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Friday Watch

Late-Night Headlines
Bloomberg:

- U.S. stocks may keep rallying from their November lows as investors speculate the economy will improve, according to investors Barton Biggs and Robert Doll. Airline shares may gain after crude oil fell 71 percent from its July record, said Biggs, managing partner at hedge fund Traxis Partners LLC. Stocks with the biggest price swings will rise as the recession ends, said BlackRock Inc. chief investment officer Doll. Both spoke on Bloomberg television. “Sometime around the middle of the year there’s going to be pretty conclusive evidence that the economy has stabilized,” Biggs said. “That’s what the stock market is now looking forward and seeing, and that’s why I think that this rally carries further.”

- Brazil’s economy may grow as little as 1.5% this year as the global recession reduces demand for commodities and curbs consumer spending, said Itau Corretora de Valores SA, the brokerage unit of the nation’s biggest bank. JPMorgan Chase today reduced its 2009 forecast to 1.5% from a previous estimate of 2%. Brazil’s economy grew 5.6% last year. Vehicle production plunged 54% to a nine-year low last month., the country’s automaker assoc. said yesterday. JPMorgan joined Morgan Stanley in saying Brazil had entered a “technical recession,” as defined by two consecutive quarters of negative growth.

- Investors should sell Australia’s dollar as prices of commodities that the nation exports may fall further and the central bank is likely to lower interest rates, according to Australia & New Zealand Banking Group Ltd., the country’s fourth largest bank.

- China and Hong Kong stocks had their weighting recommendations downgraded to “underweight” from “overweight” at Macquarie Group Ltd., while raising its rating on India. “China has now become a consensus trade, its relative earnings risk is growing and, while the market is not expensive, in the past valuations have not been a good predictor of future performance for China,” Hong Kong-based Daniel McCormack and Tim Rocks wrote.

- Hedge funds lost 18.3 percent in 2008, their worst year on record, as managers misjudged the severity of the biggest financial crisis since the Great Depression.

- The Bank of Korea cut its benchmark interest rate by a half-point to a record low, saying the economy is deteriorating faster than expected as domestic demand and exports falter.

- Israel pressed on with its military operation to end rocket fire from the Gaza Strip as the United Nations Security Council approved a resolution calling for an immediate cease-fire.

- Almost a month after Bernard Madoff was arrested for securities fraud, investigators are still struggling to learn how the investment adviser directed an alleged $50 billion Ponzi scheme and how widespread it may have been, a person familiar with the probe said.

Wall Street Journal:

- The pharmaceutical industry has a recurring nightmare: Drug-safety crusader Sidney Wolfe becomes a player at the Food and Drug Administration. Dr. Wolfe also has a nightmare: One of his children goes to work for a drug maker. Of the two, the doctor is sleeping more soundly. Over three decades, Dr. Wolfe, head of the health group at advocacy organization Public Citizen that Ralph Nader founded, has helped push 16 drugs off the market and slap restrictions on several multibillion-dollar products. He has been so hostile to the FDA under President George W. Bush that he decried its 100th-anniversary celebration in 2006 as a "propaganda campaign" to hide its "unprecedented assault on the American public." Now the outsider is going inside, mirroring a larger shift in the Washington pendulum toward tougher company regulation. To the consternation of the drug industry, Dr. Wolfe has been appointed to a four-year term on the FDA's Drug Safety and Risk Management Committee, which plays a key role in telling the agency which drugs are safe.

- Advanced Micro Devices Inc.(AMD) announced plans to build a massive supercomputer to process and electronically distribute games and other complex content to users -- avoiding the need for specialized hardware and software that adds to the cost of computers and other devices.

- The business of recruiting investors to hedge funds boomed over the past decade and helped drive the hedge-fund frenzy. Now, investors burned by big losses in hedge funds are dumping these middlemen. The combination of market losses and investor panic resulting from money manager Bernard Madoff's alleged Ponzi scheme is putting the heat on firms that pool money from clients and invest in hedge funds. Last year, these so-called fund-of-funds assets overall shrank for the first time since 1996, according to industry tracker Hedge Fund Research, or HFR.

