Tuesday Watch

Weekend Headlines 
Bloomberg:

•  U.K., Germany, France Urge G-20 Action on Tax Avoidance. Britain, Germany and France called on other Group of 20 nations to curb tax avoidance by international corporations that shift profits to territories where they can pay the lowest amounts. Citing research they commissioned from the Organization for Economic Cooperation and Development that identifies loopholes, finance ministers from the three nations said they will spearhead work to get companies to pay tax where it’s due. The countries provided the OECD with data to help identify schemes used by companies.
• Currency Manipulators Check Global Growth, Australia’s Swan Says. Governments that manipulate their currencies are a hindrance to global growth, Australian Treasurer Wayne Swan said at the meeting of Group of 20 finance ministers in Moscow. “Market-based exchange rates, fiscal and monetary policies supporting jobs and growth; that’s the core of the G-20 agenda,” Swan said in a Bloomberg Television interview yesterday. “To have people artificially target their exchange rates completely repudiates that approach.”
• ECB's Weidmann Says G-20 Statement Should Calm Currencies Debate. Bundesbank President Jens Weidmann spoke to reporters following meetings of Group of 20 nations' finance chiefs in Moscow. In the G-20 "there's unity in rejecting an active exchange-rate policy to bring about competitive advantage," Weidmann said. "Politically-motivated devaluations can't sustainably improve competitiveness, they don't solver structural problems and they set off reactions" elsewhere, he said.  "The clear language in the communique underlines this unity, and will allow the debate in the future to take place with a less excited tone," he said. 
• Saxo Bank CEO Says Euro Is Doomed as Currency Woes Resurface. Lars Seier Christensen, co-chief executive officer of Danish bank Saxo Bank A/S, said the euro’s recent rally is illusory and the shared currency is set to fail because the continent hasn’t supported it with a fiscal union. “The whole thing is doomed,” Christensen said yesterday in an interview at the bank’s Dubai office. “Right now we’re in one of those fake solutions where people think that the problem is contained or being addressed, which it isn’t at all.” 
• European Bank Puts at Two-Year Low: Options. Puts with an exercise price 10% below bank shares in the Euro Stoxx 50 Index cost an average 4.77 points more than calls 10% above, three-month data compiled by Bloomberg show. The price relationship known as skew slid to 4.6 on Jan. 29, the lowest since May 2011.
• Bank Risks Rise as Germany Curbs ESM Fund Powers: Euro Credit. Germany is insisting that the euro region's rescue fund plays safe on direct aid for banks, underscoring that governments might not be able to count on the firewall to remove the burden of bailouts.
• Merkel Urges EU Members to Implement Financial Transaction Levy. German Chancellor Angela Merkel called on all 27 European Union member countries to back the example of Germany and 10 others that plan a levy on the trading of financial products such as shares and bonds.    
• Italian Undecided Voters Targeted in Campaign’s Last Week. Italian voters are braced for an onslaught of tax-cut promises and attacks on the European Union as the four leading candidates take to the airwaves and criss- cross the country in the election campaign’s final days. Italy goes to the polls Feb. 24-25 in the first parliamentary election since Europe’s sovereign debt crisis threw its political establishment into disarray. Still up for grabs is the 20 percent of voters that pollsters say decide in the final week. The risk is an inconclusive result that denies victory to any and leads to gridlock, requiring a second vote. “The biggest issue is, is it going to be easy to form a government?” said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. 
• Spain Risks Market Indigestion in Bond-Selling Race: Euro Credit. Spain's bumper debt sales risk saturating the market as the nation's government, agencies and companies vie for investors' cash. "There is the risk that there is some crowding out in the Spanish market, with all the issuance," said Craig Veysey, head of fixed income at Sanlam Private Investments Ltd. in London, a unit of Sanlam Group, which oversees $72 billion.
• Aso Says Japanese Government Not Planning Foreign Bond Buys. Japanese Finance Minister Taro Aso said the government has no intention of buying foreign bonds through a public-private fund, comments that caused the yen to strengthen. “We don’t intend to buy foreign bonds,” Aso told reporters in Tokyo, when asked if such a fund is planned. He also said that the government is not considering any immediate change to the law governing the Bank of Japan. 
• China’s Stocks Drop Most in Month, Led by Cement Shares. China’s stocks fell the most in a month after valuations for the benchmark index climbed to the highest level in 17 months and on concern the government may introduce measures to curb property prices next month. Poly Real Estate Group Co. slumped 4.7 percent, dragging down a gauge of developers after China Business News said the government may impose real-estate curbs around a legislative meeting in March. Anhui Conch Cement Co., the nation’s biggest producer of the building material, slid the most since September 2011 after the government estimated slowing cement output growth. BYD Co., the carmaker partly owned by Warren Buffett’s Berkshire Hathaway Inc., slid the most in almost a month. The Shanghai Composite Index fell 1.2 percent to 2,393.18 at 1:05 p.m. local time, heading for the biggest loss since Jan. 11. It slid for a second day after a week-long holiday for the Lunar New Year.
