Today's Headlines

Bloomberg:

- Goldman Sachs Group Inc.(GS) agreed to a multimillion dollar settlement with the state of Massachusetts related to the packaging of subprime mortgage securities at the root of the collapse of the U.S. housing market. Goldman Sachs will provide $50 million to homeowners and pay $10 million to the state, the AP said. The bundling of the riskiest type of mortgages into securities turned the U.S. housing slump into a global recession as foreclosures deflated bond values and toppled Wall Street firms such as Lehman Brothers Holdings Inc. The Massachusetts attorney general has investigated Fremont Investment & Loan, now defunct, and H&R Block Inc., owner of Option One Mortgage Corp., for making the types of mortgages that Goldman securitized. Goldman Sachs’ mortgage business is part of its fixed- income, currencies and commodities unit, the largest source of revenue for the firm. The division produced a record $16.2 billion in revenue in 2007 and helped the securities firm set a Wall Street pay record. Chief Executive Officer Lloyd Blankfein was awarded $68.5 million in pay for 2007 and each of his two co-presidents also received more than $65 million that year. A $60 million settlement is about one and a half day’s revenue for Goldman Sachs’s fixed-income, currencies and commodities division in 2006, when it made $14.3 billion and about one and one-third day’s revenue in 2007. Goldman Sachs, the world’s largest securities firm before it became a bank holding company last year, used the ABX Index and credit default swaps to hedge its subprime holdings, Chief Accounting Officer Sarah Smith wrote in an Oct. 30 letter to the Securities and Exchange Commission made public Jan. 14. “During most of 2007 we maintained a net short subprime position with the use of derivatives and therefore stood to benefit from declining prices in the mortgage market,” she wrote.

- Yields on top-rated bonds backed by credit-card payments and auto loans fell relative to benchmark interest rates as the Federal Reserve’s program to spur consumer lending had its highest volume since starting in March. The gap, or spread, on AAA rated securities backed by credit cards and maturing in two years narrowed 50 basis points to 180 basis points more than the one-month London interbank offered rate during the week ended May 7, according to JPMorgan Chase & Co. data. Spreads on similar debt backed by auto loans fell 30 basis points to 150 basis points more than Libor, the data show. “Any questions about whether TALF 1.0 is a success or failure have been emphatically answered,” JPMorgan analysts led by Chris Flanagan in New York wrote in a May 8 report. “In aggregate, TALF couldn’t be working much better.” The Fed will start making TALF loans to investors to purchase newly issued commercial mortgage-backed securities next month. Top-rated bonds backed by commercial real estate are trading at a spread of about 7.25 percentage points more than benchmark interest rates, compared with a record 15.3 percentage points on Nov. 20, according to Bank of America Corp. data.

- China’s six-year interest-rate swaps dropped to the lowest in more than a month after the government said deflation accelerated in April, prompting traders to pare expectations for the pace of the economy’s recovery. China’s consumer prices dropped 1.5 percent from a year earlier, the statistics bureau said in Beijing today. That compared with the median estimate of a 1.4 percent decline in a Bloomberg News survey of 21 economists and the March decline of 1.2 percent. Producer prices fell 6.6 percent. “More interest-rate swap traders became bearish,” said Fan Xiulan, a Beijing-based fixed-income analyst at BOC International Holdings, the investment-banking arm of Bank of China Ltd. “The economy may show less-than-expected recovery this quarter after initial signs of a rebound last quarter lifted people’s expectations.” “Traders are skeptical about domestic demand being strong enough right now to sustain a V-shape recovery, and are betting that growth in new loans and the rebound in industrial production will slow,” said Shi Lei, an analyst in Beijing at Bank of China Ltd., the third-largest bank by market value.

- Mexican companies may face a credit- rating “correction” amid mounting losses from wrong-way bets on currency-derivative contracts, a slumping economy and refinancing difficulties, said Claudio Loser, a former International Monetary Fund Western Hemisphere director. “A ratings correction from an overstated investment grade may well be overdue for Mexico at this juncture,” Loser, who now is the Latin American president of strategic advisory firm Centennial Group Inc., said at an Emerging-Market Traders Association conference in New York. “Ratings agencies do not seem to have captured these trends, at best lagging in the response to the crisis, and at worst failing to measure existing risk.”

- President Barack Obama proposed raising money to pay for his health-care overhaul by imposing $58 billion in new taxes on securities dealers, life insurance products and Americans with valuable estates. The eight new proposals, outlined in budget documents released today, are in addition to more than $1 trillion in tax increases over the next decade the president wants to impose beginning in 2011. Those would include higher rates for top earners and restrictions on tax-avoidance techniques commonly used by U.S.-based multinational corporations. Obama also would raise $24.2 billion over the decade by adjusting rules for valuing assets in estate planning.

- A measure of U.S. job prospects in April showed the smallest decline in almost a year, indicating firings may be abating, a private report showed. The Conference Board’s Employment Trends Index last month decreased 0.7 percent to 89.5, the smallest decrease since June 2008, from 90.1 in March, the New York-based research group said today. The index was down 22 percent from a year earlier.

- Capital One Financial Corp.(COF), U.S. Bancorp(USB) and BB&T Corp.(BBT) will sell shares to repay government bailout funds after stress tests showed the companies can weather a worsening recession without additional aid.

- A group of mutual and pension funds that invest in social causes is urging Congress to support legislation that would make it easier for workers to join unions. The 26 funds, led by Domini Social Investments, Progressive Asset Management Inc. and Merseyside Pension Fund, sent a letter to lawmakers saying that business opposition has damaged the prospects for the Employee Free Choice Act, known as the card- check bill. The group of investors says they represent $372 billion in assets.

