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Monday Watch

Weekend Headlines
Bloomberg:

- The Dow Jones Industrial Average erased its 2009 loss, becoming the last major U.S. stock gauge to give investors a profit for the year, as confidence increased that the worst recession since World War II is ending. The Dow, down 25 percent on March 9 after its worst start to a year, completed the recovery yesterday after rising four straight weeks. “We’re reaching a bottom in the economy and looking forward to the climb out,” said Hans Olsen, who helps oversee $120 billion as chief investment officer of JPMorgan Private Wealth Management in New York. “The Dow erasing its losses is clearly good news. The Dow holds a special place in investor psyche.” The Dow, now up 0.3 percent in 2009, has risen 34 percent from a 12-year low on March 9 in the steepest 68-day rally since November 1982, the start of a bull market that lasted five years. “If you’re a long-term investor, this is a great time to buy,” said Frank Ingarra, the Stamford, Connecticut-based manager of the $167 million Hennessy Focus 30 Fund that beat 98 percent of its peers in the past five years. “People are starting to get the feeling that they’re missing out on something big.”

- Gold slid the most in two months as the rallying dollar reduced demand for the metal as an alternative investment. Silver also slumped. The U.S. Dollar Index, a six-currency gauge of the greenback’s value, rose as much as 1.4 percent after Japanese Finance Minister Kaoru Yosano said his nation’s confidence in U.S. debt is “unshakable.” In a June 10 interview, Yosano also said the dollar’s status as the world’s reserve currency isn’t threatened. “It’s getting increasingly tough to hold onto its gains beyond $965-$966 levels,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a note. “Repeated failures to break and hold above this zone has triggered selloffs.” Bullion may average $825 an ounce next year, down from a previous forecast of $950, BNP Paribas said yesterday in a report. “We believe that deflation rather than inflation is the biggest risk facing the global economy in the coming months,” Anne-Laure Tremblay, a London-based Paribas analyst, said in the report.

- OPEC, the supplier of 40 percent of the world’s oil, is unlikely to increase output when the group meets in Vienna in September, Qatar’s oil minister said. “I don’t think so,” Abdullah bin-Hamad Al-Attiyah said today in an interview in Amsterdam when asked if the Organization of Petroleum Exporting Countries would need to raise production. “I would like to see where the real growth is, when the economic crisis reaches bottom and will take off again” before making a decision on oil output, he said.

- Oil fell for the first day in four as a record plunge in European industrial production prompted speculation that bets on an economic recovery are premature. Oil declined as the U.S. dollar strengthened, undermining investors’ need to use commodities as an inflation hedge. The relative strength index for New York oil, a measure of how rapidly prices have advanced or dropped, indicates prices may fall. OPEC raised production in May for a second month, straying further from quotas. “The market has excessively priced in the idea that a demand recovery is imminent,” said Eugen Weinberg, an analyst with Commerzbank AG in Frankfurt. “Upbeat sentiment might drive prices higher in the short term, but later in the summer fundamentals will play a larger role and a massive price correction is likely.” European industrial production dropped by the most on record in April as the worldwide recession ravaged demand for goods. Production in the euro region plunged 21.6 percent from a year earlier, the most since the data series started in 1986, the European Union’s statistics office said today. “Most commodity markets are still quite overbought, and could be subject to a modest sell-off next week,” said Edward Meir, analyst with MF Global Ltd. in Connecticut. The 14-day relative strength index, or RSI, was at 73.55 today after rising to 76.23 yesterday. Readings above 70 typically warn a price may decline and those below 30 indicate it may rise. The 11 OPEC members bound by production quotas, which exclude Iraq, pumped 25.903 million barrels a day in May, an increase of 118,800 barrels a day from April, the Vienna-based organization said in its monthly oil report today, citing secondary sources that include estimates from analysts and news organizations. U.S. crude inventories remain 11 percent above their five- year average even after declining last week, according to the Energy Department.

- The Markit iTraxx Japan index fell 8 basis points to 136.5 basis points as of 9:09 am in Tokyo, according to Barclays Plc. The Markit iTraxx Australia index declined 4.5 basis points to 167.5 basis points at 9:55 am in Sydney, according to Citigroup Inc. prices.

- The average price of regular gasoline at U.S. filling stations rose to $2.6607 a gallon as refiners cut production and stockpiles declined. Gasoline climbed 16.68 cents in the two weeks ended June 12, according to a survey of 5,000 filling stations nationwide by Trilby Lundberg, an independent gasoline analyst. “Higher oil prices are virtually the only reason the pump prices have jumped this month,” Lundberg said in an interview today. “The federal spending response to the poor U.S. economy has given a push to the move from investors away from dollars to crude oil.” Supplies also dropped as imports slipped 27 percent and refinery operating rates declined 2.7 percentage points from the previous year, the Energy Department said.

