Bear Radar

Style Underperformer:

• Large-Cap Growth (+.38%)

Sector Underperformers:

• 1) Gold & Silver -.50% 2) Restaurants -.40% 3) Homebuilders -.36%

Stocks Falling on Unusual Volume:

• DECK, NEOG, BBBY, MLHR, FINAL, MANH, QKIK, PHH, AM, GRR, EMR and MJN
  

Stocks With Unusual Put Option Activity:

• 1) ECA 2) BBBY 3) AKAM 4) SWN 5) EMR
  

Stocks With Most Negative News Mentions:

• 1) KBH 2) MANH 3) PHH 4) BAC 5) VVUS
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Thursday Watch

Evening Headlines

Bloomberg:

• Greece's Creditors Said to Resist Push From IMF for More Losses. Greece’s creditors are resisting pressure from the International Monetary Fund to accept bigger losses on holdings of the indebted nation’s government bonds, said three people with direct knowledge of the discussions. Lenders want the 70 billion euros ($91 billion) of new bonds the government will issue in return for existing securities to carry a coupon of about 5 percent, said the people, who declined to be identified because the negotiations are private. The IMF is pushing for creditors to accept a smaller coupon in order to reduce Greece’s debt-to-gross domestic product ratio to 120 percent by 2020, a key element of the Oct. 27 agreement by European Union leaders, the people said. Greece’s debt will balloon to almost twice the size of its economy next year without a write-off accord with investors, the IMF said on Dec. 13. The IMF and EU leaders are trying to bring the country’s debt down to a sustainable level. As part of Greece’s 130 billion-euro second bailout, investors would take a 50 percent hit on the nominal value of 206 billion euros of privately owned debt. Exchanging bonds for securities with a 5 percent coupon would leave investors with a 65 percent loss in the net present value of their holdings of Greek government debt, the people said.
• U.S. Faces ’13 Fitch Downgrade Without Cuts. The U.S.’s AAA rating will probably be cut by Fitch Ratings by the end of 2013 unless lawmakers are able to formulate a plan to reduce the budget deficit after next year’s congressional and presidential elections. “Without such a strategy, the sovereign rating will likely be lowered,” New York-based Fitch said in a statement today. “Agreement will also have to be reached on raising the federal debt ceiling, which is expected to become binding in the first half of 2013.” Fitch assigned a negative outlook on the U.S. in November after a congressional committee failed to agree on budget cuts. The rating firm forecast federal public-debt will exceed 90 percent of gross-domestic-product by the end of the decade unless the government addresses rising health and social security spending.
  
• GM(GM) Said to Hire Hackett Group to Find North America Job Cuts. General Motors Co. has hired management consultant Hackett Group to help identify areas to cut an undetermined number of white-collar jobs, said two people familiar with the matter. Hackett Group, based in Miami, will help identify opportunities for cuts and efficiency improvements at headquarters and elsewhere in North America, said the people, who asked not to be identified revealing private plans.
• China's Stocks Decline for Fourth Day on Cash Crunch, Europe Debt Concern. China’s stocks fell for a fourth day as investors speculated Europe’s debt crisis will worsen and lending to small companies may drop as banks hoard cash to meet year-end reserve-ratio requirements. Yunnan Copper Industry Co. and Shandong Gold Mining Co. dropped more than 3 percent as material producers added to losses that made them the worst performing group in 2011. Stocks fell after Europe’s lenders sought to borrow more cash from the European Central Bank than economists had expected, increasing concern the crisis won’t be contained. Focus Technology Co. and Anhui Gujing Distillery Co. led a gauge of small-company stocks to their lowest level in two years as money market rates jumped. “There’s no confidence in the market and the worry is focused on the economic slowdown and a poor export outlook,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “Investors are worried the government doesn’t have many tools to bolster growth now as debt levels are now higher than a couple of years ago.” The Shanghai Composite Index (SHCOMP) dropped 21 points, or 0.9 percent, to 2,170.56 at 1:22 p.m., the lowest since March 2009. The Shanghai Composite has fallen 7.1 percent in December, adding to a 23 percent slump this year, after the central bank raised interest rates three times to cool inflation and exports to Europe slowed because of the region’s debt crisis. The CSI smallcap gauge (SH000905) has tumbled 34 percent this year. The ChiNext measure of start-up companies slid 2.7 percent today, adding to a 35 percent slide in 2011.
• Corn Crop Heads for Sixth Record Year to Feed 1 Billion Cows: Commodities. Farmers will reap a record corn crop for a sixth consecutive season in 2012, slowing a slump in stockpiles of livestock feed as global meat demand approaches a quarter of a billion metric tons. Production will rise 4.8 percent to 867.5 million metric tons in 2011-12, curbing the drop in inventories to 0.8 percent, the smallest decline in three years, the U.S. Department of Agriculture estimates. With harvests expanding from Argentina to China, prices will fall as much as 30 percent to $4.305 a bushel in Chicago trading next year, according to the median of 24 analyst estimates compiled by Bloomberg News.
• India Drops Plans to Allow FDI in Pensions, Singh Ally Says. Indian Prime Minister Manmohan Singh has shelved plans to allow foreign direct investment in pension funds in the second major policy setback this month, according to one of the government’s largest parliamentary allies. Trinamool Congress leader Mamata Banerjee objected to a bill to overhaul the pensions sector, leading to it being dropped for now, Sultan Ahmed, a lawmaker from Banerjee’s party, said by phone without elaborating. India’s cabinet had approved the plans last month in what would have been the first major change to foreign ownership rules in five years.

