Stocks Lower into Final Hour on Rising Economic Worries, China Trade Tensions, More Shorting, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Biotech longs. I took profits in my (URBN) long and added to another long this morning, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is below average. Investor anxiety is high. Today’s overall market action is bearish. The VIX is rising 4.71% and is very high at 32.27. The ISE Sentiment Index is below average at 111.0 and the total put/call is above average at .99. Finally, the NYSE Arms has been running high most of the day, hitting 1.79 at its intraday peak, and is currently 1.44. The Euro Financial Sector Credit Default Swap Index is rising 5.20% today to 111.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising 3.73% to 134.16 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 3.11% to 45 basis points. The TED spread is now down 418 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 4.67% to 42.06 basis points. The Libor-OIS spread is falling 1.55% to 40 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 5 basis points to 1.83%, which is down 81 basis points since July 7th. The 3-month T-Bill is yielding .16%, which is down 1 basis point today. The most economically sensitive stocks are underperforming again today. Weekly retail sales showed deterioration for the second consecutive week. Various credit default swaps indices continue their recent surge higher. As well, China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus program, which could become a large negative. On the positive side, the market is holding up relatively well, considering today’s news. Market leading tech stocks are especially strong. Moreover, education, airline, road & rail, hmo, drug, biotech, medical and computer services stocks are all higher on the day. I plan to maintain my current market exposure barring a closing swoon. Nikkei futures indicate a -7 open in Japan and DAX futures indicate a -30 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, profit-taking, rising economic worries, china trade barrier concerns, rising credit market angst and greater financial sector pessimism.

Today's Headlines

Bloomberg:

- JPMorgan Chase & Co.(JPM) and seven other banks will spend about $3.88 billion in the second quarter related to dividend and interest costs to repay government bailout funds, Rochdale Securities analyst Richard Bove said.

- Philip J. Baker, managing director of the collapsed Chicago hedge fund Lake Shore Asset Management Ltd., was indicted by a U.S. grand jury for allegedly operating a $300 million fraud scheme. The 27-count indictment was unsealed yesterday, Chicago U.S. Attorney Patrick J. Fitzgerald said in a statement today. While an arrest warrant has been issued for Baker, 44, his whereabouts are unknown, the prosecutor said. The U.S. Commodity Futures Trading Commission last year accused Baker in a civil enforcement suit of having defrauded at least 700 investors by hiding trading losses.

- The cost of protecting U.S. corporate bonds from default rose to the highest since May 29 as economic data released yesterday contrasted with the market’s “very optimistic outlook.” Credit-default swaps on the Markit CDX North America Investment-Grade Index Series 12 rose 5 basis points to 134 basis points at 9:49 a.m. in New York, signaling a deterioration in the perception of credit quality, according to Phoenix Partners Group. Contracts have gained almost 13.5 basis points since reaching a one-year low on June 5, according to CMA DataVision. Contracts on the Markit iTraxx Crossover Index of 45 companies with mostly high-risk, high-yield credit ratings rose 11 basis points to 728 basis points, the highest since May 29, according to JPMorgan Chase & Co. prices in London.

- Kim Jong Il’s third son, the likely successor to North Korea’s leader, made a secret visit to China this month to meet President Hu Jintao, the Asahi newspaper said.

- Two US reporters detained and sentenced to 12 years hard labor this month by North Korea planned a “smear campaign” against the communist country’s human-rights policies, North Korea said today.

- Arvind Raghunathan, former head of Deutsche Bank AG’s global arbitrage business, will open his new hedge-fund firm next month with more than $1 billion, a sign that investors are trickling back after record losses last year. Roc Capital Management LP’s assets will include $500 million in a separate account from Deutsche Bank, according to people familiar with the New York-based firm.

- Slumping demand for commodities is spurring traders to use their raw-material stockpiles as collateral in financing agreements, said Jeremy East, head of global commodity derivatives at Standard Chartered Plc. “We see the stocks remaining very, very high for awhile. There’s still a lot of aluminum that’s in warehouses but not shown on the LME.”

