Thursday Watch

Late-Night Headlines
Bloomberg:

- The leaders of Britain’s market regulator told a parliamentary select committee that “revolutionary” changes in U.K. financial regulations will lead to significantly less proprietary trading by banks.

- Gold is the most favored investment this year ahead of investment-grade bonds and other assets, according to a survey of investment advisers, the producer-funded World Gold Council said.

- President Barack Obama will seek $75.5 billion more for combat operations in Iraq and Afghanistan through the end of this fiscal year, according to three people familiar with the request. It will be submitted along with the fiscal 2010 budget Obama sends to Congress tomorrow. That proposal will request $130 billion for the wars in fiscal 2010 in addition to a total Defense Department budget of about $534 billion, the people said.

- Singapore’s economy shrank the most in at least 33 years last quarter as plunging exports push Asian nations deeper into an economic slump and add pressure for the nation to weaken its currency. Gross domestic product declined an annualized 16.4 percent last quarter from the previous three months, after shrinking a revised 2.1 percent between July and September, the trade ministry said in a report today. The contraction was less than a Jan. 21 estimate of 16.9 percent. Singapore’s dollar fell as the trade ministry said the growth prospect is “weak” this year and that any recovery would likely be gradual. The economy has contracted for three straight quarters, sliding into recession along with Japan, Hong Kong and New Zealand, and manufacturers such as Creative Technology Ltd. are cutting jobs.

- U.S. Interior Secretary Ken Salazar is withdrawing leases the Bush administration offered for the extraction of oil from shale on federal land, and will develop a new plan with higher royalty rates. “We are not taking it off the table for the possibility of development but we are going to be thoughtful and deliberative,” Salazar said in a conference call with reporters. Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell Plc are among companies working on technology to extract the oil by heating the rocks. Oil-shale formations in western U.S. states could hold as many as 800 billion barrels of oil, according to a government estimate. The decision to delay the plan represents the third time Salazar has blocked or put off an energy initiative that former President George W. Bush backed. Salazar earlier this year pushed back a plan to expand drilling for oil and natural gas in the outer continental shelf. He also nullified oil and natural gas leases on about 130,000 acres in Utah. “Secretary Salazar is walking away from utilizing American’s energy resources to become less dependent on foreign countries,” said Representative Doc Hastings of Washington, the top Republican on the House Natural Resources Committee. Hastings said Salazar also was turning his back on jobs that could be generated from oil-shale development during the economic recession.

- Federal Reserve Chairman Ben S. Bernanke said accounting standard-setters need to figure out how the mark-to-market rule blamed for worsening the global financial crisis should be followed when assets aren’t readily traded. The rule, which requires companies to write down assets every quarter to reflect market value, is “a good principle in general” and shouldn’t be suspended entirely, Bernanke told the House Financial Services Committee today. “Accounting authorities have a great deal of work to do to try to figure out how to deal with some of these assets, which are not traded in liquid markets,” he said.

- Federal Reserve Chairman Ben S. Bernanke said while the U.S. government may take “substantial” stakes in Citigroup Inc. and other banks, it doesn’t plan a full- scale nationalization that wipes out stockholders. Nationalization is when the government “seizes” a company, “zeroes out the shareholders and begins to manage and run the bank, and we don’t plan anything like that,” Bernanke told lawmakers in Washington today.

- A top Senate Democrat scheduled a March 4 hearing on a proposed “truth and reconciliation” commission to investigate claims the Bush administration abused its power by authorizing torture and warrantless surveillance of suspected terrorists. In a floor speech, Judiciary Committee Chairman Patrick Leahy of Vermont announced plans for the hearing on his proposal last month for an independent, non-partisan commission. It would be authorized to probe allegations of abuse of executive power, including politicization of law enforcement decisions. Pennsylvania Senator Arlen Specter, the Judiciary Committee’s ranking Republican, said he opposes any “fishing expedition” that will be “expensive, lengthy and will file a report that at best will gather dust.” The Justice Department has the authority to investigate any possible criminal conduct, he said.

