Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Global Growth Worries, Rising Food/Energy Prices, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 18.29 +1.22%
  
• ISE Sentiment Index 81.0 -36.72%
  
• Total Put/Call 1.06 -.93%
  
• NYSE Arms 1.27 +8.06%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.85 +1.37%
  
• European Financial Sector CDS Index 112.58 +5.67%
  
• Western Europe Sovereign Debt CDS Index 192.58 +2.48%
  
• Emerging Market CDS Index 219.97 +1.42%
  
• 2-Year Swap Spread 20.0 unch.
  
• TED Spread 21.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .03% unch.
  
• Yield Curve 257.0 -2 bp
  
• China Import Iron Ore Spot $171.70/Metric Tonne +.59%
  
• Citi US Economic Surprise Index -108.70 +1.2 points
  
• 10-Year TIPS Spread 2.20% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -39 open in Japan
• DAX Futures: Indicating -5 open in Germany

Portfolio:

• Slightly Lower: On losses in my Retail and Tech sector longs
  
• Disclosed Trades: None
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows on global growth worries, emerging markets inflation fears, rising Mideast unrest, Japan nuclear concerns, rising eurozone debt angst and rising food/energy prices. On the positive side, Utility, Telecom and Tobacco shares are slightly higher on the day. On the negative side, Airline, Networking, Disk Drive, Semi, Oil Tanker, Alt Energy, Education, Homebuilding and Coal shares are especially weak, falling more than -1.75%. Small-cap and cyclical shares are underperforming. Tech shares have traded poorly throughout the day. Oil is rising +1.9%, Copper is falling -1.0% and the UBS-Bloomberg Ag Spot Index is gaining +1.0%. The US price for a gallon of gas is down -.01/gallon today to $3.75/gallon. It is up .61/gallon in less than 4 months. The Spain sovereign cds is jumping +5.0% to 253.66 bps, the Italy sovereign cds is climbing +6.6% to 157.83 bps, the Portugal sovereign cds is gaining +4.43% to 709.08 bps, the Greece sovereign cds is surging +6.4% to 1,488.39 bps, the Ireland sovereign cds is up +5.2% to 682.76 bps, the Belgium sovereign cds is rising +5.8% to 141.17 bps and the UK sovereign cds is rising +5.83% to 59.15 bps. The Portugal sovereign cds is hitting a new record high and the Greece/Ireland sovereign cds are right at their all-time highs. The euro currency faces significant downside risk over both the short and longer-term, in my opinion. The Bloomberg Anchored Ships Custom Index is surging to a new high over the last week, which is also a negative. The Citi Latin America Economic Surprise Index is close to a 52-week low. The rise in food/energy prices today, despite equity weakness and dollar strength, is also a large negative. The China Pork Wholesale Spot Price has risen another +2.9% over the last 7 days and is very close to its Feb. 2008 record high. It has risen +50.4% over the last year. I doubt China takes its foot off the break after the next hike and if it does it would eventually prove a large mistake. Inflation pressures in most emerging markets remain a larger problem than most investors perceive, in my opinion. Investor sentiment remains relatively subdued given the news, recent equity losses and economic data. However, stocks are getting pretty oversold near-term and should bounce soon. I expect US stocks to trade mixed-to-lower into the close from current levels on global growth worries, rising eurozone debt concerns, emerging markets inflation fears, rising Mideast unrest, rising food/energy prices, technical selling and more shorting.

Today's Headlines

Bloomberg:

• OPEC Can't Find Consensus on Output Quotas. OPEC failed to reach an agreement on crude production for the first time in at least 20 years, after six countries opposed a Saudi Arabia-led group that urged members to raise output as oil trades above $100 a barrel. “It was one of the worst meetings we’ve ever had,” Saudi Arabian Oil Minister Ali al-Naimi said as representatives of the 12-member group left the meeting in Vienna after five hours of talks. “We were unable to reach an agreement.” Crude jumped 2.7 percent in 20 minutes in New York after the meeting ended. The split underscores growing divisions within the Organization of Petroleum Exporting Countries. OPEC announced its biggest-ever output cuts in December 2008 amid a collapse in global demand, capping production at 24.845 million barrels a day for all members except Iraq, which is exempt from the quota system. The limit has remained unchanged since then.
• Merkel Faces Dissenting Lawmakers on Greece as Schaeuble Stokes ECB Clash. Less than 24 hours after Angela Merkel was urged by President Barack Obama to take the lead in managing Europe’s debt crisis, the German chancellor faces members of her own coalition who say she’s done enough. Merkel and Finance Minister Wolfgang Schaeuble briefed lawmakers in Berlin today on a second bailout for Greece, outlining a stance at odds with central bankers, French allies and German voters. That’s a circle not easily squared, said Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt. By calling for bondholders to contribute a “substantial” share of the rescue, Schaeuble is “openly clashing” with European Central Bank President Jean-Claude Trichet, Rieger said. “Either Schaeuble softens his calls or the ECB makes further concessions,” he said. “One will have to give in.”
• Senate Rejects Delay of Debit Swipe-Fee Rule. The U.S. Senate rejected a six-month delay of a Federal Reserve rule capping debit-card swipe fees set by Visa Inc. (V) and MasterCard Inc. (MA), whose shares fell after the vote was completed. Senator Richard Durbin of Illinois, the No. 2 Democrat in the chamber, led the opposition to the delay amendment, which was defeated today in a 54-45 vote. The measure needed 60 votes for approval. Visa Inc. and MasterCard Inc., the world’s biggest payment networks, dropped the most since Dec. 16. Visa fell 3.8 percent to $76.78 at 2:38 p.m. in New York Stock Exchange composite trading. MasterCard declined 3.3 percent to $265.18. Shares of U.S. banks also slipped. The Fed now has until July 21 to implement the final rule on capping the fees, which accounted for more than $16 billion in 2009, according to the Fed.
• German Industrial Production Unexpectedly Declined in April. German industrial production unexpectedly declined for the first time in four months in April, led by a drop in construction output. Production fell 0.6 percent from March, when it rose a revised 1.2 percent, the Economy Ministry in Berlin said today. Economists had forecast a gain of 0.2 percent, the median of 36 estimates in a Bloomberg News survey showed. Construction output fell 5.7 percent in April from March, when it advanced 5.5 percent, today’s report showed. Manufacturing declined 0.6 percent, led by a 1.5 percent drop in investment-goods production.
• Harbinger Said to Face $1 Billion in Redemptions. Harbinger Capital, the $6 billion investment firm run by Philip Falcone, is facing at least $1 billion in redemptions from its main hedge fund after assets shrank by almost $2 billion in 2010, according to two investors. The main fund had $4.25 billion in assets at the end of 2010, 30 percent less than at the start of the year due to client withdrawals and losses, according to the people, who asked not to be identified because the information is private. Investors, who can pull 25 percent of their money every quarter, have asked to redeem $1 billion, which would be paid between now and next March, said the people, who have seen the fund’s financial statement.
• Exxon(XOM) Finds Biggest Oil Field in Gulf of Mexico Since 1999. Exxon Mobil Corp. (XOM) announced it found the equivalent of 700 million barrels of oil beneath the Gulf of Mexico, the biggest discovery in the region in 12 years. The estimated size of the Hadrian field may increase as drilling continues, Exxon said in a statement today. The discovery is about 250 miles (400 kilometers) southwest of New Orleans in water about 7,000 feet (2,000 meters) deep, Irving, Texas-based Exxon said. Exploratory drilling began in 2009 at the prospect and was halted last year after a record oil spill from BP Plc’s Macondo well prompted a U.S. moratorium on deep-water exploration. “This is a very, very significant find,” Rahman said. “When a supermajor like Exxon Mobil throws a number like 700 million at you, it indicates they are very confident in what they’ve got here.” The Gulf accounted for 29 percent of U.S. crude production in 2009, according to the Energy Information Administration.
• Greek Jobless Rate Breached 16% for First Time on Record in March. Greece’s unemployment rate exceeded 16 percent in March, extending a record high as the nation’s economy remained mired in the third year of a recession. Greece’s jobless rate has risen every month since July, after Prime Minister George Papandreou’s government cut wages and pensions and increased taxes to narrow a budget deficit that reached 15.4 percent of gross domestic product in 2009.

Wall Street Journal:

• U.S. Hedge Funds to Fight Bank of Ireland Restructuring. A group of U.S. hedge funds with large stakes in the Bank of Ireland's subordinated debt is preparing to fight the government's proposed restructuring of €2.6 billion ($3.82 billion) in junior bonds.
• Japan Opposition Says Bond Market "Doomsday" Could Come in 7 Years. Japanese bond yields, which have remained at record-low levels despite the country's ballooning debt, may rise sharply in seven years as the country's savings and current account surplus decrease, the main opposition party said Wednesday. The report by the Liberal Democratic Party's "X-day" project team--tasked with preparing for such a crunch in the nation's finances--comes as the party debates the possibility of forming a coalition with the ruling party following Prime Minister Naoto Kan's announcement that he will step in the near future. Despite Japan's huge outstanding debt--twice the size of its annual economic output--the bond market has so far been supported by domestic investors, who hold well over 90% of Japanese government bonds.
• Tepco Plans Radioactive Water Release From Second Plant. Tokyo Electric Power Co. plans to release 3,000 tons of lightly radioactive water into the ocean from the Fukushima Daini nuclear complex, the sister plant of the stricken Fukushima Daiichi complex, officials said Wednesday. The announcement casts the first major spotlight on disaster-related issues at the Daini plant, which officials said was quickly brought under control after Japan's March 11 earthquake and tsunami.