Wall Street Journal:

• European Banks Rush to Grasp Lifeline. Hundreds of euro-zone lenders took out €489.19 billion ($640 billion) in low-interest loans from the European Central Bank on Wednesday, as the currency area extended a massive financial lifeline to its struggling banking industry. The unexpectedly heavy demand from 523 banks for the three-year loans highlighted the severity of Europe's financial crisis, while also stirring some hopes that the action could help defuse it, or at least prevent it from getting worse. Investors didn't seem convinced that the loans would drastically improve banks' prospects.
• Funds Sue Deutsche Over Deal On Claims. Two hedge funds filed a lawsuit accusing a Deutsche Bank AG unit of reneging on a $1 billion deal to buy their claims for losses in Bernard L. Madoff's Ponzi scheme. The suit, filed in a New York federal court by Kingate Global Fund Ltd. and Kingate Euro Fund Ltd., is a sign of the negative consequences of recent court decisions against the trustee overseeing the bankruptcy of Mr. Madoff's firm.Courts have handed down recently a series of unfavorable decisions to Irving Picard that limit his ability to further recover money.
• What Fannie and Freddie Knew. The SEC shows how the toxic twins turbocharged the housing bubble. Democrats have spent years arguing that private lenders created the housing boom and bust, and that Fannie Mae and Freddie Mac merely came along for the ride. This was always a politically convenient fiction, and now thanks to the unlikely source of the Securities and Exchange Commission we have a trail of evidence showing how the failed mortgage giants turbocharged the crisis.
• What Ron Paul Thinks of America. It seemed improbable that the best-known American propagandist for our enemies could be near the top of the pack in the Iowa contest, but there it is.

Business Insider:

• The Violence In Video Games Is Getting Disturbingly Out Of Hand.

Zero Hedge:

• It's Official: US Debt-to-GDP Passes 100%.
• Flowcharting Europe's Sovereign And Bank Debt Problems.
  

CNBC:

• Asia-Pacific Stock Sales at 3-Year Low in 2011. Stock sales in Asia Pacific plunged to a three-year low in 2011 and the downturn is expected to last well into 2012 as weak performance by most of the IPOs in the region makes it harder to attract investors to new deals.
• China Hedge Fund Bears Look Good in Shorts. Hedge funds betting against China have earned outsized returns this year by shorting mainly property and auto stocks and positioning their portfolios to benefit from a feared hard-landing by the world's second-biggest economy.
• Rio Police Seek to Indict Chevron(CVX), Transocean(RIG) Officials. Federal police in Brazil on Wednesday recommended the indictment of several Chevron and Transocean officials involved in an oil spill in early November for environmental crimes and withholding information in an investigation.
• Collapse in M&A Amid Debt Turbulence. Mergers and acquisitions activity collapsed in the fourth quarter as the sovereign debt crisis and market volatility put the brakes on dealmaking and equity sales, pushing European investment banking fees to their lowest level in more than a decade.

