• Small-Cap Growth +.49%

• 1) Airlines +1.39% 2) Gold & Silver +1.28% 3) Oil Service +1.27%

• SFD, GM, SINA, PBR, VNET, GE, ACHC, OSUR, RDWR, ABMD, GRPN, PAAS, CREE, MAKO, TKF, CHS, KOF, LM, GT, VHC, NUS and COG
  

• 1) SSRI 2) AEM 3) EGO 4) ANN 5) MHR
  

• 1) NOC 2) SD 3) ESV 4) ANF 5) PGR
  

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

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• Large-Cap Growth -.60%

• 1) Coal -3.50% 2) Steel -3.0% 3) Agriculture -1.41%

• CHU, SNP, MCP, JCP, ANF, ACTV, TNGO, CCJ, CALL, AKAM, TYC, LUK, TAXI, PETD, ASEI, LRCX, FRAN, CNQR, INFA, SVVC, CVV, HCII, HIBB, PANL, NVLS, SNDK, SYNC, LAMR, ACAT, BMC, SDT, INFA, RGR, ITRI, LXU and SPLS
  

• 1) JCP 2) EWA 3) AMAT 4) DELL 5) KGC
  

• 1) JPM 2) KLAC 3) ANF 4) LRCX 5) PCX
  

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

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• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

• VIX 22.21 +1.09%
  
• ISE Sentiment Index 82.0 -7.87%
  
• Total Put/Call 1.26 +6.78%
  
• NYSE Arms 1.03 -48.03%
  

• North American Investment Grade CDS Index 119.18 +1.56%
  
• European Financial Sector CDS Index 290.81 +.74%
  
• Western Europe Sovereign Debt CDS Index 302.35 +1.25%
  
• Emerging Market CDS Index 309.69 +2.26%
  
• 2-Year Swap Spread 36.5 -2.0 basis points
  
• TED Spread 37.5 -.5 basis point
  
• 3-Month EUR/USD Cross-Currency Basis Swap -51.25 -1.75 basis points
  

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 147.0 -2 basis points
  
• China Import Iron Ore Spot $135.10/Metric Tonne -.59%
  
• Citi US Economic Surprise Index -19.40 +3.6 points
  
• 10-Year TIPS Spread 2.11 -4 basis points
  

• Nikkei Futures: Indicating a -40 open in Japan
• DAX Futures: Indicating -22 open in Germany
  

• Higher: On gains in my Biotech sector longs and index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

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• IMF’s Lagarde Says Greek Euro Exit Would Be Expensive. International Monetary Fund Managing Director Christine Lagarde said a Greek exit from the euro area would be “extremely expensive” and hard. Still, the IMF has to be “technically prepared for anything because it’s our job,” she said in an interview with Dutch public television broadcast today. “I’m not suggesting that this is a desirable solution. I’m just saying that this is within the range of multiple options, one that we have to technically look at.” A Greek caretaker government will prepare new elections probably on June 17 that are shaping up as a ballot on whether the country should remain a euro member, following inconclusive May 6 voting that pushed a political party opposed to Greece’s international bailout into second place. The IMF co-financed two bailout packages to the Mediterranean nation. To stay within the euro region requires efforts to “abide by the program which has been put into place” as conditions attached to the latest loan package, Lagarde said. She said a euro exit wouldn’t reflect the will of the Greek people. “No country is immune from hardship happening anywhere,” Lagarde said. “Within the euro zone, a currency union, what happens to any member is going to affect others.” Her comments echo concern by World Bank President Robert Zoellick that a Greek exit from the euro could have ripple effects reminiscent of 2008, when Lehman Brothers Holdings Inc.’s collapse was followed by a global financial crisis.
  
• Rajoy Risks Bailout Yields in Trial of Spain’s Funding. Spain will try to show investors it can keep funding itself today as yields approach levels that pushed other nations into bailouts and foreign investors shun the country’s bonds. Spain will seek to sell 1.5 billion euros ($1.9 billion) to 2.5 billion euros of bonds maturing in 2015 and 2016, about half the level it aimed for a year ago. Spanish 10-year bond yields rose as high as 6.5 percent yesterday, approaching the 7 percent mark that pushed Greece, Ireland and Portugal toward European rescue packages. “Spain is potentially the biggest euro-zone accident waiting to happen,” said Neil Williams, chief economist at Hermes Fund Management in London. “Unless there is a sudden and sustainable improvement in Spain’s underlying competitiveness the next round of euro-zone governments’ support will have to stretch beyond the debtor nations currently on investors’ radars.”
• Dollar Funding Costs Jump as Debt Sales Scrapped: Credit Markets. The cost to borrow in dollars is rising at the fastest pace in five months as Europe’s debt crisis leads investors to seek shelter in U.S. assets, spurring companies from China to Brazil to cancel bond sales. One-year cross-currency basis swaps fell to 68 basis points below the euro interbank offered rate yesterday from 53 on May 10, the biggest four-day drop since Dec. 14.
• Italy Tax Agents on Frontline of Anti-Austerity Backlash. For 10 years, Daniela Ballico has been knocking on Romans’ doors seeking back taxes. Now with Italy’s tax-collectors on the frontline of an anti-austerity backlash, she no longer has the courage to ring their bells. Equitalia, the state tax-collection agency, has been targeted in a wave of attacks as Italians chafe under stepped-up efforts to recover an estimated 120 billion euros ($153 billion) in lost revenue from evasion. On May 12, a Molotov cocktail exploded outside Equitalia’s Livorno office, one day after a parcel bomb was delivered to the Rome headquarters, site of a December explosion that tore off part of the general manager’s hand. “I have never seen such a tense atmosphere” said Ballico, who has been employed by Equitalia since 1998 and is now on temporary leave to work for the UGL labor union. “They call us loan sharks, bloodsuckers; my colleagues have to deal with anxiety and stomach aches every day and they are scared.”
• Greenlight’s Einhorn Says French Default Not Out of the Question. Hedge-fund manager David Einhorn said there’s a possibility the French government may default on its debt. “A French default is not out of the question,” Einhorn said today at the Ira Sohn investment conference in New York.
  