• China New Year Retail Sales Growth Slows on Frugal Drive. Retail sales in China during the week-long Lunar New Year festival rose at the slowest pace in four years as a crackdown on extravagant spending by officials and state-owned companies limited outlays on food and drink.
• Rebar Falls to Pace Declines in Copper as Chinese Markets Reopen. Rebar for delivery in October, the most-active contract by volume, fell by as much as 1.8 percent to 4,198 yuan ($672) a metric ton on the Shanghai Futures Exchange, before trading at 4,200 at 10:40 a.m. local time. The Chinese bourse was closed last week for the Lunar New Year holiday. “Declines in the base metals, especially in the bellwether copper, during last week, led to bearish sentiment in the rebar market today,” Wang Yaoyao, analyst at Huawen Futures Co., said by phone from Shanghai. Copper for three-month delivery traded in London fell by 1.1 percent in the week ended Feb. 15. LME zinc for three-month delivery also fell by 1.4 percent in the same period. 
• China Said to Approve Joining Iran Railway Project. China’s State Council approved plans to take part in the building of a high-speed railway line in Iran, two people familiar with the matter said. The project will cost at least $1 billion and the companies participating haven’t yet been set, said the two people, who asked not to be identified because they weren’t authorized to speak publicly about the matter. China’s decision comes as the U.S., the European Union and their allies have tightened sanctions on Iran for a nuclear program they argue is meant to develop atomic bombs.
• Junk Bond Froth Leaks Into Emerging Market Debt: Credit Markets. Junk bonds of companies in emerging markets are the most expensive in seven years relative to the U.S., underscoring concerns by policy markets from Mexico to the Philippines who say the threat of asset bubbles is increasing.
• Singapore’s January Exports Rise Less Than Estimated on Drugs. Singapore’s exports rose less than estimated in January as manufacturers shipped fewer electronics and pharmaceutical goods. Non-oil domestic exports gained 0.5 percent from a year earlier, after a 16.3 percent drop in December, the trade promotion agency said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 3 percent increase. “It’s still looking a little bit subdued” outside of China, Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore, said before the report. The U.S. economy is still weak and Europe remains in a recession, he said. Singapore’s electronics shipments by companies such as Venture Corp. fell 5.6 percent in January from a year earlier, after slipping 19.1 percent the previous month.
• Saudi Oil Ouptut Drops to 19-Month Low as Exports Decline. Saudi Arabia's crude oil output fell in December to a 19-month low as the biggest OPEC producer shpped less oil and local use of crude dropped, according to the Joint Organizations Data Initiative.
• Hollywood Snubs Best Film as ‘Zero Dark Thirty’ Odds Fade. “Zero Dark Thirty,” the best- reviewed film of 2012, has become an Oscar longshot because of a political backlash in Hollywood over its depiction of torture in the hunt for Osama Bin Laden. Since early January, Kathryn Bigelow’s critically praised movie has sunk to fifth from third among likely best-picture winners at GoldDerby.com, which ranks award prospects. Actors Ed Asner and David Clennon urged academy voters to snub the Sony Corp. film. Author Naomi Wolf called Bigelow “torture’s handmaiden” and compared her to Nazi propagandist Leni Riefenstahl. The outcry from Washington and influential industry voices has made “Zero Dark Thirty” a tough vote for left-leaning Hollywood. It’s led to a split between academy members disturbed by torture scenes that imply waterboarding and other harsh methods worked, and others who defend the filmmakers’ right to free speech and artistic freedom.
• Obama Pal Jesse Jackson Jr.’s Career Derailed by Corruption Charge. Jesse Jackson Jr., the son and namesake of a civil rights icon and once a rising Democratic Party star, would have likely flown on Air Force One yesterday had corruption charges not short-circuited his political career. Instead, as his friend President Barack Obama was flying to Chicago for a speech, accompanied by members of the Illinois congressional delegation, federal prosecutors filed criminal charges against Jackson yesterday in Washington. He resigned from Congress on Nov. 21 as the probe in the case unfolded. Jackson, 47, was accused of misusing $750,000 in campaign funds for purchases including a $43,000 Rolex watch and a hat that belonged to the late pop singer Michael Jackson (no relation). He intends to plead guilty to one count of conspiracy to commit wire fraud, mail fraud and making false statements, one of his lawyers, Brian Heberlig of Steptoe & Johnson LLP, said in an e-mail.
• Reader’s Digest Is Bankrupt as Iconic Publisher Falters. RDA Holding Co., publisher of the 91-year-old Reader’s Digest magazine, filed for bankruptcy to cut $465 million in debt and focus on North American operations as consumers shift from print to electronic media. The company is the latest in a line of iconic businesses to have recently sought court protection from creditors, after Hostess Brands Inc., maker of Twinkies and Wonder Bread, and Eastman Kodak Co., inventor of Kodachrome and the Instamatic camera.