- When last week’s employment report came in a tad better than expected, it sent a chill through the hearts of Washington’s Democrats. If the recession ends, then the bailout frenzy will end, and it will be much harder to hand out taxpayers’ cash to political allies. With time running out on the crisis atmosphere, our hard-working public servants put in overtime last week to introduce to the public the next bailout candidate: the liberal newspapers. Former Los Angeles Times columnist Rosa Brooks captured the mood well in her final column before joining the Obama administration. “It’s time for a government bailout of journalism,” she wrote, citing such possible steps as tax credits for newspaper subscriptions and more funding for public broadcasting. The parent company of the Times, by the way, is already in bankruptcy. Senator John Kerry, Democrat of Massachusetts, held hearings last week to lay the foundation for a newspaper bailout. He is anxious about the fate of the Boston Globe, which is projected to lose $85 million this year, and he has argued for relaxing antitrust legislation that limits ownership of local media outlets.

- Crude oil fell from a six-month high on speculation last week’s 10 percent advance won’t be sustained as global output increases. Exports from Iraq’s Kurdistan region will begin June 1 after the state oil ministry agreed to “expedite” shipments, the provincial government said on its Web site yesterday. U.S. crude oil inventories rose to 375.3 million barrels during the week ended May 1, the highest since 1990, according to a May 6 report from the Energy Department. “With the strong pricing that we’re seeing, the producer - - whether OPEC or non-OPEC -- will certainly supply customers, whether they are above their quotas or not,” said Victor Shum, a senior principal at Purvin & Gertz Inc. in Singapore. “Oil at $58 or $60 is really an excessively strong price, given the fundamental picture.” China’s new lending cooled in April, easing concern that banks are taking on too much risk in a credit boom after the government dropped restrictions on loans in November. This may point to problems with the country’s economic recovery as most loans are concentrated on government projects while small businesses lack cash.

- The world’s biggest investors are increasing bets that Federal Reserve Chairman Ben S. Bernanke will boost purchases of Treasuries as the steepest losses on government debt since 1994 send mortgage rates above 5 percent. The slump in Treasuries the past seven weeks pushed yields on longer-maturity bonds up by more than half a percentage point and sent average rates on 30-year mortgages to the highest since the start of April, according to North Palm Beach, Florida-based Bankrate.com. Policy makers said March 18 they were committing “greater support to mortgage lending and housing markets” when they pledged to buy as much as $300 billion of Treasuries and stepped up purchases of bonds backed by home loans.

- The longest US recession since the Great Depression may have ended last month, according to Barry Knapp, a strategist at Barclays Capital. “We appear to be in the sweet spot of a recovery,” Knapp wrote. Spending on services rose 1.5% in each of the past two quarters after a .1% decline in last year’s third quarter, the first decline since 1991. “Service-sector employers expected sharp drops in demand, and may have overshot in terms of cutting back” on workers, he wrote.

Wall Street Journal:

- Brazilian state-run energy giant Petroleo Brasileiro SA (PBR) scored its sixth oil or natural gas find in the Espirito Santo Basin over the past month, with a wildcat well in the BT-ES-15 block testing positive. Last week, Petrobras said it found traces of oil in two other Espirito Santo blocks. A wildcat well drilled in the ES-T-364 block tested well after a previous well at the inland block also showed signs of oil in mid-April.

- The current series of the LevX senior index of European leveraged loan credit default swaps rallied to new highs Monday, as market participants' optimism increases that the bottom of the market has been reached.

- Amazon.com Inc. (AMZN) on Monday launched a new version of its Kindle bookstore that is optimized for Apple Inc.'s (AAPL) iPhone, suggesting the Internet retailer could be moving toward a multi-platform electronic book strategy.

CNBC:

- The federal stimulus package passed in February may help some IT companies climb the stock charts. The law provides $19 billion to replace the ubiquitous paper chart on a clipboard with electronic medical records. While some traditional technology names will benefit from this portion of the American Recovery and Reinvestment Act of 2009, it’s the healthcare IT companies that will see the biggest boost and represent the biggest opportunities for investors.

- Oil prices have jumped more than 70% since February on expectations of an improving economy, but traders say crude isn't likely to head back up to $100 a barrel anytime soon.

FINalternatives:

- New York hedge fund Satellite Asset Management is closing its doors six months after suspending redemptions. The $2.8 billion firm has begun returning money to investors in its three funds, Bloomberg News reports. The firm, founded by a trio of Soros Fund Management veterans a decade ago, managed as much as $7 billion as recently as the end of 2007. It lost some 35% last year, and was forced to halt withdrawals in November.

TheStreet.com:

- China looks set to be the next frontier in Apple's(AAPL) push for world domination, and there are signs that the consumer tech giant is ramping up its efforts to launch the iPhone into the world's largest mobile phone market.

Washington Times:

- The president of a maritime workers union - a labor organization dogged for years by declining membership and a federal racketeering lawsuit - reported receiving $1.2 million in compensation last year but abruptly gave back much of the money in April after his big payout was disclosed to the government, according to federal documents and interviews. Even after giving back more than half his compensation, Richard J. Hughes Jr. of the International Longshoreman's Association still earned $494,635 in salary and expenses in 2008, putting him among the top two dozen highest-salaried labor executives outside of professional sports, according to public records. The longshoreman's union filed a report with the government in March showing that Mr. Hughes was paid $739,729 in 2008 from the union's "retirement equalization" plan, on top of his nearly half-million dollars in salary and expenses, according to interviews and records. But on tax day, April 15, Mr. Hughes returned the money to the union, officials said.

