BETWEEN THE HEDGES

Thursday, June 25, 2009

Friday Watch

Posted by Gary .....at 4:17 PM

Late-Night Headlines
Bloomberg:

- Yields on Fannie Mae and Freddie Mac mortgage securities declined to the lowest in more than three weeks, signaling that interest rates on new home loans will fall and ease the U.S. housing slump. Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds tumbled 0.18 percentage point to 4.53 percent as of 3:53 p.m. in New York, the lowest since June 3, amid a plunge in rates on benchmark Treasuries, according to data compiled by Bloomberg. Treasuries rallied as the government sold $27 billion of seven-year securities in the last of three auctions this week that totaled a record $104 billion, dragging yields on so-called agency mortgage securities lower.

- A 66% gain in prices for the lowest-ranked loans since March 10 has reduced the chance that collateralized loan obligations will suffer from event of defaults, according to Morgan Stanley analysts. Over the past two months there has been a “substantial rally” in CLOs, a type of collateralized debt obligation that pool high-yield, high-risk, or junk, loans and slice them into securities of varying risk and return, analysts led b y Vishwanath Tirupattur wrote. CLOs have gained in value after the underlying collateral rose, the analysts said. Since March 10, the S&P/LSTA US Leveraged Loan 100 index, has risen 16.7 cents to 78.7 cent on the dollar. Loans ranked CCC, the eighth-highest junk rating by S&P, gained 24.4 cents to 61 cents, according to Morgan Stanley. Event-of-default “fears have significantly faded in light of the CCC loan rally,” they wrote. The increased value of leveraged loans means the top-ranked portions of CLOs are well covered if the portfolio was liquidated, the analysts said. Pieces graded A, S&P’s sixth-highest rating, now have a reasonable prospect of some principal return, the report said.

- Palm Inc.(PALM), maker of the new Pre phone, reported a smaller-than-anticipated loss after selling more of its older models than predicted. The shares climbed 15 percent in late trading.

- North Korea threatened an “all-out war” against the U.S. as Kim Jong Il’s regime ratcheted up its anti-American rhetoric to mark the 59th anniversary of the start of the Korean War. More than 100,000 people rallied in Pyongyang today, state- run Korean Central News Agency said. Images on APTN television in North Korea showed thousands shouting “Let’s smash,” as a sign showed hands crushing a missile on which “U.S.” was written, the Associated Press reported. KCNA periodically attacks the U.S., South Korea and longtime enemy Japan in its daily English-language dispatches. Today, KCNA criticized U.S. “imperialists” in at least eight news releases. The reports have become more bellicose since June 12, when the United Nations Security Council imposed sanctions on North Korea after it conducted a long-range missile test. North Korea will counter those sanctions with retaliation and “all-out war with all-out war in order to protect the dignity of the nation and the sovereignty of the country,” KCNA quoted Pak Pyong Jong, first vice chairman of the Pyongyang City People’s Committee, as saying at the rally. “If the U.S. imperialists and the south Korean puppets finally take the road of an adventurous war, while going reckless, the army and people of the DPRK will deal retaliatory blows thousand times stronger than what they faced 59 years ago and wipe out the aggressors to the last man,” the Rodong Sinmun newspaper wrote. North Korea’s anti-U.S. rhetoric is on the rise as the country may be preparing to fire a long-range ballistic missile toward Hawaii, Japan’s Yomiuri newspaper reported this month. The U.S. Navy is tracking a North Korean ship, Kang Nam I, which it suspects may be carrying illicit weapons technology. The 2,000-ton cargo vessel left the port of Nampo in North Korea on June 17 and may be headed to Myanmar via Singapore, South Korea’s YTN cable news channel reported. North Korea is also holding two American journalists, Euna Lee and Laura Ling, whom it accused of illegally entering the country from China in March while reporting for San Francisco- based Current TV. They were sentenced to 12 years of hard labor on June 8.

- Ahmad Hamad Algosaibi & Brothers Co., the Saudi family holding company whose Bahraini bank has defaulted, owes 34.6 billion Saudi riyals ($9.2 billion) to more than 100 banks, two people familiar with the situation said.

- General Motors Corp., planning for its future after leaving bankruptcy, has decided to assemble a future small-car model at its plant in Orion Township, Michigan, two people familiar with the decision said. The automaker, based in Detroit, chose the location because the state offered the biggest tax incentives and abatements, said the people, who asked not to be identified because the decision hasn’t been announced. GM had said it would decide this month from among its plants in Orion Township, Spring Hill, Tennessee, and Janesville, Wisconsin. Michigan offered a package of tax incentives for all of GM’s assembly plants in the state as long as the company maintains a certain level of employment, two people familiar with the matter said. The future small car is essential to GM’s plans to make its products more fuel efficient to comply with more stringent fuel economy rules and please consumers dealing with more volatile fuel prices. GM had planned to import its small car from China, according to documents it provided to Congress earlier this year, saying it couldn’t profitably manufacture the vehicle in the U.S.