- Rubber dropped to a three-week low as oil fell, boosting the appeal of its synthetic alternative, and a decline in global equities raised concern that raw materials demand may be slow to recover. Futures in Tokyo lost as much as 2 percent to the lowest since May 26 as crude oil slipped below $70 a barrel, reducing the cost of rival synthetic rubber.

- Wheat production in Australia, the world’s fourth-largest exporter, may reach the highest in four years, according to data from the nation’s commodity forecaster. Output may be about 22 million metric tons in 2009-2010, the Canberra-based Australian Bureau of Agricultural and Resource Economics said today in a statement. That compares with its March forecast of 22.1 million tons and last year’s crop of 21.4 million tons. Wheat in Chicago has dropped 9.7 percent this month as favorable weather helped improve prospects for the winter crop in the U.S., the world’s biggest exporter. Recent rainfall across growing regions in Australia has provided optimism for planting, the bureau said.

- Iran restricted the reporting of unauthorized events and “illegal protests” by foreign media after four days of demonstrations following the re-election of President Mahmoud Ahmadinejad in a June 12 ballot. “No reporting activities should take place without coordination and permission of this office,” the Culture Ministry’s office for the foreign media said today in a faxed statement in Tehran. “Reporters should not take part in news events that have not been announced by this office.” Reporters should avoid being present at or covering “illegal protests” without the permission of the Interior Ministry, it added.

- Morgan Stanley(MS), which won clearance to repay $10 billion to the U.S. Treasury last week, said today it will also cease issuing new debt that carries a guarantee from the Federal Deposit Insurance Corp. “Morgan Stanley does not plan nor expect to issue any more debt under the FDIC guaranteed debt program,” said Mark Lake, a spokesman for the New York-based bank.

- A Brooklyn-born economist who gave up teaching at the University of California at Berkeley in 1973 to trade the first Treasury-bond futures is getting his way with the biggest change in U.S. environmental policy in 20 years. And he has an unwitting ally from Chicago. Legislation to let polluters buy and sell carbon-dioxide emissions like pork bellies is the outgrowth of Richard L. Sandor, founder of the Chicago-based network of people trading pollution permits from Beijing to Brussels known as Climate Exchange. It doesn’t hurt that the six-year-old market got $1.1 million of seed money from the city’s Joyce Foundation, whose board included a little-known state senator named Barack Obama. Now the 44th president is determined to enact America’s first limits on greenhouse gases.

- The House is considering imposing a $37 billion tax on drugmakers by denying deductions for advertising of prescription drugs, Ways and Means Committee Chairman Charles Rangel said.

- Europe’s inflation rate dropped to zero in May as energy costs retreated and the global economic slump forced companies to lower prices. Inflation in the economy of the 16 euro-area nations is at the lowest level since the data were first compiled in 1996 and is down from 0.6 percent in April, the European Union statistics office in Luxembourg said today, confirming an initial estimate published on May 29.

- Research In Motion Ltd.(RIMM), the maker of the BlackBerry phone, will release a Tour model that’s compatible with networks abroad, layering on features to lure customers away from Apple Inc.’s latest iPhone. The BlackBerry Tour 9630, which has a sharper screen than its predecessors, will run on third-generation networks, RIM co- Chief Executive Officer Jim Balsillie said in a phone interview yesterday. Sprint Nextel Corp. plans to sell the device for $199.99 with a two-year contract, after rebates.

- Russian industrial production declined at a record pace in May as the government’s 3 trillion- ruble ($96 billion) stimulus package failed to boost orders during the country’s worst economic crisis in a decade. Output slid an annual 17.1 percent, the seventh consecutive decrease, compared with a drop of 16.9 percent in April, the Federal Statistics Service in Moscow said in an e-mailed statement today. That was the biggest contraction since the service moved to a new methodology in 2003. The median estimate in a Bloomberg survey of 16 economists was for production to shrink 15.9 percent.

- Gasoline futures topped $2.11 a gallon for the first time since Oct. 7 as refinery outages increased speculation supplies can’t meet demand and as the dollar weakened against the euro.

- Best Buy Co.(BBY), the world’s largest electronics retailer, said first-quarter profit fell 15 percent as sagging consumer demand drove down sales at older stores. The shares fell 3 percent in New York trading.

