Stocks Slightly Lower into Final Hour on Profit-Taking, Some Earnings Jitters, Rising Eurozone Debt Angst and More Shorting

Broad Market Tone:

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

Equity Investor Angst:

• VIX 19.25 +3.11%
  
• ISE Sentiment Index 65.0 -36.27%
  
• Total Put/Call 1.09 +4.81%
  
• NYSE Arms 1.11 +5.16%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 104.21 -.54%
  
• European Financial Sector CDS Index 193.99 +1.22%
  
• Western Europe Sovereign Debt CDS Index 336.02 +.16%
  
• Emerging Market CDS Index 283.13 +1.64%
  
• 2-Year Swap Spread 35.0 +1 bp
  
• TED Spread 53.0 +1 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -76.0 +4 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .03% -1 bp
  
• Yield Curve 182.0 unch.
  
• China Import Iron Ore Spot $139.80/Metric Tonne unch.
  
• Citi US Economic Surprise Index 69.90 -.7 point
  
• 10-Year TIPS Spread 2.07 +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +25 open in Japan
• DAX Futures: Indicating -1 open in Germany

Portfolio:

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

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 trades near session highs, just down slightly on the day, despite rising eurozone debt angst, profit-taking and some earnings disappointments. On the positive side, Computer, Disk Drive, Networking, Hospital, Homebuilding and Education shares are especially strong, rising more than +1.0%. Tech shares are outperforming substantially. Small-Caps are also relatively strong. Oil is falling -.83%, gold is down -.72% and copper is rising +.39%. Oil continues to trade poorly given the recent uptick in saber-rattling from Iran, escalating violence in Nigeria, better US economic data and euro bounce. Johnson Redbook weekly retail sales rose +2.9% this week, which is about the long-term average, but the slowest pace since the week of April 5th of last year. The France sovereign cds is down -2.69% to 170.83 bps and the Italy sovereign cds is down -2.75% to 432.50 bps. On the negative side, Coal, Telecom, Restaurant and Road & Rail shares are under pressure, falling more than -1.0%. The UBS-Bloomberg Ag Spot Index is gaining +.79% and Lumber continues to trade very poorly, falling another -2.4%. The Portugal sovereign cds is up +1.5% to 1,287.33 bps(new record high) and the Brazil sovereign cds is jumping +2.7% to 151.83 bps today. Lumber has declined -11.1% since Dec. 28th and is at the lower end of its recent range, near a multi-year low, despite the better US economic data, improving sentiment towards homebuilders, stock rally and decline in eurozone debt angst. Moreover, the Baltic Dry Index has plunged -61.3% from its Oct. 14th high and is now down -51.6% ytd. The 10Y T-Note Yield is still subdued considering the recent stock rally and improvement in US economic data. The Western Europe Sovereign CDS Index is still 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. 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 European stock indices fell about -.5%, which isn't bad considering the Greece worries and recent gains. The Bloomberg European Bank/Financial Services Index fell -1.0%. European equities continue to price in a pause in the debt crisis and a stabilization in economic growth. While the "debt crisis can" appears to have been kicked again, economic growth is likely to contract further in the region over the coming months as more austerity measures take hold. The S&P 500's technical condition 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. I expect US stocks to trade mixed-to-higher into the close on tech sector optimism, lower energy prices, a bounce in the euro off the lows and short-covering.

Bull Radar

Style Outperformer:

• Mid-Cap Growth +.09%

Sector Outperformers:

• 1) Disk Drives +1.93% 2) Computer Hardware +1.36% 3) Hospitals +1.19%

Stocks Rising on Unusual Volume:

• WDC, EMC, DGX, VLTR, BVSN, PLCM, ACHN, CLNE, DMND, IDIX, JAH, WAT, PSS, SPW and ASH
  

Stocks With Unusual Call Option Activity:

• 1) TEF 2) COH 3) IDCC 4) XRX 5) COV
  

Stocks With Most Positive News Mentions:

• 1) VMW 2) CP 3) WDC 4) MCD 5) KLAC
  

Charts:

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

Tuesday Watch

Evening Headlines

Bloomberg:

