Stocks Slightly Lower into Final Hour on Healthy Consolidation of Recent Gains

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Financial longs, Retail longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is above average. Investor anxiety is above average. Today’s overall market action is neutral. The VIX is falling .46% and is very high at 34.37. The ISE Sentiment Index is slightly above average at 165.0 and the total put/call is slightly below average at .71. Finally, the NYSE Arms has been running below average most of the day, hitting .34 at its intraday trough, and is currently .67. The Euro Financial Sector Credit Default Swap Index is falling 2.19% today to 142.23 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 2.01% to 156.69 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling another 3.35% to 80 basis points. The TED spread is now down 383 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is plunging 13.66% to 51.38 basis points. The Libor-OIS spread is falling 1.15% to 78 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 1 basis point to 1.44%, which is down 120 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 .19%, which is up 1 basis point today. Gauges of credit market angst continue to meaningfully improve. The 2-year swap spread is at the lowest level since early January and appears headed for a technical breakdown, which is a major positive. Weekly retail sales rose .5% this week, which was the fourth consecutive weekly gain. Weekly retail sales have averaged a +.6% gain over the last 4 weeks versus a -1.1% average decline the prior 4 weeks. Many market leading stocks are rising again today. As well, Gaming, Airline, HMO and Hospital stocks are surging 4%+ today. Goldman Sachs said, “US banks are attractive” this afternoon. The firm also raised its rating on (BAC) and (COF) credit to Outperform. The (XLF) is cutting losses. Overall, today’s broad market action appears like a healthy consolidation before another push higher. Nikkei futures indicate an +328 open in Japan and DAX futures indicate an +16 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, technical buying, investment manager performance anxiety and diminishing credit market angst.

Today's Headlines

Bloomberg:

- The London interbank offered rate that banks charge for three-month dollar loans fell below 1 percent for the first time as credit markets showed signs of thawing. Libor declined two basis points to 0.99 percent today, according to the British Bankers’ Association. The previous all- time low was 1 percent, reached in June 2003. The Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed today to the lowest level since Sept. 1. “Confidence is returning to the market, so I would say so far so good,” said Brian Delany, a money-market trader on the dollar desk at Bank of Ireland Plc in Dublin. “There has been a decrease in credit concerns about banks due to better-than-expected first-quarter results,” Piyush Goyal, a fixed-income strategist at Barclays Capital Inc. in New York, wrote today in a note to clients “All this bodes well for Libor and it will likely drift lower.” Accelerated declines in interbank rates led JPMorgan Chase & Co. to lower its forecasts last week. The three-month Libor will drop to 0.75 percent by mid-year and the Libor-OIS spread will narrow to 50 basis points, down from previous expectations of 1 percent and 75 basis points, respectively, the bank said. “We are seeing signs of sustainable improvement,” said Thomas Herrmann, a global economist at Credit Suisse Group AG in Zurich. “We will not see a strong boom, but we have averted a more severe outcome, such as a depression-like scenario.”

- U.S. service industries contracted less than forecast in April as home purchases and retail sales rose, another signal that the economic slump is abating. The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 43.7 from 40.8 the prior month, according to the Tempe, Arizona-based group. The economy has “moved beyond the worst period of decline,” David Resler, chief economist at Nomura Securities International Inc. in New York, said in an interview with Bloomberg Television. “Businesses are starting to see an improvement in order flows. It’s changing and improving the outlook.” The ISM non-manufacturing industries index of employment rose to 37 from 32.3 the prior month, and its gauge of new orders climbed to 47, the highest level since September, from 38.8 in March. A measure of prices paid increased to 40 from 39.1. The measure of new export orders jumped to 48.5 from 39.

- So Michele Bachmann’s version of history is “from another planet.” Bobby Jindal, the Republican governor of Louisiana, is “chronically stupid.” And Eric Cantor of Virginia, the second-ranking Republican in the House, is “busy lying constantly.” That at least is according to posts on three left-leaning blogs. Writers who are not pro-Barack Obama are suffering character assassination as well. George Will of the Washington Post, the nation’s senior conservative columnist, has been so assaulted by bloggers that his editor, Fred Hiatt, recently wrote, “I would think folks would be eager to engage in the debate, given how sure they are of their case, rather than trying to shut him down.” The disconcerting thing isn’t that the bloggers or their guests did this slamming. We’re used to such vitriol in campaign time. What is surprising is that the attacks are continuing after an election. In the past, politicians and policy thinkers tended to be magnanimous in victory. They and their friends focused, post- victory, on policy and strategy -- not on trashing individuals.

- Regulating hedge funds is one thing. Shackling them is another. It’s difficult to tell which one is the ultimate objective of authorities in the U.S. and Europe as they push for greater oversight of these alternative investment managers. There are reasons to worry officials will opt for whips and chains.