- Prime Minister Benjamin Netanyahu said for the first time that he would agree to a Palestinian state, on condition that it is demilitarized and accepts Israel as a Jewish homeland. “If the Palestinians recognize Israel as a Jewish state, we will be ready for a real peace agreement leading to a demilitarized Palestinian state side-by-side with a Jewish state,” Netanyahu said at Bar Ilan University outside Tel Aviv.

- John Yoo, a ex-Justice Department attorney who wrote memos justifying harsh interrogations of terrorism detainees, lost his bid to dismiss a lawsuit blaming him for alleged violations of a detainee’s rights. Jose Padilla, convicted last year of supporting terrorists and conspiring to commit murder, was detained for three years as an enemy combatant in the U.S., where he claims he was subjected to physical abuse. He sued Yoo, who wrote in advisory memos for the Bush administration that terrorism suspects weren’t protected by Geneva Convention bans on physical abuse. Padilla claimed Yoo created a system of torture. U.S. District Judge Jeffrey White denied most of Yoo’s motion to dismiss the case, saying even enemy combatants are protected by the U.S. Constitution.

- North Korea said any U.S. effort to enforce international sanctions over the communist nation’s nuclear program would be considered an act of war and be met with military force. North Korea “strongly condemns and rejects” the United Nations Security Council’s Resolution 1874, the foreign ministry of the Democratic People’s Republic of Korea, or DPRK, said in a statement yesterday on the official Korean Central News Agency. “No matter how hard the U.S.-led hostile forces may try all sorts of isolation and blockade, the DPRK, a proud nuclear power, will not flinch from them,” the statement said. “We will weaponize all newly extracted plutonium and begin enriching uranium,” the official North Korean statement said. North Korea will also not give up its nuclear program, it said. North Korea, which in 2002 denied U.S. allegations it had a highly enriched uranium program, has had success in developing enrichment technology, according to the statement. More than a third of spent fuel rods have been reprocessed for weapons-grade plutonium, it said. North Korea has repeatedly warned that any move to seize its ships would be met with military retaliation. Kim Jong Il’s regime said it would no longer abide by the 1953 armistice after South Korea joined a U.S.-led initiative to curb weapons of mass destruction by seizing shipments.

- Treasury notes gained for the first time in a month as the highest yields since October helped attract the most investor demand this year at the government’s three auctions of $65 billion in notes and bonds. Leaders of Brazil, Russia, India and China, the so-called BRIC countries, are scheduled to meet on June 16 in Russia to discuss their economies. Mark Mobius, who oversees $20 billion of emerging-market assets at Templeton Asset Management Ltd. in Singapore, said the real focus of the BRIC agenda is the U.S.’s projected $1.85 trillion deficit for 2009 and the $787 billion economic-stimulus plan signed by President Barack Obama in February. Both are sparking fears among creditors that the dollar will fall and inflation will accelerate. “The BRICs are putting the U.S. on notice that there has to be a cutback on spending and get their house in order,” Mobius said in a telephone interview.

- Russia has full confidence in the dollar and there are no immediate plans to switch to a new reserve currency, Finance Minister Alexei Kudrin said. “It’s too early to speak of an alternative” to the dollar, Kudrin said in Lecce, Italy, in a television interview today after meeting with finance chiefs from the Group of Eight nations. The fundamentals of the dollar are still in “good shape.”

- Venezuelan President Hugo Chavez threatened to seize closely held construction companies that add annual inflation rates on top of base prices for housing projects, he said in comments on state television.

- Vice President Joe Biden said “there is some real doubt” about the legitimacy of Iranian President Mahmoud Ahmadinejad’s re-election victory. Biden cited “the way they are suppressing speech, the way they are suppressing crowds” as well as the lopsided nature of the official count, which gave Ahmadinejad 63 percent of the June 12 vote to about 34 percent for his main rival, Mir Hossein Mousavi. Whatever the outcome, the U.S. will continue diplomatic efforts to talk with Iran about ceasing its nuclear-weapons program and its support for terrorism, Biden said on NBC’s “Meet the Press” program. Ahmadinejad has questioned whether the Holocaust occurred and called for the destruction of Israel. “The decision was made to talk” with Iran because “we are not going to allow Iran to go nuclear,” Biden said. “Talks with Iran are not a reward for good behavior, they are only the consequence” of President Barack Obama’s decision that it’s in “our national security interests to talk with the Iranian regime.” U.S. officials still have too little information to evaluate the accuracy of official results, Biden said.

