Stocks Falling into Final Hour on Global Growth Worries, Emerging Markets Inflation Fears, Mideast Unrest, Technical Selling

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 17.63 -2.54%
  
• ISE Sentiment Index 56.0 +15.24%
  
• Total Put/Call 1.19 +12.26%
  
• NYSE Arms 1.14 +3.19%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 94.41 +1.41%
  
• European Financial Sector CDS Index 107.67 -4.17%
  
• Western Europe Sovereign Debt CDS Index 190.58 -3.05%
  
• Emerging Market CDS Index 220.18 +1.26%
  
• 2-Year Swap Spread 20.0 unch.
  
• TED Spread 22.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .03% -1 bp
  
• Yield Curve 256.0 -1 bp
  
• China Import Iron Ore Spot $170.20/Metric Tonne +.83%
  
• Citi US Economic Surprise Index -117.2 -26.3 points
  
• 10-Year TIPS Spread 2.23% -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -32 open in Japan
• DAX Futures: Indicating +7 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech, Retail, Medical and Biotech sector longs
  
• Disclosed Trades: Added to my (IWM), (QQQ) hedges and added to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is very bearish as the S&P 500 trades near session lows around support at 1,300 despite falling eurozone debt angst, a bounce in the euro and strength in some overseas indices. On the positive side, Oil Service, REIT and Homebuilding shares are higher on the day. Copper is rising +.92%. The Spain sovereign cds is falling -6.7% to 237.17 bps, the Italy sovereign cds is declining -8.52% to 145.17 bps, the Belgium sovereign cds is down -8.78% to 131.66 bps, the Ireland sovereign cds is falling -4.2% to 643.5 bps and the Greece sovereign cds is down -5.3% to 1,374.60 bps. On the negative side, Road & Rail, Gaming, Hospital, Semi, Internet, Paper and Oil Tanker shares are under significant pressure, falling more than -1.5%. Small-cap and cyclical stocks are underperforming. Tech and transport shares have also been heavy throughout the day. Oil is down just -.05%, the UBS-Bloomberg Ag Spot Index is rising +.2% and lumber is falling -1.6%. The US price for a gallon of gas is up +.01/gallon today to $3.79/gallon. It is up .65/gallon in less than 4 months. The China sovereign cds is gaining +5.2% to 76.83 bps, the Asia Pacific Sovereign CDS Index is rising +1.39% to 109.25 bps and the Illinois Muni cds is jumping +4.35% to 172.0 bps. The Citi US Economic Surprise Index has plunged -214.7 points since March 4th. From Aug. 15th 2007 to March 26th 2008, when economic data began to turn down during the last recession, this index dropped -183.1 points. While Europe has once again kicked the can down the road, investors appear to be focusing more on the intensifying drive for austerity. If 1,300 fails to hold early next week, another push lower is likely. The fact that food & energy are maintaining recent gains today with equity weakness on poor economic data is a large negative. Those expecting emerging markets to give up their monetary tightening stances anytime soon are likely mistaken, in my opinion. I expect US stocks to trade mixed-to-lower into the close from current levels on global growth worries, eurozone debt concerns, emerging markets inflation fears, rising food prices, rising Mideast, unrest, technical selling and more shorting.

Today's Headlines

Bloomberg:

• U.S. Payrolls Rose Less-Than-Estimated in May; Unemployment Rate Rises to 9.1%. U.S. employers in May added the fewest number of workers in eight months and unemployment unexpectedly rose to 9.1 percent, underscoring Federal Reserve concerns the expansion is failing to boost the labor market. Payrolls increased by a less-than-projected 54,000 last month, after a revised 232,000 gain in April that was smaller than initially estimated, Labor Department figures showed today in Washington. The median forecast in a Bloomberg News survey called for payrolls to rise 165,000. The jobless rate climbed to the highest level this year from 9 percent a month earlier. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- was little changed at 15.8 percent after 15.9 percent in April. The report also showed an increase in long-term unemployed Americans. The number of people unemployed for 27 weeks or more rose as a percentage of all jobless, to 45.1 percent from 43.4 percent.
• The pickup in hiring over the past year has failed to lead to a similar acceleration in wages, one reason why U.S. economic growth will continue to be disappointingly slow this year, according to economist Neil Dutta at BofA Merrill in NY. Twelve-month pay increases have been stuck at 1.8% since February and have hovered in a 1.7%-1.9% range since February 2010.
  
