Monday Watch

Weekend Headlines
Bloomberg:

• Bernanke Says Fed May Take More Action to Curb Joblessness. Federal Reserve Chairman Ben S. Bernanke said U.S. unemployment may take five years to fall to a normal level and that Fed purchases of Treasury securities beyond the $600 billion announced last month are possible. “At the rate we’re going, it could be four, five years before we are back to a more normal unemployment rate” of about 5 percent to 6 percent, Bernanke said. The purchase of more bonds than planned is “certainly possible,” said Bernanke, 56. “It depends on the efficacy of the program” and the outlook for inflation and the economy. The economy, which grew 2.5 percent in the third quarter, is so weak that Bernanke said growth could fizzle out without support. “It’s very close to the border,” he said. “It takes about 2.5 percent growth just to keep unemployment stable and that’s about what we’re getting. We’re not very far from the level where the economy is not self-sustaining.” Bernanke said a return to a recession “doesn’t seem likely” because sectors of the economy such as housing can’t become much more depressed. Still, a long period of high unemployment could damage confidence and is “the primary source of risk that we might have another slowdown in the economy.” Bernanke said he is “100 percent” confident that, when necessary, the central bank can control inflation and reverse its accommodative monetary policy. “We’ve been very, very clear that we will not allow inflation to rise above 2 percent,” he said. “We could raise interest rates in 15 minutes if we have to,” he said. “So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time.” The yield on the 10-year Treasury note increased 44 basis points to 3.01 percent on Dec. 3 from a month before, while the 30-year Treasury yield climbed 27 basis points to 4.31 percent.
• Parnassus Beats 85% of Peers as Top Funds Stay Bullish for 2011. For Jerome Dodson at Parnassus Investments, growing public pessimism about the economy in 2010 convinced him to purchase stocks. Allianz RCM Technology Fund’s Walter Price ruled out a recession after executives told him business was improving. At Columbia Management Investment Advisers LLC, Tom Galvin said record cash made equities impossible to pass up. Unemployment close to 10 percent and falling home sales failed to deter the best-performing U.S. fund managers this year, handing them average gains of 28 percent, data compiled by Bloomberg show. They’re bullish on 2011, boosting stakes in oil producers, temporary-help providers and Internet companies. “When everybody’s depressed is absolutely the best time to buy stock,” said Dodson, who oversees $4.5 billion as president of Parnassus in San Francisco.
• Bond Yields at 4% Draw Janney, Northern Trust as Sales Hop: Credit Markets. Investment-grade U.S. corporate bonds are attracting investors betting a struggling labor market will help contain inflation after yields rose above 4 percent for the first time since early August. The extra yield investors demand to own investment-grade corporate bonds rather than Treasuries shrank to 179 basis points, or 1.79 percentage points, as of Dec. 3 from 182 at the end of November as the U.S. reported that the unemployment rate jumped to 9.8 percent, Bank of America Merrill Lynch index data show.
• Euro's Worst to Come as Best Forecasters See Crisis Spreading. The most accurate foreign-exchange strategists say the euro’s worst annual performance since 2005 will extend into next year as the region’s sovereign-debt crisis saps economic growth. Standard Chartered Plc, the top overall forecaster in the six quarters ended Sept. 30 based on data compiled by Bloomberg predicted the euro may weaken to less than $1.20 by mid-2011 from $1.3414 last week. Westpac Banking Corp., the second most accurate, is “bearish in the short term,” and No. 3 Wells Fargo & Co. cut its outlook at the end of last week.
• Euro Finance Chiefs Meet as Belgium Seeks Bigger Crisis Fund. European finance ministers travel to Brussels today as Belgium argues that the region’s 750 billion- euro ($1 trillion) bailout fund could be increased to fight contagion from the sovereign crisis.
• Hedge Funds Decline in November Amid Europe Debt Crisis, Stock Market Drop. Hedge funds declined the most in six months in November as the European debt crisis pushed stock markets lower across the globe. The Bloomberg aggregate hedge fund index fell 1.5 percent, the most since May, when a sudden selloff in stocks known as the “flash crash” prompted investors to cut risk. Long-short equity funds, whose managers can bet on rising and falling stocks, dropped 1.6 percent last month and gained 6.1 percent since the start of the year.
• Hedge Funds Increase Bullish Oil Bets Most in Eight Weeks: Energy Markets. Hedge funds increased bullish bets on oil by the most in eight weeks as signs that the global economic recovery is gaining pace stoked speculation demand for crude will rise. The funds and other large investors boosted so-called net- long positions, or wagers that oil prices will climb, by 18 percent in the seven days ended Nov. 30, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest increase since the week ended Oct. 5.
• Copper Stockpiles Slumping Makes Metal a Favorite for Goldman(GS). The biggest slump in copper inventories in six years is compounding shortages as prices head toward record highs, making the metal a top pick for Goldman Sachs Group Inc. and Morgan Stanley. Demand will outpace supply by 367,500 metric tons next year, enough for wires, pipes and appliances in about 1.8 million U.S. homes, according to the median forecast of 12 analysts surveyed by Bloomberg. Stockpiles may drop to an all-time low of less than one week’s usage, said Michael Widmer, a London-based metals analyst at Bank of America Merrill Lynch. Global exchange inventories have dropped 22 percent this year, heading for the largest slide since 2004, data compiled by Bloomberg show.
• Wal-Mart(WMT), Carrefour Face Temporary Price Controls in Southwest China City. The southwestern Chinese city of Kunming, where Wal-Mart Stores Inc. and Carrefour SA have operations, has imposed temporary price ceilings on daily necessities to counter inflation. Kunming’s government asked five retailers -- three non- Chinese, one Chinese and one based in Hong Kong -- to report any price adjustments and give reasons for the changes two days in advance of making any alterations, the National Development and Reform Commission’s local branch said on its website yesterday. Besides the five companies, other food, cooking-oil and beverage producers are requested to apply for government approval 10 working days before making price changes, the statement said. The city government also imposed temporary price ceilings on daily necessities in major parts of the city starting from yesterday to the end of February, according to the statement. Prices of grain, cooking oil, meat, eggs, milk and noodles are to be kept at levels before Nov. 17, the statement said. The city limited retail prices of vegetables, depending on type, to 40 percent to 100 percent higher than wholesale prices, the statement said.
• North Korea Says Tensions 'Extreme' as South Korea Plans Drills. North Korea said South Korea is raising tension on the Korean peninsula to an “uncontrollable extreme phase” by holding military exercises with the U.S. and live-firing drills close to disputed waters. The South Korean government “is so hell-bent on the moves to escalate the confrontation and start a war that it is recklessly behaving bereft of reason,” the state-run Korean Central News Agency said in a commentary yesterday. North Korea is “now maintaining a maximum self-possession and self- control,” it said.
• BofA(BAC) Tells Fed It Fulfilled Final TARP Exit Condition, FT Says. Bank of America Corp. told U.S. regulators that it has sold enough assets this year to meet the final condition set as part of its repayment of a $45 billion government bailout, the Financial Times reported. The bank told the Federal Reserve the sale of BlackRock Inc. shares and the sale of the right to buy China Construction Bank Corp. stock would bring it near the $3 billion requirement, the newspaper said. The balance will come from a tax gain from holding a smaller stake in BlackRock, according to the report.

