Thursday Watch

Evening Headlines

Bloomberg:

• France Takes Market Pulse With Bond Sale as AAA Rating Decision Looms. France plans to sell as much as 8 billion euros ($10.4 billion) of debt today in the country’s first test this year of investor appetite for its bonds as credit companies threaten to cut the nation’s AAA rating. “It’s going to be a tough one,” said Michael Leister, a fixed-income strategist at DZ Bank AG in Frankfurt. “The rating is an evergreen topic. France has been suffering since the second half of December against its AAA peers. But given the importance of the signal from this first auction, I guess it will go alright.” The extra yield investors demand to hold French bonds instead of benchmark German bunds rose to 204 basis points on Nov. 17, the most since 1990, as concern deepened the region’s debt crisis was spreading. While the gap narrowed to 139 basis points yesterday, it compares with a premium of 46 basis points for AAA rated Finland and 38 basis points for the Netherlands. The French sale comes a day after Germany sold 4.1 billion euros of bonds, getting more bids than its maximum target of 5 billion euros. The German sale kicked off a rush for funding that may determine whether euro-area leaders can save the 13- year-old single currency. Italy and Spain are among countries that in the coming weeks will sell debt that may reach 262 billion euros in the first quarter, according to Deutsche Bank AG forecasts.
• Papademos Warns Fellow Greeks Economic Collapse Looms Without Sacrifice. Prime Minister Lucas Papademos told fellow Greeks that deeper cuts in incomes are the only way for the country to remain in the euro area and receive more financing (GKCPIUHY) from international creditors, steps that would avert an economic collapse that may otherwise come as soon as March. “We have to give up a little so we don’t lose a lot,” Papademos said, according to an e-mailed transcript of his statements to union and business leaders yesterday. Talks later this month with officials from the European Union, International Monetary Fund and European Central Bank, the so-called troika, will focus on a “credible” economic plan for 2012 to 2015. “Without this agreement with the troika and subsequent financing, Greece in March faces the immediate risk of a disorderly default,” he said.
• Euro Approaches 11-Year Low Versus Japanese Yen Before French Bond Sales. The euro approached an 11-year low against the yen before France sells bonds today on concern the region’s governments and banks will struggle to raise funds. The 17-nation currency slumped against 12 of 16 major peers after Greek Prime Minister Lucas Papademos warned his nation may face economic collapse as soon as March. The Australian and New Zealand dollars weakened against the greenback as Asian stocks (MXAP) fell, ending a two-day rally and sapping demand for higher- yielding assets. Gains in the dollar were limited before reports forecast to show service industries in the U.S. expanded in December and companies boosted payrolls. “There will be steady pressure on the euro in terms of rolling over existing debt and issuing new debt,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, Australia’s second-largest lender. “There’s really been nothing that would make you want to even play for an interim bounce in the euro.”
• China's 'Demographic Tsunami' Begins. Wang is in the vanguard of a looming demographic shift for China, Bloomberg Businessweek reports in its Jan. 9 issue. The latest government census shows 178 million Chinese were over 60 in 2009. That figure could reach 437 million -- one third of the population -- by 2050, the United Nations forecasts. While the elderly were looked after in the past by their children, urbanization and the nation’s one-child policy have eroded the tradition of family care. “It’s a demographic tsunami,” says Joseph J. Christian, a fellow at the Asia Center at the Harvard Kennedy School, and former DLA Piper partner in Hong Kong, who specializes in senior housing issues in China. “The whole multi­generational housing model has disappeared.”
• Alcoa(AA) Estimates Plunge Most Since 2008 After Aluminum Decline: Commodities. Alcoa Inc. (AA) earnings estimates have plunged the most in three years as analysts’ expectations mount that the biggest U.S. aluminum producer may even record a fourth-quarter loss. Net income will tumble 94 percent to 1 cent a share from 21 cents a year earlier, according to the average of 18 analysts’ estimates compiled by Bloomberg. That’s 82 percent less than the average projection from a month ago. Eight of the 11 estimates (AA) compiled within the last 28 days are for New York-based Alcoa to post a loss in the fourth quarter. The average price of aluminum, which is used in beverage cans, aircraft and window frames, was 11 percent lower in the quarter from a year earlier after global growth decelerated amid a sovereign-debt crisis in Europe and government action to control inflation in China. Supply is exceeding demand and inventories have soared, leaving some smelters unprofitable at current metal prices. “You have 40 to 50 percent of global capacity under water at these levels,” Kuni Chen, an analyst with CRT Capital Markets in Stamford, Connecticut, who has a “buy” rating on Alcoa, said in an interview.
• Lampert Cuts AutoZone(AZO) as Clients Pull Money Amid Sears(SHLD) Losses. Edward Lampert’s hedge fund slashed its stake in AutoZone Inc. in the final days of last year to meet client redemptions amid a series of setbacks at Sears Holdings Corp., one of its largest and highest profile investments. ESL Investments Inc., the firm run by Lampert, distributed about $1.02 billion worth of AutoZone stock to investors in connection with the closing of one investment partnership and the restructuring of another, according to a regulatory filing. The Greenwich, Connecticut-based firm also used $351.4 million of shares in AutoZone and AutoNation Inc. as payment in kind to meet year-end redemptions from its main fund, ESL Partners LP, the filing showed.
• Obama Chooses Politics Over Principle in Naming Cordray: View. The White House called these “recess appointments,” even though Congress technically wasn’t in recess. In doing so, the president is playing with fire. He risks an election-year legal challenge that could hamstring the consumer bureau and several other financial regulators whose pending confirmations will probably now stall. The president’s authority -- and that of future executives -- to fill administration posts without Senate approval may be limited by the courts. We think Obama risks too much to make what is largely a political point.
• Asia Hedge Funds Face a Year of Attrition. Asia’s hedge-fund industry is set to shrink in 2012 after a year in which growth stagnated, performance faltered and managers struggled to raise capital. There were 123 Asian hedge funds that closed in the first 10 months of 2011, compared with 125 in all of 2010 and a record 184 in 2008 when the collapse of Lehman Brothers Holdings Inc. (LEH) roiled markets, according to Singapore-based data provider Eurekahedge Pte. Artradis Fund Management Pte, once Singapore’s biggest hedge fund, shut, while managers returning money to investors included CoreVest Partners and Kilometre Capital Management Ltd. Asia’s hedge funds are dwindling as most managers haven’t made money as a business or for investors, said Peter Douglas, principal of Singapore-based GFIA Pte. Hedge funds in the region manage $125 billion, lower than the peak of $176 billion in 2007, according to Eurekahedge.
• Gokarn Signals India Inflation May Prevent Rate Cuts: Economy. India’s persistently high inflation may prevent an imminent reversal of record interest-rate increases, as a weakening rupee and oil’s rebound reduce the scope for monetary easing, the central bank’s deputy chief said. “The monetary cycle has peaked,” Subir Gokarn, deputy governor of the Reserve Bank of India, said at a conference in Singapore today. “That does not necessarily say that a quick reversal is in order because inflation risks are still visible, still high.”

