Stocks Slightly Higher into Final Hour on Falling Long-Term Rates, Short-Covering, Less Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Technology longs and Defense longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is about average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is falling 1.99% and is very high at 30.55. The ISE Sentiment Index is low at 103.0 and the total put/call is above average at .97. Finally, the NYSE Arms has been running around average most of the day, hitting 1.15 at its intraday peak, and is currently .62. The Euro Financial Sector Credit Default Swap Index is rising 3.15% today to 120.0 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising .77% to 146.81 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 2.72% to 42 basis points. The TED spread is now down 422 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising .82% to 45.94 basis points. The Libor-OIS spread is falling 1.2% to 37 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 2 basis points to 1.83%, which is down 81 basis points since July 7th. The 3-month T-Bill is yielding .19%, which is unch. today. Despite the slight gain in the S&P 500, breadth is relatively weak today. Small-caps are especially weak. The Euro Financial Sector Credit Default Swap Index is up again today and has risen 9 out of the last 10 days, which is a big negative. Moreover, weekly retail sales declined for the fifth consecutive week last week. On the positive side, long-term interest rates are down for the third consecutive day and inflation expectations are down again despite the jump in commodity prices today. Nikkei futures indicate an +56 open in Japan and DAX futures indicate an +13 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on more shorting, healthcare reform worries and rising energy prices.

Today's Headlines

Bloomberg:

- U.S. home prices fell 6.8 percent in April from a year earlier as rising unemployment and record foreclosures kept buyers out of the market. Measured monthly, the average price fell 0.1 percent from March, the Federal Housing Finance Agency in Washington said today. The number was projected to drop 0.4 percent in April, according to the median forecast of 15 economists in a Bloomberg survey. The housing slump has reduced the median price of an existing home 26 percent from the July 2006 peak, pushing affordability to near record levels. Prospective buyers are now being constrained by rising mortgage rates, the highest unemployment since 1983 and concern the housing rebound will be anemic.

- Developing-nation stocks fell for a second day, sending the MSCI Emerging-Markets Index down more than 10 percent from its 2009 high, amid concern the global recession will persist. The 22-country benchmark index dropped 1.6 percent to 724.67 as of 12:36 p.m. in New York. It slid as much as 2.4 percent earlier, bringing its losses since June 1 to 10 percent and marking the first so-called correction since emerging-market stocks began rallying almost four months ago. Dubai’s Financial Market General Index sank 5.9 percent. In Latin America, Mexico’s Bolsa Index slid 0.9 percent, while Brazil’s Bovespa dropped 0.2 percent.

- The European Union and the U.S. complained at the World Trade Organization about Chinese export restrictions on raw materials such as magnesium, their third joint complaint against the Asian nation. The EU and the U.S. said they filed a request for consultations at the WTO in Geneva today, setting off a period of discussions with China aimed at resolving the dispute. If talks fail, WTO judges can be asked to rule on the issue. “We are most troubled that it appears this is a conscious policy to subsidize Chinese industry,” U.S. Trade Representative Ron Kirk told journalists in Washington. “China is a leading global producer and exporter of the raw materials in question, and access to these materials is critical for U.S. industrial manufacturers.”

- Treasuries gained for a third day as the government’s sale of $40 billion of two-year securities, the first of three auctions this week of a record $104 billion in notes, drew stronger demand than forecast. The sale drew a yield of 1.151 percent, and a ratio indicating demand was the highest since September 2007. A bidder class that includes foreign central banks took the biggest share of the securities in at least six years.

- A young woman who was shot through the heart and died on the streets of Tehran has become the face of the opposition movement in Iran. Neda Agha Soltan was killed by a Basij militiaman during a protest march on June 20, according to people who said they were eyewitnesses and posted videos of her death on the Internet. The videos on Facebook and YouTube show her collapsing, losing consciousness and dying. Her death has resounded worldwide and become a symbol of the crackdown by Iranian authorities against demonstrations over President Mahmoud Ahmadinejad’s disputed June 12 re-election. Police used tear gas and batons to disperse about 1,000 people who had gathered in Haft-e Tir Square in central Tehran yesterday to mourn the university student. “The violence of the regime has intensified. They are trying to create a regime of terror,” said Mohammad-Reza Djalili, an Iran expert at the Graduate Institute of International and Development Studies in Geneva in a telephone interview. “The future will be marked by this horrible chain of events,” he said of Soltan’s killing.

- Crude oil rose more than $1 a barrel and gasoline climbed for the first time in five days as a weaker dollar bolstered the appeal of commodity futures as an alternative investment.

