Today's Headlines

Bloomberg:
- Wall Street is losing its top oil analysts as securities firms suffer record losses and hedge funds offer the promise of higher pay.
- Kuwait followed Saudi Arabia in saying crude oil prices are too high as evidence mounts that energy costs are restraining growth and accelerating inflation.
- Goldman Sachs Group(GS), the world’s biggest securities firm, surpassed analysts’ estimates as gains in prime brokerage, asset management and commodities buoyed second-quarter profit. Goldman, which dominates the business of commodities trading along with Morgan Stanley, said revenue from commodities was higher in the second quarter than a year earlier. The firm doesn't provide any separate figures for the business, instead reporting it under the broader category of fixed-income, currencies and commodities. Crude oil futures doubled in the past year, and the price of products from gold to corn soared to record highs. Finance ministers from the Group of Eight nations said June 15 that surging food and fuel prices replaced the credit squeeze as the biggest threat to the world economy.
- The cost of protecting corporate debt from default fell as Goldman Sachs(GS) said its second-quarter profit fell less than analysts had estimated. Credit-default swaps tied to the debt of NY-based Goldman fell 8 basis points to 104 basis points. Contracts on Lehman(LEH) fell 10 basis points to 225 basis points. Contracts on Morgan Stanley(MS), which reports earnings tomorrow, fell 8 basis points to 160.

Wall Street Journal:
- Senator Barack Obama shed new light on his economic plans for the country, saying he would relay on a heavy dose of government spending to spur growth, use the tax code to narrow the widening gap between winners and losers in the US economy, and possibly back a reduction in corporate taxes.
- US Car, Truck Fuel Efficiency May Get Even Better.
- Help For Holders of Auction-Rate Securities May Be on the Way. Regulatory doors appear to have opened that could permit the creation of a new type of security to rescue stranded auction-rate preferred shareholders.
- Suburbs a Mile Too Far for Some. Demographic Changes, High Gasoline Prices May Hasten Demand for Urban Living.
- Hedge Funds Heart Goldman Sachs(GS), But Not Bear Stearns.

NY Times:
- Data Engineers Needed as Internet Demands Grow.
- In a Twist, a Hedge Fund Boss Defends MBIA(MBI).

AP:
- A major labor union and the liberal organization MoveOn.org are joining forces to air a provocative new ad portraying John McCain’s Iraq policy as a prolonged presence that would involve a new generation of Americans. McCain has stressed that his goal is to reduce American casualties, shift security missions to Iraqis and, ultimately, have a non-combat US troop presence in Iraq similar to that in South Korea. Polls show that while a large majority of the public opposes the war, they split almost evenly between McCain and Senator Barack Obama over who would better handle Iraq.

USA Today:
- European and Asian companies are beating their American rivals into Iraq now that security has improved the investment climate, Iraq and US officials say. “It’s starting to turn…and the people who are getting in on the ground floor are not American,” said Paul Brinkley, the Pentagon official who is leading US efforts to help Iraq rebuild its economy. “It’s ironic.” Foreign companies, including US investors, have committed to deals worth about $500 million so far this year and Brinkley expects at least $1 billion in foreign investment by the end of the year. Some US and Iraqi officials say American companies risk losing an early opportunity to establish long-term strategic ties with Iraq. Many of the companies active in Iraq now are from countries, including France, Russia and Turkey, that did not send combat troops into the country. China has also aggressively pursued the Iraqi market, selling machinery to the government and electronic products to consumers. “My question is, ‘Where are you guys in terms of investment, in terms of economic engagement?’” said Naufel al-Hassan, Iraq’s commercial counselor in Washington. “Iraqis need your support. Why let someone else do that?”

NY Post:
- Phil Falcone’s Harbinger Capital Partners – the hedge fund that won a battle to land board seats at The NY Times(NYT) – is expanding its size and presence to capitalize on its newfound clout. Falcone is seeking to use the reputation gained from the Times fight and winning bets against US subprime mortgages to springboard Harbinger, which now has $25 billion in assets, towards new goals.

