Today's Headlines

Bloomberg:

• 'Heavy Lifting' to Come as China Leaves Rate Below Inflation. China’s central bank will likely need to increase interest rates further in coming months as the three moves since mid-October leave household wealth being eroded by accelerating inflation. The People’s Bank of China yesterday raised the one-year lending rate by a quarter point to 6.06 percent and the one-year deposit rate an equivalent amount to 3 percent. The deposit rate remains almost 2 percentage points less than the pace of consumer-price gains, giving savers an incentive to buy goods and assets. “There is still a substantial amount of heavy lifting to do in terms of rates -- at this stage of the cycle, the fact that we still have negative real rates is quite alarming,” said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong and a former adviser to Australia’s government.
• Lacker Says FOMC Should 'Seriously' Re-Evaluate Stimulus Plan. Federal Reserve Bank of Richmond President Jeffrey Lacker said the quickening U.S. recovery means policy makers need to take “quite seriously” their commitment to review a $600 billion monetary-stimulus program. “The distinct improvement we’ve seen in the economic outlook since the program was initiated suggests taking that re- evaluation quite seriously,” Lacker said today in a speech in Newark, Delaware.
• Toyota Review Finds No Electronic Flaws in Runaway Cars. Unintended acceleration in Toyota Motor Corp. vehicles was rooted in mechanical flaws rather than electronic defects, a U.S. investigation found. NASA, the U.S. space agency, and the National Highway Traffic Safety Administration today said a 10-month probe of defects that led to recalls of more than 8 million vehicles worldwide found no electronic causes. Safety advocates and some lawmakers had pointed to electrical faults as a reason for the reports about the world’s largest automaker. “Our conclusion, that Toyota’s problems were mechanical, not electrical, comes after one of the most exhaustive, thorough and intensive research efforts ever undertaken,” U.S. Transportation Secretary Ray LaHood said in prepared remarks. The review may put to rest questions about quality at Toyota, the only major carmaker to post a decline in U.S. sales last year as the overall market gained 11 percent. Toyota sales fell 0.4 percent to 1.76 million vehicles as the company paid $48.8 million in fines to U.S. regulators over the way some of the recalls, the largest by an automaker, were conducted. The U.S. report, which was released today in Washington, found no causes for the unintended acceleration incidents other than sticking accelerator pedals and floor mats that jammed the pedals down. Those were the causes Toyota, based in Toyota City, Japan, had identified for the incidents.
• Job Openings in U.S. Decrease to Three-Month Low. Job openings in the U.S. decreased in December to the lowest level in three months, signaling a sustained labor-market recovery will take time to develop. The number of positions waiting to be filled fell by 139,000 to 3.06 million, the fewest since September, the Labor Department said today in Washington. The number of people hired also dropped, as did the number of workers fired.
• New York Prepares for Frigid Blast as Cold Grips U.S. A frigid blast driven by winds of 30 miles an hour will send New York City temperatures plunging more than 20 degrees today as arctic cold grips much of the U.S. The temperature in Central Park, which was 40 degrees Fahrenheit (4 Celsius) as of 8 a.m., will hit a low of 14, according to the National Weather Service in Upton, New York.
• Gold Futures Rise to Two-Week High as Inflation Concerns Mount. Gold futures climbed to a two-week high on demand for a hedge against rising consumer prices after China increased borrowing costs before a report forecast to show inflation expanded at the fastest pace in 30 months. China joined India, Indonesia, Thailand and South Korea in boosting interest rates this year as Asian policy makers seek to cool the economies leading a global rebound. World food prices rose to a record in January and probably will remain elevated, the United Nations said last week. “People are buying gold as an inflation hedge,” said Matthew Zeman, a trader at LaSalle Futures Group in Chicago. “A more hawkish tone on the part of central banks is going to have people concerned about inflation.” Gold futures for April delivery rose $19.20, or 1.4 percent, to $1,367.40 an ounce at 11:42 a.m. on the Comex in New York. Earlier, the price reached $1,368.70, the highest since Jan. 20. JPMorgan Chase & Co.(JPM), the second-biggest U.S. bank by assets, said it would accept the metal as collateral for trading. The bank “is saying gold is safe enough to use as a store of value,” said Adam Klopfenstein, a senior strategist at Lind- Waldock, a broker in Chicago. “They feel that gold is a stable asset class, and this is going to support a new wave of investors.”
• JPMorgan(JPM) Says Bullish Crude Oil Investors Should Consider Taking Profit. Oil investors should consider selling existing bullish positions because prices may decline this week without fresh political tension in North Africa and the Middle East, according to JPMorgan Chase & Co. New York crude futures surged to the highest since October 2008 on Jan. 31, with London’s Brent trading above $100 a barrel, on concern Egyptian unrest would disrupt supplies from the Middle East and unsettle the region’s stability. Signs that protests are easing mean the market may be set for a “notable correction,” the bank said in a report yesterday. Hedge funds raised bullish bets on oil by the most in eight weeks, according to the U.S. Commodity Futures Trading Commission.
• McDonald's(MCD) January Same-Store Sales Beat Estimates. McDonald’s Corp., the world’s biggest restaurant chain, reported a 5.3 percent rise in comparable- store sales that topped analysts’ estimates as European sales gained the most in a year. Analysts projected sales would rise 4.5 percent, according to the median of five estimates.
• Obama Budget Seeks $53 Billion for High-Speed Rail. President Barack Obama will ask Congress next week to approve a six-year, $53 billion program for construction of a national high-speed and intercity rail network, Vice President Joe Biden said.