• EU Calls for More Bondholder Concessions as Greece Seen Going ‘Off Track’. European finance ministers balked at putting up more public money for Greece, calling on bondholders to provide greater debt relief in order to point the way out of the two-year-old debt crisis. Euro governments stood by an October offer of 130 billion euros ($170 billion) for a second Greek aid package. Officials want to fill a deeper-than-expected hole in the nation’s finances by saddling investors with a lower interest rate on exchanged bonds. Brinkmanship over Greece clouded progress toward new fiscal rules and a beefed-up rescue fund, denting newfound confidence in the anti-crisis strategy and threatening to overshadow next week’s summit of European leaders. “It’s obvious that the Greek program is off track,” Luxembourg Prime Minister Jean-Claude Juncker told reporters early today after chairing a meeting of European finance ministers in Brussels. He called on creditors to drop demands that new bonds carry coupons averaging 4 percent. The stalemate is reminiscent of October’s bargaining over bond losses and risks disrupting the Jan. 30 summit. An accord with bondholders is key to a second financing package for the cash-strapped country, which faces a 14.5 billion-euro bond payment on March 20.
• Societe Generale, Credit Agricole Cut by S&P in Wake of France's Downgrade. Societe Generale SA (GLE) and Credit Agricole SA (ACA) were among French banks to have their credit grades cut by Standard & Poor’s after France was stripped of its top rating earlier this month. Societe Generale, France’s second-largest lender, and No. 3 Credit Agricole had their ratings downgraded to A from A+, with a stable outlook, S&P said yesterday in statements. Caisse des Depots et Consignations also was cut to AA+ from AAA. European nations are grappling with a debt crisis now in its third year as they seek to restore budget order. France’s AAA rating was reduced to AA+ on Jan. 13 amid downgrades that left Germany the sole nation in the euro area with a stable AAA rating. The ratings for Societe Generale and Credit Agricole incorporate one level of government support rather than two levels that a AAA-rated sovereign would provide, S&P said. “The downgrade of some of these banks follows the downgrade of France,” S&P wrote in a statement.
  
• Euro Retreats From Three-Week High as EU Officials Discuss Greek Debt Swap. The euro slid from an almost three week high after European finance ministers called on Greek bondholders to provide greater relief in a debt-swap agreement to help end the region’s sovereign crisis. Losses in the 17-nation currency were limited before reports forecast to show a slower contraction in European services and manufacturing output. Demand for the dollar may be curtailed before the Federal Reserve begins a two-day policy meeting today, after which it will provide forecasts for its benchmark interest rate for the first time. The yen was little changed after the Bank of Japan cut its economic growth forecast for next year as it held its key rate near zero. “It’s unlikely we’ll see continued buying of the euro,” said Kumiko Gervaise, an analyst in Tokyo at Gaitame.com Research Institute Ltd., a unit of Japan’s largest online currency margin-trading company. It’s no guarantee that Greece can return to markets for funding “even with the debt-swap deal.”
• Chemicals Used During Medical Imaging Tests May Damage Thyroid. Chemicals used to enhance pictures obtained from medical imaging tests may lead to overactive or underactive thyroid glands, a study showed. Patients injected with contrast material were about twice as likely as those who didn't get the chemical to develop hyperthyroidism, when the gland produces too much thyroid hormone and can cause rapid or irregular heart rates, according to a study today in the Archives of Internal Medicine. Results also showed an increased risk for hypothyroidism.
• Crude Trades Below $100 as U.S. Inventory Outlook Counters Iran Embargo. Oil fluctuated below $100 a barrel in New York as speculation U.S. stockpiles gained last week countered concern Iran will respond to an European embargo on its crude exports by shutting the Strait of Hormuz.
• NYSE-Deutsche Boerse Said to Lack Support to Overturn EU’s Takeover Veto. NYSE Euronext (NRX) and Deutsche Boerse (DB1) AG are unlikely to garner enough support from European Union commissioners to overturn a looming veto over their plan to create the world’s largest exchange, according to four people familiar with the situation. The EU’s antitrust chief, Joaquin Almunia, won’t face significant opposition from other EU commissioners to his proposal to block the deal at a Feb. 1 meeting, said the people who can’t be identified because the discussions aren’t public.
• Japan May Miss Debt Goal Despite Tax Hikes. Japan will probably miss its goal of balancing the budget by fiscal 2020 even if it doubles the nation’s sales tax, government estimates show, underscoring the difficulty of containing the world’s largest public debt. Japan will have a primary deficit of 3.1 percent of gross domestic product in the year, the Cabinet Office said in a release in Tokyo today. The projections are based on the assumption the world’s third-largest economy grows about 1 percent annually. The government had wanted a primary balance, achieved when revenue matches spending after the exclusion of debt-servicing costs, by the year ending March 2021.
• VMware(VMW) Profit Tops Estimates as Clients Add Server Software. VMware Inc. (VMW), the biggest maker of software that lets computers run multiple operating systems, reported sales and profit that topped estimates as corporations bought more programs to make servers more efficient.