IBD:

• FDA OKs Gall Bladder Surgery For Intuitive's(ISRG) Da Vinci.

Forbes:

• French Banks Won't Be Able To Handle Inevitable Italian Restructuring. Despite the latest attempt by the European Central Bank to kick the proverbial can far down the road, the Eurozone remains under heavy pressure, and France’s AAA credit rating hangs from a thread. According to research by Nomura, France’s exposure to peripheral Europe tops €680 billion ($887 billion), more than 25% of its GDP, putting its banks at substantial risk in the event of another debt restructuring or an outright default among the PIIGS.
• CES 2012: 5 Trends to Watch.
  

Fox:

• Goldman(GS) Preps for New Age of Regulation. “In the end, Goldman Sachs is still going to be Goldman Sachs,” Lloyd Blankfein recently remarked during a wide-ranging dinner conversation with Larry Fink, the chief executive of money management outfit Blackrock (BLK), according to people with direct knowledge of the matter. Fink, seated next to Blankfein at a tony New York City eatery, didn’t disagree, but some in the firm that Blankfein runs are now taking issue with that statement.
• Extremist Teachings Remain in Saudi Textbooks Despite Kingdom's Claims of Reform. Despite Saudi Arabia's promises to clean up textbooks in the kingdom, recent editions continue to raise alarms in the West over jihadist language. The recent editions were obtained by the Institute for Gulf Affairs in Washington, D.C., and the translations were first provided to Fox News. “This is where terrorism starts, in the education system.” Ali Al-Ahmed, director of the Institute for Gulf Affairs, told Fox News. Al-Ahmed, a Saudi national, said the textbooks, made and paid for by the Saudi government, were smuggled out of the kingdom through confidential sources.

Real Clear Markets:

• The Slow, Agonizing Death of Europeanism. What do the endlessly repeating cycle of futile Eurozone rescue talks and the endlessly repeating cycle of futile annual UN climate summits have in common? Put more plainly, what accounts for the unreality of both efforts, such that "breakthrough" agreements are soon recognized to be ineffective, if not fraudulent?

Reuters:

• Bed Bath(BBBY) sales miss estimates; outlook soft. Bed Bath & Beyond Inc reported slightly weaker-than-expected third-quarter sales and gave a conservative profit outlook for the current quarter, sending shares in the home goods chain down 4 percent in after-hours trading.
  
• Tepid PC sales weigh on Micron's results. Micron Technology (MU.O) posted quarterly results below expectations and said weak prices for DRAM memory chips are making industry consolidation inevitable. The top U.S. memory manufacturer's poor showing lent weight to recent warnings from both Intel (INTC.O) and Texas Instruments (TXN.N) about weak chip market conditions, and came after Oracle's first earnings miss in a decade stoked fears that corporate America may be pulling back on tech spending. Given that the reports from Micron and Oracle were for the quarter that ended in November, they may signal what to expect when more technology companies report after their quarters end in December.

Sky News:

• RBS Chairman Warns Of Euro Split In 2012. (video) The head of Britain's biggest state-controlled bank has warned that a eurozone country could leave the single currency during 2012, sending shockwaves around Europe's banking system. Royal Bank of Scotland chairman Sir Philip Hampton made the prediction during Jeff Randall's Christmas Dinner, a seasonal discussion between business leaders on Sky News. He said: "I think it's likely that one country, a small country will drop out. "It could be any of them because I think that some of these things will be driven by political events, as much as by economic circumstances and social unrest, and all of those sorts of things. But I think there is a very good chance that one country will fall out." Sir Philip said such an event would "produce massive strains" in Europe's banking system. "At the more extreme levels of that you would get a wave of recapitalisations of banks by governments throughout Europe," he added.

La Tribune:

• French new car sales plunged by almost 60% from Dec. 1 to Dec. 21 versus the year-earlier period, citing a person speaking in an official capacity.

China Daily:

• Chinese households that prefer real estate investments declined to 16.5%, down 7.1 percentage points vs. 3Q, China's central bank said in its 4Q survey. 73% of respondents deem China home prices as "too high". 19% of respondents expect a further rise in home prices, 19 percentage points less than in 3Q. 14% of households may buy a home within 3 months, close to a record low.

