Stocks Falling into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fears, Less Financial Sector Optimism, Technical Selling

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 21.55 +8.59%
  
• ISE Sentiment Index 75.0 -1.88%
  
• Total Put/Call 1.30 +4.84%
  
• NYSE Arms 1.06 -18.04%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 114.15 +5.13%
  
• European Financial Sector CDS Index 280.55 +5.78%
  
• Western Europe Sovereign Debt CDS Index 293.57 +2.83%
  
• Emerging Market CDS Index 286.52 +6.38%
  
• 2-Year Swap Spread 38.0 +4.0 basis points
  
• TED Spread 38.0 +.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -48.0 -3.0 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 152.0 -6 basis points
  
• China Import Iron Ore Spot $136.70/Metric Tonne -.65%
  
• Citi US Economic Surprise Index -23.40 +.9 point
  
• 10-Year TIPS Spread 2.14 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating a -101 open in Japan
• DAX Futures: Indicating -20 open in Germany
  

Portfolio:

• Slightly Lower: On losses in my Tech, Retail, Medical and Biotech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows and is testing its early-March low on rising Eurozone debt angst, less financial sector optimism, high energy prices, rising global growth fears, technical selling and more shorting. On the positive side, Disk Drive and Education shares are rising on the day. Oil is falling -1.5%, the UBS-Bloomberg Ag Spot Index is down -.4%, Lumber is gaining +.3% and Gold is down -1.3%. On the negative side, Steel, Bank, I-Banking, Alt Energy, Oil Tanker, Energy, Oil Service, Ag, Paper, Construction, Homebuilding and Gaming shares are under significant pressure, falling more than -1.75%. Cyclical and small-cap shares are underperforming. Financial shares have also lagged throughout the day. Copper is down -3.5%. Major Asian indices were mostly lower, led down by a -1.15% decline in Hong Kong despite the China RRR cut. Major European indices are falling around -2.5%, led lower by a -3.2% decline in Italy. Italy is now down -10.3% ytd and down -20.7% in less than 2 months. As well, Spain is down another -3.1% today. The IBEX is down -20.9% ytd and just 81 points away from its March 2009 low. The Bloomberg European Bank/Financial Services Index is down -3.2% today and down -20.0% in less than 2 months. The Germany sovereign cds is surging +6.2% to 93.50 bps, the France sovereign cds is rising 4.0% to 215.33 bps, the Spain sovereign cds is rising +3.4% to 535.0 bps(all-time high), the Italy sovereign cds is rising +5.7% to 485.34 bps, the Ireland sovereign cds is gaining +6.0% to 630.67 bps, the Brazil sovereign cds is surging +6.5% to 140.59 bps, the Russia sovereign cds is soaring +8.9% to 226.84 bps, the China sovereign cds is gaining +3.3% to 122.63 bps and the US sovereign cds is gaining +3.2% to 42.11 bps. Moreover, the European Investment Grade CDS Index is rising +6.7% to 168.64 bps and the Italian/German 10Y Yld Spread is gaining +6.2% to 424.01 bps. US Rail Traffic continues to soften. The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak. Moreover, the Citi US Economic Surprise Index has fallen back to early-Oct. levels. Lumber is -3.0% since its Dec. 29th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -50.0% from its Oct. 14th high and is now down around -30.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +515.0% ytd. The Citi Eurozone Economic Surprise Index is falling another -6.2 points today to -42.10 points, which is the worst reading since mid-Nov. The recent intensification of the downturn in Eurozone economies raises the odds of further sovereign/bank downgrades. Overall, recent credit gauge deterioration is a big worry with most key sovereign cds breaking out technically. I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly high. Moreover, the 10Y T-Note continues to trade too well, with the yield only 10 bps from its record low of 1.67%. The T-Note is technically extended and the yield is at the lower-end of the range it has been in since Sept. However, I continue to believe the T-Note yield will move significantly lower over the intermediate-term during the next US recession. Copper continues to trade poorly and is breaking down from the range it has been trapped in since Jan. The CRB Commodities Index is gapping down below the trading range it has been in since Oct. 2010. This index is now technically in a bear market, having declined -21.7% since May 2nd of last year. Moreover, the euro currency continues to trade poorly and is moving towards its Jan. low. I do not expect this low to hold over the coming months. It is looking increasingly likely that another intense escalation phase of the European debt crisis has already begun. I currently do not hear any “solutions” to the crisis that will prove anything other than very painful for the region’s economies and thus the global economy over the intermediate-term. 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, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on rising Eurozone debt angst, rising global growth fears, more shorting, technical selling and less financial sector optimism.

