Tuesday Watch

Evening Headlines
Bloomberg:

• Tunisia Democracy Gridlock May Foreshadow Egypt Transition Woes. In what may be a lesson for Egypt, the ouster of Tunisian President Zine El Abidine Ben Ali one month ago has created conflict between politicians jostling to fill the political hole. The former ruling party says Islamic participation in a future government would hurt women’s rights and tourism, while the Islamists say their opponents should be permanently banned because they supported Ben Ali’s dictatorship.
• Bahrain Riot Police Use Tear Gas as Protesters Demand More Freedom, Jobs. Bahraini riot police were deployed to break up protests across the island nation as demonstrators, inspired by revolts in Egypt and Tunisia, demanded more political freedom and jobs. Police fired tear gas into crowds in the areas of Diraz and Bani Jamrah. Earlier, residents of the Shiite Muslim village of Nuweidrat said clashes broke out between activists and police after morning prayers. Police were present on the outskirts of Nuweidrat, where Shiite flags adorned buildings along alleyways. ”We were starting our peaceful protests when riot police attacked us with tear gas,” Nabeel Rajab, head of the Bahrain Center for Human Rights, said in an interview after the protest in Bani Jamrah was dispersed. “We will continue our protests until the government hears our demand.”
  
• EU to Double Rescue Fund in 2013, Takes No Fresh Portugal Steps. European governments agreed to double the lending capacity of the rescue fund for debt-laden countries in 2013, while seeing no need for immediate steps to shield Portugal from the fiscal crisis. Finance ministers decided that the future emergency aid mechanism will be able to lend 500 billion euros ($675 billion), twice the size of the fund set up in the wake of Greece’s near- default last year. “The situation on the sovereign-debt markets remains worrying,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing a meeting of European finance ministers in Brussels yesterday. “The Portuguese authorities did take effective actions. If this action would reveal itself as not having been sufficient, other measures will have to be taken, but I have no indications that this has to be done in the short term.”
• China's January Inflation Data Today Cuts Food Weighting, Newspaper Says. China’s January inflation data to be released today will reflect a reduced weighting for food in the consumer-price index, the China Securities Journal reported, citing an unidentified statistics bureau official. While China makes minor changes to CPI weightings each year, the latest moves are part of a more thorough adjustment every five years, the newspaper cited the official as saying. Food has accounted for about a third of the index and was the main driver of China’s inflation last year.
• China Inflation Less Than Estimated as Food Weighting Cut. Inflation exceeded the government’s 2011 target for a fourth straight month in China as prices excluding food rose the most in at least six years, escalating pressure on the central bank to keep raising interest rates. Consumer prices rose 4.9 percent last month from a year earlier, the statistics bureau said in a statement on its website today. That compared with a 4.6 percent gain in December and the median forecast of 5.4 percent in a Bloomberg News survey of 27 economists. Producer-price inflation accelerated to 6.6 percent from 5.9 percent in December. A drought in wheat-growing regions, rising global commodity prices and a 53 percent increase in money supply in two years are adding to price pressures.
• Corn Set for Record on Surging Demand, Agrocorp Says. Corn may surge to a record in the first half and be the best-performing agricultural commodity as increased government purchases help to “inflame” the market, according to Agrocorp International Pte.
• Appaloosa Buys Bank of America(BAC), Citigroup(C) Shares. Appaloosa Management LP, the hedge fund founded David Tepper, bought shares of Bank of America Corp.(BAC) and Micron Technology Inc.(MU) while more than doubling its position in Citigroup Inc.(C) during the fourth quarter. Appaloosa purchased 2.59 million shares of Bank of America in the period that ended Dec. 31, boosting its stake to 25.1 million, and opened a 17.8 million share stake in Micron, according to a filing today. Its ownership in Citigroup jumped to 117.5 million shares, an increase of 66.3 million. Tepper ran the top fund among hedge funds with assets over $1 billion in 2009 when he returned 132 percent to investors. The same fund earned 21 percent in 2010. He personally made between $2 billion and $3 billion in 2010, according to the Wall Street Journal.
• NFL Files Unfair-Labor Practice Charge Against Union. The National Football League filed an unfair-labor-practices complaint with the National Labor Relations board, saying its players’ union isn’t bargaining in good faith on a new contract.
• FedEx(FDX) Cuts Quarterly Profit Forecast on Winter Storms, Higher Fuel Prices. FedEx Corp. cut its profit forecast for the current quarter because of rising fuel costs and “severe” winter storms that reduced revenue and inflated expenses. Adjusted earnings will be 70 cents to 90 cents a share for the quarter ending Feb. 28, compared with an earlier projection of 95 cents to $1.15, the Memphis, Tennessee-based company said today in a statement. Analysts expected earnings of $1.02 a share, the average of 20 estimates compiled by Bloomberg. The reduction showed some of the economic fallout from the snow and ice that may make this winter the worst for flight cancellations since the government began tracking the data in 1987. FedEx, operator of the world’s largest cargo airline, said in December it was being “hammered” by storms. “This isn’t a read on the economy or volume,” said Art Hatfield, a Morgan Keegan & Co. analyst in Memphis who recommends buying the shares. “It’s a one-time weather thing, and the fuel costs they will recoup in time” with surcharges. The shares rose 7 cents to $94.06 at 5:23 p.m. after New York Stock Exchange composite trading.
• Goldman's(GS) Shumway Deal Shows Peril of Buying Hedge Fund Stakes. Goldman Sachs Group Inc. last year bought stakes in Shumway Capital Partners LLC and Level Global Investors LP, as a way for its clients to share in the fees of the two multibillion-dollar hedge funds. This month, both firms decided to kick out fee-paying investors, rendering the investments Goldman Sachs made through a private-equity fund potentially worthless.

