Wednesday Watch

Evening Headlines
Bloomberg:

• Spain Holds First Bond Sale Since Budget as Debt Nears Record. Spain sells bonds today for the first time since announcing a 2012 budget that shows public debt surging to a record, though the fading impact of European Central Bank three-year loans to lenders may crimp demand. The Treasury will auction bonds maturing in 2015, 2016 and 2020, and release the results at about 10:40 a.m. in Madrid. All three securities have been auctioned before. The 2015 bond is one of the Spain’s most liquid with 19.3 billion euros ($25.7 billion) issued, according to data compiled by Bloomberg. “It won’t be a complete disaster, but I’d be surprised if we saw the strength of the auctions we’ve seen in the past,” Harvinder Sian, a senior interest-rate strategist at Royal Bank of Scotland Group Plc in London, said by telephone. The auction is the first since Budget Minister Cristobal Montoro presented this year’s budget and said public debt will rise to 79.8 percent of gross domestic product as the government makes the deepest budget cuts in three decades. That narrows the gap between Spain’s debt load and the European Commission’s projected average for the euro area to 10.6 percentage points, compared with 30.1 points in 2007 when Spain used budget surpluses to reduce borrowing. In its forecast, the commission put Spain’s debt burden at 73.8 percent of GDP this year. Spain’s financing costs have been held down by the ECB’s 1 trillion euros of unlimited three-year loans to banks, some of which have been recycled into high-yielding government debt.
• Draghi Tested as German Pay Deals Add to Euro Divergence Threat. Wage moderation in Germany may be coming to an end at precisely the wrong time for European Central Bank President Mario Draghi. As nations from Greece to Spain battle recessions and record unemployment, workers in Germany are winning some of the biggest pay increases in two decades, with public service staff set to gain 6.3 percent more by the end of next year. That’s widening the gaps between Europe’s largest economy and its euro- area peers, making the ECB’s one-size-fits-all monetary policy less effective.
• SanDisk(SNDK) Reduces Forecast for Quarterly Sales, Profitability. SanDisk Corp. (SNDK) (SNDK), the biggest maker of flash-memory cards, cut its forecast for first-quarter sales and profitability, citing weaker-than-expected pricing and demand for components that store data in mobile phones. Revenue in the quarter that ended April 1 will be about $1.2 billion, compared with an earlier forecast for $1.3 billion to $1.35 billion, Milpitas, California-based SanDisk said in a statement. Gross margin, a yardstick of profitability, will be below 39 percent to 42 percent, the company’s previous prediction, said SanDisk, which also makes the chips that go into flash-memory cards. The stock (SNDK) fell as much as 8 percent to $46.06 in extended trading, following the announcement.
• Taiwan Bourse Says Likely Tax on Trading Will Cause Stock Slump. Taiwan is likely to impose a capital-gains tax on share transactions to bolster revenues, causing equities to decline, said Schive Chi, the chairman of the island’s stock exchange. “The market will certainly react to this but I think that is because how the capital gains are going to be taxed is still not clear,” Schive said yesterday in an interview in Boao, China. “That will cause some kind of concern for uncertainty.”
• Fed's Lockhart Says Sustained Job Gains Reduce Need for Easing. “I would have to see some pretty severe circumstances before I endorse for another round of quantitative easing,” Lockhart said today on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays.
• Australia Posts Back-to-Back Trade Deficits on Coal Export Slump. Australia unexpectedly recorded a trade deficit for a second straight month in February, the first consecutive shortfalls in two years, as coal and metal exports slumped. The local currency fell to a 2 1/2-month low. Exports fell 2 percent to A$24.4 billion, led by a 16 percent drop in coal shipments and a 10 percent decline in metals, today’s report showed. Imports also weakened, slumping 4 percent to A$24.9 billion on a 14 percent decline in consumption goods and a 12 percent fall in machinery and industrial equipment, the report showed.

