Friday Watch

Evening Headlines
Bloomberg:

• Junk Bond Market 'Back Open' as Sales Soar, Spreads Shrink: Credit Markets. The market for junk bonds is reviving, after at least seven companies pulled sales last week, signaling that investors are gaining confidence that Europe’s sovereign debt crisis won’t infect the global economy. International Lease Finance Corp. and Clearwire Corp. led speculative-grade companies set to sell $2.4 billion of debt today, the most in two weeks, according to data compiled by Bloomberg. Relative yields have narrowed 29 basis points since Nov. 30 to 593 basis points, or 5.93 percentage points. That’s the biggest two-day decline since May. Junk bond issuance, which declined in November following the busiest two-month period on record, is returning amid reports that retail sales rose the most since March and the increase in the number of Americans signing contracts to buy existing houses jumped by a record 10 percent in October. The European Central Bank extended an emergency loan program and President Jean-Claude Trichet pledged to fight “acute” financial market tensions.
  
• Greece's Credit Rating May Be Cut by S&P on EU Rules. Greece was warned it could receive a lower credit rating from Standard & Poor’s as proposed European Union rules threaten to hurt bondholders. Greece’s ‘BB+’ long-term sovereign rating was placed on “CreditWatch” with negative implications, Standard & Poor’s Ratings Services said in a statement today from Madrid. S&P said it is assessing credit implications of the so-called European Stability Mechanism that may govern European Union sovereign bonds beginning in July 2013. “Assigning ‘preferred creditor’ status to future official lending via the ESM could be detrimental to the ability of non- official holders of sovereign debt to be repaid,” S&P said. The possible cut by S&P “is simply an indication of tightening liquidity conditions there and growing uncertainty about Greece and other front-line European countries’ ability to handle their debt loads,” said Gary Schlossberg, senior economist at Wells Capital Management Inc. in San Francisco. “It is also an indication of the questions that remain about how sufficient official rescue packages will be,” Schlossberg said. “There’s a real risk that Europe’s crisis will get a bit worse before it gets better.”
• Germany rejected issuing joint Eurobonds or increasing the euro-area bailout fund as Deputy Finance Minister Joerg Asmussen dismissed calls for authorities to step up efforts to fight the resurgent debt crisis. "It's more disturbing to markets if you signal things which are not needed and which are not requested," Asmussen said. "So even if, what I don't see, even if more countries approach the assistance mechanism, there are sufficient funds to deal with this." "If you introduce just Eurobonds as a financial instrument but you don't adjust the whole fiscal framework of the monetary union, then you have just an instrument but it doesn't fit with the rest of the government structures," he said. "So there is a clear 'no' from Germany to this kind of Eurobonds."
• U.S. Senate to Vote on Four Income-Tax Cut Proposals Tomorrow, Harkin Says. The U.S. Senate will vote tomorrow on four proposals for extending income-tax cuts, two offered by each party, Democratic Senator Tom Harkin of Iowa said tonight.
• North Korea Boosts Rockets, Tanks; May Target Seoul, Yonhap Says. North Korea has increased the number of multiple rocket launchers, bolstering its capability to attack South Korea’s capital, Yonhap News reported, citing a South Korean government official it didn’t identify. North Korea has more than 5,200 240-millimeter multiple rocket launchers, 100 more than previously estimated, Yonhap reported. North Korea has also increased the number of tanks by 200 and the country’s air force has bolstered its capability to intercept planes, Yonhap said.
• Seagate(STX) Said to Have Spurned Takeover Proposal From Rival Western Digital. Seagate Technology Plc, the disk- drive maker that ended takeover talks with TPG Capital, also turned down a proposal from competitor Western Digital Corp., according to two people with knowledge of the matter.
• Senate Leadership Accused of Secret Plan to Legalize U.S. Online Gambling. Three U.S. House Republicans are objecting to what they call a “secretive, closed-door, undemocratic” effort in the Senate to pass legislation that would legalize and tax some Internet gambling before Congress adjourns this year. “Creating a federal right to gamble that has never existed in our country’s history and imposing an unprecedented new tax regime on such activity require careful deliberation, not back- room deals,” the lawmakers said in a Dec. 1 letter to Senate Majority Leader Representatives Spencer Bachus, Dave Camp and Lamar Smith, all in line to be committee chairmen with oversight of online gambling when Republicans take control of the House in January, said they have learned that the Senate may attach a measure to “must-pass” legislation during the current lame-duck session.Harry Reid and his Republican counterpart, Mitch McConnell of Kentucky.
• China is 'Scared' of U.S. Monetary Policy, Rogoff, Rickards Say. Policy makers in China, which holds $883.5 billion in U.S. Treasuries, are concerned the nation with the world’s biggest economy is debasing its currency, according to Kenneth S. Rogoff and James Rickards. The world is in the early stages of a currency war, said Rickards, chief financial and administrative officer of Oro Capital Advisors LLC. Rickards, Rogoff, a professor of economics and public policy at Harvard University, and Laurence H. Meyer, co-founder of Macroeconomic Advisers LLC, spoke today at the Bloomberg Hedge Funds 2010 conference in New York.
• China's Services Industry Grows at Slower Pace as Inflation Erodes Margins. China’s non-manufacturing purchasing managers’ index fell to a nine-month low in November as accelerating inflation eroded service companies’ margins. The index dropped to 53.2 from 60.5 in October, according to a statement today by the Beijing-based National Bureau of Statistics and the Federation of Logistics and Purchasing. A separate service PMI released by HSBC Holdings Plc fell to 53.1, a near two-year low. The non-manufacturing new-order index fell to 50.1 last month from 56.3 in October, and new orders in consumer service industries indicated a contraction, with a reading of 47, today’s data show. Consumer prices gained 4.4 percent in October from a year earlier as food prices jumped 10 percent, according to statistics bureau data.
• China Needs to Raise Deposit Rates to 12-Year High on Inflation, Xie Says. China has to raise deposit rates by “at least” 3 percentage points in the next 12 months to protect investors faced with a negative return on their savings as inflation accelerates, independent economist Andy Xie said. A 300 basis point increase would raise the benchmark deposit rate from 2.5 percent to 5.5 percent, the highest since March 1998. Consumer prices will quicken to 6.2 percent by mid- 2011 after climbing 4.4 percent in October, according to Credit Suisse Group AG.

