BETWEEN THE HEDGES

Weekend Headlines
Bloomberg:

- Treasury Secretary Timothy Geithner said the Obama administration will “keep acting as forcefully as we can” to pull the nation out of a recession. In an interview today on the CBS “Face the Nation” program, Geithner said the administration will focus on putting the existing $787 billion stimulus program into place. He declined to say whether additional stimulus will be sought.

- Europe will have the most trouble recovering from the worldwide financial crisis because policy makers aren’t doing enough to stimulate a recovery, said Jim O’Neill, head of global economic research at Goldman Sachs(GS). “Unfortunately Europe will be last, because it doesn’t have its own engine of growth,” O’Neill said in an interview at a conference in Cernobbio, Italy today. “There’s no reason why Europe should be as vulnerable as it is.” The European Central Bank is lagging behind counterparts such as the U.S. Federal Reserve, the Bank of England and the Bank of Japan, which have cut their key rates to almost zero and are pumping money into their economies by buying government and corporate securities. “We’re going to stay in recession for another couple of quarters but I’m starting to see evidence that later this year, particularly in the U.S. and China, things will get better,” O’Neill said. ECB President Jean-Claude Trichet said yesterday the Frankfurt-based bank won’t decide on new “non-standard measures” before its next policy meeting in May. The economy of the 16 nations that share the euro is slipping deeper into recession as the global slowdown curbs export demand and companies cut jobs. The Organization for Economic Cooperation and Development predicts the euro-zone’s economy will contract as much as 4.1 percent this year.

- MGM Mirage(MGM) has hired investment bank Morgan Stanley to evaluate bids for regional casinos in Michigan and Mississippi, a person close to the gaming company said. Potential buyers have expressed interest in combinations of the assets, said the person, who declined to be named yesterday because the discussions are private. Las Vegas-based MGM Mirage owns the MGM Grand Detroit, the Beau Rivage in Biloxi and the Gold Strike in Tunica.

- AT&T Inc.(T) and its largest union failed to agree on new labor contracts for workers in the fixed- line business. Negotiations are ongoing and work stoppages haven’t occurred, the biggest U.S. phone company and the union said. The contracts with Communications Workers of America members expired before midnight local time for the Eastern, Midwest, Southwest and West regions, AT&T spokesman Walt Sharp said in e-mailed statements. Workers are continuing to report for work and keeping their option to strike open, the union said in a statement.

- Australian Treasurer Wayne Swan comments on the economy, saying a period of negative growth in the nation is inevitable due to the worsening global downturn. “The worsening global recession and dramatic downgrades in global growth unfortunately make it inevitable that Australia will experience a period of negative growth,” he said.

- Treasury Secretary Timothy Geithner said he’s prepared to oust the senior management and boards of directors at banks that require “exceptional” assistance from the U.S. government. “If in the future, banks need exceptional assistance in order to get through this, then we will make sure that assistance comes,” while ensuring taxpayers are protected, Geithner said today in an interview on the CBS “Face the Nation” program. “Where that requires a change in management and the board, then we will do that.”

- HSBC Holdings Plc, Europe’s biggest bank, raised about $17.7 billion as investors bought 97 percent of the U.K.’s largest ever rights offer. HSBC sold the shares to existing investors for 254 pence each, 41 percent less than the close on April 3 in London. HSBC on March 2 said it would seek the money after its North American operation posted a 2007 pretax loss of $15.5 billion. The London-based bank is now “well-positioned for the uncertain economic environment and for growth opportunities,” HSBC said in an e-mailed statement today.

- The yen fell against the dollar and the euro to the weakest since at least November as last week’s worldwide equities rally spurred speculation investors’ appetite for risk is increasing.

- The Markit iTraxx Australia index was quoted 5 basis points lower at 332.5 basis points as of 10:10 am in Sydney, ANZ Banking Group Ltd. data show.

Wall Street Journal:

- The United Nations Security Council held an emergency session on Sunday to debate a response to North Korea's launch of a rocket that fell short but clearly demonstrated an advance in the weapons program that the U.S. and others have tried for years to stop.

- Lehman Brothers’ Dick Fuld Has a New Gig. Late Friday an assistant to former Lehman Brothers Chairman and Chief Executive Officer Richard Fuld Jr. sent a blast email saying he has landed at Matrix Advisors, LLC, located at 780 Third Avenue in New York City.

- The Congressional Budget Office has quietly altered its estimate of the ultimate cost to taxpayers of the $700 billion Troubled Asset Relief Program, now figuring the initiative will be much more expensive in the long run than it previously figured. In January, the CBO pegged the ultimate cost to taxpayers of the $700 billion TARP at $189 billion. When the agency issued revised numbers in late March, it revised that to $356 billion, a change that drew little attention. The larger estimate reflects, among other things, the Treasury's move to use the TARP to help avoid foreclosures, as well as the changing details of its aid to American International Group Inc., and the deterioration of financial conditions and of banks in which the Treasury has invested TARP money. The CBO's new figures suggest its estimate of the ultimate cost to taxpayers of coming up with $750 billion for financial institutions would be closer to $375 billion than the administration's $250 billion projection.

- Top federal bank regulators plan to meet early this week to discuss how to analyze the results of stress tests being conducted on the country's 19 largest banks, people familiar with the matter said.

- President Barack Obama, in the face of a missile launch this weekend by North Korea, announced an ambitious U.S. arms-control campaign aimed at drastically reducing atomic weapons globally while still recognizing developing nations' rights to pursue nuclear power. Mr. Obama's strategy, unveiled Sunday in a speech to a Czech crowd of 20,000, commits the U.S. to take the lead in reducing its nuclear-weapons stockpile in a bid to gain Russian and Chinese support for curbing the mounting proliferation threats posed by North Korea and Iran.

MarketWatch.com:

- One way of looking at China's A-share market hitting a seven-month high is that stimulus economics works. The other is that local investors -- who make up 99% of the market -- have a misplaced faith in their government's ability to turn the economy around. All the talk of stimulus package recoveries is very reminiscent of Japan in the post-bubble 1990s. It seemed every year a new government package was announced. Back then, I remember, there were only so many times my colleagues from Japan could pitch that recovery story until they stopped coming or being asked back. A problem was that stimulus dollars were spent on unproductive projects with low returns, effectively crowding out the private sector -- and then Japan also eventually needed more taxes to pay for it. Perhaps the latest measures will be different? Traveling up the coast in Shenzhen, recently the new highways and modern tunnels were certainly impressive, although there were few vehicles using them. No doubt this investment well help to raise China's GDP number to that 8% goal, but projects like this will hardly replace the exodus of manufacturing jobs.

So far evidence of a recovery in China's economy is hard to find as it reels from the collapse in global trade. Last week the CSLA purchasing managers' index was down to 44.8 from 45.1 in March over February, suggesting a continued slowdown. We also had a lower-than-expected 3.8% rise in industrial production in the first two months of the year. On Friday China's own PMI Index showed a rebound in March but there is widespread skepticism on those seasonally adjusted numbers.

- Investors in emerging-markets mutual funds and exchange-traded funds may soon face a shakeup just as they're recovering from one of the roughest periods ever: major changes to the benchmark index that is gospel for many fund managers and ETFs.

- Jumbo mortgages became more expensive and harder to come by as the nation's credit crisis deepened. That might be starting to change. "Jumbo" refers to mortgages that are too large to be bought by Freddie Mac or Fannie Mae. The "conforming loan limit" for those government-backed entities is $417,000 in many parts of the country, but goes as high as $729,750 in high-cost areas of the continental United States.

- Natural-gas prices have had quite an unimpressive run in the last six months and the situation may get worse despite the steep declines in overall drilling and production.

