Today's Headlines

Bloomberg:

• Merkel Agrees to Voluntary Greece Bondholder Role. Chancellor Angela Merkel retreated from German demands that bondholders be forced to shoulder a “substantial” share of a Greek rescue, saying she’ll work with the European Central Bank to avoid disrupting markets. “We would like to have a participation of private creditors on a voluntary basis,” Merkel told reporters in Berlin today at a joint press conference with French President Nicolas Sarkozy. This “should be worked out jointly with the ECB and there shouldn’t be any dispute with the ECB on this.” The euro, stocks and Greek bonds rallied as Merkel and Sarkozy signaled a reconciliation between German calls for investors to help rescue Greece with warnings from the ECB and France that a compulsory move risked triggering the euro area’s first sovereign default. Attention now shifts to Athens, where Prime Minister George Papandreou overhauled his Cabinet to try and secure passage of austerity measures needed for a bailout.
• Greek Hunt for Debt 'Holy Grail' Pits ECB Against Naked Banks: Euro Credit. European policy makers are on a collision course with the bond market as they seek to resolve the Greek debt crisis without triggering payouts under credit- default swap insurance contracts. European Central Bank chiefs are determined to ensure any Greek debt restructuring won’t be deemed a credit event enabling buyers of protection to seek compensation from swaps sellers. It costs $2 million annually to insure against Greek default for five years, with Portuguese and Irish swaps also seeing all-time high prices. A debt restructuring that doesn’t trigger swaps would be more damaging to the market as it would devalue contracts, according to analysts at JPMorgan Chase & Co. and Bank of America Merrill Lynch. Such a move would leave banks with unprotected, or unhedged, holdings, forcing them to sell bonds and ultimately drive sovereign borrowing costs higher. “The ECB fears having to admit a colossal mistake when it declared euro zone governments as undefaultable,” said Georg Grodzki, head of credit research at Legal & General Investment Management in London, which oversees $580 billion of assets. “The ECB wants to protect its balance sheet and reputation.” The ECB’s total exposure to Greece may be between 130 billion euros ($184 billion) and 140 billion euros, Dutch Finance Minister Jan Kees de Jager said this week. The ECB provided 90 billion euros of liquidity to Greek banks, he said.
• Leading Economic Indicators Index Rises. The index of U.S. leading indicators rose more than forecast in May after declining for the first time in almost a year, a sign economic growth may pick up by the end of 2011. The Conference Board’s gauge of the outlook for the next three to six months rose 0.8 percent after a revised 0.4 percent drop in April, the New York-based research group said today.
• Payrolls Dropped in 27 States in May, Led by California and New York. Payrolls dropped in 27 U.S. states in May, indicating the weakening in the job market was broad- based. California led the nation with a 29,200 decrease followed by New York with 24,700 fewer jobs, figures from the Labor Department showed today in Washington.
• U.S. Oil Supply Highest for May Since 1980, API Says. U.S. oil supplies rose to the highest level in 31 years for the month of May as refineries processed less crude amid a decline in gasoline demand, according to the American Petroleum Institute. Inventories increased for a fifth consecutive month to 367.6 million barrels, a record for May in data going back to 1980, the industry-funded group said today in a report. Supplies were up 0.7 percent from April and 2.6 percent from a year earlier. Refineries processed 4.8 percent less crude than during the same month last year, at 14.7 million barrels a day. Demand for gasoline declined 0.7 percent from May 2010 to 9.16 million barrels a day, a two-year low. Gasoline pump prices averaged 37 percent higher in May from the same month last year and were up 2.5 percent from April, according to AAA data compiled by Bloomberg. Gasoline production was 2 percent higher than in May 2010 at 9.37 million barrels a day, a record for any May and the highest level this year. Jet-fuel use fell 7.3 percent to an average 1.32 million barrels a day last month compared with the same period in 2010. U.S. crude-oil production slipped 1.6 percent to an average 5.4 million barrels a day. Output in the lower 48 states dropped 2.7 percent to 4.77 million barrels a day.
• Crude Oil Falls to Near a Four-Month Low on European Debt Crisis, Economy. Oil fell to the lowest level in almost four months in New York on doubts that a German willingness to compromise on the Greek debt crisis will settle markets and spur economic growth. Oil is down 5.8 percent this week as data showed U.S. manufacturers turned pessimistic and diesel demand fell. “There are still a lot of questions about the Greek bailout and what that will mean for the demand picture,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The oil market seems more skeptical about the debt crisis than the equity market. A lot of technical damage was done to the market this week.” Crude oil for July delivery dropped $1.45, or 1.5 percent, to $93.50 a barrel at 10:45 a.m. on the New York Mercantile Exchange. The contract touched $92.12, the lowest price since Feb. 22. The market is heading for the biggest weekly decline in six weeks. The U.S. economy will grow 2.5 percent this year and 2.7 percent in 2012, down from the 2.8 percent and 2.9 percent projected in April, the IMF said today, citing higher commodity prices and bad weather in the first quarter and a weak housing market.
• Moynihan Says Capital Rules May Limit Lending, Discourage Bank Investors. Bank of America Corp. (BAC) Chief Executive Officer Brian T. Moynihan said excessive capital surcharges on the largest banks could limit lending and discourage investors from funding the industry. “If you impact our returns and our business to a point, investors are going to look around and say there’s other places to put the money,” Moynihan said today in an interview with Bloomberg Television in St. Petersburg, Russia, where the International Economic Forum is being held. “And that’s what you’ve actually seen in bank stocks.” The KBW Bank Index (BKX) of 24 U.S. lenders has fallen 9.6 percent this year, led by the 21 percent decline at Bank of America. The Basel Committee on Banking Supervision is considering a capital surcharge of as much as 3.5 percentage points on the largest banks if they get bigger, according to two people familiar with the talks.
• Consumers Hunt Value Amid Rising Inflation. McDonald’s Corp. (MCD) and Wal-Mart Stores Inc. (WMT) are getting a boost from value-minded consumers as rising commodity costs constrain discretionary income and confidence in the economy wanes. Energy and food costs have risen 19 percent and 4 percent since December, according to the Labor Department. That caused real disposable income, or the money left over after taxes and adjusted for inflation, to remain unchanged. The confluence of higher prices and unemployment at 9.1 percent has become especially acute for households making less than $75,000 a year, according to David Schick, an analyst at Stifel Nicolaus & Co. in Baltimore.
• Goldman Sachs(GS) Earnings Per Share Estimate Slashed 40% by Atlantic Equities. Goldman Sachs Group Inc. (GS)’s second- quarter profit estimate was reduced 40 percent by an analyst at Atlantic Equities LLP, who said the firm’s trading and investing revenue is declining, making job cuts more likely. Goldman Sachs will likely earn $2.17 per share, down from a previous estimate of $3.49, Richard Staite wrote today in a note to investors. Staite expects trading revenue to tumble to $4.9 billion, a 27 percent decrease from the first quarter, and investing and lending gains to narrow to $200 million from $2.7 billion, he wrote.
• Leveraged Loan Prices Poised to Fall for Sixth Week on Greek Debt Crisis. Leveraged loan prices in the U.S. are poised to fall for a sixth consecutive week, led by Caesars Entertainment Corp., the world’s biggest casino operator, and First Data Corp. amid concerns that Greece may default and signs of a slowing economy. The Standard & Poor’s/LSTA U.S. Leveraged Loan 100 index has declined for 12 consecutive days to 94.32 cents on the dollar in a six week slump not seen since December 2008 and the longest daily losing streak in almost five years. The decline underscores that senior secured loans are also not immune from investor fleeing from all assets but the safest government bonds as the European Central Bank tries to contain a sovereign debt crisis. Confidence is also eroding on signs that the expansion of the world’s largest economy has slowed.

