Today's Headlines

Bloomberg:

• Greece Cut to Default Cusp as Fitch Takes First Ratings Step. Greece's downgrade by Fitch Ratings is the first in a series of ratings cuts that the nation can expect after it negotiated the biggest sovereign debt restructuring in history. Fitch lowered Greece's credit grade by two levels to C from CCC, saying a default is “highly likely in the near term,” and that it will cut the nation again to “Restricted Default” once a bond exchange is completed. Standard & Poor's said in July it expected to downgrade Greece to “Selective Default” after the restructuring agreement, while Moody's Investors Service has said it will cut the nation to its lowest rating. “It's almost a paradoxical exercise,” said Richard McGuire, a strategist at Rabobank International in London. “They downgrade you because you're not paying your bonds and then upgrade you because the bonds don't exist, so you're not in default.”
• Euro-Area Manufacturing, Services Unexpectedly Contract: Economy. European services and manufacturing output unexpectedly shrank in February as the euro-area economy struggled to rebound from a contraction in the fourth quarter. A euro-area composite index based on a survey of purchasing managers in both industries dropped to 49.7 from 50.4 in January, London-based Markit Economics said in an initial estimate today. Economists had forecast a reading of 50.5, according to the median of 16 estimates in a Bloomberg News survey.
  
• Sovereign Credit Risk Increases to One-Month High in Europe. The cost of insuring against default on European sovereign debt rose to the highest in a month, according to traders of credit-default swaps. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments increased 11 basis points to 349 basis points at 4 p.m. in London, the highest since Jan. 18. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings were 9.5 basis points higher at 581.5, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose two basis points to 133 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 8.5 basis points to 225 and the subordinated gauge was 11 higher at 379.5.
• German Risk Exposure to Greece Rises After Bailout, Welt Says. Germany’s risk exposure to Greece will rise after the debt-strapped country secured a second bailout package, Die Welt reported, citing its own calculations. By 2014, outstanding loans and guarantees to Greece will amount to 51 billion euros ($68 billion), of which 31 billion euros are related to this week’s rescue package, provided it’s disbursed in full, the newspaper said. Germany had Greece- related risks of 30 billion euros before the second bailout, of which 10 billion euros will have to be written down by state- owned banks and public lenders as a result of the country’s debt restructuring, Welt said.
• Chanos, Zimmerman on Hedge Fund History. (video)
• Citigroup(C) 'Defrauded' Fannie, Freddie, Whistle-Blower Claims. Citigroup Inc., which last week admitted breaking Federal Housing Administration rules and paid a fine, also violated regulations for home loans sold to Fannie Mae and Freddie Mac, according to a whistle-blower’s complaint. The bank “defrauded, falsified information or misled federal government entities” by selling or securing insurance for mortgages with defects such as improper appraisals and paperwork errors and not reporting them as required, Sherry Hunt, a Citigroup quality-assurance vice president, said in her complaint, which was unsealed yesterday. It was filed under the False Claims Act in federal court in Manhattan in August.
• Rising Prices, Efficiency Sink Gasoline Demand: Chart of the Day. Gasoline demand has sunk to an 11-year low as pump prices surge to the highest level since at least 1990 for this time of the year and U.S. consumers favor more fuel-efficient vehicles. Prices at the pump have jumped 85% to $3.57 a gallon Feb. 20 from $1.925 three years ago, according to AAA.
• 'Bake Sale Ban' Rhetoric Swells Over Obama School Snacks Rules. Special-education students at Tooele High School in northwest Utah who rely on weekly bake sales to pay for field trips and supplies may have to go without. Federal regulators, fresh off a contentious nutritional overhaul of U.S. school meals that replaced fried chicken patties with chef salads, are now preparing the first standards for snacks, sodas and other foods sold outside of regularly scheduled lunch and breakfast. That means vending machines, concession stands and some types of PTA fundraisers during school hours may be forced to cut back the calories. “We have Washington deciding if you can hold a bake sale,” Utah state Representative Ken Ivory, a Republican, said in an interview. “They’ve overstepped their bounds.”
• Illinois's 'Toughest' Budget May Cut $2.7 Billion From Medicaid. Illinois Governor Pat Quinn will propose a $33.8 billion spending plan that would cut $2.7 billion from the Medicaid program, which provides health care for the poor. It’s the “toughest budget,” Jack Lavin, Quinn’s chief of staff, told reporters in Springfield, capital of the fifth-most- populous U.S. state. The plan, an increase from the current $33 billion, would close two prisons and four mental-health facilities, he said. The state faces a backlog of $9 billion in unpaid bills.
• Sales of Existing Homes Rise. Sales of previously owned U.S. homes rose in January to the highest level since May 2010 as investors took advantage of lower prices to buy distressed properties. Purchases climbed 4.3 percent to a 4.57 million annual rate, less than forecast, from a revised 4.38 million pace in December that was slower than previously estimated, a report from the National Association of Realtors showed today in Washington. Distressed properties made up the largest portion of all purchases since April. Almost one in four of all transactions was made by investors.
• Wen Seen Paring China Growth Goal in State-of-the-Union on Inequality Rise. China’s Premier Wen Jiabao is seen signaling next month that curbing pollution, inequality and the risk of financial instability eclipse the benefits of faster economic growth, a survey of analysts indicated.