• Greece to Get Next Aid Payment in New Bailout. European Union and International Monetary Fund officials agreed to pay the next installment to Greece under last year’s 110 billion-euro ($161 billion) bailout, paving the way for an upgraded aid package that includes a “voluntary” role for investors. “I expect the eurogroup to agree to additional financing to be provided to Greece under strict conditionality,” Luxembourg Prime Minister Jean-Claude Juncker said after meeting with Greek Prime Minister George Papandreou in Luxembourg today. “This conditionality will include private sector involvement on a voluntary basis.” Papandreou agreed to set up an agency to manage an accelerated asset-sale effort and will make “significant” cuts in public-sector employment, according to a statement released today in Athens.
• Euro Gains to Four-Week High Against Dollar After Greece Gets New Aid Plan. The euro rose to a four-week high against the dollar after Greece was approved more assistance to address its debt crisis and a report showed U.S. employers in May added the fewest jobs in eight months. Europe’s shared currency extended its gains after Luxembourg’s Jean-Claude Juncker, who leads the group of euro- area finance ministers, said they agreed to pay the next installment to Greece under last year’s 110 billion-euro ($161 billion) bailout. The U.S. currency dropped to a record low against the Swiss franc as investors sought haven assets after the jobless rate unexpectedly rose to 9.1 percent. “With the strong growth in the European core, the interest-rate differential and the likelihood that you’re going to get another bailout for Greece, it’s a recipe for euro strength,” said Jessica Hoversen, a New York-based analyst at the futures broker MF Global Holdings Ltd.
• Fukushima Water Found to Have More Radiation Than Released Into Atmosphere. The water level in basements and trenches at Tokyo Electric Power Co.’s Fukushima plant rose and may contain more radiation than is known to have been released into the atmosphere in the worst nuclear crisis since Chernobyl. The amount of contaminated water rose to about 105 million liters (28 million gallons) from 100 million liters on May 18, and may start overflowing after June 20, the company known as Tepco said in a statement today. Radiation in the water is estimated at 720,000 terabecquerels, general manager Junichi Matsumoto said at a media briefing in Tokyo.
• Wal-Mart(WMT) Approves $15 Billion Share Repurchase. Wal-Mart Stores Inc. (WMT) renewed plans to buy back as much as $15 billion of its shares, potentially bolstering the Walton family’s control of the world’s largest retailer. The buyback replaces a previous $15 billion repurchase announced June 4, 2010, Chief Financial Officer Charles Holley said today at Wal-Mart’s 41st annual meeting.
• China Lead Smelters May Idle Capacity as Power Shortage Slows Consumption. Lead smelters in China, the world’s largest producer and consumer, may idle capacity as demand slows amid a power shortage and as the nation clamps down on polluting units, according to Beijing Antaike Information Development Co. “Lead demand has been weak and while we haven’t heard of smelters cutting output, many have brought forward their annual maintenance shutdowns, which is essentially the same thing,” said Hu Yongda, an analyst at state-owned Antaike.
• Economist Dennis Gartman Cuts His Gold Investments in Half, Says 'Nervous'.
  

Wall Street Journal:

• Yemen Presidential Palace Shelled, Saleh Injured. Yemeni opposition fighters shelled the presidential palace on Friday, lightly injuring the president and seriously wounding several top officials, according to government officials. The artillery attack occurred around noontime prayers when President Ali Abdullah Saleh and dozens of senior government officials were gathered in the presidential compound's mosque. Three rocket-propelled grenades fired from a rooftop across the street from the palace hit the center of the mosque, a government official said. President Saleh suffered light injuries to the head, the officials said, countering earlier reports by an opposition television station that the president had been killed.
• EA(ERTS) to Test Its Might Online. Electronic Arts Inc. is starting an online service to sell downloadable games directly to consumers, as one of the world's biggest makers of video games steps up a push to offer more of its wares over the Internet, rather than through discs at stores.
• Fed Governor: U.S. Should Go Beyond Basel III on Bank Capital. Federal Reserve Board governor Daniel Tarullo said Friday that U.S. regulators should set additional capital requirements for financial firms as they look to prevent another crisis. One plan under consideration would set enhanced capital requirements about 20% to more than 100% over Basel III, Mr. Tarullo said in remarks prepared for the Peterson Institute for International Economics, a think tank.