Wall Street Journal:

• Tax-Cut Vote Shows Democratic Divide. House Passes Extension Excluding Higher Incomes, a Largely Symbolic Effort Reflecting Unhappiness With White House. The bill passed 234-188, but 20 Democrats opposed it— mostly lawmakers who lost on Election Day and who agree with Republicans that it is bad policy to let any tax rates rise amid a fragile economy. Three Republicans voted for the bill.
• Shopper Splurge Buoys Hopes. Retailers' reports of robust November sales offered more evidence that the lackluster U.S. economy may finally be gaining momentum, despite stubbornly high unemployment. According to 27 retailers tracked by Thomson Reuters, sales at stores open a year or more rose 6% last month, sharply exceeding a year-earlier rise of just 0.5%. Online retailing also showed sizable gains. "It's a cheerful holiday start—for most," said Alison Kenny Paul, vice chairman and leader of the U.S. retail team at Deloitte Consulting LLP. "People are back in spirit, shaking off the recession and spending on themselves, as well as for gifts."
• Government by Executive Order. A new Labor Department plan shows the president still has wide power to implement an anti-business agenda. Because President Obama will now have a tough time getting his liberal agenda through a more Republican Congress, many Democrats are urging him to ram it through using the executive branch's unilateral power. John Podesta, head of the Center for American Progress, even issued a list of executive orders and rule-makings last month that Mr. Obama can use to "push the country to a better place." If the Department of Labor is representative, his advice is in sync with moves already under way.
• Tax Breaks for Bailout Recipients Stir Up Debate. A series of tax relief measures is saving companies bailed out by the government billions of dollars at a time when concern over tax revenues has risen.
• Ellison Says Oracle(ORCL) Will 'Go After' H-P(HPQ). Oracle Corp. will use new hardware to attack onetime partner Hewlett-Packard Co. in the market for server systems, said Oracle Chief Executive Larry Ellison. The jibe Thursday came as Oracle announced new computers based on the Sparc chip technology developed by Sun Microsystems—which Oracle acquired in January for $7.4 billion—as well as updates to other products.
• Amazon(AMZN) Says WikiLeaks Violated Terms of Service. It was "inaccurate" to claim that pressure from the U.S. government or large-scale attacks by hackers caused the company to discontinue its service of WikiLeaks, said Amazon spokesman Drew Herdener in a statement. Amazon, which rents Web infrastructure on a self-service basis, "does not pre-screen its customers" but does reserve the right to discontinue service if its terms aren't followed, said Mr. Herdener. WikiLeaks "doesn't own or otherwise control all the rights to this classified content," one of the stipulations of Amazon's contractual terms, he said. Mr. Herdener said that Amazon's terms of service also require that content "will not cause injury to any person or entity." Yet he said "it is not credible that the extraordinary volume of 250,000 classified documents that WikiLeaks is publishing could have been carefully redacted in such a way as to ensure that they weren't putting innocent people in jeopardy." Mr. Herdener said Amazon did face "large-scale" attacks on its servers after it began hosting WikiLeaks content recently, but that they were "successfully defended against."
• Twitter Grows Up In Valuation, Board Count. Twitter Inc. is considering raising capital at a valuation of more than $3 billion, said a person familiar with the matter, as it becomes the latest Web start-up to attract multibillion-dollar valuations. Possible investors in the four-year-old microblogging service include the Russian Internet investment firm Digital Sky Technologies and Silicon Valley venture-capital firm Kleiner Perkins Caufield & Byers, said the person familiar with the matter.
• French Officials Warn Against Bank-Run Proposal. Bankers and politicians warned against a plan inspired by French former football star Eric Cantona to spark a bank run next week, saying that such a move would be counterproductive. The plan—which calls on depositors to remove their money from banks on Tuesday—has attracted increasing attention in recent days, drawing comments from French financial leaders.
• U.S.-Korea Pact Hinges on Autos. U.S. and South Korean negotiators meeting to revive a stalled trade pact are down to one main sticking point, say people familiar with this week's negotiations—leaving the biggest U.S. free-trade deal in nearly two decades hinging on an economically negligible but politically potent issue. The deal now comes down to whether South Korea will agree to give the U.S. four or five years to phase out the 2.5% tariff it levies on Korean-built cars, these people say, rather than cutting the tariff immediately, as Seoul has sought.
• Holdings Spiked Near Deal Time. Several hedge funds under scrutiny in an insider-trading investigation made big bets on health-care stocks also being examined in the probe, according to a Wall Street Journal analysis. Hedge funds SAC Capital Advisors LP, Diamondback Capital Management LP, Jana Partners LLC and Balyasny Asset Management LP all increased their holdings in one or more of three health-care stocks during the quarters in which the companies announced mergers and the stock shot up in price, according to public filings. It wasn't clear from the filings whether the purchases took place before or after the deals were unveiled.

