Today's Headlines

Bloomberg:

• Volcker Says Crisis Threatens Euro 'Disintegration'. Former Federal Reserve Chairman Paul Volcker said he’s concerned that the euro area may break up after the Greek fiscal crisis that sparked an unprecedented bailout by the region’s members. “You have the great problem of a potential disintegration of the euro,” Volcker, 82, said in a speech in London today. “The essential element of discipline in economic policy and in fiscal policy that was hoped for” has “so far not been rewarded in some countries.”
• Euro Trades Near Lowest in 14 Months on Concern Over Growth. The euro fell for a third day versus the dollar as Portugal announced deficit-cutting measures that will extend until the end of 2011, spurring concern that fiscal tightening across Europe will limit economic growth. The 16-nation currency fell against nearly all of its most- traded counterparts as a Spanish union called for strike a day after austerity measures were announced, increasing concern that governments may not be able to cut budgets fast enough. “Portugal announced some pretty aggressive austerity measures and you can bet that the next thing we hear is a public union calling for a strike,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, who expects the euro to drop as much as 12.5 percent in the next four months. “That creates additional uncertainty for the euro zone.”
• Euro May Test Parity With Dollar in 'Hard Landing', RBS Says. The euro “can easily head through parity” with the U.S. dollar under a “hard landing” recovery scenario from the European deficit crisis, according to Royal Bank of Scotland Group Plc. The shared currency’s forecast was reduced to $1.14 for the middle of next year, Alan Ruskin, head of foreign-exchange strategy at RBS Securities in Stamford, Connecticut, wrote in a note today.
• Mortgage Rates on 30-Year U.S. Loans Fall to 4.93%. U.S. mortgage rates fell for the third straight week as investors filled a void left by the end of a Federal Reserve program to purchase bonds backed by home loans. Rates for 30-year fixed loans dropped to 4.93 percent in the week ended today from 5 percent last week, Freddie Mac said in a statement. The average 15-year rate was 4.3 percent, the McLean, Virginia-based mortgage finance company said.
• Crude Oil Tumbles to 12-Week Low as Dollar Climbs Against Euro. Crude oil tumbled to a 12-week low in New York as the strengthening dollar curbed the appeal of commodities as an alternative investment. Oil slipped as much as 2.7 percent as the U.S. currency climbed against the euro after Portugal announced austerity measures, spurring concern that fiscal tightening across Europe will limit economic growth. Stockpiles of crude at Cushing, Oklahoma, where the New York-traded West Texas Intermediate oil grade is stored, rose 784,000 barrels to 37 million, the second straight week supplies reached the highest level since the department began reporting on inventories at the hub in April 2004. “What we’re seeing today is mostly a Cushing story,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The weakness in the June crude-oil contract confirms that there’s no shortage of crude oil.” “The big build in Cushing is having a big impact on WTI, it is now trading at a discount to everything,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “It’s also becoming clear that the economy isn’t roaring back. There will be issues in countries such as Greece, which limit growth.”
• Jobless Claims in U.S. Declined to 444,000 Last Week. The number of Americans filing claims for jobless benefits dropped for a fourth straight week, a sign that employers are retaining more workers as the economy expands. Initial jobless claims fell by 4,000 to 444,000 in the week ended May 8, higher than the median forecast of economists surveyed by Bloomberg News, Labor Department figures showed today in Washington. The four-week moving average of initial claims, a less volatile measure than the weekly figures, dropped to 450,500 last week from 459,500, today’s report showed. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.6 percent in the week ended May 1.
• PIMCO Says Europe Shows World Caught in 'New Normal'. Pacific Investment Management Co. said the debt crisis in Europe shows its outlook for an extended period of below-average economic growth remains valid, even after global markets rebounded from the financial crisis. “What is happening in Europe is a vivid illustration of an underlying theme of the new normal,” Mohamed El-Erian, the chief executive officer of Pimco, said in an interview. There are “structural forces overwhelming traditional cyclical ones,” he said.

Wall Street Journal:

• Financial News: Blackstone(BX) to Raise Largest Private Equity Fund($14 Billion) for 15 Months. The Blackstone Group (BX) is close to completing the largest private equity fundraising for 15 months, providing additional firepower to its recent return to the mega buyout market. The listed US firm, founded by Stephen Schwarzman and Peter Peterson, is set to raise the funds imminently, three people familiar with the situation said.
• CFTC Documents Reveal Internal Debate on Position Limits. Commodity Futures Trading Commission Chairman Gary Gensler is pushing for speculative trading curbs in the energy marketplace, but newly released documents suggest there is still internal debate on whether new limits will damp price volatility. The documents include memos, emails and a draft economic analysis never viewed by CFTC commissioners containing recent findings from agency economists concerning the effect of speculators and commodity-index traders on prices.

CNBC:

• Circuit Breaker Rules to Be Unveiled Next Week.
• Small-Caps Ready to Lead as Global Markets Remain Volatile.
  

MarketWatch:

• Cash Hoard Piles Ever Higher at Top Tech Firms.
• For Quality Recovery, China Must Raise Interest Rates.
  