Wall Street Journal:

• New Debt Ceiling Part of Tax Talks. An increase to the federal government's borrowing limit is being considered in talks on extending the Bush-era tax cuts, people familiar with the situation said Friday. They warned, however, that the issue could be too politically toxic to be part of a final deal.
• Ex-USTR Not So Diplomatic About China. Now that Susan Schwab, who was U.S. Trade Representative under President George W. Bush, has left public life, she’s free to say what she really thinks about the state of trade relations with China. “Foreign firms are in fact discriminated against in this market,” Ambassador Schwab, now a professor at the University of Maryland’s School of Public Policy, declared at a panel discussion Saturday hosted by the Italian Embassy in Beijing. Schwab referred to her own experience negotiating deals in China for Motorola in the early 1990s. At the time, “the message we got from the government was that there was technology transfer for market share,” she said. Based on those signals, Motorola and other companies decided to invest for the long term in China, expecting treatment to improve over time. “The outcome for major multinationals that took this approach has been very mixed,” Ms. Schwab said.
• China Clones, Sells Russian Fighter Jets. A year after the collapse of the Soviet Union, a cash-strapped Kremlin began selling China a chunk of its vast military arsenal, including the pride of the Russian air force, the Sukhoi-27 fighter jet. For the next 15 years, Russia was China's biggest arms supplier, providing $20 billion to $30 billion of fighters, destroyers, submarines, tanks and missiles. It even sold Beijing a license to make the Su-27 fighter jet—with imported Russian parts. Today, Russia's military bonanza is over, and China's is just beginning. After decades of importing and reverse-engineering Russian arms, China has reached a tipping point: It now can produce many of its own advanced weapons—including high-tech fighter jets like the Su-27—and is on the verge of building an aircraft carrier. Not only have Chinese engineers cloned the prized Su-27's avionics and radar but they are fitting it with the last piece in the technological puzzle, a Chinese jet engine. In the past two years, Beijing hasn't placed a major order from Moscow. Now, China is starting to export much of this weaponry, undercutting Russia in the developing world, and potentially altering the military balance in several of the world's flash points.
• Iran Touts Nuclear Advance Ahead of U.S. Talks. As the U.S. and Iran prepare for Monday's first diplomatic meeting between the two sides in more than a year, Tehran announced delivery of its first shipment of homemade "yellowcake" uranium—a troubling sign for Western governments seeking to contain the nation's nuclear ambitions. At the same time, significant differences have emerged over such basics as the terms and substance of the discussions on Tehran's nuclear program set for Monday and Tuesday in Geneva.
• As Bonds Flag, Stocks Beckon. After a stellar two-year run, the bond market is stumbling and a number of investors are betting that stocks will post better returns in the coming months. Among the signs being held up as evidence: Investors in the past two weeks pulled money from bond funds for the first time in almost two years, and there are indications of a growing move toward stocks.
• No Longer Tiny, Netflix(NFLX) Gets Respect - and Creates Fear. After years as a bit player in entertainment, Netflix Inc. is being eyed for a new role by Hollywood: industry hulk.
• Julian Assange, Information Anarchist. WikiLeaks founder Julian Assange hopes to hobble the U.S. government. Whatever else WikiLeaks founder Julian Assange has accomplished, he's ended the era of innocent optimism about the Web. As wiki innovator Larry Sanger put it in a message to WikiLeaks, "Speaking as Wikipedia's co-founder, I consider you enemies of the U.S.—not just the government, but the people." The irony is that WikiLeaks' use of technology to post confidential U.S. government documents will certainly result in a less free flow of information. The outrage is that this is Mr. Assange's express intention.

