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Thursday Watch

Late-Night Headlines
Bloomberg:

- The Japanese yen may weaken against the US dollar and eight more of the world’s most-traded currencies as riskier foreign-exchange trades revive, Citigroup Inc. analysts said, citing technical charts. The US dollar looks to be forming a so-called “double bottom,” meaning any advance above 94.65 yen probably would be followed by a surge to as high as 102 yen, analysts led by NY-based Tom Fitzpatrick, Citigroup’s chief technical analyst, said in a report.

- House Agriculture Committee Chairman Collin Peterson said a new commodities trading bill he’s circulating in Congress is meant to east price swings that are making it difficult for farmers to manage risk. Corn, wheat and soybeans all reached records last year, prompting investors to pour money into commodity index funds including those managed by Goldman Sachs(GS) and Pacific Investment Management Co., as they sought better returns than stocks and bonds. US trading in the $684 trillion over-the-counter derivatives market would have to be processed by a clearinghouse under Peterson’s draft legislation, potentially costing banks billions of dollars in profit. He said he hopes his colleagues will approve the measure by mid-February. Other details of the measure, including potential position limits on commodities trading, will be worked out at hearings to begin next week, he said. In related comments, the chairman said he’s skeptical that Gary Gensler, President Barack Obama’s nominee to lead the CFTC, is the right choice because of his ties to the financial-services industry and concerns that he won’t be a tough regulator. Peterson’s committee oversees the CFTC, which regulates $5 trillion in daily trading. Gensler, 51, was an undersecretary of Treasury during the Clinton administration and worked for 18 years at Goldman Sachs. While at Treasury, he helped develop 2000 legislation that exempted swaps and derivatives trading from regulation by the CFTC.

- A draft bill circulated in Congress that would change how over-the-counter derivatives are regulated might ban most trading in the $29 trillion credit-default swap market. House of Representatives Agriculture Committee Chairman Collin Peterson of Minnesota unveiled an updated draft bill today that would prohibit credit-default swap trading unless investors owned the underlying bonds. The draft, distributed by e-mail by the committee staff in Washington, would also force U.S. trading in the $684 trillion over-the-counter derivatives market to be processed by a clearinghouse. “This would basically kill the single-name CDS market,” said Tim Backshall, chief strategist at Credit Derivatives Research LLC in Walnut Creek, California. “Given the small size of many issuers’ bonds outstanding, this would make it practically impossible for the CDS market to exist.” As much as 80 percent of the credit-default swap market is traded by investors who don’t own the underlying bonds, according to Eric Dinallo, superintendent of the New York Department of Insurance. As much as 40 percent of profit at Goldman Sachs Group Inc.(GS) and Morgan Stanley(MS) comes from OTC derivatives trading, according to CreditSights Inc. Estimating the new income that exchanges such as CME Group Inc.(CME) could earn from processing the OTC trades is difficult because clearing fees and volumes aren’t set, said Bruce Weber, a finance professor at the London Business School.

- The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell to 320 basis points at 9:30 a.m. Hong Kong time, according to ICAP Plc prices, from about 345 on Jan. 23 before the Chinese New Year holiday. The Markit iTraxx Australia index was quoted 10 basis points lower at 305 as of 9:55 a.m. in Sydney, Australia & New Zealand Banking Group Ltd. data show.

- Allstate Corp.(ALL) will cut 1,000 jobs at its life insurance operations and review the products sold by the unit after losses on investments caused the company’s first unprofitable year as a public firm. Shares dropped 10.8 percent in extended trading. Allstate’s private equity, real estate and hedge fund investments produced a $101 million loss in the fourth quarter, compared with an $88 million profit a year earlier. Hedge fund losses of $96 million dragged down results in the so-called alternative investments, while real estate funds lost $30 million and private equity earned $25 million. The company had a total of $2.79 billion in the alternative assets at yearend, making up about 2.9 percent of total investment assets, compared with 2.1 percent a year earlier.

- Qualcomm Inc.(QCOM), the world’s biggest maker of mobile-phone chips, reported a 56 percent drop in first-quarter profit and cut its annual sales forecast after the recession curbed growth and hurt its investments. Qualcomm fell $2.10, or 5.7 percent, to $34.72 in late trading after closing at $36.82 on the Nasdaq Stock Market.

