Thursday Watch

Evening Headlines 
Bloomberg: 

• Basel Becomes Babel as Conflicting Rules Undermine Safety. The first Basel agreement on global banking regulation, adopted in 1988, was 30 pages long and relied on simple arithmetic. The latest update, known as Basel III, runs to 509 pages and includes 78 calculus equations. The complexity is emblematic of what happened over the past four years as governments that injected $600 billion to rescue failing banks.

• China Poised for 2013 Rebound as Debt Risks Rise for Xi. Incoming President Xi Jinping may find China’s investment-driven economic recovery in the Year of the Snake jeopardized by mounting risks in the finance industry. Gross domestic product is poised to expand 8.1 percent this year, up from 7.7 percent in 2012, according to the median estimate of economists surveyed last month by Bloomberg News. At the same time, an increase in lending fueled by trust companies and underground banks enhances the risk of loan defaults that would be “severely damaging” to the economy, Standard Chartered Plc says. The danger is that an economic rebound lulls policy makers into complacency, delaying market-driven changes needed to reduce dependence on investment for growth. “If China tries to sustain growth by adding debt and investing it inefficiently it will be like cotton candy: a short-term high with no lasting value,” said Loevinger, now an Asia analyst in Los Angeles at TCW Group Inc., which oversees about $135 billion. “The U.S. got into trouble because institutions like Fannie Mae (FNMA) and Freddie Mac were too big to fail and had a toxic mix of private shareholders and implicit government guarantees. China’s financial system is full of Freddies and Fannies.” Xi and his team are inheriting an economy more leveraged than the one President Hu Jintao took over in 2003. Government, corporate and consumer debt rose last year by 15 percentage points to an estimated 206 percent of GDP, Standard Chartered said in a November report. In March 2003 it stood at 150 percent. Borrowers are using some new loans to “plaster over non- performing credits” while so-called shadow banking is growing too fast, said economists led by Stephen Green. They estimated that a bad-loan ratio of 12 percent would erase the banking industry’s 7.5 trillion yuan ($1.2 trillion) in capital.

• Paulson Named in ACA’s Revised Goldman Sachs(GS) CDO Suit. Hedge fund Paulson & Co. was named as a defendant in a proposed revised lawsuit by ACA Financial Guaranty Corp. (MANF) against Goldman Sachs Group Inc. (GS) over a collateralized debt obligation called Abacus. Paulson and Goldman Sachs conspired to induce ACA to provide financial guaranty insurance for the Abacus deal, which was “doomed to fail,” the firm said in papers filed today in New York State Supreme Court in Manhattan. ACA, which sued Goldman Sachs in 2011, is seeking court permission to file a revised complaint adding Paulson as a defendant. 

• Google(GOOG) Said Set to Resolve FTC Antitrust Probe Tomorrow. Google Inc. (GOOG) will resolve a 20-month antitrust probe by U.S. regulators tomorrow with a voluntary agreement and a consent decree on the company’s alleged misuse of patents, three people familiar with the matter said.

Wall Street Journal: 

• Deductions Limits Will Affect Many. One of the biggest tax increases in the fiscal-cliff bill is also one of the least understood: a set of limits on tax deductions and other breaks that will hit far more households than the bill's rate increases for top earners. The bill that cleared Congress Tuesday boosts the tax rate for single filers making more than $400,000 and married couples filing jointly making more than $450,000, or roughly the top 1% of filers. But provisions that reduce the value of personal exemptions as well as most itemized deductions, including those for mortgage interest and state income-tax payments, will affect about twice as many people since they carry a lower income threshold—$250,000 for singles and $300,000 for married couples. Those new limits drew complaints from some groups that benefit from deductions, particularly charities that depend on tax-deductible donations. They worry that new curbs on deductions, coupled with other taxes on higher-income Americans, will put a damper on giving. 

• Cliff Fix Hits Small Business. Many Small Entities or Firms May Face Higher Taxes This Year After the Deal. It's likely to be a year of painful decision-making for small-business owners like Tom Secor of Norwalk, Ohio, one of hundreds of thousands of Americans who could face a higher tax bill after Washington's last-minute deal to avoid the fiscal cliff.

• Electricity Use on Wane in the U.S. Americans are using more gadgets, televisions and air conditioners than ever before. But, oddly, their electricity use is barely growing, posing a daunting challenge for the nation's utilities. The Energy Information Administration is projecting that electricity use in the U.S. will rise an average of just 0.6% a year for industrial users and 0.7% for homes through 2040. That's a far cry from the middle decades of the past century, when utilities could rely on electricity-consumption growth rates of more than 8% a year.

