Today's Headlines

Bloomberg:

• Portugal May Be Cut by Moody's as Contagion Spreads. Portugal may have its credit rating cut by Moody’s Investors Service for the first time as the country struggles to reduce its budget deficit and revive economic growth a sign that contagion from the Greek crisis is spreading. Moody’s today placed its Aa2 rating on review for a possible downgrade, a process that will conclude within three months, the company said in a statement. Portugal has held the third-highest Moody’s investment grade since 1998. “Today’s rating action reflects the recent deterioration of Portugal’s public finances as well as the economy’s long-term growth challenges,” Moody’s said. The company “believes that increased risk discrimination in the financial markets may raise Portugal’s financing costs for some time to come.” “Portugal’s growth problem is related more to its low productivity than its high costs per se,” Moody’s analyst Anthony Thomas said in the statement.
• Greek Contagion Spurs Surge in Portugal, Spanish Debt Swaps. Contagion from the Greek deficit crisis swept through European credit markets, triggering a surge in the cost of insuring European banks against default to a one- year high and driving Spanish and Portuguese debt swaps wider. The Markit iTraxx Financial Index of credit-default swaps on 25 banks and insurers increased as much as 19 basis points to 154, the highest since April 28, 2009. Swaps on Portugal surged 85.5 basis points to a record 429.5, according to CMA DataVision prices, and contracts on Italy, Ireland and Greece also rose. There’s a threat of “grave contagion effects” from the Greek fiscal crisis, European Central Bank council member Axel Weber said. Policy makers must “contain the bush fire,” said EU Economic and Monetary Affairs Commissioner Olli Rehn, although financial assistance for other countries isn’t being proposed. “The risk is that the market’s confidence has been shattered,” Jim Reid, head of fundamental strategy at Deutsche Bank AG in London, wrote in a note to investors. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments soared as much as 24 basis points to an all-time high of 154, CMA prices show. Credit-default swaps on Greece climbed 77.5 basis points to 842, Spain increased 28 basis points to 235, Italy climbed 24 to 186 and Ireland increased 23 to 242, CMA prices show. The cost of insuring against default on corporate and bank bonds also increased, signaling deterioration in perceptions of credit quality. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 8 basis points to 105.75, JPMorgan Chase & Co. prices show.
• Spain Borrowing Costs May Rise as Zapatero Faces Abyss. Spain’s borrowing costs may climb tomorrow at the country’s first debt sale since its credit rating was cut last week on concern the fiscal crisis pummeling Greek bonds will spread to fellow euro-region countries. The Treasury may sell as much as 3 billion euros ($3.89 billion) of five-year notes to yield 3.34 percent, according to the median estimate of seven analysts and investors in a Bloomberg News survey. The yield was 2.84 percent when Spain auctioned 4.5 billion euros of the same securities on March 4.
• Greek Protests of Austerity Plan Leave 3 Dead. Greek demonstrations against government austerity measures turned deadly when three people were killed after protesters set fire to a bank in central Athens in what Prime Minister George Papandreou called a “murderous act.” “Greeks have a right to demonstrate, not a right to violence, especially violence which leads to murder,” Papandreou told parliament today. He said all Greek political parties were united in opposing violence. The violence came during a general strike called after Papandreou announced a second set of wage cuts for public workers, a freeze on pensions and a second sales-tax increase to secure a bailout from the European Union and the International Monetary Fund. The measures, which aim to tame a budget deficit of almost 14 percent of economic output, were denounced as “savage” by union leaders.
• Commodities Slump, Led by Crude Oil, Copper, on Debt Concern. Commodities fell for a second day, led by a slump in oil and copper, on concern the Greek debt crisis will spread and undermine Europe’s economic recovery. The Reuters/Jefferies CRB Index of 19 raw materials declined as much as 1.9 percent, extending yesterday’s 2.3 percent retreat. The gauge was 1.8 percent lower at 266.86 points as of 2:45 p.m. in London. Crude oil fell as much as 4.3 percent, copper 5.6 percent and nickel 16 percent. The CRB’s 4.2 percent retreat is the biggest two-day drop in three months and comes amid growing expectations that Greece’s 110 billion-euro ($143 billion) rescue package will need to be repeated in Spain and Portugal. “The margin clerks were at work yesterday to find pockets of liquidity that could be tapped to meet margin calls,” said Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter. “There may be more yet today.”
• Cayne Blames Market Forces for Bear Stearns Collapse. James “Jimmy” Cayne, the former chairman and chief executive officer of Bear Stearns Cos., blamed market forces and loss of confidence in his firm for its collapse in 2008. “The market’s loss of confidence, even though it was unjustified and irrational, became a self-fulfilling prophecy,” Cayne told the Financial Crisis Inquiry Commission in Washington.
• Oil-Soaked Crab Threatens Seafood Prices at Top-Ranked Eateries.
• Buffett Says GM Rescue May Mean U.S. Can't Say No to States. Warren Buffett, chairman of Berkshire Hathaway Inc., said the U.S. would probably feel compelled to rescue a state facing default after the government committed $700 billion to bail out financial firms and automakers. “It would be hard in the end for the federal government to turn away a state having extreme financial difficulty when they’ve gone to General Motors and other entities and saved them,” Buffett, 79, told shareholders in Omaha, Nebraska, at the company’s May 1 annual meeting. “I don’t know how you would tell a state you’re going to stiff-arm them with all the bailouts of corporations.”
• China Property Stocks Gauge Falls to Lowest in More Than a Year. Chinese property developers fell to the lowest in more than a year in Shanghai after Qiu Baoxing, China’s vice housing minister, said the nation must act to curb rising real estate prices and the formation of asset bubbles. The China Se Shang’s Property Index has declined 25 percent this year.
• Nickel Extends Drop to Steepest in 19 Months as Supply Expands. Nickel slumped the most in 19 months on the London Metal Exchange to the lowest price in almost 10 weeks on expectations that supplies expanding at the fastest pace in a decade will overwhelm demand. The metal for delivery in three months dropped as much as $3,949, or 16 percent, to $20,701 a metric ton, the lowest intraday price since Feb. 26. The slide was the biggest since October 2008.
• Goldman Sachs(GS) Credit Rating Outlook Cut to 'Negative' by Fitch. Goldman Sachs Group Inc.’s credit rating outlook was cut to “negative” from “stable” by Fitch Ratings, which said legal actions and regulatory changes could hurt the firm’s reputation and ability to earn money.

