Bear Radar

Style Underperformer:

• Large-Cap Growth +.84%

Sector Underperformers:

• 1) Oil Tankers -.41% 2) Internet +.07% 3) Restaurants +.27%

Stocks Falling on Unusual Volume:

• AMZN, CHRW, JDAS, WBSN, CLMT, TSU, IXYS, WPRT, CALL, UBNT, KEYN, GSVC, BOKF, BODY, NTRI, TECH, BBOX, AWAY, QGEN, ARMH, CPHD, BSFT, CIB, UIS, TUP, MPW, CRK, MPW and OAS
  

Stocks With Unusual Put Option Activity:

• 1) WHR 2) JDSU 3) ATPG 4) STX 5) HUN
  

Stocks With Most Negative News Mentions:

• 1) WBSN 2) AMZN 3) EEP 4) CHRW 5) XOM
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value +1.65%

Sector Outperformers:

• 1) Computer Hardware +4.51% 2) Construction +2.83% 3) Education +2.65%

Stocks Rising on Unusual Volume:

• AZPN, BCS, MSTR, AIXG, EXPW, STX, MDVN, FTNT, REXX, BVSN, IACI, BRCM, IPXL, AMLN, DNDN, CYT, WHR, IX, KNM, CYT, MAN, AOL, PPO, MTW, TEX, MPC, MYL, HUN, WDC, AVY, MS and HALO
  

Stocks With Unusual Call Option Activity:

• 1) UBS 2) WHR 3) GGC 4) HUN 5) STX
  

Stocks With Most Positive News Mentions:

• 1) STX 2) ADM 3) F 4) FTNT 5) HSY
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Greek Bondholders Are Said Set to Get GDP-Revival Sweetener in Debt Swap. Bondholders negotiating a debt swap with Greece may get a sweetener tied to a revival in economic growth that would ease the impact of accepting a lower interest rate on the new bonds, people with knowledge of the talks said. In discussions late last week in Athens, creditors lowered their demands for an average coupon on the new 30-year securities they would receive to as little as 3.6 percent from 4.25 percent after European officials demanded they take steeper losses, people familiar with the matter said at the time. While the lower coupon would lead to an estimated loss of 70 percent or more for investors, adding a so-called gross domestic product warrant -- which would pay bondholders more if the Greek economy rebounds -- would trim the loss in net present value terms by an estimated 0.5 to 3 percentage points, said two people, who declined to be identified because the talks are confidential. Greece and private creditors are near a tentative accord that would in principle include the warrants, the people said. As an additional inducement for creditors, the debt would probably be governed under U.K. rather than Greek law, providing more bondholder protection, people familiar with the situation said. These matters are still subject to change, and questions over whether Greece can fulfill conditions for a second aid package from the European Union and International Monetary Fund have put the accord on hold for the moment, they said.
• Euro Holds Decline as Greek Debt Talks Continue, Before Portugal Bond Sale. The euro maintained a two-day decline as Greece struggles to conclude debt-swap talks with creditors by the end of this week. The 17-nation currency touched a one-week low versus the yen before Portugal sells bills today amid concern the nation will follow Greece in needing more aid to avoid default. Australia’s dollar pared declines after a report showed China’s manufacturing industry unexpectedly expanded last month. “There are some concerns that talks may continue to drag on,” Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore, said about the Greek debt negotiations. “The longer it drags on, the more likely the crisis will continue to worsen. It’s a sell on rallies market” for the euro. Portugal will sell 105-day and 168-day bills today. Standard & Poor’s increased the number of Portuguese banks on “creditwatch negative” after it cut the sovereign rating of the country. Yields (GSPT2YR) on Portugal’s two-year notes soared to a record 21.82 percent yesterday. “There are concerns that Portugal may also need a second bailout,” said Forecast’s Lee, who expects the euro may fall below the Jan. 13 low of $1.2624, the weakest since August 2010. “If the economy slows even more, banks would come under more pressure,” he said.
• Steel Slows With Europe Setting Back ArcelorMittal: Commodities. Steel demand worldwide is growing slower than forecast, eroding profit at producers including ArcelorMittal and Tata Steel Ltd. and forcing investors to revise their 2012 outlook for the $430 billion industry. Global use of the alloy will rise 4.5 percent this year, less than the 5.4 percent forecast in October by the World Steel Association, according to the median estimate of 14 steelmakers, analysts and traders surveyed by Bloomberg. Growth may be as low as 1.2 percent, according to Bloomberg Industries analysts. The gain, the lowest in three years, is tempered by cooling economies in China and Europe, where orders for steel products for houses, cars and machinery are stagnating and will keep the alloy's prices and overseas shipments muted, analysts said. “I'm bearish on Europe's demand outlook in view of the negative impact from budget deficits and the debt crisis,” said Helen Lau, an analyst with Hong Kong-based brokerage UOB Kay Hian. “China is maintaining its tightening stance on the private property market and developers are still suffering from tight bank credit and high inventory” of homes.
• California Faces Cash Crisis by March, Controller Estimates. California's cash may be exhausted by March as tax collections trail budgeted amounts, Controller John Chiang said in a letter to lawmakers. The nation's most-populous state needs $3.3 billion for March and the first two weeks of April, Chiang said in the letter to state Senator Mark Leno and Assemblyman Bob Blumenfield, who lead the Joint Legislative Budget Committee. The Assembly Budget Committee is holding a hearing today in Sacramento on the state's spending plan. Unlike 2009, when he was forced to issue IOUs to creditors, the controller said the current cash shortfall can be managed through payment delays, as well as external and internal borrowing. He urged legislators to pursue that course.
• China-Based Hackers Target Law Firms to Get Secret Deal Data. China-based hackers looking to derail the $40 billion acquisition of the world’s largest potash producer by an Australian mining giant zeroed in on offices on Toronto’s Bay Street, home of the Canadian law firms handling the deal. Over a few months beginning in September 2010, the hackers rifled one secure computer network after the next, eventually hitting seven different law firms as well as Canada’s Finance Ministry and the Treasury Board, according to Daniel Tobok, president of Toronto-based Digital Wyzdom.
• Broadcom(BRCM) Forecasts First-Quarter Sales That May Beat Analysts' Estimates. Broadcom Corp. (BRCM), a maker of chips that help mobile devices connect to the Internet, forecast first-quarter sales that may exceed analysts’ estimates amid stronger demand for parts for Apple Inc. (AAPL)’s iPhone. First-quarter revenue will be $1.7 billion to $1.8 billion, the Irvine, California-based company said in a statement today. Analysts on average had estimated sales of $1.73 billion, according to data compiled by Bloomberg. Broadcom shares climbed 2.5 percent to $35.20 in extended trading after the report.
• Fed Bank Presidents' Holdings Range From Ranchland to Equities. Federal Reserve regional bank presidents provided unprecedented disclosure of their wealth, revealing assets ranging from a Missouri farm and Texas ranchland to stocks and Treasury Inflation Protected Securities. The officials, who oversee Fed operations ranging from bank supervision to emergency lending, disclosed the documents today in response to requests from Bloomberg News under the Freedom of Information Act. The regional banks said they weren’t subject to the terms of the act, even as they responded to the request.
• Goldman(GS) Said to Be in Talks to Hire Ex-Geithner Aide Siewert. Goldman Sachs Group Inc. is in talks to hire Richard “Jake” Siewert Jr., a former counselor to U.S. Treasury Secretary Timothy F. Geithner, to manage the bank’s communications department, said three people familiar with the situation.
• Fracking Boom Could Finally Cap Myth of Peak Oil. The U.S. oil market could be on the verge of its own fracking revolution, similar to what the natural-gas market is already experiencing. As a result, domestic production is now projected to rise significantly over the coming decades, reducing the relative share of imports in U.S. oil consumption.
• Why Europe Really Must Pursue 'Structural Reform': Clive Crook.
• Hong Kong Homes Face 25% Drop in Year of the Dragon. The Year of the Dragon, representing wealth and power in China, is shaping up to be the opposite for the world’s costliest housing market, Hong Kong. Mortgages (HKMGLEND) that need to be insured by the government because of risk experienced the steepest plunge in six years in 2011, a sign the biggest home price decline since the global credit crisis is accelerating. Property prices that have slid 6 percent since June may fall as much as 25 percent by 2013, estimates Andrew Lawrence of Barclays Capital, who predicted the initial slide in April.
• South Korea's Exports Decline, Inflation Moderates on Europe. South Korea’s exports unexpectedly fell for the first time in more than two years and inflation moderated to the slowest pace in 12 months as Europe’s debt crisis dimmed the outlook for demand, giving the nation’s policy makers scope to hold interest rates. Overseas shipments dropped 6.6 percent in January from a year earlier after a revised 10.8 percent rise in December as Europe and the Lunar New Year holiday disrupted shipments, the Ministry of Knowledge Economy said in a statement today. Consumer prices rose 3.4 percent from a year earlier, the slowest since January 2011 when they gained at the same speed, a separate report today showed.
• China Home Prices Post Longest Stretch of Declines on Curbs, SouFun Says. China’s home prices fell for a fifth month in January as the government continued to control the property market, the longest losing streak since SouFun Holdings Ltd. (SFUN) started tracking the data. Home prices dropped 0.18 percent last month from December, according to SouFun, the nation’s biggest real-estate website owner that began compiling the figures in July 2010. Residential prices slid in 60 of 100 cities tracked by the company, same as in December, it said in an e-mailed statement today. Premier Wen Jiabao yesterday reiterated that the government will maintain curbs on the property market to bring prices down to a reasonable level. “Home prices are really falling and will drop further as the government curbs remain in place,” Nicole Wong, a Hong Kong-based property analyst at CLSA Asia-Pacific Markets, said in a phone interview today. “The stance of the policies has softened, but we can’t see a firm timeframe for the government to relax the current policies.” Average home prices nationwide climbed 1.7 percent in January from the same time in 2011 to 8,793 yuan ($1,394) a square meter (10.76 square feet), the slowest pace of growth since August, SouFun said.
• Russia Warns Arab Leaders Against Crossing 'Red Line' on Syrian Leadership. Russia warned Arab leaders against crossing a “red line” in trying to oust Syrian President Bashar al-Assad and said it wasn’t the United Nation’s job to dictate who stays in power and who goes.
• Apple(AAPL) Invades $3.8T Workplace Market With iPad. Apple Inc., without much effort on its part, is making rapid headway in selling to corporations. After years of being the also-ran to Microsoft Corp.(MSFT) in the workplace, Apple has seen its iPad become a standard business tool. According to an IDG Connect survey, 51 percent of managers with iPads say they “always” use the device at work, and another 40 percent sometimes do. Seventy-nine percent of the respondents use the iPad for business when outside the office.
• Oil Trades Near One-Week Low on Rising Stockpiles, U.S. Outlook. Oil traded near the lowest price in more than a week on signs that consumer confidence and demand for fuel are slipping in the U.S., the biggest crude consumer. “In the U.S., we have seen long-term demand destruction on gasoline that may never come back, even if the economy improves,” Phil Flynn, vice president of research at PFGBest in Chicago, said in an e-mailed response to questions. U.S. drivers bought 8.51 million barrels a day of gasoline in the week ended Jan. 27, according to MasterCard Inc.’s SpendingPulse report on Jan. 31. While that was up from 8.48 million the prior week, fuel demand fell below year-earlier levels for the 22nd consecutive time last week, declining 5.5 percent from 2011, the report said.