• Risk Seen in Some Mortgage Bonds. After a surge in bonds backed by mortgages on commercial properties, some investors are finding cracks in the foundations. Investors piled into these bonds, which are made up of pools of loans linked to properties such as shopping malls and hotels, because of the relatively high yields they offered. But that demand has sent prices soaring, and yields tumbling to record lows. As well, some investors remain worried that defaults on these loans remain at historically high rates.

• Weak Demand Turns Tables on Potash Firms. The world's biggest potash producers bet for years on ever-growing demand for fertilizer. Now they find themselves at the mercy of small farmers like Virender Kumar Rai. On his patch of land in eastern India, Mr. Kumar Rai is switching from potash to cheaper crop nutrients, like urea, for his rice, wheat and vegetable crops. "Urea suits me fine now," he says. 

• Islamist Split in Egypt Buoys Radical Wing. Ahead of Parliamentary Vote, Ultraconservative Faction Breaks Away From Popular Salafi Party to Push for Shariah Law. A radical faction within Egypt's most conservative Islamist party is breaking away, threatening to pull the nation's politics further rightward ahead of a vote to elect a new Parliament. The split is also fracturing the Islamist Nour Party, which has allied with President Mohammed Morsi's Muslim Brotherhood but is more religiously conservative. The next polls are critical because the new Parliament will draft laws fleshing out Egypt's new Islamist-tinged constitution.

• It Was a Blue Christmas for Retailers. We have all heard of Black Friday. Last week, though, retailers had an awfully dark Wednesday—and not because Dec. 26 is also one of the busiest shopping days of the year. A report from SpendingPulse, a service of MasterCard Advisors, said holiday spending in the two months up to Christmas rose by just 0.7% from a year earlier—a deep disappointment. 

• Fred Barnes: The President Who Wants It All. The essence of bipartisan deals is win-win: Both sides are satisfied. Obama's approach is he alone wins.

Fox News:

• Pressure builds to nix gift of tanks, F-16s to Egypt. Later this month, the new government in Egypt is scheduled to begin taking delivery of 10 F-16 fighter jets and 200 Abrams tanks – courtesy of U.S. taxpayers. The $213 million deal is part of a foreign aid package signed when American ally Hosni Mubarak was president, but a growing chorus of critics say the Obama administration should pull the plug. They cite Egypt’s new Muslim Brotherhood government’s mixed signals to the U.S. and Israel, as well as America’s fiscal problems, as reasons for rescinding the deal.

• Fiscal deal includes estimated $12.1 billion in tax credits for wind energy industry. The fiscal deal cemented Tuesday night includes a one-year extension of tax credits for the wind-energy industry that will cost taxpayers an estimated $12.1 billion.

CNBC:

• More Steps Needed to Save US Credit Rating: Moody's. The United States must do more than the recently passed "fiscal cliff" measures if the country is to rescue its Aaa debt rating from its current negative outlook, rating agency Moody's Investors Service said on Wednesday.

• Despite Cliff Deal: 'Nothing Really Has Been Fixed'. An emergency deal reached after weeks of rancorous negotiations will keep the U.S. from driving off the "fiscal cliff," but higher taxes and continued political bickering in Washington threaten to shake the fragile economy well into 2013.

• Watch Out, Asia. Inflation Is Coming. Inflation in Asia may be under control now, but prices across the region could soon start to creep higher, with India and Southeast Asia the most vulnerable, warns independent economist Andy Xie.

Zero Hedge: 

• Fiscal Cliff Loose Ends.

• The 96 Charts That Have To Be Seen To Believed For 2013.

• Happy New Year Germany: Greece Needs A New Bailout.

• Total US Debt: $16,432,730,050,569.12; Debt To GDP: 103%.

• Why Did A Train Carrying Biofuel Cross The Border 24 Times And Never Unload? Wondering why rail traffic has been somewhat surprisingly consistent despite uncertainty? Concerned at government's tenticular reach into each and every aspect of our lives? This somewhat stunning anecdotal report from OilPrice.com might shed some light:

Business Insider:

• The White House Left Out One Inconvenient Item On Its Fiscal Cliff Deal Fact Sheet.

• Goldman(GS): Why This Debt Ceiling Fight Could Be Even More Of A Nightmare Than The Last One.

• The Last-Minute Fiscal Cliff Deal Doesn't Actually Solve Much.

IBD: 

• CommVault(CVLT) Software Tackles Data Management Problems.