Wall Street Journal:

• Greek Default Already Decided. The real decision made by euro-zone authorities last Sunday was not to save Greece, but to escort it to a safe house where the country’s massive debt can be cut down to size through a painful restructuring. That’s the view of Willem Buiter, a former member of the Bank of England’s Monetary Policy Committee and frequent consultant to the European Central Bank, who recently joined Citigroup as it’s chief economist. He’s not making a prediction. He’s saying the decision has already been made.
• For Bill on Lawmaker Trading, Delay Is Long and Short of It. A bill that would require speedier disclosure of stock trades by lawmakers has languished for years on Capitol Hill, suggesting Congress has little appetite for new rules on how its members manage their money.
• German Group to File Lawsuit Against German Aid to Greece Friday. The group of German professors seeking to derail Berlin's contribution to a Greek rescue plan will file a lawsuit against Germany's law that allows financial aid at 1000 GMT, Friday, the group said in a statement. "It's about the stability of the [euro] currency as a fundament of the currency union, and therefore also the economic and social fate of all citizens of the currency union," said the statement. The lawsuit will be filed after the scheduled vote on the Greek aid bill in the lower house and before the upper house of parliament has voted on it and before German President Horst Koehler would sign it should it pass. The group consists of Joachim Starbatty, a retired economics professor from the University of Tuebingen, Karl Albrecht Schachtschneider, a retired University of Nuremberg law professor and expert on the constitutional court, and retired economics professors Wilhelm Hankel and Wilhelm Noelling. Noelling is a one-time governor of the Bundesbank, Germany's central bank.
• EU to Propose Regulating Currency Derivatives - Document.
• BP Caps 1 of 3 Oil Leaks in Gulf.
  

Bloomberg Businessweek:

• Fed's Rosengren Says Housing 'Something We Have to Worry About'. Federal Reserve Bank of Boston President Eric Rosengren said a weak housing market still poses a risk to the U.S. economy. “We have seen some stability over the last couple of quarters” in real estate, Rosengren said today in introductory remarks at a conference at the Boston Fed. “Nonetheless, it's something we have to worry about.”
• Spain Faces 'Explosive Cocktail' of Risk on Jobs, Rotten Loans. Spain faces an “explosive cocktail of risk factors” as it wrestles with a fiscal deficit at 11 percent of gross domestic product caused by bad loans to builders and swelling unemployment, UniCredit SpA said. The nation’s budget gap is the third largest in the European Union and with an unemployment rate of more than 20 percent, the government in Madrid has limited room to maneuver, according to Stefan Kolek, a credit strategist at UniCredit. Bad loans at Spanish lenders climbed to 5.3 percent of total credit in January as the worst recession in 60 years forced borrowers to miss payments on their debt. “The high dependence of the economy on a highly leveraged construction sector in conjunction with still falling housing prices makes an explosive cocktail of risk factors,” Munich- based Kolek wrote in a note to investors.

CNBC:

• European Union, Currency Are Headed for Collapse: Dennis Gartman. The current European debt crisis likely will not end until the euro collapses as a currency and takes the entire European Union with it, said Dennis Gartman, hedge fund manager and author of "The Gartman Letter."

Business Insider:

• Oakland is About to Go Bust.
• Lloyd Blankfein: We Will Be Among The Biggest Beneficiaries of Financial Reform. Critics of financial reform have repeatedly argued that in the end, this will benefit the big boys, like Goldman Sachs. Well, here's more grist for the mill. On his conference call with private wealth management clients, Goldman Sachs CEO Lloyd Blankfein addressed financial reform. He's not worried. He said: "We will be among the biggest beneficiaries of reform." So there you go. See our notes from the full call here >

Zero Hedge:

• How Europe's Sovency Crisis is Morphing into a Liquidity Crisis: Spread Between Overnight and 3M ECB Repo Blows Out.

CME Group:

• CME Group(CME), the world’s leading and most diverse derivatives marketplace, today announced the launch of Cheese futures and options on futures.
• CME Group(CME), the world’s leading and most diverse derivatives marketplace, today announced the submission of a petition to the Commodity Futures Trading Commission (CFTC) for approval to list twelve new agricultural swaps to be available on CME ClearPort, a set of flexible clearing services open to over-the-counter (OTC) market participants to substantially mitigate counterparty risk and provide neutral settlement prices across asset classes.

Politico:

• Obama Biggest Recipient of BP(BP) Cash. While the BP oil geyser pumps millions of gallons of petroleum into the Gulf of Mexico, President Barack Obama and members of Congress may have to answer for the millions in campaign contributions they’ve taken from the oil and gas giant over the years. BP and its employees have given more than $3.5 million to federal candidates over the past 20 years, with the largest chunk of their money going to Obama, according to the Center for Responsive Politics. Donations come from a mix of employees and the company’s political action committees — $2.89 million flowed to campaigns from BP-related PACs and about $638,000 came from individuals. On top of that, the oil giant has spent millions each year on lobbying — including $15.9 million last year alone — as it has tried to influence energy policy. During his time in the Senate and while running for president, Obama received a total of $77,051 from the oil giant and is the top recipient of BP PAC and individual money over the past 20 years, according to financial disclosure records.

Reuters:

• JPMorgan(JPM) Chief Backs Reg Reform, CEOs More Upbeat.
• German SPD Likely to Oppose Greece Aid Plan - Paper. Germany's largest opposition party, the Social Democrats (SPD), is unlikely to back a draft law on the German contribution to a financial aid package for Greece, a newspaper quoted senior party members as saying. Chancellor Angela Merkel's government does not need the SPD's support to get the bill through parliament but she would like to get as much backing for the measure as possible given stiff opposition among the public to bailing out Greece.

Xinhua News:

• Ji Huaiyin, a deputy director of the fiscal and finance department under the State Council's Legislative Affairs Office, said imposing a property tax earlier is better than imposing the tax later, citing an interview with Ji.
• The Beijing Housing Fund raised downpayments on second homes from today to 50% of the value of the property from 40%, citing an official from the organization. The fund, which provides mortgages to people who work in Beijing and who contribute to the fund with their employers, also suspended loans for third homes, citing Li Chiying, spokesman for the Beijing Housing Fund Center.
  

Yonhap News:

• N. Korea Has Deployed 50,000 Special Forces Along Frontlines: Source.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.09%)

Sector Underperformers:

• Oil Tankers (-3.07%), Biotech (-2.0%) and Hombuilders (-1.56%)

Stocks Falling on Unusual Volume:

• CLMT, CETV, EVEP, SU, BEXP, VMED, MBT, LBTYA, ABB, PSEC, TLVT, BONT, WBMD, NATI, OMCL, BW, MYGN, ITMN, SIRO, GLAD, LNCE, ONXX, TNDM, GRMN, ZINC, PZZA, NWSA, BOFI, SGEN, IVAC, DCTH, VPRT, ECLP, GES, PBT, KRO, FIX, PWE, BPL, MTH, ETE, EPD and DPM
  

Stocks With Unusual Put Option Activity:

• 1) ADSK 2) ARO 3) JOYG 4) HOV 5) STD
  

Stocks With Most Negative News Mentions:

• 1) XOM 2) BP 3) TASR 4) GET 5) Q
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.37%)

Sector Outperformers:

• Education (+1.56%), Retail (+.95%) and Gaming (+.71%)

Stocks Rising on Unusual Volume:

• CLF, BKE, TJX, TU, SENO, AMMD, DGIT, MASI, SANM, STLD and PLT
  

Stocks With Unusual Call Option Activity:

• 1) ARM 2) NWSA 3) THC 4) PXD 5) ITMN
  

Wednesday Watch

Evening Headlines
Bloomberg:

• Greek Quarantine Tested as Spain Denounces Contagion 'Madness'. Investors are already testing the euro region’s efforts to contain the Greek crisis. Greek bond yields yesterday rose above their level before the government agreed on a European Union-led bailout on May 2 as escalating protests cast doubt on its ability to drive through austerity measures. Spanish and Portuguese bonds also renewed last week’s slide as investors question their ability to cut budget deficits that are among the highest in the euro area. “If the execution of the announced measures in Greece faltered it would certainly make it more difficult to bring the sovereign debt markets of Spain and Portugal into calmer waters,” said Kommer van Trigt, who helps oversee 140 billion euros ($183 billion) at Robeco Group in Rotterdam. “We want to see more evidence that measures are really being implemented.”
  
