Stocks Mostly Higher into Final Hour on Bank Stress Test Results, Less Economic Fear, Short-Covering, Declining Credit Market Angst

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Financial longs, Semi longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is higher, 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 2.46% and is very high at 32.54. The ISE Sentiment Index is around average at 149.0 and the total put/call is slightly below average at .79. Finally, the NYSE Arms has been running around average most of the day, hitting .94 at its intraday peak, and is currently .75. The Euro Financial Sector Credit Default Swap Index is falling another 4.15% today to 136.33 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 dropping 3.15% to 151.75 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling another 1.30% 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 another 11.0% to 46.50 basis points. The Libor-OIS spread is falling 1.60% to 77 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 3 basis point to 1.47%, which is down 117 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 down 1 basis point today. The (XLF) is jumping another 5.4% today. The most heavily-shorted financials are seeing the largest gains on the stress test results. Gauges of credit market angst continue to meaningfully improve. The 2-year swap spread is breaking down to the lowest level since June 2007, which is a major positive. The US sovereign debt credit default swap is plunging 18.0% today to 41.0 basis points, which is also a big positive. Cisco Systems(CSCO) reports after the close today. Short interest is a near-record 75.1 million shares. The put/call open interest ratio for (CSCO) is .84, which is at the high-end of its 2-year range. While they may only meet or slightly miss 3Q revenue estimates, I wouldn’t be surprised to see a slightly more optimistic outlook from the company, which could help boost tech shares tomorrow. As well, economic data could slightly exceed estimates tomorrow. Nikkei futures indicate an +483 open in Japan and DAX futures indicate an +57 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on less economic fear, short-covering, technical buying, declining financial sector pessimism, investment manager performance anxiety and diminishing credit market angst.

Today's Headlines

Bloomberg:

- U.S. stocks advanced, recouping yesterday’s losses, as investors speculated that banks don’t need as much capital as had been projected and after employers cut fewer jobs than economists estimated. Citigroup Inc. surged 18 percent after a person familiar with the matter said the lender needs about $5 billion. Goldman Sachs Group Inc. and Morgan Stanley climbed at least 2.4 percent as people with knowledge of the situation said they don’t need more money following the government’s stress test. The market also advanced after ADP Employer Services said U.S. companies eliminated 491,000 positions last month, less than the 645,000 estimated in a Bloomberg survey of economists.

- You can call the plan to merge Chrysler and Fiat good for the economy. You can think it creative. You can say it’s the start of “a vibrant new company,” as Chrysler LLC Chairman Robert Nardelli did last week. But there’s one word that you can’t call the Chrysler bankruptcy package: legal. The plan would overturn basic rules of bankruptcy by setting up a sort-of sale to sidestep pesky legal requirements. It would bulldoze well-established rights of secured creditors, property rights the U.S. Constitution guarantees. So if U.S. Bankruptcy Judge Arthur Gonzalez follows the law, the Chrysler rescue plan dies. If he blinks and approves it, secured creditors everywhere should feel a shiver of unease, and quick sales of insolvent companies to avoid court scrutiny would multiply.

- The spread between the rate to exchange floating for fixed interest payments and Treasury yields for two years fell to the lowest level since the global credit market rout began as risk aversion eases. The 2-year swap spread narrowed to 46.85 basis points, the lowest since August 2007, when the collapse of the subprime mortgage market triggered the worst financial crisis in decades. The spread, which is based in part on expectations for the London interbank offered rate, or Libor, and a gauge of investor perceptions of credit risk, reached a record 167.25 basis points in October. “The plunge in the two-year swap spread is very good news for risk assets,” said Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut. “Swap spreads tend to lead the structure of other credit spreads over time. Forward Libor spreads are also collapsing and the Libor rate itself has moved to a record low of below 1%.”