- UBS AG(UBS), the European bank with the biggest credit-crisis losses, raised about 3.8 billion Swiss francs ($3.5 billion) by selling shares to boost capital and said it expects a second-quarter loss.

- Japan’s consumer prices fell at a record pace in May, adding to signs that a return to deflation may hamper a rebound from the nation’s worst postwar recession. Consumer prices excluding fresh food declined 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since the survey began in 1971. Bank of Japan Governor Masaaki Shirakawa said last week that price declines will accelerate through the middle of the fiscal year as demand slackens and crude oil continues to trade lower than last year’s record.

- Imports of coal to China, the world’s biggest consumer of the fuel, won’t return to last month’s record until at least mid-2010 as gains in shipping costs make domestic mine output more cost effective, according to Australia & New Zealand Banking Group Ltd. Chinese buyers have taken advantage of a drop in spot prices this year to build stockpiles, preferring cheaper imports to more expensive local coal. The 96% jump in freight costs in May has negated that advantage. “Chinese coal production seems to be cranking back up and underlying demand is not that strong” if you look at decelerating growth in power demand, said Mark Pervan, a commodity strategist at ANZ in Melbourne. “Something has to give and in this case it’s higher-priced imports. You won’t see these import levels again for another 12 to 18 months. This window has closed for now.”

- Emerging-market stock funds lost $1.87 billion in the week ended June 24, the first week of net outflows since early March, on concern that a rebound in exports will be delayed, EPFR Global said. Investors withdrew $660 million from funds investing in Asia excluding Japan and pulled $457 million from Latin American equity funds, the research firm said in a statement yesterday. The reversal “was most pronounced among Asia ex-Japan and Latin America Equity Funds,” EPFR said. “Investors questioned where and when demand for their manufactured and commodity exports will pick up.” China funds lost $262 million, the biggest weekly outflow since the first week of March, while those investing in the Greater China region posted net outflows of $175 million, the statement said.

Wall Street Journal:

- The U.S. Treasury Department is negotiating with more than a dozen state attorneys general to roll back two key features of General Motors Corp.'s bankruptcy plan that would have wiped out billions of dollars in potential claims from car-accident victims and closed auto dealers. The discussions show how the federal government's GM rescue is brushing up against the limits of its ambitious legal approach, which attempted to use the Bankruptcy Code to override many state legal contracts and protections. This could ultimately expand the cost of GM's $60 billion bailout, though government officials say it shouldn't delay the emergence of a "new GM" from bankruptcy protection.

- Lear Corp. (LEA), a maker of automotive seats and interior electronics, is working on a pre-packaged bankruptcy five days before it must make a $38 million interest payment on two of its bonds, according to several people. If the prepackaged bankruptcy deal falls apart, Lear could file for a traditional-style bankruptcy next week, people familiar with the situation said.

- J.P. Morgan Chase & Co.(JPM), which sold a $1.525 billion credit card loan-backed deal Monday, reopened and upsized the deal to $1.825 billion Thursday, according to a person familiar with the matter. The deal, dubbed CHAIT 09-A5, had already been increased in size from an initially planned $1 billion.

- Michael Jackson was pronounced dead at a hospital Thursday after suffering cardiac arrest at his Los Angeles home, marking a sad end to the life of a man who had been a global pop icon since childhood.

- California's median price for an existing single-family house rose for the third straight month, a sign that the state's battered real-estate market may be bottoming out. The median sales price increased to $267,570 in May for a California home, an increase of 4.2% from April, according to a report released Thursday by the California Association of Realtors. The inventory of unsold houses continued to drop, to 4.2 months' supply in May compared with 4.6 months in April and 8.7 months in May 2008. The Realtors' report also said that 556,590 California houses were sold in May, up 35.2% from a year earlier. Sales may increase in coming months because prospective buyers believe the market is at a bottom, said Robert Bridges, a professor at the University of Southern California's Marshall School of Business. "The 'buy' decision would be a wise one right now because those pricing levels are getting attractive," he said.

MarketWatch.com:
- Long a pioneer in wireless telecommunications technology, Qualcomm Inc.(QCOM) is looking to expand its business beyond cell phones into a new category of portable computing devices -- potentially setting the company up for a rivalry with Intel Corp.

