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Thursday Watch

Late-Night Headlines
Bloomberg:

- U.S. stocks are poised to rise because economic indicators are starting to improve, said Barton Biggs, managing partner at Traxis Partners LLC in New York. “There’s too much bearishness and the market is poised for a big, big rally,” said Biggs, whose Jan. 8 prediction that stocks would gain came two days after the Standard & Poor’s 500 Index reached its highest level this year. “We’re in the process of testing the lows.” Biggs said in an interview with Bloomberg Television that investors will continue to pull their money from hedge funds. Customers withdrew $74 billion last month from the largely unregulated investment vehicles that cater to wealthy individuals and institutions, according to a report from TrimTabs Investment Research. “Public and institutional investors are deeply wounded and are discouraged about equity investments,” Biggs said. Hedge funds “are going to be in a redemption mode for a considerable period of time.”

- Brazil stocks may drop in the “next few weeks” because valuations climbed too high given the outlook for a “very sharp” recession in Latin America’s biggest economy, according to Citigroup Inc.Brazilian shares trade for about 9.5 times estimated profits, above the long-term average price-to-earnings of 9, after the market rallied more than its developing-country peers since November, Citigroup strategist Geoffrey Dennis wrote in a research note dated yesterday. Investors should wait for the Bovespa to drop below 35,000 before they buy Brazilian stocks, he wrote.

- Kazakhstan’s credit risk is unjustifiably high and investors should instead buy “less expensive” Russian credit-default swaps to hedge against a default by the former Soviet republic’s government, UBS AG says.

- Hewlett-Packard Co.(HPQ), the world’s largest personal-computer maker, reported sales that missed analysts’ estimates and reduced its earnings forecast for the year. Hewlett-Packard, based in Palo Alto, California, fell 5.5 percent in extended trading to $32.22.

- Baidu.com Inc.(BIDU), operator of China’s most-used online search engine, posted a 31 percent increase in fourth-quarter profit after more of the nation’s citizens began using the Internet. The company’s ADRs rose $1.91, or 1.5 percent, to $130 in late trading.

- China’s stocks rally that’s made the Shanghai Composite Index the world’s best performer this year will falter as profits are “non-existent,” according to independent economist Andy Xie. The index is valued at 17.4 times earnings, the most expensive among the so-called BRIC markets of Brazil, Russia, India and China. The rally will run out of steam as “profits are non- existent and valuations are still expensive,” Xie, former chief Asian economist at Morgan Stanley, said in an interview yesterday. He correctly predicted in April 2007 that China’s stock market was a “bubble” and would burst. The Shanghai Composite peaked on Oct. 16 that year and tumbled more than 70 percent to its trough on Nov. 4, 2008, as the nation’s exports shrank and economic growth slowed. The rally has fueled concern that companies are using loans to speculate in stocks after new lending rose by a record 1.62 trillion yuan ($236 billion) in January as part of a government drive to boost the world’s third-largest economy. As much as 660 billion yuan of new lending may have been converted by companies into term deposits or used to buy equities, Li Huiyong, Shanghai-based analyst at Shenyin Wanguo, said in a phone interview this week. “It’s a rampant practice,” said Xie. “Here you are borrowing at 1.5 percent and the stock market rises, so you put your money into stocks and hope to get out after making 20 percent.”

- UBS AG(UBS), Switzerland’s largest bank, will pay $780 million to avoid U.S. prosecution and settle regulatory claims that it helped thousands of wealthy Americans use Swiss bank accounts to evade taxes. The Justice Department filed a criminal charge accusing UBS of conspiring to defraud the U.S. by helping 17,000 Americans hide accounts from the Internal Revenue Service. The government will drop the charge in 18 months if UBS makes reforms, helps prosecutors, and makes payments under accords with the Justice Department and Securities and Exchange Commission.
- Hong Kong luxury-home rents fell to a 2 1/2-year low last month because supply increased as owners opted to lease their apartments rather than sell, real estate agent Ricacorp Properties Ltd. said. Rents at 35 luxury apartment buildings dropped 22 percent from a year earlier to an average HK$25.70 ($3.30) a square foot per month, the lowest since June 2006, Ricacorp said in an e- mailed statement yesterday. The average rent fell 4.8 percent from December, the seventh straight month-on-month drop, it said.

