Bear Radar

Style Underperformer:

• Mid-Cap Growth (-.26%)

Sector Underperformers:

• 1) Education -1.42% 2) Disk Drives -.93% 3) Biotech -.47%

Stocks Falling on Unusual Volume:

• MELI
  

Stocks With Unusual Put Option Activity:

• 1) SVNT 2) IOC 3) REE 4) MBI 5) RIG
  

Stocks With Most Negative News Mentions:

• 1) CBS 2) GPS 3) DGX 4) ODFL 5) FDML
  

Bull Radar

Style Outperformer:

• Mid-Cap Value (+.18%)

Sector Outperformers:

• 1) Gaming +1.36% 2) Gold +1.06% 3) Agriculture +.46%

Stocks Rising on Unusual Volume:

• USMO, GIB, IMAX, SCOK, AFOP, ENSG, CH, MBI, SQM, GIB, CSS, MPR and APC
  

Stocks With Unusual Call Option Activity:

• 1) IMAX 2) WM 3) SVNT 4) MBI 5) XME
  

Stocks With Most Positive News Mentions:

• 1) JCI 2) TMK 3) CVS 4) GOOG 5) VZ
  

Friday Watch

Evening Headlines
Bloomberg:

• Corporate Bonds Signal Recovery as Junk Leads. Corporate bonds capped their best two-year global performance ever as signs of an accelerating U.S. recovery outweighed concern the European Union will fail to contain its fiscal crisis. Company debt returned 7.1 percent this year, following a record 16.3 percent in 2009, according to Bank of America Merrill Lynch index data. Bonds issued by the neediest borrowers led the rally, with junk-rated debt in the U.S. gaining 15 percent in 2010. “Corporate balance sheets are exceptionally strong,” said Mark Kiesel, the global head of corporate bond portfolio management at Newport Beach, California-based Pimco, manager of the world’s biggest bond fund. “That’s been the story of 2009 and 2010, the amazing deleveraging of corporate America and the free-cash-flow generation.” The extra-yield investors demand to own speculative-grade debt instead of Treasuries narrowed 107 basis points this year to 532 basis points, following a record 11.73 percentage points of tightening in 2009, Bank of America Merrill Lynch data show.
• PIMCO to Pay $92 Million to Settle Futures Lawsuit. Pacific Investment Management Co., manager of the world’s biggest bond fund, agreed to pay $92 million to settle a private class action lawsuit that accused it of manipulating the price of Treasury futures contracts. Pimco, which manages about $1.2 trillion, was accused of cornering the market for contracts on the 10-year notes in May and June 2005 on the Chicago Board of Trade. The lawsuit, which sought as much as $600 million in damages, alleged that Pimco used its holdings to drive up the price for traders who had sold the securities short, betting they would fall.
• New Drug Approvals Fall in 2010 as Safety Concerns Slow U.S. FDA Decisions. Twenty-one new drugs were approved in the U.S. this year, the fewest since 2007, as the Food and Drug Administration showed more willingness to delay or reject medicines with potential safety risks. The tally, compiled by Bloomberg from an FDA database, compares with 25 approvals last year and 24 in 2008, according to the FDA’s website. Nineteen new drugs were cleared in 2007, the fewest in 24 years.
• China Ministries to Assess Foreign Property Investments, China Daily Says. China’s housing ministry will regularly assess foreign capital’s entry into the property market with the Ministry of Commerce and the nation’s currency regulator, the China Daily reported, citing unidentified industry people. China will enhance regulation of foreign institutions’ investment in the country’s property market and home purchases by non-Chinese citizens as part of its efforts to curb the inflow of hot money and tightening of the real estate sector, the China Daily reported, citing Jiang Weixin, minister of Housing and Urban-Rural Development.
• China's Stocks Rise, Paring World's Worst Annual Loss in 2010. The Shanghai gauge’s advance for a third day narrowed its decline for the year to 15 percent, the worst performer among the 14 biggest world benchmark indexes, according to data compiled by Bloomberg. A measure tracking property developers, brokerages and banks in the CSI 300 Index fell 28 percent this year, the most among the 10 industry groups.
• Bloomberg's North Says Dodd-Frank Creates 122 New Panels: Video.
  

