Today's Headlines

Bloomberg:

- General Electric Co.(GE) objects to elements of U.S. President Barack Obama’s financial-system overhaul that analysts said may force the parent company to cleave away its GE Capital finance unit.

- California’s credit rating, already the lowest among U.S. states, may be cut several levels by Moody’s Investors Service as government leaders seek ways to eliminate a $24 billion budget deficit. The move would affect $72 billion of debt, Moody’s said in a statement today. California’s full faith and credit pledge is rated A2 by Moody’s, five steps below top investment grade.

- Supreme Leader Ayatollah Ali Khamenei said the re-election of President Mahmoud Ahmadinejad was valid and warned of a crackdown on Iran’s “political elites” should protests continue. “Street demonstrations should end,” Khamenei said in a sermon at Friday prayers in Tehran. “If they don’t, leading politicians will be held accountable for the chaos.” He said terrorist acts have been committed against police and militia. “For someone who wants to commit a terrorist act, what is better than to hide amidst a crowd of protesters and marchers?”

- U.S. defense officials will urge Chinese leaders next week to step up action in support of international penalties against North Korea and to reveal more of their military plans and intentions.

- Crude oil fell more than $1 a barrel and gasoline tumbled the most in two months on speculation that supplies of the motor fuel will climb as refineries bolster output and imports gain. Gasoline inventories rose 3.39 million barrels to 205 million last week, the biggest increase since January, the Energy Department said on June 17. Total daily demand for fuels is 6 percent lower than a year ago.

Wall Street Journal:

- Chinese regulators have ordered Google Inc.(GOOG) to suspend search services for foreign Web sites via its Chinese Web site, the official Xinhua News Agency reported Friday, a day after the company was warned over the pornographic content available through its search engine.

CNBC:

- Signs that unemployment pains may be easing in individual US states in April disappeared by May, when jobless rates jumped in 48 states and the District of Columbia, according to data released on Friday.

- The high cost of securing health insurance for all Americans, the top domestic priority of President Obama, has Congressional Democrats scrambling to scale back their proposals or find ways to trim tens of billions of dollars a year from existing health programs.

Fox News:

- The U.S. military is planning to intercept a flagged North Korean ship suspected of proliferating weapons material in violation of a U.N. Security Council resolution passed last Friday, FOX News has learned. The USS John McCain, a navy destroyer, will intercept the ship Kang Nam as soon as it leaves the vicinity off the coast of China, according to a senior U.S. defense official. The order to interdict has not been given yet, but the ship is getting into position.

CNN:

- Just recently, President Obama took to interfering in the Middle East by scolding Israel for its treatment of Palestinians and its settlements in the West Bank. Yet now, in a real disappointment to anyone who values freedom, Obama has declared his reluctance to "meddle" in the aftermath of the disputed Iranian presidential election even as hundreds of thousands of protesters put themselves at risk on the streets of Tehran. Sometimes, the only correct course of action is to meddle. Here you have the brutal repression of political dissent, the suppression of free speech and the beating and gunning down of dissidents. College students are reportedly being beaten in their dormitories by government thugs and threatened with worse if they don't stop protesting. In the street, armed police officers whale on old ladies and teenagers with clubs, as demonstrators carry unconscious comrades bleeding from head wounds. And -- in what served as my wake-up call -- the government shut down foreign media coverage by revoking the press credentials of foreign correspondents and restricting them to their hotels. That was an ominous sign of what may be coming. With the curtain drawn, Iranian President Mahmoud Ahmadinejad must think he can crush his opponents once and for all and the world will be none the wiser.

Rassmussen:

- Most adults in Michigan (69%) say the government should sell its shares in General Motors and Chrysler as soon as possible. A new Rasmussen Reports telephone survey in the state finds that only 13% think the government should hold on to the companies, both based in Michigan, for a long time.

Politico:

- While businesses across the country are cutting back, members of the House saw their own office budgets increase by an average of 7 percent between 2008 and 2009. House officials say the increase is because of — not in spite of — the nation’s economic woes. “The demands on member offices have increased dramatically during our nation’s current financial crisis, and staff have been called on to work harder and smarter to ensure that we are meeting those growing needs,” Rep. Robert Brady (D-Pa.), chairman of the Committee on House Administration, said in a statement provided to POLITICO. An office’s budget — called the Member’s Representational Allowance — is meant to cover the day-to-day costs of running a congressional office: staff payroll, travel expenses, rent for district offices and the like. The average MRA for 2009 is nearly $1.5 million, up almost $100,000 over 2008. While House members have given up the automatic pay raise they would have gotten for 2010, they haven’t turned down the 7 percent hike in their 2009 MRAs — an increase that outstrips the inflation rate, the consumer price index and the 5.8 percent cost-of-living adjustment for recipients of Social Security.