- Fannie Mae(FNM) is testing a new program to stave off foreclosures by preapproving "short sales" of homes, in which mortgage companies allow homeowners to sell houses for less than the value of existing loans, forgiving the difference.

- President-elect Barack Obama has banned corporations and big donors from funding his Jan. 20 inauguration. But 90% of donations received so far have been raised by well-heeled fund-raisers, including Wall Street executives whose companies have received billions of dollars in federal bailout money. A total of 207 fund-raisers have collected $24.8 million of the $27.3 million in contributions disclosed by Mr. Obama through Thursday, according to an analysis by nonpartisan campaign finance group Public Citizen commissioned by The Wall Street Journal. Wall Street employees, as a group, have been the biggest single source of these private donations, according to the analysis. Much of their donations -- $5.7 million total -- has been channeled through financial-services executives who each have bundled together donations worth hundreds of thousands of dollars.

MarketWatch.com:
- Shares of Whole Foods Market Inc.(WFMI) surged 22% Thursday after the investment fund run by Ron Burkle, who made a fortune in investing in supermarkets, bet the high-end grocery chain can turn its business around. In a regulatory filing Thursday, Yucaipa Companies LLC said it owned 9.8 million shares, or 7% of Whole Foods' outstanding common stock. Yucaipa's investment funds have been aggressive buyers of Whole Foods shares since Nov. 24, spending a net $98 million to amass the stake.

- Chevron Corp.(CVX), in its interim quarterly update, warned late Thursday its fourth-quarter earnings are shaping up to be "significantly lower" than third-quarter results due to a steep drop in energy prices and narrower refining margins.

NY Times:

- Accenture(ACN), IBM(IBM) May Benefit From Satyam(SAY) Scandal. The financial fraud at Satyam is rippling through the technology services industry, as customers scramble to line up other suppliers and rivals look to pick up business.

- Under pressure from federal authorities, the Swiss bank UBS is closing the hidden offshore accounts of its well-heeled American clients, potentially allowing their secrets to spill into the open. In a step that would have once been unthinkable in the rarefied world of Swiss banking, UBS will shut about 19,000 accounts that prosecutors suspect have gone undeclared to the Internal Revenue Service. UBS will transfer the assets to other banks or other divisions within UBS, or will mail checks directly to the account holders, creating paper trails for federal prosecutors who are examining whether UBS clients used such accounts to evade taxes.

Reuters:

- The chief executive of Nasdaq OMX (NDAQ) pushed for a merger of U.S. securities and futures regulators, saying it was incomprehensible that they both monitored the same products. "Two different agencies with two very different approaches essentially monitor the same securities," Nasdaq CEO Robert Greifeld said at a National Press Club event in Washington.

- Financial giant Citigroup Inc(C) will support a proposal in Congress to rewrite U.S. bankruptcy law to help troubled mortgage borrowers avoid foreclosure, Chief Executive Vikram Pandit said on Thursday.

- General Motors Corp (GM) Chief Executive Rick Wagoner said on Thursday he was confident the automaker will win the concessions it needs from the United Auto Workers union to meet the restructuring terms dictated by the $13.4 billion federal bailout. "I'm confident that we'll be able to get the kinds of changes we'll need," Wagoner told NBC's Matt Lauer in an interview for the "Today" show broadcast live from Detroit. GM and UAW officials are to meet on Monday in talks aimed at key changes in the union's 2007 contract.

South China Morning Post:

- Home buying on the Chinese mainland by Hong Kong residents dropped significantly last year because of the deteriorating market and the global financial crisis, property agents said.

