Today's Headlines

Bloomberg:

• Stocks Drop Worldwide as Oil, Dollar Surge After Egypt Protests. Stocks worldwide plunged the most since November, crude oil jumped and the dollar gained against the euro after protests in Egypt intensified and President Hosni Mubarak imposed a nationwide curfew. Egypt’s dollar bonds sank, pushing yields to a record high. The MSCI World All-Country World Index of stocks in 45 countries lost 1.3 percent at 12:23 p.m. New York time.
  
• U.S. Economy Quickens on Gains in Spending, Exports. The U.S. economy accelerated in the fourth quarter of 2010 as consumer spending climbed by the most in more than four years. Gross domestic product grew at a 3.2 percent annual rate, Commerce Department figures showed today in Washington, falling short of the 3.5 percent median forecast of 85 economists surveyed by Bloomberg News because of a slowdown in inventories. Excluding stockpiles, the economy rose at a 7.1 percent pace, the most since 1984. “The consumer really drove the economy in the fourth quarter,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who accurately forecast the rate of growth. “The economy has moved beyond recovery to a stable state of growth.” A separate report today showed consumer confidence fell less than expected in January, a signal the biggest part of the economy may extend the gains in spending. The Thomson Reuters/University of Michigan final index of consumer sentiment decreased to 74.2 from 74.5 in December. Inventories last quarter were stocked at a $7.2 billion pace, down from a $121.4 billion rate in the third quarter. The slowdown subtracted 3.7 points from growth, the most since 1988. Leaner stockpiles may help set the stage for faster growth in the first half of this year.
• Oil Rises Most Since 2009 on Concern Egyptian Unrest to Spread. Oil surged the most since September 2009 as unrest in Egypt raised concern that protests would spread to major oil-producing parts of the Middle East. Crude gained as much as 4.8 percent after a day of clashes between police and protesters demanding an end to Egyptian President Hosni Mubarak’s 30-year regime. The unrest in Egypt followed an uprising that led to the Jan. 14 overthrow of Tunisian President Zine El Abidine Ben Ali. “Tunisia isn’t a big oil producer, and Egypt isn’t a big oil producer, but it’s moving closer to the oil fields,” said Phil Flynn, vice president of research at PFGBest in Chicago. “This thing seems to be spreading from border to border.”
• Gold Jumps Most in 12 Weeks on Haven Demand Amid Egypt Tensions. Gold futures jumped the most in 12 weeks on demand for a haven amid escalating tensions in Egypt. Tens of thousands of marchers chanted “liberty” and “change” as rallies began today at points across Cairo in the biggest challenge to Egyptian President Hosni Mubarak’s 30-year rule. Gold futures for April delivery rose $22.30, or 1.7 percent, to $1,342.10 an ounce at 12:19 p.m. on the Comex in New York, heading for the biggest gain since Nov. 4.
• ECB's Tumpel-Gugerell Says Governments Failing to Meet Obligations to Euro. European Central Bank Executive Board member Gertrude Tumpel-Gugerell criticized governments for failing to fulfill their obligations in the monetary union, saying they must do a better job if the central bank is to guarantee the euro’s stability. “The crisis is clear evidence that parts of the common foundation of the economic and monetary union have not been implemented,” Tumpel-Gugerell said in a speech in Mainz, Germany, last night. “The ECB’s task is to ensure price stability. Confidence in the euro states and their finances can only be created by the states themselves, particularly through common effort.”
• Saudi Arabia Credit-Default Swaps Jump 18.5 Basis Points to 93.50. The cost of insuring the sovereign debt of Saudi Arabia rose 18.5 basis points to 93.5, the highest level in almost a year, according to CMA prices for credit- default swaps.
• Ackermann Says Bailout Risk Lurks for Hedge Funds. Deutsche Bank AG Chief Executive Officer Josef Ackermann said unregulated financial companies such as hedge funds may pose a systemic risk to the economy if oversight isn’t increased. “You have an unregulated area which becomes -- as a consequence of all the regulatory changes -- more and more important,” Ackermann, 62, said in an interview at the World Economic Forum in Davos, Switzerland. “You may one day wake up and realize that the systemic challenges are so big that you will have to bail out or at least help support the unregulated sector.” Ackermann’s warning echoes comments made by former U.S. Treasury Secretary Lawrence Summers, who said this week in Davos that regulators haven’t paid enough attention to problems that could emerge in “a large, less healthy buccaneer sector.” Hedge funds have dodged the brunt of new global banking regulation aimed at avoiding a repeat of the worst global financial crisis since the Great Depression.
• Democratic Senator Who Shot Cap-and-Trade Bill in Ad Named to Energy Panel. The Senate committee with primary jurisdiction for U.S. energy policy added Joe Manchin, the former West Virginia governor who won office after using climate-change legislation for target practice in a 2010 ad. Manchin will join the Senate Energy and Natural Resources Committee, according to an e-mail yesterday from Bill Wicker, a committee spokesman. The panel, led by Senator Jeff Bingaman of New Mexico, plans to draft legislation that sets guidelines for how much electricity comes from sources such as coal, natural gas, wind and sun. West Virginia is the second-biggest coal-producing state after Wyoming, according to Energy Department data. In his commercial, Manchin loads a rifle and fires a single bullet into a copy of the cap-and-trade bill backed by President Barack Obama that would penalize utilities for using coal.
• Japan's Bonds to Rise on Emerging-Market Tightening, DIAM Says. Japan’s bond may rise as interest- rate increases in emerging nations dim global growth prospects, spurring demand for the safety of debt, according to DIAM Asset Management Co. “With emerging nations such as China entering a monetary tightening mode, investors are becoming aware of risks to the economic outlook,” said Nobuto Yamazaki, an executive fund manager who helps oversee the equivalent of $12 billion at the Tokyo-based firm. “They appear to be wondering whether to keep buying commodities and stocks.”
• China Said to Plan to Raise Capital Ratio When Credit Excessive. China may order its biggest lenders, including Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp., to raise capital ratios to as high as 14 percent when credit growth is judged excessive, said a person familiar with the matter. Newly proposed rules would require increasing capital adequacy buffers by as much as 2.5 percentage points when the banking regulator determines loan growth to be too fast, said the person, declining to be identified as the plan isn’t public.
• Emerging Equity Funds Have Biggest Outflow Since 2008. Emerging-market equity mutual funds had their biggest weekly outflows since mid-2008 as investors speculated rising interest rates will curb economic growth, according to Citigroup Inc. The funds lost $3 billion during the week ended Jan. 26, Citigroup’s Hong Kong-based strategist Markus Rosgen wrote in a report today, citing data compiled by research firm EPFR Global. The outflows amounted to 0.4 percent of the funds’ assets, the most since May, Rosgen wrote. Investors are paring bets on shares in the fastest-growing economies after pouring more than $90 billion into emerging- market stock funds last year, the biggest-ever annual inflows, according to EPFR data.
• IMF's Lipsky Says 'Never Say Never' on Another Possible Euro-Area Bailout. International Monetary Fund First Deputy Managing Director John Lipsky said the organization may have to provide further financial aid to so-called peripheral European countries if the region’s debt crisis doesn’t ease. “It certainly will depend on circumstances,” Lipsky said in an interview today with Bloomberg Television at the World Economic Forum in Davos, Switzerland, when asked if the IMF may have to provide assistance to more euro-area members. “Never say never.”
• Dimon Says Deficits, Spending Are New Global Risk. The U.S. government’s estimated $1.5 trillion deficit and record government spending around the world are the biggest potential threats to the global economy, JPMorgan Chase Co.(JPM) Chief Executive Officer Jamie Dimon said. “I’m not just talking about just the United States,” Dimon said in an interview on Bloomberg Television in Davos, Switzerland today. “The governments have to show the will that we have this under control. Because you don’t want to get them under control of the markets the wrong way.”

Wall Street Journal:

• Curfew Set As Regime Defies U.S. Calls. President Hosni Mubarak declared a curfew in riot-wracked Egyptian cities and army tanks began to enter streets to beat back protesters that took to the streets en masse Friday, as the Egyptian leader essentially defied U.S.'s recent urging to embrace reform.
• Egypt Unrest Starts to Rattle Other Markets. The civil unrest in Egypt is gaining more attention among investors, and it could be one reason that the U.S. stock market is struggling at the end of the week. Given that events in Egypt come after the overthrow of the government in Tunisia, more people are wondering about political stability from Morocco to Lebanon. The Market Vectors Egypt Index (EGPT) ETF is down 20% since Jan. 14 and down 2.9% today on more than six times the daily average volume. Egypt’s credit-insurance costs have also spiked. According to Markit, a data provider, a credit-default swap to insure $10 million of Egyptian sovereign debt over five years has spiked 33% to $405,000. (Update: the CDS cost has jumped to $450,000 since this post was first made.)
• Egypt Live Blog: Rolling Updates.
  
