Thursday Watch

Late-Night Headlines
Bloomberg:

- U.S. stocks are at the start of a bull market that may spur an 88 percent advance in the Standard & Poor’s 500 Index in the next two or three years, Laszlo Birinyi said. “We’re confident we are in a bull market,” Birinyi, the founder of Westport, Connecticut-based research and money- management firm Birinyi Associates Inc., said in an interview with Bloomberg Television today.

- The Bank of Japan may raise its assessment of the economy for the first time since July 2006, even after a report yesterday showed a record contraction in the first quarter.

- Hedge fund manager George Schultze says he may avoid lending to any more unionized companies after being burned by President Barack Obama in Chrysler LLC’s bankruptcy. Obama put Chrysler under court protection on April 30 after lenders balked at a proposal giving them about 29 cents on the dollar for their $6.9 billion in debt. The investors said the president’s plan favored a union retiree medical fund whose claims ranked behind them for repayment. It was offered a 55 percent equity stake in the automaker. Pacific Investment Management Co., Barclays Capital and Fridson Investment Advisors have joined Schultze Asset Management LLC in saying lenders may be unwilling to back unionized companies with underfunded pension and medical obligations, such as airlines and auto-industry suppliers, because Chrysler’s creditors failed to block Obama’s move. The reluctance may put additional pressure on borrowers seeking capital in the worst financial crisis since the Great Depression.

- Mexico’s economy shrank the most since the 1995 Tequila Crisis in the first quarter, and the government lowered its forecast for the full year, as the global financial crisis and the outbreak of swine flu cut demand. Gross domestic product, the broadest measure of a country’s output of goods and services, fell 8.2 percent in the first three months of 2009 from a year earlier, the statistics agency said today.

Wall Street Journal:

- The Treasury Department is poised to inject more than $7 billion into GMAC LLC, the first installment of a new government aid package that could reach $14 billion, according to people familiar with the matter. As a result of the move, the government within months could end up owning both GMAC and General Motors Corp.

- In the Spirit of Spider-Man, the Border Patrol Casts Its Web.

- Within a few weeks, some of the nation's biggest banks will start disentangling themselves from the government's grip by repaying billions in federal bailout dollars.

But the moment, a symbolic bookend to a turbulent period, will likely be overshadowed by a parallel phenomenon: Many of the other emergency measures created to prop up the financial system are developing an air of permanence. As such, the move to repay funds from the Troubled Asset Relief Program might represent not the beginning of the end, but rather the end of the beginning.

- New opposition to Chrysler LLC's restructuring plan emerged as Indiana pension funds holding Chrysler senior debt filed objections to the plan, saying the U.S. government's involvement had "infected" the company's bankruptcy. The opposition was led by the Indiana State Teachers Retirement Fund, the Indiana State Police Pension Trust and the Indiana Major Moves Construction Fund, which together own about $42.5 million of Chrysler's $6.9 billion in secured debt, according to the funds' lawyer.

- The United Nations, which aspires to protect human rights around the world, is struggling to deal with an embarrassing string of sexual-harassment complaints within its own ranks. Many U.N. workers who have made or faced accusations of sexual harassment say the current system for handling complaints is arbitrary, unfair and mired in bureaucracy. One employee's complaint that she was sexually harassed for years by her supervisor in Gaza, for example, was investigated by one of her boss's colleagues, who cleared him.

- The "American Clean Energy and Security Act" is one of the most ambitious efforts to re-engineer American social and economic behavior in decades, presenting risks and opportunities for a wide array of businesses from Silicon Valley to the coal fields of the Appalachians. The legislation, better known as the Waxman-Markey bill, isn't yet law and has big hurdles to clear. A critical vote looms this week in the House Energy and Commerce Committee.

NY Times:

- An unreleased Pentagon report provides new details concluding that about one in seven of the 534 prisoners already transferred abroad from the detention center in Guantánamo Bay, Cuba, has returned to terrorism or militant activity, according to administration officials. The conclusion could strengthen the arguments of critics who have warned against the transfer or release of any more detainees as part of President Obama’s plan to shut down the prison by January 2010.

