Thursday Watch

Evening Headlines

Bloomberg:

• Weidmann Says ECB Should Resist Pressure to Use 'Nuclear Option' in Crisis. European Central Bank Governing Council member Jens Weidmann said policy makers should resist pressure to increase government bond purchases in response to the euro region’s debt crisis. Some are demanding that the ECB turn to the “bazooka” or “nuclear option” of “engaging in unlimited government bond purchases and limiting yields,” Weidmann, who heads Germany’s Bundesbank, said in a speech in Ludwigsburg late yesterday. “There are a number of legal, economic and political reasons why we shouldn’t do this,” he said. Such an approach would violate European Union law, take away the incentive for governments to implement fiscal reforms and redistribute losses within the currency union, Weidmann said. While the ECB has bought 217 billion euros ($279 billion) of bonds from distressed member countries since May 2010, President Mario Draghi says the program is temporary, limited and aimed solely at improving the transmission of interest rates on financial markets. It’s wrong to compare the ECB with the U.S. Federal Reserve, Weidmann said. “The Fed is the central bank of a nation state and not of a monetary union, in which the financing of governments through the printing press is forbidden,” he said. In addition, Fed- style quantitative easing aims to reduce long-term interest rates in a capital market-based financial system and not at cutting refinancing costs for individual states, Weidmann said.
• China Developers Ease Home Sales in Face of Worst Year Since '08. China’s biggest developers slowed home sales toward the end of 2011, bracing for the worst property market in three years as the government vows to keep real-estate curbs. Contract sales, or sales booked before apartments are completed, dropped 30 percent last month at China Vanke Co., as the country’s biggest developer by market value offered fewer homes from November. Evergrande Real Estate Group Ltd., the second-biggest Chinese developer by revenue, said sales in November and December were the lowest for the year.
• U.S. Mutual Funds Attract Most Deposits in Almost Two Years. U.S. mutual funds attracted the most money in almost two years last week as investors poured cash into bond funds and some returned to stock funds. Funds had net deposits of $11.3 billion in the week ended Jan. 11, the Investment Company Institute said today in an e- mailed statement. The last time mutual funds took in that much money was the week ended April 21, 2010, when they gathered $12.6 billion in deposits, according to the Washington-based trade group.
• House Casts Symbolic Vote Opposing in U.S. Debt Limit Rise. The U.S. House approved a symbolic measure opposing an increase in the nation’s debt limit in what will probably be the first in a series of election-year votes aimed primarily at wooing those headed for the polls in November. Lawmakers voted 239-176 for a resolution rejecting President Barack Obama’s request to raise the legal cap on borrowing by $1.2 trillion.
• Egypt Revolt Loses Legitimacy as Brotherhood Ignores Women Abuse. A group of men gathered around Amira El Bakry in Tahrir Square as she brandished a newspaper photo that shocked many Egyptians. It showed troops dragging a female protester along the street, her robe ripped open to reveal a blue bra and bare midriff. “Is this OK by you?” the 25-year-old El Bakry, her voice shaking with anger, asked the men, as they squinted at the picture and one suggested the protester was trying to cause a scene. Later, El Bakry marched through Tahrir with thousands of women to condemn the brutality and demand that Egypt’s military rulers step down. Some at the Dec. 20 rally wore tight jeans tucked in boots, others were in flowing robes and full-face veils. “The women of Egypt are a red line,” they chanted.
• America's Dirty War Against Manufacturing(Part 2): Carl Pope.
• Australian Job Losses Cap Worst Year Since 1992. Australian employers unexpectedly cut jobs in December, capping the labor market’s worst year in almost two decades, as investors raised bets on interest-rate reductions. The local currency declined. The number of people employed fell by 29,300 last month after a revised 7,500 drop in November, the statistics bureau said in Sydney today. The median estimate in a Bloomberg News survey of 23 economists was for a 10,000 increase. The year ended with a revised 5.2 percent jobless rate and little change in payrolls from December 2010, their worst annual performance since 1992.
• EBay(EBAY) Beats Fourth-Quarter Estimates on Holiday Sales, PayPal Unit’s Growth. EBay Inc. (EBAY), the largest Internet marketplace, reported fourth-quarter sales and profit that beat estimates, as more consumers used the PayPal online-payments service and holiday shoppers flocked to its e-commerce site.

Wall Street Journal:

• New Chief of S&P Defends Its Moves.
  
• Interview: Eurozone Needs Federalist - Type System - Cantor CEO. The 17 members of the European Union will inevitably move towards a federalist system that will enable it to impose a pan-European tax to bolster its bailout fund.
• FBI Sweep Targets Big Funds. Federal prosecutors alleged that a "criminal club" in the hedge-fund world made tens of millions of dollars trafficking inside information, following up on a string of early morning arrests that involved employees of SAC Capital Advisors LP and other prominent financial firms. In an expansion of a high-profile investigation into alleged insider trading, the Federal Bureau of Investigation arrested four people in New York, Boston and California, and the government unsealed charges against three others. All were charged criminally with securities fraud and conspiracy to commit securities fraud.
• Obama Rejects the Keystone XL Pipeline and Blames Congress.
  

Business Insider:

• Supermarkets Are Burning The Midnight Oil To Accommodate Food Stamp Recipients. Though "food stamp president" may not be the kindest term circling around lately, there's no denying the number of people who have benefited from the program in recent years.
• Dear Internet: If SOPA Dies, You Have Republicans To Thank For It. Today an enormous number of Republican legislators are bailing on SOPA, declaring it danger to free expression. As of this writing 26 out of the 29 legislators who came out against SOPA today are Republicans.
  

CNBC:

• Refiners Win From St Croix Shutdown but Gasoline Could Hit $4 a Gallon in the Near Future.

NY Times:

• Hedge Funds May Sue Greece If It Tries To Force Loss. The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts.

BGR:

• Apple(AAPL) Granted 22 New Patents, Including One For 'Smart' Clothing.