Business Insider:

• 6 Jobs Charts You Really Shouldn't Look At If You Don't Want to Lose Your Lunch.
• Revealed: Tawdry Details From The John Edwards Indictment.

Zero Hedge:

• John Paulson Loses Half a Billion in Under 24 Hours. John Paulson's worst nightmare is on the verge of coming true. As reported yesterday, JP is a holder of 34.7 million shares of Sino-Forest, which was halted yesterday after Muddy Waters came out with a report exposing the company as a fraud, and by implication, all the sellside analysts covering the company with a buy rating, not to mention all the funds who had bought into it, as diligenceless monkeys who refuse to actually do their homework and merely follow the leader in the worst example of Wall Street groupthink.

NY Post:

• Businesses Are Afraid to Hire by Charles Gasparino. The problem for the average American worker: Businesses have learned to make money by cutting costs (i.e., jobs) or relocating to China and India. And it's not merely that it's cheaper to operate overseas; a huge part of the problem is the fear that it's going to keep getting more expensive to hire here. Both small-business owners, and analysts who cover these companies tell me that many American businesses would like to stay here, but they see no letup in sight in the endless stream of taxes and regulations coming from an administration most of them consider anti-business.

New York Times:

• China Faces 'Very Grave' Environmental Situation, Officials Say. China’s three decades of rapid economic growth have left it with a “very grave” environmental situation even as it tries to move away from a develop-at-all-costs strategy, senior government officials said Friday. In a blunt assessment of the problems facing the world’s most populous country, officials from China’s Ministry of Environmental Protection delivered their 2010 annual report.

Coyote Blog:

• Outrageous - Hedge Funds Using Obama Administration to Gut Their Short-Selling Targets. Living in Phoenix I know a number of people who work for Apollo (University of Phoenix). They have obviously been appalled by the Obama war on for-profit colleges and the egregiously-flawed report that came out last year. Several have told me they have complained for a while that certain hedge funds were pushing this initiative in order to make money off of short positions on their stock. I thought this was a bit paranoid, but now the accusation is coming from third parties, even those on the Left:

Seeking Alpha:

• ECRI Weekly Leading Economic Index: Sixth Week of Declining Growth. (graphs)

San Francisco Chronicle:

• Greek Debt Plan May Trigger Downgrades, Contagion, SocGen Says. Involving private-sector investors in measures to alleviate Greece's debt crunch risks triggering credit downgrades and higher bond yields for the nation and its peers, according to Societe Generale SA. "We fear that rating agencies would take note of the private participation, which they will interpret as a reduced support from European Economic and Monetary Union partners," Vincent Chaigneau, head of rate strategy in London, and Ciaran O'Hagan, head of European rate strategy in Paris, wrote in an investor report yesterday. "This would lead to another wave of rating downgrades of non-core sovereigns."

Reuters:

• Service Sector Growth Picks Up in May: ISM. The pace of growth in the services sector picked up modestly in May while gauges of new orders and employment climbed, according to an industry report released on Friday. The Institute for Supply Management said its services sector index rose to 54.6 last month from 52.8 in April. The reading came in just above economists' forecasts for 54.0, according to a Reuters survey. The new orders component rose to 56.8 from 52.7, while the employment gauge climbed to 54.0 from 51.9. The prices paid index eased to 69.6 from 70.1, its lowest level since December.

AP:

• Bahrain Police Open Fire at Protestors in Capital. Bahraini police fired tear gas and rubber bullets at protesters marching toward the landmark Pearl Square in the country's capital Friday, two days after authorities lifted emergency rule.

