Today's Headlines

Bloomberg:
- Bernanke Pledges ‘Adequate Insurance’ Against Risks.
- MBIA Inc.(MBI), the world’s biggest bond insurer, said it is equipped to survive the slump in prices of mortgage securities and dismissed suggestions that the industry needs a rescue or stronger federal oversight.
- Treasury two-year notes are yielding the least compared with 10-year debt since 2004.
- Total rail freight volume on US railroads was up during the first week of February in comparison with the same week last year, the Association of American Railroads reported. Total volume was estimated at 32.7 billion ton-miles, up 2.5% from last year.
- The risk of companies defaulting fell the most in two weeks after US retail sales unexpectedly gained and Japan’s economy grew at twice the pace economists forecast, according to traders of credit-default swaps. Contracts on the Market CDX North American Investment Grade Index, tied to the debt of 125 companies in the US and Canada, declined 2.75 basis points to 135.25, according to Deutsche Bank AG. The European benchmark Markit iTraxx Crossover index dropped 19 basis points to 529, according to JPMorgan Chase. The Markit iTraxx Japan index fell 4 basis points to 85, Morgan Stanley said.
- Brett Jefferson, formerly managing director at Marathon Asset Management LLC, is starting a hedge fund to buy distressed collaterialized debt obligations and asset-backed securities. The firm, called Hildene Capital Management LLC, aims to raise $1 billion and plans to start by April. Hildene has also hired John Scannell, a former vp in the CDO structuring group at Citigroup Inc.(C), as COO.
- Morningstar, Inc.(MORN), a leading provider of independent investment research, today launched the Morningstar Rating for hedge funds as well as the Morningstar 1000 Hedge Fund Index and 17 indexes based on the Morningstar Hedge Fund Categories.
- Freddie Mac(FRE), the second-largest provider of money for US home loans, will purchase loans covered by mortgage insurers that don’t meet the company’s standards for the amount of capital backing their policies.
- Treasury Secretary Henry Paulson reiterated his call for Congress to follow up on the economic stimulus package approved last week by passing legislation aimed at slowing a surge in foreclosures.
- President Bush urged the House to extend a law allowing electronic eavesdropping of suspected terrorists and said he may delay his scheduled trip to Africa tomorrow if needed to complete the measure.
- Crude oil is rising $1.78/bbl.to a one-month high as economic indicators from Asia and the US allayed concern that a global recession is imminent. Japan expanded 3.7% last quarter, twice the pace economists forecast, triggering the biggest increase for the country’s stock market in six years. A government report showed that US jobless claims fell last week. The US and Japan are responsible for about 30% of global oil consumption.
- Republican Mitt Romney will endorse John McCain in the Republican presidential race, citing people familiar with the plan.

Wall Street Journal:
- Ambac’s(ABK) Callen in Talks to Raise Cash, Keep Rating.
- ETF Industry Produces New Power Brokers.
- Bill Clinton to End Ties to Yucaipa as Scrutiny Grows.
- Comcast(CMCSA) to Deploy New High-Speed Internet Technology.

NY Times:
- NY Times to Eliminate 100 Newsroom Jobs.

PC World:
- Google(GOOG) to Enter China Online Music Market.

Morningstar:
- Brazil’s Petrobras(PBR) To Build Large New Biodiesel Plant.

Financial Times:
- European companies are increasingly being forced to turn to the US dollar markets to raise funding as the credit crunch makes it almost impossible for them to launch deals in the euro-denominated market. A gap between the two markets has opened up with US investment grade issuance at a record high for a January, while Europe slumped to a record low, according to Dealogic.

Caijing Magazine:
- Citic Securities and Bear Stearns(BSC) may lift their stakes in each other now that both their shares have fallen. The new plan may be announced in April if US and Chinese regulators approve it.

Bear Radar

Style Underperformer:

Small-cap Growth -1.93%

Sector Underperformers:

Airlines (-3.82%), Retail (-2.94%) and Banks (-2.05%)

Stocks Falling on Unusual Volume:

HPY, DVA, LIZ, ESI, LAZ, BBW, BYI, NHWK, MDRX, ATRO, NTGR, SBNY, ECLP, GPRO, SUNH, KNOT, CPLA, TASR, NVDA, TECD, PVA and UBS

Trade Deficit Shrinks as US Exports Set Record for 10th Consecutive Month, Jobless Claims Fall

- The Trade Deficit for December shrank to -$58.8 billion versus estimates of -$61.5 billion and -$63.1 billion in November.

- Initial Jobless Claims for this week fell to 348K versus estimates of 347K and 357K the prior week.

- Continuing Claims fell to 2761K versus estimates of 2759K and 2770K prior.