Today's Headlines

Bloomberg:

• Greece Euro-Exit Debate Goes Public. European finance ministers grappled with the costs of keeping Greece in the euro area or letting it go, as Greece’s post-election political feud dragged on with little progress toward forming a government. German Finance Minister Wolfgang Schaeuble said Europe has done the “utmost” to prop up the financially stricken country, limiting any further room for leniency after about 240 billion euros ($308 billion) of aid pledges. “There’s no easy way for Greece, whatever the outcome will be,” Schaeuble told reporters before a meeting of euro-area finance ministers in Brussels today. “It’s not about the question of being more or less generous toward Greece. It’s simply about what is still economically justifiable, what can be done that’s still convincing in economic terms, that still has credibility.” Signs of stress abounded in European markets today. The euro fell for the 10th time in 11 days and bond yields in recession-wracked Spain, the next potential candidate for financial aid, touched a five-month high. On the eighth day of Greece’s post-election maneuvering, the head of the biggest anti-bailout party, Alexis Tsipras, said he would boycott an evening meeting in Athens, the latest attempt to form a unity government, and pushed for a new election.
• Hollande Jobs Pledge Faces Test as Corporate France Readies Job Cuts. France Inc. risks losing more than 15,000 jobs in the months ahead, testing Socialist President- elect Francois Hollande’s resolve to block firings. Companies from Carrefour SA (CA) and Peugeot SA to Air France- KLM and Vivendi SA (VIV) are reorganizing operations to counter shrinking growth as the economy at home and across Europe slows. The presidential race prompted many companies to put job-cutting plans on hold to avoid becoming a campaign subject. With the May 6 vote behind them, the wave of firings may start, unions say.
• Ifo’s Sinn Says S. Europe Faces ‘Infirmity,’ Handelsblatt Says. Hans-Werner Sinn, president of the Munich-based Ifo economic institute, said supplying southern European countries with continued, cheap, public credit will lead to a infirmity if not to a complete economic collapse in Europe, Handelsblatt said. When the euro region becomes the central administrator with investment management carried out by the state, the system can’t work because it prevents the capital market from being the important economic driver, Sinn wrote in a guest commentary in the German newspaper. The European Central Bank is causing private capital to flee countries such as Italy and Spain because it offers cheap credit, Sinn wrote in Handelsblatt.
• Papademos Says Hard for Greece to Make June Payments, Ta Nea Says. The Greek state will find it difficult to cover its payment needs in June, Ta Nea said citing Prime Minister Lucas Papademos in a letter given to Greek President Karolos Papoulias. The withholding of 1 billion euros ($1.3 billion) from the May loan tranche from the European Union, the European Central Bank and the International Monetary Fund and May 6 elections stalling the tax collection process are putting pressure on the state’s coffers the Athens-based newspaper reported, without saying how it obtained the letter.
• European Stocks Drop on Greek Deadlock, Merkel's Setback. European stocks retreated, snapping two days of gains, as Greece moved closer to a possible exit from the euro currency union and German Chancellor Angela Merkel’s party lost a state election. Banks paced losses, with HSBC Holdings Plc (HSBA) dropping 1.5 percent. Infineon Technologies AG (IFX), Europe’s second-largest semiconductor maker, retreated after Chief Executive Officer Peter Bauer decided to step down. ING Groep NV (INGA) tumbled 6 percent as European Union regulators will reexamine its rescue by the Dutch government. The Stoxx Europe 600 Index lost 1.8 percent to 247.43 at the close of trading. All 19 industry groups on the gauge fell. The Stoxx 600 has pared this year’s gains to 1.2 percent as an inconclusive election in Greece left political parties struggling to form a government, risking the collapse of proposed austerity measures.
• Europe's Cross-Border Bank Model at Risk, Development Bank Says. Euro-area governments are encouraging local lenders to trim their foreign exposure, threatening the continent's cross-border banking model, European Bank for Reconstruction and Development economists wrote in the Times. The governments want banks to lend more at home at the expense of subsidiaries elsewhere in Europe, causing capital and liquidity to be hoarded, the economists wrote. That's leading to a shortage of credit in some countries, with emerging Europe and the U.K. at risk, they added. "We are witnessing an astonishing process of financial fragmentation," Erik Berglof, chief economist at the London-based EBRD, and Jeromin Zettelmeyer, his deputy, wrote today in the newspaper. "Sovereign and bank risk are impairing the ability of banks in the periphery countries to lend."
• Sovereign Debt Risk Rises as Spain Bank Woes Heighten Euro Alarm. The cost of insuring against a sovereign default in Europe surged as Greece’s political deadlock and Spain’s bank capital crisis heightened speculation the euro region may start to crumble. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments jumped 7.5 basis points to 293.5 at 3:15 p.m. in London, signaling deterioration in perceptions of credit quality. Contracts on Spain soared as much as 26 basis points to a record 543, according to Bloomberg data. European officials are starting to consider a Greek abandonment of the euro as authorities in Athens struggle to form a government that agrees to the austerity terms of the nation’s bailout. Spain’s plan to force banks to increase provisions by 30 billion euros ($39 billion) and inject less than 15 billion euros of cash will worsen its debt burden and may not be enough, Moody’s Investors Service said. “The risk eventually is some kind of euro exit,” said Harpreet Parhar, a strategist at Credit Agricole SA (ACA) in London. “There’s the rise of austerity rebels in other countries as well, and Spain’s bank recapitalization plan isn’t going to be sufficient to convince people.” Swaps on Spain were trading at 539, while Italian debt jumped 29 basis points to a four-month high of 487 and Ireland climbed 28 to 621, Bloomberg data show. The cost of insuring against default on European corporate and financial debt rose to the highest levels since January, according to BNP Paribas SA. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings soared 43 basis points to 728. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 13 to 171. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers jumped 21 basis points to 286.5 and the subordinated index was up 32 at 467.
• India Inflation Quickens, Curbing Room for Cutting Rates. Indian inflation unexpectedly accelerated in April, crimping the central bank’s scope to bolster economic growth by extending interest-rate cuts. Stocks fell, reversing earlier gains. The benchmark wholesale-price index rose 7.23 percent from a year earlier, after climbing 6.89 percent in March, the Ministry of Commerce and Industry said in a statement in New Delhi today. The median of 32 estimates in a Bloomberg News survey was for a 6.67 percent gain.
• China Growth Seen at 13-Year Low by PIMCO. China’s slowdown may deepen as policy makers unwind the excesses of a record credit boom while only gradually increasing stimulus, leaving 2012 growth at the weakest in 13 years, Pacific Investment Management Co. says.
• Dimon Fortress Breached as Push From Hedges to Bets Blows Up.
• Brown Calls for $8.3 Billion Cuts to Close Wider Deficit. California Governor Jerry Brown proposed $8.3 billion of cuts from welfare and medical care for the poor to help close a $15.7 billion state deficit for the year starting July 1. The revised deficit is about 70 percent more than Brown projected in January after tax revenue fell short, spending exceeded projections and some savings were blocked by the federal government, courts and Democrats in the Legislature.
• Facebook(FB) Said Set to Finish Taking IPO Orders Tomorrow. Facebook Inc. plans to stop taking orders for its initial public offering tomorrow, two days ahead of schedule, according to a person with knowledge of the transaction. Facebook will likely finish taking orders for the IPO after U.S. markets close May 15, said the person, who declined to be identified as the plans are private. The offer of 337.4 million shares at $28 to $35 each has been oversubscribed, people with knowledge of the matter said. Jonathan Thaw, a spokesman for Facebook, declined to comment.

