Today's Headlines

Bloomberg:

• Bank Bond Risk Falls in Europe After Portuguese Debt Auction. The cost of insuring bank bonds fell by the most in six weeks after Portugal sold debt, amid speculation Asian sovereign wealth funds and central banks will help finance Europe’s deficit-ridden governments. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 banks and insurers dropped 12 basis points to 188, according to JPMorgan Chase & Co. at 3 p.m. in London. The gauge is down from 209 basis points on Jan. 10, the highest closing level since the March 2009 record of 210. Lower borrowing costs and speculation the European Central Bank has been buying Portuguese bonds helped ease concern the government will be forced to request a bailout. Markit Group Ltd.’s subordinated financial index dropped 21 basis points to 332, JPMorgan prices show. was down 41 at 1,002. Credit-default swaps on Portuguese government debt dropped 25 basis points to 511, helping push the Markit iTraxx SovX Western Europe Index of swaps on 15 nations 6 basis points lower to 208. Contracts on Ireland declined 19 basis points to 659, Spain fell 18 to 330 and Belgium was 14 lower at 232. Italy decreased 14 basis points to 228 and GreeceThe Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings declined 17 basis points to 426, JPMorgan prices show. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 5.25 basis points to 107.25.
• Portuguese Borrowing Costs Fall at 10-Year Bond Auction After ECB Buying. Portugal’s borrowing costs fell and demand rose at a sale of 10-year bonds after European Central Bank debt purchases this week helped push down yields, sending the securities higher in the secondary market. The nation sold 599 million euros ($778 million) of bonds due in 2020 at a yield of 6.716 percent, the Portuguese debt management agency said today. That compares with 6.806 percent at the previous auction on Nov. 10.
• Corn, Soybean, Wheat Prices Surge as U.S. Cuts Supply Outlook. Corn and soybeans jumped to the highest prices since July 2008 and wheat surged after the government cut its forecasts of U.S. inventories, signaling tighter food supplies as demand increases and adverse weather reduces harvests. Production of corn in the U.S., the world’s largest grain exporter, dropped 4.9 percent last year and will leave supply before the 2011 harvest at the lowest in 15 years, the U.S. Department of Agriculture said. The USDA also cut its estimate of the soybean crop by 1.4 percent and said domestic wheat inventories will be 16 percent less than a year earlier. Corn, used mostly as livestock feed, has surged more than 60 percent in the past year, while soybeans and wheat advanced 45 percent. Wholesale world food prices tracked by the United Nations surged 25 percent last year to a record, fueled partly by rallies in grains and oilseeds.
• Cattle Futures Surge to Record, Hogs Rally, on Signs of Rising Meat Demand. Cattle futures jumped to a record and hog prices climbed to an eight-month high on signs that meat demand is rising at a time when higher feed costs may curb supply. In the 10 months ended Oct. 31, U.S. beef exports jumped 17 percent from a year earlier and pork shipments rose 2 percent, the latest government data show. The price of corn, the main ingredient in livestock feed, surged 52 percent in 2010.
• China's Chongqing Plans Tax for Used Homes, CCTV Says. The Chinese city of Chongqing plans to introduce a property tax for both new and existing homes, Mayor Huang Qifan said in an interview with state television CCTV, without providing further details. Including existing homes is “quite a surprise,” said Wee Liat Lee, a Hong Kong-based property analyst for Samsung Securities Co., adding that the consensus among analysts had been that the tax would be imposed only on new homes.
• Clarium Hedge Fund Slumps 90% From Peak After Thiel Has Third Losing Year. Peter Thiel got rich investing in PayPal and Facebook Inc. before most people knew them, built a hedge fund that at its apex managed $7.2 billion, and forecast the collapse of the U.S. housing market. He also lost almost two-thirds of his clients’ money. Clarium Capital Management LLC, which Thiel started in 2002 in San Francisco, fell about 23 percent in 2010, the third straight year of declines, according to investors. His fund’s assets are down about 90 percent and clients who stuck with him suffered losses of 65 percent from the mid-2008 peak.
• China Assures Gates on Defense Ties After Surprise Test of Stealth Plane. U.S. Defense Secretary Robert Gates leaves China today with assurances from his counterparts on improved military ties marred by the same uncertainties that have dogged the relationship for years. Gates won a pledge from Chinese military and civilian leaders to consider higher-level dialogue on strategic security issues and he praised them for “constructive” action to rein in North Korea. At the same time, officials wouldn’t commit to specific timelines and seemed at odds internally over U.S. ties.
• Spanish Banks' Financing Costs Spur Doubt on Profit. Spanish banks have more than 30 billion euros ($39 billion) in debt coming due in the next four months. That’s spurring investor doubt on their future profitability as higher financing costs eat into margins. Concern that the country won’t be able to reduce the euro region’s third-highest budget deficit and avoid a European Union bailout has driven up financing expenses for banks.
• India Industrial Output Growth Slows to 2.7% Even as Rate Pressure Mounts. India’s industrial production grew at the slowest pace in 18 months in November, a deceleration that may not prevent the central bank from raising interest rates this month as surging food prices drive up inflation. Output at factories, utilities and mines rose 2.7 percent from a year earlier, the government said in a statement in New Delhi today, less than the revised 11.3 percent jump in October when the Hindu festivals of Dussehra and Diwali boosted demand for goods. The median estimate of 30 economists in a Bloomberg News survey was for a 6.6 percent gain. Food inflation accelerated to 18.32 percent in the week ended Dec. 25, the highest rate since July, the commerce ministry said on Jan. 6. Prices of onions, a key ingredient in the nation’s cuisine, soared 80 percent during the week and milk by 20 percent. The inflation rate may be “around” 6.5 percent by March 31, Mukherjee said, more than the 6 percent prediction he made on Dec. 14. The rate was 7.5 percent in November.
• ITT(ITT) Shares Surge on Decision to Split Conglomerate Into Three Businesses. ITT climbed $10.46, or 20 percent, to $63.24 at 9:39 a.m. on the New York Stock Exchange, the biggest intraday gain since July 1980.
• Pimco's Gross Clashes With Whitney Over Muni-Bond Outlook. Bill Gross, who manages the world’s biggest bond fund at Pacific Investment Management Co., clashed with Meredith Whitney, the banking analyst, when he said he doubted there would be many local-government bankruptcies. “Ultimately, municipal bankruptcies will be at a lower level,” Gross said today on Bloomberg Television’s “InBusiness” program. “I don’t subscribe to the theory that there will be lots of them.”

