Bull Radar

Style Outperformer:

• Large-Cap Value (-.42%)

Sector Outperformers:

• Education(+.49%), Telecom (+.39%) and Airlines (+.32%)

Stocks Rising on Unusual Volume:

• MHP, CECO, DWA, KMX, JBL and AEL
  

Stocks With Unusual Call Option Activity:

• 1) ESV 2) JBL 3) ANF 4) MDRX 5) RGLD
  

Stocks With Most Positive News Mentions:

• 1) AAPL 2) KMX 3) ADBE 4) HWK 5) GSK

Wednesday Watch

Evening Headlines
Bloomberg:

• Lincoln Swaps Measure's 'Essence' Will Be in Bill, Frank Says. Senator Blanche Lincoln’s measure requiring banks to push their swaps trading desks to separate units will be in the final financial-regulation bill in some form, Representative Barney Frank said today. “The essence of how of what Senator Lincoln wanted to do on pushing derivatives out of the banks will happen, and certainly they will be totally insulated from any insured deposits,” Frank, the Massachusetts Democrat leading House- Senate negotiations on the legislation, told reporters during a break in the talks.
• China Divides Australia Into 'Two-Speed Economy' as BHP Quashes Retailers. China’s demand for metals and energy is splitting Australia in two, pitting resource-rich Western Australia and mining companies from BHP Billiton Ltd. to Xstrata Plc against the rest of the country. Coal and metal sales to the fastest-growing major economy prompted Reserve Bank of Australia Governor Glenn Stevens to raise interest rates six times in seven months, fuelling a 27 percent gain in the Australian dollar since the first quarter of 2009 that hurt exporters like wheat farmer John Springbett. “We’re going broke by the minute,” said Springbett, who ships about 4,000 tons of grain a year to Indonesia, India and the Middle East from his farm, 100 kilometers east of Perth. Prime Minister Kevin Rudd, facing an election within 10 months, has reacted by proposing a 40 percent tax on mining income and reducing levies on other businesses in an effort to redistribute profits. BHP, the world’s biggest mining company, and Xstrata, the top thermal coal exporter, are fighting the tax, saying it undermines the competitiveness of Australia, the world’s largest shipper of coal and iron ore.
• Oil Falls a Second Day as U.S. Stockpiles Gain, Existing Home Sales Drop. Crude oil fell for a second day in New York after an industry report showed an increase in crude supplies and sales of existing U.S. homes unexpectedly declined in May, signaling the economy is struggling to recover. “Sentiment remains very fragile,” said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. “Confidence has been rattled in recent months by European fiscal issues and by data in the U.S. that’s been uneven. They’re factors that have left markets cautious.” The API data showed “crude stocks were up quite a bit, distillate stocks were up, and gasoline supplies were up,” Commonwealth Bank of Australia’s Moore said. “I don’t think the oil market is tight at present. Inventories remain high.”
• Copper, Zinc Decline in Shanghai as China Removes Tax Rebates on Exports. Copper and zinc dropped in Shanghai after China said it will remove export-tax rebates on some products, stoking concern that a domestic supply glut will form. Copper for September delivery in Shanghai fell as much as 1 percent to 52,340 yuan ($7,680) a ton and traded at 52,460 yuan at 9:21 a.m. local time. Zinc slumped as much as 2 percent to 14,515 yuan a ton and last traded at 14,625 yuan. “The rebate removal puts immediate pressure on Chinese prices,” Xiao Jing, an analyst at Beijing Capital Futures Co., said today. Copper and zinc may be the most prone to the negative impact as exports of the metals products just started to recover, she said.
• Euro Poised for Drop to Week Low on Bearish Engulfing: Technical Analysis. The euro is poised to fall to a one- week low of $1.2215 in the next two days after a “bearish engulfing” overwhelmed traders who had been buying the 16- nation currency, according to Barclays Plc. “You have a pretty nice bearish engulfing, which is indicative of near-term exhaustion,” MacNeil Curry, a technical analyst at Barclays in New York, said yesterday in a telephone interview. “I would be inclined to say we’re going to see new lows, but on a short-term basis, a very short-term basis like the next session or two, $1.2215 would be an initial point.”
• Petrobras(PBR) Delays $25 Billion Share Sale to September Over Oil-Price Talks. Petroleo Brasileiro SA, Latin America’s biggest company by market value, delayed the sale of as much as $25 billion of stock until September because a price hasn’t been set in a related deal to buy oil reserves from the government.
• Mobius Says Yuan Currency Shift Won't Make China's Stocks More Attractive. Templeton Asset Management Ltd.’s Mark Mobius said the end of the yuan’s exchange-rate peg hasn’t made China’s stocks more attractive, challenging speculation that a stronger currency will spark a rally in equities. “The yuan appreciation will not have a dramatic impact since the exchange rate change is not expected to be significant,” said Mobius, who oversees about $34 billion in emerging markets as Templeton Asset Management’s Singapore-based chairman, in e-mailed comments. China’s stocks “have not become more attractive generally,” he said.
• Obama's Proposal for Consumer Bureau Nears Final Approval in U.S. Congress. President Barack Obama’s proposal to create an agency to protect consumers in their financial- services transactions neared final approval in Congress after negotiators agreed to establish it as a division of the Federal Reserve. The consumer bureau, which would have the authority to write and enforce rules policing banks and other financial companies for lending abuses, was the centerpiece of Obama’s plan to reform Wall Street regulations in response to the 2008 financial crisis. It was approved today by House and Senate negotiators who are in their third week of shaping the final bill to send to Obama for his signature.
• Toyota Halts Output at China Plant After Supplier Hit by Strike. Toyota Motor Corp. halted production at a car factory in Guangzhou, China, after one of its suppliers was shut by a strike, at least the seventh among auto parts makers in the nation in the past month. The car factory remains closed today after Toyota suspended output yesterday morning, Hitoshi Yokoyama, a Beijing-based spokesman for the carmaker, said by phone. Workers at a Guangzhou venture of Denso Corp. , Japan’s largest car-parts manufacturer, walked out on June 21 demanding higher pay. Toyota has suffered at least three walkouts among its suppliers in China, the world’s biggest auto market, this month after employees at Honda Motor Co.’s suppliers struck and won wage increases. “There will be more and more of these strikes,” said Edwin Merner, who oversees $3 billion as president of Atlantis Investment Research Corp. in Tokyo. “Workers know the companies are vulnerable and that they’ll pay up.” Denso Guangzhou Nansha Co., the joint venture in Guangzhou, halted production yesterday as workers walked out demanding higher wages and improved benefits, Denso spokesman Toshihiro Nishiwaki said by phone yesterday from Aichi, Japan. Strikes are spreading through foreign-owned factories as demands for higher pay underscore China’s shrinking supply of low-cost labor.
• Goldman Sachs(GS), Morgan Stanley(MS) Would Be Least Affected by Swaps Proposal.
• Record BIRC-Led Share Sales Leave Emerging Markets Inundated With Equity.
• Bond Defaults Stalk Wealthiest Michigan Communities as Development Crashes. Michigan’s auto-industry collapse, which led to the worst home-price drop among U.S. states, has forced some of its wealthiest and fastest-growing communities to seek state aid to prevent municipal bond defaults.
• Housing Market Threatens U.S. Recovery as Sales Slide Resumes.
  

