Thursday Watch

Evening Headlines

Bloomberg:

• France Takes Market Pulse With Bond Sale as AAA Rating Decision Looms. France plans to sell as much as 8 billion euros ($10.4 billion) of debt today in the country’s first test this year of investor appetite for its bonds as credit companies threaten to cut the nation’s AAA rating. “It’s going to be a tough one,” said Michael Leister, a fixed-income strategist at DZ Bank AG in Frankfurt. “The rating is an evergreen topic. France has been suffering since the second half of December against its AAA peers. But given the importance of the signal from this first auction, I guess it will go alright.” The extra yield investors demand to hold French bonds instead of benchmark German bunds rose to 204 basis points on Nov. 17, the most since 1990, as concern deepened the region’s debt crisis was spreading. While the gap narrowed to 139 basis points yesterday, it compares with a premium of 46 basis points for AAA rated Finland and 38 basis points for the Netherlands. The French sale comes a day after Germany sold 4.1 billion euros of bonds, getting more bids than its maximum target of 5 billion euros. The German sale kicked off a rush for funding that may determine whether euro-area leaders can save the 13- year-old single currency. Italy and Spain are among countries that in the coming weeks will sell debt that may reach 262 billion euros in the first quarter, according to Deutsche Bank AG forecasts.
• Papademos Warns Fellow Greeks Economic Collapse Looms Without Sacrifice. Prime Minister Lucas Papademos told fellow Greeks that deeper cuts in incomes are the only way for the country to remain in the euro area and receive more financing (GKCPIUHY) from international creditors, steps that would avert an economic collapse that may otherwise come as soon as March. “We have to give up a little so we don’t lose a lot,” Papademos said, according to an e-mailed transcript of his statements to union and business leaders yesterday. Talks later this month with officials from the European Union, International Monetary Fund and European Central Bank, the so-called troika, will focus on a “credible” economic plan for 2012 to 2015. “Without this agreement with the troika and subsequent financing, Greece in March faces the immediate risk of a disorderly default,” he said.
• Euro Approaches 11-Year Low Versus Japanese Yen Before French Bond Sales. The euro approached an 11-year low against the yen before France sells bonds today on concern the region’s governments and banks will struggle to raise funds. The 17-nation currency slumped against 12 of 16 major peers after Greek Prime Minister Lucas Papademos warned his nation may face economic collapse as soon as March. The Australian and New Zealand dollars weakened against the greenback as Asian stocks (MXAP) fell, ending a two-day rally and sapping demand for higher- yielding assets. Gains in the dollar were limited before reports forecast to show service industries in the U.S. expanded in December and companies boosted payrolls. “There will be steady pressure on the euro in terms of rolling over existing debt and issuing new debt,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, Australia’s second-largest lender. “There’s really been nothing that would make you want to even play for an interim bounce in the euro.”
• China's 'Demographic Tsunami' Begins. Wang is in the vanguard of a looming demographic shift for China, Bloomberg Businessweek reports in its Jan. 9 issue. The latest government census shows 178 million Chinese were over 60 in 2009. That figure could reach 437 million -- one third of the population -- by 2050, the United Nations forecasts. While the elderly were looked after in the past by their children, urbanization and the nation’s one-child policy have eroded the tradition of family care. “It’s a demographic tsunami,” says Joseph J. Christian, a fellow at the Asia Center at the Harvard Kennedy School, and former DLA Piper partner in Hong Kong, who specializes in senior housing issues in China. “The whole multi­generational housing model has disappeared.”
• Alcoa(AA) Estimates Plunge Most Since 2008 After Aluminum Decline: Commodities. Alcoa Inc. (AA) earnings estimates have plunged the most in three years as analysts’ expectations mount that the biggest U.S. aluminum producer may even record a fourth-quarter loss. Net income will tumble 94 percent to 1 cent a share from 21 cents a year earlier, according to the average of 18 analysts’ estimates compiled by Bloomberg. That’s 82 percent less than the average projection from a month ago. Eight of the 11 estimates (AA) compiled within the last 28 days are for New York-based Alcoa to post a loss in the fourth quarter. The average price of aluminum, which is used in beverage cans, aircraft and window frames, was 11 percent lower in the quarter from a year earlier after global growth decelerated amid a sovereign-debt crisis in Europe and government action to control inflation in China. Supply is exceeding demand and inventories have soared, leaving some smelters unprofitable at current metal prices. “You have 40 to 50 percent of global capacity under water at these levels,” Kuni Chen, an analyst with CRT Capital Markets in Stamford, Connecticut, who has a “buy” rating on Alcoa, said in an interview.
• Lampert Cuts AutoZone(AZO) as Clients Pull Money Amid Sears(SHLD) Losses. Edward Lampert’s hedge fund slashed its stake in AutoZone Inc. in the final days of last year to meet client redemptions amid a series of setbacks at Sears Holdings Corp., one of its largest and highest profile investments. ESL Investments Inc., the firm run by Lampert, distributed about $1.02 billion worth of AutoZone stock to investors in connection with the closing of one investment partnership and the restructuring of another, according to a regulatory filing. The Greenwich, Connecticut-based firm also used $351.4 million of shares in AutoZone and AutoNation Inc. as payment in kind to meet year-end redemptions from its main fund, ESL Partners LP, the filing showed.
• Obama Chooses Politics Over Principle in Naming Cordray: View. The White House called these “recess appointments,” even though Congress technically wasn’t in recess. In doing so, the president is playing with fire. He risks an election-year legal challenge that could hamstring the consumer bureau and several other financial regulators whose pending confirmations will probably now stall. The president’s authority -- and that of future executives -- to fill administration posts without Senate approval may be limited by the courts. We think Obama risks too much to make what is largely a political point.
• Asia Hedge Funds Face a Year of Attrition. Asia’s hedge-fund industry is set to shrink in 2012 after a year in which growth stagnated, performance faltered and managers struggled to raise capital. There were 123 Asian hedge funds that closed in the first 10 months of 2011, compared with 125 in all of 2010 and a record 184 in 2008 when the collapse of Lehman Brothers Holdings Inc. (LEH) roiled markets, according to Singapore-based data provider Eurekahedge Pte. Artradis Fund Management Pte, once Singapore’s biggest hedge fund, shut, while managers returning money to investors included CoreVest Partners and Kilometre Capital Management Ltd. Asia’s hedge funds are dwindling as most managers haven’t made money as a business or for investors, said Peter Douglas, principal of Singapore-based GFIA Pte. Hedge funds in the region manage $125 billion, lower than the peak of $176 billion in 2007, according to Eurekahedge.
• Gokarn Signals India Inflation May Prevent Rate Cuts: Economy. India’s persistently high inflation may prevent an imminent reversal of record interest-rate increases, as a weakening rupee and oil’s rebound reduce the scope for monetary easing, the central bank’s deputy chief said. “The monetary cycle has peaked,” Subir Gokarn, deputy governor of the Reserve Bank of India, said at a conference in Singapore today. “That does not necessarily say that a quick reversal is in order because inflation risks are still visible, still high.”

