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Tuesday Watch

Late-Night Headlines
Bloomberg:
- Brazilian stocks may decline as much as 10% by the end of August as inflation accelerates and interest rates rise, according to Citigroup Inc.(C).
- State Street Corp.(STT), facing $3.43 billion in potential losses from investments in mortgage-backed securities, said it will sell $2.5 billion of common stock to boost capital.
- SEC Chairman Christopher Cox has chosen an attorney who led one of the agency’s biggest insider-trading probes and a former partner at Gibson, Dunn Crutcher as deputy heads of the enforcement group.
- Grain growers in Australia, the world's sixth-largest wheat exporter, are in a strong position to expand output and incomes if seasonal conditions improve, the nation's commodity forecaster said.
- Malaysia’s political volatility made its stocks least favored in Southeast Asia, Goldman Sachs said, recommending that investors also pare holdings in Thailand, Indonesia and the Philippines as growth and earnings slow. The countries are at risk of contagion from Vietnam’s economic upheaval that slashed its benchmark index 56% this year.

Wall Street Journal:
- General Motors(GM) is set to lay out a series of restructuring actions Tuesday at its annual shareholders meeting, but cutting the dividend will probably not be on the list.
- Some superdelegates may see no advantage in taking sides just yet, and some even say they may arrive at the August convention uncommitted.

MarketWatch.com:
- Investing for the oil price collapse (Part 1). The question is not if, but when prices will come down.
- Investing for the oil price collapse (Part 2). Winners and losers from the coming fall.
- The massive consumer exit out of gas-quaffing trucks and SUVs and into crossovers and cars is gathering momentum in the US, and with monthly vehicle sales tallies due Tuesday, not even Toyota is immune to the fallout.
- Dollar bull. You can’t talk about one currency in isolation. Headlines tell us that the dollar is down. Popular dollar bashing shows that crowd’s ignorance of Europe and Japan. A strong argument can be made that the euro is not a sustainable currency. “It is only a matter of time, probably less than three years, until the euro experiment meets its end,” said Avi Tiomkin, a currency expert and adviser to hedge funds.
- The $2 trillion hedge fund industry is worried that activist investors may be about to lose a useful tool in their battles with corporate management. Positions built in a company using equity swaps, a type of derivative that’s tied to stock prices, may face tougher disclosure requirements if a ruling by a judge in NY goes the way the hedge fund industry fears later this month.

CNBC.com:
- Video Conference Use Soars Along with Travel Costs.

Portfolio.com:
- Yang was ready to spark an employee walkout if Microsoft(MSFT) won its fight for Yahoo(YHOO), a lawsuit contends. Yahoo C.E.O. Jerry Yang mapped out a scorched-earth defense against Microsoft, essentially arranging to encourage all 14,000 Yahoo employees to quit if Microsoft succeeded in buying the company earlier this year, newly released court documents suggest.

USA Today.com:
- A federal judge has sentenced law firm co-founder Melvyn Weiss to 30 months in prison for his role in a lucrative lawsuit kickback scheme targeting some of the largest corporations in the nation.
- Ford(F) CEO says shift to small cars here to stay. The first four months of the year, sales of the smallest, least-expensive cars — typically the most fuel-efficient — exploded 33% in an overall market down about 8%.

cleantech:
- Europe speeds fuel cell, hydrogen production. According to an EU-funded project, scenario analyst indicates that hydrogen, if introduced with suitable policy measures, could reduce the total oil consumption by the road transport sector by 40% between now and 2050.

Reuters:
- Nasdaq OMX Group Inc said on Monday it has begun selling real-time share data to the websites of Google Inc's Google Finance, cable television network CNBC and News Corp's Wall Street Journal. Until now, Nasdaq has been providing quotes on a 15-minute delay.

Financial Times:
- Intel(INTC) has admitted to shortages of its latest Atom microprocessor as manufacturers scramble to complete in the “netbook” category.
- The Chicago Board Options Exchange, the US’s biggest options exchange, took a big step towards an IPO on Monday by striking a $ 1 billion settlement to end a long-running legal dispute with members of the Chicago Board of Trade.
- Big US corporations lifted their charitable giving last year by 5.6 per cent - to a median $26m - despite worsening economic conditions and a slowdown in earnings.

TimesOnline:
- A call for global agreement on preventing manipulation of the crude oil market is to be made by John Hutton, the Business Secretary, at a meeting of G8 energy ministers in Japan this weekend. Mr Hutton will propose the sharing of detailed data on oil trading, as well as oil stocks, production and consumption. The plan is designed to increase transparency in the oil market and decrease opportunities for speculation by cutting oil price volatility. As well as greater action on transparency, Mr Hutton is also expected to seek coordinated international action to encourage oil-producing countries to raise output to help to bring down fuel prices. He is also seeking to encourage G8 members to maximize their investments in domestic production. The CFTC's joint investigation is understood to be concentrating on several areas of potential abuse or manipulation. They include whether the operators of oil storage facilities, pipelines, cargo ships and terminals could issue false data about the supply of available oil and make trades to profit from the misunderstanding.

