Wednesday Watch

Late-Night Headlines
Bloomberg:

- Christopher Kundro, co-chief executive officer at Lacrosse Global Fund Services, says ‘worst’ of hedge-fund redemptions is over. (video)

- The European Union revived its threat to regulate credit-default swaps after banks backed away from last month’s agreement to process trades through a clearinghouse in the region. “There’s just not sufficient commitment,” Oliver Drewes, spokesman for EU Financial Services Commissioner Charlie McCreevy, said today by telephone. “McCreevy will therefore have to consider the appropriate next steps.”

- The cost of protecting corporate bonds from default fell. Credit-default swaps on the Markit CDX North America Investment-Grade index of 125 companies in the US and Canada dropped to a four-month low, signaling an improvement in investor confidence. The Markit CDX investment-grade index fell 7 basis points to 194.5 basis points as of 4:24 pm in NY, according to CMA Datavision. In London, contracts on the Markit iTraxx Europe index of 125 companies with investment-grade ratings dropped 9.5 basis points to 167.5, JPMorgan Chase prices show. The Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings fell 61 basis points to 984, according to JPMorgan. “The market supporting initiative from regulators should continue to improve market sentiment,” Citigroup Inc. strategists led by Mikhail Foux in NY wrote today. “Given the ample desire by regulators to shore up the market, other initiatives should be coming soon.”

- The cost of protecting bonds from default fell to the lowest since November in Australia and Asia, according to traders of credit-default swaps. The Markit iTraxx Australia index fell 22.5 basis points at 287.5 as of 11:38 am in Sydney, the first time the Series 10 benchmark has dipped below 300 since mid-November, Citigroup prices show. The Markit iTraxx Japan index was down 7.5 basis points at 273.5 at 9:40 am in Tokyo, Barclays Capital prices show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan declined 27.5 basis points to 285 at 8:55 am in Hong Kong.

- General Motors Corp.(GM) has sufficient government loans pledged to cover the worst-case scenario it outlined in a December report to Congress and may not need more unless the economy worsens.

- The US dollar rose for a sixth day against the yen, the longest run of gains in two years, after General Motors Corp. said it has enough government funding to cover the worst-case scenario and may not need additional loans.

- Oil dropped for the first time in four days in New York on forecasts the economy will worsen, curtailing demand in the world’s biggest energy-consuming country. “This rally feels like it’s beginning to run out of steam,” said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. “It’s primarily been a geopolitically based rally over the past week and a half. We might be a little overcooked here and due for a correction.” Oil rose 38 percent from Dec. 24 to yesterday, and traders who bought when oil was cheaper may be selling to collect their profits, triggering sell orders, said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “The market is way overpriced at this point,” he said. “Fifty dollars is probably a pretty good psychological resistance point, and once it broke through, it started to drop.” Stockpiles at Cushing, Oklahoma, the delivery point for New York futures, last week were 541,000 barrels below a record 28.7 million barrels set the week of Dec. 19.

- Medicare, the U.S. health insurance program for the elderly and disabled, has proposed easing rules on paying for advanced medical images for cancer patients. The rules concern positron emission tomography, or PET, scans, Medicare said today in an e-mailed statement.

- Alcoa Inc.(AA), the world’s largest aluminum maker, announced its third production cut in as many months and said it will reduce its global workforce by 13,500 in response to declining demand and prices. The moves will lower the company’s annual smelting capacity by about 750,000 metric tons, or about 18 percent, New York-based Alcoa said today in a statement.

- Anyone who said a year ago that China’s economy was crisis-bound was dismissed out of hand. Today, skeptics have lots of company. “This year is going to be characterized by much, much weaker growth in China than I think people are anticipating,” says Jim Walker, chief economist at Asianomics Ltd. in Hong Kong.

- The US dollar’s tendency to rise as investors seek protection from stock-market declines is ending as economic growth becomes the main driver of the US currency, foreign-exchange strategists at BNP Paribas said. In the five years since the end of the dot-com crash, dollar weakness has coincided with periods of increased appetite for risk as demonstrated by rising stock prices. “We expect the relationship between shares and the dollar to reverse by a full 180 degrees in 2009,” said Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas in London. “The first signs of the end of this crisis are going to be seen in the US, creating demand for dollar-denominated assets, while problems remain elsewhere in the world, offering support to both the dollar and US equities.”

