Monday Watch

Weekend Headlines
Bloomberg:

- Citigroup Inc.(C), Bank of America Corp.(BAC) and JPMorgan Chase & Co.(JPM), recipients of more than $100 billion in U.S. rescue funds, criticized congressional proposals to tax Wall Street bonuses. Bank of America Chief Executive Officer Kenneth Lewis called the tax “unfair” in a memo to employees yesterday, while Citigroup’s Vikram Pandit said his bank is “working in every appropriate way with policymakers.” JPMorgan’s Jamie Dimon held a conference call with about 200 executives, saying the firm is concerned about retention and is working with lawmakers. “People are very anxious about this getting too widespread, this notion that no one on Wall Street or in banking deserves any money,” said Seamus McMahon, a consultant with Booz & Co. in New York, who works with financial firms. Banks, worried that the proposals are distracting employees, are trying to reassure staff and keep them focused on clients. Lewis said the taxes could cause “unintended harm” and delay the recovery of the financial system. Dimon urged workers to call politicians and voice their opinions, a spokesman said. “The work we have all done to try to stabilize the financial system and to get this economy moving again would be significantly set back if we lose our talented people because Congress imposes a special tax on financial services employees,” Pandit said in the memo, whose contents were confirmed by a Citigroup spokesman. Citigroup removed the people who caused its financial distress and acted quickly to strengthen the business, Pandit wrote. “You have been invaluable in our collective efforts to put the company on solid footing,” he wrote, saying the legislation would affect people who would find it “difficult, if not impossible,” to repay bonuses. “I am very concerned about our ability to retain some of our most valuable associates,” Lewis wrote in his memo to employees obtained by Bloomberg. “The very best performers on our team will always have offers from competitors.”

- Iranian Supreme Leader Ayatollah Ali Khamenei said President Barack Obama’s video message yesterday didn’t show that the U.S. has modified its “hostile” attitude toward his nation. The U.S. has shown no sign of “genuine” change in its “hostile” policy the Islamic Republic, Khamenei, 69, said in a speech to mark the Iranian New Year, according to state-run Press TV. The U.S. has “insulted” Iran numerous times and threatened the country with military strikes that won’t “intimidate” the Islamic nation, Khamenei said, according to Press TV’s Web site. “Iran must be engaged as a constructive part of the solution, not as part of the problem,” Russian foreign minister Sergei Lavrov said today at a German Marshall Fund conference in Brussels. Obama’s message “is an example how people should be self-critical, including people at the very top,” he said.

- Brazil was officially invited to join the Organization of Petroleum Exporting Countries by Saudi Arabia, Qatar, Venezuela and Iran, Veja magazine reported, without specifying where it got the information. It’s likely that Brazil will refuse the offer, Veja said. Lobao told an unidentified person that Brazil needs to have a bigger oil-output surplus before it considers it, Veja reported.

- Amazon.com Inc. founder Jeff Bezos and JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon are among the new names added to the Barron’s list of the 30 most respected chief executive officers worldwide. The annual list, published in the March 23 issue, includes top executives who have been on the job at least three years and have focused on “conservative financial management,” consumers and innovation. Also new to the list are DirecTV Group Inc.’s Charles Carey, Jose Sergio Gabrielli de Azevedo of Petroleo Brasileiro SA, or Petrobras, McDonald’s Corp.’s Jim Skinner, Exxon Mobil Corp. Chairman Rex Tillerson and Taiwan Semiconductor Manufacturing Co.’s Rick Tsai. Apple Inc.’s Steve Jobs was praised by the weekly newspaper for the company’s innovation in its Macintosh computers and the iPod and iPhone, even though the company’s success is very much tied to his continued presence. Jobs is on medical leave through June. American Express Co.’s Kenneth Chenault was removed from this year’s list as the largest credit-card issuer by purchases faces the prospect of more borrower defaults. General Electric Co.’s Jeff Immelt fell out of favor because of the investor discontent with the company’s finance arm that faces profit hurdles amid a global recession and credit crunch, Barron’s said.

- Gold holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, advanced 1.7 percent to a record, according to figures on the company’s Web site. The fund held 1,103.29 metric tons of bullion as of yesterday. The trust is the world’s sixth-largest stockpile of the precious metal, behind Italy’s 2,451.8 tons, according to the producer-funded World Gold Council data.

- Hellman & Friedman LLC is putting together a group of private-equity groups that may bid for Barclays Plc’s iShares unit in a transaction valued at as much as $5 billion, a person with knowledge of the situation said.

