Friday Watch

Late-Night Headlines
Bloomberg:

-. Amazon.com Inc.(AMZN), the world’s largest Internet retailer, posted an 8.7 percent rise in fourth-quarter profit after promotions and discounts lured consumers to its Web site. Sales beat estimates, sending the shares up 13 percent in after-hours trading.

- Quality Systems, Inc. (NASDAQ:QSII) today announced the results of operations for its fiscal 2009 third quarter ended December 31, 2008. The Company posted record net revenues of $65.5 million in the third quarter, an increase of 36% from the $48.1 million generated during the same quarter of the prior year. The shares rose 8.5% in after-hours trading.

- Juniper Networks Inc.(JNPR), the second- largest maker of networking equipment, reported fourth-quarter sales that fell short of analysts’ estimates and said it deferred some revenue from Japan after a routine audit. Juniper dropped $1.77, or 10 percent, to $15.20 in extended trading after declining 7.5 percent to $16.97 at 4 p.m. New York time on the Nasdaq Stock Market.

- Japan headed for its worst postwar recession in December as factory output slumped an unprecedented 9.6 percent, unemployment surged and households cut spending. The drop in production eclipsed the previous record of 8.5 percent set only a month earlier, the Trade Ministry said today in Tokyo. The jobless rate soared to 4.4 percent from 3.9 percent, the biggest jump in 41 years.

- Australian bank lending unexpectedly fell in December for the first time since 1992 as borrowing by companies slumped, increasing pressure on the central bank to cut interest rates next week.

- The US dollar headed for its largest monthly gain against the euro since October on speculation growing evidence of a global slowdown will increase the appeal of the currency to investors as a haven. The euro is poised for the biggest loss versus the yen in three months after Austria’s Der Standard newspaper reported that billionaire George Soros said the euro may not “survive” unless the European Union pushes for a global plan to deal with toxic debt.

- Admiral Michael Mullen, the most senior American military officer, said the U.S. will probably deploy close to 30,000 additional troops to Afghanistan to shore up deteriorating security there. In an interview, Mullen, the chairman of the Joint Chiefs, also said he is hopeful that other NATO nations will contribute additional military and civilian resources this year to the fight against a resurgent Taliban.

Wall Street Journal:

- Rod Blagojevich became the first U.S. governor in 21 years to be removed from office following a vote by state lawmakers Thursday, nearly two months after he was led from his home in handcuffs by federal authorities on suspicion of influence peddling. The 59 Illinois senators voted unanimously to oust the two-term Democrat, who was the first Illinois governor to be impeached in the state's 190-year history and the first governor ousted since Arizona's Evan Mecham in 1988. The senators then voted to bar Mr. Blagojevich from public office in Illinois. Mr. Blagojevich, 52 years old, still faces the threat of federal charges of conspiring to use his office to extract campaign contributions in exchange for signing bills or awarding contracts, as well as seeking to sell President Barack Obama's vacated Senate seat. Authorities are building a case from interviews with federal informants and secretly recorded conversations last fall.

- The Senate began jockeying Thursday over details of its nearly $900 billion economic-stimulus plan, amid bipartisan calls to ensure that jobs created by the measure go to American workers, not foreign companies or illegal immigrants. Sens. Ben Nelson (D., Neb.) and Jeff Sessions (R., Ala.) want to mandate that businesses benefiting from the stimulus verify the citizenship of workers, under a government program that is currently voluntary. Already in the legislation are "Buy America" provisions intended to ensure U.S.-made goods are used in projects spurred by the package. These proposals have stirred concerns in the business community that other nations could retaliate against U.S.-made goods with new trade restrictions. There is also pressure in the Senate to sharpen the focus of the stimulus package to address more directly the nation's housing woes. Senate Budget Chairman Kent Conrad (D., N.D.) is pushing a proposal to broaden the existing home-buyer tax credit, which now benefits only first-time buyers, to cover purchases of all primary residences. Senate Banking Chairman Chris Dodd (D., Conn.) is suggesting a moratorium on foreclosures be added to the package. "Housing is a tremendous accelerator" for the economy, he said. "If you can generate activity in housing, the benefits of that are phenomenal in terms of the credit markets."

- US officials are considering a plan that would offer as much as $4,500 in tax credits to consumer who replace old automobiles with poor gas mileage with new, more fuel-efficient cars. US automaker executives haven’t endorsed the plan, which aims to spur car sales, partly because of fear consumers may replace cars made in the US with ones produced by foreign competitors.