Wall Street Journal:

• Giffords Continues to Make Progress in Recovery. The recovery of U.S. Rep. Gabrielle Giffords after brain surgery is proceeding without setbacks and the congresswoman is showing signs of awareness, although some damage will linger, a doctor said Wednesday. By Friday, doctors will be able to determine whether she is "out of the woods."
• Postings of a Troubled Mind. Accused Shooter Wrote on Gaming Site of His Job Woes, Rejection by Women. A trove of 131 online-forum postings written between April and June 2010, which were viewed by The Wall Street Journal, provides insight into Mr. Loughner's mind-set in the year leading up to Saturday's shootings in Tucson, Ariz.
• GM(GM) Rethinks Pay for Unionized Workers. In a Major Shift, Executives Want to Tie Compensation of UAW Members to Performance and Company's Financial Health.

CNBC:

• Beige Book: US Economy, Jobs Outlook Improving.
• Hedge Funds Lever Up to Pre-Lehman Level as Banks Play Safe. As of the end of 2010, hedge funds have increased leverage to within 10 percent of pre-credit levels, according to a report from UBS Prime Brokerage Services and have likely increased risk up even more to start this year, traders said. Gross leverage for funds has climbed 43 percent from the bottom reached after the collapse of Lehman Brothers in 2008 and is up 13 percent in 2010, according to UBS.

MarketWatch:

• White House Weighing Corporate Tax Cuts, Geithner Says. The White House is looking for a way to lower the rate of corporate taxes without increasing the deficit, Treasury Secretary Timothy Geithner said Wednesday.

