Friday Watch

Evening Headlines
Bloomberg:

• Junk Bond Market 'Back Open' as Sales Soar, Spreads Shrink: Credit Markets. The market for junk bonds is reviving, after at least seven companies pulled sales last week, signaling that investors are gaining confidence that Europe’s sovereign debt crisis won’t infect the global economy. International Lease Finance Corp. and Clearwire Corp. led speculative-grade companies set to sell $2.4 billion of debt today, the most in two weeks, according to data compiled by Bloomberg. Relative yields have narrowed 29 basis points since Nov. 30 to 593 basis points, or 5.93 percentage points. That’s the biggest two-day decline since May. Junk bond issuance, which declined in November following the busiest two-month period on record, is returning amid reports that retail sales rose the most since March and the increase in the number of Americans signing contracts to buy existing houses jumped by a record 10 percent in October. The European Central Bank extended an emergency loan program and President Jean-Claude Trichet pledged to fight “acute” financial market tensions.
  
• Greece's Credit Rating May Be Cut by S&P on EU Rules. Greece was warned it could receive a lower credit rating from Standard & Poor’s as proposed European Union rules threaten to hurt bondholders. Greece’s ‘BB+’ long-term sovereign rating was placed on “CreditWatch” with negative implications, Standard & Poor’s Ratings Services said in a statement today from Madrid. S&P said it is assessing credit implications of the so-called European Stability Mechanism that may govern European Union sovereign bonds beginning in July 2013. “Assigning ‘preferred creditor’ status to future official lending via the ESM could be detrimental to the ability of non- official holders of sovereign debt to be repaid,” S&P said. The possible cut by S&P “is simply an indication of tightening liquidity conditions there and growing uncertainty about Greece and other front-line European countries’ ability to handle their debt loads,” said Gary Schlossberg, senior economist at Wells Capital Management Inc. in San Francisco. “It is also an indication of the questions that remain about how sufficient official rescue packages will be,” Schlossberg said. “There’s a real risk that Europe’s crisis will get a bit worse before it gets better.”
• Germany rejected issuing joint Eurobonds or increasing the euro-area bailout fund as Deputy Finance Minister Joerg Asmussen dismissed calls for authorities to step up efforts to fight the resurgent debt crisis. "It's more disturbing to markets if you signal things which are not needed and which are not requested," Asmussen said. "So even if, what I don't see, even if more countries approach the assistance mechanism, there are sufficient funds to deal with this." "If you introduce just Eurobonds as a financial instrument but you don't adjust the whole fiscal framework of the monetary union, then you have just an instrument but it doesn't fit with the rest of the government structures," he said. "So there is a clear 'no' from Germany to this kind of Eurobonds."
• U.S. Senate to Vote on Four Income-Tax Cut Proposals Tomorrow, Harkin Says. The U.S. Senate will vote tomorrow on four proposals for extending income-tax cuts, two offered by each party, Democratic Senator Tom Harkin of Iowa said tonight.
• North Korea Boosts Rockets, Tanks; May Target Seoul, Yonhap Says. North Korea has increased the number of multiple rocket launchers, bolstering its capability to attack South Korea’s capital, Yonhap News reported, citing a South Korean government official it didn’t identify. North Korea has more than 5,200 240-millimeter multiple rocket launchers, 100 more than previously estimated, Yonhap reported. North Korea has also increased the number of tanks by 200 and the country’s air force has bolstered its capability to intercept planes, Yonhap said.
• Seagate(STX) Said to Have Spurned Takeover Proposal From Rival Western Digital. Seagate Technology Plc, the disk- drive maker that ended takeover talks with TPG Capital, also turned down a proposal from competitor Western Digital Corp., according to two people with knowledge of the matter.
• Senate Leadership Accused of Secret Plan to Legalize U.S. Online Gambling. Three U.S. House Republicans are objecting to what they call a “secretive, closed-door, undemocratic” effort in the Senate to pass legislation that would legalize and tax some Internet gambling before Congress adjourns this year. “Creating a federal right to gamble that has never existed in our country’s history and imposing an unprecedented new tax regime on such activity require careful deliberation, not back- room deals,” the lawmakers said in a Dec. 1 letter to Senate Majority Leader Representatives Spencer Bachus, Dave Camp and Lamar Smith, all in line to be committee chairmen with oversight of online gambling when Republicans take control of the House in January, said they have learned that the Senate may attach a measure to “must-pass” legislation during the current lame-duck session.Harry Reid and his Republican counterpart, Mitch McConnell of Kentucky.
• China is 'Scared' of U.S. Monetary Policy, Rogoff, Rickards Say. Policy makers in China, which holds $883.5 billion in U.S. Treasuries, are concerned the nation with the world’s biggest economy is debasing its currency, according to Kenneth S. Rogoff and James Rickards. The world is in the early stages of a currency war, said Rickards, chief financial and administrative officer of Oro Capital Advisors LLC. Rickards, Rogoff, a professor of economics and public policy at Harvard University, and Laurence H. Meyer, co-founder of Macroeconomic Advisers LLC, spoke today at the Bloomberg Hedge Funds 2010 conference in New York.
• China's Services Industry Grows at Slower Pace as Inflation Erodes Margins. China’s non-manufacturing purchasing managers’ index fell to a nine-month low in November as accelerating inflation eroded service companies’ margins. The index dropped to 53.2 from 60.5 in October, according to a statement today by the Beijing-based National Bureau of Statistics and the Federation of Logistics and Purchasing. A separate service PMI released by HSBC Holdings Plc fell to 53.1, a near two-year low. The non-manufacturing new-order index fell to 50.1 last month from 56.3 in October, and new orders in consumer service industries indicated a contraction, with a reading of 47, today’s data show. Consumer prices gained 4.4 percent in October from a year earlier as food prices jumped 10 percent, according to statistics bureau data.
• China Needs to Raise Deposit Rates to 12-Year High on Inflation, Xie Says. China has to raise deposit rates by “at least” 3 percentage points in the next 12 months to protect investors faced with a negative return on their savings as inflation accelerates, independent economist Andy Xie said. A 300 basis point increase would raise the benchmark deposit rate from 2.5 percent to 5.5 percent, the highest since March 1998. Consumer prices will quicken to 6.2 percent by mid- 2011 after climbing 4.4 percent in October, according to Credit Suisse Group AG.

