Today's Headlines

Bloomberg:

- Former Securities and Exchange Commission Chairman Arthur Levitt warned the Obama administration and U.S. regulators against attempting to change the way executives at financial firms are compensated. “Government can jawbone, but for government to regulate I think is overkill and very mistaken because you don’t know where it’s going to end,” Levitt said in an interview with Bloomberg Television today. Efforts by the Obama administration to change Wall Street pay practices are “totally wrongheaded,” he said. The criticism from Levitt, a Democrat appointed to the SEC by former President Bill Clinton, shows that efforts to overhaul pay practices will prove contentious even after a popular outcry over Wall Street bonuses.

- Dwight Anderson, the commodities investor who liquidated his main Ospraie Fund last year after losing 39 percent, is planning a comeback with two new hedge funds set to open July 1. The Ospraie Equity Fund will buy and sell stocks of commodity and basic-materials companies in industries such as chemicals, mining, paper and natural resources, Anderson said in a May 12 letter to investors. The Ospraie Commodity Fund will invest in commodities and related derivatives, according to the letter, a copy of which was obtained by Bloomberg News. Anderson’s former fund invested in commodities and related stocks. It was the world’s largest such hedge fund at its peak, with more than $3.5 billion in assets after averaging annual gains of about 15 percent from 2000 through 2007. He decided in September to shutter the eight-year-old fund and sell assets after losses of more than 30 percent triggered a clause enabling investors to withdraw their money by the month’s end. About 1,441 funds, or 15 percent of those worldwide, closed last year, according to Chicago-based Hedge Fund Research Inc. Ospraie’s clients have gotten 82 percent of their money back. The remaining portion, invested in private companies, might take as long as three years to return, Anderson told investors at the time of the closure.

- Russia is a “weak link” in emerging markets and investors should buy credit default swaps protecting the country’s bond payments to profit from an expected increase in the cost of the contracts, according to RBC Capital Markets. Russian companies will struggle to repay $51.2 billion of debt maturing before December and the banking system needs to be restructured, which could “materially increase financial sector contingent liabilities for the government,” the note said. Credit default swaps have dropped to around 300 basis points for Russia from more than 1,000 basis points in October on optimism the worst of the financial crisis is over, Bloomberg data show. This price “does not accurately reflect the risks,” RBC said.

- The Federal Reserve considers the recent jump in Treasury yields more as a reflection of a better economic outlook than a signal it needs to step up purchases of U.S. government debt, according to central bank officials who declined to be identified.

- The premiums banks charge each other for gold coins, reflecting costs above metal content, shrank this month after investor demand eased, Commerzbank AG said. The interbank premium in Europe on a 1-ounce coin such as American Eagle, Krugerrand or Maple Leaf dropped to about 6%, from 10% at the end of April. That was the highest rate for at least a decade.

- Confidence in the global economy jumped to the highest level in 19 months as central bankers pointed to signs of a revival and stress tests on U.S. lenders reassured investors, a Bloomberg survey of users on six continents showed. The Bloomberg Professional Global Confidence Index climbed to 38.72 in May from 21.2 in April, the biggest increase since the survey began in November 2007. A measure of U.S. participants’ confidence in the world’s largest economy rose to 34 from 23.9, the survey showed.

- European Union regulators levied a record 1.06 billion-euro ($1.45 billion) fine against Intel Corp.(INTC), the world’s biggest computer-chip maker, and ordered the company to stop using illegal rebates to thwart competitors. Following an eight-year investigation, the European Commission found that Intel impeded competition by giving rebates to computer makers that buy all or almost all of their chips from Intel. The penalty is the biggest antitrust fine in the 27-nation EU’s history, more than double the 497 million- euro penalty against Microsoft Corp. in 2004.

- The U.S. Treasury will tell banks to increase transparency in the over-the-counter derivatives market by making prices available on centralized computer platforms, according to people familiar with the plan. Treasury Secretary Timothy Geithner may announce the decision as soon as today, said the people, who declined to be identified because they weren’t authorized to speak publicly.

