Wednesday Watch

Late-Night Headlines
Bloomberg:

- Commodity Futures Trading Commission Chairman Gary Gensler pressed Congress to curb exemptions in legislation reining in the $605 trillion over-the-counter derivatives industry, saying loopholes help “big Wall Street banks.” “It is the Wall Street banks that benefit from the so- called end-user exemption from transparency, not the businesses that use derivatives,” Gensler said in prepared remarks to be delivered today to the Atlantic Council in Washington. “Exempting an entire class of transactions would reduce the amount of information that would otherwise be available to the public and market participants.” While the legislation, which the Senate has yet to consider, applies to standard contracts between broker dealers such as Goldman Sachs Group Inc. and JPMorgan Chase & Co., it wouldn’t regulate transactions between those banks and end- users. Such provisions risk leaving as many as 60 percent of standard contracts “in the opaque, bilateral over-the-counter markets,” Gensler said in his remarks. He said “all transactions in standard contracts should be required to be conducted on regulated trading facilities or exchanges.”

- Top 100 Political Donors From 1989-2010 (Table). Following is a comparison of the top political donors from the 1989-2010 election cycle to political party as compiled by the Center for Responsive Politics. The last column is the difference in a firm’s average percentage of donations to Democrats from the 1989 to 2010 cycles compared to its 2010 cycle only donation. For example, Goldman Sachs(GS) has increased its percentage of donations from 64 percent to democrats to 75 percent in the latest cycle only.

- The Federal Reserve Bank of New York may be compelled to hand over documents related to American International Group Inc.’s government bailout after the chairman of a House oversight committee said he will issue a subpoena. Edolphus Towns, the New York Democrat who runs the Oversight and Government Reform Committee, said in a statement that he will issue a subpoena today to get New York Fed records concerning the decision it made to fully reimburse AIG’s partners. Banks including Goldman Sachs Group Inc. and Societe Generale SA were among beneficiaries of AIG’s rescue, called by lawmakers a “backdoor bailout” for financial firms. The New York Fed, run by Timothy Geithner when AIG was rescued, had resisted since November calls to provide documents without a subpoena, Darrell Issa of California, the ranking Republican on the oversight committee, said today in a letter. Geithner made the decision to pay banks 100 cents on the dollar for their AIG swaps tied to subprime mortgages even though the underlying assets had declined in value, according to Barofsky’s audit.

- Oil declined for a third a day after China raised bank reserve requirements to curb a credit boom and prevent the economy from overheating, and as an industry report showed an increase in U.S. crude and distillate stockpiles. Supplies of distillate fuel, a category that includes heating oil and diesel, rose 3.6 million barrels last week, a report from the American Petroleum Institute showed yesterday. “It was a hefty distillate build, especially considering the weather in the northern hemisphere.” China’s move will help remove about 300 billion yuan ($44 billion) of liquidity from the Chinese economy, according to estimates by Xing Ziqiang, an economist in Beijing at China International Capital Corp., ranked the top China local brokerage by Asiamoney magazine last year.

- John Thain, the ousted chief of Merrill Lynch & Co., has held talks about leading CIT Group Inc., the commercial lender that emerged from bankruptcy last month, two people familiar with the matter said.

- Illumina Inc.(ILMN), the San Diego-based maker of equipment to analyze DNA, said it had a record sale of its new systems that can decipher a person’s genetic code for less than $10,000. The shares rose the most in almost a year. Illumina sold 128 of the HiSeq 2000 systems to the Beijing Genomics Institute, a Chinese government research institute. The company also reported preliminary fourth-quarter sales that topped analysts’ estimates.

- New Jersey Governor Jon Corzine, making his valedictory speech to lawmakers, said the most critical issue facing them and his successor boils down to this: “Everyone’s property taxes are too damn high.” In his final State of the State address, seven days before he cedes the office to Republican Christopher Christie, Corzine expressed disappointment that he was unable to win another four years in office. He leaves with a record 58 percent disapproval rating among voters, according to a Fairleigh Dickinson University poll today. The former chairman of Goldman, Sachs & Co.(GS), who pledged to use his Wall Street expertise to end budget deficits and lower the highest property taxes in the nation, urged politicians to “think not just about the next election.”

- Cocaine was responsible for more than 3 percent of all sudden deaths in a Spanish study signaling that no amount of the recreational drug, however small, is safe.

- Skype Technologies SA, the largest provider of international telephone service, said it named former Sony Ericsson Mobile Communications AB President Miles Flint as chairman. Flint, 56, is an adviser to Silver Lake, the private-equity firm that invested in Skype last year. He will lead the Luxembourg-based phone company’s 17-person board of directors, Chief Executive Officer Josh Silverman said in an interview. Skype, bought in November by Silver Lake and an investor group including actor Ashton Kutcher’s firm Katalyst, is placing its software on mobile phones and TV sets and trying to gain corporate customers with high-definition videoconferencing.