- U.S. Defense Secretary Robert Gates urged Persian Gulf states to support Iraq as a way to strengthen regional security and as a buffer against Iran. “The embrace of Iraq by its fellow Gulf states will help contain the ambitions of Iran,” Gates told a Washington conference of top defense officials from 11 countries in the energy-rich region.

Wall Street Journal:

- Netflix Inc.(NFLX) is a standout in the recession. The DVD-rental company added more subscribers than ever during the first three months of the year. Its stock has more than doubled since October. But Netflix's chief executive officer, Reed Hastings, thinks his core business is doomed. As soon as four years from now, he predicts, the business that generates most of Netflix's revenue today will begin to decline, as DVDs delivered by mail steadily lose ground to movies sent straight over the Internet. So Mr. Hastings, who co-founded the company, is quickly trying to shift Netflix's business -- seeking to make more videos available online and cutting deals with electronics makers so consumers can play those movies on television sets. His position offers a rare look at how a CEO manages a still-hot business as its time runs out.

- Harvard's endowment, scalded in the financial crisis, is shying from some riskier bets even as markets had been improving -- and losing talent in the process. Marc Seidner, the head of domestic bond investing for Harvard Management Co., the company that manages the nation's largest endowment, is leaving along with a colleague, Michael Llodra. The endowment lately turned away from investing in a strategy that they wished to pursue -- buying distressed assets such as bonds backed by mortgages. Mr. Seidner is the second-highest paid employee there, paid $6.3 million in the last fiscal year, behind Stephen Blyth, managing director for international fixed income, at $6.4 million. Harvard is also making other moves to maintain its cash cushion, even as it puts some money to work. "Harvard is actively managing its mix of cash and investments with an eye toward the future," said Jane Mendillo, the endowment's investment chief, in an email. "We see some enticing investment opportunities today, and have put money back into several of our target markets, but we are holding some cash for even better opportunities down the road."

- Citigroup Inc. (C) is in the market with a repackaged commercial mortgage bond, due to be sold next week, according to a person familiar with the matter. The $87 million deal, dubbed CGCMT 2009-RR1, is a re-REMIC, or resecuritization of real estate mortgage investment conduit. Since last week, Morgan Stanley (MS), Bank of America Corp. (BAC), Barclays Capital and Citigroup have all been repackaging bonds backed by commercial mortgages on office buildings, malls and hotels, and selling them.

- President Barack Obama for the first time cast doubt on his administration's willingness to directly engage Iranian President Mahmoud Ahmadinejad, sharply raising his criticism of Tehran's recent election and its crackdown on reformist leaders. After days of criticism from Republicans, Mr. Obama opened a White House press conference saying he was "appalled and outraged" by the threats and confrontations in the streets of the Iranian capital. "In 2009, no iron fist is strong enough to shut off the world from bearing witness to the peaceful pursuit of justice," the president said. Mr. Obama's comments could mark a significant shift in the White House's broader Middle East strategy, which has largely been framed upon a willingness to hold direct, high-level negotiations with Tehran over its nuclear program and support for militant groups.

- The insurance industry Tuesday laid down a marker on health care, warning in stark terms that a proposed government insurance plan would dismantle the employer coverage Americans have relied on for a half century and overtake the system. In a joint letter to senators, the two largest industry groups also said they don't believe it's possible to design a government plan that can compete fairly with private companies in a revamped health care market. That particular statement seemed to be aimed at lawmakers of both parties who are seeking a compromise on the contentious issue. Release of the letter from America's Health Insurance Plans and the Blue Cross Blue Shield Association came as House Democrats pushed forward with a partisan health care bill. "A government-run plan no matter how it is initially structured would dismantle employer-based coverage, significantly increase costs for those who remain in private coverage, and add additional liabilities to the federal budget," said the letter from AHIP chief Karen Ignagni and Scott Serota, the head of Blue Cross. "We do not believe that it is possible to create a government plan that could operate on a level playing field. Regardless of how it is initially structured, a government plan would use its built-in advantages to take over the health insurance market," added the industry letter. Looming large is the question of cost. Initial estimates had Senate plans topping $1.6 trillion over 10 years, and senators are working to scale back. Curbs on Medicare and Medicaid spending are assured, and a range of taxes are under consideration, along with the possibility of fees on employers who don't cover their employees.