- General Motors Corp.(GM) bondholder proposals presented to the U.S. Treasury offer the “best chance” of the automaker avoiding bankruptcy, advisers to an ad hoc group of the debt holders said in a letter today. “We believe that, unless the framework we suggested is utilized, the restructuring currently contemplated will not achieve the required level of acceptance to succeed on an out- of-court basis,” the advisers wrote in the letter to Treasury Secretary Timothy Geithner and representatives of President Barack Obama’s auto task force.

- Hedge-Fund Investors Hire Private Eyes to Avoid New Madoffs.

- Australia’s Prime Minister Kevin Rudd said it will be “virtually impossible” for the nation to sustain growth as the global economy contracts. “The global economic recession is getting worse before it gets better,” Rudd said today on Channel Nine television. “The impact of a worsening global economic recession will make it virtually impossible for Australia to sustain a positive economic growth for the period ahead, with impacts, of course, for budget and employment.”

- European Central Bank council member Axel Weber said the bank is poised to lower interest rates further to counter the worst recession since World War II in Europe. “Rates are at 1.5 percent in the euro area and heading down,” Weber said at a German Marshall Fund conference in Brussels today. “We have room to maneuver. We are using the room that we have to maneuver.”

- Confidence among Japanese manufacturers slid the most in at least five years as a deepening global recession spurred record declines in exports and factory output, a government survey showed. Sentiment among manufacturers was minus 66 points this quarter compared with minus 44.5 three months earlier, a joint survey by the Cabinet Office and Finance Ministry showed today. The drop was the biggest since the report began in 2004. A negative number means pessimists outnumber optimists.

Wall Street Journal:

- Treasury Secretary Timothy Geithner said the only way to remove troubled assets clogging banks' balance sheets -- which lie at the heart of the financial crisis -- is to work with the private sector, even at a time when Wall Street moneymakers are being vilified by the public and politicians. In an interview with The Wall Street Journal Sunday, Mr. Geithner said the government cannot fix the financial crisis alone. "Our judgment is that the best way to get through this is if we can work with the markets," he said. "We don't want the government to assume all the risk. We want the private sector to work with us." Mr. Geithner's three-pronged program, which will be unveiled Monday, envisions the creation of a series of public-private investments to soak up $500 billion, and maybe as much as $1 trillion, in troubled loans and securities at the heart of the financial crisis. To encourage investors to buy those assets, the U.S. government will offer lucrative subsidies and shoulder much of the risk. Stocks rallied 2% in Tokyo in early trading Monday, on expectations of the Geithner bank plan's announcement. Taxpayers will stand to reap gains -- alongside investors such as hedge funds and private-equity firms -- if the investments ultimately prove profitable.

- The federal bailout of insurance giant American International Group Inc., designed to help stabilize financial markets, is roiling another corner of the corporate world. AIG's competitors claim the insurer's federal lifeline is unfairly tilting the commercial-insurance playing field. And they're pressing federal officials to crack down. In a meeting March 4 at the St. Regis Hotel in Washington, some of AIG's biggest competitors complained directly to Federal Reserve Chairman Ben Bernanke, AIG's top government overseer. They urged him to prevent AIG from using the government rescue to win an advantage, particularly by cutting prices.

- President Obama's 2010 budget looks more astounding by the day, especially when someone other than the White House budget office is analyzing it. The latest case of epic sticker shock came Friday when the Congressional Budget Office published its assessment, which found that the proposals would increase the federal deficit by $2.3 trillion more over 10 years than the White House had claimed. Hey, what's a little rounding error among friends?

- Since the fall, senior aides to Timothy Geithner have closely dealt with American International Group Inc. on compensation issues including bonuses, both from his time as president of the Federal Reserve Bank of New York and as Treasury secretary. The extent of their involvement, which wasn't widely known, raises fresh questions about whether Mr. Geithner could have known earlier about AIG's $165 million in bonus payments. When the bonuses sparked a political firestorm last week, Mr. Geithner said he learned about their full scope in early March, just days before they were paid. Mr. Geithner and Federal Reserve Chairman Ben Bernanke will be grilled by Congress on Tuesday in a hearing that is likely to focus heavily on AIG. As New York Fed president, Mr. Geithner was central to AIG's initial $85 billion bailout in September, which was carried out in a tumultuous four-day period. AIG received an expanded government rescue in October and another in November, bringing the total to about $150 billion, including $40 billion in Treasury funds.