- Google Inc.(GOOG) briefed Secretary of State Hillary Clinton last week on its situation in China, a senior U.S. official familiar with the matter said. Clinton, who is in Hawaii on the first stop of an Asia- Pacific trip, may issue a statement soon, the official said, speaking on condition of anonymity.

- House Ways and Means Committee Chairman Charles Rangel said lawmakers are considering paying for health-care legislation by imposing a new tax on unearned income such as capital gains, a measure aimed at wealthier Americans. The New York Democrat, whose panel writes tax law, said the plan to expand the Medicare payroll tax to cover unearned income was preferable to a Senate proposal backed by President Barack Obama to tax the most-expensive health benefits, which labor leaders say will hurt many workers.

Wall Street Journal:

- Taxing Details That Harm Patients by Bob Dole. A new levy on Medicare Advantage plans would hurt lower-income seniors the most.

- Federal prosecutors this week are expected to file formal charges against a Chicago businessman in a broad terrorism probe that includes the 2008 Mumbai terror attack and a scheme to attack a Danish newspaper, people familiar with the matter said. Tahawwur Hussain Rana, a Pakistani-born Canadian citizen, already has been accused by federal prosecutors of plotting with David Headley, also of Chicago, and Pakistani militants to attack the offices of the newspaper, which in 2005 published satirical cartoons of the Prophet Muhammad. Prosecutors filed a criminal complaint against Mr. Rana in October, and the government faces a Thursday deadline to file an indictment.

- A hedge-fund manager known to prosecutors as "Tipper X" in the Galleon Group insider-trading investigation could lead prosecutors to scrutinize hedge funds not previously implicated in the probe, people familiar with the case say.

- In the nation's capital, Senate Majority Leader Harry Reid is on the brink of pushing through a national health program that Democrats rank alongside the creation of Social Security and Medicare. In Nevada, that very achievement is imperiling his re-election prospects.

- Contract chip maker Globalfoundries, owned by Advanced Micro Devices Inc. (AMD) and Abu Dhabi-funded Advanced Technology Investment Co., expects double-digit revenue growth this year, powered by a rebound in the global semiconductor industry after a two-year slump.

- Haiti's strongest earthquake in more than two centuries rocked the Caribbean nation on Tuesday, causing dozens of buildings to collapse and raising fears that many people have died, officials and witnesses said.

CNBC.com:
- The U.S. Federal Reserve will have to raise interest rates as the economy improves or risk losing the public's confidence in its commitment to keeping inflation low and stable, a top Federal Reserve policy maker said on Tuesday.

IBD:
- Aruba Networks (ARUN) is one big beneficiary of the change. Founded in 2002, the firm has been providing wireless local area networks (LANs) for years. But now 11n is the main driver of growth. In the fiscal first quarter ended Oct. 31, 11n-based gear supplied 42% of shipments.

NY Times:

- A senior Goldman Sachs(GS) executive sent an e-mail message to clients on Tuesday disclosing that the firm’s Fundamental Strategies Group might have shared investment ideas with the firm’s proprietary trading group or some clients before sharing them with others. The e-mail message, obtained by DealBook, demonstrates the various conflicts that Goldman and other firms face in balancing the interests of its various clients and its own trading operation.

McClatchy:

- It's been 77 years since the Pecora Commission combed through cabinets full of banking records, exposed the abuses that led to the stock market crash of 1929 and created a public furor that eased passage of sweeping securities reforms. On Wednesday, as the nation crawls from the depths of the worst economic collapse since the 1930s, Americans will see whether a similar commission that Congress has created to investigate today's crisis will echo that no-holds-barred inquiry of the Great Depression as its 10 members confront the Wall Street giants of the 21st Century. Among leadoff witnesses at the Financial Crisis Inquiry Commission's opening hearing: Lloyd Blankfein, the chairman and chief executive of Goldman Sachs(GS), the Wall Street goliath that largely escaped the subprime mortgage debacle — and may have profited from it — by selling off $40 billion in securities backed by risky home loans while secretly betting that the housing market would plummet.

CNNMoney.com:

- The nation's economic decline led to the biggest drop in electric output since 1938, according to an industry trade group. A new report released Tuesday from the Edison Electric Institute says output fell by 3.7% for its second year of declines in a row. The group said the fall was triggered by the recession and cooler summer temperatures, which were more than 20% lower than normal in many parts of the country.

Business Insider:

- Hedge Funds Are Placing Record Bullish Bets On Oil.

- Why All The Arguments For Walking Away From Your Mortgage Are Pathetic. The bottom line for me is that just because we're angry at banks, doesn't mean that it's okay to do anything and everything to get back at them--much less a good idea. Our response should be targeted at the things they did wrong (like lending money to people who probably couldn't pay it back), and should cause fewer problems for the general public than it solves. Voluntary defaults fail on both counts.