CNBC.com:

• Abercrombie & Fitch(ANF) Shares on Weak Sales Outlook. Teen apparel retailer Abercrombie & Fitch reiterated its second-quarter forecast, but said sales during the quarter will not be as good as those in the first, according to CFO Jonathan Ramsden, who was speaking at a conference in New York.

Business Insider:

• The World's Best Business Schools.
• Beige Book Out: Slowing Seen In Multiple Districts, Only Dallas Is Accelerating.
• Meredith Whitney On Muni Doom: "I Know I'm Right On This".
• France Tells Ireland: Increase The Corporate Tax Rate, Or We Won't Cut Your Bailout Rate.
  

Zero Hedge:

• Greek Economy Grinding to a Halt as Daily Protests Cripple Industrial Production. (graph)
• Greek CDS Surges to All Time Record on Talk Accord for Greek Bailout Faces Major Obstacles. (graph)
• Structural Unemployment: The Average Unemployed American Looks For a Job for 20 Weeks Before Giving Up. (graph)
  

NY Post:

• Slasher Street. The Closing Bell Tolls for Thousands of Jobs. On Wall Street the hatchet man cometh. Deep-pocketed bankers and traders are bracing for what could be a fresh round of job cuts on the Street, concentrated in equities trading and investment banking, where firms are considering eliminating thousands of jobs in the coming weeks, The Post has learned. Barclays Capital(BCS), Goldman Sachs(GS), Bank of America(BAC), JPMorgan Chase(JPM) and Morgan Stanley(MS) currently are among those financial institutions either weighing staff cuts or actually paring payroll as they struggle to rein in costs and eke out profits in a choppy market, sources told The Post.

Forbes:

• California's Green Jihad.

Politico:

• Poll: Record-High Number Think Country Headed Into Depression. A record-high of nearly half the country fears the economy is careening toward a depression, helping push President Barack Obama’s approval rating down by six points in just the last two weeks, according to a new CNN/Opinion Research poll.

Reuters:

• Pharmasset(VRUS) Says HCV Drugs Show Promise. Pharmasset Inc said interim analyses of clinical studies of its two drugs for chronic hepatitis C showed promise.
• Ciena(CIEN) Forecasts Weak Q3 Revenue; Shares Tumble. Ciena Corp (CIEN.O) forecast third-quarter sales below Wall Street expectations as the network equipment maker's transition to a new technology for its optical switches might take longer than expected. Shares of the company, which makes optical switches that help telecom carriers such as AT&T (T.N) and Verizon Communications (VZ.N) manage their networks, fell more than 16 percent to $20.43 -- their biggest fall in at least two years.

Financial Times:

• Gates Criticises 5 Allies Over Libya. Robert Gates, the US defence secretary, criticised five European Nato members on Wednesday for not doing enough in the air war over Libya, a rare diplomatic breach that underlines the growing tensions within the alliance over who is bearing the burden of the two-month-old campaign. During a closed-door meeting of Nato defence ministers, Mr Gates specifically named Germany and Poland as two countries with the capabilities to assist in the air war who were currently not contributing at all.

Telegraph:

• UK's Cable Threatens Harsher Taxes for Banks Over Lending. Vince Cable, the Business Secretary, has warned banks could face 'more forceful' taxes if lending fails to rise and they don't become more open about pay.
• UK Warned Credit Rating Could Be At Risk. Britain's top-notch credit rating could be slashed if growth stays weak and the Government does not stick to its austerity plans, one of the world’s top credit rating agencies warned.

