Thursday Watch

Evening Headlines
Bloomberg:

• Greece Talks Stall as Venizelos Heads To Brussels. Greek Finance Minister Evangelos Venizelos said there is still uncertainty on the terms of a 130 billion-euro ($172 billion) rescue package for Greece ahead of a meeting of euro area finance ministers today. “There are issues outstanding that must be resolved by the time the eurogroup meets,” Venizelos told reporters in Athens today after a meeting with Prime Minister Lucas Papademos and European Union and International Monetary Fund officials that ended just before 6 a.m. “As the prime minister said, there is agreement on all the issues bar one.” The meeting with the so-called troika of lenders, representing the European Commission, the European Central Bank and the IMF, took place after leaders of the three parties supporting the government met Papademos and failed to resolve a dispute over pension cuts. The hitch came after a meeting of almost eight hours that was due to complete a package designed to help the country avert default that’s been on the table since July. Greece faces a 14.5 billion-euro bond payment on March 20 and is struggling to secure financing to avert a collapse of the economy that could spark a new round of contagion in the euro area. Papademos and the leaders of the three parties supporting the government “agreed on all the points of the program with the exception of one which requires further elaboration and discussion” with the lenders, according to an e-mailed statement from the premier’s office in Athens. “This discussion will occur immediately so that it can be completed in light of the meeting of euro area finance ministers” today.
• ECB Taking Losses on Greek Debt Risk Sinking Italy: Euro Credit. The IMF's pressure on the ECB to take part in Greek debt writedowns may backfire by deterring the central bank from extending its program of buying bonds from distressed nations. "They will have to think of something, but it would be wrong to force the ECB to take losses," said Stuart Thomson, who helps oversee $121 billion at Ignis Asset Management in Glasgow. "The ECB taking a haircut would imply a fiscal transfer, which isn't its mandate. And the SMP would collapse if they do that. We can do without another rout in the market."
  
• Draghi's First 100 Days Presage ECB Aid to Avoid Greek Default. In his first 100 days as European Central Bank President, Mario Draghi has taken unprecedented action to tackle the sovereign debt crisis. Greece may push him even further into unknown territory. Draghi will today face questions on the ECB’s possible role in helping Greece reduce its debt as the threat of a disorderly default mounts. While the ECB has remained silent on its intentions, options canvassed range from selling its Greek bond holdings at the discount price it paid for them to taking a loss on the Greek assets held in investment portfolios, two euro-area officials said late last week on condition of anonymity. At stake is whether Greece can complete a private sector deal to reduce its debt by as much as 100 billion euros ($133 billion) and secure a second bailout package that will allow it to pay its bills -- key steps toward ending the debt crisis. The ECB has been instrumental in easing the turmoil since Draghi took the reins on Nov. 1, offering banks unlimited three-year loans and reversing the two rate hikes implemented by his predecessor, Jean-Claude Trichet. “When Mario Draghi looks back this week at his first 100 days as ECB president, he can be satisfied,” said Carsten Brzeski, senior economist at ING Group in Brussels. “But pressure on the ECB to join the burden sharing on Greece has increased. Everything will be done to avoid a disorderly default, at least in the short term.”
• Diamond Foods(DMND) Foods Names New CEO on Audit Results. Diamond Foods Inc. said Wednesday it is replacing its CEO and chief financial officer after an internal investigation found that the company improperly accounted for payments to walnut growers and it needs to restate two years of financial results. The news sent shares of the San Francisco-based company plummeting more than 43 percent in after-hours trading.
• Japan Machine Orders Fall More-Than-Estimated 7.1% as Yen Climbs. Japan’s machinery orders fell at the fastest pace in three months in December as a faltering global economy and gains by the yen dimmed the outlook for exporters. Bookings, an indicator of capital spending, decreased 7.1 percent from the previous month, the Cabinet Office said in Tokyo today, after surging 15 percent in November. The median estimate of 29 economists surveyed by Bloomberg News was for a 5 percent decline. Japan’s exports fell for three straight months through December as European leaders grappled with the debt crisis that is driving the euro region into a recession.
• Expats Say China's Mortgage Rules Too Restrictive. (video) China said last week it will limit mortgage loans for home purchases by foreigners to stem overseas investment in its property market as part of efforts to cool prices. Bloomberg's Stephen Engle reports from Beijing on the potential impact this new regulation may have on expatriates who call the country home.

Wall Street Journal:

• U.S. Plans to Sue Banks Over Bonds. Federal securities regulators plan to warn several major banks that they intend to sue them over mortgage-related actions linked to the financial crisis, according to people familiar with the matter. The move would mark a stepped-up regulatory effort to hold Wall Street accountable for its sale of bonds linked to subprime mortgages in 2007 and 2008. At issue is whether the banks misrepresented the poor quality of loan pools they bundled and sold to investors, the people said. It isn't clear which firms will receive the formal Securities and Exchange Commission enforcement warnings, known as "Wells notices."
• Egypt Judges Detail Evidence Against Americans, Others. Foreign nongovernmental organizations are working to manipulate Egypt's postrevolutionary politics, two Egyptian judges said on Wednesday, in the latest signal that Egypt won't back down from an investigation that has bruised relations with one of America's strongest security partners in the Middle East. For the first time since the inquiry began last summer, the investigating judges detailed a body of evidence, including seized maps, videos and cash, they say implicates 43 civil-society workers, including at least 16 Americans, in acts of ill-defined political subterfuge.
• Banks Near $25 Billion Pact on Foreclosure Probe. Government officials are on the verge of an agreement worth as much as $25 billion with five major banks, capping a yearlong push to settle federal and state probes of alleged foreclosure abuses by lenders. The agreement covers five banks: Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co., and Wells Fargo & Co. Together, the five handle payments on 55% of all outstanding home loans, or about 27 million mortgages, according to Inside Mortgage Finance
• Blackstone(BX), Partner Raise $1 Billion to Develop Shale Field. Blackstone Group LP is expected to announce Thursday that the firm and an energy company in which it invested raised $1 billion from commercial banks to develop south Texas oil fields, according to people familiar with the matter. The deal, involving GeoSouthern Energy Corp., shows the vast capital flowing into the U.S. oil patch, where some $145 billion is expected to be spent on drilling and completing onshore wells this year, nearly double the $73 billion spent in 2009.
• Tweets About Prophet Muhammad Spark Saudi Death Threats. A 23-year-old Saudi columnist fled the country, his associates said, after tweets on the human nature of the Prophet Muhammad touched off a campaign in which prominent clerics and thousands of their followers used Twitter, YouTube, email and fax to demand the man's execution. The campaign against the writer, Hamza Kashgari, stunned many Saudis with the speed, number, and intensity of messages calling for his death.
• Loss Prompts UBS(UBS) to Claw Back Bonuses. UBS AG has notified employees it will claw back part of the bonuses due to its best-paid investment bankers this year because of a trading scandal last year that put the unit into the red for 2011, according to a person familiar with the matter. The move is likely to further upset some top employees at a bank that has already faced problems retaining top bankers and is now in the midst of a sweeping revamp of its investment bank.
• Google(GOOG) Near Launch of Cloud Storage Service. Google Inc. is close to launching a cloud-storage service that would rival one of Silicon Valley's hottest start-ups, cloud-storage provider Dropbox Inc., according to people familiar with the matter. Like Dropbox, Google's storage service, called Drive, is a response to the growth of Internet-connected mobile devices like smartphones and tablets and the rise of "cloud computing," or storing files online so that they can be retrieved from multiple devices, these people said.
• New Way to Pay Doctors. UnitedHealth(UNH), Nation's Largest Insurer, Is Latest to Announce Fee Overhaul. Efforts to change how Americans pay for health care are gathering momentum on a national scale as UnitedHealth Group Inc., the largest U.S. health insurer, becomes the latest carrier to say it is overhauling its fees for medical providers.

MarketWatch:

• CME Group(CME) Cut by S&P as MF Global Fallout Spreads. CME Group Inc. saw its credit rating cut by Standard & Poor's and could face further downgrades because of reputational damage linked to the exchange operator's role in the collapse of MF Global. Standard & Poor's Ratings Services cut CME's long-term rating by a notch to AA-, citing the potential cost of a financial safety net established for clients in the wake of the unfolding controversy surrounding the bankruptcy of MF Global Holdings' (MFGLQ).

Business Insider:

• States Are Refusing To Lock Up Americans Without Due Process.
• A Chinese Government-Owned Firm Has Been Charged With Stealing Trade Secrets From DuPont(DD).
  

Zero Hedge:

• Are Government Unions Out Of Control? An Infographic.

CNBC:

• Cisco(CSCO) Beats Street's Earnings Estimates, Boosts Dividend. Cisco Systems reported quarterly earnings and revenue that beat analysts' expectations Wednesday as its restructuring effort appears to finally be paying off. The company also announced plans to raise its dividend. Cisco's better-than-expected revenue growth was from more than "routing and switching," CEO John Chambers told CNBC Wednesday, it was also data centers, cloud computing and $1 billion in cost-cutting measures.
• Groupon(GRPN) Posts Positive Revenue, Misses on Earnings. In its first earnings announcement since going public last year, Groupon beat on revenue but missed on earnings as user growth slowed from the breakneck pace of past quarters. "The number of active customers came in short. That means not enough people are buying Groupons,” said Sameet Sinha, an analyst at B.Riley. "Yes, you can get fewer people to buy more, but how long can that continue? You need to start investing in new customer growth."
• Visa(V) Earnings Top Forecasts as Credit-Card Use Climbs. Visa reported a higher quarterly profit as the world's largest credit and debit card processing network benefited from consumers swiping their cards more, and authorized a new $500 million share repurchase program.

IBD:

• Steven Madden(SHOO) Hopes To Grow From Buy Of Canada Stores.

NY Times:

• Push to Avert Foreclosures Hits Court Logjam.

Forbes:

• The IMF Deserves To Be Put On A Drastic Diet by Steve Forbes.
• Global Warming Alarmism Points To Bad Karma For Your Tax Dollars.
  

CNN:

• New Nuclear Reactors Set To Be OK'd For Georgia. The U.S. Nuclear Regulatory Commission is expected to approve licenses to build two new nuclear reactors Thursday, the first approvals in over 30 years.

Seeking Alpha:

• 15 Hedge Fund Favorites Trading Strongly Ahead Of Earnings.

Washington Post:

• China's Inflation Rebounds in January, Renewing Pressure to Control Living Costs. China’s inflation rebounded in January as food prices soared, renewing pressure on Beijing to control surging living costs as it tries to boost slowing growth in the world’s second-largest economy amid warnings of a global downturn. Consumer prices rose by an unexpectedly strong 4.5 percent over a year earlier, up from December’s 4.1 percent, data showed Thursday. Food prices jumped 10.5 percent, accelerating from the previous month’s 9.1 percent. “It makes us more concerned that the risk of inflation is not going away,” said Nomura economist Zhiwei Zhang. Among Chinese planners “it will reinforce concerns about inflation that already were there.” The price spike could complicate the communist government’s efforts to revive growth that slowed to a 2 1/2-year low of 8.9 percent in the final quarter of 2011. Chinese leaders are gradually easing controls to boost growth and job creation but are moving cautiously for fear of igniting a new price spiral. “In the short term, it also lowers the possibility of policy loosening,” Zhang said.