Daily Telegraph:
- British Airways Plc may ground planes as the price of oil continues to rise, and will examine flights on a “route-by-route basis,” citing CEO William Walsh.

Liberty Times:
- Taiwan’s car sales will probably fall this year to a level last seen 24 years ago, when the island first opened the market to imports, citing figures from the Taiwan Transportation Vehicle Manufacturers Association. Sales plunged almost 30% from a year earlier in May because of soaring fuel costs, citing the transportation ministry.

China Daily:
- China Issues Olympic Behavior Guide for Foreigners.
- China Southern Airlines will trim services on at least 21 international routes because of surging fuel costs. China Eastern Airlines is also considering similar cuts. Air China Ltd. plans to use Airbus SAS A330s on some routes instead of Boeing 747s to reduce capacity and costs. China Southern, Air China and China Eastern are the country’s three biggest carriers.

Inquirer.net:
- Philippine gasoline prices may increase by as much as 25 US cents a liter. Domestic gas prices have risen 12 times this year.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (NUE), raised estimates, boosted target to $90.

Night Trading
Asian Indices are -1.50% to -.75% on average.
S&P 500 futures unch.
NASDAQ 100 futures +.04%.

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Earnings of Note
Company/EPS Estimate
- (LAYN)/.54
- (TOL)/-.90
- (BOBE)/.41
- (GES)/.46
- (CPRT)/.48
- (HOV)/-2.77
- (HGG)/.28

Upcoming Splits
- None of note

Economic Releases
10:00 am EST
- Factory Orders for April are estimated to fall .1% versus a 1.3% gain in March.

Afternoon:
- Total Vehicle Sales for May are estimated to rise to 14.6M versus 14.4M in April.

Other Potential Market Movers
- The weekly retail sales reports, (ALTR) mid-quarter update, (CNC) analyst meeting, (THC) analyst meeting, (ATAC) investor day, (GLRE) analyst meeting, (INFA) analyst meeting, Goldman Sachs Lodging/Gaming/Restaurant/Leisure Conference, JPMorgan Basics/Industrials Conference, UBS Healthcare Supply Chain Conference, Sidoti Emerging Growth Forum, RBC Energy Conference and Oppenheimer Communications/Technology Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Lower, Weighed Down by Airline, Networking, HMO and I-Banking Shares

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In Play

Stocks Lower into Final Hour on Rising Credit Market Angst, Global Growth Concerns

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Software longs, Internet longs, Computer longs and Alternative Energy longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short today, thus leaving the Portfolio 75% net long. The tone of the market is bearish as the advance/decline line is substantially lower, most sectors are declining and volume is about average. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is rising 12.5% and remains above average at 20.04. The ISE Sentiment Index is low at 109.0 and the total put/call is above average at 1.10. Finally, the NYSE Arms has been running high most of the day and is currently 1.32. The (XLF) is down 1.4% today on the S&P downgrade news. I am somewhat surprised it isn’t down more. The European Financial Sector Credit Default Swap Index is rising 11.6% today to 70.72 basis points. As well, the North Amer. Inv. Grd. Credit Default Swap Index is rising 6.2% and the TED spread is gaining 7.1% today. While the financials aren’t as weak as I would have expected, the broad market is weaker than I would have expected given today’s news. This is likely due to increasing global growth concerns. One of my longs, (WMS), was rated Overweight with a target of $45 today by JPMorgan. I think the stock is at an attractive entry point for both long and short-term investors. Nikkei futures indicate a -240 open in Japan and DAX futures indicate a -8 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as less economic pessimism is offset by rising credit market angst.

Today's Headlines

Bloomberg:
- Commodities derivatives held by banks expanded 27% last year to $9 trillion, according to International Financial Services London. Banks held $3.6 trillion in commodities derivatives in 2005. “We estimate most of the growth was in energy,” said Marko Maslakovic, senior economist of the IFSL.
- The cost to protect the debt of banks and securities firms from default rose after S&P downgraded Lehman(LEH), Merrill(MER) and Morgan Stanley(MS) because of the potential for more writedowns.
- Abiomed Inc.(ABMD), the maker of the first fully implantable artificial heart, rose the most in almost five years after the FDA cleared its tiny heart pump for temporary use.
- BlackRock Inc.(BLK) plans to redeem more than $1.5 billion of tax-exempt auction rate securities from investors. The buyback exceeds the $1 billion target the NY-based company set in April.
- Avant Immunotherapeutics(AVAN) rose the most in more than five years in NY after two studies of a vaccine it is developing with Pfizer Inc.(PFE) delayed tumor growth in patients with brain cancer.
- Iran, OPEC’s second-largest oil producer, increased the number of oil tankers idling in the Persian Gulf to at least 14, indicating it may be storing more crude, ship-tracking data show.
- China’s central bank cautioned against “exaggerating” a slowdown in demand for the nation’s exports, signaling that it won’t loosen monetary policy.