Wall Street Journal:

• Romney on the Attack. Mitt Romney sought to regain traction in the Republican presidential race by linking his surging rival, Newt Gingrich, to Florida's ongoing housing crisis and trying to paint the former House speaker as too "erratic" for the party to gamble on as its 2012 nominee.
  
• Obama Speech May Set Natural-Gas Production Goal. President Barack Obama will use his State of the Union speech Tuesday to call for an increase in domestic energy production and may set a production target for natural gas, according to people familiar with the White House's plans. Mr. Obama is expected to tout the economic and energy security benefits of increased U.S. oil and gas production, a message that's unlikely to sit well with some of the president's environmental supporters but could blunt industry and Republican criticism of his policies.
• Australia's Swan Says Forecasts Assume Europe Recession. Australia's Treasurer Wayne Swan said Tuesday the country's mid-year economic forecasts factor in a recession in Europe and a substantial slowdown in global growth.
• Fears Mount That Portugal Will Need a Second Bailout. Investors, economists and politicians are increasingly concerned that Portugal will need a second bailout as fears mount that it won't be able to return to markets for financing next year. While the Portuguese government's finances are covered this year as long as it abides by its bailout agreement, Portugal must regain full access to capital markets next year to help repay €9 billion ($11.64 billion) in debt coming due in September 2013.
• At BofA(BAC), Moynihan Grapples With Past. Bank of America Corp. CEO Brian Moynihan is being dragged back to the past once again. The 52-year-old chief executive is expected to be deposed in coming months in as many as three civil lawsuits over the bank's handling of its takeover of securities firm Merrill Lynch & Co. on Jan. 1, 2009.

MarketWatch:

• Japan's Central Bank Cuts Economic Forecast. The Bank of Japan Tuesday cut its economic growth forecasts through fiscal 2012, while keeping its interest-rate target unchanged. After predicting last October that gross domestic product would grow 0.2% to 0.4% in the current fiscal year ending in March, the central bank said Tuesday that the period would instead show a contraction of between 0.3% and 0.4%.

Business Insider:

• Gasparino: Here's The Real Reason Why Morgan Stanley(MS) Capped Its Bonuses.
• Pretty Much Everyone In Italy Is About To Go On Strike.
• 6 TOP ECONOMISTS ANSWER: Is The Euro Crisis Over? And If Not, What's Next?
• 11 Stunning Revelations From Larry Summers' Secret Economics Memo To Barack Obama. A lengthy piece in The New Yorker looks at policymaking in the Obama White House. A key source for writer Ryan Lizza is a 57-page, “Sensitive & Confidential” memo written by economist Larry Summers — eventually to be head of Obama’s National Economic Council — to Obama in December 2008. Here’s some what I learned about Team Obama’s thinking as the financial crisis was exploding, followed by quotes from the memo:

Zero Hedge:

• Goldman(GS) Previews The Fed's Statement, Plays Down Expectations Of A "Dovish Surprise".

CNBC:

• More Tech CEOs on Hot Seat After Ousters at RIM(RIMM), Yahoo(YHOO).
• Regulator: Fannie, Freddie Writedowns To Cost Taxpayers Billions. The regulator for Fannie Mae and Freddie Mac told lawmakers that forcing the two mortgage firms to write down loan principal would require more than $100 billion in fresh taxpayer funds. In a letter sent Friday to the Republican and Democratic leaders of a U.S. House of Representatives government oversight panel, the Federal Housing Finance Agency explained why it has long opposed principal reductions for borrowers who owe more than their homes are worth. It said it had determined that such reductions would be more costly for the two firms than allowing those troubled borrowers to default. The regulator has been under pressure from Democrats to permit the write-down of principal by the two government-controlled mortgage finance providers as a way to help some of the millions of U.S. homeowners who are "underwater."
• Texas Instruments Earnings Beat; Outlook Falls Short.