NY Times:

- ABC’s “Primetime” special on Wednesday, featuring a town hall discussion about health care with President Obama, attracted just 4.7 million viewers, according to Nielsen’s estimates. It ranked third in its 10 p.m. time slot behind CBS’s rerun of “CSI: NY” and NBC’s debut of “The Philanthropist”; each drew 7.4 million viewers. ABC finished fourth for the night over all, garnering 7.7 million at 8 for “Wipeout” and 4.2 million at 9 for “I Survived a Japanese Game Show.” Fox eked out a No. 1 finish, ahead of NBC, with “So You Think You Can Dance” from 8 to 10 (7.5 million). NBC’s reality competition “America’s Got Talent” had the night’s best ratings with 10.4 million viewers. CBS was third with a lineup of reruns.

- The country’s projected debt is growing so quickly that it would exceed the size of the economy in 2023, the nonpartisan Congressional Budget Office reported in its latest long-run economic outlook on Monday. That is seven years earlier than the office forecast in its previous such report 18 months ago. The latest picture of the nation’s fiscal condition to 2080 is a mixed bag for the president just as he and Congressional Democrats are trying to find $1 trillion in savings over 10 years to cover the upfront costs of overhauling the health care system. “Debt soars because of unrelenting growth in federal spending on health care programs and a rise in Social Security spending” as a share of the economy, the report said. Up to 90 percent of the increase is due to Medicare and Medicaid spending rather than Social Security, it added. Senator Kent Conrad, a Democrat from North Dakota who is chairman of the Senate Budget Committee, released a statement saying that the budget office report “reinforces the importance of not only paying for health reform, but ensuring that it significantly bends the cost curve on health care beyond the next ten years. We simply must get these health costs under control.”

Business Week:
- Goldman(GS) Profits from the Downturn. For Goldman Sachs, a slow recovery and dysfunctional bank bailout programs mean bigger profits. For a sense of how sweet life is at Goldman, imagine you own the sole lumber yard that stayed dry in a town hit by a 100-year flood. Now as customers line up with fistfuls of money from relief programs, you can set prices at will. That's essentially Goldman's situation. Because it saw the subprime crisis coming and bet on the housing bust, it has emerged from the wreckage as arguably the strongest bond dealer in the world. It can mark up the prices on its inventory of bonds with impunity. Now Goldman is in the unusual position of benefiting from a slow recovery. A plodding economy will keep competitors weak and allow Goldman to book big bond-trading profits. For that reason it's better for Goldman if the U.S. rescue programs don't work and rivals remain hampered by bad assets, says analyst Roger A. Freeman of Barclays Capital (BCS). After all, zombie banks aren't much of a threat.

- How making primary-care physicians the center of America's health-care system could drive down costs.

- Amazon.com's(AMZN) buying and hiring signal that many more Kindle apps may be on the way—plus software to put Amazon books on other mobile devices.

CNNMoney.com:

- The recent spike in gasoline prices comes at a particularly unfortunate time -- many Americans are still reeling from the economic downturn. Here is how some people have responded to the return of pain at the pump.

Forbes:

- Middle East news giant Al Jazeera has gained its first big foothold in the U.S. TV market. Now it has to overcome perceptions of bias.

Politico:

- Democratic leaders are working furiously to corral votes for a controversial climate change measure, hoping to build a big enough margin so that vulnerable Democrats can be freed to vote against it. At the White House on Thursday, President Barack Obama declared: “Now is the time to act.” Former Vice President Al Gore, who had planned to rally Democrats en masse in Washington, stayed home in Tennessee so he could press members one by one via telephone. House Speaker Nancy Pelosi plied undecided members with chocolate-covered Dove bars in a series of small group meetings. White House chief of staff Rahm Emanuel worked the phones, and administration officials were expected to whip members at a White House luau Thursday night. By late Thursday, aides and lawmakers said Democrats were within a dozen of the 218 votes needed to pass the legislation. Democratic sources said their leaders aimed to lock in 230 yes votes — and leaning on key Blue Dogs such as Reps. Earl Pomeroy of North Dakota and South Dakota’s Stephanie Herseth Sandlin so that more vulnerable members such as Reps. Eric Massa of New York and Maryland’s Frank Kratovil can vote no. Asked if she was confident of prevailing, Rep. Diana DeGette (D-Colo.), the chief deputy whip, said: “I’m not confident about anything. “Everyone is concerned that their region is going to get hit harder than others,” said Michigan Democrat Bart Stupak. “We still have a long ways to go with this bill.” Republican Whip Eric Cantor (R-Va.) and his team are working hard to hold as many moderates as possible in order to force more centrist Democrats to back the legislation. Those efforts focused on some of the same members being targeted by Democrats, like Castle and Kirk, but also other lawmakers from environmentally friendly corners of the country, such as Wisconsin Rep. Tom Petri. And on Thursday, House Minority Leader John Boehner (R-Ohio) threw down the gauntlet. “Mark my words,” he said. “The American people are going to remember this vote. This will be a defining moment and a defining vote in this Congress.”