- Indian earnings estimates for the next fiscal year may be cut another 25 percent, led by revisions for banks, as the economy weakens, Credit Suisse Group said. Analysts will probably double the one-quarter reduction in forecasts since November for the year starting April 1, as profit growth at banks, brokerages and developers falters, Credit Suisse analysts Nilesh Jasani and Arya Sen wrote in a report.

- U.S. brokerage regulators fined R. Allen Stanford’s firm more than a year ago for misleading investors while selling certificates of deposit, raising new questions about watchdogs already under scrutiny for missing Bernard Madoff’s alleged $50 billion Ponzi scheme. Stanford Group Co. was fined $10,000 by the Financial Industry Regulatory Authority in November 2007 for distributing marketing material that “failed to present fair and balanced treatment” of the risks associated with CDs. The U.S. Securities and Exchange Commission yesterday filed a civil lawsuit calling the sales by the Houston-based firm a “massive, ongoing fraud.” “From what we know, the problem that led to the fine was a red flag,” said Robert Hillman, a securities law professor at the University of California, Davis. “If you have a red flag of this nature, then you have to do something more than simply levy a fine and close the file.” SEC Chairman Mary Schapiro last month said she would “reinvigorate” the agency’s enforcement unit after it failed for more than a decade to detect that Madoff was paying off old investors with money raised from new ones. Schapiro was chief executive officer of Finra when the private regulator fined Stanford’s firm in 2007.

Wall Street Journal:

- Cisco Systems Inc. (CSCO) appears to be teaming up with VMware Inc. (VMW) for a plan to offer servers and expand its presence in the data-center market, an analyst said Wednesday.

- New research at Genentech Inc.(DNA) is challenging conventional thinking about Alzheimer's disease, providing a provocative theory about its cause and suggesting potential new targets for therapies to treat it.

- Descendants of John D. Rockefeller are leading a new shareholder campaign demanding Exxon Mobil Corp.(XOM) loosen its embrace of fossil fuels.

- A group representing General Motors Corp. bondholders fears that the auto maker's latest restructuring plan fails to address all the challenges facing the company and doesn't cut costs enough in light of the deteriorating economy, a person familiar with the bond negotiations said Wednesday.

NY Times:

- Gov. Kathleen Sebelius of Kansas, an early Obama ally with a record of working across party lines, is emerging as the president’s top choice for secretary of health and human services, advisers said Wednesday.

CNNMoney.com:
- Netflix(NFLX) defies the naysayers.

Politico:

- Sen. Roland Burris is rapidly losing any political support he once had among colleagues, with Democrats from the statehouse to the White House raising questions about his entanglements with ousted Illinois Gov. Rod Blagojevich.

Guardian:
- The UK government's multi-billion pound insurance scheme to ring-fence British banks' toxic assets and reboot lending to the recession-hit economy has run into a wall of opposition in the EU, the Guardian has learned. The European commission and several leading EU countries are understood to have objected that the UK proposals are a serious threat to competition and to the much-prized single market.

International Herald Tribune:

- North Korea said on Thursday it was ready for war with the South, just hours before U.S. Secretary of State Hillary Clinton was set to arrive in Seoul for talks on defusing the North's military threat. North Korea has repeatedly threatened in recent weeks to reduce the South to ashes. Pyongyang is thought to be readying its longest-range missile for launch in what analysts say is a bid to grab the new U.S. administration's attention and pressure Seoul to ease up on its hard line. "(The South Korean president's) group of traitors should never forget that the (North) Korean People's Army is fully ready for an all-out confrontation," the North's KCNA news agency quoted an unnamed military official as saying.

Sidney Morning Herald:

- Australia’s once-triumphant iron ore and coal miners face price cuts of between 30 and 50 per cent, which would slash export income by the equivalent of 4 per cent of gross domestic product and increase the likelihood of recession. Zou Jian, a director of the China Iron & Steel Association and head of the China Metallurgical Mines Association, told the Herald that benchmark iron ore price cuts of between 30 and 50 per cent would be "reasonable" - on top of eliminating a large "freight premium" handed to Australian miners last year.