• Dodd and Shelby Agree on Plan to Bar Bank Bailouts. Senate Banking Committee Chairman Christopher Dodd said he and Republican Senator Richard Shelby have agreed “conceptually” on changes to the financial- overhaul bill aimed at preventing bailouts of Wall Street firms. The deal would eliminate a proposed industry-paid $50 billion fund to cover the government’s costs of liquidating a failing financial firm, Dodd said today in an interview. Republicans said the fund would encourage bailouts rather than prevent them. Dodd said the compromise with Shelby of Alabama, along with an amendment by California Democrat Barbara Boxer that would prohibit spending taxpayer funds to keep failing firms in business, “takes that issue completely off the table.” “I’m satisfied, as I believe my colleague from Alabama is, that we’ve reached an agreement on the too-big-to-fail provisions,” said Dodd, a Connecticut Democrat.
  
• Wyser-Pratte Says Euro May Reach Dollar Parity as Spain Looms. U.S. investor Guy Wyser-Pratte said the euro could drop to parity with the dollar and the Greek debt crisis will probably spread to Spain. “The key in Europe is not Greece or Portugal but Spain,” Wyser-Pratte, an activist investor in Europe for more than a decade, said yesterday at the Bloomberg Markets Hedge Fund Summit in New York. “They’re taking too long” to reorganize their banks, he said. Governments in the region are under pressure to slash spending as German Chancellor Angela Merkel’s coalition steps up calls for allowing “orderly” default of euro-region member states. Many of the region’s countries devalued their currencies in the past to make their economies more competitive, an instrument they can no longer use after joining the euro, said Pierre Lagrange, co-founder of GLG Partners Inc., a manager of hedge and mutual fund investments. Merkel faces elections on May 9 in North Rhine-Westphalia, Germany’s most populous state. She is campaigning on her refusal to rush aid to Greece, saying her firmness forced the Greek government to commit to bigger savings. Greece’s deficit was 13.6 percent of gross domestic product last year, the region’s second-biggest after Ireland, compared with 3.3 percent for Germany. Wyser-Pratte, founder of New York-based investment firm Wyser-Pratte & Co., said the elections will be a “referendum” on Merkel and German willingness to finance weaker European nations. “If that turns against her the whole thing could unravel,” he said. Investors considering buying assets in Europe should short the euro, betting on a decline, he said.
• Ahmadinejad Hails U.S. Arms Disclosure, Warns Against Sanctions. The Obama administration, which took a “positive step forward” by disclosing the size of the U.S. nuclear arsenal, risks the failure of its diplomatic game plan by pursuing new sanctions on Iran, its President Mahmoud Ahmadinejad said. “We fear that a group of radicals may be willing to push Mr. Obama, who came to power with the motto of change, speedily toward an irreversible point,” Ahmadinejad said during a news conference in New York. “It is very clear that if the U.S. starts another sanction against Iran, it means it is the end of Mr. Obama’s efforts. We really don’t want to see that.” Even as he praised the first declaration of the size of the U.S. nuclear arsenal, Ahmadinejad called for an “independent supervisory body” to verify the figures. He questioned why the world should trust the accuracy of the U.S. statement, while the Obama administration doesn’t trust Iran’s own declaration of the peaceful aim of its nuclear program.
• Mortgage Bond Spreads at Widest in Five Months: Credit Markets. Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates climbed to the highest in five months relative to U.S. Treasuries as Europe’s worsening government finances led investors to shun all but the safest assets. Fannie Mae’s current-coupon 30-year fixed-rate mortgage bonds widened as much as 0.05 percentage point to about 0.78 percentage point more than 10-year Treasuries, the widest gap since Dec. 8, before closing at 0.75 percentage point, according to data compiled by Bloomberg. Spreads have climbed from 0.68 percentage point on April 26. Even with the U.S. promising to pump unlimited capital into Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac through 2012 to ensure they can meet $4.6 trillion of guarantees on housing debt, speculation that Greece’s debt crisis will infect Portugal, Spain and the rest of the European Union and make interest rates more volatile is sending investors fleeing to the safety of Treasuries. “You hate to assign everything to Greece, but any time you get sovereign-debt risk issues, I think that gives MBS investors pause,” Walt Schmidt, a mortgage-bond strategist in Chicago at FTN Financial Capital Markets, said. “It’s not that far- fetched” to think that if multiple countries default, there’s a chance Fannie Mae and Freddie Mac eventually could too, he said.
  