- Venezuela President Hugo Chavez questioned the validity of patents and said the government may replicate packaging technology of Switzerland’s Tetra Pak Group to lower dependence on imports and foreign companies. Venezuela spent $63 million in May to import Tetra Pak packaging materials to supply the local market, said Jesse Chacon, Science and Technology Minister. “We have aluminum and paper, why can’t we make that material here?” Chavez said today during his weekly “Alo Presidente” program on state television. “What are patents? That’s universal knowledge. We don’t have to be subject to capitalist laws.” The Venezuelan leader also said the government will seize cardboard companies that refuse to supply packaging to state-run food companies.

Wall Street Journal:

- A California company alleged that an Internet-filtering program being pushed by the Chinese government contains stolen portions of the company's software. The company, Solid Oak Software Inc., said it will try to stop PC makers from shipping computers with the software.

- World financial leaders are starting to examine how they'll unwind their emergency spending packages and bank rescues amid signs the economic crisis may have hit bottom. Finance ministers from the Group of Eight major industrial powers on Saturday asked the International Monetary Fund to research strategies to slim budget deficits and reduce government presence in the financial sector, but in a way that wouldn't reignite the crisis.

- A precipitous drop in the price of natural gas means lower bills for some electricity consumers but spells trouble for coal producers, long the dominant source of fuel for the electric-power industry. Abundant new supplies of natural gas, combined with reduced demand for electricity, have sent prices tumbling to less than $4 per million British thermal units from more than $13 last July. That drop could prompt power companies to invest billions of dollars in natural-gas fired plants.

- Major companies have been relocating to the Southeast for decades -- lured by tax breaks, nonunion work forces, and, increasingly, ports, railroads and highway systems. But now Southern states are attempting to leverage the downturn to promote the region as more attractive during hard times -- especially compared to the Rust Belt and other regions where the economy is suffering most. The Southeast has attracted an array of corporate facilities recently. In February, Asbury Automotive Group Inc., a major chain of national auto retailers, relocated to metro Atlanta from New York. In recent months, Tennessee announced three projects, all valued at more than $1 billion each, by units of Wacker Chemie AG, Volkswagen AG and Hemlock Semiconductor Group. North Carolina last week welcomed a new Apple Inc. data warehouse. Meanwhile, state economic development officers say they are pursuing a higher number of relocation prospects. "The level of competition on retention, expansion and relocation projects has become more intense," said North Carolina Deputy Secretary of Commerce Dale Carroll. Development agencies across the Southeast are therefore pushing their recruiting machines into overdrive.

- President Barack Obama is expected Wednesday to propose the most sweeping reorganization of financial-market supervision since the 1930s, a revamp that would touch almost every corner of banking from how mortgages are underwritten to the way exotic financial instruments are traded. At the center of the plan, which administration officials are referring to as a "white paper," is a move to remake powers of the Federal Reserve to oversee the biggest financial players, give the government the power to unwind and break up systemically important companies -- much like the Federal Deposit Insurance Corp. does with failed banks.

MarketWatch.com:

- Spain's Banco Santander SA(STD) plans to make acquisitions in the U.S. within the next five years, mirroring its U.K. expansion strategy, business daily Expansion reports Saturday, quoting Chief Executive Alfredo Saenz.

CNBC.com:
- Activist investor Carl Icahn is considering making another attempt to take over bankrupt auto parts supplier Delphi, the New York Post reported Saturday.

IBD:
- The Children's Place (PLCE) Retail Stores was a dysfunctional family in 2007, but a good dose of retail therapy seems to have it playing on healthier ground these days. All the better to take advantage of a baby boom and the chain's low "value" prices, fit for a recession.

NY Times:

- Over the last year, buffeted by several high-profile crimes by illegal immigrants and revelations of mismanagement of the city’s sanctuary policy, San Francisco has become less like its self-image and more like many other cities in the United States: deeply conflicted over how to cope with the fallout of illegal immigration. At the center of the turnaround is a new law enforcement policy focused on under-age offenders who are in this country illegally. Under the policy, minors brought to juvenile hall on felony charges are questioned about their immigration status. And if they are suspected of being here illegally, they are reported to the Immigration and Customs Enforcement agency for deportation, regardless of whether they are eventually convicted of a crime. “We went from being one of the more progressive counties in the country to probably one of the least, and the most draconian,” said Abigail Trillin, the managing attorney with Legal Services for Children, a nonprofit legal group. “It’s been a total turnaround.”