- Democrats who control California’s Legislature said tax increases are needed to help close a $24 billion deficit, setting up a battle with Republicans that may leave the state short of cash next month. Speaker of the Assembly Karen Bass, a Los Angeles Democrat, said higher taxes and fees are needed instead of all $16 billion in cuts proposed by Republican Governor Arnold Schwarzenegger. Democrats yesterday proposed a $15 automobile license fee and said they may consider a 9.9 percent per-barrel levy on oil produced in the state.

- Zicam nasal sprays and swabs may cause permanent loss of smell and taste and consumers should stop using them, U.S. regulators warned today, sending shares of manufacturer Matrixx Initiatives Inc. down the most ever. Matrixx, based in Scottsdale, Arizona, fell $10.68, or 56 percent, to $8.56 before Nasdaq Stock Market trading was halted.

- Former President Jimmy Carter urged the Gaza Strip’s Hamas leadership to join Middle East peace efforts and condemned Israel’s blockade of the territory, saying Palestinians are being treated like animals. “Tragically, the international community too often ignores the cries for help and the citizens of Palestine are treated more like animals than like human beings,” Carter, 84, said in a speech to graduates of a United Nations school in Gaza. “We are pushing towards the dream of having our independent state with Jerusalem as its capital,” Haniya said, standing beside Carter at a press conference. Carter said earlier in the day that he almost cried when he saw the wreckage of the American School in the Gaza Strip and felt guilty because Israel used U.S.-made war planes to bomb the campus. The American school, a private institution that is not affiliated with the U.S. government, was destroyed in a Jan. 3 air strike that killed a guard. The Israeli army said it targeted the campus because Palestinians were using the site to fire rockets at Israel’s southern towns and cities.

- Vaclav Havel, the Czech who led his country’s “Velvet Revolution” 20 years ago, described Iran’s President Mahmoud Ahmadinejad as a man possessed and warned he could “damage a lot of people.” “The Iranian president does not represent any religious nor national or other ideas,” Havel, 72, said in a Bloomberg News interview in Prague today. “In my eyes he is a man possessed. Unfortunately we are living at a time when a man possessed could easily inflict damage to a lot of people, due to modern technology.”

- Health insurers led by Cigna Corp.(CI) and Aetna Inc.(AET) rose in NY trading after the Congressional Budget Office said an overhaul plan of the US medical system would cost $1 trillion and still not cover all Americans. A plan proposed by Senator Edward Kennedy would leave about 30 million people uninsured, short of President Obama’s goal of covering everyone in the country, the budget office said. The report gives a stronger hand to Republicans fighting measures the industry opposes such as a government-backed insurance program, said Ana Gupte, a Sanford C. Bernstein analyst in NY. “The call people are making is that it will likely give the Republicans a bargaining chip,” Gupte said. “It could make the legislation less onerous or left-leaning as far as the plans are concerned.”

- Home prices in the U.S. may fall another 14 percent before reaching a bottom as an increase in unemployment offsets lower prices, Deutsche Bank said. “Affordability is no longer the driving issue in the housing market, and we believe prices still have a ways to fall in many areas before home prices reach their trough,” Deutsche Bank analysts led by Karen Weaver, wrote in a report yesterday.

Wall Street Journal:

- The head of Russian oil firm OAO Lukoil Holdings will lead a delegation to Iraq on Wednesday to continue talks on reviving a $3.4 billion oil deal from the Saddam Hussein era, a Lukoil official said.

- President Obama swept to office on the promise of a new kind of politics, but then how do you explain last week's dismissal of federal Inspector General Gerald Walpin for the crime of trying to protect taxpayer dollars? This is a case that smells of political favoritism and Chicago rules.