• U.S. Seen Attractive for Hedge Funds as Global Rules Tightened. The U.S. will remain more attractive for hedge funds and private-equity firms than Europe as regulators globally seek to tighten oversight of alternative- asset managers, said hedge-fund manager Frank Brosens. While details of the regulatory overhaul are still being worked out, the U.S. proposals are “not a bad direction,” Brosens said today at the Bloomberg Markets Hedge Fund Summit in New York. Europe has a less favorable environment, he said. European regulators said last year they may seek to restrict hedge funds’ use of debt and limit bonuses, rules that would apply to U.S. managers seeking to market themselves to European investors. “It’s going to make it quite complicated,” Brosens said. Brosens was a candidate to run the U.S. Treasury office overseeing the government’s $700 billion bank bailout program until he withdrew his name from consideration last March.
• Cayne Said to Blame Market for 2008 Collapse of Bear Stearns. James “Jimmy” Cayne, the former chairman and chief executive officer of Bear Stearns Cos., will blame market forces and loss of confidence in his firm for its collapse in 2008, according to a person who has reviewed his Congressional testimony. “The market’s loss of confidence, even though it was unjustified and irrational, became a self-fulfilling prophecy,” Cayne said in written testimony to be presented to the Financial Crisis Inquiry Commission in Washington tomorrow, according to the person who declined to be identified since the remarks aren’t public until delivery. JPMorgan Chase & Co.(JPM) agreed to buy the firm through a forced sale in March 2008. Alan Schwartz, who succeeded Cayne as CEO and negotiated Bear Stearns’s fire sale to JPMorgan, also will testify, as will former President Warren J. Spector. Schwartz will tell the panel the firm was well capitalized and blame the fall on rumors, the person said. After guiding the company’s stock up more than 10-fold in 14 years, Cayne got $10 a share on the sale of the 85-year-old firm, 6 percent of the peak a year earlier. He was among the largest shareholders in Bear Stearns at the time of the sale, and about two thirds of the $1.5 billion he accumulated from stock awards was wiped out. Congress appointed the 10-member FCIC led by California Treasurer Phil Angelides to investigate the causes of the financial crisis and report its findings to lawmakers by December. Panel hearings in Washington have focused on companies including Citigroup Inc. and Fannie Mae, and the commission has heard from former Federal Reserve Chairman Alan Greenspan and former Treasury Secretary Robert Rubin. Former SEC Chairman Harvey Pitt called a January FCIC hearing a “parade of sound bites” that failed to shed any light on why U.S. taxpayers had to spend $700 billion to bail out the U.S. financial industry. The panel had taken testimony from Goldman Sachs Group Inc. CEO Lloyd Blankfein, JPMorgan CEO Jamie Dimon, Bank of America CEO Brian Moynihan and former Morgan Stanley CEO John Mack.
• Commodities Plunge on Concern for China Growth, European Debt. Commodity prices plunged the most in two months as slowing Chinese manufacturing and budget gaps in Europe spurred speculation that the global economic recovery will slow, curbing demand for raw materials. The Reuters/Jefferies CRB Index of 19 raw materials fell 2.3 percent to 271.65 as of 2:38 p.m. in New York, heading for the biggest slide since Feb. Nickel plunged as much as 7.2 percent on the London Metal Exchange, leading today’s declines.
• Leveraged-Loan Market Shrinks to 2007 Level Amid Lack of CLOs. The leveraged-loan market shrunk last month to its size in July 2007, right before the onset of the credit crunch, amid a lack of new issues of collateralized loan obligations, CreditSights Inc. said. The amount of loans on the S&P/LSTA Leveraged Loan Index, representing about 95 percent of the institutional market for U.S. bank debt, dropped by $9.95 billion to $500 billion in April, Chris Taggert, a New York-based loan strategist at the debt-research firm, said in a report published yesterday. High-yield, high-risk loan volume has declined from $594.2 billion in 2008 and will continue to shrink as repayments and restructurings outpace new issues of bank debt, he said. Lack of new CLOs, which bundle leveraged loans and slice them into securities of varying risk, is driving “major undercurrents” in the market such as amend-and-extend transactions, bond issues to repay loans and manager consolidations of CLOs, he said.
• Calpers Suit Against Ratings Services Can Proceed. Standard & Poor’s, Moody’s Investors Service and Fitch Ratings must face the California Public Employees Retirement System’s lawsuit claiming their faulty risk assessments on structured investment vehicles caused $1 billion in losses.
• Treasury Rally May Produce Breakouts: Technical Analysis. Treasury 10-year note yields, the yield curve and 10-year swap spreads are all on the brink of breaking through long-held technical ranges, according to Royal Bank of Scotland Group Plc. Ten-year note yields closing below 3.667 percent; the difference between two- and 10-year yields finishing the day less than 2.69 percentage points and a 10-year swap spread above 1 basis point would all represent “a confirmation of trend changes,” William O’Donnell, a U.S. government bond strategist at RBS Securities in Stamford, Connecticut, wrote today in a note to clients. “A lot has to do not just with the contagion fears and maybe fears about banks yet again, but also the announcement at 9 o’clock by the Treasury tomorrow that they’re likely to be cutting supply,” O’Donnell said in a telephone interview.
• InterMune's(ITMN) Surprise U.S. Drug Rejection Sinks Shares. InterMune Inc.’s application for a potential $1-billion-a-year lung treatment was rejected by U.S. regulators, causing the drugmaker to plunge 79 percent in extended trading. The Food and Drug Administration asked for a new clinical trial of the medicine, Esbriet, to prove it delays progression of idiopathic pulmonary fibrosis, InterMune said today in a statement. The shares fell $35.76 to $9.68 at 5:33 p.m. New York time after the official close of the Nasdaq Stock Market.
• News Corp.(NWSA) Profit Tops Estimates on 'Avatar,' Cable TV Gains. News Corp., owner of the Twentieth Century Fox film studio, reported fiscal third-quarter profit that beat analysts’ estimates on ticket sales from the 3-D blockbuster “Avatar” and improving cable network revenue. Revenue rose 19 percent to $8.79 billion, also topping estimates. Operating income increased 55 percent to $1.25 billion in the quarter ended March 31.
• Buffett Turns Into One More Corporate Bubble: Alice Schroeder.
• Obama's Fed Picks Promise More Keynesian Failure: Amity Shlaes.
• CVS(CVS) Says Its Business Practices Probed by 24 States.
• Brazil Yields Show Biggest Rate Increase Since '03 on Inflation. Brazilian traders are betting for the first time that the central bank will raise the benchmark lending rate by 1 percentage point next month after last week’s increase failed to tame rising inflation expectations. Yields on overnight interest rate futures contracts due in July climbed two basis points, or 0.02 percentage point, yesterday to an 11-month high of 9.7 percent. The futures rose 14 basis points since central bank President Henrique Meirelles raised the overnight Selic rate by a bigger-than-forecast 75 basis points from a record low 8.75 percent on April 28. Bets on the first full percentage-point increase since Meirelles’s second month in office in 2003 are growing after economists drove up their year-end inflation forecast for a 15th straight week in a central bank survey published May 3. The median estimate rose to 5.42 percent from 4.25 percent in November and above the bank’s 4.5 percent annual target, as the expansion in Latin America’s biggest economy quickens. “The front end of the curve has just blown out,” said Ram Bala Chandran, a Latin America currency and rates analyst at Citigroup Inc. in New York. “The momentum is so strong that it’s hard to step in front of it. As long as inflation is on the rise, the central bank has to go after it.”
• Obama Backs 'Significantly' Higher Damage Cap After BP(BP) Spill. The Obama administration is backing “significantly” higher limits for damages BP Plc might face for the oil spill in the Gulf of Mexico and won’t rule out scaling back plans to expand offshore drilling. “Beyond clean-up and containment, BP must be held responsible for the damages this spill causes,” White House communications director Dan Pfeiffer wrote on the White House website yesterday. The administration “strongly supports” a move in Congress to raise an existing $75 million cap on damages under the Oil Pollution Act.

Wall Street Journal:

• Suspect Admits Bomb Plot. A 30-year-old man pulled from a jetliner just before it was to take off for Dubai admitted that he tried to detonate a car bomb in New York's crowded Times Square after learning how to build bombs in a terrorist training camp in his native Pakistan, authorities say. Faisal Shahzad, a Connecticut resident who became a U.S. citizen a little more than a year ago, was charged with five terrorism-related charges Tuesday. The case quickly expanded overseas as Pakistani authorities arrested some half dozen people known to have been in recent contact with Mr. Shahzad.
• Bloomberg Questions Security. 'Clearly, the Guy Was on the Plane and Shouldn't Have Been. And We Got Very Luckly,' He Says. Mayor Michael Bloomberg asked Tuesday why the suspect in a failed attempt to bomb Times Square, Faisal Shahzad, was able to board a flight at Kennedy Airport if he was supposed to be on a "no-fly" list. "Clearly, the guy was on the plane and shouldn't have been. And we got very lucky," the mayor said at a news conference.
• Slick, Well Inundated With Dispersants. Agents That Break Up Oil Are Deployed From Air, at Seafloor. In addition to the dispersants, rough weather and shifting winds in the Gulf in recent days have helped to keep the spill offshore, bobbing the slick to and fro in the water, giving officials valuable time to prepare and to try to fight the spill. While the oil continues to gush, BP hopes to install a 70-ton dome that will funnel the oil up to a drilling rig. The containment dome is scheduled to leave an engineering yard in Port Fourchon, La., at noon Wednesday. The trip to the site of the leak will take 12 hours, and installing the device requires an additional two days. Pipes will then be installed connecting the dome to the rig, which will capture the oil, "hopefully" starting in six days, BP executive Doug Suttles said Tuesday. Meanwhile, BP and government authorities are using C-130 planes in the sky and remote-controlled robots a mile down on the seafloor to spray the oil with dispersants. They are scouring the globe for large stockpiles of the substance, bringing it in from Saudi Arabia and Malaysia on 747 cargo planes and from Hawaii on a ship. And they are working with dispersant manufacturers to increase production quickly.
• SEC Probes Firms Doing Business in Terror Hubs. The Securities and Exchange Commission is conducting a broad investigation into companies doing business in nations designated as state sponsors of terrorism, as the U.S. government seeks to determine whether any operations were used to support terrorist activities, people familiar with the matter said. The SEC's enforcement division has sent letters to several companies in the pharmaceutical and energy industries, these people said. The State Department currently designates four countries—Cuba, Iran, Sudan and Syria—as state sponsors of terrorism. The letters, which were sent within the past two months, are part of an investigation by the SEC division that looks into potential violations of the Foreign Corrupt Practices Act. It isn't clear which companies received the letters.
• What-Ifs for Goldman Sachs(GS). Behind Stiff Upper Lip, Some Executives, Alumni Consider Life After Blankfein.
• For China, Attacks Shine a Light on Its Treatment of the Mentally Ill. The spate of recent attacks on children in China has raised questions about how the world's most populous country treats its mentally ill. Since late March, five separate incidents around the country have been reported where individual men attacked children with knives and other objects in or near schools. The horrific acts, which have left 11 people dead and some 70 injured, don't appear coordinated. But they have frightened the country and led to increased security in and around schools.

Bloomberg Businessweek:

• China Exchange-Traded Fund's Short Sales Rise to 2-Year High. Foreign investors are short selling China’s stocks through a yuan-denominated exchange-traded fund at the highest rate in more than two years, underscoring concern that property curbs will slow the economy. The ratio of short selling to total turnover on the iShares FTSE/Xinhua A50 China Index ETF reached 39 percent yesterday, the highest level since Feb. 19, 2008, according to data compiled by Bloomberg. “Market sentiment is bearish due to the property crackdown by the government,” said Zhang Kun, Shanghai-based strategist at Guotai Junan Securities Co. “Investors are concerned about more severe measures down the road.” China’s stocks have plunged this year as the government unwound monetary stimulus and stepped up measures to prevent a housing bubble inflated by record lending last year. The Shanghai Composite has slumped 14 percent in 2010, Asia’s worst performer, while the FTSE/Xinhua China A50 Index, which tracks the 50 largest Shanghai and Shenzhen-traded companies by total market value, has declined 19 percent. BlackRock Inc., which owns iShares, is among money managers reducing their holdings on Chinese stocks on expectations that economic growth has peaked. State Street Global Advisors has an “underweight” position on China amid concern shares are expensive relative to smaller developing nations.

CNBC.com:

• Is Perfect Financial Storm Brewing Overseas?

NY Times:

• Debate Flares on Goldman's(GS) Role as Market Maker. Goldman Sachs insists that it did nothing wrong and was just acting as a middleman when it sold billions of dollars of securities that are at the center of the Securities and Exchange Commission’s fraud case against the firm. But John C. Coffee Jr., a professor of securities law at Columbia University, told a Senate hearing on Tuesday that Goldman was much more than a middleman and that it therefore had a duty to its clients that went beyond just filling orders. “Goldman was not a neutral dealer, but a soliciting placement agent,” Mr. Coffee told a Senate Judiciary subcommittee. “Acting as a placement agent for a securities offering that one has itself designed is very different from a dealer simply quoting a two-sided spread.” Mr. Coffee took issue with Goldman’s explanation, calling it a “straw man argument.” He argued that the firm was much more than a market maker in this case. By actively marketing the portfolio, Goldman owed its clients taking the long side of a synthetic C.D.O. the same level of care that they would get if they were buying a real C.D.O. made up of actual mortgages. “Put simply, this is why they came to Goldman: for its expertise and skill,” Mr. Coffee said, referring to the clients that went long on the portfolio. “That the C.D.O. was instead a synthetic one and thus inherently involved a short side, and a credit default swap, changes nothing; the investor in the synthetic C.D.O. should continue to be able to expect that Goldman is seeking attractive securities, not dogs, to place in its portfolio.” “Goldman should not have permitted one client to bias the deal in its own favor,” Mr. Coffee said. “Nor should it have represented that a neutral and objective portfolio manager was selecting the portfolio if it knew that the short side was heavily influencing the selection of the securities in the portfolio.”
• Questions for Banks on Fudging the Books. It’s an open secret on Wall Street that many big banks routinely — and legally — fudge their quarterly books. But now Washington is taking a hard look at a range of maneuvers that help banks dress up their financial statements, and raising some uncomfortable questions about banks’ bookkeeping. The techniques in question, which are normally relegated to the shadows of finance, are expected to be thrust into a public spotlight on Wednesday by the federal committee that is investigating the causes of the financial crisis. The Financial Crisis Inquiry Commission is expected to focus most sharply on the way banks slim down their balance sheets before reporting their results and on loans they receive from entities like special-purpose vehicles and hedge funds, which are allowed to operate with little public disclosure.

Business Insider:

• Chanos: China Has Been a Good Place to Be Short. We hope to bring you fuller video and coverage later, but Jim Chanos and Stephen Roach just concluded a very interesting debate on China on Bloomberg Television. Chanos, obviously, is a skeptic. Roach is a bull. Roach thinks migration from the rural areas to the city will continue. Chanos thinks we could see reverse migration, as the property boom ends and peasants are forced back to the countryside. Another point, which we can't agree with enough, is the absurdity of Western commenters going out of your way to praise Chinese government policy moves, while slamming government intervention in the economy domestically.
• Here's What the Fed is Doing to Kill the Audit, And Here's How You Can Stand Up To Them.
• Here is the Homegrown "Revolution" That Could Save Us From an Oil Crisis. Shale oil and natural gas has long been lauded as a potential savior for the U.S. energy market, but many don't realize just how substantial reserves of these materials are. What we have in the United States was either too costly or too difficult to acquire before, and now we have the tools capable of extracting the wealth of resources beneath our collective feet, according to Continental Resources.
• Local Government Fiscal Emergency: Fresno, CA.
  

Zero Hedge:

• Dom S-K (IMF) Says US Taxpayer Subsidy to Greece Should Have Come at Cheaper Rates. IMF CHIEF SAYS EUROPEAN LOAN SHOULD HAVE BEEN AT IMF RATE. Because, you know, it is so usurious and greedy of US taxpayers to demand a 5% rate for a 3 year loan to a bankrupt country.

The American Spectator:

• Big Government vs. Small Business. As the owner of a small restaurant, it felt good the other morning to open the newspaper and read this sentence: "Be proud, small-business owners! You're now the most trusted group in America. Listen up, federal government! You're neglecting small business -- and most people think so." That was how Rhonda Abrams summarized the findings of a recent study by the Pew Research Center in USA Today.