CNBC:

• Pfizer(PFE) Kindler Retires, Replaced by Read.
• Six Banks Got Over 98% of the Fed's PDFC Money. Institutions that ultimately went on to become just six banks—Bank of America, Citigroup, Morgan Stanley, Barclays, Goldman Sachs, and JPMorgan—received at total of about $8.78 trillion through the PDFC program.

IBD:

• Apparel Makers Hope to Weave Growth Into Holiday Season Sales.

NY Times:

• Jamie Dimon: America's Least-Hated Banker.
• Mounting State Debts Stock Fears of a Looming Crisis. The State of Illinois is still paying off billions in bills that it got from schools and social service providers last year. Arizona recently stopped paying for certain organ transplants for people in its Medicaid program. States are releasing prisoners early, more to cut expenses than to reward good behavior. And in Newark, the city laid off 13 percent of its police officers last week. While next year could be even worse, there are bigger, longer-term risks, financial analysts say. Their fear is that even when the economy recovers, the shortfalls will not disappear, because many state and local governments have so much debt — several trillion dollars’ worth, with much of it off the books and largely hidden from view — that it could overwhelm them in the next few years. “It seems to me that crying wolf is probably a good thing to do at this point,” said Felix Rohatyn, the financier who helped save New York City from bankruptcy in the 1970s. Some of the same people who warned of the looming subprime crisis two years ago are ringing alarm bells again. Their message: Not just small towns or dying Rust Belt cities, but also large states like Illinois and California are increasingly at risk.

Business Insider:

• It Sounds Like South Korea Is Really Preparing For The Imminent Collapse Of The North.
• Big Banks Are Stifling Economic Growth And Taxing Consumers. Have you noticed the price of oil lately? It’s $90 a barrel in a dismal economy with unemployment hovering around 10%. The problem with Fed chairman Bernanke`s latest QE 2 initiative is that he has just given more access of cheap money to the big banks.
• New York Times Mocks State Dept. Over Handling of WikiLeaks Cables.
  

Zero Hedge:

• A Look at the Upcoming Week's European Events.

Washington Post:

• A Fateful Step for a Banking Giant. When Bank of America agreed to buy Countrywide Financial for $4 billion in January 2008, the bank's chief executive, Kenneth D. Lewis, called it a "one-time opportunity." When this opportunity knocked, however, it blew the door down. More than two years after the acquisition, Bank of America has taken write-offs of $5.5 billion because of troubles at Countrywide. And the losses are still mounting. Now, instead of celebrating its improved profits and stronger capital base, the bank is trapped in a "Groundhog Day"-style routine of fending off crisis.

Chicago Tribune:

• Groupon Rejects Google's(GOOG) Offer; Will Stay Independent. The two companies had been engaged in talks, with speculation about the marriage reaching a fever pitch over the last week. Mountain View, Calif.-based Google reportedly had offered between $5 billion and $6 billion for the daily deal start-up. Groupon still may choose to pursue an initial public offering but will not make a decision about going public until 2011, a source said.

Politico:

• GOP: Doc Fix Can Break Health Reform. The idea of tying the doc fix to a partial health reform repeal has legs because it comes with a clear rhetorical message: Congress should not start creating new entitlements without the necessary funding to uphold existing ones.
  
• Dems Dreading Pending Tax Deal. The deal that Democrats, Republicans and the White House appear to be stepping gingerly but inexorably toward to wrap up the lame-duck congressional session is generating some grumbling from Democrats that they won't be particularly pleased with the likely outcome. "We're only moving there against my judgment and my own particular view of things,” Senate Majority Whip Dick Durbin (D-Ill.) said Sunday on CBS's "Face the Nation."
• Kyl Blasts Administration for Foot-Dragging on WikiLeaks. Sen. Jon Kyl (R-Ariz.) is accusing the Obama administration of being too slow to respond to the security threat posed by the troves of classified information published by the online information hub WikiLeaks. "What troubles me is this is the third dump and the administration didn’t seem too concerned about the first two dumps," Kyl said Sunday on CBS's "Face the Nation," referring to the recent release of a collection of diplomatic cables and earlier releases of hundreds of thousands of classified U.S. military reports from Iraq and Afghanistan. "It’s only when it starts to embarrass the State Department because they have cables that are very ..revealing about what some of our diplomats have said about other world leaders that we appear to be all that exercised about it," Kyl said.

