Wednesday Watch

Evening Headlines

Bloomberg:

• Huawei's Work in Iran May Violate U.S. Sanctions, Lawmakers Say. Six U.S. lawmakers urged the State Department to investigate whether Huawei Technologies Co. violated U.S. law by supplying sensitive technology to Iran. Huawei, China’s largest maker of phone equipment, said Dec. 9 it would voluntarily restrict business in Iran because of that country’s “increasingly complex situation.”
  
• Denny's Will Raise Menu Prices in 2012 to Offset Food Costs. Denny’s Corp., a family restaurant chain with about 1,600 locations, will raise menu prices this year to help make up for higher commodity costs and maintain profit margin, Chief Executive Officer John Miller said.
• Bank Earnings Jump 57% in Analyst Forecasts Proved Wrong in 2011. Analysts’ failure to foresee declining earnings per share for the biggest U.S. banks last year hasn’t stopped them from predicting an even bigger profit surge for 2012. The six largest lenders, including JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc., may post an average profit increase of 57 percent this year, according to 184 analysts’ estimates compiled by Bloomberg. A year ago, analysts predicted profit at the banks would climb 32 percent in 2011. Instead, earnings per share probably fell 18 percent as the economic recovery analysts counted on never took hold.
• Pimco Total Return Lost $5 Billion to Withdrawals Last Year. Bill Gross’s Pimco Total Return Fund had $5 billion in client redemptions last year as the world’s largest mutual fund trailed rivals, its first year of withdrawals in records going back to 1993, according to Morningstar Inc. Clients pulled $1.35 billion from the fund in December, according to Chicago-based research firm Morningstar. Pimco Total Return, managed by Gross out of Newport Beach, California, returned 4.2 percent in 2011, trailing 69 percent of peers, according to data compiled by Bloomberg.

Wall Street Journal:

• Santorum and Romney Battle for Lead in Iowa. Former Massachusetts Gov. Mitt Romney and former Pennsylvania Sen. Rick Santorum were locked in a near dead heat in the first presidential nominating contest of 2012, as Iowa voters split their support Tuesday night among candidates with distinctly different viewpoints. With most returns in, the two candidates were just a handful of votes apart, with both receiving about 25% of the vote.
• Live Blogging the Iowa Caucuses.
  
• China Home Prices Fall Again. Average housing prices in 100 major cities in China fell in December compared with November, marking the fourth consecutive sequential decline, China Real Estate Index System said Wednesday. The data provider said a survey of property developers and real-estate agencies showed the average home price in December was 8,809 yuan ($1,400) a square meter, down from 8,832 yuan in November. The survey, which the company compiles together with online real-estate brokerage SouFun Holdings Ltd., is considered a key indicator following a decision to scrap a national property price index in February 2011. China Real Estate Index System said property prices in 60 cities fell in December compared with the previous month, whereas 37 cities posted a rise, and prices in three cities were unchanged. Compared with a year earlier, the average price of a new property in December was up 2.86% from 8,564 yuan in December 2010, a slower increase than November's 4.06% year-on-year rise. The National Bureau of Statistics is scheduled to issue December data for residential property prices in 70 major cities on Jan. 18.
• France Looks to Neighbor in Plan to Raise Sales Tax. French President Nicolas Sarkozy's government said on Tuesday that it would borrow yet another page from Germany's economic textbook in a bid to make France's products more competitive and finance the nation's wide-reaching and heavily indebted social-welfare system.
• Some Venture Funds Hit 'Pause' on Big Deals. Over the past year, Marc Andreessen invested in a series of high-profile Web companies, including Facebook Inc., Twitter Inc. and Groupon Inc. Now the Silicon Valley venture capitalist is hitting the pause button on such big-name deals.
• Big Banks Lower Outlook for Asia. Bowing to increased competition and weaker markets, investment banks are lowering expectations and cutting costs in Asia, a region that has been a crucial source of growth for the industry in recent years. Senior bankers in Hong Kong, who are emerging from several weeks of tense budget meetings for 2012, say they are feeling pressure from their bosses to justify heavy investment across the region as trading volumes there and around the world shrink and banks struggle with tighter regulations, the fallout from Europe and weak economies world-wide.

Dow Jones:

• CFTC Won't Delay Position Limits. The Commodity Futures Trading Commission has rejected a request by two trade groups to delay its implementation of position limits aimed at curtailing bets in the commodities markets, according to two people familiar with the matter.

Zero Hedge:

• MBIA Wins Summary Judgment Against Countrywide; Bad News For Bank of America(BAC).
• On The German Triple-C Issue: Culture, Clausewitz and Clausius.
• US Closes 2011 With Record $15.22 Trillion In Debt, Officially At 100.3% Debt/GDP, $14 Billion From Breaching Debt Ceiling.

CNBC:

• Firearms Sales Ring in 2012 With a Bang. Uncertainty in a presidential election year. Warriors returning from the battlefields. The comeback of the hunter. These are just some of the reasons that gun experts and advocates cite as reasons why firearms makers are ringing in 2012 like gangbusters. According to the FBI, more than 1.5 million instant criminal background checks were conducted in December for firearms purchases, topping November’s record.
• Investors Steer Clear of Chinese IPOs in US. The value of Chinese companies delisting from U.S. exchanges in 2011 exceeded the amount Chinese companies raised via initial public offerings in the U.S., a stark sign of how high-profile fraud allegations and slowing growth have made many foreign investors bearish on Chinese groups.

IBD:

• Mattress Maker Select Comfort(SCSS) Sees Strong Growth. There's nothing like the promise of a comfortable night's sleep to get consumers to shell out big bucks for a mattress. Reinforce that promise with a TV ad campaign and spruced-up products, and you've got the makings for hefty sales and profit gains. Look no further than Select Comfort for proof.