Evening Recommendations
Citigroup Global Markets:

• Reiterated Buy on (SHOO), target $45.

Night Trading

• Asian equity indices are -1.0% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 206.50 -3.5 basis points.
  
• Asia Pacific Sovereign CDS Index 158.0 unch.
• FTSE-100 futures +.04%.
  
• S&P 500 futures -.25%.
  
• NASDAQ 100 futures -.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AM)/.81
• (DMND)/.72
  

Economic Releases
8:30 am EST

• Chicago Fed Nat Activity Index for Nov. is estimated to fall to -.17 versus -.13 in October.
• Final 3Q GDP is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.
• Final 3Q Personal Consumption is estimated to rise +2.3% versus a prior estimate of a +2.3% increase.
• Final 3Q GDP Price Index is estimated to rise +2.5% versus a prior estimate of a +2.5% gain.
• Final 3Q Core PCE is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.
• Initial Jobless Claims are estimated to rise to 380K versus 366K the prior week.
• Continuing Claims are estimated to fall to 3600K versus 3603K prior.
  

9:55 am EST

• Final Univ. of Mich. Consumer Confidence for December is estimated to rise to 68.0 versus a prior estimate of 67.7.

10:00 am EST

• Leading Indicators for November are estimated to rise +.3% versus a +.9% gain in October.
• The House Price Index for October is estimated to rise +.2% versus a +.9% gain in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly EIA natural gas inventory report, weekly Bloomberg Consumer Comfort Index, Dec. Bloomberg Economic Expectations Index could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Rebounding into Final Hour on Less Financial Sector Pessimism, Short-Covering, Seaonal Strength, Window Dressing

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 22.2 -4.39%
  
• ISE Sentiment Index 178.0 +60.36%
  
• Total Put/Call 1.14 -9.30%
  
• NYSE Arms .78 +358.23%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 126.99 +.3%
  
• European Financial Sector CDS Index 286.54 +.84%
  
• Western Europe Sovereign Debt CDS Index 371.92 +1.7%
  
• Emerging Market CDS Index 310.30 -.62%
  
• 2-Year Swap Spread 47.0 -1 bp
  
• TED Spread 57.0 +1 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -127.50 -11.0 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .00% unch.
  
• Yield Curve 170.0 +3 bps
  
• China Import Iron Ore Spot $134.80/Metric Tonne +2.12%
  
• Citi US Economic Surprise Index 70.50 -3.4 points
  
• 10-Year TIPS Spread 2.05 +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -9 open in Japan
• DAX Futures: Indicating +32 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech and Retail sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 moves back to the flatline and trades to session highs, despite rising Eurozone debt angst, rising global growth fears, higher energy prices, more tech sector pessimism and US tax hike concerns. On the positive side, Energy, Utility, Hospital and Education shares are especially strong, rising more than +1.0%. (XLF) has outperformed throughout the day. Copper is gaining +.67%. The 10-year yield is rising +5 bps to 1.97%. The Europe Investment Grade CDS Index is down -1.73% to 171.56 bps. On the negative side, Internet, Software, Disk Drive, Networking, Computer Service and Airline shares are under meaningful pressure, falling more than -1.5%. The UBS-Bloomberg Ag Spot Index is up +.58%, Oil is up +1.5% and Lumber is falling -1.7%. The Germany sovereign cds is gaining +.74% to 105.5 bps, the UK sovereign cds is gaining +.91% to 97.83 bps, the Brazil sovereign cds is jumping +3.8% to 167.21 bps, the France sovereign cds is rising +.95% to 224.67 bps and the Belgium sovereign cds is rising +1.05% to 319.33 bps. The Italian/German 10Y Yield Spread is rising +4.2% to 485.37 bps. The Western Europe Sovereign CDS Index is still very near its all-time high. The TED spread continues to trend higher and is very near the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is very near the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is plunging -9.5% to -127.50 bps, which is back to late-Nov. levels. The Libor-OIS spread is rising to the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. China Iron Ore Spot has plunged -29.8% since February 16th and -25.5% since Sept. 7th. The China Corporate Blended Spread Index remains very close to another technical breakout. The Citi Asia Economic Surprise Index is unch. today at -27.80, the lowest since April 2009. Major Asian indices surged 2-4% overnight, however the Shanghai Composite reversed opening gains and closed near session lows, down -1.12%. This index is back near a multi-year low, down -22.0% ytd. European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand, which remains a large red flag. According to SentimenTrader.com, this would be only the 2nd time in the past decade that the S&P 500 rose on a day in which the Nasdaq 100 fell over -1.5%. The other day this happened was 7/18/08. Moreover, given the tech sector's importance to the overall economy and (ORCL)'s very disappointing earnings report, a positive day for the S&P 500 is even more surprising. Year-end window-dressing, short-covering, better US economic data and seasonal strength continue to help out short-term. Credit gauges are still at highly stressed levels(and in many cases worsening), today’s rally was led again by many of this year’s worst-performing stocks, concerns over Asia are still intensifying and volume remains light, which does not bode well for a sustainable advance. I expect US stocks to trade modestly higher into the close from current levels on better US economic data, short-covering, bargain-hunting, less financial sector pessimism, year-end window dressing, seasonal strength and technical buying.

