Today's Headlines

Bloomberg:

- The U.S. government’s Aaa credit rating is stable “even with a significant deterioration” in the nation’s debt, Moody’s Investors Service said, signaling confidence in a rebound from the recession. The U.S. rating is supported by “a diverse and resilient economy, strong government institutions, high per-capita income, and a central position in the global economy,” New York-based Moody’s said in a statement.

- The Standard & Poor’s 500 Index rebounded to close above its average price from the past month yesterday, signaling the steepest rally since the 1930s may resume, according to Schaeffer’s Investment Research. “It shows that the trend line that has held since the March low continues to be a support for the S&P 500,” said Richard Sparks, senior equity options trader at Schaeffer’s in Cincinnati. “The short-term uptrend is still in place.”

- The U.S. recession will probably end in the third quarter, a survey of business economists showed, even as rising joblessness indicates the recovery will be weaker than previously estimated. The world’s largest economy will begin to expand next quarter, according to 74 percent of economists in a National Association for Business Economics survey. Compared with NABE’s February poll, growth will be slower and unemployment will be higher in the second half of this year and through 2010.

- The S&P 500’s Index will rally through the start of November after the latest jump in US consumer confidence, if history is any guide. Between 1974 and 2004 the US Consumer Confidence Index rose at least 20% on seven occasions. Following all but one of those surges, the S&P 500 was higher six months later, according to Bloomberg and Bespoke Investment Group LLC. The sentiment index rose 35% to 54.9 in May, the Conference Board said yesterday.

- Exxon Mobil Corp.(XOM), the largest U.S. oil company, said shareholders rejected proposals to prohibit its chief executive officer from serving as chairman and to boost spending on renewable fuel sources. A resolution to separate the CEO and chairman’s roles was supported by 29.5 percent of votes cast at the company’s annual meeting today in Dallas, less than the 50 percent required to force directors to reconsider their opposition. Initiatives to develop low-carbon alternatives to gasoline, adopt pollution- reduction goals and allow non-binding shareholder votes on executive pay also failed.

- President Barack Obama’s plans to cap greenhouse-gas emissions and raise taxes on companies may cause factory owners to hold back on investments, delaying economic recovery, the top lobbyist for U.S. manufacturers said today.

- North Korea threatened a military response to South Korean participation in a U.S.-led program to seize weapons of mass destruction, and said it will no longer abide by the 1953 armistice that ended the Korean War. “The Korean People’s Army will not be bound to the Armistice Agreement any longer,” the official Korean Central News Agency said in a statement today. Any attempt to inspect North Korean vessels will be countered with “prompt and strong military strikes.” South Korea’s military said it will “deal sternly with any provocation” from the North.

- China’s provincial authorities may slow the central government’s attempts to consolidate the auto industry and create a giant automaker to rival Toyota Motor Corp. and Volkswagen AG in the world’s fastest growing car market.

- Malaysia’s economy contracted for the first time since 2001 last quarter as exports slumped, pushing the nation toward its first recession in a decade. Southeast Asia’s third-largest economy shrank 6.2 percent in the first quarter from a year earlier, after a 0.1 percent gain in the previous three months, the central bank said in a statement in Kuala Lumpur yesterday. Economists were expecting a 3.9 percent decline.

- OPEC doesn’t need to cut oil production more because there are signs of recovering demand, Saudi Arabian Oil Minister Ali al-Naimi said. OPEC should meet existing cutbacks to boost prices, Angola’s minister said. Asked whether prices will fall this quarter, al-Naimi replied: “Anything can happen. The reason we don’t want to do anything now is that supply and demand is so out of balance. Making another cut now would not help stabilize the market.” U.S. crude oil inventories rose to the highest level in two decades earlier this month, while the International Energy Agency says global demand is falling the most since 1981. OPEC members would like to see industry-held stockpiles in developed nations fall to the equivalent of about 52 to 54 days worth of consumption from about 62 days now, al-Naimi said. “Lagging quota compliance by the non-Gulf Arab states -- hovering around 50 percent - has hamstrung any real discussion of a potential cut to accelerate the drawdown of the glut,” according to a PFC Energy report provided today by analyst David Kirsch, who is in Vienna.