- Dear President Barack Obama and Members of Congress: I understand that you have undertaken the Herculean task of repairing the health-care system in the United States. As a physician who has practiced medicine for the past 19 years, I think you would benefit from hearing about my experience. I am a board-certified internist with a specialty in endocrinology who currently practices in Washington, D.C. I also provide primary care to many of my patients.

- Regulators appear to be turning a critical eye to sales of leveraged and inverse exchange-traded funds, complex instruments that can magnify not only investors' returns but their risks as well. The Financial Industry Regulatory Authority has reminded brokers and registered investment advisers about their fiduciary duties when selling ETFs that offer leverage, are designed to perform inversely to the index or benchmark they track, or both. In a notice posted to its Web site earlier this month, Finra reminded the brokers and advisers that these instruments are complex and typically unsuitable for retail investors who plan to hold them longer than one trading session. Scott Burns, director of ETF analysis at investment-research firm Morningstar Inc., applauded the Finra notice, which was reported by Index Universe. Mr. Burns has been calling for increased oversight of leveraged and inverse funds. "This is a huge step forward toward protecting individual investors from having exposure to these products unwittingly inserted into their portfolios," Mr. Burns said.

Rassmussen:

- Congress now has sent its “Cash for Clunkers” bill to President Obama to sign into law, but most Americans oppose the plan to encourage people to trade in old cars for new, more fuel-efficient models. Few adults plan to take advantage of the program at this time. A new Rasmussen Reports national telephone survey shows that 54% oppose the “Cash for Clunkers” proposal. Thirty-five percent (35%) favor the plan, and 12% are undecided.

- Eighty-one percent (81%) of U.S. voters agree with Israeli President Benjamin Netanhyahu that Palestinian leaders must recognize Israel’s right to exist as part of a Middle Eastern peace agreement. A new Rasmussen Reports national telephone survey finds that just seven percent (7%) disagree and say this should not be a requirement for a peace agreement. Twelve percent (12%) are not sure.

Politico:

- House Minority Whip Eric Cantor — who thinks President Obama needs to get tougher on Tehran — is steamed that the repressive regime's diplos are still being invited to U.S.-sponsored July 4 parties. “This is just the latest example of an Administration so desperate to keep a campaign promise that it will celebrate our own Independence Day with the agents of a regime that supports terror and brutalizes its own people,” says Cantor spokesman Brad Dayspring.

The Washington Times:

- Family members of the victims of the Sept. 11 attacks say they have been blindsided by the Obama administration's opposition to their lawsuit seeking damages from top members of the Saudi Arabian government over suspected financial links to the 9/11 attackers. A series of closed-door meetings between the relatives' groups and Justice Department officials, arranged as an update on Mr. Obama's plan to close the detention facility at the U.S. Naval Base Guantanamo Bay, Cuba, turned instead into a sharp clash over the Saudi legal action, The Washington Times has learned.

Reuters:
- Boeing Co(BA) on Tuesday postponed the first test flight of its 787 Dreamliner for a fifth time, citing a structural problem that marked the latest blow to the credibility of the No. 2 planemaker and sent its shares tumbling 9 percent.

- U.S. chief executives took a slightly less grim view of the economy in the second quarter, but still plan to cut jobs and capital spending, according to a Business Roundtable survey released on Tuesday. The quarterly CEO Economic Outlook Index rebounded to 18.5 in the second quarter from a record low of negative 5 in the first quarter. But it was still the third-lowest reading in the survey's six-year history. A reading below 50 means CEOs expect economic contraction rather than growth.

Financial Times:
- Byron Trott, the former Goldman Sachs banker and frequent financial adviser to Warren Buffett, has raised more than $2bn in capital for his fledging investment firm. The early fundraising successes come as many of the biggest private equity firms struggle to lure as much investment capital as planned, and highlight the cachet that has accompanied Mr Trott’s role as Mr Buffett’s favorite investment banker.

- An economic recovery in the eurozone is only inching forward, according to a closely-watched survey that has highlighted the fragility of recent turnaround in growth prospects. June’s purchasing managers’ indices for the 16-country region rose to a nine-month high, indicating that the worst recession to hit continental Europe since the second world war was continuing to lose its ferocity. But the rate of improvement was less than expected, dragged down by a weaker performance in the service sector, and the indices still pointed to a substantial contraction in second quarter economic activity. The weaker-than-expected results will damp hopes that the eurozone could return to growth this year, even if the worst of the recession is clearly over, but were consistent with the view of many forecasters, including at the European Commission and European Central Bank that the economy will start expanding again in 2010. Chris Williamson, chief economist at Markit, which produces the purchasing managers’ indices, said June’s readings pointed to a contraction of about 0.5 per cent or 0.6 per cent in eurozone GDP in the second quarter. The rate of easing had “lost considerable momentum towards the end of the quarter,” he said, especially in the service sector, where demand appeared to have been hit by rising unemployment. Dominic Bryant at BNP Paribas ruled out a robust recovery “anytime soon”, and said he expected the economy to be “more or less flat for the next four quarters”. That lacklustre performance compared with the US and UK would reflect, he said, “the less aggressive action of policy makers in the eurozone in the areas of monetary policy, fiscal policy and banking sector support.”