CNBC.com:
- Officials from the Obama administration are holding around the clock meetings with senior Wall Street executives on how to create a new government bank to buy bad assets from major financial firms. However, people with direct knowledge of the talks tell CNBC there is no consensus on how such an entity would work or whether a plan could materialize any time soon or possibly ever.

- Last night’s House vote on the Democratic stimulus package, where not a single Republican voted in favor, was another shot across the bow for this incredibly unmanageable $900 billion behemoth of a program that truly will not stimulate the economy. Team Obama is now regrouping in the face of mounting criticism of this package.

- If at first you don't succeed ... It looks like Dell(DELL) will try its hand once again on a smart, handheld device with apparent plans to jump into the smart phone market. The Wall Street Journal says Dell has come up with handsets running both Android from Google and Windows Mobile from Microsoft, a version with a touchscreen, ala Apple's iPhone and Pre from Palm, and one with a slide-out QWERTY keypad. Is anyone surprised by this?

NY Times:

- Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all. Few people attending the World Economic Forum question the need to kick-start America’s economy, the world’s largest, with a package that could reach $1 trillion over two years. But the long-term fallout from increased borrowing by the United Stated government, and its potential to drive up inflation and interest rates around the world, seems to getting more attention here than in Washington. “The U.S. needs to show some proof they have a plan to get out of the fiscal problem,” said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis in 1994. “We, as developing countries, need to know we won’t be crowded out of the capital markets, which is already happening.”

Forbes:

- These technology companies look cheap relative to their profit potential.

The economic situation is ugly, but it is quite possible that the stock market has overreacted to all the bad news. If so, this is an opportunity to buy good technology growth stocks on the cheap.

IBD:

- Patterson is chairman and chief executive of Cerner (CERN), a health industry information technology firm. And that Bic he worries about is in the cool, steady hand of a surgeon.

PocketGamer.biz:

- Apple(AAPL) is planning to introduce a premium games section to its App Store where it will sell a range of iPhone games for $19.99, sources tell PocketGamer.biz. However, the initiative will only be open to a restricted number of large publishers, rather than the thousands of smaller developers currently selling their titles on the main App Store.

TechCrunch:

- Google(GOOG) ended the year with 63.5 percent market share of all search queries performed in the U.S., estimates comScore. And that market share has inched up steadily from 58.5 percent in January, 2008. But the market share numbers mask the absolute growth in searches and how Google has ben able to Gobble up all of that growth.

Miami Herald:

- He calls himself the "Iraqi Obama" and hopes to channel President Barack Obama's good luck by becoming the first black Iraqi to win an election. Salah al-Rekhayis lives in a town southwest of Basra called Zubayr, and with the help of his campaign manager-sister and brother, has pasted campaign posters urging citizens to vote for him in Saturday's provincial elections.

USA Today.com:

- Mortgage companies modified a record 122,000 loans in December to try to avoid foreclosures, an industry group said Thursday. In a separate report, Freddie Mac said Thursday that rates on 30-year mortgages edged down this week, but remained above 5%. Hope Now, a coalition of mortgage servicers, lenders and counselors, said total "workouts," including negotiated payment plans designed to avert foreclosure, increased to a record 239,000 last month. Modifications are permanent contract changes to lower payments.

AP:

- Samantha Power, the Harvard University professor who earned notoriety for calling Hillary Rodham Clinton a "monster" while working to elect Barack Obama president, will take a senior foreign policy job at the White House, The Associated Press has learned. Officials familiar with the decision say Obama has tapped Power to be senior director for multilateral affairs at the National Security Council, a job that will require close contact and potential travel with Clinton, who is now secretary of state.

Reuters:

- Researchers in Canada have developed a blood test that can diagnose fatal chronic wasting disease in elk, and believe it may provide a cheap way to screen cattle for mad cow disease. The test looks for signs of damaged cells in the blood, they reported in the journal Nucleic Acids Research. It may also offer a way to diagnose people with a related disease called Creutzfeldt-Jakob disease, or CJD, they said on Thursday.

- E-commerce will slow this year to a growth rate of 11 percent. Forrester Research projected the total to be spent online in 2009 at $156 billion, up from $141 billion last year, with growth slowing from 13 percent in 2008 and 18 percent the prior year.