Wall Street Journal:

• Lincoln Intervenes for Arkansas Bank. Sen. Blanche Lincoln, one of the chief architects of the financial-regulation overhaul nearing completion in Congress, is pushing for a change that would benefit a bank in her home state of Arkansas. The bank, Arvest Bank Group Inc., of Bentonville, Ark., is predominantly owned by the Walton family, of Wal-Mart Stores Inc. fame, perhaps the most influential family in the state and one of the richest in the U.S. Under Ms. Lincoln's proposed change, Arvest would be excused from a provision that could require banks to raise more capital, in Arvest's case about $115 million. Other Senate Democrats had intended only to exempt banks with less than $10 billion in capital from the provision. Ms. Lincoln wants to raise that to $15 billion, a threshold that would exempt Arvest.
• Bank Tax Proposal Gains Ahead of G-20. Europe on Tuesday moved to back a new tax on banks, with the U.K. including the levy in its new emergency budget and Germany and France pledging similar action in coming months. The trio will urge other countries to follow suit at the weekend summit of the Group of 20 industrial and developing nations to be held in Toronto, they said in a joint statement. Broadly, the moves from the U.K., Germany and France aim to encourage institutions to seek stable sources of funding and to ensure banks pay their fair share in future bank rescue packages.
• Business Leader Slams 'Hostile' Policies on Jobs. Verizon Communications Inc.(VZ) Chief Executive Ivan Seidenberg, current head of one of the nation's most influential business groups, slammed the Obama administration for decisions he said "create an increasingly hostile environment for investment and job creation." In comments marking one of the sharpest breaks between top executives and the Obama White House, Mr. Seidenberg used a speech at Washington's Economic Club to unleash a list of policy grievances over taxes, trade and financial regulation. Mr. Seidenberg's comments are particularly notable because he heads the Business Roundtable.
• French Finance Minister Hints at More Cuts. France might take new austerity measures this summer if the country's economy fails to meet growth targets, Finance Minister Christine Lagarde said Tuesday. "Balancing our public finances is a priority," Ms. Lagarde said in an interview. "The road is arduous, but our political determination is complete." The statement came against the background of weakening economic growth prospects in France, which could mean the French state gets less tax revenue than it was expecting. After gross domestic product for the second quarter is announced in August, France might have to cut its 2011 growth forecast, said Ms. Lagarde. The forecast currently stands at 2.5%, which she said was "audacious."
• House Financial Overhaul Negotiators Propose Covered Bond Rules. U.S. House negotiators finishing work on the financial-overhaul bill favor creating a statutory framework to foster a market for covered bonds. Covered bonds are used in Europe to finance mortgage lending. They are securities issued by a bank that are backed by a pool of mortgage loans or other assets held on the bank's balance sheet. The proposal would establish a covered bond regulator within the Treasury Department and define eligibility criteria for institutions seeking to issue covered bonds. It also would define the types of assets that could back the bonds. House negotiators also are seeking to mandate that federal regulators study the combined effects of new bank accounting rules for the treatment of securitized assets and a measure to require securitizers to retain some credit risk on their balance sheets. That measure, part of the financial-overhaul bill, would broadly require banks to retain 5% of the credit risk of the loans they sell for securitization.
• Thinner, Faster, Smarter iPhone Raises the Stakes. Just three years ago, Apple wasn't in the mobile-phone business at all. Since then, its game-changing iPhone has become the most influential smartphone in the world. Now, on June 24, the company will roll out the fourth generation of the device, called the iPhone 4.
• Sharp Words Expose Rift Over Afghan Policy. Setbacks in Afghanistan Aggravate Fissures Over Obama Administration's Review of Strategy, Magnifying Difference.
• Our Agenda for the G-20 by Timothy Geithner and Lawrence Summers. Countries should work to stabilize debt levels, enact new financial regulation, and reduce their dependence on fossil fuels.