- Three big retailers are expected to back an alternative proposal next week on a hotly contested bill that would make it easier to unionize workplaces, a move some experts said would bolster the legislation's chance of passage. Costco Wholesale Corp., Starbucks Corp. and Whole Foods Market Inc. are supporting the alternative proposal, according to someone familiar with the effort. Ray Krupin, a management labor lawyer in Washington said the most likely compromise would allow employees to unionize if 70% of them sign union-authorization cards, as opposed to 50% as currently proposed in the Employee Free Choice Act.

- The president of the European Central Bank said Europe doesn't need to boost spending more to combat the global financial crisis, throwing the bank's weight behind Europe's governments in their battle with the U.S. over how to overcome the worst recession in a generation. In an interview with The Wall Street Journal, Jean-Claude Trichet said that instead of pushing new measures, governments around the world should move faster on what they've already announced -- referring in part to delays and difficulties in the U.S. government's rescue of its troubled banks.

Barron’s:

- Counting on China to jump-start the global economy is wishful thinking, unless its massive population magically morphs into a nation of spenders. Despite its decades-long growth, it accounts for just over 6% of the global gross domestic product. "At best, China is an up-and-coming supereconomy in good fiscal shape that will suffer a period of slowed growth over the next few years, but will be fine," says Jeff Lick, who co-manages Boston-based Galt Investments. "At worst, it is an overbuilt and overinvested economy that relies too much on exports to the Western world." Chinese stocks may have been lifted more by excess liquidity than by the prospect of economic revival, says Michael Hartnett, Merrill Lynch's international-investment strategist. Compared with those in the U.S. and Europe, China's banks were less leveraged and, being state-controlled, were far more receptive to government exhortations to lend. "The credit needs of a weak Chinese economy are low, so the recent surge in money supply has leaked into the local stock exchange," Hartnett says. The decline in exports already has shuttered factories, displaced more than 20 million increasingly restive migrant workers and offered worrisome signs of too much supply and potential deflation: Producer prices fell 4.5% last month, and real-estate prices are slipping. Can Chinese consumers now pick up the slack from the world's biggest spenders? Americans spent enough in 2007 to drive 18% of global GDP, a staggering number compared with the 2.1% accounted for by Chinese consumers. By Lick's calculation, if U.S. consumption were to shrink just 10%, the decline would already surpass what an entire nation of Chinese consumers currently spends. "And," he asks, "how many of you have cut back your spending 10% in the last three months?"

MarketWatch.com:

- The Securities and Exchange Commission is concerned that managers of locked-up hedge funds may be favoring themselves over their investors, Commissioner Elisse Walter said Friday. During prepared testimony before the House Committee on Financial Services, Walter also said the SEC has set up a Hedge Fund Working Group to handle "dozens" of active investigations relating to these private investment vehicles.

- Despite the worst recession in decades, Verizon Communications Inc. and AT&T Inc. continue to sign up customers for their TV services and put pressure on cable and satellite rivals. The two phone giants could each add more than 1 million TV customers in 2009, analysts say -- if for no other reason than Verizon (VZ) and AT&T (T) are making their service available in more cities and towns.

NY Times:

- The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said. The outlines of the plan are expected to be unveiled this week in preparation for President Obama’s first foreign summit meeting in early April. Officials said the proposal would seek a broad new role for the Federal Reserve to oversee large companies, including major hedge funds, whose problems could pose risks to the entire financial system. It will propose that many kinds of derivatives and other exotic financial instruments that contributed to the crisis be traded on exchanges or through clearinghouses so they are more transparent and can be more tightly regulated. And to protect consumers, it will call for federal standards for mortgage lenders beyond what the Federal Reserve adopted last year, as well as more aggressive enforcement of the mortgage rules. The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving federal bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission.

