Today's Headlines

Bloomberg:

• Iran Rejects Western Criticism, Says Opposition Issue an Internal Affair. Iran’s Foreign Ministry said issues relating to the country’s opposition are “internal affairs” and rejected Western criticism after the reported arrests of two prominent dissidents. “These are internal affairs and no country has the right to interfere,” Ramin Mehmanparast, a ministry spokesman, told journalists in Tehran today. His comments were aired live by state television’s news channel. He was replying to a question about the reported arrests of opposition leaders Mir-Hossein Mousavi and Mehdi Karrubi. Mehmanparast, who didn’t mention the two men’s whereabouts, spoke before a planned opposition march in Tehran later today to protest the arrests.
• Iran Arms Proxies to Destabilize Middle East, Mattis Says. Iran’s nuclear weapons ambitions and arming of proxy fighters still represent the “greatest long- term challenge” in the Middle East, the top U.S. commander for the region says. Iran, after four rounds of United Nations sanctions, still “appears determined to mature its nuclear weapons program -- an ambition that could lead to the proliferation of illicit nuclear materials and spark a nuclear arms race in the region,” Marine Corps General James Mattis, who leads the U.S. Central Command, said in testimony today to the Senate Armed Services Committee.
• Saudi Stocks Slump Most Since 2008 on Concern Unrest to Spread. Saudi Arabia’s benchmark stock index plunged the most since November 2008 and entered bear-market territory on concern political unrest in the Middle East may spread to the kingdom. Al-Rajhi Bank fell to the lowest in a year and Saudi Basic Industries Corp., the world’s biggest petrochemicals maker, tumbled 7.8 percent. Saudi Arabia’s Tadawul All Share Index slumped 6.8 percent to 5,538.72 at the 3:30 p.m. close in Riyadh. The measure has lost 20 percent since reaching its 2010 high, the common definition of a bear market. Credit-default swaps linked to Saudi Arabia, used as a measure of confidence although they reference no debt, rose 4 basis points to 140, according to CMA prices in London. “Performance in Saudi exemplifies that geo-political risk still remains unresolved within the region,” said Omair Ansari, equity strategist at Gulfmena Alternative Investments in Dubai. Markets will continue to capitulate due to the inability to price in top-down risk.” Political turmoil in the region has spread to the Persian Gulf, with protests erupting in Oman and Bahrain inspired by popular uprisings that toppled leaders in Tunisia and Egypt. Websites have called for a nationwide Saudi “Day of Rage” on March 11 and March 20, Human Rights Watch said in a statement yesterday.
• Libyan Rebels Face Pro-Qaddafi Army as No-Fly Zone Planned. Libyan rebels braced for possible renewed clashes with forces loyal to leader Muammar Qaddafi, who is attempting to regain control of major cities after the U.S. and European nations began planning for a no-fly zone. Armed rebels in Zawiyah, 28 miles (45 kilometers) west of Tripoli, the capital, were stationed at the entrances to the city after repelling an attack by pro-Qaddafi fighters overnight, Ibrahim al-Hajj, a 58-year-old resident, said by telephone. Many were armed with machine guns and rocket- propelled grenades taken from weapons depots, said Belgassem al- Zawee, a 50-year-old protester in the city.
• Crude Oil Advances From a One-Week Low as Supply Concern Extends to Iran. Oil rose from the lowest price in a week as unrest in the Middle East threatened to spread from Libya to Iran, OPEC’s second-largest oil producer. Crude jumped as much as 1.9 percent after Iran arrested opposition leaders to derail demonstrations scheduled for today. “The focus has shifted to another country as we’ve seen problems arise in Iran with opposition leaders being relocated to prison,” said Matt Smith, a commodities analyst for Summit Energy in Louisville, Kentucky. “With the potential for negative developments in so many countries, we’re starting to see the risk premium return for crude after yesterday’s selloff.” Oil for April delivery rose $1.72, or 1.8 percent, to $98.69 a barrel at 10:55 a.m. on the New York Mercantile Exchange.
• ISM Index of U.S. Manufacturing Rose to 61.4 in February. Manufacturing in the U.S. grew in February at the fastest pace in almost seven years, driven by gains in orders, employment and exports that signal factories will continue to propel the expansion. The Institute for Supply Management’s factory index increased to 61.4, exceeding the median forecast of economists surveyed by Bloomberg News and the highest level since May 2004, the Tempe, Arizona-based group said today. The ISM’s order gauge climbed to the highest level since January 2004 and its employment measure reached a 38-year high, today’s report showed. Exports accelerated at the fastest pace since December 1988, and the gauge of prices paid increased to a seven-year high.
• China Says Police 'Properly Handled' Reporters at Protest Who Broke Rules. China’s Foreign Ministry said some journalists at the site of a planned protest in Beijing on Feb. 27 had broken reporting rules, disrupting “normal order,” and that police “properly handled” the situation. Several journalists said they were forcibly removed and detained without explanation as they tried to report from Wangfujing Street on protests called to demand an end to corruption and misrule. A Bloomberg News reporter was beaten by at least five plain-clothes men in front of uniformed police. Hundreds of uniformed police including paramilitary units, squads of dogs, and at least 100 vehicles, patrolled Wangfujing Street on Feb. 27. Three water trucks drove up and down the pedestrian-only thoroughfare, spraying water and soap on the road as police ushered crowds to the sidewalks. U.S. Ambassador Jon Huntsman yesterday said the illegal detention and harassment of foreign journalists in Beijing was “unacceptable and deeply disturbing.” The European Union’s delegation to China said it was “troubled” by accounts of physical intimidation or assault from journalists.
• Goldman Sachs(GS) Lost Money From Trading on 25 Days in 2010. Goldman Sachs Group Inc., the fifth- biggest U.S. bank by assets, lost money from trading on 25 days during 2010, up from a record-low 19 days in 2009, according to a regulatory filing. After incurring losses on trades during 12 days in the first 9 months, the full-year figures indicate that Goldman Sachs lost money on 13 days in the fourth quarter. The firm’s traders also made $100 million or more on 68 days in 2010, down from the record 131 days in 2009, according to the New York- based company’s annual 10-K filing with the Securities and Exchange Commission.
• SEC Says Ex-Goldman(GS) Director Gupta Tipped Rajaratnam. Rajat K. Gupta, a former Goldman Sachs Group Inc. board member, was sued by U.S. regulators on claims he passed inside information to Galleon Group founder Raj Rajaratnam ahead of deals including Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs Group Inc. Gupta also tipped Rajaratnam on quarterly earnings at Goldman Sachs and Procter & Gamble Co., where he also served as a board member, according to a Securities and Exchange Commission administrative order filed today. Rajaratnam and others made more than $18 million trading on the tips, the SEC said.
• Feldstein Says U.S. Economy Has Slowed as Consumers Cut Back. Harvard University economics professor Martin Feldstein said the U.S. economy has cooled at the start of this year as consumers cut back on spending amid higher gas prices and a decline in housing wealth. “There is a mixed picture now in terms of how much the economy is on track,” Feldstein said in an interview on Bloomberg Television’s “InBusiness With Margaret Brennan.” Growth “started slowing down toward the end of the fourth quarter. The January numbers are not very good at all.”
• Health Overhaul May Raise States' Costs by $118 Billion, Republicans Say. The U.S. health-care law will cost states almost double the amount that congressional auditors estimate, Republican lawmakers said. Representative Fred Upton, a Michigan Republican who is chairman of the House Energy and Commerce Committee, said in prepared statements before a hearing today that states estimate the overhaul signed by President Barack Obama last year will increase health expenditures by about $118 billion through 2023. The Congressional Budget Office, the chamber’s accounting arm, has estimated the law would cost states about $60 billion. The additional expense stems mainly from an expansion of Medicaid under the law. The chief actuary for the Centers for Medicare and Medicaid Services, which supervises the program, has said the expansion may add 20 million Americans to Medicaid rolls starting in 2014. The law is “onerous and unsustainable” for states, Upton said in a statement prepared for the hearing to examine Medicaid’s effect on state budgets.
• Cotton Soars as China Use Tightens World Supply. Cotton surged by the daily limit for a third straight session in New York on concern that global supplies are failing to keep pace with demand from China, the biggest consumer. Cotton for May delivery surged the exchange limit of 7 cents, or 3.7 percent, to $1.9823 a pound as of 9:55 a.m. in New York. Prices, up 12 percent since Feb. 24, reached a record $2.0893 on Feb. 18.
• Gold Futures Approach Record High on Libyan Unrest; Silver Extends Rally. Gold climbed close to a record as unrest in Libya spurred demand for the metal as an investment haven. Silver advanced to the highest since 1980. Libya’s opposition gained support from the U.S. and European nations as leader Muammar Qaddafi sent forces to regain lost territory. Protests have spread in the Middle East and North Africa, partly because food prices have soared. Crude oil in New York topped $100 a barrel last week. Gold was up for the 10th time in 11 sessions. “The continued violence in the Middle East is bringing in new buyers and spurring gold to new territory,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “The rush to economic health is fading. Crude above $100 is an energy tax that will force governments to put more money into the system. Our old fear of stagflation returns.”