- The world is on track to produce a new global climate treaty by December, the top United Nations climate official said Friday. The goal is a climate treaty that would go beyond the 1997 Kyoto Protocol, a climate-change agreement that set emissions targets for industrialized nations. Representatives of poor countries complained repeatedly in the talks that developed nations had not made an adequate commitment to reduce their emissions. They expressed particular dismay over Japan’s announcement this week to reduce emissions by only 8 percent below 1990 levels by 2020. Shyam Saran, India’s envoy on climate change, called such targets “unsatisfactory.” China and other developing countries have demanded that richer nations reduce emissions by 40 percent below 1990 levels in that period.

- Two of the nation’s most powerful bank regulators were once again at each other’s throats. At a public meeting three weeks ago, John C. Dugan, the comptroller of the currency, blasted a proposal to impose stiff new insurance fees on banks as unfair to the largest banks, which he regulates. The financial crisis stemmed in part from problems at small banks, he insisted. Sheila C. Bair, chairwoman of the Federal Deposit Insurance Corporation and the regulator for many smaller, community banks, could barely hide her contempt. The large banks, she said, had wreaked havoc on the system, only to be bailed out by “hundreds of billions, if not trillions, in government assistance.” She added, “Fairness is always an issue.”

- It appears that The Boston Globe may be put in play by its owner, The New York Times Company (which also owns me, so keep a salt shaker handy). The Globe lost an estimated $50 million last year and was said to be on track to lose $85 million this year. Pay agreements in hand with some of the unions at the paper and the management there, along with a rise in newsstand and subscription prices, will probably slice that in half, but that’s more than $40 million in losses. For the family that controls the Times Company, selling The Boston Globe, a jewel of a paper bought in 1993 for $1.1 billion, was unthinkable not long ago. In 2006, the family, the Sulzbergers, declined to negotiate after Jack Welch floated a notional offer of about $500 million. Now, selling The Globe is not only thinkable, but also probable, perhaps more so now that the company failed to reach an agreement with one union, the Newspaper Guild, for additional cuts that would have delivered $10 million in savings.

- Starting this week, I.B.M.(IBM) is returning to the same playbook, introducing some initial products and services and a roadmap for its stable of corporate and government customers to comfortably embrace cloud computing. Cloud computing — in which vast stores of information and processing resources can be tapped from afar, over the Internet, using a personal computer, cellphone or other device — holds great promise in the corporate market. The cloud model, analysts say, has the potential to cut the costs, complexity and headaches of technology for companies and government agencies.

Washington Post:
- After enjoying months of towering poll numbers, legislative victories and well-received foreign policy initiatives, the White House has become increasingly concerned that President Obama's spending plans, which would require $9 trillion in government borrowing over the next decade, could become a political liability that defines the 2010 midterm elections. There is evidence of growing public concern over his fiscal policies. As he traveled Thursday in Green Bay, Wis., Obama was greeted by demonstrators holding signs that said, "No socialism" and "Taxed Enough Yet?" Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, said, "The second five years is where we're on a completely unsustainable course." "People know we have an overall situation here that doesn't add up," he said. Results from a Gallup survey released last week show that although more than six in 10 Americans approve of Obama's overall job performance, fewer than half say they approve of how he is handling the deficit and controlling federal spending. The poll also shows a decline from the previous month in the percentage of Americans who approve of Obama's handling of the economy. During a town hall forum in New Mexico last month, Obama acknowledged that the "long-term deficit and debt that we have accumulated is unsustainable." "President Clinton believed in the public sector, but he thought that his responsibility to the long-term fiscal condition of the country ruled out a significant expansion of the government in the economy as a whole," said William A. Galston, a former Clinton policy adviser who is a senior fellow at the Brookings Institution. "What is unmistakably clear is that the trajectory of the Obama administration -- whether it's four years or eight years in office -- will be the reverse." The cost of extending health insurance to the 47 million uncovered Americans is estimated to be as high as $1.2 trillion over the next decade, and administration officials say they are not sure how much the overhaul will save the federal budget over the long term. Some Democratic champions of health-care reform, including Galston, say slowing the growth of medical costs could cut entitlement spending, reduce the need for borrowing and lead to significant long-term savings. "The problem is that very few health-care experts believe that the measures proposed so far have any reasonable chance of achieving those savings," Galston said. "There's a potential there that the seemingly out-of-control fiscal situation in Washington could galvanize the public," Edwards said. "The question is whether the Republicans will be smart enough to take advantage of this."