BOTTOM LINE: The US trade deficit narrowed more than forecast in December as exports surged to another record, Bloomberg reported. The gap between imports and exports shrank 6.9% in December, the most in more than a year. As well, the trade deficit for all of 2007 fell 6.2%, the largest decline since 1991. Exports rose 1.5% in December, setting a record for a 10^th consecutive month and reflecting strong demand for US-made capital equipment and industrial goods. For the year, exports soared 12% to a record $1.622 trillion. Imports in December fell 1.1%, led by a 14% decline in purchases from China, which helped shrink the month’s trade gap with China by 22%. Petroleum imports rose 4.2% to a record $36 billion. For all of last year, trade contributed .55 percentage point to GDP growth, the most since 1991. A better-than-expected trade deficit and inventory rebuilding in December should lead to an upward revision to 4Q GDP. I expect the US trade deficit to continue to improve over the intermediate-term.

The number of Americans filing first-time claims for unemployment benefits fell for a second week, Bloomberg reported. The four-week moving average of claims rose to 347,250 from 335,350. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, remained steady at a historically low 2.1%. Fed fund futures now imply an 80.0% chance for another 50 basis point rate cut at the March 18 meeting and a 20.0% chance for a 75 basis point rate cut. Fed Chairman Bernanke said today that the Fed will act in a “timely manner” to help growth. He also said price expectations are “reasonably well anchored” and that he sees stronger growth “starting later this year.” Finally, he said if housing improves, some bank writedowns will reverse. Treasury Secretary Hank Paulson said tax rebate payments will start in early May and that the Treasury is “actively” monitoring the bond insurers. According to Intrade.com, the odds of a US recession this year have declined to 65.3% from 77.5% a few weeks ago. The 10-year TIPS spread is falling to 2.27% today, despite the rise in oil. I expect the US job market to improve back to very healthy levels over the intermediate-term without generating substantial unit labor cost increases.

Bull Radar

Style Outperformer:

Large-cap Value (-.15%)

Sector Outperformers:

Steel (+1.27%), Energy (+1.16%) and Biotech (+.39%)

Stocks Rising on Unusual Volume:

ANL, LBY, WWE, SIE, EQIX, AMKR, STRA, FARO, ALXN, RBCN, VCLK, WABC, ASYS, BIDU, SDXC, CRVL, JRCC, CMCSA, TDSC, OCNF, NAVG, SPWR, FSLR, GTIV, COG, AWC, CCJ, TWC, EQIX, CN, BRKS, ITT and NVS

Links of Interest

Market Snapshot Commentary
Market Performance Summary
Style Performance
Sector Performance
WSJ Data Center
Top 20 Biz Stories
IBD Breaking News
Movers & Shakers
Upgrades/Downgrades
In Play
NYSE Unusual Volume
NASDAQ Unusual Volume
Hot Spots
Option Dragon
NASDAQ 100 Heatmap
DJIA Quick Charts
Chart Toppers
Intraday Chart/Quote
Dow Jones Hedge Fund Indexes

Thursday Watch

Late-Night Headlines
Bloomberg:
- Japan’s economy grew 3.7% last quarter, twice the forecast, as exports to Asia and emerging markets helped companies weather the US slowdown.
- Yahoo Inc.(YHOO), which rejected a $44.6 billion bid from Microsoft(MSFT) two days ago, sent a letter to shareholders defending the decision. The offer “substantially undervalues” the company, said Yahoo, which projects the online advertising market to grow to $75 billion by 2010.
- Morgan Stanley(MS) recommended investors scrap bets on the yen rising and buy the Australian dollar, because too many speculators are betting on Japan’s currency strengthening. Futures traders increased their bets to the highest since February 2004 that the yen will strengthen, the CFTC showed recently.
- Baidu.com Inc.(BIDU), operator of China's most used Internet search site, reported profit and sales that topped analysts' estimates after new services helped win users from rival Yahoo! Inc.(YHOO) The shares rose 7.2% in extended trading.
- ValueClick(VCLK) announced fourth quarter revenue rose 14% from year ago levels, exceeding previously issued guidance. The share jumped 7.7% in after-hours trading.
- Equininx(EQIX) reported fourth quarter revenue rose 46% from year-ago levels and boosted 2008 guidance. The stock gained 7.1% in extended trading.
- US Secretary of State Condoleezza Rice said Russian threats toward Ukraine are “unacceptable” and President Vladimir Putin’s government should know it can no longer intimidate former Soviet republics.
- News Corp.(NWS/A), Yahoo(YHOO) in Talks Over Combination, WSJ says.
- Billionaire Nelson Peltz’s Trian hedge funds disclosed a stake in restaurant chain Cheesecake Factory(CAKE). Trian owns 3.46 million shares, or just under 5%, of the casual dining chain, according to regulatory filings made today.
- Wachovia Corp.(WB), the fourth-largest US bank by assets, said investors are exaggerating concern about the company’s home loan defaults as lower interest rates reduce pressure on borrowers. Mortgages still contribute “significant profits” at the Charlotte, North Carolina-based bank and will continue making money even if losses from bad loans quadruple from current levels, Chief Risk Officer Donald Truslow said in a conference call. Lower interest rates are curbing payment increases on adjustable-rate mortgages, which will reduce delinquencies and charge-offs, Truslow said.
- Wheat growers in Australia, the world’s sixth-largest exporter of the commodity, may plant their biggest crop ever to benefit from record prices and improved growing conditions.
- MBIA Completes $1 Billion Common Stock Offering. Shares rise 4.5% in after-hours trading.