The Telegraph:

- Traders are using software developed by US-based technology StreamBase to monitor "tweets" for price sensitive information. The software plugs into Algorithm-based automated trading platforms that have been used by traders for years. But rather than searching Reuters or Bloomberg the software now scans Twitter.com. The company, whose investors include Inqtel, Central Intelligence Agency's venture capital arm, claims it could give traders an edge when deciding whether to trade on breaking news, like terrorist attacks and natural disasters, rather than waiting for the information to be filtered through providers like Reuters Thomson or Bloomberg.

Financial Post:

- The amount of unused Canadian office space business put on the sublease market grew by almost 75% last quarter from a year ago, a further indication of the crumbling economy. CB Richard Ellis Ltd. said more than 7.7 million square feet of office space came back into the market across the country, an increase from the more than 4.4 million that hit the market in the same quarter a year ago. The sheer size of the increasing sublease market drove the national vacancy rate to 8.3% from 6.4% a year ago.

China Daily:

- China will not back away from its July 1 launch date for the controversial anti-pornography computer filter Green Dam Youth Escort, a Ministry of Industry and Information Technology (MIIT) source said. The assertion followed criticism from the US embassy in Beijing about the software's potential impact on trade and about technical issues that called into question the program's efficacy. The Chinese government is calling for Green Dam software, which limits access to violent and pornographic websites, to be included with all computers sold on the Chinese mainland starting July 1. "The US government is concerned about Green Dam, both in terms of its potential impact on trade and the serious technical issues raised by use of the software," a US embassy spokesperson said yesterday. Representatives from the US embassy, the MIIT and the Ministry of Commerce held a meeting on the subject on Friday but details of the discussion are unknown. The US embassy spokesperson said the US government also viewed with concern any attempt to restrict the free flow of information. Such steps were incompatible with China's aspirations to build a modern, information-based economy and society, the spokesperson said.

The Jerusalem Post:
- Jewish neighborhoods in east Jerusalem are included in the US demand that Israel halt "settlement" construction, including for natural growth, State Department spokesman Ian Kelly told The Jerusalem Post during a press briefing on Monday. "We're talking about all settlement activity, yes, in the area across the line," he said, referring to neighborhoods in Jerusalem over the Green Line, or pre-1967 armistice line, in response to a question on where America's calls to halt construction in the settlements would be applied.

Emirates Business 24/7:
- United Arab Emirates banks face $540 million in delinquent credit card loans, citing banking officials. UAE banks have 20 billion dirhams in outstanding loans on credit cards, and 8% to 10% of that could be distressed or delinquent.

Bear Radar

Style Underperformer:
Small-cap Growth (-.55%)

Sector Underperformers:
Hospitals (-1.78%), Defense (-1.63%) and HMOs (-1.11%)

Stocks Falling on Unusual Volume:
BA, TGI, CNP, RMBS, SSYS, CMED, BEAT, PRXL, THOR, FUQI, CWCO, NUAN, MNRO, MYRG, CBST, EEFT, DXPE, SXCI, CYT, NRT, ATU, EMF and ELS

Stocks With Unusual Put Option Activity:
1) MCHP 2) TXN 3) NVLS 4) BA 5) XCO

Bull Radar

Style Outperformer:
Large-cap Value (-.24%)

Sector Outperformers:
Medical Equipment (+1.24%), Telecom (+.84%) and HMOs (+.28%)

Stocks Rising on Unusual Volume:
WBD, ALGN, VIP, LUX, CAG, UBS, OSIS, PALM, CVGW, CRMT, AGNC, TWGP and FGXI

Stocks With Unusual Call Option Activity:
1) OSIP 2) URBN 3) STJ 4) CTV 5) BA

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Tuesday Watch

Late-Night Headlines
Bloomberg:

- The U.S. Securities and Exchange Commission may force investors to disclose derivative stakes in companies, a step that would make it difficult for hedge funds to accumulate equity-swap positions without tipping off targets. SEC Chairman Mary Schapiro, in remarks prepared for lawmakers today, said the agency is considering whether disclosure rules for stocks should apply to “security-based” derivatives that don’t trade on exchanges. The agency also is weighing whether an equity swap tied to a company’s performance should be treated the same as holding the shares, she said.