• AIG(AIG) Wagers on Subprime Betting Second Time Different: Mortgages. American International Group Inc., the insurer that needed a $182.3 billion bailout from the U.S. government in 2008 after failed mortgage investments, is betting this time it’s different. Chief Executive Officer Robert Benmosche has increased non- government-guaranteed residential and commercial-mortgage backed securities holdings by $11.1 billion since 2010 to $28.4 billion at the end of March, according to regulatory filings. The New York-based insurer has acquired debt sold by the Federal Reserve that the central bank acquired from AIG when the company was rescued, including $600 million of CMBS last month. AIG, which is also bolstering its unit that insures home loans with low down payments, is wagering that a more than 35 percent plunge in property values, cheaper prices for the securities and fewer competitors justify returning to investments that four years ago required the government to step in when it was unable to meet margin calls to banks.
• Russian Funds Flee as Anti-Putin Demonstrators Dig In. Investors are fleeing Russia as demonstrators against President Vladimir Putin dig in, exacerbating the impact of Europe’s debt crisis on the country’s markets, money managers from Frankfurt to Moscow said. Activists who clashed with police before Putin’s May 7 inauguration are protesting non-stop in Moscow, using the Occupy Wall Street movement’s tactics. As the benchmark RTS equity index entered a bear market, Russia-focused equity funds recorded $251 million of outflows in the seven days to May 9, the most this year, while China lost $127 million, India $148 million and Brazil $167 million, EPFR Global data show.
• BRIC Stocks Erase 2012 Gains as Technology Shares Drop on China. The MSCI BRIC Index for shares in Brazil, Russia, India and China tumbled for a fourth day, wiping out this year’s gains, as concern deepened that China’s economic growth is slowing and Europe’s debt crisis is spreading. The benchmark measure for the largest developing nations dropped 2.3 percent to 262.10 as of 4:35 p.m. in New York, led by an 11 percent decline in Shanghai-based Semiconductor Manufacturing Corp. after it was cut from the MSCI China Index. The Bovespa Index fell for a seventh day. Usinas Siderurgicas de Minas Gerais SA, Brazil’s second-largest steelmaker, dropped 7.3 percent. The MSCI Emerging Markets Index hit the lowest level since Jan. 2. Gauges sank more than 2 percent from Hungary to Taiwan.
• Bond Market May Not Warn When Debt Crisis Strikes. One by one, European nations are letting their voices be heard, tossing out the party in power and voting in those who, in some cases, have a more radical agenda or, in others, are just willing to say “no” to the status quo. A bas l’austerite! Down with austerity! Up with growth! If only it were that simple. That’s how the trade-off is being portrayed, and perhaps that’s what policy makers pushing the idea, and individuals on the receiving end, want to believe. With many euro-zone countries in recession, one can understand the appeal. Spend more, grow more and presto! The debt shrinks in relation to the economy and becomes more manageable. “Wishful thinking,” said Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics in Washington, who knows a thing or two about debt. “You seldom grow your way out of debt. The historic experience is very rare.”
• Japan Growth Pick-Up Clouded by Deepening Europe Risk: Economy. Japan’s economy expanded faster than estimated in the first quarter, boosted by reconstruction spending that’s poised to fade just as a worsening in Europe’s crisis threatens to curtail export demand. Gross domestic product rose an annualized 4.1 percent from the final three months of 2011, exceeding all but seven of 27 estimates in a Bloomberg News survey of economists, a Cabinet Office report showed today in Tokyo. Singapore also reported a rebound in growth last quarter, while warning about the risk of a disorderly European debt default.
• N. Korea Ship Seizes Chinese Boats for Ransom, Global Times Says. A North Korean ship seized three Chinese boats with 29 fishermen aboard and demanded more than $140,000 to release them, China’s Global Times newspaper reported today. The fishing boats were captured at gunpoint while trawling in Chinese waters on May 8, the newspaper said, citing an owner of one of the boats, identified as Zhang Dechang. He said the captors were demanding 300,000 yuan ($47,500) to release each vessel. China’s Foreign Ministry is trying to verify what happened and resolve the issue, state-run China Central Television reported on its website yesterday. A standoff could strain ties between North Korea and China, its main financial and diplomatic backer.
• China Expands Scope for Short Selling, Securities Journal Says. China will start a trial next week that will allow brokerages to borrow stocks for clients wishing to conduct short selling, the China Securities Journal reported. Brokerages can also borrow money on behalf of clients for margin financing, the newspaper reported today, without saying where it got the information. Twenty-five securities companies will participate in the test, along with the stock exchange, fund management companies and China Securities Finance Co., which was set up as an agency to provide funds and stocks for brokerages’ short selling and margin trading.