- Morgan Stanley(MS), recipient of $10 billion in government aid, won’t entertain clients or attend a U.S. PGA Tour event it sponsors in June amid criticism from U.S. lawmakers about banks’ corporate expenses. Morgan Stanley is the main sponsor for the Memorial Tournament, scheduled for June 4-7 in Dublin, Ohio. “We are not participating this year due to the environment,” Morgan Stanley spokeswoman Mary Claire Delaney said. She declined to elaborate on the statement.

- U.S. Treasury Secretary Timothy Geithner said that a government takeover of troubled banks is unnecessary for solving the country’s deepening economic and financial woes. Nationalization “is the wrong strategy for the country and I don’t think it’s the necessary strategy,” Geithner said, according to a transcript of an interview on public television’s “The News Hour with Jim Lehrer” to be broadcast later tonight.

- China’s human rights record worsened last year in areas that included harassment of dissidents and repression of ethnic minorities such as Tibetans, the State Department said today. Chinese authorities committed killings and torture outside the legal system, coerced confessions of prisoners and used forced labor, the department said in its 2008 report. The government also “increased detention and harassment of dissidents, petitioners, human rights defenders and defense lawyers,” the department said in the study.

- China investors should be “defensively positioned” as a decline in the nation’s tax receipts suggests a steeper slowdown in spending than retail sales figures show, according to Goldman Sachs Group Inc. “Tax data show much sharper deceleration in income and consumption in the past few months than suggested by official retail sales or income growth figures,” Goldman Sachs analysts Joshua Lu, Caroline Li and Fiona Lau wrote in a note today. Value-added tax has “de-linked sharply” from retail sales figures, the analysts wrote. VAT rose 1 percent in the fourth quarter from a year earlier, while retail sales gained 21 percent, according to the note. Growth in China’s individual income-tax receipts “slowed down significantly” in the second half and shrank in December and January, the analysts wrote. This compares with nominal wage growth of 21 percent in the third quarter, the report said. “We think the government’s fiscal stimulus package announced so far may help create jobs, but may not necessarily help boost wages which, in our view, is the key driver of consumption growth,” the note said. “As such we are not hopeful that China’s consumption slowdown will bottom out soon.”

- The yen fell to a three-month low against the US dollar before reports this week that may add to evidence Japan’s recession is deepening, reducing the appeal of its currency as a refuge from the global financial turmoil.

Wall Street Journal:

- The U.S. Commodity Futures Trading Commission has contacted United States Oil Fund LP (USO) and two futures exchanges about their positions in crude, a senior commission official told energy-information provider Platts on Wednesday.

- President Barack Obama will propose a combined $634 billion in upper-income tax increases and cuts to government health spending over 10 years to fund a new program aimed at getting health coverage to all Americans, a senior administration official said Wednesday. The spending cuts are aimed not just at raising money for the new program but also at curbing health-care spending overall, something that the president and many experts believe is critical to the nation's long-term financial health. The cuts would affect a range of interests, including managed care companies, prescription drug manufacturers and hospitals. The senior administration official who previewed the announcement acknowledged that $634 billion wouldn't be enough to pay for the ambitious health-care expansion that Mr. Obama and many Democrats envision. That project is estimated to cost more than $1 trillion over 10 years. Rather, the official described the proposed $634 billion as a "down payment" and said the administration would work with Congress to find the rest. The tax increase is a new proposal from Mr. Obama, one not offered during his presidential campaign, which would limit deductions for filers in the 33% and 35% tax brackets. Under current law, taxpayers who itemize calculate their deductions based on their income tax bracket. So a taxpayer who pays 35% of his income in taxes receives a tax benefit equal to 35% of various expenses deducted -- such as mortgage interest or charitable contributions -- from his taxable income. Under the Obama proposal, the benefit from these deductions would be limited to a maximum of 28% -- even for those taxpayers who are paying higher tax rates.