Wall Street Journal:

• Tax-Cut Vote Shows Democratic Divide. House Passes Extension Excluding Higher Incomes, a Largely Symbolic Effort Reflecting Unhappiness With White House. The bill passed 234-188, but 20 Democrats opposed it— mostly lawmakers who lost on Election Day and who agree with Republicans that it is bad policy to let any tax rates rise amid a fragile economy. Three Republicans voted for the bill.
• Shopper Splurge Buoys Hopes. Retailers' reports of robust November sales offered more evidence that the lackluster U.S. economy may finally be gaining momentum, despite stubbornly high unemployment. According to 27 retailers tracked by Thomson Reuters, sales at stores open a year or more rose 6% last month, sharply exceeding a year-earlier rise of just 0.5%. Online retailing also showed sizable gains. "It's a cheerful holiday start—for most," said Alison Kenny Paul, vice chairman and leader of the U.S. retail team at Deloitte Consulting LLP. "People are back in spirit, shaking off the recession and spending on themselves, as well as for gifts."
• Government by Executive Order. A new Labor Department plan shows the president still has wide power to implement an anti-business agenda. Because President Obama will now have a tough time getting his liberal agenda through a more Republican Congress, many Democrats are urging him to ram it through using the executive branch's unilateral power. John Podesta, head of the Center for American Progress, even issued a list of executive orders and rule-makings last month that Mr. Obama can use to "push the country to a better place." If the Department of Labor is representative, his advice is in sync with moves already under way.
• Tax Breaks for Bailout Recipients Stir Up Debate. A series of tax relief measures is saving companies bailed out by the government billions of dollars at a time when concern over tax revenues has risen.
• Ellison Says Oracle(ORCL) Will 'Go After' H-P(HPQ). Oracle Corp. will use new hardware to attack onetime partner Hewlett-Packard Co. in the market for server systems, said Oracle Chief Executive Larry Ellison. The jibe Thursday came as Oracle announced new computers based on the Sparc chip technology developed by Sun Microsystems—which Oracle acquired in January for $7.4 billion—as well as updates to other products.
• Amazon(AMZN) Says WikiLeaks Violated Terms of Service. It was "inaccurate" to claim that pressure from the U.S. government or large-scale attacks by hackers caused the company to discontinue its service of WikiLeaks, said Amazon spokesman Drew Herdener in a statement. Amazon, which rents Web infrastructure on a self-service basis, "does not pre-screen its customers" but does reserve the right to discontinue service if its terms aren't followed, said Mr. Herdener. WikiLeaks "doesn't own or otherwise control all the rights to this classified content," one of the stipulations of Amazon's contractual terms, he said. Mr. Herdener said that Amazon's terms of service also require that content "will not cause injury to any person or entity." Yet he said "it is not credible that the extraordinary volume of 250,000 classified documents that WikiLeaks is publishing could have been carefully redacted in such a way as to ensure that they weren't putting innocent people in jeopardy." Mr. Herdener said Amazon did face "large-scale" attacks on its servers after it began hosting WikiLeaks content recently, but that they were "successfully defended against."
• Twitter Grows Up In Valuation, Board Count. Twitter Inc. is considering raising capital at a valuation of more than $3 billion, said a person familiar with the matter, as it becomes the latest Web start-up to attract multibillion-dollar valuations. Possible investors in the four-year-old microblogging service include the Russian Internet investment firm Digital Sky Technologies and Silicon Valley venture-capital firm Kleiner Perkins Caufield & Byers, said the person familiar with the matter.
• French Officials Warn Against Bank-Run Proposal. Bankers and politicians warned against a plan inspired by French former football star Eric Cantona to spark a bank run next week, saying that such a move would be counterproductive. The plan—which calls on depositors to remove their money from banks on Tuesday—has attracted increasing attention in recent days, drawing comments from French financial leaders.
• U.S.-Korea Pact Hinges on Autos. U.S. and South Korean negotiators meeting to revive a stalled trade pact are down to one main sticking point, say people familiar with this week's negotiations—leaving the biggest U.S. free-trade deal in nearly two decades hinging on an economically negligible but politically potent issue. The deal now comes down to whether South Korea will agree to give the U.S. four or five years to phase out the 2.5% tariff it levies on Korean-built cars, these people say, rather than cutting the tariff immediately, as Seoul has sought.
• Holdings Spiked Near Deal Time. Several hedge funds under scrutiny in an insider-trading investigation made big bets on health-care stocks also being examined in the probe, according to a Wall Street Journal analysis. Hedge funds SAC Capital Advisors LP, Diamondback Capital Management LP, Jana Partners LLC and Balyasny Asset Management LP all increased their holdings in one or more of three health-care stocks during the quarters in which the companies announced mergers and the stock shot up in price, according to public filings. It wasn't clear from the filings whether the purchases took place before or after the deals were unveiled.