Wall Street Journal:
- Boeing Co.(BA) and Airbus SAS production delays are giving the world’s airlines a break in their profit squeeze because industry capacity is growing more slowing than expected, giving rise to increased demand.
- Nvidia(NVDA) to Introduce Chips for Pocket-Size Gadgets.

NY Times:
- US deaths in Iraq fell to the lowest monthly level since 2003, as security improved and enemy attacks declined. The total number of attacks last week dropped to their lowest in any one week since March 2004.
- Barack Obama’s speech at Wesleyan University about public service tellingly failed to mention the military as an admirable form of service.
- Investors Sue Hedge Fund Over Redemptions.

WardsAuto.com:
- The US may be addicted to oil, but a leading scientist says it’s a habit the nation probably could kick. “Energy independence is a realistic goal for the United States of America,” says David Greene, a corporate fellow at the Oak Ridge National Laboratory, the Department of Energy’s largest science-and-energy research unit. “Make the cost of oil independence to the economy so small it will have no affect on economic, military or foreign policy,” he says. Greene estimates that the Energy Independence and Security Act(EISA) signed into law last year by President Bush, which includes an increase in the corporate average fuel economy standard to a US-fleet average of 35 mpg by 2020, will trim light-vehicle consumption by the equivalent of 3 million barrels of oil per day. At the same time, the law will increase daily biofuels use by the equivalent of 1.5 million barrels of oil. Greene’s estimates would trim US oil dependence about $100 billion a year by 2030, .5% of GDP. Put another way, US oil consumption would decline 33% from today’s pace and US oil supplies would increase by 33% its current state. The EIA confirms the trend. Accounting for a rise in ethanol use, the EIA forecasts US petroleum consumption will fall by 330,000 barrels daily in 2008. Its long-term outlook shows consumption of liquid fuels and substitutes, such as ethanol, declining 41% in 2030 from 2005.

NY Post:
- Wall Street executives are abandoning expensive limo rides and their gas guzzlers as soaring fuel costs make them sweat – and are opting to bike to work.
- The US share of initial public offerings added to the Russell Global Index has declined from 44 percent in 1997 to 27 percent in 2007 - and it may drop to a new low this June when Russell Investments reconstitutes its indexes at the end of the month, the company said. In 1997, the US accounted for 226 of the 519 IPOs added to the index compared to only 151 of the 566 IPOs added in 2007.

Boston Globe:
- Hologic(HOLX) expects its 3-D mammography to be ready in 2009.

AppleInsider:
- Apple's(AAPL) operating system market share rose nearly 6 percent during the month of May to 7.83 percent, according to access reports from web properties tracked by NetApplications. During the same period, Microsoft's(MSFT) combined share of the OS market dropped by just over a half a percentage point. On the browser front, Safari also saw its share rise by a little over 7.5 percent to close out the month with 6.25 percent of the overall browser market. Meanwhile, Microsoft's Internet Explorer lost nearly a full percentage point of browser share, falling to 73.75 percent. Telefonica-owned Movistar, which caters to 22 million customers, formally announced an agreement with Apple to distribute the next-generation iPhone in Spain.

Ethanol Producer Magazine:
- Verenium’s cellulosic ethanol demonstration plant opens.

Daily Mail:
- How the Masters of the Universe are murdering the middle class by gambling on black gold.

El Financiero:
- S&P said Mexico can’t afford to continue subsidizing food and gasoline for consumers. The government will have to lift price controls on gasoline and staple foodstuffs, while working to improve productivity in the agricultural and oil sectors, citing Victor Manuel Herrera, managing director of S&P in Mexico. Mexico’s President Felipe Calderon last week said the government plans to spend $19.3 billion on energy subsidies this year.

Nikkei Telecom 21:
- Nomura Holdings Inc. will begin investment trust services in the US.

Bear Radar

Style Underperformer:

Small-cap Value -1.73%

Sector Underperformers:

Networkingirlind (-4.52%), Airlines (-4.08%) and HMOs (-3.62%)

Stocks Falling on Unusual Volume:

IBN, HDB, IMCL, SGMO, KCAP, BRNC, CHTT, ZEUS and HRS

Stocks With Unusual Put Option Activity:

1) IBN 2) FMCN 3) PXP 4) ACOR 5) AMT