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On Tuesday June 22, 2010, 6:13 pm EDT

Judge lifts offshore drilling ban as `overbearing'

NEW ORLEANS (AP) -- A federal judge struck down the Obama administration's six-month ban on deepwater oil drilling in the Gulf of Mexico as rash and heavy-handed Tuesday, saying the government simply assumed that because one rig exploded, the others pose an immediate danger, too.

The White House promised an immediate appeal. The Interior Department had imposed the moratorium last month in the wake of the Deepwater Horizon disaster, halting approval of any new permits for deepwater projects and suspending drilling on 33 exploratory wells.

Stocks slide on new concerns about housing

NEW YORK (AP) -- Stocks dropped for a second day Tuesday after home sales fell unexpectedly and the White House said it would fight a court ruling that lifted its ban on offshore oil drilling.

The Dow Jones industrial average fell 149 points, its biggest drop in about two weeks. Treasury prices climbed after demand for safe investments rose.

The National Association of Realtors reported that sales of existing homes fell 2.2 percent in May. The report surprised analysts who thought sales would get a lift from a homebuyer tax credit. Sales fell to a seasonally adjusted annual rate of 5.66 million from a revised 5.79 million in April.

May home sales dip as housing market struggles

WASHINGTON (AP) -- The housing market may be on the verge of taking another plunge that could weaken the broader economic recovery.

Sales of previously occupied homes dipped in May, even though buyers could receive government tax credits. And nearly a third of sales in May were from foreclosures or other distressed properties. That means home prices could soon be heading down after stabilizing over the past year.

Europe's tough measures expose trans-Atlantic rift

LONDON (AP) -- A trans-Atlantic rift is growing over the right medicine for Europe's financial crisis, with Britain announcing its steepest cuts in decades Tuesday and Germany defending its own austerity measures after a warning by President Barack Obama that budget-slashing could threaten the global recovery.

Britain's emergency budget is the latest in a string of deep cuts in public spending and reflects new resolve in Europe, after Greece was pushed to the brink of bankruptcy and even threatened the bloc's economic union, to tackle debt before worrying about growth.

Health costs, buyout trim Walgreen 3Q net income

NEW YORK (AP) -- Walgreen Co., the biggest U.S. drugstore chain, said Tuesday its profit sank 11 percent in the third quarter because of higher costs related to the nation's health care rules and its $623 million buyout of rival Duane Reade.

Those costs, CEO Greg Wasson said, converged with a weak economy, lower reimbursement rates and fewer new low-cost generic drugs.

In addition, the latest results compare with a strong showing last year when drug stores got an added boost from the swine flu pandemic as treatments flew off shelves.

Orszag says he's leaving as budget head in July

WASHINGTON (AP) -- White House Budget Director Peter Orszag says he's stepping down next month, positioning him to be the first high-profile member of President Barack Obama's team to depart the administration.

Orszag confirmed his planned resignation in a brief interview with The Associated Press on Tuesday. He said he views passage of last year's economic recovery act as his most significant accomplishment.

White House Press Secretary Robert Gibbs said Tuesday that "a number of very talented candidates" were being considered to replace Orszag.

Adobe posts higher 2Q profit as revenue soars

NEW YORK (AP) -- Software maker Adobe Systems Inc. posted higher net income for its most recent quarter, driven by strong demand for the software package it sells to professional designers and developers.

Adobe earned $148.6 million, or 28 cents per share, in the fiscal second quarter, which ended June 4. This is up 18 percent from $126.1 million, or 24 cents per share, in the same period a year earlier.

Adjusted earnings were 44 cents per share. On that basis, analysts surveyed by Thomson Reuters had expected a profit of 42 cents per share.

Geithner sees taxpayer recovery on bailout

WASHINGTON (AP) -- Members of a watchdog panel on Tuesday pressed Treasury Secretary Timothy Geithner on looming losses for banks and foreclosure relief for struggling homeowners, as he assured them that taxpayers are recovering their investment from the $700 billion financial bailout.

Geithner told the Congressional Oversight Panel at a hearing that banks have repaid about 75 percent of the bailout money they received, and the government's investments in aided banks have brought taxpayers $21 billion. He acknowledged there likely will be a partial loss from the rescue of giant insurer American International Group Inc., into which the government plowed $182 billion.