Figaro:

• French local government is holding "toxic" loans worth about 7 billion euros, minister for local government Phillippe Richert said in an interview. It's possible that there are more such loans that haven't yet been uncovered, Richert said.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.15%)

Sector Underperformers:

• 1) Networking -3.22% 2) Oil Tankers -3.0% 3) Alt Energy -2.75%

Stocks Falling on Unusual Volume:

• TSL, IPGP, CMTL, ADSK, IVN, CCJ, BTM, QNST, CIEN, IPXL, MEAS, LOGM, FWRD, WPRT, GIII, SINA, FNSR, CRESY, DTSI, CVGI, PRMW, URBN, ADTN, ZUMZ, RRD, ANF, KLD, JKJ, OXM, RCL, FGP and AAN
  

Stocks With Unusual Put Option Activity:

• 1) CY 2) ALTR 3) AXL 4) TTM 5) CIEN
  

Stocks With Most Negative News Mentions:

• 1) FST 2) SPWRA 3) CIEN 4) DAL 5) CCL
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Value (+.24%)

Sector Outperformers:

• 1) Energy +.69% 2) Banks +.58% 3) Telecom +.46%

Stocks Rising on Unusual Volume:

• COG, EBAY, ULTA, VRUS, HRBN, NOG, TFM, PXP and OAS
  

Stocks With Unusual Call Option Activity:

• 1) ATML 2) AMD 3) ODP 4) BJ 5) CIEN
  

Stocks With Most Positive News Mentions:

• 1) ULTA 2) GIII 3) COG 4) WLP 5) GCC
  

Charts:

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

Wednesday Watch

Evening Headlines

Bloomberg:

• Germany Seeks Extending Greece Bond Maturities 7 Years in Clash With ECB. German Finance Minister Wolfgang Schaeuble said bondholders must contribute a “substantial” share of a second aid package for Greece, proposing a swap that credit-rating companies may term a default. Schaeuble told European Central Bank President Jean-Claude Trichet and fellow euro finance ministers in a June 6 letter that maturities on Greek bonds should be extended seven years to give the debt-wracked nation time to overhaul its economy. Any agreement on aid at a ministers’ meeting on June 20 “has to include a clear mandate -- given to Greece possibly together with the IMF -- to initiate the process of involving holders of Greek bonds,” Schaeuble wrote in the letter. The German position clashes with the stance of European Commission officials and the ECB, which oppose anything beyond a voluntary rollover of debt as they struggle to avert the euro area’s first sovereign default. A swap offering investors terms that are “worse” than those of existing securities would constitute a coercive or distressed exchange, and be considered a default, Fitch Ratings said this week. With a return to capital markets in 2012 “more than unrealistic,” Greece needs more aid to avert “the real risk of the first unorderly default within the euro zone,” Schaeuble wrote.
• Emerging Markets Must Speed Up Rate Increases, World Bank Says. Emerging-market economies need to speed spending cuts and interest-rate increases as they fight inflation and overheating, the World Bank said. Real interest rates are low or negative in many countries even as policy makers from India to Peru raise borrowing costs because of inflation, according to the bank. Developing nations also need to allow more exchange rate flexibility, the World Bank’s Global Economic Prospects report said. Emerging markets now account for almost half of global crude-oil demand and China absorbs 40 percent of the world’s metal supplies, contributing to the increase in prices observed since the recovery, the bank said in the report. The rise in commodity prices and strong capital inflows have contributed to faster inflation, which in developing countries was close to 7 percent in April from a year earlier, more than 3 percentage points higher than in July 2009, according to the report. Policy makers “will need to make fuller use of all the tools at their disposal to keep inflation under control,” the World Bank said. “While the more unstable capital inflows that characterized the third quarter of 2010 have abated, many of the underlying conditions that attracted those flows remain in place.” The World Bank also estimated that domestic food prices in developing countries may increase this year and next, even if international prices decline. Risks to the global economy also include continued turmoil in Arab countries, where civil unrest has lifted oil prices. Higher energy costs could also push food prices further, the bank said.
• Greek Bailouts Risk More EU Nations Being Junked: Euro Credit. European Union plans to include private investors in a second Greek bailout are a threat to the creditworthiness of Ireland and Portugal, and risk driving up both nations' borrowing costs. Ratings companies warn that they may consider any duress or worsening terms for bondholders in a debt deal to be a default, and that they would cut Greece's credit rank accordingly. Irish and Portuguese securities, teetering on the brink of junk ratings, risk removal from government bond indexes that would force fund managers with a mandate to track the benchmarks to offload their holdings.
  