Wall Street Journal:

• Madoff Claims Lure Banks. Some of the world's biggest banks are jumping into a multibillion-dollar market that buys up victims' claims in the Bernard Madoff Ponzi scheme, including two banks that have been sued in connection with the fraud. The buyers of claims offer defrauded investors who want immediate cash a fraction of what they are owed, intending to profit by collecting a larger payout when the settlement is made final, which can take years.
• Restaurant Groups Sue Labor Department. Trade groups representing the restaurant industry are suing the U.S. Labor Department for allegedly not allowing them to comment on new rules governing the way restaurants pay their employees.
• Europe Hits Back at U.S. Over Derivatives.
  

Fox Business:

• Hotels Warned of 'Mumbai-Style' Terror Threat. Federal authorities are warning hotels in major U.S. cities to be vigilant after intelligence recently obtained in Somalia shows Al Qaeda was planning to launch a “Mumbai-style” attack on an upscale hotel in London, England, Fox News has learned exclusively. The intelligence came from computer accessories and other materials gathered at the checkpoint in Mogadishu where Fazul Abdullah Mohammed, the Al Qaeda operative who masterminded the 1998 U.S. embassy bombings in East Africa, was killed Saturday, according to sources.

MarketWatch:

• RIM(RIMM) Shares Still Not Cheap Enough, Analysts Say. The 20% drop by early afternoon put the stock at a record-low valuation. Even with the stock’s potential appeal as a value play, most brokers still voiced concern about the outlook for the company and its core BlackBerry smartphone franchise.

CNBC.com:

• Bank of America(BAC), the largest U.S. lender, is prepared for lower economic growth as the housing slump and unemployment weigh on its customers, CEO Brian T. Moynihan said.
• With China Doubts High, Short Sellers Descend on Hong Kong. After a two-month steep decline in Hong Kong's market, some hedge funds and other investors have been ignoring bargain prices in some sectors, and what still appears to be a generally positive outlook on China's economy, and are increasingly putting on short positions on Chinese stocks.
• Misery Index at 28-Year High. Misery, as measured in the unofficial Misery Index that simply totals the unemployment and inflation rates, is at a 28-year high, reflective of how weak the economic recovery has been and how far there is to go.

Business Insider:

• The Weekly Leading Index Growth Indicator of the ECRI Declined to 3.7 From Last Week's 4.1. (graph)
• A Depressing Tale of Government Waste as Seen by a Small Business Owner in Boston.
• McKinsey Releases a Big Report Warning of a Bigger, More Expensive Obamacare. A new employer survey by McKinsey & Co. finds more than half American companies are going to "dump" their workers into government sponsored plans. The paper says more than 90 million workers with employer-provided care will end up in the "Obamacare" exchanges, increasing the cost of the plan by $400 billion over the next 10 years. Further suggesting the point of "Obamacare" is to put all Americans in the program, McKinsey projects the annual public cost would eventually increase by $800 billion.
• CHART OF THE DAY: The US Deficit Problem is at Civil War Levels.

Zero Hedge:

• Ice-Nine Spreads to Shanghai: Chinese Interbank Liquidity Evaporates. (graph)
• Consumer Confidence Misses, 5 Year Inflation Expectations Rise to Second Highest in 2011. (graph)

The Detroit News:

• Lawmakers Dispute Obama Claim That OK Not Needed for Libya War. Republicans and Democrats on Thursday derided President Barack Obama's claim that U.S. air attacks against Libya do not constitute hostilities and demanded that the commander in chief seek congressional approval for the 3-month-old military operation.

Sharenet:

• How EU's Greece Options Would Affect Ratings, CDS.

Seeking Alpha:

• The Euro Zone's Wacky Plan for Non-Default Default.

LA Times:

• Spam is Clogging Amazon's(AMZN) Kindle. Thousands of e-books are being published through the company's self-publishing system each month, including some that appear to be outright copies of other work.

Roll Call:

• Weiner's Pension, Benefits Could Top $1 Million. According to an analysis of his available benefits by the National Taxpayers Union, the New York Democrat’s pension and a savings plan lawmakers have access to similar to a 401(k) could be worth $1.12 million to $1.28 million. At 46, Weiner will not be eligible for his pension for another decade, at which point he could begin drawing a reduced rate of $32,357 a year, according to NTU. If he waits until age 62 to begin drawing his pension, he will receive his full benefits, or $46,224, according to NTU’s calculations.

Politico:

• Consumer Financial Protection Bureau Can Open Without Chief. The new Consumer Financial Protection Bureau won’t necessarily be handicapped by President Barack Obama’s delay in naming a director. If the bureau launches on July 21 without a director, Wall Street analysts and attorneys for the financial services industry are bracing for a slew of enforcement actions against major banks. With no director to issue rules and guidance for banks, the bureau most likely will set policy by conducting investigations, suggested Jaret Seiberg, an analyst for the brokerage firm MF Global. “The ability of the CFPB to investigate financial firms and then bring enforcement actions for violating existing laws is the most potent weapon the agency has absent a director,” he wrote in a recent report. “It is also one that will garner politically attractive headlines.”
  

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Friday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-one percent (41%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

Financial Times:

• Financials' Risk Premiums Jump Sharply. Risk premiums for US banks and other financial institutions have jumped sharply this month as investors question their credit quality, weighing on equity and credit markets. Given that US financials account for 15 per cent of the S&P 500, the outlook for the sector is crucial for broader market sentiment. That also applies to the credit markets, where bank debt is a major component of outstanding paper.

Telegraph:

• IMF: Debt-Ridden Eurozone Countries 'Playing With Fire'. The International Monetary Fund (IMF) has cut its forecast for US economic growth, warning Washington and debt-ridden European countries that they are "playing with fire" unless they take immediate steps to reduce their budget deficits.