Business Week:

- U.S. stocks may keep rallying after the biggest annual gain since 2003 because Dow Jones indexes tracking industrial and transportation companies hit simultaneous highs, according to followers of Dow Theory.

- The rub on Jeff Zucker, who heads NBC, has always been that no one could ever figure out what he did to get to the top. The 44-year old was a creature of General Electric. He rose from nowhere, starting as a researcher for the 1988 Olympics, and then as Katie Couric’s producer at The Today Show. Using a combination of moxie and managing upward he jumped to run The Today Show, then sit atop NBC’s entertainment operations, and finally to run the entire NBC operation when Bob Wright retired in early 2007. Well, Jeff, it looks like your luck has run out. The Jay Leno, Conan O’Brien mess will be your undoing, if not within the next few months then when Comcast takes over controlling interest in NBC Universal in the next year or so.

- China is seeking to prevent a flow of “hot money” into the stock and property markets by tightening lending as inflation accelerates, according to CCB International Securities Ltd. “The earlier-than-expected move to tighten will make speculators think twice,” Peter So, Hong Kong-based head of research at CCB International, a unit of China’s second-largest bank, said in a phone interview. “China is taking steps to suppress liquidity. Hot money will flow into the stock and property markets with rising inflation.” The decision indicates rising concern in Premier Wen Jiabao’s government that a continuation of the record 9.21 trillion yuan ($1.35 trillion) of loans in the first 11 months of 2009 will create a bubble in property and stock prices.

Politico:

- It’s hard for some Democrats to believe that the candidate running to replace Ted Kennedy is being attacked over health care reform — in one of the bluest states in the union, no less. But Republican Scott Brown has got Democrats nervous — not just for his opponent Martha Coakley but about the fact that a loss in Massachusetts would be a body blow to Democratic reform efforts in Washington. Republicans are watching public approval of reform continue to tank while their candidates’ poll numbers rise. And they still view the bill’s Medicare cuts, tax increases and lack of transparency as key to a 2010 message that voters should bring GOP checks and balances to a Democratic-run Washington. Brown’s danger to health reform is more than just his messaging — he’s hoping to become the “41st vote” to scuttle a health reform bill in the Senate by denying Democrats their 60-vote majority. It’s not that simple. Even if he manages to upset Coakley — despite some polls showing her with a double-digit lead — Democrats could drag out seating Brown, thanks to a 15-day waiting period to send results to the secretary of state and, then, no deadline for state officials to formally declare a winner. And even if Democrats were unable to negotiate a final bill before Brown was seated, they’d have a last resort: Democrats could try to pass the Senate bill through the House with no changes, sending it straight to President Barack Obama’s desk. But Brown’s threat to health reform is in some ways larger. He’s showing how Republicans can run against reform — something sure to play out in other high-profile campaigns this fall.

Rasmussen Reports:

- Republican candidates have now posted a nine-point lead over Democrats on the Generic Congressional Ballot for the first two weeks of 2010. The latest national telephone survey shows that 45% now would vote for their district’s Republican congressional candidate while 36% would opt for his or her Democratic opponent. Last week, Republicans started the New Year with a nine-point lead, their biggest in several years, while support for Democrats fell to its lowest level in years. Republicans have held the lead on the ballot for over four months now.

CNN:

- The Democratic Party's top donors will be urged Tuesday to open up their wallets for Martha Coakley as party leaders scramble to provide her with the financial resources needed to try and win the late Sen. Edward Kennedy's seat, a Democratic Party source tells CNN. Up to 500 donors are expected to participate in the afternoon conference phone call that will be led by Democratic National Committee Chairman Tim Kaine. Kaine "will make the pitch to the donors and the case against [Republican opponent Scott] Brown," said the source, who spoke on the condition of anonymity. Coakley is also expected to appear on the call where "she will highlight the importance of the race and her own credentials." The goal is to raise "in the significant six-figure range in the next 48 hours," the source added. Separately, the DNC is expected to inject $500,000 into the race, the source noted.