Wall Street Journal:

• DirectTV(DTV) Could Be Next To Enter Streaming. Pressure is mounting on DirecTV to unveil its own streaming service as Comcast(CMCSA) joins the bandwagon.
• Regulator Questions Role of High-Frequency Traders. Securities and Exchange Commission Chairman Mary Schapiro said Wednesday she is worried about the role of high-frequency traders in the stock market and hinted at new policies aimed at curbing frenetic market activity. A large portion of trading in the equities market has little to do with "the fundamentals of the company that's being traded" and more to do with "the minuscule aberrational price move" that computer-assisted traders with direct connections to the exchange can "jump on" in fractions of a second, Ms. Schapiro said.
• Gingrich Releases Half-Hour Energy Ad. (video)
  

CNBC.com:

• Romney Proposes Slashing Top Tax Rate to 28%. Former Massachusetts Gov. Mitt Romney, seeking to kick-start his presidential campaign among recalcitrant conservatives, will propose cutting the top income tax for individuals to 28 percent, advisers said today.

Business Insider:

• The Truth About Gas: Here's How Much of Your Life Every Year Just Goes To Working To Buy Gas For Your Car. (graph)
• You Do Not Appreciate How Much Taxes On Rich People Are About To Go Up...
  

Zero Hedge:

• Why The Core Needs To Save The Periphery.
• Scandal: Greece To Receive "Negative" Cash From "Second Bailout" As It Funds Insolvent European Banks.
• In Eerie Replay Of 2011, Gold Spikes Abruptly To Over $1770, Silver Follows.
  

NY Post:

• Google(GOOG) Ready to Launch Pilot Pay-TV Program in Kansas City.

New York Times:

• E.U. Banks and States Caught in Vicious Cycle. Like drunks at a bar door, the euro zone’s governments and banks are leaning unsteadily on each other for support. The banks know they have to sober up, but governments are urging them to have one more for the road. European policy makers may have managed to stop the entire building from swaying in the past few weeks, but they have not yet found a way to break the dangerous mutual dependency between overindebted states and overleveraged banks. ‘‘If you don’t cut the dependency between sovereigns and banks, inevitably states will be inhibited by the risks of their banks and banks will be inhibited by the risks of their states,’’ said Jean Pisani-Ferry, director of Bruegel, a economic research group based in Brussels.

Jalopnik:

• Tesla Motors'(TSLA) Devastating Design Problem. Tesla Motors' lineup of all-electric vehicles — its existing Roadster, almost certainly its impending Model S, and possibly its future Model X — apparently suffer from a severe limitation that can largely destroy the value of the vehicle. If the battery is ever totally discharged, the owner is left with what Tesla describes as a "brick": a completely immobile vehicle that cannot be started or even pushed down the street. The only known remedy is for the owner to pay Tesla approximately $40,000 to replace the entire battery. Unlike practically every other modern car problem, neither Tesla's warranty nor typical car insurance policies provide any protection from this major financial loss.