- Has a ‘Katrina Moment’ Arrived? A charming visit with Jay Leno won’t fix it. A 90 percent tax on bankers’ bonuses won’t fix it. Firing Timothy Geithner won’t fix it. Unless and until Barack Obama addresses the full depth of Americans’ anger with his full arsenal of policy smarts and political gifts, his presidency and, worse, our economy will be paralyzed. It would be foolish to dismiss as hyperbole the stark warning delivered by Paulette Altmaier of Cupertino, Calif., in a letter to the editor published by The Times last week: “President Obama may not realize it yet, but his Katrina moment has arrived.” Another compelling question connects all of the above: why has there been so little transparency and so much evasiveness so far? The answer, I fear, is that too many of the administration’s officials are too marinated in the insiders’ culture to police it, reform it or own up to their own past complicity with it. The “dirty little secret,” Obama told Leno on Thursday, is that “most of the stuff that got us into trouble was perfectly legal.” An even dirtier secret is that a prime mover in keeping that stuff legal was Summers, who helped torpedo the regulation of derivatives while in the Clinton administration. His mentor Robert Rubin, no less, wrote in his 2003 memoir that Summers underestimated how the risk of derivatives might multiply “under extraordinary circumstances.” Given that Summers worked for a secretive hedge fund, D. E. Shaw, after he was pushed out of Harvard’s presidency at the bubble’s height, you have to wonder how he can now sell the administration’s plan for buying up toxic assets with the help of hedge funds. It will look like another giveaway to his own insiders’ club. As for Geithner, people might take him more seriously if he gave a credible account of why, while at the New York Fed, he and the Goldman(GS) alumnus Hank Paulson let Lehman Brothers fail but saved the Goldman-trading ally A.I.G.

- The decline in crude oil prices gets all the headlines, but the first globalized natural gas glut in history is driving an even more drastic collapse in the cost of gas that cooks food, heats homes and runs factories in the United States and many other countries. Six giant plants capable of cooling and liquefying gas for export are due to come on line this year just as the economies of the Asian and European countries that import the most gas to run their industries are slowing. Energy experts and company executives say that means loads of gas from Qatar, Egypt, Nigeria and Algeria that otherwise would be going to Japan, Korea, Taiwan and Spain are beginning to arrive in supertankers in the United States, even though there is a gas glut here, too. That is good news for American consumers and many businesses, since gas provides about a fifth of the power generated by electric utilities and is a vital component for fertilizers, plastics and other industrial products. Gas industry executives expect that liquefied gas imports into the United States will at least triple in the second half of this year. The global capacity for liquefied natural gas exports of 200 million tons a year will increase by 25 percent with the completion of six new plants in Qatar, Russia, Indonesia and Yemen, totaling $48 billion in investments, and the upgrading of a seventh plant in Malaysia. National energy companies in those countries, assisted by ExxonMobil, Total, BP and Shell, rushed construction of those projects in recent years to satisfy the mushrooming appetite for energy around the world. More large plants are due on line in 2010 and 2011.

The Daily Beast:
- Madoff Employee Breaks Silence. In a Daily Beast exclusive, one of the fraudster’s employees tells Lucinda Franks that the supposedly legitimate brokerage operations were in fact just money-losing fronts for the fraudster's scheme. Plus, what Madoff’s sons told staff the day after Bernie’s arrest, trips to the company’s secretive 17th floor, Bernie’s obsession with the color black and employee neatness, the roles of other family members, and visits to the founder’s Montauk home.

Time:

- How AIG Became Too Big to Fail. Keeping the financial system fluid might explain why so many banks got paid in full, which strikes some as a scandal way bigger than the bonus payouts. Many experts wondered why AIG paid 100 cents on the dollar. Among the biggest beneficiaries of the AIG pass-through, at $12.9 billion, was Goldman Sachs(GS), the investment-banking house that has been the single largest supplier of financial talent to the government. Critics have been quick to note — and not favorably — the almost uncanny influence of former Goldman executives. Initial phases of the rescue were orchestrated by ex–Goldman chairman Hank Paulson, who was recruited as Treasury Secretary in part by former White House chief of staff and Goldman senior exec Josh Bolten. Goldman's current boss, Lloyd Blankfein, was invited to participate in meetings with the Fed. AIG's Liddy is a former Goldman director and an ex-CEO of Allstate. Another alum, Mark Patterson, once a Goldman lobbyist, serves as chief of staff at the Treasury, while Neel Kashkari, who runs TARP, was a Goldman vice president. Goldman has repeatedly declared that its exposure to AIG was "immaterial" and fully hedged. But some rivals point to the fact that Goldman had uncharacteristically piled into contracts with a single counterparty. "I am shocked that Goldman had this much exposure [with AIG]," says an analyst at a competing bank. "This was a major failing, but they got bailed." Goldman got bailed twice: first on its CDS exposure and a second time, to the tune of $4.8 billion, for another AIG fiasco, losses on its securities-lending business.