USA Today:

• Jobless Rate Up Among Those With at Least Bachelor's Degree. Last month's increase in unemployment was especially discouraging for the well-educated. The jobless rate for Americans with at least a bachelor's degree rose to 5.1%, the highest since 1970 when records were first kept, reports the Bureau of Labor Statistics. October's 4.7% rate was up from 4.4% in September. Meanwhile, the national unemployment rate last month rose to 9.8% from 9.6%. Joblessness among those with advanced educations probably drove the overall rate higher, as that group makes up 30% of the labor force, the single biggest sector, says Mark Zandi, chief economist of Moody's Analytics. The government's figures show there were 2.4 million unemployed people last month with bachelor's degrees and higher.

Financial Times:

• Europe's Leaders at Odds Over Bond Plan. Germany’s Wolfgang Schäuble – on Monday named as the FT’s European finance minister of the year – said in a video interview that jointly guaranteed bonds would require “fundamental changes” in European treaties. He added that it was also key that governments had incentives to maintain discipline over finances – and faced sanctions when they did not. “Otherwise the euro would fail,” he warned. Germany also fears the issuance of joint bonds would raise its borrowing costs.

Telegraph:

• China's Credit Bubble on Borrowed Time as Inflation Bites. The Royal Bank of Scotland has advised clients to take out protection against the risk of a sovereign default by China as one of its top trade trades for 2011. This is a new twist. "Many see China’s monetary tightening as a pre-emptive tap on the brakes, a warning shot across the proverbial economic bows. We see it as a potentially more malevolent reactive day of reckoning," said Tim Ash, the bank’s emerging markets chief. Officially, inflation was 4.4pc in October, and may reach 5pc in November, but it is to hard find anybody in China who believes it is that low. Vegetables have risen 20pc in a month.
• Bernanke's QE3 Faces Stiff Resistance. Ben Bernanke, chairman of the Federal Reserve, was expected to open the way for a third blast of bond purchases in a 60 Minutes interview, but any such move is likely to face resistance from Fed hawks and mounting criticism in Congress. Mr Bernanke faces a shift in the balance of power as hard-liners join the Fed’s voting body this year. Jeffrey Lacker from the Richmond Fed said he was “not well-disposed” to bond purchases, suspecting that the “risks exceeed the benefits.” Kevin Warsh from the Fed board has raised doubts, as have the Fed chiefs from Dallas, Philadephia, Minneapolis, and Kansas. Mr Bernanke’s stated purpose is to force down borrowing costs, yet inflation fears have instead pushed up yields on 10-year Treasuries by 60 basis points to 3pc since early October. Long rates are used to price mortgages and company debt. Oil has shot up to $90 a barrel. This acts as a tax on US consumers.
• JPMorgan(JPM) Revealed as Mystery Trader That Bought £1bn-worth of copper on LME. The American investment bank JP Morgan is the mystery trader that grabbed more than half the copper on the London Metal Exchange, The Daily Telegraph has learned.

The Guardian:

• WikiLeaks Cables Blame Chinese Government for Google(GOOG) Hacking. Leading politician ordered attacks after Googling his own name and finding critical articles, US dispatches say.

Efe:

• China and Venezuela signed a memorandum of understanding to place a further $6 billion in a joint development fund, citing members of a delegation accompanying Finance Minister Jorge Giordani on a visit to the Asia country. China will contribute $4 billion and Venezuela $2 billion into the fund that will be used to finance development projects in bother countries.
  

China Securities Journal:

• China must curb "excessive" trading and speculation in its futures markets to curb risks and rein in inflation expectations, citing Jiang Yang, an assistant to chairman of the China Securities Regulatory Commission.
• China will end a preferential purchase tax for vehicles with engines no larger than 1.6 liters next year, citing a person at the National Development and Reform Commission.
  

Weekend Recommendations
Barron's:

• Made positive comments on (WHR) and (SJM).

Citigroup:

• Reiterated Buy on (GLW), target $22.
• Reiterated Buy on (ITW), boosted estimates, raised target to $60.
  

Night Trading

• Asian indices are unch. to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 106.50 -2.5 basis points.
• Asia Pacific Sovereign CDS Index 107.50 -1.75 basis points.
• S&P 500 futures -.15%.
• NASDAQ 100 futures -.07%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (DG)/.35
• (SPB)/.33

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Lacker speaking, UBS Media/Communications Conference and the (FIS) investor day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and technology 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 week.

Weekly Outlook

U.S. Week Ahead by MarketWatch (video).
Wall St. Week Ahead by Reuters.
Stocks to Watch Monday by MarketWatch.
Weekly Economic Calendar by Briefing.com.

BOTTOM LINE: I expect US stocks to finish the week mixed as diminishing economic fear, seasonal strength, buyout speculation, less financial sector pessimism, diminishing sovereign debt angst, investment manager performance anxiety and short-covering offsets profit-taking, technical selling and China inflation concerns. My intermediate-term trading indicators are giving mostly bullish signals and the Portfolio is 100% net long heading into the week.

Market Week in Review

S&P 500 1,224.71 +2.97%*



The Weekly Wrap by Briefing.com.

