Tuesday Watch

Evening Headlines
Bloomberg:

• Goldman Sachs(GS) Labeled 'Shi**y Deal' by Montag in E-Mail. Thomas Montag, the former head of sales and trading in the Americas at Goldman Sachs Group Inc., called a set of mortgage-linked investments sold by his firm “one shi**y deal,” according to an excerpt from internal e-mails released by Senate lawmakers. The transaction was Timberwolf Ltd., a $1 billion collateralized debt obligation holding pieces of other CDOs, according to a statement from the Permanent Subcommittee on Investigations. The CDO also included optimistic side-bets on the performance of CDOs, derivatives in which the firm took the opposite pessimistic side in “many” cases, the panel said. “Boy that timberwo[l]f was one shi**y deal,” Montag, who is now Bank of America Corp.’s president of global banking and markets, said in a June 22, 2007, e-mail to Daniel Sparks, who ran Goldman Sachs’s mortgage business at the time, according to the statement yesterday. Within five months of Timberwolf’s debut, the CDO had lost 80 percent of its value, and it was liquidated in 2008, according to the panel.
• Goldman Sachs(GS) Investors Sue Over Abacus Disclosures. Goldman Sachs Group Inc. was sued by shareholders over a collateralized-debt obligation known as Abacus 2007-AC1 that prompted a U.S. Securities and Exchange Commission lawsuit this month. Goldman Sachs didn’t disclose the truth about Abacus or the bank’s financial condition, investors said in the complaint filed today in federal court in Manhattan. “As news of Goldman’s misconduct reached the market, Goldman stock immediately plummeted,” according to the complaint.
• Inflation is 'Big Worry' for India's Economy, Subbarao Says. Reserve Bank of India Governor Duvvuri Subbarao said faster inflation is a “big worry” for the country’s economy and the central bank plans to remove monetary stimulus in a gradual manner to ensure sustained growth. While the tightening of monetary policy may be “anti- growth” in the short term, it is “certainly in the best interest” of the economy in the longer term, Subbarao said in a speech yesterday at the Peterson Institute for International Economics in Washington. Benchmark wholesale-price inflation in India accelerated to 9.9 percent in March, the fastest in 17 months, government data showed. Consumer prices paid by industrial workers in India rose 14.9 percent in February from a year earlier.
• Pennsylvania Capital Told to Consider Bankruptcy Protection. Harrisburg, Pennsylvania, which has missed $6 million in debt payments since Jan. 1, should consider Chapter 9 bankruptcy protection, City Controller Dan Miller told a three-hour special committee hearing today. Miller, the first of four people to testify in an “informational session” on insolvency convened by Gloria Martin-Roberts, council president, said bankruptcy would offer Harrisburg relief from $68 million in debt-service payments the city faces this year in connection with a waste-to-energy incinerator project.

Wall Street Journal:

• States Bristle as Investors Make Wagers on Defaults. As U.S. cities and towns wrestle with financial problems, investors are finding a new way to profit on their misery: by buying derivatives that essentially bet municipalities will default. These so-called credit default swaps are basically insurance contracts that have long been available to protect holders of corporate bonds against default. They became available a few years ago for municipal debt, allowing investors to short-sell—or bet against—countless cities, towns and bridges, and more than a dozen states, including California, Michigan and New York. The derivatives are still thinly traded, but their existence has the potential to make investors skittish about the issuers of the bonds that underlie them. That has been the case for issuers ranging from Greece to Bear Stearns and Lehman Brothers during the financial crisis. When the price of this insurance goes up, nervous investors have sold off securities issued by these entities. The proliferation of the derivatives is angering treasurers around the country, who say the derivatives are sending a negative message and possibly driving up their costs of borrowing at a time when they need all the help they can get. California planned to send out letters as soon as this week to big Wall Street firms that sell its bonds, seeking in-depth information about their roles in selling derivatives. "Firms that are underwriting our bond sales are then telling the purchasers maybe they need to buy a CDS reflecting some risk," California Treasurer Bill Lockyer said in an interview. "They are speaking with two tongues, and we want to find out whether that impacts us in an adverse way."
• How Could the Fort Hood Massacre Happen? by Joe Lieberman and Susan Collins. The administration continues to withhold crucial information from Congress.
• Arizona's Immigration Frustration. The new state law is the result of a failed national policy.
  