Wall Street Journal:

• Romney Wins Big in Florida. Mitt Romney handily won Florida's Republican primary Tuesday, riding a new, combative campaign style to a victory that returns him to his role as the favorite to win his party's presidential nomination.
  
• Senators: Get Rid of Dollar Bills. Some U.S. lawmakers want the coin to be the dollar of the realm. Sens. Tom Harkin (D., Iowa), John McCain (R., Ariz.) and two colleagues Tuesday are introducing legislation that would kill off the dollar bill in favor of dollar coins, touting the move as a way to cut costs over the long run.
  
• New Risks for Nuclear Plants. Nuclear reactors in the central and eastern U.S. face previously unrecognized threats from big earthquakes, the Nuclear Regulatory Commission said Tuesday. Experts said upgrading the plants to withstand more substantial earth movements would be costly and could force some to close.
• US Plans Charges on Bond Fraud. Federal prosecutors are preparing to file criminal charges against former Wall Street traders alleging they misstated the value of mortgage bonds, an issue central to the 2008 financial crisis, according to people familiar with the matter. The Manhattan U.S. Attorney's office is planning to allege in a criminal complaint that several former traders at Credit Suisse Group AG, a major global investment bank, misled the bank's investors by booking inflated prices of mortgage bonds to boost their bonuses, despite knowing the values of those securities had dropped, according to the people familiar with the matter.
• Repealing an entitlement that even the White House says won't work. The House votes today on repealing one of the Affordable Care Act's major new subsidy programs, and the referendum deserves more attention than it will probably get.
  

MarketWatch:

• China's Commodities Bubble Is Set To Pop.

Business Insider:

• Facebook Shrinks Its IPO, Plans To File Tomorrow Morning.
• MasterCard(MA) Is Planning To Usher In The Digital Age Of Consumer Spending.

Zero Hedge:

• NYSE January Volume. (graph) Last January (2011) the average number of stocks traded on the NYSE per day was 891mm shares vs 661mm for this January (a 26% drop YoY!) and this is down an incredible 59% from January 2008.

CNBC:

• China Factories Improve. China's official purchasing managers' index (PMI), inched up to 50.5 in January from 50.3 in December. A level of 50 demarcates expansion from contraction. The sub-index for new orders rose to 50.4 in January from 49.8 in December, while the sub-index for new export orders fell to 46.9 from December's 48.6. The official PMI, which is weighted more towards big state firms, generally paints a rosier picture of Chinese factories than a PMI produced by HSBC, which includes small private firms that have been hit harder by credit curbs and weaker demand. The official survey was rosier than the HSBC flash PMI, the earliest indicator of China's industrial activity, which found the manufacturing sector likely shrank for a third successive month in January.

CNN:

• Fed Official Owned Shares of Bailed Out Firms. As he helped orchestrate the Wall Street bailouts, William Dudley -- now president of the New York Fed -- owned more than $100,000 stock in AIG and General Electric, two firms that received government assistance.