- Treasuries fell for a fourth day amid concern that record U.S. debt sales will overwhelm investor demand as the economy begins to show signs of stability. Government debt declined even as today’s auction of a record-tying $35 billion in five-year notes drew the most demand from a group of investors that includes foreign central banks in three months. The Treasury will sell $26 billion in seven-year notes tomorrow, the third auction this week. “We continue to see more supply,” said Brian Edmond, head of interest rates in New York at Cantor Fitzgerald LP, one of 16 primary dealers that trade with the Federal Reserve. “There are always concerns about auctions when we have one more to go. It’s tricky because it’s the last supply we have until month-end.”

Wall Street Journal:

- Some banks are prodding the government to let them use public money to help buy troubled assets from the banks themselves. Banking trade groups are lobbying the Federal Deposit Insurance Corp. for permission to bid on the same assets that the banks would put up for sale as part of the government's Public Private Investment Program. PPIP was hatched by the Obama administration as a way for banks to sell hard-to-value loans and securities to private investors, who would get financial aid as an enticement to help them unclog bank balance sheets.

- Wall Street burned thousands of investors with so-called structured products that were supposed to provide healthy profits and limit losses. Brokers, hoping investors' memories are short, are pushing these high-fee products again with safety as the big selling point. Overall, investors purchased $5.9 billion of structured products in last year's fourth quarter, down 75% from 2008's first quarter, according to data provider mtn-i. Sales have started to nudge upward, rising 7% compared to the fourth quarter, though they are still way down from a year ago.

- Commercial airlines are beginning to find new bank financing for aircraft, as credit markets have loosened up "even in the past three weeks," Walt Skowronski, president of Boeing Capital Corp., the finance unit of aircraft manufacturer Boeing Co. (BA), said in an interview Tuesday.

- Apple(AAPL) co-founder Steve Wozniak said Steve Jobs sounds “healthy, energetic” a month before the CEO is expected to return to the company. On the sidelines of the All Things D conference, Mr. Wozniak said Mr. Jobs “doesn’t sound like he’s sick,” nor did he seem to be in a health crisis.

CNBC:

- Big U.S. banks are “definitely out of the woods” after last year's credit crisis, but smaller community banks are still facing difficulty, banking analyst Dick Bove told CNBC. “The big banks do not need the FDIC guarantees any longer,” Bove said in a live interview. “The markets have changed dramatically in a positive fashion.”

NY Times:

- President Obama’s campaign to cut health costs by $2 trillion over the next decade, announced with fanfare two weeks ago, may have hit another snag: the nation’s antitrust laws. Antitrust lawyers say doctors, hospitals, insurance companies and drug makers will be running huge legal risks if they get together and agree on a strategy to hold down prices and reduce the growth of health spending. Robert F. Leibenluft, a former official at the Federal Trade Commission, said, “Any agreement among competitors with regard to prices or price increases — even if they set a maximum — would raise legal concerns.”

- LEVI’S is getting in the spirit of the season by dressing its storefront mannequins in white. In Levi’s-owned stores in New York, Los Angeles, Chicago and San Francisco, that means more than just marking the passing of Memorial Day, the traditional date to begin wearing white: in 20 stores, the mannequins’ white Levi’s jeans and shirts are adorned with White Knots, a symbol of solidarity with the same-sex marriage movement.

- Timothy F. Geithner, who before to his confirmation as Treasury secretary unintentionally charged that China was “manipulating” its currency, will make his first trip to that country and meet with its leaders next week amid rising concern about China’s willingness to continue buying United States debt.

MarketWatch:
- JPMorgan’s(JPM) Dimon also told investors later Wednesday morning that he expects his company to generate combined pre-provision net revenue of $80 billion for this year and next. J.P. Morgan Chase had come through the stress tests conducted by the Treasury Department and the Federal Reserve better than its big bank competitors, but its own revenue assumptions exceed the government's by $7.6 billion, according to presentation materials accompanying Dimon's remarks.

- General Motors Corp. said Wednesday its offer to swap about $27 billion in debt for equity has expired without enough takers, leaving the company few options ahead of a June 1 bankruptcy deadline.

- The U.S. dollar gained Wednesday, aided by a report that showed existing home sales rose more than expected last month. The U.S. currency was also up versus the euro after a European Central Bank policy maker indicated that the door remained open to a further cut in official interest rates, pressuring the region's shared currency.