The Official Google Blog:

- Like many other well-known organizations, we face cyber attacks of varying degrees on a regular basis. In mid-December, we detected a highly sophisticated and targeted attack on our corporate infrastructure originating from China that resulted in the theft of intellectual property from Google(GOOG). However, it soon became clear that what at first appeared to be solely a security incident--albeit a significant one--was something quite different. First, this attack was not just on Google. As part of our investigation we have discovered that at least twenty other large companies from a wide range of businesses--including the Internet, finance, technology, media and chemical sectors--have been similarly targeted. We are currently in the process of notifying those companies, and we are also working with the relevant U.S. authorities. Second, we have evidence to suggest that a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists. Based on our investigation to date we believe their attack did not achieve that objective. Only two Gmail accounts appear to have been accessed, and that activity was limited to account information (such as the date the account was created) and subject line, rather than the content of emails themselves. Third, as part of this investigation but independent of the attack on Google, we have discovered that the accounts of dozens of U.S.-, China- and Europe-based Gmail users who are advocates of human rights in China appear to have been routinely accessed by third parties. These accounts have not been accessed through any security breach at Google, but most likely via phishing scams or malware placed on the users' computers. These attacks and the surveillance they have uncovered--combined with the attempts over the past year to further limit free speech on the web--have led us to conclude that we should review the feasibility of our business operations in China. We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all. We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China.

USAToday:

- Tim Westergren doesn't have to beat the drum as loudly anymore. Thanks to the popularity of the iPhone and other smartphones, listenership has quadrupled since 2008 at Pandora, the free online radio service he founded. The private company just had its first profitable quarter and brought in about $40 million in revenue last year. It expects even more growth this year.

Reuters:

- FACTBOX - Google's(GOOG) footprint in China. Google does not break out Chinese revenue figures, but Collins Stewart analyst Sandeep Aggarwal estimates Google generates about $200 million in annual sales from China. JP Morgan has estimated Google would generate about $600 million in revenue from China in 2010.

Telegraph:

- US Must Cut Spending to Save AAA Rating, Warns Fitch. Fitch Ratings has issued the starkest warning to date that the US will lose its AAA credit rating unless acts to bring the budget deficit under control, citing a spiral in debt service costs and dependence on foreign lenders. Brian Coulton, the agency's head of sovereign ratings, said the US is shielded for now by its pivotal role in global finance and the dollar's status as the key reserve currency, but the picture is deteriorating fast enough to ring alarm bells. In the absence of measures to reduce the budget deficit over the next three to five years, government indebtedness will approach levels by the latter half of the decade that will bring pressure to bear on the US's 'AAA' status", he said. Fitch expects the combined state and federal debt to reach 94pc of GDP next year, up from 57pc at the end of 2007. Federal interest costs will reach 13pc of revenues, meaning that an eighth of all taxes will go to service debt. Most fiscal experts view this level as dangerously close to the point of no return for debt dynamics. The rating alert is a reminder that fiscal stimulus and bank rescues across the world have merely shifted private debt on to public shoulders. The bail-outs looked deceptively 'costless' at the time, but the damage to sovereign states may take years to repair. The US Treasury says interest payments as a share of GDP will rise to 3.6pc by 2016, the highest since data began in 1940 – when it was 0.8pc.

Guardian:

- The most brazen disdain for democracy in modern times. Bumper banker bonuses are back. And what is it really, if not grand-scale theft - from treasuries, customers and taxpayers. There will be a tidal wave of rage. Over the next two weeks the executives of the leading British and American banks will announce that some £50bn is to be taken from accumulated profit and handed over, not to shareholders or taxpayers, but to themselves. It will be the most outrageous contempt of ­democratic authority in modern times. The sums will be breathtaking, starting with Friday's predicted payout of £18bn at the American bank, JP Morgan Chase(JPM). This is almost exactly what it cost the US taxpayer to rescue the bank a year ago. A similar sum is predicted at Goldman Sachs(GS). This is happening at the heart of the western economy that has just endured its worst crash for 30 years, almost entirely through the doings of these banks and executives.

Evening Recommendations

Citigroup:

- Reiterated Buy on (FORM), target $30.

- (GOOG) - We believe that from an investment perspective legal/political challenges in China over the last few years have significantly limited financial/valuation expectations for Google in China. Thus, as a first pass, we view recent developments as a modest - not material - negative development for (GOOG). Target $640.

Night Trading
Asian indices are -2.25% to -.50% on avg.

Asia Ex-Japan Inv Grade CDS Index 91.0 +5.5 basis points.
S&P 500 futures +.19%.
NASDAQ 100 futures +.05%.

Morning Preview
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Earnings Calendar

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Who’s Speaking?
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Politico Headlines
Rasmussen Reports Polling

Earnings of Note
Company/Estimate
- (ZZ)/.02

- (CLC)/.46

- (JEF)/.36

- (AMR)/-1.19

- (KMP)/.49

Economic Releases

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil build of +1,500,000 barrels versus a +1,329,000 barrel gain the prior week. Gasoline supplies are expected to rise by +1,700,000 barrels versus a +3,737,000 barrel gain the prior week. Distillate inventories are estimated to fall by -1,300,000 barrels versus a -233,000 barrel decline the prior week. Finally, Refinery Utilization is expected to rise by +.5% versus a -.41% decline the prior week.

2:00 pm EST

- The Monthly Budget deficit for December is estimated to widen to -$92.0B versus -$51.8B in November.