Wall Street Journal:

• Romney Wins Easily in D.C. and Maryland. Mitt Romney coasted to a pair of victories in Maryland and the District of Columbia and looked set to post a strong showing in Wisconsin on Tuesday night, further widening the gap between the Republican front-runner and the rest of the GOP presidential field. Mr. Romney won a sweeping victory in Maryland, with voters of many different backgrounds coalescing around the former Massachusetts governor, acording to exit polls. A plurality of voters said they most wanted a Republican candidate who is able to defeat President Barack Obama. Of those, nearly 3-out-of-4 favored Mr. Romney, according to CNN exit polls. Mr. Romney tied Mr. Santorum among voters who described themselves as "very conservative,'' a slice of the electorate that normally tilts heavily in Mr. Santorum's favor.
• Union Disapproves of Goldman's(GS) Choice for Lead Director. A union that brokered a deal under which Goldman Sachs Group Inc. agreed to appoint a new lead director isn't happy with the New York securities firm's choice. The American Federation of State, County and Municipal Employees disapproves of Goldman's choice this week of James J. Schiro, said Lisa Lindsley, director of capital strategies for the union.
• Samsung Pushes Into Mobile-Ad Market. Samsung Electronics Co. is taking a more hands-on role in the advertising on its mobile devices, putting the company in greater competition with Apple Inc.(AAPL) and Google Inc(GOOG). Samsung said Tuesday it's adding a mobile phone advertising exchange platform using technology from closely held U.S. firm OpenX Technologies Inc. The platform, called Samsung AdHub Market, will enable advertisers to place targeted messages within apps on Samsung phones and tablets.
• SEC Probes Ties to High-Speed Traders. U.S. securities regulators are conducting a wide-ranging investigation into the complex relationships between rapid-fire trading firms and stock exchanges, according to the official overseeing some 20 probes into computerized trading. The inquiry into ownership and other ties is part of a broader probe into whether high-speed traders have unfair advantages over other investors, according to people familiar with the matter.
• Tornadoes Barrel Through Dallas. Twisters menaced Dallas on Tuesday, stripping roofs off houses, prompting office workers to take shelter in the basements of downtown towers and forcing students to hunker down at schools in the area. In suburban Dallas, Lancaster police officer Paul Beck said 10 people were injured, two of them severely, according to the Associated Press. The city of Dallas reported damage to houses and businesses, including a trucking company, Schneider National Inc. The company said none of its workers were injured but reported "massive damage to our trucks and trailers located in the yard area," which held 254 trucks and 204 trailers.
• Paul Ryan's Hunger Games. The last two days have revealed Mr. Obama at his least appealing—and least Presidential—first warning the Supreme Court not to dare overturn his health-care law, and now demonizing the motives of his political opposition. It is a long, long way from his "there's no red America, there's no blue America" stuff of 2004, much less the inspiration of 2008. If nothing else, Americans are getting a preview of the rhetorical uplift, the bipartisan problem-solving, and the unifying national purpose that would attend another four years.

Business Insider:

• POLL OF THE DAY: Favorability Ratings On Obamacare Have Plummeted.
• Something Strange: The Economy Is Behaving Badly In The Least Expected Way.
• NOKIA LUMIA 900: Microsoft's Final Hope For Windows Phone Is Mediocre At Best [REVIEW].
• Family Member Of George Zimmerman To The NAACP: 'There Will Be Blood On Your Hands' The most interesting part of the letter letter includes a brief story of how Zimmerman did activist work on behalf of a black homeless man who was beaten by the son of a Sanford, Florida police officer–work he did alongside the NAACP.

Zero Hedge:

• Putting It All Into Perspective.
• "The Broken Window Fallacy": Why Government Stimulus Spending Will Keep The Unemployment Rate High.

CNBC:

• T.Boone Pickens: Oil Could Hit $148 Per Barrel. Tightening oil production worldwide could mean prices hitting $148 per barrel this summer, Texas billionaire investor T. Boone Pickens said Tuesday. Not even spare capacity from Saudi Arabia would be enough to make up the difference amid increasing sanctions against Iranian oil, Pickens said in an interview to be aired on “The Kudlow Report.”
• Burger King Returns to Stock Market. The hamburger chain, which is revamping its menu in an attempt to revive its struggling business, says it will list its stock on the New York Stock Exchange. The company says its international growth plans will benefit from better visibility as a public company.
• US Risk Council Ready to Tap for More Scrutiny. The U.S. financial risk council approved a final rule on Tuesday laying out how it will decide which financial companies outside the banking industry will face new scrutiny by the Federal Reserve in hopes of preventing a repeat of the 2007-2009 financial crisis.

IBD:

• Cardtronics'(CATM) ATM Network Thrives On Demand For Cash.
  

reason.com:

• Americans Want More Control Over Their Own Health Care. ObamaCare's popular provisions lose their appeal once Americans are confronted with the consequences. With the three-day ObamaCare circus at the Supreme Court behind us, let’s fast-forward to June. Suppose that five justices find their constitutional bearings and do what a majority of Americans want them to do: Scrap the individual mandate, the key provision without which the law will collapse. What then?