Marketwatch.com:

• Wrangling with the Wild Bulls. China must take tough action to avoid banking whiplash. A double digit-growth rate and a howling one-third increase in property investment. Recent statistics, though far from accurate, unambiguously show an overheating Chinese economy, as well as a speculative bubble. Consumption inflation is also likely to head towards double digits soon, even though official statistics still portray low inflation. Some sort of crisis may already be inevitable. But by delaying remedial action, trouble -- when it arrives -- will only be bigger.
• Police Raid Home of Blogger Who Divulged New Apple(AAPL) iPhone Model.

NY Times:

• Goldman(GS) Faces New Mortgage Allegations. The legal storm buffeting Goldman Sachs intensified on Monday as Senate investigators claimed the Wall Street giant had devised not one but a series of complex deals to profit from the collapse of the home mortgage market.
• Off Wall St., Worries About Financial Bill.
  

Business Insider:

• Courtesy of Whirlpool(WHR), More Proof That Europe is the Sick Man of the World.
• 20 Lobbyists Infesting the Obama Administration. Obama stormed into Washington with a pledge that "lobbyists won't find a job in my White House." He followed it up on his first day in office with an executive order banning former lobbyists from working on issues related to their lobby. But by his third day in office he issued the first of many waivers to appoint William Lynn, a former lobbyist for Raytheon, to Deputy Secretary of Defense. In the year that followed, Obama appointed more than 40 former lobbyists to senior positions, including three Cabinet secretaries and the Director of Central Intelligence. We've profiled twenty important figures, using a list published by Tim Carney in the The Examiner.
• Why Does Larry Summers Love Big Banks So Much? There's one thing he does hint at, though he doesn't quite come out and say it: bigger banks might be better for regulators. It may not be smart to put all your eggs in one basket . . . but it's probably a hell of a lot easier for a regulator to watch that basket. Plus, big banks provide nice lots of cushy jobs for regulators to retire into. Small banks don't have quite the same incentives (or payrolls). This may explain something important about what's happened in our banking system over the last few decades.

Zero Hedge:

• Fully Annotated Lloyd Blankfein Testimony. Below we present Lloyd's full, and merely 2 page, prepared testimony before tomorrow's Senatorial Hearing on the Tourregate. Here are the key amusing excerpts:

Forbes:

• Still Government Motors. GM is paying back Uncle Sam to shake him down for more money.

Detroit News:

• Dealers Fight New Fed Oversight of Car, Truck Loans. About 100 auto dealers will be on Capitol Hill Tuesday, seeking an exemption from a proposed new consumer watchdog agency. The White House opposes efforts by auto dealers to be exempted from the oversight of a proposed consumer financial protection agency. Sen. Sam Brownback, R-Kan., is sponsoring an amendment to exempt auto dealers from the additional scrutiny. Richard S. Genthe of Ann Arbor, a third-generation auto dealer who owns Dick Genthe Chevrolet in Southgate, said the new agency is unnecessary, and will add additional costs for auto dealers.
  

Politico:

• Wall Street Reform Stalls in Senate.
  
• Campaign Bundlers Shake Money Trees. Bundlers are a relatively new breed of political animal, the unintended consequences of a 1974 law Congress passed to limit individual donations to campaigns. Presidential campaigns keep track of them, anointing the ones who are particularly effective at gathering dozens of checks from friends and colleagues with names such as Pioneers or Rangers. And since last year, new reporting requirements enacted by Congress in 2007 have provided a fuller picture of lobbyists who bundle during nonpresidential years and where their money goes. Of the thousands of registered federal lobbyists, according to an analysis of campaign committee reports by the Center for Public Integrity, only 96 raised enough to meet the reporting threshold of $16,000 in a six-month period. The Top Five together raised at least $1,720,550 in just over a year. Four of them were Democrats. And the champion is based in Austin and was once known as the “Boy Wonder” of Texas politics.

Daily Beast:

• The Media's Golf Double Standard. The president has gone golfing more than he’s met the press. Had Bush tried that, he’d have been clubbed by the media. Mark McKinnon on Washington’s 18-hole hypocrisy. News flash: President Obama hasn’t held a formal press conference in almost a year (274 days and counting) yet has golfed 32 times since he was elected—eight more times than President George W. Bush did during his entire presidency.
  

USA Today:

• U.S. Newspaper Circulation Down 8.7% in Latest Survey.