- Merck & Co.(MRK) sold $4.25 billion of bonds in a four-part offering, its biggest ever, to finance the acquisition of rival drugmaker Schering-Plough Corp.

- WSI Corp. repeated its forecast that 11 named storms, including six hurricanes, will develop in the Atlantic this season. Two of the systems may become major storms, with winds of 111 miles (179 kilometers) per hour or greater, the Andover, Massachusetts, company said, maintaining its forecast from last month. The season runs from June 1 to Nov. 30. Cooler water temperatures in the Atlantic and the possibility that the Pacific may warm and create El Nino conditions will combine to hinder storm formation, WSI, a maker of forecasting software, said in a statement. From 1950 through last year, the average was 9.8 named storms per season and six hurricanes, of which 2.5 were major, the statement said.

- Japan may cancel a planned $1.5 billion loan for Venezuela’s El Palito and Puerto La Cruz oil refineries after the South American nation seized Japanese company assets, said a person familiar with the situation.

- “Unimpeded” oversight of the $592 trillion over-the-counter derivatives market should be shared between the Securities and Exchange Commission and Commodity Futures Trading Commission, the heads of those agencies said. Primary responsibility for derivatives tied to securities, including credit-default swaps, should go to the SEC, agency Chairman Mary Schapiro told a Senate subcommittee in Washington today. Other derivatives, including those related to interest rates and commodities, should be regulated by the CFTC, Chairman Gary Gensler said. Both advocated a dual regulatory structure. “The CFTC and SEC should have clear, unimpeded oversight and enforcement authority to prevent and punish fraud, manipulation and other market abuses,” Gensler said.

- Mortgage originations in the U.S. may total $2.03 trillion this year, 27 percent less than earlier forecast, as rising interest rates reduce home refinancings, the Mortgage Bankers Association said. Today’s forecast cuts $700 billion from the Washington- based group’s March estimate, a change MBA Chief Economist Jay Brinkmann said came because the Federal Reserve’s pledge to buy as much as $300 billion in U.S. Treasuries hasn’t been enough to keep Treasury yields and mortgage rates down. Rates for a 30-year fixed home loan rose to 5.47 percent on June 19, according to Bankrate.com. “The Fed’s in a difficult spot,” said Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley. “If I were the Fed, I would try very hard to do everything in my power to keep that long-end down.” “While home sales have been higher than expected, home prices have fallen more than expected, leading to smaller loans,” Brinkmann said. Rising mortgage rates “began to choke off the refinance wave in May, much earlier than anticipated.”

- Global aluminum output rose 5.1 percent to a four-month high in May as China, the world’s largest producer, made more metal, the International Aluminium Institute said. Production climbed to 2.96 million tons, the highest since January, from 2.81 million tons in April, according to figures posted today on the London-based institute’s Web site. Chinese production gained 10 percent to 984,000 tons, the highest since November. Aluminum, the most-traded contract on the London Metal Exchange, has advanced 5.2 percent this year, the least among all nonferrous metals traded on the bourse. Inventories tracked by the LME have jumped 87 percent in 2009, weighing on prices.

- Corn fell near a seven-week low and soybeans dropped to the lowest since early April on speculation that warm, wet weather in the U.S. Midwest will help accelerate plant development and yield potential of both crops. About 70 percent of the U.S. corn crop was in good or excellent condition as of June 14, compared with 57 percent a year earlier, while 66 percent of soybeans got top ratings, the U.S. Department of Agriculture said last week. Warm, wet weather forecast for the next 10 days will aid plant development, said Charlie Sernatinger at Fortis Clearing Americas LLC. The U.S. is the world’s largest producer and exporter of both crops.

- Intel Corp.(INTC), the world’s largest chipmaker, will supply Nokia Oyj with processors for mobile devices, a breakthrough in its effort to enter the phone market, a person familiar with the matter said. The deal will be announced on a conference call tomorrow, said the person, who declined to be identified because the details are confidential. Intel scheduled the call for an “important announcement” with Anand Chandrasekher, senior vice president of the company’s ultra-mobility group.

