Today's Headlines

Bloomberg:

• Greece, Italy Borrowing Costs Rise at Bill Sales. Greek and Italian borrowing costs rose and demand fell at sales of almost 9 billion euros ($11.7 billion) of bills amid concern appetite for bonds from the region’s most indebted nations may flag at auctions this week. Greece sold 1.95 billion euros of six-month bills at a yield of 4.90 percent, data from the debt agency showed today. That compares with 4.82 percent at a previous auction on Nov. 9. The Italian government said it sold 7 billion euros of 12-month securities to yield 2.067 percent, up from 2.014 percent at a Dec. 10 auction. Portugal plans to sell as much as 1.25 billion euros of 2014 and 2020 bonds tomorrow as concern mounts the nation will follow Greece and Ireland in seeking a European Union bailout amid a rise in bond yields for the euro region’s most-indebted nations. The bonds of those countries climbed after traders said the European Central Bank bought Portuguese, Irish and Greek securities before the auctions. “All eyes are on the Portuguese auction,” said Mohit Kumar, a fixed-income strategist at Deutsche Bank AG in London. “While I don’t expect it to fail, if the spreads at which it clears is large, this could potentially become a trigger for Portugal going to the” the European bailout mechanism.
• Verizon Wireless(VZ) to Start iPhone Sales Next Month, Ending AT&T(T) Exclusivity. Verizon Wireless will start selling Apple Inc.’s iPhone early next month, ending rival AT&T Inc.’s exclusive hold on the device in the U.S. and more than doubling the potential customer base for the touch-screen smartphone. The iPhone 4 will be available on Verizon’s network on Feb. 10 with preorders for existing customers starting online Feb. 3, the companies said in a statement today. The phone will start at $199.99 with a two-year wireless-service contract.
• Small-Business Confidence in U.S. Fell in December on Outlook. Confidence among U.S. small businesses dropped in December for the first time in five months, indicating a sustained rebound will take time to develop, a private survey found. The National Federation of Independent Business optimism index decreased to 92.6 from November’s 93.2 reading that was the highest since the recession began in December 2007, the Washington-based group said today. Four of the index’s 10 components fell, led by a dimmer outlook on the economy. “The hope for a pickup in the small business sector did not materialize,” William Dunkelberg, the group’s chief economist, said in a statement. “Owners remain stubbornly cautious and uncertain about the future course of the economy and their business prospects.” The report reflects an economic recovery that hasn’t been strong enough to reduce unemployment, which has exceeded 9 percent for 20 straight months. The gauge of expectations for better business conditions six months from now fell percentage points to a net 9 percent, today’s report showed. An index of whether firms think this is a good time to expand fell 1 point to a net 8 percent. Figures on the employment outlook were more promising. Small businesses with plans to add to payrolls rose 2 points to net 6 percent, a 27-month high. A net 13 percent of firms in the December survey said they were having trouble filling job openings, up 4 points from November. “Overall job creation is likely to continue, but at a tepid pace,” Dunkelberg said in the statement. “Until sales pick up, there is no pressing reason to hire.” December was the 25th consecutive month when more small business owners reported cutting average selling prices than raising them. At the same time, plans to raise prices rose to the highest reading in 26 months.
• European Union Said to Consider Separate Tests on Bank Capital, Liquidity. European Union regulators will discuss plans to conduct separate stress tests on bank capital and liquidity provisions at a meeting tomorrow, a person familiar with the negotiations said. Supervisors at the European Banking Authority in London will decide what sort of information lenders should provide for this year’s EU-wide stress tests on capital, as well as possible exams on liquidity, said the person, who declined to be identified because the meetings are private. Regulators will also choose an interim chairman to manage the EBA until a permanent chief is installed later this year. “A liquidity assessment needs to be included in the future stress tests of the banking sector,” Olli Rehn, the EU’s economy commissioner, told reporters in Brussels in December. The next round should be “even more rigorous and even more comprehensive.”
• Bank of Portugal Says Economy Will Shrink After Government's Spending Cuts. Portugal’s economy will contract this year as consumer demand drops and the government cuts spending, the country’s central bank said. Gross domestic product will shrink 1.3 percent in 2011 and expand 0.6 percent in 2012, following estimated growth of 1.3 percent last year, the Bank of Portugal said in its winter economic bulletin. On Oct. 7, the bank forecast no GDP growth in 2011, a projection that didn’t take into account budget deficit- cutting measures announced by the government on Sept. 29. “The Portuguese economy’s growth outlook will be significantly affected in the short term by the process of budget consolidation,” the Lisbon-based bank said in today’s e- mailed report. “Regarding the international context, it is still difficult to assess the degree of strength of the recovery of the world economy.” Portugal is raising taxes and cutting wages as it tries to convince investors it can narrow its budget gap further after the Greek debt crisis led to a surge in borrowing costs for indebted euro nations last year.
• Alcoa(AA) Sees 'Headwinds' in Growth in China Aluminum Use as Car Demand Slows. Alcoa Inc. said growth in demand for aluminum in China, the world’s largest market for the metal, will decelerate as government measures to curb inflation slow housing and automobile sales. Metal used by truck makers will rise as much as 3 percent this year, compared with a jump of about 60 percent in 2010, Chief Executive Officer Klaus Kleinfeld said on a conference call. “For 2011 we see some headwinds like the phasing out of the stimulus package, uncertain housing market,” the CEO of the world’s third-largest producer of the metal said. “Construction is such a huge part of first-end use of aluminum in China, almost 50 percent,” Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., said by telephone from Melbourne today. “The measures that have been progressively ratcheted up to control speculation and other excesses within construction and high-end property would have inevitably been expected to be reflected in slower growth.” Shipments of aluminum used in autos may also slow after China raised the sales tax on small vehicles to 10 percent from 7.5 percent on Jan. 1 as it scales back measures to support auto sales.
• Canadian Banks May Buy SunTrust(STI), Zions(ZION) as 'Fire Sale' Continues in U.S. Canadian banks, involved in a record $15.9 billion of acquisitions last year, may target U.S. lenders such as SunTrust Banks Inc., Zions Bancorp and Regions Financial Corp.(RF) to expand abroad, analysts said.
• Singh Calls Meeting With Ministers, Advisers as Indian Onion Prices Surge. Indian Prime Minister Manmohan Singh has convened a meeting with his cabinet colleagues to discuss ways to rein in food prices as opposition parties prepare to launch nationwide protests against inflation.
• Clinton Tells Yemenis Terrorism an Urgent Concern. Secretary of State Hillary Clinton said that Yemen-based terrorists are an “urgent concern” for the U.S. and the development of the Middle Eastern nation. “They have sought, more than once, to attack our country,” Clinton, on the first trip by a U.S. secretary of state to Yemen in 20 years, said at a forum in the capital, Sanaa. “Stopping such threats would be a priority for any nation, and it is a priority for us.”
• Job Openings in U.S. Decrease for Third Time in Four Months. Job openings in the U.S. fell in November from the highest level in two years, signaling a sustained labor market recovery will take time to develop. The number of positions waiting to be filled decreased by 80,000 to 3.25 million, the Labor Department said today in Washington. The number of people hired dropped from the prior month and separations climbed.
• Sears(SHLD) Rises After Quarterly Profit Forecast Tops Estimates. Sears Holdings Corp., the largest U.S. department-store chain, climbed the most in a year after its fiscal fourth-quarter profit forecast surpassed analysts’ projections. The shares advanced as much as 11 percent after Sears said today that profit, excluding store closings, restructuring and impairment charges, will be $3.39 to $4.12 a share in the quarter ending Jan. 29. Analysts surveyed by Bloomberg had estimated $3.05 on average.
• Brevan Howard Says Failure to Address Debt Crisis is Biggest Growth Risk. Brevan Howard, Europe’s biggest hedge-fund firm, said the greatest risk to global economic growth would be the failure of European Union leaders to tackle the sovereign-debt crisis. It wouldn’t be “a policy mistake but a political choice by triple-A rated governments unwilling to finance what is going on in the periphery,” Luigi Buttiglione, head of global strategy at Brevan Howard, said at a conference in Geneva today. “This would have a substantial impact on the economic outlook.

