Stocks Sharply Lower into Final Hour on More Economic Pessimism, Shorting, Profit-Taking

BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Medical longs, Internet longs and Financial longs. I added to some of my commodity shorts, to my (EEM) short and added (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is very bearish as the advance/decline line is substantially lower, every sector is falling and volume is about average. Investor anxiety is very high. Today’s overall market action is bearish. The VIX is rising 12.8% and is elevated at 43.55. The ISE Sentiment Index is below average at 115.0 and the total put/call is high at 1.17. Finally, the NYSE Arms has been running very high most of the day, hitting 2.14 at its intraday peak, and is currently 1.66. The Euro Financial Sector Credit Default Swap Index is falling 3.11% today to 93.77 basis points. This index is up from a low of 52.66 on May 5^th, but down from 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is falling .80% to 197.0 basis points. The TED spread is up 2.7% to 131 basis points. The TED spread is now down 335 basis points in about three months. The 2-year swap spread is plunging another 11.36% to 63.38 basis points. The Libor-OIS spread is rising .06% to 122 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 25 basis points to .50%, which is down 225 basis points in about six months and at the lowest level since Bloomberg record-keeping began in August 1998. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .09%, which is down 4 basis points today. Cyclical shares, which had been soaring, are today’s worst-performers. The news from Satyam Computer Services(SAY) is weighing heavily on emerging market shares today. I suspect financial fraud is far more pervasive throughout the emerging markets than is generally perceived and it is one of the many reasons I expect developed markets to outperform these shares for several more years. Volume is only around average on today’s sell-off, combined with a high NYSE Arms reading, which is a positive. It is noteworthy that the US sovereign debt credit default swap is dropping 14.2% today to 54.6 basis points, which is down from a high of 69.4 on January 2^nd. I suspect Asian shares will come under meaningful pressure tonight, which could lead to further weakness in the US in the morning. Nikkei futures indicate a -234 open in Japan and DAX futures indicate a -16 open in Germany tomorrow. I expect US stocks to trade mixed into the close from current levels as bargain-hunting, diminishing credit market angst and short-covering offsets more economic pessimism.

Today's Headlines

Bloomberg:

- The cost of protecting corporate bonds from default fell to the lowest in seven weeks in Europe on investor speculation governments and central banks will succeed in averting further turmoil in credit markets. “There is a slow realization that credit has priced in Armageddon,” said Jim Reid, head of fundamental credit strategy in London at Deutsche Bank AG, Germany’s largest lender. “I think the landscape has changed after the serious intervention from governments and central banks.” Credit-default swaps on the benchmark Markit iTraxx Europe index of 125 companies with investment-grade ratings tumbled 13.5 basis points to 154, the lowest since Nov. 14, according to JPMorgan Chase & Co. prices at 10:28 a.m. in London. The Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings dropped 52 basis points to a five-week low of 932, JPMorgan prices show. Credit-default swaps on the Markit CDX North America Investment-Grade index of 125 companies in the US and Canada declined 4.5 basis points to 191.5 basis points as of 8:17 am in NY, according to broker Phoenix Partners Group.

- The cost of protecting against a default by the world’s biggest banks dropped to the lowest in two months after government efforts to bolster financial company capital and unlock credit markets. The CDR Counterparty Risk Index, tied to 14 banks including Morgan Stanley, Goldman Sachs and UBS AG, fell to 142.6 basis points today, down from more than 300 basis points on Sept. 17, according to Credit Derivatives Research LLC.

- The recent gains in commodity prices may not be sustainable in the first quarter, Morgan Stanley said. “Much of the movement is short-term technical buying and probably will not sustain throughout Q1,” Morgan Stanley wrote.

- Hedge funds have damaged their ability to attract capital by limiting investor withdrawals, according to Karsten Schroeder, CEO of Amplitude Capital LLP, a London-based hedge fund. Hundreds of hedge funds have established limits on the return of investors’ money. As of October, 18% of hedge fund assets were subject to some sort of restriction on withdrawals, according to Peter Douglas, principal of Singapore-based hedge fund consulting firm GFIA Pte.