Reuters:
- To counter the global food crisis, Africa could triple or quadruple food output quickly, a UN food expert said.

Financial Times:
- Latin America pays the price for fuel subsidy.

AFP:
- Iran is against any plan by Saudi Arabia to increase oil production without the consensus of OPEC, citing an Iranian official.

La Tribune:
- NYSE Euronext(NYX) is in talks with possible partners to create a global stock index, citing an interview with exchange deputy CEO Jean-Francois Theodore.

Sueddeutsche Zeitung:
- Almost three quarters of Germans say that income and wealth are not fairly distributed in Europe’s largest economy, citing a survey by Bertelsmann Foundation.

Die Welt:
- Germany’s ruling coalition government plans to water down measures to reduce carbon-dioxide emissions to ease the burden on homeowners from rising energy prices.

Bear Radar

Style Underperformer:

Small-cap Value -.55%

Sector Underperformers:

Banksirlind (-2.29%), I-Banks (-2.28%) and Road & Rail (-1.99%)

Stocks Falling on Unusual Volume:

CCC, GWR, PJC, UNP, WB, CINF, INFN, CDNS, SMTC, ZION, CTXS, LMNX, HTZ, OFG and CCH

Stocks With Unusual Put Option Activity:

1) RF 2) CTXS 3) ALL 4) CCL 5) IPI

PPI Accelerates, Housing Starts Decline, Industrial Production Declines, Capacity Utilization Falls

- The Current Account Deficit for 1Q widened to -$176.4 billion versus estimates of -$172.5 billion and -$167.2 billion in 4Q.

- The Producer Price Index for May rose 1.4% versus estimates of a 1.0% increase and a .2% gain in April.

- The PPI Ex Food & Energy for May rose .2% versus estimates of a .2% increase and a .4% gain in April.

- Housing Starts for May fell to 975K versus estimates of 980K and 1008K in April.

- Building Permits for May fell to 969K versus estimates of 960K and 982K in April.

- Industrial Production for May fell .2% versus estimates of a .1% gain and a .7% decline in April.

- Capacity Utilization for May fell to 79.4% versus estimates of 79.7% and 79.6% in April.

BOTTOM LINE: Prices paid to US producers rose more than forecast in May as fuel and food costs climbed, Bloomberg reported. The PPI is rising at a 7.2% rate year-over-year versus the 20-year average of 2.4%. This is also up from a 6.9% rate in September 2005. Core prices rose 3.0% year-over-year versus the 20-year average of 1.8%. This is also up from a 2.9% rate in July 2005. Producers paid 9.3% more for gasoline, the biggest increase since November, and diesel fuel costs jumped 11.2%. Natural gas prices rose 5.7% for the prior month. Passenger car prices fell 1% and light truck prices dropped .9%. Capital equipment costs rose .1%. “Thus far, the pass-through of high raw materials costs to the prices of most other products and to domestic labor costs has been limited, in part because of softening domestic demand,” Fed Chairman Bernanke recently said. The 10-year TIPS spread, a good gauge of long-term inflation expectations, is down 4 basis points today to 2.52%. This is down 16 basis points from a 52-week high of 2.68% on March 13^th. I still believe inflation fears have peaked and gauges will show a meaningful deceleration later this year. All that is separating us from talk of disinflation is a bursting of the current commodity bubble.

Builders in the US broke ground in May on the fewest houses in 17 years, Bloomberg reported. Housing starts were down 32% from May 2007. Residential construction has subtracted from overall US growth since the first quarter of 2006. Builders have cut 208,000 workers so far this year. While home construction may improve gradually in the second half of the year, starts will remain muted over the intermediate-term as homebuilders reduce inventory.