Wall Street Journal:

• Bumpy Climb for Stocks in 2010. Investors Endured a Year of Wobbles and Worries, but Market Rewarded Them. Stocks turned in another solid year, the Dow Jones Industrial Average gaining nearly 11% and the Nasdaq doing better still.
• Housing Pain Pits Neighbor Against Neighbor in Florida. Few things agitate Sid Schulman, who often shoots the breeze with other retirees and flirts with women friends at their condominium complex here. But it galls him when neighbors stop paying their mortgages and maintenance fees, and leave the cost of community upkeep to others.
• Retailers Swipe at Credit-Card Plan. Fed Rule Would Restrict Credit Cards for Some Consumers; Women's Rights Issue. The Credit Card Act signed into law last year was supposed to stop financial institutions from sleazy antics. But instead, some retailers say, it may restrict stay-at-home moms. Dress Barn Inc., Home Depot Inc., Citigroup Inc. and other companies are urging the Federal Reserve to drop a proposed rule that would require credit-card issuers to consider only a borrower's "independent" income rather than household income. The new standard, which would apply to new credit-card accounts and requests to increase limits on existing accounts, could make it difficult for some customers to get credit on the spot, especially stay-at-home moms.
• China Ministry Blacklists 18 Developers For Leaving Land Idle.
  

CNBC:

• Should Cash-Strapped States Be Allowed to Declare Bankruptcy?
• Wall Street Strategists: Commodity Bull to End in 2011.
• Insider Alert: Gap(GPS) Co-Founder Dumps $147 Million in Stock.
  

MarketWatch:

• China Clamps Down on Internet-Phone Use: Report. Chinese regulators are clamping down on Internet telephony that isn't provided by one of the country's two state-owned telecommunications companies, a move that could make services like Skype SA unavailable in the world's most populous country, according to a report in The People's Daily on Thursday.

IBD:

• Wave of Tablets Could Give Chipmaker ARM a Hand. At next week's Consumer Electronics Show, Microsoft (MSFT) is widely expected to announce its own tablet operating system to compete with Apple's (AAPL) iPad and other products that run on Google's (GOOG) Android operating system. Who might win in that fight? ARM Holdings (ARMH).

Forbes:

• The Poverty of Ambition: Why The West Is Losing To China and India.

CNN Money:

• Google(GOOG): Your New Phone Carrier? Google has assembled all the pieces it needs to be a mobile provider like Verizon, AT&T (T, Fortune 500) or Sprint (S, Fortune 500).

USA Today:

• Investors Are Beginning to Turn Away From Bonds, Embrace Stocks. It appears investors are beginning to get comfortable with risk again. Not only are they pulling money out of bond mutual funds at the fastest pace in two years, but they're slowly starting to embrace stocks again.
• Skype Adds Video-Calling to iPhone App. Internet phone company Skype is bringing live video calls to iPhone and iPad screens in an aggressive bid to cash in on the popular devices and build momentum for its imminent public stock offering.
• Medicare to Swell With Baby Boomer Onslaught. Baby Boomers are about to create a record population explosion in the nation's health care program for seniors. Starting on Saturday, Baby Boomers begin turning 65 and qualifying for Medicare — one every eight seconds. A record 2.8 million will qualify in 2011, rising to 4.2 million a year by 2030, projections show. In all, the government expects 76 million Boomers will age on to Medicare. Even factoring in deaths over that period, the program will grow from 47 million today to 80 million in 2030. At the same time, health care costs are projected to outpace inflation, and medical advances will extend lives, straining the program's finances. It's expected to cost $929 billion by 2020, an 80% increase over 10 years. The prospect of a growing senior population that's living longer and costing more is the biggest fiscal problem facing the government, budget and health experts say. It will put more pressure on President Obama and Congress to reduce Medicare benefits, increase co-payments or raise the qualifying age. "We're at the beginning of the age wave, which will bring a tsunami of spending associated with the Medicare program," says David Walker, a former U.S. comptroller general now heading the Comeback America Initiative, a fiscal watchdog group. "It serves to reinforce the need to reform existing entitlement programs and restructure existing health care promises in order to make them affordable and sustainable."