Telegraph:

• OPEC Hints It Could Raise Oil Supplies for First Time in Four Years. Members of Opec, the oil cartel, are seriously considering raising supply for the first time since 2007 in order to dampen prices that are currently above $100 per barrel.

Le Figaro:

• Netflix Inc.(NFLX), the DVD and online film-rental service, plans to expand in Europe. The company plans to start operating in Latin America by the end of this year and in Spain in 2012. Netflix is also interested in the U.K. and France, and may enter those markets at the end of 2012 or the start of 2013.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.0%)

Sector Underperformers:

• 1) Oil Tankers -1.71% 2) Hospitals -1.57% 3) Road & Rail -1.23%

Stocks Falling on Unusual Volume:

• NWL, SWKS, AMT, AMX, EGO, BVN, DRQ, CYBX, EBIX, TFM, DMND, NTCT, KNXA, HOGS, CCIX, ZUMZ, APOL, OFIX, IPHS, HWCC, VRA, HAYN, ENOC, FEIC, DEST, RIMM, BTH, XCO and WHR
  

Stocks With Unusual Put Option Activity:

• 1) ACI 2) ADBE 3) AMR 4) LDK 5) BBT
  

Stocks With Most Negative News Mentions:

• 1) NUE 2) NTAP 3) COF 4) GS 5) RIMM
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Large-Cap Value (-.57%)

Sector Outperformers:

• 1) Oil Service +.79% 2) Coal +.70% 3) Homebuilders +.29%

Stocks Rising on Unusual Volume:

• PLD, BHI, BAS, BTU, RL, DB, ESS, JPM, PBR, AIRM, TSLA, CECO, PANL, ASPS, SOLR, IPSU, VRUS, PSMT, SFLY, PEET, MELI, NFLX, LSTZA, SINA, AIXG, ARUN, CROX, OCN, KUB, COO, PCH and FRX
  

Stocks With Unusual Call Option Activity:

• 1) MHS 2) IPI 3) AKS 4) BBY 5) ITW
  

Stocks With Most Positive News Mentions:

• 1) UPL 2) CYBX 3) WMT 4) WAG 5) MYL
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Friday Watch

Evening Headlines

Bloomberg:

• Economic Recovery Languishes as Americans Wait for Signal of Better Times. In Boulder, Colorado, Michael Englund, chief economist at Action Economics, hears the grumbling on the sidelines at his children’s sports matches. “The whole country’s talking about monetary policy, and it’s pretty hostile,” says Englund. “They’re asking me, ‘Are we still going to have a dollar in five years?’ ”
  