NY Post:

• Obama to Cut NYC Anti-Terror Funding Even After Times Square Bombing Attempt. The Obama administration will announce tomorrow it has slashed anti-terror funds for New York City, despite the attempted Times Square bombing less than two weeks ago that underscored the enormous threat to the city. The Department of Homeland Security informed New York officials yesterday that grants to the city were cut 27 percent for mass transit security and 25 percent for port security. The mass transit funds dropped $42 million, from $153 million last year to $111 this year. Port security funds suffered a $11.2 million cut, from $45 million to $33.8 million, officials said. The timing of the announcement drew howls from New York lawmakers on Capitol Hill, whose recent pleas for increased anti-terror spending in the Big Apple – along with the same plea from Mayor Bloomberg – fell flat. They said the Times Square bomb attempt shows that New Yok remains the top target for terrorists and that the city deserves the lion’s share of federal spending on security. "For the administration to announce these cuts two weeks after the attempted Times Square bombing shows they just don’t get it and are not doing right by New York City on anti-terrorism funding," Sen. Chuck Schumer (D-NY) said. Rep. Pete King (R-LI), the ranking Republican on the House Homeland Security Committee, said the cuts were "dangerous and unconscionable." "The threat against New York City, the top target of al-Qaeda, is increasing, not decreasing," he said, noting that the city has been the target of at least 11 foiled terror plots since 9/11. "The Times Square attempt served as a wake-up call for many, but apparently not for the Obama Administration, which should be dramatically increasing New York City’s homeland security funding, not decreasing it." It is not the first time President Obama has short-changed the city on homeland security dollars. Obama has moved for the second year in a row to eliminate a $30 million program called "Securing our Cities." It would create a ring of radiation detectors around the city to monitor for nuclear and dirty bombs.
• FBI Searches LI, NJ and Boston-Area Homes in Times Square Bomb Plot, 4 Arrested. An army of FBI agents executed search warrants at several locations on Long Island, New Jersey and in the Boston suburbs this morning in connection with the failed Times Square car bombing, authorities said. Four people were being held on immigration-related charges. Attorney General Eric Holder told a Congressional panel today that “several people” had been taken into custody in connection with the Times Square case. "They do not relate to any known immediate threat. ... This is part of an ongoing investigation," he said.

Business Insider:

• Louis Moore Bacon Flips Out at Europe and Says USA Treats Hedge Funds Much Better.
• Forget That $75 Million Liability Cap: Criminal Charges in BP(BP) Spill are "Very Likely" Says Former DOJ Official.
• 15 Scary Reasons Why It's New York That's The Next Greece.
• 13 Sellout Senators Who LOVE Fannie Mae and Freddie Mac.
• A Crucial On-The-Ground Look at China's Ghost City of Ordos.
  

TechCrunch:

• U.S. Online Ad Revenues Hit Nearly $6 Billion in First Quarter. Internet advertising revenues in the U.S. hit $5.9 billion for Q1 2010, representing a 7.5 percent increase over the same period in 2009, according to numbers released moments ago by the Interactive Advertising Bureau in tandem with PricewaterhouseCoopers. This marks the highest first-quarter revenue level ever for the industry.

L.A. Times:

• Square Launches, Enables Cellphones to Take Credit Card Payments. The newest start-up called Square from Twitter creator Jack Dorsey launched Tuesday. The San Francisco company makes a thumb-size plastic gizmo that can plug into an iPhone, a smart-phone running Google's Android, an iPod Touch or an iPad, unlocking the ability to conduct credit card transactions. The Square gadget is free, available online at SquareUp.com. Because it's designed to be plugged into the headphone jack, the company can manufacture one device to work with many phones and consumer electronics. The gadget will eventually support phones from Palm and Research In Motion's BlackBerry.

Politico:

• Climate Bill's Fate Down to Business. In an ornate Senate hearing room, Sen. John Kerry (D-Mass.) and Sen. Joe Lieberman (I-Conn.) unveiled their energy measure Wednesday before an audience packed with both environmentalists and industry titans. The presence of traditionally warring opponents reflected the attempt by Kerry, Lieberman and co-author Sen. Lindsey Graham (R-S.C.) to craft one of the first major bills to deal with climate change that wasn’t instantly viewed as anathema by the business community. And the fate of the bill is likely in business’s hands. While the green lobby is already firing up grass-roots support and running ads to advance the bill, getting the 60 Senate votes needed to pass it will require help from corporate lobbying shops with deep ties to conservative Democrats and Republicans.

Real Clear Politics:

• Crony Capitalism: From GM to Greece, the Lies Keep Growing. To understand the pertinence to America of events in Greece, notice General Motors' most recent misbehavior. A television commercial featuring CEO Ed Whitacre demonstrates the institutional murkiness and intellectual dishonesty that result when the line between public and private sectors disappears. In the commercial, Whitacre says GM has "repaid our government loan in full." Rep. Paul Ryan, R-Wis., noted that GM used government funds to pay back the government: It "simply transferred $6.7 billion from one taxpayer-funded TARP account to another." The government still owns 60.8 percent of GM's common equity, and the Congressional Budget Office projects that the government will lose about $34 billion of the $82 billion of TARP funds dispersed to the automotive industry.

Reuters:

• Deutsche Bank(DB) CEO Doubts Greece Can Repay Debt - TV.

Lidove Noviny:

• The European Commission's proposal to control and approve individual EU members' budgets before they are put up for a vote should not be taken seriously, citing Czech President's advisor Ladislav Jakl. Big EU members are sure to reject the proposal which would mean a complete loss of sovereignty of their governments, citing Jakl.

Financial Post:

• Investors Pour $2.3 Billion into Gold ETFs in 6 Days. Gold exchange-traded funds, including the popular SPDR Gold Shares, have seen more than US$2.3-billion in net inflows in the six trading days ended Monday. TrimTabs Investment Research said on Wednesday that the net inflows into gold ETFs are the highest in 12 months. Last Thursday during the near 1,000-point plunge in the Dow Jones industrial average, gold ETFs saw net inflows of US$1.1-billion, TrimTabs said.