Wall Street Journal:

• BMW Grabs U.S. Luxury-Car Sales Crown. BMW AG nosed out rival Daimler AG's Mercedes-Benz unit in December U.S. sales to capture the title of top-selling U.S. luxury brand for 2011, according to estimates by market researcher Autodata Corp. Autodata, which compiles sales totals reported by auto makers, estimated BMW sold 248,113 cars and sport-utility vehicles in 2011, 2,804 more than Mercedes.
• Citi(C) Analyst Lures Hot Internet IPOs. When real-estate website Zillow Inc. was looking for a Wall Street bank to lead its $80 million initial public offering in July, Citigroup Inc. rose to the top of the list. A main attraction: the bank's top-ranked Internet analyst, Mark Mahaney. Mr. Mahaney "is widely regarded as one of the most influential analysts covering the Internet, and, yes, that was absolutely part" of Zillow's choice of Citi, said Spencer Rascoff, Zillow's chief executive, in an interview.
• Congress Presses Rating Firms. Congressional investigators are stepping up their inquiry into how deeply credit-rating companies examined the disastrous bet that sank MF Global Holdings Ltd. and whether the firms overlooked crucial information in their evaluations, according to people familiar with the matter. The chairman of the House Financial Services subcommittee on oversight and investigations sent letters to Moody's Corp. Chief Executive Raymond McDaniel and Standard & Poor's Ratings Services President Douglas Peterson seeking detailed information about the firms' procedures for determining MF Global's credit worthiness.
  
• B-Shools Send Rejections to Unlikely Group: Alumni. This admissions season, business school alumni are the ones facing rejection. Graduate schools including University of Pennsylvania's Wharton School are bypassing alumni in admissions interviews to meet directly with M.B.A. candidates in person or via Skype videoconferencing, despite the potential higher costs, in an attempt to ensure interviews are being conducted in a uniform manner—and in English.
• Auto Lenders Speeding Past Mortgage Woes. Auto lenders are pursuing an unlikely growth market: people who have fallen behind on their mortgages. Historically, lenders have viewed mortgage troubles as a major red flag. Now, firms such as Ally Financial Inc., General Motors Financial Co. and Mitsubishi Motors Credit of America Inc. are sifting through loan applications to determine which borrowers with scuffed mortgage-payment histories are likely to be good credit risks.
• Contempt for Congress. Obama makes recess appointments when there's no recess.
• North Korea Lashes Out at Japan, Hardening Stance Against Foes.
  

Business Insider:

• This Retailer Is Doing So Well It's Opening Hundreds Of New Stores For The Fourth Straight Year.
• Seriously, If You Pick The Wrong Major Then Prepare To Be Unemployed.
• RBS Axing Up to 10,000 Jobs From Its Investment Bank.
• Experts Agree This Is The Most Effective Diet In The World.

Zero Hedge:

• The Can Kicking Is Ending - Key Upcoming Dates For Europe's Patient Zero.
• One Word... Volume. (graphs)
  

CNBC:

• China Uncovers Massive Irregularities in Local Government Debt. China has uncovered 530 billion yuan ($84.21 billion) worth of irregularities with local government debt, the National Audit Office said on Wednesday. An audit report, published on China's central government website, reveals some of the problems investment analysts had believed to lay beneath the 10.7 trillion mountain of debt that local governments had amassed by the end of 2010. The report, conducted for the 2010 budget year, found problems including 46.5 billion yuan worth of "irregular credit guarantees", 73.2 billion yuan worth of loans secured against irregular collateral, 35.1 billion yuan spent on stocks, houses and polluting plants and 132 billion yuan worth of expenditure not made by its approved deadline. "A fifth problem is the fraudulent and underpayment of registered capital in financing vehicles, which amounted to 244.15 billion yuan," the report said.