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 23% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).

Reuters:

• JPMorgan(JPM) Stable Value Fund Exiting Private Mortgages. JPMorgan Chase & Co is shedding mortgage debt from a stable value fund, under pressure from insurers in a case raising questions about suitable investments for funds normally regarded as a super-safe haven for retirement savings.
• Moody's Downgrades GE(GE), Citing GE Capital Risks. Moody's on Tuesday said it had downgraded the ratings of conglomerate General Electric Co and its finance unit General Electric Capital Corporation eac h by a notch, to reflect risks in GE Capital's funding model. Moody's said there are still remaining "material risks associated with the firm's funding model" even though GE Capital improved its liquidity and capital levels since the credit crisis. It said that the risk profiles of market-funded financial institutions like GE Capital are higher than was previously reflected in its ratings. The ratings agency said it had downgraded General Electric Co's debt to Aa3 from Aa2 and downgraded GE Capital to an A1 rating from Aa2.
• NBC News Regrets Editing of Trayvon Shooting Call. NBC News apologized on Tuesday for the way it edited a broadcast of a conversation between George Zimmerman and a police dispatcher before teenager Trayvon Martin was killed by Zimmerman. Last week Fox News did a report in which it presented "before" and "after" versions of the call. NBC had broadcast the edited exchange on its flagship "Today" morning show. NBC News launched an investigation after the Fox report.
• Fed's Williams - Jobless Rate Not Sole Trigger For Rate Hike. The U.S. Federal Reserve will need to begin raising rates well before unemployment falls to its long-term "natural" rate of 5.5 percent, but will look at a much broader range of economic data before making its decision, a top Fed official said on Tuesday.

Telegraph:

• Wolfson Gurus See Euro Break-Up As Dangerous But Liberating. A disorderly break-up of the euro would set off a cataclysmic chain-reaction and a collapse of Europe’s banking system, pushing the world into full-blown depression. That is the shared nightmare of those shortlisted for the £250,000 Wolfson Economics Prize - the richest economic award after the Nobel Prize - on how to "manage" a full or partial disintegration of monetary union. They agree on little else.

Evening Recommendations
Piper Jaffray:

• Raised (GPS) to Overweight, target $34.

Jefferies:

• Rated (TIBX) Buy, target $42.
• Rated (INFA) Buy, target $63.

Night Trading

• Asian equity indices are -1.25% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 154.50 unch.
  
• Asia Pacific Sovereign CDS Index 128.25 +1.25 basis points.
• FTSE-100 futures -.23%.
  
• S&P 500 futures -.35%.
  
• NASDAQ 100 futures -.29%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AYI)/.62
• (MON)/2.12
• (BBBY)/1.32
• (PSMT)/.67
• (RT)/.16

Economic Releases
8:15 am EST

• The ADP Employment Change for March is estimated to fall to 206K versus 216K in February.

10:00 am EST

• The ISM Non-Manufacturing Composite for March is estimated to fall to 56.8 versus 57.3 in February.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,500,000 barrels versus a +7,102,000 barrel gain the prior week. Distillate supplies are estimated to fall by -500,000 barrels versus a -711,000 barrel decline the prior week. Gasoline inventories are expected to fall by -1,400,000 barrels versus a -3,537,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.35% versus a +2.3% gain the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The ECB rate announcement, Fed's Williams speaking, weekly MBA mortgage applications report, BOA/Merrill NY Auto Summit, (RRGB) analyst day and the (DVN) analyst day could also impact trading today.
  

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

Stocks Lower into Final Hour on Less Dovish Fed Commentary, Global Growth Worries, Euro Weakness, Profit-Taking

Broad Market Tone:

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

Equity Investor Angst:

• VIX 16.33 +4.41%
  
• ISE Sentiment Index 121.0 +32.97%
  
• Total Put/Call .88 +6.02%
  
• NYSE Arms 1.79 +134.58%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 90.48 +.26%
  
• European Financial Sector CDS Index 216.88 -.49%
  
• Western Europe Sovereign Debt CDS Index 264.09 -.75%
  
• Emerging Market CDS Index 246.07 +1.40%
  
• 2-Year Swap Spread 25.25 -.25 basis point
  
• TED Spread 39.75 -1.0 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -50.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .07% +1 basis point
  
• Yield Curve 191.0 +4 basis points
  
• China Import Iron Ore Spot $147.60/Metric Tonne unch.
  
• Citi US Economic Surprise Index 11.80 -3.2 points
  
• 10-Year TIPS Spread 2.37 unch.
  