*5-Day Change

Weekly Scoreboard*

Indices

• S&P 500 1,224.71 +2.97%
  
• DJIA 11,382.09 +2.61%
  
• NASDAQ 2,591.46 +2.24%
  
• Russell 2000 756.42 +3.23%
  
• Wilshire 5000 12,775.74 +2.98%
  
• Russell 1000 Growth 564.96 +2.68%
  
• Russell 1000 Value 616.85 +3.26%
  
• Morgan Stanley Consumer 729.92 +2.08%
  
• Morgan Stanley Cyclical 1,000.95 +5.02%
• Morgan Stanley Technology 651.85 +2.11%
  
• Transports 5,068.81 +3.88%
  
• Utilities 399.03 +1.63%
  
• MSCI Emerging Markets 46.88 +3.78%
  
• Lyxor L/S Equity Long Bias Index 1,009.75 -.47%
  
• Lyxor L/S Equity Variable Bias Index 856.54 -1.09%
  
• Lyxor L/S Equity Short Bias Index 745.20 -2.14%
  

Sentiment/Internals

• NYSE Cumulative A/D Line +107,386 +.39%
  
• Bloomberg New Highs-Lows Index +666 +385
  
• Bloomberg Crude Oil % Bulls 36.0 unch.
  
• CFTC Oil Net Speculative Position +146,894 +3.85%
  
• CFTC Oil Total Open Interest 1,342,325 +.84%
  
• Total Put/Call .76 -10.59%
  
• OEX Put/Call .97 -69.97%
  
• ISE Sentiment 126.0 -19.05%
  
• NYSE Arms .67 -66.67%
  
• Volatility(VIX) 18.01 -18.94%
• G7 Currency Volatility (VXY) 12.07 -4.35%
  
• Smart Money Flow Index 9,746.93 +1.94%
  
• Money Mkt Mutual Fund Assets $2.813 Trillion +.5%
  
• AAII % Bulls 49.66 +4.77%
  
• AAII % Bears 26.21 +6.20%
  

Futures Spot Prices

• CRB Index 316.16 +4.99%
  
• Crude Oil 89.19 +6.60%
  
• Reformulated Gasoline 235.21 +9.14%
  
• Natural Gas 4.35 -2.11%
  
• Heating Oil 248.74 +6.79%
  
• Gold 1,406.20 +4.40%
  
• Bloomberg Base Metals 239.51 +4.79%
  
• Copper 399.90 +7.41%
  
• US No. 1 Heavy Melt Scrap Steel 339.33 USD/Ton +2.93%
  
• China Hot Rolled Domestic Steel Sheet 4,399 Yuan/Ton +.80%
• S&P GSCI Agriculture 474.90 +7.69%
  

Economy

• ECRI Weekly Leading Economic Index 125.40 -.48%
  
• Citi US Economic Surprise Index -9.60 -33.7 points
  
• Fed Fund Futures imply 58.7% chance of no change, 41.3% chance of 25 basis point cut on 12/14
• US Dollar Index 79.38 -1.53%
  
• Yield Curve 253.0 +17 basis points
  
• 10-Year US Treasury Yield 3.01% +14 basis points
  
• Federal Reserve's Balance Sheet $2.329 Trillion +.04%
  
• U.S. Sovereign Debt Credit Default Swap 40.54 -4.25%
• California Municipal Credit Default Swap 280.93 -10.98%
  
• Western Europe Sovereign Debt Credit Default Swap Index 177.50 -1.57%
  
• 10-Year TIPS Spread 2.20% +6 basis points
  
• TED Spread 17.0 +3 basis points
  
• N. America Investment Grade Credit Default Swap Index 92.84 -2.91%
  
• Euro Financial Sector Credit Default Swap Index 127.22 -3.93%
  
• Emerging Markets Credit Default Swap Index 210.84 -5.77%
  
• CMBS Super Senior AAA 10-Year Treasury Spread 267.0 +2 basis points
  
• M1 Money Supply $1.816 Trillion +1.02%
  
• Business Loans 604.60 +.05%
  
• 4-Week Moving Average of Jobless Claims 431,000 -1.3%
  
• Continuing Claims Unemployment Rate 3.4% +10 basis points
  
• Average 30-Year Mortgage Rate 4.46% +6 basis points
  
• Weekly Mortgage Applications 608.80 -16.47%
  
• ABC Consumer Confidence -45 +2 points
  
• Weekly Retail Sales +3.2% +60 basis points
  
• Nationwide Gas $2.90/gallon +.04/gallon
  
• U.S. Heating Demand Next 7 Days 18.0% above normal
• Baltic Dry Index 2,133 -3.04%
  
• Oil Tanker Rate(Arabian Gulf to U.S. Gulf Coast) 37.50 -6.25%
  
• Rail Freight Carloads 183,790 -22.12%
  
• Iraqi 2028 Government Bonds 89.0 -1.50%
  

Best Performing Style

• Mid-Cap Value +3.48%

Worst Performing Style

• Large-Cap Growth +2.68%

Leading Sectors

• Banks +7.66%
• Oil Service +7.22%
• Gold +6.87%
• Homebuilders +6.83%
• Semis +5.32%