Reuters:

- A bipartisan panel armed with subpoena power to investigate causes of the Wall Street meltdown is on the brink of being launched, as Congress embarks on an ambitious effort to reform policing of the financial sector. A short list of names has emerged for the Financial Crisis Inquiry Commission that includes former Republican presidential candidate Fred Thompson; former Democratic head of the Commodities Futures Trading Commission Brooksley Born; and Alex Pollock, a fellow at the conservative think tank American Enterprise Institute, according to a source familiar with the matter. Congress last month created the 10-member commission to study how fraud, regulatory lapses, monetary policy, accounting, lending practices and executive pay contributed to the worst U.S. financial crisis since the Great Depression.

- Boeing Co (BA), the world's No.2 plane-maker, suffered another heavy blow to its Dreamliner project on Friday when a major customer, Australia's Qantas Airways, scrapped and deferred orders for 30 new planes. Aviation analysts warned that more Boeing customers could follow Qantas, noting that cancellations of the fuel-efficient, long-haul plane were gaining momentum as airlines worldwide looked to conserve capital during the global recession.

Financial Times:

- Countries implementing cap-and-trade systems for greenhouse gases may be able to use border taxes to protect domestic industries, after the World Trade Organisation gave a cautious nod to such measures. In a report to be published on Friday, written jointly with the United Nations Environment Program, the WTO said it was possible to implement border measures for environmental reasons under its rules. “Rules permit, under certain conditions, the use of border tax adjustments on imported and exported products,” said the WTO. “The objective of a border tax adjustment is to level the playing field between taxed domestic industries and untaxed foreign competition by ensuring that internal taxes on products are trade neutral.” Some US businesses and politicians argue that to put a price on carbon could put domestic companies at a disadvantage compared with cheaper imports from places with no – or more lax – rules. One possible way of preventing this would be to impose tariffs on imports from states without robust carbon regimes. Melissa Carey, of the Environmental Defense Fund campaign group in the US, said: “There is certainly a constituency here that says the cap-and-trade bill can and should contain means to give us some recourse if major developing nations do not take on emissions targets.”

TimesOnline:

- Anemic exports, a struggling domestic economy and a dramatic plunge in summer bonuses could cause Japan’s version of the sub-prime mortgage crisis to explode, a leading think-tank has warned. A housing loan default problem is looming and likely to begin in the next few weeks. It amounts to the detonation of a ten-year time bomb that, researchers at the Tokyo Foundation say, started ticking around 1999 in the immediate aftermath of the Asian financial meltdown. This is the result of flawed government policy, whereby the state housing loan agency offered mortgages to families that they knew were unable to pay. According to the think-tank, those loans were made on the assumption that the traditional staples of Japanese corporate life — seniority-based pay increases, constantly rising bonuses and lifetime employment — would remain as fixtures.

Globe and Mail:

- Potash Corp. of Saskatchewan (POT) has slashed its profit outlook for the second quarter, citing lower-than-projected sales. Potash, one of the companies that drove the Toronto Stock Exchange to new heights last year before the meltdown, initially expected second-quarter profit of $1.10 (U.S.) to $1.50 a share. On Thursday, the company cut that projection to just 70 cents.“The change reflects substantially lower than forecast potash sales volumes due to deferral of purchases by customers around the world and lower realized prices for phosphate fertilizers,” the company said in a statement. Potash spokesman Bill Johnson said sales so far this year have been softer than initially forecast. “Pricing has remained relatively firm, but the volumes have been certainly lower than forecast,” he said. A year ago, Mr. Johnson said, retailers had built up significant inventories of fertilizers. Now, he added, “they have been selling their inventory and not replacing it as quickly as they traditionally have.” Wholesale prices for potash have slumped about 30 per cent since peaking near $1,000 last year. But retail prices fell only about 13 per cent. And retailers had stocked up as prices climbed.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (LEN), target $12.

Night Trading
Asian Indices are -.25% to +1.0% on average.

Asia Ex-Japan Inv Grade CDS Index -.85%.
S&P 500 futures -.43%.
NASDAQ 100 futures -.37%.

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Company/EPS Estimate
- (KBH)/-.64

Economic Releases

8:30 am EST

- Personal Income for May is estimated to rise .3% versus a .5% gain in April.

- Personal Spending for May is estimated to rise .3% versus a -.1% decline in April.

- The PCE Core for May is estimated to rise .1% versus a .3% increase in April.

10:00 am EST

- The Final Univ. of Mich. Consumer Confidence reading for June is estimated at 69.0 versus a prior estimate of 69.0.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Fisher speaking and (CHS) analyst meeting could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares 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.