• Experts Try to Chart Path for Exit From Currency. Returning to a national currency after more than a decade of using the euro and having its money managed by the European Central Bank would catapult Greece into a financial, legal and political no man’s land. Countries have defaulted, devalued, or even withdrawn from a broader monetary union in the past. But none has done it all at once—and certainly not an economy so deeply integrated into global financial markets.
  
• Prospects for European Banks Once Again Darken. The start of 2012 was meant to herald a brighter future for European banks. Five months on, the picture is darkening fast. Until recently, European banks were basking in the glow of €1 trillion ($1.27 trillion) of cheap loans dished out by the European Central Bank. With fears that Greece could exit the euro back on the horizon, a credit-rating review of 114 European financial institutions under way by Moody’s and the need for many European banks to shrink themselves back to health, the outlook is less rosy, analysts say. “Clearly sentiment has soured,” said James Longsdon, a managing director of European, Middle East and Africa institutions at Fitch Ratings.
• Senators Urge Regulators To Act On Speculative Trading Limits. Senators have urged “swift action” from regulators to curb speculation in gas and oil markets, even as the price of gas has started to fall.
• Blackstone(BX) Loan in Favorable Modification, Deutsche Bank Says. A Blackstone Group LP (BX) property loan has received what “may be one of the more questionable [loan] modifications to date” by getting rosy financing terms at the expense of bondholders, marking a troublesome precedent for distressed real-estate workouts, Deutsche Bank said Wednesday. Special servicer Berkadia Commercial Mortgage extended for two years the maturity on about $400 million of commercial mortgage-backed securities, or CMBS, debt on 16 office properties, leaving the interest rate unchanged at a level more than four percentage points below the market rate.
• SEC Probes Role of Hedge Fund in CDOs. U.S. securities regulators are investigating hedge-fund firm Magnetar Capital LLC, which bet on several mortgage-bond deals that wound up imploding during the financial crisis, according to people familiar with the matter. While Magnetar has faced scrutiny over its role in various collateralized debt obligations, or CDOs, the Illinois firm itself now is a target of an investigation by the Securities and Exchange Commission, these people said.
• Boyd Gaming(BYD) to Buy Peninsula Gaming for $745 Million. Boyd Gaming Corp. (BYD) said Wednesday it will acquire privately held casino operator Peninsula Gaming LLC at a cost of $745 million and is also refinancing $700 million of Peninsula’s existing debt. The acquisition gives Boyd a stronger foothold in the Midwest and South and should offset some the pressures the company has felt in its core markets Las Vegas and Atlantic City. In the wake of the announcement, Boyd’s share price rose roughly 12% to $7.84 in after-market activity.
• Geithner, Dimon Discussed Volcker Rule In March. Treasury Secretary Timothy Geithner and J.P. Morgan Chase & Co. (JPM) Chief Executive James Dimon met in early March to discuss a new rule restricting commercial banks from trading with their own money, meeting logs released Wednesday by Treasury show.
• White House Steps Up Push to Toughen Rules on Banks. In the wake of losses at J.P. Morgan Chase & Co., the White House is seeking to ensure a tough interpretation of a regulation designed to prevent banks from making bets with their own money, according to people familiar with the matter.
• From ‘Caveman’ to ‘Whale’. Months before Bruno Iksil became famous as the “London whale,” the trader who contributed to a loss of more than $2 billion at J.P. Morgan Chase & Co., he earned a different nickname: the “Caveman,” for pursuing trades that rivals sometimes thought were overly aggressive but often led to huge profits. Late last year, Mr. Iksil, a London-based trader in J.P. Morgan’s Chief Investment Office, turned heads among fellow debt-market traders with a wager against a group of junk-bond-rated companies, traders say.
• Fall in Chinese Loans Poses Economic Threat. Banks Narrow Range of Firms They Are Willing to Assist, While Companies Are Wary of Borrowing Amid Unsure Prospects.

• Exclusive Photos: Here’s The Hot New Way They’re Extracting Oil From Canada’s Massive Oil Sands.
• It Looks A Lot Like China’s Security Head Is About To Be Ousted.
• The Most Important Energy Project In The World Is Happening In This Remote Part Of Canada.

• Quantifying The Plan Z Dry Powder – This Is The Greek ELA Borrowing Capacity.
• The Fabled Greek Mega-Bailout.
• Listing David Einhorn’s Likes and Dislikes.
  

• JPMorgan(JPM) Fallout ‘Could Get a Lot Worse’: Whitney. The JPMorgan Chase trading controversy comes at an inopportune time both for the bank and the industry as a whole, which needs to rethink the way it does business, analyst Meredith Whitney told CNBC.