LA Times:

• Bypassing Congress, Obama Will Appoint Three to NLRB. Capping a daylong assault on congressional Republicans, President Obama appointed three members to the National Labor Relations Board as part of a series of recess appointments the GOP had tried to prevent. Obama made the move while Congress is away for the holiday break, but meeting every few days in pro forma sessions to block the White House from precisely these type of recess appointments. The labor board appointments were tucked into Obama’s more public announcement of Richard Cordray as the new consumer protection bureau chief.

The Blaze:

• After Receiving Bailout, GM(GM) May Move Volt Production To China. Although it happened back in September, 2011, it appears many American taxpayers are unaware that General Motors struck a deal in Shanghai wherein the company has agreed to develop an electric vehicle (EV) platform with its longtime Chinese partner SAIC. What else was included in this deal? GM has agreed to effectively move all future EV development to China. It could also mean that production of the vehicle itself will be moved overseas.

Institutional Investor:

• Citadel Way Ahead of the 2011 Pack. Last year was not exactly a memorable one for many hedge fund managers, as a large number finished the year up or down a point or two. Not Citadel’s Ken Griffin, however. His two main funds — Wellington and Kensington — finished strong with a 2.4 percent gain in December, putting them up 20.4 percent for the year, according to investors.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).

Reuters:

• Blackstone(BX) Reaches Megafundraising Finish Line. Blackstone Group LP will conclude fundraising for its latest buyout fund in January, raising just over $16 billion, three people familiar with the matter said on Wednesday, in a 4-year process challenged by the global financial crisis. The fund is the largest in the market to complete its fundraising process and the sixth biggest private equity fund ever raised, according to data firm Preqin.
• Analysis: Texting Profits at Risk as Users Look Elsewhere. Text-messaging has long been a big-time profit generator for U.S. mobile operators, but they now risk losing these profits as consumers find cheaper ways to communicate. SMS -- short message service -- is no longer all the rage, but it still generates an estimated 12 percent of service revenue for U.S. operators.
• Seagate(STX) Forecasts Strong Q2, Q3; Shares Jump. Seagate Technology Inc forecast stronger-than-expected second-quarter revenue and expects sequentially higher shipments in the third quarter, as the hard disk drive maker recovered from the supply chain disruptions caused by the Thailand floods. Shares of the company rose 7 percent to $17.99 in extended trading. They closed at $16.82 on the Nasdaq on Wednesday.

Financial Times:

• Fitch Warns on Structured Debt Deals. European financials have been flouting the original terms on packaged debt deals they send to the European Central Bank to secure cash and allowing these credit ratings to slide, Fitch Ratings has warned.
• Spain Sees €50bn of new bank provisions. Spain says it expects its banks to set aside up to €50bn in further provisions on their bad property assets as part of a new round of reforms for the country’s financial sector.

Telegraph:

• Hungary Faces Crisis As Traders Fear Bond Debt Default. Hungary was forced to cancel a bond swap auction amid an escalating financial and political crisis that investors fear could trigger another dangerous shockwave in Europe.
• EU Transaction Tax 'in law by year end'. The European Union is set to move ahead with plans for a financial transaction tax despite British opposition, with a senior French politician saying the new levy will be in place by the end of year.

Evening Recommendations
KeyBanc:

• Rated (FOSL) Buy, target $105.
  

Sterne Agee:

• Rated (VMW) Buy, target $108.

Night Trading

• Asian equity indices are -1.0% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 202.50 +6.5 basis points.
  
• Asia Pacific Sovereign CDS Index 154.50 -2.5 basis points.
• FTSE-100 futures +.15%.
  
• S&P 500 futures -.13%.
  
• NASDAQ 100 futures -.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (STZ)/.52
• (RPM)/.39
• (MON)/.18
• (RT)/-.06
• (FDO)/.68
• (APOL)/1.18
• (GPN)/.80
• (WOR)/.32
  

Economic Releases
8:30 am EST

• ADP Employment Change for December is estimated at 178K versus 206K in November.
• Initial Jobless Claims are estimated to fall to 375K versus 381K the prior week.
• Continuing Claims are estimated to fall to 3570K versus 3601K prior.
  

10:00 am EST

• ISM Non-Manufacturing for December is estimated to rise to 53.0 versus 52.0 in November.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,000,000 barrels versus a +3,899,000 barrel gain the prior week. Distillate supplies are expected to rise by +1,000,000 barrels versus a +1,205,000 barrel gain the prior week. Gasoline inventories are estimated to rise by +1,000,000 barrels versus a -692,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a -.7% decline the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The BoE Rate Decision, Challenger Job Cuts report for December, ICSC Chain Store Sales for December, RBC Consumer Outlook Index for January, weekly Bloomberg Consumer Comfort Index, Goldman Healthcare CEOs Conference and the Raymond James Government Services/Tech Summit could also impact trading today.
  