- Oklahoma Republican Sen. Tom Coburn, a fiscal conservative and earmark foe, has released a report detailing $5.5 billion in projects included in the $787 billion economic stimulus package that he considers wasteful or at least a questionable use of taxpayer dollars. The 45-page report “100 Stimulus Projects: A Second Opinion” includes a “Top 10” list of projects singled out by Coburn, as well as a breakdown by region.Among the top 10 are funds for repairing bridges in rural Wisconsin, including $840,000 for a small bridge that carries just 260 vehicles daily. It also lists $800,000 for the John Murtha Airport in Johnstown/Cambria County in Pennsylvania “despite the fact that virtually no one uses the airport.” Click here for The Wall Street Journal story on the report.

CNBC:

- Small business has led the economy out of all past recessions and will do so again, Steve Odland, chairman and CEO of Office Depot told CNBC. “Small businesses are so important to our economy—they create all the jobs, they lead through these kinds of different slowdowns and right now, all eyes are on small business,” Odland said in a live interview from the National Summit in Detroit.

Fox News:

- Hedge-fund liquidations continued at a breakneck pace during the first three months of 2009, but cooled off from the record number of collapses seen during the market meltdown at the end of last year. According to new data released Tuesday by Hedge Fund Research, 376 hedge funds closed during the first quarter, bringing the total number of funds that have disappeared since mid-2008 to nearly 1,200. However, the 376 funds closed last quarter is down 50% from the record level set during the previous quarter amid the height of the credit crisis. Still, the first quarter’s attrition rate of 4.05% is the second-highest rate ever, exceeded only by the previous quarter’s 7.77% rate.

MarketWatch:
- Funds of hedge funds, which allocate billions of dollars to managers in the $1.4 trillion industry, shut down at a record pace during the first quarter as investors questioned the value of the niche in the wake of the financial crisis and the Bernard Madoff scandal, according to data released Tuesday by Hedge Fund Research. Almost 200 funds of hedge funds liquidated in the first quarter. That represents an attrition rate of more than 8%, nearly double the previous record set in the fourth quarter of 2008, HFR said. Liquidations of funds of hedge funds accounted for more than half of the 376 funds that shut down across the industry in the first quarter, HFR reported.

FXStreet.com:

- National chain store sales fell 4.5% in the first two weeks of June versus the previous month, according to Redbook Research's latest indicator of national retail sales released Tuesday. The latest numbers are starkly different from recent weeks because they don't include Wal-Mart Stores Inc. (WMT), which said last month it would no longer provide monthly sales figures. Redbook said retailers faced unfavorable comparisons to a year earlier in men's apparel because the prior-year results were boosted by stimulus checks on Father's Day. It added household basics "held up well" and said sales of seasonal merchandise have been driven by sale pricing.

LA Times:

- As the immigration reform debate begins to heat up again, some observers expect that one of the biggest and most controversial new elements will be a proposed national worker identification card for all Americans. A "forgery-proof" worker ID card, secured with biometric data such as fingerprints, is an idea favored by Sen. Charles E. Schumer (D-N.Y), the new chairman of the immigration subcommittee. Schumer, who will lead the effort to craft the Senate's comprehensive immigration overhaul legislation, called the card the best way to ensure that all workers were authorized.

Politico:

- America’s big-city mayors are steaming over what they view as “a very dangerous precedent” set by the Obama administration in its decision to shun the U.S. Conference of Mayors annual meeting in Providence, R.I., this week. In its attempt to honor the picket line of a local firefighters union involved in a labor dispute with the city, the administration has inadvertently angered some of its staunchest supporters in urban America, who argue that by declining to send an official contingent to the three-day mayors’ conference, the administration is caving in to labor and snubbing local governments at a time of economic strife.

USA Today:

- The Air Force will train more drone operators than fighter and bomber pilots combined for the first time this year, signaling a fundamental shift for the 61-year-old service, records and interviews with top officials show. The growing ranks of drone operators mark a turning point for the Air Force as it looks to a future that relies increasingly on unmanned aircraft. Over the next few decades, the Air Force plans to develop drones that would serve as fighters, bombers and tankers, the heart of its manned fleet, according to its Unmanned System Update.

Reuters:
- Derivatives exchange Eurex will offer hurricane futures on wind damage as it expands its product offering to catastrophe derivatives, the platform operated by Deutsche Boerse said on Tuesday.Eurex said the new contracts, designed in cooperation with market participants, will be available from June 29, making Eurex the first European exchange to offer hurricane futures.

