Wednesday Watch

Evening Headlines
Bloomberg:

• Egypt Generals Running Day Care Adds Profit Motive to Political Transition. The Egyptian military, which promises to steer the nation to a new democratic future after the resignation of President Hosni Mubarak, has its own economic interests to protect as well. The armed forces have a substantial stake in the civilian economy through a host of government-owned service and manufacturing companies, at least 14 of them under the auspices of the Ministry of Military Production. Their websites list product lines that include civilian goods. Military-run companies are in such businesses as janitorial services, household appliances, pest control and catering. El Nasr Company for Services and Maintenance, for instance, has 7,750 employees in such sectors as child care, automobile repair and hotel administration, according to its website. Other military companies produce small arms, tank shells and explosives -- as well as exercise equipment and fire engines. These companies add up to “a very large, unaccountable, non-transparent ‘Military Inc.,’” said Robert Springborg, a professor in the department of national security affairs at the Naval Postgraduate School in Monterey, California, and author of “Mubarak’s Egypt: Fragmentation of the Political Order.” The generals “will try to massage the new order so that it does not seek to impose civilian control on the armed forces,” he said. “It’s not just a question of preserving the institution of the Army. It’s a question of preserving the financial base of its members.”
• Peltz's Trian Offers to Buy Discounter Family Dollar(FDO) for Up to $60 a Share. Nelson Peltz, the activist investor pushing for faster growth at Family Dollar Stores Inc., offered to acquire the company for as much as $7.6 billion as consumer spending picks up. Peltz’s Trian Group offered $55 to $60 a share, a 36 percent premium over today’s closing price, for the second- largest U.S. dollar store chain, according to a regulatory filing today.
• Oil Trades Near 11-Week Low on Forecast of Gasoline Supply Gain. Oil traded near an 11-week low in New York after analysts forecast that gasoline supplies rose for a seventh week in the U.S., signaling a slow recovery in fuel demand in the world’s biggest crude-consuming nation. Futures slipped 0.6 percent yesterday after analysts surveyed by Bloomberg News estimated an Energy Department report today will show gasoline stockpiles climbed 1.85 million barrels in the seven days ended Feb. 11, matching the longest streak of gains since August. “Gasoline inventories here are very, very robust, and demand here is still very poor,” said Kyle Cooper, director of research for IAF Advisors in Houston. Brent and West Texas Intermediate are “divorced” because of near-record oil stockpiles at Cushing, the delivery point for the New York contract, he said. U.S. crude inventories probably rose for a fifth week in the seven days ended Feb. 11 as TransCanada Corp. completed an extension of a pipeline to Cushing, adding to the glut at the country’s biggest oil-trading hub, a Bloomberg News survey showed. TransCanada started deliveries to Cushing on Feb. 8 in the second phase of its Keystone pipeline project. Stockpiles at Cushing, Oklahoma, rose to the highest level since at least 2004 in the week ended Jan. 28.
• House Republicans Target Consumer Bureau Funding in Budget Bill. U.S. House Republicans moved to cut the budget of the nascent Consumer Financial Protection Bureau by 40 percent under a temporary spending bill being considered this week. Republicans lawmakers, who took control of the House after the CFPB was created, put a provision in the so-called continuing resolution that would limit Federal Reserve transfers to $80 million. That would be a sharp cut from the $134 million the bureau would get in President Barack Obama’s 2011 budget.
• Air Products(APD) Drops Airgas Bid After Court Loss. Air Products & Chemicals Inc. dropped its $5.9 billion hostile bid for Airgas Inc. after a Delaware judge upheld the packaged-gas supplier’s main anti- takeover defense.
• China Buying North Korean Iron Best Birthday Gift for Kim. North Korean leader Kim Jong Il turns 69 today, his country beset by international sanctions, livestock disease and the aftermath of floods. A rebound in trade with China may be the best birthday present he gets. North Korea’s exports to China jumped 51 percent to $1.2 billion last year, led by iron ore, coal and copper, Chinese government data show. China’s sales to its ally rose 21 percent to $2.3 billion from a year earlier, with supplies of wheat and oil helping ease chronic shortages of fuel and food. Two-way trade fell 4 percent in 2009, when the United Nations tightened sanctions after Kim’s regime carried out a second nuclear test. The revival in commerce contrasts with U.S. efforts to isolate North Korea after a year in which 50 South Koreans died in attacks that roiled currency and debt markets.
• Goldman Sachs(GS) Said to Close Fixed-Income Prop-Trading Group. Goldman Sachs Group Inc., the U.S. bank that relies on fixed-income trading for the largest portion of its revenue, will shut its Global Macro Proprietary Trading desk, a person familiar with the decision said. The eight-person desk, which trades currencies and stocks as well as products tied to interest rates and other fixed- income markets, will close in the days ahead, said the person, who declined to be named because the decision wasn’t public.
• China's consumer-price index may understate inflation, with a separate measure near 7% underscoring the case for higher interest rates, according to Nomura Holdings Inc. The gross domestic product deflator, calculated by subtracting real growth from nominal levels of expansion, climbed 6.76% in the final quarter of 2010, the fastest pace in two years and 2 percentage points above the consumer price index.
  The government should be concerned that inflation which has been largely driven by food costs is becoming more broad-based, said Rob Subbaraman, chief economist for Asia excluding Japan at Nomura in Hong Kong.
  

Wall Street Journal:

• Rebellion Seethes in Gulf. Protester Killed in Bahrain; Skirmishes in Yemen; Call for Rebel Executions in Iran. The Middle East's wave of popular revolts helped spur the largest street rebellion in years in a Persian Gulf monarchy, and the first to pit a Shiite Muslim majority against Sunni rulers—heightening the dilemma for the U.S. as it struggles to pursue its interests in the region.
• Chicago Population Sinks to 1920 Level. A larger-than-expected exodus over the past 10 years reduced the population of Chicago to a level not seen in near a century. The U.S. Census Bureau reported Tuesday that during the decade ended in 2010, Chicago's population fell 6.9% to 2,695,598 people, fewer than the 2.7 million reported back in 1920. The explosive growth of suburbs far outside Chicago produced huge gains in neighboring counties. Kane County grew by 27.5%, Will County by nearly 35% and Lake County by 9.2%, while DuPage grew a more modest 1.4%. This population shift to traditionally conservative counties could alter the balance of power in both the state house and the Illinois congressional delegation.
• Banks Go Straight to Public Borrowers. Banks are setting aside billions of dollars to do something that until now was rarely heard of: making big loans to cities, states, schools and other public borrowers that otherwise might have turned to the bond market. Banks are aggressively courting municipal borrowers with conventional loans for capital projects. J.P. Morgan Chase & Co.(JPM) is devoting billions of dollars to direct loans this year to both refinance deals and for new projects, according to a bank official. Last year, the bank made a few hundred million dollars of direct loans to municipalities. Now, the bank would consider making a single loan for hundreds of millions of dollars, the official said. It also is dispatching teams to explain the concept to wary public borrowers. Citibank(C) also is courting municipal borrowers with direct loans, according to several bond issuers. "This used to be unheard of," says Eric Friedland, managing director of public finance at Fitch Ratings, noting that in the past, banks would occasionally loan a municipality less than $1 million to finance projects too small for a bond offering. For bigger loans, they would form a syndicate with other lenders. It remains to be seen what land mines may be lurking for lenders and borrowers. Some municipalities are going through significant struggles, raising questions about whether they will prove good credits. And direct loans are less liquid, meaning banks can't sell them as easily as bonds.
• Senate OKs Extension of Key Patriot Act Provisions.
• U.S. Had Year of Warnings Over Egypt. As Critics Pointed to Signs of Unrest, White House Gave a Muted Rebuke.
• Grand Jury Investigates Karzai Brother. U.S. Federal Probe Risks Worsening Relations With the Afghan President; Mahmood Karzai Hires a Washington Lawyer.
• State Plans Anger Unions. Union leaders say overhauls of rules for public- and private-sector unions being considered in Wisconsin, Ohio and about a dozen other states threaten to accelerate the decline in membership nationwide and hurt organized labor's finances and political clout.
• Egypt and Iran. Why Tehran's thugs will be harder to depose than Hosni Mubarak. Iran's Green movement, the squelched democratic hope of 2009, isn't dead after all. Wearing green scarves and chanting "Death to the dictator!", tens of thousands turned out in Tehran, Shiraz and other Iranian cities Monday to demand political change. The size of the protests surprised and embarrassed the regime, but it's important to understand why revolution will be harder than in Egypt and Tunisia.