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

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Profit-Taking, Technical Selling, Rising Energy Prices

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 22.26 -3.09%
  
• ISE Sentiment Index 136.0 +65.85%
  
• Total Put/Call .92 +19.48%
  
• NYSE Arms .85 +3.71%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 119.56 +1.32%
  
• European Financial Sector CDS Index 265.48 +5.33%
  
• Western Europe Sovereign Debt CDS Index 379.50 +1.89%
  
• Emerging Market CDS Index 304.21 +2.80%
  
• 2-Year Swap Spread 47.0 -1 bp
  
• TED Spread 57.0 -1 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -105.0 -2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .01% +1 bp
  
• Yield Curve 172.0 +2 bps
  
• China Import Iron Ore Spot $138.80/Metric Tonne +.36%
  
• Citi US Economic Surprise Index 63.60 -1.4 points
  
• 10-Year TIPS Spread 2.07 +7 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -51 open in Japan
• DAX Futures: Indicating +12 open in Germany

Portfolio:

• Higher: On gains in my Tech sector longs, emerging markets shorts and index hedges
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades slightly lower and sits near the high-end of its recent range on rising Eurozone debt angst, global growth fears, technical resistance and rising energy prices. On the positive side, Steel, Software, Homebuilding, Road&Rail, Restaurant and Disk Drive shares are especially strong, rising more than +.75%. Cyclical shares are relatively strong again. The 10-year yield is rising +4 bps to 1.98%. Johnson Redbook Weekly Retail Sales rose +3.7% this week versus a +3.5% gain the prior week, which is a modest positive. On the negative side, Oil Tanker, Networking, Medical Equipment, Drug, Hospital, Insurance and REIT shares are under pressure, falling more than 1.0%. Small-caps are relatively weak and (XLK) has underperformed throughout the day. Oil is rising +.25%, Copper is dropping -2.8%, Lumber is down -3.2% and Gold is gaining +.50%. Despite 2-3% ytd gains in most Asian indices and some better manufacturing data out of China, the Shanghai Composite finished its first day of trading in the new year down -1.4%, which is a red flag. Spanish(-1.72%) and Italian(-2.04%) equities led Europe lower today. The Bloomberg European Bank/Financial Services Index fell -1.6%, as well. The Spain sovereign cds is soaring +9.4% to 438.33 bps, the Germany sovereign cds is gaining +2.24% to 104.0 bps, the Italy sovereign cds is jumping +4.6% to 514.17 bps, the France sovereign cds is rising +1.4% to 221.33 bps, the Japan sovereign cds is gaining +2.5% to 143.54 bps, the Hungary sovereign cds is soaring +11.0% to 719.19 bps and the Russia sovereign cds is gaining +3.76% to 280.33 bps. The Italian/German 10Y Yield Spread is flat at 501.51 bps(still near the highest since Dec. 1995). The Western Europe Sovereign CDS Index is still approaching its Dec. 15 all-time high. The TED spread continues to trend higher and is very near the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is very near the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is falling -1.7% to -105.23 bps, which is back to early-Nov. levels. The Libor-OIS spread is now at the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. Overall, European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand, which remains a large red flag. China Iron Ore Spot has plunged -23.3% since Sept. 7th of last year. Market volume remains poor, however market leading stocks are trading better today after recent underperformance. One of my longs, (AAPL), is helping to lift the Naz to the flatline. (AAPL) looks poised to test its all-time high over the coming weeks and should continue to outperform over the intermediate-term, as well. This Friday's jobs report is especially important given ongoing global economic weakness. US stocks can rally further in the short-term on more positive US economic data, but credit gauges in Europe must calm soon or equity weakness is likely. For a sustainable equity advance into the new year, I would still expect to see meaningful European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, global growth fears, rising energy prices, technical resistance, profit-taking and more shorting.

Today's Headlines

Bloomberg:

• Euro Weakens Amid View Crisis Is Worsening. The euro fell from almost a one-week high against the dollar after a European report showed inflation slowed and Italy’s biggest bank said it needs to raise more capital, fueling bets the region’s debt crisis is worsening. The 17-nation currency dropped toward an 11-year low against the yen after UniCredit (UCG) SpA’s plan to sell shares spurred concern European banks may struggle to raise more capital. The euro slid versus most major peers after El Pais newspaper said the Spanish government helped the Valencia region make an overdue payment to Deutsche Bank AG. The pound climbed to a 15-month high versus the shared currency. “Sentiment overall in the euro is still pretty negative,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “It does look as if Spain could be the problem child for Europe in the months ahead.”
• Financial, Corporate Bond Risk Rises, Credit-Default Swaps Show. The cost of insuring against default on European financial and corporate debt rose, according to traders of credit-default swaps. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed 7.5 basis points to 272 and the subordinated index jumped 13 to 501, according to JPMorgan Chase & Co. at 9 a.m. in London. An increase signals deterioration in perceptions of credit quality. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose three basis points to 741.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was two basis points higher at 171.25 basis points. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose two basis points to 362.5.
  
• Papademos Says Greece Faces Default in March Without Troika Deal. Greek Prime Minister Lucas Papademos told business and union leaders today that a disorderly default in March was possible if his government didn’t secure agreement with international creditors on a new economic plan. “In mid-January, talks begin with the troika which focus on shaping a credible economic adjustment plan for 2012 to 2015,” Papademos said, according to an e-mailed transcript of his statements. “The implementation of the agreement to reduce the debt and continuation of financing of the country depends on that. Without this agreement with the troika and subsequent financing, Greece in March faces the immediate risk of a disorderly default.”
  