Bloomberg Businessweek:

• Europe Tops Hedge Funds' Worries as Portugal at Risk. David Gerstenhaber, founder of $1.6 billion hedge fund Argonaut Capital Management, said Portugal may be the next casualty of Europe’s debt crisis. “Portugal is structurally weak,” he said in a telephone interview from New York. “There’s a 90 percent chance that they will get some form of help” to keep concern over the country’s creditworthiness from spreading to Spain and Italy, he said. Gerstenhaber, 50, is among hedge-fund managers who say Europe’s debt woes pose one of the biggest risks to a global economic outlook that has only gradually improved this year.
  

Business Insider:

• The Key Market-Based Indicators Point To Inflation And Growth. (graph)
  

Zero Hedge:

• Julian Assange Arrest By British Police Delayed By Technicality. The noose around Wikileaks' Julian Assange is tightening. It appears that not only does British police know where he is, but that he himself is currently residing in South-east England, awaiting his own arrest.
• Paolo Pellegrini Is Coming Back As A Quant, Laments Loss Of Traditional Investment Thought In A Fed-Dominated World. It appears Paolo Pellegrini, the brains behind Paulson & Co. most profitable trade, is coming back... as a quant.
• Was JPM's(JPM) October 2008 Redemption From Madoff On Concerns Of Fraud The Reason For The Ponzi's Implosion?
  

NY Times:

• Cross Section of Rich Invested With The Fed.

IBD:

• Web Hosting Service Sticks Its Head High In The Cloud. "You trade some flexibility for a whole lot more affordable, efficient solution," said Lanham Napier, CEO of Rackspace Hosting (RAX).

Forbes:

• Names You Need to Know in 2011.

Charlotte Observer:

• Democrat Webb Unhappy With Ban on Offshore Drilling. North Carolina's neighbor to the north, U.S. Sen. Jim Webb of Virginia, isn't happy about cutting off the Atlantic Ocean to offshore drilling for oil and natural gas. Webb, a Democrat, said in a statement today that the Obama administration has "over-reacted" to the BP oil spill. "A much more sensible response could have been found in making sure that industry employ the best technology and proper safeguards, and that government take more seriously its oversight role in order to make this happen," Webb said. "Enhancing our nation's energy independence and answering our emerging energy needs demand that we keep all options on the table, including conservation, renewable energy and energy efficiency, domestic offshore oil and gas development, clean coal, and nuclear power," he said. The Obama administration announced Wednesday that it was taking the Atlantic Ocean off the table for offshore drilling until at least 2017.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Thirty-nine percent (39%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -17 (see trends).

Politico:

• House Censures Charles Rangel by Overwhelming Vote. The House voted overwhelmingly on Thursday to censure Rep. Charlie Rangel (D-N.Y.), who pleaded for leniency but now finds his 40-year career tarnished after his colleagues rebuked him using a rare form of public punishment for ethics violations. The vote was 333-79, with 77 Democrats and two Republicans voting against censure, the harshest form of punishment short of expulsion from Congress. Immediately following the vote, Speaker Nancy Pelosi (D-Calif.) formally called on the 80-year-old Rangel to stand in the well of the House to be informed that he had indeed been censured by his colleagues for series of 11 ethics violations.
• Joe Barton: I'll Work to Repeal Obamacare. Rep. Joe Barton wants House Republicans to work overtime — including weekends — next year to roll back the Obama administration’s health care and environmental policies.
  

Reuters:

• Viacom(VIA/B) CEO Sees Ad Market Improving. Viacom Chief Executive Philippe Dauman is bullish on advertising revenue growth for this quarter and next year as high ratings from shows like "Jersey Shore" help bring in new advertisers.
• EXCLUSIVE - Email of Analyst Visited by FBI Went to Big Players. Money manager Ameriprise Financial would seem to have little in common with closely held investment advisory firms like Friess Associates and Sonar Capital Management or a giant hedge fund like Citadel Group. Yet a Portland, Oregon-based technology analyst under scrutiny in a U.S. insider trading probe included employees of all three firms in an unusual email he sent in late October, according to information reviewed by Reuters. The research analyst, John Kinnucan, told an eclectic list of industry contacts that two agents with the Federal Bureau of Investigation had recently visited him in connection with the investigation. In the email, sent to more than 50 people associated with some 20 hedge funds and mutual funds, Kinnucan said he had rebuffed a demand by the FBI that he cooperate with the inquiry and secretly record conversations with a client, said people familiar with the situation. Kinnucan's email, which included the names of industry contacts and their company email addresses, has unnerved many on Wall Street. There is a fear that by simply being a recipient on the email, federal authorities may take notice and come visit these contacts too. Employees of Ameriprise, Delaware-based Friess Associates and Boston-based Sonar Capital and MFS Investment Management, were some of the recipients of the Kinnucan email. Some of the better-known hedge funds -- Coatue Management, Citadel, SAC Capital Advisors and Maverick Capital -- also employ analysts and traders who received the email.
• U.S. Commercial Property Values Up 2% in November. U.S. commercial real estate prices rose 2 percent in November and are up 32 percent from their recent lows as investors flock to higher-yield investments, according to independent research firm Green Street Advisors. That means about half the value that was wiped out from 2007 to 2009 has been restored, leaving prices 19 percent shy of their peak, according to The Green Street Advisors Commercial Property Price Index.

