Today's Headlines

Bloomberg:
- Apple Inc.(AAPL), maker of the iPod digital music player, will offer its iPhone handset in Hong Kong and Macau this year to subscribers of Hutchinson Telecommunications Intl. Ltd.
- The number of Asian hedge fund managers will likely stagnate this year as smaller firms struggle to raise assets, said Pete Douglas, principal of Singapore-based hedge fund consulting firm GFIA Pte.
- Karsten Schroeder, CEO of Amplitude Capital LLP, Sees ‘Substantially Less’ Hedge Fund Inflows. (video)
- Credit-default swaps tied to the bonds of Countrywide’s(CFC) home-loan unit dropped 65 basis points to 230 basis points, according to broker Phoenix Partners Group.
- MasterCard Inc.(MA), the world’s second-biggest credit card network, rose to its highest level in NY trading since going public in May 2006 after increasing its profit-growth target on expanding card use.
- Crude Oil Falls More Than $4 as Higher Prices Curb Fuel Demand.
- Wheat Falls to 9-Month Low as US Starts Harvesting More Grain.
- The US dollar reached a three-month high against the yen as US stocks rose and crude plunged, brightening the outlook for the world’s biggest economy.

Wall Street Journal:
- In the quest to increase Americans’ access to broadband Internet, federal regulators are considering a new plan: get someone to give it away free.
- Blame Congress for High Oil Prices.
- Billionaire investor Carl Icahn has told Yahoo! Inc.(YHOO) he may want the Internet company to make a deal with Google(GOOG) if Microsoft(MSFT) doesn’t pursue a full takeover.

NY Times:
- NY to Back Same-Sex Marriages From Elsewhere.

Newsday.com:
- Honda will meet growing US demand for small cars while maintaining North American jobs by moving production of two bigger models from Canada to Alabama, CEO Takeo Fukui said.

Dow Jones:
- The Commodity Futures Trading Commission(CFTC) says it is investigating the US crude oil market for manipulation.
- Russian oil company OAO Lukoil’s VP Andrey Kuzayev held talks with Iraqi President Jalal Talabani in Bagdahd yesterday on reviving a contract to develop the West Qurna-2 field. The field has an estimated reserve capacity of more than 4 billion barrels of oil.

engadget:
- Apple(AAPL) patents systems to warn of impending dropped calls, track down your keys.

Barron’s:
- Credit Insurance Says Banks Should Rally.

Energy Intelligence:
- Iran plans to cut the amount of crude stored in tankers in the Persian Gulf from next month, citing Hojatollah Ghanimifard, executive director of international affairs at National Iranian Oil Co.

Forbes:
- Google(GOOG) is turning YouTube into its own kind of data gold mine.

Seeking Alpha:
- August ’07 Quant Meltdown: Investors Learned a Lesson, but Did Managers?

The Economic Times:
- Saudi pumps in extra oil, offers to step up supply. “The majority of OPEC producers definitely don’t like this high oil price because it is neither in their interest nor in the interest of the global economy, and it’s especially painful for the developing world,” said Saudi oil minister Ali al-Naimi.

Le Temps:
- UBS Chief Rohner Says Worst of Crisis Is Over.

Interfax:
- Russia’s central bank may raise some or all of its interest rates, citing the bank’s Chairman Sergey Ignatiev. The bank also sees inflation at 10.5% in 2008. Russian consumer prices jumped 7.5% in the year through May 26.

Press Trust of India:
- India may decide on raising fuel prices today.

The National:
- Osama Bin Laden Bounty Rises to $25 Million.

KUNA:
- Kuwaiti crude oil dropped $4.77 to $117.47 a barrel yesterday, citing Kuwait Petroleum Corp.

Emirates Business 24/7:
- United Arab Emirates’ inflation accelerated to 14% last year as fuel, housing and construction costs soared, citing a report from the state-controlled Abu Dhabi Chamber of Commerce. Higher gasoline and diesel fuel prices increased the cost of building in the UAE and are threatening builders’ ability to finance loans taken from banks.