Reuters:

• Analysis: Oil Reports May Offer Obama An Out On Iran. President Barack Obama will soon get regular, albeit incomplete, reports on how oil markets are coping ahead of broader sanctions on Iran that could help him justify easing off sanctions to prevent a politically damaging jump in crude prices. The White House is bracing for a barrage of criticism if gasoline prices begin to rise with the onset of the summer driving season, according to one source close to the White House. If gasoline prices march towards $5 a gallon from more than $3.40 now, Republicans will attack just as Obama gears up for the November elections. But Obama could use the EIA reports, which look at production and prices in countries besides Iran, to ease up on sanctions if they suggest energy security was at stake. "If the president decides he doesn't want to impose the sanctions he's got a fig leaf," said Phil Verleger an economist and consultant with PKVerleger LLC. "He can hide behind the report." The EIA report could act as a political shield if Obama decided to temper the sanctions. Mark Dubowitz, a advocate for tougher Iran sanctions and head of the Foundation for Defense of Democracies, said it will be "difficult for Congress and for others to hold the administration's feet to the fire" if Obama used the EIA report as a reason to ease up. George Lopez, an expert on international sanctions at University of Notre Dame, said Obama would have to tread carefully and not appear as being soft on Iran. But ultimately the president has much wiggle room.
• Amazon(AMZN) Spending Threatens 1st-Quarter Profit. Amazon.com Inc warned of a possible operating loss in the first quarter following a sharp drop in fourth-quarter profit, a sign that the online retailer will keep spending heavily on expansion at the expense of short-term returns. Shares of the company fell more than 8 percent.
• MF Global risk chief called euro bets "acceptable". The former chief risk officer for bankrupt MF Global raised concerns about the firm's aggressive bets on European sovereign debt about three months before the company filed for bankruptcy. Those concerns will be detailed on Thursday when Michael Stockman, the former chief risk officer, testifies before a House panel investigating the downfall of MF Global.
• Seagate Technology(STX) Q2 Beats Street on Margins. Hard drive maker Seagate Technology's posted better-than-expected quarterly earnings on strong margins, and followed rival Western Digital Corp in signalling a recovery from the floods in Thailand.

Financial Times:

• Misdiagnosis has made IMF cavalier with taxpayer money.
• Bruising Year for Commodities Hedge Funds. The commodities hedge fund industry has suffered its worst year in more than a decade as the sector’s top managers recorded heavy losses amid volatile markets. The average commodity hedge fund fell 1.7 per cent in 2011, according to a closely watched index compiled by Newedge, the first loss since the index was created in 2000 and down from a rise of 10.7 per cent in 2010.

Telegraph:

• German Jobs Miracle as Latin Unemployment Soars. Germany is enjoying the greatest jobs boom in 20 years even as unemployment rises to post-EMU highs across southern Europe, stretching the euro's North-South divide ever closer to breaking point. Spain's jobless rate has reached 22.9pc – or 48.7pc for youths – with Greece fast catching it at 19.2pc. Italy, at 8.8pc, is climbing steadily but this is likely to accelerate as austerity bites and recession deepens.

Kathimerini:

• Greece's international creditors will need guarantees from the three political party leaders supporting Prime Minister Lucas Papademos that they will stick to the economic program agreed to in return for a second rescue package, citing an interview with the main IMF representative to Greece.

Yonhap News Agency:

• North Korea's New Leadership to Continue WMD Exports: U.S Spy Chief. The U.S. intelligence chief warned Tuesday that North Korea will continue its exports of weapons of massive destruction despite its leadership change. "North Korea's export of ballistic missiles and associated materials to several countries, including Iran and Syria, illustrate the reach of the North's proliferation activities," James Clapper, director of national intelligence, told a congressional hearing.
  

Sydney Morning Herald:

• Record Slump in Australian House Prices in 2011. Australian house prices plunged by the most on record in 2011 as global economic uncertainty and concerns about its impact at home kept a lid on demand. An index measuring the weighted average of prices for established houses in eight major cities slid 4.8 per cent from a year earlier, according to the Australian Bureau of Statistics, the biggest calendar-year drop since the data began in March 2002. They fell 1 per cent in the three months to December from the previous quarter, when they retreated a revised 1.9 per cent. Economists had predicted a 0.6 per cent quarterly fall.

21st Century Business Herald:

• The China Banking Regulatory Commission has asked the nation's five biggest banks to run stress tests on loans to local government financing vehicles, citing a personal familiar with the matter. Lenders are told to report the test results and risk prevention measures to the regulator by this quarter.

Evening Recommendations
Citigroup Global Markets:

• Reiterated Buy on (X), target $35.

Night Trading

• Asian equity indices are -.75% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 182.50 -4.5 basis points.
  
• Asia Pacific Sovereign CDS Index 147.25 -1.75 basis points.
• FTSE-100 futures +.05%.
  
• S&P 500 futures -.16%.
  