Bloomberg Businessweek:

• Europe Tops Hedge Funds' Worries as Portugal at Risk. David Gerstenhaber, founder of $1.6 billion hedge fund Argonaut Capital Management, said Portugal may be the next casualty of Europe’s debt crisis. “Portugal is structurally weak,” he said in a telephone interview from New York. “There’s a 90 percent chance that they will get some form of help” to keep concern over the country’s creditworthiness from spreading to Spain and Italy, he said. Gerstenhaber, 50, is among hedge-fund managers who say Europe’s debt woes pose one of the biggest risks to a global economic outlook that has only gradually improved this year.
  

Business Insider:

• The Key Market-Based Indicators Point To Inflation And Growth. (graph)
  

Zero Hedge:

• Julian Assange Arrest By British Police Delayed By Technicality. The noose around Wikileaks' Julian Assange is tightening. It appears that not only does British police know where he is, but that he himself is currently residing in South-east England, awaiting his own arrest.
• Paolo Pellegrini Is Coming Back As A Quant, Laments Loss Of Traditional Investment Thought In A Fed-Dominated World. It appears Paolo Pellegrini, the brains behind Paulson & Co. most profitable trade, is coming back... as a quant.
• Was JPM's(JPM) October 2008 Redemption From Madoff On Concerns Of Fraud The Reason For The Ponzi's Implosion?
  

NY Times:

• Cross Section of Rich Invested With The Fed.

IBD:

• Web Hosting Service Sticks Its Head High In The Cloud. "You trade some flexibility for a whole lot more affordable, efficient solution," said Lanham Napier, CEO of Rackspace Hosting (RAX).

Forbes:

• Names You Need to Know in 2011.

Charlotte Observer:

• Democrat Webb Unhappy With Ban on Offshore Drilling. North Carolina's neighbor to the north, U.S. Sen. Jim Webb of Virginia, isn't happy about cutting off the Atlantic Ocean to offshore drilling for oil and natural gas. Webb, a Democrat, said in a statement today that the Obama administration has "over-reacted" to the BP oil spill. "A much more sensible response could have been found in making sure that industry employ the best technology and proper safeguards, and that government take more seriously its oversight role in order to make this happen," Webb said. "Enhancing our nation's energy independence and answering our emerging energy needs demand that we keep all options on the table, including conservation, renewable energy and energy efficiency, domestic offshore oil and gas development, clean coal, and nuclear power," he said. The Obama administration announced Wednesday that it was taking the Atlantic Ocean off the table for offshore drilling until at least 2017.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-nine percent (39%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).