Wall Street Journal:

• BMW Grabs U.S. Luxury-Car Sales Crown. BMW AG nosed out rival Daimler AG's Mercedes-Benz unit in December U.S. sales to capture the title of top-selling U.S. luxury brand for 2011, according to estimates by market researcher Autodata Corp. Autodata, which compiles sales totals reported by auto makers, estimated BMW sold 248,113 cars and sport-utility vehicles in 2011, 2,804 more than Mercedes.
• Citi(C) Analyst Lures Hot Internet IPOs. When real-estate website Zillow Inc. was looking for a Wall Street bank to lead its $80 million initial public offering in July, Citigroup Inc. rose to the top of the list. A main attraction: the bank's top-ranked Internet analyst, Mark Mahaney. Mr. Mahaney "is widely regarded as one of the most influential analysts covering the Internet, and, yes, that was absolutely part" of Zillow's choice of Citi, said Spencer Rascoff, Zillow's chief executive, in an interview.
• Congress Presses Rating Firms. Congressional investigators are stepping up their inquiry into how deeply credit-rating companies examined the disastrous bet that sank MF Global Holdings Ltd. and whether the firms overlooked crucial information in their evaluations, according to people familiar with the matter. The chairman of the House Financial Services subcommittee on oversight and investigations sent letters to Moody's Corp. Chief Executive Raymond McDaniel and Standard & Poor's Ratings Services President Douglas Peterson seeking detailed information about the firms' procedures for determining MF Global's credit worthiness.
  