Wall Street Journal:

• Egyptian Protests Gather Force. Protesters gathered in massive numbers Tuesday evening at central Cairo's Tahrir Square, cheering Wael Ghonim, the Google executive who spoke to the crowd one day after his release. The protesters rejected proposals by the government and renewed their demand for an immediate exit for President Hosni Mubarak.
• Obama Budget Proposes Broader Unemployment Taxes. President Barack Obama's budget proposal is expected to give states a way to collect more payroll taxes from businesses, in an effort to replenish the unemployment-insurance program. The plan could cause controversy at a time when the administration is seeking to mend fences with corporate America. The proposal would aim to restock strained state unemployment-insurance trust funds by raising the amount of wages on which companies must pay unemployment taxes to $15,000, more than double the $7,000 in place since 1983. The plan, which would take effect in 2014, could increase payroll taxes by as much as $100 billion over a decade, according to a person involved in its construction.
• Home Affordability Returns to Pre-Bubble Levels. Home affordability has returned to pre-housing-bubble levels in a growing number of U.S. markets over the past year, buoyed by several years of sustained price declines, according to data from Moody's Analytics. The data tracks the ratio of median home prices to annual household incomes in 74 housing markets. By that measure, housing affordability at the end of September had returned to or fallen below the average reached between 1989-2003 in 47 of those markets.

Bloomberg Businessweek:

• New-Home Recovery Seen as Post-Super Bowl Selling Season Starts. Homebuilder executives and economists predict a post-Super Bowl bounce in demand for residential construction as Americans turn their attention from football to another national pastime: house hunting. The chief executive officers of six of the 10 largest U.S. homebuilders cited the potential of a sales comeback in the spring, traditionally their strongest season, during conference calls in the last four weeks. Housing forecasts from Fannie Mae and the Mortgage Bankers Association show the new-home market will begin a rebound that will last through at least 2012. A revival in demand for new houses after record-low sales in 2010 may bolster a U.S. economy that’s 19 months into a recovery. Residential construction is a key factor in gross domestic product because it requires the manufacturing of home components such as stoves, cement, tile and furnaces. Richard DeKaser, an economist at Boston-based Parthenon Group, said he expects the homebuilding industry will this year make its first positive contribution to GDP since 2005.“The spring market is going to be the first test of the proposition that there’s an underlying improvement in new-home fundamentals,” DeKaser said in an interview.

CNBC:

• Wiki Cable: China Used 'Hostile' Audit to Scour Citi(C) Books. China used its regulatory powers to scour the books of Citibank Shanghai in a "hostile" and "extraordinarily intrusive" 2007 audit that appeared primarily aimed at controlling Citi's growth and uncovering its secrets to success, the bank's top China executive at the time told U.S. officials. The Citi case underscores the high level of scrutiny that foreign companies face in China, particularly in the financial sector, and it provides a window into complaints from U.S. companies and trade negotiators that China conducts intellectual property theft and forced technology transfers.

