Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.

com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

Equities extended losses in late afternoon trading Tuesday as energy stocks weighed on the market (S&P 500 -1.6%, Dow -1.4%, Nasdaq -1.2%). Oil fell toward $77 a barrel, while gold rose above $1,240 an ounce. Existing home sales fell 2.2% in May to a much lower-than-expected annual rate of 5.66 million. The market had expected a pace of 6.20 million sales. Supply fell only slightly and remained heavy at 8.3 months, compared with 7 months late last year during the tax credit-induced buying surge. The FOMC began its 2-day policy meeting Tuesday and will issue its latest (and widely expected to be unchanged) stance on interest rates Wednesday at 2:15pm.

Morning Markets Briefing
Market Commentary: June 23rd, 2010 A snapshot of the markets through the lens of ConvergEx.

What Peter Orszag’s Replacement Needs to Know
Summary: Managing the U.S. Federal budget is one of the toughest jobs in Washington, and the task recently took its toll on OMB Director Peter Orszag who announced his imminent departure on Tuesday. So, to ease the transition for his lucky replacement, we have slimmed down the U.S. Budget into a short introduction to the challenges ahead. Here you are, Mr./Ms Budget Director: for the Fiscal Year ended September 2009, the average employed worker contributed $12,748 in income tax payments to the Federal government. The budget created by Mr. Orszag (who we read is a very bright fellow) spent $16,809 on behalf of that same worker for: defense, federal worker salaries, Medicare, Medicaid, Social Security payments, unemployment benefits, and food stamps. Oh, and that’s just the biggest/most noticeable items in the budget. That “average” worker now has $65,237 in Treasuries debt to pay off, up from $56, 861 just eight months ago. So, good luck to you, future OMB Director. We will watch your career with considerable interest.

I am the first to confess that the workings of the Federal government seem virtually indecipherable. I could say, “It’s all Greek to me,” but there is a fellow here at ConvergEx who is fluent in ancient Greek. I don’t know any one person who can explain the machinations of the Federal government – how it figures out what to spend, how worried the institution is about the Federal debt, and what they realistically plan to do about it. All are important questions for the markets, of course, but frankly just as critical to the health of the country as a whole.

Market Commentary – Pages 1-3, Equities/Conferences & Earnings – Page 4, Fixed Income – Page 5, Options – Page 6, Exchange-Traded Funds/Indexes – Page 7, Social Media & Internet Blogs Top Stories – Page 8

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

Two catalysts recently caught my eye on this topic: • The surprise announcement of the departure of Peter Orszag from his post at the Office of Management and Budget. Mr. Orszag is no shrinking violet – we won’t go into his personal life, but if you are curious, click through here: http://www.sfgate.com/cgi-bin/blogs/abraham/detail?entry_id=66u308). Suffice it to say that the man can, well, juggle a lot of priorities. And yet he was only good for two years as the head of OMB, the office of the White House responsible for assembling and tracking the country’s budget. • The news that the U.S. will push its G-20 partners to continue with fiscal stimulus even as many of them face mounting pressure from credit markets to reduce their spending deficits. To help the civil servant “lucky” enough to fill Mr. Orszag’s shoes, we have assembled a very brief description of the problems at hand. It is easy to get lost in the minutiae of the budget and what America spends, so we will limit the discussion to a handful of metrics that we think cover the waterfront pretty well. The attached

table shows the numbers we will include in the analysis below.
• To begin with the revenue side, the average employed worker paid $12,748 to the Federal government in the fiscal year ending September 2009. The company he or she works for chipped in $1,712/worker in the form of corporate income taxes. So that works out to $14,460 per employed person in Federal government revenue. In case you are curious about total per capita, every man, woman and child in America pays just over $6,000 in taxes annually.

So, against that $14,460 per employed tax payer, how much does the government spend on their behalf? Let’s step through the most well-known programs for the 2009 fiscal year. • • • • • • • • Social Security: $4,180 per worker. Medicare: $3,745 per worker Medicaid: $1,892 per worker Educational Programs: $1,436 per worker Defense Vendors: $2,935 per worker Federal Salaries: $1,341 per worker Unemployment Benefits: $894 per worker Food Stamps: $384 per worker