Today's Headlines

Bloomberg:

• Europe Stocks Drop as ECB Loans Fail to Ease Debt-Crisis Concern. European stocks fell for the first time in three days as lenders sought more funds from the European Central Bank than economists had predicted, reducing optimism that the debt crisis will be contained. The Frankfurt-based ECB awarded 489 billion euros ($640 billion) in 1,134-day loans, more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which it will lend at the average of its benchmark rate over the term of the loans. “The added liquidity is being seen as just another quick shot in the arm rather than anything more meaningful,” Yusuf Heusen, a sales trader at IG Index in London, wrote in e-mailed comments. “As a result hopes of an upbeat run to Christmas seem to be waning.” UniCredit, Italy’s biggest bank, dropped 4.4 percent to 70.8 euro cents and France’s Societe Generale (GLE) SA slid 3.4 percent to 16.63 euros. A gauge of banks in the Stoxx 600 slipped 0.7 percent.
• Italian GDP Contracts as Nation Enters New Recession: Economy. The Italian economy contracted in the third quarter, signaling the country may have entered its fifth recession since 2001 as the government adopts new austerity measures that will further weigh on growth. Gross domestic product declined 0.2 percent from the second quarter, when it expanded 0.3 percent, national statistics institute Istat said in Rome today. It was the first contraction since the final three months of 2009 and matched the median forecast in a survey of 23 economists by Bloomberg News. Consumer spending declined 0.2 percent from the second quarter, with investment contracting 0.6 percent. Exports grew 1.6 percent in the quarter, while imports fell 1.1 percent.
• French Banks Struggling to Raise $48 Billion for First-Quarter Debt Needs. BNP Paribas SA, Societe Generale SA (GLE), Credit Agricole SA and Groupe BPCE, France’s biggest banks, are struggling to fund about 37 billion euros ($48 billion) of debt payments due in the first quarter. As their access to U.S. dollar short-term funds dries and they face soaring costs in the bond market, French lenders are raising money by selling their debt through structured products and issuing bonds backed by mortgages on properties in Paris and regions including Cote-d’Azur, the French Riviera playground of the rich. The European Central Bank is also offering them three- year loans through a facility, which opened today. “It’s gotten harder and harder to get refinancing on the markets, and as time goes by rating agencies are taking negative actions, pushing up already high funding costs,” said Jacques- Pascal Porta, who helps manage 500 million euros at Ofi Gestion Privee in Paris and owns BNP Paribas shares.
• Fitch to Cut Hungary Sovereign Credit by Two Steps to Junk, Origo Reports. Fitch Ratings has notified the Hungarian government of its intention to cut the country’s sovereign credit grade by two steps to junk, Origo news website reported, citing two “market sources independent of each other.” Hungary is currently rated BBB-, the lowest investment grade, with a negative outlook at Fitch.
• The ECB's lending operation may buy the EU politicians more time to create a more comprehensive solution, though it won't increase "external demand" for peripheral sovereign debt, Nomura strategist Guy Mandy wrote in a note today. There were 523 bidders, which was less than the 1,121 participants in 2009, which indicates tehre wan't a wholesale take-up in operations for carry purposes.
• The 3M EUR/USD Cross Currency Basis Swap is falling -11 bps to -128 bps, which is the lowest since Dec. 15 on a closing basis, after 523 banks borrowed EU489B at the ECB's 3-year LTRO.
  