Derivatives Intelligence:

• Vanguard Sees Greek Threat To Sovereign CDS Market. If credit default swaps aren't triggered on Greek debt, the sovereign CDS market will likely break down, according to Nick Pierce, head of fixed income in Europe at Vanguard.
  

USA Today:

• Momentum Growing for Sales Taxes on Online Purchases.

Reuters:

• Greece must find 300M Euros savings within 15 days: government. Greece has two weeks to identify fiscal savings worth 300 million euros ($398 million) under a new bailout deal with the European Union and IMF, a senior Greek government official said on Thursday. "Greece has another 15 days to specify fiscal savings worth 300 million euros," the official said on condition of anonymity.
  
• Egypt to Deploy Soldiers, Tanks Ahead of Strike. Egypt's ruling generals said on Wednesday they would deploy more soldiers and tanks across the country, an announcement seen as a warning to activists planning a national strike on the anniversary of the overthrow of President Hosni Mubarak. Campaigners demanding a swifter transition to civilian rule have called for mass walkouts and civil disobedience on Feb. 11. At least 15 people have died in street fighting in Cairo and the eastern city of Suez in recent days, unrest provoked by the death of 74 people after a soccer match.
• Akamai(AKAM) Q4 Beats as Demand for Online Content Soars. Internet content delivery company Akamai Technologies Inc posted a fourth-quarter profit above analysts' expectations, helped by growing demand for online content, sending its shares up 12 percent in trading after the bell.
  

Tibet Daily:

• China ordered a heightened state of alert and tighter "control of the society" in Tibet, citing the region's communist party chief Chen Quanguo as saying in a speech. Government officials should focus on maintaining stability and fighting separatism, Chen said.

Shanghai Securities News:

• The China Banking Regulatory Commission will punish banks for non-compliant off-balance sheet lending, citing bankers. Non-compliant lending includes wealth management products, loan transfers and financing bills used to get around loan quotas.

Evening Recommendations
CSFB:

• Reiterated Outperform on (RL), raised estimates, boosted target to $190.
  

Night Trading

• Asian equity indices are -1.0% to unch. on average.
• Asia Ex-Japan Investment Grade CDS Index 161.0 -4.0 basis points.
  
• Asia Pacific Sovereign CDS Index 134.75 -2.25 basis points.
• FTSE-100 futures +.33%.
  
• S&P 500 futures -.07%.
  
• NASDAQ 100 futures -.02%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CBOE)/.34
• (BDC)/.53
• (KKR)/.75
• (CLI)/.67
• (PM)/1.09
• (CPO)/1.11
• (ALXN)/.34
• (BG)/1.53
• (PEP)/1.12
• (SEE)/.49
• (STMP)/.22
• (ATVI)/.56
• (LNKD)/.07
• (NUAN)/.36
• (ASEI)/.78
• (EXPE)/.52
• (PBI)/.60

Economic Releases
8:30 am EST

• Initial Jobless Claims are estimated to rise to 370K versus 367K the prior week.
• Continuing Claims are estimated to rise to 3500K versus 3437K prior.

10:00 am EST

• Wholesale Inventories for December are estimated to rise +.4% versus a +.1% gain in November.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The BoE Rate Decision, ECB Rate Decision, 30Y T-Bond Auction, USDA Crop report, weekly Bloomberg Consumer Comfort Index, weekly EIA natural gas inventory report and the (STT) Analyst Forum could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly lower, weighed down by financial and industrial 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 More Financial/Tech Sector Optimism, Short-Covering, Asian Stock Gains

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.14 +2.78%
  
• ISE Sentiment Index 110.0 +8.91%
  
• Total Put/Call .82 +9.33%
  
• NYSE Arms .86 -26.23%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 96.26 +1.72%
  
• European Financial Sector CDS Index 163.20 +4.75%
  
• Western Europe Sovereign Debt CDS Index 325.73 +.48%
  
• Emerging Market CDS Index 257.21 +.50%
  
• 2-Year Swap Spread 28.25 -1.5 bps
  
• TED Spread 43.75 -.5 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -68.25 +4.0 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .07% unch.
  
• Yield Curve 172.0 unch.
  
• China Import Iron Ore Spot $144.70/Metric Tonne -1.04%
• Citi US Economic Surprise Index 76.40 -1.2 points
  
• 10-Year TIPS Spread 2.20 unch.
  

Overseas Futures:

• Nikkei Futures: Indicating -10 open in Japan
• DAX Futures: Indicating +39 open in Germany

Portfolio:

• Slightly Higher: On gains in my Tech 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, despite recent sharp gains, global growth fears and Eurozone debt angst. On the positive side, Alt Energy, Computer, Semi, Disk Drive, Bank and HMO shares are especially strong, rising more than +1.0%. Tech and Financial shares have traded well throughout the day. Copper is up +.7% and Gold is down -.75%. 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 rising Mid-east tensions. Major Asian indices rose around +1.5% overnight, led by a +2.4% gain in Shanghai. The Japan sovereign cds is falling -5.6% to 116.86 bps and the US sovereign cds is falling -4.2% to 38.24 bps. On the negative side, Coal, Oil Tanker, Steel, Biotech and Airlines shares are under pressure, falling more than -1.0%. The Transports have underperformed throughout the day again. Lumber is falling -.85%. The Portugal sovereign cds is still up +12.0% in less than 3 weeks. Lumber is down -2.2% since its Dec. 29th high despite the better US economic data, more dovish Fed commentary, improving sentiment towards homebuilders, equity rally and decline in eurozone debt angst. Moreover, the weekly MBA Purchase Applications Index has been around the same level since May 2010. 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 unch. today at 1.98%, but remains a concern considering the recent stock rally, falling Eurozone debt angst and improvement in US economic data. The Philly Fed’s ADS Real-Time Business Conditions Index has stalled over the last month after showing meaningful improvement from mid-Nov. through year-end. The Western Europe Sovereign CDS Index is still fairly close to 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 -20.0% since Sept. 7th of last year. Shanghai Copper Inventories are up +485.0% ytd to the highest level since March of last year and approaching their April 2010 record. US stocks continue to trade very well. Almost all negatives are currently being ignored as the “buy every dip” mentality remains firmly in place. While this can continue a while longer, European economic data must begin to trend notably better over the coming months for the S&P 500 to break above approaching technical resistance, in my opinion. Given the austerity measures that have yet to take hold in the region, this remains a large question mark. 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 US economic optimism, short-covering, a bounce in the euro and tech/financial sector optimism.

Today's Headlines

Bloomberg:

• Euro Finance Chiefs to Meet as Greece Pushes For Deal. Euro-area finance ministers are due to hold an emergency meeting in Brussels tomorrow as the Greek government pushes to complete talks on terms of a rescue. The policy makers, to be joined by International Monetary Fund chief Christine Lagarde, will convene at 6 p.m., according to a statement today by Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of finance chiefs from the 17- nation euro area. That gathering will follow the monthly meeting of the European Central Bank’s governing council in Frankfurt and an assembly of Greek creditors in Paris. While no information was provided about the ministers’ agenda, the scheduling suggests policy makers, who have to ratify a Greek accord, were optimistic about negotiators reaching an agreement in Athens.
• Merkel Austerity Called Counter-Productive by French Socialists. Germany’s push to treat Europe’s financial crisis with austerity may backfire by stifling its exports to the euro area, says Jerome Cahuzac, economic adviser to France’s Socialist presidential candidate. “No country in Europe will obtain balanced budgets without growth,” Cahuzac, a lawmaker who also heads the Finance Committee at the lower chamber of Parliament, said in an interview in Paris Feb. 1. “It is also in the interest of Germany that growth resumes everywhere and not just in Germany.” His comments underscore the schism between Francois Hollande, the Socialist candidate who leads President Nicolas Sarkozy in polls, and policy makers in Berlin. Hollande has vowed to renegotiate the German-inspired treaty tightening budget rules endorsed by 25 European Union leaders last month, saying it is biased against economic growth. “A Hollande government might be on a collision course with Germany,” George Magnus, senior economic adviser at UBS AG, said in an e-mailed note Feb. 6 that pointed to the increasing chance of a Hollande victory in the voting that concludes with a runoff on May 6.
  
• Sovereign Bond Risk Rises in Europe, Credit-Default Swaps Show. The cost of insuring against default on European sovereign and bank debt rose, reversing an earlier decline, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index linked to 15 governments rose from a three-month low, climbing three basis points to 321 at 2:30 p.m. in London. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed four basis points to 196, according to JPMorgan Chase & Co. The subordinated gauge was four basis points higher at 336. Contracts on the Markit iTraxx Crossover Index of 50 European companies with mostly high-yield credit ratings fell one basis point to 552.5, JPMorgan prices show. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 0.25 basis point to 129 basis points.
• U.S. Faces Downgrade If No Plan: Chambers. The U.S., lacking a plan to contain $1 trillion deficits, faces the prospect of another rating cut in six to 24 months depending on the outcome of November elections, according to John Chambers of Standard & Poor’s. America has had an AA+ rating with a negative outlook since Aug. 5 when the New York-based unit of McGraw-Hill Cos. stripped the nation of its AAA ranking for the first time, citing the government’s failure to agree on a path to reduce deficits. The U.S. has a one-in-three chance of another downgrade, Chamber said today during an S&P sponsored Webcast. “What the U.S. needs is not so much a short-term fiscal tightening, but it has to have a credible medium-term fiscal plan,” said Chambers, managing director of sovereign ratings. “That is going to have to say something about entitlements, and that is probably going to have to say something about revenues.”
• Bad Home Loans Top $72 Billion in 'Colossal Failure': Mortgages. Costs from faulty mortgages and shoddy foreclosures have topped $72 billion at the biggest U.S. banks as they near a settlement of a 50-state probe into the industry’s practices. Wells Fargo & Co., Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Ally Financial Inc., the five largest home lenders during the real estate boom, tallied at least $6.78 billion in new costs tied to mortgages during the second half of 2011, according to data compiled by Bloomberg. Bank of America, ranked second among U.S. banks by assets, contributes $41.8 billion of the overall total.
• Mortgage Bonds in Eye of Storm as Refis Decline: Credit Markets. Investors in U.S. government-backed mortgage bonds who benefited from a decline in early payoffs by homeowners are bracing for the fallout from a loosening of refinancing rules at Fannie Mae (FNMA) and Freddie Mac. Prepayments for Fannie Mae’s 30-year fixed-rate securities fell 8 percent last month to a pace that would erase 21.6 percent of the debt in a year, the slowest since September, data released Feb. 6 by the Washington-based company show. Refinancing damages securities that trade for more than face value by returning principal faster at par and curbing interest. An expansion of the Home Affordable Refinance Program urged by President Barack Obama is set to boost speeds by 1 or 2 percentage points each month, Barclays Capital analysts wrote in a report this week titled, “Calm Before the Storm.”
• Arabs Seek Safety in Dollars After Euphoria Fades. As he watched Egypt’s revolt turn into a financial crisis that devoured 50 percent of the nation’s foreign-currency holdings last year, Ahmed El-Rifai started charging some clients in U.S. dollars. The 32-year-old owner of Egyweb, a Web-development company in Cairo, says he may also buy real estate with his Egyptian pound savings, concerned that the loss of reserves will lead to a devaluation. That has already sent the pound down 3.8 percent since the start of last year. Iraq’s central bank says its dollars are fueling Syria’s black market. In Tripoli, Libya, dozens are queuing every morning at banks to buy the U.S. currency.
• YPF Argentine Unit Said to Boost Shale Oil Estimate to 23 Billion Barrels. Repsol YPF SA (REP)’s Argentine unit estimates its shale oil resources at the Vaca Muerta formation in the south of the country contain about 23 billion barrels, according to two people familiar with the situation. The unit previously announced resources of around 1 billion barrels.
• Jobless Decline Masks Drop in U.S. Labor Force. The unemployment rate’s unexpected drop to a three-year low has overshadowed a less-positive labor- market development: fewer Americans are looking for work. Last week’s Labor Department announcement that the jobless rate fell to 8.3 percent in January sent stocks and bond yields higher. The same report showed the share of working-age people in the labor force had declined to the lowest level in 29 years.
• Oil Fluctuates After U.S. Inventories Increase Amid Declining Demand. Oil fluctuated after the U.S. Energy Department reported that inventories climbed as fuel consumption dropped to the lowest level in almost 13 years. Futures slipped from the day’s highs after the department said crude supplies rose 304,000 barrels to 339.2 million in the week ended Feb. 3. Gasoline stockpiles increased to the highest level in almost a year and inventories of distillate fuels unexpectedly gained. Total fuel demand fell 0.5 percent to 17.6 million barrels a day, the lowest level since 1999. “We had supply builds in each of the major categories, while fuel demand remained impressively weak,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Traders seem reluctant to abandon the idea of oil in a perpetual uptrend, otherwise prices would be much lower.” Crude oil for March delivery fell 30 cents to $98.11 a barrel at 2 p.m. on the New York Mercantile Exchange. Prices are up 13 percent from a year ago.