We could go on – the Treasury’s own daily statement (https://www.fms.treas.gov/dts/index.html) has a score more expense categories. The point, however, is that just with these eight programs we have spent the average worker’s $14,460 in personal and corporate-linked tax contribution. Well, that’s not entirely true. We have overspent it by just over $2,400 per worker. Those 2009 expenses noted above total $16,897/worker. Now keep in mind that there are 131 million working Americans at the moment. There used to be about 10 million more just a few years ago, but the recession has cut the size of the domestic workforce. So that $2,400 per worker in extra spending works out to be $314 billion in incremental budget deficit, just for the programs mentioned above. Yet this only goes part of the way to explaining why the public debt per employed person has ballooned to over $65,000 now versus $56,861 in September 2009. That’s a $9,000 per person jump, far greater than the $2,400 deficit we calculated. The difference is both all the other Federal programs we did not include, and the continuing sluggish labor market that limits tax receipts.
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

So, Mr./Ms. Budget Director, you have your work cut out for you. If you are hoping the economy improves, and those 10 million people get back to work, that will create about $62 billion in incremental tax receipts (10 million times $40,000 average salary times 16% average Federal Tax rate). That’s not going to solve the problem. Somewhere in the programs mentioned above there will have to be cuts – deep cuts. The alternative is worth a mention – America could simply continue to increase the Federal deficit. The dollar has become the world’s reserve currency with the worries over Europe, so such a strategy is possible, at least for a few years. And that may be the next budget director’s approach – we’ll just have to wait and see. The numbers do not lie, however. The Federal government is putting the average worker into more debt every day. That is not a political statement – it is just the math of the situation. Fiscal YTD 2010 Per Working Per Capita Person Debt 8,559,008,000,000 27,648.52 65,237.34 Social Security 4,479,869,000,000 14,471.51 34,145.86 Withheld Income and Employment Taxes 1,217,207,000,000 3,931.99 9,277.63 Corporation Income Taxes Withheld 203,794,000,000 658.32 1,553.33 Defense Vendor Payments 281,117,000,000 908.10 2,142.69 Education Department Programs 161,905,000,000 523.01 1,234.05 Federal Salaries 127,026,000,000 410.34 968.20 Medicaid 192,532,000,000 621.94 1,467.49 Medicare 366,550,000,000 1,184.08 2,793.87 Social Security Benefits 417,562,000,000 1,348.87 3,182.69 Unemployment Insurance Benefits 116,545,000,000 376.48 888.31 Food Stamps 5,375,705,401 17.37 40.97
Fiscal Year 2009

Per Capita
Debt Social Security Withheld Income and Employment Taxes Corporation Income Taxes Withheld Defense Vendor Payments Education Department Programs Federal Salaries Medicaid Medicare Social Security Benefits Unemployment Insurance Benefits Food Stamps 7,460,137,000,000 4,315,976,000,000 1,672,573,000,000 224,710,000,000 385,100,000,000 188,421,000,000 176,050,000,000 248,313,000,000 491,375,000,000 548,407,000,000 117,338,000,000 50,360,147,162 24,098.79 13,942.08 5,402.98 725.89 1,244.00 608.66 568.70 802.14 1,587.31 1,771.54 379.04 162.68

Per Working Person
56,861.67 32,896.66 12,748.46 1,712.75 2,935.26 1,436.16 1,341.86 1,892.66 3,745.29 4,180.00 894.36 383.85

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

U.S. EQUITIES AAPL (+1.4%) advanced as Deutsche Bank raised its share price estimate to $375 from $350, citing better-than-anticipated demand for iPhones and iPods. WAG (-6.5%) reported fiscal third quarter net income of 53 cents a share (before some Medicare costs and other items), missing the average analyst estimate of 58 cents. RAD declined 2.9% ahead of its earnings release scheduled for Wednesday. PCX (-16.8%) announced it was permanently closing one of its West Virginia mines due to adverse geological conditions. Cruise ship operator CCL fell 4.5% after forecasting third quarter profit as low as $1.43 a share, compared with estimates of $1.51 a share.
Important Earnings Today (with Estimates) From… BBBY: $0.48 PAYX: $0.31 KMX: $0.33 RAD: $-0.14 Source: Bloomberg DRI: $0.88 NKE: $1.05 Important Conferences/Corporate Meetings Today:
Deutsche Bank Industrials Conference – Chicago, IL Jefferies Consumer Conference – Nantucket, MA Nasdaq London Investor Conference Wells Fargo Securities Healthcare Conference – Boston, MA

S&P Futures
One Day (High – 1117.00; Low – 1089.50):

Prior Day SPX (High – 1118.50; Low – 1094.18; Close – 1095.31):

Three Day (High – 1129.50; Low – 1089.50):

Source: Thomson ONE
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

FIXED INCOME Demand was very strong for the Treasury’s $40 billion 2-year note auction, which saw a bid-to-cover of 3.45, the strongest in 8 months and much higher than the average of 3.10 for the previous 10 sales. The securities drew a record low yield of 0.738 percent, more than 2 basis points below the 1:00 bid. Indirect bidders accounted for 41.4 percent of the purchases, which was in line with the recent 10-sale average. Wednesday the Treasury will auction $38 billion in 5-year debt, followed by $30 billion in 7-year notes on Thursday.