- President Obama's campaign for health care reform by this fall, once considered highly likely to succeed, suddenly appears in real jeopardy. Top White House advisers, especially chief of staff Rahm Emanuel, are still privately predicting massive changes to the health care system in 2009. But for the first time, Democrats on Capitol Hill and in the administration are expressing frank worries about stronger-than-expected opposition from moderate Democrats and worse-than-expected estimates for how much the plan could cost.

Reuters:
- China Unicom, one of China's top three mobile carriers, may be close to a deal that would see it become the exclusive seller of Apple's (AAPL) iPhones in China for two years, a Merrill Lynch analyst said. "Our industry checks reveal that Unicom and Apple have most likely reached a deal for an exclusive 2-plus year agreement," analyst Cynthia Meng wrote in a research note dated June 18. "We expect iPhone products to be available in conjunction with the Unicom commercial scale 3G launch in Q4, starting on Oct 1."

- The overhaul announced Wednesday includes a provision to "establish a fiduciary duty for broker-dealers offering investment advice," to help empower the U.S. Securities and Exchange Commission to increase fairness for investors. Brokers must now simply put clients in suitable investments, not necessarily ones that are less costly or more tax-friendly. Brokers could not ordinarily plow a retiree's investable assets into risky stocks or illiquid investments, for example. The newspaper said a new fiduciary standard would require brokers to disclose potential conflicts of interest, and could also expose them to more lawsuits.

- Federal Reserve Bank of Kansas City President Thomas Hoenig said on Friday that the U.S. central bank was thinking seriously about its exit strategy, but inflation was not yet an imminent danger. "I think the inflation outlook is one that is for the longer term. But I think ... the role of the central bank is to think longer term. And therefore we have to be mindful of that, and that is what this focus on an exit strategy is all about," he told CNBC Television in an interview.

- Texas billionaire Allen Stanford and four associates were indicted on fraud, conspiracy and obstruction charges in a $7 billion pyramid scheme to bilk investors, U.S. Justice Department officials announced on Friday.

Financial Times:
- Banks and insurers may no longer be able to book gains on falls in the value of their own debt under proposals being considered that could remove one of the most controversial elements of mark-to-market accounting. The International Accounting Standards Board (IASB) on Thursday called for comments on the issue, which centers around whether companies can take into account the market’s view of their creditworthiness when reporting liabilities. This means that, when the price of a bank’s debt falls, the bank can write down the value of its liability and report the difference in price as a gain. In theory this reflects the fact that the bank could then buy the bonds back at the lower price, but critics claim the practice flatters earnings because the weaker price probably reflects a bank in trouble, and risks under-reporting the true extent of someone’s liabilities. The plunge in bank debt prices in the past two years means many banks have reported large gains from reporting market prices, although the recent rally will take the gloss off those gains and will mean potentially booking losses.

Bear Radar

Style Underperformer:
Large-cap Value (-.18%)

Sector Underperformers:
Education (-1.42%), Utilities (-1.24%) and Energy (-1.18%)

Stocks Falling on Unusual Volume:
IOC, SSL, VRUS, HES, CHDX, STRL, RIMM, MDS, ITG, TUC and TKG

Stocks With Unusual Put Option Activity:
1) EOG 2) LO 3) APWR 4) MEE 5) NAV

Bull Radar

Style Outperformer:
Small-cap Growth (+1.56%)

Sector Outperformers:
HMOs (+3.43%), Alt Energy (+3.22%) and Computer Hardware (+3.03%)

Stocks Rising on Unusual Volume:
TLEO, INFY, BBV, SNP, MRK, BP, AZN, STP, ELP, MFW, PWRD, FUQI, CHFC, RNOW, PALM, CBST, CMED, UFPI, SAIA, REGN, MSFT, CSKI, ARST, PEET, FFIC, BHLB, NBTB, HMSY, AGO, KMX, NNI, CNC, TPX, HSP and DLX

Stocks With Unusual Call Option Activity:
1) SPLS 2) MDT 3) DHR 4) ESRX 5) CI

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Friday Watch

Late-Night Headlines
Bloomberg:

- China’s copper demand may drop in the next quarter as the State Reserve Bureau will probably cease purchases and as consumption in the world’s largest metals buyer weakens, a trader at Jiangxi Copper Co. said. Prices will decline in the next two to three months as Chinese imports fall, Zhao Mingwang, manager of futures trading at Jiangxi Copper Products Co., said in a phone interview. Falling exports and profits, overcapacity and rising unemployment are making it harder to revive economic growth in the world’s third-largest economy, China’s cabinet said June 17. “Demand is not as good as people had expected,” Zhao said. “In the second half, the SRB is unlikely to buy more, so copper price fluctuations will solely rely on real demand. The third quarter will be a slow season, so we expect copper to fall.” “SRB’s purchases are coming to an end,” Jiangxi Copper’s Zhao said. Prices have rallied and SRB has met its stockpiling target, he added, without elaborating. Rising inventories in warehouses monitored by the Shanghai Futures Exchange is a sign of falling demand, Zhao said. The inventories grew by 15,167 tons to 60,647 tons as of June 12, exchange data showed.

- Office prices and rental rates in Perth’s business district will fall as much as 50 percent by 2013 from last year’s highs as mining projects stall and new blocks are completed, real-estate forecasters and agents said. Vacancies in the center have risen from a record low of 0.3 percent last June, among the tightest in the world, to about 6 percent and will jump to 16 percent by mid-2010, said Lee Walker, at Sydney-based forecaster BIS Shrapnel. The rate will peak in 2013, with average prime rents dropping to A$360 ($286) per square meter from A$720 now, he said. “Perth has been geared up to service an absolute booming level of investment,” said Walker in a phone interview from Sydney. “A downturn of this magnitude spells disaster for employment growth, hitting demand for office space.”

- Leading Republicans on a House panel that will consider the Obama administration’s overhaul of financial regulations said the president’s plan would continue a cycle of taxpayer-funded bailouts. Representative Spencer Bachus, the ranking Republican on the Financial Services Committee, and his colleagues on the panel echoed concerns among others on Capitol Hill that President Barack Obama’s proposal would give too much power to the Federal Reserve and distract from its monetary-policy duties.

- The US dollar may extend its gain against the euro on speculation changes in how the London interbank offered rate is set may increase the borrowing costs for the greenback outside the U.S. The dollar rose versus the euro yesterday for the first time in three days after British Bankers’ Association said it may allow more institutions to take part in the daily survey that sets Libor, the benchmark for more than $360 trillion of financial products around the world. Investors also abandoned bets that the euro would appreciate further after the common European currency failed to strengthen beyond $1.40. “It would be a wider group of banks, so some ‘weaker’ ones who would submit higher rates, thus Libor would aggregate higher,” said Scott Ainsbury, a portfolio manager at New York- based FX Concepts Inc., the world’s largest currency hedge fund with about $12 billion in assets.

- Yields on bonds backed by commercial mortgages fell relative to benchmark interest rates for the third day to the lowest this month as new offerings boosted investor interest. The yield gap, or spread, relative to the benchmark swap rate on top-rated bonds backed by commercial real estate fell 68 basis points to 6.83 percentage points today, the lowest since June 2, according to Bank of America Corp. data. On June 15, the spread was 8.39 percentage points.

- Defense Secretary Robert Gates said he has ordered the U.S. military to take defensive measures should North Korea attempt to fire a ballistic missile toward Hawaii, even as officials express skepticism of the possibility. “I think we are in a good position, should it become necessary, to protect American territory,” Gates told reporters at the Pentagon today. Gates said he has directed the deployment of a missile interceptor system known as Theater High Altitude Area Defense, or Thaad, to Hawaii and the positioning of a sea- based radar system near the U.S. state. The U.S. is making the preparations as North Korea threatens to conduct further missile tests in retaliation for a United Nations Security Council resolution approved on June 12 that imposes more penalties on the regime for previous tests. The military also is watching a North Korean ship under the resolution’s authorization for the interdiction of vessels suspected of carrying illegal cargo for the regime’s nuclear or missile development efforts.

- In 1989, Akbar Hashemi Rafsanjani, then the most powerful figure in Iran, supported Ayatollah Ali Khamenei’s appointment as supreme spiritual leader. Now, the two men are locked in conflict amid a wave of protests against the June 12 re-election of President Mahmoud Ahmadinejad, a Khamenei ally. Rafsanjani supports Mir Hossein Mousavi, who says that he won the vote and has drawn hundreds of thousands of Iranians into the streets to rally behind him. Ahmadinejad and Mousavi are the public faces of a power struggle among Iran’s ruling clerics. As the country is swept up in protests not seen since the 1979 Islamic Revolution, the conflict risks undermining the regime’s existence, said Mohammad-Reza Djalili, an Iran expert at the Graduate Institute of International and Development Studies in Geneva.