• Forint Hits Record Low as Default Swaps Soar on IMF Aid Concern. The forint dropped to a record low against the euro and credit default swaps reached an all-time high after Citigroup Inc. said an International Monetary Fund deal is unlikely in the next six months. The forint fell to 321.1 against the European common currency at 5 p.m. in Budapest. The previous record was 317.92 on Nov. 14. The cost of insuring Hungarian bonds using credit- default swaps climbed to a record 708 basis points from 650 yesterday, data provider CMA said. A delay in the IMF talks may necessitate rate increases of as much as 300 basis points from the current 7 percent rate to defend the forint, Citigroup’s Gargyan said. Ten-year note yields (GHGB10YR) climbed 38 basis points to 10.75 percent, the highest since April 2009, extending the jump in the past three days to 85 basis points, according to generic prices compiled by Bloomberg.
• Spain May Request EU, IMF Loans to Help Banks, Expansion Says. Spanish Prime Minister Mariano Rajoy’s government is considering applying for loans from the European Union’s rescue fund and the International Monetary Fund to finance the restructuring of the country’s financial industry, Expansion reported, citing unidentified people with knowledge of the matter.
• Demand for Factory Goods Rises Most In 4 Months. The need to rebuild depleted inventories may supersede spending on business equipment as the catalyst propelling gains in U.S. manufacturing in early 2012. Orders (CGNOXAI%) for non-defense capital goods excluding aircraft, a measure of future corporate investment, dropped 1.2 percent in November, the biggest decline in 10 months, according to Commerce Department data today.
• China Cuts Television Programs That Contradict Hu's Party Line. China’s government said broadcasters must cut the number of entertainment shows during prime time by more than two-thirds, culling a format that exposed a widening wealth gap that contradicts the Communist Party’s core dogma. The total number of entertainment shows, including dating programs, game shows, talk shows and “emotional stories” airing from 7:30 p.m. to 10 p.m. was cut to 38 as of Jan. 1, from 126 at the end of last year, the official Xinhua News Agency reported late yesterday, citing the State Administration of Radio, Film and Television, or SARFT.

Wall Street Journal:

• Coal India Expects International Prices to Stabilize or Fall. Coal India Ltd., the world's largest producer of the fuel, expects international prices to remain stable or fall in the next six months due partly to sluggish domestic demand. However, any decline in international rates may not be reflected in Coal India's pricing because of the appreciating U.S. dollar, the state-run company's chairman Nirmal Chandra Jha said Wednesday.
• Hong Kong Banks Start Push to Create Yuan 'Libor'. Hong Kong's banking association this week began widely disseminating yuan-lending rates offered by three of the city's biggest banks to their peers, marking an important step toward the development of benchmark rates that could spur growth in the market for offshore yuan loans.
• Kodak Preparing for Chapter 11 Filing.
• Romney Turns Focus to New Hampshire. The Republican race for president moved to New Hampshire Wednesday with one fewer contender as Minnesota Rep. Michele Bachmann dropped her bid after a dismal finish in Iowa.
• Chrysler's Sales Jump as Industry Posts Solid Gains. Auto makers capped 2011 with a strong December and forecast the recovery in U.S. sales would intensify as long as a stabilizing economy and improved job gains continue to encourage shoppers. All three Detroit auto makers reported increases in vehicle sales for December, with Chrysler Group LLC posting a 37% rise, Ford Motor Co. a gain of 10%, and General Motors Co. up 4.6%. For the full year, Chrysler's sales rose 26%, Ford's 11% and GM's 13%.

Fox News:

• President Obama to Appoint Consumer Watchdog While Congress Is Out of Town. President Obama will appoint Richard Cordray to be head of a controversial consumer consumer financial protection agency despite the fact that Congress is not officially in recess. The Constitution does not expressly forbid such an appointment, which would technically come as an intrasession posting. But the defiant move is sure to raise questions of executive power and whether the administration is overstepping its authority. the move outraged Republican lawmakers. "This is a very grave decision by this heavy-handed, autocratic White House," said Sen. orrin Hatch, R-Utah. "Circumventing the Senate and tossing out decades of precedent to appoint an unaccountable czar to appease its liberal base is beneath the Office of the President." House Speaker John Boehner called it "an extraordinary and entirely unprecedented power grab by President Obama that defies centuries of practice and the legal advice of his own Justice Department." But Democrats praised the president's bravado.

CNBC.com:

• European Banks Hoard Record $591 Billion at ECB. Commercial banks' overnight deposits at the European Central Bank hit a new record high of 453 billion euros ($591 billion), data showed on Wednesday, underscoring the ongoing fear banks have about lending to each other in the current debt crisis.
• Mortgage Demand Fell at Year-End, Purchases Sag: MBA. Demand for loans to buy homes and refinance mortgages slid in the final week of 2011, even as mortgage rates dipped, an industry group said on Wednesday. Applications for U.S. home mortgages fell 4.1 percent in the week ended Dec. 30, weighed down by a 9.6 percent drop in purchase loan requests and a 2.5 percent decline in refinancing requests, seasonally adjusted data from the Mortgage Bankers Association showed.
• Germany and France Eye the End of Triple-A Era.
• 'True Revolution' Ahead for US Fiscal Future: Greenspan. The United States faces a "true revolution" in the choices it will have to make to secure its fiscal future now that the welfare state has run up against a "brick wall of economic reality," former Federal Reserve Chairman Alan Greenspan said Wednesday.

Zero Hedge:

• 2011's Hedge Fund Winners and Losers.
• The Pain in Spain in Charts.
• European Credit Markets Tanking Ahead Of Key Issuance Day.
  

Seeking Alpha:

• Hedge Funds Are Buying These 11 Highly-Shorted, Oversold Stocks.

CNN:

• Syrian Rebels Eye 'Huge Operations'. The Free Syrian Army plans to kick off "huge operations" this week against "vital interests" of President Bashar al-Assad's regime, the force's commander said Wednesday. "We prepared ourselves for this stage," Col. Riad al-Asaad told CNN in Turkey. "We can't force him off with the peaceful demonstrations, so we are going to force him by arms to leave."
• Europe's Ticking Time Bomb: Credit Default Swaps. In the midst of the eurozone meltdown, a new crisis has gone unnoticed: a shaky derivatives market.