NY Times:

• JPMorgan’s(JPM) Trading Loss Is Said to Rise at Least 50%. The trading losses suffered by JPMorgan Chase have surged in recent days, surpassing the bank’s initial $2 billion estimate by at least $1 billion, according to people with knowledge of the losses. When Jamie Dimon, JPMorgan’s chief executive, announced the losses last Thursday, he indicated they could double within the next few quarters. But that process has been compressed into four trading days as hedge funds and other investors take advantage of JPMorgan’s distress, fueling faster deterioration in the underlying credit market positions held by the bank.
• Ahead of Facebook(FB) IPO, a Skeptical Madison Ave. With Facebook, Mark Zuckerberg has created a seemingly perfect home on the Web, one where people feel comfortable chatting with friends, playing games, sharing photos and videos, listening to music and revealing the most intimate details of their lives. The $100 billion question is whether Facebook will be a perfect home for advertisers, as well.

• Notes From Ira Sohn Conference Presentations 2012.

• Managers Buy Russia CDS On Oil Price Drop. Asset managers are buying credit default swaps on Russia because of the impact lower oil prices could have on the country’s finances.
  

• Judicial States Continue to Skew Foreclosure Statistics. Nationally the percentage of loans in foreclosure fell slightly but Mike Fratantoni MBA’s Vice President of Research and Economics said the top-line figure covers up a couple of trends. “First, the percentage of loans in foreclosure is up for prime and FHA loans. The percentage of subprime loans in foreclosure continues to fall as the subprime loans age and the problems loans are resolved one way or the other. However, the percentage of loans in foreclosure for both FHA loans and prime fixed-rate loans are climbing and are just below all -time records.” “The problem continues to be the slow-moving judicial foreclosure systems in some of the largest states,” Franantoni said. While the rate of foreclosure starts is essentially the same in judicial and non-judicial foreclosure states, the percent of loans in the foreclosure process has reached another all-time high in the judicial states, 6.9 percent. In contrast that rate has fallen to 2.8 percent in non-judicial state, the lowest since early 2009.” The difference in the rates is even more disturbing in certain states. Brinkmann summed up the NDS report saying, “Overall it has good news about where we are going but the bottom line is we are still dependent on the economy.” As the job situation has improved so have delinquency figures and as long as this continues and there are no serious problems, such as a melt-down in Europe, we should see more of the same.

• Senate Rejects Obama Budget in 99-0 Vote. A budget resolution based on President Obama’s 2013 budget failed to get any votes in the Senate on Wednesday. In a 99-0 vote, all of the senators present rejected the president’s blueprint. It’s the second year in a row the Senate has voted down Obama’s budget. The House earlier this year unanimously rejected Obama’s budget.

• 28% Say U.S. Heading in Right Direction.

• Red Robin(RRGB) Sales Miss Estimates; Shares Fall. Restaurant operator Red Robin Gourmet Burgers Inc’s first-quarter revenue missed Wall Street estimates, hurt by a decline in guest counts, sending its shares down 8 percent in extended trading.
• Limited Brands(LTD) Q1 Profit Beats, Shares Fall On View. Limited Brands Inc, parent of the Victoria’s Secret lingerie store chain, posted a quarterly profit that topped Wall Street’s view but its shares fell 3.5 percent after its forecast for the current quarter fell short of analysts’ expectations.

• Spain Bids to Pin Down Real Estate Losses. Spain’s government will on Thursday announce the appointment of Blackrock and Oliver Wyman as independent valuers of the real estate loans that lie at the heart of the country’s banking crisis.

• Britain must make ready for the storm as clueless Europe tears itself apart. Usually it’s war that does the damage; there’s a certain irony in the fact that this time around it’s a project designed to prevent these periodic outbreaks of insanity by binding nations together in irredeemable economic and legal union – the euro. In fact, the single currency is having the exact opposite effect, only bizarrely, Europeans still refuse to see it. Even the Greeks still cling, ever more desperately, to this totemic symbol of European solidarity.
• Euroland’s €1 trillion question: after Greece goes, can Spain stay in? Everyone knows Greece is leaving the euro, the real challenge is preventing the fall-out extending to Spain.

• Huge Risk of Euro Breakup if EU Fails to Act – David Cameron. David Cameron will issue his starkest warning yet on the plight of the euro on Thursday, saying unless urgent action is taken there will be a breakup, adding he will do whatever possible to keep Britain safe in perilous times. Cameron’s stark message comes only a day after the chancellor, George Osborne, had said open speculation about the eurozone was itself damaging the European economy. Cameron and Osborne now believe that with the failure of the Greeks to form a government, a direct warning has to be given to the eurozone leaders about the scale of the threat, and the need for urgent action.

• Solar-Gear Glut to Stay for Year, Suntech(STP) Says. Equipment, parts to remain in global oversupply, downward pressure on prices to continue for at least 1 year, co. Chairman Shi Zhengrong says, citing an interview. Shi said he sees no sign of a price rebound. China should consider asking banks to relax lending to solar-equipment industry because of losses, Shi said.

• Rated (CFN) Overweight, target $34.

• Rated (SNDK) Positive, target $47.

• Asian equity indices are -.50% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 195.0 +2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 158.25 +8.75 basis points.
  
• FTSE-100 futures unch.
  
• S&P 500 futures +.42%.
  
• NASDAQ 100 futures +.36%.

• (AAP)/1.81
• (QSII)/.28
• (SSI)/-.02
• (WMT)/1.04
• (ROST)/.93
• (CSC)/.20
• (GPS)/.45
• (CRM)/.34
• (ARUN)/.16
• (INTU)/2.48
• (BRCD)/.12
• (PLCE)/1.06
• (DLTR)/.97
• (SHLD)/-.67
• (AMAT)/.24
• (ADSK)/.47
• (GME)/.54
• (BKE)/.76
• (PCP)/2.27

• Initial Jobless Claims are estimated to fall to 365K versus 367K the prior week.
• Continuing Claims are estimated to fall to 3225K versus 3229K prior.
  

