Today's Headlines

Bloomberg:

• Greece Faces Pressure to Pass Deficit Cuts as EU Leaders Meet in Brussels. Greece’s government and opposition came under pressure to unite behind deficit-reduction measures to secure a 12 billion-euro ($17 billion) payout to avert the euro area’s first default. As the government pushed new budget cuts in Athens, European leaders sent a two-pronged message from Brussels, calling for an end to partisan bickering over austerity while promising to save the debt-wracked country from bankruptcy. “We will ask the leaders and citizens of Greece to rise to the occasion and do what must be done,” Dutch Prime Minister Mark Rutte said today before a two-day European summit in Brussels. “A nation undivided, focused and fully committed will not be abandoned.” Bonds fell in Greece, Ireland, Portugal and Spain and the euro weakened on concern that European governments have failed to get a handle on the debt crisis, even with 256 billion euros in emergency loans. Greece’s parliament votes on a new austerity package next week after Prime Minister George Papandreou survived a confidence motion yesterday, without support from the opposition. The Greek opposition leader, Antonis Samaras, defended that stance in meetings with fellow European conservatives in Brussels today. While in favor of budget cuts, he lashed out at the “current policy mix” for too much reliance on tax increases.
• Sovereign Credit Risk Increases to Record in Europe, Default Swaps Show. The cost of insuring against default on Portuguese sovereign debt surged to a record, driving a benchmark gauge of credit-default swaps on the region’s government debt to an all-time high. Swaps on Portugal climbed 42 basis points to 824, and the Markit iTraxx SovX Western Europe Index of contracts on 15 governments jumped 16 basis points to 240 at 2:30 p.m. in London. Swaps on Greece rose 63 basis points to 2,050, signaling an 83 percent chance of default within five years, according to CMA. Ireland increased 40 to 795 and Spain rose 21.5 to 306.5, while Italy was 10.5 higher at 199 and Belgium was up 15 at 167. Contracts on the Markit iTraxx Crossover Index of 40 companies with mostly high-yield credit ratings increased 12 basis points to 422, the highest since Jan. 11, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 3.75 basis points to 114 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 5.5 basis points to 168.5 and the subordinated index climbed 7 to 297.
  
• Reserves Tapped, Oil Price Plunges to 4-Month Low. Oil tumbled to the lowest price in four months after the International Energy Agency said its members would release crude from strategic reserves. Oil fell as much as 6 percent as the agency announced the release of 2 million barrels a day for 30 days beginning next week to help make up for a Libyan supply disruption. Oil for August delivery dropped $4.31, or 4.5 percent, to $91.10 a barrel at 11:32 a.m. on the New York Mercantile Exchange. Earlier, futures touched $89.69, the lowest level since Feb. 22. Prices have gained 19 percent in the past year. It’s only the third time in the history of the IEA the global reserves have been tapped. The first was during the 1991 Persian Gulf War, and the second was after Hurricane Katrina in 2005. The Paris-based IEA is an energy policy adviser to 28 industrialized nations including the U.S., Japan and Germany. “In what appears to have been a well-coordinated strategy involving key IEA countries and key Arab oil producers holding surplus production policy, it would appear that officials in the main oil exporting and importing countries are combining their efforts to replace the 132 million barrels of light, sweet, Libyan crude lost since late winter,” Morse and Doshi said in their report.
• Jobless Claims Rise, Confidence Falls. More Americans than forecast filed first-time jobless claims last week and consumer confidence fell, highlighting Federal Reserve Chairman Ben S. Bernanke’s concern that the slowdown in the economy may persist. Applications for unemployment benefits increased 9,000 in the week ended June 18 to 429,000, Labor Department figures showed today. The level of claims exceeded the highest estimate in a Bloomberg News survey in which the median projection called for 415,000 filings. The Bloomberg Consumer Comfort Index dropped to minus 44.9 last week from minus 44.
• Europe Services, Manufacturing Weaken More Than Forecast. European services and manufacturing growth slowed more than economists forecast in June, adding to signs that the economy is losing some momentum. A composite index based on a survey of euro-area purchasing managers in both industries fell to 53.6 from 55.8 in May, London-based Markit Economics said today. Economists had forecast a drop to 55.2, the median of 16 estimates in a Bloomberg survey showed. A reading above 50 indicates growth. Output growth weakened to the slowest in almost two years.
• Off-Balance Sheet Lending Pumps Up Default Risk: China Credit. Chinese banks helped arrange 320 billion yuan ($49.5 billion) of loans between companies in the first quarter that weren’t recorded in the lenders’ balance sheets, raising the risk on their bonds to a nine-month high. While global financial regulators are requiring more transparency and the People’s Bank of China restricts credit to cool inflation, lenders have increased the off-balance sheet loans by 110 percent, central bank data show. Credit-default swaps on Bank of China Ltd. are on course for their biggest monthly rise in a year and are the most expensive since September, according to data compiled by Bloomberg. The so-called entrusted loans are kept off balance sheets as in theory the bank is a middleman and bears no direct credit risk. When a company borrows and lends the funds on to firms for a profit, the financial institution could still face liabilities. Companies are charging firms interest of as much as 21 percent, three times higher than the benchmark one-year lending rate of 6.31 percent, stock exchange filings show. “Some of the borrowers with low credit quality, which can never or should never get bank credit, get levered through entrusted loans, which increases the overall leverage of the economy,” said Winnie Wu, an analyst at Bank of America Merrill Lynch in Hong Kong. “If there is a credit downturn or liquidity crunch those things could easily go bust, and the effect will come back to haunt the banking system.” More than 40 percent of borrowers on entrusted loan deals announced since January 2010 have been property developers facing lending curbs intended to control inflation, according to Bank of America Merrill Lynch research.
• China, India, Brazil Back France's Plan to Tackle 'Plague' of Food Prices. China, India and Brazil were among Group of 20 countries that backed new rules for global agriculture at a meeting in Paris today, France said. Farm ministers from the U.S., the U.K., Australia and Argentina hadn’t stated their positions on the plan yet, French agriculture ministry spokesman Bertrand Sirven said in a briefing at a meeting of G-20 agriculture ministers in Paris. France, the current G-20 president, has proposed a central database on crops, limits on export bans, international market regulation, emergency stockpiles and a plan to raise global output. Food price swings are a “plague” on farmers and consumers that cause poverty and hunger, French President Nicolas Sarkozy said yesterday. Sarkozy called on G-20 farm ministers to act in unity, saying “the world can wait no longer” after the surging cost of food “plunged 44 million people into poverty.” World food prices tracked by the United Nations’ Food and Agriculture Organization have risen 37 percent in a year.
• Emerging Market Put Volume Rises to Double Average on One Trade. Trading of options to sell emerging market stocks rose to double the four-week average in the U.S. boosted by a single trade by an investor enlarging a bearish position. Put volume on Russian equities surged. More than 364,000 puts to sell the iShares MSCI Emerging Markets exchange-traded fund changed hands, 3.6 times the number of calls to buy, as of 2:25 p.m. in New York. The ETF dropped 1.4 percent to $45.01, the lowest intraday level since March. The investor sold 50,000 July $47 puts, using the proceeds to purchase 50,000 July $42 puts and the same number of July $43 puts, strategists at Susquehanna Financial Group LLLP in Bala Cynwyd, Pennsylvania, wrote in a report.