NY Times:

• InterDigital(IDCC) Calls Off Patent Sale. The decision by InterDigital followed months of talks with several prospective buyers, following a surge of interest by tech companies in buying up patents. But InterDigital was unable to fetch an offer for the entire portfolio of 20,000 patents, one of these people said.
• Europe Weighs Tough Law on Online Privacy. Europe is considering a sweeping new law that would force Internet companies like Amazon.com and Facebook to obtain explicit consent from consumers about the use of their personal data, delete that data forever at the consumer’s request and face fines for failing to comply.

Reuters:

• World Needs 600 Million New Jobs In Next Decade - ILO. The International Labour Organization sounded the alarm on the global jobs situation in its annual report on Monday and called for more coordination of fiscal policies, repair and regulation of the financial sector and support for the real economy. "What has changed with respect to last year is that our forecast has become much more pessimistic," said Ekkehard Ernst, one of the report's authors. "We had expected a gradual stagnation or coming down of unemployment numbers. That's not something we foresee this year any more. Even in our baseline the unemployment numbers are increasing. With a possibility of a serious deterioration of global growth these numbers actually increase very much." Even under fairly benign conditions such as a quick resolution of the euro debt crisis, the ILO expects global unemployment to be stuck at about 6 percent until at least 2016.
• Germany Denies Its Ready To Up Euro Zone Rescue Volume. Germany denied a report on Monday that it was ready to boost the combined firepower of the euro zone's rescue funds to 750 billion euros ($978 billion). "It is not true. There is no such decision," German Chancellor Angela Merkel's spokesman Steffen Seibert told Reuters, referring to a Financial Times newspaper report earlier that Germany would accept an increase of the rescue schemes in return for its euro zone peers accepting tough budget rules in a new fiscal compact.
• Obama taps Deutsche economist to head EIA. President Barack Obama has nominated Deutsche Bank energy economist Adam Sieminski to head the Energy Department's independent statistics arm, the White House said on Monday.
• Western Digital(WDC) Beats On Fast Recovery From Thai Floods. Hard drive maker Western Digital Corp posted better-than-expected quarterly results and forecast a strong current quarter, signaling a faster-than-anticipated return to production capacity at key facilities damaged by the Thailand floods last year.
• Iraq Targets 2012 500,000 bpd Oil Output Increase. Iraq is targeting an increase in oil production and exports of 500,000 barrels per day for 2012 and even more of a gain in 2013, its top oil official said on Monday, signalling substantial growth under its ambitious expansion plan.

Yomiuri:

• Elpida is in talks with Micron Technology(MU) and Nanya for a three-way merger.

Japan Times:

• Cabinet Kept Alarming Nuke Report Secret. Fearful of scaring public, existence of document was denied for months.

Evening Recommendations
Wells Fargo:

• Rated (BLL) Outperform.

William Blair:

• Rated (FIO) Outperform.

Night Trading

• Asian equity indices are -.75% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 189.0 -3.25 basis points.
  
• Asia Pacific Sovereign CDS Index 149.0 - 4.0 basis points.
• FTSE-100 futures -.20%.
  
• S&P 500 futures -.34%.
  
• NASDAQ 100 futures -.27%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (HOG)/.22
• (KEY)/.20
• (BHI)/1.32
• (AKS)/-.39
• (DGX)/1.06
• (BTU)/1.31
• (IGT)/.22
• (TRV)/1.52
• (APD)/1.36
• (DD)/.33
• (WAT)/1.50
• (COH)/1.15
• (EMC)/.46
• (VZ)/.52
• (KMB)/1.30
• (EAT)/.45
• (JNJ)/1.09
• (MCD)/1.30
• (SYK)/1.02
• (ALTR)/.42
• (CA)/.54
• (STLD)/.11
• (YHOO)/.24
• (AAPL)/10.12
• (NSC)/1.40
• (AMD)/.16
• (ETH)/.28

Economic Releases

• None of note

Upcoming Splits

• (COG) 2-for-1
  

Other Potential Market Movers

• The Spain debt auction, Richmond Fed Manufacturing Index for January, BoJ Rate Decision, 2-Year Treasury Note Auction, ECB's Mersch speaking, weekly retail sales reports, (WPI) Investor Meeting and the (BBG) Investor Event could also impact trading today.
  