10:00 am EST

• Philly Fed for May is estimated to rise to 10.0 versus a reading of 8.5 in April.
• Leading Indicators for April are estimated to rise +.1% versus a +.3% gain in March.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed’s Bullard speaking, Spain 10-Year bond auction, 10-Year TIPS auction, weekly EIA natural gas inventory report, pricing of the (FB) IPO, weekly Bloomberg Consumer Comfort Index, Bloomberg Economic Expectations Index for May, BofA Merrill Transports Conference, (SYY) investor day and the (HBC) investor day could also impact trading today.
  

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• Large-Cap Growth +.13%

• 1) Internet +.93% 2) Disk Drives +.91% 3) Oil Tankers +.56%

• OPNT, TJX, DKS, P, ACXM, IOC, GRPN, SVVC, GSVC, AMLN, MAKO, A and LEN
  

• 1) UUP 2) SYY 3) GRPN 4) P 5) AMLN

• 1) OPNT 2) JBL 3) A 4) ZNGA 5) HD
  

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume

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• Mid-Cap Value -.43%

• 1) Coal -5.03% 2) Oil Service -1.63% 3) Gold & Silver -1.33%

• CHK, LFL, ANGI, BMA, FIO, EPAM, DB, ACAT, VTUS, PHMD, FRAN, WCRX, HMIN, JAZZ, FOSL, AUXL, PETD, LUFK, AKO/A, EWO, KNM, AL, GORO, VAL, CHKR, ANR and AVP
  

• 1) EWJ 2) CX 3) LOW 4) EWG 5) EWY
  

• 1) BBY 2) PRU 3) CHK 4) JPM 5) AVP
  

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

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• Advance/Decline Line: Slightly Higher
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Performing In Line
  

• VIX 21.63 -1.10%
  
• ISE Sentiment Index 96.0 +24.68%
  
• Total Put/Call 1.12 -10.40%
  
• NYSE Arms 1.57 +18.64%
  

• North American Investment Grade CDS Index 116.95 +1.86%
  
• European Financial Sector CDS Index 288.29 +2.79%
  
• Western Europe Sovereign Debt CDS Index 298.42 +1.64%
  
• Emerging Market CDS Index 301.63 +4.72%
  
• 2-Year Swap Spread 38.5 +.5 basis point
  
• TED Spread 38.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -49.50 -1.5 basis points
  

• 3-Month T-Bill Yield .09% unch.
  
• Yield Curve 149.0 -3 basis points
  
• China Import Iron Ore Spot $135.90/Metric Tonne -.59%
  
• Citi US Economic Surprise Index -23.0 +.4 point
  
• 10-Year TIPS Spread 2.15 +1 basis point
  

• Nikkei Futures: Indicating a -40 open in Japan
• DAX Futures: Indicating -23 open in Germany
  

• Slightly Higher: On gains in my Tech/Retail sector longs and index hedges
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges, then covered some of them
  
• Market Exposure: 50% Net Long

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• Greek President Told Banks Anxious as Deposits Pulled. Greek President Karolos Papoulias was told by the central bank chief this week that financial institutions are becoming anxious about their prospects as Greeks pull out cash after the inconclusive May 6 elections. Central bank head George Provopoulos told Papoulias that Greeks have withdrawn as much as 700 million euros ($891 million) and the situation could worsen, according to the transcript of the president’s meeting with party leaders on May 14 that was published yesterday. “Provopoulos told me that of course there’s no panic but there’s great fear which can evolve into panic,” he said. Greece’s future in the euro has been thrown into doubt by the political standoff, forcing the president to call for new elections yesterday. German Finance Minister Wolfgang Schaeuble called the next vote a referendum on whether Greece exits the euro, a move that would leave lenders to its government, businesses and households unsure of recouping their money. The risk of a run on Greek banks is “a very serious problem,” Yannis Ioannides, professor of economics at Tufts University in Massachusetts, told Bloomberg Television. He said the European Central Bank needs to guarantee deposits held by the region’s lenders to guard against contagion. “That’s the only way to kill a bank run: not words but deeds.”
• Europe Must Face Ugly Reality of Greek Exit from Euro. A Greek exit from the euro area has the potential to be the European Union’s most economically and politically destructive event of a generation. Unfortunately, Europe has reached the point where it must prepare for such an outcome. Whether Greeks want it or not, circumstances could soon force their country to return to the drachma. Europe’s leaders, as Luxembourg Prime Minister Jean-Claude Juncker hinted, might extend Greece’s deadlines to meet the budget targets required for rescue money, but they won’t provide emergency financing to a government that refuses austerity measures. Without Europe’s help, Greece’s government (whoever ends up leading it) faces a dilemma: Cut spending even more than under the austerity program, or default on its debts and print a new currency to pay its bills.
  