Wall Street Journal:

• John Paulson Also Is Taking a Bath on Gold Mining Stocks. The $5 Billion Man just can’t catch a break. John Paulson, the prominent hedge-fund manager who scored a $5 billion payday last year, has suffered further losses in two key funds of his $38 billion Paulson & Co. The $9 billion Advantage Plus fund has lost about 15% so far this month, through June 17, leaving it down 20.9% for the year, according to an investor briefed on the performance. Meanwhile, Paulson’s Enhanced Partners fund, which had been on a winning streak until recently, has lost more than 8% so far this month, through June 17, leaving it up about 2% this year. Both funds lost about 1.5 percentage points in the week ending June 17. This year, Paulson has been whacked in part by his big slugs of financial stocks such as Citigroup and Bank of America, whose share prices are down 16.5% and 19% respectively so far this year. The hedge fund also has suffered about $500 million in losses on its investment in Chinese forestry company Sino-Forest Corp., according to people close to the matter. Sino-Forest’s stock price has tumbled about 80% since late May amid allegations of questionable accounting, which the company has denied. The gold fund tripped up in May, according to one investor, closing the month up less than 2% for the year. And so far this month, some of the firm’s large investments in stocks of gold miners, including AngloGold Ashanti Ltd. and Gold Fields, are struggling. Paulson & Co., for example, held more than 41 million American depositary receipts of AngloGold Ashanti, a South African gold mining company, based on his most recent public disclosures as of March 31. At the beginning of May, the AngloGold investment – one of the biggest in Paulson’s portfolio – had a market value of $2.1 billion. Based on Wednesday’s closing prices, the investment has lost $317 million in value since then. AngloGold Ashanti Ltd. is down 7% so far this month. Share prices of two other significant mining investments for Paulson, Gold Fields and Centerra Gold, have slipped 11.6% and 10.5% so far in June, respectively.
• Dallara: Bondholders' Bailout Role a 'Challenge'. Charles Dallara, managing director of the Institute of International Finance, said it's going to be harder to find a way to involve private bondholders in a new bailout for Greece than it was to design Brady bonds two decades ago to encourage banks to make debt concessions to Latin American governments.
• Cantor Pulls Out of Biden-Led Budget Talks. House Majority Leader Eric Cantor Thursday said he was pulling out of the bipartisan budget talks headed by Vice President Joe Biden for now because the group has reached an impasse over taxes that only President Barack Obama and Speaker John Boehner (R., Ohio) could resolve. Mr. Cantor, in an interview after a negotiating session he described as bitterly contentious, said he would not be attending Thursday's scheduled meeting of the bipartisan deficit-reduction leadership group because he believed it was time for the negotiations to move to a higher level. "We've reached the point where the dynamic needs to change,'' Mr. Cantor said. "It is up to the president to come in and talk to the speaker. We've reached the end of this phase. Now is the time for these talks to go into abeyance."
• FTC to Serve Google(GOOG) With Subpoena in Broad Antitrust Probe. The U.S. Federal Trade Commission is poised to serve Google Inc. with civil subpoenas, according to people familiar with the matter, signaling the start of a wide-ranging, formal antitrust investigation into whether the search giant has abused its dominance on the Web.
  

MarketWatch

• Retailers Bucking Downward Trend. Retail stocks were bucking the downward trend of the broader markets Thursday, with some key names in the sector posting modest gains.

Business Insider:

• Apple(AAPL) Will Sell 14.4 Million iPads In Q3, According To CLSA. Apple could sell over 14 million iPads in the third quarter of this year, according to Asian investment firm CLSA. It took a look at LCD screen shipment data to come up with its estimate. The consensus for Q3 iPad sales is much less than 14 million. Here's the CLSA note:

Zero Hedge:

• China Hard Landing Bets Rise as It Now Costs More To Bet On Renminbi Strength Than Weakness. (graph)
• Greece Tensions Escalate as Labor Unions Call For Two Day General Strike on June 28-29 to Celebrate Austerity Vote.
• Number of European Banks Resorting to 1 Week ECB Liquidity Jumps to Two and a Half Year High. (graph)
• Flip Flop Roundtrip: Goldman(GS) Cuts Brent Price Target, A Month After Hiking, A Month After Cutting.
  

Insider Monkey:

• David Tepper Got a Huge Gift From IEA, Airlines Soar.

Politico:

• Senate Dems: Long Live The 'Czars'. Senate Democrats on Thursday knocked down the latest GOP effort to unseat the Obama administration’s policy “czars.” The chamber voted 47-51 to defeat an amendment from Sen. David Vitter (R-La.) to strip the salaries of czars currently working in the White House and would block the president from appointing more without Senate approval. Two moderate Democrats — Sens. Joe Manchin of West Virginia and Ben Nelson of Nebraska — broke rank to endorse the measure.