Source: Bloomberg

Source: Bloomberg

Today’s Important Economic Indicators/Events:
MBA Purchase Applications New Home Sales: 400K (SAAR) FOMC Meting Announcement

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

U.S. EQUITY OPTIONS
SPX: After yesterdays’ muted activity, the index was little changed in morning trading, but a selloff in the afternoon resulted in a fairly wide trading range of ( +0.4% to -1.7 %), ending near the lows, down 1.6 %. This noted late selling expanded the implied volatility with the VIX up 8.2 %. The trading in S & P options was fairly light, with the following size trades occurring before the Index sold off in the afternoon. The September 850/1240 ‘risk reversal’ traded over 15,000 times were the 850 puts were sold and the 1240 calls were bought. In a large calendar trade, the July 850/1000 put spread was bought and the August 1050 puts were sold in a 3x1 ratio. ETF: With volume relatively subdued and the VIX gaining strength with the late day sell-off, we again saw buyers across the ETF space. For example in XLF we saw a buyer of 14,000 Dec 13 puts as well as a buyer of 7,000 Jan 15/17 call spreads delta neutral. In EEM there was a buyer of roughly 6,000 Dec 38/42 strangles as well as a buyer of 10,000 x 20,000 Sep 40/43 call spreads. In the QQQQ’s one player is looking for movement within the next month, with the purchase of 8,000 Jul 47 straddles. In EWH (Hong Kong) one investor, looking for movement by Sep expiration purchased 10,000 Sep 15 puts delta neutral. Finally, one investor in GLD was looking for upside through the purchase of 10,000 Sep 140/150 call spreads.
CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY 6/17/2010 6/18/2010 6/21/2010 6/22/2010
MIL PBCT KG DV UNH FDO APOL QCOM CVH DGX NWL WLP SAI MO DRI STJ CFN RSH FTR HUM AIG GS HSY HRL SWY BAX AET UNH MO SJM MIL KG PBCT DV DGX WIN UNH SAI APOL NOVL FDO CVH CFN FTR QCOM MO DRI DPS WLP HUM AIG CI Q STJ RHT SWY HSY HRL GS NWL RSH MIL KG PBCT DV DGX WIN UNH SAI APOL NOVL FDO CVH CFN FTR QCOM MO DRI DPS WLP HUM AIG CI Q STJ RHT PKI MIL KG PBCT DV DF UNH NOVL LEN RSH FDO QCOM CVH Q CFN LXK AAPL DPS PNW SAI EFX DRI MOT GOOG HUM RHT, STJ, CI, MO, WLP, AIG, APOL, WIN, DGX, FTR

Rank
1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 20 21 22 23 24 25

6/16/2010
MIL KG PBCT SJM DV SAI CVH QCOM UNH APOL FDO MYL KR WLP AET HRL FTR BAX MO HUM AIG DRI DGX HSY RSH All except MIL and SJM

30-Day Implied Vol
97.65 6.91 57.02 27.80 41.39 46.26 28.13 36.71 56.64 46.47 31.30 29.85 36.32 26.36 30.66 42.73 37.34 31.16 29.68 21.21 32.08 35.01 30.96 32.11 28.86

BIGGEST MOVERS
Top 10 Bottom 10 30-Day Implied Vol PKI 247.93% 97.65 SWK -18.62% PNW 41.90% 29.68 PBCT -13.80% PCLN 34.88% 45.17 CCL -12.62% LM 29.21% 40.99 WAG -11.86% POM 27.01% 25.49 ARG -10.92% DF 25.04% 46.26 BF/B -9.29% MKC 24.63% 19.20 L -8.00% PEG 19.01% 23.45 SVU -7.96% NOVL 18.52% 36.71 MYL -7.77% EFX 16.91% 32.08 DISCA -7.08% 30-Day Implied Vol 32.44 27.80 36.44 30.13 18.20 17.44 22.56 38.21 31.52 26.68

We ranked the S&P 500 companies from the highest to lowest 30 day implied to historical volatility ratio. Above we identify the 10 most positive and negative movers. The table to the left represents the 25 highest 30 day implied to historical volatility ratios within the S&P 500 companies. The green represents names new to the list while the red represents names that have fallen out.