Financial Times:

• Spain's banking restructuring fund plans to raise 2 billion euros by issuing bonds in the next few months, citing bankers in Madrid. The Fund for Orderly Bank Restructuring has already raised 3 billion euros in bonds and seeks further funds as it makes loans to the country's savings banks.
• Petr Aven, a founding owner of Alfa Bank, said the investment climate in Russia is deteriorating, citing an interview with Aven. "Economically, we are returning to Soviet times again," Aven said.
  

Telegraph:

• UK Banks Borrowed More Than £640bn from US Federal Reserve. British banks borrowed more than $1 trillion (£640bn) from the Federal Reserve during the financial crisis, led by Barclays following its swoop on the US business of Lehman Brothers.

Australian Review:

• The Reserve Bank of Australia borrowed $53 billion from the Federal Reserve in 10 transactions during the financial crisis, citing the U.S. central bank. The RBA drew on a currency-swap facility to assist its domestic banks.

South China Morning Post:

• Steep Drop in Property Sales Seen Next Year. Property sales in Hong Kong will drop sharply next year as the government's measures against speculation start to bite, a leading property agency says.

Evening Recommendations
Citigroup:

• Reiterated Buy on (PVH), target $76.

Night Trading

• Asian equity indices are unch. to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 109.0 -1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 109.25 -.75 basis point.
  
• S&P 500 futures -.17%
  
• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (BIG)/.24
• (BTH)/.18
  

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for November is estimated at 150K versus 151K in October.
• The Change in Private Payrolls for November is estimated at 158K versus 159K in October.
• The Unemployment Rate for November is estimated at 9.6% versus 9.6% in October.
• Average Hourly Earnings for November are estimated to rise .2% versus a .2% gain in October.
  

10:00 am EST

• ISM Non-Manufacturing for November is estimated to rise to 54.8 versus 54.3 in October.
• Factory Orders for October are estimated to fall -1.2% versus a +2.1% gain in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The (SON) analyst meeting and (ITW) investor day could also impact trading today.
  

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

Stocks Surging into Final Hour on Diminishing Eurozone Debt Angst, Less Economic Fear, Declining Financial Sector Pessimisim, Seasonal Strength

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Slightly Around Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 19.55 -8.47%
  
• ISE Sentiment Index 192.0 +28.0%
  
• Total Put/Call .68 -7.40%
  
• NYSE Arms .46 +76.76%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 92.83 bps -3.55%
  
• European Financial Sector CDS Index 122.06 bps -12.08%
  
• Western Europe Sovereign Debt CDS Index 180.83 bps -6.55%
  
• Emerging Market CDS Index 221.81 bps -3.43%
  
• 2-Year Swap Spread 25.0 -2 bps
  
• TED Spread 16.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 245.0 +1 bp
  
• China Import Iron Ore Spot $167.80/Metric Tonne unch.
  
• Citi US Economic Surprise Index +20.60 -1.1 points
  
• 10-Year TIPS Spread 2.19% +3 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +137 open in Japan
• DAX Futures: Indicating +3 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Medical, Retail, Ag and Technology long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades substantially higher despite some disappointment over the ECB's announced actions to stem their debt contagion. On the positive side, Coal, Disk Drive, Bank, I-Banking, Construction, Homebuilding, Road & Rail, Semi, Computer Hardware, Software and Paper shares are especially strong, rising more than 2.0%. Cyclical shares are outperforming again. (XLF) has strongly outperformed throughout the day. The Transports are clearly breaking out again. Copper is rising +.67% and lumber is gaining another +.40%. The Spain sovereign cds is plunging another -6.24% to 296.84 bps, the Italy sovereign cds is dropping -4.87% to 217.26 bps, the Portugal sovereign cds is falling -5.67% to 448.30 bps and the Ireland sovereign cds is falling -3.64% to 542.50 bps. The large declines in the euro financial sector cds and western europe sovereign cds indices are also major positives. On the negative side, Gaming, Airline, Food and Tobacco shares are mildly lower. One of my longs, (AAPL), is slowly grinding back near its all-time high of $321.30. I expect it to convincingly break above this level in the short-term and still move much higher over the intermediate/long-term on p/e multiple expansion, new products and forward estimate increases. Another one of my longs, (SXCI), is jumping +12.0% to an all-time high on volume with the announcement of an accretive acquisition. I also still see substantial upside in this stock over the intermediate/long-term. I am seeing a number of small/mid-cap stocks experiencing technical breakouts on decent volume which bodes well for further upside in the major averages after a brief pause. I expect US stocks to trade mixed-to-higher into the close from current levels on falling eurozone sovereign debt angst, declining economic fear, seasonal strength, investment manager performance angst, short-covering, less financial sector pessimism and technical buying.