- SAIC Motor Corp., the largest Chinese carmaker, and its parent will spend $878 million to develop hybrid and electric vehicles. The investment is part of a plan to introduce the company’s first “green” vehicle by 2010. SAIC is the second Chinese automaker after BYD Co. to announce plans to sell the environmentally-friendly vehicles.

Shanghai Securities News:

- Chinese steelmakers want contract iron ore prices to fall as much as 45% in negotiations with Brazilian and Australian suppliers. The demand echoes Japanese steelmakers’ comments this week that iron ore and coking coal prices next fiscal year should fall to at least 2007 levels.

Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (CELG), target $73, added to Top Picks Live list.

Night Trading
Asian Indices are -.50% to +1.0% on average.
S&P 500 futures +.19%.
NASDAQ 100 futures +.28%.

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Company/EPS Estimate
- (KBH)/-1.24

Economic Releases

8:30 am EST

- The Change in Non-farm Payrolls for December is estimated at -525K versus -533K in November.

- The Unemployment Rate for December is estimated at 7.0% versus 6.7% in November.

- Average Hourly Earnings for December are estimated to rise .2% versus a .4% gain in November.

10:00 am EST

- Wholesale Inventories for November are estimated to fall .7% versus a 1.1% decline in October.

Upcoming Splits
- None of note

Other Potential Market Movers
- The (GIS) analyst meeting, the Fed’s Lacker speaking and (MON) R&D Pipeline update could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by financial 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.

Stocks Finish Mostly Higher, Boosted by Computer, Alternative Energy, Steel, Construction and Homebuilding Shares

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In Play

Stocks Mostly Higher into Final Hour on Short-Covering, Diminishing Credit Market Angst

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Healthcare longs and Technology longs. I covered all my (IWM)/(QQQQ) hedges, some of my (EEM) short and added to my (ISRG) long today, thus leaving the Portfolio 100% net long. The tone of the market is slightly bullish as the advance/decline line is mildly higher, most sectors are rising and volume is below average. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling .21% and is elevated at 43.31. The ISE Sentiment Index is below average at 120.0 and the total put/call is above average at 1.08. Finally, the NYSE Arms has been running high most of the day, hitting 1.43 at its intraday peak, and is currently 1.06. The Euro Financial Sector Credit Default Swap Index is rising 2.72% today to 97.0 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 rising 3.0% to 203.0 basis points. The TED spread is down 2.42% to 127 basis points. The TED spread is now down 339 basis points in about three months. The 2-year swap spread is plunging another 9.49% to 57.25 basis points. The Libor-OIS spread is falling 3.89% to 117 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 4 basis points to .54%, which is down 221 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 .08%, which is down 1 basis point today. Volume was light again, with a high NYSE Arms reading, during the lows of this morning’s sell-off. As well, the total put/call has been running pretty high the last few days. It appears to me the bears lack firepower or will at this point. The recent pullback has little energy behind it. A “horrific” jobs’ report tomorrow is likely priced into the market. Any initial kneejerk sell-off in stocks related to this report in the morning will likely be short-lived. Nikkei futures indicate an +120 open in Japan and DAX futures indicate an +41 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on bargain-hunting, diminishing credit market angst and short-covering.

Today's Headlines

Bloomberg:

- The largest U.S. banks are starting to offer fixed home loans below 5 percent after the government began buying mortgage securities to bolster the housing market. JPMorgan Chase & Co. is advertising 30-year mortgages as low as 4.75 percent on its Web site, Wells Fargo & Co. has an offer for 4.875 percent and Bank of America Corp. has rates at 5 percent. The offers are for borrowers with excellent credit who put 20 percent down.

- JPMorgan’s(JPM) Geoff Lewis, head of investment services at JP Morgan Asset Management, says oil could easily fall below $30 a barrel. (video)

- Emerging-market countries racing to raise funds to finance budget deficits may have to pay higher borrowing costs because of global risk aversion, according to Brown Brothers Harriman & Co. in New York. Export earnings for sub-developing nations have slumped due to slower external demand and falling commodity prices, while the credit crunch has curbed foreign-direct investment, both vital sources of currency earnings, Brown Brothers said.