Irish Times:

• ECB Unlikely to Support Noonan's Bondholder Losses Plan. THE EUROPEAN Central Bank is unlikely to back moves by the Government to inflict losses on senior bondholders in Anglo Irish Bank when the Government raises the issue with the bank in the autumn. Frankfurt has not changed its resistance to any measures to impose losses on senior bonds, according to a euro zone source.
• Leading EU Official Says State Bank Guarantee a Mistake. EUROPE’S COMPETITION commissioner has declared Ireland’s banking guarantee was a mistake whose sweeping scope served to concentrate losses on taxpayers. Joaquín Almunia told The Irish Times that the intervention in September 2008 resulted in citizens having to assume responsibility for losses that would have been “better distributed” in the absence of an unlimited guarantee.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-.30%)

Sector Underperformers:

• 1) Wireless -1.44% 2) Semis -.85% 3) Oil Service -.81%

Stocks Falling on Unusual Volume:

• BBBB, LGCY, CHU, TIN, CCOI, CEVA, MRVL, IOC, NBR, SINA, EFII, AAPL, MIND, RIMM, RBCN, HOGS, MMSI, CTXS, SCHS, AREX, MRVL, PWRD, IPCM, WRLD, RDEN, NILE, ADTN, FWLT, GOOG, RLOC, WF, PIQ, MCO, PSP, XTXI, MHP, UCO and LPS
  

Stocks With Unusual Put Option Activity:

• 1) EWH 2) JBL 3) CSX 4) BG 5) DBC
  

Stocks With Most Negative News Mentions:

• 1) ADSK 2) DSX 3) RIMM 4) BA 5) BHI
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value (+1.06%)

Sector Outperformers:

• 1) Airlines +2.75% 2) Road & Rail +1.45% 3) Computer Service +1.30%

Stocks Rising on Unusual Volume:

• STD, CTSH, BMA, CMTL, PRMW, JVA, SPRD, ASNA, EWP, CPF, GPX, MSA, SNI and FHN
  

Stocks With Unusual Call Option Activity:

• 1) CNQ 2) NXY 3) SPRD 4) TTWO 5) CLNE
  

Stocks With Most Positive News Mentions:

• 1) SPRD 2) ATU 3) NOC 4) AOS 5) LLL
  

Charts:

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

Friday Watch

Evening Headlines

Bloomberg:

• Merkel's Greek Bondholder Gambit Tested as Sarkozy Presses for Compromise. Chancellor Angela Merkel meets with President Nicolas Sarkozy today to resolve the impasse over a second Greek rescue as Germany’s insistence that bondholders share the cost fans the risk of contagion. Stocks plunged worldwide amid political turmoil and street fighting in Athens, putting the focus on the leaders of Europe’s two biggest economies to break the deadlock in Berlin. That means reconciling German calls for investors to help bail out Greece with European Central Bank warnings backed by France against any compulsory move that might trigger a default. “Germany is playing a domestic political game” to appear tough, Henrik Enderlein, a political economist at the Hertie School of Governance in Berlin, said by phone. “It would have been much wiser to accept a purely voluntary solution one or two weeks ago. The collateral damage of this could be enormous.”
• Euro Heads for Second Weekly Loss. The euro headed for a second weekly decline before European leaders meet to discuss the Greek debt crisis today amid concern the situation is worsening. The single currency was near a one-month low versus the yen as Greek Prime Minister George Papandreou prepares to announce changes to his cabinet today after failing to garner opposition support for austerity measures. The yen rose against most of its major counterparts before a U.S. report forecast to show consumers grew less confident this month as the world’s largest economy slows. Greece aid “is dependent on the Greek parliament passing the additional austerity package,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “That’s going to limit the potential for any bounce in the euro.” German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet today in Berlin to discuss a rescue package for Greece. EU finance ministers agreed on June 14 to convene again on June 19 after they failed to reconcile a German-led push for bondholders to shoulder part of the cost of a new plan for Greek aid.
• Default by Greece 'Almost Certain': Greenspan. Alan Greenspan, former Federal Reserve chairman, said a default by Greece is “almost certain” and could help drive the U.S. economy into recession. “The problem you have is that it’s extremely unlikely the political system will work” in a way that solves Greece’s crisis, Greenspan, 85, said in an interview today with Charlie Rose in New York. “The chances of Greece not defaulting are very small.” Greek government bonds slumped, pushing the yield on the two-year note above 30 percent for the first time, as Prime Minister George Papandreou’s failure to win support for more austerity fueled speculation the European country will fail to meet its obligations. More than 20,000 people protested in Athens this week against wage reductions and tax increases, with police using tear gas on crowds and strikes paralyzing ports, banks, hospitals and state-run companies. The chances of Greece defaulting are “so high that you almost have to say there’s no way out,” said Greenspan, who ran the central bank from 1987 to 2006. That may leave some U.S. banks “up against the wall.” The U.S. debt issue is becoming “horrendously dangerous,” said Greenspan, who added he doubts lawmakers have another year or two to solve it.
• Greek Default Threat Ignored Makes European Bank Stress Tests 'Irrelevant'. European Union stress tests on the region’s banks are becoming “irrelevant” because they ignore the possibility of a default by Greece. “Everybody is so concerned about Greece defaulting and the effect that’s going to have on banks, yet that’s not something even being considered as part of the stress tests,” said Jane Coffey, head of U.K. equities at Royal London Asset Management, which manages about $51 billion. “Greece defaulting isn’t exactly a black swan event. There’s a very good chance it will happen.” The cost of insuring Greek government debt against the risk of default surged to a record yesterday as concern mounted that policy makers will struggle to stop the crisis. Credit-default swaps indicate an 82 percent chance Greece will fail to meet its commitments within five years, according to CMA prices. “The stress tests have lost all credibility and look like a complete waste of time for all involved,” said Lex van Dam, a London-based fund manager at Hampstead Capital LLP, which oversees about $500 million. “They are totally irrelevant.”
• Bond Sales Plummeting as Spreads Soar on Greece: Credit Markets. Investors steering clear of the corporate bond market are driving down debt offerings to the least this year as European officials struggle to contain a Greek debt crisis that's sent relative yields to a five-month high. Bond sales from the U.S. to Europe to Asia declined 56% this week to $27.9 billion, according to Bloomberg. Investors are demanding an extra 1.65 percentage points in yield over government debentures, the most since January, Bank of America Merrill Lynch Index data show.
• Consumer Spending Fades in China Economy. Government data this week showed retail sales growth slowed to 16.9 percent in May, less than the average of the past five years and a figure that’s inflated by soaring prices for food. By contrast, spending on fixed assets such as factories and property climbed 26 percent, excluding rural households, in the first five months, the fastest pace in almost a year. “Consumption hasn’t taken off,” said Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing. “What has happened is a shift from exports to investment as a driver of growth.” Analysts at Capital Economics, a London-based research group, estimate that private consumption may have fallen to 34 percent of gross domestic product last year, the lowest level since China began opening its economy to market mechanisms more than three decades ago. Just 10 years ago, the share was 46 percent, Capital Economics calculates. “Just at a time when the government in China and a lot of people elsewhere are hoping to see Chinese consumers step up to the plate, actually they’ve been staying away from shops,” said Mark Williams, an economist in London with Capital Economics and a former adviser on China to the U.K. Treasury. “The trend over the past couple of years has been relentlessly downward.”
• Asia Housing Boom Stalls on Policy Tightening. “Across Asia-Pacific, you have seen a policy induced pullback,” said Rod Cornish, head of real estate strategy at Macquarie Capital Advisers in Sydney. “It’s a required pullback because if some of these markets had been allowed to continue, you would have had more overbuilding, more overvaluation, and a bigger correction down the track.”
• Ethanol Production Tax Break, Tariff Rejected by U.S. Senate in 73-27 Vote. The U.S. Senate voted to eliminate a tax credit and a tariff that subsidize ethanol production, providing the strongest signal yet that Congress will curtail subsidies for corn-based biofuel. The 73-27 vote exceeded the 60-vote threshold needed to advance the measure as part of an economic development bill. The underlying legislation isn’t likely to become law, so the vote mostly indicated that it will be difficult for ethanol supporters to extend the 45-cent-a-gallon tax break and the 54- cent-a-gallon tariff beyond their scheduled Dec. 31 expiration.
• Syrians Flee Second Northern Town as Fear of Government Crackdown Spreads. Syrians are fleeing a second town and nearby villages in the north of the country, fearing President Bashar al-Assad’s forces are preparing to widen their crackdown on anti-government protesters in the region, according to human-rights activists. The people of Ma’arrat an Nu’man “have information that the army will surround the villages, and they are leaving before the army comes,” Ammar Qurabi, head of Syria’s National Organization for Human Rights, said in a phone interview yesterday. “We are scared now of a repeat of Jisr al- Shughour.”
• China Bond Sale Fails for Second Time This Year on Rate Increase Concern. “The auction was affected by tighter liquidity brought by the reserve-ratio hike,” said Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong. “The high auction yield represents investor expectations for a near-term policy rate hike.”