Wall Street Journal: 

• Google(GOOG) Works on Launching Retail Stores. U.S. Outlets Would Likely Sell Internet Giant's Branded Devices, but Plans Remain Unclear; Studying Apple's Playbook.
• CFTC Examines Gas Trades. U.S. commodities regulators are examining sharp price swings in the natural-gas market during the past year that came just before the public announcement of weekly gas-inventory data, a person familiar with the situation said. Officials in the Commodity Futures Trading Commission's market-oversight division have intensified since late last year their customary review of market data in an effort to detect suspicious trading strategies around the reports by the U.S. Energy Information Administration.
• Christensen, Flier and Vijayaraghavan: The Coming Failure of 'Accountable Care'. The Affordable Care Act's updated versions of HMOs are based on flawed assumptions about doctor and patient behavior.
• Amity Shlaes: The Coolidge Lesson on Taxes and Spending. The 30th president had two lion cubs. Their names? Budget Bureau and Tax Reduction.

Fox News:

• Al Qaeda claims responsibility for Baghdad car bombings that killed 37. The car bombs that exploded within minutes in outdoor markets also wounded more than 100 people. The attacks came amid rising sectarian discord in the country and appeared aimed at shaking the Iraqis' confidence in the Shiite-led government.
• Push to keep feds out of state gun markets gains momentum. States across the country are trying to protect gun ownership from the long arm of Washington by proposing bills declaring that firearms made and kept within their borders are not subject to federal restrictions.

CNBC:

• Why Over 8% Unemployment Could Lie Ahead.
• Draghi Could Do This to Weaken the Euro.

Zero Hedge:

• If Europe Were a House... It'd Be Condemned.
• Chart Of The Day: The DV01 Time Bomb Beneath The World's Equity Tranche. (graph)
• Goldman(GS) Implicated In Heinz Insider Trading Probe.
• "Great Rotation", Over. (graph)
• Gas Prices Surge To Highest Ever On This Day At Fastest Pace In Four Years. (graph)
• Video Of The Day: Regulators Squirm When Asked About "Too Big to Jail".
• 2013 Earnings: Just Insert Hockeystick. (graph)

Business Insider: 

• EL-ERIAN: It's Time To Book Some Profits.
• NYSE Margin Debt Is Creeping Toward All-Time Highs Right Along With The S&P 500. (graph)
• Award For Drone Pilots May Be The Most Ridiculous Thing The Pentagon Could Do.
• The SEC Sues Unidentified Traders Over Suspicious Activity Before The Heinz Deal.
• Health Care Cost Inflation Is Slowing, But Obamacare Could Change That.
• Two Nuclear-Armed Russian Bombers Reportedly Skirt US Base.
• BARRON'S BLASTS OBAMA: 'Follow Me, We Can Be Like Greece'.
• A Vast Political Espionage Scandal Is Unfolding In Spain. 
• George Soros Is Going After The Two Most Hated Currencies In The World.
• REPORT: An Overwhelming Number Of The Cyber-Attacks On America Are Coming From This Particular Army Building In China.
• Underwater Homes Are Still A Massive Dark Spot In The Housing Recovery.
• The Solution To California's Problems Is Beneath Its Feet — But Rich Environmentalists Are Having None Of It.
• 18 Companies That Are Probably Freaking Out About Those Leaked Wal-Mart Emails.
• The New Spanish Debt Stats Will Give You Chills.

Wall Street All-Stars:

• Indicator Update: Can We Play the Housing Rebound?

New York Times:

• The Second Mortgage Shell Game. The second mortgages have given the banks a loophole: each dollar a bank forgives goes toward fulfilling its obligation under last year’s settlement. But many lenders have made it a point to almost exclusively modify secondary loans while all but ignoring the troubled, larger primary mortgages.
• Prosecutors, Shifting Strategy, Build New Wall Street Cases. Criticized for letting Wall Street off the hook after the financial crisis, the Justice Department is building a new model for prosecuting big banks.

CNN: 

• Bomb rips through Shiite enclave in Pakistan, kills dozens. A blast targeting Shiites in a busy Pakistani marketplace killed at least 78 people on Saturday, police told CNN. The attack in the southwestern Pakistan city of Quetta left at least 180 people wounded.