• Dimon Asks Bernanke If Regulators Went Too Far. JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon asked Federal Reserve Chairman Ben S. Bernanke whether regulators have gone too far by reining in the U.S. banking system and are slowing economic growth. Dimon asked whether the central banker has measured the cumulative effects of new capital requirements, mortgage standards and other rules imposed on the system in the wake of the U.S. financial crisis. Dimon, 55, spoke yesterday in a question-and-answer session after Bernanke addressed a conference of bankers in Atlanta. Dimon asked Bernanke if he “has a fear like I do” that overzealous regulation “will be the reason it took so long that our banks, our credit, our businesses and most importantly job creation to start going again. Is this holding us back at this point?” Banks have tightened lending standards to what they were 30 years ago, Dimon said. “There’s no more subprime, there’s no more Alt-A, there’s no more mortgages being packaged, the CMBS market has been completely reformed,” he said, referring to commercial mortgage-backed securities. “I have a great fear someone’s going to try to write a book in 20 years and the book is going to talk about all the things that we did in the middle of the crisis to actually slow down recovery.” Dimon’s points are valid, Bernanke said at the American Bankers Association’s International Monetary Conference. The central bank doesn’t have the quantitative tools to study the net impact of all the regulatory and market changes over the last three years, he said.
• China Building Ability for Border Conflicts: Panetta. CIA director Leon Panetta, who has been nominated to succeed Defense Secretary Robert Gates, said China appears to be building the capability “to fight and win short-duration, high-intensity conflicts” along its borders. “Its near-term focus appears to be on preparing for potential contingencies involving Taiwan, including possible U.S. military intervention,” Panetta said in a 79-page set of answers to questions from the Senate Armed Services Committee in advance of his confirmation hearing, scheduled for June 9. China’s efforts to modernize its military “emphasize anti- access and area capabilities,” Panetta said in his written answers. China also is modernizing its nuclear forces and improving its space and counter-space operations as well as its computer network operations, Panetta said.
• Corn Costlier Than Wheat in Chicago for First Time Since 1984. Corn futures are more expensive than wheat futures on the Chicago Board of Trade for the first time since 1984, according to data compiled by Bloomberg. Corn for July delivery, the most active contract, traded at $7.43 a bushel at 7:25 a.m. in Singapore while wheat for delivery in the same month traded at $7.3875 a bushel.
• Treasury Said to Be Reluctant to Sell Part of GM(GM) Holding at Current Price. The U.S. Treasury Department is reluctant to sell part of its 33 percent stake in General Motors Co. (GM) to the company at this point because the price is too low, a person familiar with the matter said. The Treasury doesn’t want to sell GM while the shares are trading at 13 percent less than the $33 initial public offering price, the person said.
• Swap Exemption May Pose Risk to U.S. Financial System, Exchange Group Says. A U.S. Treasury Department proposal exempting foreign exchange swaps and forwards from Dodd-Frank Act regulations could increase risk in the financial system and undermine the regulatory overhaul, a trade association for exchanges and users of the derivatives market said. The proposed exemption, released on April 29, doesn’t account for the credit risk that buyers and sellers face in the $4 trillion global daily foreign exchange market, the Washington-based Commodity Markets Council said in a letter yesterday to the Treasury Department. The council’s 40 members include the CME Group Inc. (CME), Kansas City Board of Trade and Archer-Daniels-Midland Co. (ADM). The council “believes exempting foreign exchange forwards and swaps at this time from the clearing and trading requirements of Dodd-Frank could increase systemic risk at a time when regulators around the globe are trying to reduce it,” according to the letter, which was submitted in response to the Treasury’s proposal. “Our concern is the creation of a loophole,” Christine M. Cochran, president of the association, said in an interview.
• After India, Lagarde Takes IMF Campaign to China. Christine Lagarde is due in China today to seek the government’s backing for her bid to become the next managing director of the International Monetary Fund after failing to secure an endorsement from India. The French finance minister’s two-day trip, which will include a press briefing tomorrow in Beijing, is part of a tour that has also included Brazil.
• Clinton to Discuss With NATO Libya Outlook After Qaddafi as Yemen Unravels. Secretary of State Hillary Clinton heads to Abu Dhabi to discuss with NATO allies the outlook for Libya without Muammar Qaddafi even as the focus may shift further east to Yemen, which is on the brink of civil war. With North Atlantic Treaty Organization jets stepping up daytime strikes on the Libyan capital of Tripoli, the United Arab Emirates will host Clinton and other members of the 22- nation Libya Contact Group on June 9. Qaddafi yesterday said “martyrdom is a million times better” than surrender, in his first broadcast comments in more than three weeks. President Barack Obama renewed his demand that Qaddafi leave as a growing chorus of world leaders predicted the demise of the Libyan dictator, who after a 42-year rule has failed to crush a popular uprising that began mid-February.