TheStreet.com:

- Who Profits From Derivatives Changes?

Washington Post:

- The United States and Canada would own nearly three-quarters of a restructured General Motors, effectively nationalizing the border-straddling industrial colossus as part of an overhaul plan that would put most of the rest of the company in the hands of a union trust fund. Sources said the plan, a bankruptcy reorganization proposal being drafted by the Obama administration, would require the U.S. government to lend GM about $30 billion on top of the $19.4 billion already invested, giving it the majority stake. Canada is preparing to lend about $9 billion for a smaller interest, the sources said. These figures would total nearly $60 billion, making the GM bailout one of the largest corporate rescues since the current economic crisis began last year and one of the largest reorganizations in history. The sources cautioned that the negotiations are continuing and the totals could change.

LA Times:

- The Pentagon is prepared to leave fighting forces in Iraq for as long as a decade despite an agreement between the United States and Iraq that would bring all American troops home by 2012, the top U.S. Army officer said Tuesday.

The Detroit News:

- Nearly 50,000 jobs could be lost in the auto sector as a result of President Barack Obama's decision to approve fuel efficiency requirements for the nation's cars and trucks, according to government documents and a former presidential adviser. At the same time, the increased fuel rules could cause full-size truck sales to fall significantly without government help, a Wall Street analyst said.

WWDRetail:

- Retailers are keeping cool when it comes to markdown madness. Even this past Memorial Day weekend, the traditional trigger for major spring clearances, stores appeared to take a more measured approach to markdowns than that seen last holiday season and earlier this year. And it may stay that way for the summer. “Promotions through Memorial Day weekend appeared to be ‘deals not steals’ geared at specific categories,” Todd Slater, managing director and specialty retail, apparel and footwear analyst at Lazard Capital Markets, wrote in a research report Tuesday. “Fewer promotions indicate May is on track.”

Reuters:
- Intel’s(INTC) Stacy Smith, finance chief of the world's biggest chipmaker, said notebooks would be Intel's main growth driver for years to come, propelled by a continuing trend towards mobility. Morales reiterated that inventories, which had been built up by electronics makers and retailers who had underestimated the impact of the recession, were now seen in balance with demand. "From an inventory standpoint, we think it is really optimized for current levels of business," he said. "Supply-chain confidence is much higher."

- The European Union and Iraq expect to clinch a broad trade and political pact by the end of the year that will forge deeper energy ties between the two, sources said after negotiations on Wednesday. The 27-nation bloc wants to wean itself off its dependence on Russian oil and gas, and sees Iraq as a long-term alternative energy supplier.

- The global financial crisis has tarnished the dollar and will prompt reserve managers to diversify, but the U.S. currency will retain its dominant international role, a senior Chinese official said in remarks published on Wednesday.

Financial Times:
- City finance professionals are so worried about the future that nearly 30 per cent are planning to leave London, according to a survey by eFinancialCareers, a jobs website. Many have taken tangible steps towards moving, such as sending their CVs to overseas companies, and in some cases discussing internal transfers with their employers. Their most desirable destinations are Zurich and New York, followed by Singapore, Geneva and Hong Kong. Fifty-seven per cent believe more City redundancies are “probable” or “definite” in the next six months, the online survey of more than 400 London-based financial professionals found. It comes at a sensitive time for the City. The Centre for Economic and Business Research forecast that 29,000 wholesale finance jobs would be lost this year, after 28,000 were shed last year. That would leave 295,000 City finance jobs. Many observers believe employment in the City will recover gradually from next year and hope London can hang on to its position as a leading financial centre if the regulatory response to the crisis is not too heavy-handed. Of those surveyed, 45 per cent thought London’s leading position was under threat, while a third felt it was not. Increased taxes were seen as the main threat, followed by the potential impact of heavier European regulation. “Concerns about the relative competitiveness of the City in the face of impending changes to the regulatory framework coupled to upheavals in the tax system are having an immediate impact on the desirability of London as a location in which to work,” said John Benson, chief executive of eFinancialCareers.

The Guardian:

- IBM(IBM)earmarked $3 billion to finance so-called smart infrastructure projects in Europe and Asia likely to receive government stimulus support.

The move, announced on Wednesday, follows a similar announcement of $2 billion the computer consulting and technology company is making available in the United States as it seeks to win business for which government funds may not immediately be forthcoming.