Wall Street Journal:

• Iran Talks' Moment of Truth Has Arrived. In the long and winding American quest to curb Iran's nuclear program, the next month is the most critical period yet. And there are three men to keep an eye on as it unfolds: President Barack Obama, Iranian Supreme Leader Ali Khamenei and Israeli Defense Minister Ehud Barak.
  
• John Snow: 'Taxmaggedon' Is a Real Threat. Next year's scheduled increases on dividends and capital gains will retard investment and derail the recovery.

CNBC.com:

• Copper Hits 4-Month Low On China, Eurozone Fears. Copper hit a four-month low on Monday as political deadlock in Greece kept alive the risk of the country leaving the euro zone and as investors worried about slowing growth in top copper consumer China.
• Europe's Woes Hit Global Demand for Luxury Homes.
  

Business Insider:

• El-Erian: The Eurozone Is Facing A Lose-Lose Situation.
• Meet Matt Zames, The Former Long-Term Capital Management Trader Who Is Now JPMorgan's(JPM) CIO.
• 3 Reasons Why You Should Care About Chesapeake Energy(CHK).
• The Romney Campaign Responds: Obama is a Crony-Capitalist Who Is Wrecking America With Debt.
• Putin's Decision To Not Attend This Week's G-8 Summit Is A Huge Snub, And No One Can Work Out Why He Did It.
• 5 Reasons Why Everyone Is Panicking About Spain.
• Are You Sitting Down? JPMorgan's(JPM) Losses May Be $1 Billion More Than Revealed Last Week.
• Here's Why Facebook's(FB) Big Profit Margins Won't Last Long.
  