- General Motors Corp.(GM) bonds tumbled to record lows on concern that it will fail to restructure in time for a government-imposed deadline on June 1, pushing the largest U.S. automaker into bankruptcy. GM’s $300 million of 9.4 percent bonds due in 2021 fell 4.3 cents to 4.4 cents on the dollar as of 11:46 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Wall Street Journal:

- Tax Increases Could Kill the Recovery. The cap-and-trade levy would hit low-income earners especially hard. Historians and economists who've studied the 1930s conclude that the tax increases passed during that decade derailed the recovery and slowed the decline in unemployment. That was true of the 1935 tax on corporate earnings and of the 1937 introduction of the payroll tax. Japan did the same destructive thing by raising its value-added tax rate in 1997. Even if the proposed tax increases are not scheduled to take effect until 2011, households will recognize the permanent reduction in their future incomes and will reduce current spending accordingly. Higher future tax rates on capital gains and dividends will depress share prices immediately and the resulting fall in wealth will cut consumer spending further. Lower share prices will also raise the cost of equity capital, depressing business investment in plant and equipment. The Obama budget calls for tax increases of more than $1.1 trillion over the next decade. Official budget calculations disguise the resulting fiscal drag by treating Mr. Obama's proposal to cancel the 2011 income tax increases for taxpayers with incomes below $250,000 as if they are real tax cuts. The plan to modify the Alternative Minimum Tax to avoid increases for some taxpayers is also treated as a tax cut. But those are false tax cuts in which no one's tax bill actually declines. In contrast, the proposed tax increases are very real. And despite the proposed tax increases, the government's new spending and transfer programs would cause the annual budget deficit in 2019 to exceed $1 trillion, or 5.7% of GDP. Mr. Obama's biggest proposed tax increase is the cap-and-trade system of requiring businesses to buy carbon dioxide emission permits. The nonpartisan Congressional Budget Office (CBO) estimates that the proposed permit auctions would raise about $80 billion a year and that these extra taxes would be passed along in higher prices to consumers. Anyone who drives a car, uses public transportation, consumes electricity or buys any product that involves creating CO2 in its production would face higher prices. CBO Director Douglas Elmendorf testified before the Senate Finance Committee on May 7 that the cap-and-trade price increases resulting from a 15% cut in CO2 emissions would cost the average household roughly $1,600 a year, ranging from $700 in the lowest-income quintile to $2,200 in the highest-income quintile. It's not too late for Mr. Obama to put these tax increases on hold. If he doesn't, Congress should protect the recovery and the longer-term health of the U.S. economy by voting down this enormous round of higher taxes.

- The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter. The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance. In an indication of how broad the effort may become, Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators need to examine compensation practices in the mortgage industry, suggesting new limits could stretch beyond banks.

- The Obama administration's behavior in the Chrysler bankruptcy is a profound challenge to the rule of law. Secured creditors -- entitled to first priority payment under the "absolute priority rule" -- have been browbeaten by an American president into accepting only 30 cents on the dollar of their claims. Meanwhile, the United Auto Workers union, holding junior creditor claims, will get about 50 cents on the dollar. The absolute priority rule is a linchpin of bankruptcy law. By preserving the substantive property and contract rights of creditors, it ensures that bankruptcy is used primarily as a procedural mechanism for the efficient resolution of financial distress. Chapter 11 promotes economic efficiency by reorganizing viable but financially distressed firms, i.e., firms that are worth more alive than dead. Violating absolute priority undermines this commitment by introducing questions of redistribution into the process. It enables the rights of senior creditors to be plundered in order to benefit the rights of junior creditors.

CNBC:

- Online classified ads service Craigslist will get rid of its "erotic services" category that critics called a front for prostitution, replacing it with an adult category that will be reviewed by Web site employees, state attorneys general announced Wednesday.

