The Japanese economy has fallen into recession and should recover late in the year. (Reuters)

LinkedIn priced at $45, the top of its range. (Reuters)

Takeda bought Nycomed for$13.6 million. (Reuters)

The Administration does not expect the August 2 deadline on its potential shutdown to change if a debt ceiling is not approved. (Reuters)

Baidu (NASDAQ: BIDU) was sued in the US for internet censorship. (Reuters)

Google (NASDAQ: GOOG) Android based and Apple (NASDAQ: AAPL) iPhones face new regulations in Europe. (Reuters)

Citigroup (NYSE: C) CEO Vikram Pandit received a pay package worth nearly $20 million. (WSJ)

Glencore priced its IPO. (WSJ)

The head of Nasdaq (NASDAQ: NDAQ) is under pressure to complete a deal to expand the exchange. (WSJ)

The head of Hershey left to run Del Monte. (WSJ)

Sony (NYSE: SNE) found another breach in its PS network. (WSJ)

Middle Eastern governments face huge price increases in the wheat that they import. (WSJ)

Federal Reserve governors seem willing to let its balance sheet size drop as a way to slowly raise interest rates. (WSJ)

Defense Secretary Gates said budget cuts will undermine the US military’s ability to carry out missions that it has been able to handle in the past. (WSJ)

AT&T (NYSE: T) has tried to get the support of tech companies for its takeover of T-Mobile. (WSJ)

Big Lots has taken the company off the market. (WSJ)

The head of Gap (NYSE: GSP) is furiously restructuring the company. (WSJ)

Yahoo! (NASDAQ: YHOO) has increased its R&D operations in China. (WSJ)

Intel (NASDAQ: INTC) will offer new chips for tablet PCs. (WSJ)

Target (NYSE: TGT) offered a muted forecast for the second quarter. (WSJ)

Staples cuts its forecast for the balance of the year. (WSJ)

Greece will try to use a privatization plan to close to pay down debt. (WSJ)

High inventories in China could hurt factory production rate. (WSJ)

Difficulties in the merger of Delta (NYSE: DAL) and Northwest have begun to surface. (NYT)

The SEC plans to offer new restrictions for credit ratings agencies. (NYT)

Senator Levin says he hopes the government will open an investigation of Goldman Sachs (NYSE: GS) business practices before the credit crisis. (FT)

GE (NYSE: GE) will set a $12 billion share buyback. (FT)

Six Danish banks were downgraded by Moody’s. (Bloomberg)

Douglas A. McIntyre

The problem is particularly severe, beyond the human suffering, because 4.34% of the civilian workforce has been out of work for 26 week. That is almost 6.72 million citizens. Many state benefits run out after 26 weeks, so the federal program is all this is left.

Passage of the pending bill required a two-thirds majority and the final tally was 261 for and 155 against. Not enough. The cost of the legislation is estimated at $33 billion. That money is available inexpensively now, in theory, as investors rush to buy US paper as a safe haven and the Treasury’s borrowing costs fall.

A year and a half ago when the $787 billion stimulus bill was passed, a $33 billion addition would have seemed nearly unimportant. The rising deficit and calls for austerity in nations around the globe have put the Administration and Congress back on their heels. Voters are becoming more anti-spending by the day, and members of Congress are worried about the mid-term election.

All of that is old news. What is not is the growing question about what happens when several million Americans are without any means of financial support at all?Tax increases are often viewed as regressive. The basic argument is that higher taxes gives people less incentive to make money and increase their incomes. Total receipts to the IRS fall. The government has undermined the incentives that cause improvement in GDP. This argument is being made across Europe as countries raise taxes and cut government spending. There is no right side to the regressive taxation issue.

Cuts in government spending have the potential of being regressive as well. A decision to stop paying unemployment benefits could save $33 billion and help shrink the deficit very modestly over the next several years. Any slowing of the growth of the deficit may also slow increases in the national debt. On paper, these  cost cuts made by the federal government look attractive.

When more than a million people go from having a very modest income to none at all and another three or four million people are facing a similar fate, the consequences to the economy can be serious. The unemployed do not spend much to keep up GDP advancement, but the figure is meaningful when spread across millions of citizens.

The ripple effect from the decision not to pass the unemployment bill is also powerful. For the one in ten Americans who are unemployed, there are probably another one or two worried about keeping their jobs. As the economy appears to slow, that anxiety increases. People who may lose their jobs and any public safety net that helps support those out of work will cut spending to create a financial cushion. That process is an enemy of GDP growth.

There in no compelling set of numbers that show the failure to extend unemployment benefits will cost the federal government $33 billion in receipts.  There are none that prove that some businesses need the patronage of people who rely on their unemployment checks to maintain profits and number of employees that they keep.

Congress is setting aside an issue that is expedient to set aside now. It will not sit on shelf for very long, however.

Douglas A. McIntyre

The difficulties in the retail sector are going to hurt the jobs market, particularly between now and the end of the year.

New information from human resources firm Hay Group, “Nearly half the nation’s 25 biggest chains expect to hire fewer holiday workers this season than they did last year.” Hay says this is worse than the outlook it found a year ago in a similar survey.

The news is probably particularly bad for mid-tier retailers like Best Buy (BBY), Macy’s (M), Sears (SHLD), Nordstrom (JWN), and Gap (GPS) which have struggled with poor same-store sales for more than a year.

The news points to the effects of a “jobless” recovery and the fact that it may be short-lived. Retail sales make up a significant part of GDP especially in the fourth quarter when many chains book as much as 40% of their sales. More layoffs and less hiring in the sector means greater unemployment which could hobble the recovery as it moves into the early stages of 2010.

Holiday retail activity may not be the perfect canary in the coal mine, but it is close. GDP can only move up for so long without consumer participation. The US manufacturing economy and the exports its produces are not strong enough to overcome the consumer’s reluctance to take money from his mattress.

The recession may not be over.

Douglas A. McIntyre

These are not the absolute highest performing ETF’s because some such as the Ultra ETF’s use leverage, but here are the normal unleveraged ET’s that won today:

iShares MSCI Brazil Index                                         (EWZ) +2.76%
iShares FTSE/Xinhua China 25 Index                     (FXI) +2.58%
PowerShares Dynamic Aggressive Growth           (PGZ) +2.47%
iPath S&P GSCI Total Return Index ETN                 (GSP) +2.37%
iShares Dow Jones US Oil Equipment Index         (IEZ) +2.28%
iShares MSCI South Korea Index                              (EWY) +2.27%
United States Natural Gas                                         (UNG)    +2.23%
iShares S&P GSCI Commodity-Indexed Trust       (GSG)    +2.11%
Claymore/Robeco Developed World Equity            (EEW) +2.10%
Oil Services HOLDRs                                                  (OIH) +2.10%
iShares MSCI South Africa Index                               (EZA) +2.09%

As always, even on a second strong up day there were some losers.  We back out the ‘inverse fund’ ETF’s and also the leveraged versions of each.  Also, the real estate group was the least impressive and we only included a couple variations to prevent repetition.  Here are today’s losers:

DJ Wilshire REIT ETF                                                 (RWR) (-1.16%)
iShares Cohen & Steers Realty Majors                   (ICF) (-1.14%)
WisdomTree Japan High-Yielding Equity               (DNL) (-0.94%)
KBW Regional Banking ETF                                      (KRE) (-0.78%)
Shares S&P Global Healthcare                                 (IXJ) (0.58%)
iShares MSCI Malaysia Index                                     (EWM) (0.42%)

Jon C. Ogg
June 14, 2007