- Sepracor Inc.(SEPR), the maker of the Lunesta sleeping pill, said it will cut 530 jobs, or about 20 percent of its workforce. Sepracor also said it expects earnings of $2.10 to $2.70 a share in 2009 and revenue of $1.15 billion to $1.25 billion. The forecast, based on the mid-range of the estimate, is 50 percent higher than reported 2008 earnings of $1.60 a share, the company said. Sepracor rose $2.37, or 17 percent, to $16 at 4:56 p.m. New York time in extended trading on the Nasdaq Stock Market.

- Novartis AG is injecting more money into its hunt for acquisitions and licensing deals as competitors Pfizer Inc.(PFE) and GlaxoSmithKline Plc snap up companies and products. Novartis’s unit that scouts for products, evaluates projects and carries out due diligence has gotten “significantly” more funding, said Joe Jimenez, head of the company’s pharmaceutical division, yesterday in an interview.

Wall Street Journal:

- Government officials seeking to revamp the U.S. financial bailout have discussed spending another $1 trillion to $2 trillion to help restore banks to health, according to people familiar with the matter. President Barack Obama's new administration is wrestling with how to stem the continuing loss of confidence in the financial system, as it divides up the remaining $350 billion from the $700 billion Troubled Asset Relief Program launched last fall. The potential size of rescue efforts being discussed suggests the administration may need to ask Congress for more funds. Some of the remaining $350 billion of TARP funds has already been earmarked for other efforts, including aid to auto makers and to homeowners facing foreclosure.

- Minnesota's U.S. Senate trial drilled deep into the details of the recount itself Wednesday, with a lawyer for Republican Norm Coleman grilling a state election official on why some rejected absentee ballots were counted and some weren't. Coleman attorney Joe Friedberg questioned Deputy Secretary of State Jim Gelbmann for several hours, and elicited numerous examples of apparently inconsistent standards for deciding which absentees to count. At one point, Mr. Friedberg asked Mr. Gelbmann, "People whose votes should have been counted have been disenfranchised, is that correct?" "That is absolutely correct, yes," Mr. Gelbmann answered.

- European governments are rightly wondering which lessons they should learn from the current financial crisis. Recently, the European Commissioner for Internal Markets, Charlie McCreevy, commented that "our supervisory systems are not up to the mark," implying that a regulatory fix is much needed. For sure, if Europe's policy makers are to make the right decisions, they should resist the current political mythology -- whose basic tenet is that the crisis exploded largely because of a wild deregulation of American financial markets. Comparing regulatory systems across time or space is a daunting exercise. There are probably more pages and volumes of financial regulation today, on both sides of the Atlantic, than ever before. This may be justified, at least in part, by formidable increases in the size and sophistication of markets, accompanied by what may have been the greatest amount of financial innovation since the Italians invented double-entry accounting in the Middle Ages. However, let's go back to just a few months before the subprime crisis erupted. The argument back then was that U.S. financial markets were overregulated -- and as a results were losing competitiveness. This was said to be to the advantage not only of emerging Asia but of the Old Continent -- which, through the single EU market, was innovating and liberalizing finance. In January 2007, New York City Mayor Michael Bloomberg and New York Sen. Charles Schumer -- both far from being champions of unfettered competition -- published a report which emphasized the movement of IPOs from the U.S. to the EU. From 2001 to 2007, the value of IPOs in the EU grew from 28% of those in the U.S. to 239%. The costs and risks of doing business in the U.S. were perceived as being high -- and growing -- due to taxation and financial regulations such as those concerning corporate governance and market manipulation. Then there are all the antitrust cases and class-action securities lawsuits. Hedge funds, investment banking and private equity increasingly moved to the Old Continent from the U.S. over the last few years. Nevertheless, some analysts have blamed the current financial crisis in part on U.S. authorities' supposed tolerance for opaque over-the-counter derivatives that grew like weeds. But if this is the case, then the EU does not look more virtuous than the U.S. According to the Bank for International Settlements, in 2007 the average value of daily transactions in OTC derivatives peaked at nearly $1.7 trillion in Europe, almost three times the figure for the U.S. Likewise, if overleveraging by U.S. banks was a consequence of regulatory laxity, we should then note that European authorities were no less in thrall of laissez-faire than their American counterparts. Many of the largest and most highly regulated European commercial banks were much more leveraged than those supposedly unregulated American investment banks. Indeed, they were hit by the fire at its very inception, in August 2007. (very good article)