NY Times: 

• Al Jazeera Acquires Al Gore's Current TV. Al Jazeera on Wednesday completed a deal to take over Current TV, the low-rated cable channel that was founded by Al Gore and his business partners seven years ago. Current will provide the pan-Arab news giant with something it has sought for years: a pathway into American living rooms. Current is available in about 60 million of the 100 million homes in the United States with cable or satellite service.

CNN:

• Smaller paychecks coming - bosses say, don't blame us. Everyone's paycheck is about to take a hit, and it's not the boss' fault. But some business owners say it's a tough talk to have. The rate of workers' payroll taxes, which fund Social Security, has been 4.2% for the past two years. As of Jan. 1, it's back to 6.2%, on the first $113,700 in wages.

• Investor enthusiasm over fiscal cliff deal will be short-lived. It doesn't take a math genius to understand that this grand compromise to avoid the dreaded fiscal cliff is highly inadequate.

USA Today: 

• Business groups: Cliff deal won't spur investment. Wall Street investors cheered the deal to avert the fiscal cliff — but some executives who invest in job-creating plants and equipment gave it a much cooler reception.

Reuters:

• After 'fiscal cliff,' US conservatives eye Republican primaries. The U.S. Congress prevented hefty tax hikes and spending cuts with a "fiscal cliff" deal this week, but grassroots conservatives are already seeking 2014 primary challengers for high-profile Republican lawmakers who backed the deal. 

• CEOs pan fiscal cliff deal, vow to continue debt fight. U.S. executives largely panned the congressional deal to steer America away from the "fiscal cliff," saying Washington wasted an opportunity to address the nation's long-term debt, but said they would continue to agitate for a better budget plan.

Telegraph: 

• Fiscal cliff: US must do more, says IMF. The International Monetary Fund has said that US actions to avoid the fiscal cliff did not go far enough to address the country's long-term fiscal deficit and debt problems.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +.75% on average.

• Asia Ex-Japan Investment Grade CDS Index 100.5 -12.75 basis points.

• Asia Pacific Sovereign CDS Index 80.5 -5.25 basis points.

• FTSE-100 futures n/a.

• S&P 500 futures -.29%.

• NASDAQ 100 futures -.15%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (WOR)/.41

• (PRGS)/.34

• (FDO)/.75

• (SUN)/.71

Economic Releases
8:15 am EST

• The ADP Employment Change for December is estimated to rise to 140K versus 118K in November.

8:30 am EST  

• Initial Jobless are estimated to rise to 360K versus 350K the prior week.

• Continuing Claims are estimated to rise to 3210K versus 3206K prior.

 2:00 pm EST

•  Fed minutes from 12/12 meeting.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The weekly MBA mortgage applications report, Challenger Job Cuts report for December, German Unemployment report, China HSBC Services PMI report, RBC Consumer Outlook Index for January, ISM New York for for December and the weekly Bloomberg Consumer Comfort Index could also impact trading today.

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

Stocks Surging into Final Hour on Fiscal Cliff Optimism, Less Eurozone Debt Angst, Short-Covering, Tech/Financial Sector Strength

Broad Market Tone:

• Advance/Decline Line: Substantially Higher
  

• Sector Performance: Almost Every Sector Rising
  

• Volume: About Average

• Market Leading Stocks: Outperforming

Equity Investor Angst:

• VIX 15.20 -15.65%

• ISE Sentiment Index 129.0 +4.9%

• Total Put/Call .95 -6.86%

• NYSE Arms 1.15 +428.90%

Credit Investor Angst:

• North American Investment Grade CDS Index 85.79 -9.22%

• European Financial Sector CDS Index 126.67 -10.9%

• Western Europe Sovereign Debt CDS Index 104.99 -5.7%

• Emerging Market CDS Index 195.12 -6.11%

• 2-Year Swap Spread 13.0 -.75 bp

• TED Spread 25.0 -1.5 bp

• 3-Month EUR/USD Cross-Currency Basis Swap -19.5 +1.25 bps

Economic Gauges:

• 3-Month T-Bill Yield .06% +2 bps

• Yield Curve 158.0 +7 bps

• China Import Iron Ore Spot $144.90/Metric Tonne unch.