- Emerging-market equity investors withdrew a record $48.3 billion from their funds in 2008 as the global financial crisis and economic recession hurt demand for riskier assets, according to data from EPFR Global. The MSCI Emerging Markets Index, which tracks 746 companies in developing nations, climbed 7.6 percent in December, the first gain in seven months. The advance pared the measure’s loss in 2008 to 56 percent, compared with a 38 percent decline in the Standard & Poor’s 500 index.

- Parkson Holdings Bhd., operator of 46 department stores in China, fell the most in more than two months in Kuala Lumpur trading after sales growth in the country slowed. The stock fell 7.5% on the Malaysian stock exchange. Parkson Retail Group Ltd. said yesterday the growth of same-store sales in China cooled to between 7% and 8%, compared with a 12% increase for the year, citing the slowing trading environment in the country.

Wall Street Journal:

- President-elect Barack Obama plans to offer states $7 billion as incentive to permanently change their unemployment-insurance laws to cover part-time workers and prevent other laid-off workers from falling through cracks in the coverage. The proposal, which is set to be included in the president-elect's two-year economic-stimulus plan, will seek to use short-term aid to cash-strapped states to force long-term changes that the Obama team believes are overdue, Obama aides said Tuesday. But the proposal, along with others to subsidize health insurance for the laid-off and expand Medicaid to out-of-work Americans, are sparking bipartisan concern over the potential, long-term impact on a federal budget deficit that is expected to hit $1 trillion this year, even before the stimulus plan.

- The U.S. Senate formally rejected Roland Burris, the man nominated by Illinois's embattled governor to fill the seat vacated by President-elect Barack Obama, only to have a ranking Democratic senator later contradict her party's leadership, asserting that Mr. Burris is entitled to the post. Mr. Burris, a former Illinois attorney general tapped last month by Gov. Rod Blagojevich, was turned away Tuesday because his election certificate lacked the signature of the Illinois secretary of state. Mr. Burris was nominated following Mr. Blagojevich's arrest under a federal criminal complaintthat included charges he tried to sell the Senate seat.

MarketWatch.com:
- Beleaguered stock investors looking for hope should be cheered by one prominent market strategist's view of the year ahead. Bob Doll, global chief investment officer for equities at investment manager BlackRock Inc. (BLK) , said Tuesday that he believes 2009 will be a good year for the stock market, with U.S. stocks notching double-digit percentage gains.

CNBC.com:
- After fleeing to the safety of US Treasurys, investors are moving back into stocks and corporate bonds in search of something else—profits. "A lot of money has been hiding in Treasurys," says Mike Larson, an analyst at Weiss Research's Money and Markets newsletter. "Now there's a better tone in the stock market." Last month, many mutual funds and institutional investors piled into Treasurys, pushing yields down to zero for short-term bills and barely above two percent for longer-term debt. The feeling then was that it was better to keep what you had than to lose more money in stocks. But with the new year, the sentiment has changed.

NY Times:

- Adolf Merckle, the German billionaire whose speculation in volatile Volkswagen stock had pushed his sprawling business empire to the edge of ruin, has committed suicide, his family said Tuesday. More than any other single investment, Mr. Merckle’s poorly timed bet on Volkswagen shares caused the financial distress that led to his death. In November, it emerged that Mr. Merckle had lost an amount of money in the “low hundreds of millions” by wagering that shares in Volkswagen would fall, a financial transaction known as short-selling. The bet had put him up squarely against a positively world-famous family, the Porsches. The sports car manufacturer from nearby Stuttgart was in the process of taking over Volkswagen. On Oct. 26, Porsche announced it had secured stock and options equivalent to about 75 percent of Volkswagen shares. Short sellers, who borrow shares and sell them, hoping to buy them back later at a lower cost, were caught in a bind, since the revelation implied a shortage of VW shares to “cover” the short-selling. Furious demand caused VW shares to skyrocket to just over 1,000 euros, or $1,260, from 210 euros in two trading sessions. That briefly made the automaker the world’s most valuable company by market capitalization.

