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Thursday Watch

Late-Night Headlines
Bloomberg:
- The US House of Representatives passed a five-year, $289 billion farm bill with enough votes to override a presidential veto, making it more likely to become law. The plan to boost food aid to the poor and keep US farm subsidies largely intact was approved 318-106 in the House. The bill’s biggest expense is food aid, which takes up about 74% of the spending plan. The president said the plan exceeds spending guidelines, distorts trade and subsidizes farmers as crop prices reach records. The bill extends a 54-cent-a-gallon tariff on imports of biofuels until 2012, including sugar-based ethanol from Brazil. The plan also reauthorizes the Commodity Futures Trading Commission by extending regulatory power over electronic trading on energy markets.
- Japanese machinery orders fell more than economists expected in March as a global slowdown and waning profits dissuaded companies from investing in factories and equipment.
- Anheuser-Busch Cos.(BUD) options prices jumped to a five-year high on renewed speculation the world’s second-largest brewer may be acquired.
- Agilent Technologies(A), the biggest maker of scientific-testing equipment, reported a 41% jump in second-quarter profit and forecast full-year earnings that topped estimates, sending the shares 4.8% higher in after-hours trading.
- Sina Corp.(SINA) posted an 87% increase in profit after luring more users with music, videos and a new database of information for buying and selling real estate. The shares jumped 8.7% in extended trading.
- Paulson Should Act to Stop Dollar Slump, Americans Say in Poll.
- China’s banking regulator warned against a potential rebound of non-performing loans amid tighter credit controls and rising inflation.
- Petrobras(PBR) leased about 80% of the world’s deepest-drilling offshore rigs to explore prospects including the Western Hemisphere’s biggest discovery in decades.

Wall Street Journal:
- General Electric(GE) plans to seek a buyer for its appliances business through an auction.
- Signs of a Thaw in Deal Market? Slowly but surely, the grease that lubricates Wall Street’s deal machine is flowing again. A significant improvement in the credit markets since late March is emboldening more companies to undertake acquisitions and share buybacks that will be financed largely with debt.
- Relentless increases in the price of steel are halting or slowing major construction projects world-wide, setting the stage for a potential backlash against steelmakers.

MarketWatch.com:
- Third Point LLC disclosed stakes in Microsoft Corp.(MSFT) and Yahoo Inc.(YHOO) on Wednesday, adding another activist investment firm to the technology takeover standoff.
- Relocate-America.com ranks top 100 best places to live.

NY Times:
- Turner Entertainment to Offer Marketers Way to Link Ads to Content.
- Orange County, Calif., has become a center for small eye care device makers in much the same way that Silicon Valley is a center for technology.

Forbes.com:
- Ways to Bet Against the Oil Bubble.
- Annaly(NLY) Wards Off Competition.
- On Wednesday, Flour Corp.(FLR) said it had signed a $1.8 billion contract with Perth, Scotland-based Scottish and Southern Energy to design and build the world’s largest offshore wind farm project.
- Big Guns Tackle Next-Gen Ethanol. Ethanol producers have lost much of their luster lately, as critics blame the industry fro driving up the price of corn. Meanwhile, at least half a dozen start-up companies have been pursuing a new form of ethanol – called cellulosic ethanol – that uses a variety of non-food sources as its feedstock. As of today, those start-ups now find themselves in the company of a much larger competitor: DuPont(DD). The chemical giant announced Wednesday morning that it is partnering with Genecor to form a joint venture to produce cellulosic ethanol.
- Sugar fell to a four-month low on speculation the next harvest in Brazil, the biggest grower and exporter, will widen the global gap between supply and demand.

NY Observer:
- The 100 Most Powerful People in NY Real Estate.

CNNMoney.com:
- The 35 largest US private companies.

Portfolio.com:
- There is reason to worry about Yahoo’s brand coolness. ComScore numbers tell us that the whole of Yahoo(YHOO) -- main site, email, search and everything else -- is no longer the number one Web destination, as it has been for quite some time. Google(GOOG) has snatched that spot for the first time. One writer surveyed a group of high school kids, and found that Yahoo wasn't even as cool as Microsoft(MSFT), which is really saying something.

USA Today.com:
- Tech stocks jump to the front of market’s charge.
- Networks may struggle to meet upfront expectations.

ZDNet.de:
- Intel Corp.(INTC) said Apple Inc.’s(AAPL) next generation iPhone will incorporate Intel’s Atom, a new processor for low-cost portable computers, citing Intel’s German head Hannes Schwaderer. The new Atom processor-equipped iPhone will be slightly larger than the current version, which is due to the device’s larger display.

Reuters:
- Delta pilots OK modified contract, boost merger.