Wall Street Journal:

• Trichet: Clear Position is Greek Default Should Be Avoided - Report. It is the clear position of the European Central Bank that a Greek default in any form should be avoided, as should any action in the Greek crisis that would spawn a credit event, ECB President Jean-Claude Trichet says in an interview to be released Friday. Trichet tells the British newspaper The Times that the ECB is not making any decision on whether or not the private sector is involved in the next step in dealing with the Greek debt crisis. "It is first of all for the executive branches to see what they want to do," he says. The Governing Council is telling these decision makers that "to embark in a compulsory way of dealing with this issue is not advisable." "We are telling them that doing anything that would create a credit event or selective default or default is not advisable," he says. Still it remains the decision of political authorities and the ECB will act accordingly, based on decisions made, he notes. "I am confident that next Sunday, the Eurogroup will be able to decide on the disbursement of the fifth tranche of the loans for Greece in early July," EU Economic and Monetary Affairs Commissioner Olli Rehn said in Brussels Thursday. "And I trust that we will also be able to conclude the pending review, in agreement with the IMF." The issue of a longer-term aid package for Greece, and, by implication the role of the private sector, would then be delayed to July.
• Europe's Greek Stress Test. The longer banks hold rotten paper, the likelier a second financial crisis becomes. Greek debt is in trouble—again. After a month of dickering, it seems likely that the International Monetary Fund and the European Union will agree to roll over Greece's debt so bondholders will be paid in full. Why is Europe so terrified of letting bondholders bear some of the risk that comes with high yields? The answer is that most of those bondholders are banks. If Greece defaults, then important French and German banks will be in deep trouble. Even a small rescheduling would force the banks to admit their losses. If Greece is allowed to default, reschedule or abandon its restructuring, Ireland, Portugal, Spain and Italy may soon follow. This scenario is beyond the EU's bailout capability. And it would leave the European financial system in shambles, because, again, the banks are holding that debt. There are four key facts to recognize:
• Airline-Emissions Plan Draws U.S. Fire. The U.S. is preparing to deliver its first formal objections to the European Union's impending emission-trading plan for airlines, said people familiar with Washington's position, ratcheting up global pressure on the EU to scale back its ambitions. China, Russia and other major countries, as well as airlines world-wide, have recently criticized the project. The pollution-control plan, which is set to include aviation starting in January, forces any carrier departing or arriving at an EU airport to buy credits for greenhouse-gas emissions above specified levels, with large fines for noncompliance.
• The IMF wants South Korea to raise interest rates faster and let its currency rise further to tame inflation, citing officials familiar with discussions taking place between the IMF and Seoul.
• Key Seniors Association Pivots on Benefit Cut. AARP, the powerful lobbying group for older Americans, is dropping its longstanding opposition to cutting Social Security benefits, a move that could rock Washington's debate over how to revamp the nation's entitlement programs. The decision, which AARP hasn't discussed publicly, came after a wrenching debate inside the organization. In 2005, the last time Social Security was debated, AARP led the effort to kill President George W. Bush's plan for partial privatization. AARP now has concluded that change is inevitable, and it wants to be at the table to try to minimize the pain. "The ship was sailing. I wanted to be at the wheel when that happens," said John Rother, AARP's long-time policy chief and a prime mover behind its change of heart.
• Report Sees Danger in Afghan Allies. The killings of American soldiers by Afghan troops are turning into a "rapidly growing systemic threat" that could undermine the entire war effort, according to a classified military study. The study by Jeffrey Bordin, a political and behavioral scientist working for the U.S. Army in Afghanistan, warns that the magnitude of the killings "may be unprecedented between 'allies' in modern history."
• Wall Street Eyed in Metal Squeeze. Goldman Sachs Group Inc.(GS) and other owners of large metals warehouses are being scrutinized by the London Metal Exchange after being accused by users like Coca-Cola Co. of restricting the amount of metal they release to customers, inflating prices. The board of the LME met on Thursday to discuss complaints from aluminum users and market traders, who say operators of warehouses, which also include J.P. Morgan Chase & Co.(JPM) and Glencore International PLC, should be forced to allow the metal out more quickly to meet demand.
• Raters Drawing SEC Scrutiny. U.S. securities regulators are weighing civil fraud charges against some credit-rating companies for their role in developing the mortgage-bond deals that helped unleash the financial crisis, according to people familiar with the matter. The Securities and Exchange Commission's long-running probe into the deals has widened to the major credit-rating firms, including Standard & Poor's, the people said.

MarketWatch:

• China Economists See Interest Rates Headed Up. Economists surveyed by Caixin said they expect the Chinese government will continue to tighten monetary policies in an aim to rein in inflation after key economic data released on June 14.