Wall Street Journal:

• India Increases Iran Oil Imports. India increased its imports of Iranian oil to become the Islamic Republic's largest customer last month, largely offsetting a cut in Chinese purchases as sanctions fail to significantly dent Tehran's sales for now, people within the oil industry said this week.
• Turkey Seeks Pressure Group as Syria Pounds Homs. Turkey said Wednesday that it was seeking to form an international group on Syria "as soon as possible" to coordinate policy between regional players and world powers, as Syrian troops continued an attack on the city of Homs that activists said left at least 50 dead.

CNBC.com:

• Gas Prices in All 50 States Back Above $3 a Gallon.
• Government Bailout Actually Hurt Housing Recovery: Zell. Government intervention has prevented the real estate market from healing, with the commercial sector hit especially hard, investor Sam Zell said. As sales languish and prices continue to fall, the head of Equity Group Investments and numerous other ventures pinned the blame on policies that refused to allow market forces to take hold. "Rather than let the elements of the business world take care of the problems, we basically stopped the process of creating market clearing," Zell said in a CNBC interview. "Had we allowed the market to clear without trying to stop reality...we would have a healthy housing market today."
• Greece Keeps Promising Reform, but Few Believe It. Taxes go uncollected, deficit targets are routinely missed, job cuts from the state payroll are postponed, privatizations have barely begun and pharmacies are still shut in the middle of the day.

Business Insider:

• FAA: Look for 30,000 Drones To Fill American Skies By The End Of The Decade.
• States are Rebelling Against The Indefinite Detention Of American Citizens.
• 18 Staggering Charts On The Rise Of Government Dependence.
• Why I Don't Believe The European Crisis Is Over. (graph)
• Chris Matthews Calls Obama's War Against The Catholic Church 'Frightening'. (video)

Zero Hedge:

• European FX Swap Line Usage With NY Fed Rises To Fresh Multi-Year High as More Banks Demand More Dollars. (graph)
• Italian Recession Accelerating.
  

Reuters:

• Greek Debt Not Sustainable With 70% Haircut, Credit Conditions Deteriorating in Itlay, France: S&P. Greece will likely not achieve sustainable debt levels with a 70 percent reduction in the value of bonds held by its private creditors, Standard & Poor's warned on Wednesday, putting pressure on the official sector also to take losses. Private-sector bond holders currently account for only a small part of Greece's creditors since most of the country's debt has migrated to the hands of the European Central Bank and other official institutions, S&P analyst Frank Gill said in a webcast with clients. "In our original estimate, which was made two years ago, at that time debt-to-GDP would have been restored to a far more sustainable level," Gill said. "But because only a small subcomponent of investors are actually taking the haircut and the official sector is not, or only partially, then the reduction... is probably not sufficient debt relief to make debt sustainable given the outlook for GDP itself." S&P, which currently rates Greece at CC with a negative outlook, said it intends to downgrade the country to "selective default," but just temporarily, while the government concludes its debt swap. S&P also warned that credit conditions continue to deteriorate in Italy and France after it downgraded both countries last month, despite extraordinary steps by the ECB to boost liquidity in the market. "We still see credit conditions deteriorating in places like Italy, places like France, and that is going to weaken domestic demand," Gill said. "That makes it very difficult to project what the fiscal outcome is going to be this year in those countries."
• United Tech(UTX) CFO Warns of "Tough" First Quarter. United Technologies Corp Chief Financial Officer Greg Hayes hammered home the message on Wednesday that the world's biggest maker of elevators and air conditioners is having a difficult first quarter. "The first quarter is going to be tough," Hayes said at an investor conference in New York. "We've purposely said that so as not to surprise anybody when we report (first-quarter results) in April." Weak demand for its Carrier air conditioners and high expenses at the Pratt & Whitney jet engine unit will take a toll on results, Hayes added.