Stocks Finish at Session Highs Boosted by Healthcare, Transport, Education, Homebuilding, Steel and Oil Service Shares

Posted by Gary .....at 4:08 PM

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In Play

Stocks Surging into Final Hour on Falling Long-Term Rates, Declining Inflation Fears, Short-Covering, Investor Performance Angst

Posted by Gary .....at 3:26 PM

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Medical longs, Financial longs and Biotech longs. I added to my (ILMN)/(QSII) longs and took profits in another long this morning, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, every sector is rising and volume is about average. Investor anxiety is very high. Today’s overall market action is very bullish. The VIX is falling 6.20% and is high at 27.23. The ISE Sentiment Index is low at 93.0 and the total put/call is above average at .96. Finally, the NYSE Arms has been running high most of the day, hitting 1.45 at its intraday peak, and is currently .87. The Euro Financial Sector Credit Default Swap Index is falling 2.83% today to 114.0 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 falling 2.68% to 140.76 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 3.57% to 44 basis points. The TED spread is now down 420 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is plunging 10.67% to 36.63 basis points. The Libor-OIS spread is rising 2.23% to 38 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 6 basis points to 1.77%, which is down 87 basis points since July 7th. The 3-month T-Bill is yielding .16%, which is down 3 basis points today. Today’s rally is very broad-based. Transportation, Healthcare, Homebuilding, Construction, Education, Medical, Steel and Energy shares are especially strong. The Transportation Index is surging 4.2% today and is back above its 50-day moving average and looks poised to break above its 200-day average over the coming days. It is a huge positive to see the decline in the 10-year yield, which will help bring mortgage rates back down. Inflation expectations are falling again today despite another rise in commodity prices. This had been my number one concern. The US sovereign debt credit default swap index is falling 7% today to 42.0 basis points, which is also a positive. As well, despite the Nigerian pipeline attacks and large stock rally, oil isn’t rising too much. As long as oil doesn’t move above $75/bbl. the broad market should be ok. The AAII % Bulls fell to 28.0% this week, while the % Bears jumped to 48.8%, which is also a big positive. I continue to believe that overall investor sentiment is much more negative than is generally perceived. (MDRX) is surging 11.4% on heavy volume today after boosting 4Q guidance. This is helping lift (QSII) and (CERN) shares. I still see substantial upside in my (QSII) long through next year. Nikkei futures indicate an +134 open in Japan and DAX futures indicate an +30 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on lower long-term rates, short-covering, diminishing financial sector pessimism, declining credit market angst and investment manager performance anxiety.

Today's Headlines

Posted by Gary .....at 2:20 PM

Bloomberg:

- Federal Reserve Chairman Ben S. Bernanke said the central bank acted with the “highest integrity” in talks on Bank of America Corp.’s takeover of Merrill Lynch & Co., defending his record against some lawmakers who have alleged officials’ actions were inappropriate. “The Federal Reserve acted with the highest integrity throughout its discussions,” Bernanke said today in testimony to the House Oversight Committee. He said that “in retrospect,” the Fed’s actions have strengthened Bank of America, Merrill and the financial system and protected taxpayer interests.

- Treasuries extended gains after the government sold $27 billion of seven-year securities in the last of three auctions this week that totaled a record $104 billion. The notes at the sale drew a yield of 3.329 percent, lower than forecast, and more than double the amount of bids than the last auction in May from a category of investors that includes central banks. “The auction was pretty good,” said James Collins, a Chicago-based interest-rates strategist in the futures division at Citigroup Global Markets Inc., one of the 17 primary dealers that trade with the Fed and are required to participate in Treasury sales. “There was an enormous amount that was put up for sale. People have the appetite for it.”

- The Federal Reserve will let one of its emergency programs expire and trim two others in a sign that improving financial markets allow a first step toward ending its unprecedented interventions. “Conditions in financial markets have improved in recent months, but market functioning in many areas remains impaired and seems likely to be strained for some time,” the Fed said in its statement.
- Iraq is set to welcome back foreign oil companies into the war-torn nation to develop the world’s third-largest crude reserves three decades after expelling them. Eight of the world’s top 10 non-state oil producers, including Exxon Mobil Corp. and Royal Dutch Shell Plc, are vying for the right to help Iraq develop six oilfields and two natural-gas deposits. More than 30 companies in total are bidding for $16 billion worth of technical service contracts for producing fields that will be awarded in Baghdad on June 29-30. The government, also running a second bidding round for 11 oil and gas fields, aims to boost production to about 6 million barrels a day by 2015, from 2.4 million barrels in May. Saudi Arabia, the world’s biggest oil exporter, produces 8 million barrels a day. Companies investing in Iraq are looking to take a stake in the long-term potential that the country’s 115 billion barrels of reserves hold after gaining a foothold through the service contracts for operational fields. Iraq will earn 100 times more than the foreign companies it hires to develop the deposits, the minister told parliament in Baghdad on June 23. The deposits being offered in the first licensing round may yield $1.7 trillion in profit for the country, based on an oil price of $50 a barrel, while oil companies seeking service contracts will gain $16 billion over the 20-year life of the contracts, he said. Iraq may be a more attractive long-term development for international investors since it has produced only about 8 percent of its oil compared with more than 20 percent by Saudi Arabia and Iran, Shafiq said.