- Hog futures may fall as much as 15 percent in the next four months as pork demand wanes and U.S. producers send herds to slaughter, putting more meat on the market, said Ryan Turner of broker FCStone Group Inc.

- The market for trading rights to spew carbon dioxide, created by the 1997 Kyoto Protocol to reduce global warming, is under attack by developing countries and environmentalists as negotiators hammer out a sequel treaty. Investors who trade pollution permits are fighting proposals to limit or kill a United Nations program that lets European companies offset requirements to cut emissions by bankrolling low-carbon projects in emerging economies. The process creates allowances that the World Bank says accounted for 26 percent of the $126 billion of credits that traded in the carbon market in 2008. China and Mexico want wealthier governments to subsidize clean-up projects directly, with the Chinese saying investments from Western companies should “not be used to offset” their own cuts. Greenpeace International says the UN system delays rich nations’ response to greenhouse gasses. Their approaches would reduce the private sector’s role in, and potential profits from, the global-warming fight.

Wall Street Journal:

- After steering clear of big deals for the better part of a year, China Investment Corp., the country's $200 billion sovereign-wealth fund, is showing renewed interest in putting cash to work, and hedge-fund managers are poised to benefit. Blackstone Group LP(BX) is at the forefront of the latest discussions. The Chinese fund, known as CIC, could within a matter of days commit $500 million, and maybe more, to the division of Blackstone that manages hedge-fund investments, according to people familiar with the situation.

- Target Corp., Harley-Davidson Inc., Pitney Bowes Inc. and dozens of other companies that aren't banks but pitch loans and other financial products are being squeezed by the Obama administration's financial-overhaul plan. One proposal being pushed by the White House takes aim at industrial loan companies, which are allowed under their state-issued charters to collect federally insured deposits, offer credit cards, make loans and process financial transactions without facing as much scrutiny as traditional banks regulated by the U.S. government. President Barack Obama wants companies with ILC charters to register as bank-holding companies with the Federal Reserve. That would put them in the same regulatory category as Bank of America Corp. and J.P. Morgan Chase & Co., subjecting the non-banks to much greater government oversight. If that happens, most companies with ILC charters likely would close them down, potentially shutting off another source of credit for consumers, industry experts predict. That's because the companies might not be able to satisfy the Fed's capital and other requirements, and thus would be ineligible to become bank-holding companies, or they would balk at heavier regulation.

- The White House said Thursday it was seeking ways to include same-sex marriages, unions and partnerships in 2010 Census data, the second time in a week the administration has signaled a policy change of interest to the gay community.

- Taiwan Semiconductor Manufacturing Co. (TSM) said Friday it plans to raise its capital expenditure this year to the same level as last year's US$1.9 billion, a signal that conditions in the chip industry are improving.

MarketWatch.com:
- The Bank of Japan's policymakers agreed at their May 21-22 meeting that a fall in production was coming to a halt but that the threat of rising deflation needed close watching, according to meeting minutes released Friday.

CNBC.com:
- This year's peak home-buying season was lackluster, as buyers seeking to trade up to larger houses were absent, said the head of one of the country's largest real estate firms. Jim Gillespie, president and chief executive of Coldwell Banker Real Estate, in an interview with Reuters, said sales were only modest during the spring, with demand overwhelmingly dominated by first-time home buyers and investors.

- The Treasury announced Thursday a record $104 billion worth of bond auctions for next week, part of its herculean efforts to finance a rescue of the world's largest economy. The sales will exceed the previous record of $101 billion set in auctions that took place in the last week of April and consist of two-year, five-year and seven-year securities. That record was matched by another $101 billion week in May. Though next week's total was broadly in line with expectations, worries about supply have weighed on the U.S. government bond market, which will see a mammoth $2 trillion worth of new debt issued this year.

- Investors typically look to small cap stocks as the leaders out of a recession. More nimble than their large-cap counterparts, small cap companies are quicker to adapt during both economic downturns and periods of recovery. That’s particularly true in the technology sector, where innovation and emerging market segments provide opportunities for rapid growth.

NY Times:

- American computer makers say the Chinese government has not backed down from a requirement that Internet censorship software be preinstalled on all computers sold in China after July 1, despite reports this week that the rule had been relaxed.