Lagging Sectors

• Drugs +.32%
• Oil Tankers +.10%
• Airlines -.40%
  
• Internet -.71%
• Tobacco -3.14%

One-Week High-Volume Gainers

One-Week High-Volume Losers

*5-Day Change

Stocks Higher into Final Hour on Less Financial Sector Pessimism, Diminishing Eurozone Debt Angst, Seasonal Strength, Short-Covering

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Rising
  
• Volume: Slightly Below Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.98 -7.27%
  
• ISE Sentiment Index 126.0 -31.15%
  
• Total Put/Call .75 +8.70%
  
• NYSE Arms .90 +109.31%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 92.84 bps +.01%
  
• European Financial Sector CDS Index 129.28 bps +5.17%
  
• Western Europe Sovereign Debt CDS Index 177.50 bps -1.84%
  
• Emerging Market CDS Index 210.70 bps -4.09%
  
• 2-Year Swap Spread 23.0 -2 bps
  
• TED Spread 17.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .13% -2 bps
  
• Yield Curve 253.0 +8 bp
  
• China Import Iron Ore Spot $167.80/Metric Tonne unch.
  
• Citi US Economic Surprise Index -9.60 -30.2 points
  
• 10-Year TIPS Spread 2.20% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -8 open in Japan
• DAX Futures: Indicating +12 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades near session highs despite a disappointing jobs report and recent gains. On the positive side, Education, Road & Rail, Gaming, Semi, Software, Gold, Ag, Oil Service, Alt Energy and Coal shares are especially strong, rising more than 1.0%. Cyclical and Small-Cap shares are outperforming. (XLF), which opened on the weak side, is heading into positive territory now. The Transports continue to trade well. Copper is rising +.35% and the S&P GSCI Ag Spot Index is jumping +3.19%. The Italy sovereign cds is dropping -2.89% to 211.23 bps, the Portugal sovereign cds is falling -3.91% to 425.45 bps and the UK sovereign cds is falling -8.43% to 67.56 bps. Moreover, the US Muni CDS Index is dropping -3.4% to 182.57 bps. On the negative side, Retail shares are under mild pressure. Today's overall market action is more positive than the major averages would suggest as I continue to see a number of small/mid-cap stocks experiencing technical breakouts on decent volume. I expect US stocks to trade mixed-to-higher into the close from current levels on falling eurozone sovereign debt angst, seasonal strength, investment manager performance angst, short-covering, less financial sector pessimism and technical buying.

Today's Headlines

Bloomberg:

• U.S. Payroll Gains Trail Forecasts; Unemployment Rate Rises. Employers added fewer jobs than forecast in November and the unemployment rate rose to 9.8 percent, pointing to economic weakness that’s likely to keep the Federal Reserve pumping money into the financial system. Payrolls increased 39,000, less than the most pessimistic projection of economists surveyed by Bloomberg News, after a revised 172,000 increase the prior month, Labor Department figures showed today in Washington. The jobless rate rose to a seven-month high, while hours worked and earnings stagnated. The number of unemployed Americans rose to 15.1 million last month, including a record 6.4 million women. Financial firms cut 9,000 jobs last month, the most in four months, today’s report showed. Construction companies subtracted 5,000 workers and payrolls at retailers fell 28,100. Private payrolls that exclude government agencies also gained less than forecast, rising by 50,000 in November. Economists projected a 160,000 gain, the survey showed. The so-called underemployment rate -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- held at 17 percent. “The labor market is capping off a very poor recovery this year,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “I don’t think we’ll slide back into job losses, but being stuck in neutral isn’t good. While consumer spending has normalized, employers are uncertain about demand going into 2011.” The report also showed the number of people unemployed for 27 weeks or more increased as a percentage of all jobless, to 41.9 percent, the highest since August.
• ECB Bond Buying Triggers Biggest Drop in Corporate Debt Risk in Six Months. The cost of insuring against losses on European corporate bonds fell for a third day after the European Central Bank increased government bond purchases to stem “acute” tensions in financial markets. The Markit iTraxx Crossover Index of credit-default swaps on 50 companies with mostly high-yield credit ratings declined 9 basis points to 470, according to JPMorgan Chase & Co. prices at 2:30 p.m. in London. The gauge is down from 526 on Nov. 30, the biggest three-day decline since May 12. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments also fell for a third day, dropping to 174.5 basis points from a record high 200.75 on Nov. 30. Credit markets briefly pared the rally after the U.S. Labor Department said payrolls increased 39,000, less than the most pessimistic projection of economists surveyed by Bloomberg News, after a revised 172,000 increase the prior month. The jobless rate rose to 9.8 percent. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 1.25 basis points to 106.5, JPMorgan prices show. The cost of protecting bank bonds from default also fell, with the Markit iTraxx Financial Index linked to the senior debt of 25 banks and insurers down 8 at 142 and the subordinated index 12 lower at 272.
• Service Industries in U.S. Expand at Faster Pace. Service industries expanded in November at the fastest pace in six months, showing the U.S. recovery is broadening out as the year comes to a close. The Institute for Supply Management’s non-manufacturing index, which covers about 90 percent of the economy, rose to 55 last month from 54.3 in October. The ISM non-manufacturing employment gauge rose to 52.7, the highest since October 2007, from 50.9 a month earlier. The measure of new orders increased to 57.7, the highest since April, from 56.7. Business activity eased to 57 from 58.4. The ISM’s index of prices paid fell to 63.2 from 68.3 a month earlier. Estimated sales for Thanksgiving and the three days after the U.S. holiday reached $45 billion, a 9.1 percent gain from a year ago, as the number of shoppers rose 8.7 percent to 212 million, according to the National Retail Federation.
• Sovereign Defaults Would Force Bank Bailouts, Dimon Tells Sole. Defaults of European countries would also lead to bank bailouts, Jamie Dimon, chief executive officer of JPMorgan Chase & Co., told Il Sole 24 Ore in an interview. “Europe would have to rescue the banks” that hold state debt, Dimon told Sole. It would be better instead to “correct the Maastricht Treaty,” he said. European countries including Italy have exacerbated their economic problems by introducing taxes leading to capital flight or rules making the labor market excessively rigid, Dimon told the daily.
• Cotton Surges to Biggest Weekly Gain in 39 Years on India Limits. Cotton futures surged, heading for the biggest weekly gain in 39 years, on mounting concern that supplies will be limited from India, the world’s largest exporter after the U.S. Cotton-yarn shipments will be capped at 720,000 metric tons in the year that started Oct. 1, the Indian government said Dec. 1 in a bid to stabilize domestic prices and boost supply. Futures traded in New York are up 75 percent this year and touched a record last month, partly on concern that India won’t ship enough of the fiber to meet growing global demand.
• Crude Oil Futures Increase to 25-Month High in New York as Dollar Tumbles. Crude oil rose to a 25-month high as the dollar tumbled, increasing the appeal of commodities as an alternative investment. Crude jumped as much as 1.1 percent as the Dollar Index, which tracks the currency against six others, dropped to the lowest intraday level since Nov. 23 after U.S. employers added fewer jobs than forecast in November and the unemployment rate unexpectedly increased. Oil for January delivery rose 86 cents, or 1 percent, to $88.86 a barrel at 12:54 p.m. on the New York Mercantile Exchange. Prices touched $88.96 a barrel, the highest intraday level since Oct. 9, 2008. Futures have increased 6.1 percent this week and 12 percent this year.
• Greenspan Says ECB Has 'Terrible Problem' on Deficits. Former Federal Reserve Chairman Alan Greenspan said the European Central Bank faces a “terrible problem” because its measures to combat the debt crisis make it easier for countries to defer cutting budget deficits. “I think they’ve got a terrible problem,” he said in an interview with CNBC in Washington today. “To the extent that they increase their purchases of bonds of the various different countries, they of necessity take the pressure off the political system within those countries to do what has to be done.”
• Fed Purchases May Set Bad Precedent, Wrightson Economist Crandall Says. Federal Reserve asset purchases won’t do much to help the economy now and may set a bad precedent for later actions, Wrightson ICAP LLC chief economist Lou Crandall said today. “This is really a marginal effort in terms of its contribution right now,” Crandall said of the Fed’s strategy, in a radio interview on “Bloomberg Surveillance” with Tom Keene. “They’re embracing a principle that I think has the potential to be abused in the future.” Crandall is No. 1 among economic forecasters for the two- year period ended on Sept. 30, according to data compiled by Bloomberg.
• Brazil Raises Reserve Requirements to Remove $36 Billion From Circulation. Brazilian banks fell in Sao Paulo trading after the central bank raised reserve and capital requirements to slow consumer lending growth that’s running at 20 percent annually and prevent a credit bubble.
• South Korea, U.S. Reach Accord on Revising Free-Trade Pact Auto Provisions. The U.S. and South Korea reached agreement to change automobile provisions in a pending trade deal, clearing the way for legislatures in both nations to approve the delayed accord, said a person briefed on the talks. South Korea agreed to let the U.S. phase out its 2.5 percent tariff on automobiles over five years instead of as much as three years, a demand of Ford Motor Co., the person said, declining to be identified before an announcement.

Wall Street Journal:

• France Moves to Ban Site Hosting WikiLeaks. WikiLeaks' battle to remain online encountered another obstacle Friday after France's Industry Minister Eric Besson said the government plans to ban WikiLeaks from a French server, saying the site was "criminal" and put innocent lives at risk.
• Deficit Plan Fails to Win Panel Support. The president's U.S. deficit commission received the backing of a majority of its 18-strong panel, but fell short of the 14 votes needed to possibly trigger congressional votes on its recommendations.

CNBC:

• Fed Just Creating Asset Bubbles, No Stimulus: Ross. Federal Reserve policies are creating an asset bubble that isn't helping create jobs or acting as a real stimulus to the economy, investor Wilbur Ross told CNBC.
  

Business Insider:

• The 14 Most Shocking Recipients Of The Bailout Money That Was Supposed To Be For American Banks.
• Suddenly Shanghai Developers Are Forfeiting Land Back To The Government.
  