Wall Street Journal:

• EU Weighs Boosting Bailout Fund. European Union governments are discussing proposals to increase the €440 billion ($569.98 billion) bailout fund for indebted euro-zone countries, a recognition that the fund might prove too small if the region’s debt crisis spreads to Spain, according to European officials. No decision has been taken yet, and none is currently expected at next week’s meeting of EU finance ministers, said a senior European official, who pointed out that hardly any of the fund’s firepower has been used yet.
• China Stealth Test Upstages Gates, Hu. China’s first test flight of its stealth fighter Tuesday overshadowed a mission to China by U.S. Defense Secretary Robert Gates to repair frayed military relations, and prompted concern about whether President Hu Jintao and the civilian leadership are fully in control of the increasingly powerful armed forces.

Bloomberg Businessweek:

• Baltic Dry Index Falls to 21-Month Low on Flooding in Australia. The Baltic Dry Index, a measure of dry-bulk commodity-shipping costs, fell to a 21-month low as flooding in Australia shut mines and halted railroads, curbing volumes of cargo to be delivered. The index declined 15 points, or 1 percent, to 1,480 today, according to data from the Baltic Exchange in London. The drop was the 20th in a row. Daily rents for capesize ships, the biggest tracked by the gauge and typical haulers of iron ore and coal, lost 5.3 percent to $11,266, a two-year low.

CNBC:

• Crisis is 'Systemic' for Europe: Greek Finance Minister. Greek Finance Minister George Papanconstantinou sought to reassure investors over the country’s debt burden on Tuesday, saying spreads between Greek and German bonds were high because of broader market turbulence rather than a real threat of default.
• Fed's Bond-Buying Could Soon Backfire: Plosser. The U.S. Federal Reserve's aggressive bond-buying plan could soon backfire unless the central bank gradually changes course to head off inflation, a top Fed official known for his hawkish stance said on Tuesday. Philadelphia Federal Reserve Bank President Charles Plosser said the $600-billion quantitative easing plan, known as QE2, would need to be reconsidered if the U.S. economy's current "moderate recovery" picks up steam. "The aggressiveness of our accommodative policy may soon backfire on us if we don't begin to gradually reverse course," he said.
• The Fed's QE2 Traders, Buying Bonds by the Billions. Deep inside the Federal Reserve Bank of New York, the $600 billion man is fast at work.