Zero Hedge:

• Greece Virtually Out Of Cash One Day Before Critical Bond Maturity.
• Must See: Greece Explained In One Picture.
• Iberia Implodes to 17-Year Lows as Stigma Trade +200%. (graphs)
• The New European Serfdom.
  

NY Post:

• Political Hedge. Blackstone Group(BX) President Tony James is holding a $35,800-per-plate fund-raiser tonight at his Park Avenue co-op that has hauled in around $1.5 million for President Obama’s re-election campaign. “He’s pushing hard, and I think he’s struggling a bit,” said a Democratic source close to the event.
• Break Up The Big Banks Before Its Too Late by Charles Gasparino.
  

US News:

• Why JPMorgan's(JPM) Jamie Dimon Should Resign.
  

Reuters:

• Brazil Economy to Miss 2012 Growth Target - Sources. Brazil's economy is set to expand slightly above the 2.7 percent growth rate of last year despite a barrage of government actions to revive consumption and industry, and an aggressive cycle of interest rate cuts that is driving borrowing costs close to a record low.
• Greek Socialist Leader Says Not Optimistic About Forming Coalition.
  

Telegraph:

• Debt Crisis: Live. Markets have fallen heavily and debt yields have risen, as EU finance ministers meet this afternoon for 'political' talks that are expected to focus on the ongoing crises in Greece and Spain.

RTHK:

• Li & Fung Says Europe Uncertainties May Affect Exports. Exports to Europe seen to be impacted by the debt crisis in the region, citing Chairman William Fung. Fung said market growth in China may be slower than that of last year. The Co. says price increases of export orders to China can offset volume decline.

Bear Radar

Style Underperformer:

• Small-Cap Growth -1.0%

Sector Underperformers:

• 1) Oil Tankers -3.40% 2) Steel -2.14% 3) Construction -1.82%

Stocks Falling on Unusual Volume:

• TGA, BCS, TI, PBR, BBL, RIO, STMP, KSU, ACOM, GCOM, ACFN, MAKO, CPNO, PSSI, FMCN, CNSL, ANIK, RGLD, APEI, CASY, MPEL, PHMD, HCII, IPGP, VLCCF, TWGP, LMCA, TGA, CCH, GGC, WPC, EWQ, AAP, BCA, LUK, BID, NUS, MAIN and CFX
  

Stocks With Unusual Put Option Activity:

• 1) CTRP 2) XME 3) NBR 4) IOC 5) CIT
  

Stocks With Most Negative News Mentions:

• 1) TIF 2) JPM 3) PNC 4) GCI 5) ICE
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth -.92%

Sector Outperformers:

• 1) Defense -.31% 2) Retail -.40% 3) Coal -.44%

Stocks Rising on Unusual Volume:

• GRPN, GME, IMOS, CHK, VTUS, FRAN, BMC, SYNC, VRTX and MDVN
  

Stocks With Unusual Call Option Activity:

• 1) PCS 2) ARCO 3) KERX 4) EUO 5) ACOM
  

Stocks With Most Positive News Mentions:

• 1) SCHW 2) JACK 3) NOC 4) S 5) T
  

Charts:

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

Monday Watch

Weekend Headlines
Bloomberg:

• Euro Officials Begin to Weigh Greek Exit. Greece’s possible exit from the euro area moved to the center of Europe’s debt-crisis debate, with officials beginning to weigh the fallout of a withdrawal even as authorities in Athens struggled to form a government. Meetings brokered by Greek President Karolos Papoulias are set to continue today after Syriza, the largest anti-bailout party, rejected a unity government following last week’s inconclusive elections. The country where the 2 1/2-year-old crisis began moved closer to a new vote, and to the possibility of a euro-area exit that was once a taboo among policy makers. Greek withdrawal “is not necessarily fatal, but it is not attractive,” European Central Bank Governing Council member Patrick Honohan said in Tallinn on May 12. An exit was “technically” possible yet would damage the euro, he said. German Finance Minister Wolfgang Schaeuble reiterated in an interview in Sueddeutsche Zeitung that member states seeking to hold the line on austerity for Greece could not force the country to stay. The debate between growth and austerity will form the centerpiece of talks tomorrow between the newly installed French President Francois Hollande and German Chancellor Angela Merkel, who has championed an agenda of spending cuts. Euro finance ministers meet today and may discuss the international bailout for Greece, as well as the situation in Spain, where the government last week made a fourth attempt to clean up the country’s banks. The euro-area finance ministers will convene in Brussels at 5 p.m. local time.
• Merkel's CDU Defeated in Worst Postwar Result in Biggest State. Chancellor Angela Merkel's party was defeated in Germany's most populous state in an election that helped the Social Democrats tighten their grip on the country's regional governments. The SPD, the main opposition party nationally, increased its vote share in yesterday's ballot in North Rhine-Westphalia, enabling Prime Minister Hannelore Kraft to return to power at the head of a government with the Greens in the state capital Dusseldorf. Merkel's Christian Democratic Union fell to its worst score since World War II. The result is a setback for Merkel after she headlined nine campaign rallies in 27 days in North Rhine-Westphalia in a bid to regain the state, the first her CDU lost in 2010 as the debt crisis erupted and voters rebelled against bailing out Greece. The SPD is now in power in 11 of Germany's 16 states.
  
