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Tuesday Watch

Weekend Headlines
Bloomberg:

- Fiat SpA, the Italian automaker that sells only Ferraris and Maseratis in the US, may be close to a deal to acquire a stake in Chrysler LLC to expand in the world’s largest auto market. Fiat has an agreement in principle to acquire as much as 35% of Auburn Hills, Michigan-based Chrysler.

- The ruble fell below the weakest level seen in the 1998 Russian crisis after the central bank devalued for the sixth time in seven days to protect reserves. The currency slid to as little as 33.1080 per dollar today, the lowest since early 1998, before the government defaulted on $40 billion of debt. The ruble has lost 7.3 percent since official trading resumed this year, extending the decline to 29 percent since August.

- Southern California home sales rose 51 percent in December as a surge in foreclosures pushed prices of single-family houses and condominiums down from a year earlier, MDA DataQuick said.

- Crude oil fell below $35 a barrel in New York on speculation faltering global economic growth will drive down fuel consumption for a second year. Slowing world demand, reduced tension in the Middle East and settlement of Russia’s gas dispute with Ukraine could push prices toward last month’s four-year low of $32.40 a barrel, Goldman Sachs Group Inc. said yesterday. OPEC may have to cut output again should prices fall further, Algerian Oil Minister Chakib Khelil said Jan. 17. The settlement of Russia’s natural gas dispute with Ukraine, and a cease-fire in the Gaza Strip had also increased selling pressure, Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois, said yesterday. “There was a reduction of the geopolitical risk premium,” he said in a telephone interview.

- Israel proceeded with pulling its troops out of the Gaza Strip as Hamas ceased rocket attacks and residents of the Palestinian enclave grappled with the aftermath of the three-week conflict. In southern Israel, residents began returning to normal routines as there were no reported rockets yesterday, an army spokesman said on customary condition of anonymity.

- HSBC Holdings Plc led banking shares lower in Asia after Royal Bank of Scotland Group Plc flagged the biggest loss in British history.

- The Federal Reserve’s inability to narrow the gap between consumer borrowing costs and government interest rates is driving investors to the longest-maturity Treasuries. Central bank officials say they may buy Treasury debt, which helps determine rates on everything from mortgages to auto loans, to prevent borrowing costs from rising and delaying the economic recovery. Speculation that the purchases will start within days helped spark a rally last week in debt due in 10 years or more.

- Royal Bank of Scotland Group Plc, facing the biggest loss in British history, promised to make 6 billion pounds ($8.7 billion) available to U.K. borrowers as the government took another step toward full control. In exchange for government guarantees on losses from toxic debt, the bank will have to sign a binding agreement with the Treasury on how much it will lend and on what terms. Auditors will move in to check the bank is following the government directive. “We’ll be one of the first guinea pigs,” RBS Chief Executive Officer Stephen Hester told reporters on a conference call yesterday.

- Russia and Ukraine signed 10-year natural-gas contracts, ending a dispute that’s squeezed supplies to the European Union for almost two weeks and setting the stage for a resumption of deliveries. Russian Prime Minister Vladimir Putin said yesterday gas flows to the 27-nation bloc will restart in “full volumes” through all export routes. His Ukrainian counterpart, Yulia Timoshenko, said there would be “no delays.” Gas prices in the U.K., Europe’s biggest market, slumped the most in almost a year on expectations that supply shortages in many parts of central Europe and the Balkans will shortly be eased.

- Top advisers to President-elect Barack Obama signaled they will emphasize getting credit to consumers and businesses rather than helping banks as the new administration deploys the second half of the $700 billion rescue fund. “The focus isn’t going to be on the needs of banks; it’s going to be on the needs of the economy for credit,” Lawrence Summers, the president-elect’s top economic adviser, said on CBS’s “Face the Nation” program yesterday.

- Spain had its AAA sovereign credit rating removed by Standard & Poor’s in the second downgrade of a euro-region government in five days, as the country’s first recession in 15 years swelled the budget deficit. The risk of losses on Spanish government debt rose to a record today, credit-default swaps showed, after S&P lowered the rating one step to AA+ and assigned it a “stable” outlook. It was S&P’s first reduction in Spain’s rating and puts it on the same level as Belgium and Hong Kong.

- Morgan Stanley(MS) scrapped a deal to hire a supertanker for storing crude oil in the Gulf of Mexico, two people familiar with the situation said. Traders for the bank canceled the booking today, the people said, declining to say why or be identified because the information is private.

- New York Times Co.(NYT) received $250 million in financing from companies controlled by Mexican billionaire Carlos Slim as credit markets dry up and the newspaper industry confronts plummeting ad revenue.

- China’s official urban unemployment rate jumped for the first time since 2003 and may climb to an almost 30-year high as exports slump and a slowdown deepens in the world’s third-biggest economy.

Wall Street Journal:

- Americans poured into the nation's capital to celebrate the inauguration of their first black president. But with the U.S. in its worst economic crisis since the Depression and at war on two fronts, Barack Obama was expected to call on the country to embrace a new culture of responsibility when he takes office at noon. The inaugural crowd Tuesday could reach two million people, one of the largest gatherings in Washington's history. Millions more will be watching across the U.S. and around the world, with outdoor video screens planned for public squares. Mr. Obama will take the oath of office with his hand on the Bible that once belonged to the last president to hail from Illinois, Abraham Lincoln. The 44th president will stand opposite the Lincoln Memorial, two miles away, where 45 years ago, Martin Luther King Jr. called upon the nation to judge people by the content of their character, not the color of their skin. Mr. Obama spent Monday celebrating Dr. King's birthday as a day of service, while street vendors sold memorabilia juxtaposing the images of the two black leaders.

- Hedge Fund Fees Too High? Traditional 2%-20% structure questioned as results disappoint.

MarketWatch.com:

- We'll say it again: A bear-market bottom may be in sight. We base this opinion on the work of Prof. Jeremy Siegel of the University of Pennsylvania's Wharton School, author of the classic book, "Stocks For the Long-Run." Bottom line: In two centuries, Siegel's year-end data has never shown the stock market further below trend than it is today.

- Gadgets and gizmos: what they mean to their makers. A look at 10 favorites from the Consumer Electronics Show.

NY Times:

- Piping Internet video into a television seems as if it should be simple — after all, a screen is a screen. But consumer electronics and media companies have been moving toward that combination with painstaking caution, both because of technical limitations and to protect their existing business models. Now, with an Internet start-up’s hubris and whimsical name, an 11-employee New York company called Boxee is barging into the fray. It is treading over the carefully negotiated business arrangements of much larger companies and garnering accolades from tech-heads for doing what the big guys have failed to do.

- Hedge Funds, Unhinged. Mr. Griffin, who built the Citadel Investment Group into one of the largest hedge funds in the world, has seen the value of his funds plunge by roughly $10 billion — one of the biggest amounts lost in the hedge fund carnage last year. He was down 55 percent while the average fund was down 18 percent.

- The National Park Service and an organization representing victims’ families have reached a deal to buy the most critical piece of land needed for the Flight 93 National Memorial in Shanksville, Pa.

- Within the next few months, Cisco Systems(CSCO), the largest maker of networking equipment, plans to release a product that threatens to shake up the technology industry and put the company on a collision course with traditional partners like Hewlett-Packard(HPQ) and I.B.M.(IBM).

Washington Post:
- Nearly 100 wealthy families and power couples contributed at least $100,000 each to help Barack Obama over the past two years, creating an elite set of donors to whom the president-elect repeatedly turned in financing his campaign, transition and inauguration, a Washington Post analysis shows. As inaugural donations become public, a list of Obama's most loyal backers has emerged, pointing to his success with a system that allows supporters to give maximum amounts on several occasions and to multiple committees. The families gave to as many as five committees, records show, and 27 of the 94 families also bundled money from others, collecting millions of dollars on top of their personal donations. Among the supporters were well-known families such as the Rockefellers, as well as lesser-known backers such as New Yorker Frank Brosens, a leader in the hedge fund industry, who raised $500,000 for Obama's campaign and inauguration in addition to the $182,000 he gave with his wife, parents and three sons. Many big donors will also watch Obama be sworn in next week, but from premium seats, and will attend an inaugural ball and other private celebrations using tickets they received in exchange for their donations. "Obama had a well-organized core of larger donors who he went back to repeatedly for donations," said Stephen Weissman, associate director for policy at the nonpartisan Campaign Finance Institute, citing the election's "many vehicles" for giving. "These cumulative donations add up and lead to greater and greater influence." Brosens, founder of the $1.3 billion Taconic Capital Advisors and an alumnus of Goldman Sachs(GS), bundled about half a million for Obama's campaign and $200,000 for the inauguration.

Boston Globe:

- Several major department stores will be giving away $175 million worth of perfume, makeup, and moisturizers beginning tomorrow - part of an agreement to settle a lawsuit that accused them of conspiring with cosmetics companies to fix prices.

LA Times:

- An estimated 60 million people, virtually all of them on the Indian subcontinent, carry a mutated gene that makes them all but certain to develop heart disease in their 40s and 50s and to suffer an early death, researchers are reporting today. Though heart disease is the leading cause of death around the world, it is an even more serious problem in India. By next year, according to Indian scientists, the country will carry 60% of the world's burden of heart disease, and this defective gene may be the major reason why.

USA Today:

- In an interview that aired Sunday on Dateline NBC, the chairman and CEO of Berkshire Hathaway (BRK/A), said the nation's economic situation is not as bad at World War II or the Great Depression, but it's still pretty severe. Buffett said Americans are in a cycle of fear, "which leads to people not wanting to spend and not wanting to make investments, and that leads to more fear. We'll break out of it. It takes time." "It's never paid to bet against America," he said. "We come through things, but its not always a smooth ride."

CNNMoney.com:

- Stimulus: Spend or cut taxes?

- The total cost of the inauguration of the 44th President of the United States will likely top $150 million by the time the galas and streamers and porta-pots are all cleaned up.

Reuters:

- Venezuelan President Hugo Chavez said on Saturday Barack Obama had the "stench" of his predecessor as U.S. president and was at risk of being killed if he tries to change the American "empire." Chavez's foreign policy is based on countering U.S. global influence and promoting countries like Russia and China as world leaders. He has close ties to U.S. foes Cuba and Iran. Until recently, Chavez had said he hoped relations with Washington could improve. But in the last few days, he has picked up on comments he attributes to Obama accusing him of obstructing progress in Latin America and exporting terrorism.

- The Vatican will soon have its own channel on the video sharing site YouTube where the Catholic faithful or the curious will be able to see Pope Benedict or Church events, a Vatican source said on Saturday.

Financial Times:

- US futures regulators are seeing a jump in the number of “Ponzi” schemes coming to light in their markets as the $50bn fraud allegedly perpetrated by Bernard Madoff prompts fraudsters to confess. The development is a sign that the fall-out is spreading beyond the markets in which Mr Madoff was active as the collapse of his fund prompts widespread client redemptions.

- Germany’s trade surplus with partners in the European Union has more than doubled over the past decade and amounts now to more than 5 per cent of GDP. At the same time intra-European trade balances have deteriorated for all of Germany’s immediate neighbors. This development must stop. Competitive tensions are increasing rapidly and could soon reach the tipping point where the euro and the single market fall apart. The gleeful policy consensus in Berlin (“We are world champions in exports”) resembles the last dance on The Titanic, moments before it hit the iceberg.

- Obama courts conservative foes. On his last night of freedom – so to speak – Barack Obama on Monday chose to host a dinner for John McCain, the man he defeated last November after a rancorous campaign. Monday night’s forgive-and-forget banquet followed an equally eyebrow-raising dinner last week at the home of George Will, the conservative columnist, whose guests included Bill Kristol, the viscerally anti-Obama neo- conservative.

Guardian:
- The disappearance of a Florida hedge fund manager has raised the possibility of another Madoff-style scandal in the United States, with fears mounting that an estimated $350m of investments may have evaporated.

Telegraph:

- A leading Irish economist has called on Dublin to threaten withdrawal from the euro unless Europe’s big powers do more to rescue Ireland’s economy. "If Ireland continues hurtling down this road, which is close to default, the whole of Europe will be badly affected. The credibility of the euro will be badly affected. Then Spain might default, Italy and Greece," he said.

Spiegel:

- Germany’s 20 biggest banks have accumulated about $398 billion of so-called toxic assets, of which one-quarter have been written off, citing a survey by the Bundesbank and the BaFin regulator for the Finance Ministry. The amount of “risky assets” held by all of Germany’s banks may be as high as 1 trillion euros, the ministry is assuming. Government officials expect further writedowns and losses among German banks.

Rheinische Post:

- The Germany economy, Europe’s biggest, will shrink 2.25% this year, citing Economy Ministry documents to be published Jan. 21. In its annual economic report, the ministry will also predict an increase in the average unemployment rate to 8.4% from 7.8% in 2008, a public deficit just below 3% of GDP and a drop in average inflation to .9% from 2.2%.

Deutsche Presse-Agentur:

- Al –Qaeda, in a purported videotape message, said in Germany should end its military mission in Afghanistan. Germany is “gullible and naïve” to expect to “emerge unscathed” from having the third-largest contingent in the international military mission in Afghanistan, DPA said, citing the videotape.

The National:

- Compared with figures last July when the market peaked, the total fall in property prices by the end of this year is predicted to be up to 60 per cent in Dubai and about 20 per cent in Abu Dhabi, according to Roy Cherry, a research analyst at Shuaa Capital.

Weekend Recommendations
Barron's:
- Made positive comments on (ENOC), (AMSC), (KEY), (ADBE), (SY) and (ENER).

- Made negative comments on (MLM) and (VMC).

Citigroup:

- Reiterated Buy on (BEAT), target $30, added to Tops Picks Live list.

Night Trading
Asian indices are -3.0% to -1.25% on avg.
S&P 500 futures -1.65%.
NASDAQ 100 futures -1.29%.

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Earnings of Note
Company/Estimate
- (FRX)/.73

- (RF)/-.09

- (FAST)/.41

- (JEF)/-1.54

- (PCP)/1.70

- (IBM)/3.02

- (CSX)/.90

- (STT)/1.13

- (JNJ)/.91

- (AMTD)/.31

Upcoming Splits

- None of note

Economic Releases

- None of note

Other Potential Market Movers
- The presidential inauguration and weekly retail sales reports could also impact trading today.

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

Weekly Outlook

Click here for a weekly preview by MarketWatch.

Click here for stocks in focus for Tuesday by MarketWatch.

There are a few economic reports of note and a number of significant corporate earnings reports scheduled for release this week.

Economic reports for the week include:

Mon. – US markets closed

Tues. – Weekly retail sales reports

Wed. – Weekly MBA mortgage applications report, NAHB Housing Market Index

Thur. – Weekly EIA energy inventory data, Initial Jobless Claims, Housing Starts, House Price Index

Fri. – None of note

Some of the more noteworthy companies that release quarterly earnings this week are:

Mon. – US markets closed

Tues. – Forest Labs(FRX), Jeffries Group(JEF), Precision Castparts(PCP), Fastenal(FAST), Continental Air(CAL), IBM(IBM), CSX Corp.(CSX), TD Ameritrade(AMTD), State Street(STT), Johnson & Johnson(JNJ)

Wed. – Progressive Corp.(PGR), Coach Inc.(COH), Air Products(APD), US Bancorp(USB), Abbott Labs(ABT), BlackRock Inc.(BLK), United Technologies(UTX), Burlington Northern(BNI), F5 Networks(FFIV), AllianceBernstein(AB), SLM Corp.(SLM), Noble Corp.(NE), Kinder Morgan(KMP), AMR Corp.(AMR), Allegheny Technologies(ATI), Citrix Systems(CTXS), eBay Inc.(EBAY), UAL Corp.(UAUA), Raymond James(RJF), Apple Inc.(AAPL)

Thur. – SunTrust Banks(STI), Sherwin-Williams(SHW), ITT Educational(ESI), BB&T Corp.(BBT), Comerica(CMA), United Health(UNH), AmerisourceBergen(ABC), Fifth Third Bancorp(FITB), Bank of NY(BK), Interactive Broker(IBKR), Capital One(COF), BancorpSouth(BXS), Federated Investors(FII), Microsoft Corp.(MSFT), Brinker Intl.(EAT), National City(NCC), Union Pacific(UNP), Southwest Air(LUV), Baxter Intl(BAX), Exelon(EXC), International Game Tech(IGT), Lockheed Martin(LMT), Consolidated Edison(ED), Keycorp(KEY), Google Inc.(GOOG), Intuitive Surgical(ISRG)

Fri. – Schlumberger(SLB), General Electric(GE), US Air(LCC), Northrop Grumman(NOC), Domino’s Pizza(DPZ)

Other events that have market-moving potential this week include:

Mon. – US markets closed

Tue. – Presidential inauguration

Wed. – None of note

Thur. – (JBL) Shareholders Meeting, (NAV) Analyst Meeting, (MOH) Investor Day, (DRI) Analyst Meeting, (APD) Shareholders Meeting, Bank of America REIT Summit

Fri. – (NUVO) Shareholders Meeting, (DRI) Analyst Meeting

BOTTOM LINE: I expect US stocks to finish the week higher on lower mortgage rates, bargain-hunting, short-covering, technical buying and declining credit market angst. My trading indicators are giving neutral signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 850.12 -4.52%*

Click here for the Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices
S&P 500 850.12 -4.52%
DJIA 8,281.22 -3.70%
NASDAQ 1,529.33 -2.69%
Russell 2000 466.45 -3.08%
Wilshire 5000 8,567.23 -4.27%
Russell 1000 Growth 361.22 -2.94%
Russell 1000 Value 447.18 -5.89%
Morgan Stanley Consumer 529.96 -1.87%
Morgan Stanley Cyclical 451.40 -9.32%
Morgan Stanley Technology 342.24 -3.25%
Transports 3,147.60 -9.05%
Utilities 369.79 -.27%
MSCI Emerging Markets 23.28 -6.47%

Sentiment/Internals
NYSE Cumulative A/D Line 20,200 -19.90%
Bloomberg New Highs-Lows Index -378 -500.0%
Bloomberg Crude Oil % Bulls 34.0 -17.1%
CFTC Oil Large Speculative Longs 228,912 -2.69%
Total Put/Call .96 -4.0%
OEX Put/Call 1.66 +7.79%
ISE Sentiment 89.0 unch.
NYSE Arms 1.08 -56.27%
Volatility(VIX) 46.11 +7.68%
G7 Currency Volatility (VXY) 19.13 -1.09%
Smart Money Flow Index 7,389.03 -1.84%
AAII % Bulls 27.63 -43.26%
AAII % Bears 47.37 +35.11%

Futures Spot Prices
Crude Oil 35.95 -11.03%
Reformulated Gasoline 116.60 +4.86%
Natural Gas 4.78 –13.78%
Heating Oil 147.35 -.97%
Gold 841.50 -1.46%
Base Metals 112.15 -1.41%
Copper 152.50 -.97%
Agriculture 302.99 -4.20%

Economy
10-year US Treasury Yield 2.32% -7 basis points
10-year TIPS Spread .53% -5 basis points
TED Spread 1.03 -17 basis points
N. Amer. Investment Grade Credit Default Swap Index 210.92 +5.32%
Emerging Markets Credit Default Swap Index 740.65 +4.70%
Citi US Economic Surprise Index -85.70 +14.73%
Fed Fund Futures imply 72.0% chance of no change, 28.0% chance of 25 basis point cut on 1/28
Iraqi 2028 Govt Bonds 42.33 -98%
4-Wk MA of Jobless Claims 518,500 -1.5%
Average 30-year Mortgage Rate 4.96% -5 basis points
Weekly Mortgage Applications 1,324,800 +15.82%
Weekly Retail Sales -1.9%
Nationwide Gas $1.82/gallon +.04/gallon
US Heating Demand Next 7 Days 1.0% below normal
ECRI Weekly Leading Economic Index 108.60 -.64%
US Dollar Index 84.21 +1.87%
Baltic Dry Index 908.0 +4.13%
CRB Index 221.09 -3.84%

Best Performing Style
Small-cap Growth -2.60%

Worst Performing Style
Large-cap Value -5.89%

Leading Sectors
Education +6.42%
Biotech +2.23%
Medical Equipment +1.74%
Computer Hardware +1.62%
Tobacco +1.47%

Lagging Sectors
Alternative Energy -8.62%
Homebuilders -9.17%
Coal -12.04%
Road & Rail -14.96%
Banks -20.8%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Finish Near Session Highs, Boosted by Airline, Education, REIT, Homebuilding, Restaurant and Technology Shares

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