Politico:

- The Obama administration appears to be dialing back its support for the bonus tax legislation generally, and particularly the bill passed by the House last week. After the House passed the bill, the White House issued a statement from President Barack Obama saying “I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated.'' But on Sunday, a top administration economist was much less enthusiastic, calling the bill “dangerous.” “The president would be concerned that this bill may have some problems in going too far – the House bill – may go too far in terms of some legal issues, constitutional validity, using the tax code to surgically punish a small group of people,” Jared Bernstein, Vice President Joe Biden's chief economic adviser, told George Stephanopoulos, host of on ABC News' "This Week.”

Forbes.com:

- Luxury Cars of the Future.

Washington Post:

- Senator Dodd's(D-Conn.) longtime supporters are saying they will not vote for him again. "I think his days are numbered," said Linda Walker, a retired nurse from Ridgefield. "He doesn't have the character I thought he had. That's where term limits come in." Speaking of all long-serving politicians, Walker said, "They become so disconnected from where they're from." "I'd rather he not run and save himself the embarrassment of losing," said Andrea Beebe, a teacher who also lives in Ridgefield. "You know, he was up to his eyeballs. He's had his hands in the mud pile for four or five years." And these are Dodd's onetime supporters. The most immediate issue for Dodd is the $165 million -- possibly more -- in bonus payments to employees of insurance giant American International Group. Many top AIG executives live in Connecticut, specifically in prosperous Fairfield County, one of the wealthiest in the nation. And the AIG Financial Products division, which is largely blamed for the country's financial meltdown because of its dealings in toxic mortgage-backed securities, is based here in the town of Wilton and was the target of a small but noisy protest rally Saturday. Dodd, 64, is chairman of the Senate Banking, Housing and Urban Affairs Committee, and Wednesday night, he said his staff removed a provision from the recently enacted economic stimulus bill that would have blocked AIG from paying those bonuses. Dodd said he was acting at the request of Treasury Department officials, who feared the provision would prompt legal challenges. But earlier in the week, Dodd had said he did not know how the provision got removed from the bill. That shift in position has only underscored for many Dodd's close relationship with AIG. The company's employees and political funds have contributed $300,000 to Dodd over the past decade, according to the nonpartisan Center for Responsive Politics.

American Research Group:

- Independent voters are split on the way Barack Obama is handling his job as president, lowering his overall job approval rating to 56% from 60% a month ago according to the latest survey from the American Research Group. Among all Americans, 56% approve of the way Obama is handling his job as president and 37% disapprove. When it comes to Obama's handling of the economy, 49% approve and 44% disapprove. Among Americans registered to vote, 57% approve of the way Obama is handling his job as president and 37% disapprove. A total of 47% of independent voters approve of the way Obama is handling his job and 46% disapprove. In February, 53% of independents approved and 39% disapproved. When it comes to the way Obama is handling the economy, 47% of registered voters approve of the way Obama is handling the economy and 46% disapprove. Among independent voters, 32% approve of the way Obama is handling the economy and 57% disapprove. In February, 43% of independent voters approved of the way Obama was handling the economy and 43% disapproved.

St. Louis Post-Dispatch:

- Amid the gloom, bankers are seeing glimmers of hope that the economic slump in St. Louis may be nearing the bottom. "A lot of things, albeit small things, are showing signs of life" said Robert Witterschein, president of Southwest Bank. "People are starting to feel a little bit better. I'm thinking maybe the worst was the fourth quarter." Bankers are detecting some stirring amid the housing wreckage. Bottom fishers are appearing, an early sign of revival. On the suburban fringes, investors are buying new but unsold houses in bulk from distressed developers.

AP:

- Venezuelan President Hugo Chavez on Sunday called President Barack Obama "ignorant," saying he has a lot to learn about Latin America. The Venezuelan leader said he had been ready to name a new ambassador in Washington when Obama took office, but put that on hold after the new U.S. president accused him of "exporting terrorism" and being an obstacle to progress in the region. "At least one could say, 'poor ignorant person,'" Chavez said on his weekly television and radio program, adding that Obama "should read a little bit so that he learns about ... the reality of Latin America." "We ask only for respect for Venezuela, nothing else," Chavez said. "If Obama respects us, we'll respect him. If Obama tries to keep disrespecting Venezuela, we will confront the U.S. empire."

Reuters:

- President Barack Obama said he would not accept Treasury Secretary Timothy Geithner's resignation if it was offered, according to excerpts from a television interview to be broadcast on Sunday. Obama said he would tell Geithner: "Sorry buddy you've still got the job." The Treasury secretary has been under fire from some lawmakers for his handling of the AIG bonus scandal. U.S. television network CBS, which secured the interview, said Obama told its "60 Minutes" program that neither he nor Geithner had mentioned his resignation from his Treasury post.