DealReporter:

• Obama's Financial Fraud Enforcement Task Force to investigate for-profit education, identify theft, issues around third-party payment processors, citing an interview with Michael Bresnick, new executive director of the task force.

Reuters:

• Gold Jumps After Preliminary EU Deal On Iran Oil Ban. Gold was set for its strongest two-day rally in 2-1/2 months on Wednesday after an agreement in principle among European leaders to ban Iranian oil imports boosted the crude price and catapulted bullion to two-week highs. European Union governments reached a preliminary agreement to ban imports of Iranian crude but have yet to decide when such an embargo would be put in place, EU diplomats said on Wednesday.
• China Shares Off to Weak 2012 Start, Shanghai Dips Below 2,200. China shares started the new year weaker on Wednesday, dragged down by more cyclical sectors after the Chinese premier warned of difficult economic conditions in the first quarter, hinting there will not be another massive fiscal stimulus programme. The Shanghai Composite Index closed down 1.4 percent at 2,169.4 points, again slipping below a long-term resistance level seen at 2,200 in weak A-share turnover.
• Copper Drops on Euro Zone Debt Worries.

Financial Times:

• China Moves to Foster Short-Selling. China’s latest attempt to allow fund managers to short stocks while other countries are grappling with their more negative aspects underscores Beijing’s desire to further develop its capital markets and foster its domestic asset management industry.

Handelsblatt:

• The fear of recession is growing in the European Union, citing an interview with Germany's Economy Minister Philipp Roesler. Roesler said the worsening economic situation in Europe will likely be reflected in the German government's annual economy report due to be published later this month.
• German banks are hesitant to fund energy projects including offshore wind parks and power plants fired with gas turbines, as the European debt crisis complicates rules to finance large, long-running projects, citing experts including Thomas Kresser, finance chief of Alstom SA in Germany.
  

Xinhua:

• More Trade Friction Expected As Protectionism Surges. Chinese exporters are likely to encounter more trade barriers in 2012 as trade protectionism resurges globally against the backdrop of a volatile recovery, the Ministry of Commerce (MOC) said Wednesday. Trade protectionism in developed nations has far exceeded the level seen at the beginning of 2009, following the onset of the global financial crisis in 2008, the MOC's Bureau of Fair Trade for Imports and Exports said. In developing economies, some industries that are traditionally inclined toward trade protectionism have begun to ask for government intervention to restrict foreign capital and products, an official with the bureau said on condition of anonymity. "Trade restrictions will increase further in 2012," the official said. The statement came after MOC data showed that China suffered rising trade friction last year. The country faced 67 trade investigations in 2011, involving 5.9 billion U.S. dollars. Both the number of the investigations and value involved were at high levels, the official said, adding that most cases touched upon the country's steel industry, as well as mechanical and electrical products.

Shanghai Daily:

• New Housing Sales in Shanghai Fall to 6-Year Low. NEW home sales in Shanghai last year fell to the lowest in six years despite a rebound in December while the average price continued to climb. The sales of new homes, excluding government-funded affordable housing, totaled 7.3 million square meters across the city last year, an annual drop of 22.2 percent, according to a research released yesterday by Shanghai Deovolente Realty Co. But the average price rose 2.1 percent from a year earlier to 22,012 yuan (US$3,494) per square meter, extending its increase for the sixth straight year.
  

Bear Radar

Style Underperformer:

• Small-Cap Growth (-.80%)

Sector Underperformers:

• 1) Networking -2.70% 2) Hospitals -1.80% 3) REITs -1.22%

Stocks Falling on Unusual Volume:

• PRGS, INFA, CAKE, THRX, YOKU, CRM, TGT, NIHD, LOOP, BSFT, NATI, APKT, FCFS, OPNT, EBAY, WRLD, CSGP, NTCT, PRAA, ADTN, SHPGY, PNFP, FIRE, TRMB, ANDE, PEET, VTR, NST, MA, GBX, AN and OPNT
  

Stocks With Unusual Put Option Activity:

• 1) KSS 2) REE 3) CSC 4) JCP 5) TGT
  

Stocks With Most Negative News Mentions:

• 1) APKT 2) UNP 3) MA 4) JKHY 5) SHLD
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.40%)

Sector Outperformers:

• 1) Restaurants +1.37% 2) Steel +.03% 3) Telecom -.01%

Stocks Rising on Unusual Volume:

• TTM, BMA, TEO, LULU, DMND, SODA, SBS, GDP, FTK, GDP and ITMN
  

Stocks With Unusual Call Option Activity:

• 1) IAG 2) HTZ 3) EXPE 4) AMRN 5) ILMN
  

Stocks With Most Positive News Mentions:

• 1) DNKN 2) NOC 3) CF 4) CTXS 5) GD
  

Charts:

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

Wednesday Watch

Evening Headlines

Bloomberg:

• Huawei's Work in Iran May Violate U.S. Sanctions, Lawmakers Say. Six U.S. lawmakers urged the State Department to investigate whether Huawei Technologies Co. violated U.S. law by supplying sensitive technology to Iran. Huawei, China’s largest maker of phone equipment, said Dec. 9 it would voluntarily restrict business in Iran because of that country’s “increasingly complex situation.”
  