Wall Street Journal:

• Companies Seen Cutting Health Plans. A report by McKinsey & Co. has found that 30% of employers are likely to stop offering workers health insurance after the bulk of the Obama administration's health overhaul takes effect in 2014. The findings come as a growing number of employers are seeking waivers from an early provision in the overhaul that requires them to enrich their benefits this year. At the end of April, the administration had granted 1,372 employers, unions and insurance companies one-year waivers to the law's requirement that they not cap annual benefit payouts below $750,000 a year. The law doesn't allow for such exemptions starting in 2014, leaving all those entities—and other employers whose plans don't meet the requirement—to change their offerings or drop coverage. Previous research has suggested that the number of employers who opt to drop coverage altogether in 2014 would be minimal. But the McKinsey study predicts a more dramatic shift away from employer-sponsored health plans once the new marketplace takes effect. Starting in 2014, all but the smallest employers will be required to provide insurance or pay a fine, while most Americans will have to carry coverage or pay a different fine. Lower earners will get subsidies to help them pay for plans. In surveying 1,300 employers earlier this year, McKinsey found that 30% said they would "definitely or probably" stop offering employer coverage in the years after 2014. That figure increased to more than 50% among employers with a high awareness of the overhaul law.
• Office Owners Seek to Cash In. Owners of big-name office buildings in some U.S. cities are racing to put them up for sale to exploit surging prices before it is too late.
• Tripped Up by the Margin. Commodity investors have long been used to wild market swings driven by wars and hurricanes. But recently a new risk has been added to their list: margin requirements. Margins, the amount of collateral investors must post against their trades, are designed to help reduce the risk to exchanges and calm overheated markets. But recently that safety valve is being blamed by some for wreaking havoc on markets such as silver, gasoline and cotton.
• FCC Backs Away From Aiding Media. Two years ago, the FCC and FTC launched reviews of the media industry with an eye toward changes in laws or tax code that could help struggling traditional media companies. Since then, the federal government's interest in helping the newspaper industry appears to be waning. On Thursday, the Federal Communications Commission will release its long-awaited report on the "Future of Media," but according to people who have seen the voluminous document, it holds little more than minor suggestions for rule changes, such as requiring broadcasters to put more information online. The report will also suggest that the Internal Revenue Service consider helping struggling media companies get an easier path to becoming non-profits. The report's recommendations aren't binding.
• Hedge Funds Less Bearish On Yen Despite Intervention Threat. Some big hedge funds are becoming less convinced the yen will weaken despite growing speculation Japanese officials will intervene in the foreign exchange market to curb the currency's strength.
• Former Hedge-Fund Manager Cites at Least 18 Illicit Trades. A former portfolio manager at hedge-fund firm SAC Capital Advisors LP testified Tuesday that he was involved in at least 18 instances of insider trading while at SAC and another firm.
• California Investigating Unusual Move in Muni-Bond CDS Price. California's state treasurer is looking into what he believes were erroneous prices reported last month for credit-default swaps tied to the state's debt. The annual cost of protecting $10 million of California debt against default over the next five years fell by $45,000 from one day to the next last month, an extraordinarily big overnight move. Tom Dresslar, a spokesman for Treasurer Bill Lockyer, said that CMA DataVision provided the prices to Bloomberg's fixed-income data service. Lockyer suspects the cost of credit-default swaps, which are expressed as a percentage of the amount of debt covered, was artificially high before the adjustment. "To the extent our prices are wrong, particularly if they are on the high side, that presents an inaccurate picture of our creditworthiness, at least in some corners," said Dresslar in an interview Tuesday.
• Pawlenty's Growth Market. Among GOP Presidential contenders, Tim Pawlenty is offering the most ambitious reform agenda so far, and his economic address yesterday continued the trend. While details remain to be filled in, the former Minnesota Governor is rightly focusing on a growth revival that ought to define the 2012 campaign.
• Expect more bad news until someone enacts a plan to bring deficits under control without raising taxes.

MarketWatch:

• Apple's(AAPL) Cloud Offering Could Ignite Price War.

CNBC:

• Fed Easing 'Miserable Failure' That Risks Depression: Bove. The Federal Reserve is risking a second Great Depression by putting pressure on banks to raise more capital, banking analyst Dick Bove writes in a scathing note that accuses the central bank of losing “all sense of reality.” Among other charges, the Rochdale Securities analyst says the Fed’s quantitative easing program was a “miserable failure,” primarily because all it did was raise asset prices but injected little new money into the economy. Much of the venom is directed at an idea that Bove acknowledges is unlikely to go anywhere: Recent suggestions from Fed Governor Daniel Tarullo that banks could raise another 20 to 100 percent in capital beyond Basel III requirements. “I unfortunately believe these people may have lost their minds just as the US Congress did when it passed the Dodd/Frank Act,” he says. “However, the proposal may be taken seriously by investors. If so it spells dangers for bank stocks. This is because it is likely that some form of this inane proposal may actually be put into place.” Bove breaks down the cause of the crisis and Washington’s reaction as such: Too much money in the economy helped create the crisis at a time when the Fed should have been clamping down on banks. Now, he says, the banks need to be given room to lend money and conduct business to reinvigorate the economy but instead are being handcuffed by onerous capital restrictions.
• Geithner Triggers Asian Backlash on Regulation. Tim Geithner’s warning that the world could face another global financial crisis unless Asia adopts US regulations on derivatives transactions triggered a largely critical response in the region.