- Intel(INTC) denies allegations it used illegal selling practices and will appeal the $1.45 billion dollar fine imposed by the European Commission, company CEO Paul Otellini told CNBC Wednesday.

NY Post:

- Goldman Sachs(GS) and Morgan Stanley(MS) look to reap a combined $100 million in fees from just a few days of work -- and they can thank the government's stress test for the windfall. According to estimates calculated by The Post, Morgan Stanley and Goldman are in line to pocket the combined nine-figure sum as a result of Uncle Sam forcing 10 of the country's largest financial firms to raise $75 billion in much needed cash to gird against potentially choppy markets. Morgan and Goldman have been assigned the lion's share of plum debt and equity underwriting assignments in an otherwise dead capital-raising environment.

Washington Post:

- As American International Group chief executive Edward M. Liddy returns to Washington to face Congress today, new details are emerging about how long federal officials were aware of the company's recent bonus payments to its executives and of how inflammatory the payments could be. Documents show that senior officials at the Federal Reserve Bank of New York received details about the bonuses more than five months before the firestorm erupted and were deeply engaged with AIG as well as outside lawyers, auditors and public relations firms about the potential controversy.

Reuters:
- World oil demand is still shrinking as the global economy contracts, OPEC said on Wednesday, adding that a rise in oil prices reflected sentiment rather than fundamentals, which were far from balanced. Despite falling demand for oil and promises by the Organization of the Petroleum Exporting Countries to cut output, the producer group said its own production actually increased last month, suggesting rising prices may have encouraged its members to pump more. OPEC said in its Monthly Oil Market Report that its oil output, excluding Iraq, rose to 25.81 million barrels per day (bpd) in April, up from 25.59 million bpd in March. It was the first rise in OPEC output since July last year. The group said global oil demand would drop 1.57 million bpd in 2009 to average 84.03 million bpd. Its previous forecast was for demand to fall by 1.37 million bpd. OPEC still expects higher global oil demand this year than the International Energy Agency, adviser to 28 industrialized countries, which last month forecast consumption this year at 83.4 million bpd. Demand is falling fast in the developed nations of the Organization for Economic Co-operation and Development (OECD), but the global downturn has also curbed previously rapid demand growth in developing countries such as China and India. World oil demand contracted year-on-year by a record 2.4 million bpd in the first quarter of this year with about 95 percent of the total decline attributed to the OECD, OPEC said. The OPEC report cautioned that the recent improvement in market sentiment as prices have risen did not necessarily reflect the realities of demand and supply.

- OpenTable Inc, an online reservation system used in about 10,000 restaurants in the United States, will price its planned initial public offering on May 20, and begin trading the following day, a source close to the deal said Wednesday. OpenTable, which is based in San Francisco, plans to sell 3 million shares in an estimated range of $12 to $14 per share in the deal, which is being underwritten by Bank of America Merrill Lynch (BAC).

- IBM (IBM) Chief Executive Sam Palmisano reiterated his outlook for 2010 earnings, saying the company's focus on high-margin software and its geographic diversity would help buffer the impact of a slower economy. Palmisano said International Business Machines Corp is still targeting earnings of $10 to $11 per share in 2010. The company has also forecast earnings of "at least $9.20" per share in 2009.

- U.S. Bancorp (USB) Chief Executive Richard Davis said the bank expects in a few weeks to be eligible to repay a $6.6 billion taxpayer-funded infusion, becoming one of the first big lenders to exit the much-maligned Troubled Asset Relief Program.

- Verizon Communications Inc(VZ) will sell 4.8 million rural phone lines to Frontier Communications Inc for $5.25 billion in stock, getting rid of the declining business to focus on wireless and broadband services. The deal will triple the size of Frontier, making it the largest rural-only service provider in the United States.