- President Barack Obama won a victory on Thursday when Congress approved slightly pared down versions of his budget for 2010. But his supporters and his detractors alike must now gird themselves for a looming battle over climate change, one issue the budget didn't fully address. Obama wants to put in place an ambitious "cap-and-trade" program to reduce greenhouse gas emissions by 80% by 2050. But both the House and Senate this week rejected efforts that would have made it easier for Obama to push his climate agenda through Congress.

CNBC.com:
- The bear may finally be beaten. As investors digested this week's flurry of good news—or at least better-than-bad news—talk grew that the long slog through the debilitating bear market could be over. "The world is not going to zero," Nadav Baum, managing director of investments at BPU Investment Management in Pittsburgh, says of investor sentiment these days. "Things seem to be getting better. Deals are getting done and people have more swagger in their step. So maybe we are coming out of something." The markets kicked off the second quarter in the face of a series of positive developments that sent stocks soaring in Thursday trade.

- Bank of America(BAC) Is an ‘Absolute Steal’: Analyst. Actual bank losses are within a 2.5 to 3 percent band, while liquidity losses are from 25 to 30 percent says Richard Bove is financial strategist at Rochdale Securities.

NY Times:

- Mr. Summers, the former Treasury secretary and Harvard president who is now the chief economic adviser to President Obama, earned nearly $5.2 million in just the last of his two years at one of the world’s largest funds, according to financial records released Friday by the White House. Impressive as that might sound, it is all the more considering that Mr. Summers worked there just one day a week. While at Shaw, Mr. Summers also peered into the inner workings of the $2 trillion hedge fund industry, which the Obama administration is now relying on to buy billions of dollars of worrisome assets from the nation’s beleaguered banks. Some of his critics worry that such ties raise questions about whether the government’s ever-changing effort to bolster the financial industry will benefit Wall Street in general, and hedge funds in particular, at the expense of taxpayers. “This is what might be called contamination,” said Andrew Sabl, an associate professor of public policy at the University of California, Los Angeles. “Did Summers spend so much time with the hedge fund, or its investors, sovereign wealth funds and so on, that he started to think like them?” Mr. Summers joined the hedge fund world after his tempestuous, five-year term as the president of Harvard came to an unhappy end in February 2006, following a statement he made that women might lack an intrinsic aptitude for math and science. D.E. Shaw does not like to talk about what goes on inside its modish headquarters near Times Square. There, esoteric trading strategies are imagined, sketched on whiteboards and modeled on supercomputers by an elite corps of math wizards and scientists, most of them unknown to the outside world. Mr. Shaw is said to be worth $2.7 billion, and today his firm manages some $30 billion. Unlike most hedge funds, which lost money as the markets plunged in 2008, Shaw posted returns of about 7 percent in its so-called macroeconomic fund.

- Responding to the depressed financial markets, regulators for the second time in less than a week are preparing to take steps that could have the effect of temporarily shoring up stock prices. On Wednesday, the Securities and Exchange Commission plans to announce several proposals to permanently restrict traders from making bets that stock prices will decline when those prices are already dropping. Officials were working through the weekend to draft several possible rule changes, including a tougher variation of a former rule that prohibited short sales while a stock price was declining. That rule, known as the uptick rule, was put in place in 1938 in response to the market turbulence of the Great Depression. It was repealed two years ago. The uptick rule was more restrictive for short-sellers trading stocks listed on the New York Stock Exchange than those trading on Nasdaq. But one of the new proposals could change that and make it more onerous for short-sellers on all exchanges. The S.E.C. also plans to announce that it is considering a proposal by the major exchanges that would impose restrictions on short-selling only after a stock suffers a daily drop by a specified percentage. “It’s unsettling that Washington continues to focus its efforts on issues that have nothing to do with causing the crisis such as short-selling or stricter and more transparent accounting measures,” said James Chanos, president and founder of Kynikos Associates, a hedge fund company that specializes in short-selling. “If anything, both practices should be encouraged.”

