Wednesday Watch

Evening Headlines
Bloomberg:

• Europe's Austerity Push Breaks Mother's Promise of Social Model. Across Europe, parents who assumed the social model built by governments since World War II would make each generation better off than the last are watching the sovereign debt crisis sweep away the promises they made to their children. Greek teachers and state workers are witnessing the end of the job for life and English students face U.S.-style tuition fees, while the French have been forced to join other Europeans in retiring later. In the background, politicians across the 27 European Union members are implementing austerity measures to the tune of about 450 billion euros ($600 billion), according to government announcements.
  
• Fisher Says Fed Has Done Its Job While U.S. Congress Hasn't. Federal Reserve Bank of Dallas President Richard Fisher said the U.S. central bank has “done its job” to provide liquidity when it was needed and that the economy now needs Congress to indicate a clearer plan for taxes and spending. “We have had generations of congressmen, congresswomen and senators who have not done their job,” Fisher said in a speech in Choudrant, Louisiana today. Businesses “are not going to hire until we have an outlook for what it’s going to take to run their business.”
• Subprime Bulls Trim Bets as Rally Raises 2011 Specter: Mortgages. A rally in the mortgage securities that blew up in the crash of 2008 is leading firms to trim bets in the $1.1 trillion market for home-loan bonds without government backing after similar gains a year ago evaporated. Some of the securities are up 12 percent this year, and have been outperforming the Standard & Poor’s 500 stock index, corporate bonds and gold. Western Asset Management Co. and Pine River Capital Management LP have sold after starting 2012 among the most bullish on the debt. In last year’s rally, the notes gained the same amount to peak in February before crashing as Europe’s fiscal crisis curbed risk-taking across markets.
• Bats CEO Cedes Chairman Role as Board Said to Delay IPO. Directors at Bats Global Markets Inc. won’t consider redoing the exchange operator’s initial public offering for at least a quarter, according to a person with direct knowledge of the matter. The decision was made during a board meeting yesterday, according to the person, who declined to be identified because the talks were private. Bats said in a statement that Chief Executive Officer Joe Ratterman will give up his chairman role after the company withdrew the IPO on March 23 because its computers couldn’t get the shares trading.
• China's Stocks Decline to 7-Week Low on Profit, Growth Concerns. China’s stocks fell to a seven-week low after some of the nation’s largest metals producers reported slumping earnings, boosting concern slowing economic growth and tight monetary policies are hurting profits. Jiangxi Copper Co. (600362), the nation’s biggest producer of the metal, declined 3 percent after reporting an 18 percent slide in net income. Angang Steel Co. dropped to the lowest in two months after posting a wider second-half loss on waning demand and high raw-material costs. Anhui Conch Cement Co Ltd., the largest cement producer, lost 1.2 percent after the Hong Kong-traded stock was cut to hold at Citic Securities Co. “Investors had expected earnings to be weak but they are still below expectations so stocks are falling,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which manages the equivalent of $2.2 billion. “Moreover, shares have already risen quite a bit this year on monetary easing expectations.” The Shanghai Composite Index (SHCOMP) fell 14 points, or 0.6 percent, to 2,333.24 at 9:43 a.m. local time. Chinese corporate profits won’t grow at all this year, according to Societe Generale SA. The industrial profit figures suggest 2012 consensus earnings estimates for Hong Kong-listed Chinese companies are “far too optimistic,” Societe Generale strategists Guy Stear and Anthony Lee wrote in a note to clients dated yesterday. Aberdeen Asset Management Plc is underweight on China on concern about the nation’s non-performing loans, Assistant Investment Manager Pruksa Iamthongthong said in an interview. Aberdeen doesn’t own any shares in the four largest banks in China, according to Iamthongthong. Chinese residential developers may face a survival test this year, especially smaller players that leveraged to buy land and would now need to cut prices in order to replenish balance sheets, Iamthongthong said.
• Goldman(GS) Says Commodities Stance Reduced to Neutral in Near Term. Goldman Sachs Group Inc. (GS) reduced its so-called near-term recommendation on commodities to neutral from overweight, according to an e-mailed report today.

Wall Street Journal:

