Tuesday Watch

Late-Night Headlines
Bloomberg:

- Greenlight Capital Inc., the hedge- fund firm run by David Einhorn, added to its holdings of Ford Motor Co.(F) debt in the first quarter and invested in EMC Corp., Harman International Industries Inc. and Pfizer Inc. The hedge fund bought Ford’s high-yield, high-risk bank loans at an average price of 37 cents on the dollar starting in the fourth quarter of 2008, according to a May 1 letter the New York-based Greenlight sent to investors. The debt rose to 45 cents on the dollar when the first quarter ended, said the letter, a copy of which was obtained by Bloomberg News. “It does not appear that Ford will need a government loan any time soon, if ever,” the letter said. Ford, the only U.S. automaker to forgo federal aid, “had the foresight to borrow money when the debt markets were accommodating,” the hedge fund said.

- The cost of protecting Asia-Pacific corporate and government bonds from default fell, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 20 basis points to 240 as of 8:33 am in Hong Kong, according to ICAP Plc. The Markit iTraxx Australia index was quoted 28 basis points lower at 265 as of 10:44 am in Sydney, according to Citigroup Inc. prices.

- The rally in US financial shares may continue in the near term as investors betting against banks close their bearish positions, Bank of America’s Mary Ann Bartels said. Financial stocks in the S&P 500 have jumped 86% since March 6^th, while the number of shares sold short for the group increased 61% to 3.47 billion between Feb. 27 and April 15, the date of the most recent data available from US exchanges. The rise in short interest that accompanied the stock rally shows the advance in banks, insurers and real-estate companies has been driven by fresh purchases, rather than forced buying from short sellers, who have to return the borrowed shares to exit their positions, Bartels wrote today. “Financials are still the locus of shorting activity,” wrote Bartels, who ranked second among analysts who study price charts in Institutional Investor magazine’s most recent survey. “Shorts should help provide a floor on prices in this volatile sector.”

- KB Home(KBH) Chief Executive Officer Jeffrey Mezger said home prices in Southern California have begun to stabilize, allowing his company’s newly built houses to compete with existing homes, including foreclosures. “If you go to Southern Cal, as an example, we’re seeing a floor on pricing,” Mezger said today in a conference call with analysts organized by J.P. Morgan Securities Inc. “We don’t see prices going down right now, which is a good thing, because then you can set a baseline.”

- U.S. Senator Tom Harkin, who sponsored legislation to make it easier for workers to join unions, said the proposal’s main provision may have to be dropped so that the rest of the measure can pass. There isn’t enough support for a provision called card- check that would allow workers to bypass an election and form a union when a majority of employees signs cards requesting one, Harkin said today in an interview. “Compromises are going to be made,” said Harkin, an Iowa Democrat. “It probably won’t be card-check because too many people are opposed to it now.”

- A group of Chrysler LLC’s secured lenders is seeking to block the bankrupt company’s plan to sell its business at auction this month, arguing that the U.S. government is violating federal law in order to preserve the automaker. The group, calling itself Chrysler’s non-TARP lenders, in reference to the Troubled Assets Relief Program, seeks to block the proposed sale to an alliance led by Fiat SpA, as well as a request by the U.S. automaker for approval of a $4.5 billion Treasury loan to finance the reorganization. The group said secured lenders who agreed to the Fiat deal, such as JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc., were conflicted because they had also accepted TARP funds. The process is “tainted” because it was dominated by the government, the lenders argued in papers filed today in U.S. Bankruptcy Court in Manhattan.

- Wells Fargo & Co.(WFC) led a rally in bank stocks today after billionaire Warren Buffett said he would be buying shares at these prices, overshadowing concern that the stress test is going to force companies to raise capital. The 24-member KBW Bank Index jumped 15 percent, the most in almost a month. Wells Fargo, the largest U.S. originator of home loans, was the biggest contributor, climbing 24 percent. Fifth Third Bancorp, Regions Financial Corp. and SunTrust Banks Inc. each jumped more than 25 percent.

- Toyota Motor Corp., having reduced North American output about half this year, will ease cuts in Camry and RAV4 sport-utility-vehicle production in anticipation of a market slump stabilizing. The automaker will boost the speed of a Camry assembly line in Georgetown, Kentucky, in early June, and schedule overtime at a plant building RAV4s in Woodstock, Ontario, from later this month, said Mike Goss, a company spokesman.

- MGM Mirage(MGM), the biggest casino owner on the Las Vegas Strip, reported a first-quarter profit from the sale of a casino. The shares extended gains after the company said occupancy recovered and convention cancellations slowed. Las Vegas occupancy recovered to 97 percent in April, allowing MGM and competitors to begin raising rates “slightly,” Murren said today on a conference call. That compared with occupancy in the “high 70s” in January when “we were giving rooms away,” he said.