Bloomberg Businessweek:

• Mittal Aims to Expand Iron-Ore Capacity by 66% in Five Years. ArcelorMittal, the world’s biggest steelmaker, plans to expand iron-ore capacity by two-thirds within five years to protect against price volatility, Chief Executive Officer Lakshmi Mittal said. It aims to raise capacity to 100 million metric tons from 60 million tons, he said today in an interview in New York.
• Oil Companies in Limbo as Judge Halts Deep-Water Drilling Ban. Oil companies and contractors that work in the deep waters of the Gulf of Mexico are likely to wait to restart drilling operations until there’s more clarity on how a federal judge’s decision to lift a U.S. ban will play out. U.S. District Judge Martin Feldman today granted a preliminary injunction, halting a six-month moratorium that President Barack Obama put in place May 27 to cease issuing new deep-water drilling permits. The president also called for work to be stopped on 33 exploration wells. “No one’s going to go back to work,” said Brian Uhlmer, an analyst at Pritchard Capital Partners in Houston, citing new federal standards that allow the government to recall drilling permits and require new filings. “You can have a non-moratorium moratorium.” Feldman in a separate order today “immediately prohibited” the U.S. from enforcing the drilling moratorium, finding the offshore companies would otherwise incur “irreparable harm.” Energy companies won’t resume operations until they have “more certainty” on drilling and what the federal government plans to do, Louisiana Governor Bobby Jindal said today during a press conference. “You can’t just turn this switch on and off,” Jindal said. “Once these rigs leave the Gulf, they may be gone for years.” “It’s a small victory for the industry, but clearly the administration has dug in its heels and is going to try to keep this moratorium, come hell or high water,” said Jud Bailey, an analyst at Jefferies & Co. in Houston. “Investors, as it relates to the drillers, are for the most part staying away. There’s too much uncertainty, too much headline risk.” Even if operators don’t have to get re-permitted for previously approved drilling projects, Bailey said he doesn’t think many operators would immediately try to resume operations. Companies don’t want to incur the cost or potential wrath of the government, he said. “You run the risk of this getting overturned by the appellate court,” Bailey said.

CNBC:

• Obama Administration to Issue New Drilling Moratorium.

Fox News:

• Wall Street Officials: Bailout of ShoreBank Looks Doubtful. Just a few weeks ago, officials at some of the biggest Wall Street firms thought they had contributed enough money to bailout the politically connected but financial challenged community lender, ShoreBank. It looks like they’re wrong, and now senior executives at the major banks involved in the effort say they doubt that ShoreBank, despite its ties to the Obama White House, will be able to survive a government takeover and eventual liquidation that the bailout was designed to prevent, FOX Business has learned.

Business Insider:

• CHART OF THE DAY: Your Taxes Are Heading Much Higher.
• CHART OF THE DAY: iPad Is On Track To Be The Fastest Selling Mobile Device Ever.
• California Isn't The State Most Likely to Default Anymore. That would be the home state of Obama and Rahm Emanuel, Illinois.

CNNMoney:

• McDonald's(MCD) Warned: Drop the Toys or Get Sued. A nutrition watchdog group is threatening to sue McDonald's if the fast-food giant won't stop using toys to to lure children to its Happy Meals. The Center for Science in the Public Interest said Tuesday that it has served McDonald's notice of its intent to sue over what it says is unfair and deceptive marketing.

Institutional Investor:

• II Announces Hedge Fund Award Winners.

Frederick Kaufman:

• The Food Bubble. How Wall Street Starved Millions and Got Away With It by Frederick Kaufman. The history of food took an ominous turn in 1991, at a time when no one was paying much attention. That was the year Goldman Sachs(GS) decided our daily bread might make an excellent investment. Agriculture, rooted as it is in the rhythms of reaping and sowing, had not traditionally engaged the attention of Wall Street bankers, whose riches did not come from the sale of real things like wheat or bread but from the manipulation of ethereal concepts like risk and collateralized debt. But in 1991 nearly everything else that could be recast as a financial abstraction had already been considered. Food was pretty much all that was left. And so with accustomed care and precision, Goldman’s analysts went about transforming food into a concept.
  