El Economista:

• Spanish trade union UGT called a public sector strike for June 2, citing the union.

DigiTimes:

• Lenovo Expected to Launch a 3D Notebook in 3Q10. Lenovo is expected to release a stereoscopic 3D notebook in the third quarter of 2010 using a polarized glasses solution, according to market watchers.

Bear Radar

Style Underperformer:

• Large-Cap Growth (-.10%)

Sector Underperformers:

• Homebuilders (-2.37%), Networking (-1.89%) and Semis (-1.35%)

Stocks Falling on Unusual Volume:

• FISV, NTGR, NTY, NETL, CSCO, TRIT, AMED, MIDD, MPWR, URBN, ASIA, RPT, CYD, GFA, CNW, KSS and SKY
  

Stocks With Unusual Put Option Activity:

• 1) RTP 2) CIT 3) AMED 4) MHP 5) MCO
  

Stocks With Most Negative News Mentions:

• 1) GS 2) WEN 3) WMT 4) LPS 5) RIG
  

Bull Radar

Style Outperformer:

• Mid-Cap Growth (+.43%)

Sector Outperformers:

• Coal (+1.55%), Steel (+1.02%) and Construction (+.68%)

Stocks Rising on Unusual Volume:

• SY, CSTR, PRGS, AA, TIE, BT, EQIX, CMTL, SUPX, LOGM, CRUS, NFLX, MBLX, WFMI, BIDU, CLNE, INFA, CHBT, PANL, SFSF, VRSK, AMSC, MAKO, SPTN, BT, RZG, ANW, CGX and GIL
  

Stocks With Unusual Call Option Activity:

• 1) SY 2) EQIX 3) HES 4) DAL 5) BMC
  

Stocks With Most Positive News Mentions:

• 1) KSS 2) AAPL 3) BP 4) THI 5) MSFT

Thursday Watch

Evening Headlines
Bloomberg:

• Europe Austerity Push Deepens After Rescue Message. Spain and Portugal may be getting the message as they try to stop their economies getting infected by the Greek crisis. Two days after other European governments told them to fix their budgets in return for a $1 trillion backstop, Spanish Prime Minister Jose Luis Rodriguez Zapatero yesterday announced the biggest round of budget reductions in 30 years. In Portugal, Finance Minister Fernando Teixeira dos Santos says he’s prepared for “social tension” after announcing additional cuts. Policy makers are running the risk of union opposition as they force through austerity measures to convince investors they won’t join Greece in asking for an international bailout. While some economists said the European Union lifeline could take pressure off deficit-laden nations to act, it was enough to prompt Zapatero to announce a 5 percent cut in public wages. “The fiscal announcements serve to suggest that the momentum now is indeed towards fiscal cuts,” said Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London. “What we have in the euro zone policy space right now is ‘moral suasion,’ not “moral hazard.’”
  