Business Insider:

• Hedge Fund Manager Michael Hintze On Why There Isn't Any Inflation Yet. Hintze predicted that stocks and bonds will “generally produce positive returns” in 2011 because the Fed’s actions will stimulate global markets, companies are repairing balance sheets and “emerging economies” such as India and China are growing. Despite all this talk about commodities and currencies, currently, Hintze's biggest long investments are in BHP Billiton (his biggest holding), Six Flags, Comcast, Discovery Communications, and Mead Johnson Nutrition.
• Wrenching Photos of the Inflation and Unemployment Protests Tearing Apart Tunisia.
• After Massive Tax Hike, Illinois Continues to Get Humiliated by Neighboring Governor.
• IT'S OFFICIAL: Our IPO Market is Crippled - And It's Hurting Our Country.
• Meet The Central Banker Whose Reckless Money Printing Is Causing Commodity Spikes and Riots Worldwide. What, you thought it was Ben Bernanke?

Zero Hedge:

• More Clues of China's Real Estate Bubble: Ghost Malls. We have already seen Chinese ghost cities, rickety buildings, and a construction spree that makes our own unionized labor force seem positive antiquated. Time to add empty malls to the list.

New York Times:

• U.S. Says NYC Overbilled Medicaid. The federal government has accused New York City of overbilling Medicaid by “at least tens of millions of dollars” by improperly approving 24-hour home care for thousands of patients.

Washington Post:

• Massacre, Followed by Libel. The charge: The Tucson massacre is a consequence of the "climate of hate" created by Sarah Palin, the Tea Party, Glenn Beck, Obamacare opponents and sundry other liberal betes noires. The verdict: Rarely in American political discourse has there been a charge so reckless, so scurrilous and so unsupported by evidence. As killers go, Jared Loughner is not reticent. Yet among all his writings, postings, videos and other ravings - and in all the testimony from all the people who knew him - there is not a single reference to any of these supposed accessories to murder. Not only is there no evidence that Loughner was impelled to violence by any of those upon whom Paul Krugman, Keith Olbermann, the New York Times, the Tucson sheriff and other rabid partisans are fixated. There is no evidence that he was responding to anything, political or otherwise, outside of his own head.

Charlotte Observer:

• Lawmaker Raises Questions About Bank of America(BAC), Mortgage Deal. Rep. Brad Miller is raising questions about Bank of America's settlement with the government over soured mortgage-backed securities, asking whether the government got the best deal for taxpayers. In a letter to the agency that oversees Fannie Mae and Freddie Mac, Miller and three other Democratic lawmakers asked for details on how the government reached settlements with Bank of America and Ally Financial over the repurchase of mortgage-backed securities.

AppleInsider:

• 'Holiday Hat Trick' of 16M iPhone, 6M iPad, 4.2M Mac Sales Expected From Apple(AAPL). With Apple's quarterly earnings report for the 2010 holidays less than a week away, one Wall Street analyst believes Apple will sell a record 16 million iPhones, 6 million iPads, and 4.2 million Macs. Analyst Mike Abramsky with RBC Capital Markets said on Wednesday that he sees Apple's iPhone sales over the holidays increasing 84 percent year over year. At 16 million, that would well exceed the previous record of 14.1 million iPhones sold in the Sept. 2010 quarter, and put the company on its way toward a "holiday hat trick" of personal bests. And Apple looks poised to have an even better fiscal year in the rest of 2011, with Monday's announcement that a CDMA variant of the iPhone is coming to Verizon on Feb. 10. He sees the iPhone accounting for 50 percent of all smartphone sales on Verizon in calendar year 2011, with a third of current Verizon smartphone owners upgrading to the iPhone. In calendar year 2011, Abramsky expects Apple to sell a total of 70 million iPhones, which would account for 19 percent of the global smartphone market. That would help Apple achieve $90.8 billion in revenue in its fiscal year 2011, with $20 earnings per share, he said. He has also called for Apple to sell 6 million iPads and 4.2 million Macs in the holiday quarter, which concluded in December. Apple notebook sales are projected to be bolstered by the popular new MacBook Air. Both the projected Mac and iPad sales would be new records for those product categories, as Apple achieved sales of 3.89 million Macs and 4.19 million iPads last quarter. In particular, he referred to the iPad as a "monster holiday hit." Finally, Abramsky also sees Apple selling a total of 18.7 million iPods in the quarter. RBC Capital Markets has increased its 12-month price target for AAPL stock to $395, up from a previous prediction of $365.

Financial Times:

• Ballmer's Window of Opportunity to Prove His Worth. Some members of Microsoft’s board of directors feel the need to keep their chief executive under closer scrutiny.