Overseas Futures:

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

Portfolio:

• Slightly Higher: On gains in my Tech, Retail and Biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades lower on a decline in the euro, global growth fears, profit-taking, less dovish fed commentary and more shorting. On the positive side, Oil Tanker, Restaurant and Airline shares are especially strong, rising more than +.5%. Oil is falling -.97%, Gold is down -2.0% and the UBS-Bloomberg Ag Spot Index is down -.56%. The 10Y Yld is rising +11 bps to 2.29%. Major Asian indices were mostly higher overnight, led by a +1.3% gain in Hong Kong. The Germany sovereign cds is down -1.85% to 70.66 bps, the Portugal sovereign cds is down -2.24% to 1,044.87 bps and the UK sovereign cds is down -2.12% to 61.83 bps. Weekly retail sales rose +3.6% versus a +3.4% gain the prior week. On the negative side, Coal, Alt Energy, Energy, Oil Service, Steel, Semi, Networking and Education shares are under meaningful pressure, falling more than -1.5%. Financials have underperformed throughout the day. Cyclicals are also relatively weak. Copper is down -.87% and Lumber is down -.42%. Major European indices fell around -1.75% today, led lower by a -2.71% decline in Spain. Spanish equities are now down -8.66% ytd, which remains a large red flag for the region. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak despite investor perceptions that the US economy is accelerating. Moreover, the Citi US Economic Surprise Index has fallen back to early-Nov. levels. Lumber is -9.0% since its Dec. 29th high despite the better US economic data, dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010. The Baltic Dry Index has plunged around -60.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -18.5% since Sept. 7th of last year. Shanghai Copper Inventories are right near a new record and have risen +741.0% ytd. Investors are finally beginning to pay attention to some negatives today. Spain's economic troubles are intensifying at a faster pace than the "kick-the-can" crowd had hoped, which will likely spur another intense bout of European debt crisis jitters over the coming months. Market leader (AAPL) continues to help prop up the entire market and has resumed its recent parabolic move higher. While the shares are extremely extended technically, its momentum will likely carry the stock still higher in the short-term before a pullback commences. Long AAPL. For the recent equity advance to regain traction, I would expect to see further European credit gauge improvement, a further subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, lower energy prices and more US economic optimism.

Today's Headlines

Bloomberg:

• Spain's Debt to Rise to Record 79.8%; Bond Sales to Decline. Spain’s public debt will rise to a record this year as it sells almost 37 billion euros ($49 billion) of bonds to finance a budget deficit that was nearly three times the euro-area limit last year. Total borrowing will reach 79.8 percent of gross domestic product as the country breaches the European Union’s deficit rules for a fifth year. That’s the highest since before the country’s return to democracy in 1978 and up from 68.5 percent last year, according to the 2012 budget that the government presented to Parliament today in Madrid. The yield on Spain’s 10-year bonds rose 6 basis point to 5.41 percent today and has gained more than 50 basis points since March 2 when Rajoy raised the deficit target, citing a deepening recession and his Socialist predecessor’s failures.
• Spanish Puts Hit Record Discount to Swaps in Santander: Options. The cost of options protecting against losses in shares of Banco Santander SA and Telefonica SA, Spain's biggest stocks, has never been lower relative to credit-default swaps on their bonds, spurring concern investors are underestimating risk in the equities. Implied volatility for three-month puts priced 10% below shares of Santander, Spain's largest lender, fell to 39.75 yesterday, while five-year swaps were at 359.48 basis points, Bloomberg data show. The ratio between the values fell to .107-to-1, an unprecedented level, on March 29. The equivalent figure for Telefonica reached a low yesterday.
• European Stocks Fall; Banks Lead Losses. European (SXXP) stocks dropped, paring the benchmark Stoxx Europe 600 Index’s biggest two-day rally since February, as Spanish bond yields rose and U.S. factory orders rebounded less than economists had estimated. Banca Popolare di Milano Scarl (PMI) led a gauge of European (SXXP) banking shares lower. Ferrovial SA (FER) tumbled 6.4 percent as Spain’s government published its budget for 2012.
• Home Prices Seen Dropping 10% in U.S. on Foreclosures: Mortgages. As many as 1.25 million of America's least cared for homes are headed for auction after a year-long probe into foreclosure practices kept them off the market. Sales of repossessed properties probably will rise 25 percent this year from 1 million in 2011, according to Moody's Analytics Inc. Prices for the homes could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc. That month, 43 percent of foreclosures were delinquent for two or more years, from a 21 percent share in 2010, according to Lender Processing Services Inc. in Jacksonville, Florida. "The longer a foreclosed home is in the mill, the bigger the losses," said Todd Sherer, who manages distressed mortgage investments for Dalton Investments LLC, a Los Angeles-based hedge fund that oversees $1.5 billion. "We have a bulge of these properties coming through the system."
• Oil Declines After U.S. Factory Orders Gained Less Than Expected. Oil fell for the first time in three days as U.S. factory orders climbed less than expected in February. Oil for May delivery slipped 51 cents, or 0.5 percent, to $104.72 a barrel at 11:59 a.m. on the New York Mercantile Exchange. Oil climbed 2.1 percent yesterday after U.S. manufacturing in March expanded at a faster pace than estimated. Oil is 6 percent higher this year. Brent crude for May settlement slid 9 cents to $125.34 a barrel on the London-based ICE Futures Europe exchange.
• PBOC's Zhou Urges Fed to Consider Global Effects of Policy Easing. China’s central bank Governor Zhou Xiaochuan said the U.S. Federal Reserve has a responsibility to consider the global effects of its actions after emerging-market economies suffered from capital inflows. Because the U.S. dollar is the world’s main reserve currency, the Fed “may have more responsibility not only to consider the U.S. economy but also the global economy,” Zhou said today during a panel discussion at the Boao Forum for Asia on the southern Chinese island of Hainan. Zhou’s comments reprise criticism of the U.S. from emerging nations who complained that so-called quantitative easing was sending unwanted cash into their economies, adding to inflation risks.
• U.S. Factory Orders Rose 1.3% in February on Capital Goods. Orders to U.S. factories climbed in February for the third month in the last four, boosted by demand for business equipment. Bookings rose 1.3 percent after a revised 1.1 percent decline in January, figures from the Commerce Department showed today in Washington. The median of 60 economists’ projections in a Bloomberg News survey called for a 1.5 percent advance. Orders excluding transportation equipment increased by the most in five months.
• GM(GM) Ford(F) U.S. Sales Increase Less Than Predicted. General Motors Co. (GM), with its premium brands losing ground, posted gains in U.S. vehicle sales that trailed analysts’ estimates while Chrysler Group LLC and Nissan Motor Co. reported better-than-projected increases.
• 'Apple(AAPL) Fever' to Push Stock to $1,000 for $1 Trillion Valuation. Apple Inc. (AAPL), already the world’s most valuable company, rose to an intraday record after two analysts said the stock could surge to $1,000 for the first market capitalization topping $1 trillion. Shares climbed 1.7 percent to $628.88 at 10:36 a.m. in New York, and earlier touched $631.29, after analysts from Piper Jaffray and Topeka Capital Markets said demand for Apple’s iPhone would propel shares. “There will be enough value over the next two plus years for Apple to add another $400 billion in market cap from a combination of growth in dollars invested in tech and continued shift from major Apple competitors,” said Gene Munster of Piper Jaffray, in a note today predicting that the stock can reach $1,000 in 2014.
• FOMC Saw No Need of New Monetary Easing, March Minutes Show. The Federal Reserve is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target. “A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to minutes of their March 13 meeting released today in Washington.

Wall Street Journal:

• Spanish Banks Find New Source of Capital. The key in a banking crisis is to keep the confidence of depositors. But while many countries relied on capital injections and government guarantees, Spanish banks have added a unique twist of effectively turning some depositors into equity holders. That puts customers on the front line.
• China Permier: Considering Breaking Bank Monopoly. Chinese Premier Wen Jiabao told a national audience on Tuesday that China's state-controlled banks are a "monopoly" that must be broken, in an unusually blunt appeal for a shake-up of the creaky financial system of the world's No. 2 economy.
• GOP, Romney to Raise Funds Jointly. In a move that shows Republicans are coalescing around the party's front-runner, Mitt Romney plans to begin raising money jointly with the Republican National Committee this week as both the candidate and the GOP brace for an expensive general-election fight against President Barack Obama.
  