• Greece's Fringe Parties Surge Amid Bailout Ire. Weeks after agreeing to an agonizing bailout deal with Europe, Greece is splintering politically ahead of national elections, raising the risk that it won't be able to make the economic sacrifices still needed to keep it in the euro. The election, not yet scheduled but expected in April or May, is shaping up as a public revolt against Greece's political establishment, which has backed the austerity policies that are the price of financial life support from Europe and the International Monetary Fund.
• Justices Question Health Law. The Supreme Court's conservative justices sharply challenged the Obama administration's health-care overhaul Tuesday, raising clearly the prospect that the president's signature domestic achievement could be struck down. The court's liberal and conservative wings seemed inclined to split evenly over the question of whether the "individual mandate" requiring Americans to carry health insurance or pay a fine is constitutional. Justice Anthony Kennedy—nearly always the court's deciding vote—at times appeared to back the administration's position but also offered one of the toughest tests to the mandate, suggesting the government faced "a very heavy burden" on the requirement.
• Solyndra Kept Government Informed, Report Says. Solyndra LLC, whose abrupt bankruptcy filing last summer put the Obama administration's solar-power efforts in the spotlight, kept the government well informed of its finances and business prospects, according to a report by the company's chief restructuring officer. The report—whose author was hired by Solyndra's board—is based on a four-month investigation and was filed in bankruptcy court on Tuesday. It concludes that the Department of Energy, which had guaranteed a $535 million loan to Solyndra, was fully aware of the risks and kept up to date on the solar-power company's deteriorating finances.
• Applied Materials(AMAT) CEO: Solar Overcapacity To Last About Year. The solar industry will likely suffer from overcapacity for about a year, the chief executive of Applied Materials Inc. (AMAT) said, forcing the equipment maker to cut additional costs from its business.
• Goldman(GS) Bows to Pressure on Board. Goldman Sachs Group Inc. agreed to change its board structure in order to persuade a union pension fund to drop a shareholder proposal that could have cost Chief Executive Lloyd C. Blankfein his job as chairman. The deal between the New York securities firm and the American Federation of State, County and Municipal Employees means Goldman will appoint a "lead" director, but shareholders won't get a chance to vote at the firm's annual meeting in May on the proposal to replace Mr. Blankfein with an independent chairman.
• U.S. Outgunned in Hacker War. The Federal Bureau of Investigation's top cyber cop offered a grim appraisal of the nation's efforts to keep computer hackers from plundering corporate data networks: "We're not winning," he said. Shawn Henry, who is preparing to leave the FBI after more than two decades with the bureau, said in an interview that the current public and private approach to fending off hackers is "unsustainable.'' Computer criminals are simply too talented and defensive measures too weak to stop them, he said.
• Top MF Global Witness Talks Deal With Justice. The star witness in a congressional hearing about MF Global Holdings Ltd.'s collapse has told Justice Department representatives through her lawyers details about transactions that ended up dipping into customer funds, people familiar with the matter said. But Edith O'Brien, the assistant treasurer at MF Global, isn't expected to reveal those details when she appears at Wednesday's hearing of the House Financial Services Committee's oversight and investigations subcommittee. Ms. O'Brien plans to invoke her constitutional right against self-incrimination and to decline to answer questions, people familiar with the matter said.
• Demand for U.S. Debt Is Not Limitless. In 2011, the Fed purchased a stunning 61% of Treasury issuance. That can't last.
• The Open-Mic Second Term. Parsing President Obama's private chat with Dmitry Medvedev.

MarketWatch:

• Beijing Receives Criticism For Market Intervention. Scholars and company heads attending an economic forum on March 25 blamed excessive government involvement in economic affairs for structural problems in the world’s second-largest economy. China’s economy is retreating to a crude growth model due to government market intervention and price controls, producing rent-seeking and corruption, said Wu Jinglian, a senior researcher at the State Council’s Development and Research Center. He was speaking at the Lingnan Forum sponsored by Sun Yat-Sen University’s Lingnan College and Caixin.

Business Insider:

• Here Is The Moment When Justice Alito Shredded Verrilli At The Obamacare Hearings. (video)
• Sweeping Layoffs Hit TheStreet.com(TST).
• Video: JetBlue(JBLU) Captain's Meltdown Forces Emergency Landing.
  

Zero Hedge:

• On Europe's 'Stealth' Money Printing.
• This Is The World's Balance Sheet.
• SkyNet Wars: How A Nasdaq Algo Destroyed BATS.
  

CNBC:

• John Paulson Lowers the Bar to Pay Employees. Still suffering the repercussions of a huge downswing, hedge-fund manager John Paulson has told employees he’ll pay bonuses for this year out of his own pocket, according to someone familiar with the matter. Paulson’s flagship fund, Advantage Plus, fell a whopping 53 percent last year – prompting an apology to investors and a media drubbing. The decline also meant that it could be years before Advantage Plus and other fallen Paulson funds are able to return to their high-water mark, or the returns level at which John Paulson and his colleagues can begin to collect a significant percentage of their annual gains as performance fees. In an acknowledgement of that problem, Paulson recently told some employees he would reset the firm’s internal high-water mark to zero as of Jan. 1, said the person familiar with the matter, effectively meaning that if the company’s funds are in the black for 2012, those employees can collect bonuses pegged to this year’s returns and not be dragged down by last year’s losses. Paulson will pay for those bonuses himself, this person added.
• Organic Food Maker Annie’s Kicks Off Busy Week for IPOs. The initial offering of the company, best known for its organic mac n’ cheese and ubiquitous bunny logo priced at $19 a share late Tuesday. The expected range had been $14 to $16 but was raised to $16 to $18 on Monday — and wound up exceeding even that higher range.
• Obamacare Will Bankrupt US: Rep. Paul Ryan. (video) “It vastly underestimates how many employers will actually drop their employer health insurance and dump people into the government exchange,” Ryan said. In fact, he said private sector actuaries have told him that within a couple of years, about two-thirds of employers will “wash their hands” of offering health insurance to employees. “Just about everybody will be in the [government] exchange,” Ryan said. The result, he said, will be the "implosion of the health care system and an explosion of our public debt."