Industrial production in the US unexpectedly fell in May as shrinking output by utilities and consumer-goods makers overshadowed a gain in auto manufacturing, Bloomberg reported. Capacity utilization fell to the lowest level since September 2005, when hurricanes disrupted manufacturing and oil production in the Gulf. Production of motor vehicles and parts rose 1%, the first gain since November. The resolution of the three-month strike by GM’s largest axle supplier helped lift auto output. GM plans to return to full production this month. The walkout, which ended May 26, stopped production of about 330,000 units, and cost GM $2.6 billion. Utilities output fell 1.8% in May. Milder-than-average temperatures last month limited utility use. The average temperature in May in the US was .7 degrees below the historical average, according to the National Climatic Data Center. I expect industrial production to accelerate over the coming months on warmer weather, inventory rebuilding, accelerating auto production and rising demand. The 10-year yield is down 6 basis points and the US Dollar Index is rising .02% on today’s reports. Fed fund futures indicate an 86.0% chance of no change and a 14.0% chance for a 25 basis point hike at the upcoming June 25 FOMC meeting.

Bull Radar

Style Outperformer:

Mid-cap Growth (+.24%)

Sector Outperformers:

Steel (+2.23%), Airlines (+1.83%) and Energy (+1.64%)

Stocks Rising on Unusual Volume:

GRT, SHLD, MEOH, CRK, SQM, ASMI, MENT, OCNF, CSIQ, TITN, DRYS, SAFM, AIMC, BOLT, XTRX, MALL, CPHD, CYBX, SPIR, TBSI, SOLF, RIMM, TEVA, SBLK, ELN, WYE and TWI

Stocks With Unusual Call Option Activity:

1) BBI 2) BBY 3) CREE 4) LULU 5) WYE

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
Exchange Volume vs. Average
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Real-Time Intraday Quote/Chart
Dow Jones Hedge Fund Indexes

Tuesday Watch

Late-Night Headlines
Bloomberg:
- CME Group Inc.(CME), the world’s largest futures exchange, received Dept. of Justice approval for its planned acquisition of the New York Mercantile Exchange.
- Crude oil extended its decline from the record $139.89/bbl. reached in NY yesterday on signs Saudi Arabia will increase production to stabilize prices.
- Samuel Israel, the convicted co-founder of bankrupt hedge fund firm Bayou Group LLC, was declared a fugitive by US authorities who dismissed the possibility that he killed himself by jumping off a bridge.
- Andy Lipow, president of Lipow Oil Associates LLC says oil may fall as much as $30/bbl. on Fed rate hikes.
- The cost of protecting the bonds of Lehman Brothers(LEH) from default fell after the fourth-largest US securities firm cut its mortgage holdings by 20%. The credit-default swaps dropped 5 basis points to 260 basis points, according to broker Phoenix Partners Group.
- Ryan Lentell, an analyst at Morningstar Inc.(MORN), says Lehman(LEH) has a ‘very strong’ balance sheet. (video)
- Citigroup Inc.(C), Bank of America(BAC) and other leading US mortgage lenders agreed to expand efforts to help borrowers avert foreclosures as the Senate prepares to weigh legislation addressing the housing crisis.
- General Motors Corp.(GM) returned to full production today for the first time since a three-month strike at its biggest axle supplier shut or partially idled about 30 North American plants.
- Australia’s central bank said interest-rate increases this year that have taken borrowing costs to a 12-year high may be enough to cool demand that has driven inflation to the highest since 1991.
- Toshiba Corp., Japan’s largest chipmaker, said it will reduce flash-memory chip production at some of its older manufacturing lines by 40% to cut costs.

Wall Street Journal:
- The hedge-fund business – among the most reliable fortune-producing machines in recent years – is going through a brutal shakeout.

MarketWatch.com:
- Toyota executive talks of US recovery at year’s end. "We'll start to see some recovery near the end of the calendar year," he said. "People will start spending money and get the economy fired up again when the tax incentives start kicking in. In a year, we should be back on pace."

CNBC.com:
- Telecommuting Picking Up As Gasoline Prices Soar.

Forbes.com:
- GE(GE) to Release Study on Economic Benefits of Wind Farms; Inform Congressional Debate on Extension of Tax Incentive.

CNNMoney.com:
- Honda hits the hydrogen highway. The FCX Clarity fuel cell car is now available in California.
- America’s 100 fastest-growing small public companies.