Bradenton Herald:

• Is real estate really on the mend in Florida? Nearly a fifth of region's homes in 'some state of distress'. Given the improvement in local and state residential real estate demonstrated by last week's 2012 Florida Realtors statistics, there's a lot of positive buzz, and possibly a bit of wishful thinking taking place among would-be sellers, Realtors, mortgage brokers, appraisers, developers and contractors.
  
  
  Read more here: http://www.bradenton.com/2013/02/17/4397564/is-real-estate-really-on-the-mend.html#storylink=cpy
  
  Read more here: http://www.bradenton.com/2013/02/17/4397564/is-real-estate-really-on-the-mend.html#storylink=cpy

Reuters: 

• Office Depot, OfficeMax in merger talks: source. U.S. office supply chains Office Depot Inc (ODP) and OfficeMax Inc (OMX) are in advanced discussions for a merger, a person familiar with the matter said on Monday. A deal could come as soon as this week, that person said, adding that the talks were ongoing and could still fall apart.
• EMERGING MARKETS-Brazil stocks fall on worries over domestic economy.
• METALS-Copper falls to near 3-week low on growth concerns.

Financial Times:

• Europe’s budget deal is flawed. When Herman Van Rompuy comes to the European Parliament on Monday he will have some explaining to do. The president of the European Council greeted the conclusion of the recent budget negotiations between heads of government with a celebratory tweet that a deal had been reached, one worth the all-night haggling. But the result left many, including me, distinctly underwhelmed.
• US business hits out at ‘Obamacare’ costs. US retailers and restaurants chains that employ millions of low-wage workers are considering cutting working hours or paying fines rather than enrolling employees in health insurance plans under Barack Obama’s landmark healthcare law.

Meres:

• Syriza, Greece's main opposition and anti-bailout party, would place first if elections were held now with 21.5% voter support, a poll by Pulse RC shows. The New Democracy party of PM Antonis Samaras would get 20%, according to the poll published today. Nationalist Golden Dawn places third with 12% of the vote. Support for New Democracy, Pasok strongest among voters 60 and over. Support for Syriza, Golden Dawn strongest in 30-44 years age group.

El Pais:

• Spanish public debt surpassed EU882b in 2012, citing people close to the government it didn't identify. Debt increased by EU 146b last year, the biggest increase on record. Using independent estimates for GDP for 2012 the debt represents between 83.5% and 84% of GDP.

NHK:

• Japanese Prime Minister Shinzo Abe will ask U.S. to allow shale gas exports to Japan during his meeting with President Obama on Feb. 22.

China Business News: 

• China May Introduce Policy to Curb Home Prices. China may introduce more policies to curb property prices before or after the National People's Congress annual session next month, citing researches including Xie Yifeng. Several Chinese cities tightened housing provident fund policies in recent months. Xie is the head of the Asia-Pacific City Development Research Center's real estate institute.

China Daily:

• The level of trust among Chinese people has fallen to a record low, citing a study by the Institute of Sociology under the Chinese Academy of Social Sciences. Less than half of those in the survey of 1,900 residents in seven Chinese cities including Beijing and Shanghai said "most people can be trusted." The trust level measured by the study was 59.7 points out of 100, down from 62.9 points in 2010, according to the report.
• China Shadow Banking, LGFV Biggest Threat, BOC Chair Says. The biggest threats to China's financial stability are "huge amounts" of shadow banking and loans to local government financing vehicles, Bank of China Ltd. Chairman Xiao Gang writes in a commentary. Capital inflows could increase because of global easing, causing inflation and asset bubbles, Xiao wrote. China must "hold the bottom line" to prevent systemic risks from building, he said.

Weekend Recommendations

Barron's:

• Bullish commentary on (AEO), (ROCM), (OVTI), (VOD) and (BRCM).

• Bearish commentary on (LINE), (QCOM), (WFM), (HEK) and (AAPL). 

Night Trading

• Asian indices are -.5% to +.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 110.50 -.25 basis point.

• Asia Pacific Sovereign CDS Index 84.50 -.5 basis point.

• FTSE-100 futures +.04%.

• S&P 500 futures +.07%.

• NASDAQ 100 futures +.06%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GPC)/.93

• (FDP)/.04

• (WWW)/.17

• (EE)/.16

• (MDT)/.91

• (SEE)/.29

• (CCO)/.04

• (ADI)/.44

• (LNCR)/.61

• (MDRX)/.20

• (MAR)/.55

• (CF)/6.95

• (DELL)/.38 

Economic Releases
10:00 am EST

• The NAHB Housing Market Index for February is estimated to rise to 48 versus 47 in January.
  

Upcoming Splits

• None of note

Other Potential Market Movers

• The Germany Zew Survey could also impact trading today.

BOTTOM LINE: Asian indices are mostly lower, weighed down by real estate and technology shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% net long heading into the week.