Bear Radar

Style Underperformer:

• Small-Cap Value (+.97%)

Sector Underperformers:

• 1) Tobacco -1.30% 2) Gaming -.81% 3) Airlines -.60%

Stocks Falling on Unusual Volume:

• ARO, KR, SWY, ZUMZ, UVV, CISG, UTIW, ITRI, TSLA, IMAX and AWR
  

Stocks With Unusual Put Option Activity:

• 1) OREX 2) SWC 3) TSN 4) CLWR 5) ARO
  

Stocks With Most Negative News Mentions:

• 1) SAFM 2) LH 3) AMZN 4) TASR 5) ADM
  

Bull Radar

Style Outperformer:

• Mid-Cap Value (+1.22%)

Sector Outperformers:

• 1) Banks +3.60% 2) Homebuilders +3.05% 3) I-Banks +2.34%

Stocks Rising on Unusual Volume:

• SWC, STD, AIXG, PHG, WFC, TMX, BHP, REP, PSS, ANF, WMS, CASY, OXPS, PNFP, ZEUS, SXCI, EZCH, AOSL, HSII, TCBI, MBLX, LLEN, GMAN, GGAL, FNSR, FOSL, CYMI, TGA, ULTA, IACI, ASMI, RITT, WBD, IX, IBA, OCR, SGA, MLR, VIS, DSV and RGC
  

Stocks With Unusual Call Option Activity:

• 1) CMC 2) KBE 3) SMH 4) RF 5) STI
  

Stocks With Most Positive News Mentions:

• 1) VZ 2) ZUMZ 3) INAP 4) CME 5) UIS
  

Thursday Watch

Evening Headlines
Bloomberg:

• Trichet 'Held Hostage' as Markets Pressure ECB to Intensify Crisis Fight. The last time Jean-Claude Trichet refused to bow to market pressure, he was forced into a U-turn. This time the stakes may be even higher. With the euro zone’s sovereign debt crisis now threatening to engulf Spain, its fourth-largest economy, investors are again looking for the President of the European Central Bank to do something to stop it, such as delaying the withdrawal of unlimited liquidity support for banks and significantly ramping up its bond purchases. The risk is that the ECB becomes a bail- out tool for politicians -- damaging its independence -- the very scenario Trichet wanted to avoid when he was pressed into the unprecedented step of buying government debt in May.
• Libor Measure Shows Bank Stresses Reach Highest Since June: Credit Markets. Derivatives traders are the most concerned since June that European leaders will fail to address the crisis engulfing the region’s single currency, causing losses for financial companies. Contracts used to bet on the future premium banks will charge each other for dollar loans in London over the federal funds rate almost doubled in November. The so-called FRA/OIS spread soared to 42.75 basis points, before easing back to 39.25 today, UBS AG data show. The measure shows banks are still wary of lending to each other, even as investors hedge their bets after European Central Bank President Jean-Claude Trichet signaled policymakers may step up their response to the region’s debt crisis when they meet tomorrow. The ECB said earlier this year that European banks’ ability to sell bonds may be hampered as governments seek to finance fiscal deficits amassed in part to finance a bailout of the banking industry. “You come back inexorably to the link between sovereigns and financials,” said Matteo Regesta, an interest-rate strategist in London at BNP Paribas SA, the world’s biggest bank by assets. “Financial companies have issues with non-performing loans, fueling the idea they might need government help, which puts pressure on the sovereign, which the banks are also exposed to.” The gains in the FRA/OIS spread in recent weeks signal the market’s expectation that the London interbank offered rate, or Libor, will increase in coming months, Bank of America Merrill Lynch strategists led by Jeffrey Rosenberg in New York wrote in a Nov. 30 note to clients. The premium European banks pay in the currency swaps market to borrow in dollars has almost doubled in the past three weeks, reaching the highest level since May yesterday. The cost to protect against losses on their bonds jumped to a 20-month high before paring the gain today.
• Shipments along the nation's highways continue to rise for U.S. trucking companies, another sign the economic expansion is gaining strength. The Cass Shipments Index, developed by trucker payment-service company Cass Information Systems Inc., jumped 15% in November from a year earlier. Compared with the prior month, the gauge rose 2.8% after a drop in October.
• U.S. Commodities: Wheat Jumps as 'Panic Brewing' on Supplies. Wheat prices jumped the most in seven weeks as excessive rainfall threatened to reduce grain quality and delay the harvest in Australia, the world’s fourth-largest exporter. Wheat futures for March delivery jumped 49.5 cents, or 7.2 percent, to settle at $7.40 a bushel on the Chicago Board of Trade, the biggest gain for a most-active contract since Oct. 8. Egypt, the biggest importer, said today it bought 220,000 metric tons in a tender from the U.S. “There’s a little bit of a panic brewing, and I think the Egyptian tender is a testament that end-users are short high- quality wheat,” said Austin Damiani, a floor broker at the Minneapolis Grain Exchange for Frontier Futures Inc.
• PineBridge Plans $480 Million CLO in First Since AIG Spinoff. PineBridge Investments is in the market with a collateralized loan obligation targeted at about $480 million, according to three people familiar with the discussions. It is the first CLO from the manager since it completed its separation from American International Group Inc. in March. PineBridge will manage the fund that is being created from a group of loans held by a separate investor, said the people, who declined to be identified because the terms are private. The market for CLOs is beginning to open with $2.6 billion of deals backed by widely syndicated loans completed this year. The market had $91.1 billion of issuance at its peak in 2007, according to Morgan Stanley data.
• UN Rules Out Extending Kyoto CO2 Limits This Year, Hurting Carbon Market. The United Nations envoy leading climate talks ruled out extending greenhouse gas limits in the Kyoto Protocol this year, leaving in place doubts about the future of a $2.7 billion a year part of the carbon market.
• Taxpayer Risk 'Impossible' to Know for Some Fed Programs. The Federal Reserve exposed U.S. taxpayers to risks that can’t be quantified based on information it made public today about the collateral posted by recipients of about $885 billion in emergency loans.
• Goldman's(GS) Emergency Fed Loans Topped $24 Billion in Crisis. Goldman Sachs Group Inc., which rebounded from the financial crisis to post record profit last year, was a regular borrower from two emergency Federal Reserve programs in 2008 and early 2009, new data show. The firm borrowed from the Fed’s Term Securities Lending Facility most weeks from March 2008 through April 2009, data released by the Fed today show. Two units of the New York-based firm borrowed as much as $24.2 billion from the Fed’s Primary Dealer Credit Facility in the weeks after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, the data show. Chief Executive Officer Lloyd Blankfein, 56, was quoted by Vanity Fair last year as saying the company might have survived the credit crisis without government help. The firm’s president,Gary Cohn, was more definitive, according to the magazine: “I think we would not have failed,” he was quoted as saying. “We had cash.”
• Galaxy, Melco Lead Casino Operators Higher After Macau Revenue Surges 42%.
  