- Indian stocks fell the most in more than two months after Satyam Computer Services Ltd. said profits had been inflated for years, heightening concern about corporate governance in the South Asian nation. Satyam, the nation’s fourth-largest software developer, plunged 78 percent, the most since listing in 1992. Reliance Industries Ltd., the country’s largest publicly traded company, slumped 12 percent after the disclosure by Satyam Chairman Ramalinga Raju. “It’s a shocker,” said Jayesh Shroff, who helps manage about $4.7 billion at SBI Asset Management Co. in Mumbai. “People will no longer be willing to take income statements at face value. This has also raised questions about cash holdings of other companies.” The Bombay Stock Exchange’s Sensitive Index, or Sensex, tumbled 749.05, or 7.3 percent, to 9,586.88, the most since Oct. 24. Five stocks fell for each that rose on the benchmark index.

- Frontline Ltd.(FRO), the world’s biggest owner of supertankers, said oil traders want to charter as many as 10 vessels to stockpile crude to take advantage of higher prices later in the year. About 25 supertankers were already hired for storage and there are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company’s management unit, said by phone today. The traders would buy crude now and sell it for delivery later, profiting from a futures market situation called contango where prices are higher as the year progresses. The vessels could handle as much as 20 million barrels, or about what is produced by OPEC member Algeria in 15 days. They would add to as much as 50 million barrels already hoarded at sea, for a combined amount equal to almost five days of European Union demand. “I’ve never before seen storage demand on this scale,” said Didier Labat, a Paris-based shipbroker at Barry Rogliano Salles who has worked in tanker markets for about 20 years.

- Oil futures tumbled after a U.S. government report showed a bigger-than-expected increase in supplies of crude oil, gasoline and distillate fuel. Inventories of crude oil rose 6.68 million barrels to 325.4 million barrels last week, the highest since May, the Energy Department said today in a weekly report. Supplies were forecast to increase by 800,000 barrels, according to the median of forecasts by 14 analysts in a Bloomberg News survey. “It’s difficult to find anything in this report that would give the bulls solace,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. Inventories at Cushing, Oklahoma, where oil that’s traded on Nymex is stored, climbed 14 percent to 32.2 million barrels last week, the highest since at least April 2004, when the department began keeping track of supplies there. Imports of crude oil increased 13 percent to 10.5 million barrels a day last week, the biggest one-week gain since the week ended Oct. 3, when the Gulf Coast was recovering from hurricanes Gustav and Ike.

- Intel Corp.(INTC), the world’s largest chipmaker, said fourth-quarter sales dropped 23 percent, missing a forecast that it cut by $1 billion less than two months ago.

- European producer prices fell the most in 27 years in November as oil prices declined, an indication inflation will slow further and give the European Central Bank more scope to cut interest rates. Prices of goods leaving euro-area factories plunged 1.9 percent from the previous month, the sharpest decline since the data were first compiled in 1981, the European Union statistics office in Luxembourg said today.

- China issued licenses for high-speed mobile-phone services today, clearing the way for as much as $41 billion of spending on so-called third-generation networks as the government seeks to bolster the slowing economy.

Wall Street Journal:

- The financial company under federal investigation in the sale of state-issued bonds in New Mexico has a history of making campaign contributions in the states and localities where it has worked in a largely unregulated corner of municipal finance. Federal authorities are investigating whether CDR Financial Products contributed to two political-action committees belonging to New Mexico Gov. Bill Richardson in exchange for more than $1.5 million in work advising the state's bond operations.

- Feeder funds appear to explain the Ponzi longevity of money manager Bernie Madoff. To pay off early investors, mostly family and business connections in New York, he stuck his siphon into the moneyed worlds of Western Europe, Palm Beach and Hollywood.

- Businesses are turning to outside companies to run their data centers faster than most of those companies can build additional facilities. Now demand is outpacing supply, and that could potentially drive up prices of data-center services. Amid the recession, companies that provide data centers -- the warehouses of computers that do corporate tasks such as running Web sites and backing up information -- are having a hard time coming up with the funding for new sites.

