Friday Watch

Late-Night Headlines
Bloomberg:
- Ambac Financial Group(ABK) rose in extended NY trading on speculation billionaire Wilbur Ross may buy the company.
- Former Federal Reserve Chairman Alan Greenspan said the US housing slump, which fueled fears of a possible recession, may soon be over.
- Buffett, Flowers Purchases May Mean Bottom Is Near for Insurers.
- Wal-Mart Stores(WMT) CEO Scott discussed with automakers the possibility of selling gasoline-electric hybrid cars and plug-in automobiles at the retailer’s stores.
- Microsoft Corp.(MSFT), the world’s largest software maker, posted a second-quarter profit that surpassed analysts’ estimates and raised forecasts for the year after selling more Xbox 360 games and Windows programs.
- Jane Snorek, who helps manage more than $70 billion in assets at First American Funds, recommends Microsoft(MSFT), Apple(AAPL). (video)
- Federal Reserve policy makers didn’t know about a $7.2 billion trading loss at Societe Generale SA prior to their Jan. 21 decision to reduce interest rates, said a Fed official.
- South Korea’s economy expanded a faster than expected 1.5% in the fourth quarter, stoked by the biggest increase in exports in four years and a pickup in business investment.
- Renesas Technology Corp., the world’s largest privately held chipmaker, plans to boost sales of semiconductors used to control power flow and convert sound into data, helped by demand from carmakers. Sales of so-called discrete and analog chips will probably rise 70% to $1.6 billion in the 12 months ending March 2011.
- The yen headed for a weekly decline against all of the world’s 16 most-active currencies after global stocks gained, encouraging investors to add to holdings of higher-yielding assets funded in Japan.
- IndyMac Bancorp. Inc.(IMB), the second-biggest US mortgage company, has a “good shot” at profitability this year, CEO Perry said. The shares soared 25% in after-hours trading.
- Broadcom(BRCM) reported net revenue for the fourth quarter rose 11.2% from year ago levels. The shares surged 13.3% in after-hours trading.
- Microchip Tech(MCHP) reported net sales rose .6% over the year ago quarter. The shares jumped 6.4% in extended trading.
- ScanSource(SCSC) said second quarter sales rose 17%, led by “record results in our North American and International POS/Bar code units.” The shares rocketed 27% higher in after-hours trading.
- LG Electronics, Asia’s second-largest mobile-phone maker, rose for a third day in Seoul trading after Morgan Stanley and Goldman Sachs Group(GS) raised their price estimates, citing the earnings outlook for 2008.
- Asian stocks advanced, led by technology companies and miners, after US lawmakers agreed on a plan to boost spending and South Korea’s economy grew faster than economists had expected.

Wall Street Journal:
- Washington Sets $150 Billion Plan To Jolt Economy. Package Includes Boost For Big Mortgages, Rebates for Taxpayers.
- Leading Republican presidential contenders agreed in a campaign debate Thursday night that a newly minted agreement on an economic stimulus package marks a good start, but does not do enough to cut taxes.

MarketWatch.com:
- Thousands of dollars may be heading your way. A family of five could collect as much as $2,100 thanks to stimulus package.
- Societe Generale’s letter to customers, investors.

CNBC:
- Highest Yielding Stocks On The Dow.
- Jobs Report Signals Stronger Economy.

NY Times:
- The FDA intends to post inspectors to embassies and consulates in the developing world in hopes of improving the quality of imported food and medicines.

BusinessWeek.com:
- S&P’s latest screen finds five names with eye-popping return on equity – and strong buy ratings from its analysts.
- Google’s(GOOG) Big Mobile Move in Japan.

CNNMoney.com:
- Stop whining about sovereign wealth funds.

Forbes.com:
- The 100 top tech deal makers.
- The Golden Google(GOOG) Touch.

MSNBC.com:
- This week’s surprise rate cut by the Federal Reserve not only held Wall Street and investors in thrall, it’s also kicked into high gear a rush by homeowners across the country to refinance their mortgages at today’s lower rates. In general, a mortgage is deemed "refinanceable" if it is 0.40 percentage point above current average mortgage rates. And the recent drops in mortgage rates have made up to 7 million mortgages, or more than 70 percent of U.S. mortgages, eligible for refinancing, according to Tony Crescenzi, a fixed-income analyst at Miller Tabak.

USA Today.com:
- A shortage of long-haul drivers is spurring trucking companies across the USA to try to recast trucking’s nomadic image and recruit more women, minorities, retired military veterans and those who want a second career.
- Researchers at the Venter Institute in Rockville, Md., have completed phase two of a three-part plan to create synthetic life.
- Rival predicts Delta will likely merge.