- Federal law enforcement officials who raided the lobbyist Paul Magliocchetti’s PMA Group appear to be examining the firm’s relationship with Representative Peter J. Visclosky, a low-profile lawmaker with big influence over federal spending, people familiar with the matter said this week. One person with knowledge of the investigation into the PMA Group said prosecutors had asked specific questions about Mr. Visclosky and his staff. Two people close to Mr. Visclosky, an Indiana Democrat, said he was taking steps to prepare for legal scrutiny, including retaining lawyers to review his compliance with campaign finance laws.

- T-Mobile is planning an aggressive push deep into the home with a variety of communications devices that will use Google’s(GOOG) new Android operating software that already runs one of its cellphones. T-Mobile plans to sell a home phone early next year and soon after a tablet computer, both running Android, according to confidential documents obtained from one of the company’s partners. The phone will plug into a docking station and come with another device that handles data synchronization as it recharges the phone’s battery.

- Forget about thinking outside the box — or inside it, for that matter. Nissan Motor is betting an estimated $20 million during the worst automotive sales slump in a generation that a spirited campaign can get drivers to forgo the box for the cube.

- Last Monday, the world’s biggest record labels, including EMI, the Warner Music Group and Vivendi’s Universal Music, said they would seek to profit by working with Google(GOOG) and offering free downloads of music to anyone inside China.

- A Push Is On for Same-Sex Marriage Rights Across New England.

- NYC Co-op Fees Climb as Property Taxes Skyrocket.

- A suicide bomber blew himself up at the entrance to a crowded Shiite mosque just south of the capital on Sunday, killing at least 26 people. It was the third suicide attack in Pakistan in 24 hours, in a sign that the Pakistani Taliban are overwhelming the nation’s security forces.

- After weeks of negotiations, I.B.M.(IBM) withdrew its $7 billion bid for Sun Microsystems(JAVA) on Sunday, one day after Sun’s board balked at a slightly reduced offer, according to three people close to the talks.

- As Economy Is Down, Vitamin Sales Are Up.

Washington Post:
- The US government is changing the way it channels bailout funds to financial companies so they can avoid restrictions imposed by Congress, including limits on lavish executive pay. Officials of the Obama administration have concluded that this approach is import in getting firms to participate in programs financed by the $700 billion rescue package, citing government officials. The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to recipients. The government has set up special entities that funnel the bailout funds to the companies, thereby eliminating the requirement that the conditions be imposed, citing the officials. Although some experts are questioning the legality of this strategy, the officials said it gives them latitude to determine whether firms should be subject to the congressional restrictions, which would require recipients to turn over ownership stakes to the government, as well as curb executive pay. The administration has decided that the conditions should not apply in at least three of the five initiatives funded by the rescue package. Just two weeks ago, Congress erupted in outrage over bonuses being paid at American International Group, with some lawmakers faulting the administration for failing to do more to safeguard taxpayers' interests.

- Several dozen major defense programs will be restructured as the Obama administration shifts spending to counterinsurgency from war preparation. Gates's aides say his plan would boost spending for some programs and take large whacks at others, including some with powerful constituencies on Capitol Hill and among influential contractors, making his announcement more of an opening bid than a decisive end to weeks of sometimes acrimonious internal Pentagon debate.

Forbes.com:

- 10 Best Crossovers Of 2009.

Business Week:
- Housing: Signs of Life. Housing sales are picking up in some of the hardest-hit markets. Will confidence spread?

MercuryNews.com:

- The Mercury News Interview: Symantec(SYMC) CEO Enrique Salem.

Politico:

- President Barack Obama is learning the limits of personal diplomacy. Warmly greeted by European leaders and the public alike as a welcome relief from his predecessor, Obama’s appeal hasn’t enabled to him to bridge differences on key economic and military issues with American allies. Obama left the G-20 summit in London without securing any further commitment by individual countries to enact more stimulus spending. And Saturday he departs from NATO’s gathering in this French-German border town without a pledge by allies to send further combat troops to Afghanistan to bolster the American military surge there.