NY Times:

• Hedge Funds End 2011 On A Very Bad Note. When the history books are written, 2011 may go down as the dark ages for hedge funds. Last year was dismal for hedge fund performance, according to an index maintained by Eurekahedge, an independent information firm that specializes in hedge fund data. Amid political uncertainty, the debt-ceiling debate in Congress and mounting fears of a European financial crisis, the Eurekahedge index, which measures average returns, dropped 4.1 percent for the year. Even as losses mounted, investors continued to flock to hedge funds. In 2011, the industry started more than 1,100 portfolios, the second-highest number in the history of the index, the firm said. In total, $67 billion flowed into hedge funds in 2011, bringing the overall industry size to $1.72 trillion, the report said. The year was especially rough for some of the biggest names in the hedge fund pantheon.
• Online Sales Buoy UPS(UPS) and FedEx(FDX). With sales rising to a record $35.3 billion in November and December — a 15 percent increase from a year ago, according to the research service comScore — online retailers are celebrating.

CNN:

• Bailout Concerns Mounting For Federal Housing Agency. Concerns are growing that the Federal Housing Administration will need to be bailed out by taxpayers. The agency's latest monthly outlook report revealed a spike in serious delinquencies for FHA-insured loans, posing a further threat to the agency's already depleted cash reserves.

Rasmussen Reports:

• Election 2012: Generic Republican 47%, Obama 43%.

Reuters:

• Regulators Inching Forward on Dodd-Frank Rules. U.S. regulators have only met roughly a quarter of pre-2012 deadlines included in the controversial Dodd-Frank financial reform law, according to a report released on Tuesday. A year and a half after Congress passed Dodd-Frank, regulators are struggling to keep pace with deadlines for hundreds of rules they are tasked with writing to help stabilize markets after the 2007-2009 financial crisis. According to the report by the law firm Davis Polk, a total of 200 deadlines have passed as of the end of 2011, and regulators missed 149 of them. There are 400 total rulemaking requirements in Dodd-Frank, the report says.
• MF Global Sold Assets to Goldman(GS) Before Collapse: Sources. MF Global unloaded hundreds of millions of dollars' worth of securities to Goldman Sachs in the days leading up to its collapse, according to two former MF Global employees with direct knowledge of the transactions. But it did not immediately receive payment from its clearing firm and lender, JPMorgan Chase & Co(JPM) , one of the sources said. The sale of securities to Goldman occurred on October 27, just days before MF Global Holdings Ltd filed for bankruptcy on October 31, the ex-employees said. One of the employees said the transaction was cleared with JPMorgan Chase. At the same time MF Global, which was run by former Goldman Sachs head Jon Corzine, was selling securities to Goldman to raise badly needed cash, the futures firm was also drawing down a $1.2 billion revolving line of credit it had with JPMorgan, according to one of the former MF Global employees.
• Acme Packet(APKT) Forecasts Weak Q4; Shares Fall. Acme Packet Inc forecast a fourth quarter that lagged analysts' estimates and cut its 2011 outlook on concerns of crippled capital spending budgets at its telecommunication customers in North America. Shares of the network infrastructure provider, which have lost almost two-thirds of their value since touching a year-high of $84.50 on April 29, fell to $25.12 in trading after the bell. They closed at $31.81 on Tuesday on Nasdaq.
• Euro Short-Squeeze Rally Stalls, Debt Auctions Loom. A short-squeeze rally in the euro stalled in Asia on Wednesday ahead of debt auctions in Germany, with market players dubious about the euro zone's plans to fend off a sovereign debt crisis as some countries face huge debt refinancing needs. The euro is losing momentum after posting its biggest one-day rally in nearly two months on Tuesday as investors trimmed heavily bearish positions in the common currency after upbeat data bolstered risk appetite. "This seems like just a temporary risk-on trade, helped by easing in dollar funding pressure after the year-end, some good economic numbers and a lack of bad news out of Europe," said Minori Uchida, a senior analyst at Bank of Tokyo-Mitsubishi UFJ. "The fact is that the euro has still many hurdles to clear. We think the euro will likely head to $1.25," Uchida said, noting Italy's huge debt refinancing burden.

Hong Kong Economic Journal:

• Emperor Sees 30% Drop in Hong Kong Home Prices in 2012. Prices of properties in outlying areas of Hong Kong may decline more sharply than those in more central locations, citing Donald Cheung, executive director at Emperor International. Home prices may fall between 20% to 30%, Cheung said.

Economic Daily News:

• Container-shipping cos. will find it difficult to make profits this year on oversupply of vessels and the global slowdown, citing Evergreen Group Chairman Chang Yung-fa.

South China Morning Post:

• Shenzhen 'wants to kill' HK Factories. Manufacturers angered by the decision to implement pay rise next month, after municipal authorities had earlier offered to shelve any increase. Shenzhen's minimum wage will rise from next month, ending a one-month delay to the increase rather than a year-long grace period that angry Hong Kong manufacturers had asked the municipal authorities for in December.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 196.0 -7.5 basis points.
  
• Asia Pacific Sovereign CDS Index 157.0 -5.0 basis points.
• FTSE-100 futures -.13%.
  
• S&P 500 futures -.02%.
  
• NASDAQ 100 futures -.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (UNF)/1.09
• (RECN)/.12
• (SONC)/09
• (MOS)/1.30

Economic Releases
10:00 am EST

• Factory Orders for November are estimated to rise +2.0% versus a -.4% decline in October.

Afternoon:

• Total Vehicle Sales for December are estimated to fall to 13.5M versus 13.59M in November.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly retail sales reports, weekly MBA mortgage applications report and the Citi Entertainment/Media/Telecom Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by financial 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 75% net long heading into the day.