St. Louis Post-Dispatch:

• Boeing(BA), Machinists Make Little Progress, Union Says. Boeing and its Machinists ended a second day with a federal mediator today without any significant progress, union officials said. "They made no changes in the substance of their last offer that ... was soundly rejected by our membership," said Gordon King, president and directing business representative for the International Association of Machinists and Aerospace Workers District 837. King said there are no more scheduled sessions with the federal mediator. Boeing Machinists voted overwhelmingly earlier this month to strike based on the company's final contract offer. Union machinists would strike as soon as 12:01 a.m. Friday, King said.

Politico:

• Congress Battles as Medicare Burns. The worsening budget impasse over Medicare reimbursements is straining not just doctors but also House-Senate relations — with taxpayers facing millions of dollars in added costs for reprocessing claims. Having waited for weeks in hopes of a stay, the Centers for Medicare & Medicaid Services, or CMS, is now enforcing a 21 percent cut in physician payments, and an estimated 50 million claims, held back since June 1, will be the first affected. Never before has Congress allowed such a deep Medicare cut to go into effect at this scale, and complicating matters further is a public rift between Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) over the best course forward.
• White House Signals General McChrystal's Job On the Line.
• Nikki Haley Victorious as Bob Inglis Ousted. South Carolina state Rep. Nikki Haley clinched the Republican nomination for governor Tuesday night, sending an Indian-American politician into the general election campaign as a favorite to become her state’s first female governor.
• Ruling Mocks Offshore Ban. After enjoying a brief reprieve from the barrage of criticism over his response to the oil spill in the Gulf of Mexico, President Barack Obama was dealt a significant blow Tuesday that may refresh perceptions that his administration’s handling of the crisis has been improvised and haphazard. A federal judge in New Orleans blocked Obama’s six-month moratorium on new deep-water offshore oil drilling and mocked the decision to impose it as sloppy and illogical. White House officials said they planned to appeal the ruling from U.S. District Court Judge Martin Feldman.

USA Today:

• Apple(AAPL) Makes All the Right Calls on iPhone 4.

Reuters:

• U.S. Public Still Backs Offshore Drilling. A majority of Americans still support offshore drilling on the U.S. coastline despite the devastating oil spill in the Gulf of Mexico, according to a Reuters/Ipsos poll released on Tuesday. The poll also found 89 percent of the U.S. public blame British energy giant BP Plc for the spill, the worst in U.S. history, and 69 percent think the U.S. government is also at fault. About three-quarters of the public believe neither BP nor the government responded quickly enough to the environmental disaster, which threatens wildlife, fertile fishing grounds and popular tourist beaches along the U.S. Gulf Coast." Americans generally are mad, and they blame everyone for this -- whether it's the government or Big Oil, specifically BP," Ipsos pollster Cliff Young said. With the oil still spewing two months later, 56 percent of Americans believe offshore drilling is necessary for the United States to produce its own energy and not rely on other countries for oil, while 38 percent believe it is a bad idea. "While people see the problem, they still see the need to drill offshore, at least until there is some sort of longterm solution," Young said. About 69 percent of the public believe the U.S. government was either very much or somewhat at fault, with 30 percent believing it was not. The poll found 78 percent believe BP did not respond quickly enough to the spill, which it has not been able to stop despite numerous efforts. But the U.S. government barely fared better, with 72 percent believing it did not respond swiftly enough.
• U.S. Architecture Billings Fall, Credit Still Tight. A leading indicator of U.S. nonresidential construction spending fell in May after three months of gains, as lenders remain cautious about making construction loans, according to an architects' trade group. The Architecture Billings Index was down 2.6 points to 45.8 last month, after reaching its highest level since January 2008, according to the American Institute of Architects. A measure of inquiries for new projects fell 4.1 points to 55.5. Readings above 50 indicate expansion, while those below 50 to declining demand. May's results were a surprise, since earlier readings had pointed to recovery, said AIA Chief Economist Kermit Baker. "The overriding issue affecting the entire real estate sector is unusual caution on the part of lending institutions to provide credit for construction projects," Baker said.
• Red Hat(RHT) Profit Rises But Weak Euro Hurts. Business software company Red Hat Inc's (RHT) quarterly revenue and profit both rose 20 percent from a year earlier, as an improving U.S. economy helped it win more sales, including a major deal in North America. But with a weaker euro denting its deferred revenue, an indicator of future revenue, and earnings and outlook numbers merely in line with expectations, the company's shares fell slightly in after-hours trading on Tuesday.
• Adobe(ADBE) Sales Surges Despite Dispute With Apple(AAPL). Revenue rose 34 percent from a year earlier to $943 million during the fiscal second quarter ended June 4, handily beating the average analyst forecast of $906 million.Still, its shares fell 1.4 percent as profits failed to grow as quickly as sales.