National Post:

- Prime Minister Stephen Harper expressed serious concern Thursday over a provision of the U.S. stimulus bill that would require infrastructure projects to use American steel, putting Canada on the edge of its first trade dispute with the United States since Barack Obama was inaugurated. The "Buy American" clause would ban the use of most foreign iron and steel from infrastructure projects funded under the US$819-billion stimulus bill, which passed the U.S. House of Representatives on Wednesday. Thursday, Mr. Harper added Canada's name to the growing list of U.S. trade partners, from the European Union to Australia, who are seeking to overturn the provision. "This is obviously a serious matter and a serious concern to us," Mr. Harper told the House of Commons, adding that he had spoken about the matter with Canada's ambassador to the U.S., Michael Wilson.

South China Morning Post:

- Macau’s casino revenue fell for a fourth month in five, hurt by the global financial crisis and travel restrictions on mainland visitors. Casino revenue for most of this month dropped 30% to $901 million from January a year earlier.

Late Buy/Sell Recommendations
Citigroup:
- Downgraded (UA) to Sell, target $15.

Night Trading
Asian Indices are -1.50% to -.25% on average.
S&P 500 futures +.34%.
NASDAQ 100 futures +.02%.

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Company/EPS Estimate
- (ACI)/.39

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Economic Releases

8:30 am EST

- Advance 4Q GDP is estimated to fall 5.5% versus a .5% decline in 3Q.

- Advance 4Q Personal Consumption is estimated to fall 3.5% versus a 3.8% decline in 3Q.

- Advance 4Q GDP Price Index is estimated to rise .4% versus a 3.9% gain in 3Q.

- Advance 4Q Core PCE is estimated to rise 1.0% versus a 2.4% gain in 3Q.

- Advance 4Q Employment Cost Index is estimated to rise .7% versus a .7% increase in 3Q.

9:45 am EST

- Chicago Purchasing Manager for January is estimated to fall to 34.9 versus 35.1 in December.

10:00 am EST

- Final Univ. of Mich. Consumer Confidence for January is estimated at 61.9 versus a prior estimate of 61.9.

Upcoming Splits
- None of note

Other Potential Market Movers
- The World Economic Forum and NAPM-Milwaukee could also impact trading today.

BOTTOM LINE: Asian indices are lower, weighed down by financial and technology stocks in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Finish at Session Lows, Weighed Down by REIT, Financial, Semi and Insurance Shares

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In Play

Stocks Falling into Final Hour on Rising Long-Term Rates, Financial Sector Pessimism

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Retail longs and Financial longs. I added to my (IWM)/(QQQQ) hedges this morning and then covered them this afternoon, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, almost every sector is falling and volume is below average. Investor anxiety is above average. Today’s overall market action is bearish. The VIX is falling rising 7.03% and is very high at 42.45. The ISE Sentiment Index is below average at 122.0 and the total put/call is slightly above average at .94. Finally, the NYSE Arms has been running very high most of the day, hitting 3.88 at its intraday peak, and is currently 1.45. The Euro Financial Sector Credit Default Swap Index is rising 5.39% today to 114.67 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 rising 1.32% to 195.42 basis points. The TED spread is falling 5.21% to 95 basis points. The TED spread is now down 371 basis points in over three months. The 2-year swap spread is rising 8.22% to 59.25 basis points. The Libor-OIS spread is falling 1.25% to 94 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 13 basis points to 1.02%, which is down 168 basis points in over six months. 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 .23%, which is up 5 basis points today. Market-leading stocks are holding up relatively well. “Growth” stocks are again outperforming “value” shares. The AAII % Bulls fell to 25.27%, while the % Bears rose to 47.25% this week. I suspect the rise in gold and the 10-year yield is starting to bother the broad US stock market. Gold is likely rising on European buying as their economies and currency continue to weaken. The 10-year is supposedly falling on supply concerns. Economists expect US 4Q GDP, which is released tomorrow, to fall 5.5%. I suspect the decline in growth won’t be as bad as feared, which could also be pressuring bonds today. I expect the Fed’s quantitative easing initiative to kick into full gear on any meaningful rise in long-term rates from current levels. Volume has been light, with a high NYSE Arms reading, on today’s sell-off, which is a positive. Nikkei futures indicate a -175 open in Japan and DAX futures indicate a -22 open in Germany tomorrow. I expect US stocks to trade modestly lower into the close from current levels on more shorting, financial sector pessimism and rising long-term rates.

Today's Headlines

Bloomberg:

- European Central Bank President Jean-Claude Trichet said there’s no risk of Europe’s monetary union falling apart even as bond spreads between member states widen.

- A bill introduced by two senators today would subject hedge funds to regulation by the Securities and Exchange Commission, a requirement they said is necessary to protect investors and the U.S. financial system. The Hedge Fund Transparency Act, sponsored by Senator Carl Levin, a Michigan Democrat, and Charles Grassley, an Iowa Republican, would require hedge funds to register with the SEC, file an annual disclosure form, comply with SEC record-keeping standards and cooperate with SEC investigations.