- Confidence among US CEOs climbed in April to the highest level in three years as more company leaders believed the recession will ease, a private survey found. The Business Council’s confidence gauge jumped to 50.0, the highest level since early 2006, from 25.9 in a survey taken in January, a report from the group showed.

- General Electric Co., Harley-Davidson Inc., Volkswagen AG and Honda Motor Co. lead companies selling about $10.9 billion in debt for the third round of the Federal Reserve’s program aimed at jump-starting lending. Mitsubishi Motors Corp. sold $209 million of bonds backed by automobile debt eligible for the Fed’s Term Asset-Backed Securities Loan Facility, according to a person familiar with the transaction. Bank of America Corp. is underwriting the sale, the person said.

- Oil traders who have been keeping as much as 100 million barrels of crude on tankers to profit from forward prices are likely to start selling the cargoes as the incentive to store wanes, consultant JBC Energy said today. “Oil should soon start to return to the market as contango structures appear to be narrowing, especially in the U.S.,” Vienna-based JBC said in an e-mailed research note today. JBC estimates that as of end-April, 40 million barrels were being stored in the U.S. Gulf Coast while as many as 24 million barrels were anchored off the U.K. and West Africa. Traders are storing 100 million barrels of oil at sea, enough to supply Europe for five days, Frontline Ltd., the world’s largest supertanker operator, said April 23.

- Crude oil fell from a five-month high on speculation a government report will show that U.S. supplies climbed to the highest level in 18 years. An Energy Department report tomorrow will probably show that crude-oil inventories increased 2.5 million barrels last week, according to a Bloomberg News survey. “The market keeps rising on a rather shaky foundation,” said Bill O’Grady, chief markets strategist at Confluence Investment Management in St. Louis. “You are still sitting on a lot of inventory.”

- U.S. regulators filed their first insider-trading case focusing on credit-default swaps, suing a Deutsche Bank AG salesman who allegedly tipped a hedge-fund portfolio manager to a bond sale in 2006. Jon-Paul Rorech, 36, a bond and credit-default swap salesman at Deutsche Bank Securities, passed information on the pending sale to former Millennium Partners LP money manager Renato Negrin, 45, who then bought swaps to reap a $1.2 million profit when the deal was announced, the Securities and Exchange Commission said in a statement today.

- China is at risk of a stock market “bubble” that may burst as investor confidence in the nation’s economic recovery weakens and bank lending slows, according to China Galaxy Securities Co., the nation’s largest brokerage. The gains have driven valuations on the index to 27.2 times earnings, the highest in a year and Asia’s third most expensive. These levels are “signs of a bubble,” Galaxy Securities strategists led by Teng Tai wrote in a report. “China’s economy has bottomed but the recovery may be weaker than forecast,” the analysts said today. “Bank lending will have to slow down. This will cap the growth in money supply and affect the supply of funds for the stock market.” New loans dwindled to 400 billion yuan last month, Caijing magazine reported yesterday. Earnings have yet to recover. Net income at the 1,624 companies listed on the Shanghai and Shenzhen stock exchanges fell 26 percent in the first quarter from a year earlier, the Shanghai Securities News reported May 4.

- The US dollar rose against the euro for the first time in three days as Federal Reserve Chairman Ben S. Bernanke said the U.S. economic contraction may be easing and a report showed services industries shrank at a slower pace. “Bernanke sounded positive on housing,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto.

- House Energy and Commerce Committee Chairman Henry Waxman said panel members have agreed to go forward with legislation to give consumers incentives to trade in old cars for newer, more efficient models.

Wall Street Journal:

- The ranking Republican on the Senate Banking Committee called it "deeply disturbing" that Stephen Friedman, who is chairman of the Federal Reserve Bank of New York and a director of Goldman Sachs Group Inc.(GS), bought Goldman shares in December and January. Sen. Richard Shelby (R., Ala.) said the purchases heightened his intention to increase oversight of the Fed's 12 regional banks. Mr. Friedman was placed in an unusual position in September, when Goldman was allowed by the Fed to become a regulated bank-holding holding company to help halt its market slide. That put Mr. Friedman in violation of Fed rules that bar regional Fed bank board chairmen -- who are chosen to represent the public -- from owning bank shares or serving as directors or officers of banks. At the request of the New York Fed, the Fed in Washington granted him a waiver from the rule in January. He said last week he would step down from the New York Fed board at the end of this year. In December, before the waiver was granted, and again in January, after it was granted, Mr. Friedman bought additional Goldman shares.