CNBC:

• Dell(DELL) Profit Leaps, Easily Tops Wall Street Targets. Dell earnings almost doubled and blew past Wall Street forecasts as corporations continued spending on technology hardware, pushing the shares higher in extended trading.
• NYSE(NYX) Merger 'Far From Done Deal': Economist. The plan to merge Deutsche Boerse with NYSE Euronext is “far from a done deal,” Benn Steil, a senior fellow at the Council of Foreign Relations and director of International Economics, told CNBC Tuesday.

MarketWatch:

• Diamondback Faces at Least $1 Billion in Redemption Requests. Investors in hedge fund Diamondback Capital Management LLC, which is struggling with fallout from an insider-trading investigation, have asked to pull $1 billion in capital out of the firm, a person familiar with the situation said Tuesday. The amount isn't final, and the tally could run higher as investors may put in redemption requests before the deadline later Tuesday.
• China Central-Bank Adviser Urges More Tightening. The People's Bank of China should lift interest rates and boost the ratio of funds banks must aside as reserves in an effort to contain inflation, a central-bank adviser said, according to a report Wednesday in the China Securities Journal.
• China Banks End First-Home Loan Discount. Many banks in the Chinese cities of Shanghai, Beijing and Shenzhen have stopped offering discounts on mortgage loans for first-time home buyers, the National Business Daily reported Tuesday, citing unnamed bank staff.

Business Insider:

• General Petraeus To Quit As US Commander In Afghanistan. Shocker form The Times Of London:

Zero Hedge:

• John Paulson's Interview With The Financial Crisis Inquiry Commission.
• Oaktree's $10 Billion Distressed Fund Returns Investor Capital, Runs Out Of Investing Ideas.
• Bloomberg Interviews Goldman's(GS) Rapaciously Bullish Jan Hatzius. (video)
• Rioting in Bahrain Escalates, Third Protester Dies In Police Clashes. (pics)
  

New York Times:

• SAC Capital's Cohen Opens Up. Steven A. Cohen likes Green Mountain Coffee(GMCR). The founder of SAC Capital Advisers, the $12 billion hedge fund in Stamford, Conn., sat for a rare wide-ranging interview with Paul Tudor Jones, another hedge fund manager, where he discussed his favorite stocks and a whole lot more.
• From Prison, Madoff Says Banks 'Had to Know' of Fraud. In his first interview for publication since his arrest in December 2008, Mr. Madoff — looking noticeably thinner and rumpled in khaki prison garb — maintained that family members knew nothing about his crimes. But during a private two-hour interview in a visitor room here on Tuesday, and in earlier e-mail exchanges, he asserted that unidentified banks and hedge funds were somehow “complicit” in his elaborate fraud, an about-face from earlier claims that he was the only person involved in the fraud.

Forbes:

• Bernanke Put Allows JPMorgan(JPM) to Post Profits on 96.9% of 2010 Trading Days. A scary figure was revealed at J.P. Morgan’s investor day presentation on Tuesday: the bank had a perfect trading record for the second half of 2010 and only lost money on 8 days out of 260 possible trading days for the full year. The New York-based bank made $76 million per day through its trading desks, 9.5% less than the average $84 million it made in 2009, a year when it recorded losses on 42 trading days. J.P. Morgan’s results, echoed by peers like Bank of America(BAC), Goldman Sachs(GS), and Citi(C), should send a chill down investors’ spines as large Wall Street banks capitalize on the so-called Bernanke-put.
• Apple(AAPL): Cheaper iPhone Could Expand Addressable Market By 6x.
  

CNN Money:

• Leaf and Prius Stomp the Volt on Greenest Car List.
• Emerging Markets: $13 Billion Exodus. In a sharp reversal of last year's trend, investors have been pulling money out of emerging market funds and piling into large-cap stocks in more developed economies. Investors have shifted more than $13 billion out of emerging market funds in the last three weeks alone, according to EPFR Global, which tracks fund flows and asset allocation data for financial institutions around the world. That includes $7 billion in the week ended Feb. 3, the biggest weekly outflow in three years. The money is flowing out of equity funds focused on countries such as Brazil, Russia, India and China. While the pace of outflows slowed last week, a total of $6.5 billion has come out of these funds so far this year.

CBS News:

• CBS News' Lara Logan Sexually Assaulted During Egypt Protests. On Friday, Feb. 11, the day Egyptian President Hosni Mubarak stepped down, CBS chief foreign correspondent Lara Logan was covering the jubilation in Tahrir Square for a "60 Minutes" story when she and her team and their security were surrounded by a dangerous element amidst the celebration. It was a mob of more than 200 people whipped into frenzy. In the crush of the mob, she was separated from her crew. She was surrounded and suffered a brutal and sustained sexual assault and beating before being saved by a group of women and an estimated 20 Egyptian soldiers. She reconnected with the CBS team, returned to her hotel and returned to the United States on the first flight the next morning. She is currently in the hospital recovering.

The Trentonian:

• Sources: Trenton, NJ Mayor Tony Mack at Center of FBI Probe.

LA Times:

• U.S. Agent Killed, Second Wounded at Mexico Drug Gang Blockade, Officials Say. The Immigration and Customs Enforcement agents, assigned to the Mexico City office at the U.S. Embassy, were driving toward the northern city of Monterrey when attacked, U.S. officials say.