- New York Attorney General Andrew Cuomo is expanding the scope of his investigation into bonuses paid by Merrill Lynch & Co., with the inquiry now likely to include whether directors and shareholders were misled about giant losses at the securities firm, a person familiar with the situation said. Mr. Cuomo plans to press John Thain, the former Merrill chairman and chief executive who was forced to resign last week from Bank of America Corp., on what he told Merrill directors about ballooning losses in mid-December, this person said.

- The House passed an $819 billion tax-and-spending bill Wednesday, in a recession-fighting effort that would extend the reach of the federal government across the U.S. economy by reshaping policy on energy, education, health care and social programs. The House bill is one of the largest single stimulus packages in history, almost equal to the entire cost of annual federal spending under Congress's discretion. A parallel Senate measure, which is expected to come to a vote next week, is now valued at nearly $900 billion. Either bill, if enacted, would push the federal debt toward levels not seen since the second World War. The package embodies President Barack Obama's philosophy, stated in his inaugural address, that a nation in crisis has moved beyond "stale political arguments" over the size and reach of government. The package, which would cost more than the entire Iraq War, would reverse the Bush administration's approach to boosting the economy. That approach relied heavily on tax cuts that tended to put money in the pockets of middle-class and more affluent Americans. The $275 billion in tax relief offered in the stimulus package focuses more on lower-income families. It also includes business incentives to spur job creation and a $500 payroll tax holiday for workers. The 244-188 vote was not what Mr. Obama had hoped for. A week of presidential wooing -- including a visit to the Capitol, a return visit to the White House by moderate House Republicans and a bipartisan cocktail party Wednesday night -- did not yield a single Republican vote. The president also lost 11 Democrats.

- In the latest effort to prop up a sector of the finance industry, federal regulators on Wednesday guaranteed $80 billion in uninsured deposits at the powerful institutions that service the nation's credit unions -- a maneuver that shows how the economic crisis continues to ripple across the U.S.

MarketWatch.com:
- Gold takes a rest. Commentary: Gold’s short-term trend likely to be down. Consider the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average recommended gold-market exposure among a subset of short-term gold-timing newsletters tracked by the Hulbert Financial Digest. As of Tuesday night, the HGNSI stood at 60.9%. This is identical to where the HGNSI stood at the end of December, when I last devoted a column to gold sentiment. Over the two weeks following that column, of course, bullion dropped by around $70 an ounce. Contrarian concern about gold's short-term trend isn't just based on this one data point, however. I have more than 25 years of daily data for the HGNSI, and rigorous econometric tests show that the inverse correlation between HGNSI levels and the gold market's subsequent short-term direction is statistically significant at the 95% confidence level. This is why the HGNSI's current level is so ominous. To put it in context, consider that this sentiment gauge's average reading over the last five years has been 32.6%, only slightly more than half where it stands now. Over the last five years, furthermore, the HGNSI has been higher than where it is now just 13% of the time.

NY Times:

- YouTube and the William Morris Agency, the Hollywood talent agency, are close to signing a deal that would place the company’s clients in made-for-the-Web productions. The deal, the first of its kind, would underscore the impact that the Internet has had on media companies. Already, some actors and other celebrities are creating their own content for the Web, bypassing the often arduous process of developing a program for a television network. The YouTube deal would give Morris clients an ownership stake in the videos they create for the Web site.

- US Sports Teams Bringing TV, Internet to Stadiums.

IBD:

- In 2001, Brian Biles and Kai Li co-founded Data Domain (DDUP) to update this process by backing up data to a disk-based system that is more durable and compact than tape. That may not sound too complicated, but Data Domain's innovation was to make it cheap enough to compete with tapes on cost.