TimesOnline:

• Congress Moves to Stop BP(BP) Hiding Behind Bankruptcy Law. BP’s American assets could be seized by the courts if it tries to use loopholes in British or international law to escape liability for the Gulf of Mexico spill, under legislation being drafted by members of Congress. American politicians were moving to close off BP’s legal options as continuing uncertainty over the oil giant’s liabilities triggered a fresh slide in its shares to their lowest level in 13 years. The Bill, numbered HR5503, aimed at BP has been put forward by a group of congressmen led by the Detroit Democrat John Conyers. He said: “The Bill says in essence that if BP files for bankruptcy in the UK then the US courts will not co-operate. What they are doing is amending Chapter 15 of the US bankruptcy code. It would enable US creditors and US courts to take control of BP’s assets.”

Telegraph:

• Bravo Chancellor Osborne: you have saved Britain in the nick of time. Eurostat’s latest horrifying report reveals that public spending in Britain rose to 51.7pc of GDP in the final year of Brownism. This is the highest in British history, and higher than that of Germany and other countries that we tend to view as big-state euro-corporatists. Germany is at 47.6pc, and has written a balanced-budget amendment into its Basic Law. The figure is 45.9pc for Spain, and 44.5pc for Poland. All of these countries are above the 40pc level deemed by some to be the long-term ceiling for creativity and enterprise in a modern industrial economy (with the Nordic exception, of course). The great roll-back of the British state during the Thatcher era has been entirely reversed – and funded by borrowing rather than tax revenues. The policy drew prosperity from the future: now the future has arrived. This is the Faustian nature of debt.
• Budget 2010: George Osborne the enforcer issues toughest Budget for a century. Every household in Britain will be worse off after George Osborne unveiled £29 billion worth of annual tax rises and the biggest cuts in public spending for almost a century. In an ambitious attempt to reduce the nation’s borrowing, Setting out what he described as the unavoidable the Chancellor said everyone had to share the pain to repair “the ruins” of the economy.Budget, Mr Osborne admitted that the better off would shoulder the largest burden of tackling the “emergency” facing Britain’s finances. But he said he was acting decisively to prevent a potentially “catastrophic loss of confidence” in the economy. He pledged to wipe out the deficit within five years.

21cbh.com:

• China Cuts Export Rebates on 406 Products. China's State Council, or Cabinet, has approved the scrapping of export tax rebates on 406 products, coming into effect July 15, the Ministry of Finance said Tuesday in a statement on its website. The products included some steel and non-ferrous metals products, fertilizers, as well as some plastic, rubber and glass products, the statement said. The central government lowered export rebates on some polluting and energy-intensive products in 2007. The current rebate cut is believed a follow-up measure to adjust high energy- and resource-intensive industries.

China Daily:

• China's currency policy isn't tied to the performance of the nation's exporters, Xu Li, director of the policy review division of the Beijing WTO Affairs Center, wrote in a commentary.

National Business Daily:

• China's stockpiles of soybeans at ports have reached 5.6 million metric tons, double normal levels, citing a Shanghai trader.

Evening Recommendations
Citigroup:

• Reiterated Buy on (JBL), target $22.

Night Trading

• Asian equity indices are -1.25% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 131.0 +10.0 basis points.
• Asia Pacific Sovereign CDS Index 122.75 +5.0 basis points.
  
• S&P 500 futures +.29%.
  
• NASDAQ 100 futures +.24%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (KMX)/.33
• (NKE)/1.06
• (DRI)/.88
• (PAYX)/.31
• (RAD)/-.14
• (BBBY)/.48

Economic Releases
10:00 am EST

• New Home Sales for May are estimated to fall to 410K versus 504K in April.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -800,000 barrels versus a +1,690,000 barrel increase the prior week. Gasoline supplies are estimated to fall by -180,000 barrels versus a -636,000 barrel decline the prior week. Distillate inventories are expected to rise by +1,500,000 barrels versus a +1,798,000 barrel increase the prior week. Finally, Refinery Utilization is expected to rise by +.3% versus a -1.2% decline the prior week.

2:15 pm EST

• The FOMC is expected to leave the benchmark Fed Funds rate at .25%.

Upcoming Splits

• (DLTR) 3-for-2
  

Other Potential Market Movers

• The weekly MBA mortgage applications report, $38 Billion 5-Year Treasury Note Auction, Jefferies Consumer Conference, Wells Fargo Healthcare Conference, Deutsche Bank Industrials Conference, (DELL) analyst meeting, (KBR) analyst day and the (RHT) Financial Analyst Meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology 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 Reversing Lower into Final Hour on Technical Selling, Rising Sovereign Debt Agnst, Increasing Energy Sector Pessimism, Economic Fear

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 26.25 +5.51%
  
• ISE Sentiment Index 119.0 +16.67%
  
• Total Put/Call .97 +4.30%
  
• NYSE Arms 2.66 +198.45%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 109.73 bps +3.69%
  
• European Financial Sector CDS Index 140.85 bps +8.93%
  
• Western Europe Sovereign Debt CDS Index 131.0 bps -1.50%
  
• Emerging Market CDS Index 251.98 bps +2.44%
  
• 2-Year Swap Spread 35.0 +2 bps
  
• TED Spread 43.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .11% +1 bp
  
• Yield Curve 249.0 -4 bps
  
• China Import Iron Ore Spot $143.80/Metric Tonne -.35%
  
• Citi US Economic Surprise Index -14.90 +.2 point
  
• 10-Year TIPS Spread 2.01% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -100 open in Japan
• DAX Futures: Indicating -48 open in Germany