• Citi US Economic Surprise Index 33.1 -6.8 points

• 10-Year TIPS Spread 2.48 +3 bps

Overseas Futures:

• Nikkei Futures: Indicating +430 open in Japan

• DAX Futures: Indicating -1 open in Germany

Portfolio:

• Higher: On gains in my tech, biotech and medical sector longs

• Disclosed Trades: None

• Market Exposure: 50% Net Long

Today's Headlines

Bloomberg:

• Bipartisan House Backs Tax Deal Vote as Next Fight Looms. The fiscal bill passed by Congress solves an immediate dilemma, averting income-tax increases for most Americans while taxing top-earners more, yet leaves unanswered a longer-term question of taming the federal debt. Congress must act as early as mid-February to prevent a default and the dispute may reprise a similar 2011 episode that led to a downgrade of the U.S. credit rating. “Without meaningful reform of entitlements, real spending controls, and a fairer, cleaner tax code, our debt will continue to grow, and our economy will continue to stumble,” House Speaker John Boehner said in a statement after the vote.

• Fink: If Economy Sputters Now, Blame Obama. (video)

• Euro-Area December Manufacturing Shrinks More Than Estimated. Euro-area manufacturing output contracted more than initially estimated in December, adding to signs a recession in the currency bloc may extend into this year as leaders struggle to tackle the sovereign-debt crisis. A gauge of manufacturing in the 17-nation euro area fell to 46.1 from 46.2 in November, London-based Markit Economics said today. That’s below an initial estimate of 46.3 on Dec. 14. A reading below 50 indicates contraction. The gauge has been below 50 for 17 months. The euro-area economy has shrunk for two successive quarters and economists foresee a further decline in gross domestic product in the final three months of last year. The European Central Bank forecasts contractions of 0.5 percent and 0.3 percent in 2012 and 2013. “The euro-zone manufacturing sector remained entrenched in a steep downturn at the end of the year,” Chris Williamson, chief economist at Markit, said in the report. “The region’s recession therefore looks likely to have deepened, possibly quite significantly, in the final quarter.”  

• Manufacturing in U.S. Expands After Reaching Three-Year Low. The Institute for Supply Management’s manufacturing index climbed to 50.7 last month from November’s 49.5, which was the weakest since July 2009, the Tempe, Arizona-based group’s report showed today. Fifty is the dividing line between expansion and contraction. The median forecast of economists surveyed by Bloomberg called for a rise to 50.5. 

• Gold Reaches Two-Week High as Commodities Gain on Budget. Gold futures for February delivery rose 0.7 percent to $1,688.10 an ounce at 9:41 a.m. on the Comex in New York. Earlier, it reached $1,692.60, the highest for a most-active contract since Dec. 18, after advancing 7 percent last year. 

• Drug Approvals Reach 15-Year High on Smoother FDA Reviews. U.S. drug approvals in 2012 reached their highest level in 15 years, led by 11 new cancer therapies, including Ariad Pharmaceuticals Inc. (ARIA)’s Iclusig and Pfizer Inc.’s Bosulif, both aimed at forms of leukemia.

Wall Street Journal: 

• Ceiling Could Drop on Cliff Celebration.

• Academic Economists React: Shortfalls of Fiscal Cliff Deal.

• Fiscal Cliff: Live Stream. 

• Portuguese Austerity in Doubt as President Moves Against Budget. A political rift was opened in Portugal on Wednesday after the country's president sent the 2013 budget to its highest court for review, an unusual move that highlights deepening opposition to a two-year austerity drive. President Anibal Cavaco Silva, who is the head of state and belongs to the same right-of-center political party as Prime Minister Pedro Passos Coelho, signed the budget bill into law on Monday, but expressed reservations the next day. In a late televised address to the nation, he expressed doubts about the budget's "distribution of sacrifices," while calling for an end to the "recession spiral" the country is undergoing.

Fox News: 

• Fiscal deal emboldens Obama to seek more tax increases.

• Construction spending posts first decline in eight months. Construction spending dropped 0.3 percent to an annual rate of $866 billion, the Commerce Department said on Wednesday. Analysts polled by Reuters had expected a 0.6 percent gain. Private spending on nonresidential projects slipped by 0.7 percent, the fourth decline in six months.

CNBC: 

• Why Many Investors Are Selling Today's Big Rally. Many investors were selling into the monster stock rally Wednesday on the notion that the "fiscal cliff" deal hastily hatched New Year's Day did not solve any long-term issues and set the country on the path of several more brinkmanship moments in Congress.

• Sen. Barrasso: 'President Is Addicted To Spending'. (video)

• Like ‘Eating a You Know What Sandwich:’ Sen. Corker. (video)

• Morici: Budget Deal Will Push Up Unemployment. 

Zero Hedge:

• Chart Of The Day: Europe's Resolution To Unpaid Bills? Ignore Them.

• Next Comes The US Downgrade. 

• The Dangerous Blindspots of Clueless Keynesians. 

• Gun Sales Background Checks Hit Record. 