Wall Street Journal:

- The U.S. is expected to direct about 10 of the 19 banks undergoing government stress tests to boost their capital, according to several people familiar with the matter, a move that officials hope will quell fears about the solvency of the financial sector. The exact number of banks affected remains under discussion. It could include Wells Fargo & Co., Bank of America, Citigroup Inc. and several regional banks. At one point, officials believed as many as 14 banks would need to raise more funds to create a stronger buffer against future losses, these people said, but that number has fallen in recent days.

- A massive natural-gas discovery here in northern Louisiana heralds a big shift in the nation's energy landscape. After an era of declining production, the U.S. is now swimming in natural gas. Even conservative estimates suggest the Louisiana discovery -- known as the Haynesville Shale, for the dense rock formation that contains the gas -- could hold some 200 trillion cubic feet of natural gas. That's the equivalent of 33 billion barrels of oil, or 18 years' worth of current U.S. oil production. Some industry executives think the field could be several times that size. "There's no dry hole here," says Joan Dunlap, vice president of Petrohawk Energy Corp., standing beside a drilling rig near a former Shreveport amusement park. Huge new fields also have been found in Texas, Arkansas and Pennsylvania. One industry-backed study estimates the U.S. has more than 2,200 trillion cubic feet of gas waiting to be pumped, enough to satisfy nearly 100 years of current U.S. natural-gas demand. The discoveries have spurred energy experts and policy makers to start looking to natural gas in their pursuit of a wide range of goals: easing the impact of energy-price spikes, reducing dependence on foreign oil, lowering "greenhouse gas" emissions and speeding the transition to renewable fuels.

- The Obama administration on Tuesday will step up efforts to increase the availability of ethanol at filling stations and to speed up subsidies to struggling biofuel producers. But the trade-off is that the administration is also expected to propose a rule that could make certain biofuels look less climate-friendly. At a news conference led by the heads of the Agriculture Department, Energy Department and Environmental Protection Agency, the administration is expected to announce the creation of an interagency group that will be charged with forging a plan to encourage the production of more automobiles that can run on high-level ethanol blends, and increase the availability of high-level ethanol blends at gasoline stations. President Barack Obama is also expected to direct the Agriculture Department to expedite the awarding of loan guarantees to support the development and construction of more biofuel refineries. But at the same time, the EPA is expected to propose measuring the greenhouse-gas emissions associated with biofuel production -- including emissions that result overseas when farmers world-wide respond to higher food prices by converting forest and grassland to cropland. The EPA decision could undercut the environmental rationale the ethanol industry has used to sustain support for its government subsidies.

- Encouraged by signs that a new influenza virus may pose fewer dangers than originally feared, health officials began ratcheting back some initial measures taken to halt its spread. The U.S. Centers for Disease Control and Prevention may scale back its current recommendation to close for up to 14 days any schools attended by, or in areas near, a child who tests positive for the new H1N1 virus as growing evidence suggests most cases of the disease are relatively mild.

- Amazon.com Inc.(AMZN) on Wednesday plans to unveil a new version of its Kindle e-book reader with a larger screen and other features designed to appeal to periodical and academic textbook publishers, according to people familiar with the matter. Beginning this fall, some students at Case Western Reserve University in Cleveland will be given large-screen Kindles with textbooks for chemistry, computer science and a freshman seminar already installed, said Lev Gonick, the school's chief information officer. The university plans to compare the experiences of students who get the Kindles and those who use traditional textbooks, he said. Amazon has worked out a deal with several textbook publishers to make their materials available for the device, Mr. Gonick added. The new device will also feature a more fully functional Web browser, he said. The Kindle's current model, which debuted in February, includes a Web browser that is classified as "experimental." Five other universities are involved in the Kindle project, according to people briefed on the matter. They are Pace, Princeton, Reed, Darden School at the University of Virginia, and Arizona State.

- Many small-business lenders are seeing signs of a thaw in the secondary market for loans backed by the Small Business Administration. That is spurring more lenders to originate new loans -- and more small companies to apply for them.

Washington Post:

- Murtha’s Nephew Got Defense Contracts. Millions in Work Came Without Competition. Murtech received $4 million in Pentagon work, all of it without competition, for a variety of warehousing and engineering services. With its long corridor of sparsely occupied offices and an unmanned reception area, Murtech's most striking feature is its owner -- Robert C. Murtha Jr., 49. He's the nephew of Rep. John P. Murtha, the Pennsylvania Democrat who has significant sway over the Defense Department's spending as chairman of the House Appropriations Committee's defense subcommittee. Robert Murtha said he is not at liberty to discuss in detail what his company does, but for four years it has subsisted on defense contracts, according to records and interviews.

MarketWatch.com:
- ‘Goldman Conspiracy:’ Bogle’s ‘pathological mutation?’ Machinations on Wall Street, in government give rise to 13-episode TV plot.

NY Times:

- The top arms control negotiator for the United States said on Monday that the government was willing to agree to count both nuclear warheads and their delivery vehicles when renegotiating the 1991 Strategic Arms Reduction Treaty, or Start — addressing one of Russia’s longstanding concerns. In an interview with the Russian news service Interfax, the negotiator, Assistant Secretary of State Rose Gottemoeller, also said the United States was open to a Russian proposal to use radar based in Azerbaijan or Southern Russia, rather than Eastern Europe, for the proposed missile defense system.