• Schmidt Defends Incoming Google(GOOG) CEO. A week after announcing a management shakeup at Google, outgoing Chief Executive Eric Schmidt defended the credentials of company co-founder Larry Page, who will take the reins at the Internet giant in April. “When people criticize Larry as the new CEO, that’s grossly unfair to Larry,” he said on Thursday at a small press conference in Davos, Switzerland, at the World Economic Forum. “He has been with me at every business decision for 10 years.”Though he stayed largely behind the scenes while Mr. Schmidt was the public face of Google, Mr. Page has long called the shots on product initiatives.
• France's Lagarde: We Have A Very Tense Monetary Situation. There is a very tense global monetary situation, including a problem of balance between the U.S. and China, French Finance Minister Christine Lagarde says in a television interview to be broadcast on French television channel LCI later Friday. "There are zones in the world where we are seeing monetary overheating," Lagarde says in the interview, noting the rise in the Brazilian real, the slow rise in the Chinese yuan and carry trades and capital movements that aim to benefit from different rates. "We have a situation that is extremely tense, especially on the monetary level," she says in the interview recorded Wednesday before her departure to Davos for the annual World Economic Forum. "The Brazilians are talking about currency wars, Americans have a real problem with balance and imbalance vis-a-vis China, whose currency is appreciating slowly and at China's rhythm," she added.

MarketWatch:

• Ford(F) Posts 79% Profit Drop, Trims Debt. Shares fall more than 14% in worst decline since May 2009.

Business Insider:

• Why This is Just The Beginning of Egypt's Crippling Demographic Crisis.

Zero Hedge:

• Quant Wipeout In Process?
• Has Joe Cassano Committed Perjury: AIG(AIG) Took Subordinated Pieces of CDOs It Insured.
  

DealBreaker:

• Hedge Fund Managers Less Than Thrilled With Goldman Sachs(GS) President's Interpretation of Who Caused The Financial Crisis, Why Banks Don't Need Increased Regulation.

Reuters:

• 410 Wounded in Cairo Protests on Friday.
• China Rating Agency Blames U.S. for "Credit War". The ultra-loose monetary policy of the United States is setting the stage for "a world credit war," a Chinese rating agency said on Friday, in the latest warning against soaring debt burdens in developed economies.
• Microsoft(MSFT) Shares Fall on Windows, Tablet Worries. Microsoft Corp shares fell more than 4 percent to a six-week low on Friday as investors took profits from a recent run-up in the stock and fretted about the strength of its core Windows franchise and the emerging threat from tablet computing.
• ECRI Leading Economic Growth Gauge Falls to 6-Week Low. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index fell to 127.5 in the week ended January 21 from 128.9 the previous week. That was the lowest since December 10, 2010, when it stood at 127.2. The index's annualized growth rate fell to 3.5 percent from 4.1 percent a week earlier. That was the lowest since December 31, 2010, when it was 3.2 percent.
• Monster(MWW) Shares Fall on Weak Q4 Revenue, Bookings. Shares of Monster Worldwide Inc fell as much as 22 percent on Friday, a day after the online recruiter posted lower-than-expected fourth-quarter revenue and bookings, mainly hurt by currency headwinds and lower government budgets.

AP:

• Egyptian police used a water cannon on opposition leader Mohamed ElBaradei and his supporters at a protest.

Financial Times:

• Derivatives Still in Flux as Dodd-Frank Deadline Looms.

Telegraph:

• Austerity Preferable to Euro Break-Up, Says German Chancellor Angela Merkel.

Guardian:

• Egyptian Government On Last Legs, Says ElBaradei. Exclusive: Mohamed ElBaradei says he is sending a message 'to the Guardian and to the world'. The Egyptian dissident Mohamed ElBaradei warned President Hosni Mubarak today that his regime is on its last legs, as tens of thousands of people prepared to take to the streets for a fourth day of anti-government protests. The Nobel peace prize winner's comments to the Guardian represented his strongest intervention against the country's authoritarian government since he announced his intention to return to Egypt to join the protests. "I'm sending a message to the Guardian and to the world that Egypt is being isolated by a regime on its last legs," he said. His words marked an escalation of the language he used on arrival in Cairo last night, when he merely urged the Mubarak government to "listen to the people" and not to use violence.

Der Standard:

• Willem Buiter, the former Bank of England Monetary Policy Committee member who is chief economist at Citigroup Inc.(C), said the U.S., U.K. and France don't deserve the highest credit ratings. "Ratings agencies give AAA ratings to countries that don't deserve it," Buiter said. Germany is "the most deserving" of the AAA rating "but even Germany has debt equal to 80% of GDP," he said. Greece and Ireland will likely be forced to restructure their debt, Buiter said. Europe's rescue fund is inadequate and won't be able to assist struggling countries out of their "debt holes," Buiter said.

Profil:

• Egyptian President Hosni Mubarak could be forced to relinquish his 30-year rule over the country "very quickly," opposition leader and Nobel Peace Prize winner Mohamed ElBaradei said. "Nobody though that in Tunisia things would change overnight," he said. "Things in the last days show that it can happen very quickly. If Mubarak continues like this, it will surely backfire."

Bear Radar

Style Underperformer:

• Small-Cap Value (-2.0%)

Sector Underperformers:

• 1) Disk Drives -4.04% 2) Airlines -4.0% 3) Networking -2.77%

Stocks Falling on Unusual Volume:

• BPL, GLNG, MYGN, DRIV, CPWR, THRX, JCOM, E, TOT, BBL, CLF, CMCO, TSRA, THOR, CCME, KEYN, MEOH, HUBG, ZOLL, AERL, AMZN, SNDK, HTWR, CELG, MSCC, CRUS, MSFT, JBHT, F, TKF, APA, SFG, CEO, IAK and CBD
  

Stocks With Unusual Put Option Activity:

• 1) EWT 2) WHR 3) WM 4) APA 5) F
  

Stocks With Most Negative News Mentions:

• 1) F 2) NTRS 3) RIG 4) YUM 5) AMZN
  

Bull Radar

Style Outperformer:

• Mid-Cap Growth (-.85%)

Sector Outperformers:

• 1) Oil Tankers +4.94% 2) Gold +1.35% 3) Computer Services -.38%

Stocks Rising on Unusual Volume:

• FRO, OSG, HMY, IAG, EPAY, INFA, BEXP, TMRK, SVVS, OPLK, COHR, CPSI, ARBA, VPRT, VSEA, OPNT, EQIX, QSII, ESIO, SCSC, JDSU, RVBD, MBFI, NEWP, AFOP, CYT, TGP, KEX and DOV
  

Stocks With Unusual Call Option Activity:

• 1) FRO 2) INFN 3) EQIX 4) AMZN 5) MWW
  

Stocks With Most Positive News Mentions:

• 1) VSEA 2) LTD 3) EAT 4) DOX 5) TER
  

Friday Watch

Evening Headlines
Bloomberg:

• Growth in the U.S. Probably Picked Up on Gains in Spending, Exports. The economy in the U.S. probably grew at a faster pace in the fourth quarter, driven by the biggest gain in consumer spending in four years and rising exports, economists projected a report today will show. Gross domestic product rose at a 3.5 percent annual pace, up from a 2.6 percent rate in the previous three months, according to the median estimate of 85 economists surveyed by Bloomberg News.
• Facebook Overvalued at $50 Billion in Global Poll of Investors. Facebook Inc. isn’t worth $50 billion, according to a poll of global investors that shows skepticism about Goldman Sachs Group Inc.’s recent estimate of the largest social-networking site’s value and concern that a bubble may be forming in the technology sector. Sixty-nine percent of investors say Facebook is overvalued after Goldman Sachs invested $450 million in a deal that put the company’s worth at $50 billion, according to the quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 10 percent of respondents say Facebook’s valuation is appropriate; 4 percent say it’s worth more. The Bloomberg Global Poll conducted Jan. 21-24 shows that investors disagree with Goldman Sachs’ assessment that Facebook is worth more than Web pioneers such as Yahoo! Inc., the biggest web portal, and eBay Inc., owner of the biggest online retail marketplace.
• Oil Heads for Biggest Weekly Drop Since August on Slowing Demand. Oil headed for its biggest weekly decline in New York since August amid concern that the pace of fuel demand recovery in the U.S., the biggest crude-consuming nation, may falter. “Crude should be down near $80 a barrel given that world out there is awash with oil,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. Futures are 4.4 percent lower for the week, the biggest drop since the week ended Aug. 13.
• Cameron Says U.K. Is Determined to Kill Off Debt 'Specter'. Prime Minister David Cameron will reassert his commitment to eliminating Britain’s budget deficit amid criticism that his plans are choking economic recovery. British banks, households and the government all need to reduce their indebtedness to restore a balanced economy, Cameron will tell the World Economic Forum in Davos, Switzerland today. “Our first priority is to kill off the specter of massive sovereign debts,” Cameron will say, according to remarks released by his office in London. “We can’t just flick on the switch of government spending or pump the bubble back up.”
• Nanya Technology, Hynix Lead Computer-Memory Chipmakers Higher on Prices. Nanya Technology Corp. led memory- chip makers higher after the benchmark spot price for dynamic random access memory chips surged the most since July. Nanya jumped 6.1 percent to NT$18.30 as of 12:29 p.m. in Taipei. Japan’s Elpida Memory Inc., the world’s third-largest maker of computer memory chips, rose 2.5 percent to 1,220 yen. Samsung Electronics Co., the largest manufacturer, gained 1.1 percent to 1.005 million won in Seoul as it reported a 13 percent increase in fourth-quarter profit. The spot price for DRAM prices rose 7.6 percent yesterday, the biggest increase since July 24, according to data compiled by TrendForce Corp.’s DramExchange. Prices climbed to the highest level since Dec. 22 yesterday.

Wall Street Journal:

• A Two-Track Plan to Restore Growth by John B. Taylor. Our economic wounds are self-inflicted. Changing fiscal and monetary policies could make a difference fast.
• Report Details Wall Street Crisis. Twelve of the 13 largest U.S. financial institutions "were at risk of failure" at the depth of the 2008 financial crisis, while at least 50 hedge funds tried to capitalize on it, according to a report released Thursday by a U.S. panel investigating how the financial system unraveled. The report quantifies a huge run on the bank at Morgan Stanley(MS), describes the alleged trading practices of a secretive hedge fund and tallies the number of such funds betting against U.S. homeowners.
  
• Trader Racks Up a Second Epic Gain. Hedge-fund manager John Paulson personally netted more than $5 billion in profits in 2010—likely the largest one-year haul in investing history, trumping the nearly $4 billion he made with his "short" bets against subprime mortgages in 2007. Mr. Paulson's take, described by investors and people close to investment firm Paulson & Co., shows how profits continue to pile up for elite hedge-fund managers. Appaloosa Management founder David Tepper and Bridgewater Associates chief Ray Dalio each personally made between $2 billion and $3 billion last year, according to investors and people familiar with the situation. James Simons, founder of Renaissance Technologies LLC, also produced profits in that range, say investors in his firm.
• Secret to Bank's Comeback: A Rich Uncle Named Sam. As the nation's banks try to recover from about $493 billion in loan losses, BankUnited is emerging as a case study of how government largess in the wake of the crisis has allowed certain institutions to thrive.
• Small Gold Trader Makes Big Splash. A huge trade by a tiny hedge fund has sent shudders through the gold market. Thanks to the nature of futures trading, Daniel Shak's $10 million hedge fund held gold contracts valued at more than $850 million, more than 10% of the main U.S. futures market, and the equivalent of South Africa's annual gold production. But as gold prices started falling this year, the trade, which was a combination of being long and short gold contracts—bets that prices will both rise and fall—started going bad. Monday, he liquidated his position, and is returning money to clients.
• Arab Unrest Spreading. The popular unrest sweeping across the Middle East sent thousands of protesters into the streets of Yemen and drew an exiled opposition leader home to riot-wracked Egypt, as questions mounted over who will benefit from the convulsions in the Arab world.
• EU Gives Details on Talks Over Fund. Euro-zone governments will increase the lending capacity of their bailout fund and make it more flexible, but governments won't raise its current €440 billion in guarantees, European Economics Commissioner Olli Rehn said in an interview Thursday. The likely decision may raise questions about whether there will be enough in the pot to ease doubts about the fund's ability to provide emergency finance for Portugal, Spain and other countries that might need it.
• Pick for Labor Board Opposed by Business. Some of the same business groups President Barack Obama is courting with his regulatory review and support for a corporate-tax overhaul said Thursday they would fight his renomination of former union lawyer Craig Becker to the National Labor Relations Board. Mr. Obama put Mr. Becker on the NLRB in March using a recess appointment after his nomination failed to get 60 votes needed to overcome a Republican-led Senate filibuster in February. That appointment expires at the end of this year. On Wednesday, Mr. Obama nominated him to a term that would expire in December 2014. Unions applauded the move Thursday, calling Mr. Becker a "highly respected and qualified" candidate who will back workers' rights. Business groups, which consider Mr. Becker too sympathetic to unions, including his former employers at the AFL-CIO and the Service Employees International Union, said their objections haven't softened. The battle over Mr. Becker has become a proxy for the debate over the role of unions in the economy.
• Cap and Trade Returns From the Grave. The president's plans for "clean energy standards" amount to carbon controls by other means.
• China Starts Trial Property Tax to Cool Market. China announced details of a long-awaited property tax in two of its largest urban centers, but the move intended to crack down on speculation and curb rising prices that are fueling public anger was relatively mild and analysts said it would have only a limited impact on investment. The trial tax, the closest thing yet to the style of tax levied annually on residential property in countries like the U.S., will be applied differently in Chongqing and Shanghai, apparently to see which one works best, before being rolled out across the country.

Detroit News:

• Auto Czar Bloom to Head White House Manufacturing Efforts. Ron Bloom, the former labor adviser and investment banker who has been the administration's auto czar since July 2009, will end his autos tenure as he moves to the White House. On Thursday, President Barack Obama named Bloom to a new White House position overseeing manufacturing policy.
  

Reuters:

• Egypt Arrests Muslim Brotherhood Leaders. Egypt rounded up members of the Muslim Brotherhood including at least eight senior leaders of the group ahead of planned countrywide protests on Friday, a lawyer representing the detained men said.
• Apple(AAPL), RIM(RIMM), ZTE Won in Booming Q4 Cellphone Market. North American smartphone vendors Apple and RIM , along with low-cost Chinese producer ZTE , emerged as the biggest winners on the booming cellphone market in final quarter of 2010. Research firm IDC estimated the global handset market grew last quarter 18 percent from a year ago, while Strategy Analytics said growth was at 16 percent.
• Amazon(AMZN) Margins Squeezed by Costs, Shares Plunge. Amazon.com investors got a wake-up call on Thursday when the world's biggest online retailer said its profit margins were sliding as it spends money on massive new distribution centers and acquisitions. The company also reported slightly lower-than-expected sales for the fourth quarter, which includes the holiday season, as it offered discounts and free shipping to attract customers. Amazon's shares, which had gained 5.2 percent earlier in the day, lost that advance and more to fall $16.46 lower than their close in after-hours trading.
• Verizon(VZ) to Buy Terremark(TMRK) for $1.4 Billion. U.S. phone company Verizon Communications Inc plans to buy IT services provider Terremark Worldwide Inc in a deal worth $1.4 billion, the companies said on Thursday. The $19-per-share offer for Terremark represents a 35 percent premium over its closing price of $14.05 on Thursday. Terremark shares jumped to $19.06 after-hours.
• SanDisk(SNDK) Revenue Forecast Exceeds Estimates. SanDisk Corp offered a forecast for the current quarter and 2011 above Wall Street's expectations, in a sign the flash memory supplier continues to benefit from strong demand for mobile devices.

Economic Information Daily:

• China should raise interest rates to curb excess investment in the country, according to a report by Yan Kun, a researcher with the Chinese Academy of Social Sciences, and Zhang Peng, a researcher with the Ministry of Finance's research institute, published today.

China Daily:

• China should focus on "economic quality" not simply expand the size of its economy, Zhang Monan, a researcher with the State Information Center, wrote in a commentary. The Asian nation's economic growth has been driven by domestic investment and exports, a model that is no longer sustainable, Zhang wrote. China should learn from Japan and improve its manufacturing sector by developing advanced technology, innovation and new products, Zhang said.

Evening Recommendations
Citigroup:

• Reiterated Buy on (POT), raised estimates, boosted target to $200.
• Reiterated Buy on (TER), target $20.

Night Trading

• Asian equity indices are -1.0% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 109.50 +2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 119.50 +1.25 basis points.
  
• S&P 500 futures -.22%.
  
• NASDAQ 100 futures -.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AAI)/.06
• (AEP)/.40
• (ACI)/.43
• (CVX)/2.40
• (D)/.66
• (F)/.48
• (HON)/.87
• (IDXX)/.55
• (OSK)/.89
• (QSII)/.54
• (SMG)/-.94
• (TROW)/.69
• (JBHT)/.45
  

Economic Releases
8:30 am EST

• The 4Q Employment Cost Index is estimated to rise +.5% versus a +.4% gain in 3Q.
• Advance 4Q GDP is estimated to rise +3.5% versus a +2.6% gain in 3Q.
• Advance 4Q GDP Price Index is estimated to rise +1.6% versus a +2.1% gain in 3Q.
• Advance 4Q Core PCE is estimated to rise +.4% versus a +.5% gain in 3Q.
• Advance 4Q Personal Consumption is estimated to rise +4.0% versus a +2.4% gain in 3Q.
  

9:55 am EST

• Final Univ. of Mich. Consumer Confidence for January is estimated to rise to 73.3 versus a prior estimate of 72.7.

Upcoming Splits

• (PRGS) 3-for-2
• (FCX) 2-for-1
  

Other Potential Market Movers

• The Treasury's Geithner speaking in Davos, could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by automaker and commodity shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Rising into Final Hour on Earnings Optimism, Buyout Speculation, Short-Covering, Falling Energy Prices

Broad Market Tone:

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

Equity Investor Angst:

• VIX 16.40 -1.44%
  
• ISE Sentiment Index 113.0 -13.08%
  
• Total Put/Call 1.13 +22.83%
  
• NYSE Arms 1.02 -25.62%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 83.25 +1.30%
  
• European Financial Sector CDS Index 142.50 bps +3.13%
  
• Western Europe Sovereign Debt CDS Index 185.83 bps +3.34%
  
• Emerging Market CDS Index 208.20 +2.91%
  
• 2-Year Swap Spread 20.0 +1 bp
  
• TED Spread 15.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .14% -1 bp
  
• Yield Curve 281.0 +2 bps
  
• China Import Iron Ore Spot $185.60/Metric Tonne unch.
  
• Citi US Economic Surprise Index +33.40 -9.4 points
  
• 10-Year TIPS Spread 2.25% -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +52 open in Japan
• DAX Futures: Indicating +15 open in Germany

Portfolio:

• Higher: On gains in my Retail, Ag and Tech long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs, despite recent equity gains, Japan's debt downgrade and worries over emerging markets inflation/riots. On the positive side, Road&Rail, Retail, REIT, HMO, I-Banking, Bank, Wireless, Internet and Defense shares are especially strong, rising more than 1.0% today. Cyclical shares are outperforming again. (IYR)/(XLF) are outperforming. Tech and Transport shares have also traded well throughout the day. Copper is rising +1.41% and lumber is rising +1.62%. US scrap steel prices have surged +14.3% over the last 5 days. The AAII % Bulls fell to 42.04 this week, while the % Bears rose to 34.29, which is a big positive. Oil and gold continue to trade very poorly considering recent positive economic data, equity gains, euro strength and rioting in the Middle-East. The 10-year yield is stable, falling -3 bps to 3.39%. On the negative side, Homebuilding, Construction, Telecom, Steel and Coal shares are under pressure, falling more than 1.0%. The UK sovereign cds is climbing +5.35% to 68.16 bps, the Belgium sovereign cds is rising +3.78% to 181.34 bps and the Japan sovereign cds is rising +2.69% to 81.64 bps. The UBS-Bloomberg Spot Ag Index is rising another +.51% to a new record high. US stocks continue to trade very well considering recent potential negative catalysts. The major averages are consolidating recent gains around key technical levels, which is a big positive. Moreover, various investor sentiment gauges are registering meaningful declines in bullishness, which is also a big positive. Any meaningful break above current technical levels in the major averages should lead to another wave of short-covering. (MSFT) just reported earnings early and the stock is rising into the close. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, earnings optimism, buyout speculation, falling energy prices, less financial/real estate sector pessimism and technical buying.

Today's Headlines

Bloomberg:

• Business Investment Climbs, Housing Stabilizes. Companies ordered more equipment in December for a second month, showing business investment will continue to bolster the U.S. economic recovery into 2011. Bookings for capital goods like machinery and communications gear excluding aircraft climbed 1.4 percent after a 3.1 percent gain in November, the Commerce Department reported today in Washington. The index of pending home resales climbed 2 percent, more than forecast, after a 3.1 percent gain the prior month, figures from the National Association of Realtors showed. The median estimate in a Bloomberg News survey called for a 1 percent increase. Excluding transportation, bookings increased 0.5 percent after a 4.5 percent jump in November, which was stronger than previously estimated and the biggest gain in eight months. Demand for non-defense capital goods excluding aircraft, considered a proxy for future business investment, rose at a 9 percent annual rate in the three months ended in December compared with a 10 percent September three-month gain, indicating businesses continue to plan on updating equipment. The gain last month was led by an 11 percent advance in demand for machinery and a 3.6 percent increase in bookings for communications gear.
  
• Initial Jobless Claims Rose Last Week to 454,000. More Americans than forecast filed first-time claims for unemployment insurance payments last week, indicating it will take time for the labor market to mend. Applications for jobless benefits increased by 51,000 to 454,000 in the week ended Jan. 22, Labor Department figures showed today. Economists forecast 405,000 claims, according to the median estimate in a Bloomberg News survey. The Labor Department official said winter weather in Alabama, Georgia, North Carolina and South Carolina in previous weeks kept people from filing claims. Those unemployed Americans ended up filing last week, boosting the claims number. “In addition to seasonal volatility, we have this extra effect in the numbers,” the Labor Department official said as the figures were released. The four-week moving average, a less-volatile measure, rose to 428,750 from 413,000. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, rose to 3.2 percent in the week ended Jan. 15, today’s report showed. Fifty states and territories reported a decrease in claims, while three had an increase.
• Hogs Surge to 24-Year High on Bets U.S. Pork Exports to Soar. Hog futures surged to the highest price in at least 24 years on signs that Asian demand for U.S. pork exports will surge as foot-and-mouth disease slashes South Korea’s livestock. The worst outbreak of foot-and-mouth disease in Asia for at least 50 years may get more severe as Lunar New Year holidays starting Feb. 2 spark a surge in travel, threatening to spread the virus, said Juan Lubroth, the chief veterinary officer at the United Nations’ Food and Agricultural Organization in Rome. Before today, hog prices gained 31 percent in the past year.
• China Investment Head Gao Says Quantitative Easing Devaluing Paper Money. China Investment Corp. Vice Chairman Gao Xiqing said that central banks’ quantitative easing policies are hurting the value of money just one day after the Federal Reserve maintained plans to buy $600 billion of Treasuries. “You know money is gradually becoming not worth the paper it’s printed on,” Gao said at an event sponsored by HSBC Holdings Plc at the World Economic Forum in Davos, Switzerland today. Recent gains in commodity and food prices reflect the “long-term view” of investors that prices will accelerate, he said.
• Oil Falls to Eight-Week Low in N.Y. After Jobless Claims Rise. Crude oil fell to an eight-week low in New York, and slid to a record discount versus London’s Brent, as a bigger-than-forecast gain in U.S. jobless claims bolstered concern that the economy will be slow to recover. Crude oil for March delivery tumbled $1.34, or 1.5 percent, to $85.99 a barrel at 12:33 p.m. on the New York Mercantile Exchange.
• New York City Record for Snowiest Month May Fall by Week's End. New York City’s record for the snowiest month in history, set less than a year ago, may topple this weekend as more snow falls atop the 19 inches received overnight, forecasters said. A total of 36 inches (82 centimeters) has fallen in Central Park so far this month, beating the old January record of 27.4 inches in 1925, the National Weather Service said. The record for snowiest month in New York City history is 36.9 inches, set in February 2010, according to agency data.
• Cotton Futures Rise By Daily Maximum Allowed on Import Demand. Cotton futures in New York advanced the 6-cent limit imposed by ICE Futures U.S., climbing to a record, on speculation import demand from China, the world’s biggest user of the fiber, will be sustained, tightening global supply. The March-delivery contract, the most active, climbed as much as 3.6 percent to the all-time high of $1.7283 a pound and was at $1.7282 a pound by 11:26 a.m. in London. Cotton prices have climbed 22 percent this year.
• Under Armour(UA) Advances Most Since May After Raising 2011 Sales Forecast. Under Armour Inc., the sportswear maker, rose as much as 9 percent after increasing its sales forecast for the year. The company also announced its first cotton apparel line. Sales will be as much as $1.35 billion this year, surpassing guidance of $1.29 billion in October, the Baltimore- based company said today in a statement.
• Industrial Companies Point to More Gains for S&P 500: Technical Analysis. Industrial companies in the Standard & Poor’s 500 Index appear poised for additional gains that would sustain the rally that sent the index to its highest close in more than two years yesterday, WJB Capital Group Inc. said. Of the index’s 10 groups, industrial companies and those that depend on consumer spending are the best indicators of its direction, John Roque, head of technical analysis at WJB Capital in New York, wrote in a report yesterday.

Wall Street Journal:

• Here Comes Another Web IPO: LinkedIn S-1 Filing Imminent.
• NYSE Hides Names of Stock Buyers, Sellers. Information about stock-market trades that used to flow through the floor of the New York Stock Exchange will now be kept secret from traders, thanks to a procedural change quietly implemented last week. In a move rankling the floor's denizens, names of buyers and sellers on the storied exchange's "book" of orders will no longer be visible to traders. Originally recorded in a physical book, the exchange's orders are now transmitted electronically.
• Thousands Rally Against Yemen Regime. Thousands of Yemenis, inspired by the wave of activism spreading across the Middle East, marched through the capital demanding the removal of their longtime president, in one of the largest protests seen in this autocratic nation in years. The demonstrations, organized by a committee of opposition parties, wound through four central districts of the city, with protesters shouting for the removal of President Ali Abdullah Saleh, a key U.S. counterterrorism ally whose government has long been criticized by Yemenis for repression and corruption.

CNBC:

• Low Rates Boost Commercial Real Estate: Starwood(HOT) CEO. Short interest rates in the United States and around the world have created a flow of funds into commercial real estate that's not necessarily natural, Barry Sternlicht, chairman and CEO of Starwood Capital Group, told CNBC on Thursday.

Business Insider:

• The FCIC's Report On The Financial Crisis Is Out And It's HARSH! The FCIC's report on the causes of the financial crisis is out and while we haven't read it yet, looking over the Table of Contents, it's clear that the report's authors slam the finance industry. Click here to download the full report.
• S&P Downgrades Japan. A shocker in the world of sovereign debt. S&P has cut the credit rating of Japan from AA to AA-. The yen dove on the news. VIA FT Alphaville, here's part of the statement from S&P:
• Netflix(NFLX) And The Lesson of a Crowded Short.
  

Zero Hedge:

• Egypt Opposition Leader Mohamed ElBaradei Arrives in Cairo to Lead Tomorrow's Massive Protest.

New York Post:

• Soarin' Netflix(NFLX) is No.2. The cable and satellite guys had better watch their backs. Netflix is now the second-largest video-subscription service in the US behind cable giant Comcast after it surged past the 20 million mark in total subscribers. The popular movie-rental company added 3.1 million customers in the fourth quarter, up 63 percent from a year ago and 18 percent from the prior period. The 20.01 million total also beat its 2010 forecast of between 19 million and 19.7 million. "The subscriber growth was off the charts and they see a healthy start to 2011," said Barton Crockett, senior entertainment analyst with Lazard Capital Markets. "These are the go-to guys for online video, and everyone wants it because they're buying iPads."

LA Times:

• Obama's Clean-Energy Goals Have Industry Questioning Feasibility. Plans call for 1 million electric vehicles on the road within four years and 80% of the nation's power coming from green sources by 2035. Executives say the ability to get steady funding would help.
• Cash-Strapped Bell to Consider Disbanding Police Department, Cutting Salaries and Benefits. City leaders in Bell will meet Thursday night to consider approving an action plan that would include deep cuts to salaries and benefits, elimination of the city's supplemental retirement plan and the possible disbanding of its police department, all as a means of avoiding bankruptcy.

Huffington Post:

• Goldman Sachs(GS) Got Billions From AIG(AIG) For Its Own Account, Crisis Panel Finds. Goldman Sachs collected $2.9 billion from the American International Group as payout on a speculative trade it placed for the benefit of its own account, receiving the bulk of those funds after AIG received an enormous taxpayer rescue, according to the final report of an investigative panel appointed by Congress.

Boston Globe:

• Auditor to Look at Evergreen Solar(ESLRD) Incentives as Part of Broader Review. State Auditor Suzanne Bump intends to review public subsidies for Evergreen Solar, the energy company that recently announced plans to shutter its Devens plant and move more 800 jobs elsewhere despite receiving millions of dollars in public funds, as part of a broader review of the state's entire system of tax incentives. With the Patrick administration saying it could recoup $13 million of the $31 million the state invested in Evergreen Solar, the News Service asked Bump if she was considering an examination of the public subsidies in the company. Bump's press secretary Christopher Thompson responded with a statement noting that before she took office, Bump had described reviewing the state's broad system of tax incentives as a priority.

Detroit Free Press:

• White House Wants $7,500 Rebate for Plug-In, Electric Cars. The Obama administration announced several proposals Wednesday designed to boost sales of plug-in electric vehicles in the U.S. The White House wants to adopt a $7,500 rebate for plug-in or electric cars instead of a tax credit and a $200-million grant program for communities for electric vehicle infrastructure, such as charging stations. The proposals will be included in Obama's budget and must be approved by Congress.

Banking Technology:

• Bloomberg Launches New Hedge Fund Tool Box. Bloomberg has launched Bloomberg Hedge Fund Tool Box (HBOX), a new platform to meet the growing number and needs of hedge funds. According to the Bloomberg, the HBOX solution built for fund managers, traders, operations and compliance professionals, integrates essential front-to-back office tools into one package for management of equity, fixed income and FX strategies across 65 countries globally. Through HBOX, fund managers can have an oversight of strategy management, risk and compliance, STP trade settlement, portfolio analysis, order management and electronic trading.
  

PC World:

• Apple(AAPL) Introducing iPad in India. Apple will start offering the iPad in India on Friday, but its focus will be on sales through retailers, rather than bundling the device with service plans from mobile operators. The company has partnered with Bharat Sanchar Nigam (BSNL), a state-owned mobile services provider to offer 3G services for the iPad, according to a source who declined to be named. But the arrangement is not exclusive.

Dealbreaker:

• STG Capital "Abruptly Closes." The tech-focused hedge fund apparently just started notifying people this morning, though investors have not been formally told yet. Performance has been “solid” and no explanation has been offered for the shuttering though some people are supposedly wondering if the fact that a former Galleon analyst had ties to the firm (albeit leaving several years back) had anything to do with the news.

Reuters:

• DAVOS - Rich Corporations "Must Share Wealth" to Avoid Unrest. Poverty and unemployment reared their heads at the World Economic Forum on Thursday, with speakers urging the elite audience to bridge a growing gap between booming multinationals and the jobless poor. Greek Prime Minister George Papandreou, who also chairs the Socialist International group of centre-left parties, said the global crisis had led to an "unsustainable" race to the bottom in labour standards and social protection in developed nations. "Politically, I believe we are at a turning point where... there are signs in Europe of more nationalism, more racism, anti-Muslim, anti-semitism, fundamentalisms of all types", he said. "We need to look to a different model".
• FACTBOX - Deepwater Rigs Moved Out of the Gulf of Mexico.n"> Some deepwater drilling rigs have moved out of the Gulf of Mexico to other markets, first due to a U.S. moratorium imposed last May after BP Plc's (BP.L) well blowout, and then because of the lack of permits that followed it.n"> Below are rigs contracted to work in the Gulf of Mexico that have been or will be moved to other regions.
• FACTBOX - Biggest Changes in NYSE Short Interest.
• News Corp(NWSA) to Launch iPad Newspaper on Feb. 2.
• ProLogis-AMB Merger Talks Boost Industrial REIT Shares. Shares in ProLogis (PLD) and AMB Property Corp (AMB) and peers rose on Thursday after the two largest publicly traded U.S. owners of warehouses and distribution centers said they were in merger talks.

China News:

• China's central bank governor Zhou Xiaochuan said the nation's deposit rates should exceed inflation in the mid-term to protect individuals' savings.
• China's Chongqing city will announce the launch of a property tax at 8 p.m. today.
  

Bear Radar

Style Underperformer:

• Large-Cap Value (+.01%)

Sector Underperformers:

• 1) Coal -2.73% 2) Gold -2.45% 3) Homebuilders -2.08%

Stocks Falling on Unusual Volume:

• COHU, LRCX, MUR, APA, CDE, PG, T, PMTC, MEOH, REXX, TGA, HMIN, GHL, MUR, CNH, RCL and SLE
  

Stocks With Unusual Put Option Activity:

• 1) PLD 2) SLE 3) GNK 4) APA 5) YUM
  

Stocks With Most Negative News Mentions:

• 1) RSH 2) XCO 3) DSX 4) BECN 5) AES
  

Bull Radar

Style Outperformer:

• Mid-Cap Value (+.55%)

Sector Outperformers:

• 1) HMOs +.82% 2) REITs +.80% 3) I-Banks +.80%

Stocks Rising on Unusual Volume:

• TER, CRUS, ING, PUK, LUK, HMC, SNP, TM, REP, UTX, CHU, NWL, BTM, FTO, EOG, CCME, ISSI, ACAT, AMLN, NFLX, ETFC, TSCO, GNTX, QCOM, GNET, LMNX, SYMC, CTXS, MU, SOHU, AMED, TSRA, MOTR, PSSI, AMB, PLD, RPM, SWK, PJC and BKI
  

Stocks With Unusual Call Option Activity:

• 1) FRO 2) PTEN 3) VRX 4) TER 5) LOW
  

Stocks With Most Positive News Mentions:

• 1) QCOM 2) CTAS 3) OTEX 4) BA 5) POT
  

Thursday Watch

Evening Headlines
Bloomberg:

• Trichet Reiterates ECB Will Do What Is Needed to Keep Inflation In Check. European Central Bank President Jean-Claude Trichet reiterated policy makers will do what is needed to keep inflation in check and stressed that the ECB’s credibility on price stability remains intact. “We will do what is necessary,” Trichet told Francine Lacqua in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland, yesterday. “It is not by chance that we have delivered price stability. Our credibility it based on that doctrine.”
• China Will Face Crisis Within 5 Years, 45% of Investors Say. Global investors are bracing for the end of China’s relentless economic growth, with 45 percent saying they expect a financial crisis there within five years. An additional 40 percent anticipate a Chinese crisis after 2016, according to a quarterly poll of 1,000 Bloomberg customers who are investors, traders or analysts. Only 7 percent are confident China will indefinitely escape turmoil. “There is no doubt that China is in the midst of a speculative credit-driven bubble that cannot be sustained,” says Stanislav Panis, a currency strategist at TRIM Broker in Bratislava, Slovakia, and a participant in the Bloomberg Global Poll, which was conducted Jan. 21-24. Panis likens the expected fallout to the aftermath of the U.S. subprime-mortgage meltdown. Fifty-three percent of poll respondents say they believe China is a bubble, while 42 percent disagree. China’s neighbors are the most concerned: 60 percent of Asia-based respondents identified a bubble in the world’s second-largest economy. Worries center on the danger that investment, which surged almost 24 percent in 2010, may be producing empty apartment blocks and unneeded factories. Jonathan Sadowsky, chief investment officer at Vaca Creek Asset Management in San Francisco, says he is “exceptionally worried” that the Chinese would eventually face “major dislocations within their banking system.” Haroon Shaikh, an investment manager with GAM London Ltd., cited “rapid wage inflation” and soaring property prices as the financial markets’ chief concern. Li Daokui, an adviser to China’s central bank, said rising real estate prices are the “biggest danger” to the Chinese economy, in an interview with Bloomberg News in Davos, Switzerland. The People’s Bank of China should “gradually increase rates in the first and second quarter,” Li said. Since peaking on Nov. 8 at 3159.51, the Shanghai Composite Index has slid about 14 percent. “The market is right to be nervous,” Michael Pettis, a finance professor at Peking University’s Guanghua School of Management, wrote in his Jan. 26 financial newsletter. Asked to identify the worst market for investment over the next year, 20 percent of poll respondents say China versus just 11 percent in the last poll in November. Almost half of those polled -- 48 percent -- say a significant slowing of growth was very or fairly likely within the next two years.
• Subprime Bets Made by 50 Hedge Funds, Greg Lippmann Told FCIC. Greg Lippmann, who gained fame for his bets against subprime mortgage securities, brokered wagers against the bonds to at least 50 hedge funds during 2006 and 2007, the former Deutsche Bank AG trader told the Financial Crisis Inquiry Commission. The trades, made through credit-default swaps on low-rated securities that would pay off if the debt defaulted, may have been placed by as many as 100 funds, the panel wrote in a 545- page book outlining its conclusions set for release today. Most of the opposite “long” bets were sold to UBS AG, Merrill Lynch & Co. and Citigroup Inc. “because they were the most aggressive underwriters” of collateralized debt obligations, Lippmann said in a May 2010 interview with the commission, according to the book. The banks retained much of the risk, the panel wrote.
• Bear Stearns Used 'Window Dressing' to Lower Reported Leverage, FCIC Finds. Bear Stearns Cos. temporarily moved assets off its books through transactions marked as sales, a form of “window dressing” that disguised the firm’s condition before losses forced its sale to JPMorgan Chase & Co., a former executive told the Financial Crisis Inquiry Commission. Robert Upton, who was treasurer of Bear Stearns when the Federal Reserve brokered its takeover in March 2008, told the FCIC that the Wall Street firm had lowered its leverage ratio in 2007 by selling assets at the end of each quarter and buying them back later, the panel wrote in a 545-page book outlining its conclusions. “Upton called the move ‘window dressing’ and said it ensured that creditors and ratings agencies were happy,” commissioners wrote, citing an April 2010 interview with him. Bloomberg News obtained a copy of the book, which is scheduled for release tomorrow.
• Goldman's(GS) Mortgage Trading, Commodities Relied on Derivatives. Goldman Sachs Group Inc., pressed by a congressionally appointed panel to describe its use of derivatives during the financial crisis, said it relied on the instruments for most mortgage trades and for revenue from commodities, interest rates and currencies. Derivatives accounted for 70 percent to 75 percent of revenue in the firm’s commodities business from 2006 to 2009, and “half or more” of revenue from interest rates and currencies, the firm estimated, according to a report by the Financial Crisis Inquiry Commission. From May 2007 to November 2008, about 86 percent of $155 billion in trades made by the firm’s mortgage business involved derivatives, the FCIC said. The commission examined derivatives as part of an investigation of the credit crisis, which sparked the worst recession since the 1930s and the loss of more than 8 million U.S. jobs.
• Egypt Riskier Than Iraq in Swaps as Tunisia-Sparked Unrest Targets Mubarak. Egypt is riskier than Iraq in the market for credit default swaps for the first time in at least a year as thousands protest to denounce President Hosni Mubarak. The cost of protecting Egyptian debt against default for five years with the contracts jumped 41 basis points, or 0.41 percentage point, this week to 345 yesterday, compared with 328 for Iraq, according to prices from CMA, a data provider in London. Just last week, Iraqi swaps cost 19 basis points more than Egypt’s, and in June, an average 240 basis points more. The unrest, inspired by the revolt that toppled Tunisia’s leader, “does raise political risks,” said Eric Fine, a portfolio manager in New York who helps Van Eck Associates Corp. oversee $3 billion in emerging-market assets. “If this is a revolution the price of risk for Egypt could go much higher, and if it’s a failed one” the cost will drop to 300 basis points and probably 250, Fine said in a phone interview.
• Gold May Advance as Federal Reserve Maintains Economic Stimulus. Gold, trading little changed, may gain after the Federal Reserve said that the U.S. still needs stimulus to cut unemployment, signaling that the bank’s policies that helped to boosted prices last year remain intact.
• Wheat Poised for Longest Winning Streak Since 2007 on Imports. Wheat futures advanced for an eighth day, the longest winning streak in more than three years, on concern that record food prices may fan social unrest and fuel inflation, prompting governments to boost grain imports. March-delivery wheat gained as much as 0.8 percent to $8.635 a bushel on the Chicago Board of Trade, the highest price for the most-active contract since Aug. 6. A gain for an eighth day will be the longest rally for a most-active contract since Oct. 2007.
• Bangladesh Rice Imports to Double on 'Panic-Buying,' Hasan Says. Bangladesh, South Asia’s biggest rice buyer, doubled its import target for this year to cool domestic prices that surged to a record in December as consumers and farmers hoarded supplies, a government official said. The import target was raised to 1.2 million metric tons for the year ending June 30, from 600,000 tons set in November, said Badrul Hasan, director for procurement at the nation’s Directorate General of Food. That’s triple the U.S. Department of Agriculture’s estimate of 400,000 tons. “The reason for the increase is panic-buying,” Hasan said in a phone interview from Dhaka yesterday. “There’s a sense of insecurity among the public. People who usually need 10 kilos buy more than 20 kilos. When farmers need to sell, they withhold their stocks” expecting a windfall as prices advance, he said.
• Social Security Program to Run Deficits for Foreseeable Future, CBO Says. The U.S. Social Security program will run a deficit this year and will continue spending more on benefits than it receives in revenue for the foreseeable future, according to the Congressional Budget Office. The nonpartisan agency said today the program will run a $45 billion deficit this year and see a total shortfall of $547 billion over the subsequent 10 years.
• Applied Materials(AMAT) to Benefit From Chipmakers' $42 Billion Spree. Applied Materials Inc. and other semiconductor-equipment makers stand to get a boost as Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. unveil spending plans aimed at increasing chip production. The two Asian companies will follow Intel Corp. and Globalfoundries Inc. in releasing their 2011 budgets. They may echo Intel and smaller chipmakers by investing more in manufacturing capacity to prepare for a jump in output amid rising demand for tablet computers, smartphones and the servers that supply them with information. “It’s going to be a very positive year, much more positive than folks had anticipated,” said Dean Freeman, an analyst at Gartner Inc. The research firm now predicts spending on equipment will rise 10 percent this year to at least $42.2 billion, from an estimated $38.4 billion spent in 2010, said Klaus Rinnen, another Gartner analyst. Gartner previously had projected a 1 percent decline for 2011.
• Templeton to Boost U.S. Stocks Weighting as Valuations Are Low, Motyl Says. Templeton Global Equities Group is boosting the portion of U.S. stocks in its funds because of low valuations, Chief Investment Officer Gary Motyl said.
• China Boosts Loan Down Payments, Seeks Property Price Targets. China increased the minimum down payment for second-home purchases and asked local governments to boost land supply to limit the risk of a property bubble in the world’s fastest-growing major economy. The minimum down payment for second-home purchases rises to 60 percent from 50 percent, the State Council said in a statement on its website yesterday. Local governments should set pricing control targets for newly built houses based on regional economic growth and disposable incomes and publicize them in the first quarter, the statement said. Shares of developers tumbled. “This set of measures are stronger than the measures in the past 12 months, and reflect the strong determination of the government to stabilize property prices in China,” Deutsche Bank AG analysts led by Tony Tsang said in a report late yesterday. “We expect to see continued credit tightening and further interest rate and reserve-ratio requirement hikes.” “Of all the new measures, we believe the most negative is asking each city to set a 2011 property price target within the first quarter,” Credit Suisse Group AG analysts led by Jinsong Du said in a report today. “This means that either high-end projects will slash their prices or the local governments will ban their sales to bring down the average selling price.” Credit Suisse maintained its “underweight” rating for China’s property industry and said the tightening of loans for developers and homebuyers will drive transactions lower in 2011.
• Banking 'Toxic Cocktail' Is Too Big to Forget: Simon Johnson.
• China Should Boost Interest Rates Amid Property 'Danger,' Adviser Li Says. China needs to extend interest-rate increases and allow the yuan to gain by about 5 percent annually to combat inflation and avoid fuelling asset bubbles, said Li Daokui, a central bank monetary policy committee member. “We should gradually increase rates in the first and second quarter,” Li said in an interview at the World Economic Forum in Davos yesterday. Rising real-estate prices are the “biggest danger,” he said.
• Japan's Export Growth Accelerated for Second Month. Japan’s export growth accelerated for a second month in December, signaling the nation’s recovery will gain traction as global demand picks up. Overseas shipments rose 13.0 percent in December from a year earlier, from November’s 9.1 percent gain, the Finance Ministry said in Tokyo today. The median estimate of 21 economists surveyed by Bloomberg News was for a 9.3 percent gain.

Wall Street Journal:

• Rising Price Pressures Spur Concerns. With the risks of a double-dip recession apparently receding in most parts of the world, another economic challenge is emerging: inflation. Rising prices for food, energy and other commodities are reducing the disposable incomes of poor people across the planet, providing a trigger for street protests in North Africa and posing a deep conundrum for policy makers world-wide.
• Banks Get Tough With Municipalities. As municipal borrowers look to renegotiate bond deals, banks are drawing a tough line in the refinancing talks. Some banks that helped borrowers get cash are less willing to or able to do so now. Stronger banks that still can provide backstops, called letters of credit, will do them only with strings attached. Costs for the letters have risen. "The terrain has changed quite dramatically," says Lee White, executive vice president at investment-banking firm George K. Baum & Co. in Denver. The change in banks' stance and its effect on municipal borrowers' finances shows interrelationships in the credit market that are often out of view.
• Warehouse Giant AMB(AMB) Near Merger With Rival ProLogis(PLD). Warehouse giant AMB Property Corp. is close to an agreement to merge with larger rival ProLogis, people familiar with the matter said, in what would be the biggest deal since the recession involving publicly traded real-estate companies. Financial terms of the proposed deal couldn't be learned. The two companies have a combined market capitalization of $13.9 billion.
• Tax Redo Seeks 'Level Playing Field'. On Wednesday, Treasury Secretary Timothy Geithner talked to The Wall Street Journal's David Wessel about the initiative. Mr. Geithner emphasized the administration's insistence on offsetting the corporate rate, now 35%, by eliminating deductions, credits and incentives. Raising more revenue from businesses in light of global competition "isn't realistic," he said. But, given the deficit, "We can't raise taxes on individuals to lower business taxes." He wouldn't say if the administration wants to move from taxing multinational corporations' global profits and instead tax only domestic profits, as most other countries do and as U.S. business wants. But he said a "level playing field" is a major goal.
• Influential Proposal to Outline Fannie, Freddie Fixes. A new report from a liberal think tank with close ties to the Obama administration provides one of the most detailed road maps yet for the creation of a housing-finance structure to succeed mortgage giants Fannie Mae and Freddie Mac. The proposal, to be unveiled Thursday by the Center for American Progress, crystallizes the approach that leading liberal policy makers favor for dividing up the myriad functions that have been filled by Fannie and Freddie.
• Teradyne(TER) 4Q Profit Triples; 1Q Targets Above Expectations. Teradyne Inc.'s (TER) fourth-quarter earnings more than tripled to beat expectations. The maker of semiconductor-testing equipment also predicted results for the current quarter above Wall Street's forecasts. Shares jumped 11% to $16.25 in after-hours trading.
• After You, Mr. Ryan. The President says the deficit is the GOP's problem now.
• High-speed rail and solar shingles are not the answer to America's "Sputnik moment."

CNBC:

• New Jersey to Cut Corporate Taxes Further: Governor Christie. New Jersey Gov. Chris Christie will propose a further cut in the state's corporate tax rate during his budget address in February, the governor told CNBC Wednesday. “New Jersey isn't the perfect place to do business now,” said Christie, “but we're on the upswing.” New Jersey-based corporations pay a 9.4 percent tax rate, one of the highest in the country. The nonpartisan Tax Foundation recently ranked New Jersey 48th, up from 50th, in having a favorable business climate. “We cut the corporate tax rate last year. We're going to put together in my budget address of Fed. 22 more tax cuts that we're going to do in the context of a balanced fiscal year '12 budget,” said Christie.

MarketWatch:

• How China's Local Government Rig Land-Use Game. Villagers, farmers see land rights trampled for sake of development.
• 'Too Big to Fail' a Recipe for Disaster, Watchdog Says. Big banks operate in ‘gross distortion’ of normal market: report. The continued existence of financial institutions that are “too big to fail” is a recipe for disaster, a key government overseer group said Tuesday in a critical report.

Business Insider:

• A Year's Worth of Populist Rage in China Boiled Down To One Viral Animation. (video)

Zero Hedge:

• Former Goldman(GS) Insider's Take On Obama's Speech And The Massive Pink Elephant In The Room.

Forbes:

• iPad Zips Apple(AAPL) Past Dell(DELL), Lenovo. The iPad may be just a one-and-a-half pound sliver of a machine, but it’s got enough weight to tip an entire industry in Apple’s favor. Count the iPad and Apple is now the third-biggest PC vendor in the world, tech market tracker Canalysis said Wednesday. Apple’s fourth-quarter PC sales surged 241% over the year-ago period, Canalysis reckons. That’s enough to grab 10.8% of the computer market, or 11.5 million units, up from just 3.8%, or 3.4 million units, during the year-ago period. Overall, the PC industry grew 19% in the fourth quarter of 2010, according to Canalysis. Of course, that figure includes tablet computers, too.
• Goldman(GS) Exec Wants More Regulation - Of Hedge Funds, Not Banks.
  

CNN Money:

• Massachusetts Budget Cuts: Biggest in 20 Years. Massachusetts is bracing for the biggest budget cuts in 20 years...even as its tax revenues are on the rise. Gov. Deval Patrick Wednesday unveiled a fiscal 2012 spending plan that would slash $570 million, or 1.8%, from last year's budget, hitting social services, health care and aid to municipalities in particular. Among the cuts:

LA Times:

• L.A. City Council Agrees to Allocate $52 Million in Redevelopment Funds, Preventing a State Grab. Just as debate has heated up over the future of redevelopment agencies, the Los Angeles City Council voted Wednesday to allocate up to $52 million in redevelopment funds for public works projects around the museum planned by billionaire Eli Broad. The council agreed unanimously to spend the money on the same day that Mayor Antonio Villaraigosa and other California mayors met with Gov. Jerry Brown to discuss his plan to eliminate redevelopment agencies. That vote ties up the money, preventing it from being used by officials in Sacramento to close a $25.4-billion budget gap. The $52 million would go toward the construction of a parking garage, a pedestrian plaza and new sidewalks south of Walt Disney Concert Hall.
• Silicon Valley Firm at Center of Insider-Trading Crackdown. Federal prosecutors have filed criminal charges against eight people with connections to Primary Global Research.

Politico:

• Paul Introduces a Bill to Audit the Fed. Rep. Ron Paul (R-Tex.) introduced a bill to audit the Federal Reserve Wednesday, a move he’s made for decades. But this year he's got more momentum. He chairs the Financial Services subcommittee that oversees the central bank, a perch that will help him drum up support for his measure. So far he has 56 co-sponsors. “I was very pleased that so many of my colleagues were willing to stand up for transparency and accountability in government by cosponsoring HR 1207 in the last Congress,” Paul said in a statement Wednesday. “I am optimistic about our prospects for a full and complete audit in the 112th Congress.”

Reuters:

• Potash Corp.(POT) to Split Stock, Raise Cash Dividend. Potash Corp, the world's largest fertilizer producer, said on Wednesday its board approved a three-for-one split of its common shares in a move to improve trading liquidity following a recent jump in the stock price. Potash Corp, the target of a failed $39 billion takeover bid last year, will also raise its quarterly cash dividend from 10 cents to 21 cents a share on a pre-split basis. On a post-split basis the payout will equal 7 cents a share.
• Starbucks(SBUX) Sees Higher 2011 Coffee Costs. Starbucks Corp, the world's largest coffee chain, expects rising coffee prices to hit profits more than it previously thought but stressed that it would not raise prices to cover the extra expense. That news sent its shares down almost 3 percent, even as the company reported profits and U.S. sales that handily topped Wall Street's targets.
• Qualcomm(QCOM) Raises Outlook as Mobile Chip Sales Jump. Qualcomm Inc raised its forecasts for second-quarter and 2011 revenue as sales of its chips for wireless devices accelerate in China and India, and its shares rose 6 percent. The company, whose chips are used by mobile device makers including Apple and HTC, raised its forecast for fiscal 2011 revenue by $1.2 billion, far surpassing Wall Street's estimate.
• Netflix(NFLX) Profit Jumps as It Adds Customers; Shares Soar. Netflix Inc. reported blockbuster profit and signed up another 3 million subscribers in the fourth quarter, making clear why the movie rental company worries competitors and delights investors. Shares of Netflix rose more than 10 percent after its better-than-expected results, marking yet another big jump for a company whose stock has nearly quadrupled in the past year as it shakes up Hollywood's business model.
• FACTBOX-GOP Report cites 10 Causes for US Financial Crisis.
• Tractor Supply(TSCO) Q4 Tops Street, Sees Strong FY11 Earns. Tractor Supply Co posted strong quarterly results as the farm and ranch supplies retailer's products proved to be popular with customers who spent more at its stores, and the company forecast 2011 earnings ahead of expectations. Shares of the Brentwood, Tennessee-based company were trading up 6 percent at $51.50 in trading after the bell.

South China Morning Post:

• Home Depot(HD) Beats a Retreat From Beijing. Foreign house improvement stores seem to find the mainland too big a challenge. Home Depot Inc. shut its outlet on Beijing's West Fourth Ring Road on Jan. 21, its fifth closure in China in two years, citing the company. In China, Home Depot now has four stores in Tianjin, two in Xi'an, and one in Zhengzhou. The company closed its other shop in Beijing eight months ago.
  

Macau Daily Times:

• Inflationary Pressures 'Like to Intensify'': AMCM. Prices started to climb towards the end of the year, while Macau’s consumer price index (CPI) – a key gauge of inflation – rose by 3.92 percent year-on-year last month. And it seems it won’t stop soon. “Inflationary pressures are likely to intensify in 2011,” warned the local monetary authority in its latest Monetary and Financial Stability Review, published this month. Speaking to Macau Daily Times last week, local economist Albano Martins said last year’s inflation has been well above 3 percent since September. “[The average] is only 2.8 percent because there were some slow increase periods in the first few months of 2010,” he said. “But the price index tends to be a cumulative process,” he warned, alerting to the fact that inflation may skyrocket this year. “I made a small simulation and, if all the economic situation remains as it was last year, the average inflation for 2011 will skyrocket to 8.27 percent,” he told MDTimes.
  

Evening Recommendations
Citigroup:

• Upgraded (MDP) to Buy, target $44.
• Reiterated Buy on (CBE), target $70.
• Reiterated Buy on (PX), target $112.
• Reiterated Buy on (SBUX), target $40.
  

Night Trading

• Asian equity indices are unch. to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 107.0 -1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 118.25 -1.75 basis points.
  
• S&P 500 futures +.07%.
  
• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (JBLU)/.05
• (UA)/.37
• (DRIV)/.29
• (ZOLL)/.16
• (RVBD)/.18
• (BC)/-.82
• (ETN)/1.67
• (PG)/1.09
• (LLL)/2.31
• (RCL)/.13
• (LMT)/2.10
• (PII)/1.51
• (DHR)/.66
• (LLY)/1.09
• (ZMH)/1.19
• (RTN)/1.16
• (MO)/.44
• (CL)/1.23
• (BAX)/1.10
• (DHI)/-.03
• (CELG)/.73
• (CAT)/1.28
• (BMY)/.47
• (T)/.54
• (NUE)/-.11
• (VRSN)/.30
• (KLAC)/1.05
• (MCRS)/.41
• (CB)/1.57
• (MWW)/.06
• (MSFT)/.68
• (MCHP)/.56
• (QLGC)/.41
• (AMZN)/.88
• (SNDK)/1.09
• (PCP)/1.80
• (GNTX)/.25
• (GMCR)/.17
• (NVR)/7.61

Economic Releases
8:30 am EST

• The Chicago Fed National Activity Index for December is estimated to rise to .11 versus a reading of -.46 in November.
• Durable Goods Orders for December are estimated to rise +1.5% versus a -1.3% decline in November.
• Durables Ex Transports for December are estimated to rise +.9% versus a +2.4% gain in November.
• Cap Goods Orders Non-defense Ex Air for December are estimated to rise +1.3% versus a +2.6% gain in November.
• Initial Jobless Claims for last week are estimated to rise to 405K versus 404K the prior week.
• Continuing Claims are estimated to rise to 3873K versus 3861K prior.
  

10:00 am EST

• Pending Home Sales for December are estimated to rise +1.0% versus a +3.5% gain in November.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The $29 Billion 7-Year Treasury Notes Auction, weekly EIA natural gas inventory report, (FLS) analyst day and the (WEN) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by technology and commodity shares in the region. I expect US stocks to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.