AP:

• Illinois Backlog of Unpaid Bills Nears $8.5 Billion. The Illinois comptroller's office is sitting on nearly $4.3 billion in overdue bills and other departments are behind on their bills because the state doesn't have the money to make good on its debts, Comptroller Judy Baar Topinka said Wednesday. The total backlog of Illinois' unpaid obligations comes to about $8.5 billion, according to the latest report from Topinka's office.
  

Reuters:

• Spain, France Brace For Euro Long-Term Debt Test. The euro zone should pass the biggest test of demand this year for its longer term debt on Thursday when Spain and France offer a combined 14 billion euros of bonds, with the backstop of ECB support and relatively high yields likely to encourage buyers. Other sovereign debtors have leapfrogged Spain to become more prominent market targets but Madrid's first 10-year bond offering since mid-December will grab the most attention among the nine debt issues that will go on sale there and in Paris.

• Xilinx(XLNX) Shares Rise on Upbeat Q4 Outlook.
• F5 Networks(FFIV) Q4 Beats, Sees FY12 Revenue Above Estimates. Network equipment maker F5 Networks Inc reported better-than-expected quarterly results as product sales jumped 20 percent, and forecast a strong fiscal 2012 revenue, sending its shares up 8 percent in after-hours trading.

Telegraph:

• Doubt Over IMF"s Eurozone Lifeline. Traders were unconvinced by a radical proposal by the International Monetary Fund (IMF) to deploy $1 trillion (£648bn) to stem the European debt crisis and its impact on the global economy.

SpiegelOnline:

• Commerzbank Shortfall 'Bigger Than First Thought'. Commerzbank, Germany's second-largest bank, needs even more capital than previously believed, according to reports. The bank may be forced to take emergency steps to tackle the six-billion-euro shortfall. Meanwhile, ratings agency Moody's may downgrade Commerzbank's creditworthiness. The capital shortage at Commerzbank is apparently much larger than previously believed. The major German lender needs around €6 billion ($7.7 billion), daily Die Welt reported on Wednesday. Until now, the European Banking Authority (EBA) regulatory body had estimated the shortfall at €5.3 billion. But that isn't the only bad news for Commerzbank -- ratings agency Moody's has said it may downgrade the bank's creditworthiness because of its exposure to troubled real estate lender Eurohypo. According to Die Welt, the need for the extra funds is due to the ongoing negotiations for a debt 'haircut' for Greece. Germany's second-largest bank held Greek bonds worth €1.4 billion at the end of the third quarter last year, even though it had written off 50 percent of them in 2011. That writedown may no longer be enough, however, as an even higher debt cut has reportedly been proposed in the negotiations between Greece and private creditors. Such a debt write-off is apparently close to becoming a reality for Commerzbank, which is already working hard to find a solution to its huge capital gap.

WAZ:

• Deutsche Bank AG management-board member Juergen Fitschen said the amount of cash deposited by lenders at the ECB constituted a "fear indicator" that exceeded the level of 2008. Fitschen, who along with investment-banking chief Anshu Jain will succeed CEO Josef Ackermann at the bank, also said that Greece could leave the euro-zone before undergoing the "catastrophe" of a collapsing economy. The price of a debt restructuring could be an economic contraction of as much as 8%, Fitschen said in an interview.
  

Evening Recommendations
CSFB:

• Rated (PAYX) Outperform, target $36
• Rated (GPN) Outperform, target $55.
• Rated (CATM) Outperform, target $31.
  

Night Trading

• Asian equity indices are +.50% to +1.0% on average.
• Asia Ex-Japan Investment Grade CDS Index 197.50 -2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 157.25 +.75 basis point.
• FTSE-100 futures +.43%.
  
• S&P 500 futures +.03%.
  
• NASDAQ 100 futures +.13%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (LUV)/.08
• (PGR)/.35
• (FCS)/.16
• (BBT)/.53
• (UNH)/1.04
• (BLK)/2.98
• (BAC)/.13
• (JCI)/.62
• (MS)/-.57
• (COL)/.84
• (UNP)/1.82
• (FCX)/.61
• (PPG)/1.27
• (IBKR)/.24
• (COF)/1.54
• (ISRG)/3.34
• (IBM)/4.62
• (GOOG)/10.49
• (AXP)/.99
• (INTC)/.61
• (MSFT)/.76

Economic Releases
8:30 am EST

• The Consumer Price Index for December is estimated to rise +.1% versus unch. in November.
• The CPI Ex Food & Energy for December is estimated to rise +1% versus a +.2% gain in November.
• Housing Starts for December are estimated to fall to 680K versus 685K in November.
• Building Permits for December are estimated to fall to 679K versus 681K in November.
• Initial Jobless Claims are estimated to fall to 384K versus 399K the prior week.
• Continuing Claims are estimated to fall to 3590K versus 3628K prior.
  

10:00 am EST

• Philly Fed for January is estimated at 10.3 versus 10.3 in December.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +3,000,000 barrels versus a +4,958,000 barrel gain the prior week. Distillate inventories are estimated to rise by +1,375,000 barrels versus a +3,985,000 barrel gain the prior week. Gasoline inventories are estimated to rise by +2,350,000 barrels versus a +3,610,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.5% versus a +.6% gain the prior week.
  

Upcoming Splits

• (EL) 2-for-1
  

Other Potential Market Movers

• The 10-Year TIPS Auction, Bank of America Merrill Lynch Gaming Conference, weekly Bloomberg Consumer Comfort Index, Bloomberg Economic Expectations Index for January and the (FUN) Investor Meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are higher, boosted by technology and financial 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 Rising into Final Hour on Less Eurozone Debt Angst, Less Financial/Tech Sector Pessimism, Better US Economic Data, Short-Covering

Broad Market Tone:

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

Equity Investor Angst:

• VIX 21.25 -4.28%
  
• ISE Sentiment Index 131.0 -5.6%%
  
• Total Put/Call .88 +6.02%
  
• NYSE Arms .74 -39.02%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 112.97 -.30%
  
• European Financial Sector CDS Index 216.67 -6.01%
  
• Western Europe Sovereign Debt CDS Index 362.92 -2.50%
  
• Emerging Market CDS Index 298.60 -2.68%
  
• 2-Year Swap Spread 36.0 +2 bps
  
• TED Spread 54.0 unch.
  