- Premium Chocolate Holds Steady in Tough Economy.

- Merck & Co.'s (MRK) leader said the drug maker has the resources to make significant acquisitions, but if the company doesn't make big purchases it will return cash to shareholders through dividends or share buybacks. "I think we're in a very good position to make whatever investments are needed," Chief Executive Richard Clark told a Goldman Sachs investor conference in New York.

TechCrunch:

- Interest in troubled Internet giant Yahoo has not waned, it just took a break for the holidays. A group of well known Silicon Valley executives and top investment bankers are putting together a Yahoo takeover deal that would be financed largely from debt supplied by Microsoft, we’ve learned from sources with knowledge of the proposed transaction. Under the terms of the proposed deal, the investment group would make a takeover bid for Yahoo at a relatively low premium of around 20% to its current price of around $13 per share, valuing the company at just over $20 billion.

Forbes:

- Foreign Automakers Transform Southern US Towns.

Portfolio.com:

- Quants: What Are They Doing These Days? The problem with quant funds is that they can't help but conceive of the world as it transpired -- and basing your trading strategy on black-swan events which happen only very rarely is not a way to make lots of money.

The Detroit News:

- Great Lakes water levels are on the rise again after a decade of losses, giving hope to property owners with shrinking beaches, charter fishing operators wanting more room to roam and shipping companies eager to load up their freighters. Officials with the U.S. Army Corps of Engineers predict levels in the Great Lakes will be higher in the first half of 2009 than they were in 2008 -- the second year in a row the water will have risen, if estimates prove true.

USA Today:

- A majority of Americans say Roland Burris should be blocked from taking a U.S. Senate seat he was appointed to by embattled Illinois Gov. Rod Blagojevich, a USA TODAY/Gallup Poll finds. Most say the state should hold a special election to fill the vacancy. Even so, Burris' effort to claim the seat that was held by President-elect Barack Obama got a boost from a key Democratic senator, Dianne Feinstein of California. The outgoing Rules Committee chairwoman said the governor had the power to make the appointment.

Miami Herald:

- Florida stimulus plan aims to create jobs. Florida Gov. Charlie Crist on Tuesday launched a new economic stimulus plan for small businesses, geared to give companies resources and incentives to expand and create new jobs despite the economic downturn.

Valor Economico:

- The value of Brazil’s farm exports, which have sustained trade surpluses for a decade, may drop 20% this year as commodity prices fall and global demand wanes, citing a government study.

21^st Century Business Herald:

- Guangdong and Jiangsu provinces, China’s two biggest export regions, expect no growth in overseas shipments this year as the global recession cuts demand, citing local officials. Guangdong exporters forecast their orders in 2009 will be 30% lower than last year, citing Zhu Zenan, the deputy head of the province’s foreign trade bureau.

Bear Radar

Style Underperformer:
Small-cap Value (-2.38%)

Sector Underperformers:
Coal (-8.02%), Gold (-5.52%) and Steel (-4.90%)

Stocks Falling on Unusual Volume:
IBN, CHU, HDB, AA, DCM, CCMP, ABAX, SHOO, EZPW, TSCO, MCHP, SNDA and LVB

Stocks With Unusual Put Option Activity:
1) AVP 2) LAMR 3) FDO 4) SYNA 5) MON

Bull Radar

Style Outperformer:
Large-cap Growth (-1.84%)

Sector Outperformers:
Hospitals (+.11%), Drugs (+.05%) and Retail (-.65%)

Stocks Rising on Unusual Volume:
MON, SVU, HMC, ENDP, MOS, SHPGY, SWY, IR, GSK, STT, PNC, TDS, TU, WAG, NTCT, PLCM, TISI, FFIV, SYNA, DLTR, CELG, SQNM, AMED, AAWW, FDO and AKS

Stocks With Unusual Call Option Activity:
1) GT 2) ARO 3) MON 4) A 5) MTH

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Wednesday Watch

Late-Night Headlines
Bloomberg:

- Christopher Kundro, co-chief executive officer at Lacrosse Global Fund Services, says ‘worst’ of hedge-fund redemptions is over. (video)

- The European Union revived its threat to regulate credit-default swaps after banks backed away from last month’s agreement to process trades through a clearinghouse in the region. “There’s just not sufficient commitment,” Oliver Drewes, spokesman for EU Financial Services Commissioner Charlie McCreevy, said today by telephone. “McCreevy will therefore have to consider the appropriate next steps.”