Globe and Mail:

- A steady 15-year decline in the U.S. death rate from cancer translates to about 650,000 lives over that time, the American Cancer Society said on Wednesday. But cancer will kill 1,500 Americans every day on average – with 1.47 million cases diagnosed and 562,000 deaths in 2009, the group said in its annual report on cancer statistics. Cancer, which causes one in four deaths in the United States, is the No. 2 killer after heart disease.

Vedomosti:

- Moscow apartment prices have slumped by as much as 50% for elite building in rubles terms and by 33% for less expensive housing since autumn, citing research by Russia’s Regional Development Ministry.

Oriental Morning Post:

- China may spend $659 billion on renewable-energy projects over 10 years, 50% more than previously planned, citing an industry official. Wind-power capacity will rise to about 150,000 megawatts by 2020 from 10,000 megawatts in 2008. Solar-power capacity will rise to 20,000 megawatts from 100 megawatts and nuclear-power capacity will jump to 80,000 megawatts from 10,000 megawatts.

Bear Radar

Style Underperformer:
Small-cap Value (-1.38%)

Sector Underperformers:
Education (-4.42%), REITs (-3.59%) and Airlines (-3.47%)

Stocks Falling on Unusual Volume:
IOC, ATI, JRJC, MELI, CTXS, FLO, AZO, MON, HIW, DLB, KTC, BIG and BJ

Stocks With Unusual Put Option Activity:
1) CMCSA 2) CEPH 3) RL 4) KWK 5) MON

Bull Radar

Style Outperformer:
Small-cap Growth (+.59%)

Sector Outperformers:
Steel (+2.66%), Gaming (+2.40%) and Semis (+2.39%)

Stocks Rising on Unusual Volume:
CREE, TSRA, VIV, DLTR, STP, MAPP, SNDK, WPPGY, OGXI, FUQI, APWR, CSIQ, LEAP, ROLL, ISLE, GMCR, RYAAY, SYMC, PEGA, ANDE, CALM, BUCY, RL, ROS and CH

Stocks With Unusual Call Option Activity:
1) AMAT 2) OVTI 3) SNDK 4) JOYG 5) CTX

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Wednesday Watch

Late-Night Headlines
Bloomberg:

- The cost of protecting Asia-Pacific bonds from default declined, according to traders of credit-default swaps. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 11 basis points to 182.5 as of 8:56 am in Hong Kong, according to ICAP Plc prices. The Markit iTraxx Japan was quoted 10 basis points lower at 170 as of 9:52 am in Tokyo, Morgan Stanley prices show. The Markit iTraxx Australia index dropped 6 basis points to 201.5 as of 9:28 am in Sydney, according to Citigroup.

- Consumers were more optimistic in May about economic outlook of the next six months than at any time since the recession began, a sign Americans are looking ahead to better days. The Conference Board’s expectations index rose in May to 72.3, the highest level since December 2007, when the recession started. “As you get toward the tail end of a recession, consumers begin to sense that the worst of the job market declines are behind us and that the economy is likely to improve,” said Dean Maki, co-head of US economic research at Barclays Capital Inc. in NY. “That’s were the expectations index jumps.” The headline consumer confidence number, issued yesterday, jumped this month by the most in six years to reach the highest level since September 2008. Recent jumps in the stock market, low mortgage rates and smaller job losses are boosting consumers’ outlooks and fueling forecasts that the economy will return to growth in the second half of the year. “As the financial markets heal and credit starts to flow again, the odds are good that the economy will enter full-recovery mode by the end of the year, and consumer are sensing this,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in NY.

- Fighting between Pakistani troops and Taliban insurgents in the Swat Valley and other northwestern areas is forcing almost 130,000 people a day to flee, the United Nations said while warning many others are unable to escape. After a month of clashes, civilians are still streaming from the conflict zone and the number of displaced has reached almost 2.4 million, the UN refugee agency said yesterday, citing the provincial government.

- North Korea fired another short-range missile off its eastern coast last night, South Korea’s Yonhap News reported, after the communist regime carried out a nuclear test and launched missiles earlier in the week. The latest missile firing occurred around 9:10 p.m. local time, the report said, citing a South Korean government official it didn’t identify. North Korea launched two short-range missiles hours after the May 25 nuclear detonation. It tested two more earlier yesterday before firing the third, according to Yonhap, which the South Korean military has yet to confirm.