New York Magazine:

• CBS News(CBS) and CNN Are Back in Partnership Negotiations.

Politico:

• Washington Post or Huffington Post? The once-cautious Washington Post has begun to invest heavily in the liberal blogosphere, transforming its online presence – a combination of accident and design – into a competitor of the Huffington Post and TalkingPointsMemo as much as the New York Times.
• Holder: NYC Could Host Trial. The Obama administration is still considering New York City as a possible venue for the trial of Khalid Sheikh Mohammed, Attorney General Eric Holder said Tuesday. “Unfortunately, New York and Washington, D.C., remain targets of people who would do this nation harm,” he said at a briefing on the investigation into the attempted Times Square bombing. “Regardless of where a particular trial is ... that is going to remain true.”

USA Today:

• Google(GOOG) Moves into Online Travel Business.

Radio Television Hong Kong:

• Property price increases in china will peak in the second half of this year on government tightening policies, the Chinese Academy of Social Sciences said. The rapid surge in prices has a negative effect on the economy and the rising ratio of investment in real estate by state-owned companies poses a risk of creating a future financial crisis, according to the academy's report.

China Ministry of Housing and Urban-Rural Development:

• Qiu Baoxing, China's vice housing minister, said the nation must act to curb rising property prices and the formation of asset bubbles.

China Global Times:

• Expo Attendance Falls Short. Attendance at the World Expo in Shanghai, in its first four days since opening, has fallen short of expectations, adding new concerns for organizers who have been already troubled by complaints about long queues and a lack of affordable food options. Tuesday was the first unofficial day of the Shanghai World Expo when visitors who hold standard tickets or appointed, unused day tickets could visit the Expo Park. A total of 146,100 visitors showed up at the park Tuesday, slightly more than Sunday. Organizers forecast an influx of 70 million visitors, mostly Chinese, over the next six months. To achieve this target, an average of 380,000 people need to visit the site daily. So far, the highest attendance was on Sunday, with 215,000. On Monday, the last day of the long public holiday, only 131,700 people, the lowest level so far, showed up at the site. Although officials said about 1,050,000 tickets for the three opening days had been sold, only half of that number showed up.

Evening Recommendations
Citigroup:

• Reiterated Buy on (BRCM), target $42.
• Reiterated Buy on (OPEN), raised estimates, boosted target to $45.

Night Trading

• Asian indices are -3.0% to -1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 111.0 +10.5 basis points.
• S&P 500 futures -.15%.
  
• NASDAQ 100 futures -.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PHM)/-.22
• (VSH)/.22
• (PWR)/.09
• (WMB)/.37
• (TWX)/.48
• (TRW)/.73
• (CECO)/.64
• (CBS)/.05
• (FLS)/1.30
• (PRU)/1.30
• (SPW)/.26
• (BMC)/.70
• (ICE)/1.31
• (LVS)/.02
• (SYMC)/.37
• (KCP)/.04
• (TIE)/.02
• (DVN)/1.45
  

Economic Releases
8:15 am EST

• ADP Employment Change for April is estimated at +30K versus -23K in March.

10:00 am EST

• The ISM Non-Manufacturing report for April is estimated to rise to 56.0 versus a reading of 55.4 in March.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Rosengren speaking, Fed's Lacker speaking, Challenger Job Cuts report, weekly MBA mortgage applications report, (NKE) investor meeting, (STT) investor forum, (IHS) investor day, (BPO) analyst meeting, Deutsche Bank Healthcare Conference and the UBS Ag Chemicals & Seed Biotech Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are sharply lower, weighed down by technology and real estate shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.

Stocks Falling Sharply into Final Hour on Rising Economic Fear, Increasing Financial Sector Pessimism, China Bubble Worries, Rising Sov Debt Angst

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Every Sector Declining
  
• Volume: Heavy
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 24.94 +23.53%
  
• ISE Sentiment Index 100.0 -25.93%
  
• Total Put/Call .95 +23.38%
  
• NYSE Arms 2.23 +134.05%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 95.04 bps +5.18%
  
• European Financial Sector CDS Index 114.31 bps +9.95%
  
• Western Europe Sovereign Debt CDS Index 121.0 bps +5.52%
  
• Emerging Market CDS Index 232.71 bps +8.24%
  
• 2-Year Swap Spread 30.0 +5 bps
  
• TED Spread 20.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .15% -1 bp
  
• Yield Curve 266.0 -3 bps
  
• China Import Iron Ore Spot $173.90/Metric Tonne +.58%
  
• Citi US Economic Surprise Index +17.10 -3.2 points
  
• 10-Year TIPS Spread 2.33% -7 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -310 open in Japan
• DAX Futures: Indicating +13 open in Germany

Portfolio:

• Slightly Lower: On Losses in my Financial, Biotech, Medical and Tech long positions
  
• Disclosed Trades: Added to my (IWM)/(QQQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish as equities trade near session lows on heavy volume despite more positive US economic data. On the positive side, Drug stocks are holding up relatively well. Oil is finally submitting to the deteriorating fundamentals for most commodities. On the negative side, Airline, Coal, Alt Energy, Oil Tanker, Steel, Paper and Semi shares are especially weak today, falling 4.0%+. The Spain sovereign cds is soaring +28.7% to 210.44 bps and the Portugal sovereign cds is spiking +20.1% to 345.08 bps. Moreover, the UK and Russian sovereign cds are jumping 10.0%. Other key gauges of credit angst are also breaking out to the upside. The CRB Index is close to breaking down through its 200-day moving average. I expect this to happen convincingly over the coming weeks. The 10-year yield is now falling too much and is breaking down technically, despite hedge funds' crowded short position in long-term govt debt. Weekly retail sales rose +2.4% this week, which is down from a +2.7% gain the prior week and down from a +3.9% increase the week of April 6th. I continue to believe the most over-owned global cyclicals are at greatest risk of further substantial declines. Slowing China/European growth, high energy prices, less inventory rebuilding and a slowdown in govt stimuli are going to slow global growth more than most investors anticipate over the coming months, in my opinion. Asia will likely come under meaningful pressure tonight, which could lead to further downside in US stocks tomorrow morning. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, tax hike worries, regulatory fears, more financial sector pessimism, growing economic fear, China bubble worries and profit-taking.