New York Times:

• A New Test Is Proposed in Licensing Radio and TV. Michael J. Copps, one of the five commissioners on the Federal Communications Commission, said Thursday that a “public value test” should replace the current licensing system for television and radio stations. The test, he said, “would get us back to the original licensing bargain between broadcasters and the people: in return for free use of airwaves that belong exclusively to the people, licensees agree to serve the public interest as good stewards of a precious national resource.” Mr. Copps, a Democratic commissioner who has long wanted to reform the license system, made the proposal in an address at the Columbia University Graduate School of Journalism on Thursday. It is his latest effort to draw attention to the public interest requirements of local stations at a time when he believes American journalism is in “grave peril.” In his prepared remarks, he criticized the casual nature of the current license renewals for stations and said his intent with the public value test was to foster “a renewed commitment to serious news and journalism.” If a station were to fail the public value test and did not improve a year later, he added, the agency should “give the license to someone who will use it to serve the public interest.”

Washington Post:

• Reports Show Violations of Surveillance Limits in U.S. The federal government has repeatedly violated legal limits governing the surveillance of U.S. citizens, according to previously secret internal documents obtained through a court battle by the American Civil Liberties Union. In releasing 900 pages of documents, U.S. government agencies refused to say how many Americans' telephone, e-mail or other communications have been intercepted under the Foreign Intelligence Surveillance Act - or FISA - Amendments Act of 2008, or to discuss any specific abuses, the ACLU said. Most of the documents were heavily redacted. However, semiannual internal oversight reports by the offices of the attorney general and director of national intelligence identify ongoing breaches of legal requirements that limit when Americans are targeted and minimize the amount of data collected.

AppleInsider:

• The iPad, a product that didn't even exist a year ago, is expected to cause nearly 50 percent of all growth for Apple in fiscal year 2011, according to one Wall Street analyst. Robert Cihra with Caris & Company issued a note to investors on Friday noting that Apple's growth is "stunning." He said the company has managed to effectively create its own growth through innovation, while its competitors are lost "in a sea of otherwise commoditized hardware." In the December quarter, Cihra expects Apple to sell 6.7 million iPads. He has also projected the sale of 32 million iPads in fiscal year 2011, accounting for more growth in Apple's bottom line than the iPhone. "A product that didn't even exist a year ago... now leads an entire charge to thin-client access/computing architecture," he wrote. He sees the iPad "igniting an explosion toward 'thin-client' access computing, with Apple's most extensible advantage its lightweight iOS software and apps ecosystem." Cihra sees the iPhone accounting for more than 40 percent of Apple's fiscal year 2011 growth, with 64 million units sold. He also sees another 5 percent expansion in the company's bottom line thanks to the Mac platform, where he sees sales increasing 19 percent year over year. Accordingly, Caris & Company has raised its price target for AAPL stock to $400, up from its previous projection of $375.

Politico:

• Obama's Stimulus Pours Millions Into Faith-Based Groups. An analysis by POLITICO found that at least $140 million in stimulus money has gone to faith-based groups, the result of an unpublicized White House decision to spend government money, where legal, supporting religiously inspired nonprofit groups. And that decision was just the beginning.Rasmussen Reports:
  

Reuters:

• US SEC to Unveil Swaps Dealers Proposals. U.S. regulators are expected to unveil proposals on Friday that will determine which firms will be forced to hold more cash to deal in the lucrative over-the-counter derivatives market. The proposals will define who will be subject to more scrutiny from the Securities and Exchange Commission, which has new-found power to police the estimated $600 trillion market. That means Wall Street firms that dominate the market will be subject to additional capital and margin requirements as swap dealers and major swaps participants.
• Spain Speeds Reforms, Makes Cuts to Reassure Markets. Spain brought forward pension reforms, raised tobacco taxes and cut windpower subsidies on Friday as it fought to slash a high budget deficit and calm investor concerns it could need a financial bailout.
• US Leading Economic Growth Gauge Annual Rate at 26-Week High.
  

Financial Times:

• Ditlev Engel, the chief executive officer of Vestas Wind Systems A/S, said the European wind-energy business lacks momentum and the outlook isn't bright. That assessment by the head of the world's biggest wind-turbine maker will be a blow to governments such as Britain's, which hope to develop industries employing tens of thousands of people around renewable-energy technologies.

The Globe and Mail:

• Fairfax's Prem Watsa Sees Commodity Bubble Brewing. Never mind the current hype over commodities: Prem Watsa and his team at Fairfax aren’t convinced that resources and agricultural goods will continue to skyrocket. “Anything that everybody thinks is going to happen worries us,” Mr. Watsa said in an interview. “The excesses get built up. Recessions take them out.” He is particularly troubled by the number of pension funds throwing cash at the commodities market. “You aggregate that, there’s a lot of money going into a small market,” he said. “Takes the price through the roof.” This isn’t the first time Mr. Watsa has contradicted conventional wisdom. He predicted a severe financial crisis long before even the Federal Reserve saw it coming, and made billions by hedging against it.

Le Temps:

• Bank Sarasin & Cie AG will stop investing in U.S. equities, citing a letter sent by the company to clients. The bank also advised clients to do likewise, given the "concentration of regulations in the United States and the toughening of American tax legislation."