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

Exchange-Traded Funds/Indexes
Prior Day Peformance of Largest ETFs by Assets
Name (Net Assets*) SPDRs (66.71B) SPDR Gold Shares (38.54B) iShares MSCI Emerging Markets Index (36.02B) iShares MSCI EAFE Index (33.64B) iShares S&P 500 Index (20.86B) Ticker SPY GLD EEM EFA IVV Category Large Blend N/A Diversified Emerging Mkts Foreign Large Blend Large Blend Daily Return -1.65% 88.00% -1.95% -1.26% -1.61% Sector Energy Health Industrials Utilities Consumer Staples

S&P 500 Sector ETFs
Ticker 1-Day Perf YTD Perf XLE -2.92% -5.51% XLV -0.98% -5.99% XLI -2.42% 5.51% XLU -2.48% -6.09% XLP -0.86% -0.64% Sector Ticker 1-Day Perf Telecomm IYZ -1.31% Technology XLK -0.86% Consumer Discretionary XLY -2.24% Financials XLF -1.59% Materials XLB -2.47% YTD Perf -2.15% -4.14% 5.78% 1.22% -7.94%

*As of January 31, 2010

Prior Day Top Volume ETFs
Name SPDRs iShares MSCI Emerging Markets Index PowerShares QQQ Financial Select SPDR iShares Russell 2000 Index
Name

Currency ETFs
Shares Traded 238,680,332 98,449,676 94,419,449 83,141,918 70,819,965
Daily Return

Ticker SPY EEM QQQQ XLF IWM

Category Large Blend Diversified Emerging Mkts Large Growth Specialty - Financial Small Blend

Currency Ticker 1-Day Perf YTD Perf Australian Dollar FXA -0.53% -2.94% British Pound Sterling FXB 0.37% -8.50% Canadian Dollar FXC -0.44% 1.93% Euro FXE -0.33% -14.37% Japanese Yen FXY 0.73% 2.85%

Currency Mexican Peso Swedish Krona Swiss Franc USD Index Bearish USD Index Bullish
Bonds

Ticker 1-Day Perf FXM 0.31% FXS -1.56% FXF 0.53% UDN -0.20% UUP 0.16%

YTD Perf 4.40% -9.31% -6.61% -9.80% 8.62%

Prior Day Top Performers
Ticker Category Name

VIX ETNs
Ticker 1-Day Perf YTD Perf

Fixed Income ETFs
Ticker 1-Day Perf YTD Perf

Direxion Daily Real Estate Bear 3X Shrs Direxion Daily Energy Bear 3X Shrs Direxion Daily Mid Cao Bear 3X Shrs ProShares UltraPro Short MidCap400 Direxion Daily Small Cap Bear 3X Shrs

DRV ERY MWN SMDD TZA

Bear Market Bear Market Bear Market N/A Bear Market

9.74% 8.40% 6.45% 6.41% 6.29%

iPath S&P 500 VIX VXX Short-Term Futures ETN iPath S&P 500 VIX VXZ Mid-Term Futures ETN

3.96%

-22.25%

2.19%

11.18%

Aggregate Investment Grade High Yield 1-3 Year Treasuries 7-10 Year Treasuries 20+ Year Treasuries
ETF

AGG LQD HYG SHY IEF TLT

0.10% 0.49% -0.72% 0.05% 0.60% 1.19%

3.10% 3.01% -2.14% 1.18% 6.13% 9.66%

Others
ETF Ticker 1-Day Perf YTD Perf Ticker 1-Day Perf YTD Perf

Gold Silver Natural Gas

GLD SLV UNG

0.88% 0.49% -1.58%

13.18% 11.37% -19.44%

Crude Oil EAFE Index Emerging Markets SPDRs

USO EFA EEM SPY

-0.93% -1.26% -1.95% -1.65%

-10.90% -9.62% -4.02% -1.68%

Major Index Changes:
None

ETFs in the Headlines and Blogs:
Reverse Stock Splits by ETFs Usually Good News - http://online.wsj.com/article/SB10001424052748704256304575320700863392706.html?mod=googlenews_wsj ETFs oriented to China stocks, currency lifted by yuan move - http://www.marketwatch.com/story/chinese-stock-currency-etfs-rally-on-yuan-move-2010-0621?reflink=MW_news_stmp
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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