- A top Federal Reserve official warned on Tuesday not to take recent gains in a range of asset prices as proof that the U.S. economy is on the verge of a strong recovery. "The panic's hasty retreat should not be confused with robust recovery," Federal Reserve Board Governor Kevin Warsh said in remarks prepared for a speech to the Institute of International Bankers annual meeting in New York.

- The U.S. Treasury Department will not propose a new regulatory framework for the insurance industry when it outlines sweeping new rules for the financial services sector, sources familiar with the plans said on Tuesday. Rep. Barney Frank, chairman of the House Financial Services Committee, said on Tuesday that the Treasury Department is not ready to weigh in on the key question of an 'optional federal charter' for insurers, said industry sources who heard him speak.

- Investors say they are getting more promotional material from hedge funds than ever before, as funds seek to replenish assets withdrawn or lost because of negative performance during the financial crisis. Investors such as family trusts, pension funds and high net worth individuals say the sales drive intensified in the run-up to the GAIM hedge fund industry conference which began here on Tuesday.

Financial Times:
- China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus program in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world. In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms. “From a domestic political perspective this makes some sense because local governments do tend to favor foreign products in some categories,” Dong Tao, chief China economist for Credit Suisse, said. “But given how important free trade is for China’s economy this is not the right message for them to be sending to the rest of the world right now.” Just a few months ago Beijing was raging against a proposed “Buy American” clause included in the US economic rescue package. “The whole world is dying to see China spread its orders around and save their economies,” said Mr Tao. “But what this policy reflects is heightened anxiety about these job pressures and the potential for social unrest.” China’s trade surplus rose 15.7 per cent to $88.8bn in the first five months from the same period a year earlier. “Any movement – overt or subtle – to discriminate against foreign products and services is protectionist and an inefficient use of stimulus funds,” said James Zimmerman, partner with the international law firm of Squire Sanders & Dempsey in Beijing.

El Economista:

- Petrobras SA(PBR) this year may overtake its Mexican counterpart Petroleos Mexicanos as Latin America’s biggest oil producer. Petrobras by the end of 2009 will be producing more than 2.6 million barrels a day of oil, the current production level of Petroleos Mexicanos.

Yonhap News:

- North Korea’s Defense Minister Kim Yong Chun arrived in Beijing at the weekend. Officials at South Korea’s embassy in Beijing witnessed “a high-ranking North Korean official” arriving on an Air Koryo flight from Pyongyang at the VIP lounge in the international airport in Beijing on June 13. A source identified the man as Kim, Minister of the People’s Armed Forces of the National Defense Commission. The defense minister may have been in Beijing to deliver a message from North Korean leader Kim Jong Il to Chinese officials, the report said.

Xinhua News Agency:

- China supports Russia's bid for membership of the World Trade Organization (WTO) and hopes for its accession into the alliance at an early date, a senior official of the Chinese Ministry of Commerce said here on Monday.

Bear Radar

Style Underperformer:
Small-cap Value (-1.73%)

Sector Underperformers:
REITs (-2.12%), Oil Service (-2.05%) and I-Banks (-2.04%)

Stocks Falling on Unusual Volume:
MXWL, WTI, INT, CLMT, UBS, RTP, CHU, FCX, PHI, GENZ, APWR, RMBS, FLIR, CSKI, HOGS, LPHI, FUQI, IPCM, ARST, IRIS, URBN, MWIV, ARRS, PMTI, MRTN, ITWO, DEP, OKS, BBY, AGO, GWR and HAR

Stocks With Unusual Put Option Activity:
1) URBN 2) WDC 3) TEL 4) ATHR 5) VNO

Bull Radar

Style Outperformer:
Small-cap Value (+.74%)

Sector Outperformers:
HMOs (+3.64%), Steel (+2.97%) and Airlines (+2.69%)

Stocks Rising on Unusual Volume:
PALM, GG, MSFT, STEC, MYRG, CASY, CSIQ, HMSY, STLD, SHPGY, SINA, FUQI, SNDA, CPSI, CETV, WYNN, SAIA, AMGN, RIMM, CALM, TPL, TKG, TEN, DEG and BT