Politico:

- Nancy Pelosi and her staff thought they could end the controversy over her disputed 2002 briefing on Bush-era interrogations by rigorously prepping for a press conference last Thursday. But she shredded the script. According to people familiar with the situation, the speaker had agreed to say only that she had been “misled” by intelligence officials during a September 2002 briefing on interrogation techniques. But when reporters asked Pelosi if she thought the Bush administration had “lied” to her, she embraced the more emphatic word, nodding her head in agreement.

- A day before President Barack Obama lays out his vision for closing Guantanamo Bay prison, two of his top officials Wednesday offered sharply different views about bringing the prisoners onto U.S. soil. The Pentagon No. 3 official, Michele Flournoy, said the only way the United States can get European nations to accept some of the 240 detainees at the military prison is by agreeing to bring some of them to the United States as well. But FBI Director Robert Mueller warned Congress that releasing some of the Gitmo prisoners in the United States would raise concerns that they might radicalize others, raise money for terrorist groups, or carry out attacks.

Chronicle of Philanthropy:

- In a quiet meeting closed to the news media and the public, Bill Gates, David Rockefeller Sr., Oprah Winfrey, and other leading philanthropists met in New York this month to discuss ways to promote efforts to solve growing social problems in America and abroad. The unusual event occurred May 5 at Rockefeller University and was organized by the Bill & Melinda Gates Foundation. Among the high-profile participants were Ted Turner, Warren E. Buffett, George Soros, and New York City Mayor Michael R. Bloomberg. Several of the people at the meeting confirmed their involvement, but declined to tell The Chronicle about what was discussed or why they gathered almost in secret.

Reuters:

- JPMorgan Chase & Co and Morgan Stanley are emerging as the top beneficiaries of the biggest boom in U.S. secondary offering activity, stoked by banks' rush to sell stock after government "stress tests." May saw the biggest ever U.S. follow-on activity, based on proceeds, with $39.2 billion so far this month across all industries, based on Thomson Reuters data. The second largest was in October last year with $26.1 billion. Banks collected $1 billion of fees from underwriting U.S. equity issues in the first two weeks of May alone, compared with $1.2 billion for the entire first four months of the year, according to the data.

- China's economic recovery may have slowed or even gone slightly into reverse over the past month, two international banks said in separate reports. Credit Suisse economists said economic activity appeared to have softened in the second half of April and that the trend was more pronounced in May, with weakness in the materials sector and power consumption spreading to retail sales.

- New U.S. rules for the trading of derivatives could drive market enemies into each other's arms, as dealers and exchanges look to strike more partnerships to yield shared profits from the revamped landscape. The Obama administration's proposals, announced last week, favor exchange and clearinghouse operators because they require "standardized trades" to move onto exchanges, and require all over-the-counter derivatives to be cleared by regulated central counterparties. That would effectively transfer a very lucrative business from derivatives dealers, blamed by many for the financial crisis, to exchanges and clearinghouses, which have touted their durability since markets plunged last year.

- The Federal Reserve said on Wednesday it saw modest improvements in the U.S. economy last month, but it still saw big risks and left open the possibility of increasing its purchases of mortgage-related and government debt to keep credit flowing and spur recovery.

Financial Times:

- Bank of America(BAC) wants to pay back $45bn in bail-out funds by the end of the year, in a faster-than-expected move made possible by an accelerated program to raise capital. BofA is on track to raise more than $35bn in capital by the end of September, say people familiar with the matter, which it must do before paying back the $45bn bail-out money it received under the Troubled assets relief program.

The Economic Times:

- India buys $20 billion in US treasury bills in just six months.

Gulfnews.com:

- The UAE on Wednesday officially pulled out of the proposed Gulf monetary union, jeopardizing the future of the region's single currency aspirations. Sources in the UAE Central Bank told Gulf News that the move follows reservations about the recent decision to locate the Gulf central bank in Saudi Arabia.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (NVDA), target $14.50.