Reuters:
- Battered tech darlings look cheap.
- Romney questions McCain’s wisdom on US economy.

Financial Times:
- Private equity firms that are considering setting up their own credit insurers have been studying the experience of competitor Warburg Pincus, which invested $1 billion in troubled MBIA(MBI) late last year.

TimesOnline:
- Did rogue trader set off world market panic?

China Daily:
- Industrial and Commercial Bank of China, China’s largest bank, is prepared to acquire more foreign banks, possibly this year. ICBC will continue its global hunt for new acquisitions in the coming years, with an emphasis on emerging markets. US financial institutions may also be on the ICBC’s shopping list.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (PTV), target $35.
- Maintained Buy on (TER), target $17.
- Reiterated Buy on (MSFT), target $41.
- Reiterated Buy on (MHP), target $59.

CSFB:
- Maintained Outperform on NUE, target $75.

Night Trading
Asian Indices are +1.0% to +3.5% on average.
S&P 500 futures +.24%.
NASDAQ 100 futures +.79%.

Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Pre-market Stock Quote/Chart
Before the Bell CNBC Video(bottom right)
Global Commentary
WSJ Intl Markets Performance
Commodity Movers
Top 25 Stories
Top 20 Business Stories
Today in IBD
In Play
Bond Ticker
Economic Preview/Calendar
Daily Stock Events
Macro Calls
Upgrades/Downgrades
Rasmussen Business/Economy Polling
CNBC Guest Schedule

Earnings of Note
Company/EPS Estimate
- (CAT)/1.50
- (FO)/1.43
- (HOG)/.82
- (HON).91
- (IDXX)/.40
- (WFT)/.96
- (GWW)/1.27

Upcoming Splits
- (BTJ) 3-for-2

Economic Releases
- None of note

Other Potential Market Movers
- None of note

BOTTOM LINE: Asian indices are sharply higher, boosted by technology and mining stocks in the region. I expect US equities to open modestly higher and to maintain gains into the afternoon. The Portfolio is 100% net long heading into the day.

Evening Review

Market Summary
Today’s Movers
Market Performance Summary
WSJ Data Center
Sector Performance
ETF Performance
Style Performance
Commodity Movers
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Commentary
After-hours Movers
After-hours Stock Quote
In Play

Stocks Building on Recent Gains into Final Hour on Less Economic Pessimism

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Software longs, Internet longs, Semi longs, Gaming longs and Biotech longs. I added to my (ILMN) and (NUAN) longs and took profits in a trading long today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Investor anxiety is above average. Today’s overall market action is very bullish, considering the sharp gains of the last two days. Many of yesterday’s laggards are rising substantially today and yesterday’s large winners aren’t giving back much, which is a very positive sign. Homebuilders and banks are even building on recent sharp gains. The MS Tech Index is substantially outperforming, rising 2.1%. The VIX is falling 4% today, but remains high at 27.70. I still think there are many other potential positive catalysts that could materialize at any time. The US equity markets continue to trade as if a meaningful bottom is now in place. While we are becoming a bit extended on a short-term basis, I seriously doubt a full retest of recent lows will occur as so many expect. I will closely monitor MSFT’s likely positive earnings report and conservative guidance and the market’s reaction to it. Apple Inc.(AAPL) is weak again today and I view the current price as an excellent entry point for both long and short-term investors. I will add again to my long position on any further meaningful weakness from current levels. Nikkei futures indicate another 160 point gain on the open in Japan tonight. I expect US stocks to trade modestly higher into the close from current levels on short-covering, less economic pessimism, gains in overseas markets and bargain hunting.

Today's Headlines

Bloomberg:
- The Bush administration and House lawmakers announced agreement on an economic stimulus package that would distribute rebate checks to 117 million families and give businesses incentives to invest in equipment.
- Societe Generale SA said unauthorized bets on stock index futures by a rogue trader caused a $7.2 billion trading loss, the largest in banking history.
- NY’s insurance regulator said a plan to have US banks aid bond insurers will “take some time to finalize.”
- Dow Chemical(DOW) CEO Andrew Liveris said financial markets are overreacting to the prospect of the US entering a recession.
- Short-term debt backed by assets such as mortgages and auto loans expanded for a fourth straight week as the Fed cut its target rate the most in 23 years, pushing borrowing costs to the lowest since July 2005.
- The risk of companies defaulting fell after NY regulators urged Wall Street firms to bail out bond insurers including MBIA Inc.(MBI) and Ambac Financial Group(ABK) to avert worsening credit-market turmoil.

Wall Street Journal:
- Some of Mike Huckabee’s top advisers are working pay and some field directors have been let go entirely, the campaign said today, as money woes have taken hold.
- The Wall Street Journal’s Web site, WSJ.com, will keep a significant portion of its content behind its paid-subscription wall, News Corp. Chairman Rupert Murdoch said.

NY Times:
- Jeffries Cuts Hedge Fund Investment Amid Loss.

NY Post:
- Sharks Circle Yahoo!(YHOO). LBO, Media Bigs Attracted to Battered Stock.

Reuters:
- OPEC doesn’t need to raise its output because recent declines in prices show there is enough supply, citing Abdullah bin Hamad al-Attiyah, Qatar’s oil minister.
- Spanish Economy Minister Pedro Solbes said the European Central Bank is debating whether to cut interest rates amid market turmoil.

Financial Times:
- One of the most controversial figures in world shipping markets has denied playing a pivotal role in the past few weeks’ decline of dry bulk shipping rates, saying it results from fundamental market changes.
- French Prime Minister Francois Fillon said he expects the European Central Bank to act to cushion the economy against market turbulence and slowing growth.

globeandmail:
- Smiles disappearing in hedge fund land.

Cbichina.com:
- China’s copper output rose 17% to 302,200 metric tons in December, compared with a year earlier, citing figures form the National Bureau of Statistics.

Bear Radar

Style Underperformer:

Small-cap Value (-1.17%)

Sector Underperformers:

Airlines (-2.92%), Retail (-2.28%) and Utilities (-1.61%)

Stocks Falling on Unusual Volume:

DLX, CNH, CY, OREX, THQI, DGII, MTSC, SPWR, EBAY, NFLX, VARI, CVCO, SOLF, IRBT, PSSI, AVID, PETM and VRTX

Jobless Claims Still Low, Continuing Claims Fall Substantially, Existing Home Sales Fall, Home Inventories Decline

- Initial Jobless Claims for this week fell to 301K versus estimates of 320K and 302K the prior week.

- Continuing Claims fell to 2672K versus estimates of 2720K and 2747K prior.

- Existing Home Sales for December fell to 4.89M versus estimates of 4.95M and 5.0M prior.

BOTTOM LINE: The number of Americans filing first-time claims for unemployment benefits unexpectedly dropped for a fourth straight week, indicating companies may be in better shape than believed, Bloomberg reported. The four-week moving average fell to a three-month low of 314,750 versus 328,750 the prior week. The unemployment rate among those eligible to collect benefits, which tracks the US unemployment rate, fell to 2% from 2.1% the prior week and remains at historically low levels. The recent decline in jobless claims is a major positive and they are no where near the 360,000+ usually associated with recessions, notwithstanding the overwhelming majority of pundits that claim we are already in one. CNBC just asked why so many talk as if we are already in a recession when the data clearly do not indicate such. It is due to the record number of stock market participants that perceive it is in their own political and financial interest to see a bear market and recession. We are in an election year with historically bitter political rhetoric. As well, there has been an explosion in the number of low correlation/negative correlation investment funds and all the businesses that cater to them since the bursting of the internet bubble and bear market of 2000-2003. These vocal individuals perceive a strong secular bull market as their enemy and they are the main reason for the current “US negativity bubble” and the parabolic rise in short interest, in my opinion. They believe the more they talk as if a recession and a bear market are inevitable the more likely they become as scared consumers, businesses and investors retrench. Many are quick to dismiss any positive analysis from long only managers, saying they are just talking their book. However, one could make the same argument regarding the analysis of investment managers that benefit from a poor market and economy. I continue to believe the job market will remain healthy over the intermediate-term, notwithstanding slower economic growth, as companies remain very slow to let go of workers before the historic exodus of baby boomers from the labor force over the coming years.

Sales of existing homes in the US fell slightly more than forecast in December and inventories fell, Bloomberg reported. For all of last year, prices of existing homes fell 1.8%. Over the prior six years, the Case-Shiller home price index rose 103.3%. The number of homes for sale at the end of December fell 7.4% to 3.91 million. At the current sales pace, that equates to 9.6 months’ supply, down from 10.1 months in November. Builders broke ground in December on the fewest new homes since 1991. I continue to believe the recent plunge in mortgage rates and pent-up demand will lead to a modest unexpected bounce in home sales over the coming months, which should bring down inventories meaningfully as builders continue to break ground on fewer homes. Fed fund futures now imply a 64.0% chance for a 50 basis point rate cut and 36% chance for a 25 basis point rate cut at the January 30th FOMC meeting. According to data released today, the average 30-year fixed mortgage rate is 5.48%, down 21 basis points over the last week and down 126 basis points from June 07 highs.