The Standard:

- New World Development Ltd. and other Hong Kong builders are slashing prices of new residential projects as the economic recession reduces demand for new homes, citing the companies. New World has cut prices at its Wylie Court project in the Ho Man Tin district by as much as 40%. Asia Standard International Group sold 12 flats at its Jadewater project in Aberdeen last weekend after cutting prices by 40%.

Late Buy/Sell Recommendations
- None of note

Night Trading
Asian Indices are -.50% to +1.0% on average.
S&P 500 futures +.51%.
NASDAQ 100 futures +.11%.

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Earnings of Note
Company/EPS Estimate
- (HRL)/.51

- (B)/.11

- (PDE)/1.06

- (EXPE)/.24

- (PDCO)/.44

- (NBL)/.79

- (WMB)/.31

- (NEM)/.24

- (S)/-.04

- (CVS)/.69

- (APA)/1.26

- (RS)/.64

- (WBMD)/.29

- (MYL)/.14

- (OSIP)/.46

- (CECO)/.24

- (BUCY)/.91

- (INTU)/.27

- (XTO)/.78

Economic Releases

8:30 am EST

- The Producer Price Index for January is estimated to rise .3% versus a 1.9% decline in December.

- The PPI Ex Food & Energy for January is estimated to rise .1% versus a .2% gain in December.

- Initial Jobless Claims for last week are estimated to fall to 620K versus 623K the prior week.

- Continuing Claims are estimated to rise to 4830K versus 4810K prior.

10:00 am EST

- Leading Indicators for January are estimated unch. versus a .3% gain in December.

- The Philly Fed for February is estimated at -25.0 versus -24.3 in January.

11:00 am EST

- Bloomberg consensus estimates call for a weekly crude oil inventory build of +3,200,000 barrels versus a +4,717,000 barrel increase the prior week. Gasoline supplies are expected to fall by -500,000 barrels versus a -2,662,000 barrel decline the prior week. Distillate inventories are expected to fall by -1,500,000 barrels versus a -1,026,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to fall -.25% versus a -1.94% decline the prior week.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Lockhart speaking, weekly EIA natural gas inventory report, (PVTB) Investor Day, (AIPC) shareholders meeting, (SAFM) annual meeting(CBE$) annual outlook, Oppenheimer REITs/Real Estate Forum, CSFB Paper Conference, Piper Clean Tech Conference, (CR) analyst conference, Oppenheimer Semi Summit and CIBC Institutional Investor Conference could also impact trading today.

BOTTOM LINE: Asian indices are mostly higher, boosted by automaker 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 Slightly Lower, Weighed Down by Airline, Homebuilding and Steel Shares

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In Play

Stocks Mixed into Final Hour as Short-Covering Offsets Rising Economic Pessimism

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Internet longs, Education longs, Biotech longs and Commodity/Emerging Market shorts. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is below average. Investor anxiety is above average. Today’s overall market action is neutral. Nikkei futures indicate an +46 open in Japan and DAX futures indicate an +2 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, bargain-hunting and less extreme financial sector pessimism.

Today's Headlines

Bloomberg:

- Oil extracted from tar sands in Canada can be made a clean energy source, and the U.S. will work with its northern neighbor to develop the technology, President Barack Obama said. A joint effort by the U.S. and Canada, its biggest trading partner, on ways to capture and store carbon dioxide underground would “be good for everybody,” Obama said yesterday in an interview with the Canadian Broadcasting Corp. Conservationists on both sides of the border have called on Obama to reject any bid to exempt tar-sands oil from proposed climate-protection rules. Government officials in Canada say restrictions on oil-sands exports would increase U.S. dependence on oil from unfriendly countries.

- Crude oil for April delivery fell on speculation that a government report tomorrow will show U.S. supplies climbed for the 19th time in 21 weeks as the recession cuts demand. Prices for delivery in future months are higher than for earlier ones, a situation known as contango, allowing buyers to profit from hoarding oil. This has led to record stockpiles at Cushing, Oklahoma, where New York-traded West Texas Intermediate crude is delivered. Futures touched $32.40 on Dec. 19, the lowest since February 2004, after a report showed that Cushing stockpiles climbed 21 percent the week ended Dec. 12. “We have to closely watch the contract expiration on Friday because of the supply pressure at Cushing,” said John Kilduff, senior vice president of energy at MF Global Inc. in New York. “We are going to challenge December’s lows and then head into the $20s.”