- The cost of protecting corporate bonds from default fell. Credit-default swaps on the Markit CDX North America Investment-Grade index of 125 companies in the US and Canada dropped to a four-month low, signaling an improvement in investor confidence. The Markit CDX investment-grade index fell 7 basis points to 194.5 basis points as of 4:24 pm in NY, according to CMA Datavision. In London, contracts on the Markit iTraxx Europe index of 125 companies with investment-grade ratings dropped 9.5 basis points to 167.5, JPMorgan Chase prices show. The Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings fell 61 basis points to 984, according to JPMorgan. “The market supporting initiative from regulators should continue to improve market sentiment,” Citigroup Inc. strategists led by Mikhail Foux in NY wrote today. “Given the ample desire by regulators to shore up the market, other initiatives should be coming soon.”

- The cost of protecting bonds from default fell to the lowest since November in Australia and Asia, according to traders of credit-default swaps. The Markit iTraxx Australia index fell 22.5 basis points at 287.5 as of 11:38 am in Sydney, the first time the Series 10 benchmark has dipped below 300 since mid-November, Citigroup prices show. The Markit iTraxx Japan index was down 7.5 basis points at 273.5 at 9:40 am in Tokyo, Barclays Capital prices show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan declined 27.5 basis points to 285 at 8:55 am in Hong Kong.

- General Motors Corp.(GM) has sufficient government loans pledged to cover the worst-case scenario it outlined in a December report to Congress and may not need more unless the economy worsens.

- The US dollar rose for a sixth day against the yen, the longest run of gains in two years, after General Motors Corp. said it has enough government funding to cover the worst-case scenario and may not need additional loans.

- Oil dropped for the first time in four days in New York on forecasts the economy will worsen, curtailing demand in the world’s biggest energy-consuming country. “This rally feels like it’s beginning to run out of steam,” said James Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois. “It’s primarily been a geopolitically based rally over the past week and a half. We might be a little overcooked here and due for a correction.” Oil rose 38 percent from Dec. 24 to yesterday, and traders who bought when oil was cheaper may be selling to collect their profits, triggering sell orders, said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. “The market is way overpriced at this point,” he said. “Fifty dollars is probably a pretty good psychological resistance point, and once it broke through, it started to drop.” Stockpiles at Cushing, Oklahoma, the delivery point for New York futures, last week were 541,000 barrels below a record 28.7 million barrels set the week of Dec. 19.

- Medicare, the U.S. health insurance program for the elderly and disabled, has proposed easing rules on paying for advanced medical images for cancer patients. The rules concern positron emission tomography, or PET, scans, Medicare said today in an e-mailed statement.

- Alcoa Inc.(AA), the world’s largest aluminum maker, announced its third production cut in as many months and said it will reduce its global workforce by 13,500 in response to declining demand and prices. The moves will lower the company’s annual smelting capacity by about 750,000 metric tons, or about 18 percent, New York-based Alcoa said today in a statement.

- Anyone who said a year ago that China’s economy was crisis-bound was dismissed out of hand. Today, skeptics have lots of company. “This year is going to be characterized by much, much weaker growth in China than I think people are anticipating,” says Jim Walker, chief economist at Asianomics Ltd. in Hong Kong.

- The US dollar’s tendency to rise as investors seek protection from stock-market declines is ending as economic growth becomes the main driver of the US currency, foreign-exchange strategists at BNP Paribas said. In the five years since the end of the dot-com crash, dollar weakness has coincided with periods of increased appetite for risk as demonstrated by rising stock prices. “We expect the relationship between shares and the dollar to reverse by a full 180 degrees in 2009,” said Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas in London. “The first signs of the end of this crisis are going to be seen in the US, creating demand for dollar-denominated assets, while problems remain elsewhere in the world, offering support to both the dollar and US equities.”