Financial Times:
- The soaring food prices that have triggered global political and economic turmoil over the past year have finally shown the first tentative signs of stabilizing. The UN’s Food and Agriculture price index saw its first decline in 15 months in April, as wheat, dairy, sugar and soybean prices fell. The last time the FAO food index posted a monthly drop was in January 2007. This time officials are more confident that some prices will stop rising or even fall as farmers plant more crops to take advantage of record prices amid better weather than last year.
- Thousands of Chinese troops and relief supplies were airlifted into areas stricken by Monday’s earthquake on Wednesday as it emerged that Beijing was stepping up control of domestic reporting of the country’s biggest natural disaster in 30 years. In spite of wall-to-wall coverage of the earthquake in Sichuan province, the ruling Communist party has been working hard to shape the news.
- Global banks have now written off more than 80% of their losses against assets linked to the US subprime mortgage market, according to a report by Fitch Ratings. The report is likely to fuel the sense of optimism that has spread through markets in recent weeks.

TimesOnline:
- Britain faces two years of economic pain and could sink into recession, the Governor of the Bank of England has said in a stark warning to the nation.

Economic Times:
- In what could be the biggest overseas retail buyout by an Indian firm, Sanjay Dalmia-led GHCL is learnt to be keen on buying US’ second-largest specialty home furnishings retailer, Linens ‘n Things.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (TTEC), target $32.
- Reiterated Buy on (AMZN), target $97.
- Reiterated Sell on (CNSL), target $12.

Night Trading
Asian Indices are -.25% to +1.0% on average.
S&P 500 futures -.06%.
NASDAQ 100 futures +.04%.

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Earnings of Note
Company/EPS Estimate
- (BBI)/.16
- (JCP)/.50
- (URBN)/.23
- (BX)/.11
- (KSS)/.44
- (JWN)/.49
- (ADSK)/.48
- (AAP)/.78
- (BMC)/.51

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- Initial Jobless Claims for this week are estimated to rise to 370K versus 365K the prior week.
- Continuing Claims are estimated to rise to 3035K versus 3020K prior.
- Empire Manufacturing for May is estimated at 0.0 versus a reading of .6 in April.

9:00 am EST
- Net Long-term TIC Flows for March are estimated to fall to $62.5 billion versus $7.5 billion in February.

9:15 am EST
- Industrial Production for April is estimated to fall .3% versus a .3% increase in March.
- Capacity Utilization for April is estimated to fall to 80.1% versus a reading of 80.5% in March.

10:00 am EST
- The Philly Fed for May is estimated to rise to -19.0 from -24.9 in April.

1:00 pm EST
- The NAHB Housing Market Index for May is estimated at 20.0 versus 20.0 in April.

Other Potential Market Movers
- The Fed’s Mishkin speaking, Fed’s Bernanke speaking, Fed’s Evans speaking, weekly EIA natural gas inventory report, (AFL) analyst meeting, (ACS) investor conference, Bank of America Health Care Conference, CSFB European Tech Conference, Robert W. Baird Growth Stock Conference, Canaccord On-Demand Software Conference, Merrill Lynch Global Infrastructure Conference and BMO Capital Agriculture Conference could also impact trading today.

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

Stocks Finish Slightly Higher, Boosted by Semi, Alternative Energy, Airline Shares

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In Play

Stocks Slightly Higher into Final Hour on Falling Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Alternative Energy longs, Software longs and Medical longs. I added (IWM)/(QQQQ) hedges, added a fertilizer short and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is bullish as the advance/decline line is higher, most sectors are rising and volume is below average. Investor anxiety is slightly below average. Today’s overall market action is mildly bearish. The VIX is falling 4.9%, but remains above average at 17.1. The ISE Sentiment Index is low at 98.0 and the total put/call is below average at .78. Finally, the NYSE Arms has been running below average most of the day and is currently .77. Considering the fall in oil, better inflation reading, financial sector strength, today’s late afternoon weakness is somewhat disappointing. Market leaders are especially weak, which may indicate a short-term pullback is in the offing. On the positive side, the European Financial Sector Credit Default Swap Index is falling 2.0 basis points to 61.09 basis points and the US Dollar continues to trade very well. Nikkei futures indicate a +112 open in Japan and DAX futures indicate a +33 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking and more short selling.