• Syriza Says It Won’t Join Greek National Unity Government. Greece’s biggest anti-bailout party, Syriza, said for the second time in as many days that it won’t join a unity government, pushing the country closer to new elections that have sparked concerns about a euro-area exit. “Syriza won’t betray the Greek people,” leader Alexis Tsipras said in statements televised on state-run NET TV after a meeting brokered by President Karolos Papoulias between the party and the leaders of the New Democracy and Pasok parties. “We are being asked to agree to the destruction of Greek society.” Papoulias began a final bid to coax the three biggest parties into a coalition today after a week of talks which failed to deliver on mandates to form governments. He will meet later today the leaders of the four other parties to probe the likelihood of forming a national-unity government. If Papoulias’s efforts fail, new elections will need to be called.
• As European Austerity Ends, So Could the Euro. The problem isn’t just the region’s lack of competitiveness or its budget deficits or the high stock of existing government debt, which the International Monetary Fund now puts at 90 percent of the euro area’s gross domestic product. It is all of the above, compounded by five years of complete political denial.
• Weidmann Sees More Aid for Greece as Possible, Sueddeutsche Says. European Central Bank council member Jens Weidmann said further financial support for Greece can be considered if the country sticks to its promises, Sueddeutsche Zeitung reported, citing an interview. “If Greece isn’t keeping its word then it is a democratic decision,” Weidmann, who also heads Germany’s Bundesbank, is quoted as saying. “Consequently, it misses the basis for further financial support.” Weidman also said that it is still not time to drop the extended credit support measures, Sueddeutsche said.
• Spain May Need to Inject $6.4 Billion in Bankia, Expansion Says. Spain may need to pump 5 billion euros ($6.4 billion) into Bankia Group to boost the lender’s capital, Expansion reported, citing unidentified people close to the government. The cash injection will be implemented through the purchase of capital contingent notes to be issued by the nationalized lender, Expansion said. Previously the government was expecting to inject 2.5 billion euros of new capital, Expansion said. The measure will be on top of the conversion of 4.5 billion euros of subordinated debt sold two years ago by the bank to the government-run bank bailout fund, or Frob, into new stock, Expansion said.
• The European Commission isn't considering easing the terms of a joint bailout for Greece from the European Union and the IMF, an EU spokesman said, denying a report by Athens-based Real News. "I'm not aware of any discussions within the commission to grant new provisions, new concessions in the program" for Greece, Amadeu Altafaj Tardio, a spokesman for the Brussels-based commission, said today.
  