Natural gas prices drop for 3rd straight day

Natural gas prices stumbled for the third straight day Tuesday, although hot weather in many parts of the country drove up electricity demand and a hurricane threat brewed in the Gulf of Mexico.

Prices fell about 2 percent Tuesday on the New York Mercantile Exchange, bringing the total drop to nearly 8 percent over the past three days. Natural gas fell 11.7 cents to settle at $4.756 per 1,000 cubic feet. It hit a four-month high of $5.20 per 1,000 cubic feet last week.

Report: FDA struggles to track foreign drug trials

WASHINGTON (AP) -- The Food and Drug Administration is reviewing only a fraction of foreign drug trials, as companies increasingly move drug testing overseas to reduce costs, a report by agency overseers said Tuesday.

The FDA inspected about one percent of foreign drug testing sites in fiscal year 2008, according to a report issued Tuesday by the Inspector General for the Department of Health and Human Services. The FDA is responsible for looking out for the safety of patients enrolled in studies of all drugs destined for the U.S. market.

By The Associated Press

The Dow fell 148.89, or 1.4 percent, to 10,293.52, its biggest point and percentage loss since June 4. The index is up 4.9 percent from its 2010 closing low of 9,816 on June 7.

The S&P 500 index fell 17.89, or 1.6 percent, to 1,095.31, while the Nasdaq composite index fell 27.29, or 1.2 percent, to 2,261.80.

Benchmark crude for July delivery lost 61 cents to settle at $77.21 on the Nymex. Tuesday was the last day of trading in July oil and most interest had moved to the August contract, which dropped 76 cents to settle at $77.85 a barrel.

In other trading, heating oil fell 3.30 cents to settle at $2.1129 a gallon, and gasoline gave up 0.93 cent to settle at $2.1335 a gallon.

Brent crude lost 78 cents to settle at $78.04 on the ICE futures exchange.

 

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Buying Opportunity or Sucker Rally?

 

Simon Maierhofer, On Tuesday June 22, 2010, 3:57 pm EDT

As the captain of a large vessel navigates through high seas, he spots a light on a collision course. 'Change your course 10 degrees East' he signals. 'You change your course 10 degrees West' he gets in return. His reply:  'I am a Navy officer, so you change your course' is met by 'I am a seaman of second degree, you change your course'.

The captain is furious and sends his final warning, 'I am a battleship and won't change my course'. Is there any reply that would change the captain's mind? The final signal received is: 'I am a light house, your call'.

New Highs or Bear Market Trap?

Lighthouses can save lives; however, if you steer right towards them, you are likely to sink.

Rising stock prices can improve investors' financial lives, but some rallies are bear traps that can and will sink your portfolio. The last nine trading sessions have lifted the S&P 500 (SNP: ^GSPC) 5.18%. The Dow Jones (DJI: ^DJI) and Nasdaq (Nasdaq: ^IXIC) have faired the same. Is this the first leg of a rally that will lead to new highs or a bear market trap?

Just as the lighthouse, the market won't change course for us. Therefore, if we can't bend the stock market (NYSEArca: VTI) to our will (no matter how bad we want to), we have to figure out what the market has in store for us.

The market and many individual stocks have an uncanny ability to look ahead and foresee problems we can only dream of detecting. While we are still wondering whether certain issues (I.e. European debt crisis, U.S. debt crisis, BP oil spill, etc,) have already been discounted or 'baked in,' the market has already discovered the next problem area or green shoot.

Subtle Tell Tale Signs

Even though it's difficult, we'll do our best to discover what Wall Street's radar has not yet picked up.

FedEx (NYSE: FDX - News) is one of the many companies to lower its profit outlook for the year ahead. As such, FedEx might well be the canary in the mine. Why? FedEx ships 'stuff,' all kinds of stuff. If the demand for shipping falls, it's because consumer demand is down. Decelerating consumer demand is bad for the economy.

'But wait, this is good news' some say. FedEx's lowered earnings expectations are due to increases in fixed pension and healthcare costs not falling consumer demand (or lack thereof). Once again, FedEx may be the warning canary and that's not good news.

