Friday Watch

Evening Headlines

Bloomberg:

• Euro Trades Near 15-Month Low Versus Dollar Before Confidence, Sales Data. The euro traded 0.2 percent from a 15-month low versus the dollar on speculation declining consumer confidence and spending will make it harder for European leaders to contain the region’s sovereign debt crisis. The 17-nation currency was 0.1 percent from its weakest level in 11 years against the yen as Spain and Italy prepare to sell debt next week after France’s borrowing costs rose at an auction yesterday. The dollar is set for a weekly gain versus the yen and euro before a U.S. report forecast to show employers added the most jobs in three months in December. The Dollar Index (DXY), which tracks the greenback against the currencies of six major U.S. trading partners, reached a one-year high yesterday. “There’s not a huge amount of reasons to be wanting to own the euro at the moment,” said Chris Weston, an institutional trader at IG Markets in Melbourne. “The fundamentals point to a weaker euro.”
• Soros Says Euro-Area's Failure Would Have a 'Catastrophic' Global Impact. Billionaire investor George Soros said a fracturing of the euro area would have “catastrophic” consequences and that markets have started pricing in the possibility of the region breaking up. The disintegration of the 17-nation currency bloc would affect Europe and the “entire global financial system,” Soros said in the southern Indian city of Hyderabad today in response to questions. Leaders in the euro region have struggled to solve a sovereign-debt crisis that’s hampered the global recovery and is now in its third year. Greece, Ireland and Portugal have already been forced into bailouts and the European Central Bank has provided unprecedented cash injections, easing borrowing costs for Italy, Spain and Belgium. Soros said it isn’t currently clear whether the crisis will be contained, adding many people “feel” it’s “over the brink” and “insolvable.”
• China's Equities Head for Longest Weekly Losing Streak Since June 2004. China’s stocks (IFB1) headed for their longest weekly losing streak since 2004 on concern small companies are struggling to borrow money because of a cash crunch and an export slowdown will drag down the economy. Ufida Software Co. slid 3.9 percent, adding to a 12 percent plunge this week. Tianjin Tasly Pharmaceutical Co. dropped to the lowest since April, pacing declines for drugmakers. PetroChina Co., the nation’s biggest energy producer and most valuable company, gained 1.4 percent after the government raised the threshold of a windfall tax on crude. The Shanghai Composite Index (SHCOMP), which tracks the bigger of China’s stock exchanges, added 0.5 percent to 2,159.10 as of 9:56 a.m. local time, even as twice as many stocks fell than those that rose. The measure has lost 1.8 percent this holiday- shortened week, poised for the longest weekly losing streak since the week ended June 25, 2004. The CSI 300 Index slumped 0.3 percent to 2,284.12 today. “Liquidity is still weak and there are no signs of the reserve ratio being cut,” said Cao Xuefeng, an analyst at Huaxi Securities Co. in Chengdu. Small-company stocks have plunged this week because of investors disappointment that lenders’ reserve-requirement ratios haven’t been cut amid signs of a cash crunch as households prepare for Lunar New Year celebrations that start on Jan. 23. The Shenzhen Composite Index lost 0.3 percent today, adding to a 6.4 percent slump this week. The ChiNext index of start-up companies fell 0.7 percent today and was down 9.2 percent this week.
• BofA(BAC) Surges on Speculation of U.S. Mortgage Refinance Plan. Bank of America Corp., the second- biggest U.S. lender, surged the most in two months of trading amid speculation that the U.S. may introduce a new mortgage refinancing program. The bank rose 50 cents, or 8.6 percent, to $6.31 at 4:15 p.m. in New York, then forfeited some of the gain in late trading after an Obama administration official who asked for anonymity denied speculation that the White House is considering a trillion-dollar plan to refinance home loans. “There's a lot of speculation about the big refinance wave coming from Washington,” said Todd Hagerman, an analyst in New York with Sterne Agee Group Inc., in a telephone interview. “That being said, there are a lot of existing roadblocks to the refinance boom occurring in the near future.” For now, even if there is a change in public policy, “you're not going to see any impact whatsoever on the banks,” he said.
• Mortgage-Bond Market Roiled as Bernanke Report Fuels Speculation. Fannie Mae and Freddie Mac mortgage bonds that guide home-loan rates gained while those backed by high-cost debt declined on speculation the U.S. government may boost efforts to aid the housing market. Yields on Fannie Mae’s current-coupon 30-year fixed-rate mortgage securities, or those trading closest to face value, declined about 4 basis points to 84 basis points more than 10- year U.S. government debt as of 3:30 p.m. in New York, the tightest spread since May 19, according to data compiled by Bloomberg. The company’s 6.5 percent securities, whose underlying loan rates average about 7 percent, fell almost 0.2 cent on the dollar to about 111 cents, Bloomberg data show.
• Oil Declines a Second Day as U.S. Stockpiles, Europe Counter Iran Threat. Oil fell for a second day, trimming a weekly gain, as investors speculated that increasing U.S. crude stockpiles and signs that Europe’s sovereign debt crisis will worsen indicate fuel demand may falter. Futures slid as much as 0.5 percent in New York after Energy Department data showed crude supplies climbed 2.2 million barrels (DOESCRUD) last week, compared with a forecast for a 1 million barrel decline in a Bloomberg News survey.
• Gold Traders Most Bullish in Month After Bear Market Averted: Commodities. Gold traders are the most bullish in a month as Europe’s deepening debt crisis and increasing tensions over Iran drove the metal to its longest winning streak since October.
• Hong Kong Home Prices at Record Gap to Loans: Chart of the Day. The gap between Hong Kong home prices and new mortgages is the widest in at least 13 years as higher borrowing costs and property taxes deter buyers. "Buyers are turning more cautious while homeowners aren't under pressure to sell," said Buggle Lau, chief analyst at Midland Holdings Ltd., Hong Kong's biggest publicly traded realtor. "If you bought during the last couple of years you'd think twice before buying a new home and committing to a more expensive mortgage plan."
• Alcoa Says It Will Reduce Global Smelting Capacity by 12%. Alcoa Inc. (AA) said it plans to close or curtail about 12 percent of its global smelting capacity to cut costs after aluminum prices dropped 27 percent from last year’s peak. To cut 7 percent of capacity, the company plans to permanently close its smelter in Alcoa, Tennessee, and two of six idled potlines at its Rockdale, Texas smelter. A further 5 percent capacity reduction will be from curtailments to be announced in the future.
• Japan Likely Relapsed Into Contraction. Japan’s rebound from the aftermath of a record earthquake was probably cut short in the fourth quarter as the impact of Europe’s crisis outweighed the support from reconstruction spending. Gross domestic product (JGDPAGDP) probably shrank in October and November, pointing to a 0.1 percent contraction for the quarter, according to calculations by the Japan Center for Economic Research, an independent analysis group in Tokyo. JPMorgan Chase & Co. is among banks cutting projections for GDP in the period. “It was a very tough quarter for the Japanese economy,” said Yuki Masujima, a senior economist at JCER who used to compile economic forecasts at the Bank of Japan. (8301) “The biggest risk this year is the double-hit from the European crisis -- first from the strong yen that will make it harder for exporters to sell their products, then from the drop in real demand.”

Wall Street Journal:

• Military Faces Historic Shift. Obama Plan Would Slash Army, Limit Ability to Endure Long-Term Conflicts.
• As Iraq Ignites, Cleric Seeks Gains. Amid Renewed Conflict, ex-Militant Sadr, Shiite Leader and Ally of Iran, Aims to Climb to Top of Fray as Peacemaker. With the end of the U.S. military's mission in Iraq last month, one of its fiercest longtime opponents is repositioning himself as a national leader. Shiite cleric Moqtada al-Sadr, who waged a bloody insurgency against Americans here over a period of more than eight years, now presides over one of the country's most organized and influential political groups—a cause of significant concern for the Americans.
• Obama Recess Pick Riles GOP, Business. President Barack Obama's appointment of a new federal financial watchdog without Senate confirmation stirred Republican complaints that his action conflicted with longstanding Justice Department legal guidance on recess appointments, and created uncertainty among some businesses facing new supervision. Richard Cordray, the new director of the Consumer Financial Protection Bureau, used his first day on the job Thursday to say the legal questions surrounding his appointment would not constrain him or the agency. He said the bureau has a number of investigations under way, some of which may "require enforcement actions to stop illegal behavior."
• Warner Brothers Will Make Netflix, Redbox, Blockbuster Wait Longer for New Movies. Want to watch a new movie just out on DVD from Warner Brothers? You’re going to have to buy it, or wait even longer to get it from Netflix or other disc renters. A new deal between Time Warner’s movie studio and Netflix, Redbox and Blockbuster will double the “window” for new releases. That means the services will now have to wait 56 days after the discs first go on sale to offer them to their customers, instead of 28 days.
• Bank of America's(BAC) Newest Risk: UniCredit Sale. Much is at stake in UniCredit SpA's €7.5 billion ($9.7 billion) rights issue—not least for another beleaguered lender, Bank of America Corp., which as a lead underwriter could be stuck with a hefty bill should the share sale fall flat. Rights issues are a common means for European companies to raise funds. Existing shareholders are given the right to subscribe to new stock at a discount and thereby avoid dilution of their stake. In this case, UniCredit, Italy's largest bank by assets, is staging the rights issue to meet new European capital requirements.
• Iran Mounts New Web Crackdown. Rule Calls for Surveillance Cameras in Internet Cafes; Launch of National Internet Is Seen Nearing.
• Citi's(C) Talks to Sell Unit End. In a setback to Citigroup Inc.'s efforts to divest itself of noncore businesses, talks to sell the bank's OneMain consumer-lending unit to private-equity buyers have ended without a deal in place, according to people familiar with the matter. The failure to reach a sale agreement, which could have included the involvement of Warren Buffett's Berkshire Hathaway Inc., reflects gyrations in the credit markets amid the European sovereign-debt crisis and rising fears of a global economic slowdown.
• MF Global Trustee Tussles With Regulators. Louis Freeh, the former Federal Bureau of Investigation director who was appointed bankruptcy trustee of MF Global Holdings Ltd., has declined to turn over some documents to investigators trying to determine what happened to an estimated $1.2 billion in missing customer funds.
• DE Shaw Flagship Oculus Fund Up 18% In 2011 - Investor. D.E. Shaw Group, one of the world's largest hedge fund firms with $23 billion in assets, posted a 18% gain for its flagship Oculus fund, an investor said Thursday.
• Hong Kong Finds Lethal Strain of Bird Flu. The Hong Kong government said Friday that two dead birds found in the New Territories earlier this week have tested positive for a lethal strain of bird flu, the latest development in the global resurgence of the deadly virus.

MarketWatch:

• China's Property Slowdown Spreads to Other Sectors. (video)
• China Faces Social Unrest From Housing Woes. Irate Chinese homeowners are among the top policy concerns for Beijing this year, according to analysts who say weakening house prices are stoking serious tensions. Financial author and CSLA Singapore managing director Fraser Howie calls it the “real unknown” of 2012, as there’s no track record of how this newly emerged class of homeowners would react if the current softening in residential housing prices turns into a prolonged decline. “It’s too difficult to analyze what’s going to happen,” he said, citing the difficulty in sourcing accurate statistics on the property market and the short history of property ownership in China.
• 7 Apparel Stores Hedge Funds Like.
  

Business Insider:

• Here's Why Spain May Be More Worrisome Than Italy.
• These 15 Investment Funds Were The Bottom Of the 2011 Pool.
  

Zero Hedge:

• Here We Go Again: US $25 Million Away From Debt Ceiling Breach.
  
• Top 3 Central Banks Account For Up To 25% Of Developed World GDP. (graphs)
  
• Jeff Gundlach Complete Slideshow Presentation.
  

CNBC:

• Mortgage Refinancing Plan Would Harm Banks: Dick Bove.
• Bunny Ranch Brothel Supports Ron Paul. (video)
  

LA Times:

• Jerry Brown Proposes Deep Cuts to Schools if Voters Reject Tax Plan. Gov. Jerry Brown's 2012 budget calls for $4.8 billion in cuts to public schools if voters reject the tax increases he is trying to place on the November ballot.
  

The Blaze:

• Failed Georgia-Based Ethanol Plant Sold - Taxpayers Lose Millions. “The failed Range Fuels wood-to-ethanol factory in southeastern Georgia that sucked up $65 million in federal and state tax dollars was sold Tuesday for pennies on the dollar to another bio-fuel maker with equally grand plans to transform the alternative energy world,” writes Dan Chapman of The Atlanta Journal-Constitution.

The Hill:

• Lawyers, Courts See Weaknesses In Defense of Obama's Healthcare Law. The Obama administration is headed into a Supreme Court case over healthcare reform without a clear answer to significant questions about Congress’s power.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Thursday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).

USA Today:

• Apartment Rents Heading Higher for 3rd Year in a Row. The firm, which surveys 20,000 properties a month, expects apartment rents to jump 5.5% in 2012. MPF Research sees a 4.5% increase, while researcher Reis expects a 3% increase, although that forecast may change, says senior economist Ryan Severino. Reis estimates rents rose 2.3% last year. Axiometrics says 4.4%, and MPF says 4.7%.

AP:

• 5 Dead, Others Wounded in Nigeria Church Attack. Gunmen attacked a church in northeast Nigeria during a prayer service Thursday night, killing at least five people and wounding others in an assault that occurred amid an increasingly violent campaign by a radical Muslim sect. Pastor Johnson Jauro said the gunfire sprayed the Deeper Life Church in Gombe, the capital of Gombe state, injuring several worshippers and killing his wife and two others. He spoke at a local hospital, where a joint team of soldiers and police officers stood guard. Two other people later died at the hospital from their wounds and an Associated Press reporter saw their bodies.

Reuters:

• RF Micro(RFMD) Q3 Revenue Falls on Low Chinese Demand. RF Micro Devices Inc posted a 19 percent fall in quarterly revenue, hurt by lower mobile wireless chip demand in China, sending the chipmaker's shares down about 13 percent in extended trade. The Greensboro, North Carolina-based company said in a statement it expects gross margin for the quarter to fall by 9 points sequentially on lower revenue, lower factory utilization, and inventory reserves. "Sales of 2G components to China-based customers for entry-level handsets were below expectations," RF Micro Devices said.
• Ruby Tuesday cuts profit forecast for the year. Ruby Tuesday Inc cut its earnings outlook for the year as it expects weak same-restaurant sales and higher advertising costs, sending the company's stock down 5 percent in trading after the bell. The casual dining chain now expects same-restaurant sales for company-owned restaurants to fall 2 percent to 4 percent for the year, compared with its previous outlook of flat to a fall of 2 percent.

Financial Times:

• Catalonia Rejects Spanish Govt Budget Control Plans. Catalonia will resist with all of its political, legal resources plans to impose strict budget controls, citing Catalan Finance Minister Andreu Mas-Colell. Canaries also said it won't accept "recentralizing". The Spanish Economy Minister Luis de Guindos said on Wednesday regional ministers would have to get prior approval for budgets.
• Confidence in London Property Market Plunges, Study Finds. Confidence in London's commercial property market has fallen to the lowest level in two years, citing industry survey by Lloyds Banking Group. Net balance of respondents expected the market to improve in the next six months fell to 2.8%, compared with 32.2% at the end of August, citing the survey.
  

Telegraph:

• Britain Must Now Think Through European Trade Options.
• Pound Benefits as Euro Dumped Amid Fears for Banks. The pound benefited as the euro plunged to its lowest level for 15 months amid fears that eurozone countries and their banks may be buckling under the weight of their debts.

Les Echos:

• The French government has been considering nationalizing the remains of Franco-Belgian Dexia Bank for several weeks following the deterioration of the countries' financial situations, citing several sources.

China Securities Journal:

• China 2012 CPI Growth May Be at Least 5%. China consumer prices in 4Q may increase more than 6%, Wang Jian, a China Society of Macroeconomics official wrote in a commentary today. China may see imported inflation after 2Q this year, Wang said. China 2012 4Q economic growth will likely fall below 8%, Wang wrote.

Shanghai Securities News:

• The Chinese cities of Guangzhou and Nanjing may follow Shanghai and Chongqing in starting property taxes, citing Jia Kang, head of the finance ministry's researach institute for fiscal science. Some second- and third-tier cities in the nation's central and western regions may also impose property taxes, citing Jia.

Evening Recommendations
Citigroup Global Markets:

• Reiterated Buy on (MON), target raised to $89.

RBC Capital:

• Rated (CLF) Outperform, target $87.
  

Night Trading

• Asian equity indices are -1.75% to -.75% on average.
• Asia Ex-Japan Investment Grade CDS Index 204.50 +2.0 basis points.
  
• Asia Pacific Sovereign CDS Index 157.25 +2.75 basis points.
• FTSE-100 futures -.30%.
  
• S&P 500 futures -.41%.
  
• NASDAQ 100 futures -.24%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (AZZ)/.79
• (CMC)/.35
• (GBX)/.36
• (IHS)/.92
• (PSMT)/.58
• (RBN)/.68
  

Economic Releases
8:30 am EST

• The Change in Non-Farm Payrolls for December is estimated at 155K versus 120K in November.
• The Unemployment Rate for December is estimated to rise to 8.7% versus 8.6% in November.
• Average Hourly Earnings for December is estimated to rise +.2% versus a -.1% decline in November.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The Fed's Dudley speaking, Fed's Rosengren speaking, Fed's Duke speaking, Fed's Sarah Bloom Raskin speaking and the (PRX) analyst day could also impact trading today.
  

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

Stocks Slightly Higher into Final Hour on Better US Economic Data, Short-Covering, Less Financial Sector Pessimism, Lower Food/Energy Prices

Broad Market Tone:

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

Equity Investor Angst:

• VIX 21.44 -3.51%
  
• ISE Sentiment Index 136.0 +2.26%
  
• Total Put/Call .80 -14.89%
  
• NYSE Arms 1.07 +17.64%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 121.28 +1.43%
  
• European Financial Sector CDS Index 274.92 +7.03%
  
• Western Europe Sovereign Debt CDS Index 383.83 +1.76%
  
• Emerging Market CDS Index 311.24 +2.49%
  
• 2-Year Swap Spread 45.0 -2 bps
  
• TED Spread 57.0 unch
  
• 3-Month EUR/USD Cross-Currency Basis Swap -109.0 -7 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .01% unch.
  
• Yield Curve 174.0 +2 bps
  
• China Import Iron Ore Spot $139.90/Metric Tonne +.79%
  
• Citi US Economic Surprise Index 73.40 +9.8 points
  
• 10-Year TIPS Spread 2.10 +3 bps
  

Overseas Futures:

• Nikkei Futures: Indicating +9 open in Japan
• DAX Futures: Indicating +23 open in Germany

Portfolio:

• Higher: On gains in my Tech/Biotech sector longs and emerging markets shorts
  
• Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bullish, as the S&P 500 reverses slightly higher, despite rising Eurozone debt angst, global growth fears, technical resistance and high energy prices. On the positive side, Software, Computer, Bank, Biotech, Hospital and HMO shares are especially strong, rising more than +1.0%. Cyclical and Small-Cap shares are relatively strong again. (XLF) has traded well throughout the day. The 10-year yield is rising +2 bps to 1.99%. Oil is falling -1.43%, the UBS-Bloomberg Ag Spot Index is falling -2.75% and Lumber is +1.34% higher. On the negative side, Coal, Energy, Oil Service, Steel, Construction and Gaming shares are under pressure, falling more than -.75%. Copper is dropping -.5% and Gold is gaining +.60%. Asian shares were mostly lower overnight. The Shanghai Composite opened higher and fell -1.6% from its intraday high, finishing down -.97%. This index hasn’t participated in the gains seen in other Asian indices and is now down -2.32% ytd. European shares were lower, led down by Spain(-2.94%) and Italy(-3.65%) which are now down -2.76% and -2.14% ytd, respectively. The Bloomberg European Bank/Financial Services Index is down -3.1%. As well, Brazil’s Bovespa is weak today, falling -1.4%. The Germany sovereign cds is jumping +6.6% to 110.83 bps(near Oct. 4 all-time high). The France sovereign cds is gaining +6.1% to 235.67 bps(near Nov. 25 all-time high). The Spain sovereign cds is rising +2.62% to 449.67 bps(+18.4% in 4 days and near Nov. 17 record high). The Hungary sovereign cds is rising +2.64% to 738.53 bps(+20.2% in 4 days to new all-time high). The Italian/German 10Y Yield Spread is rising +4.2% to 522.75 bps(near Nov. 9th high, which was highest since Dec. 1995). The Western Europe Sovereign CDS Index is very near its Dec. 15 all-time high. The TED spread continues to trend higher and is very near the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is very near the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is falling -3.62% to -109.04 bps, which is back to mid-Nov. levels. The Libor-OIS spread is now at the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. Overall, European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand, which remains a large red flag. China Iron Ore Spot has plunged -22.7% since Sept. 7th of last year. The AAII % Bulls soared to 48.88 this week, while the % Bears Plunged to 17.16. The % Bears has only been lower one other week in the last 6 years. I continue to believe overall investor sentiment is too bullish given the still significant and developing headwinds from overseas and the fact that the average stock(VGY Index) is down -16.5% from its April 29th high. Despite today’s positive jobs readings, the 10-year yield is only rising +2 bps to 1.99% and is at the same levels as Sept./Oct. This is especially noteworthy considering the recent spate of positive US economic data and the equity rally off the lows. Moreover, the divergence between (XLF) and the Bloomberg European Bank/Financial Services Index is becoming unsustainable, in my opinion. Credit gauges in Europe must calm very soon or US equity weakness is likely, notwithstanding tomorrow's likely positive jobs report. For a sustainable equity advance into the new year, I would still expect to see meaningful European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, global growth fears, high energy prices, technical resistance, profit-taking and more shorting.

Today's Headlines

Bloomberg:

• EFSF Bond-Yield Boost Fails to Halt Slide in Demand for $4 Billion Issue. Europe’s bailout fund is losing its appeal as a bond issuer after investors ordered about 4.5 billion euros ($5.8 billion) of its 3 billion euros of notes compared with demand of nine times on its first deal a year ago. That’s after the European Financial Stability Facility offered investors a yield spread almost seven times what it paid to sell 5 billion euros of securities last January, according to data compiled by Bloomberg. “The book on the EFSF bond is far from stellar at just 4 billion,” said Padhraic Garvey, global head of developed- country debt and rates strategy at ING Groep NV in Amsterdam, said before the deal closed. “A much bigger cover would have given the thing a better gloss.” The new bond was the EFSF’s first three-year issue and follows a Nov. 7 sale that was delayed because of volatility caused by the euro region’s deepening sovereign crisis. Standard & Poor’s said last month that the fund, which will use the proceeds of today’s transaction to help finance the bailouts of Ireland and Portugal, may lose its top credit rating should one of its AAA rated guarantors be downgraded.
• Financial Default Swaps Rise as Europe's Debt Crisis Worsens. The cost of insuring against default on European financial debt rose on concern the region’s debt crisis is deepening. The Markit iTraxx Financial Index of credit-default swaps on the senior debt of 25 banks and insurers climbed 16.5 basis points to 289 and the subordinated index was up 20 at 525, according to JPMorgan Chase & Co. at 3 p.m. in London. An increase signals deterioration in perceptions of credit quality. Spanish banks will have to increase provisions for troubled assets by as much as 50 billion euros ($64 billion), Economy Minister Luis de Guindos said. Greece warned there’s a risk of “disorderly default” as Hungary failed to secure an international bailout and French borrowing costs rose at a bond sale today. “As sovereigns go, so will banks go,” said Gary Jenkins, director of independent research firm Swordfish Research in London. “Their futures are tied up together.” The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose eight basis points to 375, nearing the record 385 set Nov. 25. The sovereign gauge exceeds the senior financial measure by the most since October. Swaps on Hungary rose 12 basis points to a record 734, according to CMA. That signals a 40 percent probability of default within five years, assuming investors would recover 25 percent of their holdings in the event. The contracts are up from 635 basis points at the end of last year. Contracts on Austria jumped 12.5 basis points to 226.5, Belgium increased four to 335 and France was 9.5 higher at 232, CMA prices show. Germany rose 4.5 to 109, Italy increased eight to 524 and Spain was up eight at 444. The cost of insuring corporate debt also rose. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose 16.5 basis points to 761. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings rose 5.75 basis points to 178.25.
• European Stocks Slide on Bank Capital Raising Concern; Unicredit Tumbles. European stocks (SXXP) declined for a second day as concern that the region’s banks will have to raise capital overshadowed a report showing that U.S. companies added more workers to their payrolls than economists had predicted. UniCredit SpA, which announced a rights offer at a 43 percent discount yesterday, slumped to a 19-year low. Societe Generale SA dropped 5.4 percent after announcing it will cut corporate- and investment-banking staff. The Stoxx Europe 600 Index fell 0.9 percent to 247.39 at the close in London.
• Retail Sales in Germany Unexpectedly Fell For Second Month in November. German retail sales (GRIORTMM) unexpectedly fell for a second month in November as Europe’s sovereign debt crisis weighed on the outlook for economic growth. Sales, adjusted for inflation and seasonal swings, decreased 0.9 percent from October, when they fell a revised 0.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.2 percent, the median of 13 estimates in a Bloomberg News survey (GRFRIAMM) showed.
• China's Stocks Slide to Lowest Since March 2009 as Small Companies Plunge. China’s stocks (IFB1) fell to the lowest level since March 2009 on concern the European debt crisis will curb exports and a potential cash crunch before the Chinese new year holidays may boost lending costs for small companies. China Cosco Holdings Co. (601919), Asia’s largest shipping line, dropped 4.4 percent after Luxembourg’s prime minister said the European Union is facing a recession of unknown scope. Ufida Software Co. plunged 8 percent, leading declines for technology stocks, the worst performing industry. The Shanghai Composite Index (SHCOMP), which tracks the bigger of China’s stock exchanges, slid 20.94 points, or 1 percent, to 2,148.45 at the close. The CSI 300 Index slumped 1 percent to 2,276.39. The Shenzhen Composite lost 3.5 percent, while the ChiNext index of start-up companies plunged 5.7 percent. Anhui Anke Biotechonology (Group) Co. tumbled 9.5 percent to 9.99 yuan in Shenzhen. Gauges of technology and health-care companies in the CSI 300 dropped more than 3 percent, the most among industry groups.
• U.S. Companies Added 325,000 Jobs: ADP. Companies added more workers than forecast in December, a sign that the U.S. labor market was gaining momentum heading into 2012, according to a private report based on payrolls. A Labor Department report tomorrow may show payrolls rose by 150,000, not enough to keep the unemployment rate (USURTOT) from rising to 8.7 percent, economists in a Bloomberg survey projected.
• Job Cuts in U.S. Jumped 31% in December From Prior Year, Challenger Says. Planned firings (CHALTOTL) rose 31 percent to 41,785 last month from 32,004 in December 2010, which were the fewest since June 2000, according to Chicago-based Challenger, Gray & Christmas Inc. Job cuts totaled 606,082 for all of 2011, up 14 percent from the previous year, the report showed.
• U.S. Services Grew Less Than Forecast. Service industries in the U.S. expanded less than forecast in December, indicating improvement in the economy will be uneven. The Institute for Supply Management’s index (NAPMNMI) of non- manufacturing industries, which account for almost 90 percent of the economy, rose to 52.6 last month from 52 in November, the Tempe, Arizona-based group said today.
• Hedge Funds Fell 4.9% in 2011 as Europe Crisis Grew. Hedge funds fell 4.9 percent last year as global stock markets slumped amid fears that the European sovereign-debt crisis would spread and managers struggled with increased market volatility. The Bloomberg aggregate hedge-fund index (BBHFUNDS) dropped 0.9 percent in December, with long-short equity and multistrategy (BBHFMLTI) funds falling. Macro funds, which bet on global economic trends, rose last month and declined in 2011.
• Oil Drops on Unexpected Inventory Increase. Oil stockpiles (DOESCRUD) increased 2.21 million barrels to 329.7 million, the Energy Department report showed. Total petroleum demand (DOEDTPRD) fell 2.6 percent to 18 million barrels a day. Gasoline inventories (DOESTMGS) rose 2.48 million barrels to 220.2 million. Distillate fuels (DOESDIST), which include diesel and heating oil, gained 3.22 million to 143.6 million.

Wall Street Journal:

• Leading Indicators Index Gets Overhaul. “These adjustments have been designed to make the U.S. Leading Economic Index an even stronger predictor of peaks and troughs in the business cycle, while recognizing changes in the functioning and drivers of the economy in the short and medium term,” Conference Board chief economist Bart van Ark said in a press release. The firm said it will remove the M2 money supply measure and replace it with something entirely new, which it dubbed the “Leading Credit Index.” The Conference Board said the Leading Credit Index is made up financial market indicators including bond market yield curve data, interest rate swaps and data extracted from a periodic Federal Reserve survey of bank lending.
• Where Did Nine Million Cable Subscribers Go?
  

MarketWatch:

• Consumer Board Begins Oversight Of Payday Lenders. CFPB chief also to scrutinize student and local mortgage lenders.

Business Insider:

• DEAR OBAMA: Have You Gone Nuts? How Could You Sign This Police-State NDAA Bill? On New Year's Eve, President Obama signed into law a bill that eliminates one of the fundamental protections of the U.S. Constitution: The right for people not to be detained indefinitely by the government without being formally convicted of crimes. This erosion of the Constitution, which came in the form of new language in the annual National Defense Authorization Act (NDAA), allows the government to hold anyone suspected of being associated with terrorism indefinitely, without any form of due process. No indictment. No judge or jury. No evidence. No trial. Just an indefinite jail sentence. In other words: If someone in the government suspects that you're somehow associated with terrorism, you can be jailed indefinitely in a military prison.
• This Report That Iran Is Building Rocket Bases In Venezuela Just Got Far More Interesting.
• This Is The Section Of The NDAA That Is Causing People To Freak Out.
  

Zero Hedge:

• I'll Hold Yours If You Hold Mine: The Italian Ponzi Comes Home.
• Holiday Week Gasoline Demand Plunges To Lowest On Record.
• Goldman(GS) Remain Cautious On Europe As Negative Feedback Accelerates.
• Presenting Europe's Complete €1 Trillion 2012 Monthly Bond Redemption Schedule.

LA Times:

• North Korea's Kim Jong Un Wages Defector Crackdown. In North Korea, a new Kim may be in command but the same old human rights violations are still in play, including a renewed lethal crackdown on defectors, according to South Korean media reports. Weeks after 20-something Kim Jong Un assumed power following his father Kim Jong Il’s sudden death by heart attack last month, border guards have begun shooting down would-be defectors who try to flee the impoverished nation, the reports said. Three people who tried to flee the repressive regime were reportedly killed in recent days as they tried to cross the Yalu River along the Chinese border, part of a policy of tightened border controls that Pyongyang is enforcing after Kim Jong Il's Dec. 17 death. Under Kim Jong Un, North Korea has pledged to hunt down and imprison, or even kill, three generations of family left behind by escapees, successful or not, according to Seoul's Joongang Daily newspaper. North Korea watchers say the younger Kim may fear that a rise in defections could destabilize his fledgling hold on power as officials across Pyongyang's security apparatus jockey to demonstrate their loyalty to the regime's new strongman. "There was nothing like the eradication of three generations in the Kim Jong Il era, but now it's happening under Kim Jong Un," an unnamed official told the newspaper.

Reuters:

• Global Property Funds Face Tough 2012. Private equity real estate funds face a challenging fundraising landscape in 2012 as investors grow more cautious about coughing up fresh capital amid growing global economic uncertainty, Preqin said on Thursday. The research firm's December survey of 180 institutional investors from North America, Europe and Asia found 53 percent do not expect to make new commitments this year, while 11 percent said they might considering doing so. The remaining 36 percent said they did plan new property fund commitments in 2012. At present, 450 funds are in the market seeking an aggregate of $165 billion, Preqin said.
• EU/IMF Aid Schedule for Greece Pushed Back 3 Months. Greece's entire schedule of emergency loans from the European Union and International Monetary Fund is being pushed back by three months because of a delay in the payout of a tranche in 2011, the European Commission said on Thursday. The next 5 billion euro tranche for Greece that was originally scheduled to be paid in December 2011 is now to be paid out in March 2012, Commission spokesman Olivier Bailly said. A further 10 billion euros that Greece was originally to receive in March this year, will now be paid only in June and all of those sums can also be delayed if inspectors judge Athens is failing to deliver promised fiscal reforms.

Financial Times:

• Meddling in Credit Swaps Poses Sizable Stability Risks. The potential for future shocks is still there.
• Worries Grow as China Land Sales Slump. Land sales slowed sharply in China last year, according to a series of industry reports that highlight the deepening woes of debt-laden local governments that depend on land auctions as a crucial revenue source. While the falling sales are still far from reaching crisis point, analysts say, authorities are increasingly under pressure to choose between costly help for the worst-hit cities and an unpalatable relaxation of its policies aimed at preventing a dangerous property bubble.
• Italian Bond Yields Jump Back Above 7%.

Telegraph:

• Banks Warn Lending to Small Firms is Falling. Demand for lending from small businesses fell sharply at the end of 2011, and is expected to decline further in the coming three months, banks have reported.
• Credit Crunch Fears at Highest Level Since Northern Rock Collapse. Britain's banks are more worried now about a credit crunch than at any time since the first one brought down Northern Rock in late 2007, a survey by the Bank of England has found.

Handelsblatt:

• An exit from the euro by Greece would cause a chain reaction in other crisis countries within the currency area as citizens rush to withdraw savings from banks, Oxford University professor Clemens Fuest said, citing an interview.

Le Figaro:

• Prime Minister Mario Monti said Italy would join any European Union oil sanctions against Iran as long as they are "gradual" and exclude shipments to reimburse Iran's 1 billion euro debt to Italian oil company Eni Spa.

DigiTimes:

• Google(GOOG) Tablet PC Believed To Be Targeting Amazon's(AMZN) Kindle Fire.

Shanghai Daily:

• Housing Index Sees Drop. SHANGHAI'S existing housing index fell for the third straight month in December, with prices declining in 80 percent of the areas monitored. The index, which tracks price fluctuations of the city's previously occupied homes, lost 6 points, or 0.22 percent, from November to 2,586, the Shanghai Existing House Index Office said yesterday. "As austerity measures continued to persist, more property owners seemed willing to offer larger price cuts," said Zhang Shu, an analyst at the index office. "Particularly, some owners in outlying districts have offered a discount of about 15 percent to lure buyers after a number of developers in the same area began to give discounts of between 20 and 30 percent." The price cuts in prime areas, however, were still largely confined to mostly between 4 and 6 percent, the office said.
  

China Finance:

• China's life insurance industry may enter its hardest period during the first half of the year, the vice chairman of China Insurance Regulatory Commission, Chen Wenhui, wrote. Insurers face more solvency pressure than during 2008, during the international financial crisis, he said. The industry's solvency ratio was 60 percentage points lower in the third quarter than the start of last year, Chen said.
• Some Chinese local governments may face "relatively large" repayment pressures as their financing vehicles enter a peak period for repaying debt, Wang Yiming, deputy director of macro-economic research institute under the National Development and Reform Commission, writes in an articles.
  

Bear Radar

Style Underperformer:

• Large-Cap Value (+.09%)

Sector Underperformers:

• 1) Oil Service -1.10% 2) Energy -.81% 3) Telecom -.60%

Stocks Falling on Unusual Volume:

• TGT, DB, PHG, JCP, ROG, TEF, PLCE, GSM, SNCR, DEST, DTSI, VSAT, THOR, SHLD, UBNT, MDSO, CBRL, WRLD, RECN, HAIN, AVAV, COLM, PEET, JOBS, SHPGY, CHRW, RPM, AEO, SYT and BKS
  

Stocks With Unusual Put Option Activity:

• 1) BKS 2) GPS 3) TGT 4) KSS 5) AEO
  

Stocks With Most Negative News Mentions:

• 1) GPS 2) YHOO 3) CEG 4) BLK 5) ATW
  

Charts:

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

Bull Radar

Style Outperformer:

• Mid-Cap Growth (+.01%)

Sector Outperformers:

• 1) Biotech +1.19% 2) Banks +.79% 3) REITs +.59%

Stocks Rising on Unusual Volume:

• WTW, STX, WDC, TTWO, PTR, SNP, DNDN, SODA, ZUMZ, ACOM, ACOR, ASNA, ULTA, ITMN, MRVL, ROST, PIR, PLXS, MON, P and MOS
  

Stocks With Unusual Call Option Activity:

• 1) DNDN 2) ILMN 3) RHT 4) HOT 5) GPS
  

Stocks With Most Positive News Mentions:

• 1) ULTA 2) STX 3) FWLT 4) BEBE 5) LTD
  

Charts:

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

Thursday Watch

Evening Headlines

Bloomberg:

• France Takes Market Pulse With Bond Sale as AAA Rating Decision Looms. France plans to sell as much as 8 billion euros ($10.4 billion) of debt today in the country’s first test this year of investor appetite for its bonds as credit companies threaten to cut the nation’s AAA rating. “It’s going to be a tough one,” said Michael Leister, a fixed-income strategist at DZ Bank AG in Frankfurt. “The rating is an evergreen topic. France has been suffering since the second half of December against its AAA peers. But given the importance of the signal from this first auction, I guess it will go alright.” The extra yield investors demand to hold French bonds instead of benchmark German bunds rose to 204 basis points on Nov. 17, the most since 1990, as concern deepened the region’s debt crisis was spreading. While the gap narrowed to 139 basis points yesterday, it compares with a premium of 46 basis points for AAA rated Finland and 38 basis points for the Netherlands. The French sale comes a day after Germany sold 4.1 billion euros of bonds, getting more bids than its maximum target of 5 billion euros. The German sale kicked off a rush for funding that may determine whether euro-area leaders can save the 13- year-old single currency. Italy and Spain are among countries that in the coming weeks will sell debt that may reach 262 billion euros in the first quarter, according to Deutsche Bank AG forecasts.
• Papademos Warns Fellow Greeks Economic Collapse Looms Without Sacrifice. Prime Minister Lucas Papademos told fellow Greeks that deeper cuts in incomes are the only way for the country to remain in the euro area and receive more financing (GKCPIUHY) from international creditors, steps that would avert an economic collapse that may otherwise come as soon as March. “We have to give up a little so we don’t lose a lot,” Papademos said, according to an e-mailed transcript of his statements to union and business leaders yesterday. Talks later this month with officials from the European Union, International Monetary Fund and European Central Bank, the so-called troika, will focus on a “credible” economic plan for 2012 to 2015. “Without this agreement with the troika and subsequent financing, Greece in March faces the immediate risk of a disorderly default,” he said.
• Euro Approaches 11-Year Low Versus Japanese Yen Before French Bond Sales. The euro approached an 11-year low against the yen before France sells bonds today on concern the region’s governments and banks will struggle to raise funds. The 17-nation currency slumped against 12 of 16 major peers after Greek Prime Minister Lucas Papademos warned his nation may face economic collapse as soon as March. The Australian and New Zealand dollars weakened against the greenback as Asian stocks (MXAP) fell, ending a two-day rally and sapping demand for higher- yielding assets. Gains in the dollar were limited before reports forecast to show service industries in the U.S. expanded in December and companies boosted payrolls. “There will be steady pressure on the euro in terms of rolling over existing debt and issuing new debt,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, Australia’s second-largest lender. “There’s really been nothing that would make you want to even play for an interim bounce in the euro.”
• China's 'Demographic Tsunami' Begins. Wang is in the vanguard of a looming demographic shift for China, Bloomberg Businessweek reports in its Jan. 9 issue. The latest government census shows 178 million Chinese were over 60 in 2009. That figure could reach 437 million -- one third of the population -- by 2050, the United Nations forecasts. While the elderly were looked after in the past by their children, urbanization and the nation’s one-child policy have eroded the tradition of family care. “It’s a demographic tsunami,” says Joseph J. Christian, a fellow at the Asia Center at the Harvard Kennedy School, and former DLA Piper partner in Hong Kong, who specializes in senior housing issues in China. “The whole multi­generational housing model has disappeared.”
• Alcoa(AA) Estimates Plunge Most Since 2008 After Aluminum Decline: Commodities. Alcoa Inc. (AA) earnings estimates have plunged the most in three years as analysts’ expectations mount that the biggest U.S. aluminum producer may even record a fourth-quarter loss. Net income will tumble 94 percent to 1 cent a share from 21 cents a year earlier, according to the average of 18 analysts’ estimates compiled by Bloomberg. That’s 82 percent less than the average projection from a month ago. Eight of the 11 estimates (AA) compiled within the last 28 days are for New York-based Alcoa to post a loss in the fourth quarter. The average price of aluminum, which is used in beverage cans, aircraft and window frames, was 11 percent lower in the quarter from a year earlier after global growth decelerated amid a sovereign-debt crisis in Europe and government action to control inflation in China. Supply is exceeding demand and inventories have soared, leaving some smelters unprofitable at current metal prices. “You have 40 to 50 percent of global capacity under water at these levels,” Kuni Chen, an analyst with CRT Capital Markets in Stamford, Connecticut, who has a “buy” rating on Alcoa, said in an interview.
• Lampert Cuts AutoZone(AZO) as Clients Pull Money Amid Sears(SHLD) Losses. Edward Lampert’s hedge fund slashed its stake in AutoZone Inc. in the final days of last year to meet client redemptions amid a series of setbacks at Sears Holdings Corp., one of its largest and highest profile investments. ESL Investments Inc., the firm run by Lampert, distributed about $1.02 billion worth of AutoZone stock to investors in connection with the closing of one investment partnership and the restructuring of another, according to a regulatory filing. The Greenwich, Connecticut-based firm also used $351.4 million of shares in AutoZone and AutoNation Inc. as payment in kind to meet year-end redemptions from its main fund, ESL Partners LP, the filing showed.
• Obama Chooses Politics Over Principle in Naming Cordray: View. The White House called these “recess appointments,” even though Congress technically wasn’t in recess. In doing so, the president is playing with fire. He risks an election-year legal challenge that could hamstring the consumer bureau and several other financial regulators whose pending confirmations will probably now stall. The president’s authority -- and that of future executives -- to fill administration posts without Senate approval may be limited by the courts. We think Obama risks too much to make what is largely a political point.
• Asia Hedge Funds Face a Year of Attrition. Asia’s hedge-fund industry is set to shrink in 2012 after a year in which growth stagnated, performance faltered and managers struggled to raise capital. There were 123 Asian hedge funds that closed in the first 10 months of 2011, compared with 125 in all of 2010 and a record 184 in 2008 when the collapse of Lehman Brothers Holdings Inc. (LEH) roiled markets, according to Singapore-based data provider Eurekahedge Pte. Artradis Fund Management Pte, once Singapore’s biggest hedge fund, shut, while managers returning money to investors included CoreVest Partners and Kilometre Capital Management Ltd. Asia’s hedge funds are dwindling as most managers haven’t made money as a business or for investors, said Peter Douglas, principal of Singapore-based GFIA Pte. Hedge funds in the region manage $125 billion, lower than the peak of $176 billion in 2007, according to Eurekahedge.
• Gokarn Signals India Inflation May Prevent Rate Cuts: Economy. India’s persistently high inflation may prevent an imminent reversal of record interest-rate increases, as a weakening rupee and oil’s rebound reduce the scope for monetary easing, the central bank’s deputy chief said. “The monetary cycle has peaked,” Subir Gokarn, deputy governor of the Reserve Bank of India, said at a conference in Singapore today. “That does not necessarily say that a quick reversal is in order because inflation risks are still visible, still high.”

Wall Street Journal:

• BMW Grabs U.S. Luxury-Car Sales Crown. BMW AG nosed out rival Daimler AG's Mercedes-Benz unit in December U.S. sales to capture the title of top-selling U.S. luxury brand for 2011, according to estimates by market researcher Autodata Corp. Autodata, which compiles sales totals reported by auto makers, estimated BMW sold 248,113 cars and sport-utility vehicles in 2011, 2,804 more than Mercedes.
• Citi(C) Analyst Lures Hot Internet IPOs. When real-estate website Zillow Inc. was looking for a Wall Street bank to lead its $80 million initial public offering in July, Citigroup Inc. rose to the top of the list. A main attraction: the bank's top-ranked Internet analyst, Mark Mahaney. Mr. Mahaney "is widely regarded as one of the most influential analysts covering the Internet, and, yes, that was absolutely part" of Zillow's choice of Citi, said Spencer Rascoff, Zillow's chief executive, in an interview.
• Congress Presses Rating Firms. Congressional investigators are stepping up their inquiry into how deeply credit-rating companies examined the disastrous bet that sank MF Global Holdings Ltd. and whether the firms overlooked crucial information in their evaluations, according to people familiar with the matter. The chairman of the House Financial Services subcommittee on oversight and investigations sent letters to Moody's Corp. Chief Executive Raymond McDaniel and Standard & Poor's Ratings Services President Douglas Peterson seeking detailed information about the firms' procedures for determining MF Global's credit worthiness.
  
• B-Shools Send Rejections to Unlikely Group: Alumni. This admissions season, business school alumni are the ones facing rejection. Graduate schools including University of Pennsylvania's Wharton School are bypassing alumni in admissions interviews to meet directly with M.B.A. candidates in person or via Skype videoconferencing, despite the potential higher costs, in an attempt to ensure interviews are being conducted in a uniform manner—and in English.
• Auto Lenders Speeding Past Mortgage Woes. Auto lenders are pursuing an unlikely growth market: people who have fallen behind on their mortgages. Historically, lenders have viewed mortgage troubles as a major red flag. Now, firms such as Ally Financial Inc., General Motors Financial Co. and Mitsubishi Motors Credit of America Inc. are sifting through loan applications to determine which borrowers with scuffed mortgage-payment histories are likely to be good credit risks.
• Contempt for Congress. Obama makes recess appointments when there's no recess.
• North Korea Lashes Out at Japan, Hardening Stance Against Foes.
  

Business Insider:

• This Retailer Is Doing So Well It's Opening Hundreds Of New Stores For The Fourth Straight Year.
• Seriously, If You Pick The Wrong Major Then Prepare To Be Unemployed.
• RBS Axing Up to 10,000 Jobs From Its Investment Bank.
• Experts Agree This Is The Most Effective Diet In The World.

Zero Hedge:

• The Can Kicking Is Ending - Key Upcoming Dates For Europe's Patient Zero.
• One Word... Volume. (graphs)
  

CNBC:

• China Uncovers Massive Irregularities in Local Government Debt. China has uncovered 530 billion yuan ($84.21 billion) worth of irregularities with local government debt, the National Audit Office said on Wednesday. An audit report, published on China's central government website, reveals some of the problems investment analysts had believed to lay beneath the 10.7 trillion mountain of debt that local governments had amassed by the end of 2010. The report, conducted for the 2010 budget year, found problems including 46.5 billion yuan worth of "irregular credit guarantees", 73.2 billion yuan worth of loans secured against irregular collateral, 35.1 billion yuan spent on stocks, houses and polluting plants and 132 billion yuan worth of expenditure not made by its approved deadline. "A fifth problem is the fraudulent and underpayment of registered capital in financing vehicles, which amounted to 244.15 billion yuan," the report said.

LA Times:

• Bypassing Congress, Obama Will Appoint Three to NLRB. Capping a daylong assault on congressional Republicans, President Obama appointed three members to the National Labor Relations Board as part of a series of recess appointments the GOP had tried to prevent. Obama made the move while Congress is away for the holiday break, but meeting every few days in pro forma sessions to block the White House from precisely these type of recess appointments. The labor board appointments were tucked into Obama’s more public announcement of Richard Cordray as the new consumer protection bureau chief.

The Blaze:

• After Receiving Bailout, GM(GM) May Move Volt Production To China. Although it happened back in September, 2011, it appears many American taxpayers are unaware that General Motors struck a deal in Shanghai wherein the company has agreed to develop an electric vehicle (EV) platform with its longtime Chinese partner SAIC. What else was included in this deal? GM has agreed to effectively move all future EV development to China. It could also mean that production of the vehicle itself will be moved overseas.

Institutional Investor:

• Citadel Way Ahead of the 2011 Pack. Last year was not exactly a memorable one for many hedge fund managers, as a large number finished the year up or down a point or two. Not Citadel’s Ken Griffin, however. His two main funds — Wellington and Kensington — finished strong with a 2.4 percent gain in December, putting them up 20.4 percent for the year, according to investors.

Rasmussen Reports:

• Daily Presidential Tracking Poll. The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 22% of the nation's voters Strongly Approve of the way that Barack Obama is performing his role as president. Forty-two percent (42%) Strongly Disapprove, giving Obama a Presidential Approval Index rating of -20 (see trends).

Reuters:

• Blackstone(BX) Reaches Megafundraising Finish Line. Blackstone Group LP will conclude fundraising for its latest buyout fund in January, raising just over $16 billion, three people familiar with the matter said on Wednesday, in a 4-year process challenged by the global financial crisis. The fund is the largest in the market to complete its fundraising process and the sixth biggest private equity fund ever raised, according to data firm Preqin.
• Analysis: Texting Profits at Risk as Users Look Elsewhere. Text-messaging has long been a big-time profit generator for U.S. mobile operators, but they now risk losing these profits as consumers find cheaper ways to communicate. SMS -- short message service -- is no longer all the rage, but it still generates an estimated 12 percent of service revenue for U.S. operators.
• Seagate(STX) Forecasts Strong Q2, Q3; Shares Jump. Seagate Technology Inc forecast stronger-than-expected second-quarter revenue and expects sequentially higher shipments in the third quarter, as the hard disk drive maker recovered from the supply chain disruptions caused by the Thailand floods. Shares of the company rose 7 percent to $17.99 in extended trading. They closed at $16.82 on the Nasdaq on Wednesday.

Financial Times:

• Fitch Warns on Structured Debt Deals. European financials have been flouting the original terms on packaged debt deals they send to the European Central Bank to secure cash and allowing these credit ratings to slide, Fitch Ratings has warned.
• Spain Sees €50bn of new bank provisions. Spain says it expects its banks to set aside up to €50bn in further provisions on their bad property assets as part of a new round of reforms for the country’s financial sector.

Telegraph:

• Hungary Faces Crisis As Traders Fear Bond Debt Default. Hungary was forced to cancel a bond swap auction amid an escalating financial and political crisis that investors fear could trigger another dangerous shockwave in Europe.
• EU Transaction Tax 'in law by year end'. The European Union is set to move ahead with plans for a financial transaction tax despite British opposition, with a senior French politician saying the new levy will be in place by the end of year.

Evening Recommendations
KeyBanc:

• Rated (FOSL) Buy, target $105.
  

Sterne Agee:

• Rated (VMW) Buy, target $108.

Night Trading

• Asian equity indices are -1.0% to +.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 202.50 +6.5 basis points.
  
• Asia Pacific Sovereign CDS Index 154.50 -2.5 basis points.
• FTSE-100 futures +.15%.
  
• S&P 500 futures -.13%.
  
• NASDAQ 100 futures -.08%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (STZ)/.52
• (RPM)/.39
• (MON)/.18
• (RT)/-.06
• (FDO)/.68
• (APOL)/1.18
• (GPN)/.80
• (WOR)/.32
  

Economic Releases
8:30 am EST

• ADP Employment Change for December is estimated at 178K versus 206K in November.
• Initial Jobless Claims are estimated to fall to 375K versus 381K the prior week.
• Continuing Claims are estimated to fall to 3570K versus 3601K prior.
  

10:00 am EST

• ISM Non-Manufacturing for December is estimated to rise to 53.0 versus 52.0 in November.