Portfolio:

• Slightly Lower: On losses in my Technology and Retail long positions
  
• Disclosed Trades: Added to my (IWM)/(QQQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows, breaking convincingly back below its 200-day moving average. On the positive side, Drug, Telecom and I-Banking stocks are holding up relatively well. Copper is rising another +.9%. Weekly retail sales rose +3.1% versus a +3.1% gain the prior week and up from a +2.4% gain the first week of May. On the negative side, Airline, Road&Rail, Education, REIT, Paper, Oil Service, Energy, Oil Tanker and Coal shares are especially weak, falling 3.0%+. Cyclicals are substantially underperforming, falling -2.7%. It is a big negative to see Greece sovereign debt angst remain stubbornly high despite Europe's recent actions. The Greece sovereign cds is rising another +6.87% to 895.73 bps. Moreover, the Portugal sovereign cds is rising +7.7% to 302.21 bps and the Spain sovereign cds is surging +5.2% to 232.33 bps. Finally, the European Investment Grade CDS Index is rising +5.3% to 112.95 bps. The rise in shares of (AAPL) is helping to prevent an otherwise worse decline for the Naz. The 10-year yield is falling too much again, dropping 8 bps to session lows, which is further raising economic angst. As I said a few weeks ago, economic data over the next few months will likely show enough deterioration that worries over a full blown global economic double dip will rise meaningfully. The most cyclical stocks will likely continue to underperform through year-end. I expect US stocks to trade modestly lower into the close from current levels on profit taking, technical selling, rising US housing worries, rising energy sector pessimism, increasing sovereign debt angst. tax hike worries and more shorting.

Today's Headlines

Bloomberg:

• Bond Risk Rises in Europe as Bank Funding Concerns Resurface. The cost of insuring against losses on European corporate bonds rose amid renewed concern that some of the region’s banks will struggle to fund themselves and France’s largest lender was downgraded. The Markit iTraxx Crossover Index of credit-default swaps on 50 mostly junk-rated companies climbed from a six-week low, rising 10.4 basis points to 512.4, according to Markit Group Ltd. prices at 9:39 a.m. in London. The cost of protecting bank bonds rose after Fitch Ratings cut its ranking on BNP Paribas SA one step, citing deterioration in the bank’s asset quality, while Standard & Poor’s said Spain’s lenders face mounting credit losses. Sentiment had worsened after European Central Bank member Christian Noyer said yesterday that some banks face funding difficulties in the wake of Europe’s sovereign debt crisis. The Markit iTraxx Financial Index tied to the senior debt of 25 banks and insurers rose 1.5 basis points to 149.5 and the subordinated index was 2 higher at 227, according to JPMorgan Chase & Co. Contracts on BNP Paribas rose 3 basis points to 105, CMA DataVision prices show. Banco Santander SA, Spain’s biggest lender, increased 6 basis points to 166 and Banco Bilbao Vizcaya Argentaria SA climbed 9 basis points to 222. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 2 basis points to 115, Markit data show.
• Sales of U.S. Existing Homes Fall as End of Tax Credit Looms. Sales of U.S. previously owned homes unexpectedly fell in May as demand began to slip even before a government tax credit expires. Purchases of existing houses, which are tabulated when a contract closes, decreased 2.2 percent to a 5.66 million annual rate, figures from the National Association of Realtors showed today in Washington. Builder shares dropped on concern the end of government stimulus, mounting foreclosures and unemployment may cause renewed weakness in the industry that precipitated the worst recession since the 1930s. Sales “will be pretty soft for the next few months,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, whose sales forecast was the closest among economists surveyed. “Ultimately, you’re going to need job growth to see a sustainable recovery in housing.” The median price climbed 2.7 percent to $179,600 from $174,800 in May 2009. The number of previously owned homes on the market dropped 3.4 percent to 3.89 million. At the current sales pace, it would take 8.3 months to sell those houses compared with 8.4 months at the end of the prior month. Declines in inventories have slowed in recent months, posing a risk for the market, Lawrence Yun, the group’s chief economist, said in a press conference. Yun said this “overhang” in supply is a concern and may lead to further declines in property values in coming months.
• U.S. Deepwater Drilling Ban Lifted by New Orleans Federal Judge. A New Orleans federal judge lifted the six-month moratorium on deepwater drilling imposed by President Barack Obama following the largest oil spill in U.S. history.
• Chinese Aluminum Production Cuts Loom on Record Output, Yuan. Chinese aluminum producers may cut output from a record if the price slump persists and after the world’s third-largest economy signaled an end to its currency’s fixed rate to the dollar. China, the largest maker of the metal, produced 1.42 million metric tons in May, the highest ever monthly total, said China International Futures (Shanghai) Co. analyst Wang Zhouyi, as escalating power costs were offset by tumbling prices of alumina, the raw-material ingredient. Aluminum prices have slumped 15 percent in Shanghai this year, while London Metal Exchange prices dropped 12 percent, on concern Europe’s debt crisis will slow the global recovery and lending curbs in China will cool demand. “We will see production curtailments in China unless the government rescues them, and the rhetoric from the government up till now has been precisely the opposite,” said Alan Heap, managing director of global commodity analysis at Citigroup Inc. An appreciation of the Chinese currency will put “further upward pressure” on costs, said Heap. “Exports are expected to increase if production continues to rise,” said China International’s Wang. “However, a stronger yuan will hurt exporters, so there’s little upside for the aluminum industry at the moment.” “These sort of circumstances, where the prices fall to the global industry average cash cost, that’s what you see in a full-on global recession,” Citigroup’s Heap said in a phone interview from Sydney. “So the aluminum industry is telling us the world is in economic recession, which I don’t think it is. Output cuts will protect the downside.” There’s little evidence of output cuts so far, even though more than 40 percent of the Chinese aluminum industry is incurring losses, Barclays Capital said yesterday. “It’s unprofitable to make aluminum but it will cost producers even more to stop making it, so unless the price holds below the cost of production in the next few months, it’s unlikely we’ll see output fall,” said Zhou. “Even if some of the smaller producers shut, there’s still new capacity coming on stream.” China is expected to add about 3 million tons of annual smelting capacity this year, Zhou said. The country is cutting overcapacity as stockpiles of the metal in warehouses monitored by the Shanghai exchange jumped 67 percent this year after smelters raised output on expectations demand will improve as the global economy recovers.
• Corn Falls as Chinese Demand May Decline; Beans Also Decline. Corn fell for the second straight day on speculation that demand from China will not be as robust as first expected after the country announced it would no longer peg the yuan to the dollar. Soybeans also declined. “This China policy is more psychological than anything,” said William Bayer, a partner at PTI Securities Inc. in Chicago. “As far as the grains, it’s not going to have that much of an effect. The yuan needs to appreciate at least 40 to 50 percent to have an effect on commodities. The grain markets shrugged it off as a one-day event.” Corn futures for December delivery fell 5.75 cents, or 1.5 percent, to $3.69 a bushel at 10:23 a.m. on the Chicago Board of Trade. Before today, the price declined 9.6 percent this year, partly on sagging demand.
• Top U.S. General Apologizes for Criticism of Obama Officials. The U.S. military commander in Afghanistan, General Stanley McChrystal, apologized for criticizing top officials of the Obama administration in a magazine profile to be published this week. “I extend my sincerest apology,” McChrystal said in the statement e-mailed by the press office of his command, the International Security Assistance Force, in Afghanistan. “It was a mistake reflecting poor judgment and should never have happened.”
• Kerviel Could Have Bankrupted SocGen, Trader Says. Societe Generale SA, France’s second-largest bank by market value, could have been forced into bankruptcy by Jerome Kerviel’s unauthorized positions had they not been unwound immediately, a trader told a Paris court today.
• Verizon(VZ) Likely to Sell Apple's(AAPL) iPhone Next Year, Barclays Says. Verizon Wireless, the biggest U.S. mobile-phone carrier, will probably begin selling Apple Inc.’s iPhone in early 2011, Barclays Plc said. Sales of Apple’s device could boost Verizon’s subscriber gains next year by 900,000 for a total of 2.8 million, said James Ratcliffe, a Barclays analyst, in a research note today.
• Verizon(VZ) Chief Calls FCC Web Proposal 'Overbearing'. The U.S. Federal Communications Commission has proposed “overbearing” rules for phone and cable companies that could dampen investment, said Verizon Communications Inc. Chief Executive Officer Ivan Seidenberg. The FCC is moving toward “an unimaginative and overbearing set of rules,” Seidenberg said today in remarks to the Economic Club of Washington. The FCC’s current course “will cause uncertainty in the marketplace, create disincentives for investment” and make the U.S. telecommunications industry less competitive, he said.

Wall Street Journal:

• Study: Subprime Lending Fueled by Campaign Cash. Make sure you’re sitting down for this one: A new study finds that the mortgage industry boosted its campaign contributions to congressional districts that had a large share of subprime borrowers during the housing boom in order to influence government housing policy. (Hat tip to Felix Salmon). The report, from researchers at the University of California, Berkeley, and the University of Chicago’s Booth School of Business, concludes that campaign cash from the mortgage industry outpaced contributions from the rest of the financial industry from 2002 to 2006, and that donors targeted members from both parties that had more subprime borrowers in their districts. The authors say that their research “demonstrates that the mortgage industry increasingly targeted representatives of subprime borrowers during the subprime lending expansion.” Perhaps unsurprisingly, the authors conclude that “the mortgage industry viewed high subprime share representatives as potential allies in shaping subprime market legislation.”
• Apple(AAPL) iPad Sales Hit Three Million 80 Days After Launch.
  

CNBC:

• Many Widely Held Stocks Are Used in High-Frequency Trades.