Wall Street Journal:

- Citigroup Inc. (C) and Bank of America Corp. (BAC) are expected to soon raise base salaries for investment bankers to compensate for limits on annual bonuses, according to people familiar with the matter.

- Secured bank lenders to General Motors Corp. would get a full recovery on $6 billion in loans made to the auto maker, under the bankruptcy plan being finalized this week by the U.S. Treasury, two people familiar with the matter said. The Treasury plans to inject a fresh $50 billion in various financings to back a GM workout, these people said, most of which would take the form of company equity. GM's largest lenders include banks like J.P. Morgan Chase & Co. and Citigroup Inc. and Credit Suisse. GM has a $4.5 billion revolving line of credit that comes due in 2011 and a $1.5 billion term loan due in 2013. GM lenders will be getting much better treatment than did lenders to Chrysler LLC, which eventually received about 29 cents on the dollar for the $6.9 billion they were owed that automaker.

- General Motors Corp. and the United Auto Workers have agreed to a new restructuring plan that would give the union a significantly smaller stake in the company than previously envisioned, and leave the U.S. government owning as much as 70% of the car maker. The government's plan also calls for paying off in full GM's secured lenders, banks including Citigroup Inc. and J.P. Morgan Chase & Co. that are owed about $6 billion. That would remove one potential obstacle to a speedy bankruptcy reorganization. Under the new UAW terms, the union's health-care trust would own 17.5% of a reorganized GM, in exchange for retiree health-care concessions. An earlier revamping worked out by the Treasury Department and GM would have given the union 39% and the government 50%. The union -- concerned about the GMs prospects -- sought the lower stake in exchange for preferred shares that provide annual income as well as a $2.5 billion note from GM, said people familiar with the situation. The change leaves room for GM to sweeten its stock offer to bondholders to reduce the company's $27 billion in unsecured debt. A debt-for-equity swap is another measure required by the Treasury before Monday, or else the company will be forced to file for bankruptcy, a fate most participants in the talks believe is likely.

- Sen. Roland Burris offered to deliver a campaign check to then-Gov. Rod Blagojevich in a conversation taped by the Federal Bureau of Investigation last November, according to Mr. Burris's lawyer. The tape is being turned over to the Senate Ethics Committee, which has been probing Mr. Burris's appointment by Mr. Blagojevich, who faces a federal criminal trial and was removed from office this year.

MarketWatch.com:
- Japan reported Wednesday another sharp fall in exports for April, though the drop was smaller than the previous month's, showing signs of a possible bottoming, according to data from the nation's Finance Ministry.

CNBC.com:
- Chrysler could exit Chapter 11 bankruptcy protection soon, perhaps as early as next week, according a person familiar with discussions between the federal government and the auto maker.

NY Times:

- For decades, the big oil companies and the farm lobby have been fighting about ethanol, with the farmers pushing to produce more of it and the refiners arguing it was a boondoggle that would do little to solve the country’s energy problems. So why are technicians for BP, the giant oil company, now working at an experimental ethanol plant in this old Louisiana oil town, helping to make it more efficient? The erstwhile enemies, it turns out, are gradually learning to get along, as refiners increasingly see a need to get involved in ethanol production. Ethanol, made chiefly from corn, now represents about 9 percent of the country’s market for liquid fuels. And the percentage is growing year after year because of federal mandates. With the nation’s thirst for gasoline, and the ethanol that is blended into it, expected to revive when the economy does, the oil companies want to be in a position to take full advantage.The interest expressed by big oil companies is coming in the nick of time for small companies that desperately need capital and cannot find it these days in the private markets. Take the case of Verenium Corp. a small company based in Cambridge, Mass., that here in Jennings is testing new forms of biofuels in alliance with BP. Instead of ethanol made from food crops, the partners are devising a version from grasses in the sugar cane family. The experiments here are preparation for building a second, $250 million plant in Florida with the capacity to produce 36 million gallons a year of new biofuels — the first commercial plant of its type built with oil company money and expertise. Verenium scientists have already developed a secret sauce of enzymes and microbes that ferment and distill biomass into ethanol. Now BP is contributing technical expertise aimed at getting the temperatures and pressures in the vats just right. Commercial success is not assured, of course. But the fact that a major oil company has even made an alliance to go commercial with Verenium is considered a breakthrough by many ethanol executives. “Any time you get Big Oil into the game, that changes the paradigm because nobody can go large scale chemical engineering like Big Oil,” said Brent Erickson, an executive vice president of the Biotechnology Industry Organization, a trade group.