• Santelli: "There Has To Be An Endgame To Insanity". (video)

Business Insider:

• Here's The Only Fiscal Cliff Detail You Really Care About: How Much YOUR Taxes Will Go Up In 2013. According to the Tax Policy Center, the American Taxpayer Relief Act will mean that the average federal effective tax rate will be 21.7 percent and the average increase is $1,257. Moreover, all Americans who make less that $500,000 per year will see an increase of 1% to 1.4% in their annual effective tax rate as a result of the payroll tax rise. 

• Investing Legend Byron Wien Reveals 10 Surprise Predictions For 2013.

• Alternative Currencies To The Euro Are Springing Up All Over Greece.

• Why Eight Senators Voted Against The Fiscal Cliff Deal.

• GARTMAN: The Fiscal Cliff Deal Is Anti-Marriage And Obama Has Got Us One Step Closer To Socialism.  

• DEUTSCHE BANK: Here Are 2 Reasons Why We're Still Worried About US Economy.

CNSnews.com:

• Senate Voted on ‘Fiscal Cliff’ Bill 3 Minutes After Receiving It. The U.S. Senate voted 89-8 to approve legislation to avoid the fiscal cliff despite having only 3 minutes to read the 154-page bill and budget score. Multiple Senate sources have confirmed to CNSNews.com that senators received the bill at approximately 1:36 AM on Jan. 1, 2013 – a mere three minutes before they voted to approve it at 1:39 AM.

Reuters:

• U.N. lifts Syria death toll to "truly shocking" 60,000. More than 60,000 people have died in Syria's uprising and civil war, the United Nations said on Wednesday, dramatically raising the death toll in a struggle that shows no sign of ending. In the latest violence, dozens were killed in a rebellious Damascus suburb when a government air strike turned a petrol station into an inferno, incinerating drivers who had rushed there for a rare chance to fill their tanks, activists said.

• Food prices push German inflation above ECB ceiling. Germany's annual inflation rate rose for the first time in fourth months in December on increases in food and package holiday prices, breaching the European Central Bank's target threshold for the broader euro zone of 2 percent. Compared to the prior year period, prices increased 2.1 percent in the final month of 2012, preliminary data from the Federal Statistics Office showed. On the month, consumer prices rose 0.9 percent. Economists surveyed by Reuters had been expecting more modest rises of 1.9 percent year-on-year and 0.7 percent on a monthly basis.

• Canada says 'significant risks' remain in U.S. after fiscal deal.

• Car slump in France, Spain and Italy spells gloomy 2013. Car sales in France, Spain and Italy in 2012 fell to the lowest levels in years, with December registration data underscoring the challenges facing the broader European economy. Automakers are facing a sustained slump in the European car market as the euro zone debt crisis and government austerity measures sap consumer demand. "The new car market continues to decline - a trait which we anticipate will continue through the course of 2013," Credit Suisse analyst David Arnold said on Wednesday, adding European auto sales were unlikely to see growth in 2013. Europe's stagnating auto market will have knock-on effects for other economic players including steel producers, Nomura analyst Matthew Kates said in a note, citing forecasts by consulting firm AutoAnalysis. Italy's car sales, down 22.5 percent in December, slumped 19.9 percent for the full year to 1.4 million units, their lowest levels since 1979. "The car market is suffering from an overdose of taxes aimed at hitting, if not criminalising, the acquisition, ownership and use of autos," said Filippo Pavan Bernacchi, the president of Italy's car dealers' trade group Federauto. French car registrations fell 15 percent in December, leaving the full year down 14 percent to 1.90 million vehicles - the lowest since 1997, French industry group CCFA said. He said he expected Italian car sales in 2013 to be close to 1.33 million units. Spain's monthly sales shrank 23 percent, after a 20 percent fall in November. Its full-year total of 699,589 cars, down 13 percent, was the lowest since industry association Anfac began keeping records in 1989. 

• Dollar slips vs. higher-yielders but rebounds vs. euro. The dollar fell against higher-yielding currencies such as the Australian dollar on Wednesday after U.S. lawmakers approved a last-minute deal to avert huge tax rises and spending cuts, spurring demand for riskier investments. But the U.S. currency staged a recovery against the euro in late morning trade as some traders booked profits after driving the common currency to a two-week high just below $1.33.

Financial Times:

• Beijing land prices soar amid criticism. Land prices have soared at recent auctions in Beijing in a sign that the Chinese property market is heating up again despite a long campaign by the government to cool it down. A large parcel of land in Tongzhou, a Beijing suburb, sold this week for Rmb1bn ($160m), 491 per cent more than the starting price – the highest premium paid at an auction in the capital in two years.