• Kuoni Is Preparing for Possible Greek Exit, SonntagsZeitung Says. Kuoni Reisen Holding AG (KUNN) is holding talks with its Greek business partners to prepare for a possible exit of the country from the euro area, Chief Executive Officer Peter Rothwell told SonntagsZeitung in an interview. The company might introduce special clauses in contracts with Greek hotels so it doesn’t end up paying in euros if the nation uses a cheaper currency, Rothwell told the newspaper.
• Bank Regulation to Boost Retail Costs, RBS Chief Tells Telegraph. Lenders may have to charge customers more because of the cost of separating investment banking and retail operations, the Royal Bank of Scotland Group Plc (RBS) Chairman Philip Hampton told the Sunday Telegraph. The banks will probably pass on the cost to customers as the government forces lenders to split their “risky” investment banking from retail units, Hampton said in an interview, the newspaper reported.
• JPMorgan(JPM) Rating Cut by Fitch as S&P Reduces Outlook to Negative. JPMorgan Chase & Co., the largest and most profitable U.S. bank, had its credit grade lowered one level by Fitch Ratings and Standard & Poor's said it may follow after the bank revealed a $2 billion trading loss. The lender's long-term issuer default rating was cut to A+ from AA-, and the short-term grade was lowered to F1 from F1+, Fitch said yesterday in a statement. Fitch placed all parent and subsidiary long-term ratings on rating watch negative.
• JPMorgan’s(JPM) Trading Loss May Call for More Fed Supervision. JPMorgan Chase & Co. (JPM)’s trading position that led to a $2 billion loss may call for increased Federal Reserve scrutiny of risk management as the central bank steps up its post-crisis supervision of lenders. Fed officials are gathering more information about the trading position, which they have known about for several weeks, according to a person familiar with the matter. They don’t view it as their role to approve or reject individual trades, the person said. Rather, their job is to ensure firms have enough capital to withstand losses, said the person, who wasn’t authorized to discuss the matter and asked not to be identified.
• Hedge Funds Are Shadow Banks in Need of Regulation, Bafin Says. Hedge funds act as shadow banks and should be added to the list of organizations in need of regulation, according to Raimund Roeseler, head of banking supervision at Germany’s financial regulator Bafin. Shadow-banking definitions by the Financial Stability Board and the Basel Committee are too narrow, Roeseler said. Bafin is working on its own proposals to regulate the sector and will provide them for the discussion at the FSB, he said. “We probably won’t be able to fix every loophole, but we’ll get a good chunk -- and make dodging rules more tedious and expensive,” Roeseler, 50, said in an interview at his Bonn- based office last week. “Anything already calling itself a hedge fund should be covered, that’s for sure.”
• Bullish Wagers Plunge Most in 2012 on Greek Impasse: Commodities. Speculators cut bets on a rally in commodities by the most since November as Greece’s struggle to form a new government and weaker-than-expected industrial output in China erased this year’s gains in raw materials. Money managers reduced net-long positions across 18 U.S. futures and options by 19 percent to 723,239 contracts in the week ended May 8, the biggest decline since Nov. 22, Commodity Futures Trading Commission data show. The Standard & Poor’s GSCI Spot Index of 24 raw materials dropped 6.5 percent in eight sessions, the longest slide since December 2008.
• Ex-GE(GE) Bankers Convicted of Municipal Bond Bid-Rig Scheme. Three former General Electric Co. (GE) bankers were convicted of defrauding cities and the U.S. Internal Revenue Service in a bid-rigging scheme involving municipal bonds. Dominick Carollo, Steven Goldberg and Peter Grimm were found guilty by a federal jury in Manhattan yesterday of conspiracy to commit fraud by manipulating auctions for municipal bond investment contracts. The government claimed that from August 1999 to November 2006 the men gave kickbacks to brokers hired by local governments to solicit bids, to win auctions and to increase their profits.
• The number of Hong Kong-listed companies that postponed the release of earnings statements has risen to a record high this year, fueling concerns about corporate governance among some Chinese businesses.
• Aussie Falls Below U.S. Dollar Parity on Greek Concerns. The Australian dollar declined to less than parity with its U.S. counterpart for the first time this year amid concern that Greece will leave the euro bloc, curbing demand for higher-yielding currencies.
• Investment, the Engine of U.S. Prosperity, Is Underrated.
• Rusal's Quarter Profit Falls 84% on Weaker Aluminum Prices. United Co. Rusal (486), the world’s largest aluminum producer, posted a 84 percent slump in first quarter earnings as prices of the lightweight metal declined. Net income was $74 million for the three months ended March 31, the Moscow-based company said today in a statement. That compares with a restated $451 million a year earlier. Earnings before interest, tax, depreciation and amortization fell 65 percent to $237 million, missing the $261.8 million average estimate of six analysts compiled by Bloomberg.

Wall Street Journal:

• Bank Order Led to Losing Trades. J.P. Morgan's Efforts to Shield Itself From European Market Fallout Prompted Disastrous Bets. J.P. Morgan Chase & Co. told traders several months ago to make bets aimed at shielding the bank from the market fallout of Europe's deepening mess. But instead of shrinking the risk, their complicated bets backfired into losses of as much as $200 million a day in late April and early May, people familiar with the situation said. Regulators in the U.S. and U.K. are examining what went wrong, who is responsible and whether J.P. Morgan should have told investors about the losses sooner, according to people familiar with the matter.
• Three to Exit JPMorgan(JPM) After Losses. Three high-ranking people are expected to leave J.P. Morgan Chase & Co. this week, said people familiar with the situation, in the latest fallout from a trading blunder that has cost the bank at least $2 billion. The departures involve three of the highest-ranking executives with direct connections to the losses, according to the people familiar.
• Exclusive: Yahoo’s(YHOO) Thompson Out; Levinsohn In; Board Settlement With Loeb Nears Completion. Yahoo’s embattled CEO Scott Thompson (pictured here) is set to step down from his job at the Silicon Valley Internet giant, in what will be a dramatic end to a controversy over a fake computer science degree that he had on his bio, according to multiple sources close to the situation.
• LightSquared Moves Toward Bankruptcy. Hedge-fund manager Philip Falcone's LightSquared Inc. venture was preparing Sunday to file for bankruptcy protection after negotiations with lenders to avoid a potential debt default faltered, said people familiar with the matter.
• Missing: Stats on Crisis Convictions. It is a question that has been asked time and again since the financial crisis: How many executives have been convicted of criminal wrongdoing related to the tumultuous events of 2008-2009? The Justice Department doesn't know the answer. That is because the department doesn't keep count of the numbers of board-level prosecutions. In a response earlier this month to a March request from Sen. Charles Grassley (R.,Iowa), the Justice Department said it doesn't hold information on defendants' business titles.
• The Dimon Principle. J.P. Morgan's(JPM) failed trades may well have passed the Volcker rule.

Business Insider:

• Don't Forget About JPMorgan's(JPM) Other Huge Derivatives Losses.
• Newsweek's Latest Cover Turns Obama Into A Gay Angel. (pic)
• This Cover Of Der Spiegel Isn't Very Subtle.
• Air Force Report: Drones May Be Used To Spy On Americans. Following recently passed legislation to allow 30,000 drones to operate over the U.S. by 2020, a newly discovered Air Force document posted by Steve Watson at InfoWars has some interesting implications.
• The Worst is NOT Over For China's Economy. (graphs)
  

Zero Hedge:

• What Was Not Said During Jamie Dimon's Media PR Campaign.
• If Greece Exits, Here Is What Happens.
• Complete Summary Of Next Week's Global Events And Manic Bond Issuance.
• Double or Nothing: How Wall Street is Destroying Itself.
  

CNBC:

• Thousands March Against Economic Gloom in Spain, UK. Thousands of Spaniards fed up with economic misery and waving banners against bankers marched on Saturday to mark the first anniversary of the grassroots "Indignados" movement that has sparked similar protests around the world.
• Former FDIC Chief: Several Banks 'Too Big to Fail'.
  

Wall Street All-Stars:

• Answers On How To Trade Tech Right Now.
  

Forbes:

• China Crashes in April, Shows Signs of Contraction. Yesterday, the People’s Bank of China lowered the reserve requirement ratio by 50 basis points. Now, China’s banks will have an extra 400 billion yuan—about $63.5 billion—to lend. It was the central bank’s third reduction in the ratio since November. In April, new renminbi-denominated lending fell 8.2% from the same month last year and 32.6%—329.6 billion yuan—from this March. In short, the amount freed up by yesterday’s action is just a little more than the decline in new lending last month. As analysts noted, the cut in the ratio was too little and too late. As a consequence, it will have little effect.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Sunday shows Mitt Romney earning 48% of the vote and President Obama attracting 44% support. Four percent (4%) would vote for a third party candidate, while another three percent (3%) are undecided.

Reuters:

• Interview - Egypt's Brotherhood Sees Years of Friction Ahead. Egypt is destined for up to eight years of friction between reformists and the powerful military seeking to safeguard its interests after handing power to a civilian president, a senior member of the Muslim Brotherhood said on Sunday. In an interview with Reuters, deputy Brotherhood leader Mahmoud Ezzat forecast victory for the group's candidate Mohamed Mursi in the vote that gets underway this month. The generals are due to hand power to an elected leader on July 1 or sooner.
• Brown Pushes Tax Hike as California's Money Woes Deepen. California Governor Jerry Brown was elected in 2010 on a promise to fix the state's chronic fiscal crisis. His weekend announcement of a much bigger-than-expected shortfall in the state budget signals how far he still has to go. In an unusual move that underscored the highly politicized nature of the state budget, Brown took to YouTube on Saturday to deliver the bad news: the state's projected budget deficit for the fiscal year starting July 1 is now $16 billion, up from the $9 billion anticipated in January. The Democratic governor also warned of further cuts to an already-battered public education system if voters rejected a tax increase in a ballot initiative this fall. On Monday, Brown will hold a news conference to detail the new budget deficit and how he intends to close it.
• Spain short-term debt costs to stay high after bank plan. Spain will pay high premiums to sell short-term debt on Monday, after the government's latest attempt to fix the banking sector failed to allay concerns about the burden of the clean-up on the country's finances.
• Italy Tests Markets In First Post-Elections Bond Sale. Italy will sell three-year bonds on Monday after a solid bill auction last week, in a new test of demand for lower-rated euro zone debt among investors concerned about Greece'e euro membership and the bloc's crisis-fighting strategy.