Wall Street Journal:

• Yemeni President Says U.S. Behind Unrest. Yemeni President Ali Abdullah Saleh accused U.S. President Barack Obama of fomenting unrest in the Arab world, in a speech on a university campus here, as around 10,000 protesters nearby called for his resignation. Mr. Saleh told his audience of around 500 students and academics that he would "reveal a secret" that there is an "operations room in Tel Aviv with the aim of destabilizing the Arab world." He said the White House ran the operations room. The U.S. has viewed Mr. Saleh as a key counterterrorism ally, and has given his government millions of dollars in military aid.
• Overcapacity Weighs on Europe's Auto Makers. Europe's auto industry suffers from excess manufacturing capacity and is unlikely to see relief anytime soon, the head of Ford Motor Co.'s(F) European operations said on Monday. Few European auto plants were closed during auto industry's deep downturn in 2009 and 2010, a contrast to North America where the industry was overhauled, in large part because of the bankruptcy-court restructurings at General Motors Co. and Chrysler Group LLC.
• India Insists on BlackBerry Monitoring. India Tuesday reiterated that companies that offer encrypted communication services will have to allow monitoring of such services by security agencies if they want to operate in the country.
• Highbridge's Asia Chief Departs. The head of Highbridge Capital Management's Asia investments is leaving the multibillion-dollar hedge-fund firm owned by J.P. Morgan Chase & Co., say people familiar with the matter.
• Fifth Third(FITB) CFO: Specific Nature of SEC Probe Remains Unclear.
  

CNBC.com:

• Cost of Fed Actions Starting to Offset Benefits: El-Erian.
• Obama Move to the Center is All Talk So Far: Welch. President Obama's attempts to move to the political center have been more cosmetic than concrete, author and former General Electric CEO Jack Welch told CNBC.
• Ford(F), GM(GM), Chrysler Sales Rise as Industry Recovers.
• Oil Jumps Despite Denial of Saudi Tanks in Bahrain.
  

Business Insider:

• This Pentagon-Sponsored Report Claims Financial Terrorists Have Completed Two of Three Steps to Destroy The US Economy. Well, we'll just state up front that we don't buy this, but since US tax dollars payed for it, you should know it exists.
• 10 Questions Bernanke Must Answer. I think there are some very serious questions that the citizens of this nation deserve answers to. The following is what I would ask if I were allowed to sit on the panel:
• Irish Hopes of Debt Relief Probably Doomed. The Financial Times reports that "sentiment in some European capitals has turned against renegotiating Dublin’s €85bn bail-out package, casting into doubt the incoming Irish government’s push to ease the repayment terms." The report continues:
• Public Employees Paid More Than Private Workers in 41 States. Public employees in 41 states earn higher average pay and benefits than private workers in the same state, a USA TODAY analysis finds. The analysis of government data found "that public employees' compensation has grown faster than the earnings of private workers since 2000. Primary cause: the rising value of benefits." Among the findings of the USA Today survey:
• The Best New Business Gadgets.
• This Is For Everyone Who Thinks The Fed's Policy Is Affecting Gas Prices. (chart)
• 7 Charts That Show How Public Pensions Are Bankrupting California.
• The CIA Operative Who Shot Two Pakistanis Is Now a Hostage - Obama Needs to Resolve This Quickly.
• Map of the Day: A Big, Definitive Look at the Crisis in the Mideast.
  

Zero Hedge:

• Insiders Sell $5.4 Billion, Buy $128 Million in Stock in Month of February.

Consumer Reports:

• GM's(GM) Plug-In Hybrid Goes Gas-Free for Short Trips, But is Pricey.

TheStreet.com:

• Las Vegas Sands(LVS) Receives SEC Subpoena. Las Vegas Sands is in the red Tuesday morning, after it received a subpoena request from the Securities and Exchange Commission requesting the company provide compliance documents related to the Foreign Corrupt Practices Act. The casino giant also noted that it is the subject of an investigation by the Department of Justice.

USGS:

• Composite Indexes of Leading and Coincident Indicators of Selected Metal Industries for December and January - Summary Report.

Reuters:

• Domino's(DPZ) 2011 Food Costs Up, U.S. Sales Slowing. Domino's Pizza Inc forecast higher food costs this year as U.S. sales slow, sending shares down almost 5 percent.
• Bernanke Says Costly Oil No Threat to U.S. Economy.
  

Telegraph:

• Anger at the Banks is Justified, Mervyn King Says.The Governor of the Bank of England, Mervyn King, has expressed "surprise" that the public is not more angry with the bankers who caused the recession.

Vancouver Sun:

• China's Bank Chief Issues Warning on Excessively Fast Lending. Lending by Chinese banks has been excessively fast, topping the "extreme upper limit" set by regulators, the country's banking chief said at an internal meeting at the start of this year, a source told Reuters on Tuesday. The unusually sharp warning by Liu Mingkang, head of the China Banking Regulatory Commission, highlighted deep official unease about the threat to the Chinese financial sector and the broader economy posed by rampant credit growth. "Over the past two years, to confront the financial crisis loan growth has been abnormally explosive," he said, according to the source, who attended the meeting. "It has exceeded the extreme upper managed limits," he added, apparently referring to the lending caps that China imposes on its banks. Chinese banks issued a combined 17.5 trillion yuan ($2.7 trillion) of new local currency loans in 2009 and 2010, almost a quarter of the economy's total output during that time. The government kick-started the lending binge at the height of the global financial turmoil, when it called on banks to unleash a blast of credit to power the Chinese economy to recovery. But with growth once again soaring, it has struggled to pull credit issuance back to a more normal pace. Liu's words captured that sense of exasperation. "The scale of new loans has increased incredibly fast, even doubling, in just a short period, but the expertise and efficiency of loan officers can't have doubled at the same time," he said. Liu warned that "irrational factors" in the Chinese real estate market had increased and that credit risks were accumulating. "Banks must pay close attention to the potential impact of a sharp decline in property demand," he said. "Banks should explore ways of conducting comprehensive stress tests on real estate loans."

Shanghai Daily:

• High-Speed Railways 'Too Expensive'. CHINA should rein in the current pace of high-speed railway construction and revamp operational policies, a member of the China Public Interest Party urged yesterday. The proposal will be discussed during the upcoming national session of the Chinese People's Political Consultative Conference which begins in Beijing tomorrow. Some 10,000-plus kilometers of high-speed railways are under construction or planned at present while the service nationwide now extends to more than 7,500 kilometers. Bullet trains on the special tracks can reach speeds of 350kph and will be quicker on lines still be completed. But high-speed railway development has gone far beyond the current economic situation of Chinese society, said Wu Youying, a leader of the party's Shanghai committee. Passenger traffic is slack on many high-speed trains because fares are too expensive, she said. "But considering the large income gap between average Chinese people and residents in these countries, China's current high-speed railway service is unaffordable for ordinary people," Wu said in her proposal.

Globes:

• Broadcom(BRCM) in Talks to Buy Provigent for $300-400 Million. Marvell and Qualcomm are also interested in the systems-on-a-chip developer, chosen as "Globes" most promising Israeli start-up of 2010.

Bear Radar

Style Underperformer:

• Small-Cap Growth (-1.45%)

Sector Underperformers:

• 1) Gaming -2.73% 2) Airlines -2.55% 3) REITs -2.14%

Stocks Falling on Unusual Volume:

• OPNT, TKC, TXT, HES, HBC, UBS, SKS, MDCO, CCE, HANS, CEDC, VRSK, ECPG, TWGP, AIMC, HSFT, SODA, AVGO, ACOM, TRS, RP, FITB, MALL, DWSN, NXPI, PTNR, FSYS, OCLR, CBRL, OPEN, TNS, HXM, FDP, CUK, UPL, OMX, SCO, WES, IPG, SFY, FOE, GDOT, DGI, OSG, PHH, BRY, VNR, RCL, KWK, WRC, CCL, UIS, RRC, LVS and DPZ
  

Stocks With Unusual Put Option Activity:

• 1) HBC 2) LO 3) FITB 4) KWK 5) YOKU
  

Stocks With Most Negative News Mentions:

• 1) JOBS 2) MCY 3) TMRK 4) GS 5) AMZN

Charts:

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

Bull Radar

Style Outperformer:

• Small-Cap Value (-.38%)

Sector Outperformers:

• 1) Gold +.86% 2) Hospitals +.40% 3) Semis +.33%

Stocks Rising on Unusual Volume:

• PNM, AES, ENDP, NAK, GG, KO, OLN, AHD, SHS, MIDD, STO, ARGN, DTSI, DBLE, GSM, NTRI, EBIX, TECD, PETM, KAMN, TDSC, LSTZA, JDSU, TRGT, MTSC, SINA, FSLR, NTCT, MDSO, AIXG, SPWRA, SRZ, UHS, POL and LO
  

Stocks With Unusual Call Option Activity:

• 1) COV 2) JCG 3) HK 4) COST 5) XLE
  

Stocks With Most Positive News Mentions:

• 1) NE 2) CEVA 3) AKAM 4) TECD 5) KO

Charts:

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

Tuesday Watch

Evening Headlines
Bloomberg:

• U.S. Backs Libya Rebels as Qaddafi Says 'My People Love Me'. Libya’s opposition gained fresh support from the U.S. and European nations, who promised humanitarian aid and began planning for a no-fly zone, as leader Muammar Qaddafi declared that “my people love me” and sent forces to regain lost territory.
• JPMorgan(JPM) May Face Enforcement, Added Costs in Mortgage Probe. JPMorgan Chase & Co., the second- largest U.S. bank by assets, may face enforcement actions, fines and other added costs stemming from probes of its mortgage- servicing procedures. “The firm expects to incur additional costs and expenses in connection with its efforts to correct and enhance its mortgage foreclosure procedures,” the New York-based company said in its annual filing with the Securities and Exchange Commission yesterday. JPMorgan said it can’t predict the outcome of the federal and state investigations or the financial impact.
• Health Care REIT to Buy Genesis Real Estate Assets in $2.4 Billion Deal. Health Care REIT Inc., the third- largest U.S. health-care real estate investment trust, agreed to buy substantially all the property assets of closely held Genesis HealthCare for $2.4 billion. Health Care REIT will buy 147 post-acute, skilled nursing and assisted living properties in 11 states, the Toledo, Ohio- based company said in a statement. Genesis, of Kennett Square, Pennsylvania, will rent the properties from Health Care REIT and operate them, according to the statement.
• Oscar Viewers Fall 9.8%.
• Morgan Stanley(MS) Hacked in China-Based Attacks That Hit Google(GOOG). experienced a “very sensitive” break-in to its network by the same China-based hackers who attacked Morgan StanleyGoogle Inc.’s computers more than a year ago, according to leaked e-mails from a cyber-security company working for the bank. The e-mails from the Sacramento, California-based computer security firm HBGary Inc., which identify the first financial institution targeted in the series of attacks, said the bank considered details of the intrusion a closely guarded secret. “They were hit hard by the real Aurora attacks (not the crap in the news),” wrote Phil Wallisch, a senior security engineer at HBGary, who said he read an internal Morgan Stanley report detailing the so-called Operation Aurora attacks.
• Baidu(BIDU), Taobao Identified as 'Notorius Markets' by U.S. for Piracy. Baidu Inc. and Alibaba Group Holding Ltd.’s Taobao, China’s biggest Internet search engine and retailer, were named “notorious markets” by the U.S. Trade Representative for helping sustain piracy and counterfeiting. The two Chinese companies were among more than 30 Internet and physical markets worldwide identified by the USTR for helping the illegal sale of goods or materials protected by copyright or patents. Others on the list include the Pirate Bay file-sharing website in Sweden and the Silk Market in Beijing, according to the statement.
• RBA Keeps Rate Unchanged, Extending Pause as Inflation Eases. The Reserve Bank of Australia left its benchmark interest rate at the highest level in the developed world, saying a stronger currency and an earlier decline in wage growth are helping to contain inflation. Governor Glenn Stevens held the overnight cash rate target at 4.75 percent today, as forecast by all 25 economists surveyed by Bloomberg News. The central bank expects inflation to stay within its target range of 2 percent to 3 percent over the next year, he said in a statement in Sydney.

Wall Street Journal:

• No-Fly Zone Eyed in Libya. Col. Moammar Gadhafi went on a broad offensive Monday in a bid to shift momentum against Libya's uprising, as the White House imposed record sanctions against the embattled strongman and international leaders discussed clipping his wings by imposing a no-fly zone. Forces loyal to Col. Gadhafi attacked two opposition-held cities east of the capital of Tripoli on Monday, said witnesses and rebel army commanders. A rebel commander said Monday that government forces regained control of a seafront oil-terminal town east of Tripoli, extending eastward the government's front line against the rebels.
• Small US Firms Wants Strong Dollar, Big Firms Want It Weak. Small U.S. firms want a strong dollar while big companies prefer a weak dollar, according to a new survey published Monday. According to the survey of more than 1,200 privately owned businesses by the Pepperdine University's Graziadio School of Business and Management, 36.7% of firms with less than $5 million in annual revenue believe that a stronger dollar would be a boon to their bottom lines. More than 43% of businesses with more than $100 million in yearly revenue, however, believe that the weaker dollar is better for the economy. The report comes as Federal Reserve Chairman Ben Bernanke is scheduled to testify before Congress on monetary policy and the state of the U.S. economy. He is expected to face a grilling from lawmakers concerned about inflation and job creation, questioning the effectiveness of the Fed's loose monetary policy. Although the Fed isn't specifically targeting a weak dollar, it acknowledges that a weaker currency is a consequence of lowering rates, which can aid the U.S. economic recovery. John Paglia, lead researcher on the survey and associate finance professor at the university, said the Fed's latest round of monetary easing "has benefited large publicly traded companies at the expense of smaller privately held businesses." "Small businesses, the vast majority of which don't receive a significant amount of revenues through exporting, are losing purchasing power, which is resulting in margin compression and reduced profitability levels," he said.
• Fannie, Freddie Stuck In a Dividends Circle. For the first time since the financial crisis, Fannie Mae and Freddie Mac are showing glimmers of profitability. But the two mortgage behemoths still ask the Treasury Department every quarter for billions of dollars in cash, most of it going right back out the door to pay dividends to the same U.S. agency. The requirement that both companies pay a 10% dividend on preferred shares—which the U.S. government receives for its infusions after taking over Fannie and Freddie in 2008—costs them about $15 billion a year at the current rate. In the last two quarters, the firms have paid $7.5 billion in total dividend payments, while receiving injections of $5.7 billion to help keep them in business.
• States Mull Shift in Worker Pensions. Policy makers across the country are considering scrapping guaranteed retirement benefits for public workers in favor of 401(k)-like plans. In pursuing the switch, some state and local governments hope to shift more responsibility and risk—as well as potential reward—to employees.
• Billions in Bloat Uncovered in Beltway. The U.S. government has 15 different agencies overseeing food-safety laws, 20 separate programs to help the homeless and 80 programs for economic development. These are a few of the findings in a massive study of overlapping and duplicative programs that cost taxpayers billions of dollars each year, according to a new Government Accountability Office report to be released Tuesday.
• U.S. Confirms Parcel-Delivery Probe. The Justice Department confirmed Monday that it is conducting an investigation into possible anticompetitive behavior in the parcel-delivery market. United Parcel Service Inc.(UPS) and FedEx Corp.(FDX) both said in January that they were being investigated by the Justice Department.
• Oil's Rise Threatens Economic Growth. As unrest in Libya keeps crude prices high, the U.S., Europe and Japan might have to spend almost $200 billion more on imports of crude this year than they did in 2010, potentially threatening their economic recoveries, the International Energy Agency said. IEA chief economist Fatih Birol said in an interview that if the price of oil averages $100 a barrel this year, the U.S. would have to spend $385 billion on oil imports—nearly $80 billion more than it did last year.
• Why Koch Industries is Speaking Out by Charles G. Koch. Crony capitalism and bloated government prevent entrepreneurs from producing the products and services that make people's lives better. Years of tremendous overspending by federal, state and local governments have brought us face-to-face with an economic crisis. Federal spending will total at least $3.8 trillion this year—double what it was 10 years ago. And unlike in 2001, when there was a small federal surplus, this year's projected budget deficit is more than $1.6 trillion. Several trillions more in debt have been accumulated by state and local governments. States are looking at a combined total of more than $130 billion in budget shortfalls this year. Next year, they will be in even worse shape as most so-called stimulus payments end.
• A Union Education. What Wisconsin reveals about public workers and political power.
  

CNBC:

• China PMI Dips to 6-Month Low as Tightening Bites. Chinese manufacturing growth slowed in February to a six-month low, according to an official survey, as the government's sustained campaign to tame inflation weighed on industrial activity. But soaring global commodity costs complicated the task of monetary tightening, pushing a gauge of industrial input prices to a three-month high in China's official purchasing managers' index. The overall PMI, which is designed to provide a timely snapshot of conditions in the manufacturing sector, fell to 52.2 in February from 52.9 in January, the China Federation of Logistics and Purchasing said on Tuesday. The input prices sub-index, a measure of how much factories pay for raw materials and intermediate goods, rose to 70.1 in February from 69.3 in January.

Business Insider:

• What's The Significance of Kim Jong Un's Huge State Visit to China? A collapse in North Korea could have clear destabilizing effects on China (with which it shares a border) and there's some speculation that the two countries are moving closer back together to beat back the world's democratic wave.
• Iran Trying to Buy Nuclear Missile Technology in Norway.
  

Zero Hedge:

• A Look at the Lawsuit Against Michael Lewis, In Which We Find That Brad Pitt Has Bought the Movie Rights to "The Big Short".

IBD:

• Jabil Circuit(JBL) Rebounds From Another Tech Boom-Bust.

Forbes:

• Government Backs Futuristic Flu Shots. The U.S. government is pledging $215 million — and as much as $375 million — to two biotechnology companies working to pioneer faster, more efficient ways to make vaccines for influenza.
• JPMorgan(JPM) Admits Legal Bills Could Get Bigger, Like $4.5 Billion Bigger.

USA Today:

• iPad Makes a Splash With Businesses. The iPad tablet computer has been tested or deployed at 80% of Fortune 100 companies, according to Apple. And now the company is boosting its sales support for businesses to address that growing demand, Bloomberg News reported last week.

Reuters:

• JPMorgan(JPM) Says Tablets to Grow Into $35 Billion Market. J.P. Morgan Securities expects tablets to evolve into a $35 billion market by 2012, eating into the share of PCs, and competition to drive down premium prices. The brokerage, which nudged up its forecast for tablet unit shipment and revenue, sees steep adoption rate and increasing number of available devices driving tablet market growth. It sees tablet market growth spurred by improved operating system platforms and penetration of enterprise and education customer verticals.
• Citi(C) Could Lose $10 Billion From US Tax Change - Analyst. Citigroup Inc could write down some $5 billion to $10 billion in expected future tax benefits if the United States decreases corporate tax rates, veteran banking analyst Mike Mayo estimated on Monday.
• US Oks First Deepwater Drilling Permit After Spill.
• CME(CME) to Slash Rate Traders' costs to Fight NYSE(NYX). CME Group Inc unveiled a plan that would slash costs for interest-rate traders to shore up its key Treasury futures franchise ahead of an imminent challenge from NYSE Euronext.
• Warnaco(WRC) Outlook Below Estimates, Shares Down. n">Warnaco Group Inc forecast full-year earnings that fell short of estimates as the maker of Calvin Klein underwear and jeans faces high product costs, and its shares fell as much as 6 percent.

TimesOnline:

• ARM Holdings Plc(ARMH) expects its sales of memory chips to increase by a third this year, citing an interview with CEO Warren East.