China Securities Journal:

• China's first round of rare earth export quotas for next year were actually cut by about half from first round quotas for 2010, citing an official.

Evening Recommendations

• None of note

Night Trading

• Asian equity indices are -.50% to +.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 103.0 -1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 103.0 -.5 basis point.
  
• S&P 500 futures +.04%
  
• NASDAQ 100 futures +.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• None of note
  

Economic Releases

• None of note

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Bloomberg FCI Monthly could also impact trading today.
  

BOTTOM LINE: Asian indices are mostly higher, boosted by financial and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.

Stocks Slightly Lower into Final Hour on Profit-Taking, China Inflation Worries, European Equity Weakness

Broad Market Tone:

• Advance/Decline Line: Higher
  
• Sector Performance: Most Sectors Rising
  
• Volume: Light
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.58 +1.74%
  
• ISE Sentiment Index 98.0 -9.26%
  
• Total Put/Call .69 -10.39%
  
• NYSE Arms 1.01 -2.76%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 85.15 -.36%
  
• European Financial Sector CDS Index 159.19 bps +4.16%
  
• Western Europe Sovereign Debt CDS Index 204.83 bps +1.28%
  
• Emerging Market CDS Index 200.21 -1.68%
  
• 2-Year Swap Spread 19.0 unch.
  
• TED Spread 19.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .11% -1 bp
  
• Yield Curve 271.0 +1 bp
  
• China Import Iron Ore Spot $170.10/Metric Tonne -.06%
  
• Citi US Economic Surprise Index +14.70 +8.4 points
  
• 10-Year TIPS Spread 2.29% +1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -28 open in Japan
• DAX Futures: Indicating +13 open in Germany

Portfolio:

• Slightly Higher: On gains in my Tech, Retail and Ag long positions
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades just slightly lower despite recent stock gains, rising euro sovereign debt angst, weakness in European equities and China inflation worries. On the positive side, Education, Hospital, Disk Drive, Steel, Ag and Coal shares are especially strong, rising more than 1.0%. Small-Caps are also outperforming. Oil is lower despite a year-end short-covering rally in the euro and better US economic data. Moreover, the 10-year yield is stable despite the better economic data. Copper is rising another +1.46%. The AAII % Bulls fell to 51.61 this week, while the % Bears rose to 20.05, which is also a positive. On the negative side, Tobacco shares are under mild pressure, falling more than .5%. The Greece sovereign cds is climbing +2.97% to 1,065.30 bps. The Euro Financial Sector CDS Index remains at the highest level since mid-June and the Western Europe Sovereign CDS Index is making another new record high, which is a big negative. The broad market continues to trade in a healthy fashion as it grinds slowly higher and then consolidates. I expect US stocks to trade mixed-to-higher into the close from current levels on seasonal strength, short-covering, technical buying, stable long-term rates, more economic optimism, buyout speculation and investment manager performance angst.

Today's Headlines

Bloomberg:

• Business Activity in U.S. Grows at Fastest Pace in Two Decades. Businesses in the U.S. expanded in December at the fastest pace in two decades, adding to evidence the world’s largest economy is accelerating heading into 2011. The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 68.6 this month, exceeding the most optimistic forecast of economists surveyed by Bloomberg News and the highest level since July 1988. “The economy is gathering momentum,” John Silvia, chief economist at Wells Fargo Securities Inc. in Charlotte, North Carolina, said in an interview on Bloomberg Television. “New orders will follow the better business confidence that is showing up. Once the American consumer starts kicking in, we will see stronger orders data.” The median forecast of 49 economists surveyed by Bloomberg News projected the gauge would fall to 61. The Chicago group’s production gauge rose to 74, the highest level since October 2004, from 71.3 in November. The gauge of new orders climbed to 73.6 from 67.2. The employment measure increased to 60.2, last exceeded in April 2005, from 56.3 the prior month.
• Jobless Claims in U.S. Fall to Lowest Level Since July 2008. Initial U.S. jobless claims fell last week to the lowest level since July 2008, a sign that the labor market is improving heading into 2011. First-time filings for unemployment insurance decreased by 34,000 to 388,000 in the week ended Dec. 25, compared with the median forecast of 415,000 in a Bloomberg News survey, Labor Department figures showed today in Washington. There were no special factors behind the drop, an official at the agency said as the data were released. The four-week moving average, a less-volatile measure, dropped to 414,000 last week, the lowest since July 26, 2008, from 426,500, today’s data showed. The number of people continuing to receive jobless benefits rose by 57,000 in the week ended Dec. 18 to 4.13 million. The continuing claims figure does not include the number of Americans receiving extended benefits under federal programs. The unemployment rate among people eligible for benefits rose to 3.3 percent in the week ended Dec. 18, from 3.2 percent in the prior week, today’s report showed. Thirty-three states and territories reported an increase in claims, while 20 reported a decline.
• MBIA(MBI) Climbs Most in Two Months as It May Resume Coverage of Municipal Debt. Bond insurer MBIA Inc. gained the most in more than two months after a court development raised prospects it may resume guaranteeing city and state debt. The company has held off insuring municipal bonds because of a 2009 lawsuit by Bank of America Corp., JPMorgan Chase & Co., UBS AG and 15 of the world’s largest financial companies challenging MBIA’s decision to separate its municipal bond insurance business from its structured-finance guarantees. JPMorgan and Barclay’s are now withdrawing from the litigation. “There is going to be a market for public finance insurance and if the split is upheld, I think the market would invest in a pure municipal finance insurer,” Brian Charles, an analyst with R.W. Pressprich & Co. in New York, said in a telephone interview.
• Crude Oil Falls the Most in Six Weeks as Supplies Drop Less Than Estimated. Futures retreated below $90 a barrel for the first time in more than a week after supplies decreased 1.26 million barrels to 339.4 million in the seven days ended Dec. 24, the Energy Department said today. Stockpiles of distillate fuel, a category that includes heating oil and diesel, unexpectedly increased. “Two out of the three headline numbers were bearish, and that’s what’s dominating the trade here,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. Crude oil for February delivery fell $2, or 2.2 percent, to $89.12 a barrel at 12:22 p.m. on the New York Mercantile Exchange.
• Copper Futures Climb to Record After Data Showing Growth in China, U.S. Copper climbed to records in New York and London after U.S. businesses grew at the fastest pace in two decades and Chinese manufacturing expanded, signaling robust demand.
• China Officials Shared Concerns About Asset Bubbles With U.S. Chinese officials shared concerns about growing asset bubbles in their nation’s economy in meetings in January with the U.S., according to American diplomatic cables released by Wikileaks. “On an overheating economy, Vice Minister Liu He pointed to asset bubbles as a potential problem for China’s recovery,” said the unclassified cable dated Feb. 10 from the U.S. Embassy in Beijing and posted by Wikileaks on Dec. 26. Liu, a senior adviser who works with the Central Leading Group on Financial and Economic Affairs, “did not yet see the problem as serious” while also noting that people were withdrawing money from banks to invest in assets, the cable said.
• U.S. Consumer Spending May Prompt Acceleration in Mergers. U.S. consumers put the brakes on dealmaking in 2010. They may be the accelerator next year. Chief executives maintained record levels of cash this year as the recession-weary consumer fueled doubts about an economic recovery. While mergers and acquisitions topped $2 trillion in 2010 -- the first increase in three years -- the amount failed to approach 2007’s $4 trillion peak in global takeovers. Shoppers may help bring 2011 closer to that total. Holiday sales jumped 5.5 percent in the U.S., the best performance in five years, on purchases of clothing and jewelry, according to MasterCard Advisors’ SpendingPulse. As spending rises, companies are more optimistic and willing to take on risk, according to Joseph Gromek, chief executive officer of New York-based Warnaco Group Inc., owner of the Calvin Klein and Speedo brands. “There will be a very aggressive approach,” Gromek said. “The companies that have strong balance sheets with lots of cash on hand will try to be as opportunistic as possible."
• Rousseff Is No Lula as Brazil Stock Index Slumps in Runup to Inauguration. Brazil’s President-elect Dilma Rousseff, faced with the highest inflation in 23 months and a growing budget deficit, is failing to convince investors that she can match her mentor Luiz Inacio Lula da Silva’s record for spurring economic growth. The Bovespa index of most-traded stocks has fallen 2.4 percent since Rousseff was elected Brazil’s first female president Oct. 31 and yesterday, as traders stepped up bets the central bank will raise interest rates next year to keep consumer prices in check. The index gained 0.5 percent this year through yesterday, heading toward its worst-ever annual performance when measured against the MSCI Emerging Markets index, which has risen 15 percent.