Financial Times:

• An EFSF Credit Derivative Is Born. The European Sovereign Bond Protection Facility now has its own website! More to the point, the Summary Terms for the certificates can be found here, and a Base Prospectus here.

BBC:

• Argentina Train Crash in Buenos Aires 'kills dozens'. A train crash at a station in the Argentine capital, Buenos Aires, has killed 49 people with at least 600 more injured, officials say. The train slammed into the barrier at the end of the platform at the Once station during the morning rush hour.

MailOnline:

• Google(GOOG) Glasses With Built-In Terminator-Style Computer Displays 'could be on sale by the year's end at a cost of $250'.
  

Handelsblatt:

• Germany Plans 'Drastic' Cuts in Solar Subsidies. Subsidies for some photovoltaics installations to be cut by more than 30%.
  

Shanghai Daily:

• China Appliance Sales Drop 10% in January. SHANGHAI'S languid home appliance market hopes for new incentives to revive sales after China's old-for-new home appliance subsidy program expired at the end last year. The industry's nationwide sales dropped 10 percent in January from a year earlier.

Bear Radar

Style Underperformer:

• Small-Cap Value -.69%

Sector Underperformers:

• 1) Coal -2.19% 2) Banks -1.68% 3) Homebuilders -1.48%

Stocks Falling on Unusual Volume:

• SIMO, WMT, DLTR, TRAK, WPRT, KNOL, CAKE, DELL, PZZA, ALTE, YNDX, RP, ICON, Z, FSYS, ZIP, NFX, LAD, TOL, ICON, SDT, RGR, LL and FST
  

Stocks With Unusual Put Option Activity:

• 1) KRE 2) JAG 3) YOKU 4) SWY 5) NBR
  

Stocks With Most Negative News Mentions:

• 1) YHOO 2) HGSI 3) CMA 4) DLTR 5) AMR
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth +.20%

Sector Outperformers:

• 1) Oil Service +2.30% 2) Hospitals +1.30% 3) Road & Rail +.50%

Stocks Rising on Unusual Volume:

• FIRE, NBR, INTU, RRC, WNR, SKS, GRMN, HSTM, LAMR, TXRH, SXCI, ASPS, MDCO, IPCM, MYL, HLF, CHS and CYH
  

Stocks With Unusual Call Option Activity:

• 1) INTU 2) GRMN 3) MNST 4) CTAS 5) CYH
  

Stocks With Most Positive News Mentions:

• 1) INTU 2) FIRE 3) MOS 4) URBN 5) LMT
  

Charts:

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

Wednesday Watch

Evening Headlines
Bloomberg:

• BOE's Bean Says Greek Deal Doesn't Eliminate Risk of Disorderly Outcomes. Bank of England Deputy Governor Charlie Bean said agreement on a second bailout for Greece may not be enough to end the debt crisis and countries in the euro- area periphery must reduce debt and improve competitiveness. “While this morning’s agreement between the Greek government and the euro-area authorities is certainly welcome, there still remains a possibility that events could unfold in a disorderly and damaging fashion at some stage in the future,” Bean said in a speech late yesterday in Glasgow, Scotland. The euro crisis “represents the biggest downside risk” to the U.K.
• A Holldande Win in France Would Rattle Europe: George Magnus. If, as opinion polls suggest, the French Socialist Party’s presidential candidate, Francois Hollande, ousts Nicolas Sarkozy in elections this spring, the euro area may be in for a new wave of instability with far- reaching consequences for financial markets and the euro system itself.
  
• Record Nickel Supply Expanding Glut Thwarts Bull Market Rally: Commodities. Mining companies and refineries are producing more nickel than at any time in history, expanding a glut that threatens to reverse this year’s rally. Production will exceed demand by 45,000 metric tons, a 73 percent jump from 2011, Barclays Capital estimates. That’s equal to 46 percent of stockpiles tracked by the London Metal Exchange. Refined output will rise 12 percent, the most in at least eight years, according to Morgan Stanley. Prices, which rose 8 percent to $20,230 a ton this year, may fall as much as 13 percent to $17,630 a ton by Dec. 31, the median of 11 analyst estimates compiled by Bloomberg shows. With new supply expected from Australia to Madagascar to Brazil, consumption still won’t expand fast enough to absorb the extra metal. Most markets for stainless steel, accounting for 76 percent of nickel demand, remain “depressed,” Deutsche Bank AG said in a report Feb. 15. “We’ll get more and more supply over the course of the year,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt. “We expect huge surpluses for nickel not only this year, but next year, and probably in 2014. It’s mainly due to an increase in supply, but on the other side the stainless steel industry is facing a tough time.”