• Denny's Will Raise Menu Prices in 2012 to Offset Food Costs. Denny’s Corp., a family restaurant chain with about 1,600 locations, will raise menu prices this year to help make up for higher commodity costs and maintain profit margin, Chief Executive Officer John Miller said.
• Bank Earnings Jump 57% in Analyst Forecasts Proved Wrong in 2011. Analysts’ failure to foresee declining earnings per share for the biggest U.S. banks last year hasn’t stopped them from predicting an even bigger profit surge for 2012. The six largest lenders, including JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc., may post an average profit increase of 57 percent this year, according to 184 analysts’ estimates compiled by Bloomberg. A year ago, analysts predicted profit at the banks would climb 32 percent in 2011. Instead, earnings per share probably fell 18 percent as the economic recovery analysts counted on never took hold.
• Pimco Total Return Lost $5 Billion to Withdrawals Last Year. Bill Gross’s Pimco Total Return Fund had $5 billion in client redemptions last year as the world’s largest mutual fund trailed rivals, its first year of withdrawals in records going back to 1993, according to Morningstar Inc. Clients pulled $1.35 billion from the fund in December, according to Chicago-based research firm Morningstar. Pimco Total Return, managed by Gross out of Newport Beach, California, returned 4.2 percent in 2011, trailing 69 percent of peers, according to data compiled by Bloomberg.

Wall Street Journal:

• Santorum and Romney Battle for Lead in Iowa. Former Massachusetts Gov. Mitt Romney and former Pennsylvania Sen. Rick Santorum were locked in a near dead heat in the first presidential nominating contest of 2012, as Iowa voters split their support Tuesday night among candidates with distinctly different viewpoints. With most returns in, the two candidates were just a handful of votes apart, with both receiving about 25% of the vote.
• Live Blogging the Iowa Caucuses.
  
• China Home Prices Fall Again. Average housing prices in 100 major cities in China fell in December compared with November, marking the fourth consecutive sequential decline, China Real Estate Index System said Wednesday. The data provider said a survey of property developers and real-estate agencies showed the average home price in December was 8,809 yuan ($1,400) a square meter, down from 8,832 yuan in November. The survey, which the company compiles together with online real-estate brokerage SouFun Holdings Ltd., is considered a key indicator following a decision to scrap a national property price index in February 2011. China Real Estate Index System said property prices in 60 cities fell in December compared with the previous month, whereas 37 cities posted a rise, and prices in three cities were unchanged. Compared with a year earlier, the average price of a new property in December was up 2.86% from 8,564 yuan in December 2010, a slower increase than November's 4.06% year-on-year rise. The National Bureau of Statistics is scheduled to issue December data for residential property prices in 70 major cities on Jan. 18.
• France Looks to Neighbor in Plan to Raise Sales Tax. French President Nicolas Sarkozy's government said on Tuesday that it would borrow yet another page from Germany's economic textbook in a bid to make France's products more competitive and finance the nation's wide-reaching and heavily indebted social-welfare system.
• Some Venture Funds Hit 'Pause' on Big Deals. Over the past year, Marc Andreessen invested in a series of high-profile Web companies, including Facebook Inc., Twitter Inc. and Groupon Inc. Now the Silicon Valley venture capitalist is hitting the pause button on such big-name deals.
• Big Banks Lower Outlook for Asia. Bowing to increased competition and weaker markets, investment banks are lowering expectations and cutting costs in Asia, a region that has been a crucial source of growth for the industry in recent years. Senior bankers in Hong Kong, who are emerging from several weeks of tense budget meetings for 2012, say they are feeling pressure from their bosses to justify heavy investment across the region as trading volumes there and around the world shrink and banks struggle with tighter regulations, the fallout from Europe and weak economies world-wide.

Dow Jones:

• CFTC Won't Delay Position Limits. The Commodity Futures Trading Commission has rejected a request by two trade groups to delay its implementation of position limits aimed at curtailing bets in the commodities markets, according to two people familiar with the matter.

Zero Hedge:

• MBIA Wins Summary Judgment Against Countrywide; Bad News For Bank of America(BAC).
• On The German Triple-C Issue: Culture, Clausewitz and Clausius.
• US Closes 2011 With Record $15.22 Trillion In Debt, Officially At 100.3% Debt/GDP, $14 Billion From Breaching Debt Ceiling.

CNBC:

• Firearms Sales Ring in 2012 With a Bang. Uncertainty in a presidential election year. Warriors returning from the battlefields. The comeback of the hunter. These are just some of the reasons that gun experts and advocates cite as reasons why firearms makers are ringing in 2012 like gangbusters. According to the FBI, more than 1.5 million instant criminal background checks were conducted in December for firearms purchases, topping November’s record.
• Investors Steer Clear of Chinese IPOs in US. The value of Chinese companies delisting from U.S. exchanges in 2011 exceeded the amount Chinese companies raised via initial public offerings in the U.S., a stark sign of how high-profile fraud allegations and slowing growth have made many foreign investors bearish on Chinese groups.

IBD:

• Mattress Maker Select Comfort(SCSS) Sees Strong Growth. There's nothing like the promise of a comfortable night's sleep to get consumers to shell out big bucks for a mattress. Reinforce that promise with a TV ad campaign and spruced-up products, and you've got the makings for hefty sales and profit gains. Look no further than Select Comfort for proof.