- Metal and coal prices are expected to average “considerably lower” in 2009 as demand plunges in a global recession and producers can’t cut supply fast enough, Goldman Sachs JBWere Pty said. Prices of coking coal may plummet by 60 percent, copper by 40 percent and aluminum by 28 percent, analysts led by Malcolm Southwood said in a note to clients yesterday. “With gold the most plausible exception, we expect 2009 annual average commodity prices to be considerably lower versus 2008, with negative implications for resources sector earnings,” the analysts said. “We expect global off-take of most metals and minerals to contract this year.” There will be oversupply of aluminum, copper, nickel and zinc and bulk commodities will also move into annual surplus in 2009, the brokerage said.

- Natural gas futures in New York fell for a third day after a government report showed that U.S. supplies of the heating and factory fuel are ample to meet demand in the weeks ahead. Stockpiles stood at 2.83 trillion cubic feet the week ended Jan. 2 after dropping 47 billion cubic feet, the U.S. Energy Department said. The surplus to the five-year average widened to 3.2 percent from 2 percent in last week’s report. Industrial demand for gas may contract by 7 percent in 2009, Ronald Barone, an analyst with UBS AG in New York, said in a report yesterday.

- Representative Barney Frank, chairman of the House Financial Services Committee, said the second half of the government’s $700 billion financial rescue should include aid for municipal bond issuers hurt by the credit crisis.

- Sears Holdings Corp.(SHLD), the largest U.S. department-store company, jumped the most in five years after its profit forecasts beat some analysts’ estimates. The retailer said it expects fourth-quarter earnings per share of $2.44 to $3.09, excluding one-time items that may include store closings, severance costs and hedging transactions. Seven analysts predicted $1.92, on average, in a Bloomberg survey. The company also forecast full-year net income of $1.27 to $1.90 a share today. Seven analysts projected 53 cents.

- Goldman Sachs Group Inc.(GS) said the U.S. Treasury market hasn’t turned into an asset bubble even as investors debate the wisdom of buying government bonds with yields near record lows. The U.S. economy is likely to expand below its potential for the next six to eight quarters, resulting in lower “core” inflation, according to a report released today by the New York- based firm.

- The U.S. average rate on a 30-year fixed mortgage dropped for a 10th straight week to the lowest on record as the government began buying mortgage bonds to stimulate housing demand. The fixed rate dropped to 5.01 percent from 5.10 percent a week earlier, Freddie Mac said in a report today. That’s the lowest in data that goes back to 1971, the McLean, Virginia- based mortgage buyer said.

- Former U.S. Senator Thomas A. Daschle pledged that as Barack Obama’s health secretary, he’ll make sure everyone has access to doctors and hospitals.

- Corporate borrowing in the commercial paper market expanded to the highest level since before Lehman Brothers Holdings Inc. filed for bankruptcy in September as companies took advantage of the lowest rates on record. U.S. commercial paper outstanding rose $83.1 billion, or 4.9 percent, during the week ended Jan. 7 to a seasonally adjusted $1.76 trillion, the Federal Reserve said today in Washington. That’s the highest since the week ended Sept. 10, five days before Lehman’s filing.

Wall Street Journal:

- General Motors Corp.(GM) said it needs to have key elements of a cost-cutting labor deal with the United Auto Workers in place by Feb. 17 to comply with last month's $17.4 billion federal bailout. GM and Chrysler LLC are required to get their labor costs in line with the U.S. operations of foreign-based competitors under terms of the low-interest loans from the Bush administration to avoid bankruptcy.

- Thousands of small, privately-held U.S. banks could have access to the $700 billion financial rescue program within "days, not weeks", according to sources familiar with the matter.