Night Trading
Asian Indices are -1.25% to -.25% on average.
S&P 500 futures -.47%.
NASDAQ 100 futures -.41%.

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Earnings of Note
Company/EPS Estimate
- (GME)/.42

- (TECD)/.34

- (PDCO)/.50

- (BKS)/-.15

- (PLCE)/.74

- (SSI)/-.03

- (ROST)/.72

- (GPS)/.30

- (DBRN)/.31

- (CRM)/.11

- (ARO)/.48

- (ADSK)/.08

- (FL)/.14

Economic Releases

8:30 am EST

- Initial Jobless Claims for last week are estimated to fall to 625K versus 637K the prior week.

- Continuing Claims are estimated to rise to 6650K versus 6560K prior.

10:00 am EST

- Leading Indicators for April are estimated to rise .8% versus a -.3% decline in March.

- Philly Fed for May is estimated to rise to -18.0 versus -24.4 in April.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Plosser speaking, weekly EIA natural gas inventory report, (BA) investor conference, Fox-Pitt Kelton Securities Industry Conference, UBS Oil & Gas Conference, (BLK) shareholders meeting, (YUM) shareholders meeting, (STLD) shareholders meeting, (BWLD shareholders meeting and the Goldman Alt Energy Conference could also impact trading today.

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

Stocks Finish Lower, Weighed Down by Bank, Computer and Homebuilding Shares

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Bull Radar

Style Outperformer:

Small-cap Growth (+1.71%)

Sector Outperformers:

Oil Service (+4.09%), Semis (+3.64%) and Road & Rail (+3.67%)

Stocks Rising on Unusual Volume:

ADI, ZRAN, CRZO, TLM, CLF, RTP, PCZ, SU, OPY, PFS, PETS, LIHR, HRBN, FUQI, HOGS, GOLD, MYRG, CENT, LLTC, CAVM, TSRA, CTRP, PAAS, NVDA, HWAY, EPIQ, SSRI, ITRI, AMAG, COST, BMA, BGH, YPF and MSB

Stocks With Unusual Call Option Activity:

1) JEF 2) ADI 3) HPQ 4) MCK 5) MU

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Wednesday Watch

Late-Night Headlines
Bloomberg:

- The cost of protecting Asia-Pacific bonds from default declined, with Asia’s benchmark index outside Japan at the lowest in more than two weeks, amid growing optimism of an economic rebound later this year. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 6 basis points to 199 as of 9:15 am in Hong Kong, according to ICAP Plc prices. The Markit iTraxx Japan index fell 7 basis points to 218 at 10 am in Tokyo, BNP Paribas SA prices show. The Markit iTraxx Australia index was quoted 7 basis points lower at 219 at 10:30 am in Sydney, Citigroup Inc. data show.

- Bank of America Corp.(BAC), the biggest U.S. bank by assets, said it raised about $13.5 billion in a sale of common stock as part of an effort to boost capital and weather an extended recession. The bank issued 1.25 billion shares at an average price of $10.77 each, according to a statement today.

- The Federal Reserve will include legacy assets for the first time in a $1 trillion program to revive credit markets, expanding the effort to commercial real estate securities issued before the start of this year. The central bank also expanded the number of credit-ratings companies permitted to rate assets for the Term Asset-Backed Securities Loan Facility to five after Connecticut Attorney General Richard Blumenthal told the Fed that the three initial eligible companies helped fuel the global credit crisis.

- Hewlett-Packard Co.(HPQ), the world’s largest maker of printers and personal computers, forecast full- year sales at the low end of an earlier projection, a sign that recession-wary customers continue to shun technology purchases. The stock dropped after the company said sales will decline 4 percent to 5 percent in the year through October, compared with 2 percent to 5 percent projected in February.

- Analog Devices Inc.(ADI), the maker of chips for companies such as Cisco Systems Inc., rose 7.6 percent in late trading after its forecast for fiscal third-quarter sales and earnings beat analysts’ estimates. Sales in the quarter will be about $475 million, the Norwood, Massachusetts-based company said today in a statement. That’s more than the average estimate of $438.7 million by 14 analysts surveyed by Bloomberg.