Reuters:

• Texas Instruments(TXN) Outlook Beats Estimates. Texas Instruments Inc (TXN.N) gave a current-quarter outlook that topped Wall Street expectations and said chip demand was strong in all product segments with growth seen in every region.
• Nasdaq Short Interest Ticks Up, NYSE's Flat. Stock investors raised their bearish bets on Nasdaq in mid-April, with short interest climbing 1.7 percent from late March, but bearish sentiment was little changed on the New York Stock Exchange. The Nasdaq reported on Monday that short interest rose to about 7.08 billion shares as of April 15, compared with 6.96 billion shares as of the end of March. On the NYSE, as of April 15 short interest was at 13.90 billion shares, virtually unchanged from the end of March. The short interest was equivalent to 3.64 percent of the total shares outstanding, the NYSE said.

Telegraph:

• Are Metals Prices Heading for a Fall? "Since a brief trough in February, metal prices have staged a strong rally, taking prices up by 22pc-50pc," notes Daniel Kang, HSBC's head of mining in the Asia Pacific Region. Mr Kang says metals prices now sit comfortably above marginal production cash costs. "While maintaining a positive medium-term view, we believe idled capacity should soon find its way back into the market, placing pressure on elevated metal prices," he argues. Nick Moore, a metals strategist at RBS, agrees. He believes that producer restarts and the commissioning of new projects are likely to cap any further price advances above current levels. He pointed out that already this month there have been a number of restarts and production increases announced in nickel, zinc and palladium. "More are likely in the coming months," Mr Moore says.

TimesOnline:

• Merkel Keeps Greece in Suspense Over Rescue. The German Chancellor was forced yesterday to issue an emergency statement promising aid to Greece — but her words failed to quell bond market speculation that Berlin might not support the eurozone’s €30 billion rescue package. Bond market investors pushed up the interest rate on two-year Greek debt to almost 14 per cent yesterday as rumours surfaced that Greece might seek an emergency restructuring of its short-term borrowings. The market fright effectively closed the door on further short-term commercial borrowing.

China Business News:

• China Unicom Ltd. may reduce the price at which it sells Apple Inc.'s(AAPL) iPhone by 1,000 yuan, citing a source at the wireless carrier. China Unicom may also reduce rates for subscribers using the carrier's so-called third-generation mobile services.
  

Shanghai Securities News:

• China may use capital requirements for developers as a policy tool to cool the property market, Ba Shusong, deputy director general of the State Council's Development Research Center, said in an interview. The government may raise the minimum capital requirement for housing projects to 35% again, after cutting it to 20% last year, the report said. China should also consider using a property tax to curb speculation, Ba said.
  

Securities Times:

• China plans to curb "impulsive and blind" investments by state-owned companies, citing Wang Xiaoqi, director of the planning and development bureau of the State-Owned Assets Supervision and Administration Commission. The commission will step up supervision of non-core business investments by companies, Wang said.
  

Evening Recommendations
Citigroup:

• Reiterated Buy on (TXN), raised estimates, boosted target to $34.
• Reiterated Buy on (WMT), target $65.

Sterne Agee:

• Rated (INTC) Buy, target $28.

Night Trading

• Asian indices are -1.0% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 99.0 +3.0 basis points.
• S&P 500 futures +.12%.
  
• NASDAQ 100 futures +.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (LXK)/.89
• (X)/-1.35
• (NEM)/.83
• (CMI)/.35
• (DBD)/.30
• (MMM)/1.21
• (EL)/.32
• (VLO)/-.28
• (JEC)/.58
• (ODP)/.08
• (UAUA)/-.62
• (MHP)/.25
• (ADP)/.78
• (UPS)/.71
• (F)/.31
• (AFL)/1.32
• (PNRA)/.82
• (NSC)/.67
• (BRCM)/.48
• (BWLD)/.56

Economic Releases
9:00 am EST

• The S&P/CaseShiller Home Price Index for February is estimated to fall to 144.80 versus 145.32 in January.

10:00 am EST

• Consumer Confidence for April is estimated to rise to 53.5 versus a reading of 52.5 in March.

Upcoming Splits

• (SHOO) 3-for-2
  

Other Potential Market Movers

• The Fed's Bernanke speaking, $44 Bln 2-Year Treasury Notes Auction, Richmond Fed Manufacturing Index, ABC Consumer Confidence reading, weekly retail sales report and the (M) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and financial shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.