Telegraph:

• Hedge Funds Bet on $100-A-Barrel Oil. It's not just oil traders who are fueling the price of crude, but financial traders too. Global hedge funds and market speculators have pumped millions of pounds into oil futures pushing the number of contracts held by financial traders to a four year high. The number of bets taken out by the traders soared by 4.6pc in the week to December 28th, taking the total to its highest level since June 2006, according to figures from the Commodity and Futures Trading Commission (CFTC) in America. The volumes traded by hedge funds and commodity funds is likely to re-ignite concerns about the impact of speculators on the price of oil. In May last year, there was alarm when the price of 2010 settlement oil plunged over three weeks as financial investors halved their net-long positions, according to the CFTC data. Since then, traders have tripled their holdings of oil futures to 217,046 contracts. The volume rose by 9,578 holdings to December 28th, according to the latest report from the CFTC’s weekly Commitments of Traders report.

TDN Finans:

• Renewable Energy Corp. ASA's Chief Executive Officer Ole Enger expects supply growth in the solar market of 30-40% this year, citing the CEO. The "big question" is of course if demand will rise correspondingly, citing a presentation at a Pareto Securities conference.

Financial Times Deutschland:

• The European Commission and the European rescue fund are preparing to provide as much as $130 billion in credit guarantees to Portugal should it become necessary, citing European Union officials.

Bear Radar

Style Underperformer:

• Large-Cap Growth (+.62%)

Sector Underperformers:

• 1) Oil Tankers -.78% 2) HMOs -.34% 3) Coal -.32%

Stocks Falling on Unusual Volume:

• HTZ, THOR, ACOR and CTRP
  

Stocks With Unusual Put Option Activity:

• 1) EWJ 2) BAX 3) NE 4) CTRP 5) ACI
  

Stocks With Most Negative News Mentions:

• 1) GTIV 2) PXP 3) ROSE 4) HMA 5) SXT
  

Bull Radar

Style Outperformer:

• Large-Cap Value (+.91%)

Sector Outperformers:

• 1) Steel +2.22% 2) Oil Service +2.04% 3) Educcation +2.0%

Stocks Rising on Unusual Volume:

• ITT, STD, REP, DB, TIE, TEF, SWC, SEED, PTR, NG, PNK, NAK, LULU, SBAY, DXCM, SPEC, AFOP, TITN, SWIR, BRKR, NVDA, AONE, AIXG, SPSC, MYGN, QNST, ASMI, BBOX, SHOO, SHPGY and VSEA
  

Stocks With Unusual Call Option Activity:

• 1) LEN 2) TTM 3) FXE 4) LULU 5) MU
  

Stocks With Most Positive News Mentions:

• 1) ASEI 2) HS 3) LULU 4) NOC 5) LMT
  

Wednesday Watch

Evening Headlines
Bloomberg:

• Long Bonds Rejected as Yield Curve Steepens: Credit Markets. U.S. companies are selling the fewest long-maturity bonds in almost two years as a strengthening economy diminishes investors’ appetite for the debt. CenterPoint Energy Inc. and Enterprise Products Partners LP are the only issuers of 30-year bonds this month, raising a combined $1.05 billion amid $64.4 billion of overall sales, according to data compiled by Bloomberg. Last month, $1.5 billion of debt maturing in at least three decades was sold, down 85 percent from a year earlier and the least since April 2009.
• Covered Bond Sales Deluge Drives Bank Funding Costs to Record: Euro Credit. Investors are demanding record yield premiums to buy European covered bonds, driving up funding costs for banks at a time when they are relying more than ever on the top-rated, loan backed securities as a source of capital. The extra interest investors demand to own the debt has doubled since the end of 2009 and reached a record 202 basis points this month, according to Barclays Capital’s Euro- Aggregate Securities - Covered Index. Spreads on bonds sold by banks in so-called peripheral nations, which account for 38 percent of the Barclays gauge, widened the most in the region.
• Spain's Collapse May Signal the End of Euro, Nobel Winner Pissarides Says. The European Union doesn’t have the resources to rescue Spain if it “collapses,” Nobel Prize- winning economist Christopher Pissarides said at a forum in Beijing today. That may lead to the end of the euro, said Pissarides, who teaches at the London School of Economics.
• Short Selling Against S&P 500 Drops to One-Year Low, Exchange Data Show. Bets against the Standard & Poor’s 500 Index fell to a one-year low as short sellers reduced speculation that technology and telephone stocks such as Adobe Inc. and CenturyLink Inc. will decline. Short interest on the S&P 500 dropped to 6.87 billion shares, or 3.9 percent of shares available for trading, as of Dec. 31, down 5.7 percent from two weeks earlier, according to data compiled by U.S. exchanges and Bloomberg. It was the third straight period that S&P 500 short selling fell. For technology companies, it slid 8.1 percent to 1.26 billion shares, and it fell 16 percent to 368.4 million for phone stocks.
• Cliffs(CLF) to Buy Consolidated Thompson for C$4.9 Billion. Cliffs Natural Resources Inc., North America’s largest iron-ore producer, agreed to buy Consolidated Thompson Iron Mines Ltd. for about C$4.9 billion ($4.95 billion) to add Canadian output. Cliffs will pay C$17.25 a share, the Cleveland-based company said today in a statement. The bid is 29 percent higher than today’s Consolidated Thompson closing share price on the Toronto Stock Exchange. The purchase price includes net debt.
• Merck(MRK) Vaccine Reduces Risk of Shingles by 55% in Kaiser Permanente Study.
• Daley Has $7.7 Million in JPMorgan(JPM) Stock on Way to White House. William Daley will have about $7.7 million worth of JPMorgan Chase & Co. shares to divest when he takes over as President Barack Obama’s new chief of staff, according to administration officials and regulatory filings. White House lawyers also are reviewing whether Daley will have to recuse himself from some White House discussions to avoid potential conflicts stemming from his prior job as vice chairman of JPMorgan and memberships on the boards of Abbott Laboratories and Boeing Co., according to an administration official. Daley held 114,414 JPMorgan shares when his selection as chief of staff was announced by Obama on Jan. 6, according to a filing with the Securities and Exchange Commission. On that day, New York-based JPMorgan also said he could retain 101,913 restricted shares and stock appreciation rights that entitled Daley to buy another 100,000 shares at $34.78 each.
• Apollo Group Put Trading Backfires in Biggest Loss of U.S. Options Market. Options traders who piled into bearish bets against Apollo Group Inc. before the largest for- profit college operator’s quarterly report had today’s biggest loss in the U.S. market as the shares soared. Apollo, the Phoenix-based operator of the University of Phoenix, jumped 13 percent to $40.74 as of 4 p.m. in New York after reporting quarterly results that were higher than analysts estimated. Trading of puts to sell the stock jumped to a 12-week high of 42,316 contracts yesterday as investors purchased contracts to hedge against stock losses or bet on a drop. Apollo’s January $36 puts plunged 96.2 percent to 7 cents today for the biggest retreat among all contracts traded on U.S. exchanges, according to Bloomberg data. Yesterday’s most-traded options, the January $34 puts, fell 96.1 percent to 4 cents for the second-biggest loss. Apollo puts accounted for eight of the 10 biggest losses among U.S. options.
• Liberty Mutual Reduces Muni-Debt Holdings in 3 U.S. States, CEO Kelly Says. Holding Co., the policyholder-owned insurer, reduced its holdings of municipal debt in Connecticut, and Illinois.Liberty MutualCalifornia “The market is being held up to some extent by the belief that the federal government will bail out” state and local issuers, Chief Executive Officer Edmund “Ted’’ Kelly said today in an interview on the sidelines of a conference in New York. The insurer still has holdings in each of the states, he said.
• Propane, Ethane Price Gains Deepen Natural Gas Supply Glut: Energy Markets. Rising prices for natural gas byproducts such as propane, which touched an 11-month high this week, are encouraging energy companies to boost gas output even after the market’s biggest annual slide since 2008. Propane, a liquid used in home heating and outdoor grills, has surged 42 percent since reaching last year’s low on July 12. Ethane, used as a feedstock in the production of plastics, has climbed 40 percent from a 2010 low on June 23. Profits from liquids are encouraging U.S. companies to shift to fields where they are more abundant, boosting natural gas production at the same time.
• New York, U.S. Northeast Get Ready as Another Snowstorm Moves In. Cities across the U.S. Northeast deployed thousands of plows and sand-spreaders as the second major snowstorm in a little more than two weeks threatened to cripple air, road and train travel.
• Brisbane's Flood Waters Rise, Shutting Australian City, Isolating Suburbs. Flooding in Brisbane is intensifying, cutting off roads and closing businesses as Australia’s third- largest city faces its worst deluge since 1893. Brisbane River, which flows through the center of the city, will surge to 4.5 meters (15 feet) at 3 p.m. local time, from a current level of 3.1 meters. The river may tomorrow exceed 5.45 meters, the height that devastated the city during flooding in 1974, the Bureau of Meteorology said on its website. More than 75 percent of Queensland state, an area bigger than Texas and California combined, has been declared a disaster zone as torrential rain triggered flash floods on Jan. 10 that left 10 dead and more than 90 people missing.