Wall Street Journal:

- Volkswagen AG (VLKAY) plans to reduce output at its Puebla, Mexico, plant during the entire month of July, affecting production of Jetta models, as well as the Beetle, a company spokeswoman said Monday. Production of the SportWagon, or Golf Variant, will continue as usual during the period thanks to sufficient sales of the model in Europe, the Volkswagen de Mexico spokeswoman added. Volkswagen's Mexican plant, which posted record output last year of more than 450,000 cars, has been partially or fully idled several times already this year as the company adjusts to lower global demand.

- The new U.S. commander in Afghanistan is finalizing a far-reaching change in tactics that will generally require U.S. troops taking fire in populated areas to break contact rather than risk civilian casualties, military officials said. U.S. officials said the rules were designed to reduce the use of bombs, missiles and other heavy weaponry in populated areas. They will require U.S. forces that come under fire from militants operating out of houses and other buildings that may contain civilians to end the engagement and leave the area, officials said. The restrictions could force commanders to be more cautious in the mission-planning stage and eschew operations likely to require operations in populated areas, according to an officer serving in Afghanistan.

- A six-car Metro train collided with another train during the height of rush hour Monday in northeast Washington, D.C., killing four and causing a number of injuries.

- The Pentagon continues to trail a North Korean cargo ship believed headed toward Myanmar, in part because U.S. officials worry that Pyongyang plans to transfer major weapons systems and possibly nuclear technologies to the repressive Southeast Asian country, current and former U.S. officials said. North Korea has used Myanmar ports and airstrips to transfer arms and contraband to third countries, including Iran, these officials said.

- Two large U.S. wireless carriers plan to launch Motorola Inc.(MOT) smart phones based on Google Inc.'s(GOOG) Android operating system before the end of the year, according to people familiar with the matter. The Google-powered phones, which will be carried by Verizon Wireless and T-Mobile USA Inc., are the result of Motorola Co-Chief Executive Sanjay Jha's efforts in recent months to overhaul the company's struggling handset division. Motorola is betting heavily on Android to regain traction in the cellphone market.

- Tim Cook, who has run Apple Inc.(AAPL) for five months while Steve Jobs has been on medical leave, has emerged as a star in his own right -- and one that the company needs to make sure stays put. "At this point, losing Tim Cook would be a bigger deal to investors than if Steve Jobs stepped aside," says Gene Munster, an analyst for Piper Jaffray. "Just that thought makes my stomach tighten up." Mr. Cook has been the target of overtures from other technology giants in the past: Motorola Inc. tried to hire Mr. Cook last year while Dell Inc. wooed the executive two years ago, according to people familiar with the situation. The Cupertino, Calif., company's board of directors is "acutely aware that Tim is a very attractive property," said a person familiar with Apple's thinking. As a result, the chief operating officer and 11-year Apple veteran may be invited onto Apple's board. He currently serves on the board of Nike Inc. Recruiters say Mr. Cook's leadership of Apple over the past five months has solidified his reputation as an attractive candidate for large companies looking for someone to run all or a big piece of their businesses.

MarketWatch.com:
- A "cap-and-trade" system for limiting greenhouse gas emissions contained in a House bill would cost each U.S. household $175, a Congressional Budget Office study found. Republicans contended, however, that the report actually shows that households would pay $770 more a year. That is the dollar amount forecast when including costs to some households related to costs to be incurred by federal, state and local governments, and related to allowances to businesses. Rep. Dave Camp, R-Mich., said the analysis showed that the climate legislation would be a "new multibillion-dollar tax on every American family." "This is a direct violation of the president's pledge that families making less than $250,000 would not pay higher taxes," said Camp, who requested the CBO study.

- Figures on distillates, which are a classification of a refinery product that includes heating oil and diesel, clearly point to a "possible rendezvous with storage problems in already chock-full U.S. markets," he said, noting that distillate demand is at 3.38 million barrels per day, some 20% below year-ago levels. "It can't be disputed that U.S. demand for diesel, whether on-road or agricultural, is about as bad as it has been in five or six years," he said. At the same time, distillate supplies have hit 150 million barrels nationally, according to government data. Kloza said he can't find any recorded instance of stocks in June ever being that high. The U.S. already has a 41.9-day supply of distillate stocks, up from 27.8 days' worth last year, said John Eichberger, vice president of government relations for the National Association of Convenience Stores. NACS represents an industry that sells 80% of the nation's gasoline.

NY Times:

- A year and a half after a landmark labor law took effect in China, experts say conditions have actually deteriorated in southern China’s export-oriented factories, which produce many of America’s less expensive retail goods. With China’s exports reeling and unemployment rising because of the global slowdown, there is growing evidence that factories are ignoring or evading the new contract labor law, and that the government is reluctant to enforce it. Government critics say authorities fear that a crackdown on violators could lead to mass layoffs and even social unrest.