Stocks With Unusual Call Option Activity:
1) GENZ 2) CBG 3) HOLX 4) BBY 5) AET

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Tuesday Watch

Late-Night Headlines
Bloomberg:

- Senator Edward Kennedy’s plan to expand health-care coverage would cost about $1 trillion over 10 years and provide coverage to about 16 million more people, according to a preliminary analysis by the Congressional Budget Office. The report today said about 39 million people would be able to buy health coverage through insurance “exchanges,” while the number of people getting coverage from employers and other sources would fall by 23 million. The nonpartisan CBO said its initial analysis of the measure, introduced by Kennedy last week, is not a complete cost estimate because it focused only on the proposal’s major provisions. The analysis also doesn’t include the effects of expanding coverage for low-income Americans, which could be included in the proposal later. In the House, Ways and Means Committee Chairman Charles Rangel, a New York Democrat, said last week that legislation being crafted by Democrats will cost more than $1 trillion over a decade. That cost would include $600 billion in tax increases and $400 billion in cuts to Medicare and Medicaid, said Rangel.

- The cost of protecting U.S. corporate bonds from default rose the most in more than a month as global stock and credit markets slumped. Credit-default swaps on Citigroup Inc. and Bank of America Corp. jumped to a one-month high, signaling a deterioration in the perception of credit quality, according to CMA DataVision in London. Benchmark credit derivative indexes in the U.S. and Europe jumped the most since May. The cost of protecting European banks from default jumped as Moody’s Investors Service cut the ratings of 25 Spanish lenders because of the “speed and depth of the deterioration of the Spanish economy and the impact on banks’ balance sheets.” The cost of protecting European bank bonds from default also rose, with the Markit iTraxx Financial index of 25 European banks and insurers jumping 5.5 basis points to 113.5 basis points and the subordinated index up 13 basis points at 203 basis points, according to CMA.

- Coal exports from Australia’s Newcastle, the world’s biggest export harbor for the fuel, dropped 17% last week and the number of ships waiting outside the port fell. The volume shipped in the week ended 7 am local time yesterday fell to 1.8 million metric tons from 2.17 million tons a week earlier, Newcastle Port Corp. said today on its Web site. A total of 33 ships, waiting to load 3.2 million tons of coal, were lined up outside the port, down from 37 last week. Coal ships waited 11.1 days to load coal, up from 10.7 days a week earlier, Newcastle Port said.

- Cotton prices fell the most allowed on ICE Futures U.S. in New York as a rallying dollar boosted the cost of supplies from the U.S., the world’s largest exporter, and reduced the appeal of commodities as an inflation hedge. Cotton futures for December delivery fell the exchange’s 3- cent limit, or 4.9 percent, to 58.22 cents a pound. The decline was the steepest since Jan. 12. “Commodity traders are caught between a mindset of, ‘Do I play the inflation side or watch demand destruction?’” Egli said. “You have a lack of buyers.”

- The Obama administration’s revamp of U.S. banking and market regulations may be stalled into next year as Congress and the president set health-care reform and climate control as domestic priorities.

- Citigroup Inc. Chief Executive Officer Vikram Pandit said he expects a lower growth rate for the U.S. economy as it goes through an “adjustment” period. “There is a clear trade-off between saving more and stimulating the economy in the short term to achieve stability,” Pandit, 52, said in prepared remarks for a keynote address today at the Detroit Economic Club’s National Summit.

Citigroup, the recipient of $45 billion in government funds, has itself to blame for its financial woes, Pandit said.

- European Central Bank council member Ewald Nowotny warned against raising interest rates and ending emergency policy measures too soon, saying the top priority must be to revive economic growth in the euro region. “I’d warn against a premature exit strategy,” Nowotny, who heads Austria’s central bank, said at a conference in Vienna late yesterday. “We are still in a crisis. The primary goal should be to restore economic growth as fast as possible.”