- The U.S. financial system has completed a big part of the painful adjustment away from its excessively leveraged state, and lending is starting to improve, U.S. Treasury Secretary Timothy Geithner said on Wednesday. Speaking to a group of community bankers, Geithner also said the government planned to reopen a $700 billion bailout fund to small banks once the larger ones repay some of the government money they received.

- The U.S. economy showed some shy signs of improvement in April, although the outlook for European countries still looks mixed, credit card network MasterCard (MA) said on Wednesday.

Financial Times:
- Credit risk – measured by key money market spreads – has for the first time fallen below levels last seen before the collapse of Lehman Brothers as banks increasingly lend to each other amid growing confidence that the worst of the financial crisis is over.The gap between London interbank offered rates and overnight market rates – a pure measure of credit risk – on Wednesday dropped below levels on Friday September 12, the last price before the US investment bank collapsed on the following Monday. This spread is the most important gauge of risk in the money markets because it measures the difference between risk-free overnight market rates and three-month Libor, the key benchmark interest rate banks charge each other for lending. The narrowing of this spread suggests fears of a financial meltdown – prevalent after the US investment bank went bankrupt – have sharply receded.

CBC:

- A researcher at the National Microbiology Lab in Winnipeg is facing charges in the United States after allegedly trying to smuggle unidentified biological material across the Manitoba-North Dakota border. U.S. authorities allege Konan Michel Yao had 22 vials of an unidentified substance in the trunk of his car when he tried to cross the border on May 5. He is charged with smuggling merchandise. U.S. customs officers allegedly found the vials wrapped in aluminum foil inside a glove and packaged in a plastic bag, along with electrical wires.

Vedomosti:

- Russian mortgage loans fell 80% in the first quarter from a year earlier.

Bear Radar

Style Underperformer:
Small-cap Value (-5.30%)

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Gaming (-8.52%), Steel (-7.86%) and REITs (-6.26%)

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1) HST 2) STX 3) AMD 4) GT 5) AMAG

Bull Radar

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Drugs (+1.26%), HMOs (+.31%) and Education (-.54%)

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Wednesday Watch

Late-Night Headlines
Bloomberg:

- Intel Corp.(INTC) Chief Executive Officer Paul Otellini said orders this quarter are “a little better than expected,” signaling that the computer industry may start to recover from its worst slump since 2001. “A lot depends on June,” Otellini said today at a meeting at the company’s headquarters in Santa Clara, California. “So far so good.” Intel climbed 44 cents, or 2.9 percent, to $15.65 in late trading. The stock, up 3.8 percent this year, closed at $15.21 on the Nasdaq Stock Market. While corporations have put off replacing their PCs, demand from consumers “has held up reasonably well,” Sean Maloney, head of Intel’s sales and marketing, said today. Intel sees an opportunity to sell more server chips as companies replace older machines, he said. There is no “unhealthy” buildup of unsold parts, Maloney said. “We are at some kind of a new base -- we’ve seen things stabilize,” he said. “We’ve seen a return to confidence in some areas.”

- The cost of protecting investors in Asia-Pacific corporate and government bonds from default tumbled, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 20 basis points to 212.54 as of 8:24 am in Singapore, according to Royal Bank of Scotland Group Plc. The Markit iTraxx Japan index was quoted 5 basis points lower at 245 as of 9:24 am in Tokyo, Barclays Plc prices show. The Markit iTraxx Australia index was quoted 17.5 basis points lower at 227.5 as of 10:28 am in Sydney, Citigroup Inc. data show.

- Republicans seized on an Obama administration document that says regulation of greenhouse gases by the Environmental Protection Agency is likely to cause economic harm to small businesses, communities and factories. Senator John Barrasso, a Wyoming Republican, cited the nine-page memo at a committee hearing today on the EPA’s proposed 2010 budget, saying it shows the agency’s finding in April that the gases are harmful to health was flawed. The document is a “smoking gun” that proves the decision was politically based, he said. The memo, part of an internal interagency review process that began in March, said EPA regulation of greenhouse gases under the Clean Air Act “is likely to have serious economic consequences for regulated entities throughout the U.S. economy.” It said there is concern the EPA “is making a finding based on ‘harm’ from substances that have no demonstrated direct health effects.” Republicans and Democrats on the Senate panel clashed today over the economic costs of climate-change legislation, a precursor to debate when the committee attempts to draft such a measure. “There exists no legitimate economic argument that regulating carbon dioxide would not significantly increase the cost of energy,” Senator David Vitter, a Louisiana Republican, said at the Senate committee’s hearing.

