Morning Call – 6/2/2010

Stone Street Advisors

ChiBondKing – laszlochi@gmail.com

Morning Focus
European equity indices followed Asia’s lead overnight, despite an initial rally after the news of Japan’s PM resigning, most of
Asia continued to sell off. Australia ended off 0.73 pct to 4381, the Nikkei 225 off 1.12 pct to 9603.24, Hang Seng (HK) off 0.13 pct
to 19471.80 and China bucked the trend ending higher by 0.12 pct to 2571.42. European equities down in mid morning London
session, FTSE down 1pct to 5108.30, Germany DAX down 0.67 pct 5941, France down 1.15 pct to 3462, weaker economic numbers
out of Australia overnight along with data showing the UK consumer lending situation has not improved. Spanish employment is
better than expected and the Swiss are still showing no sign of slowing down when it comes to buying goods. US futures for now
pointing to higher open, however bond futures are also seeing a bid, with ZB rising stronger relative to the rest of the curve which
is putting some downward pressure on the shape of the curve however we’re not seeing much follow through on the cash side.
Cash 2s30 is 341 vs. 340.6 previous close, basically flat. Today’s Economic Calendar: Notable Bond Market/Economic Events

Notable Overnight Headlines

Asia
Japan PM Hatoyama to resign (Reuters) – Naoto seen as a leading candidate to replace him.
Britain's Prudential says withdrawing AIA bid
Australia Q1 GDP rises 0.5% q/q, up 2.7% y/y (Reuters)
NZ commodity prices hit record high in May - ANZ (Reuters)
Shanghai Composite Index Up 0.1% At 2569.53; Reverses Early Losses (DJ)

Europe
U.K. April M4 Money Supply Rises 3.3% y/y
(BCS) Barclays buying Tricorona for GBP98M (MarketWatch)
ECB's Noyer says the EUR is not at an “extraordinary level”
German FinMin will urge for “clarity” on regulation at G20 meeting (Reuters)
Prudential down 1.7% after scrapping AIA deal (MarketWatch) – likely that AIG/AIA will pursue IPO route
BP Drops 3.0% on London open (Reuters)
Brazil, India, Japan, S. Korea and Russia say they they “see few alternatives to EUR and USD” despite fiscal woes (Reuters)
Swiss retail sales up 1.3 pct yr/yr in April
Spain jobless claims fall 1.84% in May (MarketWatch)
Spain May Unemployment Down 76.2K, Consensus 45K Fall (MarketWatch)
French Fin Min: France,UK Want Future Bank Tax To Go Into Budgets (DJ)
Overnight deposits at the ECB rise (Reuters)
Fitch: UK Corporate Pension Funding Issues Are Here to Stay (Reuters)
Spain April Export Prices Rise 1.3% On Month, Import Prices Climb 0.8%
Norway Q1 Current Account Surplus NOK 98 Bln Vs. NOK 102 Bln In Q4
Swiss retail sales up in April (Reuters)
British Lending: April Consumer Credit Down GBP 0.1B vs. GBP 0.1B March, Net Lending up 400M GBP
British Mortgage Approvals: April Mortgage Approvals 49.87K, Consensus 49.5K
Euribor rates climb to five-month high

US Pre Open
Economic News

State Fiscal Woes Continue: NY nearly goes broke again, delays paying bills (Reuters)

See Important Disclosures on page 10

 All Eyes on Friday’s Jobs Report: At SSA we haven’t quite formulated our guess, but we can temper your expectations that
surely there won’t be 700k jobs created, the unemployment rate won’t magically drop to 9.5 and all will be well with the
world. An SSA forecast for Friday’s jobs report will be out on Thursday (6/3).

Equities

AAPL - Jobs: 'Don't Want To See Us Descend Into A Nation Of Bloggers' (WSJ)
RIG - U.S. fights Transocean's bid to limit liability (Reuters)
BP – Shares indicated to open lower on back of US criminal probe into Gulf oil spill
F, HMC, TM - Autos will be in play today, May US sales numbers are due out throughout the day
RSH, BX – Yet another (rumored) bid for RSH, rumored to be from Blackstone could cause elevated volatility in both pairs
today. The previous bidder rumor was Best Buy (BBY).
JOSB - American employment indicator? Jos A. Bank Q1 sales $178.1M vs $161.9M (MarketWatch)

Interesting Morning Readings

Eli Radke of MyTradingNet discusses Getting Over The Top: http://mytradingnet.com/blog/2010/06/01/getting-over/

Professor Pinch – So A Monetarist Walks Into A Bar: http://professorpinch.wordpress.com/2010/06/01/so-a-monetarist-
walks-into-a-bar-the-futility-in-central-banking/ - Shameless self-plug: I also touched on the subject that Professor Pinch
elaborated on here at Stone Street: http://stonestreetadvisors.com/2010/05/14/macro-view-double-dipping/
More BP pain: share price plunge and takeover speculation (Bloomberg):
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLratvARy8pQ&pos=3
American Investors: Predictably Stupid Losers (MarketWatch): http://www.marketwatch.com/story/american-investors-
predictably-stupid-losers-2010-06-01

Notable Bond Market/Economic Events

Bond Auctions (1PM ET)
o 52wk bill (1Y), 4 week bill
Economic Releases For 6/2
o 7:30a: Challenger Layoff Report
o 10:00a: Pending Home Sales
o 7:50p: Australian Capital Spending