Wall Street Journal:

• Signs Point to Extending All Tax Cuts Temporarily. Republicans and Democrats Wednesday sat down to negotiate a compromise on extending Bush-era income tax cuts—an effort that could be the first step toward a deal this month that many strategists in both parties believe will temporarily extend current tax rates for all income levels.
• Hedge Funds Tapped Rescue Program. Hedge funds and investors whose bearish trades on housing helped them profit amid the credit crisis were among those that benefited from a U.S. government emergency rescue program to kick-start lending, according to Federal Reserve data released Wednesday. That program, known as the Term Asset-Backed Securities Loan Facility, or TALF, and established during the financial crisis, provided low-cost loans from the Federal Reserve to investors buying bonds backed by student, auto and commercial-property loans and other assets. The program, which lasted from March 2009 until June 2010, was aimed at helping banks move loans off their books by repackaging them into bonds and selling them. Funds managed or backed by Magnetar Capital, Tricadia Capital and FrontPoint Partners, which made large profits from the downturn in the U.S. housing market, were among those who obtained low-cost loans from the Fed to buy securities during the ensuing credit crisis, according to the Fed data.
• Amazon(AMZN) Poised to Make a Major Strategic Investment in LivingSocial to Counter Groupoogle Threat. With the red-hot acquisition dance between Google and Groupon sucking up all the attention, it’s easy once again to ignore the No. 2 player in the fast-growing social buying space–LivingSocial.
• Citadel, Getco Joust Over Flash Trading in Options Markets. An ongoing debate over the future of so-called flash orders is pitting two of the most powerful U.S. financial firms on opposite sides, with Citadel LLC and Getco LLC continuing a rich history of clashes among Chicago's trading elite. The dispute revolves around regulators' proposed ban on flash trades in U.S. stock and options markets. The practice gives some market participants the chance to act on unfilled orders for stocks or options before they are routed on to another exchange to be filled.
• SEC Goes After Fraud by Local Hedge Funds. The San Francisco office of the Securities and Exchange Commission is seeking to crack down on illegal conduct by hedge funds and corporate bribery, activity that got pushed aside as regulators grappled with Ponzi schemes and subprime mortgage-related probes during the recent financial crisis. The shift in focus is reverberating among Bay Area technology companies and financial-services firms.
• Merck(MRK) to Buy Biotech Company Developing Diabetes Drug. Merck & Co. is expected to announce Thursday a deal to buy a closely held biotechnology company in the early stages of developing a new diabetes treatment, according to a person familiar with the matter.
• Spain, Italy Seek Action. Nations Seen at Risk of Contagion Press for a Central Bank Move, Officials Say. Spain and Italy, the countries that with Portugal appear most at risk from being enveloped by the euro zone's deepening debt turmoil, are leading an effort to spur more decisive action from the European Central Bank in order to prevent the crisis from spreading further.
• Deficit Plan Wins Backers. Bipartisan Support Adds Momentum Despite Sharp Criticism From Left and Right.
• IMF Expects to Double Its Lending Capacity. The International Monetary Fund expects to double its lending capacity to $450 billion over the next few months, giving it additional firepower to deal with the sovereign-debt crisis engulfing Europe, according to IMF officials and documents.

Marketwatch.com:

• Power Consumption Declines in China. Western China reports declines, Eastern China has almost no growth.