- SACRAMENTO — Is this what a bottom looks like? This city was among the first in the nation to fall victim to the real estate collapse. Now it seems to be in the earliest stages of a recovery, a hopeful sign for an economy mired in trouble and anxiety. Investors and first-time buyers, the traditional harbingers of a housing rebound, are out in force here, competing for bargain-price foreclosures. With sales up 45 percent from last year, the vast backlog of inventory has diminished. Even prices, which have plummeted to levels not seen since the beginning of the decade, show evidence of stabilizing. Similar indications of progress are visible in other hard-hit areas, including Las Vegas, parts of Florida and the Inland Empire in southeastern California. Sales in Las Vegas in March, for example, rose 35 percent from last year. This is what passes for wild-eyed optimism: a belief that things have finally stopped getting worse. “A period of price stagnation would boost a lot of spirits,” Mr. LePage said.

- India, Suddenly Starved for Investment.

The Detroit News:

- Creditors objecting to Chrysler LLC's efforts to speed the company's move through bankruptcy won a delay in a key hearing today, and a lawyer said some had received death threats. The major proposal on tap for today was winning approval of the company's plan to establish bidding procedures -- in an effort to quickly allow the "good" assets of Chrysler to be auctioned off so the company can quickly emerge from bankruptcy. A lawyer for the objecting creditors, Thomas Lauria, told Gonzales that some creditors had received death threats -- and those had been referred to the FBI and local police. Lauria wants court permission to keep the identities of some of those creditors secret. The biggest obstacle Chrysler faces to a quick exit from bankruptcy is the objections of secured creditors, who hold roughly 10 percent -- or $700 million of its $6.9 billion in first-lien debt. The Treasury Department convinced the four major banks holding 70 percent of Chrysler's secured debt to accept $2 billion in cash for the $6.9 billion.

Business Week:
- The 10 Most Promising New Drugs.

Google Mobile Blog:

- If your employer has provided you with a BlackBerry smartphone, you may be accustomed to its built-in email, calendar, and address book applications. The Google Apps Enterprise team has just announced that we will soon release Google Apps Connector for BlackBerry Enterprise Server, which enables you to use these familiar applications with Google Apps. Google Apps is our hosted solution for enterprise messaging and collaboration. It includes Gmail, Google Calendar, and more. Google Apps Connector for BlackBerry Enterprise Server connects your BlackBerry Enterprise Server directly to the Google cloud, and creates a seamless experience between Google Apps and the built-in BlackBerry smartphone applications for mail, calendar, and address book. The Google Enterprise blog has more details about the offering.

Newsday.com:

- Eight in 10 New Yorkers don't think Gov. David Paterson is doing a good job and they'd rather have disgraced Gov. Eliot Spitzer back. But at this point, Paterson says he doesn't much care. His 19 percent approval rating in a recent Marist College poll is a 7-point drop since March.

Morningstar:

- Citadel Investment Group hired two traders and a former head of equity sales at Bank of America Corp. (BAC), according to a person familiar with the situation. The new hires underscore the continued push by hedge funds to attract top talent from troubled Wall Street firms. Citadel, a Chicago hedge fund, recruited James Boyle, global head of equity- linked trading, and Brad Kurtzman, head of equity index trading. Brennan Warble, who served as head of equity sales for the Americas, also joined Citadel. Warble retired from Bank of America in March. With the financial crisis, many banks have seen the defection of employees to boutiques and private firms over the past year. On Thursday, Morgan Stanley (MS) Chief Executive John Mack said one hedge fund manager told him he could hire " anybody he wants" from the firm and Goldman Sachs Group Inc. (GS).

Forbes.com:

- 10 Cool Gadgets for New Moms.

Reuters:

- American International Group Inc is expected to post a first-quarter loss on Thursday, but the insurer's results will not trigger a new capital injection from the U.S. government, a source familiar with the matter said on Monday.

TimesOnline:

- The speed at which Chinese state-owned companies have been able to increase their capital spending — flying in the face of market signals — and the quality of those investments could create problems for the region, Eric Fishwick, chief economist at CLSA, said. This kind of countercyclical investment is nothing new, but its scale and scope in China may create problems, for capacity will increase in areas where market forces would normally force it to contract. “Building additional industrial capacity in the face of falling prices is value-destructive — and not just for Chinese businesses,” Mr Fishwick said. “China has the scale to generate profitdestructive deflationary pressures across Asia.” He added that the global downturn may force many companies to fail, but as long as politics — rather than economics — influences Beijing's decision to bankroll wild investment by state-owned enterprises, these failures will be outside China. Heavy industry in the rest of Asia is “acutely at risk,” Mr Fishwick said.

