Friday Watch

Evening Headlines
Bloomberg:

• Growth in the U.S. Probably Picked Up on Gains in Spending, Exports. The economy in the U.S. probably grew at a faster pace in the fourth quarter, driven by the biggest gain in consumer spending in four years and rising exports, economists projected a report today will show. Gross domestic product rose at a 3.5 percent annual pace, up from a 2.6 percent rate in the previous three months, according to the median estimate of 85 economists surveyed by Bloomberg News.
• Facebook Overvalued at $50 Billion in Global Poll of Investors. Facebook Inc. isn’t worth $50 billion, according to a poll of global investors that shows skepticism about Goldman Sachs Group Inc.’s recent estimate of the largest social-networking site’s value and concern that a bubble may be forming in the technology sector. Sixty-nine percent of investors say Facebook is overvalued after Goldman Sachs invested $450 million in a deal that put the company’s worth at $50 billion, according to the quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 10 percent of respondents say Facebook’s valuation is appropriate; 4 percent say it’s worth more. The Bloomberg Global Poll conducted Jan. 21-24 shows that investors disagree with Goldman Sachs’ assessment that Facebook is worth more than Web pioneers such as Yahoo! Inc., the biggest web portal, and eBay Inc., owner of the biggest online retail marketplace.
• Oil Heads for Biggest Weekly Drop Since August on Slowing Demand. Oil headed for its biggest weekly decline in New York since August amid concern that the pace of fuel demand recovery in the U.S., the biggest crude-consuming nation, may falter. “Crude should be down near $80 a barrel given that world out there is awash with oil,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. Futures are 4.4 percent lower for the week, the biggest drop since the week ended Aug. 13.
• Cameron Says U.K. Is Determined to Kill Off Debt 'Specter'. Prime Minister David Cameron will reassert his commitment to eliminating Britain’s budget deficit amid criticism that his plans are choking economic recovery. British banks, households and the government all need to reduce their indebtedness to restore a balanced economy, Cameron will tell the World Economic Forum in Davos, Switzerland today. “Our first priority is to kill off the specter of massive sovereign debts,” Cameron will say, according to remarks released by his office in London. “We can’t just flick on the switch of government spending or pump the bubble back up.”
• Nanya Technology, Hynix Lead Computer-Memory Chipmakers Higher on Prices. Nanya Technology Corp. led memory- chip makers higher after the benchmark spot price for dynamic random access memory chips surged the most since July. Nanya jumped 6.1 percent to NT$18.30 as of 12:29 p.m. in Taipei. Japan’s Elpida Memory Inc., the world’s third-largest maker of computer memory chips, rose 2.5 percent to 1,220 yen. Samsung Electronics Co., the largest manufacturer, gained 1.1 percent to 1.005 million won in Seoul as it reported a 13 percent increase in fourth-quarter profit. The spot price for DRAM prices rose 7.6 percent yesterday, the biggest increase since July 24, according to data compiled by TrendForce Corp.’s DramExchange. Prices climbed to the highest level since Dec. 22 yesterday.

Wall Street Journal:

• A Two-Track Plan to Restore Growth by John B. Taylor. Our economic wounds are self-inflicted. Changing fiscal and monetary policies could make a difference fast.
• Report Details Wall Street Crisis. Twelve of the 13 largest U.S. financial institutions "were at risk of failure" at the depth of the 2008 financial crisis, while at least 50 hedge funds tried to capitalize on it, according to a report released Thursday by a U.S. panel investigating how the financial system unraveled. The report quantifies a huge run on the bank at Morgan Stanley(MS), describes the alleged trading practices of a secretive hedge fund and tallies the number of such funds betting against U.S. homeowners.
  
• Trader Racks Up a Second Epic Gain. Hedge-fund manager John Paulson personally netted more than $5 billion in profits in 2010—likely the largest one-year haul in investing history, trumping the nearly $4 billion he made with his "short" bets against subprime mortgages in 2007. Mr. Paulson's take, described by investors and people close to investment firm Paulson & Co., shows how profits continue to pile up for elite hedge-fund managers. Appaloosa Management founder David Tepper and Bridgewater Associates chief Ray Dalio each personally made between $2 billion and $3 billion last year, according to investors and people familiar with the situation. James Simons, founder of Renaissance Technologies LLC, also produced profits in that range, say investors in his firm.
• Secret to Bank's Comeback: A Rich Uncle Named Sam. As the nation's banks try to recover from about $493 billion in loan losses, BankUnited is emerging as a case study of how government largess in the wake of the crisis has allowed certain institutions to thrive.
• Small Gold Trader Makes Big Splash. A huge trade by a tiny hedge fund has sent shudders through the gold market. Thanks to the nature of futures trading, Daniel Shak's $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa's annual gold production. But as gold prices started falling this year, the trade, which was a combination of being long and short gold contracts—bets that prices will both rise and fall—started going bad. Monday, he liquidated his position, and is returning money to clients.
• Arab Unrest Spreading. The popular unrest sweeping across the Middle East sent thousands of protesters into the streets of Yemen and drew an exiled opposition leader home to riot-wracked Egypt, as questions mounted over who will benefit from the convulsions in the Arab world.
• EU Gives Details on Talks Over Fund. Euro-zone governments will increase the lending capacity of their bailout fund and make it more flexible, but governments won't raise its current €440 billion in guarantees, European Economics Commissioner Olli Rehn said in an interview Thursday. The likely decision may raise questions about whether there will be enough in the pot to ease doubts about the fund's ability to provide emergency finance for Portugal, Spain and other countries that might need it.
• Pick for Labor Board Opposed by Business. Some of the same business groups President Barack Obama is courting with his regulatory review and support for a corporate-tax overhaul said Thursday they would fight his renomination of former union lawyer Craig Becker to the National Labor Relations Board. Mr. Obama put Mr. Becker on the NLRB in March using a recess appointment after his nomination failed to get 60 votes needed to overcome a Republican-led Senate filibuster in February. That appointment expires at the end of this year. On Wednesday, Mr. Obama nominated him to a term that would expire in December 2014. Unions applauded the move Thursday, calling Mr. Becker a "highly respected and qualified" candidate who will back workers' rights. Business groups, which consider Mr. Becker too sympathetic to unions, including his former employers at the AFL-CIO and the Service Employees International Union, said their objections haven't softened. The battle over Mr. Becker has become a proxy for the debate over the role of unions in the economy.
• Cap and Trade Returns From the Grave. The president's plans for "clean energy standards" amount to carbon controls by other means.
• China Starts Trial Property Tax to Cool Market. China announced details of a long-awaited property tax in two of its largest urban centers, but the move intended to crack down on speculation and curb rising prices that are fueling public anger was relatively mild and analysts said it would have only a limited impact on investment. The trial tax, the closest thing yet to the style of tax levied annually on residential property in countries like the U.S., will be applied differently in Chongqing and Shanghai, apparently to see which one works best, before being rolled out across the country.