CNBC:

• Desperate Public Pension Funds Double Bets in Hedge Funds. Public pension funds managing the retirement and health care benefits of teachers and firemen are pouring money into hedge funds, as much as doubling the money they allocate to the industry, in a desperate attempt to bridge the funding gap in their plans.

Business Insider:

• Must Read: Deutsche Bank's Jim Reid on Greece and Lehman Brothers.
• The DA Has TONS of Evidence Against Dominique Strauss-Kahn.
• RIM(RIMM) Guidance Terrible, Layoffs Ahead, Shares Tank. RIM's Q1 numbers were even worse than expected, and Q2 guidance is very low -- the BlackBerry maker expects revenue to be almost $1 billion below consensus this quarter. It also plans to lay people off to "streamline operations across the organization." Shares are down 15% in after-hours trading.
• McKinsey Presents: 9 Facts About The Unemployment Crisis. (graphs).
  

Zero Hedge:

• The UK is Preparing to Return to "Glass-Steagall".

IBD:

• Rue21(RUE) Strikes a Chord With Fickle Teens.

NY Times:

• Wall Street Braces for New Layoffs as Profits Wane. Wall Street plans to get smaller this summer. Faced with weak markets and uncertainty over regulations, many of the biggest firms are preparing for deep cuts in jobs and other costs.

Crain's NY:

• Nearly 300 Hedge Funds Open in 1Q. Coupled with 181 hedge fund liquidations during the first quarter, there are now an estimated 9,418 active hedge funds, the highest number in three years.

Pensions & Investments:

• Och-Ziff Bets $12 Billion on Increased Market Volatility. Daniel Och’s hedge fund group bought options on almost $12 billion of U.S. stocks during the first quarter, a move that might generate profits if markets turn more volatile this year. The strategy, disclosed in a May regulatory filing by New York-based Och-Ziff Capital Management Group LLC, included an $8.8 billion option bet on companies in the Standard & Poor’s 100 index. The firm bought both bearish put options and bullish calls on most of the companies, including Exxon Mobil Corp.(XOM), American Express Co.(AXP) and General Electric Co(GE).

ABC News:

• John Edwards Sought Millions From Heiress as Feds Closed In - ABC News Exclusive. Just weeks before federal prosecutors charged John Edwards in a six-count felony indictment, ABC News has been told, the two-time Democratic presidential candidate requested millions of dollars from Rachel "Bunny" Mellon, the banking heiress whose financial support of Edwards is at the center of the criminal case. One person with knowledge of the request confirmed the amount was in the millions of dollars but was unwilling to discuss why Edwards was seeking the money.

San Francisco Chronicle:

• Amazon(AMZN) Tax Bill Makes it to Governor Brown's Desk. The Amazon tax has made it to Gov. Jerry Brown's desk. It survived the first round of gubernatorial vetoes, the two main budget bills he turned down on Thursday. But when asked what they think Brown will do now, the unanimous answer from the offices of lawmakers pushing for the measure is, "We don't know."
  

Politico:

• The Backstory: Weiner's Final Undoing.

Reuters:

• Huawei Rejects US Eximbank Chief's China Aid Claim. "It is fundamentally and utterly incorrect," said Bill Plummer, vice president of external affairs for Huawei. He was responding to a comment by U.S. Export-Import Bank President Fred Hochberg on Wednesday that one reason Huawei's "growth has been so dramatic is that it's backed by a $30 billion credit line from the Chinese Development Bank."
• S&P 500 ETF Has Largest Inflow in 3 Years - Lipper.
• US Equity Funds Inflows Largest in 4 Months - Lipper.
  
• Steel Dynamics(STLD) Q2 Outlook Lower Than Street View. Steel Dynamics Inc forecast lower-than-expected second-quarter earnings, hurt by reduced metal margins and lower orders for its steel products.
• US May Treat Internet Curbs as Trade Barriers. The United States is looking into ways to craft trade countermeasures that treat curbs on Internet commerce as nontariff barriers to trade, Commerce Secretary Gary Locke said on Thursday.
• U.S. Fed Balance Sheet Hits Another Record Sizes. The U.S. Federal Reserve's balance sheet expanded to a record size in the latest week, as the central bank bought more bonds in an effort to support the economy, Fed data released on Thursday showed. The purchase was part of its $600 billion program, dubbed QE2, aimed at stimulating investment and economic activity. The balance sheet -- a broad gauge of Fed lending to the financial system -- swelled to $2.811 trillion in the week ended June 15 from $2.795 trillion the prior week.
• Japan Cleanup of Radioactive Water Hits Snag. Japan's crisis-hit nuclear power plant could spill more radioactive water into the sea within a week unless engineers can fix a glitch in a new system to clean up growing pools of contaminated water, officials said. Tokyo Electric Power Co , known as Tepco, has pumped massive amounts of water to cool three reactors at the Fukushima Daiichi plant that went into meltdown after the March 11 earthquake and tsunami disabled cooling systems. But managing the radioactive water has become a major headache as the plant runs out of places to keep it. Around 110,000 tonnes of highly radioactive water -- enough to fill 40 Olympic-size swimming pools -- is stored at the plant.

Financial Times:

• Eight Large Banks Targeted With 2.5% Capital Surcharge. At least eight banks, three from the U.S. and five from Europe, are being targeted for capital surcharges of 2.5% of their assets, in addition to the Basel III minimum capital requirement of 7% set by regulators last year, citing people familiar with regulator discussions. Citigroup Inc.(C), JPMorgan Chase(JPM), Bank of America(BAC), Deutsche Bank AG, HSBC Holdings Plc, BNP Paribas SA, Royal Bank of Scotland Group Plc and Barclays Plc would need to maintain core tier one capital ratios of 9.5%, if the proposal is adopted.

Philippine Star:

• The Philippines sent its biggest warship to disputed waters in the South China Sea, a move that may further stock tension with China.

Japan Times:

• Evacuation Urged for Radioactive Hot Spots. The government said Thursday it will recommend the evacuation of residents living in radioactive hot spots outside the no-entry zone around the Fukushima No. 1 nuclear plant.

Apple Daily:

• Taiwan's petrochemical industry will be hurt by competition from Singapore as well as tight monetary policy in China, citing Wilfred Wang, chairman of Formosa Petrochemical Corp. Wang's outlook for the industry in the second half of the year is "very bad."

South China Morning Post:

• China Local Governments May Default on 4.7 Trillion Yuan of Loans. About one-third of mainland loans to local governments may face repayment problems, according to accounting firm Ernst & Young. The problems could affect loans totalling between 3 trillion yuan (HK$3.61 trillion) and 4.7 trillion yuan.

Shanghai Daily:

• Shanghai Sees Inflation Soar to a 3-Year High in May. Shanghai's inflation rate accelerated to a three-year high of 5.3% last month from 5.1% in April and 4.7% in March, citing the city's statistics bureau. Food costs increased 10.3% in May from a year earlier in the city, with a 15.7% gain in the price of rice, an 18.2% rise for meat, and 20.!% increase for edible oil. "Inflation, especially price jumps of daily necessities like food, will deal a severe blow to ordinary households and make them spend less in other fronts," said Li Maoyu, a Changjiang Securities Co analyst. "It requires policymakers to strengthen efforts and keep monetary policies tightened." Shanghai's industrial production last month edged up 5.5 percent from a year earlier to 261 billion yuan (US$40.2 billion). It was 9.7 percent in April and 12.4 percent in March. Fixed-asset investment in Shanghai fell 6.9 percent annually to 154.5 billion yuan in the first five months. It recovered from a drop of 7.2 percent in the months through April as more investment was pumped into property development.

National Business Daily:

• China may issue an important yuan policy on June 19 as it is the one-year anniversary of the country's decision to allow the currency to resume appreciating, citing market participants. The State Administration of Foreign Exchange said in its annual report that China will gradually increase the yuan's flexibility, which was interpreted as a signal that the yuan's trading band will be expanded, citing analysts.

Evening Recommendations
Citigroup:

• Reiterated Buy on (NFLX), target $300.

Night Trading

• Asian equity indices are -1.25% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 118.0 +.5 basis point.
  
• Asia Pacific Sovereign CDS Index 121.0 +1.5 basis points.
  
• S&P 500 futures -.02%.
  
• NASDAQ 100 futures +.05%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases
9:55 am EST

• Preliminary Univ. of Mich. Consumer Confidence for June is estimated to fall to 74.0 versus a reading of 74.3 in May.
  

10:00 am EST

• Leading Indicators for May are estimated to rise +.3% versus a -.3% decline in April.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The (ARIA) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and industrial 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 Slightly Higher Into Final Hour on Bargain-Hunting, Short-Covering, Financial Sector Strength

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 24.51 +15.15%
  
• ISE Sentiment Index 78.0 +13.04%
  
• Total Put/Call 1.18 -12.59%
  
• NYSE Arms 1.20 -46.59%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 99.59 +1.87%
  
• European Financial Sector CDS Index 126.83 +1.57%
  
• Western Europe Sovereign Debt CDS Index 228.33 +2.81%
  
• Emerging Market CDS Index 230.99 +2.46%
  
• 2-Year Swap Spread 27.0 +2 bps
  
• TED Spread 21.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .04% -1 bp
  
• Yield Curve 253.0 -6 bps
  
• China Import Iron Ore Spot $174.20/Metric Tonne +.69%
  
• Citi US Economic Surprise Index -101.10 -3.4 points
  
• 10-Year TIPS Spread 2.18% -4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -31 open in Japan
• DAX Futures: Indicating -43 open in Germany

Portfolio:

• Slightly Higher: On gains in my Retail longs, Index hedges and emerging market shorts
  
• Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and then added them back
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 hovers at its 200-day moving average on global growth worries, more poor US economic data, emerging markets inflation fears, Mideast unrest and rising eurozone debt angst. On the positive side, Utility, Defense, Bank, Insurance, Retail, Restaurant, Food and Tobacco shares are higher on the day. The UBS-Bloomberg Ag Spot Index is declining -.83%, lumber is rising +1.1% and oil is down another -.65%. On the negative side, Coal, Alt Energy, Ag, Steel and Semi shares are under significant pressure, falling more than -2.0%. Cyclicals are underperforming again. Tech shares continue to trade poorly. Copper is down -.28%. Shanghai copper inventories have risen +28% in 5 days. The 10-year yield is falling too much again, declining -5 bps to 2.92%. The US price for a gallon of gas is unch. today at $3.69/gallon. It is up .55/gallon in less than 4 months. The Greece sovereign cds is soaring +17.0% to 2,065.86 bps, the Spain sovereign cds is rising +3.73% to 299.33 bps, the Italy sovereign cds is rising +1.6% to 181.33 bps, the Portugal sovereign cds is rising +2.21% to 815.0 bps, the Brazil sovereign cds is jumping +4.32% to 115.83 bps, the Ireland sovereign cds is gaining +4.43% to 801.67 bps and the Belgium sovereign cds is gaining +4.13% to 159.67 bps. The Greece, Ireland and Portugal sovereign cds are hitting new record highs again today. The jump in the 2-year swap spread over the last 3 days is also a big concern. 3-Month Shibor is also surging +31 bps to 5.59%. The Shanghai Composite finished at session lows last night, falling another -1.5% and is now down -5.1% ytd. India's Sensex also continues to trade poorly, dropping another -.8%, and is now down -12.3% ytd. Brazil's Bovespa fell another -1.3% and is now down -12.3% ytd. The AAII % Bulls rose to 29.0 this week, while the % Bears fell to 42.75, which is a negative considering recent events. Many key US stocks are unable to bounce at their 200-day moving averages, as well. Until gauges of credit angst start to reverse lower, it is hard to see how the major averages can mount a sustainable advance. I expect US stocks to trade mixed-to-lower into the close from current levels on more global growth worries, rising eurozone debt concerns, technical selling, emerging markets inflation fears, rising Mideast unrest and more short-selling.

Today's Headlines

Bloomberg:

• Papandreou Reshuffle Fuels Dissent Among Allies as Financial Markets Slump. Greek Prime Minister George Papandreou’s decision to reshuffle his Cabinet and demand his allies vote confidence in his government fueled dissent within his Socialist ranks and roiled financial markets. The yield on Greece’s 2-year bond topped 30 percent for the first time on concerns Papandreou’s grip on power was slipping, threatening passage of a new austerity plan aimed at securing a second aid package and avoiding the euro-region’s first default. The resignation today of two members of Papandreou’s parliamentary group prompted Socialists lawmakers to demand an emergency meeting with the premier. The political turmoil came as European Union talks on forging a new bailout to prevent the first euro-area default stalled. The impasse over the aid formula and speculation that a government shakeup would disrupt passage of budget cuts and asset sales sent Greek bonds and the euro plunging. EU Economic and Monetary Affairs Commissioner Olli Rehn said in an interview that Greece would receive its next bailout payment. Papandreou sought to reassert his authority in a televised address last night hours after police used tear gas to break up protests in central Athens and media reported he was in talks to step down in favor of a unity government. He said he would reshuffle his Cabinet and then call a confidence vote in parliament. He has yet to announce the details of the government shakeup.
• Greek 2-Year Yield Surges Past 30% as Default Concerns Mount; Bunds Rise. Greek government bonds slumped, pushing the yield on the two-year note above 30 percent for the first time, as Prime Minister George Papandreou’s failure to win support for more austerity fueled speculation of a default. Portuguese and Irish two-year yields also climbed to the most since the euro’s 1999 debut, while the 10-year Spanish yield jumped to the highest since 2000 as the country’s borrowing costs rose at a debt sale. The cost of insuring against default on Greek, Irish and Portuguese government debt surged to records. Papandreou will reshuffle his Cabinet and seek a confidence vote today. German government bonds gained, pushing the 10-year yield to a five-month low. “The Greek drama is firmly catching everything under its wings and there’s no way around that story,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “Implementation risk is highly elevated. It’s completely risk- off mode and for a country like Spain to come to the market in this environment, it’s challenging.” The yield on Greece’s two-year notes jumped 128 basis points to 29.30 percent as of 4:35 p.m. in London, after being as high as 30.32 percent. Ireland’s two-year yield increased 86 basis points to 12.96 percent. The Portuguese two-year yield surged 58 basis points to 13.02 percent. Spanish 10-year bonds yielded 273 basis points more than similar-maturity bunds, the most since Dec. 1. The spread has widened more than 100 basis points since declining to its 2010 low on April 12. The Irish spread over bunds jumped to 864 basis points, after reaching the most since the euro’s debut, while Portugal’s securities yielded 800 points more than their German peers for the first time, before settling at 798 basis points. French bonds also declined relative to bunds, pushing the spread over their German counterparts to 42 basis points, the most since January. The yield spread between Austrian and German 10-year securities widened by four basis points to 51 basis points, also the most in five months. Credit-default swaps on Greece soared 280 basis points to 2,050, while those on Ireland rose 36 to 802 and Portugal climbed 17 to 814, according to CMA prices. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 14 basis points to a record 239.5.
• Greek Debt Rollover Requires Doubling Aid Fund, Wellink Says. European Central Bank Governing Council member Nout Wellink said the emergency fund for euro- area countries should be doubled to 1.5 trillion euros ($2.1 trillion) if private investors are pressured to contribute additional aid for Greece, Het Financieele Dagblad reported. “If credit-rating agencies see the debt rollover as involuntary and a partial default, then contagion of other peripheral euro-zone countries takes place,” Wellink, who also heads the Dutch central bank, said in an interview published today in the Amsterdam-based newspaper. “If you take these risks, you need to realize you should build a safety net for that,” Wellink said. “It should go to 1,500 billion euros and there should be more flexibility in how the money can be spent. Also, it should be willing to do things the ECB did before,” such as buying government bonds, he said. Wellink’s comments were confirmed by Dutch central bank spokesman Tobias Oudejans. Wellink, who steps down as Dutch central bank president this month, said the ECB strongly opposes an involuntary contribution from investors. “If a contribution isn’t voluntary, it will lead to a chain of reactions disadvantageous for all of us,” Wellink said. “Credit-rating agencies judge whether that is a credit event, and a little pressure already creates such a situation.” Dutch Finance Minister Jan Kees de Jager on June 14 said private-sector investors should contribute at least 30 percent of possible additional refinancing aid for Greece. A voluntary rollover of Greek debt by private investors could be made attractive by using “sweeteners,” such as granting special rights to new debt that old debt lacks, he said. “Then you start to nibble away at the voluntariness,” Wellink said. “Greece’s credit rating isn’t far away from a default, so it only needs a nudge to go wrong. Where the border between voluntary and involuntary lies, no one actually knows. But if you seek the edges, you need to be aware you have the obligation to jump in when there are problems.”
• FX Concepts LLC, the world's largest currency hedge fund, said the euro's slide this week on Greece's debt crisis is the start of a "sustained" drop. "The situation is rapidly deteriorating in Greece," Jonathan Clark, vice chairman at NY-based FX Concepts, wrote in a research note today. "At this point a restructuring of debt termed 'reprofiling' appears inevitable as Greece won't be able to deliver the austerity required or be able to flat debt in the market."
• Basel is Said to Consider 3.5 Percentage Point Fee to Curb Growth of Banks. The Basel Committee on Banking Supervision is considering proposed capital surcharges of as much as 3.5 percentage points that the largest banks may face if they grow any bigger, according to two people familiar with the talks. Draft plans circulated before a meeting next week would subject banks to a sliding scale depending on their size and links to other lenders, said the people, who declined to be identified because the proposals aren’t public. Banks wouldn’t initially face the highest surcharge, which is intended as a deterrent to expansion, one person said. The largest banks may face a 3 percentage point levy at their current sizes, the person said.
• U.S. Puts Ally Bahrain on List of Human Rights Abusers. The U.S. has put Bahrain, a Persian Gulf ally, in the company of Iran, North Korea, Syria and Zimbabwe on its list of human rights violators to be scrutinized by the UN Human Rights Council. “The Bahraini government has arbitrarily detained workers and others perceived as opponents,” U.S. Ambassador Eileen Donahoe said in a statement to the council yesterday in Geneva. Bahrain, home to the U.S. Navy’s Fifth Fleet, has tried to crush protests that have wracked the country since February, as the Shiite majority population has agitated for the Sunni Muslim monarchy to allow greater economic opportunities and freedoms. Bahrain’s crackdown has put the U.S. in the position of speaking out against a country that is both a close ally and which received security assistance from Saudi Arabia in putting down the protests.
• Agriculture Markets Require Global Governance and Regulation, Sarkozy Says. French President Nicolas Sarkozy said world agricultural markets are “the least transparent of all” and require global governance and regulation. France as head of the Group of 20 nations this year proposes to introduce an agricultural market-information system similar to what exists for oil markets, Sarkozy said at a conference of international farm organizations in Paris today.
• Wheat Slumps to One-Month Low on Signals Global Supplies Will Be Adequate.
• India Raises Interest Rates for a 10th Time Since 2010 to Tame Inflation. India’s central bank raised interest rates for the 10th time since the start of 2010, extending the longest streak of monetary tightening in a decade after inflation accelerated. Stocks and rupee fell. The Reserve Bank of India increased the repurchase rate to 7.50 percent from 7.25 percent, according to an e-mailed statement today. India joins nations from China to South Korea in stepping up the fight against surging living costs, with the central bank signaling today it will continue to raise rates. Accelerating inflation has contributed to a 12 percent decline in the benchmark stock index in Mumbai this year, Asia’s worst drop, on concern the policy will hurt economic expansion. “Demand pressures need to be damped to ensure that inflation doesn’t become a structural problem in India,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc. “Even though growth is moderating, uncomfortably high inflation won’t give the RBI any respite in the near future.” India’s key wholesale-price inflation quickened to 9.06 percent in May from 8.66 percent in April.
• Consumers' Expectations Decline to Lowest in Two Years in Bloomberg Index. “Consumers’ biggest concerns are about jobs and income,” said Chris Low, chief economist at FTN Financial in New York. “The bottom line is that income is not keeping up with inflation right now. People “are making sacrifices.”
• Goldman Sachs(GS) Sees No Panic in Options as VIX Takes Six Weeks to Exceed 20.
• GE(GE) Pursues $3 Billion of Brazil Deals as Petrobras(PBR) Demand Rises. General Electric Co. (GE), which spent more than $4.1 billion on acquisitions since October to build its oil and gas unit, is bidding for about $3 billion of Brazil energy contracts over three years as the industry expands.
• Euro Recovery Versus Dollar on Greece Aid May Be Limited, Citigroup Says. A rebound in the euro if the European Union and the International Monetary Fund agree to give Greece an installment of aid will be limited and temporary, according to Citigroup Inc. “The uncertainty that has been generated by the process is going to continue to weigh on the euro,” said Steven Englander, head of Group of 10 currency strategy at Citigroup in New York, in a telephone interview. “The process itself and the degree to which this process is unsatisfactory become a part of the determination of asset prices.”