CNNMoney:

- Amazon’s(AMZN) next revolution.

The Advocate:

- Connecticut may become the first state to regulate hedge funds after the state Senate on Tuesday passed a bill that would require fund managers doing business in the state to disclose potential conflicts of interests to investors. The 24-12 party line vote came after Republicans -- particularly senators from the industry's home in lower Fairfield County -- spoke against the legislation, arguing it could scare away some managers. "It's an ideal industry. It doesn't pollute. It brings great minds to Connecticut. . . . It brings an abundance of capital," said freshman Sen. L. Scott Frantz, R-Greenwich, whose district is ground zero for the state's hedge fund industry. "We need to be very careful about the message we're sending out there."

Lloyd’s List:

- The world’s container lines could be heading for collective losses of $10bn this year, according to Mitsui OSK Lines president Akimitsu Ashida. He said first quarter results from the world’s biggest carriers showed they made total losses of around $2.6bn. Ashida predicts any upturn in cargo will be offset by new capacity and says ‘rate recovery is the only way’ to return to profitability.

Washington Post:

- With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax. Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

USA Today.com:

- New 34-mpg Lexus hybrid has wild looks, but mild performance.

Reuters:

- Despite the troubled economy, most advertisers are not drastically cutting their national TV ad budgets for next season, which might bode well for the broadcast networks -- if they don't take hard-line positions regarding rate increases. Although many analysts project "upfront" sales for the bulk of advertising slots next season could slide by 20 percent or more compared with last year, most media buyers said the slippage might fall in the 5 percent-8 percent range.

- The number of loans, leases and lines of credit written by lenders that finance half of the capital equipment investment in the United States shrank again in April as the economic downturn discouraged business borrowing. But the lenders' trade group, the Equipment Leasing and Finance Association, also told Reuters that delinquencies and charge-offs declined in April, suggesting the stress among customers "may have crested." The group said the percentage of borrowers delinquent 30 days or more on their capex financings fell to 4 percent in April, from a revised 4.9 percent in March. And charge-offs as a percentage of all receivables fell to 1.79 percent in April, from 2.21 percent in March. In another sign of a possible turnaround for the industry, employment at the companies that specialize in capex financings rose slightly in April, with total headcount up 2.9 percent.

- Spain rearranges furniture as economy sinks.

- New York state's pension fund has cut its so-called fund of funds investments to about $500 million from $5 billion since January 2008, after deciding direct investments were preferable, a spokesman said Tuesday. Fund of funds invest money in hedge funds on behalf of their investors, and they helped the state gain access to "blue chip" funds when former Comptroller Alan Hevesi began using them in 2005, said Robert Whalen, a spokesman for the current Comptroller Thomas DiNapoli. DiNapoli determined after a review that the strategy of investing in 184 funds through 7 fund of funds was "suboptimal" due to redundant investments, unwanted correlations between the funds' results and the stock market's performance, and costly fees, Whalen explained.

Financial Times:

- With all this reflationary work by the central banks and governments, don’t you wonder what the new cash is buying? Know anyone who’s getting a new Porsche? Suezmax tanker? Damien Hirst pickled shark? Semiconductor test equipment? Didn’t think so. Neither do I. But the cash is going somewhere, such as into credit and credit derivative speculation. Credit hedge fund managers, and even the banks’ own desks, have uncoiled themselves from their fetal positions, and are back taking advantage of what are either risk-free arbitrages or value traps, depending on how the next few months go. If I were them, I might be taking the money made in the past two and a half months off the table. But then I don’t have to be reaching to get past a high-water mark. Even after they’ve been reviled by talking heads and politicians from here to Ulan Bator, credit default swaps are still a very low-cost way of putting on speculative positions, as long as they still trade. And so, thanks to the Geithner Treasury’s policy of reform, rather than dissolution, CDS trading has regained a vampiric strength the real economy still lacks. A couple of years ago, someone might have said there was a risk that a CDS counterparty, such as, hypothetically, AIG, might get into trouble, and you would be unable to count on that leg of the trade. Then a risk-free arbitrage could turn into a money trap.But thanks to Hank Paulson, Tim Geithner, and the rest of Team USA, that risk is no longer seen to be a problem. So you can now collect a couple of hundred basis points of risk-free money, as long as you have a line of credit with a dealer.