Bear Radar

Style Underperformer:

Mid-cap Growth +.45%

Sector Underperformers:

Goldirlind (-3.3%), Coal (-2.8%) and Oil Service (-1.93%)

Stocks Falling on Unusual Volume:

USO, ARD, CLF, SGMO, SNDA, WIRE, GLNG, ESLR, FSLR, MW and TTM

Stocks With Unusual Put Option Activity:

1) BCE 2) IMB 3) TMA 4) TXN 5) HUN

US Growth Revised Higher, Initial Jobless Claims Stable

- Preliminary 1Q GDP rose .9% versus estimates of a .9% gain and prior estimates of a .6% rise.

- Preliminary 1Q Personal Consumption rose 1.0% versus estimates of a 1.0% gain and prior estimates of a 1.0% rise.

- Preliminary 1Q GDP Price Index rose 2.6% versus estimates of a 2.6% gain and prior estimates of a 2.6% rise.

- Preliminary 1Q Core PCE rose 2.1% versus estimates of 2.2% and a prior estimate of a 2.2% gain.

- Initial Jobless Claims for this week rose to 372K versus estimates of 370K and 368K the prior week.

- Continuing Claims rose to 3104K versus estimates of 3080K and 3068K prior.

BOTTOM LINE: The US economy grew more than previously estimated in the first quarter as Americans shunned imports and exports climbed to another record, Bloomberg reported. Jeffrey Frankel, an economist at Harvard Univ. who is a member of the panel that dates US economic cycles, said in a Bloomberg Radio interview, “I wouldn’t rule out going into recession” later in the year. This statement implies that he doesn’t currently view the slowdown as a recession, in my opinion. The trade deficit shrank to an annual pace of $480.2 billion, the smallest since 3Q 2002. Trade’s contribution to growth jumped to .8 percentage point, which is four times more than previously estimated. The revisions also showed bigger gains in incomes than previously estimated. Personal Income increased at a 5.1% annual pace during 4Q versus a prior estimate of a 4.2% gain. For 1Q Personal Income growth was revised up to 4.7% from a prior estimate of 4.4%. The gain in growth last quarter would have been even greater if not for a decline in estimates for inventories. Companies cut inventories at a $14.4 billion annual rate versus an initial estimate of a $1.8 billion gain. Inventories added only .2 percentage point to growth, less than the previously estimated contribution of .8 percentage point. A measure of total sales, which excludes inventories, was revised to a gain of .7% at an annual pace rather than a .2% drop that was previously estimated. I expect 2Q GDP to easily exceed economists’ estimates of a .1% gain and growth to accelerate modestly into year-end on fiscal/monetary stimuli, lower commodity prices, decelerating inflation, an end to the American Axle strike, a firmer US dollar, inventory rebuilding, an end to the credit market turmoil, strong exports, diminishing housing fears and an improving job market.

The number of Americans filing first-time claims for unemployment benefits rose slightly last week, Bloomberg said. The four-week average of initial claims fell to 370,500 from 373,000 the prior week. Weekly claims have averaged 358,150 so far this year. During the mild recession of 2001, initial jobless claims averaged 415,600 a week. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a historically low 2.3%. I expect jobless claims to trend modestly lower through year-end.

Bull Radar

Style Outperformer:

Small-Cap Value (+.67%)

Sector Outperformers:

Biotech (+2.12%), Road&Rail (+1.67%) and I-Banks (+1.60%)

Stocks Rising on Unusual Volume:

MA, PNSN, LEH, BMA, C, WNR, SHI, RAIL, TRN, HP, WFT, RDEN, SVNT, ULBI, JOYG, DBRN, COCO, SOHU, SPSX, EXPE, MATK, DRYS, AMSC, CPRT, ANSS, CBEY, ALXN, OMRI, ISYS, GCO, KCE, JAS and BIG

Stocks With Unusual Call Option Activity:

1) GSS 2) JOYG 3) BBY 4) SOV 5) JCG

Links of Interest

Market Snapshot Commentary
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Sector Performance
WSJ Data Center
Top 20 Biz Stories
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Thursday Watch