- Emerging-market equity investors withdrew a record $48.3 billion from their funds in 2008 as the global financial crisis and economic recession hurt demand for riskier assets, according to data from EPFR Global. The MSCI Emerging Markets Index, which tracks 746 companies in developing nations, climbed 7.6 percent in December, the first gain in seven months. The advance pared the measure’s loss in 2008 to 56 percent, compared with a 38 percent decline in the Standard & Poor’s 500 index.

- Parkson Holdings Bhd., operator of 46 department stores in China, fell the most in more than two months in Kuala Lumpur trading after sales growth in the country slowed. The stock fell 7.5% on the Malaysian stock exchange. Parkson Retail Group Ltd. said yesterday the growth of same-store sales in China cooled to between 7% and 8%, compared with a 12% increase for the year, citing the slowing trading environment in the country.

Wall Street Journal:

- President-elect Barack Obama plans to offer states $7 billion as incentive to permanently change their unemployment-insurance laws to cover part-time workers and prevent other laid-off workers from falling through cracks in the coverage. The proposal, which is set to be included in the president-elect's two-year economic-stimulus plan, will seek to use short-term aid to cash-strapped states to force long-term changes that the Obama team believes are overdue, Obama aides said Tuesday. But the proposal, along with others to subsidize health insurance for the laid-off and expand Medicaid to out-of-work Americans, are sparking bipartisan concern over the potential, long-term impact on a federal budget deficit that is expected to hit $1 trillion this year, even before the stimulus plan.

- The U.S. Senate formally rejected Roland Burris, the man nominated by Illinois's embattled governor to fill the seat vacated by President-elect Barack Obama, only to have a ranking Democratic senator later contradict her party's leadership, asserting that Mr. Burris is entitled to the post. Mr. Burris, a former Illinois attorney general tapped last month by Gov. Rod Blagojevich, was turned away Tuesday because his election certificate lacked the signature of the Illinois secretary of state. Mr. Burris was nominated following Mr. Blagojevich's arrest under a federal criminal complaintthat included charges he tried to sell the Senate seat.

MarketWatch.com:
- Beleaguered stock investors looking for hope should be cheered by one prominent market strategist's view of the year ahead. Bob Doll, global chief investment officer for equities at investment manager BlackRock Inc. (BLK) , said Tuesday that he believes 2009 will be a good year for the stock market, with U.S. stocks notching double-digit percentage gains.

CNBC.com:
- After fleeing to the safety of US Treasurys, investors are moving back into stocks and corporate bonds in search of something else—profits. "A lot of money has been hiding in Treasurys," says Mike Larson, an analyst at Weiss Research's Money and Markets newsletter. "Now there's a better tone in the stock market." Last month, many mutual funds and institutional investors piled into Treasurys, pushing yields down to zero for short-term bills and barely above two percent for longer-term debt. The feeling then was that it was better to keep what you had than to lose more money in stocks. But with the new year, the sentiment has changed.

NY Times:

- Adolf Merckle, the German billionaire whose speculation in volatile Volkswagen stock had pushed his sprawling business empire to the edge of ruin, has committed suicide, his family said Tuesday. More than any other single investment, Mr. Merckle’s poorly timed bet on Volkswagen shares caused the financial distress that led to his death. In November, it emerged that Mr. Merckle had lost an amount of money in the “low hundreds of millions” by wagering that shares in Volkswagen would fall, a financial transaction known as short-selling. The bet had put him up squarely against a positively world-famous family, the Porsches. The sports car manufacturer from nearby Stuttgart was in the process of taking over Volkswagen. On Oct. 26, Porsche announced it had secured stock and options equivalent to about 75 percent of Volkswagen shares. Short sellers, who borrow shares and sell them, hoping to buy them back later at a lower cost, were caught in a bind, since the revelation implied a shortage of VW shares to “cover” the short-selling. Furious demand caused VW shares to skyrocket to just over 1,000 euros, or $1,260, from 210 euros in two trading sessions. That briefly made the automaker the world’s most valuable company by market capitalization.