Livemint.com:

- India’s merchandise exports continued to contract in April this year for the seventh month in a row, possibly indicating the continued impact of the global slowdown on the country’s exporters. So-called quick estimates from the ministry of commerce and industry show that exports contracted to $11 billion (Rs54,670 crore) in April, down by 23.6% compared with a year ago. The updated figures will be released on 1 June. After growing by 30.9% in the first half of 2008-09, India’s exports entered the negative territory and plunged 33.3% in March this year, the worst in at least 14 years. In dollar terms, exports stood at $11.5 billion in March. India’s merchandise exports for the year ended March touched $168.7 billion, recording a 3.4% growth and falling short of the government’s revised target of $175 billion. Commerce secretary G.K. Pillai has said he expects a flat or modest contraction in merchandise exports growth in 2009-10.Exports has shown an absolute month-on-month decline since July last year till April this year—from $16.9 billion to $11 billion. Provisional data from the commerce and industry ministry shows that imports contracted, for the fourth successive month, to $15 billion in April, by 37.5% compared with a year ago on account of weak domestic demand and lower crude oil prices.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded (TREE) to Buy, target $13.

- Reiterated Buy on (Q), target $5.50.

- Reiterated Buy on (MYGN), target $42.

- Reiterated Buy on (RIMM), target $100. Verizon’s Buy One Get One free promotion has been extended beyond its planned end this past weekend due to the success of this promotion which is a positive for RIMM. Subsidies continue to go to smart phones & away from feature phones & supportive of our industry thesis that Smart Becomes Average as mainstream users now adopt smart phones vs. high end niche segment previously.

- Reiterated Sell on (N), target $9.

Oppenheimer:

- Rated (WFC) Outperform.

Night Trading
Asian Indices are -.25% to +1.75% on average.
S&P 500 futures -.32%.
NASDAQ 100 futures unch.

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Company/EPS Estimate
- (ADP)/.80

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- (PER)/.24

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Economic Releases

10:00 am EST

- The ISM Non-Manufacturing Index for April is estimated to rise to 42.2 versus 40.8 in March.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Hoenig speaking, Fed’s Lacker speaking, weekly retail sales reports, (ZMH) shareholders meeting, (RIMM) Capital Markets Day, (SEE) analyst meeting, (AFL) shareholders meeting, (SHLD) shareholders meeting and the (MOT) shareholders meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and industrial stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Sharply Higher, Boosted by Transportation, Financial, Gaming, REIT, Homebuilding, Commodity and Alt Energy Shares

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In Play

Stocks Soaring into Final Hour on Easing Economic Fear, Technical Buying, Short-Covering, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Financial longs, Retail longs, Medical longs and Technology longs. I covered all my (IWM)/(QQQQ) hedges this morning, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is above average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling .76% and is very high at 35.08. The ISE Sentiment Index is slightly above average at 164.0 and the total put/call is slightly below average at .75. Finally, the NYSE Arms has been running very low most of the day, hitting .29 at its intraday trough, and is currently .40. The Euro Financial Sector Credit Default Swap Index is rising .92% today to 146.0 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 falling 2.88% to 159.90 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 4.11% to 83 basis points. The TED spread is now down 380 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.18% to 58.50 basis points. The Libor-OIS spread is falling .06% to 79 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 3 basis points to 1.43%, which is down 121 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 .18%, which is up 3 basis points today. The heavily-shorted (XLF) is soaring 7.2% today ahead of the bank stress test results later in the week. The Transportation Index is jumping 6.1% and looks headed to its 200-day moving average in short order. The S&P 500 is breaking through the 875-880 level of technical resistance. Many large funds that are short or underexposed to US stocks had pointed to this level as an area that would prove daunting to penetrate. I suspect this will result in further short-covering and vanilla buying later this week as portfolio managers scramble with the S&P 500 heading into positive territory for the year. One of my longs, (DISCA), is surging 9% today after its earnings report, to a 10-month high. I still think the shares have significant upside from current levels over the intermediate-term. Nikkei futures indicate an +333 open in Japan and DAX futures indicate an +1 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic fear, short-covering, easing financial sector pessimism, technical buying, investment manager performance anxiety and diminishing credit market angst.

Today's Headlines

Bloomberg:

- Short sellers, the bane of Wall Street executives last year, are back. The number of Citigroup Inc.(C) shares borrowed and sold short increased sixfold since Feb. 27, the day the U.S. Treasury announced it would convert some of its preferred shares in the New York-based bank into common stock. Short interest in Bank of America Corp., MetLife Inc. and American Express Co. climbed more than 40 percent in the same period, according to data compiled by Bloomberg. In total, short sales of the 18 publicly traded financial companies undergoing government stress tests were twice as high on April 15 as they were at their peak last year in July, two months before Lehman Brothers Holdings Inc. collapsed. The increase in short selling occurred as the S&P 500 Financials Index posted its best two months since 1989, when Standard & Poor’s started keeping records. The 80-member index has surged 41 percent since Feb. 27. Short sellers were accused last year by Wall Street chief executive officers, including Lehman’s Richard S. Fuld and Morgan Stanley’s John J. Mack, of using abusive tactics to attack firms. Fuld, 63, told congressional investigators on Oct. 6, less than a month after Lehman filed the biggest bankruptcy in history, that short sellers played a role in a “storm of fear” that led to the demise of the 158-year-old firm. Mack, 64, helped persuade government officials in the days following Lehman’s collapse to suspend short selling, which he said was sending his New York-based firm’s shares into a free fall. The SEC will convene a meeting May 5 to discuss proposals for restricting short sales, including an outright ban when a stock’s price declines. Short interest rose after Feb. 27 for 14 of the 18 publicly traded companies under review by the Fed, according to Bloomberg data. Citigroup’s increase was the biggest at 509 percent, followed by New York-based insurer MetLife at 66 percent, American Express at 44 percent and Bank of America at 42 percent. The average increase for the 18 companies was 47 percent. It was 201 percent excluding Citigroup. The total short interest for the 18 firms as of April 15, the last date for which New York Stock Exchange data are available, was 2.1 billion shares, or 7.1 percent of those available for trading. That compares with 1.05 billion shares on July 15, or 4 percent of those available for trading. The number of shares sold short in Morgan Stanley totaled 52 million on April 15. While that’s down 12 percent since Feb. 27, it’s higher than the 45.3 million shares on Sept. 15, when Mack was lobbying lawmakers and regulators for a ban.

- Pending sales of U.S. existing homes in March posted their first back-to-back gain in almost a year and construction spending ended a six-month slide, spurring a rally in stocks and sell-off in Treasuries. The number of Americans signing contracts to buy previously owned homes jumped 3.2 percent after a 2 percent gain in February, the National Association of Realtors said today in Washington. Construction unexpectedly rose 0.3 percent as gains in commercial and government projects overshadowed a continued drop in homebuilding, Commerce Department data showed. Economists forecast the pending sales index would be unchanged, according to the median of 32 projections in a Bloomberg News survey. NAR’s affordability index, which tracks mortgage rates, home prices and incomes, surged in February to the highest level in 20 years of data.

- US investors should stick with stocks and ignore the axiom of “sell in May and go away,” according to David Bianco, UBS AG’s chief equity strategist. “Hold for further gains in May,” Bianco wrote in a recent report. Seasonal patterns are “a weak force” by comparison with the economy, which is showing “clear signs of improvement,” the report said. He repeated a year-end estimate of 1,100 for the S&P 500.

- Ever since the Standard & Poor’s 500 Index peaked in October 2007, six of eight strategies -- which are supposed to make money whether stocks rise or fall -- failed, according to back-testing data compiled by Bloomberg. As the bear market erased $11 trillion from the value of U.S. equities, buy and sell signals from those six technical indicators produced losses of as much as 49 percent, the data show. “Technical analysis on its own as a discipline does not work,” said Diane Garnick, the New York-based investment strategist at Invesco Ltd., which oversees $348 billion. Using it in isolation is “the fastest way to lose money,” she said. Of the eight strategies, stochastics, Bollinger bands, relative strength, commodity channels, parabolic systems and the Williams %R indicator generated buy and sell signals that resulted in losses between the S&P 500’s peak of 1,565.15 on Oct. 9, 2007, and its March 9 trough, the data show. They did worse as the index then rallied 30 percent through last week.

- The European Union cut its forecast for the euro-area economy to show a contraction twice as deep as it projected just three months ago, and said the region’s budget deficit will swell to more than double the EU limit. The economy of the 16 countries sharing the euro will shrink 4 percent in 2009 and 0.1 percent in 2010, the European Commission, the EU executive in Brussels, said today, revising a January estimate for a contraction of 1.9 percent this year. The region’s average budget deficit will swell to 6.5 percent of output next year, when unemployment will rise to 11.5 percent, the commission said. “We are no longer in free fall, but even if some positive signals appear, we don’t have the critical mass of data to say we are out of the woods,” EU Monetary Affairs Commissioner Joaquin Almunia told a news conference in Brussels. Euro-area inflation will slow to 0.4 percent this year before accelerating to 1.2 percent in 2010, the commission projected. That follows a report from the commission last week showing consumers expect prices to decline over the next 12 months, the first time the price-outlook gauge has been negative since at least 1990.

- General Motors Corp.(GM) may be more likely to end up in bankruptcy based on the Obama administration’s willingness to place Chrysler LLC into court protection to safeguard union health-care benefits. Chrysler filed for protection April 30 after the U.S. was unable to persuade secured lenders to swap $6.9 billion in claims for $2.25 billion in cash. A union retiree health-care trust was offered a 55 percent stake in Chrysler. “This confirms the fear, which right along has been that the Obama administration is more sensitive or beholden to the unions than the bondholders,” Fridson said. “It makes it clear that GM bondholders aren’t likely to be able to work out anything outside of bankruptcy.” GM bondholders proposed April 30 they get a 58 percent ownership stake in the Detroit-based automaker in exchange for their $27 billion in unsecured claims. Bondholders are objecting to GM’s proposal they get a 10 percent share of GM equity while a union health fund would get $10 billion in cash and as much as a 39 percent stake for $20 billion in unsecured claims.