• NASDAQ 100 futures -.33%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (COCO)/.01
• (TMO)/1.15
• (IACI)/.54
• (ENR)/1.93
• (MAN)/.87
• (AET)/.97
• (ALL)/.96
• (CMG)/1.83
• (LVS)/.57
• (QCOM)/.90
• (NDAQ)/.61
• (TSCO)/.93
• (BYI)/.51
• (EQR)/.65
• (TSO)/-.66
• (AVB)/1.22
• (EA)/.93
• (JDSU)/.10
• (MRO)/.83
• (BMC)/.82
• (AOL)/.31
• (HSY)/.70
• (DOX)/.64
• (NOC)/1.67

Economic Releases
8:15 am EST

• The ADP Employment Change for January is estimated at 182K versus 325K in December.
  

10:00 am EST

• Construction Spending for December is estimated to rise +.5% versus a +1.2% gain in November.
• ISM Manufacturing for January is estimated to rise to 54.5 versus 53.9 in December.
• ISM Prices Paid for January is estimated to rise to 50.00 versus 47.5 in December.
  

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,600,000 barrels versus a +3,558,000 barrel gain the prior week. Distillate inventories are estimated to fall by -1,375,000 barrels versus a -2,456,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +500,000 barrels versus a -390,000 barrel decline the prior week. Finally, Refinery Utilization is estimated unch. versus a -1.5% decline the prior week.
  

Afternoon

• Total Vehicle Sales for January is estimated to fall to 13.5M versus 13.52M in December.
  

Upcoming Splits

• (CMN) 3-for-2
• (TJX) 2-for-1

Other Potential Market Movers

• The Fed's Plosser speaking, NAPM-Milwaukee report for January, weekly MBA mortgage applications report, (VPRT) Investor Day, (FLS) Analyst Meeting and the (NAV) Investor Day could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by industrial 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 Global Growth Fears, Profit-Taking, More Shorting, Technical Selling

Broad Market Tone:

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

Equity Investor Angst:

• VIX 19.48 +.41%
  
• ISE Sentiment Index 90.0 -15.01%
  
• Total Put/Call .88 -5.38%
  
• NYSE Arms 1.41 -.56%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 102.58 -.79%
  
• European Financial Sector CDS Index 184.41 -3.21%
  
• Western Europe Sovereign Debt CDS Index 345.57 +.49%
  
• Emerging Market CDS Index 268.87 +.04%
  
• 2-Year Swap Spread 30.0 -3 bps
  
• TED Spread 49.0 -1 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -71.50 +1.5 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .05% unch.
  
• Yield Curve 158.0 -4 bps
  
• China Import Iron Ore Spot $142.40/Metric Tonne +1.79%
• Philly Fed ADS Real-Time Business Conditions Index .0250 unch.
  
• Citi US Economic Surprise Index 53.20 -10.3 points
  
• 10-Year TIPS Spread 2.10 +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +9 open in Japan
• DAX Futures: Indicating +31 open in Germany

Portfolio:

• Slightly Higher: On gains in my Biotech, Medical and Tech sector longs
  
• Disclosed Trades: Added to my (IWM), (QQQ) hedges and 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 trades slightly lower, but near session highs, despite falling Eurozone debt angst, falling energy prices and gains in overseas equities. On the positive side, HMO and Disk Drive shares are especially strong, rising more than +.75%. Financial and Tech shares are outperforming. Oil is falling -.45% and Lumber is jumping +4.2%. Oil continues to trade poorly given the stock rally, euro rally, rising interest from speculators, falling euro debt angst, subsiding emerging market hard-landing fears, improving US data and soaring Mid-east tensions. Major Asian indices rose around +.75%, led by a 1.96% gain in India shares. Major European equity indices rose around +.5%, led by a +1.04% gain in France shares. Spanish stocks fell slightly and remain Europe’s worst-performers, dropping -.31% ytd. The Portugal sovereign cds is falling -3.0% to 1,480.63 bps and the Italian/German 10Y Yld Spread is falling -3.1% to 416.70 bps. Moreover, the European Investment Grade CDS Index is falling -2.45% to 131.84 bps. On the negative side, Coal, Alt Energy, Hospital, Homebuilding and Retail shares are under pressure, falling more than -1.0%. Copper is falling -.81%, the UBS-Bloomberg Ag Spot Index is up +.74% and Gold is rising +.55%. The France sovereign cds is gaining +2.55% to 181.17 bps, the Japan sovereign cds is gaining +1.4% to 138.25 bps and the Russia sovereign cds is rising +1.22% to 224.67 bps. The Portugal sovereign cds is up +37.9% in 12 days and just off its all-time high. Lumber has declined -9.0% since its Dec. 29th high and is still near the lower end of its recent range(near a multi-year low) despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the Baltic Dry Index has plunged over -60.0% from its Oct. 14th high and is now down over -50.0% ytd. The 10Y T-Note Yield is falling -5 bps to 1.80% and remains a large concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. Weekly retail sales rose +2.7% this week versus a +2.9% gain the prior week. This is now a sub-par pace for a recovery and the slowest growth since the week of April 5th of last year. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last 3 weeks after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still near its Jan. 9th all-time high. The TED spread, 2Y Euro Swap Spread, 3M Euribor-OIS spread and Libor-OIS spread have improved, but are still at stressed levels. China Iron Ore Spot has plunged -21.3% since Sept. 7th of last year. Shanghai Copper Inventories are up over +300.0% ytd to the highest level since March of last year. I still believe that a more cautious approach is warranted in the short-term given that several key investor sentiment gauges are registering too much complacency, stocks are technically extended, global growth is still slowing and Eurozone debt angst could flare again at any time. For an intermediate-term 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 from current levels on falling Eurozone debt angst, more financial/tech sector optimism, short-covering and falling energy prices.