CNBC.com:
- Robert Doll, chief investment officer of global equities at BlackRock Inc.(BLK), told CNBC that in the second half of this year, investors will begin to see “some visibility” of a US economic recovery.

Business Week:

- In recent years several companies have developed 3D computer displays, with results ranging from disappointing to, literally, nauseating. Graphics specialist Nvidia (NVDA) has a new approach that promises to take computing into the third dimension. Video games will be the first to benefit, followed by movies and certain business tasks.

Chicago Sun-Times:

- The more than three-year-old split in the ranks of organized labor may be on the verge of mending. Change to Win was formed by seven unions that broke from the AFL-CIO after disagreements on how to best organize. It includes the Service Employees International Union, the International Brotherhood of Teamsters, Unite-Here, and laborers, carpenters, farm workers and food and commercial worker unions.

Institutional Investor:

- European Central Bank President Jean-Claude Trichet said he sees a “significant” worsening in the economic environment. “It’s clear that we have had a significant deterioration of the real economy,” Trichet said in an interview at the end of 2008 and published late last night.

MacDailyNews:

- Apple(AAPL) iPhone mobile Web market share surpasses RIM BlackBerry and Windows Mobile combined.

Red Herring:

- Apple's(AAPL) iPhone, which has become the touch-screen icon of the 3G mobile computing revolution, leaving its forerunners Palm and Blackberry in its clean cut wake will now be able to run a browser that blocks adult content at the source. With a reported 8 percent of American teenagers now owning the slick white status symbol parents, for the first time parents can will be able to have peace of mind in the knowledge that their children will be able to surf the web safely and in a squeaky clean way. The new browser software from InternetSafety.com's new Safe Eyes Mobile browser blocks the more unsavory side of the web from young, prying eyes was launched this week at MacWorld in San Francisco and at the 2009 International CES exhibition in Las Vegas.

MSNBC:

- It looks like Dick Tracy may finally get his wristwatch cell phone, the one that does video calls. LG Electronics plans to introduce a wrist phone later this year, giving reality a chance of catching up with the comic-strip hero who famously used a two-way "Wrist TV."

Point Carbon:

- Aviation biofuel may become commercially viable for passenger carriers within five years following successful test flights, citing the International Airline Transport Assoc. Commercial tests, including a two-hour demonstration yesterday by a Continental Air aircraft using a fuel blend made from algae and jatropha, are increasing.

Denverpost.com:

- Great snow lured more skiers and snowboarders this past holiday season to resorts than the previous season despite the economic recession. The Lakewood-based National Ski Areas Association found holiday visits to mountain resorts on average were up across the country even though the economy is sliding. In addition to good snowfall across the resorts, it also helped that some, including Silverton, Crested Butte and Telluride, saw record snowfall in December. According to the NSAA research, based on a random survey of several dozen ski areas nationwide, some resorts reported up to a 40 percent increase over 2007.

Financial Times:
- As thousands of people milled around the high-tech devices at the Consumer Electronics Show in Las Vegas, Nevada, on Thursday it was becoming clear that one of the big trends at this year’s event was the push for a holy grail that has thus far eluded the industry: internet connectivity in the living room.

O Estado de S. Paulo:

- Brazil may lose 3 million jobs in the first quarter of 2009, citing a forecast by Paulo Pereira da Silva, president of Forca Sindical, Brazil’s second-largest labor union group. The job cuts would account for about 10% of Brazil’s registered workforce.

Bear Radar

Style Underperformer:
Mid-cap Growth (-.75%)

Sector Underperformers:
Retail (-3.29%), Gaming (-2.59%) and REITs (-2.40%)

Stocks Falling on Unusual Volume:
WMT, SMSC, PUK, XLNX, DB, ISRG, HELE, PMTC, CERN, LEAP, SGMS, PFCB,

Stocks With Unusual Put Option Activity:
1) ELN 2) JAVA 3) ADS 4) SGR 5) TEX