USA Today:

• Burger Chain Stacked Puts iPads on Tables to Take Orders.
• Spiraling Inflation Threatens China's Stability. Inflation is dangerous for China's leaders because it erodes economic gains that underpin the Communist Party's claim to power. And it hits the poor majority hardest in a society where millions of families spend up to half their incomes on food. That is politically awkward as Beijing tries to enforce stability ahead of a once-a-generation handover of power next year to younger Communist Party leaders. Beijing has tried to mollify the public by paying food subsidies to poor families, holding down prices in university cafeterias and ordering local leaders to see that vegetable markets have adequate supplies. It has tried to diffuse public frustration by claiming that hoarding and price-fixing by speculators is partly to blame. But analysts say Beijing also failed to act quickly enough to head off inflation after it deflected the 2008 crisis by flooding the economy with stimulus money and bank lending. The economic rebound gave consumers more money to spend and banks are pumping out loans despite orders to curb credit. The headline inflation numbers hide even sharper increases in key items. In January, the price of fresh fruit soared more than a third from year earlier, while eggs rose 20%, the National Bureau of Statistics reported. At the Xinya Shopping Center, a supermarket on Beijing's east side, the price of sugar is up 80% over a year earlier, while high-quality rice costs 65% more, according to manager Wang Yongyi. "Since the second half of last year, we have been busily changing the price tags to mark the prices up," Wang said. "It seems that the more control we had from the government, the higher prices rise." Inflation could also spill over into Chinese export prices. That might raise costs for Western consumers but also could help countries such as Vietnam and India compete with China as suppliers of clothing, furniture and other low-cost goods. Global Sources, a company that connects Chinese suppliers with foreign customers, said this week that a survey of 232 Chinese companies found 74% of them raised prices last year — some by up to 20% — due to higher costs for materials and components. "China is steadily moving away from being the world's low-cost source of various products," the company said in a report released this week. A separate Global Sources survey of 385 foreign buyers last month found 31% were increasing purchases from Vietnam due to higher Chinese prices. "I hope the government can rein in the food price rises this year, or else people's lives will be greatly hurt," said Wang, the supermarket manager. "No matter how high prices go, people need to eat anyway, right?"
• 'Kill Switch' Internet Bill Alarms Privacy Experts. A raging debate over new legislation, and its impact on the Internet, has tongues wagging and fingers pointing from Silicon Valley to Washington, D.C. Just as the Egyptian government recently forced the Internet to go dark, U.S. officials could flip the switch if the Protecting Cyberspace as a National Asset legislation becomes law, say its critics.

Reuters:

• US Gasoline Demand Down 3% - MasterCard(MA). U.S retail gasoline demand has fallen for a second consecutive week, pressured by higher retail prices, MasterCard Advisors' SpendingPulse report showed on Tuesday. Average gasoline demand in the week to Feb. 11 dropped 3 percent from the previous week to 8.46 million barrels per day. Retail gasoline prices rose 3 cents last week to $3.13 per gallon, their first gain in four weeks. Last week's prices were up 19.5 percent from a year earlier and at their highest since October 2008, MasterCard said.
• Hedge Fund D.E. Shaw Cuts Fees - Source. D.E. Shaw & Co., one of the world's biggest and priciest hedge fund firms, has told investors that it plans to charge them less, an investor with the firm said on Tuesday. The New York-based firm, which oversees roughly $19 billion in assets, plans to lower its fees to a 2.5 percent management fee and a 25 percent performance fee, said the person, who was not permitted to speak about the matter publicly. Previously, the firm charged a 3 percent management fee plus a 30 percent performance fee. Most managers charge investors less, asking for a 2 percent management fee and a 20 percent performance fee.
• North American Potash(POT) Inventories Tighten Further.
  

Telegraph:

• BHP Billiton(BHP) Unveils $10 Billion Buyback as Profits Surge 72%. Net income was $10.5bn, or 188.6 cents a share, in the six months to the end of December, up from $6.1bn, or 109.8 cents a share, a year earlier, Melbourne-based BHP said on Tuesday night. That compares with the $10.2bn median estimate of nine analysts surveyed by Bloomberg News. With the $10bn buyback, chief executive Marius Kloppers joins his counterpart at Rio Tinto, Tom Albanese, in boosting shareholder returns as commodity prices rise. BHP said today it’s “cautiously optimistic” on the short-term outlook for the global economy.

Beijing Daily:

• Beijing's Communist Party approved local property control measures, citing a party meeting. The city will "strictly" implement loan and tax policies for homes.

Shanghai Securities News:

• China Banking Regulatory Commission issued a notice, warning about the risks in property loans and local financing vehicles. Chinese banks should prevent loans flowing into speculative property market investment and land purchases, citing the notice.

Evening Recommendations
Citigroup:

• Reiterated Buy on (MAS), target $18.
• Reiterated Buy on (MMC), boosted target to $35.

Morgan Keegan:

• Rated (SLB), (NE), (HAL), (NOV) and (CAM) Outperform.

Night Trading

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 108.50 +1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 121.50 + basis point.
  
• S&P 500 futures +.35%.
  
• NASDAQ 100 futures +.26%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CVC)/.41
• (DVN)/1.38
• (OC)/.18
• (DF)/.14
• (GENZ)/.83
• (OMX)/.10
• (WCG)/.52
• (DE)/.99
• (CMCSA)/.32
• (ANF)/1.32
• (PFCB)/.57
• (ITRI)/1.06
• (NVDA)/.16
• (ESRX)/.70
• (CLF)/2.22
• (NTAP)/.50
• (SNPS)/.40

Economic Releases
8:30 am EST

• Housing Starts for January are estimated to rise to 539K versus 529K in December.
• Building Permits for January are estimated to fall to 559K versus 635K in December.
• The Producer Price Index for January is estimated to rise +.8% versus a +1.1% gain in December.
• The PPI Ex Food & Energy for January is estimated to rise +.2% versus a +.2% gain in December.
  

9:15 am EST

• Industrial Production for January is estimated to rise +.5% versus a +.8% gain in December.
• Capacity Utilization for January is estimated to rise to 76.3% versus 76.0% in December.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of 2,000,000 barrels versus a +1,898,000 barrel gain the prior week. Distillate supplies are expected to fall by -400,000 barrels versus a +288,000 barrel gain the prior week. Gasoline inventories are estimated to rise by +1,850,000 barrels versus a +4,663,000 barrel increase the prior week. Finally, Refinery Utilization is estimated unch. versus a +.2% gain the prior week.

2:00 pm EST

• Minutes of FOMC Meeting.
  

Upcoming Splits

• (SFUN) 4-for-1
  

Other Potential Market Movers

• The weekly MBA mortgage applications report, BB&T Transports Conference, Leerink Swann Therapeutics Conference and the Sterne Agee Financial Institutions Investor Conference could also impact trading today.
  