- Fed's Beige Book

Upcoming Splits

- None of note

Other Potential Market Movers
- The Fed's Evans speaking, Treasury's 10-year note auction, weekly MBA mortgage applications report, (MON) R&D update, Goldman Energy Conference, Needham Growth Conference, (DPZ) investor day and the JPMorgan Healthcare Conference could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by banks and commodity stocks 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.

Stocks Finish Lower, Weighed Down by Commodity, Technology and Healthcare Shares

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Stocks Lower into Final Hour on Financial Sector Political Fears, Profit-Taking, China Hard-Landing Worries

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Financial longs and Technology longs. I added (IWM)/(QQQQ) hedges and added to my (EEM) short this morning, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost ever sector is declining and volume is slightly above average. Investor anxiety is high. Today’s overall market action is mildly bearish. The VIX is rising +6.38% and is around average at 18.68. The ISE Sentiment Index is slightly below average at 135.0 and the total put/call is around average at .81. Finally, the NYSE Arms has been running very high most of the day, hitting 2.22 at its intraday peak, and is currently 1.65. The Euro Financial Sector Credit Default Swap Index is rising +6.71% to 58.24 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising +2.24% to 77.95 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is up -2 basis points to 21 basis points. The TED spread is now down 442 basis points since its all-time high of 463 basis points on October 10^th, 2008. The 2-year swap spread is falling -.90% to 26.76 basis points. The Libor-OIS spread is unch. at 11 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is unch. at 2.47%, which is down -18 basis points since July 7^th, 2008. The 3-month T-Bill is yielding .04%, which is up +2 basis points today. Economically sensitive shares are underperforming today, with the MS Cyclical Index falling -1.91%. HMO, Semi, Gold, Ag and Alt Energy shares are especially weak, falling 2.50%+. A number of market leaders are underperforming today. On the positive side, investor angst is surging quite a bit with a relatively mild pullback in the major averages. Long-term rates are at session lows, falling -10 bps. There are pockets of relative strength in various sectors. I suspect today’s weakness is much more related to profit-taking in overbought sectors, China worries and financial sector political concerns than (AA)’s disappointing earnings report. Asia, was barely lower last night. I expect those shares to come under pressure tonight. However, if they remain firm the pullback in US stocks may prove very short-lived. Nikkei futures indicate a -109 open in Japan and DAX futures indicate an +4 open in Germany tomorrow. I expect US stocks to trade mixed-to-lower into the close from current levels on profit-taking, China hard-landing worries, more shorting and financial sector political fears.

Today's Headlines

Bloomberg:

- A China Investment Corp. official said the Asian nation may raise benchmark interest rates before the U.S. because it faces a greater risk of an asset bubble, Market News International reported today. The U.S. dollar is unlikely to fall further this year, and the outlook for the yen isn’t promising, Peng Junming, an official in the asset allocation and strategic research department of China’s $300 billion sovereign wealth fund also was quoted as saying. Peng said his comments were his personal views in a speech in Beijing today, Market News reported. “If China waits for the U.S. to act first, they’ll be giving a green light to further growth of asset bubbles and eventually we’ll have a hard landing because China has to pull the trigger,” said Kevin Lai, an economist at Daiwa Institute of Research in Hong Kong. “They have a window of opportunity now to execute a soft landing.”

- China unexpectedly raised the proportion of deposits that banks must set aside as reserves to cool the world’s fastest-growing major economy as a credit boom threatens to stoke inflation and create asset bubbles. Reserve requirements will increase by 50 basis points starting Jan. 18, the central bank said on its Web site this evening. The existing level for big banks is 15.5 percent. The move wasn’t anticipated until at least April, according to the median of 11 forecasts in a Bloomberg News survey four days ago. The decision indicates increasing concern in Premier Wen Jiabao’s government that a continuation of the record 9.21 trillion yuan ($1.3 trillion) of loans in the first 11 months of 2009 will create a bubble in property and stock prices. It also follows two bill auctions by the central bank in the past week where officials guided yields higher, auguring higher borrowing costs. “This series of moves by the central bank provides a clear sign that policy makers are following through on their pledge to guide credit in order to pre-empt rising inflation and avoid asset price bubbles,” said Jing Ulrich, chairwoman of China equities and commodities at JPMorgan Chase & Co. in Hong Kong.

- Union leaders opposed to a Senate plan to tax the most expensive employer-provided health benefits said Democrats face losses in this year’s U.S. congressional elections if they fail to support labor’s agenda. “This is a moment that cries out for political courage, but it is not much in evidence,” Richard Trumka, head of the 11 million-member AFL-CIO labor federation, said yesterday in a speech before he and other union leaders met with President Barack Obama, who supports the tax. Trumka warned of a repeat of 1994, when Democrats lost control of Congress, if lawmakers back a health-care overhaul without heeding labor’s concerns. Harold Schaitberger, president of the International Association of Fire Fighters, said Obama “will be held accountable” if he continues to push for the excise tax on the insurance plans, which is intended to help fund the overhaul. “The president’s support for the excise tax is a huge disappointment and cannot be ignored,” he said yesterday in a statement about the levy, which would be imposed on insurance plans worth more than $23,000 a year for families.