Forbes.com:

- iPhone Apps Turn The Web On Its Head. Apple’s(AAPL) smart phone makes the mobile Web a lot more user-friendly.

CNNMoney.com:

- Google's(GOOG) ideal search engine. CEO Eric Schmidt ultimately wants his product to 'understand what people care about.'

Business Week:
- From bank bailouts to auto bailouts to executive pay, business is increasingly nervous about the heavy hand of the Obama Administration.

- Hasbro(HAS) shows that turning popular toys into big movies is cheaper and more lucrative than doing it the other way around.

NY Post:

- For far too long, Albany has ignored any calls for reform, preferring to take orders from one special interest after another. In fact, five years ago, the Brennan Center at NYU called New York's Legislature the "most dysfunctional" legislature in America. Business leaders read it. Labor leaders read it. Voters and politicians read it. Statewide elections came and went. And nothing changed. That is why I created Responsible New York -- a group pledged to support challengers who promised to enact reforms and support fiscally responsible policies.

Politico:

- He’s riding high in the polls among his fellow Democrats, but President Barack Obama’s political sway within his own party is about to be tested. Two House Democrats, Joe Sestak of Pennsylvania and Carolyn Maloney of New York, are poised to defy the unambiguous wishes of Obama and challenge incumbent senators of their own party. Both indicated to POLITICO that they were likely to run — and would do so regardless of what Obama said.

USA Today:

- At the end of the 81-year marriage, the Isaksons said goodbye by turning off the lights. The partnership was over. The Chrysler sign went dark. It was an unceremonious finale to a four-generation bond between one family and one company, but it was not a surprise. Rob Isakson had known for weeks his dealership was on a Chrysler hit list — the cuts were part of the troubled automaker's survival strategy. Still, when the moment arrived, he did not go gently into the night. "It hurts," he says. "How do you put into words 81 years of your family's blood, sweat and tears? How many times did my father miss some family event ... because the business came first? And all of it is for nothing now." It has been a wrenching few weeks, beginning with Chrysler's notification in mid-May that the family was losing its franchise. The word came in a form letter. "How insensitive is that?" Isakson asks. Then came futile efforts — through calls and e-mails — to find why they were being dropped, even though they say their sales were better than some dealers that survived.

LA Times:

- Some projects raise question: Where’s the stimulus? As President Obama moves to accelerate the flow of federal funds intended to rev up the economy and energy efficiency, public officials are voicing concerns about the merit of some plans. It is a six-mile stretch of guardrail near a manufactured lake in a desolate patch of the Oklahoma Panhandle. There's little reason for anyone to visit. Weeds are overgrown; the lake bed is virtually dry. Yet repairing the guardrail is on a list of projects developed by the U.S. Army Corps of Engineers to tap into President Obama's $787-billion economic stimulus program. The price tag: more than $1.1 million. Obama spoke of the stimulus as a mechanism to create jobs, drop money into a struggling economy and reposition the U.S. as a more energy-efficient nation. So far, those goals are proving difficult to meet. Demand for stimulus money is intense. And with cities and towns exhorting federal officials to release the money as quickly as possible, some projects may not get adequate vetting. Vice President Joe Biden conceded as much, saying earlier this month: "There are going to be mistakes made. . . . We know some of this money is going to be wasted." Oklahoma officials were stunned to see the $1.1-million guardrail project offered up by the Army Corps of Engineers as a candidate for stimulus money. With so many other pressing needs, spending money in a desolate area showing no signs of a comeback is indefensible, they said. "They're not mowing the weeds, which are 2 or 3 feet tall," said Ted Graham, city manager in nearby Guymon, Okla. "They quit maintaining the lake in the park, so it would be a frustration if they spend a million dollars on a guardrail they don't maintain currently." A Rasmussen poll last week showed that only 39% believed that stimulus spending would help the economy, compared with 44% who said it wouldn't. The poll also showed that 45% of respondents believed the stimulus program should be canceled, compared with 36% who wanted to keep it going.

Rasmussen Reports:

- Eighty percent (80%) of U.S. voters oppose providing government health care coverage for illegal immigrants as part of the health care reform package that is working its way through Congress. The latest Rasmussen Reports national telephone survey finds that just 11% disagree and think coverage for illegals is a good idea. Most voters also oppose making health insurance mandatory for all Americans.