MarketWatch.com:
- Soaring and volatile prices took their toll on demand for gold in the fourth quarter, particularly in the jewelry and retail-investment sectors, an industry report said Wednesday.

CNBC.com:
- Tech Stock Renaissance: What to Buy.
- Treasury’s Paulson Gives Timeframe on Rebate Checks. US Treasury Secretary Henry Paulson on Wednesday repeated his view that the US economy will avoid recession this year and grow at a slower pace, and that the Treasury will act quickly to distribute tax rebate payments.

NY Times:
- Genetically engineered agriculture is spreading worldwide, and its biggest growth in 2007 was in the developing world.

SmartMoney.com:
- Clothing Chain Aeropostale(ARO) Popular With Teens, Investors.
- Stocks to Help You Save the Planet and Make Money.
- In Surprise, Small-Cap Profits Beating Big Caps.

USA Today.com:
- Google(GOOG) Apps can be a small firm’s best friend. Google doggedly pursues Microsoft’s(MSFT) Office business.
- President Bush, flanked by Congressional leaders of both parties, signed a $168 million economic stimulus package Wednesday that he called “a booster shot for our economy.” The package, aimed at heading off a serious downturn in the economy, will send rebate checks ranging from $300 to $1,200 to 130 million Americans. It also provides tax breaks for businesses.

Reuters:
- MBIA Inc.(MBI), the world’s biggest bond insurer, plans to tell a congressional panel tomorrow that regulators should limit the actions and statements of short sellers, citing a copy of written testimony. The prepared testimony said short sellers’ “unscrupulous and dangerous market manipulation” and their spreading of “half-truths and misleading information” should be curbed. Short sellers like Bill Ackman, founder of Pershing Square Capital Management, have worked hard to undermine market confidence in the bond insurers, wrote MBIA. MBIA said lawmakers should help restore confidence in the bond insurers, because their failure could have far-reaching effects on the US and global economies.
- Bookseller Borders Group(BGP) unveiled a new concept on Wednesday – a store where shoppers can mix and burn CDs, explore their genealogies and even publish their own novels.
- Morgan Stanley(MS) and Bear Stearns(BSC) issued the first commercial mortgage-backed securities deal of the year on Wednesday after agreeing to sweeten yields on a $1.2 billion issue.
- Hedge fund ups Countrywide(CFC) stake, attacks merger.

Financial Times:
- A Singapore sovereign wealth fund is expected to be the lead investor in a $6 billion fund that TPG, the private equity firm, is raising to invest in troubled financial firms.

TimesOnline:
- Google(GOOG) triggers handset battle over Gphone.

Business Standard:
- Air India, Jet Plan to Buy 60 Boeings.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (VCLK), target $30.
- Reiterated Buy on (CHKP), target $29.
- Reiterated Buy on (URBN), target $35.
- Reiterated Buy on (ANF), target $97.
- Maintained Buy on (DTV), target $30.
- Reiterated Buy on (ATI), target $100.
- Maintained Buy on (ERTS), target $69
- Reiterated Buy on (AGU), target $82
- Reiterated Buy on (HPQ), target $60.
- Reiterated Buy on (IGT), target $52.
- Upgraded (MDCO) to Buy, target $29.

Night Trading
Asian Indices are +.75% to +3.50% on average.
S&P 500 futures +.18%.
NASDAQ 100 futures +.38%.

Morning Preview
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Before the Bell CNBC Video(bottom right)
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Earnings of Note
Company/EPS Estimate
- (CMCSA)/.17
- (MAR)/.62
- (FCL)/.18
- (GT)/.45
- (CCU)/.43
- (CPKI)/.17
- (CMG)/.56
- (N)/-.01
- (BRCD)/.15
- (PCLN)/.84
- (APPB)/.27
- (CKFR)/.53
- (TASR)/.07
- (CKP)/.52
- (IR)/.99
- (PTEN)/.52

Upcoming Splits
- None of note

Economic Releases
8:30 am EST
- The Trade Deficit for December is estimated to shrink to -$61.5 billion versus -$63.1 billion in November.
- Initial Jobless Claims for this week are estimated to fall to 347K versus 356K the prior week.
- Continuing Claims are estimated to fall to 2759K versus 2785K prior.

Other Potential Market Movers
- The Fed’s Bernanke speaking, Fed’s Evans speaking, weekly EIA natural gas inventory data, (SE) analyst meeting, (PNX) investor day, CSFB Software Conference, BB&T Capital Markets Transport Services Conference and Deutsche Bank Small/Mid-cap Growth Conference could also impact trading today.

BOTTOM LINE: Asian indices are sharply higher, boosted by technology and financial 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.