- A major source of oil for the United States must now confront another problem: its carbon footprint. Canada, in large part because of the production capacity of its oil sands, is now the largest oil supplier to the United States. But environmental groups in both countries are pushing for a slowdown or even a halt to further oil sands development, which is concentrated in northern Alberta. That may place oil sands exports in a precarious position when Barack Obama becomes president this month and moves forward with a climate change program. Operators of oil sands projects and Canadian governments are eager to point to its potential to reduce America’s dependence on oil from politically unstable regions. Canadian oil sands produce about 1.2 million barrels a day, or about 9 percent of the total consumption in the United States. Production was headed toward 3.5 million barrels a day by 2015 before the economic slowdown; with the vast reserves available, Canadian oil sands have the potential to produce the equivalent of 1.7 trillion barrels of oil.

- Airlines Search for Alternatives to Oil as Fuel. Move over, jatropha, here comes algae and maybe camelina as potential substitutes for jet fuel made from crude oil. But specialists say that some of the new fuels, which include coal, may simply trade one set of problems for another.

BusinessWeek:

- Fourth-Quarter Earnings: How Bad? Investors are expecting something abysmal. Could earnings that are merely bad spark a rally?

- A Broadband Stimulus Plan. Can government investments in Internet and wireless communications technology ignite a new wave of job growth?

CNNMoney.com:
- Bank of America Corp. (BAC) is seeking to sell up to US$2.8 billion worth of China Construction Bank Corp. (0939.HK) shares in a share placement, in a bid to trim its stake in the Chinese lender from the current 19.13%, a person familiar with the situation said Wednesday. The U.S. lender is selling 5.6 billion shares at a fixed price of HK$3.92 a share, or a discount of 12% to China Construction Bank's Tuesday closing price of HK$4.45, the person said.

- Billionaire investor Wilbur Ross, known for his investments in distressed companies in the steel, automotive industries, said it is only a matter of time before his firm acquires a bank. "We will end up with a bank, there is no doubt about that," Ross, the chairman and CEO of WL Ross & Co., said in an interview Tuesday.

MacDailyNews:

- Why businesses are finally embracing Macs. "It's not your imagination. Apple Macintoshes are turning up in businesses beyond the creative departments, increasingly becoming a normal part of the IT fabric. One recent IT survey by researcher Information Technology Intelligence shows that 23 percent of respondents had at least 30 Macs in their businesses, 12 percent had at least 4,000 Macs -- and 68 percent said they would let users choose Macs as their work PCs in the next year. A Forrester Research survey of larger enterprises showed that Macs now account for 4.5 percent of deployed systems," Leon Erlanger reports for InfoWorld. "(Both IDC and Gartner report that Macs now make up 9.1 percent of all PCs sold to individuals.)" "The growth in Mac adoption has been driven by several factors, everything from Apple's conversion to an Intel-based platform with several virtualization options to run Windows to the Webification of corporate applications, the rise of software as a service, and Apple's dramatic ascendance in consumer mindshare," Erlanger reports. "A key reason for growing Mac acceptance in business is a significant change in corporate IT: an increased willingness to let down the fortress gates and let employees use the systems they feel most productive with.

IBD:

- Gentiva Health Services (GTIV) wants nurses and other clinicians for its home health care business.

MSNBC:

- Word of Panetta's selection Monday caught key senators by surprise — notably California Democrat Dianne Feinstein, the incoming Intelligence Committee chairwoman. Obama didn't consult either Feinstein or Sen. John D. Rockefeller, the outgoing chairman, about his unusual choice — something a committee official said should have happened both for protocol and politics. Both Feinstein and Rockefeller also questioned Panetta's lack of intelligence-gathering experience. Obama called Feinstein and apologized Tuesday, her office confirmed. In a separate statement, Feinstein noted that she had been called by both Obama and Vice President-elect Joe Biden, but she expressed no support for Panetta, a fellow California political veteran.