Boston Globe:

- Future inflation is a given. You can't have a government borrowing $2 trillion and not have significant inflation follow. That's what everyone believes. Well, just about everyone. As I've reported before, economist Lacy Hunt and portfolio manager Van Hoisington beg to differ. That's why I've flown to Austin, Texas, - to get a good dose of contrarian view. "Today there are no unleveraged components in our economy. The banks don't have the capacity to take further risks," he observes. He tells me that just growing the supply of money doesn't create economic activity. The money has to be in motion, too. Pointing to the basic equation for economic activity - GDP equals money times velocity of money - he says that unless we keep the money moving, the economy can shrink even as the supply of money increases. And if the economy can shrink, so can prices. "Basically, we're in a prolonged period of [economic] underperformance," he said. "I think we'll see the low in interest rates five or 10 years down the road. It will essentially be a lost decade."

Treasury & Risk:

- The worldwide financial crisis is top of mind as we present our 2009 list of the 100 Most Influential People in Finance.

TradingMarkets.com:

- Sequenom Inc.(SQNM) firmly believes that its SEQureDx technology is scientifically and technically sound and that the setback is only temporary. On a recent conference call, CFO of Sequenom, Paul Hawran said that the company has enough capital to take it through to the commercialization of the Down syndrome test. The company expects to end the year 2009 with around $50 million to $55 million in cash. On June 9, Sequenom rose an impressive 58% to close the day's trading session at $5.30, on a volume of 54 million shares and that too on no news. Media ascribed the spike in stock price to rumors about the company being close to fixing the SEQureDx fiasco. Sequenom is a high risk stock but has a potential for high reward if the results from the on-going large, independent clinical studies are positive. The potential market for SEQureDx tests in the U.S alone has been estimated to range between $1.5 billion and $3 billion. With the company well on track with its plans to have a validated Down's syndrome test in the fourth quarter of 2009, it looks like SQNM is a stock to keep an eye on.

TheStreet.com:

- Google(GOOG) Beats Bing.

- New netbooks using Qualcomm(QCOM) chips could take the sector in a new direction -- away from Intel(INTC).

Reuters:

- U.S. defense companies, some rocked harder than others by Defense Secretary Robert Gates' sweeping program cuts, are looking to international sales and acquisitions to fill the void.
- The rapid rise in bond yields will force the Federal Reserve to "engage again" in the purchases of U.S. Treasuries and mortgage-backed securities, Mohamed El-Erian, the chief executive of bond giant Pacific Investment Management Co., said Friday. The surge in Treasury yields is lifting mortgage rates, threatening to dampen home demand and kill off the refinancing boom that is bolstering the health of some households.

Financial Times:

- US financial regulators are drawing up new rules to facilitate private equity acquisitions of troubled banks in an effort to unlock tens of billions of dollars that could be deployed to recapitalize ailing lenders. People close to the situation said the plan, which has yet to be finalized and could still change, might require private equity companies to inject substantial capital into troubled lenders and agree not to sell them for at least two years. Buy-out funds wanting to buy a troubled bank would have to reveal their performance measures and marketing materials to allay fears that they might use the banks to subsidise other companies in their portfolio. Regulators are looking for “a long-term financial commitment to banks and not just a quick flip”, said a person familiar with the thinking in Washington.

- Congress is this week expected to approve Barack Obama’s request for an extra $108bn for the International Monetary Fund, but it will come at a political price after weeks of grandstanding, messy compromise and horse-trading. The request, tacked on to a $100bn (€71bn, £60bn) war funding bill, provoked a backlash in Congress as Republicans and some Democrats balked at what they called another bail-out, this time for foreign countries and banks. The administration had thought putting it in the war funding bill would speed its passage: which Republican would vote against money for US troops? But the move backfired and the administration spent last week scrambling for votes. To win over a crucial group of liberal Democrats, it killed off an amendment that would ban the release of photos showing US military personnel abusing detainees. This brought the votes it needed but upset moderates and conservatives, who agree with Mr Obama that their release could spark retaliation against US troops. There was also a compromise on Guantánamo inmates, who will be allowed to enter the US for trial – with Congress permission – but not to stay. Critics say the administration played fast and loose with the legislative process over the IMF money and deserved to get burned. “Unfortunately, rather than doing the right thing – stripping out the IMF money and passing a clean troop-funding bill – they chose to cater to the left of the left,” said Michael Steel, spokesman for John Boehner, Republican leader in the House. “It’s certainly not the way the president promised to govern during the campaign.” So why has the president spent so much political capital trying to protect the IMF amendment, when he needs all he can get to enact his ambitious domestic agenda? In part, it is about his international standing. But from the start, it looked a tough sell at home. “The most plausible explanation for the request – and the lack of proper debate and Congressional process – is that the funding would be used to bail out private European banks with US taxpayer money,” wrote Dennis Kucinich and Bob Filner, two Democratic congressmen, in a letter to their colleagues. Republicans would not budge. They painted the war bill strategy as a cynical attempt to use US troops as leverage. They said the IMF money could end up going to countries associated with terrorism, such as Syria and Iran. Senior Democratic aides say the bill will probably be passed this week. But the manner of its passing has highlighted the limits to the administration’s power as it gears up for its biggest battle: the overhaul of the US healthcare system.