Business Insider:

• Here's The Amazing Video of Jamie Dimon Ambushing Ben Bernanke After His Speech Today.
• TEPCO Death Spiral Accelerates, As Japan Continues to Hike Radiation Estimates.
• 20 Dirty Facebook Chats Sent By Anthony Weiner To A Las Vegas Blackjack Dealer. From bad to worse.
• Iran Is Two Months Away From Building A Nuclear Bomb.
• SocGen's Dylan Grice on China's "Great Suppression" That Could Result In A Crisis Bigger Than 2008.
  

Zero Hedge:

• How Goldman(GS) Dissembled In The Wall Street Journal. You have read Dealbook's superficial (and practically dictated) defense of Goldman's subprime bet. Below we present David Fiderer's a vastly different perspective than the one shared by straight-to-HBO expert A.R.S., which provides a far more realistic perspective of what really happened with Goldman and its "big short."
• Bernanke Speech and Word Cloud.
  

IBD:

• FEI's(FEIC) Electron Microscopes Unearth New Markets.

Forbes:

• Launch Sequence for Human Genome Stocks. There are hundreds of firms doing research and seeking to capitalize on new technologies in this space. Two of them are Life Technologies Corp. (nasdaq: LIFE) and Illumina, Inc. (nasdaq: ILMN).
• If Health Care Is A Basic Human Right, Can Doctors Be Rationed?
  

NY Post:

• GE Capital Eyes Subprime Loans. General Electric(GE), which is still paying back a $60 billion government guaranteed loan, is gearing up for the first time to start selling what are essentially subprime corporate loans, The Post has learned. The company's huge finance arm, GE Capital, is asking private-equity firms to invest $600 million in a new venture that will work alongside GE when it makes corporate loans, mostly to midsize companies.
  

Dealbreaker:

• Harbinger Capital Will Pay Redemptions...In Illiquid LightSquared Equity.

Morningstar:

• Higher Copper Prices Are Driving Users Away From The Metal. Copper consumers are increasingly seeking to substitute away from the expensive red metal to more cheaper materials as copper prices remain high, a panel of copper product makers said at the Metal Bulletin Copper Markets Forum in New York.

Credit Writedowns:

• Will Greece Allow Central Bankers to Destroy Sovereignty?
  

Reuters:

• Brokerage Bans Borrowing to Buy Some China Stocks. Interactive Brokers Group Inc(IBKR) is banning clients from borrowing money to buy some Chinese stocks, according to the brokerage firm's website. The ban comes amid a rash of Chinese accounting scandals and inquiries by U.S. regulators that have resulted in auditor resignations, sharp stock declines and some delistings. Interactive Brokers' ban applies to about 160 Chinese securities and cites "elevated risk concerns" as the reason for the action. The brokerage began enforcing the ban on Monday and will phase it in over the course of this week.
• Solar Price Drop to Weigh on SuPower(SPWRA), LDK(LDK). Steep declines in prices for solar products will shrink profit margins for SunPower Corp (SPWRA.O) and LDK Solar Co Ltd (LDK.N) this year, the companies said on Tuesday. Germany and Italy, the world's two largest solar markets, both have cut subsidies for the renewable energy source in recent months, though manufacturers have ramped up output of the modules that turn sunlight into electricity. SunPower Chief Executive Tom Werner said the industry was seeing intense competition for sales that could drive prices for solar modules down 20 percent this year. "You are seeing points where it's not economically viable for some (of our) competition to produce product," he told Reuters.
• Ulta Salon(ULTA) Q1 Trumps Wall Street, Shares Jump. Ulta Salon, Cosmetics & Fragrance Inc posted quarterly results above market estimates as more beauty conscious people visited its stores, and the beauty retailer forecast stronger-than-expected second-quarter earnings. The strong earnings and outlook lifted the company's shares 12 percent in after-market trade.

Market News International:

• China's current inflation pressure remains large, citing an official with the National Development and Reform Commission.