Today's Headlines

Bloomberg:

• Greece Fights for Second Bailout as EU Leaders Seal Accord. Greece pledged a last-ditch effort to prevent the collapse of a second rescue package from creditors, aiming to complete talks this week on a financial lifeline that’s been in the works for six months. Greek Premier Lucas Papademos said he would try to meet German-led demands for a bigger debt writedown by investors and deeper budget cuts by his government. Stocks rose after European Union leaders endorsed key planks of a strategy to fight the financial crisis, agreeing to accelerate the setup this year of a full-time 500 billion-euro ($659 billion) rescue fund and backing a deficit-control treaty. EU and International Monetary Fund officials are in Athens thrashing out budget measures that would unlock the aid needed to keep the government functioning. Leaders left a Brussels summit late yesterday with no accord over how to plug Greece’s widening budget hole -- and no announcement of how deep the need is. German Chancellor Angela Merkel voiced frustration with the Greece’s failure to carry out an economic makeover. “Greece’s debt sustainability is especially bad,” Merkel told reporters. “You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”
• Italy's Jobless Rate Rose to Highest Since 2004 in December. Italy’s jobless rate rose to the highest in eight years in December as austerity measures meant to fight the debt crisis helped push the region’s third-largest economy toward a recession. Unemployment climbed to 8.9 percent, the highest since the data series began in January 2004, from a revised 8.8 percent in November, national statistics institute Istat said in a preliminary report today in Rome. Economists had expected a rate of 8.7 percent, according to the median of 9 estimates in a Bloomberg News survey. Prime Minister Mario Monti last month pushed through 20 billion euros ($26 billion) in tax increases and spending cuts that have further choked growth. The economy shrank 0.2 percent in the third quarter and the government has forecast another contraction in the final three months of last year, meaning Italy may already be in its fourth recession since 2001. “We are seeing all the predictable signs of Italy’s deepening recession -- rising unemployment, non-performing loans trending up, and credit standards getting tighter,” Vladimir Pillonca, an economist at Societe Generale SA in London, said in an e-mail. “We are barely at the initial phase of Italy’s recession, and it will get much worse.”
  