Wall Street Journal:

• Bank Failures at Highest Level Since 1992. More banks failed in 2010 than any year since the savings-and-loan crisis ended in 1992, but regulators said Wednesday that they believe failures have passed their peak.
• Illinois Politicians Studying Derivatives On State's Debt. Illinois politicians are reviewing whether to follow in California's footsteps by forcing its bond underwriters to disclose what credit derivatives they have entered into on the state's debt. Staff members working for Illinois House of Representatives Speaker Michael Madigan reached out to California officials on Wednesday for information about how the Golden State has gone about improving disclosures relating to credit default swaps on its own state debt. Hedge funds are increasingly using municipal CDS to speculate on the likelihood of state defaults rather than as legitimate risk mitigation tools.

CNBC:

• Average Rate on 30-Year Mortgage Up to 4.86%.
• December US Auto Sales to Bode Well for 2011: Analysts.
  

Business Insider:

• 17 Statistics That Prove We Have Sold Our Grandchildren Into Perpetual Debt Slavery.
• Pension "Armageddon" Hits Pittsburgh As State Threatens Takeover of City's Plan.
• Chinese Pro-Democracy Activist Explains How Inflation Will Cause The Collapse Of The Regime. Everyone recognizes the economic dangers of inflation in China. But the black swan in the room is regime change. Prominent democracy activist Wei Jingsheng says China's inflationary policies are causing social pressures that will lead to the collapse of the regime.
• Why Apple(AAPL) Will Be The First Company to Reach a Trillion Dollar Market Cap.
• Meet The Hundreds of NYC Sanitation Workers Who Earn Over $100,000.
  
  New York City sanitation bosses think they've got it so bad that they intentionally delayed snow-removal, according to the NY Post. So how bad have they got it? City workers enjoyed steady employment through the recession, killer benefits and a generous pension package. Then there's the pay. 315 sanitation workers earned over $100,000 in 2009, according to SeeThroughNY. The top guy, John Doherty, earned $205,180. There are also perks that come with the job. While delaying clean-up for the city, sanitation workers promptly plowed the street in front of Doherty's Staten Island home, according to the Daily News.
• Julian Assange Threatens to Name Arab Leaders With CIA Ties.
  

Zero Hedge:

• Why Does Brian Sack Interact With Goldman's(GS) "FX Committee"? Following the release of Bill Dudley's daily schedules from the beginning of 2009, through September 30, 2010, there have been some amusing, if not very surprising, disclosures.

New York Post:

• Hedges Clipped. The normally boisterous and upbeat hedge fund crowd is limping into 2011 bearing the heavy weight of lackluster performance and an ominous insider-trading probe -- leading some industry watchers to wonder if the new year could be marred by another round of fund closures. In 2010, the number of hedge funds to close their doors permanently declined 32 percent to just 585 firms through the end of the third quarter, according to fund tracking outfit Hedge Fund Research. But fund watchers say the recent downturn in closures may just represent a lull in the storm. In terms of performance, the hedge fund industry -- which prides itself on being smarter than the Average Joe and charging clients 2 percent management fees and 20 percent on the profit -- struggled to eke out superior returns this year, leading the average hedge fund to close 2010 up a mere 7.5 percent, according to Hedge Fund Research. That's below returns for average stock market indexes like the S&P 500, which is up 13 percent this year.
  