• 3-Month EUR/USD Cross-Currency Basis Swap -77.0 +6 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .02% unch.
  
• Yield Curve 166.0 +3 bps
  
• China Import Iron Ore Spot $139.90/Metric Tonne -.21%
  
• Citi US Economic Surprise Index 69.90 +1.0 point
  
• 10-Year TIPS Spread 2.06 +3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +70 open in Japan
• DAX Futures: Indicating +25 open in Germany

Portfolio:

• Higher: On gains in my Tech, Retail, Biotech and Medical sector longs
  
• Disclosed Trades: Covered all of my (IWM), (QQQ) hedges and some of my (EEM) short, then added some back
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is very bullish, as the S&P 500 trades at session highs, convincingly above its late-Oct. high, on less Eurozone debt angst, less financial/tech sector pessimism, short-covering and better US economic data. On the positive side, Coal, Alt Energy, Oil Tanker, Oil Service, Steel, Semi, Networking, I-Banking, Homebuilding, Retail and Airline shares are especially strong, rising more than +2.0%. Tech/Financial shares have outperformed throughout the day. Cyclicals are also relatively strong. Copper is rising +.83%, the UBS-Bloomberg Ag Spot Index is down -.56% and oil is flat. Oil still trades poorly given the uptick in saber-rattling, better economic data and euro bounce. Johnson Redbook weekly retail sales rose 3.1% versus 3.3% gain the prior week. Retail sales continue to hold up pretty well despite the recent rise in gas prices. The France sovereign cds is falling -1.6% to 205.33 bps, the Hungary sovereign cds is falling -3.2% to 666.67 bps and the UK sovereign cds is down -1.85% to 88.67 bps. Moreover, the European Investment Grade CDS Index is falling -2.6% to 150.19 bps. The Italian/German 10Y Yield Spread is falling -1.62% to 463.44 bps, which is an improvement, but still near the highest since Dec. 1995. On the negative side, Utility, HMO, Education and Road & Rail shares are lower-to-flat on the day. Gold is rising +.5% and Lumber is just rising +.4% after recent sharp losses. Lumber has declined -11.0% since Dec. 29th and is at the lower end of its recent range, near a multi-year low, despite better US economic data, improving sentiment towards homebuilders, stock rally and decline in eurozone debt angst. The 10Y T-Note Yield is rising +4 bps to 1.89%, which isn't much considering the recent stock rally and improvement in US economic data. The Portugal sovereign cds is rising another +6.73% to 1,266.67 bps(up +16.75% in 5 days and making a new record high). The Western Europe Sovereign CDS Index is still very near its Jan. 9th all-time high. The TED spread is near the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is near the highest since February 2009. The Libor-OIS spread is still very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. Overall, while improving, European credit gauges are still at stressed levels despite the fact that the European debt crisis “can-kicking” solution is supposedly at hand. China Iron Ore Spot has plunged -22.8% since Sept. 7th of last year. Shanghai Copper Inventories are up over 300.0% ytd to the highest level since March of last year. Major Asian indices were mixed overnight. However, the Shanghai Composite failed to build on yesterday's gains, falling -1.4%. Moreover, China’s ChiNext Index(China’s Nasdaq) plunged another -5.7%(at lowest since inception in June 2010). This index is down -32.1% since Nov. 15 and down -14.3% ytd, despite the global equity rally and investor perceptions that China has entered a large easing cycle. Major European indices were mostly lower, led down by Spain’s -1.34% decline. Spanish equities remain Europe’s worst-performers ytd, dropping -1.7%. The Bloomberg European Bank/Financial Services Index was slightly lower on the day. The SOX Index is surging above its 200-day moving average today on volume as it breaks above its late-Oct. high. This is a very positive development. I would become more comfortable with the sustainability of the current equity rally if higher-quality leadership emerged. The S&P 500's convincing break above its late-Oct. highs and the 1,300 level should lead to further gains after a brief pause. For a sustainable equity advance from current levels, I would still expect to see further 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. One of my longs, (AAPL), is making an all-time high today. I suspect the shares are in multiple-expansion mode. I still see the stock substantially outperforming the market over the intermediate-term. I expect US stocks to trade mixed-to-higher into the close on declining Eurozone debt angst, less financial/tech sector pessimism, short-covering, better US economic data and stable energy prices.

Today's Headlines

Bloomberg:

• IMF Seeks $500B Boost to Lending Resources. The International Monetary Fund is proposing to raise its lending capacity by as much as $500 billion to insulate the global economy against any worsening of Europe’s debt crisis. The Washington-based lender is aiming to increase its resources after identifying a potential need for $1 trillion in financing in coming years, an IMF spokesman said in a statement. The IMF is studying options and will not comment further until it has consulted its members, the fund said. To incorporate a cash buffer, the lender is seeking a total $600 billion. IMF Managing Director Christine Lagarde said yesterday her staff is looking at ways to expand the fund’s war-chest, which currently has about $385 billion available. While euro-region nations have already pledged to contribute 150 billion euros ($192 billion), the U.S. has said it has no plans to make new bilateral loans and leaders of Group of 20 nations ended last year at odds over the issue.
• Fitch May Cut Six EU Countries on Review by 1 or 2 Levels. Fitch Ratings may cut six euro-area countries currently on review by one or two levels by the end of this month, Managing Director Edward Parker said. “We would expect the review will lead to downgrades of one to two notches for all the countries under review,” Parker said today in Milan. Fitch placed Spain, Italy, Ireland, Cyprus, Belgium and Slovenia on review in December for possible downgrades, citing Europe’s failure to find a “comprehensive solution” to the region’s debt crisis. Fitch also lowered the outlook on France’s AAA rating at the same time, though executives this month said France’s rating would not likely be cut this year. Italy is “absolutely critical to the euro zone future as a whole,” Parker said today. “The new government has to deliver on fiscal reforms and go ahead with reforms to increase growth. We’re quite encouraged by the steps that Monti’s government has made.” “We do expect Greece to default as it has an unsustainable debt, the question is how,” Parker said. “The private sector involvement voluntary scheme would be a default as well. The key issue is to avoid the disorderly default.”
• Greek Debt Talks Resume With Agreement Seen by End of This Week. Greece and its private creditors are beginning a final push to renegotiate debt as a member of the investor group said they are likely to get cash and securities with a market value of about 32 cents per euro of government bonds. “I’m highly confident the deal will get done,” Bruce Richards, chief executive officer of New York-based Marathon Asset Management LP, said in a telephone interview yesterday with Bloomberg Businessweek. The government may forge a deal by the end of this week after talks resumed in Athens today, a finance ministry official told reporters in the Greek capital. He declined to be identified.
• World Bank Sees East Europe Crunch Risk, Burns Tells Wiener. Western European banks’ deleveraging may make credit in eastern Europe scarcer, the World Bank’s Andrew Burns was quoted as saying in Austrian newspaper Wiener Zeitung. “Europe’s banking sector needs to reduce risks, raise capital and increasingly set aside risk provisions,” Burns, who heads the World Bank’s global macroeconomics team, told the Vienna-based newspaper. “All of this could impact the credit provision to the private sector.” “The problem is especially virulent in eastern Europe and central Asia because those countries strongly depend on loans from developed countries,” Burns added.
• Obama Admin Said to Reject Keystone Pipeline. The Obama administration will announce rejection of TransCanada Corp. (TRP)’s Keystone XL pipeline as soon as today, according to two people familiar with the matter. The rejection will probably come from the State Department which has been charged with reviewing the project, and a joint statement will come from some unions and environmental groups in support of the decision, according to the person who spoke on the condition of anonymity before an announcement. Andrew MacDougall, spokesman for Canadian Prime Minister Stephen Harper, said he had no immediate comment on the reports. “President Obama is about to destroy tens of thousands of American jobs” by not approving the Keystone pipeline, Brendan Buck, a spokesman for U.S. House Speaker John Boehner, an Ohio Republican, said in an e-mailed statement. Labor unions and Republican lawmakers have urged President Barack Obama to approve the pipeline, which would carry 700,000 barrels of crude oil a day from Canada’s Alberta oil sands to refineries along the U.S. Gulf of Mexico coast, because they argue that it will create jobs and help the nation become more energy independent. Wendy Abrams, who raised from $50,000 to $100,000 for Obama in 2008, according to the Center for Responsive Politics, had said rallying her friends around the president would be hard if he approved the pipeline. She said Obama has since shown that he’s not “in the pocket of Big Oil.”
• Germany Cuts 2012 Economic Growth Forecast as Crisis Dims Export Outlook. The German government cut its forecast for economic expansion this year as the debt crisis dims the outlook for sustaining record exports, leaving domestic demand as the main motor for growth. Europe’s biggest economy will grow 0.7 percent in 2012, less than the 1 percent estimated in October and just above the projected average for the euro-area, the Berlin-based Economy Ministry said today in its annual report. Economic growth, which reached 3 percent last year, will be weak in the first half before growing faster later in the year, it said. Demand from China and other Asian countries fueled an export boom in Germany as weaker growth or economic contraction dogged its euro-area allies. Slowing demand in Europe and other countries buffeted by the debt crisis will cut German export growth to 2 percent this year, a quarter of 2011’s expansion of 8.2 percent, the report said.
• Factory Production in U.S. Climbed by Most in a Year Last Month: Economy. Factories in the U.S. churned out more computers, cars and construction material in December as manufacturing remained at the center of the expansion. Output (IPMGCHNG) climbed 0.9 percent last month, the biggest gain since December 2010, according to Federal Reserve data issued today in Washington. Other reports showed homebuilder confidence jumped and wholesale prices unexpectedly dropped. Confidence among U.S. homebuilders rose in January to the highest level in more than four years as sales and buyer traffic improved, according to a report from the National Association of Home Builders/Wells Fargo. The sentiment gauge increased to 25 this month, exceeding the median forecast of economists surveyed and reaching the highest level since June 2007, the Washington-based group said.
• Google(GOOG) Rallies Opposition to Anti-Piracy Bill. Internet companies led by Google Inc. (GOOG) are using their online clout to stoke opposition to Hollywood-backed anti-piracy measures in the U.S. Congress that they say will encourage censorship and chill innovation.
• Obama Considering Summers for World Bank. President Barack Obama is considering nominating Lawrence Summers, his former National Economic Council director, to lead the World Bank when Robert Zoellick’s term expires later this year, according to two people familiar with the matter. Summers has expressed his interest in the job to White House officials and has backers inside the administration, including Treasury Secretary Timothy Geithner and the current NEC Director, Gene Sperling, said one of the people. Secretary of State Hillary Clinton is also being considered, along with other candidates, said the other person. Both spoke on condition of anonymity to discuss internal White House deliberations.
• Oil Little Changed on U.S. Output Gain, Expected Rejection of Keystone XL. Oil fluctuated in New York after U.S. industrial output rebounded in December and as the Obama administration was said to be planning to announce rejection of TransCanada Corp. (TRP)’s Keystone XL pipeline.