CNBC.com:

• Iran Says Could Hit U.S. If It Came Under Attack: Paper. The United States would not be safe from retaliation if Iran is attacked by Washington, the Iran newspaper quoted a senior Revolutionary Guards commander on Tuesday as saying. "In the face of any attack, we will have a crushing response. In that case, we will not only act in the boundaries of the Middle East and the Persian Gulf, no place in America will be safe from our attacks," Massoud Jazayeri was quoted as saying by the daily.
• Small Business Lending Barely Grew in February: Study. Lending to small business in the United States barely grew in February, supporting the view that economic growth was lackluster at the start of the year. The Thomson Reuters/PayNet Small Business Lending Index, which measures the overall volume of financing to U.S. small businesses, edged up to 98.3 in February from 98.2 a month earlier, PayNet said on Tuesday. Borrowing rose 14 percent from a year earlier, the lowest 12-month growth rate since September.
• Break Up the Big US Banks? Why It Could Actually Happen.
  

Business Insider:

• Private Equity And Hedge Funds Take Note: Here's How A Big Tax Hike Is Coming From Somewhere You'd Never Expect. The hedge fund and private equity industries have been talking about this for a while — a potential tax hike from the Obama administration. Now we know more about where it's coming from. Bloomberg's Cristina Alesci reported on Money Moves yesterday that the tax hike would come from health care reform legislation passed two years ago.
• Gene Munster: Research In Motion Is Going 'Out of Business'. (video)
• No One Knows Where The Money Will Come From For California's $68 Billion High Speed Rail Plan.

Zero Hedge:

• On The Demise Of European Bank Debt.

Telegraph:

• Troika Praises Portugal's Austerity Measures But Spanish Fears Grow. Portugal has been praised by its international paymasters for its austerity progress but European markets still lurched amid fears over the stability of Spain and Italy. A report by Open Europe argued Spain's banks hold €136bn of "doubtful loans" and now represent the biggest threat to the country and the eurozone. The London-based think-tank said Spanish banks need to double their provisions to €100bn to protect themselves and the economy from further property price falls. Raoul Ruparel of Open Europe said the €50bn provisions ordered by the Spanish government was "woefully short", adding: "All the austerity efforts made by the Spanish government could be wiped out by the banks." The report warned: "Given its size, the fate of the Spanish economy will also largely decide the fate of the euro."

Bear Radar

Style Underperformer:

• Large-Cap Value -1.20%

Sector Underperformers:

• 1) Gold -3.0% 2) Coal -2.40% 3) Steel -2.10%

Stocks Falling on Unusual Volume:

• IVN, YPF, DB, TOT, TIF, DIN, FDML, LFUS, PATK, LBTYK, RIMM, CLVS, SBAC, FAST, TRS, FMCN, APOL, IMOS, VRNT, FSLR, STSA, GOLD, KIOR, XSD, KNM, PPG, TAP and GM
  

Stocks With Unusual Put Option Activity:

• 1) IVN 2) AVP 3) BG 4) HOT 5) GM
  

Stocks With Most Negative News Mentions:

• 1) JRCC 2) USB 3) GOOG 4) RIMM 5) LULU
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.31%

Sector Outperformers:

• 1) Airlines +1.39% 2) Hospitals +1.35% 3) Oil Tankers +1.15%

Stocks Rising on Unusual Volume:

• ABG, PIR, URBN, FINL, SZYM, LNG, CONN, SXCI, CAVM, ESRX, THRX, MDVN, ONXX, Z, CHSI, GLNG, MSTR, ZUMZ, MIND, HAIN, GPN, IHC, CVI, PAG, ABG, DDD, GPI, RGR, SAH, DAL, HCA and EDMC
  

Stocks With Unusual Call Option Activity:

• 1) RRC 2) WLP 3) NOV 4) DBA 5) URBN
  

Stocks With Most Positive News Mentions:

• 1) URBN 2) DAL 3) AN 4) NOC 5) F
  

Charts:

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

Tuesday Watch

Evening Headlines
Bloomberg:

• Five Years After Crisis, No Normal Recovery: Reinhart and Rogoff.
• Japan's Monetary Base Slides for First Time Since 2008: Economy. Japan’s liquidity supply dropped in March for the first time in more than three years, fueling politicians’ complaints that the central bank should be doing more to end deflation.
• People's Bank of China Governor Zhou Xiaochuan said China's goal is to gradually reduce inflation and that the country is using interest rates combined with other measures to achieve a soft landing. Zhou, speaking on a panel at the Boao Forum for Asia in China today, said using interest rates too much may increase capital inflows.
  