Business Insider:

• The SAC Capital Man Said To Be "Colluding" Against The Euro Just Joined George Soros' Fund.
• Apple(AAPL) Makes Another Play For The Enterprise: Old Navy Testing iPod-Based Point-Of-Sale System. Apple is making a huge play at the enterprise market via iOS: Not just the typical corporate market you think of, like getting big companies to buy Macs instead of Dells, but actually getting companies to use iOS devices as part of their business infrastructure. The latest example: Old Navy, the clothing retailer, is testing out iPod-based point-of-sale systems in its stores, 9to5Mac reports.
• It's About To Get More Expensive For Foreigners To Do Business In China. China is set to increase taxes on foreign companies Dec. 1 by doing away with an exemption to maintenance/construction and education taxes that has been in place since the nation’s sweeping 1994 tax reform.
  

Zero Hedge:

• Meet The 35 Foreign Banks That Got Bailed Out By The Fed. One may be forgiven to believe that via its FX liquidity swap lines the Fed only bailed out foreign Central Banks, which in turn took the money and funded their own banks. It turns out that is only half the story: we now know the Fed also acted in a secondary bail out capacity, providing over $350 billion in short term funding exclusively to 35 foreign banks, of which the biggest beneficiaries were UBS, Dexia and BNP.
• 30 Weeks of Consecutive Equity Fund Outflows. (graph)
• Why China's Leading Indicators Are A Big Flashing Warning Light To Albert Edwards. As usual, Soc Gen's Albert Edwards does not pull any punches: "Once again, investors see China plays as the only investment game in town. Dylan and I remain convinced we are witnessing a bubble of epic proportions which will burst – catching investors as unawares as the bursting of the Asian bubbles of the mid-1990s."

NY Times:

• Terror-Linked Arrests in Spain and Thailand. The police in Spain and Thailand arrested 10 people suspected of operating a counterfeiting network that provided fake European passports to terrorist groups linked to Al Qaeda in order to smooth their entry into Western countries, the Spanish Interior Ministry said Wednesday. Seven people — six Pakistanis and one Nigerian — were arrested in Barcelona in raids late on Tuesday and early on Wednesday, and three more — two Pakistanis and one Thai — were arrested in Bangkok in the same period, the ministry said in a statement. One of the Pakistanis arrested in Bangkok, a 42-year-old named Muhammad Athar Butt, known as Tony, directed the forging operation from Thailand, according to a Spanish security official. Mr. Butt was also in charge of cells in Brussels and London, the security official said, speaking on condition of anonymity because the official was talking about a current investigation.
• Obesity Surgery May Become Option for Many More. An advisory committee to the Food and Drug Administration will consider on Friday a request by Allergan(AGN), the pharmaceutical company, to significantly lower how obese someone must be to qualify for surgery using the company’s Lap-Band device, which restricts intake to the stomach.

Boston Globe:

• Bank of America's(BAC) Finucane: WikiLeaks Risks Limited. Even if Bank of America is the next target of WikiLeaks, the nonprofit group that recently published online thousands of sensitive US diplomatic cables, it will cause only limited damage, one of the bank's top executives said in Boston today.
• Harvard Law Students Sue Over Airport Body Scans. Two Harvard Law School students are suing the Transportation Security Administration, claiming that the agency's full-body scanners and enhanced pat-downs are unconstitutional. The scans, which show images of airline passengers' naked bodies, and the pat-downs, which include touching genital areas, violate Fourth Amendment rights against unreasonable searches and seizures, according to the complaint, which was filed in federal court on Monday.

Politico:

• Boehner Excoriates Democrats. Incoming House Speaker John Boehner threw away the niceties that appeared in the wake of his meeting with President Barack Obama, and lambasted Democrats for bringing a bill to the floor that would extend just the lower- and middle-bracket tax rates. “I don’t know what my colleagues across the aisle didn’t hear during the election,” Boehner said Wednesday evening in the Ohio Clock Corridor outside the Senate door. “The American people spoke pretty loudly. They said stop all the looming tax hikes and to cut spending". And while we had a good meeting at the White House yesterday about how to resolve the issue of stopping all of the tax hikes, the House leader is going to go down this path of gerrymandering the process so members only have one option, and that’s to vote on only providing some tax relief for the American people.” Boehner also accused House Democrats of playing “political games.”

Reuters:

• Finisar(FNSR) Q2 Tops Market, Sees Strong Q3. Network equipment maker Finisar Corp reported second-quarter results above market expectations on strong demand for closed networking products, and forecast its third fiscal quarter above estimates, sending its shares up 6 percent.

Financial Times:

• Investors in sovereign debt involved in bailouts should incur some losses, Otmar Issing, a former member of the ECB, wrote. "If a permanent rescue mechanism is established, we should also have a restructuring regime that involves losses for private investors," Otmar said. "Default must be a credible threat - otherwise investors will have a strong incentive to buy bonds offering higher interest rates without taking into account the associated risks," he said.
• A 25 billion-euro ($33 billion) contingency fund for Ireland's banks, agreed as part of the bailout for the country, makes its lenders better equipped for stressed conditions than previously required by the Irish regulator and other bodies. While the Irish regulator had estimated the banks would need 15 billion euros at most, the extra 10 billion euros were set aside as a "backpocket" safety net, citing government officials.
  

Telegraph:

• Spain and Ireland Turn to Privatization. Spain and Ireland are set to launch large-scale privatisation programmes as they fight to preserve market faith in their turnaround plans. The Spanish government is looking at auctioning stakes in its national lottery operator and airports, while Ireland will look at privatisations in its electricity and gas sectors as part of a joint European Union and IMF bail-out package agreed on Sunday. News of the privatisation plans came as it emerged that the eurozone bail-out fund will next month begin issuing debt on behalf of embattled member states. Any bonds sold would be the first issued in the name of all currency pact members.