- Boutique investment firms and top hedge funds are slowly lapping up the cream of global banking talent as the financial crisis forces banks to cut staff and limit the pay of their top risk-takers. From Singapore to New York, leading traders and sales honchos are making the switch as government pressure piles on Wall Street and European banks to cut multi-million-dollar bonuses. "The firms that still have a lot of assets under management, the hedge funds that have not been hit by redemptions, they are still picking up some of the money-makers from the big banks," said Pernille Storm at executive search firm Hudson in Singapore.

- Two days after regulators seized the largest U.S. corporate credit union, the newly installed CEO said he is considering a variety of options, including setting up a "bad bank," to handle a mixture of troubled mortgage assets. Several options are on the table at the $34 billion-asset U.S. Central Federal Credit Union, said new CEO James Nance, who quit as chief administrative officer at Icap Capital Markets Llc in New Jersey to helm the Lenexa, Kansas-based institution at the request of regulators. In addition to setting up a separate entity, a so-called "bad bank," to take toxic assets off the books of U.S. Central, Nance told Reuters in an interview that he will look at options for securitizing the troubled assets in ways that would allow for them to be held for an extended periods, and he will explore the sale of certain assets to non-credit union buyers.

Financial Times:

- A further wave of profit warnings and downgrades is likely this year at European companies as executives and analysts remain too optimistic over the effect of the economic crisis. Analysts, who follow individual sectors and are guided by the companies themselves, are expecting about flat growth in European earnings. But equity strategists, who look at the broader economy and market, are forecasting a drop of 25-50 per cent in profits. Gareth Williams, strategist at ING, said: “There will be another big wave of profit downgrades.” He is predicting a 48 per cent fall in earnings. Nick Nelson of UBS, who expects a 25 per cent drop in profitability, said: “It is pretty broad spread. You are going to get downgrades almost everywhere.”

Guardian:

- We are about to take the war against terror to a new level by UK Prime Minister Gordon Brown. Two weeks ago, the world woke to the grim reminder that fringe terrorists in Northern Ireland still put fanaticism before innocent lives. These brutal acts, so devastating in their impact on the families of those murdered, have led the people and politicians of Northern Ireland to stand as one against any return of the terrorist threat. We should be under no illusion, however, that the biggest security threat to our country and other countries is the murderous agents of hate that work under the banner of al-Qaida. We know that there is an al-Qaida core in northern Pakistan trying to organise attacks in Britain. We know also that there are a number of networks here and as the head of MI5 reported recently: "There is no cause for complacency; there is plenty of activity and the threat level remains at severe." It is a measure of the challenge we face - but also our success in dealing with it - that in the last two years more than 80 terrorists who planned to kill British citizens have been convicted and are now behind bars, some under the measures we have brought in since 2001. Al-Qaida terrorists remain intent on inflicting mass casualties without warning, including through suicide bombings. They are motivated by a violent extremist ideology based on a false reading of religion and exploit modern travel and communications to spread through loose and dangerous global networks. We must remain vigilant at all times.

Interfax:

- Deputy Prime Minister Igor Sechin said oil’s contribution to the Russia budget this year will drop to an estimated $63 billion in 2009 from about $120 billion last year after Urals crude prices declined. The Russian budget calculation assumes an oil price of $41 per barrel, Sechin said. The deputy prime minister said large energy projects including the Nord Stream pipeline to Germany under the Baltic Sea and the South Stream link to Bulgaria under the Black Sea will proceed according to plan.

Focus:

- Deutsche Bahn AG, the German state-owned railway, anticipates a 30% drop in cargo revenue in the first quarter, a trend that may carry on the entire year, citing company sources.

China Business News:
- China’s growth may slow further this quarter from last quarter’s 6.8%, citing Yin Zhongqing, deputy director of the National People’s Congress Finance and Economic Affairs Committee. While government stimulus may boost short-term growth by giving massive investment to industries dominated by state companies, it may exacerbate existing problems by increasing overcapacity and squeezing out private businesses, Yin said.

- Dollar-denominated assets remain a “relatively safe” choice for China’s foreign-exchange reserves, citing Sun Xiaoxia, head of the Finance Department at China’s finance industry.