- Citigroup Inc.(C) is closing in on an agreement to boost the federal government's stake in the company to as much as 40%, according to people familiar with the situation. A deal could be announced as soon as Thursday. But a greater U.S. stake will bring a slew of new complications for executives of the New York company.

- Fidelity Investments' Capital Markets unit will be hiring "aggressively" in the coming months as it looks to capitalize on the depleting prime-brokerage operations of some large financial firms. In a Wednesday interview, Mark Haggerty, president of Fidelity Investments' Capital Markets Services, told Dow Jones Newswires that the unit will be looking to hire in equities, prime brokerage, munis and fixed income.

- The Obama administration, in unveiling details of its financial-rescue plan, laid out a dark economic scenario it expects banks to be able to withstand, the starting point for what could become a significant new infusion of government cash into the banking system.

MarketWatch.com:
- In a sign that record-high levels of payroll cuts may ease in coming months, the number of employers that said they plan to lay off workers dropped steeply in a new survey of 245 large U.S. firms. Thirteen percent of large companies said they are planning job cuts, down from 23% who said that in December and 26% in October, according to the survey conducted in mid-February by consulting firm Watson Wyatt.

CNBC.com:
- Executives of the biggest oil companies are taking their case for expanded offshore drilling to Congress, even as Democratic congressional leaders and the Obama administration promise to put some limits on energy development along the nation's coasts. The executives were testifying Wednesday before the House Natural Resources Committee.

Politico:

- Sen. Robert Byrd (D-W.Va.), the longest-serving Democratic senator, is criticizing President Obama’s appointment of White House “czars” to oversee federal policy, saying these executive positions amount to a power grab by the executive branch. In a letter to Obama on Wednesday, Byrd complained about Obama’s decision to create White House offices on health reform, urban affairs policy, and energy and climate change. Byrd said such positions “can threaten the Constitutional system of checks and balances. At the worst, White House staff have taken direction and control of programmatic areas that are the statutory responsibility of Senate-confirmed officials.” While it's rare for Byrd to criticize a president in his own party, Byrd is a stern constitutional scholar who has always stood up for the legislative branch in its role in checking the power of the White House.

Theday.com:

- Attorney General Eric Holder said Wednesday the Guantanamo detention center is a well-run, professional facility that will be difficult to close - but he's still going to do it. Holder visited the U.S. naval base at Guantanamo Bay, Cuba, on Monday and spoke to reporters about his trip during a news conference Wednesday. Closing Guantanamo, he said, "will not be an easy process. It's one we will do in a way that ensures that people are treated fairly and that the American people are kept safe." Sen. James Inhofe, R-Okla., who is trying to keep Guantanamo open, said he was encouraged by Holder's remarks. "I believe as more time goes by there is a chance the administration will grow to realize that we need Gitmo and must keep it open. More time will allow facts to replace political rhetoric," said Inhofe, who is pushing legislation seeking to bar any Guantanamo detainees from coming to the U.S.

Reuters:

- Intel Corp (INTC) is seeing some predictability return to the chip business this quarter but it is still unclear when the downturn will hit bottom, Chief Executive Paul Otellini said on Wednesday. "I think you have seen the global shock and now people are starting to figure out how to work out of it," he added. Earlier on Wednesday, Cisco Systems Inc (CSCO) Chief Executive John Chambers told the conference he expected business conditions to begin recovering around the end of 2009.

- Chinese spot steel prices fell 5.3 percent in a third consecutive weekly fall, on rising inventory after a much-anticipated demand recovery failed to materialize. Prices of China's benchmark hot-rolled coil fell to around 3,527 yuan ($515.9) a ton this week, from 3,665/3,785 quoted last week, data from Metal Bulletin showed. "Many mills are offering discounts to their list prices to reduce inventory as demand from end-customers is quite weak," said a trader.