- Neelie Kroes, the European Union’s top antitrust enforcer, is seeking to fine Intel Corp.(INTC) more than 1 billion euros ($1.36 billion) for using rebates to thwart a competitor, a person with direct knowledge of the case said.

- Freddie Mac is seeking a $6.1 billion investment from the U.S. Treasury, a fifth of the aid tapped in March, as the mortgage-finance company used an accounting rule and gains on derivatives to help curtail losses. Freddie Mac said it will still need more financial help from the government and may have trouble coming up with the cash to pay dividends owed on Treasury funds already borrowed.

- A record 128,600 investment professionals have enrolled to take the Chartered Financial Analyst exam in June, angling to gain a hiring edge as the financial-services industry sheds jobs.

- The Homeland Security Department plans a new emphasis on finding and deporting illegal immigrants convicted of crimes, Secretary Janet Napolitano told a House panel. Testifying before the House Appropriations homeland security subcommittee today, Napolitano said her department’s proposed budget for the fiscal year beginning Oct. 1 includes $39 million to hire 80 new law enforcement employees to pursue criminals who are in the U.S. illegally. She said the department is working with state and local authorities to begin deportation proceedings for prisoners shortly before they end incarceration.

- China’s industrial production grew less than economists estimated in April as electricity output fell and exports tumbled. Retail sales climbed. Output rose 7.3 percent from a year earlier, the statistics bureau said today, after gaining 8.3 percent in March. That was less than the 8.6 percent median estimate of 20 economists surveyed by Bloomberg News. “The recovery is still quite fragile -- exports are still very weak,” said Isaac Meng,” a senior economist at BNP Paribas SA in Beijing. A decline in power output accelerated to 3.5 percent in April from 1.3 percent in March, the statistics bureau said. “If inventory stockpiling and the refiring of production has been premature, production is at risk of falling in coming months,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong.

Wall Street Journal:

- Goldman Takes Heat for Conflicts at Whitehall. One of Goldman Sachs Group Inc.'s(GS) premier real-estate funds is in discussions with its lender to restructure debt on some of its biggest investments: Nevada casinos, German office buildings and a U.S. hotel chain. The wrinkle: The lender is Goldman Sachs. Investors were warned about potential conflicts of interest when they put money into this group of real-estate vehicles, which use the Whitehall name. Such funds were billed as "opportunity funds," huge, highly leveraged investments backed directly by Goldman, its employees and a group of outside investors. Overall, Goldman has raised $31 billion for various Whitehall funds over the past 18 years, with outsiders usually investing two-thirds or more into each one. With commercial real-estate values plunging, investors and their advisers have begun focusing on the conflicts. They say that Goldman is able to use its position as investor, lender and fee-collector to benefit itself at the expense of outsiders. For Whitehall's biggest fund, Whitehall Street Global Real Estate Limited Partnership 2007, the news has been almost all bad. In 2008, it wrote down $2.1 billion of the $3.7 billion invested between May 2007 and August 2008. But all wasn't lost for Goldman. During 2008, Goldman made at least $88 million in fees for arranging financing for Whitehall 2007 deals, plus an additional $30 million in advisory fees, and $19 million in property-management fees, according to documents for the first, second and fourth quarters of the year that were reviewed by The Wall Street Journal. In addition, the Goldman fund charges a 0.5% management fee on the gross cost of the fund's investments, which was $17.2 billion as of Dec. 31. Assets under management change quarterly, but assuming a static value of $17.2 billion for 2008, that would have earned Goldman an additional fee of $86 million. Such high fees at a time of poor performance have upset some outside investors in the fund. Adding to the discord, says one such investor: Goldman offered to buy out its employees' interest in the fund at a discount to net asset value late last year, weeks before further marking down the equity value of the fund. Outside investors didn't get the offer and suffered the markdown. Goldman is in an especially tricky position when acting as both a borrower and lender to itself, critics say. Concessions granted by Whitehall may benefit Goldman, the lender, at the expense of Whitehall investors, the critics add.