Washington Post:

- After a long hiatus, the Syrian pipeline operated by the organization al-Qaeda in Iraq is back in business. The revival of a transit route that officials had declared all but closed comes as the Obama administration is exploring a new diplomatic dialogue with Syria. At the same time, Washington remains concerned by Syrian activities -- including ongoing support for the militant groups Hezbollah and Hamas, as well as activities involving Iraq.

NY Post:

- The family that controls The New York Times(NYT) empire has lost more than 86 percent of its fortune and may have to sell their controlling stake to get out of debt. The Ochs-Sulzberger family, which has run the venerable paper since 1896, may also face unusual pressure from about two dozen descendants to cash out and restore their comfortable lifestyles snatched away suddenly by hard times. Until this year, the family had been living on wealth valued as high as $425 million. But today the family is down in their Times' annual income to a paltry $4.5 million, which could shrink even more in the recession. Soaring losses amid a devastating media slump have drained much of the corporate cash, pushed the company deeper into debt of $1.3 billion and beckoned a stock vulture to its door -- Mexican billionaire Carlos Slim, who this year bailed out the Times with a high-interest $250 million loan that also threatens family control.

The Detroit News:

- General Motors Corp.(GM) is reviewing the location of its corporate headquarters at the Renaissance Center in Detroit. But the automaker has no current plans to move, chief executive Fritz Henderson said today. "We're looking at frankly everything within our business, but it is not like we have that queued up as the top of our list," Henderson said of moving the headquarters. "As we look at the structure, look at the business, we're looking at everything, particularly as we slim down." GM is in the midst of further restructuring its business to comply with the government's request for more additional aid. Moving the company's headquarters out of Detroit would be devastating for the city.

Politico:

- For Democrats pushing an investigation into potential criminal wrongdoing in the war on terrorism, the GOP now has a two-word response: Nancy Pelosi. Republicans say new revelations about a CIA briefing Pelosi received in 2002 have given them their best shot yet at blocking a sprawling probe into Bush administration interrogation techniques by allowing them to insist that its targets would include the speaker of the House. “If someone is going to schedule hearings, I believe that the first witness should be Nancy Pelosi,” Rep. Pete Hoekstra, the ranking member on the House intelligence committee, told POLITICO. “Clearly, she was involved in policy formulation.”

Reuters:
- The White House on Monday increased its forecast for the U.S. budget deficit for this year by $89 billion, reflecting the recession, a raft of new unemployment claims and corporate bailouts. A fresh estimate of the deficit showed it coming in at $1.84 trillion -- representing a massive 12.9 percent of gross domestic product -- in the current 2009 fiscal year that ends on September 30. The report may add to the political challenges facing President Barack Obama as he seeks to push through a new healthcare plan and other big domestic initiatives.

Financial Times:
- The economic downturn in the US has hurt the pharmaceuticals industry worse than any other export sector in the Indian economy. Indian exports of pharmaceuticals products to the US fell almost 40 per cent in the five months between October last year and the end of February, a study by the Federation of Indian Chambers of Commerce and Industry has shown. The second-worst performer was the gems and jewelry sector, which had expanded almost without check for 20 years. The trend is likely to disappoint analysts. India’s pharmaceuticals industry was touted as a sector that could weather the global financial crisis and attract foreign investors.

Globe and Mail:

- Ottawa is set to push ahead with a plan to dramatically increase the use of grain-based ethanol, despite growing controversy over the greenhouse gas emissions that result from agricultural practices used to grow the feedstock grains. Environment Minister Jim Prentice has won cabinet approval to proceed with regulations requiring refiners to include at least 5 per cent ethanol in their gasoline by September, 2010, sources say.

La Vanguardia:

- Electricity demand in Spain fell 13% in April as industrial consumers used less power, citing an interview with Albertao Carbajo, head of operations at Red Electrica Corp., the operator of Spain’s power grid. Demand has fallen for seven months in a row, probably a first since the 1930s.

Qilu Evening News:
- Home Depot Inc.(HD) shut a store in the eastern Chinese coastal city of Qingdao, citing customers and service staff. They didn’t identify why the store was shut. Home Depot has 12 stores in six cities in China.

Bear Radar

Style Underperformer:
Large-cap Value (-2.46%)

Sector Underperformers:
Oil Tankers (-6.76%), Coal (-4.70%) and Insurance (-4.63%)

Stocks Falling on Unusual Volume:
PRU, COF, SFY, SNP, SWSI, CRZO, TNDM, CATY, CTCM, KSP, AMN and AXR

Stocks With Unusual Put Option Activity:
1) TSL 2) ETFC 3) VMED 4) HBAN 5) CENX

Bull Radar

Style Outperformer:
Large-cap Growth (-.57%)

Sector Outperformers:
Education (+3.36%), Hospitals (+1.51%) and Computer Services (+1.23%)

Stocks Rising on Unusual Volume:
XNPT, ESI, PEGA, DV, SYMC, IBM, WMT, IOC, TI, CTL, NGLS, HWCC, PETS, DISH, FSYS, NVTL, PCLN, HMIN, STAR, PBCT, SRCL, MYGN, HANS, WRLD, AMSC, ORA, NRT and AZN

Stocks With Unusual Call Option Activity:
1) SAP 2) SLG 3) ABK 4) SPLS 5) JASO

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Monday Watch

Weekend Headlines
Bloomberg:

- U.S. stocks rose, erasing the 2009 loss in the Standard & Poor’s 500 Index, as results from the government’s examination of banks reassured investors and the Labor Department said the pace of job cuts slowed in April. Bank of America Corp. and Citigroup Inc. helped push financial stocks in the S&P 500 to a 23 percent surge this week after the U.S. said lenders need $74.6 billion in capital. Federal Reserve Chairman Ben S. Bernanke said the review should provide “considerable comfort.” Energy stocks gained as oil reached a six-month high of $58.69 a barrel on data, including a home-sales improvement, suggesting the recession has eased. The S&P 500 increased 5.9 percent to 929.23 this week, giving it a 2.9 percent rally in 2009. “The macroeconomic data suggests that the worst is over,” said Quincy Krosby, the Hartford, Connecticut-based chief investment strategist at Hartford, which oversees $330 billion. “There’s been a healing process in the banking sector.”