Wall Street Journal:

• Giffords's Outlook Improves. U.S. Rep. Gabrielle Giffords remained in critical condition after brain surgery, but doctors said Tuesday that she would survive Saturday's shooting. "She has a 101% chance of survival," said Peter Rhee, head of the University of Arizona Medical Center's trauma unit, where Ms. Giffords was brought after being shot in the head at point-blank range while meeting constituents near a Tucson supermarket. Ms. Giffords has shown some slight movement on one side of her body, and there are signs she could open her eyes soon, Dr. Rhee said.
• Southern Copper Chairman Unloads Shares. Southern Copper Corp. Chairman German Larrea Mota-Velasco sold 400,000 shares for about $19.5 million in recent weeks in a sign the shares may be overvalued even as the near-term outlook for copper pricing looks promising. Mr. Larrea sold the shares at $48.51 to $49.90 a share.
• Obama Begins Gearing Up Re-Election Bid. Democratic Officials Say Early Start Is Needed in Part to Commence Fund-Raising for Contest Expected to Cost $1 Billion.
• Goldman(GS) Bankers, Ascendant Again. In Rules Revamp, Investment Staff Is Set to Gain Ground on Traders Tied to Firm's Recent Troubles.
• New Names Are Moving Up the CMBS Charts. After Downturn, Some—Like Former No. 1 Morgan Stanley(MS)—Are Late to Rejoin Market; Concern Over Loan Standards. As the market for commercial-mortgage-backed securities begins to thaw from a two-year deep freeze, a new pecking order among underwriters is emerging, with J.P. Morgan Chase & Co.(JPM) as the dominant player and onetime market leader Morgan Stanley not yet on the boards. The landscape for CMBS has changed drastically since its peak in 2007—when banks churned out $230 billion of loans nationally and underwriters raked in hundreds of millions of dollars in fees.
• Lululemon(LULU) Boosts 4Q Guidance On Strong Revenue Performance. Yoga-wear retailer Lululemon Athletica Inc. (LULU) is again exceeding quarterly expectations, significantly boosting its fourth-quarter outlook on stronger-than-expected revenue. The Vancouver-based company said it now projects earnings of 55-57 cents a share for the fiscal quarter that ends Jan. 30. That compares with the Thomson Reuters mean estimate for earnings of 50 cents a share and is well above the company's own projection for fourth-quarter earnings of 46-48 cents. Lululemon said net revenue for the quarter should range from $237 million to $239 million, well above the analyst estimate of $221 million and up from its previous view of $210 million to $215 million. Net revenue in the same quarter a year earlier was $161 million. Lululemon closed Tuesday on Nasdaq at $67.24, down 1.8%. In after-hours trading, it's up 6.7% to $71.80.
• New Move to Make Yuan a Global Currency. China has launched trading in its currency in the U.S. for the first time, an explicit endorsement by Beijing of the fast-growing market in the yuan and a significant step in the country's plan to foster global trading in its currency.

CNBC:

• Time to Dip a Toe in Housing?
• Pros: Commodities Bull May Be About to Stumble?
• US Senate Report to Criticize Goldman(GS). Goldman Sachs will come in for harsh criticism from an influential US Senate report into the financial crisis that will highlight alleged conflicts of interests in the bank’s dealings with clients, according to people familiar with the matter.
• Australia Coal Losses Mount as Floods Persist. Australia's devastating floods could remove 5 percent or more of steelmaking coal from world markets, a major bank estimated on Wednesday, as signs emerged that damage and disruption to coal infrastructure continued to spread with the floodwaters.

MarketWatch:

• Noble(NE) to Replace QLogic(QLGC) in the S&P 500.