- Crude oil and gasoline rose after militants attacked a Royal Dutch Shell Plc pipeline supplying an export terminal in Nigeria, Africa’s largest producer. U.S. oil inventories fell by 3.87 million barrels to 353.9 million barrels last week, the lowest since March, the Energy Department said yesterday. Stockpiles, which have fallen in six of the past seven weeks, are up 17 percent from a year earlier. Gasoline supplies rose 3.87 million barrels to 208.9 million last week, the Department of Energy said. Refineries operated at the highest rates this year and fuel demand fell 5.5 percent, the biggest drop since January.

- Tax to Fund US Health Plan May Cut Employer-Provided Benefits. Zappos.com’s warehouse and customer-service workers are paid $10 to $11 an hour and get health benefits worth about $7,500 a year. Lawmakers led by Senator Max Baucus are talking about slapping a $495 tax on some of those covered by the medical plan to help pay for extending coverage to some of the 46 million Americans who lack it. Under the funding proposal being considered by the Senate Finance Committee, the tax for Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., would be about $9,600, based on the $40,543 value of his health insurance last year. Baucus, 67, the chairman of the Senate Finance Committee, says the best way to pay for a $1 trillion overhaul of American medical care would be to tax health benefits provided by employers that are more generous than those offered to federal workers -- including lawmakers like him. The government benefits are worth $4,200 for individuals and $13,000 for families.

- The slump in global airline travel may have reached a “floor” following a 9.3 percent decline in passenger traffic last month, the International Air Transport Association said today. While demand weakened from a 3.1 percent decline recorded in April, the past two months have been stronger than the 11.1 percent drop reached in March, even after adjusting for distortions caused by the timing of Easter, IATA said today. “We may have hit bottom, but we are a long way from recovery,” Chief Executive Officer Giovanni Bisignani said in a statement.

- Mahmoud Ahmadinejad urged President Barack Obama against “interfering,” as authorities widened a crackdown on protests over the disputed election that returned the Iranian leader to the presidency. Ahmadinejad accused Obama of being influenced by “a bunch of backward politicians” in the European Union, and said he risked repeating the “fiascos” of former President George W. Bush. “I ask Obama to improve himself before it’s too late, and avoid interfering in Iran’s affairs,” the state-run Mehr news agency cited Ahmadinejad as saying today in southern Iran. Authorities took 70 academics into custody at an undisclosed location late yesterday after they met with Mousavi, according to his Web site. Mousavi said “a big fraud” had been committed over the election and that “ill-wishers” were setting “traps” for the demonstrators by portraying them as agents of foreign governments. He said his access to people is restricted, his newspaper’s staff members have been arrested and the publication shut down, as have other papers. He also criticized Supreme Leader Ayatollah Ali Khamenei’s backing of Ahmadinejad. “The supreme leader’s support of the government in normal conditions is useful, but it is not in the country’s interest that the supreme leader and the president are considered as one,” Mousavi said.

- Bets against the Standard & Poor’s 500 Index rose for the first time since March as investors increased short sales of health-care companies including Merck & Co. and Cardinal Health Inc. Short interest on the S&P 500 climbed to 9.8 billion shares as of June 15, a gain of almost 1 percent from two weeks earlier, according to data compiled by U.S. exchanges and Bloomberg and released yesterday. Wagers against health-care shares rose more than 7 percent, the most of 10 groups, to 890.3 million as President Barack Obama proposed an industry overhaul. “Anything that’s done could be detrimental to the health- care industry in terms of long-term business prospects,” said Michael Cuggino, who as chief executive officer of San Francisco-based Pacific Heights Asset Management LLC helps manage $3.8 billion. “There’s unease. What policies are ultimately passed could be limiting future earnings of certain companies.”