- China is likely to surpass the U.S. to become world’s largest online game market this year, according to a recent report by market research firm iResearch. China’s online game market generated revenue of 20.8 billion yuan ($3.04 billion) in 2008, up 52.2% over the previous year. Over 80% of the revenue came from big, multiplayer online games, with the rest generated from Web games and mobile games.

- House Energy and Commerce Chairman Henry A. Waxman has signaled that he may accept further compromises to his bill to curb U.S. greenhouse-gas emissions as the Obama administration and congressional Democrats face stepped-up attacks from Republicans on the politically sensitive proposal. Mr. Waxman (D., Calif.) told representatives of the Sierra Club, the Environmental Defense Fund and the National Wildlife Federation in a meeting late Monday that he is considering amending the bill to require a cut in U.S. greenhouse-gas emissions of roughly 14% to 17% below 2005 levels by 2020 rather than a cut of 20% in that time frame, as the public version of his proposal calls for, according to three people who were briefed on the discussion but didn't attend the meeting. Republicans pounced Tuesday on a White House document that says regulating greenhouse gases under the Clean Air Act "is likely to have serious economic consequences for regulated entities throughout the U.S. economy, including small businesses and small communities." The document, an amalgamation of comments by government agencies sent from the Office of Management and Budget to the Environmental Protection Agency earlier this year, presents a more dire view of the consequences of regulating greenhouse gases under the Clean Air Act than the Obama administration has publicly stated.

- Amid the worst falloff in consumer spending in decades and a sharp decline in its own results, retailer Macy's Inc.(M) is chasing customers of fallen competitors to rebuild its sales.

- The Treasury Department is expected to notify a group of asset managers Wednesday that they've been culled from the 104 that applied to oversee the first wave of Public-Private Investment Program funds. The selected firms, widely expected to include mega-managers BlackRock Inc. and the Pacific Investment Management Co., will then negotiate with Treasury over the structure of their proposed funds before they're formally identified as qualified under PPIP, expected in early June, according to a Treasury official.

- The swine-flu outbreak has focused a spotlight on a looming risk for hospitals and their patients: a shortage of technicians to run critical lab tests. Vanderbilt University Hospital's lab had to pull staffers from other parts of the hospital and ask technicians to work double shifts to test incoming patients for swine flu earlier this month. "It was all hands on deck for a week," says Michael Laposata, chief pathologist at the large medical center in Nashville, Tenn. Swine flu has had minimal impact in the U.S. so far. But in the event of a major infectious-disease outbreak, labs at smaller hospitals around the country "would never have enough expertise or resources to mount a response," Dr. Laposata says. "This is a major patient-safety issue, right behind taking out the wrong kidney or giving 10 times the dose of a drug."

- Companies are rushing to raise money at the most frenzied pace in years and they are finding eager investors, a sign that markets are beginning to heal themselves. It is a startling shift. For much of the past year, even the largest companies found it difficult, if not impossible, to raise fresh money. Investors were more keen to safekeep their cash than to hand it over. Some companies had to drain their financial reserves or, sometimes, even close down, accelerating the global downturn. Now, the floodgates are wide open.

- Voting is drawing to a close Wednesday in India's largest election ever, and a slowing economy, terrorism and the rural poor have been front and center in the campaign. But of growing concern are the country's teeming new megacities, which are swelling rapidly even as jobs dry up and funding for infrastructure disappears.