Wall Street Journal:

• 'Brothers' in Egypt Present Two Faces. Moaz Abdel Karim, an affable 29-year-old who was among a handful of young activists who plotted the recent protests here, is the newest face of the Muslim Brotherhood. His political views on women's rights, religious freedom and political pluralism mesh with Western democratic values. He is focused on the fight for democracy and human rights in Egypt. A different face of the Brotherhood is that of Mohamed Badi, 66-year-old veterinarian from the Brotherhood's conservative wing who has been the group's Supreme Guide since last January. He recently pledged the Brotherhood would "continue to raise the banner of jihad" against the Jews, which he called the group's "first and foremost enemies." He has railed against American imperialism, and calls for the establishment of an Islamic state. After Egyptian President Hosni Mubarak stepped down on Friday amid the region's most dramatic grassroots uprising since the Iranian Revolution in 1979, the Brotherhood became poised to assume a growing role in the country's political life. The question for many is: Which Brotherhood?
• Tehran Beats Back New Protests. Iranian police used tear gas and electric prods to crack down on the country's biggest antigovernment protests in at least a year, as demonstrators buoyed by activism across the Middle East returned to the country's streets by the tens of thousands Monday. The day of planned antigovernment rallies began largely peacefully, according to witnesses, with protesters marching silently or sitting and chanting. But as demonstrators' ranks swelled, police and antiriot forces lined the streets, ordered shops to shut down and responded at times with force, according to witnesses and opposition websites, in a repeat of the official crackdown that helped snuff out months of spirited opposition rallies a year ago. By day's end, online videos showed garbage bins on fire, protesters throwing rocks at the police and crowds clashing with motorcycle-mounted members of the pro-regime Basij militia.
• Budget Battle Lines Drawn. President Barack Obama offered a 2012 budget Monday that would reduce the federal deficit over time but still leave spending at historically high levels because of mushrooming health and retirement programs. Under the proposal, spending as a percent of the U.S. gross domestic product would be 23.6% next year, down from 25.3% this year. Spending as a share of the economy would decline in later years, then rebound to the 23% level by 2020. That is because the budget doesn't address the unchecked growth of Medicare, Medicaid and Social Security.
• Huawei Set Back On Deal In U.S. A U.S. panel has decided Huawei Technologies Co. should divest itself of a small technology company the Chinese telecom-equipment maker bought in May. Huawei said Monday it was told by the Committee on Foreign Investment in the United States that it must divest the acquired company or the committee will make a recommendation to the U.S. president that the deal be unraveled. Huawei has decided to take its chances with the president, who doesn't have to act on the recommendation, said Bill Plummer, vice president for government affairs for Huawei USA.
• Chevron(CVX) Hit With Record Judgment. An Ecuadorian judge on Monday ordered Chevron Corp. to pay $8.6 billion to clean up oil pollution in the country's rain forest in what is believed to be the largest-ever judgment in an environmental case. And if the U.S. oil giant doesn't publicly apologize in the next 15 days, the judge ordered the company to pay twice that amount. The ruling brings to an end one chapter of a legal drama that has played out in courtrooms in Ecuador and the U.S. for nearly two decades. The case has been bitterly fought by both sides, with each accusing the other of improprieties. In recent months, Chevron uncovered a secret memo revealing the plaintiffs' strategy for enforcing any favorable Ecuadorian ruling around the world. That means that Chevron could be forced to defend itself in any of the dozens of countries where it does business. The oil company, which denies responsibility for the pollution, has no assets in Ecuador and has vowed to fight any efforts to seize its property overseas. Other multinational corporations are closely watching the case. The plaintiffs, residents of Ecuador's oil-rich Amazon rain forest, are seeking to hold Chevron accountable for environmental damage they say was caused by Texaco Inc., which operated in the country from 1965 to 1992. Chevron inherited the case when it acquired Texaco in 2001.
• The Cee Lo Green Budget. The cynical and unrealistic White House budget. This was supposed to be the moment we were all waiting for. After three years of historic deficits that have added almost $4.5 trillion to the national debt, President Obama was finally going to get serious about fiscal discipline. Instead, what landed on Congress's doorstep on Monday was a White House budget that increases deficits above the spending baseline for the next two years. Hosni Mubarak was more in touch with reality last Thursday night.
• ObamaCare and the Medicaid Mess. States need relief from the program's inflexible rules and escalating costs. Facing growing resistance to Medicaid costs, the Obama administration's Health and Human Services secretary, Kathleen Sebelius, sent a letter to states last week noting the "urgency of your State budget concerns" and suggesting some minor program changes to save money. They aren't enough.