• Senate Swaps-Desk Plan Delayed as Lincoln Faces Election Battle. Senate Democrats are delaying action on a proposal to force banks including JPMorgan Chase & Co.(JPM) and Goldman Sachs Group Inc.(GS) to wall off swaps trading while the plan’s sponsor deals with a re-election battle, lawmakers said. Democrats haven’t filed an amendment to strip or change Senator Blanche Lincoln’s derivatives measure and movement is unlikely until after the Arkansas Democrat’s Senate primary on May 18, Senator Evan Bayh, an Indiana Democrat, said yesterday.
• Gold Sales Surge at Austrian Mint on Greece's Crisis. Muenze Oesterreich AG, the Austrian mint that makes the best-selling gold coin in Europe and Japan, said sales jumped in recent weeks on concern that Greece’s fiscal crisis will hurt the euro. Buyers have purchased 243,500 ounces of gold since April 26, compared with 205,300 ounces in the first quarter, Vienna- based Marketing Director Kerry Tattersall said by telephone today. “We’re seeing people who want to take money from savings accounts and put it into gold, so it’s small investors who are buying, too,” Tattersall said. “In the last three to four weeks, we haven’t seen any orders out of the U.S. or Japan. It’s a purely European increase. It represents panic buying.” The Austrian mint is known for the Philharmonic gold coin, which it introduced in 1989. “We’re facing production problems again and are producing around the clock,” Tattersall said. “Our stock is running out.”
• SAP(SAP) to Buy Sybase for $5.8 Billion to Vie With Oracle(ORCL). SAP AG, the world’s biggest maker of business-management software, agreed to acquire Sybase Inc. in a transaction valued at $5.8 billion to help it fend off competition from Oracle Corp. Sybase shareholders will receive $65 a share, Walldorf, Germany-based SAP said in a statement today. That is 56 percent higher than the closing price of $41.57 yesterday, before the deal discussions became public.
• Fed's Comeback 'Punch' Wins Senate Fight on Rates, Oversight. The Federal Reserve beat back two of the biggest threats in decades to its political independence and bank-oversight powers, surmounting congressional anger over its role in the financial crisis. U.S. senators voted 90-9 today to void a provision in regulatory-overhaul legislation that would have stripped the Fed of oversight of 5,000 banks with less than $50 billion in assets. Yesterday, senators rejected a measure to allow continuous congressional audits of Fed policies.
• Orszag Predicts Higher Fund Manager Tax to Pass Within Weeks. White House budget director Peter Orszag predicted Congress would approve a measure imposing higher taxes on managers of private equity firms, real estate funds and other investment partnerships in the coming weeks. Orszag, speaking at a conference in New York sponsored by the Reuters news agency, said, “I believe that there will be some legislative changes in carried interest, although the exact parameters are still being negotiated.” He said he expected the Senate to pass the levy “within the next few weeks.”
• Lending in Asia may dry up as European banks, whose funding to the region is about three times the amount provided by the U.S., seek to "plug their leaks" if Greece's sovereign debt crisis spreads, HSBC Holdings Plc said. European lenders provided $1.08 trillion to the region as of Dec. 31, while U.S. counterparts extended $339 billion of credit, the date show. "Don't shrug off too quickly the possibility that a freeze in the West can again lead to heavy coughing in the East," Frederic Neumann and Song Yi Kim, Hong Kong-based economists at HSBC, said in a report. "European banks needing to plug their leaks could quickly drain liquidity from Asia."
• Euro Faces 'Challenges,' Japan Can Learn Lessons, Sumitomo Says. The euro will face further challenges as concern over budget deficits in nations such as Greece and Portugal damp its attraction as an alternative to the dollar, according to the research unit of Sumitomo Corp. The emergency funding measures announced by European Union policy makers this week have eliminated the immediate risk of default from Greece, yet it remains possible that some nations may still drop out of the euro area, said Soichi Okuda, chief economist at Sumitomo Shoji Research Institute Ltd. in Tokyo. Japan should take note and address its increasing debt levels before its bond yields begin to rise, he said. The euro will face further challenges as concern over budget deficits in nations such as Greece and Portugal damp its attraction as an alternative to the dollar, according to the research unit of Sumitomo Corp. The emergency funding measures announced by European Union policy makers this week have eliminated the immediate risk of default from Greece, yet it remains possible that some nations may still drop out of the euro area, said Soichi Okuda, chief economist at Sumitomo Shoji Research Institute Ltd. in Tokyo. Japan should take note and address its increasing debt levels before its bond yields begin to rise, he said. Japan has so far avoided much fallout from the European debt crisis, though this may only be temporary, Okuda said. “Japan has a different debt market structure to Europe,” he said. The fact Japanese investors hold over 90 percent of outstanding debt issued by the government and sizeable financial assets accumulated by households “has so far served as a buffer against sovereign risks,” he said. This has helped Japan’s 10-year yields stay mostly below 2 percent in the past decade even as the nation increased spending to counter deflation. “But it is also true that Japan is approaching times where these positive elements can’t fully offset sovereign risk,” Okuda said. “The next few years may become the key as baby boomers retire and begin receiving pensions in force.” About 8 million people, or 6 percent of the population, were born between 1947 and 1949, government data show, a generation referred to as Japan’s baby boomer generation. Almost 23 percent of the country’s 126 million people will be older than 65 this year, according to Bloomberg data. “If 10-year yields rise above 2 percent again, that may be the beginning of a sustained and unfavorable spike,” Okuda said. “Lessons that we should learn from the Greek crisis are that we can’t leave the situation unaddressed and we should embark on fiscal consolidation sooner rather than later.”
• Armstrong Says Obama's Plan Puts NASA Lead at Risk. Neil Armstrong, the first person to walk on the moon, told a Senate panel today that President Barack Obama is putting U.S. space dominance at risk with a plan for NASA that relies on unproven startup companies. “America is respected for the contributions it has made in learning to sail upon this new ocean,” Armstrong, 79, told the Senate Commerce, Science and Transportation Committee in Washington. “If the leadership we have acquired through our investment is simply allowed to fade away, other nations will surely step in where we have faltered.”
• Europe's Leaders Slept Through TARP Review Class: Caroline Baum. When U.S. authorities faced financial panic in 2008, their first response was to pump liquidity into the system. It was access to credit, not the quality of credit, that was the issue, they thought. It turned out they were wrong. U.S. banks were facing a full-fledged solvency crisis. They owned assets that weren’t worth the paper their financial statements were printed on. Congress appropriated $700 billion to recapitalize the banks. Fast forward 19 months and travel east across the Atlantic where Europe’s leaders confronted a home-grown sovereign debt crisis, a rout in financial markets and a loss of confidence in the euro. Their solution? Lend more money to already indebted countries. Europe’s leaders must have been snoozing in the back row when the teacher conducted the TARP review class. (TARP stands for Troubled Asset Relief Program.) You can’t recapitalize a sovereign nation by issuing more debt. In the same way that more lending couldn’t enhance U.S. banks’ capital adequacy, “extending more credit to (European) nations that can’t service their accumulated debt won’t make them more creditworthy,” says Carl Weinberg, chief economist at High Frequency Economics in Valhalla, New York. The flaw in the approach adopted by European governments, as Weinberg sees it, is that lending money to countries like Greece will increase public sector debt, which last year amounted to 78.7 percent of the euro zone’s gross domestic product. The first rule of holes -- when you find yourself in a hole, stop digging -- must not translate well into euro-tongue (or English, for that matter.)