• EU, IMF Demand 20% Cut in Greece's Minimum Wage, Ta Nea Reports. A mission to Greece by the European Commission, the European Central Bank and the International Monetary Fund wants the country’s minimum wage cut to 600 euros ($791) a month, from 751 euros, Ta Nea reported, without saying how it got the information. The delegation from the three institutions, known as the troika, is setting conditions for a new financing package for Greece that include reforms such as abolition of special labor agreements at state enterprises and banks, the Athens-based newspaper said. The troika officials rejected a proposal from Greece’s Labor Ministry to freeze private-sector salaries for three years and is demanding that twice-yearly holiday bonus payments are reduced or abolished, Ta Nea said.
• Fed's Inflation Goal May Raise Issues, Bini Smaghi Writes in FT. The Federal Reserve’s decision to set a numeric inflation goal over the longer run may raise communication issues, former European Central Bank Executive Board (EURR002W) Member Lorenzo Bini Smaghi wrote in the Financial Times. Monetary policy produces its effects with two or three-year lags, meaning a longer-term inflation objective makes the inflation forecasts and the policy decision “unclear,” as the long-run isn’t a “policy-relevant” time frame, Bini Smaghi wrote in an article posted on the newspaper’s website today. The publication of the 17 Federal Open Market Committee members’ expectations of the Fed funds rate over the next few years may also raise “several questions,” he said. The market needs to know what forecasting model is used by FOMC members to update their interest-rate expectations, as they are conditional on the state of the U.S. economy, he wrote. “The suspicion may arise that the interest rate forecasts are ultimately dictated by the members’ short-term policy preferences, rather than by their ability to predict prices over the long-term,” Bini Smaghi said. The concept of a conditional interest-rate forecast may also not be understood by the public and politicians, which may lead to misunderstandings, the Italian economist wrote. “To be effective, central bank communication needs to be well understood not only by sophisticated market participants but also by the public,” Bini Smaghi said. “As they are currently designed, the new tools might turn out to be too complex, and risk creating confusion, for both groups.”
• Confidence Decline Points to Cooling U.S. Growth. Consumer confidence unexpectedly dropped in January and a gauge of business activity fell, underscoring forecasts that the U.S. economy will cool after expanding at the fastest pace since the second quarter 2010. The New York-based Conference Board’s confidence index decreased to 61.1, lower than the most pessimistic forecast in a Bloomberg News survey of economists, from a revised 64.8 reading the prior month. The Institute for Supply Management-Chicago Inc. said its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth. Employers aren’t hiring fast enough to drive bigger gains in wages and consumer spending, while higher gasoline prices are cutting into household budgets. Another report today showed home prices fell more than forecast in November, eroding the wealth of families as they seek to rebuild savings.
• UPS(UPS) Profit Forecast Tops Estimates. United Parcel Service Inc. (UPS), the world’s largest package-delivery company, forecast a 2012 profit that exceeded analysts’ estimates as shipping demand increases. Annual earnings, excluding some items, will be in the range of $4.75 to $5 a share, the Atlanta-based company said today in a statement. That topped the average estimate of $4.78 in a Bloomberg survey of 25 analysts.
• Exxon(XOM) Drops After Fourth-Quarter Sales Are Lower Than Estimates. Exxon Mobil Corp., the world’s largest energy company by market value, declined after fourth- quarter sales fell short of analysts’ estimates and oil production slumped on five continents. Revenue rose 16 percent to $121.6 billion during the quarter, less than the $124.4 billion average of five analysts’ estimates compiled by Bloomberg. Exxon fell 1.9 percent to $83.90 at 1:42 p.m. in New York after earlier declining as much as 2.4 percent, the biggest intraday drop since Dec. 12.
• Iron Ore Set for Worst Month Since October on Slowdown Concerns. Iron ore headed for the worst monthly performance since October amid concern that slowing global economic growth and Europe’s sovereign-debt crisis may curb demand for the raw material used in steelmaking. Iron ore with 62 percent content delivered to the Chinese port of Tianjin was little changed at $139.90 per metric ton yesterday, data from The Steel Index showed. The price is up 1 percent this month after falling 31 percent in October and rebounding 11 percent in November and 5.8 percent last month. China, the largest steelmaker, boosted annual output by the slowest pace in three years in 2011 as the nation’s economy cooled last quarter, cutting demand from makers of houses and autos. European leaders are sparring with Greece over a second rescue program, leaving a Brussels summit yesterday with no accord over how to plug the nation’s widening budget deficit. “World growth is going to be a bit subdued, and very anemic in Europe, so there’s not going to be any push for stronger iron ore prices,” said Michael Heffernan, a Melbourne- based client adviser at Austock Securities Ltd. “You’re not going to see iron ore prices skyrocket.”
• Iran Stepping Up Spying, Support for Terror, Clapper Says. Iran is stepping up its support for international terrorism and its intelligence operations against the U.S., the Director of National Intelligence told Congress. “The 2011 plot to assassinate the Saudi ambassador to the United States shows that some Iranian officials -- probably including Supreme Leader Ali Khamenei -- have changed their calculus and are now more willing to conduct an attack in the United States in response to real or perceived actions that threaten the regime,” James Clapper said in a statement today to the Senate Intelligence Committee.

Wall Street Journal:

• CBO: TARP Spending Will Be $61 Billion More in Fiscal 2012. The federal government will spend roughly $61 billion more in fiscal 2012 than it did in fiscal 2011 on its continuing emergency rescue fund instituted at the height of the 2008 financial crisis, the nonpartisan Congressional Budget Office said. This is largely due to declines in share prices of two companies in which the government still holds substantial shares: American International Group Inc.(AIG) and General Motors Co(GM). The two were among dozens of firms that received hefty bailouts from the federal government at the end of 2008 or early 2009. Between them, the Treasury and New York branch of the Federal Reserve still control a 77% stake in AIG. The firm received a total of $184 billion in loans and guarantees from the Treasury and Fed as it stood on the brink of collapse in 2008. The federal government owns a 32% stake in GM.
• Deficit Again Expected to Top $1 Trillion. The federal budget deficit likely will top $1 trillion for the fourth consecutive year in fiscal 2012 as the economy continues to grow at a sluggish pace, the nonpartisan Congressional Budget Office predicted Tuesday. Congress's official budget scorekeeper projected a sober outlook in its semi-annual report Tuesday, forecasting that the unemployment rate will remain above 8% both this year and next year and above 7% until 2015. The economy will see a "continued slow recovery" as real gross domestic product grows 2% this year, measured from the fourth quarter of the previous calendar year, and by 1.1% next year.

CNBC.com:

• S&P Warns of Cuts; Another Downgrade Coming? Concerns over the size of United States debt reared their head once again as ratings agency Standard & Poor’s warned that health care costs for a number of highly-rated Group of 20 countries, including the U.S., could hurt growth prospects and harm their sovereign creditworthiness from the middle of this decade.
• Europe's Central Bank Can't Fix 'Dysfunctional' EU: Gross. The European Central Bank won't solve the euro zone's debt crisis as long as the European Union behaves like a "dysfunctional" family, Bill Gross, Pimco founder and co-chief investment officer, told CNBC on Tuesday.