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

Stocks Falling into Final Hour on Profit-Taking, Inflation Concerns, More Shorting

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Declining
  
• Volume: Around Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 16.58 +4.01%
  
• ISE Sentiment Index 102.0 -36.25%
  
• Total Put/Call .85 -1.16%
  
• NYSE Arms 1.13 +35.05%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 81.03 +.46%
  
• European Financial Sector CDS Index 134.0 bps -2.0%
  
• Western Europe Sovereign Debt CDS Index 176.17 bps +1.44%
  
• Emerging Market CDS Index 222.56 +1.89%
  
• 2-Year Swap Spread 21.0 +1 bp
  
• TED Spread 19.0 -1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .12% +1 bp
  
• Yield Curve 278.0 +1 bp
  
• China Import Iron Ore Spot $190.60/Metric Tonne +.58%
  
• Citi US Economic Surprise Index +67.40 -1.0 point
  
• 10-Year TIPS Spread 2.29% -2 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +14 open in Japan
• DAX Futures: Indicating +7 open in Germany

Portfolio:

• Slightly Lower: On losses in my Ag and Tech long positions
  
• Disclosed Trades: Took some profits in an Ag long, added (IWM)/(QQQQ) hedges, added to (EEM) short
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades slightly lower, despite gains in most overseas markets, lower energy prices and stable long-term rates. On the positive side, Airline, Retail, Steel, Utility, Insurance, Drug and Defense shares are higher on the day. The Transports are relatively strong again, rising +.25%. Oil is falling -1.31% and continues to trade very poorly. Lumber is gaining +1.3%. Moreover, the UBS-Bloomberg Spot Ag Index is falling -1.88%, which is also a positive. The 10-year yield is stable at 3.6% despite today's "hot" inflation readings and intensifying concerns over the US budget deficit. The Israeli sovereign cds is declining -3.36% to 139.99 bps. As well, the US Muni CDS Index is falling -2.03% to 177.21 bps. On the negative side, Education, Hospital, Networking, Disk Drive, Ag and Oil Tanker shares are under pressure, falling more than 1.0%. Copper is falling -2.07%. Shanghai copper inventories have surged +14.14% over the last 5 days. Weekly retail sales rose +2.4% this week versus a +2.7% gain the prior week. The Citi Eurozone Economic Surprise Index is falling another -34.6% today to +20.20. This is down from a reading of +76.0 on 1/6. The Egypt sovereign cds is rising +2.8% to 336.68 bps. The Western Europe Sovereign CDS Index has been trending higher over the past week, which is a big negative. The PPI, released tomorrow morning, could further raise inflation concerns. I will continue to closely monitor the 10-year yield's technical action. Any substantial rise in the yields from current levels back near 4% would likely have a negative impact on equities. One of my longs, (AAPL), continues to trade very well and looks poised for another surge higher. I expect US stocks to trade mixed-to-higher into the close from current levels on earnings optimism, US fund inflows, stable long-term rates, buyout speculation and falling energy prices.

Today's Headlines

Bloomberg:

• Import Prices in U.S. Rose 1.5% in January, Led by Fuels, Food. The cost of goods imported into the U.S. rose more than forecast in January, boosted by higher prices for commodities such as fuels and food. The 1.5 percent increase in the import-price index followed a revised 1.2 percent gain in December, Labor Department figures showed today in Washington. Economists projected a 0.8 percent increase for January, according to the median estimate in a Bloomberg News survey. Excluding food and fuel, import prices climbed 0.6 percent. A weaker dollar along with rising demand from emerging markets such as Brazil and China have pushed up prices of oil, food and building materials. From a year earlier, import prices increased 5.3 percent in January, compared with a 5.1 percent gain in December. Import prices were forecast to rise 4.4 percent in January from a year earlier, according to the survey median. The cost of imported petroleum rose 3.4 percent in January from the prior month and gained 18.5 percent over the past four months. Prices of imported food increased rose 2.6 percent last month, and were up 14.8 percent from a year earlier. Since reaching a one-year high on June 7, the dollar has fallen about 8.1 percent against a trade-weighted basket of major currencies, making imported goods more expensive.
  
• Food Prices Pushed 44 Million More Into Poverty, World Bank Says. Rising global food prices have pushed 44 million more people into “extreme” poverty in developing countries since June, the World Bank estimates. The Washington-based World Bank said its food-price index jumped 15 percent between October and January, led by wheat costs. “Global food prices are rising to dangerous levels and threaten tens of millions of poor people around the world,” World Bank President Robert Zoellick said today in an e-mailed statement. “The price hike is already pushing millions of people into poverty and putting stress on the most vulnerable, who spend more than half of their income on food.” Wheat and corn prices in Chicago have extended gains this year after jumping at least 47 percent in 2010. Surging food costs contributed to protests in Tunisia that ousted President Zine El Abidine Ben Ali last month and Egyptian president Hosni Mubarak.
• U.S. Economy: Retail Sales Climb Less Than Forecast. Sales at retailers rose less than forecast in January, showing it will be difficult for American consumers to sustain last quarter’s pickup in spending without bigger gains in employment. Purchases increased 0.3 percent, the smallest gain since a drop in June, according to Commerce Department figures today in Washington. Other reports showed manufacturing in the New York area accelerated and confidence among home builders stagnated. The sales data also indicated winter snowstorms may have played a role in the slowdown as Americans stayed away from restaurants and home-improvement stores.
• Option ARM Time Bomb Blows Early, Easing Damage to U.S. Housing. This was the year thousands of U.S. homeowners with option adjustable-rate mortgages were supposed to default as their payments spiked. Low interest rates and a surge of early delinquencies mean the numbers probably won’t be as bad as forecast, softening the blow to a housing market.
• Chart of the Day: Technology Boom is Backed by Profits This Time.
• Emerging-Market Stocks Fall on JPMorgan(JPM) Equity Forecast, Bahrain Protests. JPMorgan strategists led by Adrian Mowat in Hong Kong cut their year-end target for the MSCI index to 1,300 from 1,500 on expectations that accelerating inflation in developing nations will spur tighter monetary policy. “Developed markets are becoming more attractive on concern that rising inflation and interest rates could hurt growth in emerging nations,” said Jonathan Ravelas, strategist at Banco de Oro Unibank in Manila. “Portfolios are getting rebalanced in favor of developed markets.” The MSCI emerging-market index has dropped 4.1 percent this year as central banks in China, Brazil and India raised benchmark interest rates to curb inflation spurred by record food prices. The MSCI World index has gained 5 percent in 2011 as the U.S. Federal Reserve and European Central Bank keep borrowing costs at record lows.
• Portugal Raps Delays on EU Bailout Revamp, Spars With Germany. Portugal said delays in overhauling the European rescue fund for debt-hit states threaten a new bout of market turmoil, sparring with Germany and Austria over how to resolve the fiscal crisis. “The discussions are taking longer than desirable and delays and hesitations affect the euro zone and the stabilization on the euro,” Portuguese Finance Minister Fernando Teixeira dos Santos said at a meeting of European Union finance ministers in Brussels today. Criticism from Portugal, seeking to wrestle down Europe’s fifth-highest deficit without falling back on an aid package, met with a rebuff from Germany and Austria that highlighted the north-south split over reshaping the 17-nation economy. Bonds in Portugal and Greece slipped for a third day as Germany opposed a stepped-up rescue effort until European governments take fresh measures to bolster the region’s competitiveness.
• Google's(GOOG) YouTube Ad-Linked Video Views Climb to More Than 3 Billion a Week. YouTube is running advertisements on videos more than 3 billion times a week, a 50 percent increase from May, helping Google Inc. wring more revenue from its largest acquisition. Ad growth for the video-sharing website has also led to a surge in sales for makers of video clips for the site, said Shishir Mehrotra, director of product management at YouTube. The gain in ad-supported video views means that the company is making money on about one-fifth of its 14 billion weekly views, he said. “A lot of it is based on growing ad products as well as growing inventory,” Mehrotra said in an interview. “Our partners are starting to see real success on the platform, and so they’re starting to invest.” YouTube probably brought in about $710 million in revenue last year, up from $345 million in 2009, according to Sandeep Aggarwal, an analyst at Caris & Co. Mountain View, California- based Google doesn’t break out YouTube’s sales. Aggarwal also said YouTube likely reached profitability last year. YouTube first reached 3 billion ad-supported views weekly in October after hitting 2 billion in May 2010 and 1 billion in 2009, he said. Google, mostly due to YouTube, had more than 80 percent of the U.S. market for Internet-video views in December, making it the largest viewing site, according to ComScore Inc. No. 2 Yahoo! Inc. had 37 percent as many views as Google.
• Berkshire(BRK/A) Departs BofA(BAC) 'a Loser' on Stake After Three Years. Warren Buffett’s Berkshire Hathaway Inc. sold its stake in Bank of America Corp., ending an investment that spanned three and a half years in which the lender’s stock lost more than two-thirds of its value.
• Citigroup's(C) Pandit Says Emerging Markets at Risk of Overheating, Inflation. Citigroup Inc. Chief Executive Officer Vikram Pandit said emerging markets must prepare for possible inflation because they’re at “risk of overheating.” “Many of the emerging markets are operating at or near capacity and are therefore at risk of overheating,” Pandit said today in prepared remarks for an investor conference in New York hosted by the brokerage firm ISI Group Inc. They “must deal with the possible consequences of inflation.” Citigroup, the third-largest U.S. bank by assets, gets more than half its revenue from emerging markets, Pandit said.
• Republicans Grill Lew Over Budget as Battle Escalates. House Republican Budget Committee Chairman Paul Ryan told White House budget director Jacob Lew the president has “disappointed us all” with his $3.7 trillion budget request because the plan doesn’t go far enough on spending cuts. “Why did you duck?” Ryan said at a House Budget Committee hearing where Lew defended the proposal President Barack Obama unveiled yesterday. “You know the drivers of our debt are entitlement programs, and yet you do nothing to address that.”
• Apple(AAPL) Starts Subscription Payment Service in App Store. Apple Inc. started a subscription service for publishers of newspapers, magazines and other content applications, allowing them to sell multiple issues through a single purchase in the company’s online App Store. The subscriptions will be sold using the same App Store billing system that lets customers buy individual applications for the iPhone or iPad, the Cupertino, California-based company said today in a statement. Publishers who participate will have to offer their lowest subscription rates within Apple’s store. “All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app,” Apple Chief Executive Officer Steve Jobs said in the statement. Jobs remains involved with strategic decisions while on medical leave.