Reuters:

- Outsourcing, Indian-style, is challenged as never before by an erosion in business confidence that makes corporate spending, even to generate quick cost-savings, harder to justify.

- The Federal Reserve on Wednesday inched closer to buying U.S. government bonds in a new front in its fight against the credit crisis and signaled unease over the risk of deflation with the economy weakening. The Fed reiterated that, if needed, it would expand an existing program of buying large quantities of mortgage-related debt, and that it was about to launch another program to shore up auto, credit card and small-business lending.

- The U.S. House of Representatives on Wednesday approved a controversial "Buy America" steel provision as part of an $825 billion package to help pull the U.S. economy out of recession. The provision requires public works projects funded by the bill to use only U.S.-made iron and steel. House leaders included the language despite strong objections from the U.S. Chamber of Commerce and other business groups which said it would set a bad example for other countries considering their own economic stimulus plans.

Financial Times:
- Russia’s banking system needs a large capital injection as it prepares for a sharp increase in defaults by companies and consumers, one of the country’s leading bankers has warned. Andrei Kostin, chairman and chief executive of VTB, the large state-controlled lender, said the bank had opened talks with the Russian government about a capital increase designed to shore up its tier one capital ratio – a key measure of banking strength. “There is now a general view among experts in Russia that the level of non-performing debts will rise to 8-12 per cent [of total loans]. That will represent a very big threat to the Russian banking sector,” Mr Kostin said in an interview with the Financial Times on the fringes of the World Economic Forum in Davos.

TimesOnline:
- Britain will be hit harder than any other advanced nation in the worst recession for more than 60 years, world economists warned last night. In the bleakest assessment yet of British prospects, the International Monetary Fund (IMF) forecast that the economy would shrink by 2.8 per cent this year, twice as much as it previously thought and far more than the 2 per cent average drop for developed nations in 2009.

- More than $260 billion (£182 billion) has been wiped from the wealth of Russia’s billionaires over the past eight months as the credit crunch has sent the value of its currency and largest industrial groups plummeting, according to one of Russia’s largest private banks. The meltdown in the private wealth of Russian oligarchs including Oleg Deripaska, Roman Abramovich and Alexei Mordashov reflected a 68 per cent slide in Moscow’s Micex share index since it peaked in May.

Guardian:

- Officials of Barack Obama's administration have drafted a letter to Iran from the president aimed at unfreezing US-Iranian relations and opening the way for face-to-face talks, the Guardian has learned. The US state department has been working on drafts of the letter since Obama was elected on 4 November last year. It is in reply to a lengthy letter of congratulations sent by the Iranian president, Mahmoud Ahmadinejad, on 6 November. Diplomats said Obama's letter would be a symbolic gesture to mark a change in tone from the hostile one adopted by the Bush administration, which portrayed Iran as part of an "axis of evil". It would be intended to allay the ­suspicions of Iran's leaders and pave the way for Obama to engage them directly, a break with past policy. State department officials have composed at least three drafts of the letter, which gives assurances that Washington does not want to overthrow the Islamic regime, but merely seeks a change in its behaviour. The letter would be addressed to the Iranian people and sent directly to Iran's supreme leader, Ayatollah Ali Khamenei, or released as an open letter. The scale of the problem facing the new American president was reinforced yesterday when a senior aide to Ahmadinejad, Aliakbar Javanfekr, said that, despite the calls from the US, Iran had no intention of stopping its nuclear activities. When asked about a UN resolution calling for the suspension of Iran's uranium enrichment, Javanfekr, the presidential adviser for press affairs, replied: "We are past that stage."

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are unch. to +1.25% on average.
S&P 500 futures -.62%.
NASDAQ 100 futures -.61%.