The Australian:

• Rio's(RIO) Walsh warns iron ore price spike won't last. THE current spike in iron ore prices is likely to be temporary, Rio Tinto iron ore chief executive Sam Walsh says, with the company set to stick to its plans to aggressively target cost reductions despite the improving market. In an exclusive interview with The Australian, Mr Walsh attributed the recent rise in iron ore prices to short-term factors such as restocking by steel mills and traders, and the looming cyclone season in the iron ore-rich Pilbara region of Western Australia.

Bear Radar

Style Underperformer:

• Mid-Cap Growth +1.34%

Sector Underperformers:

• 1) Coal -3.80% 2) Retail +.19% 3) HMOs +.28%
  

Stocks Falling on Unusual Volume:

• ABT, ASNA, GOL, LULU, TD, NTLS, NIHD, ALJ, UPL, DOLE, WPI, MR, TLYS, JWN, EHTH, CHRW, EQT, FL, EMC, PANW, DVA, TGT, AN, CLH, LUFK, COG, DECK and VSI

Stocks With Unusual Put Option Activity:

• 1) PHM 2) HFC 3) MGM 4) RL 5) F
  

Stocks With Most Negative News Mentions:

• 1) ROST 2) SKUL 3) BKS 4) NTLS 5) SPW
  

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Growth +2.27%

Sector Outperformers:

• 1) Gaming +5.3% 2) Steel +4.49% 3) Alt Energy +3.65%
  

Stocks Rising on Unusual Volume:

• IOC, ZIP, KEP, BC, LVS, ELLI, MCP, YELP, POL, X, FSL, MET, CMC, CAVM, ALXN, PHK, HPQ, WYNN, TEX, BC, MAR and CAR

Stocks With Unusual Call Option Activity:

• 1) A 2) CROX 3) JBL 4) VMED 5) HES
  

Stocks With Most Positive News Mentions:

• 1) HAIN 2) ZIP 3) CNH 4) DUF 5) SBAC

Charts:

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

Wednesday Watch

Evening Headlines 
Bloomberg: 

• U.S. House Passes Budget Bill. The 257-167 bipartisan vote breaks a yearlong impasse over how to head off $600 billion in tax increases and spending cuts set to begin taking effect today. The Senate passed the bill early this morning, 89-8, and it goes to President Barack Obama for his signature. The measure isn’t the grand bargain on deficit reduction lawmakers wanted when they created the tax-and-spending deadlines over the past three years. While it averts most of the immediate pain, it is only a small step toward controlling the federal deficit -- an issue that will return with a February fight over raising the $16.4 trillion debt limit.

• EU Power to Extend Slump in 2013 on Weak Demand: Energy Markets. The slump in European power that has driven prices to record lows is showing no sigh of ending as the region's second recession in four years curbs energy use. Electricity for the next year in Germany, Europe's biggest economy, will probably fall 9.2% in 2013, extending its 17% decline last year, according to Credit Suisse Group AG. Power demand in Germany will drop 2% this year, the same amount as in 2012, Bank of America Corp. said.

• Japan’s Population Falls by Record in 2012 as Births Decrease. Japan’s population last year declined by 212,000, the biggest drop on record, according to an estimate by the nation’s health ministry. That’s the largest reduction since the ministry started recording the data in 1947 and a sixth straight year of declines. The number of births fell by 18,000 to a record low of 1.03 million last year, the ministry said.

Wall Street Journal:

• Analysis: 77% of Households to See Tax Increase. The fiscal cliff bill’s impact would be far-reaching for American taxpayers, and particularly painful for very high-income households, according to a new analysis. About 77% of American households would see a tax increase compared to their 2012 tax levels, according to the analysis by the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute. The biggest impact for most households comes from the expiration of a two-percentage-point payroll-tax break that existed for 2011 and 2012. It basically hits all working people.

• GOP Conservatives Blast Terms of Deal. Majority Leader Cantor Joins Back Benchers in Decrying Lack of Spending Cuts in Bill Passed Earlier by the Senate. The episode served as another reminder of just how tempestuous Mr. Boehner's House majority has become. 

• Obama's Tax Bill Comes Due. The headlines say the Senate has passed a bill to avoid the tax cliff, hallelujah. This is the way to look at it if you have a pre-Copernican view of politics where Washington is the center of the economic universe. The better way to see it is that the tax bill on the private, productive part of the economy is now coming due for President Obama's first-term spending and re-election. 

• David Malpass: Nothing Is Certain Except More Debt and Taxes. The Senate fiscal-cliff bill still means higher taxes on every working American. So much for just going after 'the rich.'