- It takes a lot of moxie to raise prices in a deep recession, particularly when you are the newcomer to a hotly competitive market. But that’s exactly what Verizon(VZ) is doing with its FiOS service. In many markets, the company is raising the price of basic triple play bundle (TV, Internet and Phone) to $109 from $99 . The price of its step-up bundle, with faster Internet service and more channels, goes up by $10 to $119. The price of the most expensive bundle falls to $129 from $139, but now that includes Showtime instead of HBO and a bunch of other movie channels.

- First hedge funds battled the markets. Now they are battling Washington. After a tumultuous run for many of these funds, this normally secretive corner of Wall Street is mobilizing its money and power to fend off tougher oversight, higher taxes and much greater transparency. At the center of the fray is Richard H. Baker, the former Republican congressman who now leads the industry’s main lobbying group, the Managed Funds Association. This year Mr. Baker has tried to persuade hedge fund managers to support proposals to require funds to register with federal regulators — a move some big funds did not initially support, but one many others see as a bargaining chip that could avert even tougher restrictions. Mr. Baker has also met with Treasury officials and has been the host of gatherings to raise money for Christopher J. Dodd, the Democratic chairman of the Senate Banking Committee. He has events planned for Barney Frank, the Democratic leader of the House Financial Services Committee, and Mr. Frank’s Republican counterpart, Richard C. Shelby. The effort seems to be working. The proposals for hedge funds laid out by the Obama administration last week, as part of its overhaul of financial regulation, are strikingly similar to those that hedge fund lobbyists said they would accept. Donations in the industry have long been slanted toward Democratic candidates, and $11 million of last year’s nearly $17 million in donations were doled out to Democrats, according to the Center for Responsive Politics. In the last two years, fund managers have also spent about $15 million on lobbyists, quadruple the amount they spent in past years. Mandatory registration has been discussed for so long, in fact, that many in the industry regard it as the issue to fight over to avoid other, more pressing matters.“It’s a red herring,” said Robert Sloan, managing partner at S3, which helps hedge funds manage their positions. “What other business in the world doesn’t want to register its name and number, the mafia? The real issues are counterparties, leverage, shorting, derivatives and exchanges.” James Chanos, the prominent short-seller who runs Kynikos Associates, was an early supporter of registration. The group, called the Coalition of Private Investment Companies, has put up Web sites recently to educate the public on hedge funds and short-selling.

CNNMoney.com:

- The government wants to make it harder for retailers, industrial firms and other non-banks to own banks. But six months ago, it made a big exception for GMAC.

LA Times:

- Businesses that depended on credit cards to make purchases and manage monthly cash flow are either paying higher interest, unable to open new lines or having existing ones canceled. For small-business owners who rely on business credit cards, the recessionary landscape looks extra bleak these days.

Philly.com:

- Obama's plans for tougher bank regulation could wipe out the credit card industry's centers in Delaware and South Dakota, including around 20,000 jobs in Wilmington, says Alan S. Kaplinsky, a partner at Philadelphia's Ballard Spahr who has represented Wilmington-based MBNA (now owned by Bank of America) and First USA (now part of JPMorgan Chase & Co.), among other card lenders. Plans in the president's 89-page bank-reform "White Paper" -- Financial Regulatory Reform: A New Foundation -- will cost bankers money, and they'll pass the higher cost to consumers through "higher interest rates" and "restricted credit availability," Kaplinsky tells me.

Reuters:

- Apple(AAPL) Chief Executive Steve Jobs showed up for work on Monday and was spotted leaving the main corporate campus in Cupertino, California, a Reuters witness said.

- Rain and cooler-than-usual weather so far in June may have dampened demand for summer items such as sandals, swimwear and beer for retailers already hard put to counter sales declines during the recession. The effect may be most pronounced in the U.S. Northeast, where June so far has been the coldest in 27 years and is on track to become one of the wettest Junes on record, according to weather research firm Planalytics, which has tracked such data since the 1930s. June in the Midwest so far is the coldest in six years and has been wetter than normal, but still not close to last year when it was the second wettest in 50 years. It is the wettest in 4 years in the U.S. Southeast and U.S. Southwest and the coldest in 42 years in the Southwest, the weather tracking firm said.