NY Times:

• Hedge Funds End 2011 On A Very Bad Note. When the history books are written, 2011 may go down as the dark ages for hedge funds. Last year was dismal for hedge fund performance, according to an index maintained by Eurekahedge, an independent information firm that specializes in hedge fund data. Amid political uncertainty, the debt-ceiling debate in Congress and mounting fears of a European financial crisis, the Eurekahedge index, which measures average returns, dropped 4.1 percent for the year. Even as losses mounted, investors continued to flock to hedge funds. In 2011, the industry started more than 1,100 portfolios, the second-highest number in the history of the index, the firm said. In total, $67 billion flowed into hedge funds in 2011, bringing the overall industry size to $1.72 trillion, the report said. The year was especially rough for some of the biggest names in the hedge fund pantheon.
• Online Sales Buoy UPS(UPS) and FedEx(FDX). With sales rising to a record $35.3 billion in November and December — a 15 percent increase from a year ago, according to the research service comScore — online retailers are celebrating.

CNN:

• Bailout Concerns Mounting For Federal Housing Agency. Concerns are growing that the Federal Housing Administration will need to be bailed out by taxpayers. The agency's latest monthly outlook report revealed a spike in serious delinquencies for FHA-insured loans, posing a further threat to the agency's already depleted cash reserves.

Rasmussen Reports:

• Election 2012: Generic Republican 47%, Obama 43%.

Reuters:

• Regulators Inching Forward on Dodd-Frank Rules. U.S. regulators have only met roughly a quarter of pre-2012 deadlines included in the controversial Dodd-Frank financial reform law, according to a report released on Tuesday. A year and a half after Congress passed Dodd-Frank, regulators are struggling to keep pace with deadlines for hundreds of rules they are tasked with writing to help stabilize markets after the 2007-2009 financial crisis. According to the report by the law firm Davis Polk, a total of 200 deadlines have passed as of the end of 2011, and regulators missed 149 of them. There are 400 total rulemaking requirements in Dodd-Frank, the report says.
• MF Global Sold Assets to Goldman(GS) Before Collapse: Sources. MF Global unloaded hundreds of millions of dollars' worth of securities to Goldman Sachs in the days leading up to its collapse, according to two former MF Global employees with direct knowledge of the transactions. But it did not immediately receive payment from its clearing firm and lender, JPMorgan Chase & Co(JPM) , one of the sources said. The sale of securities to Goldman occurred on October 27, just days before MF Global Holdings Ltd filed for bankruptcy on October 31, the ex-employees said. One of the employees said the transaction was cleared with JPMorgan Chase. At the same time MF Global, which was run by former Goldman Sachs head Jon Corzine, was selling securities to Goldman to raise badly needed cash, the futures firm was also drawing down a $1.2 billion revolving line of credit it had with JPMorgan, according to one of the former MF Global employees.
• Acme Packet(APKT) Forecasts Weak Q4; Shares Fall. Acme Packet Inc forecast a fourth quarter that lagged analysts' estimates and cut its 2011 outlook on concerns of crippled capital spending budgets at its telecommunication customers in North America. Shares of the network infrastructure provider, which have lost almost two-thirds of their value since touching a year-high of $84.50 on April 29, fell to $25.12 in trading after the bell. They closed at $31.81 on Tuesday on Nasdaq.
• Euro Short-Squeeze Rally Stalls, Debt Auctions Loom. A short-squeeze rally in the euro stalled in Asia on Wednesday ahead of debt auctions in Germany, with market players dubious about the euro zone's plans to fend off a sovereign debt crisis as some countries face huge debt refinancing needs. The euro is losing momentum after posting its biggest one-day rally in nearly two months on Tuesday as investors trimmed heavily bearish positions in the common currency after upbeat data bolstered risk appetite. "This seems like just a temporary risk-on trade, helped by easing in dollar funding pressure after the year-end, some good economic numbers and a lack of bad news out of Europe," said Minori Uchida, a senior analyst at Bank of Tokyo-Mitsubishi UFJ. "The fact is that the euro has still many hurdles to clear. We think the euro will likely head to $1.25," Uchida said, noting Italy's huge debt refinancing burden.

Hong Kong Economic Journal:

• Emperor Sees 30% Drop in Hong Kong Home Prices in 2012. Prices of properties in outlying areas of Hong Kong may decline more sharply than those in more central locations, citing Donald Cheung, executive director at Emperor International. Home prices may fall between 20% to 30%, Cheung said.

Economic Daily News:

• Container-shipping cos. will find it difficult to make profits this year on oversupply of vessels and the global slowdown, citing Evergreen Group Chairman Chang Yung-fa.

South China Morning Post:

• Shenzhen 'wants to kill' HK Factories. Manufacturers angered by the decision to implement pay rise next month, after municipal authorities had earlier offered to shelve any increase. Shenzhen's minimum wage will rise from next month, ending a one-month delay to the increase rather than a year-long grace period that angry Hong Kong manufacturers had asked the municipal authorities for in December.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.25% to +1.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 196.0 -7.5 basis points.
  
• Asia Pacific Sovereign CDS Index 157.0 -5.0 basis points.
• FTSE-100 futures -.13%.
  
• S&P 500 futures -.02%.
  
• NASDAQ 100 futures -.04%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (UNF)/1.09
• (RECN)/.12
• (SONC)/09
• (MOS)/1.30

Economic Releases
10:00 am EST

• Factory Orders for November are estimated to rise +2.0% versus a -.4% decline in October.

Afternoon:

• Total Vehicle Sales for December are estimated to fall to 13.5M versus 13.59M in November.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly retail sales reports, weekly MBA mortgage applications report and the Citi Entertainment/Media/Telecom Conference could also impact trading today.
  

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