MarketWatch:

• Schwab(SCHW) Settles YieldPlus Case for $119 Million. Charles Schwab Corp. said on Tuesday that it has agreed to pay regulators about $119 million to settle claims it wrongly marketed its short-term money-market fund YieldPlus to clients.

Business Insider:

• Chart of the Day: Hedge Funds Are Still Crazy About Gold. (graph)
• It's Confirmed: WikiLeaks is Targeting Bank of America(BAC).
  

Zero Hedge:

• Market Stutters As $6 Billion In ES Goes Through. We are hearing that the recent market downdraft and volume upswing occurred as a major block of just about $6 billion in E-Minis hit the bid. What is odd is that such a big order would go as a block and not be split. Either this was a fat finger or someone is making a statement.
• Is Telestone Technologies(TSTC) a "RINO" in Sheep's Clothing? The backlog of alleged Chinese "scam" stocks is starting to trouble us: not even we suspected when we commenced our little crusade against Sino-fraud, and domestic stock exchange complacency to host said fraud on what are increasingly becoming discredited exchanges, that it would lead to such an explosion in content, confirming time after time, that a material number of Chinese companies, most notably of the reverse merger variety, are nothing short of pure-bred frauds.

New York Times:

• Euro's Architect Warns About Currency's Future. Even some architects of the euro are becoming pessimistic about its future. Otmar Issing, the influential former chief economist of the European Central Bank, warns that the common currency’s existence could be threatened unless member countries find a way to impose tougher spending curbs on one another. “With the failure to make sovereign states’ fiscal policies consistent with the conditions for the single currency area,” Mr. Issing wrote in an article to be published this week, “policy makers not only have weakened the functioning of monetary union, but have also called into question its very survival.” Mr. Issing’s views are particularly noteworthy because he was a key figure in the introduction of the euro. “From a former board member of the E.C.B. this is a very pessimistic statement,” said Jörg Krämer, chief economist at Commerzbank in Frankfurt. “There is a lot of disappointment in this article.” In the article, Mr. Issing wrote that rescue of countries that have pursued bad policies “adds up to an open invitation to states to live beyond their means at the expense of others.” Predictions by euro skeptics have proved true, Mr. Issing wrote in the article, which will be published this week in the bulletin of the Official Monetary and Financial Institutions Forum. “The crisis brought further evidence of a basic design flaw of monetary union, namely that we could not rely for its sound working on member countries to carry out appropriate economic policies,” Mr. Issing wrote. Mr. Issing also warned leaders not to try to create a stronger political union behind the backs of European citizens. “A political union worthy of the name cannot be set up by stealth,” he wrote. If leaders create a de facto political union under which disciplined countries subsidize the undisciplined, Mr. Issing wrote, “it will not be long before opposition to monetary union, and possibly other policies as well, appears on the agenda not just of extremist groupings but also of established political parties, in Germany and elsewhere.” Mr. Issing called for tighter rules on government spending, with automatic sanctions, and for independent organizations to determine when countries are in violation.
• Hedge Funds Pinched by Health Care Reform. A survey by insurance broker SKCG Group found that the hedge fund industry is paying more but getting less. SKCG, which interviewed more than 100 of its hedge fund clients with assets ranging from $250 million to $20 billion, said that premiums for hedge funds increased between 6 percent and 18 percent in 2010. In part, insurance companies, the broker noted, are hiking rates in response to new health care reform. “What’s really troubling is that some insurance companies are asking for rate hikes twice in one year. That’s a huge break with tradition,” said David Parker, president of the employee benefits division at SKCG, in a statement. Meanwhile, SKCG said the coverage is being “watered down.” Case in point: One hedge fund firm experienced a 300 percent jump in deductibles for out-of-network visits.

LA Times:

• New Generation of Unmanned Spy Planes is Being Tested. Three drones being flown in the coming weeks are speedier, stealthier and higher-flying.

CBS News:

• Poll: Most Americans Feel Rhetoric, Tucson Shooting Unrelated. Nearly six in 10 Americans say the country's heated political rhetoric is not to blame for the Tucson shooting rampage that left six dead and critically wounded U.S. Rep. Gabrielle Giffords, according to a CBS News poll. In the wake of the shooting, much focus has been put on the harsh tone of politics in Washington and around the country, particularly after a contentious midterm election. Rhetoric and imagery from both Republicans and Democrats have included gun-related metaphors, but the majority of the country isn't connecting the shooting to politics. The lone suspect in the attack, 22-year-old Jared Lee Loughner, had expressed in recent years a deep-seated distrust of the government and personal animosity toward Giffords, according to evidence collected by authorities, YouTube videos he made and accounts from former acquaintances. Overall, 57 percent of respondents said the harsh political tone had nothing to do with the shooting, compared to 32 percent who felt it did. Republicans were more likely to feel the two were unrelated - 69 percent said rhetoric was not to blame; 19 percent said it played a part. Democrats were more split on the issue - 49 percent saw no connection; 42 percent said there was. Independents more closely reflected the overall breakdown - 56 percent said rhetoric had nothing to do with the attack; 33 percent felt it did.