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Earnings of Note
Company/EPS Estimate
- (LLY)/1.05

- (ATK)/1.94

- (SII)/1.02

- (XEL)/.37

- (MMM)/.93

- (IP)/.20

- (LLL)/1.98

- (HOT)/.36

- (ZMH)/1.00

- (MO)/.37

- (EK)/.18

- (UA)/.17

- (F)/-1.24

- (ITW)/.48

- (RTN)/1.11

- (CAL)/-.86

- (MXIM)/.13

- (SPWRA)/.59

- (KLAC)/-.06

- (CA)/.37

- (WMS)/.36

- (BRCM)/.26

- (CB)/1.52

- (VAR)/.52

- (YRCW)/-.64

- (MCHP)/.22

- (MWW)/.26

- (JNPR)/.31

- (QSII)/.45

- (ACS)/.78

- (AMZN)/.38

- (BDK)/.69

- (AN)/.11

- (LCC)/-2.11

- (RCL)/.07

- (OXY)/.95

- (D)/.68

- (CELG)/.42

- (PII)/1.09

- (FO)/.86

- (CL)/.98

Economic Releases

8:30 am EST

- Durable Goods Orders for December are estimated to fall 2.0% versus a 1.5% decline in November.

- Durables Ex Transports for December are estimated to fall 2.7% versus a .6% rise in November.

- Initial Jobless Claims for last week are estimated to fall to 575K versus 589K the prior week.

- Continuing Claims are estimated to rise to 4620K versus 4607K prior.

10:00 am EST

- New Home Sales for December are estimated to fall to 397K versus 407K in November.

Upcoming Splits
- None of note

Other Potential Market Movers
- The weekly EIA weekly natural gas inventory report, World Economic Forum, (DFS) financial briefing, (KMP) analyst meeting, (ASH) shareholders meeting and (SCHW) business update could also impact trading today.

BOTTOM LINE: Asian indices are 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 mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish Sharply Higher, Boosted by Airline, REIT, Homebuilding, Financial, Technology and Steel Shares

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In Play

Stocks Surging into Final Hour on Diminishing Financial Sector Pessimism, Lower Credit Market Angst, Bargain-Hunting

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Healthcare longs, Retail longs, Financial longs and Medical longs. I added to my (GME) long and took some profits in another long today, thus leaving the Portfolio 100% net long. The tone of the market is very positive as the advance/decline line is substantially higher, almost every sector is rising and volume is about average. Investor anxiety is above average. Today’s overall market action is very bullish. The VIX is falling 5.8% and is very high at 39.80. The ISE Sentiment Index is slightly below average at 137.0 and the total put/call is below average at .70. Finally, the NYSE Arms has been running above average most of the day, hitting 1.22 at its intraday peak, and is currently .84. The Euro Financial Sector Credit Default Swap Index is falling .08% today to 108.67 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 3.08% to 192.88 basis points. The TED spread is falling 5.28% to 100 basis points. The TED spread is now down 366 basis points in over three months. The 2-year swap spread is plunging 15.28% to 55.63 basis points. The Libor-OIS spread is falling .21% to 95 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 7 basis points to .89%, which is down 181 basis points in over six months and near 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 .18%, which is up 5 basis points today. It is a large positive to see many of the “fear” assets trading lower again today. As well, the North American Investment Grade Credit Default Swap Index appears to be breaking down, which is also a huge positive. Many market-leading stocks are rising 2-3x more than the gains in the major averages. US stocks are getting extended very short-term and could see a pullback materialize over the coming days, but another meaningful surge higher is likely soon thereafter. Nikkei futures indicate an +304 open in Japan and DAX futures indicate an +40 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on short-covering, bargain-hunting, less financial sector pessimism and declining credit market angst.

Today's Headlines

Bloomberg:

- The Federal Reserve left the benchmark interest rate as low as zero and said it’s prepared to purchase longer-term Treasury securities to resuscitate lending and the economy. The Fed is “prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets,” the Federal Open Market Committee said in a statement after meeting in Washington.

- U.S. Treasury Secretary Timothy Geithner said the department is considering a “range of options” for its financial rescue plan, with the goal of preserving the private banking system. Geithner was asked about the prospects of bank nationalization before a meeting with several officials charged with providing oversight for the $700 billion financial rescue effort. He said the administration would move “relatively soon” to announce its strategy.