- Occidental Petroleum Corp.(OXY), the fourth-biggest U.S. oil producer by market value, is drilling exploratory wells in California in a bet that deposits there hold hundreds of millions of barrels of crude. Occidental is counting on prospects near Long Beach and in other parts of the state to drive “meaningful” reserves and output growth in the next decade, Chief Executive Officer Ray Irani said. Chief Financial Officer Stephen Chazen said the company is targeting fields with oil and natural-gas reserves equivalent to at least 150 million barrels of crude each. That would be about one-third the size of Chevron’s deepwater Tahiti field in the Gulf of Mexico, which began production in May. Chief Financial Officer Stephen Chazen said the company is targeting fields with oil and natural-gas reserves equivalent to at least 150 million barrels of crude each. That would be about one-third the size of Chevron’s deepwater Tahiti field in the Gulf of Mexico, which began production in May.

- American Airlines(AMR) and United Airlines(UAUA) raised most domestic fares by as much as $20 for a round trip, the second increase in as many weeks, as they try to take advantage of peak U.S. summer travel season demand.

Wall Street Journal:

- ObamaCare Isn’t Inevitable. While still good, President Barack Obama's political health is deteriorating, threatened by what he thought would be balm -- his ambitious plan for a government takeover of health care. Mr. Obama remains slightly more popular than most presidents have been in their opening months. But his job approval rating has drifted down to 60% in the RealClearPolitics.com average. His disapproval numbers have nearly doubled to 33%. More troubling to Team Obama is the growing gap between the president's approval rating and declining support for major items on his policy agenda. Independents are increasingly joining Republicans in opposition to administration initiatives that range from reviving the economy to closing the terrorist detention facility at Guantanamo.

- House Speaker Nancy Pelosi has put cap-and-trade legislation on a forced march through the House, and the bill may get a full vote as early as Friday. It looks as if the Democrats will have to destroy the discipline of economics to get it done. Despite House Energy and Commerce Chairman Henry Waxman's many payoffs to Members, rural and Blue Dog Democrats remain wary of voting for a bill that will impose crushing costs on their home-district businesses and consumers. The leadership's solution to this problem is to simply claim the bill defies the laws of economics.

- The Internal Revenue Service is demanding that hedge-fund and private-equity investors disclose hundreds of billions of dollars they have invested offshore, boosting scrutiny of accounts popular for tax advantages.The move comes as regulators and lawmakers are seeking to crack down on questionable use of offshore tax havens and could uncover sources of income that aren't being taxed but should be.

- The U.S. is prepared to take further legal action if European nations persist in providing what it sees as "gross over-reaching" government assistance for aircraft under development by the European aerospace giant Airbus, U.S. Trade Representative Ron Kirk said Thursday. The U.S. and the European Union have filed countersuits against each other over their respective aerospace champions in the World Trade Organization.

- The California Institute for Regenerative Medicine is poised to give up to $210 million in grants and loans to businesses and research institutions this summer in the first of what it hopes is an annual series of awards for stem-cell research.

BusinessWire:
- The global economy remains fragile, but the worst of the recession “is now in the rear view mirror” and improving economic conditions during 2009’s second half will help boost equity prices higher, with stocks likely outperforming all other asset classes over the next 12 months, according to Robert C. Doll, Vice Chairman and Global Chief Investment Officer of Equities at BlackRock, Inc. (NYSE: BLK). Doll believes that stocks in the United States and most other markets are on track to post double-digit percentage gains this year, with US stocks outperforming European stocks and emerging markets outpacing developed markets for all of 2009. Prospects for equities will depend largely on the pace and extent of global economic recovery, Doll noted. “Numerous economic ‘green shoots’ have emerged, with home buying levels, housing inventories, business confidence, consumer confidence, corporate inventories and industrial production levels all more positive than a few months ago,” Doll said in his annual mid-year update and outlook for the economy and the financial markets. “Productivity measures have also been trending higher, which is good news for corporate profits, inflation and overall growth.

Google Blog:

- A couple of months ago we announced Google(GOOG) Voice, a service that gives you one phone number to link all your phones and makes voicemail as easy as email. We are happy to share that Google Voice is beginning to open up beyond former GrandCentral users.

NY Times:

- The Sears Tower, that bronze-black monument that forms the 110-story peak of the skyline here and stands as the tallest office building in the Western Hemisphere, will soon have another unique feature: wind turbines sprouting from its recessed rooftops high in the sky.

- Over 100 hedge fund managers gave their opinions on everything from new regulation to the direction of the markets, in the latest poll of the industry published Thursday by RSM McGladrey. The poll shows that, despite wide-spread wariness about over-excessive regulation from the Obama Administration (75 percent fear that they will go too far and stifle the market), fund managers are said they are ready to work with regulators. Six of ten hedge fund managers believe the economy will return to positive growth next year, but nearly all of them see higher taxes, declining real estate values and increasing unemployment as posing big challenges ahead. About a third of the respondents believe the Dow Jones Industrial Average will be below 8,000 in six months, while the rest think it will be around the current levels.