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. Thirty-eight percent (38%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).

Financial Times Deutschland:

• The European Banking Authority has stiffened criteria in stress tests and is demanding lenders to consider the possibility of default of Greek government bonds.

YLE:

• Finnish Prime Minister Jyrki Katainen warned that the European financial crisis could widen into a new recession. "The economic situation in Europe has not gone in the right direction and the risks of a serious financial crisis and the beginning of a new recession are very large at the moment," Katainen said.

Kathimerini:

• Officials form the European Union and IMF assessing Greece's efforts to cut its budget deficit have expressed doubts about the viability of $5.4 billion of measures slated for this year. The officials are also pushing for the reintroduction of measures, such as a reduction in the income tax threshold, dropped by former Finance Minister George Papaconstantinou after pressure from lawmakers in the ruling Pasok party.

Shanghai Daily:

• China Mobile Likely to Roll Out iPhone. CHINA Mobile is expected to offer iPhone, likely a 4G version, on its network in September, sources said yesterday. "A new iPhone with China Mobile's network will debut and the cooperation will be announced in September," China Mobile's Beijing-based marketing official Liu Yang said on his microblog yesterday. "People will not need to change their mobile numbers to use iPhone."
  

Bear Radar

Style Underperformer:

• Large-Cap Value (-1.62%)

Sector Underperformers:

• 1) Oil Tankers -3.88% 2) Gold & Silver -2.73% 3) Energy -2.53%

Stocks Falling on Unusual Volume:

• STD, TLM, BCS, STO, IVN, ABB, GE, PODD, ASMI, HMPR, PRGS, VECO, AEGR, ERTS, XRAY, LSTZA, ROLL, TGA, VIVO, MMSI, AIXG, GOOG, DISCK, LPLA, STSA, THS, IHS, RXI, TPL, ODC, BCH, HOC, CPTS, AT, HTS and UCO
  

Stocks With Unusual Put Option Activity:

• 1) FITB 2) EWW 3) BCS 4) COH 5) XLP
  

Stocks With Most Negative News Mentions:

• 1) VECO 2) MA 3) NBR 4) DG 5) GS
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth (-1.35%)

Sector Outperformers:

• 1) Airlines +1.64% 2) Computer Hardware -.19% 3) Homebuilders -.26%

Stocks Rising on Unusual Volume:

• ALK, LUV, CCL, NZT, MLHR, BBBY, ZAGG, CV, BMY, FUL, GCO, UAL, RHT, DAL and WDC
  

Stocks With Unusual Call Option Activity:

• 1) SH 2) BBBY 3) NXPI 4) BMY 5) RJET
  

Stocks With Most Positive News Mentions:

• 1) HIFS 2) LL 3) CAVM 4) ISS 5) BMY
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• Trichet Says Risk Signals 'Red' as Debt Crisis Threatens Banks. European Central Bank President Jean-Claude Trichet said risk signals for financial stability in the euro area are flashing “red” as the debt crisis threatens to infect banks. “On a personal basis I would say ‘yes, it is red’,” Trichet said late yesterday in Frankfurt after a meeting of the European Systemic Risk Board, referring to the group’s planned “dashboard” to monitor risks. BNP Paribas (BNP) SA, France’s biggest bank, and rivals Societe Generale (GLE) SA and Credit Agricole SA (ACA), may have their credit ratings cut by Moody’s Investors Service because of their investments in Greece, the ratings company said on June 15. German banks could also be at risk from contagion, Fitch Ratings said last month. “The most serious threat to financial stability in the EU stems from the interplay between the vulnerabilities of public finances in certain EU member states and the banking system,” Trichet said. There are “potential contagion effects across the union and beyond.”
• Germany's Weder di Mauro Favors Greek Debt Cut, Reuters Says. Beatrice Weder di Mauro, a member of the German government’s council of economic advisers, called a “tough” cut of Greek debt unavoidable in the long run, Reuters reported, citing a speech by the economics professor in Brussels. Because European banks couldn’t bear it, such a step isn’t feasible for now, and the current debt restructuring plans will help only to win time, the newswire cited her as saying. Di Mauro also criticized the fact that European banking regulators don’t include a Greek default scenario in their bank stress tests, Reuters said.
• China Housing Boom Spreads to Smaller Cities. China’s property boom is shifting from Beijing and Shanghai as government measures to curb the market haven’t kept prices from rising in secondary cities. New home prices rose in 67 of 70 cities in May led by smaller centers as developers hold off price cuts, even as existing home prices cool following higher interest rates and down-payment requirements. Standard & Poor’s on June 15 cut its outlook on Chinese developers, echoing concerns of a property bubble aired by bears such as hedge fund manager Jim Chanos. Efforts to rein in property prices have been focused on the nation’s largest urban areas, leaving less affluent cities such as Urumqi in the northwest and northeastern Dandong with surging home values as developers increased building there. That raises challenges for a government that last week escalated its fight against inflation by raising bank reserve requirements for the ninth time since October. “Purchase restrictions in the major cities drove speculators to second- and third-tier cities,” said Liu Li-Gang, who formerly worked for the World Bank and is chief China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “China should raise interest rates and basically use monetary policies to curb demand, otherwise negative interest rates and few appealing options will send more speculation into the property market.”
• Japan's slowing machinery exports to China point to weakening Asian demand that may threaten the world's third-largest economy as it recovers from the March 11 earthquake, Citigroup Global Markets Japan Inc. said. Exports of general machinery to China fell to $3 billion in May, a four-month low, according to Ministry of Finance data. Shipments of items from motors to construction machines make up 26% of exports to China, the biggest overseas buyer of Japan's goods. "We need to be alert about sluggish exports to Asia resulting from the region's economic slowdown, especially China," said Kiici Murashima, chief economist at Citigroup in Tokyo. Weaker demand may cap the gains from manufacturers restoring production after the nation's strong quake on record, according to Murashima. Overseas shipments to China fell 8.1% in May from a year ago, the biggest drop since October 2009. Exports to Asia, where countries from South Korea to India have raised borrowing costs this year to quell inflation, slid 8.7%.
• Sarkozy Tells G-20 Ministers Food Price Surge Is 'Plague' Needing Action. World food prices that rose 37 percent in a year, driving 44 million more people into poverty, are a “plague” that need action from world leaders now, French President Nicolas Sarkozy said. France, which holds the G-20 presidency, wants a central database on crops, limits on export bans, international market regulation, emergency stockpiles and a plan to raise global output. A lack of transparency in agricultural markets is exacerbating price swings, threatening economic recovery and food production, Sarkozy said. “We have to act, and act together,” the president said. “The world is watching you.”
• Silver Surge Makes 'Headwind' for Solar inn Fossil Fuel Rivalry. Soaring silver prices are hampering the solar industry’s ability to compete with fossil fuels. Panel makers consume about 11 percent of the world’s supply of silver, the metal in solar cells that conducts electricity. The metal has appreciated 74 percent to $35.30 a troy ounce on average so far this year from $20.24 for last year. Prices for solar cells have dropped about 27 percent this year and would be even lower if each panel didn’t require about 20 grams of silver, according to Bloomberg New Energy Finance. That’s pushing back the date when companies such as Solarworld AG (SWV) and LDK Solar Co. can deliver solar power at prices that are competitive with traditional energy.
• Crude Declines After Federal Reserve Lowers U.S. Economic Forecast. Oil declined for the first day in four in New York after the Federal Reserve lowered its economic growth outlook for the U.S., signaling that fuel demand in the world’s biggest crude-consuming nation may weaken. Futures slipped as much as 1.5 percent after Fed officials yesterday lowered their forecasts for growth and employment this year and next. An Energy Department report showed U.S. oil stockpiles fell less than forecast and inventories at Cushing, Oklahoma, the delivery point for the New York-traded West Texas Intermediate grade, increased for the first time in four weeks. Oil for August delivery declined as much as $1.41 to $94 a barrel in electronic trading on the New York Mercantile Exchange and was at $94.27 at 11:01 a.m. Sydney time.
• China Money Rate Reaches Three-Year High Even After Bill Sale Suspended. China’s money-market rate soared to the highest level in more than three years on concern cash supply won’t rebound before the end of this month. The seven-day repurchase rate, which measures interbank funding availability, gained for a seventh day even after the People’s Bank of China suspended a bill sale. The rate has more than doubled since the central bank ordered banks on June 14 to set aside more cash as reserves for a sixth time this year. “Smaller banks are really short of money after the reserve ratio hike,” said Peng Hao, a bond analyst at Fudian Bank Co. in Kunming, capital of the southern Yunnan province. “Also, banks won’t lend to each other before the end of every quarter because they have to meet capital requirements.” The seven-day repo rate climbed 30 basis points to 9.11 percent as of 9:28 a.m. in Shanghai, the highest level since October 2007, according to a weighted average rate compiled by the National Interbank Funding Center.
• Buy Emerging-Market Put Options on Short-Term Retreat, UBS Says. Investors should use a bearish options strategy on emerging-market stocks to protect against a decline because chart patterns show the shares are at risk of a “near-term” drop of 17 percent, UBS AG strategists said.
• 'Inevitable' Greek Default Contagious, Feldstein Writes in FT. A Greek default is “inevitable,” and “the only question is when it will occur,” given the country’s debt-to-gross-domestic-product ratio of more than 150 percent, Harvard University Professor Martin Feldstein writes in the Financial Times. “The current negotiations are really about postponing the inevitable default,” Feldstein writes, adding that a default now could trigger defaults by Portugal, Ireland and Spain. The European Central Bank is “determined to avoid a default at this time” in order to give negotiators time to find a way to delay the contagion defaults “long enough for creditors to withstand the writedowns of bond values if Greece, Portugal and Ireland default simultaneously,” Feldstein writes.
• Red Hat(RHT) Sales to Triple to $3 Billion in Five Years, CEO Whitehurst Says.
  

Wall Street Journal:

• Obama Sets Afghan Rollback. President Barack Obama ordered the withdrawal of 10,000 troops from Afghanistan this year, leaving the bulk of U.S. forces in place into the summer of 2012, when fighting is fiercest, but also signaling the beginning of the end of America's role in the 10-year war. The announcement pleased neither Democrats in Congress who wanted a faster end to the costly and increasingly unpopular conflict, nor the Republicans and defense officials who had pushed hard to keep more troops in the fight for longer.
• Outlook Grows Bleak on Main Street. In the eyes of the average small business, the U.S. economy is still in a recession and likely to stay that way through 2012. While revenues are in line with or higher than they were last year for many on Main Street, the outlook for hiring and business in general is bleak, according to a broad-reaching survey to be released Thursday. Small-business owners say a continued lack of financing, coupled with rising commodity prices and weak overall sales, is to blame. The new survey, commissioned by U.S. Bancorp, is one of several reports to come out in recent weeks painting a more dismal picture for American small businesses than previously perceived.
• Shutting Up McKinsey. The White House vilifies a company for reporting health-care reality. The White House routinely tries to intimidate its health-care critics, but the campaign against McKinsey & Co. is something else. The management consultants attempted to find out how U.S. business will respond to the government restructuring of 17.3% of the economy, Democrats don't like the results, and so McKinsey must pay with its reputation.
• Salon CEO Gingras to Head Up News at Google(GOOG). Richard Gingras, the chief executive of Salon Media Group, said on Wednesday he is leaving the online publisher to become global head of news products for Google Inc.
• GM(GM) Stock Sag Weighs on U.S. Exit. Two years after General Motors Co. and the Obama administration worked together to save the auto maker, the two are now at odds over how to get the government out of the company. The Detroit auto maker wants a share sale as soon as possible, people familiar with the matter said, while the administration has a goal of selling its remaining 27% stake in August or September, after GM's next quarterly results are released.
• Hedge Funds Aren't Minting Fees Like They Used To. Hedge funds are estimated to have generated $10 billion in revenue for investment banks and broker-dealers, at least a third below historical norms, according to an annual survey of hedge funds, as managers remain conservative toward borrowing coming out of the financial crisis. “Assets under management have risen substantially in the last year, yet both investment returns and the appetite for risk–as measured by leverage and appetite to borrow stock to cover short sales–remain suppressed by comparison with the years prior to the financial crisis of 2007-09,” Global Custodian, a magazine, said. The magazine’s annual survey, based on more than 3,100 hedge funds, assumed that hedge funds in total manage $2 trillion in assets globally. The survey also made the assumption that financial conditions led to a narrowing of the fees on prime brokers’ sources of income, such as margin finance and stock loans, to 40 basis points from 50.
• Colorado Out of Joint Over Pot Shops. Cities Crack Down on Proliferation, Say Medical Marijuana Not So Medical.
• Lagarde on Track to Win IMF Nod. The race to lead the International Monetary Fund is all but over as its executive board interviews the candidates this week and French Finance Minister Christine Lagarde appears on track to win final approval within days.
• The Food-Stamp Crime Wave. The number of food-stamp recipients has soared to 44 million from 26 million in 2007. Not surprisingly, fraud and abuse are rampant.

CNBC:

• Lofty Valuations at Risk as Asia IPO Withdrawals Hit Record. A record $58 billion in withdrawn IPOs in Asia and muted market debuts are expected to force listing hopefuls to cut valuations to win over investors in the world's top region for offerings.

Business Insider:

• There's a Report of a Brand New Hole in the Greek Austerity Plan.
• Chinese Energy Demands Are Starting to Anger Its Neighbors.
• 10 Fracking Things That Everyone Should Know.
  

Zero Hedge:

• Investors Pull The Most Money From Domestic Mutual Funds Since September as Margin Debt Deleveraging Begins. (graph)
• Pocket-Change SEC Fines: Barely a Bark and No Bite. There's a reason yesterday's announcement that JPM Chase(JPM) would 'settle' for a fine of $156.3 million, while neither admitting nor denying any wrong-doing, thereby forking over the whopping equivalent of a normal person's weekly grocery budget, pisses people off. Because it's a marginal fleabite on the teflon hand of the nation's second largest bank in terms of punitive pain, and absolutely meaningless in altering the grand scheme of toxic securities creation or complex financial institution business as usual.
  

IBD:

• Netgear(NTGR) Leads In Home Networking Devices.

NY Times:

• Derivatives Cloud the Possible Fallout From a Greek Default. The possibility that some company out there may have insured billions of dollars of European debt has added a new tension to the sovereign default debate.
• Some Greeks Fear Government is Selling Nation. They are the crown jewels of Greece’s socialist state, and they are now likely to go to the highest bidder: the ports of Piraeus and Thessaloniki; prime Mediterranean real estate; the national lottery; Greek Telecom; the postal bank and the national railway system.

LA Times:

• Best Buy(BBY) to Downsize Brick-And-Mortar Footprint. Amid weak sales and growing online competition, Best Buy plans to sublease space at its stores to smaller retailers, joining the ranks of big-box giants that are shrinking store sizes.

Washington Post:

• SEC Tightens Reins on Hedge Funds. Hedge funds are about to become a bit less mysterious. Many will have to make limited disclosures to the Securities and Exchange Commission and answer to its regulators under rules the agency adopted Wednesday. The funds won’t have to bare their innermost secrets. But they will have to publicly disclose general information about their size and ownership, and who is auditing their books, among other matters. To spotlight practices that might harm investors, the SEC said, the funds will have to reveal potential conflicts of interest, such as whether they pay anyone to send them clients.

Politico:

• GOP Challenges Obama's War Powers. House Republican leaders have launched the most serious challenge to the war-making power of the presidency in more than a decade, proposing to cut off funding for U.S. direct military engagement in Libya. The funding cutoff — a stronger rebuke from Republicans than originally planned — reflects a desire among rank-and-file Republicans to take a harder line against a mission they don’t like and a president who they believe has exceeded his authority by flouting the War Powers Act.

Rasmussen Reports:

• 26% Say U.S. Heading in Right Direction. Sixty-five percent (65%) of voters say the country is heading down the wrong track.

The Hill:

• Bayh, Card Plan Road Show for Chamber on Regulations. Former Sen. Evan Bayh (D-Ind.) and ex-Bush White House Chief of Staff Andy Card are embarking on a summer road trip to preach regulatory reform for the U.S Chamber of Commerce. On Wednesday, the Chamber held a press conference to announce that the two Washington heavyweights were heading out to several states, including Wisconsin, West Virginia, Illinois and Georgia, to talk about the need for regulatory balance. "We are not looking to say that all regulation is bad," Card said. Instead, the two will be looking for "common sense" to return to the rule-making process. The Obama administration has proposed several regulations since coming into the office that have been heavily lobbied against by business groups. Many of those new rules come from the healthcare reform and financial services reform laws. "Big chunks of both laws were left open to interpretation for the bureaucracy," Bayh told reporters. Both Bayh and Card argued that when the need for job creation is paramount, the added weight of new regulations will not help the economy. "This is just a very difficult time to put additional burdens on the job creators in this country," Bayh said.
  

USA Today:

• Sad Summer Ahead for Teen Employment. Seasonal job prospects are so tight that 75% of teens won't have a job this summer, according to the Bureau of Labor Statistics.

Reuters:

• Bed Bath(BBBY) Profit Beats, Ups Full-Year View. Bed Bath & Beyond Inc posted a quarterly profit that handily topped Wall Street expectations as U.S. shoppers spent more to spruce up their homes and the company boosted its full-year earnings forecast. Shares in the retailer, which sells everything from toasters to shower curtains, rose 1.7 percent.
• Bristol(BMY)/Pfizer(PFE) Stroke Prevention Data Wow Market. A blood thinner developed by Bristol-Myers Squibb Co and Pfizer Inc proved superior to and safer than warfarin in preventing strokes in patients with dangerously irregular heart rhythms in a key clinical trial, greatly boosting its sales potential. Shares of both companies rose on the highly anticipated data from the late-stage study of apixaban, a pill the drugmakers hope to sell under the brand name Eliquis.