Politico:

• House Censures Charles Rangel by Overwhelming Vote. The House voted overwhelmingly on Thursday to censure Rep. Charlie Rangel (D-N.Y.), who pleaded for leniency but now finds his 40-year career tarnished after his colleagues rebuked him using a rare form of public punishment for ethics violations. The vote was 333-79, with 77 Democrats and two Republicans voting against censure, the harshest form of punishment short of expulsion from Congress. Immediately following the vote, Speaker Nancy Pelosi (D-Calif.) formally called on the 80-year-old Rangel to stand in the well of the House to be informed that he had indeed been censured by his colleagues for series of 11 ethics violations.
• Joe Barton: I'll Work to Repeal Obamacare. Rep. Joe Barton wants House Republicans to work overtime — including weekends — next year to roll back the Obama administration’s health care and environmental policies.
  

Reuters:

• Viacom(VIA/B) CEO Sees Ad Market Improving. Viacom Chief Executive Philippe Dauman is bullish on advertising revenue growth for this quarter and next year as high ratings from shows like "Jersey Shore" help bring in new advertisers.
• EXCLUSIVE - Email of Analyst Visited by FBI Went to Big Players. Money manager Ameriprise Financial would seem to have little in common with closely held investment advisory firms like Friess Associates and Sonar Capital Management or a giant hedge fund like Citadel Group. Yet a Portland, Oregon-based technology analyst under scrutiny in a U.S. insider trading probe included employees of all three firms in an unusual email he sent in late October, according to information reviewed by Reuters. The research analyst, John Kinnucan, told an eclectic list of industry contacts that two agents with the Federal Bureau of Investigation had recently visited him in connection with the investigation. In the email, sent to more than 50 people associated with some 20 hedge funds and mutual funds, Kinnucan said he had rebuffed a demand by the FBI that he cooperate with the inquiry and secretly record conversations with a client, said people familiar with the situation. Kinnucan's email, which included the names of industry contacts and their company email addresses, has unnerved many on Wall Street. There is a fear that by simply being a recipient on the email, federal authorities may take notice and come visit these contacts too. Employees of Ameriprise, Delaware-based Friess Associates and Boston-based Sonar Capital and MFS Investment Management, were some of the recipients of the Kinnucan email. Some of the better-known hedge funds -- Coatue Management, Citadel, SAC Capital Advisors and Maverick Capital -- also employ analysts and traders who received the email.
• U.S. Commercial Property Values Up 2% in November. U.S. commercial real estate prices rose 2 percent in November and are up 32 percent from their recent lows as investors flock to higher-yield investments, according to independent research firm Green Street Advisors. That means about half the value that was wiped out from 2007 to 2009 has been restored, leaving prices 19 percent shy of their peak, according to The Green Street Advisors Commercial Property Price Index.

Financial Times:

• Spain's banking restructuring fund plans to raise 2 billion euros by issuing bonds in the next few months, citing bankers in Madrid. The Fund for Orderly Bank Restructuring has already raised 3 billion euros in bonds and seeks further funds as it makes loans to the country's savings banks.
• Petr Aven, a founding owner of Alfa Bank, said the investment climate in Russia is deteriorating, citing an interview with Aven. "Economically, we are returning to Soviet times again," Aven said.
  

Telegraph:

• UK Banks Borrowed More Than £640bn from US Federal Reserve. British banks borrowed more than $1 trillion (£640bn) from the Federal Reserve during the financial crisis, led by Barclays following its swoop on the US business of Lehman Brothers.

Australian Review:

• The Reserve Bank of Australia borrowed $53 billion from the Federal Reserve in 10 transactions during the financial crisis, citing the U.S. central bank. The RBA drew on a currency-swap facility to assist its domestic banks.

South China Morning Post:

• Steep Drop in Property Sales Seen Next Year. Property sales in Hong Kong will drop sharply next year as the government's measures against speculation start to bite, a leading property agency says.

Evening Recommendations
Citigroup:

• Reiterated Buy on (PVH), target $76.

Night Trading

• Asian equity indices are unch. to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 109.0 -1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 109.25 -.75 basis point.
  
• S&P 500 futures -.17%
  
• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BIG)/.24
• (BTH)/.18
  

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for November is estimated at 150K versus 151K in October.
• The Change in Private Payrolls for November is estimated at 158K versus 159K in October.
• The Unemployment Rate for November is estimated at 9.6% versus 9.6% in October.
• Average Hourly Earnings for November are estimated to rise .2% versus a .2% gain in October.
  

10:00 am EST

• ISM Non-Manufacturing for November is estimated to rise to 54.8 versus 54.3 in October.
• Factory Orders for October are estimated to fall -1.2% versus a +2.1% gain in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The (SON) analyst meeting and (ITW) investor day could also impact trading today.
  

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