The effect the new healthcare reform has on large corporations hasn't really been discussed much. So let's examine the potentially huge impact on stock prices.

The Real Cost of the Health Care Bill

Caterpillar, John Deere and AT&T already announced non-cash charges of $100 million, $150 million and $1 billion for 2010. This is based on the impact the new health care bill has on forward retiree health care costs. As always, it pays to put things into perspective.

Caterpillar reported profits of $895 million, John Deere's profit was $912.80 million and AT&T's profit was $12.54 billion. The unexpected healthcare charges make up 11%, 16% and 8% of profits. These expenses should eventually hit the earnings per share (EPS) and by extension the P/E ratio. Based on the above three examples, stocks could be overvalued by 8% - 16%. The above-mentioned charges were for retired employees only. Current employee healthcare costs were not considered yet.

Imagine the effect increased health care costs of that magnitude could have on entire sectors such as consumer discretionary (NYSEArca: XLY - News), consumer staples (NYSEArca: XLP - News) and technology (NYSEArca: XLK - News).

Hungry for Profits

While Wall Street is hungry for profits and analysts predict 2011 earnings would reach an all-time record high (more about that in a moment), 1 in 8 Americans are simply hungry.

Reuters just reported that nearly 40 million Americans were enrolled for food stamps during February. 'This is the highest share of the U.S. population on SNAP/food stamps,' said the anti-hunger group Food Research and Action Center.

Enrollment has set a record each month since reaching 31.78 million in December 2008. USDA estimates enrollment will average 40.5 million people this fiscal year, which ends Sept 30, at a cost of up to $59 billion. For fiscal year 2011, average enrollment is estimated to be 43.3 million people.

It's probably a fair (and sobering) assumption that Americans who worry about their next meal don't worry about the newest iPad or upgrading their car. Where is demand for new products supposed to be coming from?

Watch Out for Earnings Season

Time flies and earnings season is just around the corner. Before we talk about the upcoming earnings season, let's review the previous two.

In January 2010, most companies beat their earnings forecast yet the S&P (NYSEArca: SPY - News) sold off as much as 9.2%.

On April 11, 2010, right before the last earnings season began, the ETF Profit Strategy Newsletter warned of the following: 'It is likely that the S&P will spike above 1,200 before retracing some of its recent gains. Various earnings reports will be released this week. Buy the rumor, sell the news might be the theme for this earnings season, as it was in January.'

The S&P closed above 1,200 for five trading days before reaching the April 26 highs. Even though about 8 out of 10 companies beat their respective forecasts, the S&P sold off as much as 14.68%. Imagine what will happen if earnings disappoint.

Yes, analysts tracked by Thomson Reuters forecast earnings of $96.61 per share for the S&P in 2011. This would mark a new all-time record and surpass the 2006 peak.

One can't help but wonder how this earnings growth is supposed to be attained. 1 out of 8 Americans lives on food stamps, 1.6 out of 10 Americans (according to the BLS's U-6 unemployment number of 16.6%) has no job and 1 out of 4 homeowners has a mortgage that's under water.

Analyst's Paralysis

In addition to the above-mentioned under-the-radar issues, we note that regulators have closed the 83rd bank (NYSEArca: KBE - News) in 2010. The associated press reported on Thursday that new jobless claims are up sharply as layoffs persist. Home building (NYSEArca: XHB - News) has plunged to a five-month low. According to the Department of Housing and Urban Development, 643,000 people were homeless in January.

And finally, something Wall Street will be taking note of, Bloomberg reported that new financial regulations may cost financial companies (NYSEArca: XLF - News) billions of dollars. Of course analysts won't see the trouble until it becomes glaringly obvious even to us 'average Joes.'

On April 26 when the major U.S. markets (NYSEArca: TMW - News) reached their recovery highs, Bloomberg reported; 'U.S. stocks cheapest since 1990 on analyst estimates.' One of the headlines in the Wall Street Journal read that 'Technical analysts see room to roll.'

Quite to the contrary, the ETF Profit Strategy Newsletter noted on April 28, that 'the potential exists, that Monday's high - which was only one point short of the 61.8% Fibonacci retracement at 1,220 - marked a significant top.