Imerisia:

• The Greek government's revenue from value-added tax totaled $2.85 billion last month, an 18.7% drop compared with January 2011, mainly due to increasing company closures.
  

Bear Radar

Style Underperformer:

• Small-Cap Growth -.70%

Sector Underperformers:

• 1) Restaurants -1.0% 2) Steel -.80% 3) Energy -.80%

Stocks Falling on Unusual Volume:

• WU, IRWD, PNRA, CSGS, DNDN, BBL, BMA, TEO, SGI, OPNT, OPEN, LPLA, NTGR, TTMI, CTSH, ZOLT, ULTI, IPCM, AREX, OYOG, MAKO, AAWW, PRGO, LOGM, VSAT, NLY, AEC, GWR, CRR, SLH, TTMI, DFT, WU, DFZ, SCX and ONE
  

Stocks With Unusual Put Option Activity:

• 1) CSC 2) RL 3) HIG 4) RSX 5) TSL
  

Stocks With Most Negative News Mentions:

• 1) LPX 2) ANLY 3) WU 4) SGI 5) GM
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Value -.05%

Sector Outperformers:

• 1) HMOs +.73% 2) Semis +.55% 3) Disk Drives +.53%

Stocks Rising on Unusual Volume:

• RL, LVLT, SIMO, NVDA, KFRC, HCSG, SNCR, MDRX, AVID, BWLD, MITK, EZCH, CERN, SIMO, CSC, HIG, CALX, VSH, ICE, WYN, ALR and GME
  

Stocks With Unusual Call Option Activity:

• 1) RL 2) BWLD 3) GME 4) PRGO 5) OPEN
  

Stocks With Most Positive News Mentions:

• 1) MCD 2) BA 3) YUM 4) CERN 5) BWLD
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• Greek Haggling Drags on as Meeting to Seal Terms of Second Bailout Delayed. Greek Prime Minister Lucas Papademos is set to negotiate with leaders of the political parties supporting his caretaker government after Athens missed another deadline to secure a second aid package. Papademos will see the chiefs in Athens today after delaying the meeting for a second time in as many days while Greek officials and international creditors haggle over the terms. Late last night, he held an unscheduled meeting with the so-called troika, comprising the European Commission, the European Central Bank and the International Monetary Fund, to put the final touches on terms required for a 130 billion-euro ($172 billion) rescue package. Yesterday’s delay was yet another hitch in completing a package that’s been on the table since July. The government is struggling to arrange financing to avert a collapse of the economy, risking a new round of contagion in the euro area. With the country facing a 14.5 billion-euro bond payment on March 20, German Chancellor Angela Merkel warned this week that “time is running out” to reach an accord. The tussling in Athens threatens to hold up a critical element of the second financing package, that of a debt swap that will slice 100 billion euros off more than 200 billion euros of privately-held debt. The rescue blueprint includes a loss of more than 70 percent for bondholders in the voluntary debt exchange as well as loans that will probably exceed the 130 billion euros now on the table.
• Bond-Buying Japan Banks Snub Downgrade Threat: Chart of the Day. Japanese banks are ignoring the threat of more cuts to the nation's debt rating by boosting holdings of government bonds to a record, helping to prevent any jump in the country's borrowing costs. The value of Japanese debt held by domestic financial institutions, including commercial banks and insurance companies, reached $7.5 trillion at the end of September, according to the Bank of Japan.
  
• Iran Anxiety No Match for Central Banker Cash. Iran’s nuclear ambitions, Syria’s bloody crackdown and Greece’s potential default are leaving markets unfazed as central bankers take unprecedented steps to prevent the global economy from crumbling. The balance sheets of central banks in the U.S., Switzerland, U.K., European Union, Japan and China have swelled from a collective $4.99 trillion in May 2006 and $10.1 trillion in December 2008, two months after the collapse of Lehman Brothers Holdings Inc. spurred the worst financial crisis since the Great Depression, according to Bianco Research. China’s central bank holds about $4.5 trillion of securities, the most of any such institution in the world, Bianco Research’s data show. The ECB has about 2.7 trillion euros ($3.6 trillion) while the Fed holds $2.9 trillion, up from $898 billion in 2008.
• BHP Billiton(BHP) First-Half Profit Drops 5.5%. BHP Billiton Ltd., the world’s biggest mining company, reported a 5.5 percent drop in first- half profit, the first decline since 2009, as rising costs and lower output and prices halved base metals earnings. Net income was $9.9 billion in the six months ended Dec. 31, from $10.5 billion, a year earlier, the Melbourne-based company said today in a statement. That compares with the $10 billion average estimate of seven analysts surveyed by Bloomberg. Metal prices in London declined 20 percent in the half on reduced demand in Europe and slowing industrial production in China, the world’s largest metals buyer. BHP, which is spending $80 billion over the next five years to boost output of iron ore, copper and coal, remains “cautious” on the market outlook Chief Executive Officer Marius Kloppers told a conference call.
• Caesars(CZR) Fetches $1.13 Billion Market Value After Pricing IPO. Caesars Entertainment Corp., the casino chain saddled with more than $22 billion in debt, completed an initial public offering that gives the company a market value of $1.13 billion. Las Vegas-based Caesars, taken private in a $30.7 billion buyout by Apollo Global Management LLC and TPG Capital in 2008, raised $16.3 million selling 1.81 million shares at $9 each, the company said in a statement. The stock, which was offered for $8 to $10 apiece, will start trading on the Nasdaq Stock Market tomorrow under the symbol CZR.
• China's Copper Demand Growth May Slow to 4%, Wanxiang Forecasts. Copper demand growth in China, the world's biggest user, may decline by half this year as the economy slows and subsidy programs end, according to the metals trader that's owned by the country's biggest auto-parts maker. Refined-metal consumption may expand 4% to 5%, said Shen Xiaoqiang, a researcher at Wanxiang Resources Co., a unit of closely-held Wanxiang Group. That compares with 8% to 10% in 2011, and more than 10% in 2010, said Shen, who's studied the market for more than a decade.
• Illumina Board Rejects Roche’s $5.7 Billion Hostile Bid for Gene Mapper.