- U.S. banking regulators are not pursuing nationalization of troubled institutions struggling to shed toxic assets from their balance sheets, the head of the chairman of the Federal Deposit Insurance Corp said on Wednesday. "Nationalization means different things for different people but nationalization is not the route we're pursuing now," FDIC Chairman Sheila Bair told reporters after speaking to a group of bankers in New York.

Sky News:

- Some European countries are in danger of defaulting on their obligations to the euro region, former Bundesbank President Karl Otto Pohl said. Euro-region countries that are most heavily borrowed and may be unable to serve their debt obligations could be considering leaving the single currency, Pohl said.

Hindustan Times:

- It’s here. After talking of a rebound, putting up with stagnation and offering freebies and discounts, developers hit by a demand crunch and economic slowdown are biting the real bullet, lowering prices in key apartment zones in or around Delhi, Mumbai, Bangalore and Hyderabad. Real-estate prices across the country have fallen by 10-40 per cent. And while prices vary depending on location, size, quality, amenities and time of possession, there are clear indications that the earlier price surge created by speculation and high growth has petered down. Developers are generally still not cutting prices of existing projects, but they face a market in which re-sales could do much the same thing.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (HS), target $21.

- Reiterated Sell on (UA), target $12.

Night Trading
Asian Indices are -.50% to +.75% on average.
S&P 500 futures +.26%.
NASDAQ 100 futures +.22%.

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Earnings of Note
Company/EPS Estimate
- (ESV)/2.05

- (WRC)/.16

- (DYN)/-.03

- (SHLD)/2.69

- (AMT)/.14

- (GM)/-7.46

- (BYD)/.13

- (NOVL)/.06

- (KSS)/1.02

- (ATHN)/.17

- (GPS)/.32

- (RDC)/1.08

- (SWY)/.81

- (PSA)/1.27

- (FTO)/.41

- (DELL)/.27

- (DECK)/3.94

Economic Releases

8:30 am EST

- Durable Goods Orders for January are estimated to fall 2.5% versus a 3.0% decline in December.

- Durables Ex Transports for January are estimated to fall 2.2% versus a 3.9% decline in December.

- Initial Jobless Claims for last week are estimated to fall to 625K versus 627K the prior week.

- Continuing Claims are estimated to rise to 5025K versus 4987K prior.

10:00 am EST

- New Home Sales for January are estimated to fall to 324K versus 331K in December.

Upcoming Splits
- None of note

Other Potential Market Movers
- President Obama releases his first budget proposal, weekly EIA natural gas inventory report, Jeffries Internet Conference, Robert Baird Business Conference, Goldman Tech & Internet Conference, Pacific Crest Technology Summit, (BKC) analyst meeting, (DF) investor day, (SFY) analyst meeting and the (PCG) analyst meeting 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 modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Finish Lower, Weighed Down by Construction, Transportation, HMO, Steel, Defense and Alternative Energy Shares

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In Play

Stocks Reversing Higher into Final Hour on Less Financial Sector Uncertainty, Diminishing Economic Fear, Short-Covering, Bargain-Hunting

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Internet longs, Medical longs, Retail longs and Computer longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above average. Investor anxiety is also above average. Today’s overall market action is bullish. The VIX is falling 3.52% and is very high at 43.76. The ISE Sentiment Index is below average at 110.0 and the total put/call is around average at .83. Finally, the NYSE Arms has been running around average most of the day, hitting 1.56 at its intraday peak, and is currently .70. The Euro Financial Sector Credit Default Swap Index is falling 8.01% today to 149.0 basis points. This index is now back below its high of 157.81 on Sept. 16^th. The North American Investment Grade Credit Default Swap Index is falling .99% to 218.80 basis points. The TED spread is rising .98% to 96 basis points. The TED spread is now down 371 basis points in about four months. The 2-year swap spread is falling .78% to 63.75 basis points. The Libor-OIS spread is falling .17% to 100.0 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is falling 1 basis point to 1.00%, which is down 171 basis points in about seven 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 .29%, which is down 1 basis point today. The sharp reversal higher in the (XLF), on volume, after investors heard more details on the bank “stress tests” is a large broad market positive. The Bank Index(BKX) is jumping 6.7%. Semi, Telecom, REIT, Education, Disk Drive and Energy stocks are also posting strong gains. Market leading stocks have been relatively strong throughout the day. Another large decline in gold and jump in the 10-year yield indicates fear is diminishing. Asia should see gains tonight. Nikkei futures indicate an +30 open in Japan and DAX futures indicate an +54 open in Germany tomorrow. I expect US stocks to trade modestly higher into the close from current levels on diminishing financial sector pessimism, short-covering, bargain-hunting and less extreme economic fear.