- Remember the good old days of the late 1990s, when the stock market was buoyant and big technology companies like Microsoft Corp. and Cisco Systems Inc. led the way? Those days are here again -- at least for a while. There is a time near the end of recessions when the tech sector usually does very well. It is the half-lit-dawn period, when the stock market has started to recover, but the economy hasn’t yet. Statistics from Ned Davis Research Inc. covering the past five recessions show that information-technology stocks are usually the best performers during such times. And the pattern is holding true again this year.

- Citigroup Inc.(C), girding for results of the Federal Reserve’s bank stress test, may try to wring capital from private investors instead of U.S. bailout funds as a way of bolstering equity without ceding control to the government, people briefed on the matter said. Regulators have indicated to the New York-based bank, which got a $52 billion rescue last year, that another taxpayer-funded cash infusion won’t be required, according to one of the people, who asked not to be identified because the talks aren’t public. Discussions now center on how much of the government’s preferred shares in the firm must be converted into common stock, the person said. Under a plan set in February, the government would convert as much as $25 billion of its stake, for a 36 percent voting interest. Getting money from private backers may help Citigroup dissuade the Treasury Department from converting all or part of its remaining $27 billion investment -- a step that may increase the government’s ownership to more than 50 percent and nationalize what was once the biggest U.S. bank. One likely solution for the company would be to convert $10 billion of privately held securities that could easily be added to the pending exchange, said Kevin Starke, who analyzes bank capital structures for hedge-fund clients of CRT Capital Group LLC.

Wall Street Journal:

- The Federal Reserve Bank of New York shaped Washington's response to the financial crisis late last year, which buoyed Goldman Sachs Group(GS) Inc. and other Wall Street firms. Goldman received speedy approval to become a bank holding company in September and a $10 billion capital injection soon after. During that time, the New York Fed's chairman, Stephen Friedman, sat on Goldman's board and had a large holding in Goldman stock, which because of Goldman's new status as a bank holding company was a violation of Federal Reserve policy. The New York Fed asked for a waiver, which, after about 2½ months, the Fed granted. While it was weighing the request, Mr. Friedman bought 37,300 more Goldman shares in December. They've since risen $1.7 million in value. Mr. Friedman also was overseeing the search for a new president of the New York Fed, an officer who has a critical role in setting monetary policy at the Federal Reserve. The choice was a former Goldman executive. Jerry Jordan, a former president of the Fed bank in Cleveland, says Mr. Friedman should have stepped down once Goldman became a bank holding company in September and thus fell under the Fed policy barring stock ownership by certain directors of Fed banks. "Any kind of financial transaction at all by any of the directors is always a problem," Mr. Jordan said. "He should have resigned." Goldman was one of nine big banks the Treasury aided with capital injections in early October. The prior month, the government decided, partly at the urging of New York Fed officials, to bail out insurer American International Group Inc. The initial $85 billion provided to AIG enabled it to pay a portion of $8.1 billion it owed to Goldman, stemming from past trading agreements. By the end of the year, Goldman had gotten all of the $8.1 billion as AIG received more government aid.

- The first exchange-traded fund whose managers pick its stocks is making its debut Monday. Unlike other ETFs, which mainly track indexes, the "actively managed" Grail American Beacon Large Cap Value ETF will be comprised of names that the ETF's managers choose based on research aimed at finding good, cheap stocks.

- The last time Amazon (AMZN) held a press conference in New York City was in February, when it introduced the Kindle 2.0. Now it is scheduling one for Wednesday morning at Pace University in lower Manhattan. Expect a new, large format device that’s optimized for reading newspapers and magazines.

- President Barack Obama Monday unveiled a far-reaching crackdown on offshore tax avoidance, targeting many U.S.-based multinational corporations and wealthy individuals. The sweep of the administration's plan took some tax experts by surprise, and foreshadows potential fights with big businesses later this year over some of their most cherished breaks, particularly as Congress looks for revenue to pay for new initiatives. Many of Mr. Obama's proposals will require congressional approval. And while Democrats control both houses of Congress, many members of his own party have expressed reluctance about raising taxes, so prospects for the proposals are uncertain, even though none would take effect until 2011. A senior Republican aide termed the proposals a "revenue grab," predicting they could end up driving more corporate operations overseas. "If rules are changed on tax deferral and we are taxed in the U.S. on non-U.S. profit, this significant additional U.S. tax cost would adversely impact our ability to invest and grow our business in the U.S....and to compete against our foreign competitors who are not subject to this U.S. tax," said John Earnhardt, a Cisco Systems Inc. spokesman.