MobileBeat:

• KreditFly Launches Mobile Payments System With Credit Guarantees.

Politico:

• Gabrielle Giffords 'Generating Her Own Breaths'. Arizona Rep. Gabrielle Giffords is breathing on her own again at the University of Arizona Medical Center, where she is still in critical condition three days after being shot in the head during an outdoor meeting with constituents in Tucson.
• U.S. Chamber of Commerce Backs Health Repeal. U.S Chamber of Commerce president Tom Donohue said Tuesday that the powerful business lobby supports the House Republican legislation to repeal President Obama’s health care reform law. “Last year, while strongly advocating health care reform, the Chamber was a leader in the fight against this particular bill — and thus we support legislation in the House to repeal it,” Donohue said during a speech on the state of American business. “We see the upcoming House vote as an opportunity for everyone to take a fresh look at health care reform, and to replace unworkable approaches with more effective measures that will lower costs, expand access, and improve quality.”
• Jon Stewart: Rhetoric Isn't to Blame. He may have hosted the Rally to Restore Sanity and/or Fear last year, during which he called for a more civilized political discourse, but comedian Jon Stewart doesn't blame what he called "the toxic political environment" as the cause of the Arizona shootings this weekend. "We live in a complex ecosystem of influences and motivations and I wouldn't blame our political rhetoric any more than I would blame heavy metal music for Columbine," Stewart said on "The Daily Show" Monday night. "Boy, would it be nice to draw a straight line from this horror to something tangible, because then we could convince ourselves that if we just stopped this, then the horrors will end." "You cannot outsmart crazy," Stewart said. "You don't know what a troubled mind will get caught on." Stewart said he doesn't know "if there is a way to make sense" of the shootings. Nevertheless, he did stress a need to tone down political "ramblings." "It would be really nice if the ramblings of crazy people didn't resemble how we talk to each other on TV," he said. "Let's at least make troubled individuals easier to spot."

Telegraph:

• Barclays(BCS) Boss Bob Diamond Says Banks Should Be Allowed to Fail. Bob Diamond, Barclays' chief executive, has told a committeee of MPs that badly-run banks should not be bailed out by taxpayers.

Publico:

• Talks on possible European assistance for Portugal are proceeding "very discreetly at a technical level," citing two European diplomats.

Bear Radar

Style Underperformer:

• Small-Cap Value (-.08%)

Sector Underperformers:

• 1) Oil Tankers -2.23% 2) Telecom -1.56% 3) Airlines -1.49%

Stocks Falling on Unusual Volume:

• ANN, CHS, NWL, SMSC, FEIC, NFX, FTO, CAKE, IGTE, WDFC, AUTC, CPLA, GEOI, PEET, RUSHA, SPWRA, PNFP, CRDN, PFCB, ROVI, ALGT, HITT, PCLN, HSNI, ULTA, SNN, GNI, BKI and AA
  

Stocks With Unusual Put Option Activity:

• 1) EMC 2) MBI 3) LEN 4) CPRT 5) IWO
  

Stocks With Most Negative News Mentions:

• 1) LPX 2) GIFI 3) SCHW 4) PNFP 5) BKI
  

Bull Radar

Style Outperformer:

• Mid-Cap Growth (+.59%)

Sector Outperformers:

• 1) Education +3.78% 2) Coal +2.99% 3) Oil Service +2.20%

Stocks Rising on Unusual Volume:

• BCS, GDP, HES, CDTI, SHLD, APOL, ASYS, SCOK, MOTR, SINA, ARMH, SYK, LEN, SAP, GNW and CHA
  

Stocks With Unusual Call Option Activity:

• 1) LO 2) EXPE 3) TGB 4) TLB 5) RRC
  

Stocks With Most Positive News Mentions:

• 1) CVS 2) MMS 3) TTEK 4) LIFE 5) FHN
  

Tuesday Watch

Evening Headlines
Bloomberg:

• EU Proposals Drive Bank Default Swaps to Record: Credit Markets. The European Union’s proposal that senior note holders share the burden of future government bailouts is driving the cost of insuring the debt of rescued lenders to record highs. Credit-default swaps protecting bonds sold by Commerzbank AG, which has received 18.2 billion euros ($24 billion) from the German government, almost doubled this year, while contracts on Italy’s Banca Monte dei Paschi di Siena SpA jumped 35 percent, according to CMA. Relative yields on European bank and company bonds are the widest on record compared with spreads in the U.S., Bank of America Merrill Lynch index data show. The Markit iTraxx Financial Index of 25 European banks and insurers is at the highest on record relative to the cost to protect U.S. bank debt. The average credit-default swap on the six biggest U.S. banks is 71 basis points below their European counterparts, compared with 341 basis points higher at the height of the credit crisis in October 2008. The EU published its burden-sharing proposal on Jan. 6 as part of draft rules that would also give regulators the power to transfer assets and liabilities, and replace management of lenders judged too big to fail. The plan would “break the link” between senior bondholders and depositors, previously on the same level in terms of getting paid back in a crisis, said Roger Doig, an analyst at Schroders Plc in London, the U.K.’s biggest traded- fund manager. “That means a greater loss for bondholders in a default or restructuring,” he said. Senior bonds are being hurt on speculation funding costs will rise when the rules are adopted, which would be after a consultation period ending March 3, followed by approval from governments and lawmakers in the European Parliament. Investors demand an extra 164 basis points in yield to own European senior bank debt instead of German bunds, compared with 144 basis points for non-financial corporate securities, Bank of America Merrill Lynch index data show. The 20 basis-point gap between the two spreads matches the record set on Dec. 31. Senior European bank debt lost 1.29 percent last quarter, including reinvested interest, and has fallen for four straight months, the longest stretch since the period ended June 2008, based on Bank of America Merrill Lynch index data. “Bank funding will become an issue if these elevated levels in CDS and cash persist,” Suki Mann, senior credit strategist at Societe Generale SA in London, wrote in a report to clients. “It was already the hot topic for 2011, and cynics would suggest that spreads will stay wide or widen further.” The average cost of insuring Citigroup Inc., JPMorgan, Bank of America Corp., Wells Fargo & Co., Morgan Stanley and Goldman Sachs Group Inc. is 139 basis points, from an 11-month high of 198 on June 10, according to CMA. That compares with 210 basis points for Markit’s European financial index, which includes swaps on Barclays Plc and Deutsche Bank AG. That’s the highest since March 2009, the data show. Default swaps protecting senior bonds of Commerzbank, Germany’s second-biggest lender, jumped to 277 basis points, from 147 on Dec. 31, CMA prices show. Contracts on Monte Paschi, the world’s oldest bank and Italy’s third-largest, rose to 356 from 263. Swaps on Landesbank Baden-Wuerttemberg, a Stuttgart-based state-owned lender that received government cash in the crisis, climbed to 242 basis points from 159.5, CMA prices show. Caja de Ahorros y Monte de Piedad de Madrid, the second- largest of the regional Spanish savings banks, increased to 541 from 457.5 on Dec. 31, CMA prices show. Contracts tied to Portugal’s Banco Popolare SC rose to 367 from 284. Banco Pastor SA of Spain jumped to an all-time high 713 from 574 on Dec. 31. Imposing burden sharing will “push up funding costs,” said Gary Jenkins, head of fixed-income at Evolution Securities Ltd. in London. “If you make a grab for other people’s assets, then you’re going to scare the horses.”
• VIX, VStoxx Advance on Concern Europe's Debt Crisis May Spread. The benchmark indexes for U.S. and European stock options jumped on concern Europe’s debt crisis may spread. A gauge of credit-default swaps on European nations rose to a record. The Markit iTraxx SovX Western Europe index, which measures the cost of credit-default swaps, climbed a fourth day to a record 220 basis points. In Europe, the benchmark gauge of stock-market volatility closed at its highest level since Dec. 1. The VStoxx Index, which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, climbed 7.4 percent to 25.72. The Euro Stoxx 50 stock index fell 1.7 percent. The average cost of swaps to protect debt issued by Portugal, Ireland, Greece and Spain from a default rose a third day today to a record 651 basis points, according to data compiled by Bloomberg. The level first exceeded 600 basis points on Nov. 29 and first reached 500 basis points on Nov. 3. Trading of bearish options on developing-nation stocks increased to more than double the four-week average in the U.S. and was quadruple the level for bullish contracts. More than 275,000 puts to sell the iShares MSCI Emerging Markets Index exchange-traded fund changed hands as the ETF slid 1 percent to $46.76.