Late-Night Headlines
Bloomberg:
- The cost of protecting Japanese and Australian bonds against default fell for the second day, according to traders of credit-default swaps. The Markit iTraxx Japan index fell 2 basis points to 84 in Tokyo. Australia’s benchmark of credit quality declined 4.5 basis points to 98, Citigroup prices show.
- Hillary Clinton stepped up her lobbying of Democratic Party superdelegates today as her campaign aides and supporters signaled they won’t compromise in the dispute over counting the Florida and Michigan primaries.
- The chief executive officers of UAL Corp.’s(UAUA) United Airlines and US Airways Group(LCC) will meet tomorrow to discuss a possible merger as rising fuel prices add to pressure for a tie-up.
- Corn fell to the lowest price in more than a week after the US government announced plans to allow livestock grazing on protected land, reducing demand for grain in animal feed.
- The US dollar traded near a two-week high against the yen before a government report today that analysts say will show the economy expanded at a faster pace last quarter than initially estimated.
- Japan’s stocks gained the most in four weeks after orders for durable goods in the US unexpectedly rose last month, reducing concern an economic slowdown will subdue consumer spending in Japan’s biggest export market.
- Shareholders of Taser Intl.(TASR) sued Goldman Sachs(GS), a Merrill Lynch(MER) unit and six other firms, claiming stock-price manipulation through illegal short selling.
- Global demand for rented commercial space declined in the first quarter for the first time in four years as higher borrowing costs prevented some companies from expanding, according to a report by the Royal Institution of Chartered Surveyors. Investors are spending less on office buildings, shopping malls and other commercial properties in emerging markets because of concern about the potential returns, RICS said.
- Inverness Medial Innovations(IMA), a medical test company, is talking with several private equity sponsors about a $1.8 billion joint venture involving three health-management businesses Inverness has acquired.

Wall Street Journal:
- China Hospitals Struggle As Homeless Want to Stay.
- Lies, Damned Lies and ‘Hedge Funds’ When asked at today’s All Things Digital conference about rumors that he would take Expedia(EXPE) private, IAC/Interactive Chairman Barry Diller knocked them down and then hit the ball out of the park: “I am so suspect of current markets and the hedge funds and momentum selling/buying. I think there is a plot behind everything.” The widespread trend now is that when there is no edge, no new information, that doesn’t stop people. They seem to feel free to just make it up and try to convince other to believe it. So how about we go back to that old-fashioned notion of honor and expect everyone to police themselves – and maybe even behave as if they deserved to be trusted with millions of dollars?

MarketWatch.com:
- Short Sellers Targeting Solar & Alternative Energy (AKNS, ASTI, CSIQ, CPS, ESLR, FTEK, OTTR, SPWR).
- Top-performing newsletters oppose Microsoft-Yahoo deal. Here’s why.

CNBC.com:
- The unprecedented run-up in oil prices may finally have reached a peak as the US dollar stabilizes, Saudi Arabia boosts production and demand slows, analysts say.
- Cisco Systems(CSCO) CEO Chambers said Wednesday the company is “extremely comfortable” with its long-term growth target and expects the economy to start recovering toward the end of the year.

BusinessWeek.com:
- Verenium Corp. said Wednesday it is starting up a research ethanol plant that runs on agricultural waste and wood products instead of corn. The company aims to begin construction in the middle of next year on a 30 million-gallon-per year cellulosic ethanol plant.

Gizmodo:
- Sony’s(SNE) sci-fi looking 6-foot glass speaker is turning into an actual product: the Sountina NSA-PF1 – designed for larger rooms and halls – will give you a 50Hz to 20kHz frequency response, analog and digital audio inputs, and a blue, amber or purple-lit 3-foot organic glass tweeter for just $10,000.

Reuters:
- Federal Reserve Bank of Dallas President Richard Fisher said he expects the central bank would raise the benchmark US interest rate should the public begin to expect greater gains in consumer prices. “If inflationary developments and, more important, inflation expectations continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic” economy, Fisher said.
- During the week leading up to the Memorial Day holiday, the traditional start of vacation season, Americans pumped 5.5% less gas than a year ago. The findings follow last week’s US Dept. of Energy data which showed highway miles driven in March fell 4.3% from a year earlier, the first March decline since the last major oil shock in 1979. Moreover, gasoline demand in Britain fell 7% below year-ago levels in April, with diesel use down almost 2%, according to govt. figures released Wed.