Financial Times:

• Greek Exit From Eurozone 'Possible'. Greece’s exit from the eurozone “would be possible,” even if not in Europe’s interest, and countries should have a democratic right to quit, according to a member of the ECB’s governing council. The comments from Luc Coene, the central bank governor of Belgium, in a Financial Times interview highlight how eurozone policy makers are losing patience with Athens after an inconclusive election threw into doubt Greece’s commitment to reforms demanded under its international bailout.
• JPMorgan(JPM) Probe into London Role in Loss. JPMorgan Chase is investigating whether London-based traders hid the extent of losses on credit derivatives positions, according to people familiar with an internal probe following last week’s revelation of $2bn losses. The investigation comes as Jamie Dimon, chief executive, took to US television to say he was “dead wrong” to have dismissed questions over the risk-taking of his chief investment office.

The Telegraph:

• Spain's Most Indebted Village Pays The Price Of Its Profligacy. In the Spanish country just East of Madrid stands the village of Pioz, popuation 3600, which has the dubious titled of most indebted place in the troubled country writes Fiona Govan.
• JPMorgan's(JPM) $2Bn Loss Costs Hedge Funds Dear. JP Morgan Chase's surprise trading loss has hit London's biggest hedge funds, costing the City's best-known fund managers more than $100m (£62m).
• World Edges Close to Deflationary Slump as Money Contracts in China. All key indicators of China's money supply are flashing warning signs. The broader measures have slumped to stagnation levels not seen since the late 1990s.
• The Final Death Throes of the Euro. The euro crisis is entering its final stages. Economic pain is now interacting with political resistance to produce intense financial pressure. I expect Greece to leave the euro – and perhaps very soon.

Frankfurter Allgemeine Sonntagszeitung:

• ECB council member Jens Weidmann said Greece won't get neither long-term aid from euro countries nor ECB support without saving measures, citing an interview. Weidmann reiterated that if Greece isn't sticking to its promises, it won't get the financial aid. This also includes the refinancing of Greek banks through the euro system, he said.

Der Spiegel:

• Greece would receive further aid from the EFSF if it exited the euro, German Finance Minister Wolfgang Schaeuble said.

WirtschaftsWoche:

• Greece's exit of the euro area, including stopping its debt service, would cost euro countries EU276b, citing own calculation. Honohan says a Greece exit can be managed, but sees confidence hit.

Bild am Sonntag:

• Some 78% of Germans are in favor of halting aid for Greece as long as a new government hasn't committed itself to the agreed savings, citing an Emnid poll.
  

Welt am Sonntag:

• German Finance Minister Wolfgang Schaeuble said he is confident that lawmakers will vote on Europe's debt-reducing fiscal pact in German parliament before the summer break, citing an interview. Germany isn't willing to make changes to the fiscal pact, contracts are valid even after elections, Schaeuble said.
  

Tagesspiegel:

• The euro area is prepared for a possible exit of Greece, citing German lawmaker Michael Meister, the finance spokesman for Chancellor Angel Merkel's ruling CDU bloc. The imminent risk of infection if Greece goes insolvent isn't as high as two years ago due to EFSF, ESM, citing Meister. Meister said he is against renegotiating financial aid for Greece.

Politiken:

• Denmark will not support newly elected French President Francois Hollande's plan for a growth package for Europe, citing an interview with Danish Prime Minister Helle Thorning-Schmidt. Danes don't want to increase debt further to get the economy going, she said.
  

Weekend Recommendations

Barron's:

• Made positive comments on (WDC), (CAH) and (IMOS).
• Made negative comments on (FB), (HLF), (TPX) and (NUS).
  

Night Trading

• Asian indices are -.50% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 183.0 +2.0 basis points.
• Asia Pacific Sovereign CDS Index 145.50 unch.
• FTSE-100 futures -.81%.
  
• S&P 500 futures -.21%.
• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (A)/.73
• (GRPN)/.01

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The EU Finance Minister Meeting and the Deutsche Bank Clean Tech/Utilities/Power Conference could also impact trading today.
  

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

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week modestly lower on rising global growth fears, less US economic optimism, rising Eurozone debt angst, technical selling, less financial sector optimism, more shorting and high energy prices. My intermediate-term trading indicators are giving neutral signals and the Portfolio is 50% net long heading into the week.