Wall Street Journal:

• Bahrain Opposition Bloc Defects as Protests Mount. A funeral for a man killed during demonstrations swelled into a massive protest Tuesday, drawing in thousands for a second day of clashes that ended with another death and the defection of the country's main opposition bloc from parliament. The clashes in Bahrain represent a significant escalation of the Arab unrest that has fanned out from Tunisia, culminating in the resignation of Egypt's Hosni Mubarak on Friday. Bahrain is the only Arab state so far in the oil-rich Persian Gulf beset by unrest amid protests across much of the rest of the Middle East.
• Iraq To Hold New Oil, Gas Exploration Bid Round In 4Q - Official.
• Deutsche Borse Sets Its Deal to Buy NYSE(NYX). NYSE Euronext and Deutsche Börse AG outlined plans for a combination that would create the world's largest exchange operator, but would face hurdles in winning support from regulators and lawmakers and overturning investor skepticism about forecast synergies. The companies aim to close a transaction by year-end that would see Deutsche Börse shareholders own 60% of the entity in an all-stock deal that offers NYSE Euronext shareholders a 10% premium to its share price before deal talks were announced.

CNBC.com:

• Hot Stocks: What Hedge Funds Bought in 4Q.

Business Insider:

• The 25 Best Companies To Work For In America.
• This Stunning Pie Chart Tells The Truth About Obama's Budget Cuts.
• Obama's Revenue Estimates Are Either Fantasy or Comedy. (graphs)
  

Zero Hedge:

• Per Declassified Testimony, Bernanke Blames Blogoshpere for Itemizing Disasterous Consequences of His Actions, Says Goldman(GS) is a Utility.
• China Sees January Car Sales Plunge 10.3%.
  

New York Post:

• O's Losing Ground Across Mideast. Despite the president saying that a nuclear Iran is "unacceptable," Iran may become a card-carrying member of the Mushroom Cloud Club this year; some experts believe it already has gathered enough uranium for at least a couple of A-bombs. Not to mention that its ever-expanding space-launch and satellite programs have put Tehran closer to developing an ICBM capable of reaching the US homeland -- all while our missile-defense programs lag behind the threat.

New York Times:

• SEC Questioned on Disclosure of Criminal Inquiries. It is no mystery that the Securities and Exchange Commission and the Justice Department work closely together in pursuing cases, often filing parallel criminal and civil cases on the same day. For lawyers involved in S.E.C. investigations, an important consideration is whether there is any criminal interest in the case — information that the agency has historically been loath to reveal.
• To Stand Out, Retailers Flock to Exclusive Lines. To find Miley Cyrus’s line of clothes, shoppers head to Wal-Mart. For Selena Gomez’s, they go to Kmart. Jennifer Lopez’s line is at Kohl’s, and Demi Lovato’s at Target. Rachel Bilson dinnerware can only be found at Macy’s, while for the Kardashian Kollection, fans must go to Sears.

Minyanville:

• Betting Against Submerging Markets.

ABC News:

• Oil Prices Fall on Economy, Supply Concerns. Oil prices fall from early highs as rising supplies and demand shift focus from Middle East. Benchmark West Texas Intermediate crude fell 66 cents to $84.15 a barrel in midday trading on the New York Mercantile Exchange after rising as high as $85.98 earlier in the session. In London, Brent crude fell 79 cents to $102.29 a barrel on the ICE Futures exchange.

MSNBC.com:

• John Edwards Investigation: Charges Near? Prosecutors say case against ex-candidate strong, but Justice Dept. has yet to OK charges.

Real Clear Politics:

• Bloomberg Predicts Health Care Law Will Be Defunded. In a video posted on an Orthodox Jewish online news publication on Monday, New York City Mayor Michael Bloomberg is seen discussing at length his critical views of the health care reform law, suggesting that it does not address the most pressing issues facing the health care system both nationwide and in the city he governs. In the video, Bloomberg is shown paying a visit to members of a mourning family who had recently lost their brother. After Bloomberg offers his condolences, one of the family members noted that his brother was in the emergency room for 73 hours before he died and said that overcrowding in emergency rooms in New York had become out of control. "It's going to get worse with the health care bill and with the government's cutbacks," Bloomberg said, predicting that hospitals would close due to a lack of funding. "All of these costs keep going up. Nobody wants to pay any more money, and at the rate we're going, health care is going to bankrupt us."