- Exxon Mobil Corp.(XOM), coming off its worst share drop in 27 years, may be heading for its steepest profit decline since the 1999 merger that created the company. For Chief Executive Officer Rex Tillerson, it’s time to expand. Tillerson, starting his fourth year leading the world’s largest company by market value, said last month that he may increase capital spending by 20 percent this year to $30 billion. The increase will mark his biggest push to discover oil fields and boost fuel and chemicals production.

- German unemployment rose almost twice as much as forecast in January as an economic slump sparked by the global financial crisis spread to industries from cars to software. The number of people out of work rose by 56,000 in seasonally adjusted terms to 3.27 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast an increase of 30,000, according to the median of 33 estimates in a Bloomberg News survey. The adjusted jobless rate rose to 7.8 percent from 7.7 percent.

- European confidence in the economic outlook fell to the lowest on record in January as the region faces its worst recession since World War II, adding to arguments for the European Central Bank to cut interest rates further. An index of executive and consumer sentiment dropped to 68.9 from a revised 70.4 in December, the European Commission in Brussels said today. That is the lowest since the index was first published in 1985. Euro-area capacity utilization fell to 75.2 percent, the lowest since 1990, in the current quarter, the report showed. A combined 2.25 percentage-point rate cut from the central bank and hundreds of billions of euros in stimulus measures have failed to reverse a slump in confidence, and ECB President Jean- Claude Trichet has signaled another reduction is likely in March.

- Russell Clark, the portfolio manager at Horseman Capital Management LP whose emerging markets fund returned 14.6 percent last year, told clients that emerging- market stocks and bonds are likely to fall in 2009. Low interest rates and stimulus spending will add to excess production capacity, resulting in poor company earnings, Clark said in a letter sent to clients last week.

- The US dollar advanced the most in almost a week against the euro and the yen strengthened as U.S. reports showing durable goods orders dropped and the number of Americans receiving unemployment benefits soared to a record renewed the haven appeal of the currencies.

- The ruble had its biggest two-day drop in a decade against the dollar, less than a week after Prime Minister Vladimir Putin defended Russia’s policy of devaluing the currency “gradually and carefully.” The ruble fell to 34.9835 per dollar, the weakest since January 1998, bringing the two-day decline to 5.5 percent, after the central bank said foreign-exchange reserves fell $9.7 billion last week to $386.5 billion.

- Treasuries tumbled as the government sold a record $30 billion of five-year notes at a higher yield than forecast, indicating weak demand. The auction, which caps a week when the Treasury raised $78 billion in notes and bonds, may signal investors will have trouble absorbing the as-much-as $2.5 trillion in debt the U.S. is likely to issue this year to pay for a $1 trillion budget deficit and programs to spur the economy.

Wall Street Journal:

- The launch of a block-trading venue at the New York Stock Exchange marks the Big Board's latest effort to bring trades back to the exchange, while catering to a growing preference of investors to buy and sell shares without showing their hand or moving the market. Thursday marks the first day of operations at the New York Block Exchange, a joint venture between Big Board owner NYSE Euronext Inc. and BIDS Holdings LP, a trading firm whose owners include large banks and brokerages such as Citigroup Inc., Credit Suisse Group and Goldman Sachs Group Inc.

- In the latest sign of how the defense industry expects to resist the economic undertow, General Dynamics Corp.'s(GD) top official said he doesn't see the Obama administration cutting weapons programs that provide lots of manufacturing jobs.

- President Barack Obama's economic-stimulus legislation is headed for the Senate after a surprisingly partisan vote in the House of Representatives in which Republicans united in opposition and 11 mostly conservative Democrats defected.

- Gov. Rod Blagojevich vehemently insisted upon his innocence Thursday to Illinois state senators preparing to kick him out of office, saying, "I have done absolutely nothing wrong."

- U.S. President Barack Obama signed legislation into law Thursday making it easier for employees to sue for wage discrimination, a measure he said is an important step toward "fundamental fairness" for American workers.

CNBC.com:
- Millions of women who get an invasive test for Down Syndrome that carries a risk for miscarriage may soon have a safer alternative, with Harry Stylli, Sequenom(SQNM) CEO and CNBC's Mike Huckman. (video)

Rasmussen Reports:

- Public support for the economic recovery plan crafted by President Obama and congressional Democrats has slipped a bit over the past week. Forty-two percent (42%) of the nation’s likely voters now support the president’s plan, roughly one-third of which is tax cuts with the rest new government spending. The latest Rasmussen Reports national telephone survey shows that 39% are opposed to it and 19% are undecided.