Market Summary – 6AM

Futures Currencies Fixed Income

Symbol Last Chg Symbol Last Chg Symbol Last Symbol Last
DOW 10067 48 EURUSD 1.2257 0.0028 2s5s 131 US2Y 0.76
SP500 1075.25 5.75 GBPUSD 1.467 0.0025 2s10s 251 US5Y 2.07
NSDQ 1845.5 14.5 EURJPY 112.53 1.3 2s30s 341 US7Y 2.73
ZBM0 123'06 +0'13 USDCAD 1.05 -0.005 5s10s 120 US10Y 3.27
ZNM0 119'315 +0'030 USDJPY 91.87 0.91 5s30s 210 US30Y 4.17
ZFM0 116'242 +0'022 NZDUSD 0.6739 -0.0013 10s30s 90 UK5Y 2.27
ZTM0 109'020 +0'012 UK10Y 3.56
CLN0 72.21 -0.37 UK30Y 4.3

See Important Disclosures on page 10

 Morning Call – 6/2/2010
Stone Street Advisors
ChiBondKing – laszlochi@gmail.com

Chartbook Wednesday, June 02, 2010

See Important Disclosures on page 10

See Important Disclosures on page 10
See Important Disclosures on page 10
See Important Disclosures on page 10
See Important Disclosures on page 10
See Important Disclosures on page 10
See Important Disclosures on page 10
 Morning Call – 6/2/2010
Stone Street Advisors
ChiBondKing – laszlochi@gmail.com

Disclosure/Legal
THE MATERIAL CONTAINED IN THIS DOCUMENT IS INFORMATIONAL ONLY , AND IS NOT INTENDED AS AN OFFER OR A SOLICITATION TO
BUY OR SELL ANY SECURITIES. T HE AUTHOR IS NOT ACTING AS AN ADVISOR OR FIDUCIARY IN ANY RESPECT IN CONNECTION WITH
PROVIDING THIS INFORMATION AND NO INFORMATION OR MATERIAL CONTAINED WITHIN THIS DOCUMENT IS TO BE RELIED UPON FOR
THE PURPOSE OF MAKING OR COMMUNICATING INVESTMENT OR OTHER DECISIONS NOR CONSTRUED AS EITHER PROJECTIONS OR
PREDICTIONS . I NVESTORS MUST MAKE THEIR OWN INDEPENDENT DECISIONS REGARDING ANY SECURITIES , FINANCIAL INSTRUMENTS
OR STRATEGIES MENTIONED HEREIN. PLEASE CONTACT YOUR FINANCIAL ADVISOR TO DETERMINE THE SUITABILITY OF THE MATERIAL
CONTAINED HEREIN TO YOUR INVESTMENT GOALS, OBJECTIVES AND RISK CRITERIA. T HE MATERIAL CONTAINED IN THIS DOCUMENT IS
INTENDED FOR QUALIFIED INVESTORS ONLY . T HE PERSON OR PERSONS INVOLVED IN THE PREPARATION OR ISSUANCE OF THE
INFORMATION CONTAINED IN THE MATERIAL WITHIN THIS DOCUMENT MAY DEAL AS PRINCIPAL IN ANY OF THE SECURITIES
MENTIONED , AND MAY HAVE A LONG OR SHORT POSITION IN ( INCLUDING POSSIBLY A POSITION THAT WAS ACCUMULATED ON THE
BASIS OF THE MATERIAL PRIOR TO IT BEING DISSEMINATED AND / OR A POSITION INCONSISTENT WITH THE INFORMATION WITHIN THIS
DOCUMENT ), ACCORDINGLY , INFORMATION INCLUDED IN OR EXCLUDED FROM THIS DOCUMENT IS NOT INDEPENDENT FROM THE
PROPRIETARY INTERESTS OF THE AUTHOR , WHICH MAY CONFLICT WITH YOUR INTERESTS . C ERTAIN TRANSACTIONS , INCLUDING THOSE
INVOLVING FUTURES , OPTIONS, DERIVATIVES AND HIGH YIELD SECURITIES , GIVE RISE TO SUBSTANTIAL RISK AND ARE NOT SUITABLE
FOR ALL INVESTORS . FOREIGN CURRENCY DENOMINATED SECURITIES ARE SUBJECT TO FLUCTUATIONS IN EXCHANGE RATES THAT
COULD HAVE AN ADVERSE EFFECT ON THE VALUE OR PRICE OF OR INCOME DERIVED FROM ANY INVESTMENTS DISCUSSED HEREIN.
UNLESS OTHERWISE SPECIFICALLY STATED , ALL STATEMENTS CONTAINED WITHIN THIS DOCUMENT (INCLUDING ANY VIEWS , OPINIONS
OR FORECASTS ) ARE SOLELY THOSE OF THE INDIVIDUAL ( S) MAKING THE STATEMENT , AS OF THE DATE INDICATED ONLY , AND ARE
SUBJECT TO CHANGE WITHOUT NOTICE . C HANGES TO ASSUMPTIONS MADE IN THE PREPARATION OF SUCH MATERIALS MAY HAVE A
MATERIAL IMPACT ON RETURNS. T HE AUTHOR OR AUTHORS DOES NOT UNDERTAKE A DUTY TO UPDATE THESE MATERIALS OR TO
NOTIFY YOU WHEN OR WHETHER THE ANALYSIS HAS CHANGED . WHILE THE INFORMATION CONTAINED WITHIN THIS DOCUMENT IS
BELIEVED TO BE RELIABLE , NO REPRESENTATION OR WARRANTY , WHETHER EXPRESS OR IMPLIED, IS MADE AND NO LIABILITY OR
RESPONSIBILITY IS ACCEPTED BY THE AUTHOR OR AFFILIATED PARTIES AS TO THE ACCURACY OR COMPLETENESS THEREOF.