Top Online Social Networking Stories
Latest Popular Digg.com Business Stories: The Financial Burden of the Penny - http://www.mint.com/blog/trends/penny-cost-to-make-06212010/ U.S. Mayors Tell Manufacturers to Pay Up for Product Recycling - http://www.greenbiz.com/news/2010/06/15/us-mayors-tell-manufacturers-pay-upproduct-recycling Is It Better to Buy or Rent? - http://www.moolanomy.com/2697/is-it-better-to-buy-or-rent-infographic-mmarquit01/ Cigarette Tex Increased to Keep State Running - http://www.nytimes.com/2010/06/22/nyregion/22budget.html Calculated Risk Existing Home Sales: Inventory increases Year-over-Year - http://www.calculatedriskblog.com/2010/06/existing-home-sales-inventory-increases.html Existing Home Sales decline in May - http://www.calculatedriskblog.com/2010/06/existing-home-sales-decline-in-may.html Moody’s: Commercial Real Estate Prices increase 1.7% in April - http://www.calculatedriskblog.com/2010/06/moodys-commercial-real-estate-prices.html Lawler: Home Sales in May: A Look at the Data - http://www.calculatedriskblog.com/2010/06/lawler-home-sales-in-may-look-at-data.html The Big Picture Missed Opportunity: BP Gulf of Mexico Disaster - http://www.ritholtz.com/blog/2010/06/missed-opportunity-bp-gulf-of-mexico-disaster/ Home Builders Sell Signals - http://www.ritholtz.com/blog/2010/06/home-builders-sell-signals/ Bespoke Investment Group Country “PEG” Ratios - http://www.bespokeinvest.com/thinkbig/2010/6/22/country-peg-ratios.html S&P 500 Sector Buy and Sell Ratings - http://www.bespokeinvest.com/thinkbig/2010/6/21/sp-500-sector-buy-and-sell-ratings.html Robert Reich’s Blog Why China’s Currency Announcement is Hokum - http://robertreich.org/post/722610682/why-chinas-currency-announcement-is-hokum Maximum Utility Capacity Utilization Versus Unemployment - http://moneywatch.bnet.com/economic-news/blog/maximum-utility/capacity-utilization-versusunemployment/671/?tag=col1;blog-river Zero Hedge America’s New Budgetless Reality is “Betrayal of American Taxpayers,” Says Republican House Leader John Boehner http://www.zerohedge.com/article/americas-new-budgetless-reality-betrayal-american-taxpayers-says-republican-house-leader-joh

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Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com Christine Clark: 212 448 6085 or cclark@convergex.com Beth Reed: 212 448 6096 or breed@convergex.com

GENERAL DISCLOSURES
This presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It is provided for general informational purposes only and should not be relied on for any other purpose. It is not, and is not intended to be, research, a recommendation or investment advice, nor an offer to sell or the solicitation of offers to buy any BNY ConvergEx Execution Solutions LLC (“ConvergEx”) product or service in any jurisdiction. It does not take into account the particular investment objectives, restrictions, tax and financial situations or other needs of any specific client or potential client. Please consult with your financial and other advisors before buying or selling any securities or other assets. This presentation is for qualified investors and NOT for retail investors. Please be advised that options carry a high level of risk and are not suitable for all investors. To receive a copy of the Options Disclosure Document please contact the ConvergEx Compliance Department at (800) 367-8998. The opinions and information herein are current only as of the date appearing on the cover. ConvergEx has no obligation to provide any updates or changes to such opinions or information. The economic and market assumptions and forecasts are subject to high levels of uncertainty that may affect actual performance. Such assumptions and forecasts may prove untrue or inaccurate and should be viewed as merely representative of a broad range of possibilities. They are subject to significant revision and may change materially as market, economic, political and other conditions change. Past performance is not indicative of future results, which may vary significantly. The value of investments and the income derived from investments can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur. The information and statements provided herein do not provide any assurance or guarantee as to returns that may be realized from investments in any securities or other assets. The opinions expressed in this presentation are those of various authors, and do not necessarily represent the opinions of ConvergEx or its affiliates. This material has been prepared by ConvergEx and is not a product, nor does it express the views, of other departments or divisions of BNY ConvergEx Group, LLC and its affiliates.

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