- American voters across lines of age, party and gender support a military approach to eliminate North Korea's nuclear capabilities, according to a Rasmussen Reports survey released Sunday morning — and conducted in the two days prior to North Korea's test missile launch on Saturday. The poll shows that 57 percent of all voters support such a response, while just 15 percent oppose it. A military response is favored by a majority in both parties — 66 percent of Republicans and 52 percent of Democrats — and by 57 percent of both men and women. A majority of respondents, 51 percent, also oppose the U.S. offering economic aid to North Korea in exchange for it agreeing to dismantle its nuclear program.

- For the first time in over 18 years, the media will be permitted to cover the returning war dead following the Pentagon's lifting of a photo ban in February. At 11 p.m. Sunday night, the remains of Staff Sgt. Phillip Myers -- who was recently killed in Afghanistan -- are expected to arrive at Dover Air Force Base in Delaware, the site where caskets first enter the United States from overseas fighting. Since the Persian Gulf War, photography has been prohibited at Dover, but President Obama asked Secretary Gates to review the ban since taking office. Myers is the first fallen soldier whose return will be covered by the press.

OregonLive.com:

- A Norwegian company considering Oregon for electric-car manufacturing may be eyeing the Portland plant that built Freightliners as a site to employ 900 workers. Think North America, whose parent company makes emission-free vehicles, confirmed today that it's considering Oregon and seven other states for a factory that would ultimately make 60,000 compact cars a year.

USA Today:

- Toyota has improved its Prius gasoline-electric hybrid hatchback by a striking amount. But until the Japanese car company announces pricing next month, it's tough to say whether the redesigned 2010 Prius is worthy. The new car is a little bigger outside, more powerful, more fuel efficient, more luxurious, more refined.

Baltimoresun.com:

- The power shift that ousted the Republicans and put Democrats in charge of Washington may be approaching a turning point. Evidence is still sketchy, but the trend that favored Democrats over the past five years may have run its course.

Reuters:

- Pakistani Taliban militant leader Baituallah Mehsud claimed on Saturday responsibility for an attack on a U.S. immigration centre in New York state in which 13 people were killed. "I accept responsibility. They were my men. I gave them orders in reaction to U.S. drone attacks," Mehsud told Reuters by telephone from an undisclosed location.

- Lawrence Summers, a top economic adviser to U.S. President Barack Obama, was paid about $5.2 million by hedge fund D.E. Shaw in the past year, financial disclosure forms released by the White House showed on Friday. Summers, a former U.S. Treasury secretary and Harvard University president, also was paid $2.7 million in speaking fees by a range of organizations and companies, including several troubled Wall Street financial firms, they showed. The disclosure documents on Summers and other White House officials advising Obama on the global financial crisis covered 2008 and the first few months of this year. Summers became an official adviser on Jan. 20 when Obama took office. Summers, who was a part-time managing director of D.E. Shaw after stepping down as Harvard president, had speaking fees of $67,500 from JP Morgan (JPM), $45,000 from Citigroup (C), $135,000 from Goldman Sachs (GS) and $67,500 from Lehman Brothers, which went bankrupt in the mortgage crisis last year. He also had significant income from Harvard University and from investments, the forms showed. As chairman of the Council of Economic Advisors, Summers is a leading voice in Obama's policies to reverse the recession in the United States, rebuild the financial industry and help to end the global crisis. The disclosure documents showed many of the senior advisers to the president earned large salaries from their companies, served in lucrative positions on corporate boards and had large holdings of stocks, bonds and mutual funds.

- U.S. banks that received billions of dollars of taxpayer money to bolster their capital could place bets on the same toxic assets that got them into trouble in the first place -- and with government support.

- Bankruptcy is not inevitable for General Motors Corp, said the automaker's new chief executive on Sunday, who is under White House orders to win more concessions from bondholders and unionized workers.