Wall Street Journal:

• Greece Gets a Stay, With Trouble on the Way. Pact Staves Off Immediate Concerns, but Many Problems Remain Even Under Best-Case Scenarios. No triumphalism accompanied Greece's bailout and debt-restructuring deal hammered out early Tuesday; the euro zone's two-year debt crisis has seen too many false dawns. Financial markets were somewhat cheered that months of negotiations aimed at cutting Greece's heavy debt had reached a resolution, largely putting to rest fears of a chaotic debt default next month. It also removed—at least for the immediate future—the gnawing anxiety that some policy makers in Germany and elsewhere are trying to oust Greece from the euro.
• Plan B for China's Wealthy: Moving to the U.S., Europe. Surveys and visa numbers show that members of China's wealthy elite are heading for the exits in search of things money can't buy in China: cleaner air, safer food, better education for their children. This time last year, Shi Kang considered himself a happy man. Writing 15 novels had made him a millionaire. He owned a luxury apartment and a new silver Mercedes. He was so content with his carefree life in Beijing that he never even traveled overseas. Today, a year later, Mr. Shi is considering emigrating to the U.S.—one of a growing number of rich Chinese either contemplating leaving their homeland or already arranging to do it.
• Citigroup(C) Faces Smith Barney Hit. Citigroup Inc. is facing a potential multibillion-dollar write-down as it begins unwinding its minority investment in the Morgan Stanley Smith Barney brokerage. Morgan Stanley has the right this spring to start buying Citigroup out of the joint venture, which was formed in 2009, when the sides combined Citigroup's Smith Barney with Morgan Stanley's wealth-management unit. Price is likely to be one of the main points under discussion when negotiations begin this spring, people familiar with the situation said.
• Obama's Dividend Assault. A plan to triple the tax rate would hurt all shareholders. President Obama's 2013 budget is the gift that keeps on giving—to government. One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets. Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today's 15% rate. Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.

MarketWatch:

• George Soros Speaks on China and Other Matters at Davos.

Business Insider:

• A New Survey Shows Unemployment Surging Again. (graph)

Zero Hedge:

• IIF's Dallara Warns Holdout Greek Bondholders Could Kill "Successful" Greek Deal. (video)
• Anonymous Hacks Greek Ministry Website, Demand IMF Withdrawal, Threatens It Will Wipe Away All Citizen Debts.
• "Marginal Utility" of Central Bank Intervention Is Rapidly Diminishing.
  

CNBC:

• China Factory Activity Shrinks for 4th Month: HSBC. China's manufacturing sector contracted in February for the fourth straight month as new export orders dropped sharply in the face of the euro area debt crisis, the HSBC flash purchasing managers index showed on Wednesday. The new export orders sub-index dropped to 47.4 in February from 50.4 in January as the European debt crisis cast a shadow over Chinese exports.

NY Times:

• Meredith Whitney Lands Book Deal. Ms. Whitney has signed a deal with Portfolio, an imprint of Penguin Group, to write a book about the growing problems in the municipal bond market, according to a statement from the publisher. The book, tentatively titled “Downgraded: Why the Next Economic Crisis Will Be Local,” is expected to hit bookstore shelves in November.
• Greek Crisis Raises New Fears Over Credit-Default Swaps. With Europe’s $172 billion aid package for Greece, it appears that the nation is going to take a step that substantially increases the likelihood that its swaps take effect.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Tuesday shows that 25% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty percent (40%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -15 (see trends).

AP:

• UN Nuke Agency Reports Failed Iran Talks. The U.N. nuclear agency says its experts have again failed to dent Iran's refusal to cooperate in probing allegations that Tehran covertly worked on an atomic arms program. An International Atomic Energy Agency statement says Iran refused an IAEA request for access to a site where the agency suspects explosives testing related to a nuclear weapon took place. It also says that despite "intensive efforts," no agreement was reached on how to relaunch the probe, which has been stalled for nearly four years.