• Mortgage Bonds Miss Out on Rally as Europe Bank Sales Loom: Credit Markets. U.S. mortgage bonds that lack government backing are trading at about the lowest prices in more than a year, even as riskier assets from high-yield company bonds to stocks rally, with investors bracing for sales of home- loan debt by European banks. A group of prime jumbo-mortgage securities tracked by JPMorgan Chase & Co. as a benchmark fell to 93.3 cents on the dollar this month, the lowest level since August 2010. A set of subprime bonds tumbled to a two-year low of 28.1 cents. Banks across Europe have pledged to cut more than 950 billion euros ($1.2 trillion) of assets during the next two years, after regulators made them increase core capital to 9 percent by June instead of in 2019, according to data compiled by Bloomberg. Combined with the greater difficulty of trading in the $1.1 trillion market of non-agency mortgage bonds and concern that the U.S. housing market has yet to bottom, the threat of the region’s banks unloading their holdings is helping to depress values. “The European banks are scrambling for capital and the traditional route” of selling shares isn’t available as investors shun their equity securities, said Reza Ali, who heads Prosiris Capital Management LLC, a New York-based hedge fund that’s gained 10.7 percent since starting in July. “There are big question marks that don’t exist to the same degree for corporate bonds” and structured debt in the U.S. including collateralized loan obligations, aircraft-backed notes and commercial-mortgage securities.
• China Stocks Drop for Third Day on Cash Crunch, Ping An's Fundraising Plan. China’s stocks fell for a third day as a cash crunch weighed on equities after banks hoarded cash to meet year-end reserve-ratio requirements and Ping An Insurance (Group) Co. (601318) plunged on fundraising plans. Ping An, China’s second-biggest insurer, slid 5.2 percent on a plan to sell as much as 26 billion yuan ($4.1 billion) of bonds after business expansion brought down its capital adequacy. China Vanke Co. led a decline for developers as cities including Shanghai extended the period limiting home purchases. “The economy and the capital markets are still facing a credit crunch as a result of two years of monetary tightening,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “The economy is experiencing a down cycle. Stocks are not a place to put money until economic growth picks up again.” The Shanghai Composite Index (SHCOMP) fell 1.1 percent to 2,191.15 at the close. The Shanghai Composite has fallen 6.1 percent in December as concern about an economic slowdown overshadowed the first cut in reserve requirement ratios in three years on Nov. 30. For the year, the measure is down 22 percent after the central bank raised interest rates three times to curb inflation and exports to Europe slowed because of the region’s debt crisis.
• Wen Says China's Slowing Growth, Elevated Prices Add to Policy Challenge. Chinese PremierWen Jiabao said slowing growth and elevated prices are adding to the difficulties the government faces in helping manage the world’s second-biggest economy. The nation will keep its export policies such as tax rebates “basically stable” next year and the government will mainly use fiscal spending to support “structural tax cuts” and to improve people’s lives, Wen was cited as saying in a statement posted on the central government’s website yesterday. “The current economic growth momentum is generally sound, but we are also facing many new situations and problems,” Wen said. China will maintain prudent monetary and proactive fiscal policy next year and policies will be fine-tuned as needed in accordance with the changing situation, the ruling Communist Party said after an economic work meeting last week. Export growth slowed to the weakest pace since 2009 in November, a development that Wen said reflects a “grim” situation facing China.
• Shale Boom Heralds Fifth Year of Gas Declines: Energy Markets. Booming U.S. natural gas production from shale formations and slowing demand from households, factories and power plants are poised to send prices down for an unprecedented fifth year in 2012. Gas may tumble 8.2 percent from its 2011 average next year, as output rises 2.8 percent to a record 67.72 billion cubic feet a day, according to the Energy Department. Demand will probably climb 1.7 percent, after a 1.8 percent increase this year, the department said in its Dec. 6 Short-Term Energy Outlook. "It's been practically impossible to turn off the shale- gas tap," Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington, said in a telephone interview Dec. 14. "Industrial demand has been rising, but it's not enough." Natural gas has dropped 28 percent on the New York Mercantile Exchange this year, the most since 2006, as improved drilling technology and profits from selling gas liquids encouraged producers to pump record amounts of the fuel from shale formations from Texas to Pennsylvania. Futures have dropped in each of the past three years, the longest stretch of declines since the contracts began trading on the Nymex in 1991.
• Crude Futures Rise for Third Day as Inventories Decline Most in a Decade. Oil rose for a third day as U.S. inventories declined the most in a decade. Futures gained as much as 2.1 percent after the Energy Department reported supplies fell 10.6 million barrels to 323.6 million last week. It was the largest decline in barrels since Feb. 16, 2001, and almost five times the 2.13 million-barrel drop that was the median of 12 analyst estimates in a Bloomberg News survey. “Refiners are trying to reduce inventories to minimize their ad valorem taxes” in Texas, Andy Lipow, president of Lipow Oil Associates LLC in Houston, said in a telephone interview before the report. “This is accomplished by increasing exports of product and minimizing imports of crude oil to reduce inventories.”
• Airlines Lose Fight Against EU Carbon Caps. International airlines lost a challenge to the European Union’s planned expansion of its carbon cap-and-trade system, the region’s highest court said. The EU Court of Justice “confirms the validity of the directive that includes aviation” in the emissions-trading program, the Luxembourg court ruled today.
• Brazil CPI Accelerated for Second Month in Mid-December. Consumer prices, as measured by the IPCA-15 index, rose 0.56 percent in the month, compared with an increase of 0.46 percent in mid-November, the national statistics agency said today. The increase was in line with the median estimate of 43 analysts surveyed by Bloomberg. Annual inflation slowed to 6.56 percent, still above the 6.5 percent upper limit of the central bank’s target range.
• Existing Homes Sold Since '07 Revised Down. Sales of existing homes in the U.S. rose in November to a 10-month high, showing demand may be starting to stabilize following a plunge over the past four years that was steeper than previously calculated. Purchases climbed 4 percent to a 4.42 million annual pace, the most since January, the National Association of Realtors said today in Washington. The group revised down figures going back to 2007 by an average 14 percent, putting them more in line with other measures of demand.