- The cost to protect against a default on North American corporate bonds fell for a third day, trading in a benchmark credit-default swaps index shows. Credit swaps on the Markit CDX North America Investment- Grade Index Series 12, linked to the bonds of 125 companies in the U.S. and Canada, declined three basis points to 153 basis points as of 8:30 a.m. in New York, according to broker Phoenix Partners Group. The index, which typically falls as investor confidence improves, has dropped 44 basis points since the end of March. Contracts on Bank of America Corp. fell 30 basis points to 270 basis points, Phoenix prices show. swaps on Citigroup Inc. fell 10 basis points to 540 basis points.

- Crude oil rose above $56 a barrel for the first time since November after a U.S. government report showed a smaller-than-expected increase in stockpiles. “The speculators are piling into oil on signs that the economy is recovering,” said Sean Brodrick, natural resource analyst with Weiss Research in Jupiter, Florida.

- The U.S. has abandoned calls for “regime change” in Iran under President Barack Obama and expects a response to its diplomatic outreach, Senate Foreign Relations Committee Chairman John Kerry said. “That is not the current policy of this new administration, and it is important for Iran to understand that,” Kerry said during a panel hearing in Washington today. “Just as we abandon calls for regime change in Tehran and recognize the legitimate Iranian role in the region, Iran’s leaders need to moderate their behavior.”

- BlackRock Inc., Franklin Resources Inc. and Federated Investors Inc. made preliminary offers to buy Bank of America Corp.’s mutual-fund unit, said people familiar with the matter. Additional companies may participate in the bidding, which isn’t open to leveraged-buyout firms, said the people, who asked not to be identified because the process is private.

- The World Health Organization has determined that at least two influenza shots will be needed to protect against both the seasonal form of the disease and the new swine flu. The United Nations health agency will hold off on announcing a definitive decision on whether drugmakers should start producing a swine flu vaccine until an advisory group meets May 14, Marie-Paule Kieny, director of the WHO’s initiative on vaccine research, told reporters today. The new vaccine would be produced after manufacturers finish making shots for the seasonal strain, she said.

- OppenheimerFunds Inc., Stairway Capital Management LP, Group G Capital Partners LLC and Schultze Asset Management LLC are among fund owners that tipped Chrysler LLC into bankruptcy and seek to stop its sale to Fiat SpA. The Arrow Distressed Securities Fund, Group G Partners LP and Foxhill Opportunity Master Fund LP are also members of the group previously identified only as non-TARP lenders, in reference to the Troubled Assets Relief Program that bailed out some of the banks that support Chrysler’s reorganization, according to court documents filed today.

- European retail sales dropped by the most on record in March as the worst recession since World War II battered the region and households curbed spending. Store revenue in the euro area fell 4.2 percent from a year earlier, the biggest drop since the data series began in 1996, the European Union’s statistics office in Luxembourg said today. The decrease was steeper than the 2.6 percent decline economists expected in a Bloomberg survey and followed a 4 percent drop in February. “The labor market is weakening rapidly and consumer confidence is still at pretty low levels,” said Jennifer McKeown, an economist at Capital Economics in London. “It is difficult to be very optimistic about the future.”

- Overall, Blue Dog Democrats submitted more than 2,500 individual earmarks totaling some $20 billion. That underscores the conflict between their eagerness to bring federal money home and the coalition’s criticism of the budget as laden with pork. “It’s really hard to smack government’s wrists with the one hand while the other hand is looking for as much earmark cash as you can grab and bring home to your district,” said Steve Ellis, vice president of Taxpayers for Common Sense, a Washington-based public-interest group.

- U.S. stocks may continue their two- month rally as investor appetite for risk returns, said Richard Bernstein, the former chief investment strategist at Bank of America Corp. “What’s happening is that we’re seeing a real rally and the world is not coming to an end,” Bernstein, 50, said in a Bloomberg Radio interview. “This rally has removed a lot of the risk aversion.”

Wall Street Journal:

- Electronic Arts Inc. (ERTS) has tried all sorts of management magic to improve its profitability. Now, it's hoping a magician will raise its net income. The Redwood City, Calif.-based videogame maker is hoping a game based on Harry Potter, the fictional wizard in training, will boost its sagging performance when it hits stores later this year.