• RBC Sued by U.S. Regulators Over Wash Trades. Royal Bank of Canada was sued by U.S. regulators over claims that the Toronto-based lender engaged in illegal futures trades worth hundreds of millions of dollars to garner tax benefits tied to equities. Canada’s biggest bank made false and misleading statements about “wash trades” from 2007 to 2010 in which affiliates traded among themselves in a way that undermined competition and price discovery on the OneChicago LLC exchange, the Commodity Futures Trading Commission said yesterday in a complaint filed in Manhattan federal court. “A fundamental purpose of the futures markets is to provide an arm’s-length mechanism for market participants to discover prices and shift risks associated with products traded in those markets,” CFTC enforcement director David Meister said in an e-mailed statement. “RBC not only designed and executed a wash sale scheme that undermined that purpose, it went a step further and misled the exchange into believing that its conduct was lawful.”
• Australia LNG Boom Threatened by U.S. Shale Exporters: Energy. Australian liquefied-natural gas projects by companies from Royal Dutch Shell Plc (RDSA) to Woodside Petroleum Ltd. (WPL) and valued at about $100 billion are at risk from rising costs and cheaper U.S. exports. Natural gas trading at a 10-year low in the U.S. and discoveries in Africa also threaten to slow the development of Australian LNG ventures following the approval of eight projects to meet surging demand from China, Japan and South Korea.
• High School Substance Abusers Start Using at Age 14, Study Finds. The 15 percent of U.S. high school seniors who abuse alcohol and drugs first began using them at age 14 or 15, according to a study that's one of the first to track substance-abuse trajectories during this key period. The finding, reported today in the Archives of General Psychiatry, suggests that prevention programs should begin early in adolescence before problems arise, rather than when abuse becomes obvious, said Joel Swendsen, the lead author.
• Tanker Rates Seen Reversing Rally as Oil Glut Expands: Freight. The fastest expansion in oil cargoes since 2004 is exceeding demand and filling up storage tanks from Egypt to Japan, creating a glut that threatens to reverse the biggest gain in shipping rates in five years. Tankers will be carrying 488.8 million barrels by April 14, 3.9 percent more than the week earlier, estimates Oil Movements, which has tracked cargoes for 25 years. Rates for very large crude carriers, each holding 2 million barrels, will drop 58 percent to average $19,750 a day, the median of six analyst forecasts compiled by Bloomberg shows. Shares of Hamilton, Bermuda-based Frontline Ltd. (FRO), the largest operator, will fall 46 percent in 12 months, the average of 19 predictions shows.
• Sina(SINA) Drops to 5-Week Low After Suspending Weibo Commentary. Sina Corp. (SINA), which runs the Twitter- like Weibo service in China, slid to the lowest in five weeks in New York after the company suspended user comments on its microblogging platform. Sina dropped 2.1 percent to $63.66 at the close on the Nasdaq Stock Market, the lowest price since Feb. 27.

Wall Street Journal:

• Wall Street Revamps Muni Swaps. The spike in municipal defaults that some observers forecast for last year never materialized, but that isn't stopping Wall Street from trying to stoke interest in derivatives designed to protect against cities and states not honoring their financial obligations. The efforts, spearheaded by dealer banks like Citigroup Inc. and Goldman Sachs Group Inc., come as pockets of the muni market are showing signs of distress and as traditional bond insurers struggle to bounce back from blows they sustained in the financial crisis.
• Choices Shrink for Subprime Set. A shakeout in the storefront-loan business may make credit even tighter for millions of borrowers with less-than-stellar credit histories.
• SEC Probes Groupon(GRPN). The Securities and Exchange Commission is examining Groupon Inc.'s revision of its first set of financial results as a public company, according to a person familiar with the situation. The regulator's probe into the popular online-coupon company is at a preliminary stage and the SEC hasn't yet decided whether to launch a formal investigation into the matter, the person said.
• Scarred Avon(AVP) Is Takeover Target. Avon Products Inc., weakened by poor financial results, a long-running investigation into alleged overseas bribery and a lame-duck CEO, found itself in play Monday when a smaller rival offered to buy the door-to-door cosmetics company for $10 billion.
• Optical Delusion? Fiber Booms Again, Despite Bust. Telecom contractor Bob Sellenriek recently bought three massive bulldozers and fitted them with cable-burying plows that had been gathering dust in his warehouse for a decade. Mr. Sellenriek needed the plows for something he has done very little of since the telecom bubble burst and wiped out $2 trillion in stock market wealth more than 10 years ago: laying miles of new fiber-optic cable. After years of licking its wounds, and with much of the fiber-optic cable capacity in the ground still unused, the telecom industry is going on another building spree.