- The cost of protecting corporate bonds from default fell to the lowest in 11 weeks amid speculation the U.S. government may create a so-called bad bank to hold toxic assets blamed for causing the global credit crisis. Benchmark credit-default swap indexes tied to companies in North America and Europe reached the lowest since Nov. 11. Contracts on Bank of America Corp., Morgan Stanley and Barclays Plc reached two-week lows on optimism central banks and governments may stabilize the financial system. Contracts on Wells Fargo & Co., which reported its first quarterly loss since 2001, narrowed as the bank said it doesn’t need more federal aid. Credit-default swaps on the Markit CDX North America Investment-Grade index of 125 companies in the U.S. and Canada, which fall as sentiment improves, dropped 8.5 basis points to 190.5 basis points as of 9:53 a.m. in New York, according to Barclays Capital. The Markit iTraxx Financial index of 25 European banks and insurers dropped two basis points to 115.

- Iranian President Mahmoud Ahmadinejad said the change promised by Barack Obama during his presidential campaign means he must apologize for U.S. “crimes” against Iran, including American support for a 1953 coup in the country and the backing of Iraq during the Iran-Iraq war.

- Credit-default swaps dealers will preview a new standard for contracts in North America tomorrow as the industry pushes to curb risks and smooth the transition to a central clearinghouse for the $28 trillion market. Markit Group Ltd., a data provider and owner of benchmark indexes in the privately traded market, will host a conference in New York where creators of the contract will discuss the changes, the London-based company said in an e-mailed statement this week. Rule makers for the market are making trading more transparent and uniform as regulators press them to mitigate the risk of industry losses from the bilateral contracts. “The new contract has strong implications for reducing systemic risk and improving operational efficiency,” Markit said in an invitation to the event.

- Gold dropped the most in two weeks in London as shares advanced around the world on speculation government measures will help revive the global economy, reducing demand for the precious metal as a haven. “Gold might have reached a temporary peak, and profit- taking is of course another factor,” Fertig said, adding that the metal may fall to $850 an ounce in coming days. Bullion has also lost its negative correlation with the dollar in the past week, he said.

- Copper prices, headed for the first monthly gain since June, are poised to drop at least 33% as slowing growth in China erodes metal demand, said Gijsbert Groenewegen, a Gold Arrow Capital Management fund manager. Copper prices rose in January, even after the latest data available show China’s electricity output slid for four straight months through November, a sign of slower growth. An economic slump in China, the world’s biggest copper user, will spur a drop in copper prices as consumption slips, Groenewegen said. “All you need to do is look at China’s electricity use to see that growth there is going to be worse than people are expecting,” said NY-based Groenewegen. Prices will drop to at least $1 a pound and may trade as low as 70 cents, he said.

- Veteran startup investor Dixon Doll’s firm is close to raising a $505 million fund, making it the second Silicon Valley venture-capital company to attract money this year in the midst of a recession.

- M.D.C. Holdings Inc.(MDC) is unique among homebuilders: most analysts recommend buying the stock. The builder is the top-rated stock in the industry not for the double ovens it puts in its gourmet kitchens or the Spanish tile roofs but for the $1.4 billion in cash and investments it holds. Six of eight analysts advise buying M.D.C., giving it a 75 percent positive rating. Toll Brothers Inc.(TOL) ranks second with a 44 percent favorable outlook. “It’s one of the few homebuilding companies that I think really has been on top of things,” said Mark Levine, director of the Burns School of Real Estate and Construction Management at the University of Denver.

- Lawyers at Kirkland & Ellis LLP, home to former Whitewater prosecutor Ken Starr, are asking as much as $1,110 an hour for bankruptcy work while creditors are recovering less of their loans through company restructurings. Professionals’ fees in bankruptcy cases are growing at four times the rate of inflation, estimated Lynn LoPucki, a professor of bankruptcy law at the University of California, Los Angeles. Total fees paid for lawyers, accountants and other professionals in bankruptcies from 1998 to 2007 doubled, while the consumer price index rose about 25 percent, he said. “As the economy gets worse, the bankruptcy lawyers are charging more,” LoPucki said. “It seems that each month one sets a new record for hourly billing rates. $1,110 is, to my knowledge, a record for the debtor’s bankruptcy counsel.”