Silicon Alley Insider:

- Francis Koenig, manager of hedge fund AdultVest, tells The Atlantic Monthly his hedge fund returned 50% last year by investing in porn-related assets, both public and private. The story fits with the common perception that sin and sex sell in any environment. But how could he get results like this? We know that traditional porn studios are hurting in the face of free online porn, and the public stuff like Playboy (PLA) and Rick's Cabaret (RICK) (not porn, but strip clubs) have done terribly. For them, sex has not helped at all. We asked Koenig what, exactly, he's been investing in that's bucked the trend, but he was unwilling to go into much detail.

Metal Bulletin:

- Coking coal contract prices may drop as much as 72% to as low as $85 a ton this year as demand dries up, citing traders and analysts. The consensus market forecast is about $140 a ton. Record contract prices of $300 a ton in the year to April 1 were driven by floods in Australia’s Queensland state, a major producer, which disrupted mining. Market conditions have reversed, with a collapse in steel demand and no significant supply disruptions.

Financial Times:
- Millennium Management, the $11bn New York hedge fund run by Izzy Englander, has appointed an independent administrator to provide worried investors with reassurance in the wake of alleged $50bn Bernard Madoff fraud. Millennium appointed London-listed GlobeOp to provide independent valuations and checks on its assets, something common among newer funds but rare for the largest, oldest US hedge funds. Investors have become increasingly nervous in the wake of the arrest of Mr Madoff, a broker who managed money on behalf of some of the biggest hedge fund investors, and many say third party administration provides an extra layer of protection against fraud.

TimesOnline:
- The euro tumbled against the dollar yesterday as evidence of plunging inflation and slumping services activity in the eurozone fuelled speculation over further, early cuts in interest rates by the European Central Bank (ECB). Howard Archer, of IHS Global Insight, said that yesterday's figures made a “compelling case for the ECB to cut interest rates significantly further ... While the ECB is currently keeping its cards close to its chest, and has indicated some reluctance to cut rates, we believe it is more likely than not to act at its January 15 meeting.”

Shanghai Securities News:

- China will probably scrap a plan to build steel stockpiles as government officials couldn’t agree on the types and amount to be bought.

The Standard:

- Hong Kong will slip into negative economic growth this year before recovering in 2010, according to investment banks. Credit Suisse projects the territory's gross domestic product will contract 2.2 percent before growing 2.1 percent next year. Credit Suisse's chief economist Dong Tao said Hong Kong's credit conditions remain tight and he expects local property prices and rents to fall by double digits in 2009. Goldman Sachs estimates Hong Kong's GDP will shrink 3 percent before recovering by 3.5 percent in 2010. It forecasts the jobless rate will reach 6.5 percent in 2010.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (KWK), target $18, added to Top Picks Live list.

Keybanc:

- Rated (ARO) Buy, target $24.

- Rated (URBN) Buy, target $22.

- Rated (ANF) Underweight, target $20.

Night Trading
Asian Indices are unch. to +1.75% on average.
S&P 500 futures -.32%.
NASDAQ 100 futures -.26%.

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Earnings of Note
Company/EPS Estimate
- (MON)/.60

- (SVU)/.60

- (FDO)/.40

- (STZ)/.59

- (RBN)/.42

- (BBBY)/.33

- (BLUD)/.21

- (SONC)/.16

- (CBK)/-.06

- (CBK)/-.06

- (RI)/-.11

Economic Releases

8:15 am EST

- The ADP Employment Change for December is estimated at -493K versus -472K in November.

10:30 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of +900,000 barrels versus a +549,000 barrel increase the prior week. Gasoline supplies are estimated to rise by +1,000,000 versus a +808,000 barrel increase the prior week. Distillate inventories are expected to rise by +1,100,000 barrels versus a +694,000 barrel increase the prior week. Finally, Refinery Utilization is estimated unch. versus a -2.22% decline the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Hoenig speaking, Challenger Job Cuts report, Goldman Healthcare Conference, Needham Growth Conference, Citi Entertainment/Media/Telecom Conference, Consumer Electronics Show and weekly MBA mortgage applications report could also impact trading today.

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