- Google Inc.(GOOG) Tuesday said it would add a new menu to its search-results page to help users refine results by a broader range of variables. It also announced an online service that compiles search results into a spreadsheet.

NY Times:

- To go out in a small boat along Singapore’s coast now is to feel like a mouse tiptoeing through an endless herd of slumbering elephants. One of the largest fleets of ships ever gathered idles here just outside one of the world’s busiest ports, marooned by the receding tide of global trade. There may be tentative signs of economic recovery in spots around the globe, but few here. Hundreds of cargo ships — some up to 300,000 tons, with many weighing more than the entire 130-ship Spanish Armada — seem to perch on top of the water rather than in it, their red rudders and bulbous noses, submerged when the vessels are loaded, sticking a dozen feet out of the water. So many ships have congregated here — 735, according to AIS Live tracking service of Lloyd’s Register-Fairplay Research, a ship tracking service based in London — that shipping lines are becoming concerned about near misses and collisions in one of the world’s most congested waterways, the Strait of Malacca, which separates Malaysia and Singapore from Indonesia.

- About $12 billion was pulled out of accounts at Bernard L. Madoff’s firm in 2008, according to several people briefed on an analysis of Mr. Madoff’s business records. About $6 billion, or half, was taken out in just the three months before the financier was arrested in December and charged with operating an extensive Ponzi scheme, these people said. Those figures offer a bit of hope for Mr. Madoff’s thousands of defrauded customers.

- Nearly three months after President Obama approved a $787 billion economic stimulus package, intended to create or save jobs, the federal government has paid out less than 6 percent of the money, largely in the form of social service payments to states.

Business Week:
- Here is the case for a price bubble: Oil inventories are at a 19-year high; the U.S. alone has some 1 billion barrels sitting in storage tanks, according to Mark Williams at the Associated Press. Demand for oil is set to fall to its lowest level in five years, says the U.S. Energy Information Administration. Over at the Oil Drum, Rune Likvern says up to 3 million barrels a day of oil is being bought purely for storage, including on the sea. But he predicts that such purchases – which help to prop up prices – will decline because storage is becoming harder and harder to find; when they do, Likvern says, prices will fall substantially.

- China Looms Large in India’s Election.

LATimes:

- A federal jury in Miami convicted five men today of plotting with Al Qaeda to topple Chicago's Sears Tower and bomb FBI offices in hopes of igniting an anti-government insurrection. A sixth man was acquitted. The verdict allows government prosecutors to claim overall victory in a case that dragged on for years and cost millions of dollars, resulting in two hung juries and the acquittal of a seventh man originally charged in the case. According to prosecutors, the men, led by Batiste, wanted to bring down the U.S. government and sought an alliance with the Al Qaeda terrorist network to carry out attacks. Batiste recruited the other defendants as "soldiers" in his terrorist army, prosecutors said. The group's aims included blowing up the 110-story Sears Tower, poisoning salt shakers in restaurants and launching terrorist attacks "just as good or greater than 9/11," prosecutors said.

- Allegiant Air’s(ALGT) prudent ways help it soar amid slump in travel. The little known Las Vegas carrier is the nation’s most profitable; first-quarter profits rose nearly 200% to $28.2 million on revenues of $142.1 million. And that’s despite teaser fares as low as $9.