Today's Headlines

Bloomberg:
- A “huge” oil shale deposit has been found in Egypt, citing an assessment by Centurion Energy Intl.
- The cost of protecting corporate bonds from default fell for a third day after Freddie Mac, the second-largest US mortgage-finance company, posted a loss that was narrower than analysts estimated and raised new capital. The benchmark CDX North America Investment Grade Index fell 5 basis points to 93.5.
- The US dollar will strengthen against most major currencies in the next six months as the Fed stops reducing interest rates, a survey of Bloomberg users showed.
- Securities firms are creating new ABX derivative contracts that will help value their holdings of some AAA rate subprime-mortgage debt. Some holders of subprime-loans bonds have said the existing AAA ABX contracts provide investors with misleading information about the value of their assets. The new contracts may be unlikelier to be used by so-called macro hedge funds to bet against the US housing market because they’re tied to less risky debt. That means they may not face the “selling pressure” that has helped drive down other ABX contracts further than may be justified.
- Collateralized debt obligations, the securities that contributed to $335 billion of bank writedowns, 65,000 job losses and the collapse of Bear Stearns(BSC), may be staggering back to life.
- Pension Funds ‘Diversify’ Into Commodity Bubble. If it's not real demand to heat our homes, power our factories and feed our population, then could it be, might it be, a bubble? And if it is, are the commodity markets looking at the same fate as the Nasdaq Composite Index in 2000-2002 and the housing market at present? Last week, the average daily volume of crude oil contracts on the Nymex was almost eight times daily oil demand. Let's say a pension fund, like the California Public Employees Retirement System, wants to increase its exposure to commodities. Calpers, a speculator according to the CFTC, does a total-return swap with Goldman Sachs Group Inc., a hedger. Goldman promises to pay Calpers the total return on the Goldman Sachs Commodity Index and hedges the swap by buying futures contracts. Calpers's speculative bet on commodities gets recorded as Goldman's hedging in the COT report. In so doing, investors circumvent the position limits on non-commercials.
- Fitch Ratings said global banks have already written down more than 80% of their losses from subprime mortgage assets and added that it estimates total market losses of $400 billion.
- Crude oil fell more than $1 a barrel after an EIA report showed that US supplies of distillate fuels, including diesel, rose more than forecast.
- Wheat prices fell to the lowest price in six months on speculation that importers will delay purchases until farmers in the US begin harvesting a bigger crop next month.
- General Electric(GE) CEO Jeffrey Immelt may be unable to return to the 10% profit expansion analysts forecast for 2009 because of dimming prospects he’ll be able to sell slow-growing financial-services assets.
- Sony Corp.(SNE) the world’s second-largest maker of consumer electronics, forecast operating income will rise 20% this year, beating estimates, as the games division that makes PlayStation 3 consoles turns profitable.
- Macy’s Inc.(M), the second-biggest US dept.-store company, climbed in NY trading after first-quarter sales fell less than analysts estimates and it reiterated annual forecasts.

Wall Street Journal:
- Who Stole the American Spirit? According to the most recent polls, more than 75% of the American public believes the economy is in bad shape. All three remaining candidates for president agree the economic situation is dire. Taking the long view, there is something both startling and disturbing about the gloom that has settled over Wall Street and the country in general. In fact, looking back over the past century, it would be a stretch to rank the current problems as especially notable or dramatic. Something else is going on – namely a cultural rut of pessimism that is draining our collective energy, blinding us to possibilities, and eroding our position in the world. Next time someone compares the present to the Great Depression, stop them. The DJIA fell 89%, unemployment hit 24.9%, 4,000 banks failed in 1933 alone and millions became homeless. Today’s environment doesn’t come close. There is a fine line between self-criticism and self-excoriation. The path to a more balanced view of ourselves is impossible to chart, but the first step is surely to have better perspective on where we are and where we have been. (very good article)
- House Democrats Seek Surtax on the Wealthy.
- Wal-Mart(WMT) Raises Bar on Toy-Safety Standards.

NY Times:
- Oil Refiners See Profits Shrink as Consumption Falls. Consumption of gasoline in the US is falling as a result of slower economic growth and consumer efforts to conserve. The IEA reduced its forecast for global oil demand for this year, as consumption drops by a bigger-than-forecast 300,000 barrels a day in the developed world. US oil consumption fell 3.3% in March from a year earlier. Refiners have cut their production rates to 81.4% versus 90.4% at this time last year. Some consumer advocates say they are suspicious about the behavior of refiners who are sharply cutting production at a time of record gasoline prices. In China oil imports have soared in recent weeks as the government stockpiles oil and diesel in anticipation of the Olympic Games. Beijing, the IEA said, is seeking to avoid a repeat of the embarrassing fuel shortage and power disruptions that plagued the country last year.

NY Examiner:
- Iranian President Mahmoud Ahmadinejad says Israel is dying and that its 60^th anniversary celebrations are an attempt to prevent its annihilation.

USA Today:
- Consumers ditching land-line phones.

Infectious Greed:
- There has been a roughly 50% compound growth rate in the number of commodity hedge funds created per year since 2000. That means everyone on the planet will be running a commodity hedge fund by the year 2050. Check out the following graph.

International Herald Tribune:
- Ken Griffin, founder of Citadel Investment, bashes his hedge fund peers.

Bear Radar

Style Underperformer:

Small-cap Value +.66%

Sector Underperformers:

Coalirlind (-.82%), Gold (-.21%) and Restaurants (-.12%)

Stocks Falling on Unusual Volume:

WFMI, MELI, DE, JBX and BMA

Stocks With Unusual Put Option Activity:

1) DE 2) MELI 3) AMGN 4) YGE 5) SGP