• Germany Demands That ECB Pays Back EFSF Guarantee, FTD Reports. Germany and the European Financial Stability Facility has demanded that the European Central Bank pay back a 35 billion-euro ($45 billion) guarantee to the EFSF, Financial Times Deutschland said in a preview of a story that will run tomorrow, without saying where it got the information. The ECB received the guarantee from the EFSF to cover risks during the Greek government debt swap in March and wants to keep it for as long as 10 months because of outstanding so-called selective default bonds, the newspaper reported.
• Brazil Builders Plunge as PDG Profit Tumble Deepens Slump. MRV Engenharia (MRVE3) & Participacoes and PDG Realty (PDGR3) SA Empreendimentos & Participacoes led a plunge among Brazilian real-estate companies after reporting first-quarter profit that fell more than forecast. MRV lost 15 percent to 9.43 reais at the close in Sao Paulo, the biggest decline on the BM&FBovespa Real Estate Index, which retreated 4 percent. PDG, the country’s largest homebuilder by sales, fell 9.8 percent to 3.67 reais, making it the worst performer this year on the benchmark Bovespa index. PDG and MRV joined Rossi Residencial SA (RSID3), Brookfield Incorporacoes SA (BISA3) and Gafisa SA (GFSA3) in reporting lower profit or net losses last quarter. Homebuilders overextended themselves after 7.5 percent economic growth in 2010 spurred construction, creating a property glut as expansion slowed, said Luiz Roberto Calado, a vice president at the Brazilian Finance Managers Association. “They basically overestimated demand,” Calado, who published a book in 2010 on Brazilian real estate, said by phone from Sao Paulo. “They started buying land and creating lots of projects, but family income just hasn’t risen as much as housing prices. Even with credit, houses and apartments don’t seem affordable anymore.”
• Goldman(GS), Merrill E-Mails Show Naked Shorting, Filing Says. Goldman Sachs Group Inc. (GS) and Merrill Lynch & Co. employees discussed helping naked short-sales by market-maker clients in e-mails the banks sought to keep secret, including one in which a Merrill official told another to ignore compliance rules, Overstock.com Inc. (OSTK) said in a court filing. The online retailer accused Merrill, now part of Bank of America Corp., and Goldman Sachs of manipulating its stock from 2005 to 2007, causing its shares to fall. Clearing operations at the banks intentionally failed to locate and deliver borrowed shares for clients shorting stocks, including two traders who were fined and suspended from the industry, Overstock’s attorneys said in court filings earlier this year.
• JC Penney(JCP) Reports First-Quarter Loss Amid Sales Slump. J.C. Penney Co. (JCP), the department-store chain led by Apple Inc.’s (AAPL) former stores chief, reported a first- quarter loss and said it will discontinue its quarterly dividend after sales fell more than anticipated. The shares declined. The loss of $163 million, or 75 cents a share, compared with profit of $64 million, or 28 cents, a year earlier, the Plano, Texas-based company said today in a statement. Sales slumped 20 percent to $3.15 billion, missing the $3.43 billion average of 16 estimates compiled by Bloomberg. The shares fell 13 percent to $29 at 5:53 p.m. in New York. At the close, J.C. Penney had dropped 5.2 percent this year.
• Romney Focuses on U.S. Debt in Attacking Obama for Slow Recovery. Mitt Romney decried the ballooning of the federal debt and said it “threatens what it means to be an American,” as he argued that government deficits are hurting the nation’s economic recovery and President Barack Obama has made the situation worse. “America counted on President Obama to rescue the economy, tame the deficit and help create jobs,” the presumed Republican presidential nominee told supporters today in Des Moines, Iowa. Criticizing the $831 billion stimulus package enacted shortly into Obama’s term and other administration actions, Romney said the president “bailed out the public sector, gave billions of your dollars to companies of his friends and added almost as much debt to the country as all the prior presidents combined.” As a consequence, “we are now enduring the most tepid recovery in modern history,” Romney said.
• China Power Output Shows Deeper Economic Slump: Chart of the Day. China’s economic slowdown may be worse than forecast as growth in electricity generation, a leading indicator of gdp, was almost non-existent last month. Power generation rose .7% in April from a year earlier, down from 7.2% in March, the National Bureau of Statistics said on its website. Industrial production in the world’s second-largest economy, which accounts for more than 70% of electricity use, rose at the slowest pace in about three years last month. “Power production is one of the coincident indicators of the economy,” said Michael Parker, an analyst in Hong Kong at Sanford C. Bernstein & Co. “To see the number so sharply down, I think the problem of macro issues comes into question.”
• JPMorgan’s Specific Trades Weren’t Monitored, Regulator Says. JPMorgan Chase & Co. (JPM)’s individual trades that led to a $2 billion loss weren’t monitored by the Office of the Comptroller of the Currency, which said it didn’t expect to be notified about the positions. The job of the OCC, which oversees U.S. national banks including JPMorgan Chase Bank N.A., is to oversee wider risk- management policies and limits and to alert company management when it sees activities that range far from expectations, said Bryan Hubbard, an OCC spokesman.
• China’s Hong Kong Home-Buying Influx Wanes, Midland Says. Mainland Chinese investors accounted for a smaller percentage of Hong Kong’s new home sales for a second quarter as the country’s economy slowed and local buyers returned to the market, according to Midland Holdings Ltd. (1200) Mainland purchasers made up 36.8 percent of all new home sales by value in the first quarter, from 37.9 percent in the previous three months, Hong Kong’s biggest publicly traded realtor said in an e-mail yesterday. The figure reached 53.9 percent in the third quarter last year, Midland said.