Financial Times:

• Athens Accused of Big to Amend Austerity Deal. Greece’s new finance minister has attempted to renegotiate parts of the austerity deal struck with international lenders last month, drawing anger from his European counterparts as they battle to find a solution to Athens’ debt crisis. According to officials briefed on the gambit, Evangelos Venizelos proposed changing the €50bn privatisation programme agreed to by Greek authorities and tried to delay next week’s vote in parliament, insisting it could not be done quickly on procedural grounds.

Economic Times:

• Diesel, Kerosene & LPG Price Hike Coming in July. NEW DELHI: The Indian government will raise diesel, cooking gas and kerosene prices next month after a gap of one year as cash-strapped state firms say their borrowings have risen alarmingly and they will be forced to cut fuel supplies, starting with cooking gas. State-run refiners are facing acute liquidity crunch as their market borrowings have soared to Rs 1,20,000 crore from Rs 97,000 crore in March. They will now be forced to cut imports leading to shortage of fuel, two government officials with direct knowledge of the matter said.

China Securities Journal:

• China's central bank should raise interest rates to counter inflation, China Securities Journal said in an unsigned editorial today on its front page. The move would push real interest rates toward positive territory and drive funds back to banks. Quantitative tools such as the reserve requirement ratio can't tighten funds outside the baking system.

South China Morning Post:

• Living In Anxious Times as Fears of China Crash Grow. Paulson's misstep over Sino-Forest reflects unease about how the second-biggest economy does business. Suddenly finance god John Paulson isn't looking so omniscient.
  

Evening Recommendations
Citigroup:

• Reiterated Buy on (BBBY), raised target to $67.

Piper Jaffray:

• Rated (IPCM) Overweight, target $54.
• Rated (MD) Overweight, target $82.

BMO Capital:

• Rated (CME) Outperform, target $340.
  

Night Trading

• Asian equity indices are -.75% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 119.0 +6.0 basis points.
  
• Asia Pacific Sovereign CDS Index 125.0 +8.75 basis points.
  
• S&P 500 futures -.35%.
  
• NASDAQ 100 futures -.30%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (LEN)/.04
• (DFS)/.75
• (CAG)/.48
• (TIBX)/.18
• (FINL)/.30
• (HRB)/2.15
• (ORCL)/.71
• (MU)/.16

Economic Releases
8:30 am EST

• The Chicago Fed National Activity Index for May is estimated to rise to -.05 versus -.45 in April.
• Initial Jobless Claims for last week are estimated to rise to 415K versus 414K the prior week.
• Continuing Claims are estimated to fall to 3670K versus 3675K prior.
  

10:00 am EST

• New Home Sales for May are estimated to fall to 310K versus 323K in April.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Evans speaking, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the (UTIW) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity shares in the region. I expect US stocks to open modestly lower and to maintain losses into the afternoon. The Portfolio is 75% net long heading into the day.

Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Global Growth Worries, US Debt Ceiling Concerns, Rising Energy Prices

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.19 -3.55%
  
• ISE Sentiment Index 140.0 +12.90%
  
• Total Put/Call .84 -11.58%
  
• NYSE Arms 1.17 +64.83%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 97.09 +1.10%
  
• European Financial Sector CDS Index 115.17 +6.61%
  
• Western Europe Sovereign Debt CDS Index 220.33 +.15%
  
• Emerging Market CDS Index 225.86 +.32%
  
• 2-Year Swap Spread 26.0 unch.
  
• TED Spread 23.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .01% -1 bp
  
• Yield Curve 262.0 +2 bps
  
• China Import Iron Ore Spot $171.90/Metric Tonne unch.
  
• Citi US Economic Surprise Index -98.50 +.2 point
  
• 10-Year TIPS Spread 2.17% -3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -30 open in Japan
• DAX Futures: Indicating +15 open in Germany

Portfolio:

• Slightly Lower: On losses in my Retail and Tech longs
  
• Disclosed Trades: Added (IWWM)/(QQQ) hedges, added to my (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades to session lows on rising eurozone debt angst, global growth concerns, emerging market inflation fears, the US debt ceiling worries and higher energy prices. On the positive side, Paper, Oil Service, Alt Energy and Coal shares are especially strong, rising more than +.5%. The Transports are outperforming again as they test their 50-day moving average. The UBS-Bloomberg Ag Spot Index is dropping -1.85% and Lumber is rising +1.55%. On the negative side, Internet, Hospital, Retail, Education, Airline and Tobacco shares are under mild pressure, falling more than -.75%. Oil is rising +1.21% and copper is dropping -.51%. The US price for a gallon of gas is -.01/gallon today to $3.63/gallon. It is up .49/gallon in less than 4 months. The Spain sovereign cds is jumping +8.02%, the Italy sovereign cds is climbing +6.43%, the Belgium sovereign cds is rising +5.35%, the UK sovereign cds is rising +4.18% to 65.42 bps, the Ireland sovereign cds is rising +4.2% to 762.03 bps and the Portugal sovereign cds is gaining +4.4% to 785.33 bps. Moreover, the Asia Pacific Sovereign CDS Index is jumping +4.42% to 123.66 bps and the Eurzone Investment Grade CDS Index is rising +3.0% to 80.08 bps. The large gain in the Eurozone Financial Sector CDS Index is also a large negative. India's Sensex continues to trade very poorly, as it is unable to even bounce off recent lows, and is still down -14.4% ytd. As well, the Shanghai Composite continues to trade poorly, only rising +.11% overnight, and is still down -5.65% ytd. The rise in European cds and euro currency weakness after yesterday's Greek vote is weighing on the market today. As well, it appears as though Congress is moving further apart on a US debt ceiling compromise. I expect US stocks to trade modestly lower into the close from current levels on rising eurozone debt angst, US debt ceiling worries, rising energy prices, emerging markets inflation fears and global growth worries.