• Fiscal Cliff: Live Stream.

• Chinese Fly Cash West, by the Suitcase. Amid a rush of newly affluent Chinese eager to move money out of China, U.S. and Canadian border officials are seizing large amounts of cash tucked into wallets, purses and suitcases at airports across North America. Officials at Canada's two busiest airports—Toronto and Vancouver—seized around 12.9 million Canadian dollars ($13.0 million) in undeclared cash from Chinese nationals from April 2011 through early June 2012, according to documents provided to The Wall Street Journal by the Canada Border Services Agency. The money, most of it returned to the owners, represented 59% of all cash seized at the airports in the period, according to the data. In the U.S., Chinese citizens are the top source of airport cash seizures after Americans.

• Companies Prepare for Health Law. With Much of the U.S. Overhaul to Take Effect in a Year, Companies Weigh Employee-Benefit Options. Certain employers could see health-related costs go up as a result of the law's requirements, and they are weighing how to respond. One possibility would be to opt out of providing health coverage altogether, as employees will have new coverage options outside the workplace—for the employer, the penalties are lower than the typical cost of insurance.

• Banks Near Foreclosure Settlement. Lenders and Regulators Working Toward $10 Billion Pact After Concerns Raised Over Review Process.

Zero Hedge:

• On The New Definition Of "Rich", A $620 Billion Tax Hike Offset By $15 Billion In Spending Cuts, And Much More.

• Meanwhile, America's Other "Cliff" Remains Untouched. (graph)

• Will The Next Bear Market Be A Planned Event Or A Failure Of Central Planning?

Business Insider:

• Ladies And Gentlemen: Here's The Date Of Your Next Fiscal Cliff. The other half of the Fiscal Cliff, the sequester (the mandatory spending cuts agreed to in the debt ceiling fight) has only been delayed, giving DC more time to fight over it. That means we've already scheduled a new Fiscal Cliff, and the bill agreed to last night has the date: March 1, 2013 (exactly two months from today).

• Intel(INTC) Is Reportedly Going To Destroy The Cable Model By Offering People The Ability To Subscribe To Individual Channels.

• Iraq Is Officially Fighting In A 'Low-Level War' A Year After US Withdrawal.

• MAULDIN: Long-Term Economic Growth Has Downshifted, And It's A Game-Changer For Stocks.

NY Times:

• Investors Face Imminent Obstacles, With or Without a Fiscal Deal. Economists forecast that the Senate deal would reduce economic growth by as much as 1 percent in the first quarter of 2013.

• Tech Giants Brace for More Scrutiny From Regulators. Silicon Valley lobbied hard in Washington in 2012, and despite some friction with regulators, fared fairly well. In 2013, though, government scrutiny is likely to grow. And with this scrutiny will come even greater efforts by the tech industry to press its case in the nation’s capital and overseas.

Read more here: http://blogs.sacbee.com/capitolalertlatest/2012/08/fiscal-analyst-hundreds-of-millions-at-risk-from-facebook-slide.html#storylink=cpy

CNN:

• Hedge fund industry loses out again. Bearish hedge fund managers have lost out in 2012, with the $2tn industry suffering another year of disappointing returns as traders were wrongfooted by a change in fortunes for the eurozone. According to Hedge Fund Research, slight gains in December were likely to mean the average hedge fund manager made just more than 5 per cent over the year -- a period watched closely by many investors after disappointing returns in 2011, when the average hedge fund lost 5 per cent. Flows into the industry are also expected to have slowed markedly, hit by a wave of high-profile closures. The first 9 months of last year saw hedge funds pull in a net $30bn from investors, compared with $70bn in 2011.

ABC News:

• ‘Fiscal Cliff’ Deal Also Doles Out Millions for Hollywood, Railroads, Rum Producers.

naked capitalism:

• Eight Corporate Subsidies in the Fiscal Cliff Bill, From Goldman Sachs(GS) to Disney(DIS) to NASCAR. Throughout the months of November and December, a steady stream of corporate CEOs flowed in and out of the White House to discuss the impending fiscal cliff. Many of them, such as Lloyd Blankfein of Goldman Sachs, would then publicly come out and talk about how modest increases of tax rates on the wealthy were reasonable in order to deal with the deficit problem. What wasn’t mentioned is what these leaders wanted, which is what’s known as “tax extenders”, or roughly $205B of tax breaks for corporations.

Breitbart.com:

• Fiscal Cliff Deal: $1 in Spending Cuts for Every $41 in Tax Increases.