- The swine flu virus so far lacks the killer traits of the 1918 Spanish pandemic or the bird flu fatal to half those it infects, American scientists said. The genetic blueprint of the new H1N1 virus sweeping the globe is “good news,” Anne Schuchat, interim deputy director for science and public health of the U.S. Centers for Disease Control and Prevention, said today.

- Ship owners are being forced to pay to carry oil from the Middle East to the U.S. for the first time in at least a decade after demand collapsed and the fleet expanded. Supertanker owners make no rental income from the voyages and are paying $3,445 a day toward fuel costs, data from the Baltic Exchange in London show. Rental rates normally cover fuel costs. The journey to the Louisiana Offshore Oil Port from Ras Tanura, Saudi Arabia’s largest export facility, earned owners as much as $104,663 a day in July.

- Malaysia’s central bank said it will lower the country’s 2009 economic forecast amid a worse-than- expected slump in exports, predicting the nation will recover in the second half of the year. “The export contraction was much greater than was earlier envisaged,” Governor Zeti Akhtar Aziz said in an interview in Singapore today.

- Warren Buffett’s Berkshire Hathaway Inc. posted its worst loss in at least two decades as the billionaire chairman worked to recover from a “major mistake” of buying ConocoPhillips shares with oil prices near their peak. The first-quarter net loss of $1.53 billion, or $990 a share, compares with profit of $940 million, or $607, in the same period a year earlier, the Omaha, Nebraska-based firm said yesterday in a statement. Writedowns on derivatives tied to corporate-debt indexes cost the company about $1.3 billion and Berkshire took a $1.9 billion charge on oil producer ConocoPhillips, contributing to its first net loss since 2001.

- Asian bank interest rates and the cost to protect corporate bonds against default declined. The Markit iTraxx Australia index was quoted 10 basis points lower at 212 basis points as of 10:05 am in Sydney, Westpac Banking Corp. data show. The Markit iTraxx Japan index was quoted 5 basis points lower at 225 as of 10:02 am in Tokyo, according to Morgan Stanley.

- World trade may be no better than it was at the end of last year, judging by the number of inactive oil tankers, commodity vessels and car carriers at anchor. Ships carry about 90% of world trade, according to The Round Table of Intl. Shipping Assoc. “There’s more lingering and idling and waiting to find business,” said Andreas Vergottis, London-based research director at Tufton Oceanic Ltd., the world’s largest shipping hedge-fund firm. Anchoring “is a manifestation of slack” as trade dwindles and the global fleet expands, he said. To cope with the glut of ships, owners are also accepting smaller cargoes and ordering captains to slow down to conserve fuel, Vergottis said. There’s a 30% oversupply of container ships, 20% in oil tankers, and as much as 15% in coal and iron-ore carriers, he said. The situation may worsen because the fleet is expanding faster than any likely recovery in world trade, Vergottis said.

- Growth in the Middle East will fall by 50 percent this year, the International Monetary Fund forecast, as it encouraged countries in the region to boost government spending to stimulate their economies. The economies of the world’s three biggest oil producers, Saudi Arabia, the United Arab Emirates and Kuwait, will contract as lower energy prices force production cuts and tighter credit availability squeezes the private sector, the Washington-based lender with 185 member nations said in its Regional Economic Outlook report today. Saudi Arabia will have a decline in economic growth of 0.9 percent, compared with a 4.6 percent increase last year. “The drop in oil prices has most directly affected the oil-exporting countries, whose oil revenues in 2009 will be less than half what they were in 2008,” the IMF said. “The tightening of international credit markets and lower investor appetite for risk is affecting capital inflows, depressing asset prices and reducing investments in these countries.” The economy of the United Arab Emirates, the Arab world’s second-largest economy, is forecast to contract 0.6 percent after growing 7.4 percent last year, while Kuwait’s economy is projected to contract 1.1 percent after 6.3 percent growth in 2008, the IMF said. “We think 2009 will be a reality check for the region,” Howard Handy, chief economist at Riyadh-based Samba Financial Group, said at the conference. “This will prompt a healthy re- prioritization of the huge project pipeline, a correction in overheated real estate markets and a wakeup call for banks.”

- Dallas voters approved building a $356 million hotel designed to increase the volume of conventions in the city. The convention center hotel passed by a margin of 51.2 percent to 48.8 percent with all 534 precincts reporting, according to Dallas County election results, as voters rejected yesterday a question that would have prohibited building the project.

Wall Street Journal:

- China's aggressive stimulus has steadied its big economy faster than many expected. But the Chinese government hasn't yet delivered the deep structural changes that are needed to keep growth on track after those funds run out. In the cities, hugely profitable businesses are still reserved for state firms, limiting the expansion of the private sector. In the countryside, market overhauls have languished since the 1990s, giving farmers few incentives to invest in their land. Exports supercharged China's expansion during the past few years, but world-wide trade is shrinking this year for the first time in decades. With U.S. consumers likely to save more for years to come, they no longer will be a bottomless source of demand for Chinese goods. "The stimulus is a stopgap, not a solution," says Arthur Kroeber, managing director of Dragonomics, a research firm in Beijing. Rural enterprises account for more than a quarter of China's economy but receive only about 5% of bank loans, according to the Organization for Economic Cooperation and Development, a multinational research outfit based in Paris. State-owned enterprises still dominate key service sectors such as transport and communications. Removing the barriers to private businesses entering those fields, many economists argue, would raise the efficiency of the whole economy and encourage a new wave of investments in profitable sectors. While stabilizing economic growth is crucial, the People's Bank of China said in its quarterly report last week, "it is even more important to speed up the pace of economic restructuring, innovation and reform." But that could conflict with another priority for China's government: building up national champions. While state enterprises have piled up record earnings in recent years, officials have been reluctant to harvest their profits or introduce more competition. Says Zhang Shuguang, an economist at the Unirule Institute, one of China's few independent think tanks: "The problem is that the government directly or indirectly controls too many resources. Its own interests are at stake."

- Microsoft Corp.(MSFT), International Business Machines Corp.(IBM), AT&T Inc.(T), Yahoo Inc.(YHOO) and Time Warner Inc.(TWX) are among the companies shedding some workers, while adding others.

- Quants are back to wearing boots at work. But they aren't dealing with another 100-year flood, just yet. A number of quantitative hedge funds have been crushed lately, even as the stock market soars, causing a stir on Wall Street. These funds, which rely on sophisticated computer models, generally have beaten the market over the past few years. But they have suffered sharp losses in short time spans, such as in August 2007. That is something their whiz-bang models said was almost impossible, raising questions about their approach. Some are taking on water yet again. Jim Simons's RIEF fund fell more than 16% this year, through April 24, while two big funds operated by MAN AHL, the largest publicly traded fund, are each down about 10%, investors said. Some trend-following funds, which had positioned themselves for more market troubles, have lost as much as 10% in the past month or so.

- Mr. Asness's remarks capture what many hedge fund managers say they feel but would never say publicly: They have been disappointed by the Obama administration, left detached from a leader to whose party they gave 70% of their overall campaign donations during the 2008 election, according to data compiled by the Center for Responsive Politics. "Let's also mention only in passing the irony of this same president begging hedge funds to borrow more to purchase other troubled securities," wrote Mr. Asness, 42 years old, whose firm wasn't directly involved in the Chrysler situation. Some hedge funds have said that a key part of PPIP could unfairly benefit Allianz SE's Pacific Investment Management Co. and BlackRock Inc. among a handful of large asset-management firms seen as more politically connected. "The programs, identified by innocent sounding acronyms like 'PPIP,' 'TARP' and 'TALF,' are rapidly changing, confusing and interwoven," Mr. Singer wrote. He said the programs could cause taxpayers losses while resulting in "concentrated large profits reaped by a small group of anointed gatekeepers."

- The White House's role in restructuring Chrysler has sent a shudder through the community of lawyers and lenders in the field of bankruptcy and corporate workouts. Critics complain that the administration has violated a bedrock principle of American capitalism and unfairly demonized financial firms that are vital to the functioning of the economy and its eventual recovery. The administration could exert such leverage because it was convinced big banks were too tarnished in the public eye to put up a fight. They risked being blamed for Chrysler's demise. And if Chrysler had to liquidate, they and other lenders would have to try to recover their money by selling closed auto plants and other assets that are little in demand.

- The Iraqi federal oil ministry said Sunday it will allow the autonomous Kurdish government in northern Iraq to start exporting crude oil in June to world markets after blocking such shipments for the past two years. The Kurds and the central government, which grants all oil-export licenses, have been at odds since 2007 over Iraq's draft hydrocarbons law and oil contracts that the Kurds signed with foreign companies. Despite those issues being still unresolved, Baghdad -- under increased financial strain because of weak oil prices and falling revenue -- will allow the Kurds to begin exporting 60,000 barrels a day from June 1, oil ministry spokesman Assem Jihad said.

- White House National Security Adviser James Jones rejected Afghanistan's demands that American forces halt air strikes in his country, despite protests there over a U.S. strike that allegedly killed dozens of Afghan civilians. The conflict over U.S. air strikes comes as the Obama administration is seeking to launch a new counter-insurgency strategy in Afghanistan, and could hobble cooperation between the two governments to rein in the Taliban. "The war on terrorism is not in the Afghan villages, not in the Afghan homes," Afghanistan President Hamid Karzai told NBC News's "Meet the Press," which aired on Sunday. "Civilian casualties are undermining support in the Afghan people for the war on terrorism and for the relations with America."

- General Motors Corp.(GM) has hired an executive-search firm to help find replacements for at least half of its 12 directors, reflecting the Obama administration's increasing influence over the auto maker.

Barron’s:

- The blogger sentiment poll on Birinyi Associates' Ticker Sense blog (http://www.tickersense.typepad.com) last week showed 50% bears to 33% bulls -- almost as many bears as at the early-March lows. In late January, just as the market was ready to roll over hard, 65% of the bloggers were bullish.

- HEDGE FUNDS UNDERWENT THEIR OWN STRESS TEST in 2008. devastating losses and massive redemptions overwhelmed the limits the funds tried to put on withdrawals, sending assets into a tailspin. From a high of $1.9 trillion, assets under management dropped to $1.4 trillion at year-end 2008 and then to about $1 trillion today. In all 1,471 hedge funds were liquidated last year.

MarketWatch.com:

- Mitsubishi UFJ Financial Group Inc. said Monday that it will acquire $600 million Morgan Stanley(MS) common shares, bringing its stake in the U.S. investment bank to over 20%. The Japanese bank said it will pay $24 per share and buy 25 million shares on May 13. However, because Morgan Stanley will redeem around Y60 billion of nonconvertible preferred shares under the transaction, MUFG will not pay additional cash for the purchase.

- AT&T(T) has agreed to buy certain wireless assets from Verizon Wireless(VZ) for $2.35 billion in cash. Under the deal, AT&T (T) will acquire licenses, network assets and 1.5 million wireless subscribers in 79 service regions. The subscribers are mostly in rural areas across 18 states.

- A day after Target Corp.(TGT) forecast its first-quarter profit will be "well above" Wall Street expectations, the No. 2 U.S. discount retailer was upgraded Friday at both J.P. Morgan and Credit Suisse on improved outlooks for both its credit-card segment and retail-store operations.

CNBC.com:
- The results of the stress tests on 19 of the biggest US banks have left European banks exposed, as they now look vulnerable to recapitalization needs and to claims that not all checks were made to ensure rules were being followed, analysts said on Friday. "Compared to the US, the European banking system is rapidly being left behind on the bank recapitalization front," UBS analysts said in a research note. "Unlike the US stress test that set out clear objectives, framework, and deadlines, there is no major policy initiative to recapitalize banks in Europe," they added. European bank stocks rallied Friday, boosted by relief that no bad surprises arose from the results of the US stress tests, but UBS kept its underweight recommendation, while upgrading their weighting on US banks' stocks to neutral from underweight.

NY Times:

- More States Use GPS to Track Abusers.

- China’s frenetic construction of coal-fired power plants has raised worries around the world about the effect on climate change. China now uses more coal than the United States, Europe and Japan combined, making it the world’s largest emitter of gases that are warming the planet. But largely missing in the hand-wringing is this: China has emerged in the past two years as the world’s leading builder of more efficient, less polluting coal power plants, mastering the technology and driving down the cost. While the United States is still debating whether to build a more efficient kind of coal-fired power plant that uses extremely hot steam, China has begun building such plants at a rate of one a month.

- As Taliban militants push deeper into Pakistan’s settled areas, foreign operatives of Al Qaeda who had focused on plotting attacks against the West are seizing on the turmoil to sow chaos in Pakistan and strengthen the hand of the militant Islamist groups there, according to American and Pakistani intelligence officials.

Washington Post:
- The Obama administration is preparing to revive the system of military commissions established at Guantanamo Bay, Cuba, under new rules that would offer terrorism suspects greater legal protections, government officials said. The rules would block the use of evidence obtained from coercive interrogations, tighten the admissibility of hearsay testimony and allow detainees greater freedom to choose their attorneys, said the officials, who spoke on the condition of anonymity because they were not authorized to speak publicly. Civil liberties advocates, who insist that federal courts can handle terrorism cases, vowed to challenge any new process. "We'll litigate this before they can proceed, absolutely," said Anthony D. Romero, the executive director of the American Civil Liberties Union.

TheStreet.com:

- Dear SEC: Reinstate Uptick Rule.

Business Week:
- For the first time in more than a decade, ESPN is making a push into the regional sports business. But this time ESPN is going online, instead of offering a service on TV. The launch a month ago of ESPN Chicago, a Web site for sports fanatics in the Windy City, has the potential to set off a digital war in regional sports as the existing stalwarts with local sports networks, Fox (NWS) and Comcast (CMCSA), prepare to fend off ESPN.

Nj.com

- Princeton University has a problem with paper. It uses far too much of it. Last year alone, campus printers spit out 15 million pages. Amazon.com(AMZN), the huge online retailer, has a splashy new version of its Kindle electronic reader, one that's twice as big as its predecessor and that allows users to make notations and highlight words or passages on its digital pages. Beginning this fall, Princeton and five other colleges across the country will put the new device to the test to determine if it can help reach a goal of a paperless society, or at least a society that uses much less paper.

USA Today:

- Nissan plucked a prototype of its electric car from a demonstration for Washington, D.C., bigwigs and brought it to USA TODAY Wednesday for a runaround. The body and interior are not at all like the production version. That'll be a four-door, front-wheel-drive hatchback that can hold four or five passengers. But the battery pack and electric motor in the prototype are the same that'll be in the small car, which will start down the assembly line in fall 2010 in Japan.

Wealth Bulletin:

- Around one in six hedge funds continued to curtail withdrawals at the end of March, despite investors being under less pressure to pull their money out as the markets stabilized, research has found. At the end of the first quarter of this year, about 17% of all hedge funds were not allowing investors pull all their money out at once, according to a study published today by Swiss bank Credit Suisse.

Denver Post:

- Thousands of super-efficient houses that generate all the power they use are underway in Colorado, a proliferation that promises to make the net-zero movement affordable. "We are seeing more and more really highly efficient off-the-grid homes on a mainstream scale in Colorado more than we ever have before," said Deb Kleinman , executive director of Colorado's chapter of the U.S. Green Building Council. "People are watching Colorado, and net-zero will soon become the new goal to push for." A net-zero house or community uses only power generated from solar, wind and underground geothermal systems. It generates all the electricity it uses, ending dependence on natural-gas or coal-powered electricity.

HartfordBusiness.com:

- Even though the state maintained its title as a hedge fund Mecca, Connecticut’s 10 largest funds lost a combined $14.7 billion in assets last year, reflecting the overall struggles the industry went through as the stock market began to tumble in the fall. Connecticut’s 10 largest hedge funds had a combined $119 billion in assets at the end of 2008, down from $134 billion in the year-ago period, according to data provided Alpha Magazine, a New York-based financial publication.

eFinancialCareers:

- What’s a PhD with a bias towards quantitative finance to do? Banks have gone from screaming from the rooftops that they want quants, to whispering that they're only interested in a select handful of them. This leaves a lot of people on the sidelines.

Lloyd’s List:

- PRICES for ships sold for recycling could fall as low as $100 per ldt in the coming months, as demand for ship demolition continues to grow. Demand in increasing at a time when shipbreaking facilities are full to capacity and could increase if more tanker owners look to sell vessels for scrap. A broker, who preferred not to be identified, told Lloyd’s List: “We believe the main trend will be for prices to go down further to below $200 per ldt. Up to now, despite huge supply, prices have remained above $200 and relatively firm by historic standards. “The average price between 1988 and 2001 was about $170 per ldt and prices are still above that level. But in the late 1990s yards were buying vessels for demolition for as little as $100 per ldt and we could see such prices back again.”

AP:

- Top representatives of the health care industry plan to offer $2 trillion in cost reductions over 10 years in a bid to help pass President Barack Obama's health overhaul, a source familiar with the negotiations said Sunday. Industry officials representing health insurers, hospitals, doctors, drug makers and a major labor union plan to be at White House on Monday to present the offer.

Reuters:

- The U.S. economy is expected to begin growing in the second half of this year, while the jobless rate is expected to peak in the first quarter of 2010, according to a survey of top forecasters released on Sunday. The consensus forecast of panelists surveyed in the Blue Chip Economic Indicators newsletter for May predicted economic growth, as measured by real gross domestic product, would shrink 2.8 percent in 2009 but grow 1.9 percent in 2010. The economic downturn is expected to ease in the second quarter of this year after sharp declines in the fourth quarter of last year and the first quarter of this year, the survey said. Growth is forecast to resume in the third quarter. The May consensus forecast from the economists saw second-quarter GDP contracting at a 1.7 percent annual rate, 0.4 percentage point better than was forecast a month ago. In April, the panelists forecast GDP would contract 2.6 percent in 2009 and grow 1.8 percent in 2010. "The past month provided fresh evidence the decline in business activity is starting to moderate, buttressing consensus expectations that the economy will emerge from recession in the second half of this year," the newsletter said.

- U.S. government protection of its financial industry encouraged excessive risk-taking at the heart of the current financial crisis and ought be rolled back, a top U.S. Federal Reserve official said on Monday. "The financial safety net, especially those parts that were more implicit and perceived than explicit and written into the laws, played a significant role in the accumulation of risks that ultimately led to the turmoil we are still experiencing," said Richmond Federal Reserve President Jeffrey Lacker. "While deployment of the financial safety net is often viewed as an essential response to the financial crisis, I believe we need to give serious thought to the extent to which the safety net was actually a significant cause of the crisis," he said in remarks prepared for delivery to a banking conference in Beijing.

- GMAC, the troubled automobile lender, may receive a $7.5 billion infusion from the U.S. government as early as next week, the Washington Post reported in its Saturday edition, citing unnamed sources. The funds for GMAC would come as part of an Obama administration package that aims to revive the nation's financial system even after it found that major banks need less financial aid than expected, the Post said.

- EU antitrust regulators are expected to say this week that Intel Corp illegally paid computer makers to postpone or cancel the launch of products containing chips made by its main rival, sources familiar with the case said on Sunday. The European Commission is set to decide on Wednesday to fine the world's largest chipmaker and order changes to its business practices for what the EU executive sees as "naked restrictions" to competition, the sources said. There was no indication of how big a fine might be levied. The largest fine levied by the EC for an abuse of market dominance was the 497 million euros ($655 million) demanded from Microsoft on March 24, 2004.

Financial Times:

- The hedge fund industry, infamous for imposing high fees, is finally beginning to cut these charges amid heavy outflows and investor complaints after a year of losses. Three hedge funds contacted by the Financial Times admitted to cutting their fees for new investors, usually by lowering management fees by half a percentage point to between 1 per cent and 1.5 per cent, and performance fees from 20 per cent to 10 per cent. A few privileged investors have always been able to gain such favorable terms. However, what makes the current trend striking is that the number of special deals is proliferating fast. Chris Lombardy, an executive at Kinetics Partners, an industry consultant, said the fee cuts started when some funds halted redemptions during the financial crisis. “Some managers offered investors fee reductions in exchange for staying in,” he said.

- News Corp(NWS/A) is planning to introduce micro-payments for individual articles and premium subscriptions to the Wall Street Journal’s website this year, in a milestone in the news industry’s race to find better online business models. “A sophisticated micro-payments service” will launch this autumn, Robert Thomson, editor-in-chief of Dow Jones and managing editor of the Journal, told the Financial Times. The move will position the Journal as the first big newspaper title to adopt a model many are cautiously studying as they seek to reduce their dependence on plunging advertising revenues. Mr Thomson said the Journal saw an opportunity in its US metropolitan rivals’ weakness, adding: “We’re going to move in on each of the big cities.” It has begun marketing campaigns in cities such as Detroit and San Francisco, where local publications are struggling, having moved to broaden the title’s appeal by playing up local political and sports coverage on its website.

- Around a quarter of the City of London’s hedge funds could relocate overseas because of the new tax regime, a consultancy has predicted. David Butler, founding member of Kinetic Partners, the asset management consultancy, said that the new 50 per cent top rate of income tax was tipping many hedge fund managers over the edge. “My expectation is that about 25 per cent of hedge fund managers in the UK will move overseas,” he said.