• B-Shools Send Rejections to Unlikely Group: Alumni. This admissions season, business school alumni are the ones facing rejection. Graduate schools including University of Pennsylvania's Wharton School are bypassing alumni in admissions interviews to meet directly with M.B.A. candidates in person or via Skype videoconferencing, despite the potential higher costs, in an attempt to ensure interviews are being conducted in a uniform manner—and in English.
• Auto Lenders Speeding Past Mortgage Woes. Auto lenders are pursuing an unlikely growth market: people who have fallen behind on their mortgages. Historically, lenders have viewed mortgage troubles as a major red flag. Now, firms such as Ally Financial Inc., General Motors Financial Co. and Mitsubishi Motors Credit of America Inc. are sifting through loan applications to determine which borrowers with scuffed mortgage-payment histories are likely to be good credit risks.
• Contempt for Congress. Obama makes recess appointments when there's no recess.
• North Korea Lashes Out at Japan, Hardening Stance Against Foes.
  

Business Insider:

• This Retailer Is Doing So Well It's Opening Hundreds Of New Stores For The Fourth Straight Year.
• Seriously, If You Pick The Wrong Major Then Prepare To Be Unemployed.
• RBS Axing Up to 10,000 Jobs From Its Investment Bank.
• Experts Agree This Is The Most Effective Diet In The World.

Zero Hedge:

• The Can Kicking Is Ending - Key Upcoming Dates For Europe's Patient Zero.
• One Word... Volume. (graphs)
  

CNBC:

• China Uncovers Massive Irregularities in Local Government Debt. China has uncovered 530 billion yuan ($84.21 billion) worth of irregularities with local government debt, the National Audit Office said on Wednesday. An audit report, published on China's central government website, reveals some of the problems investment analysts had believed to lay beneath the 10.7 trillion mountain of debt that local governments had amassed by the end of 2010. The report, conducted for the 2010 budget year, found problems including 46.5 billion yuan worth of "irregular credit guarantees", 73.2 billion yuan worth of loans secured against irregular collateral, 35.1 billion yuan spent on stocks, houses and polluting plants and 132 billion yuan worth of expenditure not made by its approved deadline. "A fifth problem is the fraudulent and underpayment of registered capital in financing vehicles, which amounted to 244.15 billion yuan," the report said.

LA Times:

• Bypassing Congress, Obama Will Appoint Three to NLRB. Capping a daylong assault on congressional Republicans, President Obama appointed three members to the National Labor Relations Board as part of a series of recess appointments the GOP had tried to prevent. Obama made the move while Congress is away for the holiday break, but meeting every few days in pro forma sessions to block the White House from precisely these type of recess appointments. The labor board appointments were tucked into Obama’s more public announcement of Richard Cordray as the new consumer protection bureau chief.

The Blaze:

• After Receiving Bailout, GM(GM) May Move Volt Production To China. Although it happened back in September, 2011, it appears many American taxpayers are unaware that General Motors struck a deal in Shanghai wherein the company has agreed to develop an electric vehicle (EV) platform with its longtime Chinese partner SAIC. What else was included in this deal? GM has agreed to effectively move all future EV development to China. It could also mean that production of the vehicle itself will be moved overseas.