A significant top implies a significant drop. How significant? The latest issue of the ETF Profit Strategy Newsletter provides a detailed analysis along with a termination range for this rally, the ultimate target range for a market bottom, and the one chart that illustrates the bleak future outlook.

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Midnight Trader 4:20 PM, Jun 22, 2010 --

GLOBAL SENTIMENT

UPSIDE MOVERS

(+) EXTR tapped by Austrian Ministry of Interior for new contract.

(+) PX, ESLR ink pact to supply industrial gases.

(+) PLUG fuel cell units to power Walmart Canada's electric lift trucks.

(+) ALNY, ISIS to get payment from alliance with Sanofi-Aventis.

(+) AONE gets upgrade.

(+) RBS, LYG gaining as UK details emergency budget.

(+) ASTI secures new contracts.

(+) OXGN reports positive data from study in opthalmology program.

(+) AFFY gets milestone payments in trial of Hematide/peginesatide.

(+) JEF results top year-ago period.

(+) ETRM issues positive comments on obesity study.

(+) INXI may continue evening slide; update this morning says revenue error review to take weeks, not months, expects to report higher bookings.

DOWNSIDE MOVERS

(-) CAT CEO says exports will jump 65%.

(-) WAG just beats with Q3 sales, shy with EPS.

(-) URRE prices shares.

(-) NBG downgraded.

(-) AEG weighing options for life reinsurance unit and to cut costs by 25% in U.K.

(-) MIPI extends waiver agreement with bond holders.

(-) XOMA reports positive results in mouse model of diet-induced obesity.

(-) LXRX reports positive study data.

MARKET DIRECTION

Stocks pushed deeper into negative territory late in Tuesday's session, with materials and energy stocks among the leading decliners. A disappointing housing report and renewed attention on the health of banks fueled the negative mood.

Earlier in the day, the National Association of Realtors reported that sales of existing homes fell 2.2% in May. The report surprised analysts who thought deals would get a lift from a homebuyer tax credit. Sales fell to a seasonally adjusted annual rate of 5.66 million from a revised 5.79 million in April.

The Federal Housing Finance Agency reported that its purchase-only home-price index is down 12.8% from the peak in 2007. The federal tax credit for home buyers helped lift prices, the FHFA said.

The Federal Reserve began a two-day policy meeting expected to close Wednesday with no change to record-low rates.

Energy shares fell as the White House vowed to fight a court ruling against the offshore drilling moratorium.

Tech shares eased but held up much better than the broader market. Apple (AAPL) was up some 1% after saying it sold 3 million iPads in the first 80 days the tablet computers were on sale in the U.S.

Shares of Johnson & Johnson (JNJ) firmed after the company signed an agreement to pay Stockholm-based Diamyd Medical $45 million to work together on developing a type 1 diabetes treatment, according to TheStreet.com.

Apple (AAPL) gains after announcing it sold three million iPad tablets as of yesterday, the 80th day since the computer maker launched the product, it said in a statement Tuesday. Apple is set to introduce the iPad in nine more countries next month, the statement said. Apple also got a boost from Deutsche Bank, which lifted its estimates on product shipments and 2010-11 EPS.

In consumer shares, Walgreen Co. (WAG) fell after it reported that its Duane Reed acquisition, a weak economy, lower reimbursement rates and fewer new low-cost generic drugs cut into Q3 profits. The company reported a net of $463 million, or 47 cents per share compared with $522 million, or 53 cents per share, a year ago when swine flu concerns help boost revenues. Excluding items, Walgreen earned 54 cents per share, disappointing analysts, who were looking for 57 cents, according to a Thomson Reuters poll.

Commodities finished mixed as gold gained ground while crude oil futures finished in the red.

Crude-oil for July delivery was down 1%, or $0.76, to $77.85 a barrel on the New York Mercantile Exchange.

In other energy futures, heating oil fell 1.55%, or $0.03, to $2.11 a gallon while natural gas fell 1.72%, or $0.08, to $4.79 per million British thermal units.

Meanwhile, gold for August delivery rose $0.10 to $1,240.80 an ounce. In other metal futures, silver rose $0.03, or 0.14%, to $18.88 while copper rose $0.03 to $2.98 a pound.