Today's Headlines

Bloomberg:

• Greek Government Bonds Tumble, Bunds Climb Amid Debt Concern. Greek government bonds tumbled and German bunds rose amid concern Europe’s most-indebted nations will struggle to contain their deficits and as German Chancellor Angela Merkel’s coalition stepped up calls to allow “orderly” defaults in the euro region. Merkel said in an interview with ARD television late yesterday that it’s time to learn lessons from the Greek bailout and raised the option of “an orderly insolvency” as a way to make sure creditors participate in any future rescue. “Investors are reassessing the situation and realize there are still challenges ahead,” said Peter Chatwell, a fixed-income strategist at Credit Agricole SA in London. “The problem is far from over, and the market can’t rule out further fiscal deterioration and rating downgrades among peripheral countries.” Investors demanded an extra to 627 basis points for holding 10-year Greek debt instead of benchmark German bunds. The spread dropped earlier to 539 basis points, the lowest since April 21. Financial aid for Greece was “never designed” to cover the nation’s entire financing needs over the course of the three-year package, German Economy Minister Rainer Bruederle told reporters today. “I expect Greece to make the effort necessary to be able eventually to sell loans in the market,” he said. Any decline in German debt is “a buying opportunity,” wrote RBS’s Sian. “Deflationary forces in the euro area have never been higher, and the weakness of the periphery warrants low ECB rates for some time,” according to Sian.
• Greek Rescue Doubts Spur Sovereign Debt Risk on Contagion Bets. The cost of insuring against default on sovereign bonds rose on concern that the $144 billion aid package for Greece may not solve the nation’s deficit crisis or prevent contagion to Europe’s debt-ridden economies. Credit-default swaps on Greece surged 84.5 basis points to 731, according to CMA DataVision prices, implying an almost 45 percent probability of default over five years. Contracts on Portugal, Spain, Italy and Ireland also rose. There’s “a deep mistrust among the investor base on the viability of the Greek story in a medium-term context,” Padhraic Garvey, head of investment-grade debt strategy at ING Groep NV in Amsterdam, wrote in a note to investors. Swaps on Spain increased 51 basis points to 208.5, Portugal rose 83 to 358, Italy climbed 23 to 157 and Ireland increased 46 to 223, CMA prices show. “Austerity measures might push these economies closer to the edge, triggering a private sector default cycle that cannot be easily stopped,” Philip Gisdakis, a Munich-based strategist at UniCredit SpA, wrote in a note to investors. The spending cuts may also weigh on the broader region “as the inevitable budget adjustments and normalization of current account deficits for the weaker economies will reduce aggregate demand in the eurozone,” Gisdakis wrote. The Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbed 25 basis points to 451, according to JPMorgan Chase & Co. prices. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 7.25 basis points to 94.5, JPMorgan prices show. The Markit iTraxx Financial Index of 25 banks and insurers increased 12.5 to 131 and the subordinated index surged 25 to 205.
• Oil Falls Most in Three Months as Dollar Surges, Equities Drop. Crude oil declined the most in three months as the dollar strengthened against the euro, curbing the appeal of commodities to investors, and a slowdown in Chinese manufacturing sent global equities lower. Oil fell more than $3 a barrel as the dollar climbed to the highest level versus the common currency in a year on concern the Greek debt crisis will spread. A Chinese purchasing managers’ index fell to a six-month low.
• Copper Falls to Nine-Week Low as Chinese Manufacturing Slows. Copper fell to a nine-week low on concern that demand will falter after manufacturing in China, the world’s largest metals user, expanded at the slowest pace in six months. A purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics slid to 55.4, the lowest level since October. Copper prices dropped 5.6 percent in April, the first monthly decline since January, partly on concern China’s efforts to cool its economy will slow demand for industrial commodities. “China is the driver,” said Donald Selkin, the chief market strategist at National Securities Corp. in New York. “People are worried about what impact their tightening will have, and this manufacturing report shows things are already slowing. Copper will have a tough time.” “This could be the start of a more sustained correction,” Daniel Brebner, an analyst at Deutsche Bank AG in London, said by phone. “China appears to be set on instilling some discipline on growth, draining liquidity to rein in inflation, and control excess speculation in some asset classes, such as real estate.”
• Goldman(GS) Partners Give Blankfein Standing Ovation, Hintz Says. Goldman Sachs Group Inc.’s employee morale remains good and Chief Executive Officer Lloyd Blankfein received a standing ovation from partners at an April 20 earnings call, analyst Brad Hintz told clients. According to the firm, “employees are pulling together like a team under pressure,” Hintz, an analyst at Sanford C. Bernstein & Co., wrote in a note to clients today after a meeting with five senior executives at Goldman Sachs. “The partnership has closed ranks, too, and at Goldman’s April 20, 2010, managing directors earnings call, Lloyd Blankfein received a standing ovation from his partners.”
• Obama Plans New Rules as For-Profit Colleges Mobilize. The Obama Administration is gearing up to produce tougher regulations that may reduce the amount of federal financial aid flowing to for-profit colleges, cutting the companies’ annual revenue growth by as much as a third.
• Pfizer(PFE) Profit Beats Estimates on Added Wyeth Products. Pfizer Inc., the world’s biggest drugmaker, said first-quarter profit rose more than analysts estimated as products added from the acquisition of Wyeth overcame costs from the U.S. health overhaul.
• Euro Falls to a One-Year Low as Greek Bailout Concern Persists. “The ECB’s credibility has been shot to pieces, and we’ve yet to see the political fallout from the Greek bailout,” said Steven Barrow, head of Group of 10 currency research at Standard Bank Plc in London. “The only restriction on the euro’s downside is that the market is already so short the currency.”
• Wadhwani Sees Sovereign Crises 'Recurring' After Greek Bailout. The euro region faces the danger of further debt crises because of its delay in bailing out Greece and the failure to prepare a system to rescue other nations, former Bank of England policy maker Sushil Wadhwani said. “We don’t really have a credible mechanism in place to deal with potentially Portugal and Spain,” Wadhwani said in a televised interview at an event hosted by Fathom Financial Consulting in London today. “My strong suspicion is that we have recurring sovereign debt crises. Although I’m not sure how long it’ll take for the next one.”
• Senators Take Aim at $40 Billion of Card-Industry 'Swipe' Fees. Visa Inc.(V) and MasterCard Inc.(MA) face a renewed threat to one of the credit-card industry’s biggest revenue sources after Senator Patrick Leahy backed legislation to curb fees charged to merchants on each transaction. Leahy, a Vermont Democrat and chairman of the Senate Judiciary Committee, will co-sponsor a measure by Senate majority whip Dick Durbin of Illinois, Durbin spokesman Max Gleischman said today. The so-called interchange or “swipe” fees average about 2 percent of each purchase. The industry has escaped previous attempts to curtail swipe fees, which bring in more than $40 billion a year. Now the nation’s biggest card networks and lenders, including Bank of America Corp. and JPMorgan Chase & Co., find themselves pitted against two of the most powerful senators over the fees, which some lawmakers and retailers have said are excessive and hurt small businesses.

Wall Street Journal:

• Times Square Suspect Received Bomb Training. Times Square bombing suspect Faisal Shahzad told interrogators that he received training in bomb making during a recent five-month trip to Pakistan, according to a senior U.S. official familiar with the matter. The official said Mr. Shahzad received his training in the tribal region of Waziristan bordering the Afghan border. South Waziristan is currently the site of a continuing Pakistani military offensive against Islamic militants affiliated with al Qaeda. The region of North Waziristan is the locus of the Central Intelligence Agency campaign to kill militants with unmanned drone strikes. Mr. Shahzad, a 30-year-old naturalized U.S. citizen originally from Karachi, returned in February from a five-month visit to Pakistan, authorities said.
• Debt Jitters Hit European Markets. European stocks slumped Tuesday, and the euro reached a fresh one-year low against the dollar as sovereign-debt concerns continued to mount and the focus shifted to Spain as the next high-profile victim of the euro-zone debt crisis. In equity markets, Spanish banks tumbled on speculation that ratings agencies could downgrade Spain's sovereign-debt rank. Although Fitch Ratings and Moody's Investors Service moved to dispel the market rumors of an imminent downgrade for Spain, Madrid's IBEX declined 5.4% to 9859.10, hitting lows not seen since last July.
  