Wall Street Journal:

• More 'Silent Raids' Over Immigration. The Obama administration intensified a crackdown on employers of illegal immigrants, notifying another 1,000 companies in all 50 states Wednesday the government plans to inspect their hiring records. Businesses across the U.S. that rely on low-skilled labor are working to stave off Immigration and Custom s Enforcement audits, which can lead to the loss of large numbers of employees, reduced productivity and legal expenses. Wednesday's surge in so-called silent raids drew criticism from both the U.S. Chamber of Commerce and immigrant advocates.
• Citigroup(C) Says Hacking Affected 360,000 Cards. Citigroup Inc. said about 360,000 credit cards were affected by last month's hacking attack, or nearly double the number previously indicated by the giant bank.
• Corrupt Chinese Officials Take $123 Billion Overseas. China’s rulers say corrupt cadres are the nation’s worst enemy. Now, according to a report that was given widespread coverage this week in local media, Beijing says that enemy resides overseas, particularly in the U.S. The 67-page report from China’s central bank looks at where corrupt officials go and how they get their money out. A favored method is to squirrel cash away with the help of loved ones emigrating abroad, schemes that often depend on fake documents. News of the study got prominent notice this week in Chinese media. A sample headline from page one of the Shanghai Daily on Thursday: “Destination America For China’s Corrupt Officials.”
• Bankers' Group Urges Private Investor Participation in Greek Package. An influential group of senior bankers said Thursday that holders of Greek bonds should help the country's government meet its funding needs in coming years.
  

MarketWatch:

• Greece Poses $41 Billion Risk to U.S. Banks.

CNBC.com:

• Why Your Money-Market Fund Could Be Hit by Greek Default.

Business Insider:

• Brand New Satellite Images of Chinese Ghost Cities. (pics)
• Anthony Weiner Resigns: Gets Heckled at His Own Press Conference. (video)
• China Sends Its Largest Patrol Ship Into Disputed Territory to Face Down Vietnam.
• 5 Ugly Details From This Morning's Philly Fed Report.
  

Zero Hedge:

• FRA-OIS Spread Jumps to 2011 Wides. (graph)

New York Times:

• Family Offices Look to Add More Hedge Funds. Ever since the financial crisis hit, small hedge funds have been under a cloud. They’ve struggled to raise money more than their bigger brethren, who appeal to investors looking for the safety of size. Big funds also benefit because big institutions like pensions and endowments with lots of assets — who represent the lion’s share of new investments — require larger funds with scale. Now, it appears there’s some good news for the little guy: family offices are looking to increase their investments in hedge funds, according to a new report from Rothstein Kass, an accounting firm.

NBC:

• Possible Al-Qaeda Hit List Targets Specific Americans. An al-Qaida-linked website has posted a potential hit list of targets that include names and photos of several U.S. officials and business leaders, calling for terrorists to target these Americans in their own homes, NBC New York has learned. The FBI has sent out a new intelligence bulletin to law enforcement agencies, warning that this new web-based threat, while not a specific plot, is very detailed. The bulletin said the list includes leaders "in government, industry and media." The FBI has notified those individuals who are named.

Institutional Investor:

• Ackman Considers $3 Billion Fund IPO in Quest for Permanent Capital.

Forbes:

• Who's The AIG(AIG) In This Financial Greek Tragedy?
• How Obamacare Will Further Explode the Deficit.
  

CNN Money:

• Small Business Lending Plummets. (graph) Bank lending to small businesses fell $15 billion in the first quarter of this year, according to a report released this week from the U.S. Small Business Administration's Office of Advocacy.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -19 (see trends).

Reuters:

• Germany Seeks Sept. Deadline for New Greek Package. Germany wants the deadline for for a second Greek rescue package to be pushed back to September, reflecting the problems Europe is having hammering out the details, EU and banking sources said on Thursday. One EU source told Reuters that German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble favoured a delay. "The argument goes: We don't know what to do, let's buy more time," the source said, adding that Berlin had its customary backing from the likes of the Netherlands, Finland and Slovakia.
• Dollar Funding Costs Soar on Greek Bailout Fears.
  

Financial Times:

• Petrol Price Steers US Towards Tapping into Reserves.

Telegraph:

• Corporate Bond Markets Hit by Greek Default Fears. Corporate bond markets have come to a standstill as investor fears over the likelihood of a Greek default intensify.

Financial Times Deutschland:

• German insurers are negotiating with the country's financial regulator BaFin about easing their treatment of Greek sovereign debt following the recent downgrades by rating firms, citing an internal letter from the German GDV insurer association.Otherwise insurers may need to reclassify or sell Greek government debt as a result of the rating downgrades.
  

Bilanz:

• Harvard University Professor Kenneth Rogoff said he expects Greece, Ireland and Portugal along with some other countries to restructure their debt, according to an interview. "Over the next couple of years, we'll see a lot of sovereign defaults in Europe," Rogoff said. He also said that if officials are waiting "too long" with a solution for Ireland, Greece and Portugal, "then perhaps Spain and Italy can't be rescued anymore."

Irish Times:

• Noonan Will Impose Big Losses on Bondholders if ECB Agrees. MINISTER FOR Finance Michael Noonan says the Government has a plan to impose “substantial” losses on senior bondholders in Anglo Irish Bank and Irish Nationwide Building Society in a significant policy reversal. He says he has won support for the move from top officials at the International Monetary Fund in Washington, but the difficulty was “what attitude the European Central Bank may take”. He will ask EU authorities to let the Government impose losses on the senior bondholders. A European Commission spokesman said last night it would examine any proposal by the Government on the restructuring of the banks with the European Central Bank and IMF. There was no comment from the bank, which opposed so-called burden-sharing with senior bondholders at the Irish banks in the bailout talks last year. Mr Noonan also asked US treasury secretary Timothy Geithner to use his influence with France and Germany to obtain lower interest rates on bailout packages for Ireland, Portugal and Greece.

National Business Daily:

• A 25 basis point increase in China's lending rates would raise interest costs for local government financial vehicles by about $46 billion, according to the Shanghai-based newspaper's Ye Tan.