USA Today.com:
- John McCain called Monday for lifting a federal moratorium on offshore drilling for oil and gas. States should decide for themselves whether to permit drilling, McCain said, but they should be given the option to combat an “energy crisis.” McCain’s plan represents a shift for the presumptive Republican nominee. A spokesman for Senator McCain said he understands that voters want action to meet new problems. He continues to oppose drilling in some areas, including the Alaskan wilderness. Democrat Barack Obama’s campaign and environmental groups said McCain’s proposal threatens US coastlines and does little to reduce American dependence on foreign oil.

Siliconvalley.com:
- Cisco Systems(CSCO) is projecting a 600% jump in Internet traffic between 2007 and 2012, with online video the biggest driver of global data communications. Cisco predicts that Internet video – which accounted for 5% of data traffic in 2005 – will represent 30% of total data transfers by the end of this year and 50% by 2012. The trend is largely due to the surging popularity of Web sites such as Google’s(GOOG) YouTube, according to the study.

Schaeffersreserach.com:
- RBC's analyst – Mike Abramsky – noted that the recent price cuts, the addition of 3G wireless technology, and plans to start selling the iPhone in 22 countries in July should lead to a "breakout" fourth quarter. Abramsky believes that Apple(AAPL) is set to see the same results with the iPhone as it did with the iPod in the fourth quarter of 2005. During that quarter, 14 million iPods were sold. Abramsky also kept his rating on Apple at "outperform" with a $220-per-share price target.

Reuters:
- Hedge funds attracted $2.6 billion in net new money during the first quarter, marking an 81 percent drop from what they pulled in during the fourth quarter, data released on Monday showed. During the first quarter, the largest hedge fund inflows went to managers betting on big events like mergers or interest rate moves, currency fluctuations and commodity price swings.

Financial Times:
- Goldman Sachs(GS) is close to finalizing a plan to restructure a $7 billion investment vehicle formerly run by London-based hedge fund Cheyne Capital, in a move that could potentially usher in a crucial new phase in the credit turmoil. The US bank’s proposed reorganization of the so-called structured investment vehicle is set to be just the first of a number of deals that could see about $18 billion worth of SIV assets restructured in the coming months.
- Call to tear up ‘offset’ CDS contracts.
- Financial markets are in danger of getting carried away with their expectations for Federal Reserve interest rate increases, some senior Fed officials believe. They do not dispute that the next move in US interest rates is very likely to be up. But they feel the market may be pricing in too much tightening too soon.

Late Buy/Sell Recommendations
Citigroup:
- Upgraded (CME) to Buy, target $485.
- Reiterated Buy on (ADBE), target $50.

CSFB:
- Reiterated Outperform on (CME), target $685.

Night Trading
Asian Indices are -.50% to +.50% on average.
S&P 500 futures +.01%.
NASDAQ 100 futures -.06%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (BBY)/.37
- (FDS)/.63
- (GS)/3.42

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Current Account Deficit for 1Q is estimated at -$172.5 billion versus -$172.9 billion in 4Q.
- The Producer Price Index for May is estimated to rise 1.0% versus a .2% gain in April.
- The PPI Ex Food & Energy for May is estimated to rise .2% versus a .4% gain in April.
- Housing Starts for May are estimated to fall to 980K versus 1032K in April.
- Building Permits for May are estimated to fall to 960K versus 982K in April.

9:15 am EST
- Industrial Production for May is estimated to rise .1% versus a -.7% decline in April.
- Capacity Utilization for May is estimated at 79.7% versus 79.7% in April.

Other Potential Market Movers
- The weekly retail sales reports, (FSL) analyst meeting, (MAT) analyst conference, (WTM) investor meeting, (ACXM) investor day, CSFB Global Nanotech Conference, William Blair Growth Stock Conference, BIO International Convention, Merrill Lynch Transport Conference, could also impact trading today.

BOTTOM LINE: Asian indices are mixed as gains in mining shares are offsetting losses in steel stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.