Wall Street Journal:

• R&I Lowers Japan Sovereign Debt Rating. The Japanese credit-rating company Rating and Investment Information Inc. lowered Japan's sovereign debt rating to AA+, the first time a domestic firm has said the country's debt is not of triple-A caliber. While Japan isn't considered in immediate danger of default, the European debt crisis has brought more attention to its massive fiscal deficits and growing debt load. The government relies on fresh borrowing for 50% of its annual spending which has helped push the gross debt level to 200% of annual economic output. The debt load is by far the highest among major industrialized countries, outpacing even troubled economies such as Greece. In making the announcement, R&I said that even if a planned increase in the sales tax goes ahead, the added revenue won't be enough to halt the rise in Japan's debt load. The firm forecasts that the debt will continue to rise for "an extensive period of time." The government of Prime Minister Yoshihiko Noda is trying to push through a major increase in the national sales tax to help close the budget deficit.
• CEO of TheStreet Inc. Stepping Down.
  

CNBC.com:

• More Easing in China Risks Hard Landing in 2013. (video)
• US Asks Journals to Censor Articles on Flu Virus. For the first time ever, a government advisory board is asking scientific journals not to publish details of certain biomedical experiments, for fear that the information could be used by terrorists to create deadly viruses and touch off epidemics.

Business Insider:

• North Korean State News: Jimmy Carter Expressed Condolences On The Death Of Kim Jong Il.
• Taibbi: Obama and Geithner are Acting Like Lehman Executives Before The Crash.
• Short Term Yields On Spanish And Italian Bonds Are Shooting Back Up. (graph)
  

Zero Hedge:

• ECB's FX Swap Line With Fed Soars To $85 Billion Total. (graph)
• Chart of European Emergency Liquidity Back at Record Levels, And Why Bank of America(BAC) Is Long French CDS.
• Citigroup(C) Analyzes The Failure Of The LTRO, Muses On The Upcoming French Downgrade.
  