Financial Times:
- Toyota(TM), ruler of the global market for low-emission cars, stuck another green jewel in its crown this month when it announced that it had sold 1 million of its Prius petrol-electric hybrids. But even as it celebrates the milestone, it is facing an upsurge in competition.
- Sarkozy calls for EU immigrant crackdown. Plans for a Europe-wide clampdown on immigration that could see asylum-seekers forced to apply for refugee status in advance and more effective deportation measures, are to be at the heart of France’s European Union presidency.
- Efforts to tackle the risk surrounding privately negotiated credit derivatives will take a step forward on Thursday when 11 of the world’s biggest investment banks announce the creation of the first central clearer for the opaque contracts by September.
- The financial services industry is reaping benefits from the turmoil in the credit markets as corporate treasurers, burned by illiquid investments, increasingly hand over their spare cash to professional money managers.

TimesOnline:
- Apple(AAPL) is poised to announce it will start selling films from four major Hollywood studios for download in the UK as part of its iTunes internet service at prices on a par with DVDs.

Late Buy/Sell Recommendations
Citigroup:
- comScore reported that (GOOG)’s US Web Search Paid Clicks were 568MM in April, up 19.6% Y/Y vs. 2.7% Y/Y growth in March and 1.8% Y/Y growth in Q1. Per comScore, while April searches on GOOG’s US Websites grew about 33% Y/Y, GOOG’s coverage ratio declined in the low-teens Y/Y. However, GOOG’s Click Thru Rate grew in the low-single digits Y/Y – the first month of growth since Sept. 07, as reported by comScore.
- Reiterated Buy on (URBN), target $35.
- Reiterated Buy on (COH), target $44.
- Reiterated Buy on (AXL), target $25.
- Reiterated Buy on (DOX), raised estimates, target $46.

Night Trading
Asian Indices are -.5% to +1.75% on average.
S&P 500 futures -.13%.
NASDAQ 100 futures -.05%.

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Earnings of Note
Company/EPS Estimate
- (COST)/.65
- (BIG)/.36
- (GCO)/.09
- (SHLD)/.18
- (JOYG)/.75
- (DSW)/.23
- (HNZ)/.61
- (NOVL)/.05
- (JCG)/.47
- (SIGM)/.41
- (OVTI)/.32
- (WIND)/.02
- (DELL)/.34
- (MRVL)/.13
- (FRED)/.16

Upcoming Splits
- (ATLS) 3-for-2

Economic Releases
8:30 am EST
- Preliminary 1Q GDP is estimated to rise .9% versus a prior estimate of a .6% gain.
- Preliminary 1Q Personal Consumption is estimated to rise 1.0% versus a prior estimate of a 1.0% gain.
- Preliminary 1Q GDP Price Index is estimated to rise 2.6% versus a prior estimate of a 2.6% increase.
- Preliminary 1Q Core PCE is estimated to rise 2.2% versus a prior estimate of a 2.2% increase.
- Initial Jobless Claims for this week are estimated to rise to 370K versus 365K the prior week.
- Continuing Claims are estimated to rise to 3080K versus 3073K prior.

10:30 am EST
- Bloomberg consensus estimates call for crude oil inventories to remain unch. versus a -5,317,000 barrel decline the prior week. Gasoline supplies are also estimated to remain unch. versus a -755,000 barrel drawdown the prior week. Distillate inventories are expected to rise by 1,000,000 barrels versus a 728,000 barrel build the prior week. Natural gas supplies are estimated to rise by 85 bcf versus an 85 bcf injection the prior week. Finally, Refinery Utilization is expected to rise by .5% versus a 1.3% increase the prior week.

Other Potential Market Movers
- The Fed’s Geithner speaking, Fed’s Bernanke speaking, Fed’s Kohn speaking, (NVLS) Mid-Q Update, (CBT) analyst day, (ELX) analyst day, (MA) investment community meeting, (HAE) analyst meeting, (STZ) analyst meeting, (UA) investor meeting, Help Wanted Index, FBR Investor Conference, Deutsche Bank Energy/Utilities Conference, Sanford C. Bernstein Conference, UBS Global Specialty Pharma Conference, Cowen TMT Conference, Lehman Wireless/Wireline Conference, could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and automaker shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.