Nikkei:

- Toshiba Corp. will begin mass-producing fuel cells for recharging mobile phones, laptops and other devices as early as next month.

Haaretz.com:

- The dispute between the United States and Israel over the razing of Palestinian homes in East Jerusalem is intensifying and will likely become the first clash between the Obama administration and the government of Benjamin Netanyahu.

Weekend Recommendations
Barron's:
- Made positive comments on (WLP), (NWS/A), (KEY), (STI), (LO) and (HPQ).

- Made negative comments on (INTC) and (AMAT).

Citigroup:

- Reiterated Buy on (GOOG), target $450.

Night Trading
Asian indices are +.75% to +2.50% on avg.
S&P 500 futures +1.57%.
NASDAQ 100 futures +1.37%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Global Commentary
WSJ Intl Markets Performance
Commodity Futures
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/Estimate
- (TIF)/.79

- (WAG)/.66

- (SONC)/.09

- (PVH)/.28

- (BPT)/2.93

Upcoming Splits

- None of note

Economic Releases

10:00 am EST

- Existing Home Sales for February are estimated to fall to 4.45M versus 4.49M in January.

Other Potential Market Movers
- Geithner Addressing Future of Finance Initiative Conference, (CRM) analyst day, (GLW) investors meeting and the Howard Weil Energy Conference could also impact trading today.

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

Weekly Outlook

Click here for Wall St. Week Ahead by Reuters.

Click here for stocks in focus for Monday by MarketWatch.

There are several economic reports of note and a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – Existing Home Sales

Tues. – House Price Index, Richmond Fed Manufacturing Index, weekly retail sales reports

Wed. – Weekly MBA mortgage applications report, weekly EIA energy inventory report, Durable Goods Orders, New Home Sales

Thur. – Final 4Q GDP, Final 4Q Personal Consumption, Final 4Q GDP Price Index, Final 4Q Core PCE, Initial Jobless Claims

Fri. – Personal Income, Personal Spending, PCE Core, Univ. of Mich. Confidence

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – Tiffany & Co.(TIF), Walgreen Co.(WAG), Phillips-Van Heusen(PVH)

Tues. – Williams-Sonoma(WSM), Jabil Circuit(JBL), Carnival Corp.(CCL)

Wed. – Paychex(PAYX), Red Hat(RHT)

Thur. – Dr. Pepper Snapple(DPS), ConAgra Foods(CAG), Best Buy(BBY), GameStop(GME), Lennar Corp.(LEN)

Fri. – None of note

Other events that have market-moving potential this week include:

Mon. – Geithner Addressing Future of Finance Initiative Conference, (CRM) analyst day, (GLW) investors meeting, Howard Weil Energy Conference

Tue. – The Fed’s Evans speaking, Fed’s Bullard speaking, Geithner/Bernanke Testifying on Rescue of AIG, Howard Weil Energy Conference, (SNX) shareholders meeting, (SIGI) investor day

Wed. – The Fed’s Pianalto speaking, Fed’s Yellen speaking, (ADP) analyst meeting, Howard Weil Energy Conference, (MKC) shareholders meeting, (GLW) investor luncheon, Think Equity ThinkGreen Conference, Lazard Medical Device Tech Conference, (BIIB) R&D Day, (CIEN) shareholders meeting

Thur. – The Fed’s Lockhart speaking, Fed’s Lacker speaking, Geithner Testifying on Financial Market Regulation, Fed’s Fisher speaking, Fed’s Lacker speaking, Fed’s Stern speaking, Needham Healthcare Conference, (LXK) analyst meeting, (SRE) analyst meeting, Lazard Medical Device Tech Conference, (HIG) special meeting of shareholders, Think Equity ThinkGreen Conference

Fri. – (POM) analyst meeting

BOTTOM LINE: I expect US stocks to finish the week mixed as less credit market angst, declining economic fear, lower energy prices and diminishing financial sector pessimism offset more shorting and profit-taking. My trading indicators are giving mostly bullish signals and the Portfolio is 75% net long heading into the week.