Institutional Investor:

• Citadel Way Ahead of the 2011 Pack. Last year was not exactly a memorable one for many hedge fund managers, as a large number finished the year up or down a point or two. Not Citadel’s Ken Griffin, however. His two main funds — Wellington and Kensington — finished strong with a 2.4 percent gain in December, putting them up 20.4 percent for the year, according to investors.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).

Reuters:

• Blackstone(BX) Reaches Megafundraising Finish Line. Blackstone Group LP will conclude fundraising for its latest buyout fund in January, raising just over $16 billion, three people familiar with the matter said on Wednesday, in a 4-year process challenged by the global financial crisis. The fund is the largest in the market to complete its fundraising process and the sixth biggest private equity fund ever raised, according to data firm Preqin.
• Analysis: Texting Profits at Risk as Users Look Elsewhere. Text-messaging has long been a big-time profit generator for U.S. mobile operators, but they now risk losing these profits as consumers find cheaper ways to communicate. SMS -- short message service -- is no longer all the rage, but it still generates an estimated 12 percent of service revenue for U.S. operators.
• Seagate(STX) Forecasts Strong Q2, Q3; Shares Jump. Seagate Technology Inc forecast stronger-than-expected second-quarter revenue and expects sequentially higher shipments in the third quarter, as the hard disk drive maker recovered from the supply chain disruptions caused by the Thailand floods. Shares of the company rose 7 percent to $17.99 in extended trading. They closed at $16.82 on the Nasdaq on Wednesday.

Financial Times:

• Fitch Warns on Structured Debt Deals. European financials have been flouting the original terms on packaged debt deals they send to the European Central Bank to secure cash and allowing these credit ratings to slide, Fitch Ratings has warned.
• Spain Sees €50bn of new bank provisions. Spain says it expects its banks to set aside up to €50bn in further provisions on their bad property assets as part of a new round of reforms for the country’s financial sector.

Telegraph:

• Hungary Faces Crisis As Traders Fear Bond Debt Default. Hungary was forced to cancel a bond swap auction amid an escalating financial and political crisis that investors fear could trigger another dangerous shockwave in Europe.
• EU Transaction Tax 'in law by year end'. The European Union is set to move ahead with plans for a financial transaction tax despite British opposition, with a senior French politician saying the new levy will be in place by the end of year.

Evening Recommendations
KeyBanc:

• Rated (FOSL) Buy, target $105.
  

Sterne Agee:

• Rated (VMW) Buy, target $108.

Night Trading

• Asian equity indices are -1.0% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 202.50 +6.5 basis points.
  
• Asia Pacific Sovereign CDS Index 154.50 -2.5 basis points.
• FTSE-100 futures +.15%.
  
• S&P 500 futures -.13%.
  
• NASDAQ 100 futures -.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (STZ)/.52
• (RPM)/.39
• (MON)/.18
• (RT)/-.06
• (FDO)/.68
• (APOL)/1.18
• (GPN)/.80
• (WOR)/.32
  

Economic Releases
8:30 am EST

• ADP Employment Change for December is estimated at 178K versus 206K in November.
• Initial Jobless Claims are estimated to fall to 375K versus 381K the prior week.
• Continuing Claims are estimated to fall to 3570K versus 3601K prior.
  

10:00 am EST

• ISM Non-Manufacturing for December is estimated to rise to 53.0 versus 52.0 in November.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,000,000 barrels versus a +3,899,000 barrel gain the prior week. Distillate supplies are expected to rise by +1,000,000 barrels versus a +1,205,000 barrel gain the prior week. Gasoline inventories are estimated to rise by +1,000,000 barrels versus a -692,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a -.7% decline the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The BoE Rate Decision, Challenger Job Cuts report for December, ICSC Chain Store Sales for December, RBC Consumer Outlook Index for January, weekly Bloomberg Consumer Comfort Index, Goldman Healthcare CEOs Conference and the Raymond James Government Services/Tech Summit could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by technology and commodity shares in the region. I expect US stocks to open mixed and to weaken into the afternoon, finishing modestly lower. The Portfolio is 75% net long heading into the day.