- The Senate’s energy legislation is likely to stall if it is combined with a pending climate measure, Alaska Republican Lisa Murkowski said. Murkowski said combining the two bills might doom the energy measure, sacrificing the emission cuts that are included in it. The Senate plan would mandate renewable electricity use and establish a so-called green bank that would fund energy projects with low emissions. Mixing the two measures “is not a good thing for our energy bill,” Murkowski said. “If we were not to pass a cap- and-trade bill this year and we were to pass an energy bill we would actually be doing something positive when it comes to what we are emitting.” Senate Majority Leader Harry Reid, a Nevada Democrat, has said he may try to move energy and climate legislation in one bill. Senator Barbara Boxer, the California Democrat who leads the Environment and Public Works Committee, said last week that her panel may consider a climate measure in early August. The House Energy and Commerce Committee approved energy and climate provisions in a single measure on May 21. California Democratic Representative Henry Waxman, the panel’s chairman, said he wants to pass it in the full House this month. Waxman’s panel approved creating a cap-and-trade system to control greenhouse-gas emissions. Murkowski said the worst recession since World War II is the wrong time to consider a climate bill that may increase energy costs for consumers. The Senate Energy and Natural Resources Committee plans to vote on the energy measure by June 17.

Wall Street Journal:

- The Obama administration's proposed revamp of financial-sector regulation relies on a high-risk strategy that pins much of the plan's success or failure on the president himself. The exhaustive series of meetings and nitty-gritty debates that forged the comprehensive plan -- to be presented to Congress Wednesday -- contrasts with the way the administration has approached other priorities, such as health care and energy policy. In those cases, the White House has left the many details to be filled in by Congress. The different approaches reflect how some of the administration's most senior officials are personally invested in the finance overhaul, worried that political tinkering by lawmakers could undermine their goals.

- The largest demonstration here since the Iranian Revolution ended in gunfire Monday, after hundreds of thousands of protesters thronged a central square and Iran's ruling cleric ordered an investigation into allegations of fraud in the presidential election. Supreme Leader Ayatollah Ali Khamenei's call hedged his previous strong backing of the result of Friday's vote. It appeared to be in response to two days and nights of violent protests here, and suggested growing unease among the clerics who sit atop Iran's complex power structure. In the past few days, a number of senior clerics have met with Mr. Khamenei or written to him, urging him to intervene, according to a series of public letters from the clerics. One grand ayatollah, one of the highest-ranking clerics, issued a religious order demanding his followers not cooperate with President Mahmoud Ahmadinejad's government.

- Senate Republicans are trying to fire up more debate about the quality of the projects funded by the federal stimulus plan, calling out proposals to spend $16 million on scarcely used rural bridges in Wisconsin and $3.4 million for "eco-passage" wildlife crossings in Florida. These and other uses of federal stimulus money will be targeted in a report to be released Tuesday by the Republican staff of the Senate's Permanent Subcommittee on Investigations.

- Fidelity Investments intends to begin charging financial advisers when the firm refers wealthy, or "high net worth," clients to them.

- Spain may take stakes in some of the country's ailing savings banks as a way of strengthening their capital bases and allow them to survive a deepening economic downturn, Spanish Finance Minister Elena Salgado said Monday. The state would, if necessary, use part of a EUR9 billion aid fund to purchase securities called "cuotas participativas" and would remain as a partial owner of these lenders during a transition period, Salgado said. Salgado, speaking at a conference in Santander, northern Spain, said consolidation and sector restructuring is inevitable, as loan defaults jump on the back of soaring unemployment and an oversized exposure to the troubled local real estate sector. "As the crisis passes, there will be fewer entities," Salgado said. "The reality is that the concentration of risk (in the real estate sector) has been excessive," she added. The Socialist-government is preparing a bank rescue fund that would be used to intervene and clean up insolvent lenders, as well as to boost the solvency of weak but still solvent banks.

- While many Chinese state resources companies are looking abroad for natural resources, China Shenhua Energy Co., the country's biggest coal producer by market value, expects sharp growth at home and isn't feeling pressure to chase deals overseas. Shenhua is focusing on doubling its annual coal output capacity to 400 million metric tons by 2014, getting a tailwind from Beijing's push to consolidate coal reserves in the hands of just a few big miners.