- Lebanon’s Hizbollah has held talks with the International Monetary Fund and the European Union as it seeks to secure continued financial support for Lebanon if the alliance it leads was to win next month’s parliamentary elections. The discussions between the Shia militant group and donors take place amid intensifying concern in Beirut that a politically fragile, heavily indebted economy could come under severe strain if the current pro-western parliamentary majority was to lose the June 7 elections. A victory by Hizbollah and its allies would be seen as a boost to Syria and Iran, the group’s backers. It could lead the US and other supporters of the current parliamentary majority to reconsider economic support for Lebanon. Washington considers Hizbollah a terrorist organisation but the group is seen by much of the Arab world as a resistance movement against Israel.

- Standard and Poor’s decision to downgrade its outlook for British sovereign debt from “stable” to “negative” should be a wake-up call for the US Congress and administration. Let us hope they wake up. Under President Barack Obama’s budget plan, the federal debt is exploding. To be precise, it is rising – and will continue to rise – much faster than gross domestic product, a measure of America’s ability to service it. The federal debt was equivalent to 41 per cent of GDP at the end of 2008; the Congressional Budget Office projects it will increase to 82 per cent of GDP in 10 years. With no change in policy, it could hit 100 per cent of GDP in just another five years. The good news is that it is not too late. There is time to wake up, to make a mid-course correction, to get back on track. Many blame the rating agencies for not telling us about systemic risks in the private sector that lead to this crisis. Let us not ignore them when they try to tell us about the risks in the government sector that will lead to the next one.

- President Nicolas Sarkozy's desire to appoint an outspoken climate-change sceptic to a new French super-ministry of industry and innovation has drawn strong protests from party colleagues and environmentalists. Claude Allègre argues that global warming is not necessarily caused by human activity. Putting him in charge of scientific research would be tantamount to "giving the finger to scientists", said Nicolas Hulot, France's best-known environmental activist. Mr Allègre hit back at his critics and their "lies and distortions" about his record and beliefs. The climate was certainly changing, he said, but not all the reasons for it were known. "As a scientist and citizen, I, unlike others, do not want environmentalism to accentuate the crisis or make the least well-off suffer more," he said.

Economic Daily News:

- Apple Inc.(AAPL) will launch three new models of iPhones in China on June 9 before starting sales in the country at the end of the month or in early July, citing Chinese media. Taiwan companies such as Cheng Uei Precision Co., Advanced Connectek Inc. and Simula Technology Inc. have received orders to make connectors for the new next-generation iphones.

NHK:

- Toyota Motor Corp. will resume overtime work next month at a plant in central Japan to boost the output of the Prius hybrid.

Yonhap:

- Nouriel Roubini, the NYU economics professor, said the US economic slump may end around the end of the year.

- North Korea probably already restarted its nuclear reprocessing facility in Yongbyon, citing a diplomatic source in Seoul.

Late Buy/Sell Recommendations
Citigroup:

- Upgraded (BAC) bonds to Buy/Overweight.

Night Trading
Asian Indices are +.75% to +2.0% on average.
S&P 500 futures -.08%.
NASDAQ 100 futures -.07%.

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Economic Releases

10:00 am EST

- The House Price Index for March is estimated to rise .2% versus a .7% gain in February.

- Existing Home Sales for April are estimated to rise to 4.66M versus 4.57M in March.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Treasury’s Geithner speaking, weekly MBA mortgage applications report, weekly retail sales reports, Cowen Tech/Media/Telecom Conference, Barclay’s Capital Wireline/Wireless Conference, (ESRX) shareholders meeting, (MCD) shareholders meeting, (XOM) shareholders meeting, Deutsche Bank Energy/Utilities Conference, (CVX) shareholders meeting and the (HIG) shareholders meeting could also impact trading today.

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

Stocks Finish Sharply Higher, Boosted by REIT, Alt Energy, Steel, Bank, Construction, Homebuilding. Rail and Technology Shares

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