Financial Times:

• Dissent Lands Chinese Blogger in Labor Camp. A blogger from Chongqing has been sent to a labour camp for posting a political joke on the municipality’s ambitious Communist party chief on his microblog. The dire consequences of mocking Bo Xilai shed more light on the strict regime the high-profile politician runs in Chongqing, seen by many as his springboard to one of the coveted spots in the country’s new leadership, which will be chosen late next year.
• Obama Fears Greece Default. Barack Obama, the US president, weighed into Europe’s debate about whether to restructure Greek debt on Tuesday saying it would be “disastrous” for the US if the crisis led to “an uncontrolled spiral and default in Europe”.

National Business Daily:

• China should raise interest rates now as current deposit rates make people unwilling to save their money at banks, citing Chen Daofu, a researcher with the State Council's Development Research Center.

Evening Recommendations
Citigroup:

• Reiterated Buy on (F), target $18.
  

Night Trading

• Asian equity indices are -1.25% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 110.0 -2.0 basis points.
  
• Asia Pacific Sovereign CDS Index 115.0 -1.0 basis point.
  
• S&P 500 futures -.08%.
  
• NASDAQ 100 futures -.31%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (VRNT)/.56
• (CIEN)/-.11
• (PNY)/.67
• (MW)/.50
• (GEF)/.96
• (PLL)/.71

Economic Releases
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,375,000 barrels versus a +2,878,000 barrel gain the prior week. Distillate inventories are expected to rise by +125,000 barrels versus a -976,000 barrel decline the prior week. Gasoline supplies are expected to rise by +1,050,000 barrels versus a +2,553,000 barrel gain the prior week. Finally, Refinery Utilization is estimated unch. versus a -.3% decline the prior week.

2:00 pm EST

• Fed's Beige Book
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Hoenig speaking, 10-Year Treasury Note Auction, weekly MBA Mortgage Applications report, (TXN) Mid-Quarter Update and the (NSC) Investor Day could also impact trading today.
  

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

Stocks Rising Slightly into Final Hour on Bargain-Hunting, Euro Bounce, Short-Covering

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 17.63 -4.76%
  
• ISE Sentiment Index 136.0 +47.83%
  
• Total Put/Call 1.12 +1.75%
  
• NYSE Arms .99 -70.57%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 95.54 +1.35%
  
• European Financial Sector CDS Index 105.92 -2.13%
  
• Western Europe Sovereign Debt CDS Index 187.92 -.35%
  
• Emerging Market CDS Index 215.57 -2.47%
  
• 2-Year Swap Spread 20.0 unch.
  
• TED Spread 22.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .03% +1 bp
  
• Yield Curve 259.0 +2 bp
  
• China Import Iron Ore Spot $170.70/Metric Tonne +.29%
  
• Citi US Economic Surprise Index -109.90 +2.8 points
  
• 10-Year TIPS Spread 2.23% unch.
  

Overseas Futures:

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

Portfolio:

• Slightly Higher: On gains in my Retail, Medical and Biotech sector longs
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and then added them back, added slightly to my (SODA) long
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades slightly higher despite global growth worries, emerging markets inflation fears, rising Mideast unrest, Japan nuclear concerns, eurozone debt angst and rising food/energy prices. On the positive side, REIT, Biotech, Medical Equipment and Semi shares are especially strong, rising more than +1.0%. Small-Cap and Cyclical shares are outperforming. (IYR) has traded well throughout the day. Copper is rising +.22% and Lumber is up +1.8%. The Russia sovereign cds is falling -1.75% to 132.64 bps and the Saudi sovereign cds is falling -2.18% to 94.31 bps. Weekly retail sales rose +4.3% this week versus a +3.9% gain the prior week and down from a +5.1% increase the first week of May. On the negative side, Computer, Disk Drive, Hospital, Gaming, Education and Software shares are down on the day. Oil is rising +.6% and the UBS-Bloomberg Ag Spot Index is gaining +.4%. The US price for a gallon of gas is down -.01/gallon today to $3.76/gallon. It is up .62/gallon in less than 4 months. The Spain sovereign cds is rising +.77% to 241.88 bps, the Portugal sovereign cds is rising +.74% to 678.92 bps, the Greece sovereign cds is rising +.44% to 1,402.06 bps and the US Muni CDS Index is gaining +2.87% to 131.17 bps. Overall, today's stock bounce is of low quality, considering recent losses. I still suspect a test of DJIA 12,000 is likely over the coming days. One of my longs, (SODA), is making another new high today on volume. I still see substantial upside to these shares over the longer-term. I expect US stocks to trade modestly lower into the close from current levels on global growth worries, rising eurozone debt concerns, emerging markets inflation fears, rising Mideast unrest, rising food/energy prices, technical selling and more shorting.