- Electronic Arts Inc.(ERTS) Chief Executive Officer John Riccitiello said the software maker’s new fitness video-game may help Nintendo Co.’s best-selling Wii console rebound from two months of declines. “What we’ve been lacking so far this year is any reason to buy hardware,” Riccitiello said in an interview this week. “‘EA Sports Active’ may be the first software catalyst that can move hardware.” The sports game went on sale yesterday.

- Enthusiasm about an economic recovery in China may be “premature” as private investment lags behind government spending, the World Bank said. “Until we see a recovery in private investment, it’s hard to get too excited about the future,” David Dollar, the lender’s country director for China, said at a forum in Beijing today.

- Japan’s economy shrank at a record 15.2 percent annual pace last quarter as exports collapsed and consumers and businesses cut spending. The contraction followed a revised fourth-quarter drop of 14.4 percent, the Cabinet Office said today in Tokyo. Gross domestic product fell 3.5 percent in the year ended March 31, the most since records began in 1955, confirming that the recession is Japan’s worst in the postwar era.

- Democrats debating climate-change legislation in the House Energy and Commerce Committee rejected Republican attempt to delay a cap on U.S. pollution levels until China and India adopt similar standards. The committee also voted against an “emergency exit” amendment that would have lifted pollution caps if electricity rates rose more than 10 percent. The votes were part of a weeklong effort to craft legislation that would set limits on U.S. greenhouse gas emissions and allow companies to buy and sell pollution permits. Republican Representative Roy Blunt of Missouri offered language to abandon a cap-and-trade system to reduce greenhouse gas emissions if electricity rates increase. Missouri utility regulators have estimated that the proposed legislation would increase electricity rates by as much as 40 percent, Blunt said.

Wall Street Journal:

- The House Democratic leadership's climate bill would double to $50 billion a previously authorized loan program designed to help auto makers comply with strict new fuel-economy standards. That provision was tucked into the latest version of landmark climate legislation unveiled this week by the House Energy and Commerce Committee. The provision would authorize the Energy Department to provide an additional $25 billion in low-cost loans beyond what current law permits under a program designed to help auto makers retool to build more-efficient vehicles. Funding would have to be approved in a separate step. The effort to expand the program reflects fears among some lawmakers about the ability of U.S. auto makers to comply with the Obama administration's proposed new fuel-economy regulations, unveiled Tuesday. "I have grave concerns whether these vehicles can be built in this country and allow the companies to return to profitability," said Rep. Candice Miller (R., Mich.), who backs the additional loans. The Energy Department loans would be on top of billions of dollars in bailout money the government has provided to Chrysler LLC, General Motors Corp., parts suppliers and auto-finance companies, but the loans would be earmarked to revamp plants to build cleaner, more-efficient cars like hybrids.

- Bankrupt companies making 39 mpg autos. Are we nuts?

- Occupancy rates in European hotels dropped 8.9% in the first three months of the year compared to the same period last year, according to STR Global, an industry research group. Hardest hit were those in Eastern Europe, down 19%, and southern Europe, down 16%.

- Activist Financier ‘Terrorizes’ Bankers in Foreclosure Fight.

- In a sign that the U.K. commercial-property market has fallen to attractive levels, real-estate companies are building up cash piles to buy assets at knockdown prices.

- The pace of housing sales has been rising in many markets this year, but it is only partly because families seeking affordable housing are returning to the market. It also is because of investors like former Deutsche Bank managing director Matthew Cooleen, whose firm has spent $30 million buying pools of foreclosed houses from banks. His newly formed Greenwich, Conn.-based firm, HudsonCross Financial, is betting it can make a profit reselling in beaten-down markets in states like Nevada, Arizona and Florida and in Southern California because it is paying so little for the homes.