• Cliff Deal: Half of Tax Hikes Go to Boost Spending. As more details emerge about the Senate's hastily-passed deal to avert the "fiscal cliff", the scale of the GOP's capitulation grows more troubling. This morning, it looked as if the Senate GOP had overwhelmingly voted for a $620 Billion tax increase in exchange for almost no real spending cuts. That's bad enough, but an analysis by the Congressional Budget Office reveals that the deal actually contains $330 Billion in new spending over the next 10 years. More than half of the new tax revenue won't go to plugging the deficit, but increasing the size of government.

McClatchy:

• New Year means tax increases to pay for health care law. The tax man is coming in 2013. And he’s wearing surgical scrubs and has a stethoscope around his neck. Five new tax increases take effect on Jan. 1 to help pay for the nation’s health care overhaul.
  
  
  Read more here: http://www.mcclatchydc.com/2012/12/31/178710/new-year-means-tax-increases-to.html#storylink=cpy
  
  Read more here: http://www.mcclatchydc.com/2012/12/31/178710/new-year-means-tax-increases-to.html#storylink=cpy

The Blaze: 

• Stunning Graphic Shows Possible Reason The House GOP Is Balking At Senate’s Fiscal Cliff Bill. This graphic is worth much more than 1000 words.

Reuters:

• Senate's "fiscal cliff" bill adds $4 trillion to deficits: CBO. The Congressional Budget Office on Tuesday said Senate-passed legislation to avert the "fiscal cliff" would add nearly $4 trillion to federal deficits over a decade, largely because it would extend low tax rates for almost all Americans. The congressional scorekeeper's analysis was released as a number of Republicans in the House of Representatives voiced opposition to the bill, and considered amending it with deeper spending cuts. House Majority Leader Eric Cantor and others complained the bill's spending cuts would do little to curb trillion-dollar deficits.

Financial Times:

• US regulators – with long arms. Miscreants in far-flung corners of the globe dread the US military’s unmanned drones. European banks with US links, meanwhile, live in dread of Uncle Sam’s regulators.

• Small US fiscal cliff deal will deliver more subpar growth. The crucial thing about the $600bn-plus tax increases and spending cuts that were scheduled to come into force on January 1 is that the US economy was actually facing two cliffs, not one.

Telegraph:

• Europe to Intervene on U.K. Bank Accounting Rules. EU Commissioner Michel Barnier sanctions review of IFRS to start early this year, citing a letter from Barnier's cabinet to investors who demanded the inquiry.

• Goldman Sachs(GS) chief Lloyds Blankfein cashes in $4m of shares. Goldman Sachs chief executive Lloyd Blankfein and departing chief financial officer David Viniar both exercised restricted stock units on New Year's Eve that delivered them $4.2m in cash apiece.

• Japan plans 'nationalisation' of factories to save industry. Japan's government is to take the unprecedented step of buying factories and machinery directly with taxpayer funds, the latest in a series of radical steps to lift the country out of its deep slump. Premier Shenzo Abe is to spend up to one trillion yen (£7.1bn) buying plant in the electronics, equipment, and carbon fibre industries to force the pace of investment, according to Nikkei news. The disclosure came just a day after Mr Abe vowed to revive Japan's nuclear industry with a fresh generation of reactors, insisting that they would be "completely different" from the Fukishima Daiichi technology.

Guardian:

• The U.K. economy may stall with little or no growth in 2013, citing the Institute for Public Policy Research. The Institute says consumer and business morale has been dampened by talk of years of austerity and the crisis in the euro-region.

Bild:

• Economy Minister Philipp Roesler says German economic growth may slow further in 2013, citing an interview. "2013 won't be an easy year for our economy," he said.

Evening Recommendations 

• None of note

Night Trading

• Asian equity indices are -.25% to +1.25% on average.

• Asia Ex-Japan Investment Grade CDS Index 113.25 +.75 basis point.

• Asia Pacific Sovereign CDS Index 85.75 -2.5 basis points.

• FTSE-100 futures n/a.

• S&P 500 futures n/a.

• NASDAQ 100 futures n/a.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note

Economic Releases
8:58 am EST

• Final Markit US PMI for December is estimated to rise to 53.6 versus a prior estimate of 52.8.

10:00 am EST  

• Construction Spending for November is estimated to rise +.6% versus a +1.4% gain in October.

• ISM Manufacturing for December is estimated to rise to 50.4 versus a reading of 49.5 in November.

• ISM Prices Paid for December is estimated to fall to 50.8 versus 52.5 in November.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The US fiscal cliff negotiations, Eurozone Manufacturing PMI, UK Manufacturing PMI and the weekly retail sales reports could also impact trading today.

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