• Goldman(GS) Disciplined on Short Sales. The Securities and Exchange Commission and the regulatory arm of NYSE Euronext disciplined the equities arm of Goldman Sachs & Co. for alleged violations of rules on short-selling stocks.
• Lawmakers Draft Web-Ad Privacy Safeguards. Advertisers and Internet companies have been scrambling to head off regulation they say will hamper growth of online advertising. The pressure is expected to build Tuesday as lawmakers prepare to announce proposed privacy legislation. More than a year in the making, the draft legislation proposes regulating Internet companies' tactics for collecting information about Web visitors and the use of that data for ad targeting. It also could apply to the practices for collecting consumers' information in the offline world.
• Apple(AAPL) Draws Scrutiny From Regulators. FTC, Justice Department Discuss Possible Inquiry Amid Complaints From Application Developers, Advertising Firms. U.S. antitrust enforcers are taking a keen interest in recent changes that Apple Inc. made to its licensing agreement with iPhone application developers and are likely to open a preliminary investigation into whether the company's actions stifle competition in mobile devices, according to people familiar with the situation.
• Citadel Senior Executive Has Left Firm. Patrik Edsparr has left Citadel Investment Group, making him the Chicago hedge-fund firm's latest top executive to depart. Citadel spokeswoman Katie Spring said Mr. Edsparr was "let go" from the firm within the last two weeks.
• EU Close to Hedge-Fund Deal. European Union lawmakers are nearing an agreement on hedge-fund legislation that would significantly restrict the ability of funds based in some offshore tax havens to raise money from EU investors, the lawmaker in charge of the legislation at the European Parliament said Tuesday. The proposal would require European authorities to create a "black list" of countries, with European investors being prohibited from sending their money to funds based in those countries. To escape the list, countries would have to satisfy a list of four or possibly five criteria, said Jean-Paul Gauzès, the French politician who is leading debate.

CNBC:

• Cost of Goldman(GS) Debt Insurance Soars.

Business Insider:

• Beautiful Chart on The End of the Age of Europe. Europe is embroiled in a sovereign debt crisis, but it is just the start of a downward trend for the continent, if this GDP chart is to be believed. This beautiful chart from Spanish economics blog Venturatis, makes it clear that European nations are falling behind in the GDP competition, and sure to fall behind more over the next 40 years if they can't stick together and make the European Union a growth titan. Notably, the United States remains a massive growth market throughout the next 40 years.
• Pakistan Arrests Times Square Suspect In Karachi -- Is This Linked to Mumbai?
• Remember Soaring Yields? As Bespoke notes, the much vaunted spike in yields seems to be fizzling.
• Gasparino: Goldman(GS) Eager to Settle With SEC, Talks Beginning as Soon as Today.
• 15 More Facts About China That Will Blow Your Mind. Thanks to the ridiculous rate of change being forced upon China, the nation is filled with excess and economic distortion.
  
  

Zero Hedge:

• CMBS Delinquencies Hit Fresh Record, Now at $51 Billion, 268% Increase From Prior Year. The latest RealPoint monthly CMBS delinquency report update is out and it continues to get worse and worse. In March, the total amount of delinquent CMBS increased by $3.2 billion to $51.5 billion, or 6.4% of the total notional outstanding. "Overall, the delinquent unpaid balance is up almost 268% from one-year ago (when only $13.89 billion of delinquent unpaid balance was reported for March 2009), and is now over 23 times the low point of $2.21 billion in March 2007.

CNNMoney.com:

• Times Square Bomb Plot Suspect Arrested 'At Last Second'. Authorities hunting for the suspect in the botched Times Square bombing dramatically beat the clock overnight, seizing a Pakistani-American citizen moments before he was set to begin a long trip to his strife-torn homeland. Faisal Shahzad, 30, was arrested around 11:45 p.m. ET Monday at New York's John F. Kennedy International Airport, said Attorney General Eric Holder.
• 4 Ways to Tell if Lloyd Blankfein's Days are Numbered at Goldman Sachs(GS).
  

hedgeweek:

• Capital Flows to Asian Hedge Funds Stall. Following two consecutive quarters of capital inflows, the Asian hedge fund industry saw net redemptions of approximately USD700m in the first quarter of 2010, reflecting continued concerns about strategic and regulatory risks, according to data from Hedge Fund Research.

OC Register:

• Supply of O.C. Home for Sale up 31%. The latest O.C. home inventory report from Steve Thomas at Altera Real Estate says …

Politico:

• White House in P.R. 'Panic' Over Spill. The ferocious oil leak in the Gulf of Mexico is threatening President Barack Obama’s reputation for competence, just as surely as it endangers the Gulf ecosystem. So White House aides are escalating their efforts to reassure Congress and the public in the face of a slow-motion catastrophe, even though it’s not clear they can bring it under control anytime soon. “There is no good answer to this,” one senior administration official said. “There is no readily apparent solution besides one that could take three months. ... If it doesn’t show the impotence of the government, it shows the limits of the government.”
• Democrats: New Drilling 'Dead on Arrival'. A group of Democratic senators said Tuesday that the massive oil spill in the Gulf of Mexico has rendered plans for new offshore drilling "dead on arrival." "I will make it short and to the point: the president's proposal for offshore drilling is dead on arrival," Sen. Bill Nelson (D-Fla.) said. "If offshore drilling off of the coast of the continental United States is part of it, this legislation is not going anywhere. "If I have to do a filibuster, which I had to five years ago.. I will do so again."

USA Today:

• Winds Holding Gulf Oil Spill Offshore. Some good news swept through here Monday: Winds so far are keeping most of the Gulf oil spill away from shore, and chemicals are doing a decent job dispersing the giant swath of slick crude oil looming off the coast.

Reuters:

• US Bank Bill To Exempt Existing Derivatives - Senator. A sweeping rewrite of U.S. financial regulations will probably be modified to exempt existing derivatives contracts from greater collateral requirements, Democratic Senator Ben Nelson said on Tuesday. "I think it is being resolved right now," Nelson told Reuters. The move could benefit Berkshire Hathaway Inc (BRK/A), the insurance and investment company run by billionaire Warren buffett. Berkshire, based in Nelson's home state of Nebraska, has objected to the current version of the bill because it would be required to post greater collateral on billions of dollars' worth of derivatives contracts.
• U.S. Weekly Gasoline Demand Unchanged - Mastercard. U.S. retail gasoline demand was unchanged in the week to April 30 from the previous week, according to a MasterCard SpendingPulse report released on Tuesday. Gasoline demand averaged 9.213 million barrels per day last week for the second week running, the survey showed. Year-on-year, U.S. gasoline demand fell 2.3 percent, the SpendingPulse report said.

Financial Times:

• Regulators around the world must be able to limit the size of banks they supervise and split them up if they have grown too large, Jaime Caruana, head of the Bank for International Settlements, told the Financial Times Deutscheland.