Today's Headlines

Bloomberg:

- Federal Reserve Chairman Ben S. Bernanke said there may be a benefit in resurrecting a rule that restricts short-selling stocks when share prices are falling amid the current bear market. “In the kind of environment we have seen more recently” the so-called uptick rule “might have had some benefit,” Bernanke said in testimony before the House Financial Services Committee today. The Standard & Poor’s index has tumbled 50 percent since the SEC dropped the uptick rule 16 months ago. New SEC Chairman Mary Schapiro said in January she may resurrect the provision.

- Washington’s respite from congressional pet projects known as earmarks appears to be over. President Barack Obama, who insisted on keeping his economic stimulus package free of money for lawmakers’ projects, may soon be faced with a bill stuffed with thousands of them. The U.S. House plans today to approve a $410 billion spending bill providing $7.7 billion for more than 8,500 special projects, according to Taxpayers for Common Sense, a Washington- based group that tracks earmarks.

- Goldman Sachs Group Inc.(GS), recipient of $10 billion of federal rescue funds, would be a buyer of assets if the U.S. government sets up a so-called “bad bank” to acquire toxic investments, an analyst said. “Goldman appears almost excited to participate in the bad- bank process,” Fox-Pitt Kelton Cochran Caronia Waller analyst David Trone wrote after meeting with Goldman Sachs Chief Financial Officer David Viniar yesterday. “We note Goldman’s highly successful investments in the energy space during the post-Enron meltdown.”

- Two officers of WG Trading, a broker- dealer based in Greenwich, Connecticut, were charged with conspiracy in what authorities called a $550 million securities- fraud scheme dating to 1996. The two, Paul Greenwood and Stephen Walsh, were among four suspects arrested today by the Federal Bureau of Investigation after three securities-fraud complaints were unsealed in U.S. District Court in New York, said Jim Margolin, an FBI spokesman.

- Regulators set a six-month deadline for the biggest 19 U.S. banks to raise any new capital deemed necessary after a review of their balance sheets. The regulators will complete their so-called stress tests by the end of next month, the Treasury said in a statement in Washington.

- Crude oil rose to a two-week high after a government report showed that U.S. gasoline inventories fell as refineries cut operating rates and demand strengthened.

- Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton Ltd., the world’s largest iron ore producers, may get 30 percent less for the raw material this year under annual contracts after a slump in steel demand.

- The yen is off to its worst start in nine years against the dollar as Japan’s tumbling exports and the fastest economic contraction since 1974 end a rally sparked by investors seeking a refuge from the financial crisis. The currency slumped 6.4 percent against the dollar this year as global stock markets extended 2008’s losses.

- The cost to protect against default by Citigroup Inc.(C) and Bank of America Corp.(BAC) declined for a second day after Federal Reserve Chairman Ben S. Bernanke downplayed fears of nationalization and President Barack Obama vowed to fix the banking system. Credit-default swaps protecting senior unsecured bonds sold by New York-based Citigroup dropped 25 basis points to 435 basis points, according to broker Phoenix Partners Group. The contracts rose to as high as 525 basis points yesterday before a rally. Contracts on Bank of America fell 10 basis points to 255 basis points after reaching 320 basis points yesterday, Phoenix prices show. San Francisco-based Wells Fargo & Co. fell 13 basis points to 217 basis points, according to CMA DataVision. Morgan Stanley declined 10 basis points to 382 basis points, CMA data show, and Goldman Sachs Group Inc. fell seven basis points to 285. In London, the Markit iTraxx Financial index of 25 European banks and insurers declined 13 basis points to 154 basis points, according to JPMorgan Chase & Co.