- American International Group Inc. is expected to post a first-quarter net loss of about $5 billion as the recession and further write-downs continue to erode its bottom line, according to people familiar with the matter.

- So what is next for the city that has garnered the reputation, at least locally, as "Wall Street North?"

CNBC:

- Biggest Shorts on the S&P 500.

- Bernard Madoff's longtime secretary said Wednesday that she believes the disgraced financier is not cooperating with authorities to protect others, and that he was a flirtatious boss who frequented massage parlors.

NY Times:

- The first thing I notice about the new Kindle DX–shown at a press conference in New York Wednesday morning–is that it still seems small. That isn’t necessarily a bad thing. If it is going to replicate a newspaper or textbook, you don’t want some clunky thing to lug around. The DX has a 9.7-inch display, which the company says is 2 1/2 times the size of the Kindle 2. But the device doesn’t feel or look as large as a sheet of copier paper. It won’t give you the feeling of reading an entire page of a newspaper. You read the paper by flipping through it, article by article. That said, the text, photos and drawings replicate the experience of reading a newspaper or a textbook.

MarketWatch:
- The number of mortgage applications rose 2% in the week ending May 1, the Mortgage Bankers Association said Wednesday, with borrowers seeking both more refinance and home-purchase loans. The MBA's seasonally adjusted composite index of mortgage applications rose to 979.7 from 960.6 a week earlier. The refinance index was up 1.2% while the purchase index increased 5%. The purchase-index number adds to signs of housing market stabilization, as low mortgage rates and falling home prices have energized bargain hunters.

BusinessWire:

- National Bank of Arizona (NBA), SolarCity® and First Solar (Nasdaq:FSLR) today announced plans to build a 222 kilowatt (DC) solar installation in Phoenix, which will be the city’s second largest commercial solar installation to date. The project, comprising two carport-mounted solar systems, will be the first commercial solar installation in Phoenix to utilize Tempe-based First Solar’s advanced thin film modules. SolarCity’s Phoenix office expects to complete the installation later this summer.

Washington Post:

- When Freddie Mac privately suggested to regulators last month how it planned to account for its mounting losses, the mortgage giant set off a firestorm. Freddie Mac's regulator pressed the company to withhold information related to the proposal from a federal filing, concerned that this seemingly arcane discussion of accounting practices could add billions of dollars to the government's cost of bailing out financial firms, two people familiar with the matter said. But the company's executives refused, the sources said. They worried that removing the information from the report to the Securities and Exchange Commission could expose them to accusations they'd hid required details from regulators.

- President Obama's passivity before the threatened foreign prosecution of Bush administration officials achieves by inaction what he fears doing directly. This may be smart politics within the Democratic Party, but it risks grave long-term damage to the United States. Ironically, it could also come back to bite future Obama administration alumni, including the president, for their current policies in Iraq, Afghanistan and elsewhere. Obama has taken ambiguous, and flatly contradictory, positions on whether to prosecute Bush administration advisers and decision makers involved in "harsh interrogation techniques." Although he immunized intelligence operatives who conducted the interrogations, morale at the CIA is at record lows.

The Washington Times:

- President Obama's efforts to curb the spread of nuclear weapons threaten to expose and derail a 40-year-old secret U.S. agreement to shield Israel's nuclear weapons from international scrutiny, former and current U.S. and Israeli officials and nuclear specialists say. The issue will likely come to a head when Israeli Prime Minister Benjamin Netanyahu meets with Mr. Obama on May 18 in Washington. Mr. Netanyahu is expected to seek assurances from Mr. Obama that he will uphold the U.S. commitment and will not trade Israeli nuclear concessions for Iranian ones.

Reuters:
- Ford Motor Co's(F) restructuring is on track and the automaker has sufficient liquidity to fund the plan, which includes converting plants and investing in future products, company executives said on Wednesday.Ford, the only U.S. automaker not operating with emergency U.S. government loans, also has continued to consolidate its dealer network, but sees no need for the type of aggressive culling that rivals General Motors Corp and Chrysler plan, Chief Executive Alan Mulally told reporters.