- President Barack Obama, in seeking to strike a balance between being fair to workers and business during negotiations over Chrysler LLC, gave an early indication of how he might treat organized labor. The president, who won November's election in part due to labor's support, also has started to use the regulatory apparatus to address worker concerns. But his relationship with labor could grow more complex when debates peak over issues such as trade and overhauling labor law. Mr. Obama is "walking a fine line," said Gary Chaison, an industrial-relations professor at Clark University in Worcester, Mass. "He is clearly supportive of labor, but he's trying not to appear to be too supportive, because then Republicans will make the case that what he's doing is a payoff for labor bosses with taxpayer money." Addressing Chrysler's bankruptcy filing Thursday, Mr. Obama emphasized the sacrifices made by the United Auto Workers union and other stakeholders. Under the bankruptcy-reorganization agreement, which would culminate in Fiat SpA taking over Chrysler, workers will see cuts in pay and benefits, but the union's retiree health fund will end up with a 55% equity stake in the company to help pay for retiree benefits. Cerberus Capital Management LP, which struck a $7.4 billion deal to buy control of Chrysler two years ago, will lose all of its equity in the company.

- Regulators, academics and representatives from major companies will converge at the Securities and Exchange Commission Tuesday morning to discuss the agency's five proposed rules to limit short-selling.

- Unions already are the big winners of the Chrysler bankruptcy. But, Wall Street bankers warn that companies with large union work forces may end up being losers in the future. Many investment bankers, bankruptcy experts and investors are worried about the precedent being set by the government’s preferential treatment of Chrysler’s unions at the expense of Chrysler’s secured lenders, who are supposed to be the first to be paid off in bankruptcy proceedings and who typically get the best recovery. In the government-led plan for Chrysler, the UAW pension fund will end up owning 55% of the auto maker, while the secured lenders were forced to take just 29 cents on the dollar for the debt they hold. To financiers, that represents a troubling signal that union interests will supercede financial interests in future cases. ““You can imagine banks, hedge funds, are going to think twice about lending to a company with union exposure,” said a banker who helps companies raise money. “If you don’t know what the rules are going to be, the amount of debt that companies are going to be able to raise is going to drop for unionized companies and their cost of capital is going to get much higher as well.”

- Mobile advertising growth has slowed sharply over the past few months but is expected to reaccelerate next year, just as a growing number of cellphones built with Google Inc.'s (GOOG) Android software are expected to hit the market. U.S. advertisers are seen spending $229 million on mobile ads this year, up 26% from $169 million in 2008, according to a report by Brian Wieser, global director of forecasting for Magna. Magna predicted that mobile ad spending could nearly double by 2011, reaching $409 million. Chief Executive Eric Schmidt said last month he expected Android to have a "very, very strong year," adding that a number of wireless carriers and hardware makers will be making "significant" announcements by the end of the year.

CNBC:

- BlackRock Inc.(BLK) is maintaining its 1,000 estimate for the S&P 500 for this year, Bob Doll, vice chairman and chief investment of the financial company, said. The recovery will be “subpar,” Doll said, in part because the government hasn’t made an “exit plan” from its interventions in the economy.

MarketWatch:
- The New York Times Co.(NYT) has reached tentative agreement with a number of unions at The Boston Globe, and has agreed to hold off on a threat to shut the Globe down in two months, according to a published report Monday.

Mass. High Tech:

- American Science and Engineering Inc.(ASEI) reports it has landed $4.7 million from an unnamed law enforcement agency for its cargo screening vans. Under the contract, the Billerica-based company will deliver multiple Z Backscatter Vans to an unnamed law enforcement agency. AS&E said the vans will be used to scan vehicles at border crossings and other checkpoints to detect illegal drugs and other contraband. The Z Backscatter Van system comprises a mobile X-ray screening system built into standard commercial vans to allow for “drive-by” inspection. One or two operators can conduct X-ray imaging while the ZBV drives past suspicious vehicles and objects.

Politico:

- President Barack Obama’s ambitious first-year agenda has some House Democrats fearing a repeat of 1994, when the priorities of a new president collided headfirst with the prerogatives of senior leaders on Capitol Hill and the party lost control of both the House and the Senate. While few leaders would predict a similar collapse at this early stage in his presidency, those fears provided the backdrop for a leadership meeting Thursday in the speaker's Capitol conference room, people present said. In the run-up to the meeting, Democratic Congressional Campaign Committee Chairman Chris Van Hollen (D-Md.) argued in several newspaper interviews that the House should move cautiously on a cap-and-trade bill if it doesn’t look like the Senate will approve it. Van Hollen doesn’t want vulnerable House Democrats — especially the freshmen under his care — to be forced to take difficult votes on the measure if it’s not going to pass anyway. But Energy and Commerce Committee Chairman Henry Waxman, a 34-year veteran of the House who knocked off his longtime predecessor last fall to push an ambitious climate change bill, took umbrage with Van Hollen’s public stance during Thursday’s leadership meeting, people present said. Brandishing an issue of that day’s CQ in which Van Hollen laid out the merits of holding off, an agitated Waxman reminded his junior colleague that raising procedural concerns in public didn’t make it any easier for the Energy and Commerce Committee chairman to broker a compromise with the members of his committee — or help him pass an ambitious bill in the House.