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

Stocks Slightly Higher into Final Hour on Less Eurozone Debt Angst, More Financial Sector Optimism, Short-Covering

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.84 +3.01%
  
• ISE Sentiment Index 97.0 +2.11%
  
• Total Put/Call 1.10 +39.24%
  
• NYSE Arms .95 -12.54%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 104.79 -3.44%
  
• European Financial Sector CDS Index 192.06 -2.40%
  
• Western Europe Sovereign Debt CDS Index 335.18 -3.53%
  
• Emerging Market CDS Index 278.96 -1.44%
  
• 2-Year Swap Spread 34.0 -1 bp
  
• TED Spread 52.0 +1 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -80.0 -4 basis points
  

Economic Gauges:

• 3-Month T-Bill Yield .04% unch.
  
• Yield Curve 182.0 +4 bps
  
• China Import Iron Ore Spot $139.80/Metric Tonne unch.
  
• Citi US Economic Surprise Index 70.60 -1.0 point
  
• 10-Year TIPS Spread 2.06 +4 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +35 open in Japan
• DAX Futures: Indicating -3 open in Germany

Portfolio:

• Slightly Higher: On gains in my Retail and Medical sector longs
  
• Disclosed Trades: Added to my (IWM), (QQQ) hedges, then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 hugs the flatline despite a bounce in the euro, falling eurozone debt angst, more financial sector optimism and overseas stock strength. On the positive side, Coal, Energy, Computer Service and Gaming shares are especially strong, rising more than +.75%. Financial shares are outperforming again. Copper is rising +1.43%. Oil's bounce is unimpressive given the uptick in saber-rattling from Iran, escalating violence in Nigeria and euro bounce. Major European indices rose around +.75% today, led by a +1.6% gain in Italian shares. The Bloomberg European Bank/Financial Services Index rose +2.44%. European equities continue to price in a pause in the debt crisis and a stabilization in economic growth. While the debt crisis can appears to have been kicked again, economic growth is likely to contract further in the region over the coming months as more austerity measures take hold.The Germany sovereign cds is falling -3.5% to 91.33 bps, the France sovereign cds is down -3.81% to 175.33 bps, the Spain sovereign cds is falling -3.66% to 362.50 bps, the Italy sovereign cds is falling -4.35% to 445.0 bps and the Brazil sovereign cds is down -3.38% to 147.83 bps. The Italian/German 10Y Yield Spread is falling -4.24% to 413.51 bps, which is an improvement, but still at stressed levels. On the negative side, Restaurant, Homebuilding, Internet, Paper, Alt Energy and Road & Rail shares are under pressure, falling more than -.75%. Gold is rising +.65%, Oil is gaining +1.6%, the UBS-Bloomberg Ag Spot Index is gaining +1.22% and Lumber is flat 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 the better US economic data, improving sentiment towards homebuilders, stock rally and decline in eurozone debt angst. The 10Y T-Note Yield is still subdued considering the recent stock rally and improvement in US economic data. The Western Europe Sovereign CDS Index is still 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. 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. Gold continues to trade well as it breaks back above its 50-day moving average and is close to a test of its intermediate-term downtrend line. At the end of last year, I said gold was near a tradable low and it is up +7.4% ytd. I took some profits today in my (GLD) long. The S&P 500's technical condition 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. I expect US stocks to trade mixed-to-higher into the close on declining Eurozone debt angst, more financial sector optimism and short-covering.