Wall Street Journal:

• Campaign Renews Scrutiny of Growing Food-Stamp Program. Newt Gingrich’s labeling of President Barack Obama as the “best food stamp president in American history” drew a sharp rebuke from the White House, underscoring how the federal food assistance program has again become a political flashpoint. About 44.7 million Americans on average were enrolled in the Supplemental Nutrition Assistance Program, known as food stamps, in fiscal 2011, the year that ended Sept. 30. That’s up from 28.2 million people in fiscal 2008. Benefits paid through the program more than doubled during the period, to $71.8 billion in 2011 from $34.6 billion in 2008.
• Federal Officials Charge Seven in Insider Probe. Federal authorities on Wednesday announced charges against seven people in an expanding insider-trading investigation that directly involves some of Wall Street's most prominent money managers. Four people were arrested in New York, Boston and California early Wednesday and charges against three others were unsealed. Wednesday's announcement reflects a broadening of the government's long-running investigation of employees of public companies sharing confidential information with hedge-fund analysts and traders. The government has monitored hundreds of conversations on wiretaps, and has sought cooperation from a wide range of public-company employees and money managers as the probe has widened.
• Greece, Creditors Discussing 3%-4.5% Coupon For Haircut - Source. Greece and its private creditors are negotiating a lower coupon that will range from 3% and climb to 4.5% on the new bonds Athens will issue after a haircut, a person with knowledge in the talks said Wednesday.
• Time to Exploit America Inc.'s Home Advantage. Not long ago, a lot of investors' preferred strategy for investing in U.S. stocks was to pick companies that didn't have all that much exposure to the U.S. economy. That now is looking precisely like the wrong approach.
  

MarketWatch:

• Home-builder Gauge Hits 4.5-year High. A measure of builder confidence in the market for newly built single-family homes rose in January to the highest point since June 2007, according to a closely-followed index released Wednesday. The National Association of Home Builders/Wells Fargo housing market index rose 4 points to 25, the fourth consecutive rise. Economists polled by MarketWatch had expected only a 1-point improvement to 22. Every region rose, including a 9-point surge in the Northeast and a 5-point advance in the West, and each component — current sales conditions, sales expectations in the next six months and traffic of prospective buyers — rose 3 points.

CNBC.com:

• Germany's Credit Rating Is Lowered by Egan Jones. Egan-Jones said on Wednesday it lowered its credit rating on Germany to double-A minus from double-A, citing the nation's potential liabilities to Europe's rescue fund, the European Financial Stability Facility. "One of the main underlying reasons is the potential liabilities that Germany is going to face with more and more European bailouts. Look at the relationship between Germany and the EFSF stabilization fund and Germany is slowing down. The prospects for Germany are not very good going forward," said Bill Hassiepen, vice president and senior analyst at the Haverford, Pennsylvania-based ratings firm.
• The Twilight of the Goldman Sachs(GS) Trading Gods.
  

Business Insider:

• Greece Looks More and More Like a Collapsed Society.
• Buffalo Teachers Are Charging Plastic Surgery To Taxpayers Thanks To This Loophole.
• SOPA Is So Serious That Mark Zuckerberg Just Tweeted For The First Time In Three Years.
• Europe Is Setting The Stage For The Mother Of All Black Swans.
• Another Reminder of How the US Government Destroys Business.

Zero Hedge:

• Einhorn Ends 2011 Just Over +2%, Closes FSLR Short, Warns On Asia, Mocks "Lather. Rinse. Repeat" Broken Markets.

Boy Genius Report:

• iPad Sales May Approach 50 Million in 2012. In a note to investors on Wednesday morning, Sterne Agee analyst Shaw Wu suggested that calendar 2012 iPad sales could come in at approximately 48 million units, and he calls that a conservative estimate.

Wall Street All-Stars:

• Greece, China and the USA. I spoke with someone from Athens today. It’s not a pretty picture.

Reuters:

• French Banks to Boost Greek Debt Provisions. French financial-sector regulator ACP is preparing to tell the country's main banks to raise their writedowns on Greek debt to 70 percent or 75 percent from 60 percent, daily Le Monde reported on Wednesday.
• ASML Bookings Signal Chip Uptick. Rising demand for smartphones, tablets and the latest super-thin personal computers is driving strong sales and new orders at Dutch group ASML, the world's dominant chip equipment maker. ASML shares hit an 11-year high on Wednesday after it forecast demand in the early part of 2012 would top the previous quarter. The company, which has between a 75-80 percent market share, counts Samsung Electronics, Taiwan Semiconductor Manufacturing and Intel among its customers. "We expect a healthy start for 2012, as we plan Q1 2012 bookings at a level above that of Q4 2011 and a first-half sales level of about 2.4 billion euros," Chief Executive Eric Meurice said. "Our customers are indeed continuing their introductions of advanced chip designs," said Maurice.

Financial Times:

• Oil Demand Falls for First Time Since 2009. Oil demand has fallen for the first time since the 2008-09 global financial crisis, a result of the weakening economy, a mild winter and high crude prices, according to new estimates from the International Energy Agency.

Telegraph:

• The Euro is Pushing Italy into Depression.
• Debt Crisis: Live. IMF comes under attack over plans to boost firepower to $1 trillion.
• Euro Crisis Puts UK Companies in 'Vicious Cycle'.
  

Bear Radar

Style Underperformer:

• Large-Cap Value (+.78%)

Sector Underperformers:

• 1) Education -5.88% 2) HMOs -.30% 3) Utilities -.30%

Stocks Falling on Unusual Volume:

• APOL, DV, PM, FTE, MCK, BK, CMC, TXT, BVSN, GLNG, QCOR, FAST, LOPE, NTRS, CPLA, DTV, APEI, LMNX, EQIX, VOCS, FCFS, BIDU, CSH, TRP, NGT, STT, BXS, ERF, RRD, UA, SXC, BAS, SKX and SUN
  

Stocks With Unusual Put Option Activity:

• 1) WMB 2) EMC 3) TXN 4) KRE 5) XLI
  

Stocks With Most Negative News Mentions:

• 1) CHK 2) CREE 3) WAT 4) AGCO 5) GS
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +.98%

Sector Outperformers:

• 1) Semis +3.04% 2) Networking +2.28% 3) Homebuilding +1.97%

Stocks Rising on Unusual Volume:

• FCS, LLTC, JPM, UBS, EDU, CCOI, ZLTQ, POWI, MXIM, STMP, MCHP, NXPI, SHLD, CROX, AVGO, APH, TXN, ADI, FSL, URI, LNG, OSG, ALTR, ARW, GS, ADTN, CE, BRCM and VLO
  

Stocks With Unusual Call Option Activity:

• 1) AVP 2) URI 3) NXPI 4) ACHN 5) SYY
  

Stocks With Most Positive News Mentions:

• 1) LLTC 2) MGM 3) CHKP 4) BLK 5) EAT
  

Charts:

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

Wednesday Watch

Evening Headlines

Bloomberg:

• World Bank Cuts Global Growth Outlook. The World Bank cut its global growth forecast by the most in three years, saying that a recession in the euro region threatens to exacerbate a slowdown in emerging markets such as India and Mexico. The Washington-based institution said the world economy this year will grow 2.5 percent, down from a June estimate of 3.6 percent. The World Bank sees the euro area contracting 0.3 percent in 2012, compared with a previous estimate of 1.8 percent growth. The U.S. outlook was cut to an expansion of 2.2 percent from 2.9 percent. “Even achieving these much weaker outturns is very uncertain,” the World Bank said in its Global Economic Prospects report released today. “The downturn in Europe and weaker growth in developing countries raises the risk that the two developments reinforce one another, resulting in an even weaker outcome.” The World Bank urged developing economies to “prepare for the worst” as it sees a continued risk for the European turmoil to turn into a global financial crisis reminiscent of 2008. Euro-area industrial production declined for a third straight month in November, a report last week showed, adding to signs the economy failed to expand in the fourth quarter as leaders struggled to quell the region’s fiscal crisis. The revision is the largest since January 2009, when the World Bank cut its global estimate for that year by 2.1 percentage points. “Despite the significant measures that have been taken, the possibility of a further escalation of the crisis in Europe cannot be ruled out,” the World Bank said. “Some of the big developing countries that have been the motor of growth in the post 2008-2009 period now have slowed,” Andrew Burns, who heads the World Bank’s global macroeconomics team, told reporters on a conference call.
• Spain Offers Crisis Credit Line for Liquidity Aid to Cash-Starved Regions. Spain’s central government will provide a credit line and other liquidity measures to ease pressure on cash-strapped regions while demanding tighter deficits in return, Budget Minister Cristobal Montoro said. The government will offer the loan aid to help regions settle bills for suppliers via the Official Credit Institute, and give states more time to make payments due to the central administration, Montoro said. He spoke after meeting regional finance chiefs late yesterday following Prime Minister Mariano Rajoy’s pledge to “rescue” states with liquidity problems. The Spanish government is seeking ways to skirt a law forbidding direct bailouts of the 17 semi-autonomous regions after they caused Spain to miss its budget-deficit target last year. The regions control more than a third of Spain’s public spending, including health and education. “We’re all in the same boat,” Montoro told reporters in Madrid after the meeting. “I won’t have any qualms about making demands,” of the regions in return for help, he said, without giving details.
• China Dec. Home Prices Post Worst Performance. China’s December home prices posted their worst performance last year, with only two of the 70 cities tracked posting gains, as the government reiterated its plans to maintain housing curbs. Prices in 52 of 70 cities monitored by the government declined from the previous month, the National Statistics Bureau said in a statement on its website today. New home prices in the nation’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou declined for a third month, it said. The government said last month it won’t back away from curbs on the real-estate industry, with the financial center of Shanghai and the capital of Beijing among Chinese cities that have said they will continue to impose restrictions on home purchases this year.
• Philadelphia Taxpayers Lost $331 Million on Swaps, Report Says. Philadelphia and its school district have lost a combined $331 million on interest-rate derivatives known as swaps, and the city stands to lose $244 million more, the Pennsylvania Budget and Policy Center said in a report. Losses came in the form of net interest payments and cancellation fees related to derivatives negotiated with banks that included Wells Fargo & Co., Morgan Stanley and Goldman Sachs Group Inc., the Harrisburg-based nonprofit organization said today in the report.
• Covenant-Lite Debt May Present Risk in Downturn, Moody's Says. Investors who purchased covenant- lite loans may see value “drain away” if the economy deteriorates and credit markets tighten, according to Moody’s Investors Service. Subordinated debt holders to companies with covenant-lite loans would be hit the hardest, while actual lenders would be protected by their more senior position in the capital structure, the ratings company said in a report published yesterday. In the last downturn, covenant-lite loans, or debt carrying no financial maintenance requirements, allowed many companies to avoid default and benefit from the stabilization of the U.S. economy in late 2009 amid injections of liquidity by the Federal Reserve, according to the report.
• Google(GOOG) Plans Home Page Protest Against U.S. Piracy Measures. Google Inc. will place a link on its home page tomorrow protesting anti-piracy measures in the U.S. Congress, joining other Internet companies demonstrating against the Hollywood-backed legislation. Google, owner of the world's most popular search engine, and Facebook Inc. are among companies opposing House and Senate bills they say they will hurt the growth of the U.S. technology industry. Wikipedia, the online encyclopedia where users contribute entries, said it will shut the English version of its website for 24 hours tomorrow to protest the measures. "We oppose these bills because there are smart, targeted ways to shut down foreign rogue websites without asking American companies to censor the Internet," Samantha Smith, a Google spokeswoman, said in an e-mail today.
• IMF to Explore Options to Boost Lending Resources, Lagarde Says. The International Monetary Fund’s staff will look into options to increase the fund’s lending power, Managing Director Christine Lagarde said, following a discussion among the institution’s board of directors. Officials from the Group of 20 nations have been considering increasing IMF resources, currently at about $385 billion, as a way to support a world economy threatened by the European debt crisis. Euro-region nations have pledged to channel 150 billion euros ($191 billion) to the IMF, while the U.S. has said it has no plans to make bilateral loans to the Washington-based institution.
• BHP(BHP) Iron Ore Production Rises to Record, Beating Estimates. BHP Billiton Ltd. (BHP), the world’s largest mining company, said second-quarter iron ore production rose a better-than-estimated 22 percent to a record, driven by mine, rail and port expansions in Western Australia. Output from the company’s biggest earning unit was 41.1 million metric tons in the three months ended Dec. 31, compared with 33.7 million tons a year earlier, Melbourne-based BHP said today in a statement. That compares with RBC Capital Market’s forecast for 35.7 million tons and UBS AG’s 38.9 million tons. BHP, which today raised its Australian full-year iron ore output guidance, and Rio Tinto Group are forging ahead with expansions of their mines to supply steel mills in China, the world’s biggest buyers.
• Christie Seeks 10% Income-Tax Cut for New Jersey Residents. New Jersey Governor Chris Christie proposed reducing income-tax rates for every state resident by 10 percent to provide relief from the "burden that has strangled our families and forced many to move away." "Today, because we have put our fiscal house in order, we can budget for our priorities and give tax relief to all of our people," Christie, a first-term Republican, said during his State of the State speech. "Tax relief that will lead to better lives for our citizens and more jobs for our state."
• America's Dirty War Against Manufacturing(Part 1): Carl Pope. “I’d love to make this product in America. But I’m afraid I won’t be able to.” My host, a NASA engineer turned Silicon Valley entrepreneur, has just conducted a fascinating tour of his new clean-energy bench-scale test facility. It’s one of the Valley’s hottest clean-technology startups. And he’s already thinking of going abroad. “Wages?” I ask. His dark eyebrows arch as if I were clueless, then he explains the reality of running a fab -- an electronics fabrication factory. “Wages have nothing to do with it. The total wage burden in a fab is 10 percent. When I move a fab to Asia, I might lose 10 percent of my product just in theft.” I’m startled. “So what is it?” “Everything else. Taxes, infrastructure, workforce training, permits, health care.