Financial Times:

- The Boston Globe could shut within 30 days unless union officials agree to $20m in savings, its owner, The New York Times, said last week, according to a report on the Globe’s website. The concessions would involve pay cuts, ending contributions by the company to employee pension plans and the elimination of lifetime job guarantees, according to the report citing officials from the Globe’s union, which represents more than 700 editorial and business employees.

Telegraph:

- Goldman(GS), which will report its first-quarter results on April 14, is expected to announce on the same day that it is to submit a formal application to repay the sum given to it as soon as it passes the formal “stress test” being conducted by government officials on all major US financial institutions. People close to the bank say that its management, led by chairman and chief executive Lloyd Blankfein, is assessing a range of options for repaying the money loaned to it as part of the US Treasury’s Troubled Asset Relief Programme (Tarp). These include orchestrating a new share sale or funding the repayment from existing capital resources, and it may still decide to pursue the latter route. Goldman, along with a number of its rivals, is understood to have enjoyed a spectacular first three months of the year in terms of its trading performance, according to insiders.

Nikkei:
- Japan’s government is considering subsidizing purchases of environmentally friendly cars. The government may offer $1,994 to buyers of hybrid or electric vehicles as well as gasoline- and diesel- engine cars that satisfy certain emission standards. The subsidy will be introduced before summer.

Xinhua:

- China's cement production expanded 10.3 percent year on year to 159 million tonnes in the first two months, amid the booming fixed-asset investment, data released by the Ministry of Industry and Information Technology (MIIT) have shown. Zhu Hongren, official with the MIIT said the building material sector was back on track after the stimulus plan showed effect. However, the excess production was still prominent, and efforts must be made to eliminate outdated capacity.

Asia Times:

- White House economic advisor Larry Summers, a former Treasury Secretary and President of Harvard University, had brief career as a part-time pitchman for a hedge fund. His activities may bear on his ability to serve the country with maximum effectiveness. According to sources who attended meetings with him, Summers traveled to Asia during July 2007 with a pitchbook recommending the AAA-rated tranches of collateralized debt obligations to Asian sovereign funds and financial institutions, in his capacity as a Managing Director of the hedge fund D.E. Shaw. In July 2007 the AAA-rated tranches of mortgage-backed securities backed by subprime collateral were trading at around 90 cents on the dollar. Now they are trading at less than 40 cents on the dollar. The AAA-rated tranches of CDO’s, of course, are the “toxic assets” that the US government now is proposing to buy from banks to unclog their balance sheets. D.E. Shaw, ranked fourth by size among hedge funds with about $30 billion in resources, owns an unspecified amount of such structured products. Late in 2008 it suspended some redemptions by investors seeking to cash out, and continues to “gate” redemptions. Although D.E. Shaw’s investments are proprietary, the perception of the investment community is that the firm is stuck with big positions in such “toxic assets” that it cannot sell. The overhang of hedge fund redemptions on the market artificially depresses the price of structured product, which in turn has forced massive writedowns on the part of banks.

EFE:

- Iranian oil company Petropars SA signed a new accord with Venezuela yesterday to produce oil in the south American country, citing Iranian Oil Minister Gholamhossein Nozari.

Qatar News Agency:

- Qatar approved a $26 billion budget, forecasting the first deficit this decades as spending cuts fail to compensate for a drop in oil prices. The budget assumes an average oil price of about $40 a barrel, down from $55 in the last budget.

Weekend Recommendations
Barron's:
- Made positive comments on (RIMM), (AAPL), (MVC), (PFBC) and (GLW).

Citigroup:

- Reiterated Buy on (GLW), target $16.

Night Trading
Asian indices are +1.0% to +2.25% on avg.
S&P 500 futures +.71%.
NASDAQ 100 futures +.66%.

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- (BLUD)/.22

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Other Potential Market Movers
- The Fed’s Warsh speaking, (NOVL) shareholders meeting and (UMH) investor forum 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 mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the week.

BETWEEN THE HEDGES

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