- The pace of private-sector U.S. job losses slowed dramatically last month, while future planned layoffs also declined, and the hard-hit housing sector showed signs of improvement last week. Wednesday's reports are the latest indications that the U.S. economy is pulling out of freefall and may even be preparing to stop its descent, adding to hopes that have fueled a stock market rally over the last two months.

- Legislation aimed at reversing a 3-year-old ban on Americans placing online bets was introduced on Wednesday by U.S. House Financial Services Committee Chairman Barney Frank.

Digitimes:

- DRAM chipmakers Inotera Memories, Nanya Technology and Powerchip Semiconductor Corporation (PSC) have announced improved sequential growth in their unaudited net sales for April 2009.

Bear Radar

Style Underperformer:
Small-cap Growth (-.62%)

Sector Underperformers:
Homebuilders (-4.45%), Gaming (-1.81%) and Computer Services (-1.70%)

Stocks Falling on Unusual Volume:
ERTS, OTEX, IBN, NRGY, ALGT, GHDX, GRMN, MASI, GXDX, JCOM, ACIW, VCLK, FWLT, IART, MYGN, NETL, WYNN, GTU and CPY

Stocks With Unusual Put Option Activity:
1) CX 2) MCHP 3) WFR 4) AMX 5) GRMN

Bull Radar

Style Outperformer:
Large-cap Value (+.83%)

Sector Outperformers:
Banks (+4.77%), Oil Service (+2.86%) and Insurance (+2.21%)

Stocks Rising on Unusual Volume:
ZION, STI, GMXR, XTO, BAC, WFC, CLF, SU, PCZ, BBL, VIGN, SPSS, SIG, WLT, SHLD, AZO, TRLG, LINC, AMMD, LMDIA, VOLC, ACOR, TREE, ABCO, WPPGY, SPSS, SMTC, AAON, ATLS, DTV, NCIT, AFAM, WBMD, PZZA, NTES, RHB, WNR, CRL, TRK, PLT, IGT, ANR, FDP and VCP

Stocks With Unusual Call Option Activity:
1) ZMH 2) JEC 3) ABK 4) CEPH 5) S

Links of Interest

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Wednesday Watch

Late-Night Headlines
Bloomberg:

- President Barack Obama’s plan to end tax breaks for U.S.-based multinational companies drew a skeptical response from fellow Democrats on Capitol Hill, indicating that his proposal may face obstacles in Congress. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, called for “further study” of Obama’s proposals within minutes of the president’s announcement yesterday. Joseph Crowley, a Democrat on the tax-writing House Ways and Means Committee, said he doesn’t want any tax changes to “harm” Citigroup Inc., his New York district’s largest private-sector employer. Natalie Ravitz, a spokeswoman for Senator Barbara Boxer, a California Democrat, said that any tax overhaul should not lead to “unintended consequences.” The U.S. has “a broken tax system” that is “full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share,” Obama said as he outlined his plan with Treasury Secretary Timothy Geithner at the White House. Obama called most of the breaks “unjustifiable” and likened some company practices to a “tax scam.” That rhetoric stung some executives. Carl Guardino, chief executive of the Silicon Valley Leadership Group, told Treasury officials on a conference call after the speech that Obama’s “word choices were a bit troubling” because chief executives in his organization are “proud Americans.” In an interview after the call, Guardino said he and 52 other top executives of companies such as Hewlett-Packard Co., Intel Corp. and Oracle Corp., meeting in Washington this week found it “surprising to be construed in the same way as tax cheats.” Obama’s plan drew immediate criticism from the U.S. Chamber of Commerce and the Business Roundtable, a group of chief executives at some of the biggest U.S. companies. Roundtable President John Castellani said Obama is pushing “the wrong idea at the wrong time for the wrong reasons.”