Today's Headlines

Bloomberg:

• Germany Proposes Combining Rescue Funds. Germany floated the idea of combining Europe’s two rescue funds, in a concession to bolster the fight against the fiscal crisis as Greece bargained with bondholders over debt relief. Germany may be open to boosting the combined aid limit from 500 billion euros ($651 billion) when a permanent fund runs alongside the temporary fund starting in July, government officials in Berlin said. The need for a beefed-up fund was dramatized by haggling between Greece, the trigger of the two- year-old crisis, and its creditors over debt reduction to stave off default. “It’s essential that we will be able to reinforce our financial firewalls,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters before a meeting of finance ministers in Brussels today. Finance chiefs will tackle the rescue funds, Greece’s latest offer to bondholders, a German-inspired deficit-control treaty and nominees to the European Central Bank’s board in meetings that started at 2:30 p.m. and will run until late evening.
• Spain Risks Deficit Spiral as Election Postpones Budget Cuts: Euro Credit. Spain’s month-old government may postpone deeper budget cuts until after a regional election in March, adding to the risk the nation misses its deficit goal for the second year. The ruling People’s Party, led by Prime Minister Mariano Rajoy, will contest an election in the southern region of Andalusia to end 30 years of Socialist rule. Spain’s 10-year bond yields have risen 10 basis points to 5.5 percent since the PP government took over on Dec. 21, increasing the rate to 359 basis points more than German bunds of similar maturity. “Rajoy doesn’t want to get burnt before the Andalusian election,” Antonio Barroso, an analyst at Eurasia and a former Spanish government pollster, said in a telephone interview. “They’re so crucial for the PP that it won’t take any kind of measure that would undermine its ratings in the region.” Rajoy needs to slice the equivalent of 3.6 percent of gross domestic product off the budget deficit this year to meet a European Union target, just as the economy may be entering its second recession in two years. Postponing steps until after the March 25 election risks undermining confidence in Spain’s ability to meet its goal, which Fitch Ratings already has “doubts” the country will reach. “Rajoy has yet to explain how he will reduce the deficit when the economy is shrinking,” said Georg Grodzki, global head of credit research at London-based Legal & General Investment Management, which oversees about $515 billion. “I don’t think Spain can afford to wait for more than two months at the most.”
• Corporate, Sovereign Bond Risk Fall in Europe, Debt Swaps Show. The cost of insuring against default on European corporate and sovereign debt fell, according to traders of credit-default swaps. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings fell 17.5 basis points to 630, the lowest since Oct. 28, according to JPMorgan Chase & Co. at 3 p.m. in London. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings decreased 6.5 basis points to 147.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers dropped 10 basis points to 219.5 and the subordinated index fell 17 to 403. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments decreased six basis points to 331.
• Oil Rises for First Time in Four Days After EU Agrees to Ban Iranian Oil. Oil rose for the first time in four days after the European Union agreed to ban crude imports from Iran, raising concern that retaliation from the Islamic Republic may disrupt oil supply from the Middle East. Futures gained as much as 1.6 percent as the 27-nation bloc said it would implement the crude embargo starting July 1 to pressure the country over its nuclear program. Oil for March delivery gained $1.51, or 1.5 percent, to $99.84 a barrel at 1:10 p.m. on the New York Mercantile Exchange. Prices have increased 12 percent in the past year.

Wall Street Journal:

• Lagarde Says Europe Mut Boost Firewall. The global economy faces a depression-era collapse in demand if Europe doesn't quickly act to dramatically boost the size of its debt-crisis firewall, implement pro-growth policies and further integrate the euro zone, the head of the International Monetary Fund warned Monday. "It is about avoiding a 1930s moment, in which inaction, insularity, and rigid ideology combine to cause a collapse in global demand," IMF Managing Director Christine Lagarde said in prepared remarks before the German Council of Foreign Affairs in Berlin. "A moment, ultimately, leading to a downward spiral that could engulf the entire world," she said.

Dow Jones:

• Greece shouldn't expect an increase in planned bailout loans even though the economy is worsening, citing people familiar with the matter. Any shortfalls have to be covered by more austerity or bigger losses by creditors. The IMF "has a similar stance," citing the source.
  

CNBC.com:

• More Lockouts as Companies Battle Unions.

Business Insider:

• Anonymous Says It's Going To Attack Facebook Next.
• RIM's(RIMM) Stock Tanks After Hiring A No-Name CEO Who Might Be Worse Than What They Had.
• Moody's: Odds Of A Greek Debt Default Disaster And Exit From The Euro Are On The Rise.
• Obama Was Warned By His Economic Team That His Campaign Promises Would Create A Mountain Of Debt.
  