Reuters:

• Dell(DELL) Shares Fall On Earnings Miss, Outlook. Dell Inc forecast fiscal first-quarter revenue below Wall Street's expectations, stoking fears the PC industry has not fully emerged from its downturn and sending the company's shares more than 4 percent lower. The world's No. 3 personal computer maker projected sales would be down 7 percent this quarter from the previous quarter, when it posted revenue of $16 billion. That translates into about $14.9 billion, below the average forecast for roughly $15.2 billion.
• Shanghai Court Hears Apple(AAPL) iPad Trademark Case. A Shanghai court began hearing on Wednesday a case brought by a Chinese technology firm seeking to halt the sale of Apple Inc's iPads across the affluent Chinese city, accusing the U.S. firm of trademark infringement.
• CIA to Software Vendors: A Revolution Is Coming. The U.S. Central Intelligence Agency told software vendors on Tuesday that it plans to revolutionize the way it does business with them as part of a race to keep up with the blazing pace of technology advances.

Telegraph:

• Greek Debt Accord Hostage To Political Passions. Eurozone leaders have put off the day of reckoning for a few more months but the latest €130bn rescue package for Greece offers no path out of the crisis and is hostage to explosive political passions.
• Battle Over EU Financial Firewall Threatens To Derail Greek Bailout. A battle over an increased eurozone bail-out fund and International Monetary Fund support for the European Union's single currency threatens to derail the latest Greek bailout.

JoongAng Ilbo:

• North Korea recently developed a 170-kilometer range rocket launcher, citing an official in the South Korean government. The range is almost double the shooting scope of its existing rocket launcher.

Shanghai Securities News:

• CBRC has been warning banks against possible credit risks associated with the real estate market as the government continues its strict property curbs. CBRC has ordered banks to control loans to developers in areas with "overheating" property markets. CBRC has asked banks to check each developer's liquidity, solvency against a list. The Land and Resource Ministry will announce rules to guard against illicit land sales by local governments.
• Non-Local residents are now qualified to buy 2nd homes once they have held residence permits for 3 years, citing the city's housing regulator.
  

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 160.0 +1.5 basis points.
  
• Asia Pacific Sovereign CDS Index 131.25 -2.25 basis points.
• FTSE-100 futures -.07%.
  
• S&P 500 futures +.10%.
  
• NASDAQ 100 futures +.17%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (PWR)/.36
• (DLTR)/1.58
• (TOL)/.03
• (CHS)/.11
• (DCI)/.71
• (LAMR)/.00
• (RRD)/.43
• (ZLC)/.77
• (MGM)/-.20
• (EV)/.43
• (TJX)/.63
• (ADI)/.48
• (FLR)/.82
• (LTD)/1.46
• (ESRX)/.85
• (FLS)/2.29
• (WMB)/.41
• (RGR)/.46
• (JACK)/.25
• (HPQ)/.87
• (SNPS)/.51
• (DDS)/2.02

Economic Releases
10:00 am EST

• Existing Home Sales for January are estimated to rise to 4.66M versus 4.61M in December.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The 5Y T-Note Auction, weekly retail sales reports, weekly MBA Mortgage Applications Report, China Flash Manufacturing PMI, CSFB Paper/Packaging Conference, Barclays Industrial Select Conference, Jefferies Clean Tech Conference, (GCI) Analyst Meeting, (TPX) Investor Day and the (DBD) Investment Community Conference could also impact trading today.
  