Business Insider:

• Illinois Passes A Huge 66% Tax Hike, And Governors Around the Country Are Making Fun Of It. Poor Illinois. It's taken over the mantle as the state that everyone thinks is the most screwed. Faced with a monster budget gap, the state Senate just passed a monster 66% hike in the state income tax. The news has governors or other states gleeful. Indiana Governor Mitch Daniels said today that the tax hike was good for... Indiana. And during his State of the State address, New Jersey governor Chris Christie held up Illinois as a state that was going in the wrong direction. Chicago readers, any plans to move?
• Deep Dive Into The Federal Government's Budget and the History of US National Debt. (graphs)
• PHOTOS: Surging Food Prices Are Sparking Riots All Around The World.
  

Zero Hedge:

• Goldman(GS) Prop: A Veritable (Physical) Gold Mine... As Suspected.
• Is The Criminal Case Against Goldman(GS) About to Be Reopened, As Robert Khuzami's "Ethical" Reputation Lies in Ruins. After a few days ago we described in detail the facts behind the ACA lawsuit against Goldman, we were left scratching our heads how it could be that the SEC could ever possibly scuttle this criminal case which was obviously a slam dunk through court, and which based on the disclosures presented by ACA, is a blatant violation case of 10(b)-5 securities fraud and underwriter representation. We asked: did the SEC hide a key piece of the case against Goldman to fast track a settlement process?
• 114 Times More Insider Selling Than Buying In First Week of 2011.
  

New York Times:

• Rising Chinese Inflation to Show Up in U.S. Imports. When garment buyers from New York show up next month at China’s annual trade shows to bargain over next autumn’s fashions, many will face sticker shock.

LA Times:

• Have Gun, Will Talk: Arizona Sheriff Clarence Dupnik Not Speechless Over Tucson Shootings or Much Else. The sheriff, who celebrates his 75th birthday today, is understandably defensive. He had no officers at Rep. Gabrielle Giffords' Saturday open-air get-together in a shopping parking lot. Just the sight of a parked patrol car near a federal officeholder might have discouraged a troublemaker.

Politico:

• Jared Loughner's Supremacists Tie Debunked. An Arizona law enforcement agency is backing away from a document it produced in the aftermath of Saturday’s shootings in Tucson – and which was leaked to Fox News – that linked the man accused with carrying out the crimes to a white nationalist publication.

Reuters:

• US to Press China on Yuan, Economy Ahead of Hu Visit. The United States wants a "real, demonstrative commitment" from China that it is serious about shifting away from export-led economic growth, a U.S. official told Reuters on Tuesday ahead of next week's state visit by China's Hu Jintao. Treasury Secretary Timothy Geithner will on Wednesday lay out his vision for how the world's two biggest economic powers should interact. But the official's comments indicate some impatience with China's gradual approach to allowing its currency to rise and building up domestic demand. "It's both the pace in which they do it and the conviction with which they demonstrate they're going to do it," said the senior Obama administration official, who spoke on condition of anonymity. "What we still need to see in the first instance is that real, demonstrable commitment to the objective" of rebalancing the economy, the official said.
• JPMorgan(JPM) CEO Eyes Dividend Hike in 2011. JPMorgan Chase could pay an annual dividend of 75 cents to a dollar once the Federal Reserve completes stress tests of the largest U.S. banks and gives its approval, Chief Executive Officer Jamie Dimon said on Tuesday.
• Short Bets in U.S. Stocks Fall in Late December. Bearish bets on major U.S. exchanges declined in the second half of December, suggesting investors abandoned their positions as the market advanced. Short interest on the Nasdaq declined 5.4 percent in the second half of December, the exchange said on Tuesday. Short bets on the New York Stock Exchange fell 5.5 percent.

Financial Times:

• Germany's biggest banks may be taxed at a higher rate than expected under the c0untry's levy for financial institutions that is scheduled to come into force this year, citing a draft of plans for the implementation of the new law. The draft plan implies that a cap on the annual charge to banks, to be set at 15% of a bank's profits, may not fully apply.

Die Welt:

• Euro-region governments are considering changing the terms for the bailout fund for member countries. The fund may extend the amount it can lend and lower the interest rate Ireland has to pay, citing European Union diplomats. The rate of 5.8% that Ireland is now required to pay is higher than the country's growth and needs to be adjusted to a bearable level, the diplomats said.