Business Insider:

• 30 International Offers of Oil Spill Support Obama Has Thrown Out The Window.
• Obama's Home Affordable "HAMP" Program A Failure; Another Huge Wave of Foreclosures Coming.
  

Zero Hedge:

• Germany-US Rift Gets Deeper, As Merkel Openly Mocks Obama's Keynesian Guidelines.
• America's New Budgetless Reality Is "Betrayal Of American Taxpayers", Says Republican House Leader John Boehner.
  

standardspeaker.com:

• Legislator Calls for 1-Year Moratorium on Natural Gas Drilling. Standing at a reservoir that provides drinking water to 30,000 residents in Luzerne County, state Rep. Phyllis Mundy on Monday called for a one-year moratorium on new natural gas drilling permits in Pennsylvania. "We are allowing this industry to move ahead too fast," Mundy said from the Huntsville Reservoir in front of approximately 75 concerned citizens. "We need to take a step back and give ourselves the necessary time to do this right. The risks of doing it wrong are simply too great and long-lasting."

Real Clear Markets:

• Is Illinois the New California. If you go to Sacramento this week, don't be surprised to hear champagne corks popping and chants of "We're #2! We're #2!" The cause for celebration? Illinois has overtaken California as the worst credit risk among American states. As of Monday, the credit default swap spread for Illinois general obligation bonds climbed to 313 basis points for a five-year contract -- meaning a bondholder must pay over 3% of the bond's face value per year to be insured against default. That's a higher price than for all but seven sovereign entities tracked by CMA, and slightly higher than California, whose five-year CDS spread sits at 293. Investors rate Illinois's debt as slightly riskier than Iceland's or Latvia's, but not quite as big a gamble as Iraq's.

Politico:

• Poll: Obama Lacks Oil Spill Plan. A wide majority of Americans believe President Barack Obama does not have a blueprint to combat the BP oil spill off the Gulf Coast, according to a new CBS/New York Times poll out Tuesday. Fifty-nine percent of 1,259 adults polled nationwide said the president does not have “clear plan” for combating the spill. Thirty-two percent said Obama does have a plan to fight the spill and 9 percent didn’t know. Sixty-one percent say the president’s response to the spill was “too slow” compared to 32 percent who found his timing “just right” and 2 percent who think he was “too quick.” Just as Obama gets low marks for his administration’s response to the spill, the poll shows that there is little confidence the spill will be plugged quickly or that Gulf Coast residents will get the help they need.

Rolling Stone:

• The Runaway General. Stanley McChrystal, Obama's top commander in Afghanistan, has seized control of the war by never taking his eye off the real enemy: The wimps in the White House.

Reuters:

• Obama Warns Health Insurers Not to Hike Rates.

Financial Times:

• Shrimp prices have climbed almost 63% since the Gulf of Mexico oil spill because of fishing bans, citing local fisherman. Shrimp costs $3.25 a pound compared with $2 earlier this year.

Die Welt:

• China and Russia are the main sponsors of Web-based industrial espionage against German companies and state agencies.

Expansion:

• Spain may raise taxes next year to ensure it meets its deficit-reduction target, Finance Minister Elena Salgado said.

Dagens Naeringsliv:

• Europe's economy may take 10 years to fully recover, James Quigley, chief executive officer of Deloitte Touche Tohmatsu, said. Europe and the U.S. will have to rebalance the relationship between the public and private sectors, Quigley said.

E15:

• ArcelorMittal Ostrava AS faces a "dramatic outage" in its production after Evraz Vitkovice Steel canceled its pig iron orders for July, AMO Chief Executive Augustine Kochuparampil said. Supplies to the Czech unit of Evraz Group SA, Russia's second-largest steel producer, represent about a fourth of AMO's total output, Kochuparampil said.

Bear Radar

Style Underperformer:

• Mid-Cap Value (-.95%)

Sector Underperformers:

• Oil Tankers (-2.91%), Road & Rail (-2.73%) and Coal (-2.25%)

Stocks Falling on Unusual Volume:

• DNDN, HGSI, IGTE, COG, RRC, PPL, BP, DTV, DOV, PBR, CHCO, NTES, LDSH, ATLS, TRS, HTWR, TLVT, RGLD, CTRP, NFLX, ITRI, RAH, WAG, PAC, BIG, CCL and SUG
  

Stocks With Unusual Put Option Activity:

• 1) FTR 2) DTV 3) ADBE 4) CCL 5) NVDA
  

Stocks With Most Negative News Mentions:

• 1) BP 2) INTC 3) AMZN 4) TM 5) Q
  

Bull Radar

Style Outperformer:

• Large-Cap Growth (+.07%)

Sector Outperformers:

• I-Banks (+.95%), Gold (+.93%) and Software (+.73%)

Stocks Rising on Unusual Volume:

• BVF, VRX, SNWL, LNCR and JEF
  

Stocks With Unusual Call Option Activity:

• 1) CCL 2) MELA 3) WAG 4) NOV 5) PALM
  

Stocks With Most Positive News Mentions:

• 1) AAPL 2) JNJ 3) ADBE 4) JEF 5) WAG