- U.S. Treasury Secretary Timothy Geithner’s call for China to loosen restrictions on its currency was criticized by economists and policy makers at the World Economic Forum. Allowing the yuan to strengthen would be “economic suicide” amid an economic slump, Stephen Roach, Morgan Stanley’s Asia Chairman, told a panel in Davos, Switzerland, today. “I’ve never seen an economy in recession voluntarily raise their currency. It’s horrible advice.”

- The United Auto Workers union will end its so-called jobs bank for General Motors Corp.(GM) employees on Feb. 2, one of the conditions set by the government when it agreed to lend the biggest U.S. automaker $13.4 billion. GM has 1,600 workers in the program, which pays UAW members even when they have no work to do, company spokesman Tony Sapienza said today in an interview. Those leaving the jobs bank will get state unemployment benefits and some GM pay, he said.

- President Barack Obama said he is confident that the economy can be reinvigorated, starting with the passage of a stimulus package, after meeting with the chief executive officers of some of the nation’s biggest companies.

- European Central Bank President Jean- Claude Trichet said the bank’s next important meeting is in March, suggesting it won’t cut interest rates next week. “I said that the next important rendez-vous is in March,” Trichet told Bloomberg Television in an interview in Davos, Switzerland, today. “In March we’ll have a lot of new information, we’ll have our own staff projections,” he said. “The market will not like the notion of the ECB’s wait-and- see policy,” Dustin Reid, director of currency strategy at RBS Greenwich Capital Markets in Chicago, wrote in an e-mailed note. “I suspect the euro eventually trades lower on this.”

- Robert Rubin, who quit his post as senior counselor at Citigroup Inc. this month, said an accounting rule forcing companies to mark down assets every quarter to reflect market value has “done a great deal of damage.” “I spent my whole life at Goldman Sachs believing in mark- to-market accounting, and having said that, if you look at the experience from the last two years, I think mark-to-market accounting has led to terrible vicious cycles in asset prices,” Rubin, the former U.S. Treasury secretary, said during a discussion at the 92nd St. YMCA late yesterday. Companies including Citigroup and American International Group Inc. say mark-to-market, also known as fair-value accounting, doesn’t work when few buyers are willing to trade assets like subprime mortgages.

Wall Street Journal:

- The new chief of staff to Treasury Secretary Timothy Geithner was a top lobbyist for Goldman Sachs Group(GS) Inc. until last year, and will have to recuse himself from some government duties under new White House ethics rules. Before Mr. Patterson left Goldman in April, he was vice president for government relations, and was registered to lobby Congress on legislation including energy tax credits and Indian gaming, according to disclosure forms filed with Congress.

- U.S. Federal Reserve officials on Wednesday signaled they're prepared to move forward on a controversial idea to purchase longer-dated Treasury securities, which would mark a dramatic escalation of their efforts to unclog credit markets. The Federal Open Market Committee voted 8-1 to maintain the target federal funds rate for interbank lending at a record-low range of zero to 0.25%. The interest rate and balance sheet decisions are aimed at combating a worsening recession and deflationary spiral of falling employment and spending. The Fed also held the discount rate for direct loans to commercial and investment banks unchanged at 0.5%. Rates will likely stay where they are well into the year if not into 2010, the accompanying policy statement suggested.

- On his second full day of work, U.S. Treasury Secretary Timothy Geithner said the U.S. is pulling together a comprehensive plan to stabilize the economy and that his team wants to preserve the private banking system. He declined to provide specifics on any plans to create a "bad bank" to buy up the toxic assets that have been weighing down bank balance sheets, but said details of a comprehensive plan to stabilize the financial sector should begin emerging in the near future. When asked about the possibility of nationalizing the country's banks, Mr. Geithner noted the virtues of a private banking system, saying "we'd like to do our best to preserve that system."

NY Times:

- Barely two weeks after Robert E. Rubin stepped down as senior adviser to Citigroup’s board amid the bank’s disastrous credit losses, Mr. Rubin warned against increasingly loud calls for troubled banks to be nationalized. “Nationalization as an alternative has some serious problems,” Mr. Rubin, a former Treasury secretary under President Clinton, said Tuesday night at a discussion sponsored by the 92nd Street Y in New York. “You certainly don’t want a bank’s lending practices subject to political

pressure.”