- The rebuilding of Iraq’s capital markets is set for a boost as Auerbach Grayson, a New York-based brokerage, becomes the first international company to sell Iraqi securities since the 2003 invasion. Auerbach Grayson has signed an agreement with Rabee Securities, a Baghdad brokerage, through which it will provide research, trade execution and intelligence on companies traded on the Iraq Stock Exchange to US institutional investors. Rabee is run by Shwan Ibrahim Taha, a former senior fund manager with Templeton Asset Management who also once ran a hedge fund for George Soros.

Telegraph:

- Germany's top industrial group has warned that credit conditions are going from bad to worse across much of the country's manufacturing base, dashing hopes for a swift recovery.

The Independent:

- George Soros, the billionaire hedge fund manager, called for credit default swaps to be banned, saying these financial instruments had the potential to wreck individual companies and to bring down the banking system. CDSs were designed as insurance against a company defaulting on its debt, but have grown into a multi-trillion dollar market that allows investors to speculate on a companies’ improving or deteriorating creditworthiness. The huge CDS profits that could be made if a company really does default on its debt are encouraging bondholders to put companies into bankruptcy rather than restructure their debts, Mr Soros told a meeting of the Institute of International Finance in Beijing. “It’s like buying life insurance on someone else's life and owning a licence to kill,” he said. The US government is proposing new regulation of the CDS market, including standardising the products so that they can be traded on an exchange, but Mr Soros went much further in his criticisms, saying they were “instruments of destruction” that should be outlawed entirely. Disruptions in the CDS market, which might make it more expensive to insure a companies’ debt, can then feed back into perceptions of the company’s creditworthiness. Nowhere were the consequences of the ensuing chain reaction more severe than in the case of financial institutions, whose ability to do business depended on trust, Mr Soros argued.

Gulf News:

- Dubai hotel occupancy rates declined 16% during the first four months of 2009 as the global recession limited the flow of tourists and business travelers, citing Deloitte Middle East. Revenue per available room at Dubai’s hotels sank 34.5%, compared with a 14.49% drop across the Middle East, Robert O’Hanlon, Tourism, Hospitality and Leisure Partner at Deloitte Middle East, said, citing STR Global data. The region’s hotel occupancy rates slid 9.6%.

Emirates Business 24/7:

- Cement prices in the UAE have declined as much as 40% since April, citing an industry official. The price per ton was around $74.87 as cement makers slashed prices because of low global demand, an official from a Ras Al Khaima cement maker said.

Weekend Recommendations
Barron's:
- Made positive comments on (AUY), (NG), (BAC), (CSC), (NEW), (TM), (THG), (RRC) and (MSFT).

Citigroup:

- Upgraded (YHOO) to Buy, target $21.

Night Trading
Asian indices are -1.50% to +.25% on avg.

Asia Ex-Japan Inv Grade CDS Index -1.34%.
S&P 500 futures -.52%.
NASDAQ 100 futures -.52%.

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Earnings of Note
Company/Estimate
- (CASY)/.36

Upcoming Splits

- None of note

Economic Releases

8:30 am EST

- Empire Manufacturing for June is estimated to fall to -4.60 versus -4.55 in May.

9:00 am EST

- Net Long-term TIC Flows for April are estimated to rise to $57.5B versus $55.8B in March.

1:00 pm EST

- The NAHB Housing Market Index for June is estimated to rise to 17 versus 16 in May.