Winnipeg Free Press:

• South Korea's President Says Koreas Cannot Repeat 'Dark History,' Urges North to Abandon Nukes. South Korea's president called Tuesday for serious talks with North Korea, warning that the rivals must not repeat their "dark history" and urging Pyongyang to abandon its nuclear programs. President Lee Myung-bak made the remarks in a nationally televised speech amid worries over rising animosity following Monday's launch of annual South Korea-U.S. military drills, which Pyongyang calls a rehearsal for invasion. The North's state media said Tuesday that the drills could cause a "nuclear catastrophe" on the Korean peninsula. "The Korean nation cannot afford to lag behind the currents of the times, repeating the dark history of yesteryear," Lee said, referring to the Koreas' bloody 1950-53 war and the subsequent decades of violence and tension. "Now is the opportune time to open a new kind of future on the Korean peninsula." Lee said South Korea could provide aid to the impoverished North and is ready to resume inter-Korean talks "anytime with an open mind." He said, however, that "the North should step forward for serious dialogue and co-operation and refrain from developing nuclear weapons and missiles."

Sydney Morning Herald:

• Hedge Funds' Oil Bets Soar to Record on Libya Fears. Hedge funds raised bullish oil bets to a record as violent clashes in Libya curbed output from Africa's third-largest producer, driving crude to $US100 a barrel for the first time in more than two years. The funds and other large speculators increased net-long positions, or wagers on rising prices, by 30 percent in the seven days ended February 22 to 240,572 futures and options combined, the highest in records dating back to June 2006, according to the Commodity Futures Trading Commission's weekly Commitments of Traders report.

Evening Recommendations
Citigroup:

• Reiterated Buy on (LCAPA), raised target to $95.
• Reiterated Buy on (RIG), (NR) and (DO).

Night Trading

• Asian equity indices are +.25% to +1.50% on average.
• Asia Ex-Japan Investment Grade CDS Index 108.50 -1.0 basis point.
  
• Asia Pacific Sovereign CDS Index 121.50 unch.
  
• S&P 500 futures +.20%.
  
• NASDAQ 100 futures +.17%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AZO/3.06
• (TECD)/1.43
• (FDP)/.11
• (PAY)/.39
• (HOV)/-.69
• (DPZ)/.40
• (JOE)/-.10
• (MDR)/.29
• (DNDN)/-.45

Economic Releases
10:00 am EST

• Construction Spending for January is estimated to fall -.4% versus a -2.5% decline in December.
• ISM Manufacturing for February is estimated to rise to 61.0 versus a reading of 60.8 in January.
• ISM Prices Paid for February is estimated to rise to 83.0 versus a reading of 81.5 in January.
  

Afternoon

• Total Vehicle Sales for February are estimated to rise to 12.6M versus 12.53M in January.
  

Upcoming Splits

• (WEC) 2-for-1
• (DEST) 2-for-1
  

Other Potential Market Movers

• The Fed's Bernanke speaking, weekly retail sales reports, Citi Healthcare Conference, KeyBanc Consumer Conference, Pac Crest Emerging Tech Summit, CSFB Healthcare Conference, (KBW) Bank Conference, (TMRK) analyst day, (EMN) investor day, (CHS) analyst meeting and the (SD) analyst meeting could also impact trading today.
  

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

Stocks Rising into Final Hour on Lower Energy Prices, Short-Covering, Fund Inflows

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Most Sectors Rising
  
• Volume: Below Average
  
• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• VIX 18.85 -1.93%
  
• ISE Sentiment Index 129.0 -12.84%
  
• Total Put/Call .85 +4.94%
  
• NYSE Arms 1.26 +92.52%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 81.57 -1.57%
  
• European Financial Sector CDS Index 118.58 -3.63%
  
• Western Europe Sovereign Debt CDS Index 175.17 bps -.94%
  
• Emerging Market CDS Index 220.0 -2.32%
  
• 2-Year Swap Spread 19.0 +1 bp
  
• TED Spread 17.0 -2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .13% +1 bp
  
• Yield Curve 273.0 +3 bps
  
• China Import Iron Ore Spot $182.80/Metric Tonne -.71%
  
• Citi US Economic Surprise Index +74.50 +4.3 points
  
• 10-Year TIPS Spread 2.40% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating +41 open in Japan
• DAX Futures: Indicating +6 open in Germany

Portfolio:

• Slightly Higher: On gains in my Technology, Medical and Retail longs
  
• Disclosed Trades: None
  
• Market Exposure: 100% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 trades higher despite Mideast unrest, mixed economic data and emerging markets inflation fears. On the positive side, Road & Rail, Restaurant, REIT, Insurance, Hospital, Drug, Wireless, Telecom, Steel, Ag and Utility shares are especially strong, rising more than 1.0%. (IYR) has strongly outperformed throughout the day. Copper is rising +.85% and oil is falling -1.28%. The 10-year yield is stable at 3.41%. The US Muni CDS Index is falling -2.77% to 157.11 bps. The Spain sovereign cds is falling -5.64% to 249.66 bps and the Russia sovereign cds is falling -3.51% to 139.78 bps. The Israel sovereign cds is falling -1.93% to 171.10 bps, which is also a big positive. On the negative side, H0mebuilding, Disk Drive and Alt Energy shares are under pressure, falling more than 1.0%. Small-Caps are relatively weak today. Tech shares are also underperforming. "Value" stocks are outperforming "growth" shares. The UBS-Bloomberg Spot Ag Index is rising +.98%. The Saudi sovereign cds is rising +.4% to 136.51 bps. The US dollar is likely very close to a tradable rally. Sentiment regarding the currency is once again getting to bearish extremes. As well, the Citi US economic surprise index is at the highest level since Sept. 2008, while the Citi Eurozone economic surprise index continues to break down, falling to the lowest level since April 15th of last year. I continue to believe that as long as oil trades below $100/bbl. stocks can work their way higher. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, fund inflows, earnings optimism, lower energy prices, buyout speculation and declining euro sovereign debt angst.

Today's Headlines

Bloomberg:

• U.S. Consumer Spending Cools as Food, Fuel Costs Climb. Consumer spending cooled more than forecast in January as rising food and fuel prices caused Americans to cut back on post-holiday visits to malls and restaurants. Purchases rose 0.2 percent, the smallest gain since June, as winter storms may have also discouraged shoppers, according to figures from the Commerce Department today in Washington.
• Business Activity in U.S. Grew at Fastest Pace in 20 Years. Businesses in the U.S. unexpectedly grew in February at the fastest pace in two decades, indicating manufacturing remains at the forefront of the recovery. The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 71.2 this month, the highest level since July 1988, from 68.8 in January. The Chicago group’s production gauge rose to 78.2 from January’s reading of 73.7. The gauge of new orders climbed to 75.9 from 75.7. The employment measure fell to 59.8 from 64.1 the prior month.
• Oman Youth Protests Enter a Third Night as Sultan Promises to Create Jobs. Hundreds of Omani protesters gathered in the city of Sohar for a third night, demanding that the government open talks on their demands for more jobs, higher pay and more representative political institutions. Khaled Maqbuli, a leader of the protest, called on the demonstrators at a roundabout in the center of Sohar, north of the capital, Muscat, to stay peaceful and avoid confrontation with the army and the police.
• Oil Fluctuates as Saudis Offer Supplies, Unrest Spreads to Oman. Crude oil fluctuated as Saudi Arabia offered to make up for supplies lost because of unrest in Libya and as Mideast tensions spread to Oman, the region’s largest oil producer outside of OPEC. Futures slipped as much as 1.2 percent in New York after Khalid Al-Falih, the Saudi Arabian Oil Co.’s chief executive officer, said the kingdom is ready to compensate for any shortfall in crude supply. Two demonstrators were killed and several wounded in clashes with police yesterday in Oman, according to hospital and government officials. “The threat to supply overall doesn’t look as dangerous as it did last week,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Even the protests in Oman aside, events in Libya seem to be moving steadily in one direction, with oil production apparently not dropping further and some exports being loaded.” Crude oil for April delivery declined 12 cents to $97.76 a barrel at 11:34 a.m. on the New York Mercantile Exchange.
• The cost of hiring capesize ships to haul iron ore and coal dropped for a 10th day on a lack of cargo and excess vessels. Capesize rents fell 1.8% to $4,567 a day, the lowest since Dec. 9, 2008.
• Ford(F) is Most Improved Automaker on Consumer Reports List. Ford Motor Co., the only major U.S. automaker that didn’t receive a government bailout, improved the most since last year in Consumer Reports’s annual automaker rankings, bolstered by reliability for resale value.
• Fed's Dudley Says Growth Not Reason to 'Reverse' Stimulus. Federal Reserve Bank of New York President William Dudley said the “considerably brighter” economic outlook isn’t yet reason for the central bank to withdraw its record monetary stimulus. “We provided additional monetary policy stimulus via the asset purchase program in order to help ensure the recovery did regain momentum,” Dudley said today in a speech in New York. “A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking. This is welcome and not a reason to reverse course.”
• Pent-Up Demand Lifts U.S. Economic Recovery Outlook, Business Survey Shows. U.S. companies expect the economy to grow faster than previously estimated as demand from consumers, businesses and other countries picks up, a survey showed. Gross domestic product in the world’s largest economy will expand at a 3.3 percent pace in 2011, up from the 2.6 percent rate forecast in November, according to a survey by the National Association for Business Economics issued today in Washington. Consumer spending, business investment and exports will also increase more than previously projected. “Pretty much across the board there has been a better view with regard to the economic recovery,” Bill Strauss, a senior economist at the Federal Reserve Bank of Chicago, who analyzed the results, said in an interview. “The consumer sector is coming back, and we’re still looking at pretty good numbers coming from the business sector.”
• Capitulating Bears Push Short Sales to Lowest in Three Years. The biggest Standard & Poor’s 500 Index rally in more than five decades is forcing stock market bears to abandon short sales, cutting them to the lowest level since 2007 last month. Shares borrowed and sold to profit from declines dropped four straight months and represented 3.3 percent of all stock in January, according to data compiled by NYSE Euronext. Pessimists are giving up after missing the 95 percent rally in the S&P 500 spurred by the fastest earnings growth since 1994. The monthly decrease comes as individuals added $17.6 billion to U.S. mutual funds this year after withdrawing money since April. While short sales rose 2.8 percent in the two weeks ended Feb. 15, January’s low may foreshadow slower gains in equities as the pool of new investors shrinks, according to Doug Burtnick of Aberdeen, Scotland-based Aberdeen Asset Management Plc. To Laszlo Birinyi of Birinyi Associates Inc. in Westport, Connecticut, levels haven’t fallen enough to reverse gains or stop equities from climbing as the economy expands.
• Iran Arrests Opposition Leaders After Calls for Protest. Iran’s opposition leaders Mehdi Karrubi and Mir-Hossein Mousavi, who had been under forced seclusion at home, were transferred to a Tehran prison, as supporters prepared to hold a rally tomorrow, the opposition Kaleme website said. Mousavi and Karrubi, along with their wives, were “arrested and taken to Heshmatiyeh prison in Tehran,” Kaleme said on its website, which cited neighbors for some of the details.

Wall Street Journal:

• Pro-Gadhafi Forces Attempt Raids on East. Libya's government moved Monday to recapture key sections of the country controlled by rebel forces, launching attacks in two coastal cities to the east of the capital Tripoli, according to witnesses and rebel army commanders. Forces loyal to Libyan leader Col. Moammar Gadhafi attempted to bomb Benghazi, Libya's second-largest city and a stronghold of opposition to the Gadhafi regime, with airplanes, according to an opposition commander there.
• Tech to the Rescue. An early look at three technologies that may provide more energy in the future.
• Walker Issues Ultimatum to Democrats. Wisconsin Gov. Scott Walker issued an ultimatum to the 14 state Senate Democrats blocking a vote on a bill restricting workers' collective-bargaining rights, saying the state will lose its chance to refinance $165 million in bonds if the bill isn't passed by Tuesday.
• Google's(GOOG) Search Cleanup Has Big Effect. Google Inc.'s move last week to lower the search rankings of websites that the company said offer little useful information appears to be having a dramatic impact, according to firms that study search-engine data. Many websites that previously ranked highly in searches for certain keywords on Google dropped sharply following the change in the company's search algorithms, the firms found.
• Google(GOOG) Executive Sees Online Display Ad Market Reaching $100 Billion Over Next Few Years. The online display advertising market could top $100 billion over the next several years and represents "a pretty enormous opportunity" for Internet search giant Google Inc. (GOOG), a company executive said Monday.

CNBC.com:

• Fed May Need to Take Break From Easing: Bullard. With the central bank about halfway through its purchases of $600 billion in Treasurys, Bullard said the Fed should consider a return to more normalized monetary policy. "Policy is a continuous process," he said. "I would see it as possibly finishing the program a little bit shy of where we intended initially then go on pause for a while, let more information come in on the economy, see how things develop. "If things continue to go as well as I think they will in 2011 then we can start the process of getting the balance sheet back to normal and getting interest rates up there eventually."
• No Inflation? That's Not What Food Prices Are Saying.
  

Business Insider:

• Why Americans Should Fear The Middle East And North Africa Revolutions.
• Prisoner Swap in Pakistan Rejected.
• Deutsche Bank Just Took Out The Hatchet to Its Economic Outlook.
  
  One of the biggest bulls on the street, Deutsche Bank's Joe LaVorgna just sliced his economic outlook.
• The BlackBerry PlayBook is a Huge Disappointment So Far.
• WikiLeaks Goes After Saudi Royal Family. Wikileaks just released a motherload of info on the taboo subject of Saudi Arabian royal rents.
  

Huffington Post:

• Obama Puts Single Payer and Public Option Back on the Table. At the National Governors Association, President Obama just threw his weight behind a bi-partisan effort in the US Senate to allow states to innovate with health reform, including adopting a public insurance system or single payer health care system by 2013 instead of 2017. The governors embraced the state innovations waiver proposal, since conservative states want to weed back the federal health reform and states like California might like to push ahead with public insurance options or single payer health care systems. The idea is to let states meet federal targets anyway they want to, rather than how the federal government prescribes, by 2013 rather than the current 2017 deadline.
  

Apple Insider:

• Apple's(AAPL) to Launch $500 Joint Venture Small Business Support Plan. Last week, AppleInsider exclusively reported that Apple had scheduled a secretive meeting Sunday for retail employees. Details emerged later that week, revealing that the meeting was called to prepare employees for the imminent announcement of a new enterprise service plan, dubbed Joint Venture. According to people in attendance, the meeting's agenda on Sunday did indeed involve an internal unveiling of the new Joint Venture priority service plan. Sources have told AppleInsider that the plan will cost around $500 a year and will be made available to businesses when purchasing a new Mac. Up to 5 systems will be covered by the plan, though additional systems may be added for $99 a year.
  

Forbes:

• Apple(AAPL) Plots Move to Expand iPhone's Market Share. In a research note this morning, Bernstein Research analyst Toni Sacconaghi reports on a meeting he had last week with Apple COO Tim Cook, CFO Peter Oppenheimer and VP of Internet Services Eddy Cue. His high level takeaway is that the executives “projected a very confident tone,” and that Apple is focused on “the right things,” in particular expanding the market for the iPhone and capitalizing on “explosive” tablet demand. Here are some key points from Sacconaghi’s report:

CNN Money:

• SEC Casts Wide Net in Private Stock Trading Probe. Now the SEC is taking a closer look at so-called "pre-IPO" trading in Facebook and other private companies to see if securities laws were broken. An ongoing investigation is probing not just the exchanges themselves, but also several red-hot social media companies and at least three investment funds that specialize in buying up their shares.

Real Clear Politics:

• Why Middle America is Rejecting Big Government.
  

Rasmussen Reports:

• 58% Support Government Shutdown Until Spending Cuts Are Agreed Upon.

Reuters:

• China's Unipec Not Buying More Crude to Replace Libyan Supply. Unipec, the trading arm of top Asian refiner Sinopec, has so far declined Saudi Aramco's offer of more Saudi crude oil to replace Libyan crude supplies, trading sources said on Monday. The Chinese company is not buying any more crude oil to replace Libyan supplies, they said. "There is no shortage of crude overall in Sinopec," said one source. "We have the ability to adjust sweet and sour crudes among our refineries."
• SEC Top Attorney Didn't Recuse Himself on Madoff. The top attorney for the U.S. securities regulator was advised not to recuse himself from handling Bernard Madoff matters for the agency even though his family's estate had invested with the swindler.

Independent:

• Al Qaida Tries to Exploit Unrest. Al Qaida has attempted to exploit the uprisings in Egypt and Tunisia with a recorded message urging people to create Islamic states. Osama bin Laden's deputy Ayman al-Zawahri appeared to have made the audio tape between the January 14 fall of Tunisian president Zine El Abidine Ben Ali and before the February 11 overthrow of Egypt's Hosni Mubarak. Al-Zawahri urged Egyptians and Tunisians to keep up their protests and push out the interim governments that continue in place in both nations. The wave of popular protests in both countries was led by mainly secular youths calling for greater democracy and their success appears to have caught Osama bin Laden's terror network off guard. Al-Zawahri tried to depict the uprisings as aiming to set up Islamic governments.

Xinhua:

• China will take "firm" measures to curb "excessive and rapid" rise in property prices, citing Jiang Weixin, minister of Housing and Urban-Rural Development. Jiang said the country will continue to increase housing supply, and draw up measures to stabilize the property market in the medium and long term.