• U.S. Mortgage Proposal May Lead to 'Rental Entrapment,' MBA's Stevens Says. Minorities and the working class may find it harder to buy homes under a U.S. plan that would require larger down payments to qualify for lower-cost mortgages, according to lenders, consumer groups and lawmakers. Bankers and consumer advocates, often at odds on policy issues, united today to make the case for revising the government proposal and released data that they said shows the rule would deny loans to millions of borrowers while doing little to reduce defaults.
• Kan Pledge Sets Off Succession Maneuvering. Naoto Kan’s pledge to step down as prime minister set off a contest to select Japan’s next leader, adding to the risk of delays in reconstruction and revenue bills needed to restore growth and assuage credit concerns. “This is a new stage of real chaos in Japanese politics, and I don’t see any scenario where things will suddenly get better,” said Koichi Nakano, a political science professor at Sophia University in Tokyo. “Japan is paying a very high price for the instability at the top.”
• Berkshire(BRK/A) Failed to Apply Sokol Standard at RV Unit, Ex-Manager Mart Says. Warren Buffett’s Berkshire Hathaway Inc., which investigated former executive David Sokol and said he violated insider-trading rules, failed to enforce its code of ethics when told of abuses at its recreational-vehicle unit, according to an ex-manager who is suing the company.
• Groupon Files to Raise $750 Million in IPO. Groupon Inc., the top online-coupon provider, filed to raise $750 million in an initial public offering, riding a wave of Web-company share sales and giving investors a chance to bet on the surging daily-deal market. The IPO will be handled by Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) and Credit Suisse Group AG (CSGN), according to the filing. Chicago-based Groupon, founded in 2008, will trade under the ticker GRPN.
• Boehner Proposes Libya Resolution Demanding Details on U.S.'s Objectives. House Speaker John Boehner moved to head off a resolution seeking an end to U.S. military involvement in Libya by proposing an alternative demanding that President Barack Obama more fully spell out the mission’s purpose. “The president really does need to step up and help the American people understand why these missions are vital to the national security interests of our country,” Boehner, an Ohio Republican, told reporters today at a news conference in Washington. House Republicans met in private later in the day to discuss several resolutions voicing disapproval of U.S. support for the bombing campaign in Libya by the North Atlantic Treaty Organization to protect rebels and pressure dictator Muammar Qaddafi to step aside.
• China's Boom Threatened by Enron-Style Tricks: William Pesek. Credit downgrades can elicit fascinating reactions. Take a January move by Standard & Poor’s to cut Japan’s rating to the same level as China’s. I expected the backlash to come from Tokyo. Instead, it was the Chinese who were aghast. Every Chinese official I’ve met since is bewildered that 10 percent growth and $3 trillion of currency reserves don’t buy a better grade than the AA- China shares with an overly indebted, aging nation that names a new prime minister every year. Many in China even think their economy deserves a higher score than the U.S., with its AAA rating. These views are as tantalizing as they are wrong. Credit risks are rising before our eyes as China battles a worsening inflation threat, the result of which will be slower growth. The process poses bigger risks to China’s creditworthiness and the world economy than investors may realize. The secret to China’s success? A huge, unreported accumulation of debt. Scattered around China are 20 cities that want international airports, glistening skyscrapers, five-star hotels, six-lane highways, world-class universities and cultural centers, Prada stores, Mercedes-Benz showrooms and ample housing. It is the largest urbanization in modern history. This building boom is taking place quietly, largely beyond the control of Beijing and financed with easy credit and local debt issuance. The surge of loans by banks to local authorities may spark a wave of bank failures that hobbles economic growth. The jump in local debt, which is tough to measure, increases the risk of default around the nation and leaves Beijing with a touchy question: Must it bail out local governments that went too far? Cities and provinces can’t borrow directly from banks, so they set up more than 8,000 investment companies to skirt regulations. Fitch Ratings predicts that, because of lending to these vehicles and to real estate developers, bad loans might reach 30 percent of the total at China’s banks. Expect a huge effort to push liabilities off balance sheets, Enron-style, as bankers scramble to mask the extent of their lending to local governments. It’s these kinds of financial shenanigans that have hedge fund managers like Jim Chanos of New York’s Kynikos Associates LP betting against China.
• Sino-Forest Plunges as Short Seller Block Targets Stock Owned by Paulson. Sino-Forest Corp. (TRE), whose biggest shareholder is hedge fund Paulson & Co., plunged the most since October 2008 in Toronto trading after short seller Carson C. Block said it overstated timberland holdings and production in China’s Yunnan province. Sino-Forest, which is based in Hong Kong and Mississauga, Ontario, dropped as much as 25 percent and was C$3.75 lower at C$14.46 when trading was suspended on the Toronto Stock Exchange yesterday.
• The euro may weaken to $1.30 this year, as increasing demand for options to sell the currency signal that recent gains have been driven by an "irrational" market, according to Mizuho Corporate Bank Ltd. "While the bond market has kept setting off all sorts of warning bells, the foreign-exchange market has been relatively bullish on the euro for the past six months, solely because of higher interest-rate expectations in the euro zone," said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank. "The currency market is irrational, and the risk-reversals suggest that the euro should be corrected."
• Fiat to Pay U.S. $500 Million for Chrysler Stake. Fiat SpA (F) will pay $500 million for the U.S. government’s remaining 6 percent stake in Chrysler Group LLC, ending the Treasury’s involvement in the automaker. The U.S. Treasury said it will receive an additional $60 million as part of a deal for Fiat to acquire the government’s rights to buy a union trust fund’s stake in Chrysler. The Canadian government will get $15 million from that part of the transaction, the Treasury said yesterday in a statement. With the new option to buy all of the Chrysler shares held by the United Auto Workers’ retiree health-care trust, Chief Executive Officer Sergio Marchionne may not need to hold an initial public offering.
• If India and Pakistan Come to Nuclear Blows, Blame U.S.: Mishra. Are India and Pakistan likely to stumble into nuclear war? This appalling possibility has long been kept alive by conflicts between the two historical enemies, but it may have been pushed closer to fulfillment by a catastrophic failure of U.S. foreign policy in South Asia. In recent weeks, a cover story in the Economist on the world’s "most dangerous border" described Pakistan’s rush to militarize its nuclear capacity, and former U.S. Secretary of State Henry Kissinger warned of a pre-World War I, Balkans-like scenario in South Asia that leads to a global conflict. Other developments, which have largely escaped the radar of Western commentators, give deeper cause for foreboding. A day after U.S. Navy seals killed Osama Bin Laden, the Indian army and air chiefs declared that the Indian military was capable of mounting similar operations in Pakistan. Pakistan’s spy chief, Lieutenant General Ahmad Shuja Pasha, responded with the claim that the Pakistani military had already rehearsed retaliatory strikes on India. This isn’t just playground posturing.