CNBC:

• Goldman Sachs(GS) Cannot Stop Taking Over The Government.

MarketWatch:

• Heavy Metals Tainting China's Rice Bowls. As much as 10% of China’s rice may be tainted by poisonous cadmium, a heavy metal discharged in mine and industrial sewage that makes its way into rice paddies, according to agricultural researchers at a major university. Much of this poisoned rice is consumed by farm families or sold in areas of the nation’s food market beyond the reach of government safety regulators.

Business Insider:

• How The %&$! Do You Spend $3.7 Trillion? Here's a look at our break down of spending by department and some of their biggest projects. Read the full list of the $3.7 trillion President's budget here.
• Public Worker Unions Get Ready For A Showdown Over Wage, Pension Cuts.
  

Zero Hedge:

• Paulson Sells 10% Of BofA Stake, Increases Equity AUM From $23 to $30 Billion, Adds Numerous New Positions.
• Deutsche Bank Suspends New Issuance of Double Long Agricultural ETF (DAG).

IBD:

• EMC(EMC) Hopes To Lead The Journey To The Cloud.

New York Times:

• Companies Raise Prices as Commodity Costs Jump. A package of Oscar Mayer cold cuts. A pair of Nine West boots. A Whirlpool washing machine. By the fall, people will most likely be paying more for each of them, as rising prices hit most consumer goods, say retailers, food companies and manufacturers of consumer products. Cotton prices are near their highest level in more than a decade, after adjusting for inflation, and leather and polyester costs are jumping as well. Copper recently hit its highest level in about 40 years, and iron ore, used for steel, is fetching extremely high prices. Prices for corn, sugar, wheat, beef, pork and coffee are soaring. Labor overseas is becoming more expensive, meanwhile, and so are the utility bills to keep a factory running. “There are cost pressures from virtually everywhere,” said Wesley R. Card, the chief executive of the Jones Group(JNY), whose brands include Nine West and Anne Klein. After trying to keep retail prices flat or even lower during the recession, Jones says prices for its brands will climb 15 to 20 percent by autumn.

CNN Money:

• Budget Chiefs: Not Happy With Obama Plan. The top budget chiefs from both political parties criticized President Obama's 2012 budget Monday. Democrat Kent Conrad and Republican Paul Ryan, the budget chairmen in the Senate and House respectively, share one big beef: The Obama budget remains effectively silent on how to address the long-term drivers of debt -- Social Security, Medicare and Medicaid. By the end of the decade, those entitlement programs, together with interest owed on the country's debt, could command most of federal tax revenue coming in the door. Though ideologically different, Conrad and Ryan are both deficit hawks who sat on the president's bipartisan debt commission.

Washington Post:

• In His New Budget, Obama Kicks the Can One More Time. Our leaders are so good at kicking the can that it's almost uncanny.

Rasmussen Reports:

• 57% of Voters Favor Repeal of Health Care Law, 38% Opposed.
• 41% Favor High-Speed Rail Plan, 46% Oppose.
  