• Asia Exports Cooling Damps Commodity Shipping Outlook. exports in 2011 may rise at a third of last year’s pace of as much as 24 percent, according to DBS Group Holdings Ltd. The island’s government joins Asian exports that helped power the world recovery last year are poised to grow more slowly as the region’s manufacturing rebound eases and U.S. unemployment restrains consumption after a post-recession spending spree. Container traffic growth in Shanghai, Singapore and Hong Kong, the world’s busiest ports, has cooled since the first half of 2010. SingaporeTaiwan and South Korea in predicting smaller gains in overseas sales. “2011 is not looking as exuberant as 2010,” said Vishnu Varathan, an economist at Capital Economics (Asia) Pte in Singapore. “The easy part of the trade upswing is over now and demand is getting tighter,” making the outlook for shipping “less bubbly,” he said. While container-shipping companies may profit from rate increases, the export slowdown may damp growth in other Asia shipping and transport stocks, which are already underperforming Asian stock indexes.
• Intel(INTC) to Pay Nvidia(NVDA) $1.5 Billion Over Five Years to End Licensing Dispute. Intel Corp. agreed to pay Nvidia Corp. $1.5 billion over the next five years, gaining the right to use Nvidia’s graphic patents and ending a legal dispute over the use of each other’s technology. Under the deal, the companies will receive a license to each other’s patents, subject to certain terms, Santa Clara, California-based Intel said today in a statement.
• SEC Watchdog Probes Enforcement Chief Over $75 Million Citigroup(C) Agreement. The U.S. Securities and Exchange Commission’s internal watchdog is reviewing an allegation that Robert Khuzami, the agency’s top enforcement official, gave preferential treatment to Citigroup Inc . executives in the agency’s $75 million settlement with the firm in July. Inspector General H. David Kotz opened the probe after a request from U.S. Senator Charles Grassley, an Iowa Republican, who forwarded an unsigned letter making the allegation. Khuzami told his staff to soften claims against two executives after conferring with a lawyer representing Citigroup, according to the letter.
• AMD's(AMD) Meyer Resigns, Will Be Replaced by CFO on Interim Basis; Shares Drop. Advanced Micro Devices Inc., the second-biggest seller of processors for personal computers, said Chief Executive Officer Dirk Meyer resigned and will be replaced by finance chief Thomas Seifert as interim CEO.
• New York, Northeast May Get 14 Inches of Snow From New Storm.
• Noda Says Appropriate for Japan to Buy Bonds to Aid Ireland.
• China's Biggest Lenders Said to Expect About 14% Loan Growth. China’s four biggest banks may need to limit loan growth to about 14 percent this year under a new system created by the central bank for managing credit expansion, three people with knowledge of the matter said.
• Portuguese Bond Buyers Set to Demand 'Unsustainable Yields': Euro Credit. Portuguese yields may be rising to levels that force the nation to follow Greece and Ireland in requesting a bailout from the European Union and the International Monetary Fund to avert default. The nation plans a 10-year sale tomorrow, the first bond auction by any of the euro region’s most indebted countries this year. Its existing 10-year debt has yielded more than 7 percent in 10 of the past 62 days, according to Bloomberg data. Greece needed a rescue within 17 days of its 10-year yield breaching 7 percent on April 6, while Ireland lasted less than a month after it cracked that level in October. “Even if we see a successful auction, it doesn’t mean anything, because at rates above 7 percent it’s not sustainable,” said Ioannis Sokos, a strategist at BNP Paribas SA in London. “It is inevitable that Portugal has to turn to the EU and IMF if they keep borrowing at these levels.”
• Alaska Pipeline Operator Builds Bypass to Restore Oil Production.
• Australian Flood Deaths May Rise as Waters Head to Brisbane. The death toll from the latest downpour to hit the Australian state of Queensland is set to climb as rising waters rush toward the coastal city of Brisbane, where evacuations are underway. Four children were killed as a wall of brown water cascaded through the town of Toowoomba without warning yesterday, slamming cars against bridges. With about 72 people still missing, the number of dead may rise “dramatically” from eight, Queensland Premier Anna Bligh said at a news conference today. “We hold very grave concerns for a number of these people,” Bligh said. “We are anxiously worrying that we will see this toll rise.”