• More Real-Estate Loans Default in Europe. European commercial-real-estate markets are struggling with a sharp increase in problem mortgages just as more European countries slip back into recession. A growing number of landlords, hit with falling rents and occupancies, are defaulting on loans, and it is happening not just in the most-troubled parts of Europe but in big centers like London and Frankfurt. Values already are down nearly 20% since their 2007 peak across Europe, according to CBRE Group Inc. Meantime, billions of euros of commercial mortgages are coming due, but little capital is available for refinancing.
• China Big Four Banks Barely Issue New Yuan Loans In 1H May – Report. China’s biggest four banks barely issued any new yuan loans in the first two weeks of May, extending the country’s weak credit growth last month, the state-run Shanghai Securities News reported Wednesday, citing an unnamed source. The four banks–Industrial & Commercial Bank of China Ltd. 1398.HK -2.08% (601398.SH), China Construction Bank Corp. 0939.HK -2.20% (601939.SH), Bank of China Ltd. 3988.HK -2.35% (601988.SH) and Agricultural Bank of China Ltd. 1288.HK -0.60% (601288.SH)–usually account for 30% of new yuan loans issued by China’s whole banking system. The rare and unusually dismal performance by the banks is expected to fuel concerns that despite Beijing’s efforts to step up credit easing, corporate demand for loans remains too weak to reverse the trend.
• Regulator Laments Role of Largest Mortgage Lenders. The U.S. mortgage industry has become too concentrated in the hands of a few large players, a leading housing regulator said Tuesday, expressing a concern many small lenders are voicing as regulators consider how to overhaul the nation’s mortgage system.
• JPMorgan’s(JPM) $2 Billion-Plus Loss Came On Three-Legged Trade. The complex web of trades that saddled J.P. Morgan Chase & Co. (JPM) with at least $2 billion in losses had three key components, according to people familiar with the bank’s strategy. Now, rival traders, seeking to reap gains from J.P. Morgan’s losses, are scurrying to guess which parts the bank is unwinding, and how.
• Loeb’s Third Point Reveals Apple(AAPL), Google(GOOG), Cisco(CSCO) Stakes. Third Point LLC, the hedge fund that recently won a proxy battle for further control of embattled Internet firm Yahoo Inc., has turned its attention to other large tech firms recently.
• Tom Frost: The Big Danger With Big Banks. Taxpayer safety nets such as the FDIC should be available only to banks that are in the loan business, not those in the investment business.

• Yahoo!(YHOO): Einhorn Dumps It, Stands Pat on (AAPL); Trims (DELL), (MSFT).

• Asia Stocks Dive as Greek Political Crisis Deepens. Asia’s stock markets fell sharply Wednesday, with commodity firms among those hardest hit after news that Greece’s political impasse would force new elections in the country. Hong Kong’s Hang Seng Index was among the region’s worst performers Wednesday, tumbling 2.4%, with Sullivan citing the Hong Kong market’s relatively high liquidity. Australia’s S&P/ASX 200 wasn’t far behind with a 1.8% drop, as weak commodity prices sent major mining names lower.
• Filings Show 45% of China Companies See Slowdown.
  

• Elizabeth Warren Is Getting Destroyed More For Calling Herself A Native American.
• 3 Reasons Why You Should Expect France’s Wealthy Elite To Move To London.
• Attention Facebook(FB) Investors: This (GM) Ad Cancellation Is Big, Bad News.
  

• Of Whitney Tilson’s $345MM In AUM, $104MM Is In Call Options, $24MM Is In Warrants.
• Majority of Neo-Normal Greek Cops Vote Neo-Nazi. In a somewhat stunning revelation, especially after our earlier note on the Golden Dawn leader’s ‘position’ on the issues of the day, GreekReporter notes via the news paper To Vima, that more than half of all police officers in Greece voted for pro-Nazi party Golden Dawn in the elections of May 6th. It’s not really for us to judge (well maybe it is) but when some polling stations report Golden Dawn receiving 19-24% of the votes, things are going from the dismal to the horrific (and potentially chaotic) very fast.
• Market Deja Deja Deja… Oh Forget It! (graphs)
  

• Facebook(FB) to Increase IPO Deal Size by 25%: Source.
• High-Speed Trading: Profit – and Danger – in Milliseconds.

IBD:

• Ulta Beauty(ULTA) Wows Customers With Trendy New Brands.
  

NY Times:

• Needy States Use Housing Aid Cash to Plug Budgets. Hundreds of millions of dollars meant to provide a little relief to the nation’s struggling homeowners is being diverted to plug state budget gaps.

• Activist Ackman’s Pershing Square Still Betting On JC Penney(JCP), Canadian Pacific(CP).

• Obama Lists Millions in Assets in 2011. The White House released documents Tuesday that show President Barack Obama and the first family hold assets valued at between $2.6 million and $8.3 million. The disclosure forms, required by the Ethics in Government Act, show the president’s largest asset, by far, is U.S. debt in the form of Treasury notes and bills. In total, the president has between $1.6 million and $6.3 million invested in Treasury debt.

• U.S. Energy Independence Is No Longer Just A Pipe Dream.