Wall Street Journal:

• Concession Smooths Way Toward a Greek Debt Deal. The European Central Bank has made key concessions over its holdings of Greek government bonds, which will contribute to a reduction of the country's debt burden and smooth the path toward a new bailout for the country, said people briefed on Greece's debt-restructuring negotiations.
• Santorum Wins in Missouri, Minnesota. Rick Santorum jolted the Republican presidential race Tuesday by winning nominating contests in Missouri and Minnesota, puncturing Mitt Romney's claim to be the unstoppable front-runner. Mr. Santorum was also leading in early returns from Colorado, a state Mr. Romney won by a wide margin in 2008, when he also won in Minnesota.
• U.S. Market Shines Brighter. U.S. companies, facing slowing markets and rising costs around the world, are taking a new look at their home market. With growth slowing in China and a slump gripping much of Europe, companies are adding capacity in the U.S., replacing aging equipment and even moving overseas production back from low-cost labor markets, a sign that corporate America could be poised to take a bigger role in the economic recovery.
• Goldman(GS), Morgan Stanley(MS) Clarify Clawback Policies. Goldman Sachs Group Inc. and Morgan Stanley will clarify their compensation-clawback policies in response to demands from a group of shareholders led by the New York City Comptroller's office. The banks will say that their policies apply not only to those employees who engage in excessive risk taking or improper conduct but also to those who supervise and manage them.
• GM(GM) Prepares for 'horrendous' Losses at Opel Unit. General Motors Co. is preparing to disclose "horrendous" fourth quarter losses out of its European Opel/Vauxhall unit and is demanding deep cuts from labor unions there, a GM official said on Tuesday. The official said the auto maker's patience with the money-losing operation is running out. "There is increasing frustration with Opel and a feeling that the cuts two years ago did not go nearly deep enough," the official said. "If Opel is going to get fixed, it is going to get fixed now and cuts are going to be deep."
• ObamaCare's Great Awakening. The political furor over President Obama's birth-control mandate continues to grow, even among those for whom contraception poses no moral qualms, and one needn't be a theologian to understand why. The country is being exposed to the raw political control that is the core of the Obama health-care plan, and Americans are seeing clearly for the first time how this will violate pluralism and liberty.

MarketWatch:

• Asia Real-Estate Bull Turns Bearish. Asia’s gradually cooling property markets aren’t the great buys they once were, according to one expert in the region, who says better bargains can be found in the depressed markets in the West. Tim Murphy, the Hong Kong-based chief executive officer of property advisory group IP Global, says he’s telling his clients to look more towards New York and San Francisco for deals, although London also ranks well in terms of rental yield in some projects.

Business Insider:

• Chinese Electricity Consumption Fell Massively In January, And The Chinese New Year Doesn't Explain It. Ultra-brief note here from Nomura's Zhiwei Zhang : According to the China Securities Journal, China's electricity consumption in January fell by 7.5%. We estimate this may be the first decline since 2002 (excluding the financial crisis period in 2008-09), indicating industrial production may have slowed sharply in January. They don't have any more answers here at the moment, except they say that if you're thinking it has something to do with the New Year, then you are incorrect.
• PRESENTING: The High-End Obama Fashion Line That Has Republicans In An Uproar. New York's most glamorous liberals rallied around President Barack Obama today for the launch of "Runway to Win," his campaign's new collection of designer campaign gear. Unsurprisingly, the GOP having a field day with the high-fashion fundraising gimmick, which features expensive election-themed merchandise from big-name designers like Marc Jacobs, Vera Wang and Beyonce. Seizing on a fresh opportunity to bash the coastal elite, the Republican National Committee has released a video that slams the President as an out-of-touch celebrity who is cavorting with fashion moguls while campaigning against income inequality.

Zero Hedge:

• Unadjusted Consumer Credit Soars By Most Since Peak Of Credit Bubble In August 2007, Third Highest Ever. (graphs)
• Greek Economy Implodes: Budget Revenues Tumble 7% In January On Expectation Of 9% Rise.

CNBC:

• House Panel Moves to Fast-Track Keystone Pipeline Plan. A plan to fast-track the stalled Keystone XL pipeline was passed by a key committee in the U.S. House of Representatives on Tuesday, as Republicans made yet another attempt to spur approval of the project that has become a major issue in the 2012 elections.
• Yahoo(YHOO) Boardroom Shakeup: 4 Members Gone, Including Chair.
• Uptrend in Gold to Continue; Next Target $1,880: Charts.