- Federal Reserve Chairman Ben S. Bernanke offered lawmakers a “cautious” prediction that the U.S. gross domestic product will grow by 2 percent next year and 4 percent in 2011, Senator John Ensign said.

- Hertz Global Holdings Inc.(HTZ) Chief Executive Officer Mark Frissora said the rental-car market and pricing are starting to show signs of improvement. “We’re seeing light at the end of the tunnel,” Frissora said today in a Bloomberg television interview. “The fleets within our industry are tighter and we are able to manage a better pricing structure.”

- Investors should brave the risk of “economic chaos” and buy stocks and real estate, said Yale University professor Robert Shiller, whose 2000 book “Irrational Exuberance” predicted the market’s collapse. “I’m less pessimistic than I was a few months ago,” Shiller said of U.S. equities in an interview in New York. “The price-earnings ratio is about average, and by that you might say it sounds like one should be in the market and have a balanced portfolio that has a good share of stocks.” The Standard & Poor’s 500 Index trades for 13.9 times its companies’ annual profits, up from a 24-year low of 10.1 in March, after the gauge rallied 33 percent since March 9. Its average price-earnings ratio for this decade is 19.4, according to data compiled by Bloomberg. Shiller, who helped create the S&P/Case-Shiller home price index, warned in an August 2006 interview that there was a “significant probability” that housing market declines would accelerate and push the U.S. economy into a recession. He said today that an increase in pending home sales in March and February’s drop in properties on the market are “positive” signals for U.S. housing prices. “Having a good fraction of your portfolio in stocks, not zero, is probably sensible now,” he said. “People should be in real estate as well because that has a chance of rebounding. It has to be about diversification, about spreading risks.”

- Stocks worldwide may rally for “several” more months as faster Chinese economic growth eases concern over the global recession and prompts investors holding cash to buy equities, said Stanley Shopkorn, the former head of equities trading at Louis Bacon’s Moore Capital Management LLC. Falling inventories will bolster demand for Chinese exports and boost the Asian country’s second-quarter economic growth to as much as 9 percent, said Shopkorn, partner at Hilltop Park Fund LP, a New York-based hedge fund that invests a quarter of its assets in emerging markets. There is a 50 percent chance that earnings for companies on the S&P 500 may be revised upward, he said. “The old adage of ‘sell in May and go away’ should be met with a douse of skepticism this year,” said Shopkorn. “Any near-term pullbacks should be extremely containable.”

- Goldman Sachs Group Inc. said U.S. bank debt is “attractive” and boosted its rating on Bank of America Corp.(BAC) and Capital One Financial Corp.(COF) bonds to “outperform.” Yields relative to benchmark rates on bonds of many U.S. banks remain at or near their record highs even after a rally in the debt caused spreads to narrow, analysts led by Louise Pitt wrote in a note. “We believe there is demand for senior paper from investors, which we view as a positive development for the sector,” Pitt said in the report. “U.S. banks also look like a better value than their European counterparts.”

- 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 17.5 basis points to 227.5 as of 8:28 am in Hong Kong, according to ICAP Plc. The Markit iTraxx AustraliaSydney, Citigroup Inc. prices show. index was quoted 10 basis points lower at 270 as of 9:38 am in

- Brazil may hold the world’s third- largest potash reserves, following discoveries in the northern and eastern parts of the country, Agriculture Minister Reinhold Stephanes said. Large potash deposits were found in the Amazon region and in Bahia and Espirito Santo states, in eastern Brazil, Stephanes said today in Sao Paulo, citing data from state-controlled Petroleo Brasileiro SA. The resources may help the country become self-sufficient in fertilizer within 10 years, Stephanes said, without saying how much each deposit may hold.