The Detroit News:

- The all-electric car -- which had a brief heyday less than a decade ago before the car companies killed it -- is about to make a comeback. Charged up with lighter, more efficient batteries and competitively priced with gasoline-driven vehicles, the new offers will be marketed and sold primarily as second cars. These silent electric autos will be plugged into home outlets and will be able to travel 100 miles or more without stopping for a charge. Nissan said recently it has developed a mass-market electric car, due out by the end of next year, that will seat five and can have its battery charged to 80 percent of capacity in 26 minutes. It will have all the amenities buyers want, Nissan says, such as navigation, super stereo and heated seats, and will cost between $20,000 and $30,000. The company is not alone. Ford, Mitsubishi, Chrysler and Subaru, among others, are planning to introduce electric vehicles over the next year, according to the Electric Drive Transportation Association, a trade group. "The electric car is clearly on its way back," said Ron Cogan, editor and publisher of the magazine Green Car Journal, which covers the alternative-energy-auto industry. "Every automaker and battery company has been making incremental breakthroughs" in technology.

AP:

- A solid majority of Jewish Israelis worry that President Barack Obama's outreach to the Arab and Muslim world will come at their expense, a new poll showed Monday. Israelis also strongly back stopping Iran's nuclear program, even if Israel has to attack Iran without American approval, according to the survey. The poll found that 63 percent of those questioned believe Israel will suffer from Obama's declared intention to reconcile with the Muslim and Arab worlds.

Reuters:
- Iran will not suspend its disputed nuclear programme even if the United States imposes sanctions targeting companies that ship fuel to the Islamic Republic, a Foreign Ministry spokesman said on Monday. Twenty-five U.S. senators from both parties have proposed giving President Barack Obama new leverage in the dispute over Tehran's nuclear ambitions. The bill gives Obama the authority to sanction companies supplying petrol to Iran.

- Bank of America Corp(BAC) said on Monday it does not have plans to raise $10 billion in common equity, as the Financial Times had reported.

- Research In Motion (RIMM) is planning a next-generation version of its touchscreen BlackBerry Storm smartphone as part of a continuing push into the retail market, its co-CEO said on Monday. "We see this very large and untapped consumer market," Jim Balsillie said during a presentation to analysts and investors, adding that more than half of RIM's 25 million subscribers now fall into the non-corporate category. Asked about whether the Storm -- which debuted to mixed media reviews last year -- has been a hit, Balsillie said "that product was a huge success in terms of sales and adoption."

- A wave of hedge funds are being launched this year by traders as the financial crisis fuels a shakeout of talent from Wall Street banks and big investment firms, an industry executive said.

- Global manufacturing activity contracted at its slowest pace in seven months in April helped by signs of improvement across the euro zone and the Unites States, a survey showed on Monday. The global index, produced by JP Morgan with research and supply management organizations, rose to 41.8 in April from 37.3 in March, its highest in seven months. The rise in the PMI was helped by the biggest month-on-month gains in the survey's 12-year history in the output, new orders, new export orders and employment indices.

Financial Times:
- The European Union’s attempt to regulate hedge funds will affect other classes of alternative investment such as real estate funds and investment trusts, lawyers studying the fine print of the new rules have warned.

The Globe and Mail:

- After months of upheaval, Alberta's energy companies are rolling out new project cost estimates low enough that the hard-hit province could see a spending revival worth billions of dollars. The dramatic retreat in oil sands development, forced by last year's oil price freefall, punished the Alberta economy and resulted in thousands of layoffs. Now, labor and material costs have been lowered enough that the prospect of new life in the oil sands has become a topic of discussion in a province that just a few months ago watched as more than $200-billion in oil sands projects were either shelved or outright cancelled. "Rather than needing $80- to $100-a-barrel [U.S.] to make projects work, all of a sudden you're looking at these and saying maybe they are economic in a $60 world, and fairly competitive globally," said UBS Securities analyst Andrew Potter.

Etemaad:
- Mohsen Rezai, a former commander of Iran’s Revolutionary Guards who’s running in presidential elections, said President Mahmoud Ahmadinejad is “adventurous” and leading the country to a precipice. Ahmadinejad’s rhetoric over the country’s nuclear program is putting Iran’s national interests at risk, Rezai, who is secretary of the Expediency Council, an advisory body to Supreme Leader Ayatollah Ali Khamenei, was cited as saying.

Bear Radar

Style Underperformer:
Large-cap Growth (+1.69%)

Sector Underperformers:
Education (-1.91%), Software (-.13%) and Utilities (+.01%)

Stocks Falling on Unusual Volume:
PHI, DV, THO, DTV, QDEL, CMTL, ADBE, HAE and CCC

Stocks With Unusual Put Option Activity:
1) ONNN 2) DTV 3) PTEN 4) CLWR 5) WY