Business Insider:

• 5 Debt and Unemployment Charts From The CBO Report.
• The World's First Sports-Betting Hedge Fund Has Collapsed After Losing $2.5 Million.

Zero Hedge:

• Latest Congressional Budget Outlook For 2012-2022 Released, Says Real Unemployment Rate Is 10%.
• Why An Outsized LTRO Will Actually Be Bad For European Banks.
  

Chicago Tribune:

• Insight: Borrowing Spree Pushes Canadians to Edge of Debt Cliff. The growth of household debt in Canada to levels approaching those seen in the United States before the 2008-2009 crash seems to be keeping a lot of people awake - from central bankers to economists, lenders, real estate agents and the indebted consumers. Bank of Canada Governor Mark Carney has warned that the ratio of debt to income will rise from the already alarming 153 percent record reached last year, and many think it will approach the landmark 160 percent hit by the United States before the U.S. tipped into crisis more than three years ago.

AppleInsider:

• Foxconn to Build 5 New Brazilian Factories to Help Make Apple(AAPL) Products.

Politico:

• Poll: Public Says Keystone XL Pipeline Would Be Jobs Creator. Congressional Republicans and proponents of TransCanada's Keystone XL pipeline have successfully put the issue on the map, as 78 percent of Americans believe the pipeline would create a “significant amount of jobs,” according to a late December poll by GOP pollster David Winston.

The Week:

• Obama's 5 Biggest Mistakes.

Financial Times:

• US Reits Are Drawn to Subprime Securities. Real estate investment groups in the US are set to raise more funds to buy subprime and other private mortgage-backed securities, aided by attractive returns and rising share prices. Real estate investment trusts, or Reits, have already been big buyers in the market for packages of mortgages backed by Fannie Mae, Freddie Mac and other government agencies, creating what some have termed a “shadow” financing system for US mortgages.

Telegraph:

• The Perils of Mario Draghi's €1.5 trillion blitz. A disturbingly large number of credit experts warn that the ECB life-line is not the "game-changer" that the markets seem to think, cannot in itself can save Euroland, and may prove counter-productive – perhaps soon.
• Germany has every right to impose a gauleiter on Greece.

La Tribune:

• French new car registrations fell 27% from Jan. 1 to Jan. 27 versus the year-earlier period. Renault SA's new French car registrations fell 45% in the period while PSA Peugeot Citroen had a 37% decline.

El Economista:

• Spanish Prime Minister Mariano Rajoy expects forthcoming labor reforms in Spain to provoke strikes among workers.

Shanghai Daily:

• Chinese Banks See Top 3 Risks to System. CHINESE banks have listed credit and macro-economic risks as well as liquidity to be the top three threats to the country's banking industry, a latest industry survey showed yesterday. Their overseas peers picked macro-economic risk as the top threat, according to the survey conducted by the London-based think tank, Centre for the Study of Financial Innovation, which interviewed 700 bankers in 58 countries and regions. Chinese bankers ranked the quality of risk management their No. 4 concern, compared with the global ranking of No. 10. The survey said Chinese bankers were worried that the current risk management system may not be strong enough to address global economic changes, especially as there didn't seem to be an end in sight for the eurozone debt crisis. Chinese bankers were concerned about asset quality due to China's cleanup of local government financing vehicles. They also worried about challenges in the property market and doubts about the macro-economy. Jimmy Leung, a PwC partner, said Chinese banks face risks as "the resulting credit risks may lead to liquidity challenges and impact the pace of business growth."
  

China National Radio:

• The size for the official manufacturing PMI survey will be increased to about 3,000 samples from the current 820, citing Meng Qingxin, a director in the service industry survey dept. at the National Bureau of Statistics. The sample size for the non-manufacturing PMI survey will rise to about 8,000 from 1,200.

Bear Radar

Style Underperformer:

• Large-Cap Value -.30%

Sector Underperformers:

• 1) Alt Energy -1.90% 2) Homebuilders -1.80% 3) Retail -1.76%

Stocks Falling on Unusual Volume:

• YOKU, CSGP, XOM, CLMT, BMA, CEVA, GNTX, ANGO, ALGN, RCII, OTEX, ICUI, PCH, TECH, CSGP, FARO, CENX, ANDE, THOR, NDAQ, NFLX, SCHN, PETD, BIDU, MNRO, CNH, MTH, AVY, LEG, AXE, AAN, OFG, WDR and PPO
  

Stocks With Unusual Put Option Activity:

• 1) LXK 2) RSH 3) RIO 4) ITW 5) KRE
  

Stocks With Most Negative News Mentions:

• 1) RSH 2) PCL 3) CVX 4) ADM 5) WDR
  

Charts:

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