Fox News:

- Some lawmakers are questioning the wisdom of releasing hundreds of photos potentially showing U.S. military personnel abusing prisoners in Iraq and Afghanistan in the aftermath of the Sept. 11 terrorist attacks on New York City and the Pentagon. "If we release the pictures, the odds are that Al Qaeda and other terrorist groups will then use our pictures to recruit people to come into the war against us," Sen. Joe Lieberman. I-Conn., told FOX News. The Pentagon plans to release the photos by May 28 in response to a Freedom of Information Act lawsuit filed by the American Civil Liberties Union. A recent military study found a troubling connection. The study, based on the interrogation of 48 detainees, concluded that a motivating factor for bombers was the humiliation of Muslims, depicted in the photos shown repeatedly in the Arab media and on the Internet. The head of the American Legion warned in the Wall Street Journal that "a picture may be worth a thousand words, but is it worth the death of a single American soldier?...The Defense Department owes it to the soldiers to appeal to the U.S. Supreme Court in order to block the release of these photos." Lieberman told FOX News the release of the photos is not about transparency because the photos are old and Congress has moved aggressively to prevent abuse in the future through the Detainee Treatment Act. "This is voyeurism," he said. "There's no value to these pictures and again, tremendous potential harm to American and a lot of Americans, particularly those who are good enough to serve us in uniform."

Politico:

- The CIA has long been on the receiving end of harsh rebukes from Congress — on intelligence failures leading up to the war in Iraq, on secret prisons abroad and on the harsh interrogation techniques used on terrorism suspects. But with the release of records showing that it briefed members of Congress along the way, the CIA has effectively put lawmakers on the defensive. The 10-page document, which was prepared after an April 20 request by Rep. Peter Hoekstra (R-Mich.), lists 40 instances in which the CIA briefed members of Congress between September 2002 and March 2009. But they provide a vague description of the briefings, giving just enough information to fuel claims that House Speaker Nancy Pelosi (D-Calif.) and other top officials have long known about waterboarding and other tactics but did little to stop the techniques from being used. Sen. Orrin Hatch (R-Utah), the longest-serving member of the Intelligence Committee, said that if Pelosi or other Democrats objected to the interrogation techniques when they were briefed on them, they could have offered legislation — or withheld appropriations for the program. “We’re not without power up here,” Hatch said. “Now, they can make a fuss on policy differences, but to try and besmirch the people who had these tough decisions to make during those trying times is really offensive to people like me.” Asked if he felt the relevant lawmakers were kept informed of the interrogation tactics, Sen. Pat Roberts of Kansas, who was the top Republican on the Intelligence Committee, offered what he called “a strong, affirmative yes.”

Business Standard:

- India’s exports have declined for the seventh consecutive month in April. Quick estimates available with the commerce ministry reveal that the country’s exports dipped by 33 per cent to $10.7 billion. Similarly, imports too contracted by 35 per cent to $16 billion in April 2009, as against $16.07 billion in the year-ago period.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded (HD) to Buy, target $32.

Night Trading
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Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (M)/-.20

- (DPS)/.29

- (TDW)/1.96

- (LIZ)/-.22

- (CLWR)/-.34

- (CA)/.29

- (ASEI))/1.04

- (JACK)/.44

- (WFMI)/.19

Economic Releases

8:30 am EST

- The Import Price Index for April is estimated to rise .6% versus a .5% gain in March.

- Advance Retail Sales for April are estimated unch. versus a -1.2% decline in March.

- Retail Sales Less Autos for April are estimated to rise .2% versus a -1.0% decline in March.

10:00 am EST

- Business Inventories for March are estimated to decline -1.1% versus a -1.3% decline in February.

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,000,000 barrels versus a +605,000 barrel increase the prior week. Gasoline supplies are expected unch. versus a -167,000 decline the prior week. Distillate inventories are estimated to rise by +1,250,000 barrels versus a +2,428,000 barrel gain the prior week. Finally, Refinery Utilization is expected to rise by +.4% versus a +2.65% increase the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Lockhart speaking, Fed’s Plosser speaking, weekly MBA mortgage applications report, BMO Capital Ag/Protein/Fertilizer Conference, Bank of America Healthcare Conference, (IBM) Analyst Meeting, (MA) Investor Meeting, Robert Baird Growth Conference and the UBS Financial Services Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker and technology stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 75% net long heading into the day.

Stocks Finish Mostly Lower, Weighed Down by Bank, Airline, Gaming, Homebuilder and Technology Shares

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