- Siemens AG plans to announce today that it will open a $50 million facility in Hutchinson, Kan., to make wind-turbine parts for the North American market. Siemens, the No. 3 turbine producer in North America with a 9% market share of installed megawatts, plans to break ground on the facilities this summer and expects to have 400 workers producing the wind-turbine drive trains, known as nacelles, at the 300,000 square foot facility by the end of 2010.

- Mobile gamers, the jig is up–now we know what you were really up to during that conference call. In a survey of 1,100 AT&T wireless customers, 57% said that they play games on their mobile devices, and half those gamers admitted to playing during work hours. The reason? More than 50% of people who said they were games reported that they did it as “a distraction from life issues,” while 40% chalked it up to “relaxation and stress relief.”

- Bristol-Myers Squibb Co. (BMY) is looking to acquire either privately held biotechnology companies or those worth about $1 billion following initial public stock offerings, the drug maker's leader said Tuesday.

- The U.S. recession appears to be losing steam, with growth likely to resume later this year on the back of firmer household spending, a bottoming housing market and an end to inventory liquidation, U.S. Federal Reserve Chairman Ben Bernanke said Tuesday.

CNBC:

- A bank in Texas is bulldozing four brand new homes and twelve nearly finished homes in Victorville city, California, about 85 miles northeast of Los Angeles. Guaranty Bank of Austin acquired the homes in foreclosure and is destroying them, reportedly, to provide a "safe environment" for the neighbors.

- Wilbur Ross, chairman & CEO WL Ross & Co., says President Obama's proposed tax changes that target U.S.-based global companies, will be a huge mistake, as they will hurt U.S. corporations dependent on overseas growth and sales.

NY Times:

- I CAN imagine the Treasury secretary’s face turning pale as he is told by the attorney general that one of the financial institutions on government life support has been indicted by a grand jury. Worse, I can imagine the attorney general facing not too subtle pressure from the president’s economic team to go easy on such companies.

MarketWatch:
- Securities and Exchange Commission officials, corporations and private investors on Tuesday debated five different agency proposals introduced last month for reinstating the uptick rule, a provision that would limit short selling.

Clusterstock:

- Hedge Funds Outraged At Obama Bullying But Also Cowering In Fear. I run an approximately twenty billion dollar money management firm that offers hedge funds as well as public mutual funds and unhedged traditional investments. My company is not involved in the Chrysler situation, but I am still aghast at the President's comments. Furthermore, for some reason I was not born with the common sense to keep it to myself, though my title should more accurately be called "Not Afraid Enough" as I am indeed fearful writing this...

Reuters:
- U.S. economic recovery is likely not "too far off" given aggressive policy actions, but the initial stages of the turnaround will likely be slow and credit strains persist, a top Federal Reserve policy-maker said on Tuesday.

- A Spanish judge moved closer on Tuesday to investigating former Bush administration officials over torture at Guantanamo Bay, raising the possibility that two Spanish probes could focus on activities at the U.S. base. In a ruling, Judge Eloy Velasco asked U.S. authorities to confirm if an investigation already exists in the United States into accusations of complicity with torture against six men including former U.S. Attorney General Alberto Gonzales.

- U.S. regulators are working with the top 19 banks on Tuesday to put the final touches on the results of regulatory stress tests, which are expected to reveal about half the banks need more capital but face manageable losses. The results -- due to be unveiled on Thursday -- will likely show that the largest U.S. banks do not need dramatic new government interventions, which could further drive the recovery of banks' stock prices and signal an exit strategy for the government's intimate involvement in the sector. Federal Reserve Chairman Ben Bernanke told lawmakers on Tuesday that those banks needing to raise more capital can do so through the private sector.

- A Chrysler lenders group objected on Tuesday to the automaker's plans for a quick sale of most of its assets in U.S. Bankruptcy Court, saying it is structured to achieve political goals, rather than economic ones. Chrysler, which filed for bankruptcy in Manhattan on Thursday, has asked for court permission for a quick sale of most of its assets to a new company held initially by Italy's Fiat SpA, a United Auto Workers union-aligned healthcare trust and the U.S. and Canadian governments.

- Automatic Data Processing Inc (ADP), the world's largest payroll processing company, expects new business sales to improve next fiscal year, its chief financial officer said on Tuesday, as the global economy recovers from the worst recession in decades.