Today's Headlines

Bloomberg:

• U.S. Growth, Employment Forecasts Are Lowered by Fed for This Year, Next. Federal Reserve officials lowered their forecasts for growth and employment this year and next, underscoring the Federal Open Market Committee’s statement today that the recovery “is continuing at a moderate pace, though somewhat more slowly” than previously expected. U.S. central bankers also said inflation, excluding food and energy, will be somewhat higher than previously forecast. At a two-day meeting that concluded earlier today in Washington, they said the pace of recovery is likely to “pick up over coming quarters.” U.S. central bankers said the economy will expand 2.7 percent to 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April. It was the second time this year that Fed officials lowered their forecasts for growth. For 2012, Fed officials expect the world’s largest economy to grow 3.3 percent to 3.7 percent, according to their central tendency forecasts. In April, their predictions ranged from 3.5 percent to 4.2 percent. Their projections for 2013 and the longer run were little changed. Fed officials predict the unemployment rate will average 8.6 percent to 8.9 percent in the final three months of 2011, compared with 8.4 percent to 8.7 percent projected in April. Their estimate for unemployment at the end of 2012 was in a range of 7.8 percent and 8.2 percent, compared with 7.6 percent to 7.9 percent in April.
• Fed to Maintain Stimulus After Ending Treasury Purchases. Federal Reserve officials said they will maintain record monetary stimulus to support a flagging economic recovery after completing a $600 billion bond-purchase program as scheduled this month. “The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings,” the Federal Open Market Committee said today in a statement after a two-day meeting in Washington. “The economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee had expected.” “Recent labor market indicators have been weaker than anticipated,” the statement said. “The slower pace of the recovery reflects in part factors that are likely to be temporary,” such as supply chain disruptions stemming from the Japanese disaster in March. The Fed left its benchmark interest rate in a range of zero to 0.25 percent and repeated a pledge to keep it there “for an extended period.” The decision was unanimous. “Inflation has moved up recently, but the Committee anticipates that inflation will subside to levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate.”
  
• Greece Vote Turns Spotlight Back on Germany, ECB to See Who Blinks First. The Greek Parliament’s vote of confidence in Prime Minister George Papandreou shifts the spotlight back to Germany and the European Central Bank as key to Greece’s quest for further international financial aid. Lawmakers in Athens supported Papandreou in a 155-143 vote after the prime minister shuffled his Cabinet and sought the chamber’s approval. The vote may bolster Greece’s chances of securing a 12 billion-euro ($17 billion) loan payment, which hinges on support from European leaders and on Greece’s ability to push through 78 billion euros in additional budget cuts next week. “The question that’s still lingering is the old cage match between the ECB and Germany, and who’s going to give and who’s going to blink, and how much,” said Ilan Solot, currency strategist at Brown Brothers Harriman in London.
• Crude Oil Futures Advance After Report Showing Decline in U.S. Stockpiles. Crude oil climbed as a government report showed U.S. supplies fell a third week and refineries bolstered operating rates to the highest level in 10 months. Futures rose as much as 1.3 percent after the Energy Department said oil inventories dropped 1.71 million barrels to 363.8 million last week. Refineries operated at 89.2 percent of capacity, the most since the week ended Aug. 13. Crude oil for August delivery rose 35 cents, or 0.4 percent, to $94.52 a barrel at 12:08 p.m. on the New York Mercantile Exchange. Futures are up 22 percent from a year ago.
• Shipping Rebound Lifts FedEx(FDX) 2012 Estimates. FedEx Corp. (FDX) predicted increased demand for international air-cargo shipments may push fiscal 2012 profit higher than analysts estimated as the economic recovery strengthens and jet-fuel costs ease. The earnings forecast of $6.35 to $6.85 a share compares with an average estimate of $6.54 from 26 analysts surveyed by Bloomberg. “The near term softness in the economy will be temporary as fuel prices have retreated from their April highs and the Japanese economy recovers,” FedEx Chief Executive Officer Fred Smith said on a conference call regarding the company’s fiscal fourth-quarter earnings. “Going forward, we see stronger economic growth.” FedEx expects the U.S. economy to grow 2.5 percent in calendar 2011 and 3 percent the year after, Mike Glenn, a company spokesman, said on the call.
• China Money Rate Reaches Three-Year High as Bill Sale Suspended. China’s money-market rate climbed to the highest level in more than three years as a worsening cash crunch prompted the central bank to suspend a bill sale. The seven-day repurchase rate, which measures interbank funding availability, has more than doubled since June 14, when the People’s Bank of China ordered lenders to set aside more money as reserves for a sixth time this year. The central bank suspended a sale of bills tomorrow, according to a statement on its website today. “Banks have to hoard cash to meet the regulator’s capital or loan-to-deposit requirements by the end of every quarter,” said Liu Junyu, a bond analyst at China Merchants Bank Co., the nation’s sixth-largest lender. “So we won’t see the shortage easing.” The seven-day repo rate gained 47 basis points, or 0.47 percentage point, to 8.81 percent as of the 4:30 p.m. close in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. It touched 8.93 percent, the highest level since October 2007.
• Corn Tumbles Most in Six Weeks, Soybeans Decline on U.S. Weather Outlook. Corn fell the most in six weeks and soybeans declined on bets that favorable weather will boost yields in the U.S., the world’s biggest grower and exporter. National Weather Service computer models showed a shorter period of hot weather next week, and less heat will boost Midwest crop development, World Weather Inc. said. Increased soil-moisture reserves from rain this week and showers in the next two weeks will maintain favorable growing conditions, the forecaster said. The weather outlook “is pressuring the grain markets,” said Don Roose, the president of U.S. Commodities Inc. in West Des Moines, Iowa. “Rain and warmer temperatures are just what the crops need.” Corn futures for December delivery fell 24.5 cents, or 3.6 percent, to $6.5575 a bushel at 10:50 a.m. on the Chicago Board of Trade.
• Goldman Sachs(GS) Says Libya Oil Exports May Rise, Near-Term Prices Choppy. Libyan oil exports could rise by as much as 355,000 barrels a day in the short term from the opposition-controlled part of the country after rebels pledged to resume shipments, according to Goldman Sachs Group Inc. (GS)
• U.S. Postal Service to Stop Paying Into Pension Fund. The U.S. Postal Service, facing insolvency without approval to delay a $5.5 billion payment for worker health benefits, will suspend contributions to an employee retirement account to save $800 million this year. The Postal Service will stop paying employer contributions to the defined-benefit Federal Employees Retirement System, which covers about 85 percent of career postal workers, it said today in an e-mailed statement. The $115 million payment, made every other week, will stop on June 24, the statement said. Suspending payments to the retirement account will help “conserve cash and preserve liquidity,” the statement said. The agency estimates it has overpaid by $6.9 billion and has asked Congress to pass legislation to return that money. Congress must “make bold, quick and substantive reforms,” said Art Sackler, executive director of the Washington-based Coalition for a 21st Century Postal Service, which represents corporate mail customers. “The USPS is hanging by a thread.”
• Rebel Leaders in Libya's Misrata Curb Press Freedoms as Casualties Mount. Rebel leaders in the besieged western Libyan city of Misrata imposed restrictions on the foreign press, marking a sharp contrast with their previous openness and with the policies of their counterparts in Benghazi in the east. Journalists traveling to Dafniya, a village near Misrata on the eastern frontline, are being turned back at checkpoints by rebel fighters, who say they have been told by authorities that some members of the western media may be spies.
• Morgan Keegan to Pay $200 Million to Settle Fraud Allegations.
• 62 Al-Qaeda Fighters Escape From Yemeni Jail Via Tunnel After Killing Guard. Sixty-two al-Qaeda militants escaped from a jail in southern Yemen via a tunnel they dug under their cells, after killing one guard and wounding another, a senior Yemeni intelligence official said. One of the militants snatched a gun from a guard and opened fire as the group fled the prison in the coastal city of Mukalla in Hadarmout province, said the official, who spoke on condition of anonymity because he isn’t authorized to speak to the media.