11:00 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory decline of -1,000,000 barrels versus a +3,899,000 barrel gain the prior week. Distillate supplies are expected to rise by +1,000,000 barrels versus a +1,205,000 barrel gain the prior week. Gasoline inventories are estimated to rise by +1,000,000 barrels versus a -692,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a -.7% decline the prior week.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The BoE Rate Decision, Challenger Job Cuts report for December, ICSC Chain Store Sales for December, RBC Consumer Outlook Index for January, weekly Bloomberg Consumer Comfort Index, Goldman Healthcare CEOs Conference and the Raymond James Government Services/Tech Summit could also impact trading today.
  

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

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

Broad Market Tone:

• Advance/Decline Line: Lower
  
• Sector Performance: Mixed
  
• Volume: Below Average
  
• Market Leading Stocks: Outperforming
  

Equity Investor Angst:

• VIX 22.26 -3.09%
  
• ISE Sentiment Index 136.0 +65.85%
  
• Total Put/Call .92 +19.48%
  
• NYSE Arms .85 +3.71%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 119.56 +1.32%
  
• European Financial Sector CDS Index 265.48 +5.33%
  
• Western Europe Sovereign Debt CDS Index 379.50 +1.89%
  
• Emerging Market CDS Index 304.21 +2.80%
  
• 2-Year Swap Spread 47.0 -1 bp
  
• TED Spread 57.0 -1 bp
  
• 3-Month EUR/USD Cross-Currency Basis Swap -105.0 -2 bps
  

Economic Gauges:

• 3-Month T-Bill Yield .01% +1 bp
  
• Yield Curve 172.0 +2 bps
  
• China Import Iron Ore Spot $138.80/Metric Tonne +.36%
  
• Citi US Economic Surprise Index 63.60 -1.4 points
  
• 10-Year TIPS Spread 2.07 +7 bps
  

Overseas Futures:

• Nikkei Futures: Indicating -51 open in Japan
• DAX Futures: Indicating +12 open in Germany

Portfolio:

• Higher: On gains in my Tech sector longs, emerging markets shorts and index hedges
  
• Disclosed Trades: Covered all of my (IWM)/(QQQ) hedges and some of my (EEM) short, then added them back
  
• Market Exposure: 75% Net Long

BOTTOM LINE: Today's overall market action is mildly bearish, as the S&P 500 trades slightly lower and sits near the high-end of its recent range on rising Eurozone debt angst, global growth fears, technical resistance and rising energy prices. On the positive side, Steel, Software, Homebuilding, Road&Rail, Restaurant and Disk Drive shares are especially strong, rising more than +.75%. Cyclical shares are relatively strong again. The 10-year yield is rising +4 bps to 1.98%. Johnson Redbook Weekly Retail Sales rose +3.7% this week versus a +3.5% gain the prior week, which is a modest positive. On the negative side, Oil Tanker, Networking, Medical Equipment, Drug, Hospital, Insurance and REIT shares are under pressure, falling more than 1.0%. Small-caps are relatively weak and (XLK) has underperformed throughout the day. Oil is rising +.25%, Copper is dropping -2.8%, Lumber is down -3.2% and Gold is gaining +.50%. Despite 2-3% ytd gains in most Asian indices and some better manufacturing data out of China, the Shanghai Composite finished its first day of trading in the new year down -1.4%, which is a red flag. Spanish(-1.72%) and Italian(-2.04%) equities led Europe lower today. The Bloomberg European Bank/Financial Services Index fell -1.6%, as well. The Spain sovereign cds is soaring +9.4% to 438.33 bps, the Germany sovereign cds is gaining +2.24% to 104.0 bps, the Italy sovereign cds is jumping +4.6% to 514.17 bps, the France sovereign cds is rising +1.4% to 221.33 bps, the Japan sovereign cds is gaining +2.5% to 143.54 bps, the Hungary sovereign cds is soaring +11.0% to 719.19 bps and the Russia sovereign cds is gaining +3.76% to 280.33 bps. The Italian/German 10Y Yield Spread is flat at 501.51 bps(still near the highest since Dec. 1995). The Western Europe Sovereign CDS Index is still approaching its Dec. 15 all-time high. The TED spread continues to trend higher and is very near the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is very near the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is falling -1.7% to -105.23 bps, which is back to early-Nov. levels. The Libor-OIS spread is now at the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. Overall, European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand, which remains a large red flag. China Iron Ore Spot has plunged -23.3% since Sept. 7th of last year. Market volume remains poor, however market leading stocks are trading better today after recent underperformance. One of my longs, (AAPL), is helping to lift the Naz to the flatline. (AAPL) looks poised to test its all-time high over the coming weeks and should continue to outperform over the intermediate-term, as well. This Friday's jobs report is especially important given ongoing global economic weakness. US stocks can rally further in the short-term on more positive US economic data, but credit gauges in Europe must calm soon or equity weakness is likely. For a sustainable equity advance into the new year, I would still expect to see meaningful European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, global growth fears, rising energy prices, technical resistance, profit-taking and more shorting.

Today's Headlines

Bloomberg:

• Euro Weakens Amid View Crisis Is Worsening. The euro fell from almost a one-week high against the dollar after a European report showed inflation slowed and Italy’s biggest bank said it needs to raise more capital, fueling bets the region’s debt crisis is worsening. The 17-nation currency dropped toward an 11-year low against the yen after UniCredit (UCG) SpA’s plan to sell shares spurred concern European banks may struggle to raise more capital. The euro slid versus most major peers after El Pais newspaper said the Spanish government helped the Valencia region make an overdue payment to Deutsche Bank AG. The pound climbed to a 15-month high versus the shared currency. “Sentiment overall in the euro is still pretty negative,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “It does look as if Spain could be the problem child for Europe in the months ahead.”
• Financial, Corporate Bond Risk Rises, Credit-Default Swaps Show. The cost of insuring against default on European financial and corporate debt rose, according to traders of credit-default swaps. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers climbed 7.5 basis points to 272 and the subordinated index jumped 13 to 501, according to JPMorgan Chase & Co. at 9 a.m. in London. An increase signals deterioration in perceptions of credit quality. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings rose three basis points to 741.5. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings was two basis points higher at 171.25 basis points. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose two basis points to 362.5.
  
• Papademos Says Greece Faces Default in March Without Troika Deal. Greek Prime Minister Lucas Papademos told business and union leaders today that a disorderly default in March was possible if his government didn’t secure agreement with international creditors on a new economic plan. “In mid-January, talks begin with the troika which focus on shaping a credible economic adjustment plan for 2012 to 2015,” Papademos said, according to an e-mailed transcript of his statements. “The implementation of the agreement to reduce the debt and continuation of financing of the country depends on that. Without this agreement with the troika and subsequent financing, Greece in March faces the immediate risk of a disorderly default.”
  
• Forint Hits Record Low as Default Swaps Soar on IMF Aid Concern. The forint dropped to a record low against the euro and credit default swaps reached an all-time high after Citigroup Inc. said an International Monetary Fund deal is unlikely in the next six months. The forint fell to 321.1 against the European common currency at 5 p.m. in Budapest. The previous record was 317.92 on Nov. 14. The cost of insuring Hungarian bonds using credit- default swaps climbed to a record 708 basis points from 650 yesterday, data provider CMA said. A delay in the IMF talks may necessitate rate increases of as much as 300 basis points from the current 7 percent rate to defend the forint, Citigroup’s Gargyan said. Ten-year note yields (GHGB10YR) climbed 38 basis points to 10.75 percent, the highest since April 2009, extending the jump in the past three days to 85 basis points, according to generic prices compiled by Bloomberg.
• Spain May Request EU, IMF Loans to Help Banks, Expansion Says. Spanish Prime Minister Mariano Rajoy’s government is considering applying for loans from the European Union’s rescue fund and the International Monetary Fund to finance the restructuring of the country’s financial industry, Expansion reported, citing unidentified people with knowledge of the matter.
• Demand for Factory Goods Rises Most In 4 Months. The need to rebuild depleted inventories may supersede spending on business equipment as the catalyst propelling gains in U.S. manufacturing in early 2012. Orders (CGNOXAI%) for non-defense capital goods excluding aircraft, a measure of future corporate investment, dropped 1.2 percent in November, the biggest decline in 10 months, according to Commerce Department data today.
• China Cuts Television Programs That Contradict Hu's Party Line. China’s government said broadcasters must cut the number of entertainment shows during prime time by more than two-thirds, culling a format that exposed a widening wealth gap that contradicts the Communist Party’s core dogma. The total number of entertainment shows, including dating programs, game shows, talk shows and “emotional stories” airing from 7:30 p.m. to 10 p.m. was cut to 38 as of Jan. 1, from 126 at the end of last year, the official Xinhua News Agency reported late yesterday, citing the State Administration of Radio, Film and Television, or SARFT.