Washington Post:

- A military judge in Guantanamo Bay has denied the Obama administration's request to delay proceedings for 120 days in the case of a detainee accused of planning the October 2000 attack on the USS Cole warship, an al-Qaeda strike that killed 17 service members and injured 50 others. The decision throws into some disarray the administration's plan to buy time as it reviews individual detainee cases as part of its plan to close the U.S. military prison at the Guantanamo naval base in Cuba. The Pentagon may now be forced to withdraw the charges against Abd al Rahim al-Nashiri, a Saudi citizen of Yemeni descent. In one of its first actions, the Obama administration instructed military prosecutors to seek 120-day suspensions of legal proceedings in the cases of 21 detainees who have been charged. There are approximately 245 prisoners held at Guantanamo.

- State regulators urged Congress on Thursday to restore their authority to protect investors from fraud in the banking sector and to beef up oversight of hedge funds. Hedge fund advisers should be subject to the same kind of scrutiny as investment advisers, the North American Securities Administrators Association told reporters. The NASAA said Congress should give the Securities and Exchange Commission explicit authority to regulate the $1.4 trillion industry, which has the potential to destabilize markets.

CNNMoney:

- Glenn Lurie knows Silicon Valley better than most telecom industry types. As AT&T's point man on the iPhone, he was the guy who camped out in Cupertino and hashed out the blockbuster iPhone launch with Apple. The next big game in his sights? The netbook. That's right, the netbook, that shrunken, low-priced laptop that lately has been a rare bright spot in the moribund PC industry. To hear Lurie tell it, AT&T's next hit phone might not be a phone at all, but a netbook with built-in Internet access that works anywhere you can get a cell signal. Get ready for the clincher: Sign up for a two-year contract, and you might get your new PC for $99 or less. The upshot is that the "free phone" phenomenon that helped make handsets ubiquitous in the U.S. isn't just for phones anymore.

Macworld:

- Intel(INTC) plans to detail an eight-core Xeon processor at the International Solid-State Circuits Conference in San Francisco next month, offering an early look at what appears to be the company's first eight-core chip.

Der Standard:

- Billionaire investor George Soros said the euro may not survive unless the European Union pushes for a global plan to deal with toxic debt, citing an interview.

Vedomosti:

- Russian rail cargoes may fall 33% in the first half of the year.

recast to "

Herald Sun:
- Google(GOOG) Australia is considering a plan to take on payments giants such as Visa(V), Mastercard(MA) and B-Pay in the booming online payments market. The move comes as the search giant secured a financial services licence from local regulators.

Haaretz:

- In the wake of Operation Cast Lead, a group of American university professors has for the first time launched a national campaign calling for an academic and cultural boycott of Israel. While Israeli academics have grown used to such news from Great Britain, where anti-Israel groups several times attempted to establish academic boycotts, the formation of the United States movement marks the first time that a national academic boycott movement has come out of America. Israeli professors are not sure yet how big of an impact the one-week-old movement will have, but started discussing the significance of and possible counteractions against the campaign.

Bear Radar

Style Underperformer:
Small-cap Value (-4.24%)

Sector Underperformers:
Semis (-7.36%), Homebuilders (-7.08%) and Insurance (-6.56%)

Stocks Falling on Unusual Volume:
AZN, UBS, SRDX, CTXS, PSSI, PLXS, LRCX, WBSN, QCOM, SCHW, OXPS, NSR, RPV, BDK, ZMH, FIC, ALL and ATK

Stocks With Unusual Put Option Activity:
1) TROW 2) SCHW 3) TXT 4) CCL 5) ALL

Bull Radar

Style Outperformer:
Large-cap Growth (-1.18%)

Sector Outperformers:
Education (+2.44%), Airlines (+1.12%) and Disk Drives (+.40%)

Stocks Rising on Unusual Volume:
GFI, SSRI, AEP, CL, CV, CLX, MO, RDS/A, HMY, SEPR, OTEX, LANC, ICLR, OSIS, SBNY, ODFL, SYMC, NFLX, AMLON, COCO, STEL, DDUP, GOLD, MELI, CVD, SYX, ALK, WDC, CAI and NTY

Stocks With Unusual Call Option Activity:
1) TXT 2) BSX 3) ZMH 4) ALL 5) SYMC