Telegraph:

- Rising reserves of unused oil put strain on storage. Record inventories of crude oil are building up around the world threatening to swamp storage space and belying optimism in the markets about an imminent economic recovery. Goldman Sachs estimated last week that global storage capacity could be exhausted by June. Government figures in the US, the world's biggest oil consumer, put reserves at 375m barrels, rising by 4m barrels in one week in April alone. One estimate said that in addition 100m barrels were currently being stored in tankers at sea across the world – some of these are visible in Lyme Bay off the coast of Dorset and Devon. An average of analysts' predictions reckons on a reduction in demand of 1.5m barrels a day for 2009 over last year, while the International Energy Agency is predicting a fall of 2.5m barrels, but an estimate based purely on current economic growth figures would put the overall decline at 3m. He said it was a similar story in other commodities, with companies building up inventories while prices were cheap. "I can't see demand picking up for the rest of this year," he said. "Even if it picks up next year it is going to be from a very weak base." Goldman Sachs set a price target 10pc lower than at present, at about $45, for July, while Peter Voser, chief financial officer for Royal Dutch Shell, told reporters last week that it was "difficult to see an uptick in the oil or gas price" in the next 12 to 18 months.

Folha de S. Paulo:

- Brazil auto sales fell 9.5% in April from a year earlier. Registrations of passenger cars and light commercial vehicles declined to 224,411 units, 14% fewer than in March.

Yonhap News:

- North Korea runs a cyber warfare unit to gather information from US and South Korean military networks, citing an official at South Korea’s intelligence agency. More than 100 people work at the unit, which also spreads viruses to disrupt US and South Korean networks.

China Daily:

- China's power generation is likely to have fallen by 4 percent year-on-year in April, signaling that a recovery in the economy was still some way off, said industry insiders. The country's power generation might have decreased year-on-year last month, and the downward rate might have been larger than that seen in March, said Xue Jing, director of the statistics and information department under the China Electricity Council (CEC). China's power generation, an important barometer of the economy, is still "fluctuating at the bottom level", Xue said. According to sources with State Grid Corp of China (SGCC), the country's main power transmission company, China's power generation in terms of the daily average dropped by 3.9 percent from April 11 to 20, when compared with the same period last year. This was larger than the 3.5 percent drop seen from April 1 to 10, said the sources. "Figures for the last 10 days of April are not optimistic, as there has been no big recovery in industrial power consumption, which accounts for a large part of the total power usage," said a source with SGCC yesterday. From April 11 to 20, power generation in China's eastern coastal regions fell. Power generation in Guangdong fell by 18.5 percent compared with the same period last year; that in Guangxi was down by 25.3 percent, and in Jiangsu, it fell by 10.2 percent. Since October last year China has seen negative growth in power generation.

Haaretz.com:
- As Prime Minister Benjamin Netanyahu's visit to Washington May 17 approaches, the United States is sending strong messages on the establishment of a Palestinian state and Israeli settlement activity. Gen. James Jones, national security adviser to President Barack Obama, told a European foreign minister a week ago that unlike the Bush administration, Obama will be "forceful" with Israel. Meanwhile, White House Chief of Staff Rahm Emanuel told an AIPAC conference last night that two states for two peoples is the only solution the United States is committed to.

Bear Radar

Style Underperformer:
Small-cap Value (-1.29%)

Sector Underperformers:
Oil Tankers (-6.39%), Homebuilders (-3.57%) and REITs (-2.95%)

Stocks Falling on Unusual Volume:
CHK, CBEY, TSL, TSM, HOLX, MYGN, CGNX, EXBD, HAIN, MANT, CMTL, HEP, FMC, LM, TYN, FRO and AVP

Stocks With Unusual Put Option Activity:
1) FST 2) ELN 3) VMC 4) MYGN 5) LVS

Bull Radar

Style Outperformer:
Mid-cap Value (-.37%)

Sector Outperformers:
Gaming (+6.22%), Airlines (+4.17%) and HMOs (+4.05%)

Stocks Rising on Unusual Volume:
LVS, WYNN, HNT, TXRH, AIZ, SA, SSRI, BJRI, BBG, WFR, CRK, TDS, TKLC, IPCM, PEGA, ISLE, IPHS, BEAV, GTLS, CTSH, AAWW, NILE, ARST, WPPGY, CAVM, PTRY, SIRO, ADVS, ASCA, ADP, SFD, MVL, HLF, HLS and TAP

Stocks With Unusual Call Option Activity:
1) Q 2) ICE 3) LM 4) GERN 5) HOLX

Links of Interest

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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.

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/EPS Estimate
- (ADP)/.80

- (AVP)/.32

- (CEG)/.61

- (DBD)/.17

- (PER)/.24

- (CVS)/.54

- (JOE)/-.03

- (FCL)/.00

- (WY)/-.79

- (DNR)/.19

- (EMR)/.53

- (HEW)/.56

- (MVL)/.37

- (ADM)/.49

- (ICE)/.97

- (DUK)/.31

- (LM)/-2.33

- (WBMD)/.14

- (CEPH)/1.27

- (CTX)/`1.32

- (PHM)/-.55

- (PBI)/.64

- (DIS)/.40

- (ERTS)/-.42

- (LVS)/-.02

- (JCOM)/.44

- (WYNN)/.02

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.