- When a company called Ausra filed plans for a big solar power plant in California, it was deluged with demands from a union group that it study the effect on creatures like the short-nosed kangaroo rat and the ferruginous hawk. By contrast, when a competitor, BrightSource Energy, filed plans for an even bigger solar plant that would affect the imperiled desert tortoise, the same union group, California Unions for Reliable Energy, raised no complaint. Instead, it urged regulators to approve the project as quickly as possible. One big difference between the projects? Ausra had rejected demands that it use only union workers to build its solar farm, while BrightSource pledged to hire labor-friendly contractors. As California moves to license dozens of huge solar power plants to meet the state’s renewable energy goals, some developers contend they are being pressured to sign agreements pledging to use union labor. If they refuse, they say, they can count on the union group to demand costly environmental studies and deliver hostile testimony at public hearings. If they commit at the outset to use union labor, they say, the environmental objections never materialize.

- A crackdown on credit limits by card companies is squeezing the nation’s 27 million small businesses, exacerbating the problems brought on by a stagnant economy. Owning a small business has always been a challenge — half wind up failing within the first few years. But the financial crisis has dealt them a one-two punch, as big banks cut the credit card lines that many entrepreneurs were forced to lean on when a once-abundant supply of loans dried up. As of April, 59 percent of America’s small firms relied on credit cards to help finance their day-to-day operations, up from 44 percent at the end of last year, according to the National Small Business Association.

Business Week:
- ‘Cash for Clunkers’ Bill Passes. Originally intended to get gas guzzlers off the road, it will mainly help automakers sell more pickups and SUVs. Senate Democrats defeated a Republican effort to kill a $1 billion "cash for clunkers" program that provides government incentives of $3,500 to $4,500 to car buyers who trade in old gas guzzlers for more fuel-efficient vehicles. But in passing the bill on June 18 as an add-on to funding for the wars in Iraq and Afghanistan, Democrats also defeated the "green" wing of their own party, who wanted to do much more to favor the purchase of passenger cars over pickup trucks and SUVs. The bill, which President Barack Obama is expected to sign, will enable many consumers who take advantage of the program to buy trucks that are barely more fuel-efficient than their old guzzlers.

- BusinessWeek and YouNoodle's list of 50 tech startups includes young companies like Cloudera, Project Better Place, and Scribd that are poised for growth.

CNNMoney.com:

- Lines form for the new iPhone in New York and Tokyo.

Politico:

- The Senate Finance Committee has significantly scaled back its health care bill in reaction to the $1.6 trillion pricetag that congressional budget analysts gave to an earlier version of the bill. The committee is considering smaller subsidies for low-income families to purchase insurance, and a limited expansion of Medicaid, according a 10-page outline distributed Thursday to Democratic health policy aides on the Finance Committee. The proposal does not include a public insurance plan, although it does detail an idea offered by Sen. Kent Conrad (D-N.D.) to create nonprofit insurance cooperatives. It was labeled an “open issue,” as was the parameters of the employer mandate.

Boston Globe:

- Laid off from Wall Street? The CIA wants you -- as long as you can pass a lie detector test and show that you are motivated by service to your country rather than your wallet. The Central Intelligence Agency has been advertising for recruits and will be holding interviews on June 22 at a secret location in New York. "Economics, finance and business professionals, if the quest for the bottom line is just not enough for you, the Central Intelligence Agency has a mission like no other," one radio advertisement for the agency says.

Reuters:

- The U.S. economy sprouted more green shoots of recovery in data released on Thursday, with weekly jobs figures showing unexpected improvement and the slumping factory sector revealing dramatic signs of a rebound.

- Now that Goldman Sachs Group Inc (GS) has settled its $10 billion debt with the U.S. taxpayer, investors are wondering about the Wall Street firm's other looming presence -- Warren Buffett.

Commercial Times:
- Quanta Computer Inc. may ship 3 million notebook computers this month, including Apple Inc. MacBooks, citing officials in the computer industry. The company may ship 14.5 million notebook computers in the first half, exceeding Compal Electronics Inc.’s 14.1 million. Quanta’s third-quarter shipments may increase more than 20%. Quanta is the world’s largest maker of notebook computers.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (OI), target raised to $33.

- Reiterated Buy on (HSY), added to Top Picks Live list target $43.

Night Trading
Asian Indices are unch. to +.75% on average.

Asia Ex-Japan Inv Grd CDS Index -.34%.
S&P 500 futures +.16%.
NASDAQ 100 futures +.31%.

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

Stocks Finish Slightly Higher, Boosted by HMO, Hospital, Bank adn Utility Shares

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