Politico:

• Liberals Launch Anti-Darrell Issa Crusade. Democrats are understandably obsessed with Darrell Issa — he’s built himself up as a one-man investigative machine aimed straight at the Obama presidency. But a handful of liberal political operatives in California — including a former Hillary Clinton hand — are taking their anti-Issa passion to a whole new level, launching a nonprofit group, a website and even paid media advertisements aimed at undermining and investigating the rabble-rousing chairman of the House Oversight and Government Reform Committee.

Reuters:

• Mobile Fair - ARM(ARMH) Sees Boost From High-End Smartphones.

USA Today:

• Builders Offer MGP-Like Home Efficiency Labels.

Financial Times:

• Rising Chinese Wages Pose Relocation Risk.

DigiTimes:

• Apple(AAPL) to Expand iPhone Screen Size to 4-Inches.

Xinhua:

• Inflationary pressure is likely to increase in China on rising food prices, citing a report by the APEC Business Advisory Council. The government may further cut lending quotas and increase interest rates and bank reserve requirements to rein in inflation, according to the report.
• Central China County Sees Surging Sales of "apartments up in the air" Despite Warning of Financial Risks. Despite the central government's efforts to control soaring housing prices and speculation, residents in a small county in central China's Henan Province are rushing to purchase, even if the apartments are still "up in the air". Realtors in Guangshan County in Xinyang City sell houses with just apartment layout plans. Some properties are even sold with old buildings on the foundations. A resident surnamed with Zhou, who paid 50 percent as a down payment last May for an apartment in the property project "Xianchengshuyuan", has not seen any construction signs on the lot. However, he is very optimistic about his potential apartment's value. "Although I haven't seen a brick, the price has almost doubled," he said.

Market News International:

• China may further tighten the money supply even after January inflation was below market expectations, citing two people close to the National Development and Reform Commission. The government is "facing growing inflation pressure in the coming months," one of the people said.

Netease.com:

• BYD Co.'s January vehicle sales fell 15% from a year ago to 52,0454 units, citing the company.

Bear Radar

Style Underperformer:

• Large-Cap Value (-.73%)

Sector Underperformers:

• 1) Disk Drives -2.30% 2) Agriculture -1.74% 3) Education -1.59%

Stocks Falling on Unusual Volume:

• UCTT, STEC, CF, FOSL, CPLA, JDSU, AEIS, NDAQ, MRVL, OCLR, CGNX, GMCR, SGI, CBOE, CLI, NYX, NLY, MAS and FTI
  

Stocks With Unusual Put Option Activity:

• 1) DELL 2) WMB 3) MAS 4) XCO 5) MNTA
  

Stocks With Most Negative News Mentions:

• 1) NKTR 2) BIG 3) SSS 4) HUGH 5) EXR

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Small-Cap Value (-.04%)

Sector Outperformers:

• 1) Gold +1.29% 2) Steel +.54% 3) Banks +.20%

Stocks Rising on Unusual Volume:

• BCS, SLW, ALJ, CSIQ, CMC, SWC, PBR, DGIT, NVMI, NSIT, MERC, PERY, ECPG, AAWW, FWRD, JAZZ, GEOI, ARTC, NICE, CLDA, AKAM, RDWR, ABCO, ACIW, PAAS, IPXL, ZOLL, VCO, SF, DW, MMC and FDX
  

Stocks With Unusual Call Option Activity:

• 1) EQR 2) CHS 3) IPG 4) A 5) GPS
  

Stocks With Most Positive News Mentions:

• 1) SWK 2) DBD 3) LMT 4) A 5) OMX

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Tuesday Watch

Evening Headlines
Bloomberg:

• Tunisia Democracy Gridlock May Foreshadow Egypt Transition Woes. In what may be a lesson for Egypt, the ouster of Tunisian President Zine El Abidine Ben Ali one month ago has created conflict between politicians jostling to fill the political hole. The former ruling party says Islamic participation in a future government would hurt women’s rights and tourism, while the Islamists say their opponents should be permanently banned because they supported Ben Ali’s dictatorship.
• Bahrain Riot Police Use Tear Gas as Protesters Demand More Freedom, Jobs. Bahraini riot police were deployed to break up protests across the island nation as demonstrators, inspired by revolts in Egypt and Tunisia, demanded more political freedom and jobs. Police fired tear gas into crowds in the areas of Diraz and Bani Jamrah. Earlier, residents of the Shiite Muslim village of Nuweidrat said clashes broke out between activists and police after morning prayers. Police were present on the outskirts of Nuweidrat, where Shiite flags adorned buildings along alleyways. ”We were starting our peaceful protests when riot police attacked us with tear gas,” Nabeel Rajab, head of the Bahrain Center for Human Rights, said in an interview after the protest in Bani Jamrah was dispersed. “We will continue our protests until the government hears our demand.”
  
• EU to Double Rescue Fund in 2013, Takes No Fresh Portugal Steps. European governments agreed to double the lending capacity of the rescue fund for debt-laden countries in 2013, while seeing no need for immediate steps to shield Portugal from the fiscal crisis. Finance ministers decided that the future emergency aid mechanism will be able to lend 500 billion euros ($675 billion), twice the size of the fund set up in the wake of Greece’s near- default last year. “The situation on the sovereign-debt markets remains worrying,” Luxembourg Prime Minister Jean-Claude Juncker told reporters after chairing a meeting of European finance ministers in Brussels yesterday. “The Portuguese authorities did take effective actions. If this action would reveal itself as not having been sufficient, other measures will have to be taken, but I have no indications that this has to be done in the short term.”
• China's January Inflation Data Today Cuts Food Weighting, Newspaper Says. China’s January inflation data to be released today will reflect a reduced weighting for food in the consumer-price index, the China Securities Journal reported, citing an unidentified statistics bureau official. While China makes minor changes to CPI weightings each year, the latest moves are part of a more thorough adjustment every five years, the newspaper cited the official as saying. Food has accounted for about a third of the index and was the main driver of China’s inflation last year.
• China Inflation Less Than Estimated as Food Weighting Cut. Inflation exceeded the government’s 2011 target for a fourth straight month in China as prices excluding food rose the most in at least six years, escalating pressure on the central bank to keep raising interest rates. Consumer prices rose 4.9 percent last month from a year earlier, the statistics bureau said in a statement on its website today. That compared with a 4.6 percent gain in December and the median forecast of 5.4 percent in a Bloomberg News survey of 27 economists. Producer-price inflation accelerated to 6.6 percent from 5.9 percent in December. A drought in wheat-growing regions, rising global commodity prices and a 53 percent increase in money supply in two years are adding to price pressures.
• Corn Set for Record on Surging Demand, Agrocorp Says. Corn may surge to a record in the first half and be the best-performing agricultural commodity as increased government purchases help to “inflame” the market, according to Agrocorp International Pte.
• Appaloosa Buys Bank of America(BAC), Citigroup(C) Shares. Appaloosa Management LP, the hedge fund founded David Tepper, bought shares of Bank of America Corp.(BAC) and Micron Technology Inc.(MU) while more than doubling its position in Citigroup Inc.(C) during the fourth quarter. Appaloosa purchased 2.59 million shares of Bank of America in the period that ended Dec. 31, boosting its stake to 25.1 million, and opened a 17.8 million share stake in Micron, according to a filing today. Its ownership in Citigroup jumped to 117.5 million shares, an increase of 66.3 million. Tepper ran the top fund among hedge funds with assets over $1 billion in 2009 when he returned 132 percent to investors. The same fund earned 21 percent in 2010. He personally made between $2 billion and $3 billion in 2010, according to the Wall Street Journal.
• NFL Files Unfair-Labor Practice Charge Against Union. The National Football League filed an unfair-labor-practices complaint with the National Labor Relations board, saying its players’ union isn’t bargaining in good faith on a new contract.
• FedEx(FDX) Cuts Quarterly Profit Forecast on Winter Storms, Higher Fuel Prices. FedEx Corp. cut its profit forecast for the current quarter because of rising fuel costs and “severe” winter storms that reduced revenue and inflated expenses. Adjusted earnings will be 70 cents to 90 cents a share for the quarter ending Feb. 28, compared with an earlier projection of 95 cents to $1.15, the Memphis, Tennessee-based company said today in a statement. Analysts expected earnings of $1.02 a share, the average of 20 estimates compiled by Bloomberg. The reduction showed some of the economic fallout from the snow and ice that may make this winter the worst for flight cancellations since the government began tracking the data in 1987. FedEx, operator of the world’s largest cargo airline, said in December it was being “hammered” by storms. “This isn’t a read on the economy or volume,” said Art Hatfield, a Morgan Keegan & Co. analyst in Memphis who recommends buying the shares. “It’s a one-time weather thing, and the fuel costs they will recoup in time” with surcharges. The shares rose 7 cents to $94.06 at 5:23 p.m. after New York Stock Exchange composite trading.
• Goldman's(GS) Shumway Deal Shows Peril of Buying Hedge Fund Stakes. Goldman Sachs Group Inc. last year bought stakes in Shumway Capital Partners LLC and Level Global Investors LP, as a way for its clients to share in the fees of the two multibillion-dollar hedge funds. This month, both firms decided to kick out fee-paying investors, rendering the investments Goldman Sachs made through a private-equity fund potentially worthless.