- It takes only a few seconds to make history new again. Leaders around the world are talking up economic stimulus, channeling U.S. President Barack Obama, who in turn is channeling Franklin Delano Roosevelt. Obama bases his confidence on an old story line with some appealing parallels to today:

- Netflix Inc.(NFLX) may allow customers to pay solely for online-video streaming by late this year or 2010 as more viewers watch content directly from the Internet, Chief Executive Officer Reed Hastings said. The largest U.S. mail-order movie service has “millions” of its more than 10 million subscribers watching video online, and is investing more this year to expand its library available on the Internet. Netflix has more than 12,000 titles for immediate viewing, compared with 100,000 for DVD-by-mail.

- The Standard & Poor’s 500 Index may be bottoming as U.S. stocks approach the lows reached in November, say strategists who oversee $500 billion. The lowest U.S. equity prices relative to earnings in two decades and $787 billion in government spending and tax breaks will limit losses after the S&P 500 retreated for five of the last six weeks, according to Bob Doll, who helps manage $280 billion as chief investment officer for global equities at BlackRock Inc. James Paulsen, Wells Capital Management’s chief investment strategist, says the S&P 500 will rise after revisiting its November levels.

- New York Mayor Michael Bloomberg proposed creating a privately run fund to loan up to $250,000 to local start-up companies, among several plans to encourage entrepreneurship and attract new financial firms. The “angel fund” is one of 11 proposals to spur growth in the city’s financial services industry, Bloomberg said during the announcement at 160 Varick St., site of the first city-sponsored “business incubator,” with office space for about 100 entrepreneurs that costs about $200 a month.

Wall Street Journal:

- Even as many leisure travelers are cutting spending because of the bad economy, discount carrier Allegiant Airlines(ALGT) is adding new routes. Most traditional U.S. airlines, including low-fare carriers, posted losses in 2008 and are reducing their flights, but not Allegiant, a unit of Las Vegas-based Allegiant Travel Co. Based on its 11.1% operating margin, it was the most profitable U.S. airline last year. And on Wednesday, it plans to announce it will add Los Angeles to its roster of holiday destinations that can be reached nonstop from small U.S. cities.

- Seeking to combat stiffer competition from cheaper store brands, big-name food manufacturers, including Kraft Foods Inc.(KFT) and General Mills Inc.(GIS), are joining forces with retailers to promote their brands alongside private-label goods.

- Solar-Powered Cell Phones Spark Interest at Conference.

- Carly Fiorina: Small Businesses are Key to Economic Recovery.

- The Chicago Tribune and The Washington Post have called on Illinois Democratic Sen. Roland Burris to resign following revelations this week that he tried to raise funds for impeached Illinois Gov. Rod Blagojevich after he had testified otherwise during the governor’s impeachment proceedings.

- Hedge-funds outflows totaled an estimated $74 billion in January, the second-highest ever, though the amount is seen slowing as the funds' assets continue to shrink, according to data-tracker TrimTabs. Hedge-fund investors have taken out $315 billion since September, TrimTabs said, but it expects outflows to slow in February, mainly because the funds' asset base has shrunk by half in eight months. Event-driven funds posted the biggest outflows in January, at $19.8 billion. Merger-arbitrage funds were the only ones to report inflows, totaling $2 billion.

- The Obama administration announced new plans Wednesday to make it easier for up to nine million people to rework or refinance their mortgages, as the White House began an aggressive effort to stabilize the housing market.

- Asia is likely to have 7.2 million more jobless people in 2009 than last year due to fallout from the global economic crisis, the International Labor Organization said. It forecast the ranks of unemployed workers would likely balloon to 97 million in 2009 in Asia, the world economy's star performer in recent years but where a third of the population still live on a little more than $1 a day. That would raise the region's jobless rate to 5.1% from 4.8% last year. In the most pessimistic scenario, the number of unemployed could swell to 113 million, or 22.3 million more than last year, the ILO said in a report on the crisis's fallout in Asia.