- Wells Fargo(WFC), deemed to need $13.7bn of capital by the US government’s stress test last week, claims to have the earning power to fill its capital deficit by November and apply to repay “as soon as practical” $25bn of government funds. “We think we already have a lot of capital and, with our earnings, we are accumulating regulatory capital at a very high rate,” said Howard Atkins, chief financial officer. “Left to our own devices, we are hopeful we would be allowed to start paying back [the troubled asset relief program] soon.” bankers said US lenders had government assurances that they would be allowed to raise less than the $74.6bn in equity mandated by the stress tests if earnings in the next six months outstripped regulators’ forecasts. The agreement – not mentioned when the government revealed the results on Thursday – means some banks might not have to raise as much equity through share issues and asset sales as the market is expecting. It could also increase the incentive for banks to book profits in the next two quarters. The banks have 28 days to announce capital-raising plans and until November 9 to implement them. Wells Fargo and other banks that will have to raise capital said that if operating profits were greater than the stress-case forecast for the second and third quarters, they would receive credit for the difference. That would reduce the need to raise fresh equity.

- A period of high-level diplomacy on the Middle East opens in New York on Monday, promising further insights into an emerging strategy from Barack Obama’s administration that is already raising concerns among Israel’s supporters. A US official this week broke a long-standing taboo by referring to Israel’s nuclear weapons in a speech at the United Nations, and Joe Biden, vice-president, delivered a message to the biggest US pro-Israel lobby group that he warned they were “not going to like”. A clearer picture of administration policy will not emerge until after that round of meetings. However, Mr Biden set the tone last week when he told the American Israel Public Affairs Committee (Aipac) Israel had to work towards a two-state solution. He told the lobby group’s annual conference: “You’re not going to like my saying this, but [Israel should] not build more settlements, dismantle existing outposts, and allow the Palestinians freedom of movement…”

Globe and Mail:

- We asked Victor Tan, a fund analyst with Globe Investor, to pull out the 15 worst and 15 top performing hedge funds in 2008. (These funds are in the alternative strategies category.) We then looked at their returns for the first four months of this year. We excluded U.S. dollar, duplicate, and exchange-traded funds as well as those closed to new investors. WHAT DID WE FIND? A flip-flop of last year.

NBS:

- China April Producer Prices fell 6.6%. April Consumer Prices dropped 1.5%.

Weekend Recommendations
Barron's:
- Made positive comments on (BAC), (HDI), (TSN), (CPB), (HES) and (JPM).

- Made negative comments on (LEA), (JCI), (HANS) and (AXL).

Citigroup:

- Upgraded (AEO) to Buy, target $17.

Night Trading
Asian indices are -.50% to +.75% on avg.
S&P 500 futures -.69%.
NASDAQ 100 futures -.79%.

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

Conference Calendar

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

Earnings of Note
Company/Estimate
- (ENER)/.00

- (KG)/.14

- (FLR)/.92

- (NUAN)/.22

- (DISH)/.56

- (MDR)/.30

- (AIPC)/.75

- (PCLN)/.92

- (ETP)/1.34

Upcoming Splits

- None of note

Economic Releases

- None of note

Other Potential Market Movers
- The Fed’s Bernanke speaking on bank stress tests(CLH) shareholders meeting, (ABX) shareholders meeting and the (TIE) shareholders meeting could also impact trading today.

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

Weekly Outlook

Click here for Wall St. Week Ahead by Reuters.

Click here for stocks in focus for Monday by MarketWatch.

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

Economic reports for the week include:

Mon. – None of note

Tues. – Trade Balance, Monthly Budget Statement, weekly retail sales reports

Wed. – Weekly EIA energy inventory data, weekly MBA mortgage applications report, Business Inventories, Advance Retail Sales, Import Price Index

Thur. – Producer Price Index, Initial Jobless Claims

Fri. – Consumer Price Index, Empire Manufacturing, Net Long-term TIC Flows, Industrial Production, Capacity Utilization, Univ. of Mich. Consumer Confidence

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

Mon. – Flour Corp(FLR), DISH Network(DISH), McDermott(MDR), priceline.com(PCLN)

Tues. – Warnaco Group(WRC), BMC Software(BMC), Applied Materials(AMAT)

Wed. – Tidewater(TDW), CA Inc.(CA), Jack in the Box(JACK), Whole Foods(WFMI), Macy’s(M)

Thur. – Wal-Mart(WMT), Urban Outfitters(URBN), Kohl’s Corp.(KSS), Agilent Technologies(A), Genentech(DNA), Compuware(CPWR), Nordstrom(JWN)

Fri. – JC Penney(JCP), Abercrombie & Fitch(ANF)

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

Mon. – The Fed’s Bernanke speaking on bank stress tests(CLH) shareholders meeting, (ABX) shareholders meeting, (TIE) shareholders meeting

Tue. – The Fed’s Lockhart speaking, Fed’s Rosengren speaking, Bank of America Healthcare Conference, UBS Global Financial Services Conference, CSFB Basic Materials Conference, UBS Industrials Conference, (MMM) shareholders meeting, (PRU) shareholders meeting, CSFB Aerospace & Defense Conference, Merrill Pharma/Biotech/Medical Conference, (INTC) analyst meeting

Wed. – The Fed’s Lockhart speaking, Fed’s Plosser speaking, BMO Capital Ag/Protein/Fertilizer Conference, Bank of America Healthcare Conference, (IBM) Analyst Meeting, (MA) Investor Meeting, Robert Baird Growth Conference, UBS Financial Services Conference

Thur. – BMO Capital Ag/Protein/Fertilizer Conference, Goldman Consumer Conference, Bank of America Healthcare Conference, (F) Shareholders Meeting, Robert Baird Growth Stock Conference, CSFB Financials Conference

Fri. – The Fed’s Fisher speaking, (MFE) Investor Day, (M) Shareholders Meeting

BOTTOM LINE: I expect US stocks to finish the week mixed as less credit market angst, declining economic fear, short covering and investment manager performance anxiety offsets higher energy prices and profit-taking. My trading indicators are giving bullish signals and the Portfolio is 100% net long heading into the week.