- A major source of oil for the United States must now confront another problem: its carbon footprint. Canada, in large part because of the production capacity of its oil sands, is now the largest oil supplier to the United States. But environmental groups in both countries are pushing for a slowdown or even a halt to further oil sands development, which is concentrated in northern Alberta. That may place oil sands exports in a precarious position when Barack Obama becomes president this month and moves forward with a climate change program. Operators of oil sands projects and Canadian governments are eager to point to its potential to reduce America’s dependence on oil from politically unstable regions. Canadian oil sands produce about 1.2 million barrels a day, or about 9 percent of the total consumption in the United States. Production was headed toward 3.5 million barrels a day by 2015 before the economic slowdown; with the vast reserves available, Canadian oil sands have the potential to produce the equivalent of 1.7 trillion barrels of oil.

- Airlines Search for Alternatives to Oil as Fuel. Move over, jatropha, here comes algae and maybe camelina as potential substitutes for jet fuel made from crude oil. But specialists say that some of the new fuels, which include coal, may simply trade one set of problems for another.

BusinessWeek:

- Fourth-Quarter Earnings: How Bad? Investors are expecting something abysmal. Could earnings that are merely bad spark a rally?

- A Broadband Stimulus Plan. Can government investments in Internet and wireless communications technology ignite a new wave of job growth?

CNNMoney.com:
- Bank of America Corp. (BAC) is seeking to sell up to US$2.8 billion worth of China Construction Bank Corp. (0939.HK) shares in a share placement, in a bid to trim its stake in the Chinese lender from the current 19.13%, a person familiar with the situation said Wednesday. The U.S. lender is selling 5.6 billion shares at a fixed price of HK$3.92 a share, or a discount of 12% to China Construction Bank's Tuesday closing price of HK$4.45, the person said.

- Billionaire investor Wilbur Ross, known for his investments in distressed companies in the steel, automotive industries, said it is only a matter of time before his firm acquires a bank. "We will end up with a bank, there is no doubt about that," Ross, the chairman and CEO of WL Ross & Co., said in an interview Tuesday.

MacDailyNews:

- Why businesses are finally embracing Macs. "It's not your imagination. Apple Macintoshes are turning up in businesses beyond the creative departments, increasingly becoming a normal part of the IT fabric. One recent IT survey by researcher Information Technology Intelligence shows that 23 percent of respondents had at least 30 Macs in their businesses, 12 percent had at least 4,000 Macs -- and 68 percent said they would let users choose Macs as their work PCs in the next year. A Forrester Research survey of larger enterprises showed that Macs now account for 4.5 percent of deployed systems," Leon Erlanger reports for InfoWorld. "(Both IDC and Gartner report that Macs now make up 9.1 percent of all PCs sold to individuals.)" "The growth in Mac adoption has been driven by several factors, everything from Apple's conversion to an Intel-based platform with several virtualization options to run Windows to the Webification of corporate applications, the rise of software as a service, and Apple's dramatic ascendance in consumer mindshare," Erlanger reports. "A key reason for growing Mac acceptance in business is a significant change in corporate IT: an increased willingness to let down the fortress gates and let employees use the systems they feel most productive with.

IBD:

- Gentiva Health Services (GTIV) wants nurses and other clinicians for its home health care business.

MSNBC:

- Word of Panetta's selection Monday caught key senators by surprise — notably California Democrat Dianne Feinstein, the incoming Intelligence Committee chairwoman. Obama didn't consult either Feinstein or Sen. John D. Rockefeller, the outgoing chairman, about his unusual choice — something a committee official said should have happened both for protocol and politics. Both Feinstein and Rockefeller also questioned Panetta's lack of intelligence-gathering experience. Obama called Feinstein and apologized Tuesday, her office confirmed. In a separate statement, Feinstein noted that she had been called by both Obama and Vice President-elect Joe Biden, but she expressed no support for Panetta, a fellow California political veteran.