Wall Street Journal:

• Public Still Backs Offshore Drilling. Public support for expanding the offshore hunt for energy is sturdy, a new NBC News/Wall Street Journal poll suggests, even as a damaged well continues to gush crude into the Gulf of Mexico. Meanwhile, the spill has taken a toll on support for offshore drilling among Senate Democrats, further hobbling the chances for climate-change legislation, which was unveiled by two senators Wednesday. Six in 10 respondents to a survey carried out from May 6 to May 10 said they backed more drilling for oil off the U.S. coast. Some 34% said they "strongly" supported it, and 26% said they supported it "somewhat." More than half of respondents —53%—also said they agreed with the statement that "the potential benefits to the economy outweigh the potential harm to the environment." Respondents in Gulf states were slightly more likely to support additional drilling offshore, with 63% of them saying they would approve of more rigs.
• The We're-Not-Europe Party. One of the constant criticisms of Barack Obama's first year is that he's making us "more like Europe." But that's hard to define and lacks broad political appeal. Until now. Any U.S. politician purporting to run the presidency of the United States should be asked why the economic policies he or she is proposing won't take us where Europe arrived this week. In an astounding moment, to avoid the failure of little, indulgent, profligate Greece, the European Union this week pledged nearly $1 trillion to inject green blood into Europe's economic vampires. For Americans, this has been a two-week cram course in what not to be if you hope to have a vibrant future. What was once an unfocused criticism of Mr. Obama and the Democrats, that they are nudging America toward a European-style social-market economy, came to awful life in the panicked, stricken faces of Europe's leadership: Merkel, Sarkozy, Brown, Papandreou. They look like that because Europe has just seen the bond-market devil.
• High Frequency Trading Firms Eye Off-Exchange Opportunities. Executives of high-speed proprietary trading shops are chomping at the bit to break into trading on over-the-counter derivatives markets and see regulatory overhaul as providing a long-awaited opening. A push by regulators and lawmakers to shift trade in some financial derivatives into clearinghouses and electronic trading systems could loosen the tight grip that derivatives dealer banks maintain on the market, and allow high-frequency traders to make markets in products like interest-rate swaps and credit derivatives, according to executives.
• Senators Question In-Home Caregivers. The Senate Finance Committee launched an investigation into the practices of Amedisys Inc., the nation's largest home health-care company, and three other companies that provide in-home therapy visits reimbursed by Medicare. The committee is investigating whether the companies deliberately boosted the number of home therapy visits to trigger higher Medicare reimbursements. A Wall Street Journal article last month described how the companies' Medicare patients received a high number of the most profitable therapy visits, but few of the least profitable ones. The three other home health companies are LHC Group Inc., Gentiva Health Services Inc. and Almost Family Inc.
• The Treasury-Financial Complex by Clifford S. Asness and Aaron Brown. The Dodd bill is perfectly designed to create the largest and most powerful crony system in history. Whatever your views on financial reform—whether you want the government to crack down on bankers or to disentangle itself from financial markets—you should fear Sen. Chris Dodd's financial reform bill. In 1,300-some pages, all it really does is legislate power to the government for fixes to be named later. It does this by using terms that are either totally undefined or defined in breathtaking generality. This is a politically understandable solution. But it sweeps aside more than two centuries of accumulated wisdom: that checks and balances are essential to markets, and that rules must be known in advance. Here's one example: In the bill, a "swap" is defined as "any contract or transaction that has financial, economic or commercial consequence involving purchase, sale, payment or delivery with any contingent clause." We challenge lawmakers to think of any contract or transaction that doesn't meet that definition—from buying detergent with a money-back guarantee to getting a rain-check at the car wash. If you maintain a "substantial" net position in swaps, or if your failure to perform under your swaps could cause "significant" losses, you are considered a "major swap participant." And you really don't want to be one considering how you'll be regulated.

CNBC.com:

• Cisco(CSCO) Profit, Revenue Both Top Analysts' Expectations. Cisco Systems reported stronger-than-expected quarterly results as a recovering global economy and growing Internet use prompted companies to upgrade their networks. "We emerge from this downturn gaining market share, a larger share of the total wallet spend of our customers,'' Chambers said in a statement. "It is clear that our game plan for how to handle economic downturns is hitting on all cylinders."
  
• Big Majority Believes US Still in Recession: Poll. Public attitudes toward the economy have created ominous political problems for the Democratic Party and for Wall Street, according to the new NBC News/Wall Street Journal poll. The survey shows that 76 percent of Americans believe that the US economy remains in recession; an even larger 81 percent describe themselves as dissatisfied with the economy.

NY Times:

• Prosecutors Ask if 8 Banks Duped Rating Agencies. The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation. The agencies themselves have been widely criticized for overstating the quality of many mortgage securities that ended up losing money once the housing market collapsed. The inquiry by the attorney general of New York, Andrew M. Cuomo, suggests that he thinks the agencies may have been duped by one or more of the targets of his investigation. Those targets are Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch, which is now owned by Bank of America.
• U.A.W. Wants to Share in Big 3's Financial Success. As better times return, the United Automobile Workers is not the union it was before Detroit’s carmakers hemorrhaged billions of dollars. The union is now a part owner of General Motors and Chrysler through a union trust fund, and its members are barred from striking against the two companies over compensation for the next five years. All told, hourly workers gave up pay and benefits worth $7,000 to $30,000 each a year during the downturn, the union estimates. But while those changes might blur the traditional battle lines between management and union, the incoming president of the U.A.W., Bob King, is making it clear some things are not about to change.

Business Insider:

• WOW: California Now One of the Top 10 Government Default Risks in the World. Per the credit default swap market, California cracked the top ten for highest default risks yesterday -- overtaking Iceland and Iraq.
  

Zero Hedge:

• Retail Investors Flee From Market Even Before Record Market Crash, YTD Domestic Flows Into Stocks Are Negative.

Forbes:

• China's Columbine. The country's shoolyards have become killing grounds.
• ObamaCare's Fuzzy Math: High Risk Pools Will Cost 8 Times What is Budgeted.
  