- Corn fell for a second day after Environmental Protection Agency head Lisa Jackson called grain- based ethanol a bridge “to the next generation of biofuels,” potentially slowing demand for the crop. President Barack Obama announced plans to spend almost $2 billion on improving the production of biofuels, including expedited spending on developing non-grain based ethanol, to make the U.S. less dependent on oil imports. The EPA also took a step toward making corn less attractive as a biofuel feedstock, saying it has a “carbon footprint” that exceeds a required standard. Congress passed a renewable-fuels standard in 2007 that quadrupled the requirement for blending ethanol and other biofuels into gasoline supplies, to 36 billion gallons by 2022. Cellulosic ethanol, made from switchgrass, wood chips and agricultural waste such as corn cobs, is slated to comprise 20 billion gallons of that amount. The country must use 10.5 billion gallons of renewable fuels such as ethanol this year. Cellulosic ethanol is considered to have a smaller carbon footprint than biofuel made from corn because there are fewer incentives for cutting down trees or plowing up prairies to create cropland.

- Chrysler LLC dissident lenders must reveal their identities by 10:00 a.m. tomorrow, a bankruptcy judge ruled, rejecting claims that their safety was at risk. U.S. Bankruptcy Judge Arthur Gonzalez in New York forced the group to file a list of its members publicly, denying their request to reveal their identities only to the bankruptcy court. Thomas Lauria, a lawyer for the dissidents, told Gonzalez today that the group has been exposed to “undue reputational damage, and threats of violence.” He said criticism of the group was exceptional, because it came from U.S. President Barack Obama.

- A peak in the number of jobless claims signals the worst US recession in half a century may end in June, according to Thomas Lam, an economist at United Overseas Bank Ltd. in Singapore. The previous three recessions all ended within weeks after the number of applications for unemployment benefits started to wane. In his calculations, Lam smoothes the weekly claims figures using a proprietary weighted-average formula that more closely correlates with economic turning points. The graph shows the smoothed figures reached a high of 664,000 in the week ended April 4, indicating the economic slump will probably end by next month, he said. With 95% confidence, the model signals the recession will be over at the latest by the end of September, he said.

- Regulators have determined that Bank of America Corp.(BAC) has the largest need for new capital among the 19 biggest U.S. banks subjected to stress tests, according to people familiar with the matter. Citigroup Inc.’s shortfall is more limited because the company already plans to convert government preferred shares to common stock, the people said. JPMorgan Chase & Co. doesn’t need a deeper reserve against potential losses over the coming two years, according to people familiar with that company’s result.

- Li & Fung Ltd., the biggest supplier of clothes and toys to Wal-Mart Stores Inc. and Target Corp., is working on “plenty” of possible deals in the U.S. as the world’s biggest economy shows some signs of improving. “We see a lot of opportunities in the U.S. right now to buy things that we’ve always wanted, at prices that we feel are very reasonable,” Company President Bruce Rockowitz said in a Bloomberg TV interview late yesterday. “The whole U.S. is in a bottoming out phase that’s going to last, probably till the end of this year, and then start to see a pickup into next year.”

Wall Street Journal:

- Banks that want to return Troubled Asset Relief Program funds will have to demonstrate their ability to wean themselves off another major federal program, according to senior government officials, making it less attractive for some banks to return the money. The other program, a guarantee of debt issuance offered by the Federal Deposit Insurance Corp., allows firms to borrow money relatively inexpensively. Banks have $332.5 billion of debt outstanding under this program, which began last fall. Regulators are expected to detail the complete set of guidelines on how banks can repay TARP as early as Wednesday. The guidelines signal a potential turning point in the financial crisis, with the government and some banks beginning to unwind federal involvement in the industry. Several banks have been chomping at the bit to return their TARP funds, in part to prove their financial health, but also to escape from tough rules governing executive compensation, dividend payments and stock repurchases.

- In the race to shed debt, several real-estate investment trusts have come up with a new approach: They are buying back their public bonds at steep discounts. While bond buybacks are just one of many deleveraging methods REITs are pursuing, analysts said the bond buying can provide the biggest impact per dollar. "If the bond market perceives that there is high credit risk and they're willing to sell bonds back to the company at 50% of face value, then the company can use $1 to retire $2 of debt," said David Loeb, a REIT analyst with R.W. Baird & Co.

