal of commodities.
- China’s stocks plunged over 7% to a 14-month low after the central bank told lenders to set aside a record amount of money in reserve to curb credit growth and inflation.

NY Times:
- Verizon(VZ), Sprint(S) and Time Warner Cable have agreed to block access to Internet bulletin boards and Web sites nationwide that disseminate child pornography.

CNBC.com:
- Investors pulled a net $5.9 billion out of US hedge funds in April, marking the industry’s biggest outflow in 6 ½ years as they punished managers for their worst-ever returns at the start of 2008.

NY Sun:
- Eliot Spitzer, in his first big business venture since he was shamed out of office by a prostitution scandal, is shopping around a plan to start a vulture fund what would scoop up distressed real estate assets around the country, revamp them, and flip the properties for a profit.

Dallas Morning News:
- The voice-recognition specialists at Nuance Communications(NUAN), who already have mobile applications that work with BlackBerry smart phones, say they’re working on a program for the iPhone: Voice search.

TechCrunch:
- This morning, Hitwise came out with its search market share numbers for May, 2008. In the U.S., Google was up slightly to 68.3 percent versus 20 percent for Yahoo and 5.9 percent for Microsoft. All the fighting over the fate of Yahoo cannot be helping matters. In the month of May, Google gained 0.39 points from April, while Yahoo was down 0.33 points and Microsoft was down 0.37 points. In the UK, Google’s market share actually slipped as much as it gained in the U.S. (0.39 points), but it is even more dominant there with 87.3 percent market share, according to Hitwise.

AppleInsider:
- Citigroup(C) hikes Apple(AAPL) target to $287, Lehman(LEH) to $234. "We remain aggressive buyers of Apple shares at current levels," said Citigroup analyst Rich Gardner, who raised his price target on the Cupertino-based firm from $248 to $287. "Apple's decision to move from a revenue share model to a traditional subsidy model for the 3G iPhone is a significant positive because Apple receives iPhone-related cash flow sooner."

Business Wire:
- American Superconductor Corp.(AMSC), a leading energy technologies company, today announced that it has received a $450 million order from Beijing-based Sinovel Wind Corp. Limited for core electrical components for 1.5 megawatt(MW) wind turbines. AMSC's wind turbine electrical systems and core electrical components include the company's proprietary PowerModule(TM) power converters. They enable reliable, high-performance wind turbine operation by controlling power flows, regulating voltage, monitoring system performance and controlling the pitch of wind turbine blades to maximize efficiency. The stock is soaring 22% on the news.

Reuters:
- Democratic presidential candidate Barack Obama said on Monday he would impose a windfall profits tax on US oil companies as he sought political gain from Americans’ pain over high gasoline prices. “I’ll make oil companies like Exxon(XOM) pay a tax on their windfall profits, and we’ll use the money to help families pay for their skyrocketing energy costs and other bills,” Obama said.
- Ghana’s initial oil output from its offshore discoveries, due to start up in the first quarter of 2010, will be 120,000 barrels per day, double a previous estimate, the state oil company said.
- The Commodity Futures Trading Commission(CFTC) said on Tuesday it formed an interagency task force to evaluate commodity markets because of the “significant strain” high prices were having on American households.

International Herald Tribune:
- Global demand for oil is likely to be lower than previously estimated as the effect of shrinking government subsidies for fuel in Asia softens demand in the region, the IEA forecast.

Bear Radar

Style Underperformer:

Mid-cap Growth -.81%

Sector Underperformers:

Coalirlind (-4.99%), Gold (-4.4%) and Oil Service (-3.0%)

Stocks Falling on Unusual Volume:

LEH, CCJ, CMGI, SNCR, XIDE, BEAV, SPIR and ABR

Stocks With Unusual Put Option Activity:

1) DHI 2) STI 3) TSRA 4) TOL 5) CCRT

Trade Deficit Widens on Record Energy Prices

- The Trade Deficit for April widened to -$60.9 billion versus a downwardly revised -$56.5 billion in March.

BOTTOM LINE: The US trade deficit widened in April as the surging cost of oil boosted imports to a record, overshadowing the biggest gain in exports in four years, Bloomberg said. Excluding petroleum, the trade deficit was little changed. After eliminating the influence of prices, which are the numbers used to compute GDP, the trade deficit shrank to $46.9 billion, the lowest since August 2003. This should help boost economic growth during the quarter. I still expect the trade deficit to continue trending lower over the intermediate-term.

Bull Radar

Style Outperformer:

Small-cap Value (-.15%)

Sector Outperformers:

Banks (+1.71%), Insurance (+.65%) and Hospitals (+.17%)

Stocks Rising on Unusual Volume:

WB, KO, PEP, FEIC, FCX, AMT, AMSC, AMLN, FSYS, NWSB, SMTS, ECPG, ELOS, DPTR, CWEI, HUGH, QRCP, SWSI, STRL, SEIC, LNCE, SONO, POOL, SYKE, UMBF, URI, GBL, PLL and SM

Stocks With Unusual Call Option Activity:

1) UA 2) ORCL 3) PHM 4) RF 5) AMSC

Links of Interest

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Federal Reserve Chairman Ben S. Bernanke said the economic outlook has improved from a month ago, and central bankers will “strongly resist” any waning of public confidence in stable prices.
- Regulators and 17 banks that handle about 90% of the trading in credit-default swaps agreed to changes aimed at easing the risk of a collapse of the $62 trillion market, the Federal Reserve Bank of NY said. Morgan Stanley(MS), Deutsche Bank AG(DB) and Goldman Sachs Group Inc.(GS) are among the banks creating a system to move trades through a clearinghouse that would absorb a failure by one of the market- makers, the New York Fed said today in a statement following a meeting with the firms.
- Seeing Recession When There’s None to Be Found. The idea that the US is in a terrible recession that may turn into a depression has spread like a malicious computer virus. If you visited Google's news site and searched on the word ``recession'' on Friday, then you found about 44,000 items. Many of those, like the Time magazine story titled ``Recession May Be Driving Off Illegals,'' began with the presumption that the gloom has already arrived. The shallowest recession on record, in 2001, saw growth of 0.4 percent over the first two quarters. The worst recession in the modern era was that of 1980, when the annualized growth rate was negative 3.4 percent. Over the past two quarters, the annualized growth rate was about 0.7 percent, almost double the growth rate of the shallowest recession on record. There is a futures contract at Intrade that pays off if the U.S. goes into recession in 2008. It currently suggests that the probability of recession is a tad more than 30 percent. (very good article)
- China’s stocks fell the most in two months after the central bank told lenders to set aside a record amount of money in reserve to curtail inflation. “The tightening measure and record oil prices have both reinforced the belief that corporate earnings will slow down further,” said Zhang Ling, who manages $1.1 billion at ICBC Credit Suisse Asset Mgmt. in Beijing. The CSI 300 Index, which tracks yuan-denominated A shares listed on China’s two exchanges, declined 6%. The index has plunged 39% just this year.
- The US dollar traded near a three-month high against the yen after Treasury Secretary Henry Paulson said in an interview with CNBC that he would “never” rule out currency intervention.
- Canada’s dollar fell for a seventh day, its longest losing streak in three years, as economists forecast the central bank will cut borrowing costs tomorrow to avoid a recession in the world’s eighth-largest economy.
- Texas Instruments(TXN) predicted second-quarter revenue that met analysts’ estimates as slowing sales of chips for cheaper mobile-phones limited growth.

Wall Street Journal:
- With Three global energy companies looking to make massive bets on Australia’s latest fossil fuel and commodity darling, coal seam gas, the outlook for the industry has never been brighter.
- India’s central bank is expected to adopt further measures to slow accelerating inflation in the wake of fuel-price rises, a move that cold crimp growth in the world’s second-fastest growing major economy.

Boston Herald.com:
- Billionaire Warren Buffett has wagered roughly $320,000 of his own money that the S&P 500 will outperform a collection of hedge funds.

BusinessWeek.com:
- The iPhone 3G Unveiled. Apple’s(AAPL) new mobile device features improvements galore, not the least of which is a more attractive price tag that will likely ignite demand.

NY Times:
- In a big shift for the phone industry, women have emerged as eager buyers of so-called smartphones, finding use for them beyond the business world.

Portfolio.com:
- One government official has hedge funds very worried. It is a federal judge in Manhattan who is presiding over a lawsuit by CSX against two hedge funds that are waging a proxy battle against the railroad giant.

TimesOnline:
- UK house sales slumped to a 30-year low last month, raising fears that the downturn in the housing market could turn into a crash.

Guardian:
- The Commodity Futures Trading Commission said its new energy market advisory committee will meet on Tuesday to discuss the role of index trading in energy markets and energy trading on foreign boards of trade. A group of US senators on Monday called on the CFTC to use its emergency powers to prevent institutional investors from increasing their positions in energy futures contracts. The lawmakers said in a letter to the CFTC’s Lukken that the agency should limit exceptions from position limits only to traders who are bona fide hedgers that are trying to limit their risks to price swings of the underlying commodity, and not provide relief from positions limits to speculators who are trying to make a profit on better prices. "At a time when American people cannot escape the direct impact that rising gas and oil prices have on their day-to-day lives, it is incumbent that we ensure that our energy futures markets are transparent and demonstrate supply and demand -- not manipulation by large institutional investors," said Republican Sen. Olympia Snowe, one of the lawmakers who wrote to the CFTC.

Agencia Estado:
- Brazil plans to ask Petroleo Brasileiro SA and Cia. Vale Do Rio Doce to increase their production of minerals used to make fertilizers to help cut the nation’s dependency on imports. Brazil imports 75% of the fertilizer it consumer. The country aims to produce 80% of the fertilizer it needs in the long-term, citing the Minister of Institutional Affairs.

AsianInvestor:
- Asian hedge fund assets drop 10%.

Philippine Daily Inquirer:
- Development Bank of Singapore is projecting the Philippine peso’s exchange rate at 47 to the dollar this year, given the rising costs of imports, especially fuel and other commodities. It noted that the peso has a history of losing as much as 44% of the amount it gained over the preceding three years amid a challenging economic climate.

The News:
- Pakistan to Impeach President Musharraf Soon.

Late Buy/Sell Recommendations
Citigroup:
- Maintained Buy on (HOLX), target $35.
- Upgraded (SMTS) to Buy, target $21.
- Reiterated Buy on (TXN), target $39.

Night Trading
Asian Indices are -3.50% to -.50% on average.
S&P 500 futures -.54%.
NASDAQ 100 futures -.58%.

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Earnings of Note
Company/EPS Estimate
- (PBY)/-.03
- (QSII)/.41

Upcoming Splits
- (SF) 3-for-2

Economic Releases
8:30 am EST
- The Trade Deficit for April is estimated to widen to -$60.0 billion versus -$58.2 billion in March.

Other Potential Market Movers
- The weekly retail sales reports, IBD/TIPP Economic Optimism Index, (FOE) analyst day, (UTSI) analyst meeting, (ZRAN) analyst meeting, Goldman Sachs Healthcare Conference and Piper Jaffray Consumer Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity shares in the region. I expect US equities to open modestly lower and to maintain losses into the afternoon. The Portfolio is 50% net long heading into the day.