Other Potential Market Movers
- The Fed’s Duke speaking, Fed’s Evans speaking, Fed’s Tarullo speaking, (IACI) shareholders meeting and the (HLIT) analyst call could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by shipping and commodity stocks 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 some economic reports of note and just a few significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – Empire Manufacturing, Net Long-term TIC Flows, NAHB Housing Market Index

Tues. – Producer Price Index, Housing Starts, Industrial Production, Capacity Utilization, weekly retail sales report

Wed. – Weekly MBA mortgage applications report, weekly EIA energy inventory report, Consumer Price Index, Current Account Balance

Thur. – Initial Jobless Claims, Leading Indicators, Philly Fed

Fri. – None of note

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

Mon. – None of note

Tues. – Smithfield Foods(SFD), Factset Research(FDS), Best Buy(BBY), Adobe Systems(ADBE)

Wed. – FedEx Corp.(FDX)

Thur. – John Wiley(JW/A), JM Smucker(SJM), Discover Financial(DFS), Carnival Corp.(CCL)

Fri. – Carmax(KMX)

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

Mon. – The Fed’s Duke speaking, Fed’s Evans speaking, Fed’s Tarullo speaking, (IACI) shareholders meeting, (HLIT) analyst call

Tue. – The Fed’s Warsh speaking, (NVDA) analyst day

Wed. – The Fed’s Bernanke speaking, Fox-Pitt Kelton Small/Mid-cap Bank Conference, Jeffries Healthcare Conference, (MAT) analyst conference

Thur. – The Treasury’s Geithner testifying before the House, Jeffries Healthcare Conference, Fox-Pitt Kelton Small/Mid-cap Bank Conference, (AAP) investor day

Fri. – None of note

BOTTOM LINE: I expect US stocks to finish the week modestly higher on lower long-term rates, technical buying, falling credit market angst, diminishing financial sector pessimism, investment manager performance anxiety and lower energy prices. My trading indicators are giving bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 946.21 +.65%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 946.21 +.65%
DJIA 8,799.26 +.41%
NASDAQ 1,858.80 +.51%
Russell 2000 526.83 -.67%
Wilshire 5000 9,615.05 +.56%
Russell 1000 Growth 420.01 +.31%
Russell 1000 Value 481.44 +.97%
Morgan Stanley Consumer 567.01 -.96%
Morgan Stanley Cyclical 589.73 +.45%
Morgan Stanley Technology 462.04 +2.08%
Transports 3,361.42 +.34%
Utilities 358.31 +3.98%
MSCI Emerging Markets 33.85 +.75%

Sentiment/Internals
NYSE Cumulative A/D Line 35,944 -.91%
Bloomberg New Highs-Lows Index -13 -148.15%
Bloomberg Crude Oil % Bulls 49.0 +133.3%
CFTC Oil Large Speculative Longs 204,490 +2.50%
Total Put/Call .87 +10.13%
OEX Put/Call 1.22 -94.69%
ISE Sentiment 159.0 +26.19%
NYSE Arms .98 -37.97%
Volatility(VIX) 28.15 -4.96%
G7 Currency Volatility (VXY) 14.52 -6.26%
Smart Money Flow Index 8,342.52 -.79%
AAII % Bulls 39.25 -17.47%
AAII % Bears 39.25 +7.27%

Futures Spot Prices
Crude Oil 72.04 +5.35%
Reformulated Gasoline 204.31 +4.59%
Natural Gas 3.86 -.75%
Heating Oil 183.75 +3.29%
Gold 940.70 -1.76%
Base Metals 156.36 +5.23%
Copper 238.30 +4.52%
Agriculture 338.37 -2.45%

Economy
10-year US Treasury Yield 3.79% -4 basis points

U.S. Sovereign Debt Credit Default Swap 43.0 unch.

10-year TIPS Spread 1.93% -7 basis points
TED Spread 46.0 +1 basis point
N. Amer. Investment Grade Credit Default Swap Index 124.49 +6.09%
Emerging Markets Credit Default Swap Index 376.89 +.27%
Citi US Economic Surprise Index +61.90 -4.48%
Fed Fund Futures imply 82.0% chance of no change, 18.0% chance of 25 basis point cut on 6/24
Iraqi 2028 Govt Bonds 67.37 +1.74%
4-Wk MA of Jobless Claims 621,800 -1.7%
Average 30-year Mortgage Rate 5.59% +30 basis points
Weekly Mortgage Applications 611,000 -7.24%
Weekly Retail Sales -4.40%
Nationwide Gas $2.64/gallon +.05/gallon
US Cooling Demand Next 7 Days 5.0% below normal
ECRI Weekly Leading Economic Index 115.40 +1.67%
US Dollar Index 80.14 -.66%
Baltic Dry Index 3,583 -5.93%
CRB Index 262.25 +1.68%

Best Performing Style
Large-cap Value +.97%

Worst Performing Style
Small-cap Value -1.50%

Leading Sectors
Banks +4.18%
Utilities +3.97%
Oil Service +3.77%
Computer Hardware +3.25%
Software +3.06%

Lagging Sectors
Restaurants -3.16%
Airlines -3.29%
Gold -3.82%
Hospitals -5.46%
HMOs -7.04%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change