CNBC.com:
- Business is up about 15% at Toyota Motor Corp. dealerships in the US, a typical May increase after a difficult period, Jim Lenz, president of Toyota USA, said. “Passenger cars are picking up,” he said. “We have the new Prius arriving, and that’s generating a lot of interest into the dealerships.”

NY Times:

- The Securities and Exchange Commission will propose new rules on Wednesday that would make it possible for a company’s shareholders to elect a limited number of independent directors, commission officials said. If adopted, the proposal would open the door to the most significant change in decades to the role played by investors in governing publicly traded companies. The proposal would permit large shareholders — typically institutional investors like pension funds or hedge funds — or alliances of shareholders to nominate as many as one-quarter of the directors. For the 700 largest public companies, the proposal would require approval by 1 percent of the shareholders for a dissident slate to be nominated. For smaller companies, it would be either 3 percent or 5 percent, depending on the size of the business.

Politico:

- Senate Democrats, running from the White House as never before this year, moved Tuesday to deny funding for closing the Guantanamo detention facility and to bar any transfer of prisoners to U.S. soil until a detailed plan is provided to lawmakers. Following a similar retreat by the House last week, President Barack Obama is left with no new money to go forward on a signature issue for him — and less flexibility than when he first made his request this spring.

Washington Post:

- The Obama administration is actively discussing the creation of a regulatory commission that would have broad authority to protect consumers who use financial products as varied as mortgages, credit cards and mutual funds, according to several sources familiar with the matter. The proposed commission would be one of the administration's most significant steps yet to overhaul the financial regulatory system. It would also be one of its first proposals to address causes of the financial crisis such as predatory mortgage lending. Plans for a new body remain fluid, but it could be granted broad powers to make sure the terms and marketing of a wide range of loans and other financial products are in the interests of ordinary consumers, sources said.

The Guardian:

- New research on the performance of the world's hedge fund industry shows clients running for the exit as the credit crunch casts doubt on their once fabled ability to beat the market. Investors asked for nearly $104bn (£68bn) back from hedge funds in the first quarter of the year, or about 7.4% of the industry's assets, according to data from Hedge Fund Research. This leaves the industry with almost half of the $2tn of assets it managed at the peak of the ­market in 2007. Investors withdrew most money from equity funds, many of which have failed to capitalize on the soaring stock market.

Frankfurter Allgemeine Zeitung:

- European Central Bank council member Juergen Stark warned that further debt-financed stimulus measures could undermine public finances and hurt their ability to aid future growth. Public debt measured against economic growth will rise by an average of 20% to about 80% of annual output by 2010, Stark said. He said the euro-region’s economy may shrink in each quarter this year, although at a “much more moderate” pace than the drop in the first quarter.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (CNQR), target $35.

RBC Capital:

- Raised (STT) to Top Pick.

Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 futures -.33%.
NASDAQ 100 futures -.36%.

Morning Preview
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Earnings of Note
Company/EPS Estimate
- (TGT)/.60

- (DE)/1.07

- (BJ)/.43

- (ANN)/-.11

- (EV)/.22

- (CSC)/1.49

- (NTAP)/.23

- (PETM)/.30

- (SNPS)/.40

- (AAP)/.92

- (INTU)/1.59

- (GYMB)/.71

Economic Releases

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,150,000 barrels versus a -4,629,000 barrel decline the prior week. Gasoline supplies are estimated to fall by -1,350,000 barrels versus a -4,154,000 barrel decrease the prior week. Distillate inventories are estimated to rise by +1,200,000 barrels versus a +922,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.5% versus a -1.62% decline the prior week.

2:00 pm EST

- Minutes of April 29th FOMC Meeting.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Geithner testimony before the Senate on TARP, weekly MBA mortgage applications report, BIO International Convention, (AFL) analyst meeting, JPMorgan Tech/Media/Telecom Conference, Fox-Pitt Kelton Securities Industry Conference, UBS Oil & Gas Conference, (TMO) analyst meeting and the JMP Securities 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 modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish Mixed as Gains in Hospital, Technology and Steel Stocks Offset Losses in REIT and Bank Shares

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