Tokyo Shimbun:

• North Korea, which shelled a South Korean island last month, may be planning an attack on the mainland within the year. North Korea may attack Gyeonggi province, surrounding Seoul, citing a person who quoted an official from the communist nation's espionage agency.

Asahi:

• Japanese Finance Minister Yoshihiko Noda will seek a 10% reduction in public works spending for the next fiscal year. The government allocated 5.7 trillion yen for public works spending this fiscal year, down 20% from last year.

China Daily:

• China should moderately tighten monetary policy by utilizing interest rates and reserve requirements, Guo Tianyong, head of the China Banking Research Center at the Central Univ. of Finance and Economics, wrote in a commentary.

Apple Daily:

• Li & Fund Ltd.'s Victor Fung expects the price of Chinese exports to rise by a range of 10% to 15% next year because of an average wage increase of about 30%, citing the company's chairman.

China Business News:

• China will shift focus to "stabilizing growth" next year, from "ensuring growth" as it has said this year, at the government's central economic work conference to be held next week, citing government advisers. The Asian nation will lower next year's M2 target to 15% from this year's 17% and cut its new loan target to 7 trillion yuan or lower, the report said.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are +.75% to +2.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 110.0 -13.0 basis points.
  
• Asia Pacific Sovereign CDS Index 110.0 -8.0 basis points.
  
• S&P 500 futures -.02%
  
• NASDAQ 100 futures +.01%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (TOL)/-.07
• (DLM)/.34
• (KR)/.31
• (NOVL)/.07
• (PVH)/1.43
• (PAY)/.36
• (ULTA)/.21

Economic Releases
8:30 am EST

• Initial Jobless Claims for last week are estimated to rise to 424K versus 407K the prior week.
• Continuing Claims are estimated to rise to 4200K versus 4182K prior.
  

10:00 am EST

• Pending Home Sales for October are estimated to fall -1.0% versus a -1.8% decline in September.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Bullard speaking, Fed's Plosser speaking, Fed's Duke speaking, ICSC November chain store sales, weekly EIA natural gas inventory report, (FMC) analyst meeting, (DTV) analyst meeting, CSFB Aerospace/Defense Conference and the CSFB Tech Conference could also impact trading today.
  

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

Stocks Surging into Final Hour on Less Euro Debt Angst, Diminishing Economic Fear, Seasonal Strength, Short-Covering

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  
• Sector Performance: Almost Every Sector Rising
  
• Volume: Slightly Above Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 21.17 -10.07%
  
• ISE Sentiment Index 145.0 +42.16%
  
• Total Put/Call .82 -6.79%
  
• NYSE Arms .26 -70.48%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.25 bps -2.68%
  
• European Financial Sector CDS Index 138.10 bps -1.65%
  
• Western Europe Sovereign Debt CDS Index 193.50 bps -.85%
  
• Emerging Market CDS Index 231.95 bps -4.01%
  
• 2-Year Swap Spread 27.0 -2 bps
  
• TED Spread 15.0 unch.
  

Economic Gauges:

• 3-Month T-Bill Yield .15% unch.
  
• Yield Curve 244.0 +9 bps
  
• China Import Iron Ore Spot $167.80/Metric Tonne unch.
  
• Citi US Economic Surprise Index +21.70 -.7 point
  
• 10-Year TIPS Spread 2.16% +7 basis points
  

Overseas Futures:

• Nikkei Futures: Indicating +197 open in Japan
• DAX Futures: Indicating +15 open in Germany

Portfolio:

• Higher: On gains in my Biotech, Medical, Retail, Ag and Technology long positions
  
• Disclosed Trades: Covered all of my (IWM)/(QQQQ) hedges, covered some of my (EEM) short, added back to my (MOS) long
  
• Market Exposure: Moved to 100% Net Long

BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades substantially higher despite ongoing eurozone debt concerns and China inflation worries. On the positive side, Homebuilding, Semi, Software, Coal, Energy, Oil Service, Steel, Gaming, Construction and Defense shares are especially strong, rising more than 2.75%. Cyclical shares are outperforming. (BAC), which has been a big drag on (XLF), is rebounding 3% to session highs. Copper is rising +2.93%, lumber is jumping +2.31% and the S&P GSCI Ag Spot Index is surging +4.23%. The US Scrap Steel Index is rising another +2.93%. The Spain sovereign cds is plunging -12.64% to 318.56 bps, the Italy sovereign cds is dropping -13.7% to 231.05 bps, the Portugal sovereign cds is falling -12.18% to 474.30 bps and the Ireland sovereign cds is falling -7.76% to 563.37 bps. On the negative side, Education and REIT shares are underperforming. The Greece sovereign cds is rising +.64% to 980.48 bps. The 10-year yield is surging +17 bps to 2.97%. The broad market continues to remain resilient, with mild pullbacks on negative news and huge jumps on good news. Headlines out of Europe tomorrow will dominate trading again. If eurozone debt angst falls again, global equities should build on today's rally tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on falling eurozone sovereign debt angst, declining economic fear, seasonal strength, investment manager performance angst, short-covering, bargain-hunting and technical buying.