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

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

Broad Market Tone:

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

Equity Investor Angst:

• VIX 18.31 +2.98%
  
• ISE Sentiment Index 102.0 -27.14%
  
• Total Put/Call .76 -10.59%
  
• NYSE Arms .89 -16.33%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 97.14 -.13%
  
• European Financial Sector CDS Index 178.23 -.39%
  
• Western Europe Sovereign Debt CDS Index 342.02 +2.02%
  
• Emerging Market CDS Index 253.57 -.52%
  
• 2-Year Swap Spread 29.50 -1 bp
  
• TED Spread 42.0 +.25 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -68.50 +1.75 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .07% -1 bp
  
• Yield Curve 174.0 +2 bps
  
• China Import Iron Ore Spot $135.40/Metric Tonne +.22%
• Citi US Economic Surprise Index 61.80 -3.1 points
  
• 10-Year TIPS Spread 2.29 +3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -5 open in Japan
• DAX Futures: Indicating -31 open in Germany

Portfolio:

• Slightly Lower: On losses in my Biotech and Tech sector longs
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short
  
• Market Exposure: Moved to 50% Net Long

BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 reverses morning gains and trades near session lows on rising Eurozone debt angst, rising energy prices, profit-taking, technical selling and more shorting. On the positive side, Coal shares are especially strong, rising more than +.75%. Copper is rising +3.0%. The 10Y Yield is rising +5 bps to 2.5%. The Russia sovereign cds is falling -3.2% to 203.0 bps and the Hungary sovereign cds is falling -3.9% to 531.0 bps. Moreover, the European Investment Grade CDS Index is falling -4.0% to 117.49 bps. On the negative side, Oil Tanker, Semi, Disk Drive, Medical, Biotech, Hospital, Homebuilding, REIT, Retail, Education and Airline shares are under meaningful pressure, falling more than -1.0%. Tech shares are underperforming today and the Transports continue to trade poorly. The Transportation Index is now down -4.0% since Feb. 3 versus a +1.3% gain for the S&P 500. Oil is gaining +2.2%, Gold is surging +2.0% and Lumber is falling -1.1%. Oil has broken out from its recent range, which is a large negative. Retail sales have already decelerated to below average rates and this will provide another headwind. Lumber is -5.2% 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 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. Overall, credit gauges have deteriorated recently despite the Greece debt deal and remain at stressed levels. China Iron Ore Spot has plunged -25.5% since Sept. 7th of last year. Shanghai Copper Inventories are up +676.0% ytd and are still very near their recent all-time high. I still think this is more of a red flag for falling demand rather than the intentional hoarding, which many suggest. Major Asian indices were mostly higher overnight, led by a +.75% gain in Shanghai. Asian indices did not trade as well as I would have expected given the recent RRR cut in China and Greece debt deal announcement overnight. As well, major European indices were mostly lower today, led by a -.65% decline in Spanish shares. The Bloomberg European Financial Services/Bank Index is falling -.69%. The Greece debt deal may buy politicians some more time, however I still believe the European debt crisis will flare up again in even more intense fashion down the road. US stocks are technically extended short-term and are right at intermediate-term resistance with bullish sentiment elevated and quite a bit of good news likely priced in. One of my longs, (AAPL), is helping once again to mask broad market weakness today. 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 modestly lower into the close from current levels on rising Eurozone debt angst, rising energy prices, profit-taking, technical selling and more shorting.

Today's Headlines

Bloomberg:

• Greek Rescue Leaves Europe Default Risk Alive as Austerity Bites. Europe is still struggling to avoid the threat of default as investors warned Greece will soon risk violating the terms of its second bailout in three years. Seven months of negotiations ended in the pre-dawn hours in Brussels with Greece winning 130 billion euros ($172 billion) in aid it needs to avoid a March bankruptcy. Any respite may prove temporary after it signed up to a program of austerity and economic reform aimed at slashing debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year. Even with investors and central bankers chipping in to relieve the debt burden, economists from Citigroup Inc. to Commerzbank AG concluded Greece may again fail to deliver amid a fifth year of recession, looming elections and social unrest. The upshot could be the removal of aid and renewed debate over the merits of fresh assistance before year-end as policy makers shift toward doing more to inoculate the rest of Europe from contagion. “The bailout bandage is on, but it won’t take much to unravel,” said David Miller, partner at Cheviot Asset Management in London. “The euro zone has done its best to ensure that Greece will deliver on promises, but there is considerable scope for backtracking on deficit reduction.” Financial markets signaled doubt the accord will fix Greece’s travails permanently or spell an end to the two-year debt crisis. The euro surrendered initial gains against the dollar and European stocks fell from a six-month high.
• Sovereign Credit-Default Swaps Rise Amid Greek Bailout Concerns. The cost of insuring against default on European sovereign bonds rose on concern the 130 billion-euro ($173 billion) bailout for Greece will fail to resolve the region’s debt crisis. The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments increased eight basis points to 342 basis points at 11:26 a.m. in London. The Greek government’s decision to introduce legislation for so-called collective action clauses, allowing it to enforce losses on bondholders, makes it more likely that default swaps on the nation’s debt will be triggered. An International Swaps & Derivatives Association official said in an interview that the group is monitoring the situation “diligently.” The cost of insuring against losses on corporate debt also rose, with contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings climbing 7.5 basis points to 575.5, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose 2.25 basis points to 133.5 basis points. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased nine basis points to 222 and the subordinated gauge was 10 higher at 372.5.
• Oil Rises to Highest Level in Nine Months on Greek Aid, Iran Exports. Oil rose to the highest level in more than nine months after euro-area finance ministers agreed on a second bailout for Greece and Iran said it stopped selling oil to France and Britain. Prices gained as much as 2.1 percent after the ministers awarded 130 billion euros ($173 billion) in aid, wrung concessions from Greece’s private investors and engineered a profit transfer by the European Central Bank. Iran stopped selling oil to the two countries yesterday to preempt a European Union ban, according to an official news website. Oil for March delivery gained $1.61, or 1.6 percent, to $104.85 a barrel at 12:40 p.m. on the New York Mercantile Exchange after climbing to $105.44, the highest intraday price since May 5. Futures have risen 6.1 percent this year. The March contract expires at the close of floor trading today. The more actively traded April contract increased $1.56, or 1.5 percent, to $105.16 on the Nymex. Floor trading was closed yesterday because of the U.S. Presidents Day holiday. Brent oil for April settlement rose 52 cents, or 0.4 percent, to $120.57 a barrel on the ICE Futures Europe exchange in London.
• Wal-Mart Profit Trails Estimates as Low Prices Hurt Margins. Wal-Mart Stores Inc., the world’s largest retailer, reported fourth-quarter profit that trailed analysts’ estimates as an emphasis on low prices hurt margins.
• Home Depot(HD) Profit Beats Analysts' Estimates on Warm Weather. Home Depot Inc., the world's largest home-improvement retailer, reported fourth-quarter profit that exceeded analysts' estimates as warmer weather helped spur an increase in residential spending.
• Iran Vows to Press On With Its Atomic Program as IAEA Visits. Iran pledged to press on with its efforts to develop atomic energy as the United Nations nuclear watchdog started a second day of meetings in Tehran to clarify aspects of the country’s activities. Iran has mastered the full nuclear-fuel cycle and the International Atomic Energy Agency supervises its work, Ramin Mehmanparast, a Foreign Ministry spokesman, told reporters in Tehran today. Iran is exercising its “right to peaceful nuclear energy,” he said in comments aired live by the state-run Press TV news channel. “There is nothing to negotiate.”
  

Wall Street Journal:

• Top Banks in EU Rush for Safety. Top European banks, responding to new regulations and wary of lending, are stashing increasingly large sums of money at central banks around the world in a collective flight to safety. The eight giant European banks that have disclosed their annual results in recent weeks reported holding a total of about $816 billion in cash and deposits at central banks as of Dec. 31, according to calculations by The Wall Street Journal. That is up 50% from a year earlier, when the same banks were holding roughly $543 billion.
• Paulson Sued Over Sino-Forest Wager. A former investor in John Paulson's hedge funds is suing Mr. Paulson's firm, alleging it failed to conduct sufficient due diligence into Sino-Forest Corp. before and after purchasing shares of the Chinese forestry company, an investment that cost Paulson & Co. about $500 million last year.
• Comcast(CMCSA) Is Launching a Netflix(NFLX) Competitor.
  

CNBC.com:

• Closures, Losses Push Bank Asia Hedge Fund Industry.
• Sallie Krawcheck: The Euro Is "Fundamentally Flawed".
• Greece Deal Will Only Last Until Next Election: Gartman.
  