Market Week in Review

S&P 500 768.54 +1.59%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 768.54 +1.59%
DJIA 7,278.38 +.75%
NASDAQ 1,457.27 +1.80%
Russell 2000 400.11 +1.79%
Wilshire 5000 7,739.20 +1.61%
Russell 1000 Growth 341.66 +1.68%
Russell 1000 Value 385.69 +1.44%
Morgan Stanley Consumer 482.42 +2.96%
Morgan Stanley Cyclical 355.14 +6.73%
Morgan Stanley Technology 355.15 +3.78%
Transports 2,516.96 +4.01%
Utilities 327.37 +7.72%
MSCI Emerging Markets 23.93 +3.23%

Sentiment/Internals
NYSE Cumulative A/D Line 13,224 +23.69%
Bloomberg New Highs-Lows Index -187 +29.17%
Bloomberg Crude Oil % Bulls 36.0 -16.28%
CFTC Oil Large Speculative Longs 195,950 -.56%
Total Put/Call .88 +22.22%
OEX Put/Call 1.16 +30.34%
ISE Sentiment 120.0 -28.57%
NYSE Arms 1.25 +16.82%
Volatility(VIX) 45.89 +8.33%
G7 Currency Volatility (VXY) 17.59 +3.23%
Smart Money Flow Index 7,244.81 +3.57%
AAII % Bulls 45.06 +63.02%
AAII % Bears 38.27 -29.74%

Futures Spot Prices
Crude Oil 52.07 +11.47%
Reformulated Gasoline 145.70 +8.33%
Natural Gas 4.23 +8.25%
Heating Oil 138.34 +15.44%
Gold 954.20 +3.30%
Base Metals 118.77 +5.33%
Copper 179.90 +3.66%
Agriculture 298.09 +5.16%

Economy
10-year US Treasury Yield 2.63% -26 basis points
10-year TIPS Spread 1.24% +19 basis points
TED Spread 1.02 -11 basis points
N. Amer. Investment Grade Credit Default Swap Index 198.50 -18.19%
Emerging Markets Credit Default Swap Index 751.78 -4.11%
Citi US Economic Surprise Index -23.20 -12.56%
Fed Fund Futures imply 90.0% chance of no change, 10.0% chance of 25 basis point cut on 4/29
Iraqi 2028 Govt Bonds 49.63 -1.62%
4-Wk MA of Jobless Claims 654,800 +.6%
Average 30-year Mortgage Rate 4.98% -5 basis points
Weekly Mortgage Applications 876.90 +21.22%
Weekly Retail Sales -1.20%
Nationwide Gas $1.94/gallon +.02/gallon
US Heating Demand Next 7 Days 17.0% below normal
ECRI Weekly Leading Economic Index 105.80 +.57%
US Dollar Index 83.84 -4.10%
Baltic Dry Index 1,782 -16.02%
CRB Index 226.08 +7.11%

Best Performing Style
Small-cap Value +2.43%

Worst Performing Style
Small-cap Growth +1.15%

Leading Sectors
Utilities +7.72%
Computer Hardware +7.17%
Oil Service +7.14%
Insurance +6.63%
Papers +6.61%

Lagging Sectors
Biotech -1.66%
Medical Equipment -1.91%
Construction -3.64%
Airlines -7.22%
REITs -10.51%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish at Session Lows, Weighed Down by REIT, Bank, Construction, Commodity and Alternative Energy Shares

Evening Review
Market Summary
Top 20 Biz Stories
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Futures
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Real-Time Stock Bid/Ask
After-hours Stock Quote
After-hours Stock Chart
In Play

Stocks Lower into Final Hour on Profit-taking, Rising Financial Sector Pessimism, More Shorting

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Medical longs and Retail longs. I added (IWM)/(QQQQ) hedges 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 above average. Investor anxiety is about average. Today’s overall market action is mildly bearish. The VIX is rising 7.65% and is very high at 47.02. The ISE Sentiment Index is below average at 117.0 and the total put/call is slightly above average at .90. Finally, the NYSE Arms has been running high most of the day, hitting 2.28 at its intraday peak, and is currently 1.43. The Euro Financial Sector Credit Default Swap Index is dropping .24% today to 173.25 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is plunging 12.31% to 198.50 basis points. This index is still below its Dec. 5^th record high of 285.99. The TED spread is falling 1.56% to 103 basis points. The TED spread is now down 360 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is up 2.82% at 63.75 basis points. The Libor-OIS spread is falling .11% to 100 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 8 basis points to 1.25%, which is down 139 basis points since July 7th. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .20%, which is up 1 basis point today. Weakness in Real Estate and Financial stocks has pressured the market again today. I expect these groups to stabilize early next week, which should lead to a stronger performance in equities by week’s end. Nikkei futures indicate a -75 open in Japan and DAX futures indicate a -35 open in Germany on Monday. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, rising financial sector pessimism and more shorting.