Wall Street Journal:

• 'Brothers' in Egypt Present Two Faces. Moaz Abdel Karim, an affable 29-year-old who was among a handful of young activists who plotted the recent protests here, is the newest face of the Muslim Brotherhood. His political views on women's rights, religious freedom and political pluralism mesh with Western democratic values. He is focused on the fight for democracy and human rights in Egypt. A different face of the Brotherhood is that of Mohamed Badi, 66-year-old veterinarian from the Brotherhood's conservative wing who has been the group's Supreme Guide since last January. He recently pledged the Brotherhood would "continue to raise the banner of jihad" against the Jews, which he called the group's "first and foremost enemies." He has railed against American imperialism, and calls for the establishment of an Islamic state. After Egyptian President Hosni Mubarak stepped down on Friday amid the region's most dramatic grassroots uprising since the Iranian Revolution in 1979, the Brotherhood became poised to assume a growing role in the country's political life. The question for many is: Which Brotherhood?
• Tehran Beats Back New Protests. Iranian police used tear gas and electric prods to crack down on the country's biggest antigovernment protests in at least a year, as demonstrators buoyed by activism across the Middle East returned to the country's streets by the tens of thousands Monday. The day of planned antigovernment rallies began largely peacefully, according to witnesses, with protesters marching silently or sitting and chanting. But as demonstrators' ranks swelled, police and antiriot forces lined the streets, ordered shops to shut down and responded at times with force, according to witnesses and opposition websites, in a repeat of the official crackdown that helped snuff out months of spirited opposition rallies a year ago. By day's end, online videos showed garbage bins on fire, protesters throwing rocks at the police and crowds clashing with motorcycle-mounted members of the pro-regime Basij militia.
• Budget Battle Lines Drawn. President Barack Obama offered a 2012 budget Monday that would reduce the federal deficit over time but still leave spending at historically high levels because of mushrooming health and retirement programs. Under the proposal, spending as a percent of the U.S. gross domestic product would be 23.6% next year, down from 25.3% this year. Spending as a share of the economy would decline in later years, then rebound to the 23% level by 2020. That is because the budget doesn't address the unchecked growth of Medicare, Medicaid and Social Security.
• Huawei Set Back On Deal In U.S. A U.S. panel has decided Huawei Technologies Co. should divest itself of a small technology company the Chinese telecom-equipment maker bought in May. Huawei said Monday it was told by the Committee on Foreign Investment in the United States that it must divest the acquired company or the committee will make a recommendation to the U.S. president that the deal be unraveled. Huawei has decided to take its chances with the president, who doesn't have to act on the recommendation, said Bill Plummer, vice president for government affairs for Huawei USA.
• Chevron(CVX) Hit With Record Judgment. An Ecuadorian judge on Monday ordered Chevron Corp. to pay $8.6 billion to clean up oil pollution in the country's rain forest in what is believed to be the largest-ever judgment in an environmental case. And if the U.S. oil giant doesn't publicly apologize in the next 15 days, the judge ordered the company to pay twice that amount. The ruling brings to an end one chapter of a legal drama that has played out in courtrooms in Ecuador and the U.S. for nearly two decades. The case has been bitterly fought by both sides, with each accusing the other of improprieties. In recent months, Chevron uncovered a secret memo revealing the plaintiffs' strategy for enforcing any favorable Ecuadorian ruling around the world. That means that Chevron could be forced to defend itself in any of the dozens of countries where it does business. The oil company, which denies responsibility for the pollution, has no assets in Ecuador and has vowed to fight any efforts to seize its property overseas. Other multinational corporations are closely watching the case. The plaintiffs, residents of Ecuador's oil-rich Amazon rain forest, are seeking to hold Chevron accountable for environmental damage they say was caused by Texaco Inc., which operated in the country from 1965 to 1992. Chevron inherited the case when it acquired Texaco in 2001.
• The Cee Lo Green Budget. The cynical and unrealistic White House budget. This was supposed to be the moment we were all waiting for. After three years of historic deficits that have added almost $4.5 trillion to the national debt, President Obama was finally going to get serious about fiscal discipline. Instead, what landed on Congress's doorstep on Monday was a White House budget that increases deficits above the spending baseline for the next two years. Hosni Mubarak was more in touch with reality last Thursday night.
• ObamaCare and the Medicaid Mess. States need relief from the program's inflexible rules and escalating costs. Facing growing resistance to Medicaid costs, the Obama administration's Health and Human Services secretary, Kathleen Sebelius, sent a letter to states last week noting the "urgency of your State budget concerns" and suggesting some minor program changes to save money. They aren't enough.

CNBC:

• Goldman Sachs(GS) Cannot Stop Taking Over The Government.

MarketWatch:

• Heavy Metals Tainting China's Rice Bowls. As much as 10% of China’s rice may be tainted by poisonous cadmium, a heavy metal discharged in mine and industrial sewage that makes its way into rice paddies, according to agricultural researchers at a major university. Much of this poisoned rice is consumed by farm families or sold in areas of the nation’s food market beyond the reach of government safety regulators.