FXStreet.com:

• Euro Fails to Gain Traction; Short Hedge Funds Won't Budge. The Euro finished lower on Wednesday. Now that credit concerns in the Euro Zone have been taken care for the short-run, investors are becoming worried about the possibility of a slow down in the economy. The size of the new bailout package is expected to have an impact on the Euro Zone economy which may result in a double-dip recession.

Rasmussen Reports:

• 30% Say U.S. Heading in Right Direction. Thirty percent (30%) of U.S. Voters now say the country is heading in the right direction, according to a new Rasmussen Reports national telephone survey. That's the lowest level of confidence measured in nearly two months. Fifty-seven percent (57%) of Democrats say the country is heading in the right direction, while 36% say it’s not. An overwhelming majority (90%) of Republicans and 70% of voters not affiliated with either major political party continue to think the nation is heading down the wrong track.

Politico:

• Republicans Bristle at Feds' Land Plan. A tightly held administration plan to consider designating up to millions of acres of land in the West as national monuments has Western Republicans up in arms. Republican members of Congress are bristling over an Interior Department “not for release” memo that was leaked to Rep. Rob Bishop (R-Utah), outlining 14 areas, totaling 13 million acres in the West that the administration is considering for designation as national monuments. Under the Antiquities Act of 1906, President Barack Obama can designate federally owned lands as national monuments. But members of the all-Republican Congressional Western Caucus say such designations could hurt their districts by further restricting economic development. “The federal government wants to steal millions of acres and put them into wilderness without much discussion or input,” Rep. Jason Chaffetz (R-Utah) told POLITICO.

Telegraph:

• Coalition Government: British Banks Face Break-Up in Just One Year. Britain's giant lenders are facing the threat of extinction after the new coalition Government pledged to establish an independent commission to decide whether to break up the banks.

Beijing Statistics Bureau:

• Home Sales in Beijing contracted sharply late last month after the government issued measures aimed at cooling property prices. Sales measured by floor area dropped 41% in April from a year earlier. The price of new residential properties rose 21.5% from a year earlier.

Hexun.com:

• Shanghai's municipal government may levy a tax of up to 1.5% of the value of properties on May 15, citing a developer. Several Shanghai-based developers have received "hints" that new policies are poised to be issued to cap property prices, and have begun to sell their properties.

Apple Daily:

• China's central government may receive about 400 billion yuan or 29% less revenue in 2010 than a year earlier because of the decline in property prices and land sales, citing Huatai Securities analyst Chen Yong.

National Business Daily:

• China's State Council approved a combined $42 billion in fund raising plans by Industrial and Commercial Bank of China Ltd., Bank of China Ltd., Bank of Communications Co. and China Construction Bank Corp.

Yonhap News:

• Clinton Calls Dai Bingguo to Discuss Implications of Ship Sinking: State Dept. Secretary of State Hillary Clinton has called her Chinese counterpart to discuss the implications of the sinking of a South Korean warship, possibly by North Korea on the disputed sea border in March, the State Department said Wednesday. "They did talk about the ongoing investigation, obviously, and its potential implications once the investigation is completed," spokesman Philip Crowley said.

Evening Recommendations
Citigroup:

• Reiterated Buy on (KMB), target $71.
• Reiterated Buy on (WMB), raised estimates, target $31.
• Reiterated Buy on (M), raised estimates, target $35.

Night Trading

• Asian indices are +.50% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 105.0 -9.0 basis points.
• S&P 500 futures +.06%.
  
• NASDAQ 100 futures -.11%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AMSC)/.16
• (WEN)/.01
• (URBN)/.30
• (KSS)/.62
• (NVDA)/.21
• (CA)/.37
• (JWN)/.55

Economic Releases
8:30 am EST

• The Import Price Index for April is estimated to rise +.8% versus a +.7% gain in March.
• Initial Jobless Claims for last week are estimated to fall to 440K versus 444K the prior week.
• Continuing Claims are estimated to fall to 4590K versus 4594K prior.
  

Upcoming Splits

• (GMCR) 3-for-1
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Lockhart speaking, Fed's Fisher speaking, Fed's Kocherlakota speaking, Fed's Kohn speaking, $16B 30-Yr Treasury Bond Auction, Goldman Sachs Consumer Symposium, BofA Merrill Healthcare Conference, (ADVS) analyst meeting, (TAL) analyst meeting, (IRBT) analyst day, (HAE) analyst meeting and the (TRS) analyst day could also impact trading today.
  

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

Stocks Surging into Final Hour on Less Economic Fear, Declining Sovereign Debt Angst, Short-Covering, Bargain-Hunting

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Every Sector Rising
  
• Volume: Around Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 25.34 -10.56%
  
• ISE Sentiment Index 115.0 +3.60%
  
• Total Put/Call .85 -22.02%
  
• NYSE Arms .94 -48.58%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 97.19 bps -6.44%
  
• European Financial Sector CDS Index 111.50 bps -3.64%
  
• Western Europe Sovereign Debt CDS Index 109.83 bps -8.73%
  
• Emerging Market CDS Index 232.59 bps -4.44%
  
• 2-Year Swap Spread 27.0 -4 bps
  
• TED Spread 28.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 270.0 +1 bp
  
• China Import Iron Ore Spot $171.60/Metric Tonne -2.11%
  
• Citi US Economic Surprise Index +14.40 unch.
  