MarketWatch:

• Fed's Fisher Says Would Dissent From Any New QE. Richard Fisher, the president of the Dallas Federal Reserve Bank vowed on Tuesday to vote against any additional bond-buying program once the current $600 billion purchase plan expires in June. "It is hard for me to envision a scenario where I would not use my voting position this year to formally dissent should the FOMC recommend another tranche of monetary accommodation," Fisher said in a speech in Dallas. Fisher said he also expects to be at the forefront of the effort to push the Fed to trim back its Treasury holdings and tighten policy at the "earliest sign" that inflation pressures are moving out of the commodity markets and into the general price stream.

Business Insider:

• The Feds Are About to Charge Three Portfolio Managers And One Analyst With Insider Trading.
• Islamic Militants Are Attacking Egyptian Security Forces In Sinai.
  
  Militant groups in the Sinai Peninsula are taking advantage of the political breakdown in Cairo to push the desert peninsula further into lawlessness.
  

Zero Hedge:

• Simon Black Digs Through The Black Box That Is China's Economy, Doesn't Like The Results.

MarketWatch.com:

• Qualcomm(QCOM) Gets Boost From Verizon(VZ) iPhone. Shares of Qualcomm Inc. set a fresh two-year high Tuesday on news that one of the company’s chipsets will occupy a key slot in the upcoming Verizon iPhone, which is set to go on sale later this week.

New York Post:

• FDIC's Rules on Pay. Washington is finally ready to clamp down on bloated Wall Street pay with new rules -- but it could cost companies a fortune just to figure it out. The Federal Deposit Insurance Corp., along with six other regulatory agencies, took the wraps off of a 77-page blueprint for reining in runaway pay, particularly at big financial firms, in hopes of avoiding another financial meltdown.

LA Times:

• Title Loans' Interest Rates are Literally Out of Control. With annual rates often topping 100%, there doesn't seem to be much difference between what title lenders do for a living and how Tony Soprano operated.

The Detroit News:

• GM(GM) Hourly Workers Expect Biggest Bonuses Ever. General Motors Co.'s hourly workers can expect some of the largest profit-sharing checks ever, when the automaker pays bonuses for the money earned in 2010, a top union official said Monday. United Auto Workers' Vice President Joe Ashton, who oversees the union's labor relations with GM, said the bonuses are likely to top the average $1,775 workers got for 1999, the company's biggest payout to date.

Credit Suisse Energy Summit:

• Transocean(RIG) Conference Slides.

Real Clear Politics:

• Undermining Allies. While everyone's attention seems to be focused on the crisis in Egypt, a bombshell revelation about the administration's foreign policy in Europe has largely gone unnoticed. The British newspaper The Telegraph has reported that part of the price which President Obama paid to get Russia to sign the START treaty, limiting nuclear arms, was revealing to the Russians the hitherto secret size of the British nuclear arsenal. This information came from the latest WikiLeaks documents.

Reuters:

• Bernstein Favors US Small Cap Stocks to Hot "BRICs". U.S. small-company stocks promise far greater returns than the emerging market equities, former Merrill Lynch investment strategist Richard Bernstein said on Tuesday. Bernstein, who has reversed his views on the market since 2009, when he was significantly more pessimistic about the economy and U.S. stocks, told an audience of investment managers and financial advisers that the nearly two-year long bull market in U.S. equities has room to run. "The U.S. arguably may be the world's most improved economy," he said, "and U.S. small cap growth and value is the greatest growth story in the world."
• US Retail Gasoline Demand Down 3% - Mastercard.
  

Financial Times:

• Subprime Metals. It’s a surprising (and rather rare) divergence in the South African rand’s performance compared to its hard commodity currency counterpart, the Australian dollar. Given that foreign flows strongly propped up the ZAR in 2010, this might be another penny dropping on inflation in emerging markets, Citi say. But it’s Metals Markets Anomaly No.2 — especially the analogy used to explain it — that may prove more contentious. Copper inventories are plagued by truly weak supply. Other industrial metals aren’t, despite what rising prices might say. According to Citi:

Focus Money:

• German inflation may increase to as much as 4% next year and remain at that level for "several years," Thomas Straubhaar, head of the Hamburg-based Hwwi economic institute, said in an interview. Inflation may "clearly exceed" 2% in the second half of 2011, Straubhaar said. Higher wage demands are "justified" and the increases could average 3%, citing the interview.