Wall Street Journal:

• Calpers Downsizes Housing Portfolio. Calpers, the giant California pension fund, is dumping one of its last major housing investments at a big loss. In a major step toward winding down a two-decade program as the pension world's biggest player in the U.S. housing market, Calpers is selling a portfolio of 28 housing communities to a partnership between San Diego-based developer Newland Real Estate Group LLC and an affiliate of Japan's largest home-building company, Sekisui House Ltd.
• Apple(AAPL) Macs Land on More Corporate Desks. Inside General Electric(GE), Employees Can Now Choose Apple Over Windows PCs. One Hitch—Most Don't Know They Can.
• Obama Brings Back the Constitution. Thanks to his executive overreach, Americans take a renewed interest in our fundamental governing document.
• New, Old Media Battle Over Net Rules. The passage of antipiracy legislation affecting the Internet, long considered likely, is no longer so certain.
• Italian Captain: 'We Abandoned the Ship'. Voice Recordings Portray Coast Guard Ordering Him Back Aboard, as Passengers Scramble to Survive.

Fox News:

• 'Occupy' Protesters Suspected of Throwing Smoke Bomb Over White House Fence. The Secret Service was responding Tuesday night to an escalating protest that may have involved one or more smoke bombs being thrown over the White House fence. An estimated 1,000 protesters have gathered. No arrests have been made, but authorities are on alert. The Secret Service also deployed a robot to check out the devices on the North Lawn. No one is currently allowed to leave through the North Gate, but those with the right access can go through the White House and leave through the South Gate.

MarketWatch:

• Worrisome Complacency.

Business Insider:

• OCC Chief: The Volcker Rule Is Bad News For US Banks. Office of the Comptroller of the Currency Chief John Walsh believes the Volcker Rule would leave U.S. banks flat-footed. At a hearing in Washington today on the rule's most recent draft, Walsh said the measure would put American institutions at a competitive disadvantage with overseas lenders.
• Here's Why You Need To Be Watching Europe's Secessionist Movement.
• The Russian Military Is Getting Ready For The US and Israel to Attack Iran.
• Analysts Admit They're Totally Befuddled By What's Happening In The Treasury Market.
• Consumer Credit Defaults Are On The Rise. Consumer defaults ticked to the highest level in nine months as the national composite index inched up two basis points to 2.24%, data from S&P Indices and Experian shows.
• GMO: Something's Fishy in China.
• Chart: Proof That The PC Is Dying A Slow, Painful Death. Meanwhile, Macs are gaining steady momentum while Android and iOS devices are blowing up.
  

Zero Hedge:

• Treasury Resumes Pillaging Retirements Accounts To Fund Deficit Spending Until Debt Ceiling Raised.
• Standard Chartered Does Not See A "Quick Move To Further Loosening" In China, Despite Property Correction.
• Morgan Stanley(MS) Quantifies The Probability Of A Global "Muddle Through": 37%.
  

CNBC:

• Fund Managers More Bullish About Stocks: Survey.
• Samsung Says No Interest in Buying Troubled RIM(RIMM).
  

NY Times:

• Greek Premier Says Creditors May Be Forced to Take Losses. Taking direct aim at hedge funds and other private holders of Greece’s debt, Prime Minister Lucas Papademos says he will consider legislation forcing the creditors to take losses on their holdings if no agreement can be reached in critical negotiations scheduled to resume Wednesday.

Rasmussen Reports:

• Election 2012: Generic Republican 47%, Obama 42%.