Wall Street Journal:

• Feds Depict Deliberate Plot. Federal prosecutors are assembling a case against suspected killer Jared Lee Loughner that portrays him as a man with psychological problems who was nonetheless competent enough to plot an assassination.
• Fed's Fisher Sees No Extension of Bond Buys. The Federal Reserve is unlikely to extend its plan to buy $600 billion in Treasury bonds, said Dallas Fed President Richard Fisher, who this month joins the central bank's policy-making committee as a voting member. In an interview Monday with Dow Jones Newswires and The Wall Street Journal, Mr. Fisher—an early opponent of the Fed's plan to buy billions of dollars in Treasury debt by this summer—said he expects the program "to be carried through" to its planned end but not beyond. "I wouldn't be personally terribly keen on that idea given what I'm seeing in the economy now," he said. Growth this year should be better than in 2010, amid gathering momentum and a "slow haul" adding new jobs. "We have a better tone to the economy," Mr. Fisher said. Mr. Fisher, who has led the Dallas Fed since 2005, has been a vocal skeptic about the need for the bond purchases. Last year, he blamed much of the U.S. economy's lack of vigor on uncertainty about legislative overhauls of the financial oversight system and health care. He said Monday that he doubted that new monetary-policy action could do much more for the economy. Instead, Mr. Fisher said, further economic progress will have to come from the government. "I do think the new congress is very important, and what fiscal policy does now, to me, is going to be the determinant of business confidence in the future," and in turn the power of the recovery, he said. "I think monetary policy has done a great deal, and it's now in the hands of the fiscal authorities and the regulatory authorities," he said, explaining that the Fed's role is limited in part because "right now there is a lot of liquidity in the markets. I don't hear corporations complaining about the cost of capital or lack of access to capital." He noted that the recent rise in bond yields appears to be in part driven by investors' improved economic outlooks, and said that even with the higher borrowing costs, 10-year Treasury yields remained "cheap" by historical standards.
• Harbinger Investment Officer to Launch Own Hedge Fund. A top investment executive at Harbinger Capital Partners left the hedge-fund firm and plans to launch his own fund, he said. Lawrence M. Clark Jr., who resigned Friday, was a senior analyst who reported directly to Harbinger founder Philip Falcone and had been a Harbinger partner since 2005.
• Goldman(GS) Opens Up to Molify Its Critics. Goldman Sachs Group Inc., seeking to beat back criticism that it abused its muscle and trading savvy to put its own interests ahead of clients, agreed to release details on how and where the Wall Street giant makes its money. In a 63-page report set to be released Tuesday, Goldman says that for the first time in its 142-year-history, it will start disclosing how much revenue comes from the firm's own trading and investing, according to a copy of the report reviewed by The Wall Street Journal.
• Spill Panel Pushes Liability Cap. Congress should raise the cap on oil companies' liability for offshore spills and improve the U.S. Coast Guard's ability to respond to spills in the Arctic, a presidential panel is set to conclude Tuesday. The panel's report, which could influence federal policy on offshore drilling, is also expected to recommend that as much as 80% of fines paid by companies for Clean Water Act violations in connection with last spring's Deepwater Horizon accident go toward funding the long-term restoration of the Gulf Coast's ecosystem, according to people familiar with the report.
• Study Recommends Installing Air Bags on Private Planes. Federal air-safety investigators on Tuesday are slated to issue the first formal government nonbinding recommendations for installing air bags to save lives in private-plane accidents.
• GM(GM) Again Sees Need for GMAC. General Motors Co. is revisiting the idea of buying back part of its former GMAC auto loan business, half a year after it acquired a subprime loan company to help fill the role of an in-house lender, according to three people familiar with the situation. GM executives are weighing the idea of a new approach to Ally Financial, the renamed GMAC, to give the auto maker's dealers better access to wholesale credit.
• Human Genome(HGSI) Sets Lupus Drug Sales Goal. Chief Executive Tom Watkins said Monday that Human Genome Sciences Inc. expects its yet-to-be-approved Lupus drug Benlysta to help generate "multi-billion dollar annual revenues" for the company by 2015.
• Citi(C) Prepares Tranche Market for Muni Bond Derivatives. Citigroup (C) is planning to start quoting derivatives on different slices of the MCDX, a derivatives index tracking 50 municipal issuers. The move would allow investors to hedge or speculate on the likelihood of municipal defaults in a new way, by taking on the risk of a wave of losses in the underlying portfolio in return for a high premium, or by betting on the relative value between the loss scenarios, or "tranches," in the structure.
• Downturn's Ugly Trademark: Steep, Lasting Drop in Wages. In California, former auto worker Maria Gregg was out of work five months last year before landing a new job—at a nearly 20% pay cut. In Massachusetts, Kevin Cronan, who lost his $150,000-a-year job as a money manager in early 2009, is now frothing cappuccinos at a Starbucks for $8.85 an hour. In Wisconsin, Dale Szabo, a former manufacturing manager with two master's degrees, has been searching years for a job comparable to the one he lost in 2003. He's now a school janitor. They are among the lucky. There are 14.5 million people on the unemployment rolls, including 6.4 million who have been jobless for more than six months.
• Abortion Rate Rises After a Long Decline.
  

Business Insider:

• A Quick Look at the Emerging Market Inflation That's Panicking Investors Worldwide.

Zero Hedge:

• Hedge Fund Position Update. (graphs) In her weekly HF positional analysis, BofA' Mary Ann Bartels (whose recent technical prediitions did not quite pan out) finds that Long Short hedge fund exposure has declined from 25% to 18% as of January 10, well below the 40% average, market neutrals are -3% net short (explaining the ongoing bloodbath in the space), and that macro HFs are long commodities and short US equities and 10 year Treasuries. All in all, exposure continues to be below average bullish levels, yet the market continues to go up. Cue in TrimTabs and let them answer just how is doing the buying. On Long-Short exposures:

Forbes:

• Score One For David Einhorn, St. Joe(JOE) Receives SEC Inquiry. Back in October noted short-seller David Einhorn, the manager of hedge fund Greenlight Capital, laid out his case for shorting the stock of Florida real estate developer St. Joe Company. His case hinged on the belief that St. Joe is not accurately accounting for the value of its assets, and now it appears the SEC is taking a look at that very possibility.

Yahoo News:

• Steve Jobs to Join Murdoch on Stage to Unveil iPad Paper. Rupert Murdoch will unveil News Corp.'s much-anticipated iPad newspaper onstage this month with Apple chief executive Steve Jobs, The Cutline has learned. The two media moguls will appear together at the San Francisco Museum of Modern Art, according to a source familiar with preparations for the event. The launch date is expected to be Jan. 19, but that may change. Known as The Daily, Murdoch's iPad publication has been the talk of the media world over the past couple months, and the News Corp. chief has even dubbed it his "No. 1 most exciting project."

LA Times:

• Business Would Feel the Sting of Brown's Budget Proposals. The governor wants to close a $25-billion gap in California's spending plan partly by eliminating redevelopment agencies and enterprise zones and ending a new corporate tax break.
• 3 Accused Bell Officials Want Cash-Strapped City to Pay Their Legal Bills. Three present and former Bell City Council members charged with public corruption are asking a judge to order the city to pay some of their legal bills.

Politico:

• Critical Moments Are Still Ahead for Gabrielle Giffords.