Silicon Alley Insider:

- Francis Koenig, manager of hedge fund AdultVest, tells The Atlantic Monthly his hedge fund returned 50% last year by investing in porn-related assets, both public and private. The story fits with the common perception that sin and sex sell in any environment. But how could he get results like this? We know that traditional porn studios are hurting in the face of free online porn, and the public stuff like Playboy (PLA) and Rick's Cabaret (RICK) (not porn, but strip clubs) have done terribly. For them, sex has not helped at all. We asked Koenig what, exactly, he's been investing in that's bucked the trend, but he was unwilling to go into much detail.

Metal Bulletin:

- Coking coal contract prices may drop as much as 72% to as low as $85 a ton this year as demand dries up, citing traders and analysts. The consensus market forecast is about $140 a ton. Record contract prices of $300 a ton in the year to April 1 were driven by floods in Australia’s Queensland state, a major producer, which disrupted mining. Market conditions have reversed, with a collapse in steel demand and no significant supply disruptions.

Financial Times:
- Millennium Management, the $11bn New York hedge fund run by Izzy Englander, has appointed an independent administrator to provide worried investors with reassurance in the wake of alleged $50bn Bernard Madoff fraud. Millennium appointed London-listed GlobeOp to provide independent valuations and checks on its assets, something common among newer funds but rare for the largest, oldest US hedge funds. Investors have become increasingly nervous in the wake of the arrest of Mr Madoff, a broker who managed money on behalf of some of the biggest hedge fund investors, and many say third party administration provides an extra layer of protection against fraud.

TimesOnline:
- The euro tumbled against the dollar yesterday as evidence of plunging inflation and slumping services activity in the eurozone fuelled speculation over further, early cuts in interest rates by the European Central Bank (ECB). Howard Archer, of IHS Global Insight, said that yesterday's figures made a “compelling case for the ECB to cut interest rates significantly further ... While the ECB is currently keeping its cards close to its chest, and has indicated some reluctance to cut rates, we believe it is more likely than not to act at its January 15 meeting.”

Shanghai Securities News:

- China will probably scrap a plan to build steel stockpiles as government officials couldn’t agree on the types and amount to be bought.

The Standard:

- Hong Kong will slip into negative economic growth this year before recovering in 2010, according to investment banks. Credit Suisse projects the territory's gross domestic product will contract 2.2 percent before growing 2.1 percent next year. Credit Suisse's chief economist Dong Tao said Hong Kong's credit conditions remain tight and he expects local property prices and rents to fall by double digits in 2009. Goldman Sachs estimates Hong Kong's GDP will shrink 3 percent before recovering by 3.5 percent in 2010. It forecasts the jobless rate will reach 6.5 percent in 2010.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (KWK), target $18, added to Top Picks Live list.

Keybanc:

- Rated (ARO) Buy, target $24.

- Rated (URBN) Buy, target $22.

- Rated (ANF) Underweight, target $20.

Night Trading
Asian Indices are unch. to +1.75% on average.
S&P 500 futures -.32%.
NASDAQ 100 futures -.26%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Upgrades/Downgrades
Rasmussen Business/Economy Polling

Earnings of Note
Company/EPS Estimate
- (MON)/.60

- (SVU)/.60

- (FDO)/.40

- (STZ)/.59

- (RBN)/.42

- (BBBY)/.33

- (BLUD)/.21

- (SONC)/.16

- (CBK)/-.06

- (CBK)/-.06

- (RI)/-.11

Economic Releases

8:15 am EST

- The ADP Employment Change for December is estimated at -493K versus -472K in November.

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of +900,000 barrels versus a +549,000 barrel increase the prior week. Gasoline supplies are estimated to rise by +1,000,000 versus a +808,000 barrel increase the prior week. Distillate inventories are expected to rise by +1,100,000 barrels versus a +694,000 barrel increase the prior week. Finally, Refinery Utilization is estimated unch. versus a -2.22% decline the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Hoenig speaking, Challenger Job Cuts report, Goldman Healthcare Conference, Needham Growth Conference, Citi Entertainment/Media/Telecom Conference, Consumer Electronics Show and weekly MBA mortgage applications report could also impact trading today.

BOTTOM LINE: Asian indices are modestly higher, boosted by automaker and technology stocks in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.