Business Insider:

• How The %&$! Do You Spend $3.7 Trillion? Here's a look at our break down of spending by department and some of their biggest projects. Read the full list of the $3.7 trillion President's budget here.
• Public Worker Unions Get Ready For A Showdown Over Wage, Pension Cuts.
  

Zero Hedge:

• Paulson Sells 10% Of BofA Stake, Increases Equity AUM From $23 to $30 Billion, Adds Numerous New Positions.
• Deutsche Bank Suspends New Issuance of Double Long Agricultural ETF (DAG).

IBD:

• EMC(EMC) Hopes To Lead The Journey To The Cloud.

New York Times:

• Companies Raise Prices as Commodity Costs Jump. A package of Oscar Mayer cold cuts. A pair of Nine West boots. A Whirlpool washing machine. By the fall, people will most likely be paying more for each of them, as rising prices hit most consumer goods, say retailers, food companies and manufacturers of consumer products. Cotton prices are near their highest level in more than a decade, after adjusting for inflation, and leather and polyester costs are jumping as well. Copper recently hit its highest level in about 40 years, and iron ore, used for steel, is fetching extremely high prices. Prices for corn, sugar, wheat, beef, pork and coffee are soaring. Labor overseas is becoming more expensive, meanwhile, and so are the utility bills to keep a factory running. “There are cost pressures from virtually everywhere,” said Wesley R. Card, the chief executive of the Jones Group(JNY), whose brands include Nine West and Anne Klein. After trying to keep retail prices flat or even lower during the recession, Jones says prices for its brands will climb 15 to 20 percent by autumn.

CNN Money:

• Budget Chiefs: Not Happy With Obama Plan. The top budget chiefs from both political parties criticized President Obama's 2012 budget Monday. Democrat Kent Conrad and Republican Paul Ryan, the budget chairmen in the Senate and House respectively, share one big beef: The Obama budget remains effectively silent on how to address the long-term drivers of debt -- Social Security, Medicare and Medicaid. By the end of the decade, those entitlement programs, together with interest owed on the country's debt, could command most of federal tax revenue coming in the door. Though ideologically different, Conrad and Ryan are both deficit hawks who sat on the president's bipartisan debt commission.

Washington Post:

• In His New Budget, Obama Kicks the Can One More Time. Our leaders are so good at kicking the can that it's almost uncanny.

Rasmussen Reports:

• 57% of Voters Favor Repeal of Health Care Law, 38% Opposed.
• 41% Favor High-Speed Rail Plan, 46% Oppose.
  

USA Today:

• GM(GM) to Dole Out $4,000 Bonus Checks - But Not to U.S. Taxpayers. Now that General Motors is finally making some money again, workers are going to get a nice one-time bonus: checks for $4,000. But should American taxpayers be repaid first? GM will pay more than $189 million in profit-sharing to 48,000 U.S. hourly workers and millions more in performance bonuses to salaried employees, according to company documents obtained by the Associated Press. GM will pay most hourly workers more than $4,000 each as compensation for its strong financial performance last year, said a person briefed on the bonuses. But not everyone is happy about it. The payments were condemned by a leading critic of the industry bailout in Congress. "Since the taxpayers helped these companies out of bankruptcy, the taxpayers should be repaid before bonuses go out," Sen. Charles Grassley, R-Iowa, said in a statement. "It sends a message that those in charge take shareholders, in this case the taxpayers, for a sucker."

Reuters:

• BOJ Tones Up Economic Optimism, Keeps Rates On Hold. The Bank of Japan raised its assessment of the economy on Tuesday to say it is gradually emerging from a slowdown, further signaling that no imminent monetary easing is on the horizon.
• Einhorn Takes Stakes in Sprint(S), BP(BP). Hedge fund manager David Einhorn's Greenlight Capital on Monday disclosed new stakes in half a dozen companies ranging from telephone company Sprint Nextel Corp (S.N) to energy company BP Plc (BP.L).
• U.S. to Stop Funding NATO Missile Defense Program. The United States on Monday said it would stop funding a multibillion-dollar U.S.-European missile defense program known as MEADS after fiscal year 2013, calling it unaffordable in the current budget climate. "Our partners may go forward with some MEADS, but it is not our plan to do so," the Pentagon's comptroller Robert Hale told a budget briefing. He was referring to Italy and Germany.
• Perry Ellis(PERY) Raises FY Outlook on Strong Demand. n">Apparel maker Perry Ellis International Inc raised its adjusted full-year earnings outlook and forecast a fourth-quarter profit largely above analysts' estimates, as its products continued to resonate well with customers. For full-year 2011, the company raised its adjusted full-year profit to $1.82-$1.85 per share from its prior forecast of $1.72-$1.80 a share. Shares of the Miami-based company, closed at $29.28 on Monday on Nasdaq. They were up 4 percent in extended trade.

Financial Times:

• Worries Surface Over Power of D Borse-NYSE Euronext(NYX) Link. Some of the world’s biggest banks are privately expressing concern over the market power of a proposed tie-up between Deutsche Börse and NYSE Euronext.

Evening Recommendations
Citigroup:

• Reiterated Buy on (GT), raised target to $19.

Night Trading

• Asian equity indices are -.25% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 108.50 +1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 121.50 +.5 basis point.
  
• S&P 500 futures -.05%.
  
• NASDAQ 100 futures -.03%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (GBE)/-.14
• (UTHR)/.63
• (OMC)/.81
• (FOSL)/1.35
• (CPLA)/1.10
• (MMC)/.39
• (ADI)/.65
• (DELL)/.37
• (MDRX)/.18
• (MCP)/-.10

Economic Releases
8:30 am EST

• Empire Manufacturing for February is estimated to rise to 15.0 versus a reading of 11.92 in January.
• The Import Price Index for January is estimated to rise +.8% versus a +1.1% gain in December.
• Advance Retail Sales for January are estimated to rise +.5% versus a +.6% gain in December.
• Retail Sales Less Autos for January are estimated to rise +.6% versus a +.5% gain in December.
• Retail Sales Ex Auto & Gas for January are estimated to rise +.4% versus a +.4% gain in December.

9:00 am EST

• Net Long-Term TIC Flows for December are estimated to fall to $40.0 Billion versus $85.1 Billion in November.

10:00 am EST

• Business Inventories for December are estimated to rise +.7% versus a +.2% gain in November.
• The NAHB Housing Market Index for February is estimated at 16.0 versus a reading of 16.0 in January.
  

Upcoming Splits

• (BLL) 2-for-1
  

Other Potential Market Movers

• The Fed's Pianalto speaking, weekly retail sales reports, weekly ABC consumer confidence reading, Goldman Sachs Tech/Internet Conference, Stifel Nicolaus Transports Conference, Deutsche Bank Small/Mid-Cap Conference, BofA Merrill Lynch Insurance Conference, (JNPR) analyst meeting, (AWK) investor conference, (GNW) investor day and the (JPM) investor day could also impact trading today.
  

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