- Law-enforcement officers have long criticized Craigslist for not doing enough to prevent illegal activity among its users. The popular classified-ad Web site went on the defensive again last month after a 22-year-old medical student was charged with murdering a woman who advertised massage services on Craigslist. The 14-year-old company says it wants to work with public officials to improve the site. It took a step on Tuesday by meeting with the attorneys general of Connecticut, Illinois and Missouri. Some have called on Craigslist to shut down its “erotic services” section, which they say facilitates prostitution.

- Prices for U.S. leveraged loans have rebounded to levels unseen since Lehman Brothers Holdings collapsed last autumn, providing yet another sign that sentiment among debt investors is starting to recover, even on some of the most stressed assets. Barclays Capital's U.S. leveraged-loan index, which tracks the price of U.S. loans, ended April at $71.38, a gain of 20% this year and putting it at a level last recorded before Lehman filed for bankruptcy in September.

- Surveyor: Polachi Inc. Release Date: May 5 Sample: Distributed in mid-April and completed by 122 senior executives at small to medium-sized technology companies through out the U.S. Results: More than half of the respondents (54%) in the Polachi survey indicated they are either currently hiring or are planning to hire over the next three months. Of the executives hiring or planning to hire, 93% predicted that demand for senior talent at their organization will either remain steady or increase over the next three to six months.

- A key measure of risk reached its lowest level since last fall as investors snapped up the biggest junk-bond issue of the year, further signs companies can now borrow to meet their cash needs but still have to pay above-normal rates. Confidence that the economy is on the verge of recovery and optimism that bank stress-test results this week will be better than initially feared helped drive investors away from the safety of Treasury debt into corporate bonds and securities backed by consumer loans.

- The 12 regional Federal Reserve banks have conflicting practices regarding directors who are board members of banks and own shares of bank-holding companies, heightening calls to overhaul the policies at these financial institutions. Corporate-governance practices at the regional Fed bank system faced criticism this week following a page-one article Monday in The Wall Street Journal detailing how Stephen Friedman, chairman of the Federal Reserve Bank of New York and a Goldman Sachs Group Inc. director, was granted a waiver that allowed him to hold Goldman shares even after Goldman became a Fed-regulated bank-holding company in September.

CNBC.com:
- It's the right time to invest in technology stocks, said Noah Blackstein, portfolio manager at Dynamic Mutual Funds. “The valuations are exceptionally low, and these [technology] companies have managed their business as if we were in a recession since 2002,” Blackstein told CNBC. “So the balance sheets are very strong and they’re very defensive.”

NY Times:

- Mr. Flowers, a private equity manager, has no particular love for rural Missouri; in fact, he has never set foot in Cainsville. Rather, he wants to use the national bank charter he picked up in this farm town to go on a nationwide buying spree. With that charter in hand, Mr. Flowers plans to take over a handful of large struggling banks, casualties of the economic crisis. In some cases, he hopes, the federal government will help. But Mr. Flowers, whose investments in banks overseas have made him one of the richest men in America, has run into a major obstacle in the United States: the Federal Reserve, and its very notion of what a bank should be.

Morningstar:

- Merrill Lynch is replenishing its thundering herd of retail brokers after many had charged out the door. After Bank of America Corp. (BAC) said it would acquire Merrill Lynch, the firm lost more than 800 financial advisers who left voluntarily (the firm also cut some rookie advisers). Some left due to dissatisfaction with BofA's culture, while others departed after the loss of several top Merrill executives. However, in recent weeks, Merrill Lynch has gone on a hiring spree. The firm is offering one of the highest-paying recruiting deals in the industry for top- producing advisers who join the firm. It's also benefiting from concerns, warranted or not, over potential redundancies at the pending joint venture between Morgan Stanley (MS) and Citigroup Inc.'s (C) Smith Barney.

Business Week:
- Companies Shed Initial Resistance to iPhone.