Business Insider:

• China's Great Rail Leap Forward Is Looking More And More Like A Disaster.
• Lloyd Blankfein Seen Lunching With Bill Clinton in Boca.
• Chart of the Day: The Rosy Assumptions Behind The Entire Greek Bailout.
• The Social Gaming Market Will Explode To $5+ Billion By 2015.
  

Zero Hedge:

• Greece Debt Deal: "Kicking Giant Beer Keg Down Road Risks Destroying The Road".
• China Moves From Currency Wars to Trade Wars.
• Same Time, Same Place - Greek Labor Unions Waste No Time In Scheduling Tomorrow's Athens Protest.
• Quiet 2 Year Bond Auction Adds $35 Billion To Total Debt, US Debt To GDP Now At 101%.
  

FA:

• Citigroup(C) to Allow Hedge Fund Managers Ownership Stakes Ahead of Volcker Rule. Citigroup Inc., the third-biggest U.S. bank by assets, will let managers of its hedge funds own part of the business ahead of rules that limit shareholders' cash in the unit, Chief Operating Officer John Havens said. Employees in the Citi Capital Advisors division, or CCA, will get a "significant" stake in managing the funds, Havens said in an interview. This will increase, he said, as New York-based Citigroup withdraws its own money and attracts outside investors to comply with the Volcker rule, which restricts deposit-taking banks from making bets with their own capital.

Time U.S.:

• Jerry Brown's Risky Crusade: How to Raise Taxes in California.

Reuters:

• Insight: ECB Preparing to Close Liquidity Floodgates. The European Central Bank wants its second offer of cheap ultra-long funds next week to be its last, putting the onus back on governments to secure the euro zone's longer-term future. Powerful members of the central bank's 23-man governing council are privately hoping demand at the February 29 auction will fall well short of the 1 trillion euros some expect, backing their view that it should be the last. Central bank sources say they are worried that banks will become too reliant on ECB funds, removing the incentive to restart lending between themselves.
• Gold Up One Percent On Greek Deal, Economic Uncertainty. Gold rose about one percent on Tuesday, outpacing gains in the euro and equities, as a massive European bailout deal as investors bought the metal amid doubts the bailout will work. Spot gold rose 1.2 percent on the day to $1,755.19 an ounce by 11:30 a.m. EST (1630 GMT), having earlier hit a high of $1,756.41, the loftiest price since February 3.
• Airline Shares Tumble on Oil Price Rally. Airline shares fell broadly on Tuesday, with US Airways Group's stock leading the decline, as the price of oil rallied, which directly influences the cost of jet fuel. US Airways shares plummeted 10.4 percent to $7.97 on the New York Stock Exchange. Shares of United Continental Holdings were down 7.78 percent at $21.55, and Delta Air Lines' shares fell 6 percent to $10.18, both on the NYSE.

Financial Times:

• Wolf and Authers on Greece. (video)
• US Feels Pinch From High Petrol Prices. The average cost of a gallon of regular fuel has hit $3.49 a gallon, a record high for February and up sharply from $2.25 five years ago.

Telegraph:

• Debt Crisis: Live.
• France and Germany to 'Harmonize' Corporate Tax Rates. Germany and France moved even closer to full fiscal union by announcing they will be "harmonising" their corporate tax rates by 2013 - a move that will increase the prospect of an EU-wide enforced tax rate that Ireland and the UK have been heavily opposed to.

Der Spiegel:

• Portugal Needs More Money To Stay Afloat. With its massive austerity measures, Portugal has become the poster child of the troika of the EU, ECB and IMF. But the country is still stuck in a deep recession and it is unclear how it will return to growth. It may need to rely on European loans for years to come.

Imerisia:

• Greek banks will have to raise 50 billion euros of extra capital, rather than the 30 billion euros, originally estimated, citing a report on Greece's debt sustainability by the IMF, the EC and the ECB, the so-called troika.
  

Athens News:

• New Measures 'Murdering the Market', Retailers Warn. Retailers are warning that new austerity measures set to be approved by parliament this week are "murdering the market" and worsening the country's recession. "Rampant over-taxation and failed recessionary measures are murdering the market and throwing Greek society into a Third World environment."