MSN Money:

• The Perils of Quantitative Easing. There are worries that one of the biggest consequences of more easing is inflation.

CNN:

• U.S. Corporate Tax Rate: No. 1 In The World. On Sunday, the United States gets a distinction no nation wants -- the world's highest corporate tax rate. Japan, which currently has the highest rate in the world -- a 39.8% rate on business income between national and local taxes -- cuts its rate to 36.8% as of April 1. The U.S. rate stands at 39.2% when both federal and state rates are included.

VentureBeat:

• Report: Number of U.S. Mobile Gamers Reaches 100 Million. A new report from international market research firm Newzoo is highlighting the ever-increasing popularity of mobile gaming. According to the Mobile Games Trend Report, the number of Americans who play video games on their smartphone, tablet, or iPod Touch has surpassed 100 million. Newzoo says 69 percent of U.S. mobile gamers play on a smartphone, while 21 percent play on a tablet, and 18 percent play on an iPod Touch. The firm’s latest trend report claims 13 percent of all time spent on games worldwide in 2011 was on a mobile device, totaling more than 130 million hours a day.

Reuters:

• Exclusive: Goldman's(GS) European Derivatives Revenue Soars. Goldman Sachs Group Inc's first-quarter earnings are expected to benefit from the increased use of derivatives by European clients seeking ways to hedge risk, according to an internal report seen by Reuters. Revenue at Goldman's investment bank in Europe increased by 8 percent from the year-ago period to $476 million, the report said. A big driver was derivatives that clients, corporations and financial institutions used to hedge bets in the stock and fixed-income markets. Overall client-driven derivatives revenue was up 142 percent year-to-date in Goldman's Europe division, helping to offset declines in more traditional investment banking businesses, like mergers and acquisitions.
  
• Volcker Rule Could Raise Energy Prices, Study Says. The proposed Volcker rule crackdown on trading and investing by banks could cause gasoline, electricity and natural gas prices to rise, according to a new report. The report, released on Wednesday by business information provider IHS Inc, seeks to gauge the rule's impact on energy companies and markets, including oil refineries, natural gas producers and electricity providers.
• Wells Fargo(WFC) to Face Lending Program Class-Action Suit. Wells Fargo & Co was ordered to face a class-action lawsuit in Minnesota federal court by investors who accuse the bank of improperly touting a lending program as safe when in fact it was risky.

Telegraph:

• Spain to Slash Spending as Economy Slumps Back into Recession. Spain’s fragile economy has fallen back into recession and the country faces a year of grinding economic decline as premier Mariano Rajoy slashes spending yet further to meet EU demands.
• Eurozone Needs 'mother of all firewalls', Says OECD. The eurozone needs "the mother of all firewalls" if it is to protect the EU's single currency from debt contagion, the Organisation for Economic Co-operation and Development (OECD) has warned.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -1.0% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 150.50 +3.0 basis points.
  
• Asia Pacific Sovereign CDS Index 128.0 -.5 basis point.
• FTSE-100 futures -.23%.
  
• S&P 500 futures +.14%.
  
• NASDAQ 100 futures +.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FDO)/1.13
• (CMC)/.09
• (PAYX)/.37
• (PRGS)/.25
• (FUL)/.37
• (RHT)/.27
• (TXI)/-.82
• (MOS)/.69
• (VRNT)/.68
  

Economic Releases
8:30 am EST

• Durable Goods Orders for February are estimated to rise +3.0% versus a -4.0% decline in January.
• Durables Ex Transports for February are estimated to rise +1.7% versus a -3.2% decline in January.
• Cap Goods Orders Non-Defense Ex Air for February are estimated to rise +1.5% versus a -4.5% decline in January.
• Cap Goods Shipments Non-Defense Ex Air for February are estimated to rise +.9% versus a -3.1% decline in January.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,550,000 barrels versus a -1,1162,000 barrel decline the prior week. Distillate inventories are estimated to fall by -500,000 barrels versus a +1,763,000 barrel gain the prior week. Gasoline supplies are estimated to fall by -1,550,000 barrels versus a -1,214,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.3% versus a -.5% decline the prior week.
  

Upcoming Splits

• (CPRT) 2-for-1
  

Other Potential Market Movers

• The Fed's Bernanke speaking, Fed's Bullard speaking, Fed's Fisher speaking, Fed's Rosengren speaking, ECB's Weidmann speaking, ECB's Constancio speaking, Italian bond auction, 5Y T-Note auction, weekly MBA mortgage applications report, (AMAT) analyst meeting, (ARUN) analyst day, BB&T Commercial/Industrial Conference and the CIBC Retail/Consumer Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology 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.