- Visa Inc(V) and MasterCard Inc(MA), the world's largest payment networks, could face lower revenue and pressure on their stock prices amid a push for increased U.S. regulation of credit cards. Specifically, Congress is mulling regulations on interchange rates -- fees retailers and merchants have to pay to banks that issue credit cards. Most immediately, that would affect the banks that collect those fees. But some investors and analysts are concerned the banks -- already battered by credit losses and toxic assets -- could try to share the haircut with Visa and MasterCard. "Longer term, I think it is a real risk for the model, but this could impact their stocks right now," said Donald Fandetti, an analyst at Citigroup.

- Canada expressed concern on Monday that the huge U.S. deficit will pressure interest rates, but urged governments worldwide to follow through on stimulus spending plans to speed up the economic recovery. Finance Minister Jim Flaherty said he worries that increased government borrowing to make up budget shortfalls, while necessary in the short term, could lead to dangerously higher interest rates in the long term. "The immensity of the American deficit over time is a concern because of pressure that it can bring on interest rates, and in other ways," he told reporters at a news conference. Flaherty said governments should bear in mind their commitment to keep stimulus spending temporary, as a quick fix to the global recession, and seek to balance the books as quickly as possible after the economy starts growing again.

Financial Times:

- The European Central Bank is on track to deliver a record-breaking “stimulus by stealth” to the eurozone economy on Tuesday, as the first-ever offer of unlimited one-year funds could see demand running into several hundred billion euros. The size of the ECB’s emergency liquidity-boosting operation, which was announced last month, is expected to be bolstered dramatically by the belief in financial markets that eurozone official interest rates will not fall – and the opportunity to borrow on such favorable conditions will not be repeated. Analysts said demand was likely to exceed the previous record €348.6bn ($483bn), injected in a single ECB operation in December 2007. “This could be a big final easing – by stealth,” said Erik Nielsen, European economist at Goldman Sachs. “If I were a bank I would be gathering up all the furniture to use as collateral to take part.”

- The financial crisis could cost insurers $6bn (€4.3bn) on policies that protect US companies and directors from legal costs, insurance consultants have warned. Disgruntled investors hoping to recover their losses have filed a spate of lawsuits against companies and their executives since 2007, resulting in a dramatic increase in claims activity under so-called directors and officers (D&O) policies. Towers Perrin and Cornerstone Research, which track class action lawsuits, said 210 securities class actions were filed last year, up 19 per cent on 2007. Almost half of the litigation activity in 2008 involved financial services companies. Combined with rising settlement costs for class action suits and the extent of policy coverage for targeted US financial companies, insurance companies could be on the hook for about $6bn of payouts, says Advisen.

TimesOnline:

- Dubai’s dream is built on sand. The credit crunch has ripped through Dubai, leaving the emirate battling to show its grand plans are more than a mirage. The global recession has ripped through Dubai, leaving its dream of becoming the Switzerland of the Middle East looking like a mirage. Locals who used to joke that Dubai would be a great place “when it’s finished” now wonder whether it’s finished. They’re counting the cost in Britain, too. The UK has invested more in Dubai than any other country – an estimated £3 billion. British companies are owed more than £400m by troubled state-backed firms. Raw numbers confirm the desert storm.

The Economic Times:

- Taiwanese handset manufacturer HTC will launch India's first smartphone on Tuesday that will run on Google's(GOOG) open-source Android operating system. Sources tell ET NOW that Bharti Airtel will be the exclusive carrier for the device that is likely to be priced at around Rs. 25,000.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (MAN), boosted est., raised target to $50.

Night Trading
Asian Indices are -3.25% to -1.50% on average.

Asia Ex-Japan Inv Grade CDS Index +3.11%.
S&P 500 futures -.03%.
NASDAQ 100 futures -.04%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Global Commentary
WSJ Intl Markets Performance
Commodity Futures
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Earnings Calendar

Conference Calendar

Who’s Speaking?
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (CMC)/-.14

- (SCS)/-.14

- (KR)/.61

- (AVAV)/.26

- (JBL)/.02

- (DRI)/.86

- (ORCL)/.44

- (FUL)/.25

- (SONC)/.20

Economic Releases

10:00 am EST

- Existing Home Sales for May are estimated to rise to 4.82M versus 4.68M in April.

- The House Price Index for April is estimated to fall .4% versus a 1.1% decline in March.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly retail sales reports, Richmond Fed Manufacturing Index, (BBY) shareholders meeting, $37 billion 5-year Treasury Note Auction and the Wachovia Equity Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply lower, weighed down by commodity and automaker stocks 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.