MarketWatch:
- Emerging markets have underpinned the post-March stock surge. But a top China letter is suddenly worried. In a Special Update after the market closed Tuesday, Cabot China & Emerging Markets Report (CCEMR) said: "The Halter USX China Index /quotes/comstock/10t!hxc.x (HXC 4,741, +95.50, +2.06%) has dropped through its 25-day moving average as the sharp correction of the past week-and-a-half has taken a real toll on leading stocks. The Index remains above its 50-day moving average, but it's a very near thing. Another bad day could see the Cabot China-Timer flashing a red light."

TheDeal.com:

- Analysts speculate that TD Ameritrade Holding Corp. (AMTD) and Charles Schwab Corp. (SCHW) are likely candidates to bid for E*Trade(ETC).

Rassmussen:

- Thirty percent (30%) of voters now say the $787-billion economic stimulus plan passed by Congress is hurting the U.S. economy, up three points from late last month. A new Rasmussen Reports national telephone survey finds that for the second month in a row 31% say the plan has helped the economy. That's down from 34% who thought the plan would help in late February just after Congress approved it. Thirty-one percent (31%) now say the plan has had no impact on the economy, also unchanged from May.

Reuters:
- U.S. homebuilder Lennar Corp (LEN) posted a wider year-over-year quarterly net loss, but saw a sequential rise in new home sales and orders, sending its shares up almost 10 percent in early trade. "During the second quarter, the housing market experienced a rise in sales of new homes, compared to the first quarter, as more confident homebuyers took advantage of increased affordability," Chief Executive Stuart Miller said in a statement.

- AQR Capital Management LLC, among the world's largest hedge fund managers, will introduce another hedge fund-style mutual fund next month, as it expands its reach beyond the biggest investors. Greenwich, Connecticut-based AQR, a $20 billion firm led by former Goldman Sachs Group Inc (GS) star Cliff Asness, led a new wave of hedge funds marketing to the masses when it launched the AQR Diversified Arbitrage Fund ADAIX.O in January." We, in about two weeks, expect to introduce a whole new series of style exposures for retail investors," AQR co-founder David Kabiller told Reuters in a rare interview.

- Microsoft Corp (MSFT) will sell the standard home-user version of its new Windows 7 operating system for 8 percent less than the comparable version of its Vista system, as the global downturn hits spending on technology. The world's largest software company, whose recent ads champion low-priced PCs against more expensive Apple Inc (AAPL) computers, said the new system will be available at even lower prices for a short time, as it looks to tempt buyers ahead of the holiday shopping season.

- European asset managers are eyeing U.S. fund houses, seeking to pounce while sellers outnumber buyers, delegates at the Fund Forum in Monaco said this week. "We are seeing a large number of asset managers up for sale in the U.S. where their owners have taken the view that it is a way of strengthening their balance sheets," said Martin Gilbert, chief executive of Aberdeen Asset Management. "I expect M&A activity to be pretty intense this year."

Financial Times:
- World shipping faces a long-term capacity glut because owners failed to cancel enough of the excess vessels ordered during the industry’s boom, according to a report by one of the sector’s most respected analytical companies. The World Shipbuilding Market annual report, by London-based Drewry Shipping Consultants, says the glut of orders could be bad news for shipping companies and shipbuilders. Shipping companies will face long-term depressed rates for their services because of excess availability, while yards could face a long-term drought of orders once those currently awaiting building are delivered. Many shipping markets, including the tanker, dry bulk, container and car carrier segments, experienced a boom from shortly after China joined the World Trade Organization in 2001 until the middle of last year. Owners embarked on a spree of ship orders at the height of the boom. In dry bulk – ships that carry iron ore, coal and other bulk commodities – vessels with a capacity of about 70 per cent of the world fleet are currently on order. In container shipping, one of the most important markets, demand is now falling more than 20 per cent year-on-year, making many of the ships significantly in excess of requirements. Nigel Gardiner, Drewry’s managing director and the report’s main author, said there were some market projections that about 50 per cent of ships on order would be cancelled. Instead, he expected owners to let delivery slip backwards. 40 per cent of ships on order last year from Chinese yards were not delivered during the year. Many Chinese yards took orders before the facilities themselves were built and took orders from less financially stable owners. Many of the “greenfield” yards might now never be built and many others in many countries might face bankruptcy.

Bear Radar

Posted by Gary .....at 11:23 AM

Style Underperformer:
Large-cap Value (+1.75%)

Sector Underperformers:
REITS (+.42%), Disk Drives (+.53%) and Foods (+.72%)

Stocks Falling on Unusual Volume:
NKE, CRTX, PAYX, CHDX, FUQI, FSLR, SNY and CAG

Stocks With Unusual Put Option Activity:
1) ANF 2) PAYX 3) LLY 4) GT 5) BBBY