• Chicago braces for violence at NATO summit. Chicago police, who have a reputation for dealing toughly with protesters, will be prepared for the worst with new riot gear, including “sound cannon”, if demonstrators at the NATO summit get out of line this weekend. America’s third-largest city and President Barack Obama’s hometown has never hosted anything like the meeting starting on Sunday, which will draw representatives from some 50 countries, including leaders of the 28 members of the military alliance.
• PIMCO: Euro zone to ‘evolve into smaller’ entity. Pacific Investment Management Co., which manages the world’s largest bond fund, sees a high probability that the euro zone “will evolve into a smaller and less imperfect entity.” “Simply put, the status quo is no longer an option for Europe over the three- to five-year horizon,” PIMCO Chief Executive Officer Mohamed El-Erian wrote in a report outlining the Newport Beach, California-based company’s medium-term economic outlook. “The higher probability outcome is that the eurozone will evolve into a smaller and less imperfect entity – namely, a closer political union of countries with more similar conditions.”
• Sina Corp(SINA) Could See Further Losses Due to Weibo – CEO. Sina Corp could post further losses due to its investment in microblogging platform, Weibo, its Chief Executive Officer Charles Chao said on Wednesday. Sina Corp reported quarterly results that beat Wall Street’s targets after advertising revenue shot up 9 percent despite a weak Chinese market, propelling its shares up 7 percent in after hours.

• Bankers’ Talks On Curbing Rating Agencies. Up to 20 of Europe’s top banks will on Wednesday discuss a plan to foil the dominance of the much criticised big three credit agencies at a private meeting of finance directors in Frankfurt. Some of the banks want to change the culture of information disclosure to the likes of Standard & Poor’s, Moody’s and Fitch to level the playing field for potential new entrants.
• JPMorgan(JPM) loss exposes derivatives dangers. As JPMorgan reels from a complicated hedging strategy, one that misfired to the tune of at least $2.3bn in losses, derivatives-market participants worried about new rules on trading fear it will be harder to argue for more lenient treatment.
• US Bank CDS Hit Fresh 2012 Highs. Credit default swaps on major US banks, including JPMorgan Chase, hit fresh highs for the year on Tuesday as problems in Greece intensified. The cost of default protection on JPMorgan debt rose 8 basis points to 147, the highest level this year.

• Italy’s Banks Shaken as Economic Slump Deepens. As Greece erupts, Italy is moving into the eye of the storm. Its economy is contracting at speeds not seen since the depths of the slump in 2009 as draconian austerity bites, greatly increasing the risk of social revolt and a banking crisis. With the world’s third largest debt after the US and Japan at €1.9 trillion (£1.18 trillion), it is big enough to bring the global financial system to its knees. It is also in the front line of contagion as the Greek crisis metastasizes. Yields on 10-year Italian debt jumped 16 points to 5.86pc on Tuesday after Italy’s data agency said the country is sliding even into deeper recession, with GDP shrinking 0.8pc in the first quarter. Output is now 6pc below its peak in 2008. Italy has been trapped in perma-slump for a decade, the only major state to suffer a fall in real per capita income since 2000. Rising anger has led to a spate of violent attacks by terrorist groups over recent weeks, all too like the traumatic ‘years of lead’ in the late 1970s. The government is mulling use of troops to protect targets after anarchists shot the head of Ansaldo Nucleare last week and hurled petrol bombs at tax offices.
• Global Lenders Face ‘Killer Losses’ on Greek Debt. Foreign holders of €422bn of Greek debt were warned to brace themselves for “killer losses” as coalition talks in Athens collapsed, threatening Greece’s future in the eurozone.

• IMF Jets In For Stress Tests On Australia’s Big Four Banks. THE big four banks face increasing scrutiny from both the International Monetary Fund and the credit rating agencies as Europe’s financial problems drive up offshore funding costs, just as domestic growth stutters. IMF officials arrived in Sydney this week for meetings with ANZ, Commonwealth Bank, National Australia Bank and Westpac.

• None of note

• Asian equity indices are -2.50% to -1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 192.5 +2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 149.50 -1.0 basis point.
  
• FTSE-100 futures -.75%.
  
• S&P 500 futures -.14%.
  
• NASDAQ 100 futures -.20%.

• (TGT)/1.00
• (DE)/2.53
• (SPLS)/.30
• (ANF)/.01
• (LTD)/.40
• (JACK)/.31
• (RRGB)/.66
• (CHS)/.30

• Housing Starts for April are estimated to rise to 685K versus 654K in March.
• Building Permits for April are estimated to fall to 730K versus 747K in March.
  

9:15 am EST

• Industrial Production for April is estimated to rise +.6% versus unch. in March.
• Capacity Utilization for April is estimated to rise to 79.0% versus 78.6% in March.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,750,000 barrels versus a +3,652,000 barrel gain the prior week. Distillate supplies are estimated to rise by +150,000 barrels versus a -3,251,000 barrel decline the prior week. Gasoline supplies are expected to fall by -100,000 barrels versus a -2,613,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.5% versus a +.4% gain the prior week.
  

2:00 pm EST

• Minutes of FOMC Meeting
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The France/Germany Bond/Bund Auctions, Fed’s Bullard speaking, 1Q Mortgage Delinquencies, 1Q MBA Mortgage Foreclosures, weekly MBA mortgage applications report, (NCR) investor day could also impact trading today.
  

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