• 10-Year TIPS Spread 2.32% +6 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +171 open in Japan
• DAX Futures: Indicating +28 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Retail, Technology and Medical long positions
  
• Disclosed Trades: Covered all of my (IWM), (QQQQ) hedges and then added them back
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is very bullish as equities trade near session highs despite more euro weakness and China bubble fears. On the positive side, Airline, Gaming, Construction, Computer Service, Alt Energy and Coal stocks are especially strong, rising 3.0%+. Small-Caps are substantially outperforming again and cyclicals are also relatively strong. Despite today's outsized equity gains, some gauges of investor angst are relatively high, which is also a positive. The Spain sovereign cds is plunging -13.9% to 141.5 bps and the Portugal sovereign cds is dropping -10.52% to 211.97 bps. Oil is flat on euro weakness, rising supply and worries over China demand. On the negative side, Retail, Drug, I-Banking, Telecom, Oil Service, Utility and Oil Tanker shares are underperforming today. Some gauges of credit angst are still grinding higher. I still believe it is likely that the euro and Shanghai Composite need to stabilize before the S&P 500 can break above its 50-day moving average in convincing fashion. However, some key growth stocks have already surged back above their 50-day and are poised to test 52-week highs, which is a large positive. Three of my longs, (CREE), (RUE) and (SXCI) and substantially outperforming today. I still like all three long around current levels. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear, diminishing sovereign debt angst, earnings optimism, stable energy prices and bargain-hunting.

Today's Headlines

Bloomberg:

• Spanish Bank Bond Risk Drops as Zapatero Unveils Deficit Plans. The cost of insuring against default on Spain’s largest banks fell to the lowest in three weeks after Prime Minister Jose Luis Rodriguez Zapatero announced measures to cut the country’s deficit. Credit-default swaps on Banco Santander SA, Spain’s biggest lender, declined 35 basis points to 130, the lowest since April 20, according to CMA DataVision prices. Contracts on Banco Bilbao Vizcaya Argentaria SA fell 31.5 basis points to 148, indicating an improvement in the perception of credit quality. Spain will reduce public-sector wages 5 percent this year and freeze them in 2011 in response to calls from European finance ministers for deeper budget cuts as part of an almost $1 trillion aid package for the region’s most indebted nations. Zapatero’s deficit reduction plan triggered a 22 basis-point decline in the country’s sovereign default swaps to 139. “Some serious steps in the right direction have been taken,” said Jose Mosquera, a Madrid-based manager at the Breogan Global Financials Fund. Contracts on Caja Madrid, Spain’s second-largest savings bank, declined 2 basis points today to 410 and Banco Pastor SA’s contracts fell 10 basis points to 365, according CMA prices. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings dropped 25 basis points to 462, according to Markit Group Ltd. prices on Bloomberg. The Markit iTraxx Financial Index of 25 banks and insurers was down 11 at 124.
• AIG(AIG) Reviewing Possible Recovery in Goldman(GS) Trades. American International Group Inc. attorneys are reviewing whether the company may recover funds tied to transactions with Goldman Sachs Group Inc., the insurer’s chief executive officer said. “We have fine lawyers, we are looking at all of the activities that occurred,” CEO Robert Benmosche said today at AIG’s annual meeting in New York after a shareholder asked about transactions with Goldman Sachs. “To the extent we find anything that was done wrong, or any harm to AIG that should not have happened, our legal staff will take appropriate actions.”
• India's Gold Demand May Halve in Festival on Prices. Gold demand in India, the world’s biggest consumer of the precious metal, may drop 50 percent during this year’s Akshaya Tritiya festival because of rising prices, trading company RiddiSiddhi Bullions Ltd. said. Demand may decline to 20 metric tons during the festival, compared with last year’s 40 tons, Prithviraj Kothari, director of the Mumbai-based company, said today in a phone interview.
• Crude Oil Declines in New York After U.S. Stockpiles Increase. Crude oil declined in New York after a U.S. government report showed that inventories climbed for the 14th time in 15 weeks. Supplies of crude oil gained 1.95 million barrels to 362.5 million, the Energy Department said. Stockpiles at Cushing, Oklahoma, where the New York-traded West Texas Intermediate oil grade is stored, rose to a record. Crude oil for June delivery fell 89 cents, or 1.2 percent, to $75.48 a barrel at 12:16 p.m. on the New York Mercantile Exchange. Inventories at Cushing increased 784,000 barrels to 37 million, the second straight week supplies reached the highest level since the department began reporting on supplies at the hub in April 2004. “There was another build at Cushing, which should put downward pressure on crude,” said Tom Bentz, a broker at BNP Paribas Commodity Futures Inc. in New York.
• BP(BP) Lowers 'Top Hat' Oil Containment Dome in Gulf. BP Plc lowered its smaller “top hat” oil-containment dome to the floor of the Gulf of Mexico, advancing its second attempt to funnel oil from a leaking well to a ship on the surface.
• IBM(IBM) to Spend $20 Billion on Takeovers Through 2015. International Business Machines Corp. Chief Executive Officer Sam Palmisano, seeking to boost earnings by focusing on software and services, said he plans to spend $20 billion on acquisitions in the next five years. Operating earnings will jump to at least $20 a share by 2015 from $11.35 or more this year, helped by cost savings and software demand, Palmisano said in a meeting with investors in New York today. The company also predicted sales growth that beat analysts’ estimates, sending the stock higher.
• Arizona Immigration Law Backed by Most Americans, Survey Finds. Almost three-quarters of Americans support a provision of a new Arizona immigration law that requires people to produce documents verifying they are in the U.S. legally, a survey said. About 73 percent of those polled by the Washington-based Pew Research Center for the People & the Press said they approve of the plan, while 23 percent said they disapproved, according to the survey released today. About 67 percent said they agree with letting police detain anyone who can’t verify their legal status, compared with 29 percent who disapproved. When asked if police should be allowed to question anyone they think may be in the country illegally, about 62 percent said they approved and 35 percent disapproved. More than half, 59 percent, said they supported the new Arizona law as a whole, while 32 percent said they don’t support the legislation.
• Inventories at retailers including Macy's(M) are not rising fast enough to keep up with sales and that may lead to greater gains in orders, production, trucking volumes and overall economic growth. Macy's inventory-to-sales ratio dropped 8.7% in the first quarter compared with a year earlier, the biggest decrease since the three months ended September 2006. "Lower inventories mean any new demand is going to mean a lot of production," said Zach Pandl and economist at Nomura Securities Intl. in NY. "Retailers underestimated the rebound in consumer spending and now find themselves playing catch up in a very big way."
  