USA Today:

• GM(GM) to Dole Out $4,000 Bonus Checks - But Not to U.S. Taxpayers. Now that General Motors is finally making some money again, workers are going to get a nice one-time bonus: checks for $4,000. But should American taxpayers be repaid first? GM will pay more than $189 million in profit-sharing to 48,000 U.S. hourly workers and millions more in performance bonuses to salaried employees, according to company documents obtained by the Associated Press. GM will pay most hourly workers more than $4,000 each as compensation for its strong financial performance last year, said a person briefed on the bonuses. But not everyone is happy about it. The payments were condemned by a leading critic of the industry bailout in Congress. "Since the taxpayers helped these companies out of bankruptcy, the taxpayers should be repaid before bonuses go out," Sen. Charles Grassley, R-Iowa, said in a statement. "It sends a message that those in charge take shareholders, in this case the taxpayers, for a sucker."

Reuters:

• BOJ Tones Up Economic Optimism, Keeps Rates On Hold. The Bank of Japan raised its assessment of the economy on Tuesday to say it is gradually emerging from a slowdown, further signaling that no imminent monetary easing is on the horizon.
• Einhorn Takes Stakes in Sprint(S), BP(BP). Hedge fund manager David Einhorn's Greenlight Capital on Monday disclosed new stakes in half a dozen companies ranging from telephone company Sprint Nextel Corp (S.N) to energy company BP Plc (BP.L).
• U.S. to Stop Funding NATO Missile Defense Program. The United States on Monday said it would stop funding a multibillion-dollar U.S.-European missile defense program known as MEADS after fiscal year 2013, calling it unaffordable in the current budget climate. "Our partners may go forward with some MEADS, but it is not our plan to do so," the Pentagon's comptroller Robert Hale told a budget briefing. He was referring to Italy and Germany.
• Perry Ellis(PERY) Raises FY Outlook on Strong Demand. n">Apparel maker Perry Ellis International Inc raised its adjusted full-year earnings outlook and forecast a fourth-quarter profit largely above analysts' estimates, as its products continued to resonate well with customers. For full-year 2011, the company raised its adjusted full-year profit to $1.82-$1.85 per share from its prior forecast of $1.72-$1.80 a share. Shares of the Miami-based company, closed at $29.28 on Monday on Nasdaq. They were up 4 percent in extended trade.

Financial Times:

• Worries Surface Over Power of D Borse-NYSE Euronext(NYX) Link. Some of the world’s biggest banks are privately expressing concern over the market power of a proposed tie-up between Deutsche Börse and NYSE Euronext.

Evening Recommendations
Citigroup:

• Reiterated Buy on (GT), raised target to $19.

Night Trading

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 108.50 +1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 121.50 +.5 basis point.
  
• S&P 500 futures -.05%.
  
• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GBE)/-.14
• (UTHR)/.63
• (OMC)/.81
• (FOSL)/1.35
• (CPLA)/1.10
• (MMC)/.39
• (ADI)/.65
• (DELL)/.37
• (MDRX)/.18
• (MCP)/-.10

Economic Releases
8:30 am EST

• Empire Manufacturing for February is estimated to rise to 15.0 versus a reading of 11.92 in January.
• The Import Price Index for January is estimated to rise +.8% versus a +1.1% gain in December.
• Advance Retail Sales for January are estimated to rise +.5% versus a +.6% gain in December.
• Retail Sales Less Autos for January are estimated to rise +.6% versus a +.5% gain in December.
• Retail Sales Ex Auto & Gas for January are estimated to rise +.4% versus a +.4% gain in December.

9:00 am EST

• Net Long-Term TIC Flows for December are estimated to fall to $40.0 Billion versus $85.1 Billion in November.

10:00 am EST

• Business Inventories for December are estimated to rise +.7% versus a +.2% gain in November.
• The NAHB Housing Market Index for February is estimated at 16.0 versus a reading of 16.0 in January.
  

Upcoming Splits

• (BLL) 2-for-1
  

Other Potential Market Movers

• The Fed's Pianalto speaking, weekly retail sales reports, weekly ABC consumer confidence reading, Goldman Sachs Tech/Internet Conference, Stifel Nicolaus Transports Conference, Deutsche Bank Small/Mid-Cap Conference, BofA Merrill Lynch Insurance Conference, (JNPR) analyst meeting, (AWK) investor conference, (GNW) investor day and the (JPM) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and financial 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.