Zero Hedge:

• Over Two Thirds Of All Hedge Funds Are Under Their High Water Mark.
• One Day Ahead Of State Of The Union Address, American Dissatisfaction With Economic, Political Issues At Record. (graph)
• Why Are Greek Credit Event Swaps Still In The Mid 60s?
• The ESM/EFSF Bluff.
  

Reuters:

• Exclusive: YouTube Hits 4 Billion Daily Video Views. YouTube, Google Inc's(GOOG) video website, is streaming 4 billion online videos every day, a 25 percent increase in the past eight months, according to the company. The jump in video views comes as Google pushes YouTube beyond the personal computer, with versions of the site that work on smartphones and televisions, and as the company steps up efforts to offer more professional-grade content on the site. According to the company, roughly 60 hours of video is now uploaded to YouTube every minute, compared with the 48 hours of video uploaded per minute in May.
• U.S. Oil Production to Surge. A boom in shale oil production will raise U.S. domestic crude output by a fifth over the next decade, helping to slash the country's dependence on foreign oil imports, the Energy Information Administration said on Monday. Growing shale production as well as Gulf of Mexico development will push U.S. crude oil production to 6.7 million barrels per day in 2020, up 20 percent and 11 percent higher than the previous forecast, the EIA said in its annual domestic energy outlook. That would mark the highest level of U.S. oil output since 1994, thanks to advances in drilling techniques that have opened the door to tapping the nation's vast shale reserves. Shale oil production makes up 21 percent of output in the lower 48 states in 2010. By 2035, such production will account for 31 percent of that output.
• Uptick Rule Could Curb Quant Fund Risk - Man Group CEO. The head of Man Group (EMG.L), the world's biggest listed hedge fund manager, is backing the reintroduction of the so-called 'uptick rule' to reduce the risk of a market crash prompted by lightning-fast computer traders. Peter Clarke told a conference on Monday that the U.S. rule, which only allowed short-selling -- bets on a share price falling -- if the last sale price of a stock was higher than the previous price, could help stop some rapid-fire computer hedge funds fuelling market falls.

The Economist:

• Salve Italia. If Germany’s Angela Merkel wants to save the euro, she must do more for Italy’s Mario Monti. SADLY, the lull proved but brief. The first two weeks of the year were surprisingly calm for the storm-tossed euro zone. But a gale is blowing again. First a series of downgrades from Standard & Poor’s, a leading debt-rating agency, coincided with a stand-off in the “voluntary” restructuring talks between Greece and its private bondholders. Now there are signs of a continent-wide recession. The euro crisis is back. Indeed, the next few weeks could be decisive for the single currency’s future. Several euro-zone governments must sell huge amounts of debt in bond auctions. They are also due to wrap up negotiations over the new “fiscal compact”, demanded by Chancellor Angela Merkel of Germany to enforce budget discipline, at a European Union summit at the end of January. And the brinkmanship in Greece’s debt talks could yet lead to a disorderly default.

Financial Times:

• Hedgies in Flux. The latest annual SEI/Greenwich Associates survey of investors’ perceptions of hedge funds is out. You find full details in the usual place, but here are the bullet points from the exec summary:

Telegraph:

• Debt Crisis: Live.
  

Bild Zeitung:

• Inspectors from the European Union, the European Central Bank and the IMF were "shaken" by the state of Greece's administration.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-.33%)

Sector Underperformers:

• 1) Road & Rail -1.4% 2) Restaurants -1.0% 3) Internet -.90%

Stocks Falling on Unusual Volume:

• AMAG, PNRA, PG, SBUX, MMR, CATY, TWIN, MLNX, PAAS, SGMS, EEFT, RIMM, NUAN, CRDN, MFLX, OSIS, SBUX, JOBS, ALTR, CNQR, CPHD, NATR, RBN, FSC and BAS
  

Stocks With Unusual Put Option Activity:

• 1) XRX 2) XHB 3) MMR 4) WHR 5) SUN
  

Stocks With Most Negative News Mentions:

• 1) MMR 2) AMGN 3) STI 4) TXN 5) SIRI
  

Charts:

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