Wall Street Journal:

• Syrian Violence Tests U.S. Security forces loyal to Syrian leader Bashar al-Assad pressed a sustained assault against protesters Thursday in one of the bloodiest episodes in the so-called Arab Spring, exposing the quandary that President Barack Obama faces in trying to deal with a man he once thought he could convert into an ally. The killing of at least 70 people around the central town of Homs in the past five days, according to activists, brought to an estimated 1,100 the total toll in Mr. Assad's months-long crackdown and sparked tougher condemnation from the Obama administration.
• SEC Probes China Auditors. The Securities and Exchange Commission is investigating some accounting firms over their audits of Chinese companies whose shares trade in the U.S., and the inquiry is expected to lead to enforcement cases, people familiar with the situation said. The SEC has publicly indicated it was examining accounting and disclosure issues regarding Chinese companies that engaged in "reverse mergers," which allow companies to list on U.S. exchanges without as much regulatory scrutiny as an initial public offering. People familiar with the matter say the investigation also includes auditors, which hadn't previously been known.
• Gmail Hack Targeted White House. People who work at the White House were among those targeted by the China-based hackers who broke into Google Inc.'s Gmail accounts, according to one U.S. official. The hackers likely were hoping the officials were conducting administration business on their private emails, according to lawmakers and security experts.
• Probe Deepens of Alleged Inside Trades at FDA. A federal inquiry into insider trading at the Food and Drug Administration, which has focused on an agency chemist who was charged in March, is expanding to look at other government employees, according to people familiar with the matter.
• Former NPR Boss Schiller Hired by NBC. NBC News said Thursday that it had hired Vivian Schiller, who quit as chief executive of NPR in March, to a new role overseeing the news unit's digital strategy.

MarketWatch:

• Fed Balance Sheet Grows to Record $2.79 Trillion.

CNBC:

• PBS Hackers Claim to Breach Sony Pictures. Just days after threatening to undertake an operation that it called "the beginning of the end for Sony," a hacker group claims to have compromised the personal information of over 1 million users of SonyPictures.com.

Business Insider:

• Forget The Debt Ceiling, The White House Has A Whole New Problem On Capitol Hill. Moody's brought the debt ceiling back into focus today with its warning on the US credit rating, and Tim Geithner met with House freshmen on the issue. But we hear from a DC source that wasn't what all the buzz is about in Congress. Instead it's Libya. Congressman Mike Turner introduced a one page bill that basically just says: The Congress does not approve of Obama's actions. It's not binding or anything, but it does already have 62 co-sponsors. Where it gets interesting, according to The Hill, is that liberal Progressive Representative Dennis Kucinich actually introduced a measure that would mandate an immediate withdrawal from Libya, and it was going to come to a vote, until the GOP leadership realized it might actually pass, at which point their weight was thrown behind the more symbolic measure from Turner. For what it's worth, the Defense Department even came out with a warning about dire consequences if Libya funding were cut.
• Why The Eurozone is Doomed to Extinction. Unless their economies rapidly start to mend, continuing in the euro will be economic suicide for the PIIGS once the backdoor subsidies stop. In this week's column, Robert Samuelson notes just how dire things are "Already, unemployment is 14.1% in Greece, 14.7% in Ireland, 11.1% in Portugal and 20.7% in Spain. What are the limits of austerity? Steep spending cuts and tax increases do curb budget deficits; but they also create deep recessions, lowering tax revenues and offsetting some of the deficit improvement." Add on top of this the drawbacks of an expensive currency and a tight monetary policy for a troubled economy, and they'd have to be crazy to stay. Maybe they are crazy--now. But clinging to a failed monetary peg causes problems that can drag on for years. Look at Argentina in the 1990s, or the entire developed world during the Great Depression: the longer a country clung to the gold standard, the longer and deeper the economic suffering. I think the chances of the euro zone surviving intact are now less than 50%. They're not 0%. But they do seem to be shrinking every day.
• 5 Things You Need to Realize About China's Gigantic Bailout of Local Governments.
  

Zero Hedge:

• Discount Window Borrowings Spike to Highest in 2011. (graph) As for the culprit, we have one guess. If proven correct, this would mean that the emergency liquidity provisioning system of the ECB is starting to get a little "problematic" to put it mildly.
• Treasury Continues to Dip Into Retirement Accounts, Prepares to "Take Out" $66 Billion Chunk to Make Room for New Bond Issuance.
• Moody's Leaked Again: Told Nancy Pelosi Will "Probably Not" Downgrade US Weeks Ago; Did Her Multi-Millionaire Investor Husband Know Too?
  

IBD:

• Accretive Health(AH) Helps Hospitals Manage Revenue.

Reuters:

• US Senate Bill Would Force CFTC to Act on Position Limits. An outspoken U.S. senator who criticized the country's futures regulator for failing to crackdown on energy speculation said on Thursday he will introduce legislation next week that will force the agency to act. Senator Bernie Sanders said the legislation would force the head of the U.S. Commodity Futures Trading Commission to use emergency authority to impose limits on the positions investors can take in crude oil, gasoline and heating oil. The move could occur without support from the majority of the agency's commissioners. The bill also would raise margin requirements in the markets and force big Wall Street houses to live within prescribed limits. "We cannot allow Wall Street speculators to continue to rip off the American people at the gas pump any longer," said Sanders, an Independent from Vermont. The Sanders legislation, which was still being drafted, would increase margin requirements for speculative trading in crude oil and heating oil to 25 percent. In addition, it would end all bona-fide hedging exemptions for bank holding companies including any of their affiliates and subsidiaries, such as Goldman Sachs (GS.N), Morgan Stanley (MS.N), JP Morgan Chase (JPM.N), Citigroup (C.N), Bank of America (BAC.N), and Credit Suisse (CSGN.VX).
• China Under Suspicion in U.S. for Lockheed(LMT) Hacking. Suspicion that some individual or entity in China was behind a recent cyber attack on Lockheed Martin is growing among experts and agencies looking into the incident. "It's unclear at this point precisely who conducted the attacks, but given past history with these sorts of things, there's a strong tendency to look east. The Far East, in fact, and a country that not so long ago hosted the Olympics," said one U.S. official who asked for anonymity, but was reluctant to point the finger at China by name.

Standard:

• Deferred payment programs offered by some Hong Kong real estate developers to home buyers are a sign that the city's property market has peaked and prices may start dropping soon, citing Chong Tai-leung, executive director of the Institute of Global Economics and Finance, at Chinese University of Hong Kong. Developers are seeking to sell as many apartments as possible while the prices are at their highest, citing Chong.

Wen Wei Po:

• The Chinese central bank is expected to rely less on interest rate increases to control monetary policy this year, citing Fan Gang, head of the National Economic Research Institute of the China Reform Foundation.