Wall Street Journal:

• Live Blog: Ben Bernanke's Press Conference.
  
• Investors Hazard Bold Bet Against China's Yuan. The U.S and the International Monetary Fund are pressuring China to let its currency, the yuan, climb in value. Big banks, including Goldman Sachs Group Inc. and Citigroup Inc., have told investors to bet on a rising yuan. But a number of investors with unconventional views are placing gutsy wagers against the yuan. The moves have caused some rivals and observers to scratch their heads or even scoff.
• Relational to Report Stake in L-3(LLL). Activist investment firm Relational Investors LLC is expected to report on Wednesday that it has become the largest shareholder in defense firm L-3 Communications Holdings Inc., and is pushing for a breakup of the firm, people familiar with the situation said. Relational has acquired an almost 6% stake in the company since February, making it the biggest shareholder ahead of BlackRock Inc.'s nearly 5.9% stake, these people said.
• Toxic Material at Japan Plan Raises Risks. Excessive levels of highly toxic strontium have been detected in seawater and groundwater at Japan's Fukushima Daiichi nuclear complex, the plant operator said Monday, a development that suggests an increased risk of radioactive contamination further entering the food chain.

CNBC.com:

• Greek Cabinet Approves Draft of Austerity Plan.

Business Insider:

• Huge Upset: The NFL Players Won The Lockout.
• Apple's(AAPL) Year-Old iPhone 4 is Still the Top-Selling Smartphone.
• The Law School Bubble Is Popping Big Time.
• More Than Two Thirds of Cocaine in America is Contaminated With a Skin Rotting Chemical, Says the DOJ.
• The Misery Index Approaches New Highs. (graph)
  

Politico:

• CBO Warns Debt Could Double GDP. Applying a little shock treatment to White House deficit talks, the Congressional Budget Office released new projections Wednesday showing that the U.S. debt could be nearly twice the nation’s GDP in 25 years absent real changes in spending and tax policy.

Reuters:

• German Banks, Insurers to Discuss Greek Aid - Letter. The German government has invited private creditors to discuss voluntary participation in assistance for Greece in a meeting to start at 1330 GMT on Wednesday, according to the invitation letter seen by Reuters. Among companies invited to the talks are Deutsche Bank (DBKGn.DE), Commerzbank , Allianz , Munich Re (MUVGn.DE), HVB , LBBW , WestLB , HSH , DZ Bank (DGBGg.F) and Deka , three people familiar with the matter said. The Ministry's letter said the meeting would discuss all options for banks and insurers to help secure the solvency of Greece. "One possibility is to extend investment in Greek bonds upon expiry of current bonds," the letter said.
• Democrats Call For New Spending in Debt Deal. Efforts in the U.S. Congress to head off a debt default faced a new hurdle on Wednesday as Democratic leaders called for additional spending to boost the sluggish economy. Democrats' demand for new stimulus spending is directly at odds with the efforts of negotiators, led by Vice President Joe Biden, who are trying to find trillions of dollars in budget savings as part of a deal that would allow Congress to sign off on new borrowing before the country runs out of money to pay its bills. Those talks have largely focused on spending cuts that would take effect over the coming 10 years. Senate Democrats want the deal to include money for highway construction, a payroll tax cut and clean-energy subsidies to bring down the 9.1 percent unemployment rate. A new report outlined the grim fiscal realities that are forcing lawmakers to consider deep cuts in everything from farm subsidies to student aid. The nonpartisan Congressional Budget Office said the rising cost of health and retirement benefits will swamp the economy unless Congress boosts taxes or slashes spending.

Telegraph:

• Allied Irish Bank has 'Defaulted' Says Derivatives Body. Banks that sold insurance on the debt of Allied Irish Banks will have to pay out to investors in the nationalised lender's debt despite complex legal manoeuvres by the Irish authorities to avoid putting the lender into default.