Wall Street Journal:

• Deepwater Horizon Well Failed Key Test. House Energy and Commerce Committee Chairman Henry Waxman said Wednesday that BP PLC (BP)officials told House investigators that the Deepwater Horizon well did not pass a key pressure test the morning of the April 20 explosion.

Bloomberg Businessweek:

• Moody's(MCO) Downgrades $28 Billion of Greek Securities. Moody’s Investors Service lowered 22 billion euros ($28 billion) of Greek bonds backed by loans to consumers and companies as the country adopts austerity measures to qualify for European aid, leaving the notes under review for further downgrades. The cuts “were prompted by Moody’s expectations of significant pool performance deterioration due to the stressed economic environment in Greece as well as increased operational risk due to the weakened financial strength of Greek banks,” the New York-based ratings company said today in a statement.

CNBC:

• Is China's Housing Bubble About to Burst? Lost in the storm around Greece's debt problems, have been reports out of China indicating a slowdown in that country's real estate market. “As investors focus on Greece, there may be another story just as dangerous taking shape in Asia,” said Nick Chamie, global head of emerging markets research at RBC Capital Markets. “Anecdotal data suggests a correction in Chinese commercial and residential property markets may have already started or it could materialize in the coming months.”

NY Times:

• Eastern Europe, Seeking Energy Security, Turns to Shale Gas. The industrial Lublin and Podlasie basins of southeastern Poland are becoming major attractions for global energy giants hoping to tap into new sources for Europe. Companies like Exxon Mobil, ConocoPhillips and Chevron have signed deals or are in negotiations for concessions from the Polish government to explore the region for shale gas, one of the most promising but elusive sources of energy on the planet.

Business Insider:

• The 20 Best iPad Apps for Business.
• U.S. Budget Deficit is Largest EVER in April! The U.S. has its largest budget deficit in history for the month of April, $82.69 billion, according to CNBC. In the context of the deficit expected for 2010, this is not surprising, but it is still strange to already be running such a deficit in the month of April. Income in the U.S. was down 8% year-over year, while spending was up 14% over last April.
• Chinese Farmers Are Cashing Out Their Life-Sustaining Real Estate for Luxury Cars and Gambling.
• Here's The Real Reason Fannie and Freddie Are Losing So Much Money - They're Just a Secret Bank-And-Housing Bailout.
• Disgruntled Beijing Resident Throws Shoe at Property Developer Because of Soaring Prices. (video)
  

Lloyd's List:

• Iranian crude-oil storage at sea totals a record 42.5 million barrels, citing estimates from the Lloyd's Marine Intelligence Unit, which tracks vessels. 21 VLCCs and 1 suezmax vessel are being used for storage.

Tech Trader Daily:

• Intel Holds 6.5% Micron Stake After Close of Numonyx Deal. Intel (INTC) today disclosed that it holds a 6.5% stake in memory chip maker Micron Technology (MU). The stake results from the completion late last week of Micron’s acquisition of Numonyx from Intel, STMicro and Francisco Partners. Intel holds 64.2 million Micron shares; in the deal, Micron issued 138 million shares.

The Detroit News:

• Ford(F) Holds Tight to Police Market. Despite new challenges from rival automakers, the head of Ford Motor Co.'s(F) police program is confident her company will continue to dominate the market because Ford is giving its customers what they want. And what police departments now want is not one, but two pursuit-rated vehicles.

L.A. Times:

• Colombia's Oil Production is Gushing. Output is expected to reach at least 1.2 million barrels a day by the end of 2012, one oil company official says, nearly double the average daily production reached last year.
• Gulf of Mexico Oil Spill May Scuttle California Offshore Drilling Deal. The Tranquillon Ridge project in the Santa Barbara Channel was supported by a number of environmental groups. But now it looks dead in the water.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 28% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -13 (see trends).

Politico:

• Republicans: Where's the Democrats' Budget? House Republicans bashed their Democratic colleagues Wednesday morning for foot-dragging on the annual budget resolution, accusing the majority of failing the American people by not laying out a fiscally responsible way to govern. “It is astonishing to House Republicans, and we believe it will be a profound disappointment to millions of Americans, when they learn that this Democrat majority for the first time since the enactment of the budget act has abdicated its responsibility to do a budget,” House Republican Conference Chairman Mike Pence of Indiana said after the weekly meeting of his party.

Reuters:

• Kerry Unveils US Climate Bill, Obama Supports. U.S. Senator John Kerry ratcheted up the fight to pass legislation to combat global warming on Wednesday, unveiling a bill as the Gulf of Mexico oil disaster complicates the measure's already slim chances of passage. Kerry, a Democrat, and Senator Joseph Lieberman, an independent, took the wraps off their bill, but a Republican supporter was conspicuously absent.

NET TV:

• Greece's biggest unions decided to hold a new 24-hour strike on May 19 to protest government austerity measures.