Detroit News:

• Auto Czar Bloom to Head White House Manufacturing Efforts. Ron Bloom, the former labor adviser and investment banker who has been the administration's auto czar since July 2009, will end his autos tenure as he moves to the White House. On Thursday, President Barack Obama named Bloom to a new White House position overseeing manufacturing policy.
  

Reuters:

• Egypt Arrests Muslim Brotherhood Leaders. Egypt rounded up members of the Muslim Brotherhood including at least eight senior leaders of the group ahead of planned countrywide protests on Friday, a lawyer representing the detained men said.
• Apple(AAPL), RIM(RIMM), ZTE Won in Booming Q4 Cellphone Market. North American smartphone vendors Apple and RIM , along with low-cost Chinese producer ZTE , emerged as the biggest winners on the booming cellphone market in final quarter of 2010. Research firm IDC estimated the global handset market grew last quarter 18 percent from a year ago, while Strategy Analytics said growth was at 16 percent.
• Amazon(AMZN) Margins Squeezed by Costs, Shares Plunge. Amazon.com investors got a wake-up call on Thursday when the world's biggest online retailer said its profit margins were sliding as it spends money on massive new distribution centers and acquisitions. The company also reported slightly lower-than-expected sales for the fourth quarter, which includes the holiday season, as it offered discounts and free shipping to attract customers. Amazon's shares, which had gained 5.2 percent earlier in the day, lost that advance and more to fall $16.46 lower than their close in after-hours trading.
• Verizon(VZ) to Buy Terremark(TMRK) for $1.4 Billion. U.S. phone company Verizon Communications Inc plans to buy IT services provider Terremark Worldwide Inc in a deal worth $1.4 billion, the companies said on Thursday. The $19-per-share offer for Terremark represents a 35 percent premium over its closing price of $14.05 on Thursday. Terremark shares jumped to $19.06 after-hours.
• SanDisk(SNDK) Revenue Forecast Exceeds Estimates. SanDisk Corp offered a forecast for the current quarter and 2011 above Wall Street's expectations, in a sign the flash memory supplier continues to benefit from strong demand for mobile devices.

Economic Information Daily:

• China should raise interest rates to curb excess investment in the country, according to a report by Yan Kun, a researcher with the Chinese Academy of Social Sciences, and Zhang Peng, a researcher with the Ministry of Finance's research institute, published today.

China Daily:

• China should focus on "economic quality" not simply expand the size of its economy, Zhang Monan, a researcher with the State Information Center, wrote in a commentary. The Asian nation's economic growth has been driven by domestic investment and exports, a model that is no longer sustainable, Zhang wrote. China should learn from Japan and improve its manufacturing sector by developing advanced technology, innovation and new products, Zhang said.

Evening Recommendations
Citigroup:

• Reiterated Buy on (POT), raised estimates, boosted target to $200.
• Reiterated Buy on (TER), target $20.

Night Trading

• Asian equity indices are -1.0% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 109.50 +2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 119.50 +1.25 basis points.
  
• S&P 500 futures -.22%.
  
• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AAI)/.06
• (AEP)/.40
• (ACI)/.43
• (CVX)/2.40
• (D)/.66
• (F)/.48
• (HON)/.87
• (IDXX)/.55
• (OSK)/.89
• (QSII)/.54
• (SMG)/-.94
• (TROW)/.69
• (JBHT)/.45
  

Economic Releases
8:30 am EST

• The 4Q Employment Cost Index is estimated to rise +.5% versus a +.4% gain in 3Q.
• Advance 4Q GDP is estimated to rise +3.5% versus a +2.6% gain in 3Q.
• Advance 4Q GDP Price Index is estimated to rise +1.6% versus a +2.1% gain in 3Q.
• Advance 4Q Core PCE is estimated to rise +.4% versus a +.5% gain in 3Q.
• Advance 4Q Personal Consumption is estimated to rise +4.0% versus a +2.4% gain in 3Q.
  

9:55 am EST

• Final Univ. of Mich. Consumer Confidence for January is estimated to rise to 73.3 versus a prior estimate of 72.7.

Upcoming Splits

• (PRGS) 3-for-2
• (FCX) 2-for-1
  

Other Potential Market Movers

• The Treasury's Geithner speaking in Davos, could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker 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.