Wall Street Journal:

- A top U.S. House Democrat is warning of signs that Japan is considering steps to devalue its currency, a move that could hurt the ailing U.S. auto industry, and he urged President Barack Obama to step up pressure on the Japanese government. House Financial Services Chairman Barney Frank, D-Mass., echoing concerns of U.S. auto makers and their congressional allies, called on Obama this week to pressure Japan to resist the temptation to devalue the yen.

CNBC.com:
- Republican Representative Eric Cantor said Congress may respond to calls for action to relieve companies of accounting rules such as so-called mark-to-market. Cantor said there “is some appetite” for making the changes, which “wouldn’t cost the taxpayers any money.”

NY Times:

- Big Drug Makers May Seek to Fill Holes in Roster.

TradersMagazine.com:

- Trading industry experts said the passage of a new bill to tax each buy and sell transaction by up to 25 basis points would devastate liquidity in the equities market. The proposed House of Representatives' bill-H.R. 1068: Let Wall Street Pay for Wall Street's Bailout Act of 2009-would, they say, dramatically increase trading costs, widen bid-ask spreads, kill off high-frequency market making firms, slash volumes and move trading to overseas markets. The proposed bill would add 5 cents per share to the cost of trading an average stock, at around $20 a share.

Boston Herald.com:

- HBO on your PC? It could happen sooner than you think. Wary of the growing number of consumers watching TV shows online for free — and yet reluctant to upset viewers by yanking shows from the Internet — the nation’s largest cable operators are in talks with media conglomerates to take back control. They would create a platform to release cable TV shows online, but exclusively for paying subscribers.

The Detroit News:

- Negotiations between General Motors Corp. and its bondholders are progressing, with major investors signaling that they are now willing to accept less money than originally sought in exchange for forgiving billions in unsecured notes -- but only if the federal government guarantees the new debt.

Europa:

- State aid: Commission provides guidance for the treatment of impaired assets in the EU banking sector.

Cinco Dias:

- Repsol YPF SA, the Spanish oil company, will bid for contracts in Iraq as the government there seeks to boost oil output. The Iraqi government will offer engineering and construction contracts in as many as 19 oil fields this year and Repsol will seek to win a share of the business.

Interfax:

- Russia will soon sign a contract with Iran to supply nuclear fuel for at least 10 years, citing Sergei Kiriyenko, CEO of Rosatom Corp., Russia’s state-owned nuclear holding company.

Bear Radar

Style Underperformer:
Small-cap Value (-3.19%)

Sector Underperformers:
Airlines (-5.60%), HMOs (-5.60%) and Insurance (-4.93%)

Stocks Falling on Unusual Volume:
GMXR, LNC, CLF, TI, KNDL, FSLR, WYNN, ASTE, GTIV, FWLT, ODFL, SPWRB, AMED, ZN, HEI, HLF, CCH, RUK, CNP, CRT, AP, SJM and DWA

Stocks With Unusual Put Option Activity:
1) CI 2) MUR 3) FSLR 4) TEX 5) CF

Bull Radar

Style Outperformer:
Large-cap Growth (-2.04%)

Sector Outperformers:
Education (-.15%), Semis (-.32%) and Retail (-.76%)

Stocks Rising on Unusual Volume:
NEM, SSRI, KR, SWY, HPQ, KTC, FCX, JCOM, PZZA, TRMK, CPSI, APSG, DISCA, SXCI, EPIQ, DLTR, BCPC, MELI, CHSI, HURN, ONXX, SNDA, TNDM, HITT, CECO, LIHR, CRI, TFX, HRL, TYN, TRA and POR

Stocks With Unusual Call Option Activity:
1) LRCX 2) LLY 3) CBI 4) FSLR 5) RMBS