Business Insider:

• NBC Edited The 911 Audio and Made George Zimmerman Sound Racist.
• Obama Dares The Supreme Court To Overturn His Health Care Law.
• These Two Countries Are Great Examples Of Why Small Governments Work.
• New Generation Of US Nuclear-Powered Drones Would Be Able To Fly For Months Without Refueling.
• On The Hot Seat: 10 Tech CEOs Who Could Be Fired Tomorrow.
  

Zero Hedge:

• Foodstamp Usage Remains At All Time High, Record Number of Households Receive $277 In Poverty Assistance Monthly. (graphs)
• World's Largest Solar Plant, With Second Largest Ever Department of Energy Loan Guarantee, Files For Bankruptcy.
• 10 'Facts' That Should Worry Europe's Equity 'Fiction'. (graphs)
  

CNBC:

• U.S. Investigates Possible Internet Threat to NYC. U.S. law enforcement and counterterrorism officials are trying to figure out the significance of recent occurrences on websites believed to have close links to al Qaeda, including a graphic some fear could be an attack threat directed at New York City. The graphic contained a picture of the Manhattan skyline superimposed with a Hollywood-style caption that says: "ALQAEDA - coming soon again in New York." It was posted on Monday by a site called the Ansar al Mujahiddin Arabic Forum, or AMAF, a militant web forum which allegedly has close connections to the Afghan Taliban and a key militant leader in Jordan.
• How a Failed Deal Got Goldman Entangled in Sex Trafficking. It’s another day of nightmare headlines for Goldman Sachs. “Goldman fund to exit company owning sex traffic site,” reads the Reuters headline. “How Goldman Sachs Invested in Child Sex Trafficking,” Jezebel’s headline proclaims. At pixel time a search on Google for the phrase “sex traffic” coupled with “Goldman Sachs” produced more than a half a million hits.
• Goldman(GS) Names Schiro as Lead Independent Director.

Seeking Alpha:

• Hedge Funds Love These 18 Rallying Consumer Goods Stocks.

The Tennessean:

• UAW Wants Volkswagen Workers to Seek Union Election. Labor group starts passing out signature cards as first step. The United Auto Workers union has begun passing out cards to employees of the Volkswagen plant in Chattanooga to determine whether there is enough support to hold a union representation election.

CNN:

• Exclusive: The $1.3 Billion Bond Deal Haunting Goldman(GS). What went into the 2006 Fremont Home Loan Trust from Goldman Sachs that has the SEC so bothered?

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Monday shows that 24% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-nine percent (39%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).

AP:

• Cops: 7 Dead, 3 Hurt in Christian School Shooting. A gunman opened fire Monday at a Christian university in California, killing at least seven people, wounding three more and setting off an intense, chaotic manhunt that ended with his capture at a nearby shopping center, authorities said. The gunfire erupted around midmorning at Oikos University. Heavily armed officers swarmed the school in a large industrial park near the Oakland airport and, for at least an hour, believed the gunman could still be inside.

Reuters:

• Cavium(CAVM) Cuts 1st-Qtr Forecast. Chipmaker Cavium Inc cut its first-quarter forecast on lower revenue from the service provider, broadband and consumer markets. Cavium shares were down more than 5 percent after the bell. They had closed at $30.57 on Monday on the Nasdaq.

Financial Times:

• CFTC Bans Election-Based Derivatives Contracts. The Commodity Futures Trading Commission on Monday issued an order prohibiting the North American Derivatives Exchange from introducing “political event contracts”, which would have been the first regulated products to allow investors to place bets on the outcome of the 2012 US elections.
• Fears Grow in Asia Over US Swaps Rules. Asian banks and regulators are growing concerned about the potential impact of incoming US financial regulations on the markets for swaps and derivatives, which could stifle the ability of Asian clearinghouses to attract business.

Evening Recommendations
Oppenheimer:

• Rated (HMSY) Outperform, target $41.

Night Trading

• Asian equity indices are -.50% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 154.50 -1.5 basis points.
  
• Asia Pacific Sovereign CDS Index 127.0 +.25 basis point.
• FTSE-100 futures +.13%.
  
• S&P 500 futures -.05%.
  
• NASDAQ 100 futures +.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CMVT)/.17

Economic Releases
10:00 am EST

• Factory Orders for February are estimated to rise +1.5% versus a -1.0% decline in January.

2:00 pm EST

• Minutes of FOMC Meeting.

Afternoon

• Total Vehicles Sales for March are estimated to fall to 14.6M versus 15.03M in February.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Williams speaking, Spain Budget Presentation, weekly retail sales reports, ISM New York for March and the Needham Healthcare Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.