Reuters:

• ECB Mulling Alternatives to Bond-Buy Plan: Nowotny. The European Central Bank is exploring alternatives to its controversial bond-purchase program but has yet to decide on any replacement policy tool, ECB Governing Council member Ewald Nowotny told a German website in comments published on Tuesday. Nowotny, who is also Austria's national central bank chief, said there was skepticism on the policymaking Council about the bond-buy program "because we fear the market imperfections that we want to correct with this could emerge in another area." "We are discussing possible alternatives. But this discussion is not so far developed that we can dispense with the SMP (bond-buying program)," Nowotny told the Wall Street Journal's German website. He declined to say what direction the talks were heading in, adding only: "That is a discussion that encompasses the whole monetary policy spectrum." "The need for some type of intervention is widely recognized," he said. On one hand, the ECB is under political pressure to take more aggressive action to put an end to Europe's debt crisis. On the other, many voices inside Germany, led by the Bundesbank, oppose both bond-buying and anything beyond that. The Bundesbank feels the bond-buying program - never mind the outright "quantitative easing" that many economists have called for - takes the ECB into the realm of fiscal policy and away from its core role of delivering stable prices. The ECB more than tripled its bond purchases last week to the highest level since late November, spending 3.77 billion euros as a calm start to the New Year gave way to an intensification of the euro zone debt crisis. The bond purchases face renewed scrutiny after Standard & Poor's mass euro zone rating downgrades on Friday, though the ECB has resisted political pressure from within and beyond the euro zone to step up the program on a major scale.
• Yahoo(YHOO) Co-Founder Yang Resigns. Yahoo Inc co-founder Jerry Yang has quit the Internet company he started in 1995, appeasing shareholders who had blasted the Internet pioneer for pursuing an ineffective personal vision and impeding investment deals that may have transformed the struggling company.
• Asian Hedge Funds Down in Dec., Capping 2011 Slump. Asian hedge funds tumbled 1.09 percent in December, further depressing returns in 2011, the industry's first negative year in the region since the 2008 financial crisis, figures showed on Wednesday. Performance in Asia ex-Japan last year tumbled 12.7 percent, compared with a decline of 6.46 percent in Europe, a drop of 1.27 percent in Japan and a 0.97 percent fall in North America, research firm Eurekahedge said in a report. Latin American hedge funds posted gains of 2.39 percent last year, buoyed by high interest rates in Brazil, the report said. The Eurekahedge Hedge Fund Index, which measures returns globally, dropped 4.15 percent for the year, the second-worst return since it was launched in 2000.

Financial Times:

• Portugal Moves Into Default Territory. Portugal is trading in default territory after investors offloaded the country’s bonds this week amid rising fears of contagion. Worries are mounting that the private sector and Greece will fail to agree a restructuring package for Athens’ debt.

Telegraph:

• Hungary Faces Ruin as EU Loses Patience. The European Commission has launched legal action against Hungary's Fidesz government for violations of European Union treaty law and erosion of democracy, marking a dramatic escalation in the war of words with the EU's enfant terrible.
• Greece Prepares to Give Way to Banks to Secure Debt Deal. Greek government and international officials have signalled they will yield to the demands of banks and hedge funds in order to secure a bond deal before the end of the week. Amid fresh warnings of Greek default, Charles Dallara, director of the Institute of International Finance (IIF), flew from Washington to Athens on Tuesday night to try to agree a deal before the European finance minister's summit on Monday. Sources close to the bondholders told The Daily Telegraph there was "enough movement" from officials representing Greece, the International Monetary Fund (IMF), European Central Bank (ECB) and the European Union (EU) to persuade Mr Dallara to meet with them. Bondholders are resisting pressure to take losses of more than 50pc on their bonds. They are also pushing for higher coupons on fresh Greek paper.

Welt:

• Plans to leverage the EFSF to as much as EU1.5t from EU440b "are practically dead", citing sources close to the talks.

Passauer Neue Presse:

• Debt, Not S&P Ratings the Euro-Area's Problem, DIHK Tells Paper. Calls in Europe for the creation of a new rating agency after S&P downgraded nine states in the single currency area miss the point, Germany's DIHK chamber of industry group said. Setting up such an agency may create more transparency in the rating process but "wouldn't change the core problem of the debt crisis," citing DIHK Chief Economist Alexander Schumann.

Chosun Ilbo:

• North Korea shelled the South Korean border island Yeonpyeong in November 2010, knowing that the South wouldn't retaliate for fears that tensions would affect the South Korean economy, citing e-mails between N. Korean leader Kim Jong Un's older brother, Kim Jong Nam, and Japanese journalist Yoji Gomi.

China Securities Journal:

• The "downward trend" for China's economy has slowed and monetary policy will keep a "stable tone," China Securities Journal says in an editorial today. There may not be an interest -rate cut in the first quarter, according to the editorial.

Evening Recommendations
CSFB:

• Rated (RL) Outperform, target $168.
  

Night Trading

• Asian equity indices are -.25% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 200.0 -2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 156.50 -3.5 basis points.
• FTSE-100 futures -.13%.
  
• S&P 500 futures +.25%.
  
• NASDAQ 100 futures +.29%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (SCHW)/.13
• (STT)/.94
• (PNC)/1.49
• (USB)/.63
• (NTRS)/.68
• (BK)/.53
• (GS)/1.23
• (FAST)/.29
• (FFIV)/1.00
• (KMP)/.61
• (XLNX)/.37
• (EBAY)/.57
• (FUL)/.59
• (SLM)/49
• (KMI)/.29
  

Economic Releases
8:30 am EST

• The Producer Price Index for December is estimated to rise +.1% versus a +.3% gain in November.
• The PPI Ex Food & Energy for December is estimated to rise +.1% versus a +.1% gain in November.
  

9:00 am EST

• Net Long-Term TIC Flows for November are estimated to rise to $40.0B versus $4.8B in October.

9:15 am EST

• Industrial Production for December is estimated to rise +.5% versus a -.2% decline in November.
• Capacity Utilization for December is estimated to rise to 78.1% versus 77.8% in November.

10:00 am EST

• The NAHB Housing Market Index for January is estimated to rise to 22.0 versus 21.0 in December.
  

Upcoming Splits

• (EL) 2-for-1
  

Other Potential Market Movers

• The weekly retail sales reports, weekly MBA Mortgage Applications report, (SPW) Investor Meeting and the CIBC Institutional Investor Conference could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by commodity and automaker shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 50% net long heading into the day.