- President Barack Obama’s push to halt Iran’s suspected nuclear-weapons program with tougher sanctions is likely to fail, if history is a guide. Financial and trade restrictions imposed by the United Nations, the U.S. and the European Union haven’t stopped Iran from enriching uranium or building a secret nuclear facility -- any more than sanctions on countries including Cuba and Myanmar have changed their policies. Unity on new penalties will be tough. Major economies such as China rely on Iran’s crude oil, and many non-U.S. energy companies including Royal Dutch Shell Plc are invested in Iran, which has the world’s second-biggest natural-gas and oil reserves.

- U.S. life insurers, a group led by MetLife Inc.(MET) and Prudential Financial Inc.(PRU), will sidestep losses on investments tied to commercial mortgages, said Eric Berg, an analyst with Barclays Plc. “Life insurers stand to lose little, if anything” even if commercial property values continue to fall, Berg said today in a research report. “The reason: the substantial subordination, or protection against loss, that the insurers enjoy” on commercial mortgage-backed securities, he said.

- Corn prices plunged the maximum permitted by the Chicago Board of Trade after the U.S. forecast a record crop. Soybeans and wheat prices also dropped. Corn futures for March delivery fell 30 cents, the CBOT’s daily limit, or 7.1 percent, to $3.925 a bushel at 9:36 a.m. in Chicago. Soybean futures for March delivery fell 37.5 cents, or 3.7 percent, to $9.73 a bushel, and wheat futures for March delivery slipped 35.5 cents, or 6.2 percent, to $5.37 a bushel.

- Tiffany & Co.(TIF), the world’s second- largest luxury-jewelry retailer, raised its annual earnings forecast and said holiday sales rose after wealthy consumers started spending more. Revenue from Nov. 1 to Dec. 31 rose 17 percent to $799.1 million, New York-based Tiffany said in a statement distributed on Business Wire today. Sales at U.S. stores open at least a year climbed 12 percent, with gains of 16 percent in November and 10 percent in December.

- Las Vegas Strip gambling revenue rose 8.3 percent in November, the first increase in almost two years for the largest U.S. casino market. Proceeds on the Strip rose to $473.8 million, Nevada’s Gaming Control Board said today in a statement on its Web site. Revenue for all of Clark County, including downtown Las Vegas, gained 6.9 percent to $750.8 million, the board said.

Wall Street Journal:

- Senate Banking Committee Chairman Chris Dodd said today that Ben Bernanke cannot remain as chairman of the Federal Reserve if the Senate does not confirm him by January 31 when his four-year term expires. In an interview on CNBC, Dodd said Fed Vice Chairman Donald Kohn would take over as chairman. Sen. Judd Gregg (R., N.H.) made the same point. The comments generated some confusion on Wall Street, but the situation isn’t clear-cut. This much is clear: A Fed chairman cannot automatically stay in his position after his four-year term as chairman expires. Members of the Fed board, in contrast, can remain in office as governors until their expired term has been filled. The Federal Reserve Act says that the Fed vice chairman acts as chair in the “absence” of the chairman. But “absence” is not defined.

- Dendreon Corp. (DNDN) said it expects the cash it raised in December to accelerate the completion of its manufacturing facilities and that the cash has given it leverage in finding a European marketing partner for its experimental prostate-cancer treatment.

- Could all those populist pitchforks currently pointed at Washington be turned toward Wall Street instead? That's the question that ought to worry Wall Street executives as they prepare to pay themselves nice bonuses this month, hard on the heels of a government bailout of the financial system, and amid continuing job losses around the rest of the country. Financial firms know they're in for heat on bonuses; they've already been chastised on national TV by President Barack Obama's chief economist. The more searing heat, though, might come not from Washington's corridors of power but from the streets, where disjointed populist armies are starting to organize in the so-called tea-party movement. Other hints of unrest can be seen on the political left and the right. On the left, Arianna Huffington, who runs one of the Internet's hottest political sites, has just suggested that people take their money out of the kinds of big financial institutions that benefited from Washington's rescue, and move it to community banks. And on the right, Republican Rep. Darrell Issa has begun a crusade to figure out whether Treasury Secretary Timothy Geithner, while chairman of the Federal Reserve Bank of New York, was part of a plan to hide from taxpayers the fact that rescue money doled out to insurance giant American International Group Inc. was simply going out the backdoor to rescue banks owed money by AIG. It's easy in Washington and on Wall Street to dismiss the tea-party movement as a disorganized fringe force. It's worth remembering, though, that in a Wall Street Journal/NBC News poll late last year, the tea-party movement won a higher favorability rating among Americans than did either major party.