Shanghai Securities News:

• Residential land sales in 128 Chinese cities dropped 14% in the first five months of 2011 from a year earlier, citing investment advisor CEMB Group. Residential sales fell 84% in Beijing in the first five months from a year earlier and declined 44% in Shanghai.

China Securities Journal:

• China's central bank may raise interest rates "asymmetrically," according to a commentary published in the China Securities Journal. The monetary authority may also raise banks' reserve requirement ratios this month depending on changes of liquidity in the banking system.
  

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 109.25 -.25 basis point.
  
• Asia Pacific Sovereign CDS Index 113.50 +.25 basis point.
  
• S&P 500 futures -.17%.
  
• NASDAQ 100 futures -.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for May is estimated at +165K versus +244K in April.
• The Unemployment Rate for May is estimated to fall to 8.9% versus 9.0% in April.
• Average Hourly Earnings for May are estimated to rise +.2% versus a +.1% gain in April.
  

10:00 am EST

• ISM Non-Manufacturing for May is estimated to rise to 54.0 versus a reading of 52.8 in April.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Tarullo speaking, Fed's Warsh speaking, Fed's Rosengren speaking and the ASCO Meeting could also impact trading today.
  

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

Stocks Slightly Lower into Final Hour on Growing Global Growth Worries, Rising Food Prices, Emerging Markets Inflation Fears, Eurozone Debt Concerns

Broad Market Tone:

• Advance/Decline Line: About Even
  
• Sector Performance: Mixed
  
• Volume: About Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.88 -2.3%
  
• ISE Sentiment Index 56.0 -32.53%
  
• Total Put/Call 1.07 -5.31%
  
• NYSE Arms .79 -82.40%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 93.10 +2.70%
  
• European Financial Sector CDS Index 113.25 +3.53%
  
• Western Europe Sovereign Debt CDS Index 196.58 -.17%
  
• Emerging Market CDS Index 217.85 +.35%
  
• 2-Year Swap Spread 20.0 +1 bp
  
• TED Spread 22.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .04% unch.
  
• Yield Curve 257.0 +5 bps
  
• China Import Iron Ore Spot $168.80/Metric Tonne unch.
  
• Citi US Economic Surprise Index -90.90 +.4 point
  
• 10-Year TIPS Spread 2.25% +4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +20 open in Japan
• DAX Futures: Indicating +34 open in Germany

Portfolio:

• Slightly Higher: On gains in my Tech and Biotech sector longs
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added back (IWM)/(QQQ) hedges
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades near session highs, despite global growth concerns, rising food prices, more weak US economic data and emerging market inflation fears. On the positive side, Education, Airline, Road & Rail, Steel and Oil Service shares are especially strong, rising more than +1.0%. Cyclical shares are outperforming. Tech shares are also relatively strong. (XLF) is trading well today despite more negative financial sector news. The 10-year yield is bouncing +9 bps to 3.03%, which is also a positive. On the negative side, Tobacco, Retail, Medical Equipment, Paper, Coal and Telecom shares are under mild pressure, falling more than -.50%. (IYR) has underperformed again throughout the day. Copper is falling -.17%, oil is rising +.5% and lumber is falling -1.9%. Moreover, the UBS-Bloomberg Ag Spot Index is surging +2.1% and is very close to breaking out of its recent downtrend, which increases the odds of hard landings in key emerging markets. The US price for a gallon of gas is unch. today at $3.78/gallon. It is up .64/gallon in less than 4 months. The Japan sovereign cds is rising +1.05% to 87.0, the Brazil sovereign cds is gaining +1.85% to 106.76 bps and the California Muni cds is gaining +4.98% to 124.62 bps. Eurozone cds are not confirming recent euro currency strength, which is likely the result of very poor US economic data and US debt limit worries. US stocks continue to display exceptional resiliency in the face of mounting headwinds. A worse-than-expected jobs report tomorrow is likely priced in at this point, however the eurozone debt situation remains a large concern and traders are intensely focused on movements in the euro currency. I expect US stocks to trade mixed-to-lower into the close from current levels on global growth worries, eurozone debt concerns, emerging markets inflation fears, rising food prices and more shorting.