CNBC.com:
- Tough times on Wall Street are reaching all the way to the highest levels of the most storied former investment bank—Goldman Sachs(GS)—as partners there are being forced to borrow money to cover margin calls, according to sources within the firm. Several Goldman Sachs partners have leveraged their Goldman Sachs stock to buy alternative investments such as hedge funds & private equity, and they have done so through their Goldman Sachs brokerage accounts.

NY Times:

- As interest in cleaning up power generation grows around the country, Alaska is fast becoming a testing ground for new technologies and an unlikely experiment in oil-state support for renewable energy. Alaskans once cast a wary eye on anything smacking of environmentalism, but today they are investing heavily in green power, not so much to reduce emissions as to save cash. Advocates of renewable energy here say Alaska, with its windy coasts, untapped rivers and huge tidal and wave resources, could quickly become a national leader. The state already generates 24 percent of its electricity from renewable sources — almost exclusively hydroelectric — and Ms. Palin last month announced a goal of 50 percent by 2025.

- Three lawmakers said Tuesday that they were returning campaign contributions from donors listed as employees of the PMA Group, a Washington lobbying firm whose founder is under investigation for purportedly funneling money through bogus donors. The decision by the three lawmakers — Senator Bill Nelson of Florida, and Representatives Zoe Lofgren of California and Peter J. Visclosky of Indiana, all Democrats — puts new pressure on others who received cash from the PMA Group and its founder, Paul Magliocchetti. Other big beneficiaries include Representative John P. Murtha, the Pennsylvania Democrat who is chairman of the House defense appropriations subcommittee; Representative James P. Moran, a Virginia Democrat on the panel; and Representative Alan B. Mollohan, the West Virginia Democrat who is chairman of the appropriations subcommittee that oversees the National Aeronautics and Space Administration, among other things.

- Some Marketers Using Tattoos to Advertise.

Atlanta Journal Constitution:

- Coca-Cola Co.(KO) plans to try out a new fountain machine that can dispense more than 100 different beverages, using restaurants in Atlanta and Orange County, Calif., as the test sites.

Chicago Tribune:

- ESL Investments Inc., the hedge-fund firm run by Sears Holdings Corp. Chairman Edward Lampert, more than doubled its stake in CIT Group Inc.(CIT) in the fourth quarter, according to a filing with the Securities and Exchange Commission. ESL owned 15.4 million shares of CIT as of Dec. 31, according to Tuesday's filing, up from 7.3 million in the third quarter. The Greenwich, Conn.-based hedge fund also bought 11.5 million shares of Genworth Financial Inc.(GNW).

TechCrunch:

- Google(GOOG) saw healthy growth in the number of search queries on its core U.S. search engine in January, according to comScore qSearch numbers that came out last night. Google’s query growth rate was 38.4 percent, compared to January, 2008, outpacing the industry’s overall 28.6 percent growth in search queries. Any way you slice it, people are still doing more and more searches, which suggests that the search market is far from saturated.

Rasmussen Reports:

- General Motors and Chrysler are back this week seeking $22 billion more in federal help, but 64% of U.S. voters are opposed to providing any additional taxpayer-backed loans for the embattled automakers. Twenty-four percent (24%) support more loans for GM and Chrysler, and 11% are undecided in a new Rasmussen Reports national telephone survey.

Politico:

- In three months since Election Day, at least a half-dozen prominent journalists have taken jobs working for the federal government. Journalists, including some of those who’ve jumped ship, say it’s better to have a solid job in government than a shaky job — or none at all — in an industry that’s fading fast. But conservative critics answer with a question: Would journalists be making the same career choices if John McCain had beaten Barack Obama in November?

Financial Times:
- John Deere(DE), the world’s biggest maker of tractors and other farm machinery, said on Wednesday that demand for agricultural equipment would fall by up to 25 per cent this year in emerging economies as farmers find it increasingly difficult to access credit.

Bear Radar

Style Underperformer:
Small-cap Value (-1.82%)

Sector Underperformers:
Airlines (-5.42%), Homebuilders (-3.72%) and Steel (-3.70%)

Stocks Falling on Unusual Volume:
FTO, IBOC, WNR, CEG, CCI, BT, AYE, PBR, CPTS, AXYS, CMCSK, EQIX, CRT, HOS and MTA

Stocks With Unusual Put Option Activity:
1) LDK 2) AEM 3) UPL 4) NBR 5) DD