- Sen. Lisa Murkowski on Tuesday left open the possibility that she would seek a vote next week on stopping the U.S. Environmental Protection Agency from going forward with regulations to limit greenhouse-gas emissions. "I do not believe and I don't believe that most of my colleagues in the Senate believe that the EPA is the entity that is the best suited to develop climate-change policy for this country," Ms. Murkowski (R., Alaska) told reporters. "I'm trying to get a time-out. I'm trying to allow the legislative process to proceed. I'm hopeful that we'll be able to have a vote that will allow for that discussion."

MarketWatch.com:

- The U.S. markets have started 2010 on the upswing, with each of the three major benchmarks notching 15-month highs. Underlying the upturn, the Nasdaq's strength has been statistically unusual, effectively laying the groundwork for what are likely to be further first-quarter gains.

CNBC:

- Gary Shapiro: US and China on the Brink of a Trade War.

- The sentiment of U.S. small business owners stalled in December, hurt by weak sales and worries about government policies, according to a survey released on Tuesday. The National Federation of Independent Business said its small business optimism index fell for the second straight month, dropping 0.3 point to 88.0 in December. "Continued weak sales and threatening domestic policies from Washington have left small business owners with little to be optimistic about in the coming year," said the federation's chief economist, William Dunkelberg, in a statement.

NY Times:

- The technology industry is going retro — moving away from remote controls, mice and joysticks to something that arrives without batteries, wires or a user manual. It’s called a hand. In the coming months, the likes of Microsoft, Hitachi and major PC makers will begin selling devices that will allow people to flip channels on the TV or move documents on a computer monitor with simple hand gestures. The technology, one of the most significant changes to human-device interfaces since the mouse appeared next to computers in the early 1980s, was being shown in private sessions during the immense Consumer Electronics Show here last week.

The Business Insider:

- Shareholders: Reject Big Bonuses, And Penalize Executives’ Permanent Value-Destroying Behavior.

- Venezuelans really have their priorities straight. After Chavez devalued the currency, fears mounted that retailers would increase prices significantly to make up the difference. So people rushed out to buy flat screen TVs and video games en masse before it's too late. And retailers are caught in a Catch 22 of their own. If they raise prices, Chavez says he'll order the military to seize businesses that do so. If they don't, profits will suffer greatly. Welcome to the joys of a centrally planned economy.
- Oil Discovery Under Shallow Gulf Waters Estimated To Be Biggest In Decades.

InformationWeek:

- According to a report from The Korea Times, Apple is set to introduce the "iPhone 4G" no later than April, with the device hitting store shelves around the globe by June. The report includes some interesting specs on the unannounced product. Let's take a look. The iPhone 4G -- as it is currently being called -- would sport an OLED display, a dual-core processor and a better graphics chip. Other features being reported include a removable battery (!!!), dual cameras to support video calling, and possibly mobile TV services.

EarthTimes:

- With the 2010 earnings season in full swing, tightening spreads for JP Morgan Chase & Co. and Merrill Lynch & Co. Inc. indicate that the markets are keeping a close eye on upcoming reports from both financial institutions, according to Fitch Solutions in its latest update on Global CDS Spreads/Liquidity Scores for companies scheduled to come out with earnings announcements in the coming week. Both financial institutions have outperformed the broader financials sector over the past 3 months, with JP Morgan spreads tightening 32% and Merrill spreads coming in 26%. Trends for both companies are emblematic of broader sector tightening, with CDS spreads on the financials industry firming up on average 20%. 'There has been systematic CDS spread tightening across all sectors, with Financials leading the way' said Managing Director Jonathan di Giambattista. 'The fact that liquidity on Merrill Lynch has dramatically reduced in recent months signals that the market expects a return to stability for the financial sector.'

TGDaily:

- An interesting rumor reached the ever alert ears of TG Daily's hacks on the CES showroom floor last week, with word that Apple(AAPL) has snapped up all available supply of 10.1-inch multi-touch display LCD and OLED screens for its upcoming tablet. "We were designing a product for a customer and we needed 10 inch screens, but we've been trying for months and can't get one from any of the Asian suppliers," an anonymous designer for a firm wishing to remain nameless told TG Daily.

LATimes:

- Imports at the nation's trade gateways -- including the ports of Los Angeles and Long Beach -- appear to have ended their long decline and are poised for a strong recovery, according to preliminary data released Monday. Cargo volume at ports on the Atlantic, Pacific and Gulf coasts were higher in December than a year earlier, the first such gain in 28 months, according to the National Retail Federation and consulting firm Hackett Associates.