Reuters:

• Groups Ask Court to Block CFTC Position Limit Rules. The financial industry asked a federal court late on Tuesday to temporarily block regulations approved by the U.S. futures regulator aimed at preventing excessive speculation in commodity markets such as oil and gold.
• Plains to Boost Cushing Oil Deliveries With New Pipeline. Plains All American will build a new crude oil pipeline from a booming U.S. shale oil play to the largest U.S. oil hub at Cushing, Oklahoma, the company said on Tuesday, potentially boosting Cushing deliveries by 175,000 barrels per day (bpd).
• Panera(PNRA) Profit Matches Street, Shares Fall.
• Disney(DIS) Earnings Beat Despite Shaky Economy. Walt Disney Co's quarterly revenue fell short of Wall Street's expectations after the movie studio put in a poor showing, but profit grew at a faster-than-expected 12 percent clip as media networks and theme parks held strong in an uncertain economy. Disney shares fell 1.8 percent to $40.28 in after-hours trading.
• Buffalo Wild Wings(BWLD) Q4 beats Street; shares up. U.S. bar and grill chain Buffalo Wild Wings Inc's quarterly profit beat analysts' estimates by the biggest margin in the last eight quarters, sending its shares up 15 percent in extended trade.

Financial Times:

• Backlog Sees Canadian Crude Price Tumble. Crude oil from Canada is being offered for half of international prices as increasing output from the world’s sixth biggest producer threatens to overwhelm regional pipelines and refineries. Western Canada Select, blended from heavy tar sands crudes, this week sold for $62.42 a barrel, according to data from Platts, the energy information service. Brent crude, the global benchmark, on Tuesday topped $117 for the first time since August. This also represents the deepest discount to US crude in more than four years, reflecting Canadian producers’ few options for delivering their oil and problems at refineries in the region. It comes weeks after Barack Obama, US president, blocked plans to build the Keystone XL pipeline, which would carry more than 1m barrels a day from Alberta to refineries in Texas.
• US Banks Snap Up Bundled Mortgage Products. Banks have been responding to low interest rates by snapping up billions of dollars of bundled mortgage products that resemble the sliced-and-diced debt some blame for the financial crisis. The products, known as “collateralised mortgage obligations,” or CMOs, group together securities backed by mortgage loans. These securities are then sliced into various tranches, with each portion being paid out to investors at a different time.

Telegraph:

• Greek Trump Card Fails as Stronger Europe Shrugs Off Break-Up Threat. Europe’s dominant powers and institutions are for the first time willing to risk a Greek default and ejection from the euro if Athens refuses to comply with austerity demands, calculating that the eurozone system is now strong enough to withstand a contagion shock. The European Central Bank’s flood of cheap credit for three years has removed the immediate threat of a banking crisis and proved a powerful tonic for confidence, transforming the character of the crisis. Bond yields have plummeted in both Italy and Spain since November, largely decoupling from the ups and down of daily events in Athens. The effect has been to nullify Greece’s trump card: the implicit threat to bring down the whole edifice if treated too harshly. "It’s not the end of the world if someone leaves the eurozone," said Nellie Kroes, the European Commission vice-president, uttering in public a view already prevalent in Berlin and other northern capitals as Greek rescue costs rise by a further €15bn to €145bn. "It’s always said, if you let one nation go, or ask one to leave, the entire structure will collapse. But that is just not true," she told De Volksrant.

Die Welt:

• German taxpayers may face at least $33 billion in losses on Greek sovereign bonds, citing its own calculations and those made by the IfW economic think tank. A waiver of part of the aid granted to Greece, which is being discussed, could further increase the amount.

Borneo Post:

• China Fines Parents of Hong Kong-Born Second Child. Mainland Chinese who have a second child in Hong Kong will be fined for breaching China’s one-child policy, Chinese media quoted a family planning official as saying, as mainland Chinese women flock to the former British colony to give birth. Hong Kong’s maternity wards are booked until September, pressured by the growing number of mainland Chinese seeking to circumvent the one-child policy and gain residency rights in one of the country’s wealthiest cities.
  

Evening Recommendations
Keefe, Bruyette & Woods:

• Downgraded (CBOE) to Unerperform, target $21.
  

Night Trading

• Asian equity indices are +.25% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 165.0 +1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 137.0 +1.0 basis point.
• FTSE-100 futures +.09%.
  
• S&P 500 futures +.01%.
  
• NASDAQ 100 futures +.09%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (CVH)/.64
• (CTSH)/.77
• (WYN)/.44
• (TWX)/.87
• (MCO)/.49
• (CVS)/.89
• (S)/-.38
• (ICE)/1.69
• (RL)/1.68
• (CSC)/.57
• (NWSA)/.34
• (AKAM)/.40
• (CSCO)/.43
• (PRU)/1.76
• (V)/1.45
• (WFM)/.60
• (GGP)/.27
• (JNY)/.00
• (TIN)/.23
• (GRPN)/.03

Economic Releases
10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,500,000 barrels versus a +4,175,000 barrel gain the prior week. Distillate inventories are estimated to fall by -875,000 barrels versus a -135,000 barrel decline the prior week. Gasoline supplies are estimated to rise by +875,000 barrels versus a +3,017,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.4% versus a -.4% decline the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Williams speaking, 10Y T-Notes Auction, Germany bond sale, weekly MBA Mortgage Applications report, (AUO) Investor Conference and the CSFB Financial Services Forum could also impact trading today.
  

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