Evening Recommendations
CSFB:

• Raised (PFS) Underperform, target $13.
• Raised (NYB) Outperform, target $21.
  

Night Trading

• Asian equity indices are unch. to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 109.50 -3.5 basis points.
  
• Asia Pacific Sovereign CDS Index 112.50 -2.5 basis points.
  
• S&P 500 futures +.03%.
  
• NASDAQ 100 futures +.12%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CLC)/.56

Economic Releases
8:30 am EST

• The Import Price Index for December is estimated to rise +1.2% versus a +1.3% gain in November.

10:30 am EST

• Bloomberg consensus estimates calls for a weekly crude oil inventory decline of -1,400,000 barrels versus a -4,161,000 barrel decline the prior week. Distillate inventories are estimated to rise by +1,000,000 barrels versus a +1,148,000 barrel increase the prior week. Gasoline supplies are expected to rise by +2,100,000 barrels versus a +3,289,000 barrel gain the prior week. Finally, Refinery Utilization is estimated unch. versus a +.2% gain the prior week.
  

2:00 pm EST

• The Fed's Beige Book.
• The Monthly Budget Deficit for December is estimated at -80.0 Billion versus -$91.4 Billion in November.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Treasury's Geithner speaking on China, the Fed's Fisher speaking, $21 Billion 10-Year Treasury Notes Auction, weekly MBA mortgage applications report, IBD/TIPP Economic Optimism Index, (AUY) analyst day, Piper Jaffray Clean Tech Conference and the Deutsche Bank Real Estate Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by financial 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 Higher into Final Hour on European Equity Strength, Commodity Rebound, More Economic Optimism

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.19 -2.0%
  
• ISE Sentiment Index 162.0 +11.72%
  
• Total Put/Call .83 +7.79%
  
• NYSE Arms .82 -35.13%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 86.28 -4.25%
  
• European Financial Sector CDS Index 176.42 bps -4.61%
  
• Western Europe Sovereign Debt CDS Index 215.75 bps -.80%
  
• Emerging Market CDS Index 204.17 -1.32%
  
• 2-Year Swap Spread 25.0 -1 bp
  
• TED Spread 16.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .14% +1 bp
  
• Yield Curve 276.0 +3 bps
  
• China Import Iron Ore Spot $174.60/Metric Tonne +.69%
  
• Citi US Economic Surprise Index +36.70 +.9 point
  
• 10-Year TIPS Spread 2.40% +5 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +75 open in Japan
• DAX Futures: Indicating +8 open in Germany

Portfolio:

• Slightly Higher: On gains in my Medical, Biotech, Ag 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 higher despite some meaningful equity strength overseas and less euro sovereign debt angst. On the positive side, Education, Homebuilding, Construction, Hospital, Medical Equipment, Steel, Oil Service, Energy and Coal shares are especially strong, rising more than 1.0%. Copper is gaining +1.95%. The Italy sovereign cds is falling -5.07% to 244.08 bps, the Russia sovereign cds is declining -3.31% to 145.78 bps and the US Muni CDS Index is falling -5.76% to 228.25 bps. On the negative side, Airline, Gaming, Telecom and Oil Tanker shares are under meaningful pressure, falling more than 1.0%. (IYR) has underperformed throughout the day. As well, the Transports are giving back some of their recent gains. Weekly retail sales rose +2.8% this week, which is a meaningful deceleration from last week's +3.6% gain. The Bloomberg Cars Anchored Index(.CARANCH Index) is breaking out technically, which means demand from dealers is waning, leaving more autos at port on anchored vessels. The 10-year yield is rising +6 bps to 3.34%. Lumber is falling -2.85% and is down -10.9% over the last week. The Japan sovereign cds is soaring +7.23% to 81.54 bps, which is the highest level since July 21st of last year. The Euro Financial Sector CDS Index is pulling back today, but is still near its all-time high of 200.80 bps, set May 7th of last year. The Western Europe Sovereign CDS Index is just slightly below its record high set yesterday and the euro currency continues to trade poorly despite today's strong showing by eurozone equity markets. 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. I expect US stocks to trade mixed-to-lower into the close from current levels on eurozone debt worries, more shorting, earnings concerns and profit-taking.

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.