Consumer Expectations Lower Than During 1970s

- Consumer Confidence for June fell to 50.4 versus estimates of 56.0 and a reading of 58.1 in May.

- The House Price Index for April fell .8% versus estimates of a .4% decline and a .6% decline in March.

BOTTOM LINE: Confidence among Americans dropped to the lowest level in 16 years, Bloomberg reported. The Present Conditions component fell to 64.5 from 74.2 the prior month. The Expectations component for the next six months fell to 41.0, the lowest since record-keeping began in 1967, versus 47.3 the prior month. Confidence in the north eastern regions remains mind-bogglingly depressed. Confidence in the Northeast Central region, where most hedge funds and major media outlets are headquartered, fell to 27.50 from 34.7 the prior month. It is stunning that the current confidence readings are lower now than at anytime during the 70s or even the early 90s, considering the macro backdrop now and during those periods. The stage for a strong secular bull move higher in US stocks continues to be set as the “US negativity bubble” grows ever larger.

Bull Radar

Style Outperformer:

Large-cap Value (-.62%)

Sector Outperformers:

Semis (+1.70%), Banks (+1.64%) and Drugs (+.49%)

Stocks Rising on Unusual Volume:

KR, UBS, GAP, NVS, ROYL, PDO, AIXG, TSON, RCRC, LRCX, IXYS, AMSC, AEIS, ASML, CAKE, RRGB, KLAC, SMA and CRT

Stocks With Unusual Call Option Activity:

1) LGF 2) EK 3) LLY 4) DKS 5) NT

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Tuesday Watch

Late-Night Headlines
Bloomberg:
- John McCain, calling for “a swift conversion of American vehicles away from oil,” said he would spur a market for vehicles that emit little or no carbon dioxide by offering consumers a $5,000 tax credit to buy them. The presumptive Republican presidential nominee today also proposed a $300 million prize for the development of a battery with sufficient capacity and power to “leapfrog” those that now fuel plug-in hybrids or electric cars.
- General Motors Corp.(GM) reduced its North American truck production plan and added no-interest loans on many 2008 models after a consumer shift to cars contributed to a 16 percent drop in its U.S. sales through May.
- United Parcel Service(UPS) lowered its second-quarter profit forecast because of rising fuel costs and a slowing US economy.
- Ireland’s economy will fall into a recession this year for the first time in more than two decades, the Economic and Social Research Institute said, as it slashed its forecasts for construction, exports and consumer spending. Gross domestic product will drop by 0.4 percent this year, after rising 5.3 percent last year, the Dublin-based institute said in a report published today. The group, which reduced its forecasts for the second time this year, had predicted growth of 1.8 percent in March.

Wall Street Journal:
- China’s stock-market swoon has sent the benchmark Shanghai Composite Index down by more than half in eight months to below the 3000 level, where many investors had assumed the government would intervene to provide support. But the hoped for support hasn’t come, and some analysts argue that the government’s ability to rejuvenate stocks is dwindling.
- Google Inc.(GOOG) will introduce a service as early as tomorrow that will measure Web sites’ audience size, helping advertisers fine-tune their advertisements.
- The Securities and Exchange Commission plans to propose rules that may diminish the longstanding importance of credit ratings across various markets, including the $3.4 trillion money-market industry, in the latest blow to the rating business stemming from the credit crunch.

MarketWatch.com:
- Bond insurers trying to unwind contracts: report. Companies in talks with banks about ‘commuting’ $125 billion in guarantees.

CNBC.com:
- More Wall Street Firms to Be Bought Up: Analyst.

NY Times:
- The New York Times and International Herald Tribune are working on plans to combine their Web sites.
- China’s Visa Policy Threatens Olympics Tourism.

BusinessWeek.com:
- Inside the Latest iPhone. For the upcoming iPhone 3G, Apple(AAPL) has reduced manufacturing and component costs by more than $50 per unit, says iSuppli.

IBD:
- Surgical Tools Boost Alcon’s(ACL) Earnings, Sales.

VentureBeat:
- Research firm iSuppli says in a new study that solar panels will be on par with the grid in four years.

Forbes.com:
- Sky-High Oil Will Make US Go Broke. A hefty $1.3 billion per month flowed into commodity trading advisers (CTAs) in the first four months of this year, and $700 million per month flowed into commodity exchange-traded funds (ETFs) in the first five months of this year. Those amounts do not even include investments through other vehicles by hedge funds and pension funds. The latest issue of Barron's reports that $55 billion flowed into commodity investments in the first quarter of 2008, and probably at least one-third of that amount was directed into long-only investments in oil. What is happening now is not demand destruction, it is a financial disaster. The U.S. consumes 21 million barrels of per day. At $135 per barrel, the U.S. spends $1.0 trillion per year on oil, which is equal to 15% of the $6.8 trillion in take-home pay of everyone who pays taxes. It is insane for the world to go broke while oil traders and a handful of gangsters who control their national oil production make huge fortunes.

CNNMoney.com:
- Over the horizon, a housing recovery. Harvard report finds immigration, other demographic trends will fuel housing demand over the next decade.

Financial Times:
- Some of the world’s biggest hedge funds were revealed to have taken big positions betting on declines in a number of the most sensitive stocks in the UK market. The disclosures are the first to be made as a result of a ground-breaking move by the UK's Financial Services Authority to force short-sellers to reveal size-able net short positions in companies undergoing rights issues, in a bid to stamp out suspected market abuse.
- One of the most powerful jobs in American journalism went up for grabs on Monday with the announcement that Leonard Downie, the long-serving executive editor of the Washington Post, is stepping down in September.

Saudi Press Agency:
- Kuwait will raise oil production by 300,000 barrels a day by the middle of next year, citing Mohammed al-Olaim, Kuwait’s oil minister. Kuwait will budget $55 billion for oil projects in the next five years.

Late Buy/Sell Recommendations
Morgan Stanley:
- Raised (MS) to Overweight, target $51.
- Rated (SYMC) Overweight, target $26.

CSFB:
- Rated (TOL) Outperform, target $24.
- Rated (KBH) Outperform, target $23.
- Rated (PHM) Outperform, target $14.
- Rated (RYL) Outperform, target $28.
- Rated (CTX) Outperform, target $19.
- Rated (HOV) Underperform, target $6.40.
- Rated (MTH) Underperform, target $16.

Night Trading
Asian Indices are -.50% to +.25% on average.
S&P 500 futures -.01%.
NASDAQ 100 futures +.01%.

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Earnings of Note
Company/EPS Estimate
- (JBL)/.19
- (DRI)/.75
- (FUL)/.45
- (SONC)/.31
- (KR)/.55

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Consumer Confidence for June is estimated to fall to 56.0 versus 57.2 in May.
- The House Price Index for April is estimated to fall .4% versus a .4% decline in March.

Other Potential Market Movers
- The S&P/CaseShiller Home Price Index, Richmond Fed Manufacturing Index, weekly retail sales report, (ALD) investor day, (POR) analyst day, (RDC) conference call, Jeffries Healthcare Conference, Bank of America Utilities Conference, Wachovia Nantucket Equity Conference, Deutsche Bank Alternative Energy Conference and UBS Global Financial Markets & Technology Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and automaker shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Mostly Lower, Weighed Down by Airline, Retail, REIT, Homebuilding, Insurance, HMO, Financial Shares

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In Play

Stocks Mostly Lower into Final Hour on Financial Sector Concerns, Rising Oil

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Alternative Energy longs and Internet longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is below average. Investor anxiety is slightly above average. Today’s overall market action is bearish. The VIX is falling .31% and remains above average at 22.80. The ISE Sentiment Index is low at 105.0 and the total put/call is slightly below average at .82. Finally, the NYSE Arms has been running above average most of the day and is currently 1.21. The Euro Financial Sector Credit Default Swap Index is rising .74% today to 86.01 basis points. This is up from a low of 52.66 on May 5^th, but still down from 129.46 basis points on March 20^th. The North American Investment Grade Credit Default Swap Index is falling .75% today to 124.22. The TED spread is falling 1.6% today to .92 basis points. Despite the rise in oil today, the 10-year TIPS spread, a good gauge of inflation expectations, is down 4 basis points to 2.46%. This is also down 13 basis points in 10 days. The underlying action in the broad market is worse than the major averages suggest. Airline, retail, homebuilding, insurance, hmo, bank, I-banking and disk drive shares are all under meaningful pressure, falling over 2% for the day. Mid-cap growth stocks remain, by far, the strongest segment of the market, rising another .34% today. The (XLF) is trading at session lows, falling another 3.3%. It is noteworthy that the US dollar is mounting a .6% rally today despite the rise in oil and intensifying financial sector worries. I suspect the Fed will leave rates unch. at this week’s meeting, but adopt a more hawkish policy statement. Nikkei futures indicate a +48 open in Japan and DAX futures indicate an -37 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on rising energy prices, financial sector worries and global growth concerns.