Rassmussen:

- Thirty-one percent (31%) of U.S. voters rate the government response to the attempted terrorist bombing of a U.S. airliner on Christmas Day as good or excellent, according to a new Rasmussen Reports national telephone survey. Thirty-eight percent (38%) say the government’s response has been poor. Just 24% now have a favorable opinion of Homeland Security Secretary Janet Napolitano, while 47% view her unfavorably.

Politico:

- Chamber of Commerce President Tom Donohue gave a scathing assessment of the Obama administration’s business agenda on Tuesday — and delivered a clear threat to Democrats running for election in 2010. “We are not in presidential politics,” said Donohue. “But we’re going to be in a lot of politics in the House and the Senate and the judicial politics in this country.” Donohue criticized proposals to reform health care, overhaul the financial system and cap the amount of greenhouse gases in the atmosphere, saying the Democratic agenda will undermine private industry and eliminate jobs. “Congress, the administration and the states must recognize that our weak economy simply could not sustain all the new taxes, regulations and mandates now under consideration,’ said Donohue. “It’s a sure-fire recipe for double-dip recession, or worse.” The Chamber plans to dramatically expand its $100 million campaign for free enterprise — a lobbying effort that was harshly criticized by the administration. And it plans to organize the largest, most aggressive election campaign in its history. “The Chamber will highlight lawmakers and candidates who support a pro-jobs agenda and hold accountable those who don’t,” said Donohue.

- Back home, nervous Democrats sound squishy on health care reform. Some will return to Washington this week demanding changes. A few will almost certainly threaten to withhold their votes. But through it all — and through what is expected to be multiple near-death experiences for the health care bill in coming weeks — White House and congressional leaders plan to beat back the temptation of “no” with a hardball argument: Democrats already voted “yes.” And it would be politically disastrous to flip-flop now.

- Harry situation: Inside the Reid eruption.

MarketFolly:

- Hedge Fund Short Positions: High Operating Leverage the Common Theme.

NYMagazine:

- A candidate whose aides were prepared to block him from becoming president. A wife whose virtuous image was a mirage. A mistress with a video camera. In an excerpt from the new book Game Change—their sweeping account of the 2008 campaign—the authors reveal that, inside the Edwards triangle, nothing was too crazy to be true.

HedgeWeek:

- Managed accounts are here to stay. An important question currently being asked among hedge fund managers and investors is whether the current shift toward use of managed accounts will make them a permanent feature of the industry landscape, perhaps one day replacing pooled funds as the default option for investment, or whether some of the impetus will slip away as memories of the liquidity problems of the past two years start to fade.

SeekingAlpha:

- Hedge funds averaged a return of 18 percent in 2009 as they finished their best year of the decade with positive performance in December, according to the Credit Suisse/Tremont Hedge Fund Index. This compares with a 27 percent gain in the MSCI World Index. The best performing strategy was Convertible Arbitrage with a 47 percent gain, while the worst was Dedicated Short Bias with a loss of 25 percent.

Reuters:

- It could take until November 2018 to get the full story behind the U.S. bailout of insurance giant American International Group (AIG) because of an action taken last year by the Securities and Exchange Commission. In May, the SEC approved a request by AIG to keep secret an exhibit to a year-old regulatory filing that includes some of the details on the most controversial aspect of the AIG bailout: the funneling of tens of billions of dollars to big banks like Societe Generale, Goldman Sachs (GS), Deutsche Bank(DB) and Merrill Lynch. The Fed's bailout of AIG long has been controversial because the banks that sold CDOs to Maiden Lane III were paid 100 percent of face value, even though many of the securities were worth substantially less at the time of the government bailout. Last Thursday the furor over the Maiden Lane transaction was reignited after Rep. Darrell Issa, a California Republican, released copies of emails detailing discussions between the New York Fed and AIG over how much information to disclose. Issa, in a prepared statement, said "as much information as possible should be made available to Congress to review the details and decisions" regarding the payments.

- U.S. residential mortgage originations are expected to plummet 40 percent in 2010 to their lowest level in a decade, eclipsing a forecast drop made just one month ago, the industry's main trade group said on Tuesday. Lenders will underwrite $1.28 trillion in home loans this year, down from $2.11 trillion in 2009, the Mortgage Bankers Association said in its latest forecast. That would be the lowest since $1.14 trillion in 2000. The forecast was downgraded from December, when the MBA predicted originations would fall about 24 percent.

- U.S. regulators should investigate whether laws were violated when the New York Federal Reserve Bank under Timothy Geithner urged insurer AIG to limit discussions about payments to banks, a Republican lawmaker said on Tuesday.

Telegraph:

- Google(GOOG) Street View ‘to carry real-time ads’. Google Street View could start carrying adverts which will appear on buildings and billboards, having been granted a new patent.