Business Week:

- Onyx(ONXX), a Sweet Deal for Bayer? The German drugmaker already has teamed up with Onyx to sell the smaller company’s drug to fight kidney cancer. Could it be the next pharma to make a move?

USA Today:

- All six of the law and accounting firms hired by the Treasury Department to help manage the $700 billion financial bailout have clients who received the federal money, contracting and regulatory records show. The firms also have been involved in structuring complicated financial instruments tied to risky assets such as sub-prime mortgages, according to their websites and Securities and Exchange Commission filings. The collapse in value of those assets is one cause of the financial crisis. One law firm, Thacher Proffitt & Wood, dissolved five days after Treasury announced its contract because its work arranging complex transactions had dried up. Sonnenschein Nath & Rosenthal, which took over the contract from Thacher Proffitt, also has clients that received bailout funds, its website shows.

San Francisco Chronicle:

- The nation's top military officer said Tuesday the United States did all it could to intercept a suspected arms shipment to Hamas militants in the Gaza Strip, but its hands were tied. Separately, Adm. Mike Mullen, the chairman of the Joint Chiefs of Staff, and other U.S. officials said it is too soon to tell whether the prospect of new U.S. engagement with Iran will bear fruit. Mullen confirmed that a Cypriot-flagged ship intercepted in the Red Sea last week was carrying Iranian arms and that U.S. authorities suspect that the shipment was ultimately bound for the Gaza Strip, where Hamas and Israel are observing a shaky truce after three weeks of fighting. "The United States did as much as we could do legally," Mullen said, adding that he would like more authority to act in such cases. "We were not authorized to seize the weapons or do anything like that."

Washington Post:

- Iraq will send Syria its first ambassador since around the time Saddam Hussein became president in 1979, a government official said Wednesday. Alaa al-Jawadi would leave Wednesday to become Iraq's new envoy in Damascus, Mohammed al-Haj Hamoud, Iraq's deputy foreign minister, told Reuters. Last October Damascus posted its first ambassador to Iraq since Saddam's takeover in Iraq strained ties with Syria, which for decades has been governed by a rival branch of the pan-Arab Baath party.

AdWeek:

- CBS sees an opportunity in the continuous stream of disastrous economic news. In March the company plans to roll out MoneyWatch.com, a personal finance site conceived specifically with the ongoing financial meltdown in mind.

Financial Times:
- Gulf banks may have avoided most of the toxic assets polluting the global financial system but many are overexposed to a sector that rating agencies and analysts say may prove to be nearly as poisonous – property. After years of growth, Dubai’s real estate market is particularly exposed to the withdrawal of credit. Residential prices have dropped 23 per cent from their peak last September according to research by HSBC, the bank, and some experts are talking about a 50 per cent drop in property prices from top to bottom.

Financial Times Deutschland:
- Germany’s Christian Democratic Party is calling for a sale of the Bundesbank’s gold reserves to help weather the economic crisis. Steffen Kampeter, the CDU budget spokesman, wants the government to use the country’s gold and currency reserves to finance an economic rescue package.

Der Platow Brief:

- Deutsche Bank AG’s operating business may have had a “sensational” first three weeks of 2009. There is speculation the German bank may earn almost $1.3 billion in pretax profit in January, the newsletter said.

Die Zeit:

- Dominique Strauss-Kahn, the head of the IMF, said without more political coordination on economic policies the euro region is “in danger,” citing an interview.

The National:

- Property prices have fallen in Abu Dhabi by an average of 15 per cent in recent months, but a lack of finance is stalling the market, according to industry experts. Prices in the secondary property market have softened after peaking last summer, with big falls occurring at Al Raha Beach and Al Reem Island, according to LLJ Property, a property broker based in the capital.

Bear Radar

Style Underperformer:
Large-cap Value (+1.35%)

Sector Underperformers:
Gold (-1.36%), Drugs (-.23%) and Education (-.22%)

Stocks Falling on Unusual Volume:
SFG, DV, NVS, NEM, WBSN, AMLN, BDX, LM and PLT

Stocks With Unusual Put Option Activity:
1) MT 2) CENX 3) CX 4) GERN 5) RCL