- Technology stocks are back, and IBM (IBM) is among those spearheading the stock market's recent advance. After tumbling to a 52-week low of 69.50 a share last Nov. 20, IBM has recovered nicely, closing at 105 on May 5.

CNNMoney:

- 8 Signs of hope for the economy.

The Detroit News:

- A state of Michigan agency today objected to Chrysler LLC's proposed sale, warning that the state workers compensation fund could be forced to assume the automaker's obligation of more than $140 million -- a move that would bankrupt the fund.

ValleyPRBlog:

- As the news media struggles to find a new business model, and while industry giants like The Boston Globe and others appear to be nearing the end of their ropes, there is a trend that is gaining steam in the media world. A CNN story today suggests that the future of online news may be “hyperlocal.”

Politico:

- The 2008 AIG bonus pool just keeps getting larger and larger. In a response to detailed questions from Rep. Elijah Cummings (D-Md.), the company has offered a third assessment of exactly how much it paid out in bonuses last year. And the new number, offered in a document submitted to Cummings on May 1, is the highest figure the company has disclosed to date. AIG now says it paid out more than $454 million in bonuses to its employees for work performed in 2008.

- In the fall of 2006, John Edwards’ political high command began hearing disturbing reports from aides on the road. The candidate, they were told, was spending too much time with an eccentric filmmaker named Rielle Hunter. So when Edwards and Hunter returned from his trip to Africa in early October, his former campaign manager Peter Scher confronted him: If Edwards was having an affair, Scher told the candidate flatly, he couldn’t run for president. Edwards denied the affair, but Scher and other loyalists from his 2004 campaign doubted his word, made excuses and stayed out of the 2008 presidential race when Edwards launched his campaign after Christmas.

PCWorld:

- MySpace Expects Huge Growth in Mobile Social Network Users. Just about every application is going mobile, as the App Store for iPhone has shown with its 1 billion-plus downloads. Mobile banking, gaming, and messaging are among the broad categories of mobile applications available, so it is no wonder that creators of social networks have gravitated to the mobile platform.

Reuters:

- The United States economy remains in "a very deep hole" but there are signs that the downturn may finally be easing, Janet Yellen, President of the Federal Reserve Bank of San Francisco, said on Tuesday. "The good news is that, for the first time in a while, there is some good news to savor," Yellen said in remarks prepared for a speech to the Haas Business School of the University of California, Berkeley.

- ABC News on Tuesday released its weekly index on consumer confidence in the United States. In the latest report, the Consumer Comfort Index climbed to a seven-month high, rising to -43 from -45 in the previous week.

Financial Times Deutschland:

- Germany’s state-owned banks may have their ratings cut by S&P’s Rating Services. The rating company may lower the short-term and long-term ratings for all the state-owned banks by one level.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Sell on (ADM), target $22..

- Reiterated Buy on (GLW), target $19.

- Reiterated Buy on (ETR), target $83.50.

- Reiterated Buy on (HEW), target $45.

- Reiterated Buy on (ADP), target $44.

Night Trading
Asian Indices are -.25% to +.75% on average.
S&P 500 futures -1.06%.
NASDAQ 100 futures -.91%.

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
- (ANR)/.44

- (PWR)/.11

- (MMC)/.43

- (FWLT)/.68

- (XTO)/.77

- (NWS/A)/.16

- (CECO)/.33

- (PRU)/.91

- (CSCO)/.25

- (THQI)/-.33

- (APC)/-.60

- (BX)/-.09

- (PCG)/.72

- (DVN)/.28

- (MUR)/.24

- (ONXX)/.18

- (SYMC)/.35

Economic Releases

8:15 am EST

- The ADP Employment Change for April is estimated at -645K versus -742K in March.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Stern speaking, Fed’s Yellen speaking, weekly MBA mortgage applications report, Challenger Job Cuts announcement, (FWLT) shareholders meeting, (PEP) shareholders meeting, (HOT) shareholders meeting and the (GILD) stockholders 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.