New York Times:

• New York Growing as a Base for Tech Companies. In the first three quarters of 2010 compared with a year earlier, the number of venture capital deals grew more than three times faster in the city than it did in Silicon Valley.

LA Times:

• Amazon(AMZN) Patents System to Stop Bad Gifts. Amazon.com has been awarded a patent for an online system that would give users the ability to exchange unwanted gifts before receiving them. The technology could prevent the shipment of thousands of superfluous ties to fathers, ugly sweaters to grandchildren and various other lackluster presents that are currently being bought and shipped through the online retail giant.

Forbes:

• Obama's New 'Unreasonable' Standard. Last week we saw a troubling new pattern: The Obama administration is embracing an “unreasonable” standard — pun not necessarily intended, but it fits — for deciding if it likes what private sector companies are doing. The unreasonable standard is being applied to both private sector health insurers and companies that provide Internet service. But expect the White House to impose the standard on a lot more industries as the Obama blob continues to absorb every aspect of the economy. What it means is that we are abandoning the rule of law for the rule by bureaucrats. Unelected officials have been given the power to fundamentally remake industries based on their political and value judgments.

The Detroit News:

• Ford(F) Offers Smartphone Traffic App That Syncs With Sync. A new smartphone app is available for owners of 2010 and 2011 Ford Motor Co. vehicles equipped with the Sync system offering traffic and navigation information. Ford launched the free mobile app today that works with Apple and Android-based devices. Blackberry smartphones will be able to use the app in the near future, the automaker said.

Reuters:

• U.S. Losing IPO Pole Position: Survey. The United States is losing its appeal as leading global center for stock market flotations, hit by restrictive regulations and competition from other financial centers, a survey of American lawyers showed on Thursday. Just over 70 percent of a 50-strong sample of transaction attorneys, whose firms advised on three-quarters of initial public offerings (IPO) listed on major U.S. exchanges this year, said the country is losing its attraction as IPO venue of choice. "The simple fact is that as the U.S. regulatory environment has become more restrictive, other global exchanges have become more sophisticated and liquid and therefore have gained market share," said Joshua Ford Bonnie, a partner at Simpson Thacher & Bartlett.

AP:

• Ex-Car Czar Rattner Settles NY Probe for $10M. The investment banker who helped lead the Obama administration's auto industry overhaul has agreed to pay $10 million to settle influence-peddling allegations in New York. Former "car czar" Steven Rattner admitted no wrongdoing as part of the deal, which was announced by state Attorney General Andrew Cuomo on Thursday. Cuomo's office had filed civil lawsuits against Rattner in November, accusing him of paying kickbacks to help his company land $150 million in state pension fund investments. He denied the charges. The attorney general had initially sought $26 million in fines and penalties and a lifetime ban from the securities industry. The settlement announced Thursday only bars Rattner from doing business with any public pension fund in the state for five years.

MailOnline:

• Kloppers Back on the Bid Trail. Speculation now suggests that BHP Billiton(BHP) is lining up a $90 a share cash offer for Anadarko Petroleum(APC), one of the world's largest independent oil and gas exploration companies, which also has coal and industrial mineral mines interests. Strongly supported of late, Anadarko's share price advanced $1.02 to $70.18 in active early trading on Wall Street yesterday.

Der Spiegel:

• Chancellor Angela Merkel's government is drawing up a plan for a future euro-region bailout mechanism that includes mandatory "debt brakes" in countries seeking aid.

Imerisia:

• Greece's Finance Ministry is considering a new state-backed guarantee package for the country's banks worth as much as $26.5 billion. The package is being examined to avoid any possibility of systemic risk and liquidity problems in the event rating services proceed with downgrading Greek sovereign and bank debt instruments. Any downgrade may lead to a higher so-called haircut for Greek government bonds that banks use as collateral for liquidity lines at the ECB.

Kathimerini:

• Bad loans at Greek banks in 2011 are likely to exceed $41 Billion, or 12% of total loans, up from 10% this year, citing bank officials. The deterioration is probable because of falling household and business incomes, amid recession and rising unemployment. This year's bad loans ratio for households alone is likely to be about 20%, up from 16.7% at the end of June.