Wall Street Journal:

• Coal India Expects International Prices to Stabilize or Fall. Coal India Ltd., the world's largest producer of the fuel, expects international prices to remain stable or fall in the next six months due partly to sluggish domestic demand. However, any decline in international rates may not be reflected in Coal India's pricing because of the appreciating U.S. dollar, the state-run company's chairman Nirmal Chandra Jha said Wednesday.
• Hong Kong Banks Start Push to Create Yuan 'Libor'. Hong Kong's banking association this week began widely disseminating yuan-lending rates offered by three of the city's biggest banks to their peers, marking an important step toward the development of benchmark rates that could spur growth in the market for offshore yuan loans.
• Kodak Preparing for Chapter 11 Filing.
• Romney Turns Focus to New Hampshire. The Republican race for president moved to New Hampshire Wednesday with one fewer contender as Minnesota Rep. Michele Bachmann dropped her bid after a dismal finish in Iowa.
• Chrysler's Sales Jump as Industry Posts Solid Gains. Auto makers capped 2011 with a strong December and forecast the recovery in U.S. sales would intensify as long as a stabilizing economy and improved job gains continue to encourage shoppers. All three Detroit auto makers reported increases in vehicle sales for December, with Chrysler Group LLC posting a 37% rise, Ford Motor Co. a gain of 10%, and General Motors Co. up 4.6%. For the full year, Chrysler's sales rose 26%, Ford's 11% and GM's 13%.

Fox News:

• President Obama to Appoint Consumer Watchdog While Congress Is Out of Town. President Obama will appoint Richard Cordray to be head of a controversial consumer consumer financial protection agency despite the fact that Congress is not officially in recess. The Constitution does not expressly forbid such an appointment, which would technically come as an intrasession posting. But the defiant move is sure to raise questions of executive power and whether the administration is overstepping its authority. the move outraged Republican lawmakers. "This is a very grave decision by this heavy-handed, autocratic White House," said Sen. orrin Hatch, R-Utah. "Circumventing the Senate and tossing out decades of precedent to appoint an unaccountable czar to appease its liberal base is beneath the Office of the President." House Speaker John Boehner called it "an extraordinary and entirely unprecedented power grab by President Obama that defies centuries of practice and the legal advice of his own Justice Department." But Democrats praised the president's bravado.

CNBC.com:

• European Banks Hoard Record $591 Billion at ECB. Commercial banks' overnight deposits at the European Central Bank hit a new record high of 453 billion euros ($591 billion), data showed on Wednesday, underscoring the ongoing fear banks have about lending to each other in the current debt crisis.
• Mortgage Demand Fell at Year-End, Purchases Sag: MBA. Demand for loans to buy homes and refinance mortgages slid in the final week of 2011, even as mortgage rates dipped, an industry group said on Wednesday. Applications for U.S. home mortgages fell 4.1 percent in the week ended Dec. 30, weighed down by a 9.6 percent drop in purchase loan requests and a 2.5 percent decline in refinancing requests, seasonally adjusted data from the Mortgage Bankers Association showed.
• Germany and France Eye the End of Triple-A Era.
• 'True Revolution' Ahead for US Fiscal Future: Greenspan. The United States faces a "true revolution" in the choices it will have to make to secure its fiscal future now that the welfare state has run up against a "brick wall of economic reality," former Federal Reserve Chairman Alan Greenspan said Wednesday.

Zero Hedge:

• 2011's Hedge Fund Winners and Losers.
• The Pain in Spain in Charts.
• European Credit Markets Tanking Ahead Of Key Issuance Day.
  

Seeking Alpha:

• Hedge Funds Are Buying These 11 Highly-Shorted, Oversold Stocks.

CNN:

• Syrian Rebels Eye 'Huge Operations'. The Free Syrian Army plans to kick off "huge operations" this week against "vital interests" of President Bashar al-Assad's regime, the force's commander said Wednesday. "We prepared ourselves for this stage," Col. Riad al-Asaad told CNN in Turkey. "We can't force him off with the peaceful demonstrations, so we are going to force him by arms to leave."
• Europe's Ticking Time Bomb: Credit Default Swaps. In the midst of the eurozone meltdown, a new crisis has gone unnoticed: a shaky derivatives market.

DealReporter:

• Obama's Financial Fraud Enforcement Task Force to investigate for-profit education, identify theft, issues around third-party payment processors, citing an interview with Michael Bresnick, new executive director of the task force.

Reuters:

• Gold Jumps After Preliminary EU Deal On Iran Oil Ban. Gold was set for its strongest two-day rally in 2-1/2 months on Wednesday after an agreement in principle among European leaders to ban Iranian oil imports boosted the crude price and catapulted bullion to two-week highs. European Union governments reached a preliminary agreement to ban imports of Iranian crude but have yet to decide when such an embargo would be put in place, EU diplomats said on Wednesday.
• China Shares Off to Weak 2012 Start, Shanghai Dips Below 2,200. China shares started the new year weaker on Wednesday, dragged down by more cyclical sectors after the Chinese premier warned of difficult economic conditions in the first quarter, hinting there will not be another massive fiscal stimulus programme. The Shanghai Composite Index closed down 1.4 percent at 2,169.4 points, again slipping below a long-term resistance level seen at 2,200 in weak A-share turnover.
• Copper Drops on Euro Zone Debt Worries.

Financial Times:

• China Moves to Foster Short-Selling. China’s latest attempt to allow fund managers to short stocks while other countries are grappling with their more negative aspects underscores Beijing’s desire to further develop its capital markets and foster its domestic asset management industry.

Handelsblatt:

• The fear of recession is growing in the European Union, citing an interview with Germany's Economy Minister Philipp Roesler. Roesler said the worsening economic situation in Europe will likely be reflected in the German government's annual economy report due to be published later this month.
• German banks are hesitant to fund energy projects including offshore wind parks and power plants fired with gas turbines, as the European debt crisis complicates rules to finance large, long-running projects, citing experts including Thomas Kresser, finance chief of Alstom SA in Germany.
  

Xinhua:

• More Trade Friction Expected As Protectionism Surges. Chinese exporters are likely to encounter more trade barriers in 2012 as trade protectionism resurges globally against the backdrop of a volatile recovery, the Ministry of Commerce (MOC) said Wednesday. Trade protectionism in developed nations has far exceeded the level seen at the beginning of 2009, following the onset of the global financial crisis in 2008, the MOC's Bureau of Fair Trade for Imports and Exports said. In developing economies, some industries that are traditionally inclined toward trade protectionism have begun to ask for government intervention to restrict foreign capital and products, an official with the bureau said on condition of anonymity. "Trade restrictions will increase further in 2012," the official said. The statement came after MOC data showed that China suffered rising trade friction last year. The country faced 67 trade investigations in 2011, involving 5.9 billion U.S. dollars. Both the number of the investigations and value involved were at high levels, the official said, adding that most cases touched upon the country's steel industry, as well as mechanical and electrical products.

Shanghai Daily:

• New Housing Sales in Shanghai Fall to 6-Year Low. NEW home sales in Shanghai last year fell to the lowest in six years despite a rebound in December while the average price continued to climb. The sales of new homes, excluding government-funded affordable housing, totaled 7.3 million square meters across the city last year, an annual drop of 22.2 percent, according to a research released yesterday by Shanghai Deovolente Realty Co. But the average price rose 2.1 percent from a year earlier to 22,012 yuan (US$3,494) per square meter, extending its increase for the sixth straight year.
  

Bear Radar

Style Underperformer:

• Small-Cap Growth (-.80%)

Sector Underperformers:

• 1) Networking -2.70% 2) Hospitals -1.80% 3) REITs -1.22%

Stocks Falling on Unusual Volume:

• PRGS, INFA, CAKE, THRX, YOKU, CRM, TGT, NIHD, LOOP, BSFT, NATI, APKT, FCFS, OPNT, EBAY, WRLD, CSGP, NTCT, PRAA, ADTN, SHPGY, PNFP, FIRE, TRMB, ANDE, PEET, VTR, NST, MA, GBX, AN and OPNT
  

Stocks With Unusual Put Option Activity:

• 1) KSS 2) REE 3) CSC 4) JCP 5) TGT
  

Stocks With Most Negative News Mentions:

• 1) APKT 2) UNP 3) MA 4) JKHY 5) SHLD
  

Charts:

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

Bull Radar

Style Outperformer:

• Large-Cap Growth (-.40%)

Sector Outperformers:

• 1) Restaurants +1.37% 2) Steel +.03% 3) Telecom -.01%

Stocks Rising on Unusual Volume:

• TTM, BMA, TEO, LULU, DMND, SODA, SBS, GDP, FTK, GDP and ITMN
  

Stocks With Unusual Call Option Activity:

• 1) IAG 2) HTZ 3) EXPE 4) AMRN 5) ILMN
  

Stocks With Most Positive News Mentions:

• 1) DNKN 2) NOC 3) CF 4) CTXS 5) GD
  

Charts:

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