FINalternatives:

• Hedge Funds Fall -.59% In Early Dec. Hedge funds aren't getting the help this month they need to avoid a losing year. As things stood at the end of November, the industry would have needed a major rally to get into the black for 2011. But hedge funds haven't gotten any kind of rally, and instead lost further ground in the first half of November, according to Hedge Fund Research. The HFRX Global Hedge Fund Index lost 0.59% through Friday. The benchmark is down just over 9% on the year, with two weeks to go before New Years Day. Over the same period, the Standard & Poor's 500 Index was down about 2.2%. Fundamental growth funds fell an average of 2.57% (down 15.01% YTD),equity hedge funds 1.61% (down 19.69% YTD), market directional funds 1.57% (down 18.98% YTD), fundamental value funds 1.14% (down 23.61% YTD), special situations funds 0.73% (down 3.74% YTD), event-driven funds 0.69% (down 5.03% YTD), North American funds 0.53% (down 3.8% YTD), distressed restructuring funds 0.49% (down 7.69% YTD) and multi-regional funds 0.49% (down 15.21% YTD).

FXStreet:

• French Downgrade Would Cut EFSF Capacity By A Third: S&P Director Says.

Reuters:

• Italy bank assn-ECB loans won't prompt banks to buy state bonds. Banks won't increase their exposure to sovereign debt even after the European Central Bank's massive three-year funding operation because European Bank Authority (EBA) rules discourage it, Italy's banking association (ABI) said on Wednesday."The EBA rules are a deterrent for buying sovereign bonds, so not even the ECB's important liquidity injection -- of almost 500 billion euros -- can be used to support sovereign debt," ABI director general Giovanni Sabatini told reporters. "The EBA created this problem by making the new toxic assets, in the eyes of the markets, sovereign bonds," Sabatini said. In new rules announced by the EBA earlier this month, banks will be required to mark to market their sovereign bond holdings, which has prompted ABI to threaten legal action. "Banks not only will not increase their exposure, but they will probably cut it, and this creates a potential problem for refinancing sovereign debt," he said.
• Egypt Sees Clinton Remarks as "Interference" - Agency. The Egyptian foreign minister said on Wednesday that Egypt would not accept any interference in its internal affairs, in response to criticism by U.S. Secretary of State Hillary Clinton on the way security forces dealt with women protesters. In a speech on Monday, Clinton criticised the actions of Egyptian security forces as showing the "systematic degradation" of women that "disgraces the state", some of the strongest U.S. language used against Egypt's new rulers. Footage showed Egyptian soldiers beating protesters with batons, often after they had fallen to the ground, in what activists described as a forcible attempt to clear a sit-in demanding a swifter transfer to civilian rule. The clashes since Friday have left at least 13 dead and hundreds wounded. "Egypt does not accept any interference in its internal affairs and conducts communications and clarifications concerning statements made by foreign officials," the state news agency quoted Foreign Minister Mohame d Kamel Amr as saying. "Matters like that are not taken lightly," he was quoted as saying, in his response to a question about Clinton's remarks.

Telegraph:

• Herr Draghi or Signor Draghi, and the ECB's Santa Rally (technical). Enjoy Mario Draghi's Santa Rally while it lasts. The euphoria is likely to dissipate once markets remember the sheer scale of the task at hand.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.40%)

Sector Underperformers:

• 1) Software -5.50% 2) Computer Services -4.14% 3) Disk Drives -3.19%

Stocks Falling on Unusual Volume:

• ORCL, CVLT, RVBD, MLNX, IBM, TIBX, CPTS, FTNT, INFA, NEOG, ICFI, MLNX, MKTX, TEVA, TLEO, UTEK, CHKP, CTXS, IPAR, CSGP, BSFT, INFY, TSLA, XSD, SAP, SEE, RHT, CRM, TDC and VMW
  

Stocks With Unusual Put Option Activity:

• 1) KMX 2) ORCL 3) EMR 4) NKE 5) EBAY
  

Stocks With Most Negative News Mentions:

• 1) ORCL 2) JEF 3) JPM 4) TDC 5) BCR
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume