Friday Watch

Late-Night Headlines
Bloomberg:

- Google Inc.(GOOG), owner of the most popular Internet search engine, reported fourth-quarter profit that beat analysts’ estimates as more companies used the Web to promote products over the holidays. Net income was $382.4 million, or $1.21 a share, the company said today. Leaving out some costs, profit was $5.10 a share, beating the $4.96 estimated by analysts in a Bloomberg survey. “This was a pretty decent quarter considering all the fear and loathing out there in the market,” said Christa Quarles, an analyst with Thomas Weisel Partners in San Francisco. Google added $4.50, or 1.5 percent, to $311 in extended trading after closing at $306.50 on the Nasdaq Stock Market.

- Intuitive Surgical, Inc. (ISRG), the industry leader in surgical robotics, today reported fourth quarter 2008 revenue, consistent with its pre-release of January 7, 2009, of $231.5 million, increasing 22% from $189.4 million for the fourth quarter of 2007. Fourth quarter 2008 revenue growth was driven by continued robotic procedure adoption. Fourth quarter 2008 instruments and accessories revenue increased 45% to $81.6 million from $56.1 million during the fourth quarter of 2007. Fourth quarter 2008 da Vinci(r) Surgical Systems revenue increased 5% to $113.7 million from $108.6 million during the fourth quarter of 2007. Fourth quarter 2008 service revenue increased 46% to $36.2 million from $24.7 million during the fourth quarter of 2007. Revenue for the year ended December 31, 2008 totaled $874.9 million, increasing 46% from $600.8 million for the year ended December 31, 2007.

- A House panel today approved spending an estimated $54 billion in economic stimulus funds for environmentally friendly energy projects, including improving the transmission of wind-generated electricity and expanding conservation projects. The energy plan, approved 34-17 by the House Energy and Commerce Committee, includes about $54 billion in spending for power lines, efficiency projects, and insulating low-income homes, according to a summary provided by House Speaker Nancy Pelosi. The measure would provide $8.4 billion in renewable- energy loan guarantees.

- Democrats in charge of the House Ways and Means Committee are poised to approve a $275 billion tax cut as part of the $825 billion economic stimulus bill sought by President Barack Obama. The panel’s action today would send the tax plan, providing $500 in payroll tax cuts to individuals and $1,000 to families, to the full House. It will be merged with $358 billion in public- works spending that passed the House Appropriations Committee yesterday, plus another $192 billion in mandatory spending increases.

- The House approved two measures that would make it easier for U.S. workers to win pay-discrimination lawsuits, overriding business groups’ opposition. The measures would let employees sue on a claim they are underpaid because of years-old discrimination, lift a cap on damages in pay-bias suits and restrict defenses that can be raised by employers.

- The Bank of Japan may intervene and purchase US dollars if the yen strengthens to 85 per dollar, as deflation becomes a concern, according to the Bank of Tokyo-Mitsubishi UFJ Ltd. The central bank cut its growth forecasts until the year starting April 2010 and signaled a return to deflation in a quarterly review of the outlook today. The world’s second-largest economy will shrink 1.8% in the year ending March 31 and 2% next year, according to the median estimate of the bank’s eight members.

- China’s economic slowdown, already the deepest in seven years, is set to worsen as the global recession pummels its exports, darkening the outlook for suppliers from Australia to Taiwan.

- Billionaire Warren Buffett said he is “not opposed to buying back stock” in a television interview scheduled to air today, adding that a company should repurchase shares only if they’re “significantly undervalued.”

- PT Aneka Tambang, Indonesia’s second- largest nickel producer, expects global consumption to fall 30 percent this year as European steel mills reduce output and the global recession slows demand.

- Aluminum may plunge another 17% before prices reflect an expanding surplus, according to Jorge Vazquez, senior analyst for the metal at HARBOR Intelligence. “Don’t try to catch a falling knife,” Vasquez, founder of the Laredo, Texas-based group’s aluminum unit, wrote in a report. Stockpiles in warehouses monitored by the LME are at their highest since 1978. Coupled with contractions in global manufacturing and insufficient cuts by producers, prices are unlikely to rebound any time soon, Vasquez said.

- U.S. brokerages that also manage money for clients are facing additional scrutiny by industry regulators after investigators failed to spot Bernard Madoff’s use of such a company to operate an alleged $50 billion fraud.

- General Electric Co.(GE) and Caterpillar Inc.(CAT) are among U.S. exporters that oppose “Buy American” provisions in the $825 billion stimulus legislation.

Wall Street Journal:

- Chrysler LLC announced a major new incentive program Thursday aimed at clearing out dealers' inventories of unsold vehicles and jump starting revenue for the ailing auto maker. The new incentives will offer customers the same price Chrysler normally only offers its own employees, plus 0% auto loans for up to 48 months. Also available will be additional rebates of up to $6,000 off the employee price on 2008 models and up to $3,500 on 2009 models, Chrysler said in a statement. The offers are effective Jan. 26.

- President Barack Obama will issue an order restoring U.S. funding for international family-planning groups involved with abortion. But he chose not to do so on Thursday, the anniversary of Roe v. Wade. Charmaine Yoest, president of Americans United for Life, thinks the change in policy amounts to U.S. tax dollars funding abortion and sees no positive outcome. But she called the delayed timing "a politically savvy move" by the White House.

- Two of this year's buzziest Super Bowl ads are taking the tradition of game-day marketing stunts to new heights: They will air in 3-D. But their success will depend as much on logistics as on the appeal of their messages.

- Federal Reserve officials are likely next week to stick closely to their approach for handling the financial crisis -- near-zero interest rates and a focus on special lending programs -- despite internal rifts about some of their tactics.

- Federal agents raided two small Pennsylvania defense contractors that were given millions of dollars in federal funding by Rep. John Murtha, chairman of the defense appropriations committee and one of the most powerful men in Congress. Kuchera Industries and Kuchera Defense Systems shut down for the day after the raid by officers from the Defense Criminal Investigative Service, the Federal Bureau of Investigation and an Internal Revenue Service criminal unit.

- U.S. Ambassador Ryan Crocker said that a precipitous withdrawal of American troops from Iraq could give al Qaeda in Iraq a chance to regenerate and leave the country vulnerable to possible negative interference from neighboring nations.

CNBC.com:
- Exxon(XOM) has told Brazilian officials it discovered oil in deep water off Rio de Janeiro, near massive fields that could hold as much as 80 billion barrels of oil.

NY Times:

- Problems involving taxes and a household employee surfaced during the vetting of Caroline Kennedy and derailed her candidacy for the Senate, a person close to Gov. David A. Paterson said on Thursday, in an account at odds with Ms. Kennedy’s own description of her reasons for withdrawing.

- The emergence of a former Guantánamo Bay detainee as the deputy leader of Al Qaeda’s Yemeni branch has underscored the potential complications in carrying out the executive order President Obama signed Thursday that the detention center be shut down within a year. The militant, Said Ali al-Shihri, is suspected of involvement in a deadly bombing of the United States Embassy in Yemen’s capital, Sana, in September. He was released to Saudi Arabia in 2007 and passed through a Saudi rehabilitation program for former jihadists before resurfacing with Al Qaeda in Yemen.

CNNMoney.com:
- One of the nation's largest builders is trying to shock the flatlining new-home market into action with an incentive plan that will slash monthly mortgage payments for qualified buyers. Luxury homebuilder Toll Brothers Inc., said Wednesday that it will offer buyers of its existing new-home inventory a 30-year, fixed-rate mortgage at an interest rate of 3.99% with no points paid up-front. That contrasts with a rate of 5.59% for the average 30-year, fixed-rate mortgage with 0.3 up-front point, as reported this week by Bankrate.com.

- Instant infomercials: Making millions from YouTube ads. Web media startup TurnHere churns out 1,000 corporate videos every month. That might just be the future of Web advertising.

IBD:

- At American defense giant Raytheon (RTN), they must love the law of unintended consequences. As countries like Iran and North Korea spout hostility and pursue nuclear development, their neighbors turn to American weapons suppliers like Raytheon to fortify their defenses.

Gallup Poll:

- More Americans say the prison at Guantanamo Bay military base in Cuba should not be closed (45%) than say it should (35%), but 20% have no opinion on the matter.

USA Today.com:

- The government said Thursday it has distributed an additional $1.5 billion to 39 banks nationwide as part of the $700 billion financial rescue program. The latest capital infusions, which were made on Jan. 16, bring the total amount used to buy bank stock to $193.8 billion. Nearly 300 banks in 43 states and Puerto Rico have received support through the program.

Reuters:

- The House Energy and Commerce Committee backed including about $3 billion in grants to expand Internet service as part of a larger economic stimulus bill, including a provision requiring "open access" in wireless service and on the Internet.

Financial Times:
- The cost of credit for high-rated companies is expected to drop over the next few months, especially in the US, according to credit portfolio managers at financial institutions around the world. They believe the panic that followed the bankruptcy of Lehman Brothers is slowly receding and US federal bail-outs are boosting liquidity in the markets.

Nikkei:

- Tokyo’s city government plans to require large companies to fill at least 5% of their car fleets with fuel-efficient vehicles from 2011.

The Australian:

- Kevin Rudd has warned that the sudden collapse in China's economic growth reported yesterday will wipe $5 billion off Australia's annual exports and destroy domestic jobs. Dramatically hardening his rhetoric on the depth of the global economic crisis, the Prime Minister warned that 2009 could be "one of the most troubled years of our age". Economists now fear Chinese economic growth will slow to just 4.8 per cent this year, compared with a record 13.9 per cent pace during 2007. Speaking in Melbourne, Mr Rudd said the figures indicated China's GDP would be $200billion less than previously expected - a drop equivalent to one third of the Australian economy.

BusinessLine:

- Even as the Indian Government is finding it difficult to appoint a full-fledged Board of Directors for the troubled Satyam Computers Services, about 70 companies have reported that some of their directors, many of them independent ones, have resigned after the infamous Satyam episode.

Late Buy/Sell Recommendations
Citigroup:
- Rated (MA) Sell, target $110.

- Reiterated Buy on (AVT), target $22.

Night Trading
Asian Indices are -2.75% to -.25% on average.
S&P 500 futures -.53%.
NASDAQ 100 futures -.36%.

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Economic Releases

10:00 am EST

- Leading Indicators for December are estimated to fall .3% versus a .4% decline in November.

- Existing Home Sales for December are estimated to fall to 4.4M versus 4.49M in November.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly EIA natural gas inventory report, Dallas Fed Manufacturing report, (NUVO) Shareholders Meeting and (DRI) Analyst Meeting could also impact trading today.

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

Stocks Finish Lower, Weighed Down by Bank, Energy, REIT, Construction, Software and Insurance Shares

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In Play

Stocks Falling into Final Hour on Financial Sector Concerns, Earnings Jitters and More Shorting

BOTTOM LINE: The Portfolio is mixed into the final hour as gains in my Computer longs, Healthcare longs and Education longs offset losses in my Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is bearish as the advance/decline line is substantially lower, most sectors are falling and volume is about average. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is rising 4.95% and is elevated at 48.83. The ISE Sentiment Index is below average at 112.0 and the total put/call is slightly above average at .91. Finally, the NYSE Arms has been running high most of the day, hitting 10.24 at its intraday peak, and is currently 1.06. The Euro Financial Sector Credit Default Swap Index is rising 1.9% today to 119.0 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 falling 2.93% to 218.26 basis points. The TED spread is rising 5.2% to 107 basis points. The TED spread is now down 359 basis points in just over three months. The 2-year swap spread is rising 1.67% to 68.38 basis points. The Libor-OIS spread is rising 1.58% to 93 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 5 basis points to .63%, which is down 207 basis points in just over 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 2 basis points today. “Growth” stocks are substantially outperforming “value” stocks so far this year. This year’s best-performing style is mid-cap growth, which is 4.47% lower ytd. The worst performing style is small-cap value, which is 12.8% lower ytd. I expect this trend to continue through year-end. I am finally seeing signs that investors are beginning to reward companies that can execute relatively well, notwithstanding decelerating earnings growth, in a poor economic environment. This is a meaningful change from recent action. (GOOG) reports after the close today. While its growth is slowing, I suspect the company can deliver relatively strong results throughout this downturn and will eventually be rewarded a much healthier premium, as a result. GOOG's short interest ratio is currently at a record high of 1.78. I will look to add to my long position on any meaningful pullback in the shares from current levels. Nikkei futures indicate a -150 open in Japan and DAX futures indicate an +20 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting and declining financial sector worries.

Today's Headlines

Bloomberg:

- Governments would need to take over all the assets of a bank and take charge of daily operations for a nationalization to trigger payouts on credit-default swaps, according to Bank of America analysts. Simple nationalization wouldn’t be enough to settle the derivatives, which protect investors against a company defaulting on debt repayments, NY-based strategist Glen Taksler wrote today.

- Michael Smith moved 2,500 miles across Australia in July to earn A$120,000 ($80,000) as a blaster. Now the 30-year-old explosives expert is a motorcycle courier making half his former wage. Smith’s woes mirror those of Western Australia, his new home, where a mining boom that drove 17 years of economic growth in the southern continent has collapsed.

- Crude oil tumbled and gasoline futures dropped 10 percent after a U.S. government report showed a bigger-than-forecast increase in crude and fuel inventories as the recession curbed demand. Supplies of crude oil rose 6.1 million barrels to 332.7 million last week, the highest since August 2007, an Energy Department report showed today. “The crude increase was significant and the gasoline number was huge. We saw product supplies increase despite a significant decrease in refinery runs and lower prices.” U.S. fuel consumption during the four weeks ended Jan. 16 averaged 19.4 million barrels a day, down 4.7 percent from a year earlier, the Energy Department report showed. Supplies at Cushing, Oklahoma, where oil traded on Nymex is stored, climbed 0.7 percent to 33.2 million barrels last week, the highest since at least April 2004, when the department began keeping records for the location. Stockpiles in the Mid-Continent, known as PADD 2, increased 1.7 percent to 82.2 million barrels, the highest since the week ended June 26, 1998, when oil was trading at about $14 a barrel. Refineries operated at 83.3 percent of capacity last week, the report showed, the lowest for the week since 1991. “We had a build in distillate supplies even though it’s January and freezing outside,” said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. “Any distillate build is very bearish at this time of year.”

- U.S. motorists drove less in November, extending a drop in road travel into a second year and resulting in the longest continuous decline on record. Vehicle-miles traveled fell by 12.9 billion miles, or 5.3 percent, from a year earlier, the Federal Highway Administration said in a report today.

- President Barack Obama ordered the U.S. prison camp for suspected terrorists at Guantanamo Bay, Cuba, closed within a year and banned intelligence agencies from using the harshest interrogation techniques. The president also formed an interagency task force to recommend options for the detention and questioning of enemy combatants, and he ordered the Central Intelligence Agency to close any secret prisons that may still be operating.

- The Senate Finance Committee approved the nomination of Timothy Geithner, President Barack Obama’s nominee for Treasury secretary. The vote today was 18-5. Geithner’s nomination next goes before the full Senate for a confirmation vote. In a confirmation hearing yesterday, Geithner was grilled on his failure to pay almost $50,000 in taxes. He accepted responsibility, saying his errors were “careless” and unintentional. He also apologized to the committee for the toll the issue has taken on his confirmation, which has left the administration without its top economic official since taking office Jan. 20.

Wall Street Journal:

- Some lawyers want a bigger piece of Merck & Co.'s (MRK) Vioxx settlement pie. A group of attorneys for about 2,000 participants in Merck's $4.85 billion Vioxx settlement fund is unhappy with the 32% cap on contingent fees imposed by a federal judge last year. They say they have binding contracts with plaintiffs that entitle them to as much as 40% of their clients' payments from Merck, and they want the judge to reconsider the cap.

CNBC.com:
- A bipartisan meeting scheduled tomorrow at the White House should lead to a fast vote on an economic stimulus package, US House Majority Leader Steny Hoyer said.

FINalternatives:

- A second key member of President Barack Obama’s economic team is calling for a reconsideration of hedge fund registration. Timothy Geithner, Obama’s pick to be the next Treasury secretary, told the Senate Finance Committee that requiring registration would shine a light on the secretive industry. “The financial crisis has highlighted the urgent need to overhaul the oversight of our financial system,” Geithner, current president of the Federal Reserve Bank of New York, said in written testimony. “With an objective of bringing greater transparency and oversight, I believe that we should consider requiring registration of hedge funds.”

TechCrunch:

- Exclusive: YouTube Will Soon Let Big Content Partners Bring Their Own Ads. Big media companies have always had a love-hate relationship with YouTube. They don’t know whether to sue YouTube for abetting copyright infringement or get in bed with it because it is the biggest Web video game in town. YouTube is trying to convince them that love is better than war by giving them a cut of advertising revenues from their videos that appear on YouTube, regardless of who put them there.

Tex Report:

- Japanese steelmakers are seeking a 45% reduction in prices of iron ore in talks with suppliers.

Time:

- Let's face it — there are lots of reasons to hate McDonald's(MCD): calories, cholesterol and, for me at least, that queasy feeling after munching on McNuggets. Then there's always that kid at the drive-through who forgets the ketchup. Well, add one more reason to spite Ronald: as the global economy spirals downward, McDonald's is minting money.

Reuters:
- A prominent leader of al Qaeda called for attacks in Western countries particularly Britain in retaliation for Israel's offensive in Gaza, arguing that London was behind the creation of the Jewish state. "It's high time that this criminal country, I mean Britain, paid the price of its historic crime," Abu Yahya al-Libi said in a video posted on an Islamist website. "There is no child who dies in Palestine ... without this being the outcome of the (country) that handed Palestine to the Jews ... Britain."

- Rich nations could raise $200 billion in climate funds through a levy on their greenhouse gases from 2013-2020 to help poor countries prepare for global warming, the European Union will say next week. The plan is set out in an EU paper outlining the bloc's position ahead of U.N.-led climate talks in Copenhagen in December, meant to agree a new, global climate treaty.

Financial Times:
- The UK government has no wish to nationalize the country’s banks, since it’s convinced that they’re “best managed and owned commercially,” said Paul Myners, the financial services secretary to the Treasury. Myners said “soundly managed banks and markets” can support wealth-generation in the economy in a way that “could never be matched by the public sector.” "All developed countries will need to contribute to financial resources for adaptation and mitigation in developing countries via public funding and the use of carbon crediting mechanisms," it said. If widely agreed the plan could encourage the world's top carbon emitter, China, to agree to internationally binding climate measures. That in turn could satisfy a general pre-condition made by the second biggest emitter, the United States, for signing up to a successor to the Kyoto Protocol. The United States did not ratify Kyoto because the pact contained no concrete commitments by developing countries, a position the new Obama administration is likely to maintain regarding a successor pact after 2012.

Guardian:

- The British government is lobbying to weaken a proposed European Union directive that would impose more stringent emissions limits on power stations, citing a paper that was leaked to green campaigners. The government claims electricity prices will rise 20% and security of UK supplies will be threatened unless the draft legislation is changed.

Handelsblatt:
- The German government is working on a new rescue plan for the country’s banks as the financial crisis deepens, citing a person close to the situation. The proposal is based on a model used to restructure East German lenders after unification in 1990, citing Steffen Kampeter, the budget spokesman for Chancellor Angela Merkel’s Christian Democratic Union party.

Kommersant:

- Russian rail shipments fall 36% as output drops.

RIA Novosti:

- The number of officially registered unemployed people in Russia may rise 47% to 2.2 million this year, citing Yury Gertsy, head of the Federal Labor and Employment Service.

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Referans:
- Turkish car sales may fall between 30% and 35% this year compared with 2008, citing Berk Cagdas, finance chief of Dogus Otomotiv Servis & Ticaret AS, the Turkish distributor of Volkswagen cars.

Bear Radar

Style Underperformer:
Small-cap Value (-4.18%)

Sector Underperformers:
Insurance (-7.51%), Construction (-5.94%) and Software (-5.90%)

Stocks Falling on Unusual Volume:
USB, WTI, BT, MSFT, SNP, GTXI, FITBP, ZOLL, CERN, EBAY, IBKR, NOK, EE, DLB, HPY, AFL, ETP, DOX, SHW and TDY

Stocks With Unusual Put Option Activity:
1) AFL 2) PCAR 3) SHW 4) JASO 5) MT

Bull Radar

Style Outperformer:
Large-cap Growth (-1.94%)

Sector Outperformers:
Education (+4.33%), HMOs (+2.05%) and Road & Rail (+.07%)

Stocks Rising on Unusual Volume:
ESI, AAPL, COCO, POT, CMP, WAG, IWOV, CCI, NITE, CMCO, VIVO, FFIV, CMED, APOL, CECO, STRA, IBKC and MDVN

Stocks With Unusual Call Option Activity:
1) STT 2) AFL 3) LUV 4) STJ 5) CMA