CNBC.com:
- It sure was a ridiculous promise. Especially for a president who, unflinchingly, proposes spending an extra $1.5 trillion on new healthcare efforts and hundreds of billions more on new green initiatives—on top of $787 billion in stimulus that ain't stimulating yet. The president's silly promise forces him to strain to devise massive tax increases that can be called by another name, or alternately to find small, invisible revenue increases in the nooks and crannies of our economy. The One Fell Swoop tax in this scheme would be a new tax on employer health benefits—which could slap new payments on 163 million people covered by employer plans. By some estimates this could raise $2.3 trillion over 10 years, more than enough to cover Obama-care. The problem: half of all people with health coverage at work earn less than $75,000, the Cato Institute says.

- Interest rates on US 30-year fixed-rate mortgages fell to 5.52 percent late Monday after hovering at 5.67 percent on Friday, according to real estate Web site Zillow.com. That is down sharply from a week earlier when the mortgage rate was around 5.72 percent, according to Zillow Mortgage Marketplace. The lower rates reflect a fall in yields on US government bonds, which are linked to the mortgage market. The rate, however, is sharply higher than the roughly 5.00 percent level seen at the end of May and at the beginning of this year, Zillow said. The move higher in mortgage rates recently collapsed home loan refinancing activity.

NY Times:

- The Obama administration will order the Navy to hail and request permission to inspect North Korean ships at sea suspected of carrying arms or nuclear technology, but would not forcibly seek to board them, senior administration officials said Monday. The new effort to intercept North Korean ships, and track them to their next port if they refuse inspection, is part of what the officials they described as “vigorous enforcement.”

IBD:

- NVE Corp. (NVEC) is a small company with tiny products and big profits. The suburban Minneapolis company makes sensors and couplers that go into pacemakers, hearing aids, factory automation equipment and memory chips.

CNNMoney.com:

- California became the first state to see gas prices top $3 a gallon since October, according to a daily survey of gas prices. The national average price for a gallon of gas rose 0.6 cent Monday to $2.669, according to motorist group AAA. Prices have been steadily climbing higher since April 29 and are up 63% from the start of the year.

Financial Times:

- Hedge funds and managers of other alternative investment funds sold to professional investors will face a heavier compliance burden under proposed European Union rules than the already regulated retail fund sector, institutional investors are warning top officials in Brussels. This regulatory burden could “far outweigh any benefits” and “cannot be right”, UK and Dutch institutional investors have told Charlie McCreevy, EU internal market commissioner, in a letter sent on Monday. The letter, seen by the Financial Times, is significant because it is the first time the views of institutional investors, who are some of the hedge funds’ biggest customers, have been heard in the heated debate over the EU’s controversial proposals for regulating the hedge fund and private equity sectors.

South China Morning Post:
- Billionaire financier George Soros has praised the Hong Kong government for thwarting his attempts to undermine the local currency and stock market in 1998 but maintained he had every right to do so.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (NKE), boosted target to $65.

KeyBanc

- Rated (MAT) Buy, target $20.

Sanford C. Bernstein

- Raised (AMGN) to Outperform.

Night Trading
Asian Indices are -2.0% to -1.0% on average.

Asia Ex-Japan Inv Grd CDS Index -1.28%.
S&P 500 futures unch.
NASDAQ 100 futures -.02%.

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

Conference Calendar

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

Earnings of Note
Company/EPS Estimate
- (SFD)/-.58

- (FDS).72

- (BBY).34

- (ADBE)/.35

Economic Releases

8:30 am EST

- The Producer Price Index for May is estimated to rise .6% versus a .3% increase in April.

- The PPI Ex Food & Energy for May is estimated to rise .1% versus a .1% gain.

- Housing Starts for May are estimated to rise to 485K versus 458K in April.

- Building Permits for May are estimated to rise to 508K versus 4498K in April.

9:15 am EST

- Industrial Production for May is estimated to fall 1.0% versus a .5% decline in April.

- Capacity Utilization for May is estimated at 68.4% versus 69.1% in April.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Warsh speaking, (NVDA) analyst day and the weekly retail sales reports could also impact trading today.

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