Reuters:

• China Overshoots Loan Target, More Tightening to Come.
• Alcoa(AA) Posts Q4 Profit, Sees 12% Aluminum Growth. Alcoa Inc (AA), the largest U.S. aluminum producer, reported a fourth-quarter profit on Monday and projected a 12-percent rise in demand for the metal in 2011, driven by aerospace and auto manufacturing. But Alcoa shares, which hit a 12-month high last week, dropped 1.3 percent to $16.24 in after-hours trade on the New York Stock Exchange, with some analysts questioning whether the company's bullish forecast was realistic. Others suggested some profit-taking by investors.
• Apollo Group(APOL) Q1 Tops; Sees Further Drop in Enrollments. Apollo Group's (APOL) quarterly results blew past expectations on higher tuition fee, but the largest U.S. for-profit education company spelt out a tough year as it expects a further fall in enrollments. Apollo's shares, which rallied 12 percent after the bell, lost most of their gains on the company's warning.

South China Morning Post:

• Rising Costs May Push Toymakers Out of China.

Evening Recommendations
Deutsche Bank:

• Raised (WERN) to Buy, target $31.
• Raised (LSTR) to Buy, target $53.
  

Night Trading

• Asian equity indices are -.50% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 113.0 +2.0 basis points.
  
• Asia Pacific Sovereign CDS Index 115.0 +4.75 basis points.
  
• S&P 500 futures +.11%.
  
• NASDAQ 100 futures +.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (LEN)/.00
• (SVU)/.31
• (FUL).39

Economic Releases
7:30 am EST

• The NFIB Small Business Optimism Index for December is estimated to rise to 94.5 versus a reading of 93.2 in November.
  

10:00 am EST

• Wholesale Inventories for November are estimated to rise +1.0% versus a +1.9% gain in October..

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Plosser speaking, Fed's Kocherlakota speaking, weekly retail sales reports, JOLTs Job Openings for November, weekly ABC consumer confidence index, $32 Billion 3-Year Treasury Notes Auction, $22 Billion 1-Year Treasury Bills auction, the Needham Growth Conference, Goldman Sachs Energy Conference, Kaufman Brothers Tech Conference and the Deutsche Bank Auto Industry Conference could also impact trading today.
  

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

Stocks Slightly Lower into Final Hour on Rising Euro Sovereign Debt Worries, Profit-Taking, More Shorting, US Muni Concerns

Broad Market Tone:

• Advance/Decline Line: About Even
  
• Sector Performance: Most Sectors Declining
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 17.80 +3.85%
  
• ISE Sentiment Index 145.0 +54.26%
  
• Total Put/Call .78 -14.29%
  
• NYSE Arms 1.24 +7.13%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 90.11 +1.03%
  
• European Financial Sector CDS Index 189.82 bps +8.91%
  
• Western Europe Sovereign Debt CDS Index 217.50 bps +3.65%
  
• Emerging Market CDS Index 208.10 +1.28%
  
• 2-Year Swap Spread 26.0 +2 bps
  
• TED Spread 17.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .13% unch.
  
• Yield Curve 273.0 unch.
  
• China Import Iron Ore Spot $173.40/Metric Tonne +.46%
  
• Citi US Economic Surprise Index +35.80 +.7 point
  
• 10-Year TIPS Spread 2.35% unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -81 open in Japan
• DAX Futures: Indicating +24 open in Germany

Portfolio:

• Higher: On gains in my Medical, Retail and Tech long positions
  
• Disclosed Trades: None
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades just slightly lower despite some significant equity weakness overseas, recent stock gains and rising euro sovereign debt angst. On the positive side, Road & Rail, Disk Drive, Semi and Alt Energy shares are especially strong, rising more than 1.0%. The Transport Index is strongly outperforming again. Small-caps are also relatively strong. The 10-year yield is falling -2 bps to 3.30%. On the negative side, Education, Airline, Homebuilding, Telecom, Paper, Steel, Oil Service, Oil Tanker, Defense and Utility shares are under meaningful pressure, falling more than .75%. Copper is down -.27% despite the bounce in the euro. As well, Lumber is falling -3.1%. The Belgium sovereign cds is rising +2.17% to 252.13 bps, the Spain sovereign cds is gaining +2.32% to 360.60 bps, the Ireland sovereign cds is soaring +7.16% to 667.58 bps, the Portugal sovereign cds is gaining +2.42% to 546.17 bps, the Russia sovereign cds is rising +2.52% to 150.89 bps and the China sovereign cds is rising +7.88% to 80.0 bps. Moreover, the Eurozone Investment Grade CDS Index is jumping another +3.53% to 96.82 bps and the US Muni CDS Index is jumping +6.91% to 242.20, which is the highest level since July 9th of last year. The Euro Financial Sector CDS Index is now very near its all-time high of 200.80 bps, set May 7th of last year. The Western Europe Sovereign CDS Index is making another new record high. The Citi Latin America Economic Surprise Index is falling -4.4 points today to -38.90, which is the lowest since May of 2009. The Indonesian Jakarta Composite, which had been a global leader, fell -4.2% last night and is breaking down technically on inflation worries, which could be another red flag. Investor sentiment gauges are still registering too much short-term complacency, which is also a negative. The bears still show no ability to gain meaningful traction despite potential negative catalysts, which is a major positive. The European sovereign debt auctions later this week remain a key focus for investors. I expect US stocks to trade mixed-to-lower into the close from current levels on rising euro sovereign debt angst, increasing US muni worries, more shorting and profit-taking.